The market has fallen somewhat predictably to a more reasonable perch. Unfortunately for the bulls, even though things look decent for a small “snap-back” rally the problem is that the market is a bit overvalued, over-owned, and bubble-esque. The forces at work here are the usual suspects: fear and greed. The fear is not very [...]
Most investors are taught to assume that markets are efficient and that investment decisions are made in an honest and professional manner. In fact, none of the major finance textbooks (think CFA and MBA here) cover things like pools, pump and dumps, affinity fraud, market manipulation, marking the tape, front running, cooking the books, etc… [...]
Books A Million (BAMM) — Clyde Anderson recently announced his intention to buyout the outside shareholders of Books A Million for less than 50% of that firm’s tangible book value. In our view, Mr. Anderson is trying to buy a dollar for fifty cents. This is all well and good (after all I’m a value [...]
One billion dollars for a company that has not even hit its second birthday, makes virtually no money and has just 13 employees on its payroll. It all sounds a bit fantastical – and worryingly familiar. Facebook’s acquisition of Instagram has immediately sparked fears of another dotcom bubble, turning a handful of bright entrepreneurs into [...]
The market has fallen somewhat predictably to a more reasonable perch. Unfortunately for the bulls, even though things look decent for a small “snap-back” rally the problem is that the market is a bit overvalued, over-owned, and bubble-esque. The forces at work here are the usual suspects: fear and greed. The fear is not very palpable considering it’s “sell in May and go away” season and given the high valuations that exist for many of the most beloved technology IPO’s and more speculative growth concerns. Currently, the Hedgephone Market Model is still bearish though we wouldn’t be suprised if stocks make a small-ish comeback over the next few days. After all, the market rises around 2 out of every 3 days and it is election season — the Dems won’t want the “progress” they have made on the economy to slip away from them and even though the Repubs want Obama to lose, they can’t stand missing a rally.
All and all it’s a good time to be on the sidelines right now in our view. Having a good work-life balance is one of the biggest keys to investment/trading success in our view. Good health = wealth according to W.D. Gann and we couldn’t agree more. Another tenet of Gann is to use stop loss orders for every trade. Again, after years of experience in the market as hedge fund professionals and traders, we agree with Gann that stop loss orders are highly important.
I am enjoying some of that work-life balance as we speak. I will be updating from the road, but for now check out my view!
Most investors are taught to assume that markets are efficient and that investment decisions are made in an honest and professional manner. In fact, none of the major finance textbooks (think CFA and MBA here) cover things like pools, pump and dumps, affinity fraud, market manipulation, marking the tape, front running, cooking the books, etc… in an in depth and exhaustive manner.
Many times, investor ignorance costs the general public dearly. At www.hedgephone.com our main goal is to help investors steer clear of investment scams and pump and dump companies. We have learned the hard way that fraud in corporate America is an ever-present, ever-persistent problem.
Netflix (NFLX) investors learned the hard way about investment pools (loose agreements between big money traders to manipulate a stock). We believe that Netlflix was indeed a massive pump and dump (whether this was criminal or simply chaotic randomness) orchestrated by management, institutional investors, the media, and other interested parties whether they were actively manipulating the stock or not.
In our view, corporate insiders decided to go for a stock bubble valuation by juicing cash flow in the short term, moving toward an internet only “revolutionary” business model, and getting Jim Cramer to relentlessly pump the stock via Mad Money. The team is confirmed by interlinking director members from TheStreet.com, Netflix, etc… and from huge insider sales near the top of the bubble. If Cramer and company liked the stock so much, why were the corporate insiders who knew the business better than anyone else dumping shares like there was no tomorrow? In my view, this was simply a case of insiders dumping into the pumping whether they believed the hype or not. As a professional investor and part time fellow journalist, I was astounded to see nothing but positive articles (except of course from other authors at Seeking Alpha….) on the company from the likes of TheFool, The Street.com, Investors.com, etc.. etc… right before the implosion. We were extremely bearish. Not that it makes us special but it means that this was predictable (if we got it right, the big money managers from Harvard Business School certainly should have!).
