Can't Fight Where The Money Is Going

On Friday afternoon I was speaking to another trader. One who may be more bearish then myself on the current U.S. and global economic situation (if that's at all possible). Our discussion led us to the conclusion that things had traded irrationally considering the current financial obstacles. The headwinds home and abroad are so great in the next few years, ones money should be very scared. the conversation concluded with an  one important point in which we both agreed, the fact that you can't fight where the money is going. If the money is going into stock, the will go higher; if the money is going into the tech sector, the tech sector will go higher.

Over the past few months in the anticipation of the Facebook IPO investors have been crazy about tech stocks. Look at things like Zynga, Yelp, Apple, and so on. One can make an argument for or against each individual company. Stating that one is overvalued or another is undervalued, one company has more revenues while another has none. What most investors are failing to realize, is valuation doesn't matter. Most of these companies are new, sleek, and hot. Some of them have ridiculous potential, while others do not. Though they all have one aspect in common, people are buying them. If Curly, Larry, and Moe are buying tech, then you should too. The previous statement may sound uneducated and ignorant, but the fact of the matter is that we are living with a financial markets that are trading a certain way, so play the game by the new rules or get burned.

You can sit there and say that valuations are off, that you don't want to buy the hype. All these aspects may hold true. What I have learned and you should have learned too over the last quarter, is that if the markets wants to go higher, they will. Headwinds seem to be insignificant and obviously the tech valuation headwinds are insignificant as well. Don't fight the trend, just ask those who have been buying the VIX in attempt to fight it, they're broke. Follow the money, because if you don't, the money trains leaving the station without you.

American Home Buyers Are Smarter Than You Think

As of late there has been a lot of concern about the current American housing situation. Proponents of the recovery are claiming that it will take time for the housing recovery to get revved up (yes things always turn around if you give it enough time), while opponents of the housing recovery are suggesting that the recovery is nonexistent. I happen to fall into the later category for one simple reason; American's may be lazy and fat, but they are not stupid when it comes to big purchases.

When an individual or couple plans to buy a home, they do not go out on a whim one Saturday and make that purchase. The purchase, no matter what tax bracket, is calculated and well thought out. Though the individual home buyer may not be as knowledgeable as the experts in the housing field, they spend a lot of time considering a home purchase (6 months to a year), then say a burrito for lunch. This suggests that home buyers have been watching the declining home prices for quite some time. Why would a home buyer sell their home to buy another home if they are going to lose money? Why would a new couple put their life savings on the line to purchase a home if it was only going to lose value? Why would investors purchase homes if they were going to lose capital? No matter how the cake is cut, no one is rushing out to purchase homes until we see a reversal in this dire trend.

Another subject that deserves being touched on when discussing the lack of a housing recovery, is the businesses affected by the housing industry. No I am not speaking of Home Depot or Lowe's. I am speaking about everything from Best Buy to Pier 1. When consumers purchase a new home, or new to them, they usually have more space to fill. How do Americans fill their empty spaces? They buy, buy, and buy more and more stuff. So until we see a huge push of Americans buying homes, don't expect every industry in the United States to do stellar. There is a clear relationship between big business and the housing industry that has been prevalent for 80 years and no matter how bad investors want financial markets to shove off this relationship, the relationship remains steadfast.

Why Zynga's Purchase Was The Best Move

With Zynga's recent purchase of OMGPOP, many investors were left wondering, was that the right choice? My first reaction when I saw the price tag, was disappointment, I expected more of Zynga. After a long and challenging soul searching episode, I realized that Zynga had not made a bad choice, but rather, the perfect choice.

We have all heard of Words With Friends and as of late, have most likely have started hearing about Draw Something. The games are similar, but in fact worlds apart. Words With Friends appeals in a particular to an audience of some education and basic word skills, while Draw Something does not. Does this warrant 4 times the price tag? Why yes it does, when you appeal to the broader masses, you will in fact sell more applications. A 10 year old cannot competently compete with their parents in Words With Friends, but Draw Something everyone can enjoy. If everyone from a five year old to 80 year old grandma and grandpa will use the application, then it is well worth the price tag.

What is even more significant about the recent OMGPOP purchase is the new potential for the application. Draw Something is currently mediocre at best, but has a lot of potential with the app skills of Zynga behind it. Zynga has made many a games into an masterpiece that's easy to use and will do so again with Draw Something. Draw Something has room to grow and Zynga is the perfect environment for that. With that being said we should also look for the combination of Zynga and OMGPOP to bring out another masterpiece in the coming year. That's at least what Mark Pincus is expecting by throwing $200 million at the company.

