GE the case against $GE. Hint: Too much retail and we are running out of Cheerleaders.

General Electric (NYSE:GE) has redeemed itself in the eyes of shareholders. Coming back from the 2008 financial meltdown the stock has climbed nicely and so has the dividend. You cannot help but notice all the positive feel good stories about why its a good idea to go long and stay long. Buy and hold heaven here we come.

Near its 52 week highs the dividend yield is 3.19%. The S&P 500 clocks in at 2.5%. Pretty good you’re thinking. Buying stocks at 52 weeks highs is tricky business, Sir.

Here are a few tidbits to think about.

Some 40% of shares are owned by retail investors. Season that with the understanding that margin debt is at or near record highs again. In a margin squeeze GE is big and liquid. It can solve a lot of emergency margin call pressure.

The short position has jumped but is still below 1% of float. The sharks are smelling the blood in the water.

Sell side analysts are overwhelmingly bullish. No significant sell or reduce calls from anyone. The cheerleaders are maxed out. You can re-issue the buy rating once in a while to make it look good but there is no one else to help with momentum.

Yes some of the fundamentals look good. GE is not going bankrupt. But the hype is starting to become excessive. All you need is a few down spikes and the spell will be broken. Retail investors will sell in a panic and institutions will go long on value.

Same old, same old.

George Gutowski writes from a caveat emptor perspective.

JP Morgan and Nitroglycerine are now Exactly the Same. $JPM $XLF

JP Morgan (NYSE:JPM) beat off the governance rebels and upheld the olde order. Jamie Dimon will get to keep his job as CEO and Chairman. After some heavy lobbying, arm twisting and God only knows what kind of IOU’s are now out there Jamie Dimon stays in.

I’m not sure the right side won but it is one share one vote which means the big institutions rule. OK so Jamie Dimon’s skills at infighting have triumphed for the present. Business and risk à la Jamie Dimon continue.

Here’s the rub. Financial Institutions are highly leveraged and accident prone at times. No one on JP Morgans Board has significant banking or derivatives/trading experience. They can listen to all the presentations and still not fathom the crux of the matter. They have to trust.

The Board has to trust that nothing will go wrong for a long time. (Long time is defined by how much longer Jamie Dimon wants to stay on) Things do go wrong at financial institutions. London whale debacles have happened to almost every institution in one way or another. The next time something big goes wrong the market will have another crisis of confidence. Everything will boil to the surface. Everything will get second guessed. Large institutional investors will loss heart and come back with a vengeance.

So investing in JP Morgan in addition to the normal risks one would expect from a large financial institution is now like walking with a large jar of nitroglycerine. One false step and it all blows. It blows if you trip. It blows if someone bumps into you. Investing is a blood sport and more than a bump can and will occur.

George Gutowski writes from a  caveat emptor perspective.

Disney Mickey Mouse Dividend Satisfies Goofy Investors Only. $DIS

Disney (NYSE:DIS) is easily recognizable by both investors and consumers. Long a stalwart of American Culture many look to it as an important holding. Of recent past the Disney people have increased the dividend and are beginning to perhaps catch the eye of dividend oriented investors.

In the past five years dividend growth has been  16.46%. Normally this generates buy and hold activity from the dividend investing community. Management needs to maintain this pace in order to keep dividend investors engaged.

But here is the very big problem set.

The current dividend yield is 1.14%. Not exactly top of the list.

The current dividend pay-out is approximately 50% which can be considered generous. Increases from this level are unlikely.

The PE ratio sits at 20. Many would say that is fully valued.

Disney is involved in capital-intensive businesses. Cash is consumed easily. Parts of Disney are really a real estate play. Movies absorb tens and hundreds of millions before a nickel comes back. So a 50% dividend pay-out ratio will be difficult to sustain.

So if you want to believe the Disney dividend story you need to come to grips with the capex vs dividend pay-out scenario. Entertainment is brutally competitive. If push comes to shove and you know it will, the executives will roll the dice on capital-intensive movies or entertainment forms first and then promise to come back and reward the shareholder.

The product life cycle is orgasmically short before its fully exploited and then starts dribbling in as an annuity. This is not the stuff of classic dividend plays which have repetitive predictable cash flow.

But a trip to Disney World. Yeah you bet. Lets go.

