Wednesday, July 22, 2009

More Frothy Signs in Stocks as Pushers Get Desperate

How the mood has changed from the despair of this winter and last fall!

Perusing the headlines of Barron's online makes one think it's 1999, not 2009. Forget the bull noises about Apple (breathlessly reported is that it has $31 B in cash (which it does not)). The truth is that Apple has never paid a dividend, may never pay a dividend, and sells for about $110 billion dollars more than it is worth under generally accepted accounting principles. A mere 5 years ago, AAPL sold for one-tenth its current share price. Are you sure that the iPod won't become a commodity item, the iPhone the same, and the computer business won't get overwhelmed by the next new things? And that Steve Jobs can continue to work?

Also ignore that a bull market winner, Family Dollar (FDO) has a CEO who just unloaded $7 M worth of stock. You, the little guy, should buy and hold. (And FDO is one of the "good guy" companies in EBR's book.)

Ignore that Barron's is leading off with a pitch for Siemens, one of the most corrupt companies around ("Bribery was Siemens's business model," said Uwe Dolata, the spokesman for the association of federal criminal investigators in Germany---from

Here's the first scary thing:

Leaving U.S. Stocks for Foreign Opportunities
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Financial adviser Dawn Bennett has dumped domestic equities for emerging markets such as Peru and China.

When Barron's expects you to pay money to get "subscriber content" so you can read about some kid who is long Peru when you can buy Eli Lilly or BMS for 8-10 times earnings and a secure 6% yield, IBM for 11 times earnings, and P&G on a down year for 15 times earnings, you should realize that things are frothy. (This comment is NOT a market timing tool; remember "irrational exuberance" was correct but 3 years early--December 1996.)

Here's the second scary thing:

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AMD Ready to Advance
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FBR Capital Markets upgraded the chip maker to Outperform

Per the Yahoo/Finance AMD chart, the stock has gone down for the last 26 years. It has a negative tangible net worth. It is down about 10% after hours due to results so poor that even most of Wall Street's paid optimists want to dump it. Yet Barron's, once a bastion of reality-based investing, chooses to highlight perhaps the one shop
that upgrades this over-promising, under-delivering company.

AMD has never paid a dividend. If you had bought the stock 26 years ago, you would be down by half. If you had done something really risky and invested in and rolled over 1-year FDIC-insured CD's, you would have approximately quadrupled your money. Yet, only a few years ago, AMD was about 10 times higher than it is now. (I hope that's not a cautionary predictor for Apple Inc., but that's why I mention both companies in the same post.)

The truth as seen here at EBR is that this is probably the most confusing time for an investor in an investing lifetime. Perhaps the closest is the 1973-5 upsetting of the then-orthodoxy that recession and high inflation were incompatible. But $23.7 TRILLION of government intervention down the road for such little economic results, and promises from a campaigning-for-renomination Ben Bernanke that small savers will continue to be forced to subsidize JPMorgan Chase et al for a "considerable" length of time, make all predictions chancy.

But when you take it one day at a time, you can't help but worry when stocks such as Eaton shoot up- aided by Jim Cramer's hype- just as their sales and earnings collapse, and Barron's wants to charge you money to be exposed to such bull---- market idiocy as getting rich off of Peruvian stocks or by buying one of the worst-performing large tech companies known to man.

Copyright (C) Long Lake LLC 2009

1 comment:

  1. Doctor, you are on a roll. Great set of posts today.

    We're already back to the speculative FIRE economy while the near-depression that it caused goes on. Truly this is insanity - the odds of another asset bubble and even more spectacular flame-out are rising daily.