Earnings Season Hits Its Peak, High Frequency Trading, MF Global, and More

Earnings season rolls on and this one is a massive week for reporting companies. In nearly every industry in the economy, publicly traded enterprises will declare their results, either beating, meeting, or failing their guided estimates. The game of whisper number and buy the rumor, sell the news is long established and continues in full force. High frequency, momentum traders only make the problem worse. Many long time, great investors, like Barton Biggs of Traxis Global Partners and formerly the chief strategist of Morgan Stanley, believe high frequency traders are putting the future of the equity business in harm’s way. Certainly, the volatility in global stock markets over the last 3-5 years don’t make reasonable people want to invest in stocks. It is a shame, also an opportunity, but it certainly should draw more attention of regulators to investigate the HFT traders and their effect on markets. I know that Congress has been hearing testimony on the issue so we will see how it plays out. It is hard to believe that Jon Corzine, ex-New Jersey governor and Goldman Sachs investment banker, would be leading the firm that made every attempt to buy all the sovereign debt of the PIGS nations (Portugal, Italy, Greece, and Spain). Well, it does not look like it is going to turn out very well for MF Global-http://www.bloomberg.com/news/2011-10-29/mf-global-s-board-said-to-be-meeting-today-to-discuss-selling-the-company.html A great interview on enterpreneurship from the CEO of ACS, a subsidiary of Xerox- http://www.nytimes.com/2011/10/30/business/lynn-blodgett-of-acs-on-entrepreneurship-in-a-big-company.html?ref=business Dropbox is a heck of a service, and here is an interview from the founder-http://techcrunch.com/2011/10/30/founder-stories-drew-houston-dropbox-users-save-a-billion-files-every-three-days/ As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder. Yale Bock, CFA

Earnings Season Ramps Up, Altucher on Connecting, Buffet's BYD, and Credit Default Swaps Causing More Trouble!

Last week began the start of the earnings parade and we have seen a few 'surprises', like Apple and IBM missing, and the money center banks using a "unique" accounting rule to post profits. Investors will see a flood of earnings reports this week, and last week the market rallied on the idea that the situation in Europe may get handled with less paid than originally thought. We will see about that, in time. Just as important, the macroeconomic statistics in the United States are making investors slowly come to the realization the economy is not going to go into a double dip recession. GDP growth is slow, 1-3% is the range we have been stuck in for the last few years, and I would imagine that continues. Profits are unique to each publicly held company and their industry and strategy, but they are generally very strong. The volatility in the commodities complex makes those industries which have cost structures tied to a spe cific commodity harder to manage, so hedging costs and interest rate risks (See the Dexia example below) becomes incredibly important to protect profitability. Should be an interesting week and if you have a comment, please chime in!!! James Altucher adds his opinion on connecting for success-http://techcrunch.com/2011/10/23/9-skills-super-connector/ Mr. Buffett's BYD opens in Los Angeles-http://www.bloomberg.com/news/2011-10-23/buffett-s-chinese-car-investment-fails-to-bring-los-angeles-promised-jobs.html Credit default swaps lead to Dexia's undoing- because of interest rates going down (imagine that)- http://www.nytimes.com/2011/10/23/business/dexias-collapse-in-europe-points-to-global-risks.html?_r=1&hp As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder. Yale Bock, CFA

