October 4, 2022

Google Chromecast Is 2013’s Smash Hit Electronic Wonder

 

Google has done it again with the release of the Google Chromecast streaming media player.

It wasn’t enough that Google (GOOG) developed and offered for free the Android operating system.  As an open source OS, Android quickly became the world’s most widely used smartphone platform.  Due to its low cost and flexibility, Android is also becoming the software of choice for a wide range of other electronic devices including televisions, video games and digital cameras.   

Google has quietly been coming out with a string of ingenious devices which will bring fundamental changes to the economy and revolutionize the way we live.  Who would have thought that Google would make a self-driving car a reality so quickly or allow us to merge our lives with the internet with Google Glass?

Although the Chromecast  HDMI streaming media player does not seem like that big of a deal compared to other ingenious Google products, it threatens to fundamentally change the multi-billion dollar cable industry, perhaps in the same dramatic fashion that Apple’s IPod changed the music industry.  As media inexorably moves to the internet, who needs the expensive and clunky cable companies with their hideous black cords running all over the house when you can wirelessly connect your TV to the internet with Chromecast?  High monthly cable bills could become a thing of the past.

For only $35 dollars and two minutes of installation time, Chromecast  uses your smartphone, laptop or tablet to stream pretty much anything  you want from the internet to your TV.  As word of Chromecast spreads, it has quickly sold out at major retailers such as Best Buy and Amazon. 

If you use Netflix (NFLX) or want to sign up for Netflix the Chromecast is essentially a free giveaway to consumers since existing or new Netflix customers will receive three months of free service which is worth about $35.

Google is quietly establishing itself as one of the most innovative companies in the world.  It’s hammer lock on internet searches provides billions of dollars in profits that are being used to develop new products and technologies which in turn provide Google with massive amounts of information on consumer preferences and buying habits.  The massive data bases gathered on consumers using Google products in turn allows Google to charge advertisers higher ad prices through focused marketing and the profitable circle is completed.  If anyone is looking for the first trillion dollar market cap stock, Google is a prime candidate.

SELL EVERYTHING NOW! – How To Avoid Idiots Masquerading As Financial Experts

From mid November 2012 to February 19th, 2013, the Dow Jones Industrial average gained 1,400 points for a gain of almost 12%.  On February 20 and 21, the Dow Jones swooned a quick 200 points, a loss of less that 2%.  Such a minor pullback after a robust multi month rally is not what I would consider to be a shocking or unexpected event.

Nonetheless, innumerable articles predicting financial Armageddon have appeared in the mainstream financial press following the market’s minor correction.  Has the world really changed all that much after a 200 point Dow loss or is there something fundamentally flawed with the manner in which the financial press presents information to its readers?

News organizations have the right to publish whatever they chose to.  The question that needs to be asked by the investing public is whose interests are best being served.  Do sensationalistic headlines really translate into useful information for readers or is the mainstream press primarily serving its own financial interests by publishing hyped up “news” to boost advertising revenue?  Caveat emptor – financial readers need to identify and ignore trash journalism.

Here’s the example of the week on the type of “trash reporting” that investors need to ignore.  So called “market guru” Dennis Gartman tells his subscribers that he is selling and “rushing to the sidelines.”  CNBC regularly interviews Gartman who always comes up with wonderful soundbites that help CNBC (whose ratings have plunged).  Gartman also benefits by plugging his market newsletter.  No problem so far, but does the declining audience of CNBC benefit, most of whom presumably tune in for intelligent investment advice?

In Gartman’s case, it’s easy to determine the value of his investment prowess since Mr. Gartman runs his own little alternative investment fund known as Horizons Gartman ETF Comm (HAG.TO).  According to Yahoo, “The fund’s objective is to provide investors with the opportunity for capital appreciation through exposure to the investment strategies of The Gartman Letter, L.C., founded by Dennis Gartman.”  So how has that worked out?

The horrendous return on this fund becomes even more disconcerting when considering that the overall market is up around 100% since Mr. Gartman started the fund in late 2009, shortly after the bottom of the last bear market.  When CNBC features Mr. Gartman as an investment expert without noting his abysmal investment track record, they are engaging in the worst form of deception.  If CNBC ever wants to be taken seriously and increase its viewership level, they should start by removing idiots like Gartman from their interview list.

Barron’s Super Bullish Cover Story – Don’t Waste Your Time Worrying About It

Barron’s super bullish cover story this weekend raised some eyebrows in the investment world.  According to popular legend, mass market magazines in the past have had a tendency to feature investment areas right at their peaks.  The alleged power of cover stories to signal tops in markets has even resulted in the “magazine cover indicator.”