This is by no means a recommendation to buy the stock. There may be other headwinds in the foreceable future that outweigh the recent benefit of OMGPOP, for that information please refer to Zynga Scares Me.

Chipotle Is Getting Too Big For It's Britches

What would you like on that, the polite Chipotle burrito engineer asks me? Well isn't the answer obvious, everything that looks good. That may be the precise problem with Chipotle today. A customer peering through the glass protecting the precious ingredients to a perfect burrito doesn't follow the calorie counter, but rather ones taste buds. In a time when Americans have gotten larger and larger, we have, and will see a trend towards smaller and smaller calorie counts.

It is obvious that Americans love to eat and in particular like to eat Chipotle. The issue resides in the coming years. We are not seeing a fad, but rather a societal change; A massive move towards a healthier and fitter america. We have seen this movement take shape in some major fast food companies. Take a look at McDonalds, a few years ago people would have thought fruit instead of french fries was ridiculous; today not having the fruit option is an absurdity. It is likely that the Chipotle business will need to follow health trend, or those same store sales will be dealt a heavy blow. Chipotle is a great company, but in the ever changing landscape of the American consumer, Chipotle must transition to serve the health conscious American consumer.

The U.S. Recovery Cannot Stand Alone

Recent chatter among the professionals suggests that the United States can stand alone, with no regard for the faltering global economies. Did I miss some recent regression back to the 18th century? These very intelligent men and women are suggesting that the world we live in today resembles the protectionism of the ancient past, rather then the connectivity of the current era. Maybe I am just oblivious to this new world, but much more likely I am right and those pros are just trying to sucker you into the market.

Since the masses want to ignore the connectivity of 2011, and the free lessons one can learn from last year, they shall suffer. Last year was a prime example of the global impact on financial markets. The fear of economic problems throughout the world took the wind out of last years rally. But now the global world and the United States are no longer connected? Come on, don't play dumb with me, this interpretation is not only ignorant, it is foolish for your money. The global fast paced world we live in today is connected in all shapes and forms. Keep an eye on our friends around the globe, because the worse things get, the U.S. financial markets will realize they cannot stand on their own.

March Madness: Molson Coors vs. Buffalo Wild Wings

While watching the Basketball games, a good sports fan is expected to have a chicken wing in one hand and an ice cold beer in the other. Who better to represent those necessities than Molson Coors and Buffalo Wild Wings. Sports is a key industry for both adult beverage companies and sports bars, and a lot of money is made during the March mayhem. In the theme of March madness lets put two top scorers together and see who comes out ahead.

First Half

Let's take a look at how these companies have performed over the past year to see who takes the lead in the opening half.

BWLD over the past year

TAP over the past year

As obvious through the above images, Buffalo wild wings seems to have outperformed Molson Coors and the broader market over the past year. What may be more significant to investors is the strong uptrend seen over the last year in BWLD. It looks as though the wings have outperformed the beer over the past year, but that may just mean Molson Coors is preparing to pop. We'll take a look at that come the second half (below)

Second Half

Molson Coors recently announced the launching of its iced T Coors Light. The CEO of the company suggests that this hybrid drink is exactly what the consumers want. They want to take their two favorite beverages and combine them. If it were this easy Coca-Cola would have a never ending supply of new drinks. There are a few issues with this so called growth engine. First off the sweet tea alcohol arena is a extremely crowded space. Second, those most likely to buy the hybrid product are in the demographics that would prefer sweet tea (instead of iced tea). This growth engine turns out to be more of a big question for investors rather then a growth engine.

Taking a quick look at Buffalo Wild Winds, they have something that many restaurants before them have failed to grasp. BWLD has got the formula for success. This success can be seen through their numbers and in their stores. The Buffalo Wild Wings experience is a different sports bar experience. One cannot quite place their figure on what exactly makes them stand out, but whatever it is, myself and many other Americans can't stop spending money there. Nor is BWLD a trend by any sense, Americans have loved beer and wings in the past and will continue to do so into the future.

Final Score

There is no buzzer beater here. Buffalo Wild Wings comes out the strong leader. One cannot argue with their growth potential. There is just something about those BWLD that myself and many others just can't get enough off. They have figured out the formula for success and will continue to use it.

They Took Fear Out Back And Shot It

If you trade and have any sense, you keep an eye on the volatility indexes. As of lately they have been taken out back and shot, or more apropriately, they have been given a long, slow, and painful death over the past few months. At new lows for the year, the VXX is in the low nineteens. My point is not to bring up the obvious, rather to suggest with no bottom in the VXX, buying to hedge your portfolio is moronic.