The onslaught of BS in the financial media led to Netflix being priced at $300 per share and for over 100X what in hind sight look to be questionable earnings because they were later erased by huge losses. While most people simply believe the action in Netflix was based on a rational, efficient markets we think the stock traded the way it did because of speculation, media hype, and some old fashion stock promotion. Many authors argued that developments within the company caused the stock crash, but we think the action of the name was more typical of a micro-cap stock promotion. The fact that thestreet.com was so positive on Netflix while sharing board of director members with Netflix seems like a pretty obvious conflict of interest to me — nothing criminal, mind you, just a little bit slick.
At Hedgephone.com, we aren’t here to tattle on people but to educate them. We are looking for the next pool ready to blow up and we don’t think Netflix was the last organized pumped up and over-hyped stock to burn the little guy… Here is a quick and dirty list of companies we are investigating currently and why we think they are more hot air than hot stock at current valuations.
Angie’s List (ANGI) — We started covering ANGI at $15.50 a share and so far this short has been a nice winner similar to our call to short Groupon at $22 a share. Angie’s List reported dismal earnings last week as the company managed to lose another $14MM in the last quarter. Sure, revenues were up big but paying for business only makes sense for start up web companies right now because there is a bubble in these names created by massive economic stimulus and mal-investment (think 1999). Without this bubble, ANGI should probably be worth around 1X sales or about $150MM — a full 80% drop from current levels. The balance sheet looks sketchy, the bottom line is blood red, and even though web traffic is up the stock looks like a great short at today’s prices.
Linkedin (LNKD) — While this is clearly a great company, the stock is not a great investment in the classic Ben Graham 1934 Security Analysis sense of the term. LinkedIn is a bubble stock trading for 900X earnings. There is no rational explanation for this other than it is a repeat of the 1990′s technology bubble. While I wouldn’t short LNKD, I do think that investors should try starting their own web company versus investing in this clearly overpriced security.
Salesforce.com (CRM) — While cloud computing is a “revolution” in innovation, we don’t think that the market valuation for CRM is a real one. In fact, we think Salesforce is another “pool” manipulated by the big guns in the trading world. We also think the current technology bubble is so important to the Federal government that fraud charges will never be levied on any of the major manipulators or bubble company executives in the future even though these crimes are clear and identifiable. You see, we have created a culture of fraud on Wall Street and Main Street loses every time. That’s just the way it is — expect Saleforce.com to “beat” earnings and ramp a little higher before ultimately blowing up sometime in the next year or two.
YELP (YELP) — Yelp is a lot like Angie’s List because it is clearly just an eyeball and mouse-click valuation. The company lacks earnings, cash flow, book value, etc… but the market loves anything with a dot com at the end of it’s name. Yelp is one of the worst investments I can remember at this price but like all internet businesses anything can happen and the company may eventually grow into this astronomical valuation.
Books A Million (BAMM) — Clyde Anderson recently announced his intention to buyout the outside shareholders of Books A Million for less than 50% of that firm’s tangible book value. In our view, Mr. Anderson is trying to buy a dollar for fifty cents. This is all well and good (after all I’m a value investor!), except that he is buying out his own company at a significant discount to intrinsic value and is in essence stealing $60MM of shareholder wealth from outside stockholders if you believe that the financial statements of BAMM are accurate.
In our view, this “take under” is the worst form of corporate malfeasance and corruption — corporate managers are supposed to work for their shareholder, not strictly for their own financial benefit. It would seem that Books A Million management, after assuming 13 Borders leases and aggressively moving their business forward, wants the investment community to hold the bag while management dines out at Wolinsky’s on the shareholder’s dime. “Take unders” (when management acts to depress their stock price and buy the company out on the cheap) are a big problem in the small cap value arena and show that there is no real SEC at all anymore — managers are financially raping their shareholders. There truly is no justice in the small cap value market.
READ MORE HERE: http://seekingalpha.com/article/552621-2-ceos-cashing-in-while-their-shareholders-go-broke
One billion dollars for a company that has not even hit its second birthday, makes virtually no money and has just 13 employees on its payroll. It all sounds a bit fantastical – and worryingly familiar.
Facebook’s acquisition of Instagram has immediately sparked fears of another dotcom bubble, turning a handful of bright entrepreneurs into overnight multi-millionaires but threatening to leave a wider pool of investors with their fingers badly burned.