Perhaps the most famous example of the “magazine cover indicator” was Business Week’s “Death of Equities” cover story in 1979 just prior to the beginning of the biggest and longest bull market in history.  The theory is that by the time a trend makes it to the front pages, the smart money has already gotten in and there is little to be gained by following the herd at that point.  Life is not that simple, however, and the “magazine cover indicator” doesn’t always work.  After making a really bad call on stocks in 1979, Business Week warned investors in January 2008 that the worst was yet to come for housing with the cover story “Meltdown – For Housing the Worst Is Yet To Come.”

So what is an investor supposed to think of Barron’s super bullish cover story on stocks?

Josh Brown of the Reformed Broker notes that Barron’s has frequently been right with it’s cover stories and that knee jerk reactions by websites trying to hype the story to increase clicks wind up doing their readers more harm than good.  Hard to argue with Brown’s common sense and balanced advice:

Welcome to the stock market circa 2013, where everyone is a contrarian mastermind and every piece of optimism is an automatic sell signal.

Everyone’s soooo clever with their magazine cover indicators. They saw the Barron’s cover from this Saturday and couldn’t wait to mock it, it’s almost like a reflex at this point. Anyway, here’s the “Kiss of Death” everyone’s carrying on about this weekend:

So here’s the deal, maybe this is the market top. Maybe we don’t quite make that new high above 14,165 on the Dow or worse – maybe we hit it and then crater. Who knows?

But I do know this…if it falls apart, it will have nothing to do with a Barron’s cover. After all, how would you have liked being short any of the below?

How about fading that 9/3/2012 cover below with the Bull bouncing a cannonball off his chest, everyone thought that one was laughably bullish…what are we up, 20% plus from there? More?

Or what about the now-infamous “Bye Bye Bear” cover from November 2010, how’d the other side of that trade work out for you?

Or what about the Buy Goldman cover from last October? That was  hilarious too, hope you didn’t automatically bet against it!

Or how about the “Time To Buy” Banks cover from the end of 2011? Seemed ridiculous with BofA and Morgan Stanley moments from succumbing to mortgage litigation and Euro exposure. God help you if you shorted that cover, most of the large cap banks mentioned went on to double over the next year while the sector itself went on to beat every other in the S&P with a 27% gain. They’d be scraping your too-clever ass off the sidewalk right about now.

At the other extreme, we get the hysterical conclusion from Global Economic Analysis that Barron’s has managed to mark the exact top of the bull market.  After some snarky commentary on Barron’s “faulty” use of the term money flow in explaining how investors are moving from bonds to stocks, the conclusion is made that it’s time to ditch stocks.

Third let me ask “Does it get any more extreme than someone calling this the first inning after stocks have had more than a 100% rally in a few years?

Supposedly we are only in “the first inning” of a rally. Hmm. Are stocks supposed to rise 900% more? This may not be “the top” but it’s close enough for me. I’m calling it.

So there you have it – this is a market top or maybe it’s not a market top.  The only conclusion one should draw from this is that anyone making investment decisions based on magazine covers should not be investing and deserves to lose money.  Instead of worrying about magazine covers, a sophisticated long term investor would be much better off reading the annual letter to shareholders from Warren Buffett.

Why Amazon Gained 380% And Hewlett-Packard Lost 42% In The Past Five Years

Hewlett-Packard Company (HPQ), one of the greatest success stories of American enterprise, seems to have lost its magic.  Superb management and great products resulted in HPQ’s stock rising relentlessly from the mid 1960’s through early 2000 when the stock traded in the $70 range.  After 12 long years, HPQ’s stock trades for a third of its value, closing today at $23.46.

HPQ - courtesy yahoo.com

Meanwhile, Amazon (AMZN), under the brilliant leadership of Jeffrey Bezos, has seen its stock price almost double since 2000.  Over the past five years, Amazon’s stock price has risen by 380% while Hewlett-Packard’s has declined by 42%.

AMZN - courtesy yahoo.com

The rise of Amazon and the fall of Hewlett-Packard involve many complex factors, but one critical area where Amazon absolutely scorches Hewlett-Packard is in customer fulfillment, an essential aspect of e-commerce.

AMZN VS HPQ - COURTESY YAHOO.COM

Two years ago I purchased a Hewlett-Packard laptop on which the battery suddenly went dead.  How hard can it be to order a replacement battery for a HP computer from the HP website?  Harder than you can imagine. Here are the results after typing in the information on my computer into the HP search box.