VXX over the last year

We all know the saying, don't try to catch a failing knife, and it seems that may pertain to this crazy ETF. Many people on CNBC and around the net have suggested hedging with the VXX. This has failed miserably for everyone who has partaken over the past few months. Those experts have suggested doing it around $25 on the VXX, the VXX now trades at $19, a 25% loss on your hedge isn't such a good idea. Ask around to those that didn't believe in the rally and bought the VXX to try to outsmart the trend. They are now screwed, royally. When the waters are a little more choppy, in the coming months, would be a more appropriate time to buy the VXX. Currently though, it is one horse race and the VXX wasn't invited. There are still headwinds in the U.S. and abroad, but until the markets start taking those into account, the VXX will be taken out back and laid to waste on a daily basis.

McDonald's Customers Are In It For The Ambiance

We all know that McDonald's stands out from all the other fast food restaurants. It may have to do with their keen ability to take popular entrees and make them the perfect fast food meal. Most likely its the fact that they make the best breakfast on the planet. More recently they took Starbucks drinks and made them not only affordable, but desirable to the masses that you wouldn't even think to enter Starbucks store. Though I love a good frappe, there is more to the McDonald's story then that, there are the continually updated restaurants.

Many investors miss the obvious when it comes to evaluating McDonald's. As average Americans (maybe in your case above average) we travel throughout the United States, or go through our hometown, and see many different fast food chains. As we mentioned above they are not all made the same, but more particularly their stores are not make the same. A key point many fail to realize about McDonald's is the power that the franchisor holds. McDonald's does not merely sell stores or regions, they lease these stores. Which in turn gives them the power to retract the store from the leasee. This means that McDonald's can tell the franchisee to update their store and they must do so. In fact this happens quite often and is likely why McDonald's continues to stay on top of their game.

This store policy  separates McDonald's from all the other fast food chains. Drive by your local Wendy's, Hardees, or Dairy Queen and the difference is obvious. What is important from an investors standpoint is the importance of aesthetics. A nice store, means happy customer, and anyone who has worked in a service industry knows happy customers are repeat customers. You may say aesthetics are a mute point. Let's take a look at your recent dining experience. The last time you went out to a nice restaurant, what separated it from the other places you regularly dine? Let's think, it was obviously the food, and oh yeah the atmosphere. The presentation often plays a huge role but is presented so subtly that we don't realize it.

"The closest thing to home." - McDonald's Slogan (1966-1969)

If A RIM Blackberry Falls In the Forest, Does Anyone Even Care?

The investing community has watched the once great Research In Motion fall from grace in recent years. Why you ask, has such a once great product ceased to be admired? It could be attributed to a lack of a uniform vision, or a faltering product. To be honest it does not matter what exactly happened to put RIM in the position they are in today. Simply they are in a dire straight. What holds more importance in my eyes is rather the potential they have in the coming years.

One product can change everything for a company, as Apple has shown us over the years. The iPhone has changed the landscape of the Apple company. Today many companies only produce one product still are able to give investors great returns. RIM has the potential to turn its horror story around. Consumers are fickle and are always interested in the newest and greatest thing. One day it was RIM, then one day it was Apple, tomorrow may be Google's day. As investors we never truly know what the next greatest gadget will be, we can only speculate. Below is an example of an innovative way that the Android company has set up your phone to go silent at work.

No I am not saying that they will sell them 40 million RAZRs. What I am saying is that companies, in particular technology companies, can take an innovative spin on a product and easily sell a vast quantity. One creative spin can result in huge demand. The smartphone race will be a long and tough one, and sometimes the tortoise does win the race. I am not suggesting in any shape or form to go out and by the faltering company, but rather to keep an eye on them in the future. RIM can definitely turn their smartphone story around and there is definitely enough room for three big smartphone players in the smartphone market.

Photo by The GameWay

Some Weekend Comedy

Below is what will happen if you do not routinely check Capital Overlook, enjoy.

It's An Election Year, The Markets Can't Go Down...

The sentiment as of late suggests that many investors have lost their grasp on reality. For some reason the mindset is that bad things cannot happen to the financial markets during an election year. The ignorance behind this is truly blissful, so keep buying up your hot stocks, while the smart money waits for a better opportunity down the road.

Above is a reminder of 2008, yes the long forgotten 2008. The year that rocked the financial markets and changed the financial world. The repercussions of that year can still be felt and in some instances seen throughout the United States. Whats the most entertaining about the above image are the dates located on the upper right. During an election year, the market went down, very far down. I am not claiming that a financial collapse will occur once again, I am only suggesting the obvious, markets do trend down.