Kevin Systrom and Mike Krieger, the two young Stanford University graduates who developed the addictive photosharing app, will make around $400m (pounds 252m) and $100m respectively from the deal. Systrom, who turned down a job offer from Facebook in 2004 in order to finish his studies, joked that the sale will enable him to afford a few more bottles of Champagne. With that sort of money, he could buy the bubbly producer and a lot more besides.
Facebook has doubled the value put on Instagram just a week ago, when it closed a $50m funding round from investors including Sequoia Capital. Put another way, it has paid $80m per employee and more than $33 for every one of Instagram’s 30m users. It’s even valued the company ahead of The New York Times, which has a market capitalisation of $942m.
This trajectory and these sorts of overnight riches call to mind the gold rush of the late 1990s and early 2000s, typified by AOL’s $400m payout for Mirabilis, an Israeli instant messaging firm, or Lastminute.com’s extraordinary flotation.
The online travel business placed at 380p a share in March 2000, two years after its launch, valuing the business at pounds 571m and netting its twenty-something founders, Brent Hoberman and Martha Lane Fox, pounds 300m.
On its first day of trading, its share price closed at 492.5p, turning the pair into the posterchildren for dotcom success. However, within weeks Lastminute’s share price had dropped to below 190p, and markets around the world crashed as rattled investors cashed out of the sector. More than $1 trillion was wiped off the US markets in a single day.
There have been other high-profile casualties since then. ITV bought Friends Reunited for pounds 120m in 2005, but four years later sold it to DC Thomson, owner of The Beano, for just pounds 25m. Last year, DC Thomson told shareholders Friends Reunited was worth just over pounds 5m. Similarly, News Corporation shelled out $580m for MySpace in 2005, but booked a $545m loss when it sold the company last year to an online advertising venture backed by the singer Justin Timberlake.
However, Facebook’s Instagram deal also has shades of the social network’s own early days. In 2006, Facebook was locked in talks with Yahoo! over a $1bn sale. Yahoo! lowered its offer to $800m late in the day but many analysts were still stupefied that Mark Zuckerberg, Facebook’s founder, walked away. To say he was vindicated is an understatement. Facebook’s own IPO next month is expected to value the social network at more than $100bn – 25 times its historic revenues, 100 times its net profits or alternatively, around $117 per user.
Of course, sceptics could be forgiven for joining the dots between the two events. Facebook’s flotation is much more likely to go smoothly if technology valuations are high. However, much more likely is that Facebook recognised in Instagram a similar growth story to its own, and a huge potential threat.
Systrom and Krieger have rapidly built a network based on sharing photographs – arguably the cornerstone of Facebook and the feature most often cited as the reason people join in the first place, or feel they cannot leave.
Sam Hamadeh, chief executive of PrivCo, a US research company which studies privately-held businesses, claims it was a defensive buy. “This is not about money-making now… it is trying to buy out the next Facebook,” he says.
It is also about preventing others from doing so.
According to reports, Google also held talks with Instagram within the last month, helping to drive up the price. Ray Valdes, an analyst at Gartner, the technology research firm, says: “You can view the $1bn as an insurance payment against a possible mortal threat if it fell into the hands of one of its competitors. If Facebook is valued at $100bn, 1pc of that figure seems like a reasonable payment.”
The deal will also drive up the price of competitors.Hamadeh estimates that Tumblr, another photo-based social networking site, and Pinterest, the rapidly growing “digital pinboard” which allows users to share photos and other favourite items online, could go for $2bn each.
But while the ripple effect will be broad, Valdes expects just a handful of companies to see an Instagram-style spike in value.
“The downturn and the last dotcom bubble will have a sobering effect,” he says. “There are still some deep scars that have left lasting memories.”
The Daily Telegraph
Photography put Stanford graduates in frame together
Kevin Systrom, Instagram’s 28-year-old co-founder, rejected a job at Facebook when he was still an undergraduate at Stanford University, preferring to finish his degree in management science and engineering. He still managed to cut his teeth at some of the technology industry’s biggest names, however, first with an internship at Odeo, the company which became Twitter, and then with two years at Google where he worked on products such as Gmail and Google Reader.