Preview of Next Week: Banks, Protesting Wall Street, and Examples of Innovation

It is a common refrain 'The more things change, the more they stay the same.' Last week, the investment world, a fickle bunch to say the least, decided maybe the Euro currency is going to be saved after all and decided it was "risk on". A month ago, and for the last five months, it has been "risk off" in stock markets all over the world. Does this mean the Euro will be saved? Maybe, and much depends on the next few weeks and the negotiations between large government leaders, institutions like the IMF, and large European investment banks- especially in Germany and France (think Deutsche Bank, Society Generale, etc). Time will tell, but we probably are getting down to the end game over the next few months- Greece either defaults or it doesn't, banks take a bigger haircut than 20% or they don't, and other countries decide to help the situation with capital or they don't. This week brings a big hurdle in that the investment and commercial banks report earnings. Wells Fargo, Bank of America, Goldman Sachs, and Morgan Stanley- over the last five to ten years these have been disasters- if they don't stink the investment landscape up with big write offs, trading losses, and warnings about exposure in Europe, maybe the market won't turn manic again. Not expecting too much from the financials- either is the whole world. I wonder if the protesters on wall street ever thought about how people get funding for new drugs, new companies, or hedge currency exposures- probably not, huh? Nice article on MRI's on Smartphones-http://www.nytimes.com/2011/10/16/business/medical-apps-to-assist-with-diagnoses-cleared-by-fda.html?_r=1&ref=business More innovation- taking notes just became much easier- http://www.bloomberg.com/news/2011-10-14/livescribe-s-jim-marggraff-pushes-a-pen-based-computing-revival.html I don't necessarily agree with the entire article, but here is an editoriial saying now is a great time to buy a house- hard to argue financing is as cheap as it will ever be-http://online.wsj.com/article/SB10001424052970204774604576629443313035736.html?mod=WSJ_hpp_MIDDLE_Video_Top As always, on any company mentioned here, past performance is not a guarantee of future returns. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder. Yale Bock, CFA

The Problems in Europe Come to A Head, and Morgan Stanley's Bet on Russian Farms

In my October newsletter, I wrote that Germany and France have a huge incentive to not let the Euro blow up. Today, two large European banks warned investors of problems, Deutsche Bank and Dexia, a large French and Belgian bank. The French and Belgian governments or going to support Dexia with capital, and Deutsche Bank is massive with lots of capital. However, as I have stated repeatedly, the Eurozone issue will get resolved one way or another, and market participants are driving the issue. In the meantime, the stock market in the US keeps getting cheaper, but ultimately once the Europe issue gets resolved, and it is taking forever because of somnambulent politicians and a poorly thought out regulatory structure, a big overhang will be taken away. The other issue is thecollateral damage in the global economy because of the problems in Euroland. In the meantime, for stock investors, the prices keep getting more attractive, at least for some of us. Nice story on Morgan Stanley and how hard it is to invest in Russia and things you don't know much about-http://www.bloomberg.com/news/2011-10-04/morgan-stanley-bet-the-farm-in-ukraine-before-fed-bailout-by-u-s-taxpayer.html More information on the issues in Europe-http://online.wsj.com/article/SB10001424052970204524604576610972814688198.html?mod=WSJ_hp_LEFTWhatsNewsCollection And even more information-http://dealbook.nytimes.com/2011/10/04/banks-in-europe-face-huge-losses-from-greece/?ref=business As always, on any company mentioned here, past performance is not a guarantee of future returns. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder. Yale Bock, CFA President, Y H & C Investments

Mr. Market Sees Nothing But Gloom- Treasuries Outperform, Paypal's Dominance, and Saturday Night Live's Ha Ha!!!

Well, last week certainly was a tough one in the market as the major averages fell about 6% for the week. Tomorrow's front page of the Wall St Journal discusses how investors are running away from stocks. The 10 year treasury bond yield's below 2%. One can refinance their home using 15 year loans at below 3.5%. If this is not the scenario Ben Graham talks about when he says all Mr. Market sees is gloom, I don't know what is. Yes, stocks can get cheaper, it is amazing sometimes how cheap stocks can get, however, the idea they are going to keep getting pounded 6% in a week is mathmatically not going to hold up. Stocks have been down for 5 straight months, and are down at least 25% from August, and many much more than that. Do your own homework and use your own judgement about what you think is a good buy, or not a good buy, and certainly keep in mind anybody who is on a financial program is going to talk their own book. If they say the market is going down more, you better believe they are short. Here is the Bloomberg article on the outperformance of Treasuries-http://www.bloomberg.com/news/2011-09-25/betting-on-bernanke-returns-28-for-treasuries-as-twist-divides-investors.html Doom and Gloom Leads the WSJ-http://online.wsj.com/article/SB10001424052970204831304576592822485984958.html?mod=WSJ_hp_LEFTTopStories Paypal is just so dominant in tranactions-http://techcrunch.com/2011/09/25/paypal-now-processing-315-million-in-payments-per-day/ A hysterical look at the Republican debate by Saturday Night Live-http://www.realclearpolitics.com/video/2011/09/25/snl_mocks_latest_fox_news_republican_debate.html As always, on any company mentioned here, past performance is not a guarantee of future returns. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder. Yale Bock, CFA President, Y H & C Investments