There is all this talk on the news and blogs about things being better, that one should throw all their money into the market. What I find most compelling about the proposed arguments is that people are buying into the hype. Of course everyone wants to make money, no one can doubt an investor for wanting to do that. Though the issue lies with the fact that we have been here before, last year. The arguments proposed for why we should keep trading higher have been heard before. History has a tendency to repeat itself. The headwinds exist and I do not need to spell them out for you. No the collapse of 2008 probably won't happen again this year, but during an election year the market can and will go down. During 2012 the market can and will go down, so buy that downside protection while it's cheap, because making money is always better then losing it.

Zynga Scares Me

No the company itself does not strike fear in my heart, rather the potential extreme volatility of the stock in the near future. As we have seen with these recent IPOs of tech companies, they initially release a small float, only later to release more shares. This just so happens to flood the market of shares, creating a bit of discomfort for those who believe in the long term potential of said firm. To put things in perspective take a look below when Fusion-io realized shares in mid December.

As the large black arrow indicates, this was a point in which more shares were made available. What is significant is not only the fact that the company began trending down before the second offering, but the downtrend that continued throughout the proceeding month. No matter how bullish an investor is on a company , to take an almost 30% haircut is uncomfortable. Fusion has recently trended back to the level it has fallen from, though it has taken about three months.

Those who are bullish on Zynga, social media, Facebook and so on know that Zynga has a lot of upside potential. With their continued success in the app world and on Facebook one does not need to question their future dominance. Rather as an informed investor, one must consider the detrimental effects that an oversupply of shares will have on the market. As a recently IPOed company, Fusion supports the case that one should stay away until the shares have comfortably made themselves into the market. Knowing that Facebook's public offering will create a buzz in social media stocks, and the price of those related to it will skyrocket; Why buy Zynga at $13 when you can get it at $9.

"Not having a clear goal leads to death by a thousand compromises." - Mark Pincus (Co-founder of Zynga)

America Needs To Get It's Finances In Order

Greece has slipped its way out of the headlines in the recent days. the indices touch new highs and everything seems just fine. Investors are convinced that things are substantially better in the United States. I have lost quite a bit of capital fighting the trend and will wait for a better moment to strike a bearish stance once again. For the meantime though, with all the talk of a better economy and a "fixed" Greece, are their not lessons to take from their trials and tribulations?

No matter which political party you root for, their is an obvious spending problem throughout our government. These spending issues have plagued politics since the great depression and the New Deal. In the past we muddled through, but it seems now our debt burdens will way down on us. the fact of the matter is, it is just to large. Many invest in America because it is merely the best of the worst. Is the way we have it today, the way in which we should leave it for generations to come? The government obviously needs to get its balance sheet in order, just as have many Americans over the past few years.

This leads me to my point, and a very important one at that. With the United States government continually adding more debt to its balance sheet what should hinder Americans from doing the same? We have seen the Greeks wipe away debt and we have seen our neighbors do the same. The precedent set by everyone from the governments to your neighbor have implied that their is no responsibly for your debt. When will this catch up with us and in what shape and form? One can make an argument that student debt is the next bubble, but that is just a theory to be tackled another day. The fact of the matter is buying things on credit, that you can not afford is not good in any shape or form. Americans still have not learned to hinder their spending to realistic terms and will refuse to do so until their government does the same. So dear mother American, get your fiscal house in order.

If you do not understand our current debt predicament please refer to: U.S. National Debt A Bigger And Bigger Concern

Photo by Images_of_Money

To Buy Or Not To Buy: That Is The Question

With all the money currently be printed and the more quantitative easing down the pipeline; Is now the time to buy? This is the question of the year. Buying today suggests that one may miss a historic run in equities while waiting suggests that there will be a better buying opportunity in the future. I happen to stand in the camp that better opportunities come to those who wait. Below is the S&P over the calendar year 2011. Yes, it did go down (even more then 1%).

My market analysis is not based on the mere fact that the financial markets will be facing many headwinds in the coming months, but rather the fact that markets do go down. No matter how much money is pumped into the system markets can, do, and want to go down. Take a look at last Tuesday. The markets went down hard and fast. This was a foreshadow of how things will happen when sentiment changes. It will happen before many investors are out of bed, and will hit hard and fast. Last year has been forgotten, thrown in the basement swept under the rug, and this will cost many their shirts.