In 2010, he decided to combine his technology expertise with a long-standing love of photography and went into business with Mike Krieger, Instagram’s leading developer.
Although the pair never met at university, Brazilian-born Mr Krieger was also at Stanford and wrote his thesis on the way computer interfaces can be used to get people to collaborate on a large scale.
He honed his technical skills at Microsoft, working in its PowerPoint team, and then at the instant messaging network Meebo – first as a user-experience designer and latterly as a front-end engineer.
That technical knowledge has helped Instagram to attract the 30m users that so impressed Facebook.
The problem for the stock market is that the 13-year journey of underperforming T-bills – with wicked collapses and break-even recoveries – is most probably not over. Stocks remain overvalued on the basis of the probable long-term stream of cash flows they will deliver to investors, though the extent of this overvaluation is obscured by unusually high (but reliably mean-reverting) profit margins, which make current and forward P/E ratios seem pleasantly digestible.
There are two ways to think about this. One is to think of these rich valuations and low prospective returns as a durable feature of the market environment. That’s basically the vision that PIMCO’s Bill Gross recently suggested, noting that we have entered a period of “negative real interest rates and narrow credit and equity risk premiums; a state of financial repression as it has come to be known, that promises to be with us for years to come.” His take is well worth the read. That said, an alternate possibility is that we will see a more rapid adjustment as investors lose the apathetic overconfidence that they can ignore the risks of a global economic downturn, massive and recurrent sovereign debt crises, and an implosion of the European banking system. In that event, we are likely to observe a significant increase in risk premiums toward more historically normal levels, but followed by a more gradual recovery in risk assets than the one that followed the 2008-2009 crisis.
READ MORE HERE: http://seekingalpha.com/article/543631-john-hussman-release-the-kraken
Corruption in the stock market is nothing new. Even before the FED and the SEC there were rules for investing in the stock market. Trouble is, nobody actually followed them and it didn’t get any better after the private banks pushed the Federal Reserve into existence in 1913. The Fed was implemented to prevent financial collapse, but they are a huge part of the reason the country entered the Great Depression in 1929 and I would argue that the Fed (after Congress and the Treasury) is the biggest culprit behind our current financial malaise.
What does this historical data have to do with Travelzoo (TZOO) or the price of eggs? Well I’ll get to that in a minute. You see the market price of eggs is a supply and demand issue but it’s also a money supply issue because the more money the central bank prints, the higher the prices we pay for goods and services. The more money we print also means higher prices for internet-bubble equities as well because people make “mal-investments” to keep up with inflation as money comes cheap from low interest rates and QE and needs a sexy investment class to call home. Lately, there has been some dissent amongst Fed members and it seems that the QE free lunch may be the actual reason behind $104 a barrel oil and not the evil speculator. Many Americans are waking up to the fact that the formation of a corporate new world order is not in their best interest.
Speaking of speculation, here are 4 overpriced stocks to short with a tight stop loss or by using call options as a hedge if you think the current ponzi architecture will fail. One thing is certain — watch the 50 day moving average because trend followers will likely short these stocks after selling them if the market heads back below the 5 day. Buying leading stocks is a great strategy in bull markets and many traders follow the Jesse Livermore blueprint by shorting a leader after the overall markets break down. Today’s leading stocks are no different, but timing is everything and investors have to keep an eye on unemployment rates, CAPE PE ratios, the 50 and 200 day moving averages, macro trends, technological developments, innovation, etc. …
READ MORE HERE: http://seekingalpha.com/article/546541-4-possible-short-candidates
“Montezuma County Sheriff Dennis Spruell is waiting for his conscience to tell him: Should he start handing out tickets this week to U.S. Forest Service agents who are closing backcountry roads? Should he cut locks on gates that shut off access to public lands?
The fact that a county sheriff is considering such actions against the federal government is a good indication that more than a run-of-the-mill dustup over road and trail closures on public lands is erupting in the far southwest corner of the state…
In recent weeks, protesters have marched on the local Forest Service and BLM office located between Cortez and Dolores, calling Forest Service officials “government pukes.”