George Gutowski writes from a caveat emptor perspective.

$IBM Dividend Sustainable or Engineered? Trend Lines no Work Good.

IBM (NYSE:IBM) the tech stock everyone wants to like has some worrisome trends. But they just raised the dividend what could be the problem.

Top line growth over the past three years is relatively flat. For tech this is the sign of death. You are milking the legacy aspects. Eventually a disruptor comes and takes it all away. BTW there is next to no research and development. They just buy and hope o catch the wave.

Earnings are up modestly but because of decreases in shares outstanding the EPS looks great. This is financial engineering straight from a quantitative computer model. This is not a compelling product proposition. They have cut costs and squeezed operations. Eventually this gambit runs its course.

A company is only as good as its customers. IBM customers are all in the cost cutting austerity business. Not one name is turning the world on its head. No world-beating disruptor is using IBM. Think about it. No fuel for the fire.

George Gutowski writes from a caveat emptor perspective.

 

Wal-Mart, US Tax Returns and Subterfuge $WMT

Wal-Mart (NYSE:WMT) claims that US consumer is under buying so they are under-performing. You see it’s the IRS’s fault. Tax returns are not as big as expected so the consumer is not spending.

Really. Wal-Mart it’s a coincidence that the interim head of the IRS had to resign because of over zealous treatment of Tea Party tax status. So when Q1 comes out flat blame the tax man.

Hope investors forget that there are huge markets besides the US. Whats happening there. Hope investors forget that Macy’s seems to be on the rebound. Hope investors forget that the US economy has been on shaky ground since 2008.

What we are probably seeing is the end of Wal-Marts simplistic business model. Cut throat price slashing.  The consumer who can only show up if the price is very low is tapped out. There are no other reasons to shop at Wal-Mart other than low price.

Wal-Mart branding is 200% cheap price and no other business input. Other retailers have not followed to the same extent as they felt they had something to offer. Service, selection, shopping experience.

Yes Wal-Mart obliterated many traditional competitors. But that play is coming to an end. This may be the high water mark for Wal-Mart. Anyone in business realizes your customers need a capacity to pay. Otherwise they are not customers.

George Gutowski writes from a caveat emptor perspective.

Encana Crash and Borrow Dividend Burn $ECA Integrity When You Borrow. Yeah Right!

Encana (Photo credit: Wikipedia)

Encana (NYSE:ECA) what’s to think about. Big gas play with about a 4.5% dividend for a pay to wait. If you believe in heating your home your onside right. Well its like this. Price of gas is declining big time. That means cash flow is hurtin but the overheads still need tending.

The shareholder is expecting a dividend on account of some smooth talk from the executive suite. But here it the thing. To pay the dividend; Encana is borrowing big time. That means the vig is turned  on and climbing. So do something to get the monkey off your back.

The suits borrowed and promised something sweet and juicy for tomorrow. Probably your foreskin but maybe something else. One thing is for sure. They have borrowed to keep the dividend going. Always a suspect move need a certain Je né se quoi non.

So are you feeling lucky or is the French sounding good?

So you have a dividend yield and growing bank loans. Bust a move. The bank loans are problems.

George Gutowski writes from a caveat emptor perspective.

Canadian Banks Trending for Disaster. Run, Hide the Children, Growing buzz says its gonna be bad. $RY, $TD, $BMO, $BNS, $CM

Can you hear the drum’s. Canadian Banks are going to have a terrible time of it. Canadian housing market is about to fall apart. Declining housing prices will hurt banks. One article after another of Doom and Gloom.

Yes the Canadian housing market is and will continue to correct. CMHC is the federal entity that guarantees high ratio home mortgages may feel the pinch. But quite frankly it is an arm of the federal government who can and will print money as required.

Most comments are through the eyes of American Experience. Housing market cratered and banks went down right after. A few macro issues that investors need to understand about Canadian Banks. Yes they trade on stock exchanges. Most are listed on NYSE. But they are so highly concentrated within the Canadian economy they are too big to fail. Imagine the US economy where five banks control 90% of the action. Well that’s the way the Canadians play it.

Will banks suffer. Sure. But CMHC has guaranteed to said mortgages. It’s the same as a Federal Govt guaranteed with about a 3/8 of 1% yield premium. CMHC will pay when called upon in an orderly fashion.