The experts are suggesting that this moment, right now, is a once in a lifetime opportunity. Retail investors are eating it up and instead should be running for the hills. Thinks are arguably better in the United States, though they are not good. That is the key point that many investors are missing; For this to be a historic moment things would need to be good, not mediocre. I am not going to run through all the coming headwinds, you read, you are informed. What has more significance is the fact that things are not perfect and the market is acting as if the world has no flaws, it does, and those flaws are bigger then meets the eye.

 So make your money and do it quickly because when things collapse, which they will, it will once again not be a pretty picture. So to summarize for those that missed my point, a better buying opportunity will present itself in the future, just ask 2008, July of 2011, and sometime in 2012.

"For every action there is an equal and opposite reaction." Isaac Newton

Starbucks Movement From Fad To Necessity

With all the talk of higher fuel prices and the pain it will instill on consumers, the avid investor knows to look at his (or her) portfolio and see where they will be most exposed. In the past one of the first places consumers cut back was on their daily addiction, coffee. Fads and consumer buying habits change over time. Has Starbucks become a consumer staple, that the masses cannot live without?

Years back when the consumers wallets were first hindered by increasing gas prices experts were saying coffee was the first discretionary item to go. Today coffee seems less and less of a discretionary item and more and more of a American addiction. Americans are addicted to their televisions, entertainment, and so on; Today it seems that coffee (in particular from Starbucks) falls into that category of need. We all know that Americans have a tainted line between the need category and the want category. Today more and more Americans see their Starbucks fix as a need that they can't live without, even if it means cutting back on other items to pay their coffee bill.

This blurb about Starbucks originated from observing the line out the door at my local Starbucks this morning. Gas has recently peeked in price and may go higher in the coming months. Many of the experts want to claim that consumers won't cut back, they will, and they have. The question that any intelligent investor needs to as; Is where will consumers cut back? As I mentioned some time ago in The Real Walmart Story, consumers are cutting back from their beloved Walmart and shopping at dollar general to save a few dollars. They do not seem to be cutting back from Starbucks and this could be due to a multitude of reasons. One may be that Americans are cutting back in many aspect of their lives and have been for some time (we are still in the midst of a recession), and consumers want to treat themselves. The easiest and cheapest daily way to treat oneself is in the form of that Venti coffee from Starbucks. Even in the worst economic times Americans will treat themselves because we are spoiled and love spoiling ourselves.

When talking Starbucks nowadays one cannot forget to mention their recent movement to take market share from Green Mountain. What investors should not forget is that Starbucks bread and butter is selling coffee at their coffee shops. In the past few years their coffee has been available in stores and in K cups, but still at the end of the day they make the most of their revenues from their Starbucks coffee shops. Until their coffee machine becomes a leg on which they company stands on, one should not be overly concerned with that aspect of the company. At the end of the day Starbucks is Americans' coffee shop and will continued to have a line out the door, even with rising fuel prices.

"Starbucks represents something more than a cup of coffee." - Howard Schultz

Photo by Cherrysweetdeal

Caterpillar, The Author Of A Different Story

With all the wonderful news in the U.S. and abroad one could expect me to eat my previously bearish sentiments. Today I thought long and hard about eating my previous sentiments and adding some whip cream and cherry to the bearish sundae. Then as I was scanning my watch list, I came across CAT.

Over the past year and over the past few months in particular CAT has had quite a run. Over the past week we saw a deep sell off in equities followed by a complete reversal and a push higher. Where was CAT in all of this? The barometer of global growth has been hanging in the background. This does not seem to add up and lends me to suggest the future worry of financial markets: shrinking of global growth. We know that Europe's growth will likely lack or in Greece's case contract as we look into the future; That is all backed into the cake. What strikes renewed fear in my heart is the global growth story. One that suggests that those around the globe are about to hop on the recessionary bandwagon. The one pioneered by the U.S. in 2008 and revisited recently by the European Union.

As we excel higher on renewed optimism of the better than worse data out of the United States, one must remember that in the new day in age we are linked to those around the globe. The inter connectivity that encompasses the world today will hurt your portfolio as global growth goes. We may see a possible weakening of the BRIC and China in the coming months.  With a global slowdown the U.S. will likely follow, and that is what Goldman's suggests with its cut in GDP estimates this morning from 2.0% to 1.8%.

Apple Trickery, New iPad Is Really iPad 2S

I will begin with pointing out the obvious; The new iPad is not a new version but merely an S. S in this case  as we all know stands for suckers.  Over the past 48 hours I have read countless articles pointing out all the new-found benefits of the New iPad.  Most of the advocates are just hardcore Apple bulls supporting their position.  The tech analysis and demand story they have presented is nothing short of laughable.

