For many millennials, Yahoo was their first introduction to the worldwide web – a portal to an exciting new experience. But more recently, it’s become an anachronism, lagging behind the competition, and is struggling to maintain its place in a fast-moving field. Once valued at $125 billion, it has now been sold for less than $5 billion to US mobile network Verizon. In last quarter alone, the company lost half a billion dollars but Verizon wants it not for its existing business model, but for its billion-a-month visitors. Read more…
It’s February and the weather in Southern California is reminiscent of spring. Birds are singing, the ocean is glassy, and the sky is blue – it’s a nice feeling. This is appropriate given the spring awakening stocks enjoyed so far in 2012. Luckily there remain many negative headlines and bearish doubters out there, so we may have some room to run with this rally before an inevitable correction a.k.a gut check.
My timing isn’t always great, so if you’re just now diving into stocks, it may be wise to hold off for a meaningful correction. The fears that caused me to reduce equity exposure last fall perfectly coincided with the bottom in global equities so I still feel a little pain from that error. But I followed my gut that if things didn’t play out as I expected by the end of 2011, I had to admit error and return to a more bullish positioning. Now 2011’s tiny gain in the S&P 500 Index is followed up so far year-to-date with a 7% pop , but beaten-down European shares are up a few extra percentage points over US stocks, the tech-heavy Nasdaq 100 is up 11% along with small cap US stocks (Russell 2000 Index), and risky emerging markets are up over 15% (MSCI Emerging Markets Index). Gold is mostly keeping up with the broad stock indices much to my chagrin.
William Stern, my friend of 20+ years and business partner, will appear on Bravo’s Millionaire Matchmaker TV show Thursday, September 8. Read and see a preview of the episode here: http://www.bravotv.com/the-millionaire-matchmaker/season-5/episode-4-mamas-boy-meets-southern-gentleman. It’s Hollywood, so judge accordingly.
As the market figures out a direction this week, let’s examine three headlines; each worrisome for different reasons:
Some very bright men opine on the Euro’s future here: http://www.bloomberg.com/news/2011-08-21/el-erian-joining-feldstein-fels-on-prospect-of-euro-evolving-into-new-core.html. If you want to be part of a union, strong partners must support weaker partners in times of need. Partners in a union also work out compromises when they disagree. Kicking the PIIGS (Portugal, Italy, Ireland, Greece, Spain) off the Euro currency presents a real potential shock to global markets and at this time the EU will likely sidestep this immense policy blunder. To put this issue in perspective, most US citizens would love to be rid of “housing bubble and illegal immigration” states like Florida, Arizona and Nevada. I leave out California because it’s simply too darn big and important to the US as a whole. You could argue the “parasite” sates are dragging the dollar down with big budgets, falling tax revenue, and localized economic problems the folks in Illinois and Virginia just don’t care about. You can see how this argument can quickly turn to political civil war and roil markets.
Warren Buffett’s tax rhetoric gains supporters: http://economix.blogs.nytimes.com/2011/08/23/what-the-rich-can-afford-in-income-tax/. Bruce Bartlett is a conservative guy when it comes to economics. Why is he talking about tax increases for the rich at a time when populist headlines are all the rage? I won’t discuss the specific merits of his argument, but opening yet another pitch fork stand for angry villagers doesn’t seem like a great idea. It is important to note that changes in the tax code represent a shift in the distribution of wealth–markets get depressed when this happens, no matter the direction of the shift. Losers hate losing more than winners like winning: that’s basic behavioral economics.
So ridiculous, it’s worrisome: http://www.marketwatch.com/Story/story/print?guid=CF3F1872-CCE9-11E0-BE2D-00212803FAD6. The future is always scary, I agree. Human civilization will successfully deal with the challenges a more populous planet Earth presents. We are capable of immense innovation at an exponential rate relative to what we believe is possible today. Gloom and doom stories like this about post-apocalyptic investment ideas are about as useful as umbrellas at Chernobyl. if you feel inspired, don’t log into your Schwab account. Go out and buy a Nissan Leaf with some roof-mounted solar panels.
http://www.realclearmarkets.com/ is an excellent site reposting the day’s headlines relevant to global markets from a variety of media outlets. From time to time, I will repost articles I believe to be particularly relevant, impactful and/or ridiculous with my own commentary. Here are a few:
- Richard Salsman’s dog and pony show for a return to the gold standard: http://www.forbes.com/sites/richardsalsman/2011/08/16/gold-reagan-and-the-reds-from-degraded-dollar-to-downgraded-debt/3/. Life is immitating art: remember the movie “Lord of War,” where the African dictator asks the arms dealer character played by Nicholas Cage for a solid gold machine gun? The 007 series also comes to mind with a shadowy New World Order set to control the globe’s currencies and natural resources. I say ask the Treasury Department to hold endangered species as collateral for currency. I think the dollar is worth its weight in black rhinos, giant pandas, and beluga sturgeons. Caviar is the new black gold.
- http://www.realclearmarkets.com/articles/2011/08/17/gov_rick_perrys_red-hot_bernanke_slam_99198.html. A blurry picture is forming of the 2012 competition for leader of the free world. Governor Perry says “Printing more money to play politics at this particular time in American history is almost treacherous, or treasonous, in my opinion.” Mr. Perry is certainly no economist. And Mitt Romney reminds me of John Kerry with a more obscure religious profile. Doesn’t look like Barak and Michelle need to worry about packing up just yet. Whether you approve of the President’s performance or not, Mr. Obama is more camera shy than he was during his first year. What has he accomplished so far? I recall something about healthcare reform and a promise to pull back from global conflicts; and oh yeah, he said he would fix the economy and create jobs.
- http://www.nytimes.com/2011/08/17/opinion/why-we-should-end-homeownership-subsidies.html?_r=2&ref=opinion. The NYT proposes we kill GSEs Fannie and Freddie currently financing the vast majority of US home purchases at a time when private investors want to sit on the sidelines. Let’s assume these are good ideas. Unfortunately, stories like this are used by nasty politicians to argue for crazy notions like removing mortgage interest as a tax deduction. This article says GSEs cost $700 billion in lost revenue over five years, whatever that statistical mumbo jumbo means. That is the tiniest of fractions in relation to our aggregate spending on the military industrial complex. Where would you rather cut?
- http://www.nakedcapitalism.com/2011/08/bank-of-america-death-watch-unloading-non-core-assets-aggressively.html. This story would not be worth discussing were it not for what transpired in the US financial sector over 2008 and 2009. Words sometimes equate to Chinese water torture. Each word holds little weight, but add them up over time and Bank of America could end up in the hands of a competitor for pennies on the dollar. There are only seven and a half dollars left as of this writing, so caveat emptor. This is not some gloom and doom prediction, but confidence is key to market stability. Just remember that Wall Street is even better at spreading rumors and manipulating feelings than making money and political contributions.