OREGON – (3/2/11, by Sara Foster, NewsWithViews.com) “Josephine County, Oregon -When Gil Gilbertson was sworn in as Sheriff of Josephine County, a rural county in southwest Oregon, in 2007, he had 30 years of law enforcement experience behind him, both in the UnitedStates and with various military missions overseas.
So when citizens of the county began coming to him complaining of “harassment” by U.S. Forest Service law enforcement officers (LEO), he said he’d investigate their concerns, figuring he could work things out with the local ranger district. After all, as the county’s chief law enforcement officer he was in the “club” and moreover had gotten along with the “feds” — though he disagreed with their road closing policies and other efforts to keep the public off public lands which cover 68 percent of the rural county.
He contacted the local ranger district for information, but instead of answers he was bluntly told that No, they couldn’t, wouldn’t discuss anything about any complaints with him, but he could file a FOIA (Freedom of Information Act)… Gilbertson sent a blistering letter to the District Ranger of the Wild Rivers Ranger District in Caves Junction…‘As the CLEO [chief law enforcement officer] of this county, elected by the citizens, saddled with the expectation and responsibility to safeguard their rights, I fully intend to uphold the laws against any threat, inappropriate or unlawful actions against them…”.
UTAH – (10/6/10, San Juan Record) “Hunters in San Juan County face a number of roads that have been closed on National Forests. ‘We have been hunting this area since my dad was a kid,’ said one Blanding resident, who asked that his name not be used. ‘It seems like they have closed a thousand roads’.”
MONTANA – ( 8/26/10, Helenair.com) “The Helena National Forest Service has truly been busy this summer. They have had excavators up in the forests removing roads and portions of roads for the sole purpose of making them impossible to navigate. These are not maintained Forest Service roads, yet the excuse they used was to save money in the long run by taking these roads off of their maintenance list. The sole reason for these road closures is to prevent sportsmen from accessing hunting grounds.”
IDAHO – (6/16/11, Capitalpress.com) “A county government in Idaho has filed a legal complaint against the U.S. Forest Service over road closures that allegedly limit residents’ mobility and discourage tourists. Valley County has asked a federal judge to declare the agency’s travel management plan for the Payette National Forest as unlawful due to violations of environmental and administrative law.
“They didn’t do it right,” said Matthew Williams, the county’s attorney.“No appeals, no hearings. They just did it.”
The road closures by the Forest Service have also been happening in California, Nevada and other states.
Former Sheriff Richard Mack, in his book “County Sheriff: America’s Last Hope” summed it up when he said “The founders of America warned us that we would lose more freedoms from gradual encroachments by those in authority than by sudden usurptions from any foreign enemy…The COUNTY SHERIFF is our nation’s LAST LINE OF DEFENSE, for the preservation and return to, fundamental and individual liberty.”
The USDA (a member of the new Rural Council and the IUCN, an organization that promotes U.N.’s Agenda 21) used your tax dollars to send David Ferrell, Director of Law Enforcement and Investigations, to Canada for the 9th Conference of the International Network for Environmental Compliance and Enforcement (INECE) where “… environmental compliance and enforcement experts from over 50 countries gathered to identify new actions to promote enforcementcooperation to…support the shift to sustainable development…”
On INECE’s website, it states: “Agenda 21: An international mandate for building compliance and enforcement capacity as an essential element of environmental management… Agenda 21, Chapter 8, Section 8.21. Each country should develop integrated strategies to maximize compliance with its laws and regulations relating to sustainable development. Does this seem like the Forest Service might “promote enforcement” to make U.S. citizens comply with Agenda 21? It’s important to know what the USDA is “participating” in:
“INECE is striving for a global network which starts first at local levels, networking among key institutions of government, the police, environment agencies, sectoral agencies; second among local groups and with related regional and national groups within nations; third, between governments and NGOs; fourth internationally in bilateral cooperation; fifth regionally among nations among all relevant groups; and finally, sixth, on a global scale among the various groups as needs arise and catalyzing ideas and approaches and cooperation around the globe.
The mandate for environmental compliance and enforcement was introduced as a direct result of the consensus at the International Workshop which gave the participants the confidence to move toward this very important international statement. Language in Agenda 21 empowered UN organizations to more actively support compliance and enforcement institution building activities.”