Search HP

for products, services, drivers, support, news and information
No results found for battery for model dv4-2145dx. Please try again.
No results found for replacement battery for model dv4-2145dx. Please try again.

Numerous other queries brought up useless information and links to unrelated topics.  Should it be that difficult and annoying to purchase a replacement battery for an HP computer from the HP website?

On the Amazon website, the query “replacement battery for model dv4-2145dx” instantly  brought up 2 pages of results for the exact item I needed.  Ordering the product took less than 60 seconds and a scheduled delivery time of two days.

Buy on the bad news?

It was difficult to tell today if the late Monday afternoon rally that brought the Dow back almost 400 points off the lows of the day was due to program trades or real buyers “buying on the bad news”.  If the buying was from bargain hunters brave enough to commit their capital on bad news, they certainly had a lot of reasons to buy.  In fact, if there are enough investors willing to “buy on the bad news” that read the Wall Street Journal, then we should be looking at a 5,000 point rally.  Some selected Journal excerpts follow.

Stemming the Crimson Tide

The credit freeze turns into a full-blown panic; no one wants to lend to anyone including interbank lending;  over $4 trillion in banks held by uninsured (and nervous) depositors; no easy solution to a massively over leveraged global financial system; Wachovia debacle does not inspire confidence in government’s efforts.

Iceland Risks Bankruptcy, Leader Says

Island nation cut off from global financial system as government prepares to takes over nation’s banks; tiny country’s bank assets are 10 times the economic output of the nation of 300,000; krona off 40% this year against euro and inflation is 14%.

My Comment: Iceland is bankrupt already, they simply haven’t filed the papers yet. Iceland has no capacity to bail out their banks; the real question is who will bail Iceland out?  I guess no one saw any problem with a couple of banks increasing their assets to 10 times the size of Iceland’s entire economy.

Long-Term Bond Markets Dry Up

The highest credit rated companies are shut out of the long-term credit markets; “credit is all but shutdown” said William Bellamy, direct of fixed income; CDS protection on $10 million of investment grade debt now cost $185,000 vs. a $40,000 per the credit crunch

Bofa Cuts Dividend, Posts Lower Profit

Per CEO  Ken Lewis, “It’s a damn disaster…These are the most difficult times for financial institutions that I have experienced in my 39 years in banking.”

My Comment: Dividend cut saves Bofa $5.6 billion per year which is $5.6 billion less to be spent by investors (consumers) and $5.6 billion less to be taxed by the government.

Mall Vacancies Grow as Retailers Pack Up Shop

Mall vacancies see highest rate since 2001; shopping center vacancies highest since 1994; landlords are giving breaks to tenants to try and keep them from leaving.

My Comment:  Landlords have to give big concessions to keep tenants; lower rents result in lower cash flow and more defaults on commercial loans; commercial loans next big nightmare for the banks.  Despite markdowns of up to 60%, consumer keep their wallets shut (Big Discounts Fail to Lure Shoppers) as credit card companies decrease or close down credit lines in a self defeating cycle.  The consumer was tapped out before the credit crisis, living off of credit cards and home equity lines of credit; sounds like another massive government rebate program is on the way.

If further reasons are necessary to buy this “market bottom” on the “bad news”, just pick up tomorrow’s Wall Street Journal.

General Electric’s tactics incite panic

General Electric’s plan to raise $12 billion in capital via a common stock offering and a $3 billion sale of preferred stock to Warren Buffet normally would seem to be a prudent move to raise liquidity in a very uncertain economic environment.  Instead investors reacted by treating GE to a 10% loss on the day, ranking GE as the largest loser of the 30 Dow Jones stocks.

Such is the state of panic that the market is in when one of the few companies left with a triple A credit rating is viewed with suspicion.  It was very easy, however,  to conclude that something is quite wrong with the massive $700 billion GE Capital loan portfolio if GE had to pay an almost sub prime type rate of 10% on the preferred stock sale and, in addition, sell $12 billion of stock when the stock is trading at almost a 10 year low.   Making the stock sale look even more urgent is the painful fact that GE has been buying in stock for years at considerably higher prices than they are now selling it for.   Also, if GE really had no trouble raising money in the commerical paper market at 3.5%,  why would you borrow at much higher rates??  With two recent earnings warnings, one has to wonder exactly what is in the $700 billion loan portfolio, how much of it is lent long with borrowed short term funds and what type of losses will ultimately be incurred.