Let's break down the new iPad:

• Oh boy a 8 mp's camera allows me to become a professional photographer.
• By far the biggest "scamming" point of the new product. If quality of photography mattered to anyone who was looking at the product, they would go buy a $60 camera from best buy.  Why? Because it has twice the mp's (16 mp's).
• It is completely not redesigned and has no new curb appeal.
• The new iPad is not thinner or sleeker; It has all the same characteristics and is actually larger and heavier.
• 4G LTE will allow me to not access data through walls.
• Not only is the 4G LTE world a fractured and confusing one. Those who are somewhat intelligent are telling me that it won't work in Europe. I know things are bad over there, but so bad no one can afford Apple products? (F.Y.I. LTE stands for Long Term Evolution)
• The new features will be an incentive to buy the new product.
• That was just in here for laughs and giggles. The point which I will make below and you should already be familiar with being a half intelligent human being, is that this product does not capture new consumers. This instead pushes consumers to the lower tiered iPad 2.

First off, I am no tech expert. I just so happen to see things from a consumer standpoint obviously better then Apple. What Apple has successfully done is take their old product, known as the iPad 2, and make it a little better. They have not, let me repeat, NOT revolutionized anything. Apple has been successful in the past revolutionizing their products, not updating a few ins and outs. To be honest, Apple has not even made its product more desirable.  

I do recall a day long ago when there was this famous Apple item coined the iPhone 4S. We all remember vividly how the stock sold off after that. This time around those people at Apple got smarter and decided not to spoof the market with putting an S at the end. The other day Apple in fact did disappoint expectations, they did not present the iPad 3, but rather a sleeked up iPad 2.Apple are the king manipulates when it comes to both investors and consumers. As a brilliant investor you were already aware of that though?  

One must not forget the key difference between the phone and the tablet, price. Since the iPad's growth is often compared to the iPhone's many investors expect the same growth from the tablet as was seen with the phone.  All these investors are forgetting that out of pocket cost (with a new contract) for an iPhone is just around $200, while an iPad is around $500 (if not more).  Not only that, but one must realize the difference between the two products.  iPhone's have become a necessity in everyday life,  tablets have not done so yet.  One can easily make the argument that tablets will never replace PC's due to practicality.  The iPad has sold countless products since its induction,  but it's growth potential is not going to be in the same bracket as the iPhone.

One of the most important items that Apple bulls have brought up as of late is the destruction of competition. They claim Apple has put the competition 6 feet under.  Hate to burst the bubble, but that is so very wrong. Those who watched the presentation or read about it in detail know that Cook mentioned the competition.  What many investors failed to realize was that when Cook talked down to the competition he was in fact admitting competition exists. Many have said that Apple has no competition, no rival, as of this week the king of apple admitted there are other kings attempting to take over his tablet kingdom. Apple knows not to underestimate the competition, those who hold a little market share, because not so long ago that was Apple.

And if you don't believe me HERE is the comparison between the two models. It will say everything I was not able to cover above.

"Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving them" - Steve Jobs

Facebook's Unprofitable Obsession

Ahh Facebook, the much anticipated IPO of 2012,  the social networking product of Mark Zuckerberg that we all know and love.  When Facebook filed their S1 recently, the financial news world went into hysteria over what was to come.  What should have more relevance to investors is what is not to come.

Last weekend, I came across an article about Shutting Down Facebook Stores. First off, I did not even know that these stores existed; which makes me wonder did the rest of the Facebook world know about this one of a kind retail opportunity?  If you didn't catch the sarcasm, my point is this: Facebook failed to offer a different retail experience then was already on the web.  If someone wanted to go to Gamestop and buy a product, they would do just that, go to the Gamestop website or in the store.  Facebook attempted to monetize their website and their system of Likes (a fundamental element of the Facebook experience that allows a user to expressly like a post of another user or a product), and failed to do so completely.  This failure should strike fear into the hearts of social media investors.  Once again, Facebook, the giant of social media has shown that people may like their product, but monetizing it successfully is a different ball game.