Regarding any mandate for USDA “enforcements” to close off roads, forests and public lands, remember the Tenth Amendment “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
Sheriff Mack sums this up best “…local officials have the right, the power, and the duty to stand against the far reaching incursions by our own Federal Government.” Mack cited a Supreme Court case in which Justice Scalia wrote a ruling for the majority that stated“The Federal Government may not compel the states to enact or enforce a federal regulatory program.”
TO LEARN MORE:
If you thought hog farming, commodity trading, and global shipping were pretty unrelated businesses to be in, think again. Seaboard (SEB) has vertically integrated its business and has created around 2 Billion of shareholder equity in the process. At a market cap of just 7% or so above book value, Seaboard looks undervalued when factoring in the company’s 6.4X PE ratio and stellar long-term growth rate.
In fact, Seaboard has managed to more than double its cash flows from operating activities over the past three years. Many analysts have questioned this growth rate, but the fact remains that the company is one of the best managed conglomerate businesses in the world. With any commodity business, however, one must view the cyclical nature of the industry with a good deal of skepticism and certainly shipping is thought to be cheap for a good reason right now.
Investors in Genco Shipping GNK and Excel Maritime EXM know exactly what I am talking about. Unlike the dry bulk shippers, Seaboard has a more diversified business model which can even out the volatility during the hard times. Renaissance Technologies and Kahn Brothers & Company are two of the larger names invested here, but I expect the hedge fund community to take notice if earnings and cash flow remain on a positive trajectory.
Read More Here: http://seekingalpha.com/article/539291-3-inexpensive-stocks-that-hedge-funds-are-buying
I haven’t covered old scamazon for some time now, but given the BS pump to the 226 level I think it’s time to bet against this high flying fraud. Amazon is a real company with manufactured and massaged numbers. I view the stock as a $50 name tops… The street just loves this type of manipulation because it keeps their other scams afloat. What a scam.
In any event, consider selling a bear call spread (selling a $230 call and buying a $260 call or just go short with a stop loss at $230 and re-evaluate if you get stopped out…
In this case it is the huge gap up post Apple/nanke that shot the stock market from off of the ropes and back into near all time high territory. While I am net long because a snickers bar went for a nickel 50 years ago, I also recognize that gaps get filled and that the market has come pretty far pretty fast. In other words, I am not going to invest blindly all of my energy into being long equities here as I think it’s almost a sucker’s bet… You basically have an overvalued market with decent growth prospects which makes it like having a gut shot straight draw and a flush draw but you’re only getting 1.2 to 1 on your money.
While technically, you normally make the all in call in this situation because of pot odds, with the stock market there is always momentum and seasonality to think about. In poker, you just hope you aren’t being cheated by the room or other players.
Basically, the stock market is back up to where it was in 2007 and this means that investors will either want to pull their money out and buy things like real estate, jewelry, fine art, etc… or they will stay long stocks. IF the ultra rich remains long and we end up making new all time highs in the S&P and Dow, I wouldn’t even consider shorting the index funds or even individual stocks. To me, the short side is the hugely expensive web 2.0 stocks — I only want to be short these if the overall market is going down. If it is flat or going up, I want to be on the sidelines (as I am now) and not invested in much of anything. That being said, I do think timberland, commercial real estate, rental property, raw land, etc… make a ton of sense right now because the market for these investments is down considerably still from their all time highs. In some cases, real estate values are stil 70% below their highs in 2006. What this means to value investors is that stocks aren’t the only asset class that matters. In fact, I would argue that investing outside of the stock market could yield much better returns than investing in stocks. Even Buffett seems to think real estate is down enough to start making some sense. True, demographic trends in the U.S. aren’t as favorable to real estate values as they used to be, however the population should still continue to rise in aggregate over time which means that supply and demand will eventually put a (much needed) tailwind behind the housing market.
In conclusion, the gap higher will eventually be filled. That’s why they say “gaps get filled” because they almost always get filled over time. So, for my money, I am not very interested in equities when compared to owning a private business or a group of them. There aren’t too many companies one would want to buy at 16X earnings when one can find private companies for sale at half of that multiple.