For Now, Europe Headlines Scare the Market, Google vs Facebook, Growth in A Japanese Retailer, and The Ultimate Mess at Full Tilt (Ponzi Scheme?)

Stock markets around the world continued to be petrified by the European sovereign debt situation, especially with events coming to a head in Greece. Traders just love the headlines and resulting volatility, as they say, buy the dips and sell the rips, which is what is happening. However, more and more I am beginning to notice the market starting to differentiate between performance and lack therof. As a result, the 100% correlations across all asset classes are starting to dissolve, and as earnings season approaches, if the market starts to become unafraid of the Europe situation, profitability, growth, and results will matter, as they always do. Ultimately the European currency issue will get resolved, one way or the other, and stock markets around the world can resume whatever path the companies which comprise them deserve. A battle which may last a long time: Google vs Facebook-http://online.wsj.com/article/SB10001424053111904194604576582803071402090.html?mod=WSJ_hp_LEFTWhatsNewsCollection Interesting that a Japanese retailer can serve up growth: http://www.bloomberg.com/news/2011-09-20/underwear-model-shows-an-economy-how-to-grow-commentary-by-william-pesek.html What a mess in the internet poker space- Full Tilt Poker A Ponzi Scheme?-http://online.wsj.com/article/SB10001424053111904106704576582741398633386.html?mod=WSJ_hp_LEFTTopStories As always, on any company mentioned here, past performance is not a guarantee of future returns. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder. Yale Bock, CFA President, Y H & C Investments

The Challenge of Digital Health Records, 3 Manufacturers Making It, Fundraising.com, and A Tale of Two Countries-

This week in business brings the debt limit negotiations to a climax, and the dog and pony show probably will result in a deal. As I reiterate, the work product on everything government does follows the same format. Wait until the last minute and throw something against the wall to cut a deal. Is it any wonder why government's are so inefficient, especially the bigger they get? The problem with the debt issue is they are messing around with defaulting on government debt, and the ramifications are just incredibly bad for every financial market.

Another really bad situation is the whole News Corp. scandal in England. If ever the rule don't beat yourself applies, this one is it. Why would an executive of an 168 year old popular newspaper engage in something this dumb, and criminal? You have to wonder is the newspaper business that competitive, do readers and ratings matter that much a top newspaper has to engage in criminal behavior on the highest scale and in a completely unethical manner? Is digital competition forcing these competitive pressures all over the world, or just in this circumstance? Interesting questions, but I say, the leadership was just incredibly dumb.

Interesting story on the issues of digital health records- http://www.nytimes.com/2011/07/17/technology/assessing-the-effect-of-standards-in-digital-health-records-on-innovation.html?pagewanted=2&ref=business

A feel good look at three manufacturers in different industries surviving and thriving by being smart, productive, and innovative: http://seattletimes.nwsource.com/html/businesstechnology/2015614315_manufacturing17.html

A startup called fundraising.com has success in the non-profit space- big opportunities there-http://www.bloomberg.com/news/2011-07-15/fundraise-com-to-streamline-giving-sign-presidential-campaigns.html

Looking at a tale of two countries raises very interesting questions about society going forward: http://techcrunch.com/2011/07/16/tale-of-two-countries-silicon-valley-unemployed/

This will be an interesting week as one would expect a debt deal to get done, and earnings from large corporations stream in- as always, some surprise, some disappoint, and the market will react, and then some, to all of it.

As always, on any company mentioned here, past performance is not a guarantee of future returns. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder.

Yale Bock, CFA
President, Y H & C Investments