It is statistically stupid to conclude that Warren Buffet is not making another smart investment assuming that, as in the past, this financial panic will end and those buying now will be greatly rewarded with gains in the future.   My take is that there will be greater bargains and a better time to buy for the patient investor – maybe that day will be when we see a cover story from a national news media proclaiming the “death of equities”.

Insurance Industry Meltdown Continues

Insurance company stocks again suffered major losses today, with MET down 15%, PRU down 11% and HIG down a stunning 32%.   The Wall Street Journal reported on the various reasons for the continuing sell off including the poorly timed comment by Senator Reid that “someone in the Democratic caucus had said a major insurance company, “one with a name that everyone knows,” was on the verge of bankruptcy.”  A spokesman for his office later attempted to soften the statement but the damage was done.

The market value loss today on these three major US insurance companies totaled almost $12 billion and the total market cap loss from the 52 week highs on MET, PRU and HIG total a stunning $61 billion.   The horrific asset value losses being seen on virtually every asset class will have a devastating negative wealth affect on consumer spending which will in turn lead to major job losses as virtually every industry in the country experiences lower demand; this cycle is of course self reinforcing.

The Wall Street Journal also reported all three companies stating that their business was basically sound and that capital levels were fine.

On Thursday, MetLife said it had terminated some reinsurance contracts, so it will get back by late January $600 million in premiums it had paid. The company said the move had nothing to do with capital considerations.

All three firms distanced themselves from Sen. Reid’s remark Wednesday. Hartford also said the firm’s “liquidity remains strong.” MetLife said the company “is financially sound.” A Prudential spokesman said it has “a lot of cash at the parent-company level.”

My take on this is that things are obviously not fine but at a critical stage since insurance companies, as with banks, rely on confidence and right now there is a crisis of confidence.   After the AIG debacle, which occurred despite many assurances of financial health from the company before it imploded, investors are obviously giving little credence to assurances of any kind, especially when it is not possible to know what type of exotic financial timebombs (CDS, etc) that may be lurking in the portfolios.

In the past, this type of panic sell off would have provided an incredible buying opportunity for these three great American financial institutions, and this may indeed turn out to be the case.  My advice – wait and see who survives since trying to buy any selloffs in this bear market has more often than not produced some very fast losses.

Next Bailout – Insurance Industry?

Insurance company stocks continued their brutal decline today as questions continued over capital adequacy, credit downgrades, uncertainty on future portfolio write-downs, potential cash calls on CDS obligations and investor disbelief over company statements that all is well.   As noted yesterday, HIG’s stock imploded along with the rest of the industry and I stated that they should come out with very decisive action to stop the vicious downward cycle of stock declines; which is exactly what GE did today by raising cash that they said they really didn’t need.

HIG issued a relatively neutral statement saying that all was well and it’s stock continued to decline.  I don’t think investors will be putting much credence in company statements of assurance after the AIG meltdown where everything was fine until one day it wasn’t and they needed $85 billion and lights out.   With a crisis of confidence, any company that has generated questions on its financial soundness needs to respond immediately before the market makes its own harsh decision.

The insurance industry is in many ways more important to our economy than the banking system; they should take immediate action to  strengthen their balance sheets to ride out this financial crisis.

STOCK CLOSED CHANGE %CHANGE
MET 48.15 10/1/2008 -7.85 -14.00
GNW 7.36 10/1/2008 -1.25 -14.50
ALL 44.00 10/1/2008 -2.12 -4.60
CB 51.55 10/1/2008 -3.35 -6.10
PRU 64.80 10/1/2008 -7.20 -10.00
HIG 38.11 10/1/2008 -2.88 -7.00

HIG Implodes

After the recent implosion of AIG due in large part to their massive credit default swap positions on sub-prime mortgages, investors did not need much encouragement to sell HIG after it disclosed having CDS exposure on AIG debt.  This, along with disclosure of holding debt securities of LEH, AIG and WM in their asset portfolio as well as a possible credit downgrade was enough to cause a brutal 20 point sell off at one point, for an intraday loss of $6 billion dollars.

HIG recovered half of this loss by day’s end but still ended down 18% and the cost of buying insurance on HIG’s debt jumped by over 40%.  We have seen this type of horror show too many times this year.   Management should immediately take steps to raise capital, reduce the dividend and make full disclosure of what CDS exposure they have, before rumors become more important than the facts.  It is interesting to note that despite the brutal sell off of many insurance companies this year and the fast collapse of AIG, the SEC did not place HIG on their restricted short sale list.