We do know that Facebook has made money and a decent sum of money through their ad sources.  I will break Facebook's numbers down in a second; but first off, let's look at the problem intuitively.  Facebook claims to give advertisers a different and new advertisement experience.  It allows businesses to connect right to customers that find their products interesting.  What all those touting Facebook have failed to realize about the social giant is just that; Facebook serves a social service.  Facebook allows users to share photos, comments, likes, and so on.  Investors fail to realize that consumers are so caught up in the social interactions they do not have time for advertisers.  When someone is on Facebook they are either chatting or surfing the web of social information.  {Yes they may come across an advertisement or two, but they are more interested in seeing what Sally is saying to Bobby and what George is Facebook chatting them about.}

The most interesting part of the Facebook story is the pricing of the company.  Facebook made about $4 billion in revenue last year.  The company is set to be valued at $100 billion.  Those reading this blog likely know Apple well.  Apple made about $108 billion last year and their market capitalization was around $500 billion on Friday.  For the rough mathematics let's say the market cap of Apple is 5 times its revenue last year.  Applying these same metrics to Facebook we get Facebook, we get Facebook valued at $20 billion.  Well, you may argue Facebook is a growth company. Okay, then let's double the metrics, you get $40 billion.  Doubling isn't sufficient for you? Let's triple to represent the growth potential of Facebook and their one product, and we get $60 billion.  Even with a $60 billion market cap, the growth is handily priced in, and with $100 billion is just ridiculous.

Many compare Facebook to Google or Apple.  When making this comparison, those individuals fail to realize the almost perfect game that Google and Apple have played.  As stated earlier, Facebook has failed to monetize itself as a retail and is already off to a bad start.  What should raise more concern is the Facebook supporters suggesting Facebook will becomes its own platform.  Has anyone witnessed the trouble the android platform has had catching on?  If a company like Google, with their multiple successful products, has trouble becoming a platform and breaking into the computer and cellular space, think about the potential problems a company like Facebook, who has one successful product, will have.  To compare Facebook to giants like Google and Apple, at this point in time borders on ridiculous,  Google and Apple have proven themselves time and time again.  Facebook has proven itself kinda once.

Dont get me wrong. There may be money to be made on a trade in Facebook.  Above are merely the reasons why long term investing isn't just questionable, but truly ignorant.  As I mentioned last week in my article And They Say Tech Isn't A Bubble, tech is going to come crashing down, and Facebook looks like it may be the catalyst.

"Success is a lousy teacher. It seduces smart people into thinking they can't lose." - Bill Gates

Photo by Sean MacEntee

Copper, The True Barometer Of Global Growth

When evaluating the macro economy there are a few key indicators to look at. Lately I discussed the Baltic Dry Index and it's lagging growth, now I want to touch on a even more telling indicator, Copper. Copper tells us about global growth and should be used as a telltale sign of where the financial markets should be and where they are headed. Below is a graph that tracks the price of copper through a ETN. Look and be amazed.

The above image tells us a few things. First off, the rally of late may not have solid footing at all. We have seen some growth in copper, but not what is to be expected with the markets acting like they are. For the financial markets to be on track for new highs, as many experts are claiming; Wouldn't you expect a a little more out of copper? Secondly, it is time to take a close look at the BRIC countries. The BRIC's have given us substantial growth over the past ten years, and their current global growth may not be what we expect. As copper is telling us, the global growth picture is obviously slowing, which in turn will have an impact on global U.S. companies. This is something to keep an eye on as we go into the next round of earning, as we know there are also sustained economic problems in Europe.

Why Warren May Be Wrong On Housing

After CNBC's morning with Warren Buffett last week one could feel very bullish on the economic recovery. My issues do not reside with Warren directly, but rather the public interpretation of his investment calls. To begin with one must understand that Warren deals on a long term basis. He looks at something over a ten year period while most investors are merely searching for returns over a much shorter term.  That being said his brilliant investment tactics may not apply to you.

Let's take a look at Buffett's Bank of America call last year. After a nice long year Warren's call has finally come back. Those who followed Warren into the trade may now have broken even after this long, hard, and uncomfortable year. We have no idea where Bank of America will go in the coming months, that's a concern for another article. But for those investors at home though followed Warren into the BAC trade, your capital could have had a great return elsewhere. Had you bought Apple, Gold, or many other entities, you could have made an easy profit. Instead you looked at an investment that was down almost 50%. From a normal investor standpoint one would rather get returns now and not in the future. Warren is usually right, but often he is right far ahead of the trend, which could cost the normal investor not only his shirt, but his sanity.

Looking at another one of Warren's big calls, one that many investors have had big questions about, is his lack of investment in gold. Warren, a brilliant man, takes investments back to basics. He is a firm believer in buying a company (or a part of it) and having his initial capital give him a return in growth or a dividend.  Those who trade commodities know that this is obviously not how commodities work. Warren fails to realize that commodities prices are based on the limited availability of something, like gold or silver, and the desire of that commodity by the public (or investors).  Gold is a simple supply and demand game. Supply is fairly limited and the demand has increased over the past few years. Warren's failure to look at gold through different lenses; Of gold being in limited quantity and desire increasing for it, have cost him a huge potential return.

