October 28, 2015

Investing Technicals vs Fundamentals with Twitter

Technicals vs. fundamentals" is an age old argument.

While I use technical analysis sparsely (and facetiously call it "voodoo"), I appreciate that others use it as a predominant form of trading and investing.

I'm respectful of this and admire it when they succeed -- but "it's not for me," as Grandma Koufax used to say.

A good case in point is my take on Twitter. Morgan Stanley downgraded TWTR to Underweight...., and the shares are likely to take a small hit as a result.

But Bob Lang, one of RealMoneyPro's technically oriented contributors, wrote earlier this week that he liked Twitter's chart and was buying the December $30 calls for about $3.25.

As Bob noted: "For the better part of 2015, Twitter has been a name to avoid, showing massive amounts of negative flow indicative of institutional distribution." That's very correct, in my view.

But Bob also said: "With positive earnings and seasonal strength, we could see Twitter finally get back to the mid $40s by year-end." While I wish that were true, I feel it's unlikely.

So, as I've previously noted, I've been reducing some of my Twitter exposure.

Basically, I saw Twitter as getting a strong, temporary bounce and becoming overbought on the news of Jack Dorsey as new CEO and ex-CEO Steve Ballmer of Microsoft becoming a major investor.

But after those swift rallies, Twitter now faces some heavy lifting to turn around monthly average users, sales, profits and cash flow. This will take several quarters.

So, Bob got me to thinking: "Why not take the other side of his trade and write the same calls against my holdings?" Which I did at $3.20 to $3.30.

Bob saw an opportunity based on the charts to buy Twitter calls, and I saw an opportunity based on my views to sell Twitter calls. This respectful difference of opinion highlights how a technical analyst and fundamental analyst see things differently.

Stay tuned for the results of this "Technicals vs. Fundamentals" debate. We'll only need two months to see which view was correct in this case.

Note: I've maintained TWTR on my Best Ideas list because I believe that in the fullness of time, the company will execute its strategy properly and take advantage of the extraordinary opportunities that the Twitter platform provides.

Position: Long TWTR (small), Short TWTR calls 


October 26, 2015

1 year stock market risk vs reward unattractive

After six years of the Federal Reserve's Quantitative Easing and Zero Interest Rate Policy, the global economy is still in a condition that precludes a meager 25-basis-point rise to the fed funds rates. What does it say about the foundation of future U.S. economic growth when a zero-bound rate setting is failing to generate self-sustaining growth and escape velocity?

.... you might conclude that:

-    The outlook for our global equity markets is "FUBAR"
-    The consensus estimates for worldwide economic growth and profits are inflated
-    Valuations and market levels are overpriced

The markets, to quote my Grandma Koufax, are "in a (sour) pickle from Katz's Delicatessen on Houston Street" as the chasm between asset prices and the real economy grows ever wider.

The global economy and the markets have never faced such a wide array of possible outcomes, many of which are adverse. Yet market participants seem afflicted with a loss of memory and the belief that only positive outcomes stand to survive.

My Malthusian view seems justified based on the ever-weakening and wobbly global economic outlook and markets' still-elevated valuations. And I see an unattractive risk-vs.-reward quotient in the U.S. stock market over the next 12 months.

via http://www.thestreet.com/story/13332868/2/it-s-back-to-the-future-day-and-wall-street-is-still-overpriced.html

October 20, 2015

Bill Miller vs Doug Kass

T. Rowe Price's Brian Rogers and former Legg Mason executive Bill Miller -- whom I call "The Sunshine Boys" because it seems like they never met a market that they didn't like -- were on CNBC's Squawk Box this morning.

I debated Bill back in 2007 on the subject of the mortgage market's government-sponsored enterprises (Fannie Mae and Freddie Mac). He owned tons of housing-related shares and I was short (large). The rest is history.

This morning, Miller and Rogers were -- not surprisingly -- huge bulls. I just don't understand how one can be so self-confident given that there are so many possible economic, profit and market outcomes (many of them adverse).

The chasm between the real economy and financial-asset prices has never been so wide. Don't earnings per share have to catch up to valuations? The consensus 2015 EPS for the S&P 500 a year ago was $135 a share, but Goldman Sachs is now estimating $110 a share. 

Why should we be comfortable with the 2016 consensus of 10% growth if Wall Street's 2015 projections were so far off of the mark? How can you be confident when S&P 500 earnings estimates have dropped so steeply over the past year?

October 19, 2015

Twitter still on Best Ideas list

I'm taking off some of my Twitter long position now at $30.90 in light of the alleged Steve Ballmer/TWTR " news."

It seems reasonable to be conservative and to take some money off of the table given the way that news of the former Microsoft chief's allegedly substantial investment in TWTR reached the market (a supposed tweet from Ballmer himself).

Twitter was my "Long Trade of the Week" on Monday at $29 a share, so that turned out to be a good trade.

And I'm still maintaining the stock on my Best Ideas list.

Position: Long TWTR

via thestreet

October 12, 2015

Selling Wells Fargo shares high valuation

I've previously sold the trading portions of my money-center-bank positions while maintaining my core investment holdings in the group.

Well, in light of my negative market view and recent sale of select financials (Oaktree Capital , Goldman Sachs, Morgan Stanley, etc.), I'm making a sacrifice to the bank gods and selling my entire Wells Fargo  stake.

WFC's valuation is high relative to the group, and I believe its earnings are exposed to disappointment relative to consensus over the next year if the U.S. housing market contracts (as I expect.)

Moreover, persistent low rates disfavor any real recovery in net interest and net income at banks like Wells Fargo, which have large imbalances of rate-sensitive assets vs. rate-sensitive liabilities.

As a result, I expect WFC's year-over-year earnings-per-share growth for 2016 vs. 2015 to hit the low single digits in percentage terms, below the +7% to +8% consensus.

That said, I expect to continue to hold onto my other core money-center and regional-bank stocks. Indeed, I'll buy more Bank of America, Citigroup or JPMorgan Chase on any drops of 5% or so.



October 7, 2015

Will Fed ease or tighten

I've often described the market as being without memory from day to day.

Well, maybe the Federal Reserve has the same problem.

Not long ago, the Fed left interest rates unchanged. But during a news conference following that decision, Fed Chair Janet Yellen didn't totally dismiss the possibility of more quantitative easing or rule out negative interest rates (although she said the central bank hadn't discussed it).

Since then, we've heard several "Fed heads" say that they're still looking to raise rates this year.

Didn't they hear themselves (through Yellen) only days before talking gloomy, gloomy, gloomy? IMF chief Christine Lagarde chimed on this theme in today as well.

I for one don't believe even the Fed knows what it will do. I sure don't, so why would anyone risk serious and hard-earned capital during this uncertain period?

As I said, it seems to me that not only does the market and traders/investors have no memory from day to day, but so does our own Fed.

October 5, 2015

Sometimes doing nothing is better than doing something

Repeating for emphasis: Most players should sit on their hands and let the market's testing process complete itself.

Frenetic and daily trading is not for most people. As I've written previously, it requires and emotionless and detached sensibility and a willingness to be a contrarian -- buying during periods of meaningful pressure and selling or shorting when the market is ebullient.

A basic tenet is to ignore the business media, particularly those "experts" that are self-confident in view despite the possibility of numerous different outcomes and a heck of a lot of uncertainty. Instead, you must remain independent and flexible in view.