Now that you understand how Warren's ideologies differ from the mast majority of investors, we can evaluate his most recent call. First off, as we learned through his Bank of America purchase, he sometimes is early, very early. This can cost the small or even large investors lots of money (lost potential returns elsewhere). We have all heard the saying "don't try to catch a falling knife." Second Warren fails to realize differing trends, being that he is so set in his ways (he refused to buy gold and missed a great return). With that being said we can now evaluate his most recent call to buy single family homes. There are two fallacies in his argument. First off he may be very wrong in his timing. Warren has been calling a bottom for over a year now. At the beginning of last year many investors thought the bottom was in and played the stock market accordingly. This cost them. In the past Warren has also called things far ahead of time, though he has been right, my money can't afford to wait, and I am sure yours cant either. The second point of contention may be a little new to many but is worth hearing out. With the recent housing market and financial crash many average Americans may be changing their habits. I see more and more families and young people renting or living in apartments. Americas may be moving into a time where home buying is not what it once was. The desire may be there, but the fear instilled by the last few years as many people saw those around them lose their homes, or lose equity in their homes has change the masses behavior. As I pointed out earlier, Warren often misses profitable trends and he may have missed this new trend away from single family homes. Evaluate these concerns as you run in blind after Warren's trades.

"Rule No. 1: Never lose money. Rule No. 2: Never Forget rule No. 1." - Warren Buffett

And They Say Tech Isn't A Bubble

At this point the markets are just comical.  All the experts are suggesting that tech is not a bubble, that this time things are different.  I hate to point out that the only difference is the names that are leading the bubble.  As of this morning Yelp IPOed at $15 and does not make any money.  Let me repeat, this company makes $0.  That didn't stop investors, they bought it right up.

When tech comes up Apple has to be at the forefront.  We all know Apple is one hell of a company and may be undervalued.  Apple actually makes something and turns a profit, this does not pertain to them.  But don't think that if technology falls it won't take Apple with it.

What should have investors concerned is the P/E rations of these companies.  They are growth companies, I will not doubt that argument.  Does that mean Linkedin deserves a P/E over 700, Fusion almost 200, Nuance almost 200, and Amazon almost 130?  These are P/E ratios that are similar to that of the tech bubble of yesteryear.  Many of these companies make minimal to no profits.  That my friend is a bubble.

All of technology may not be wrapped up in the mess of overvaluation.  That would be nice if the markets did not trade emotionally.  As we learned last year the markets can be very emotional and can trade down as hard and as fast as they traded up.  With all those technology buffs telling you that the technology bubble is not here, they just want you to keep pumping up their stocks.  Watch your money, because those talking heads sure aren't.  

Why 2012 Isn't 2011... It's Worse

Tonight while watching my favorite show,  Jim Cramer's I Will Lose Your Money,  he was suggesting this year is nothing like the last.  His analysis as always is nothing less than comical.  Before I bring up the strong supporting evidence for my argument, merely refer to Another Greeceful Weekend to understand my disdain for Jim Cramer.

Now to the meat of the presentation.  Below are two images and you are tasked to decipher which is 2011 and which is 2012.

So things are different they say?  In fact they may be so,  but not in the good way.  What is shown above should not excite you, but rather scare you half to death.  This time around the market has come farther and at a much faster pace.  The market has also chosen not to pull back and the S&P has gotten allergic to down days.  Analyst are suggesting we are headed to 1700 on the S&P, oh my.....  If only the stock markets went up forever,  I hate to burst the bubble, but stock markets do go down.  And as we saw last year they go far down.

Below are some real hard facts and they don't look all rosy.

  

Yes real GDP is better; In comparison to what?  To make the argument that things are better when the comparisons are based on the great recession is ridiculous.  Things are better, yes.  Are things perfect?  No they are not, in fact they are not even decent.  The durable good number speaks for itself, this cold hard number suggests thinks aren't perfect.  For the market to keep headed higher at these rates in spite of gas, in spite of horrible home prices, and  in spite of the European recession is just comical at this point.  The markets have come up hard and fast.  When the market stops brushing off the bad news because it's so bad it has to sink in, we will go back the other way as quick as we did last year.  For those reading this suggesting that I haven't brought up jobless claims, housing, or so on.  You are correct, the average readers time span has elapsed and my point has been clearly made and does not need any further support.

"Don't be afraid to see what you see." - Ronald Reagan