Canadian banks do not have a sub-prime mortgage lending market, with dubious underwriting, funny credit ratings and no documentation approvals. So when the proverbial sh*t hits the fan as it has in the past it becomes a controlled crash landing. American style wild west confusion generally does not occur. The bog five will not become insolvent as was the case with many blue chip Wall Street names.

US players who do not understand the nuances may think they have found the next Citigroup and put on the big short expecting a big payday. They will find the stock prices soften  and attractive buying opportunities present themselves. Most bank investors are other blue chip financial institutions along with dividend oriented investors. They are buy and hold. Many have held for over a decade and do not churn their position.

So watch the price soften. Butter softens when it becomes warm. But the calories never go away. This one may have more hysteria than substance.

George Gutowski writes from a caveat emptor perspective.

Will Microsoft Change Dividend or Share Buy Back Strategy with New CFO; $MSFT

Microsoft (Nasdaq:MSFT) is replacing their CFO. Some believe an announcement is coming within a week or so. $74.5 Billion of cash and investment balances are at stake. Regardless of who wins Windows division CFO Tami Reller or Office division CFO Amy Hood are top candidates. Online Services COO Rik van der Kooi is also said to be a candidate.

While everyone is curious to know the outcome I do not expect dividend or share buy back strategy to change much. Major shareholders are donating their shares to charity. The question becomes does the charity want to hold a dividend paying stock or will they sell into the market and stress the share buy back program beyond normal market dynamics.

Who ever wins the job will be marching as instructed.

George Gutowski writes from a caveat emptor perspective.

Jamie Dimon Imitates James Cagney $JPM $XLF “Why You Dirty Rat”

Jamie Dimon Chair and CEO of JP Morgan (NYSE:JPM) is beginning to resemble James Cagney in some of his film roles as an unyielding, unrepentent, tough guy who was not going to take anything from any body. You see? BTW I think Cagney robbed some banks as well.

Just to summarize some of the points which have not influenced Jamie Dimon

1. London Whale debacle destroying shareholder wealth
2. Publicly arguing with Governors of Central Banks
3. Falling out of the running to be Secretary of Treasury under President Obama
4. Trying to get cozy with the GOP to get the same possible job back
5. Two major proxy solicitation services recommending Chair and CEO position be split.
6. Public recommendations that certain independent board members not be re-elected.
7. Independent board members meeting with third parties about some or all of the above.
8. Federal Regulators saying they do not trust JP Morgan.
9. Major institutional shareholders feeling very uneasy about it all. Thats not a vote of confidence.
10. Warren Buffett making public statements of support indicate Jamie Dimon does not have the support you would think he should have as the Chairman/CEO

Regardless of where you stand on this issue; because it has become an issue of the tar baby variety it will not go away in a satisfactory fashion. It is a huge distraction.

If there is a final shoot out of the James Cagney fashion shareholder wealth will be destroyed. Who then will be the “Dirty Rat”

George Gutowski writes from a caveat emptor persepctive.

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Googles Tax Problem; Uncle Sams Opportunity; Thank You Europe $GOOG, $YHOO, $FB, $TWIT

Google (Nasdaq:GOOG) is being hunted down by european tax collectors controlled by austerity starved politicians. Google and other American companies are seen as fat cows. Minimal local political consequences to extracting a few pounds of flesh.

Google rolls up the revenues to Google Ireland and then shunts the cash off to an affiliate in Bermuda. Pretty clever except UK, France and Germany feel they are not getting their fair share.

Come back to USA. Huge amounts of corporate cash are parked off shore. Corporations do not want to pay US income taxes on funds earned elsewhere. Not a bad argument if local taxes had been paid. But if the funds are in Bermuda and Ireland no one has paid something substantial.

So far the argument has been a classic push. Competing governments have not been able to break the logjam. Several corporations have huge off shore cash reserves with no immediate plans to deploy.

US politicians are under increasing pressure to resolve the issue. The uninformed electorate sees big buck off shore held by uber-large entities and joins the local Occupy Wall Street movement. End of electorates analysis. One person one vote does not equal sound financial/economic thought.

Corporations to be frank are motivated by stupid tax rules. Most of the key executives are  domiciled in the US and would probably prefer to see capital returned to US and then move globally without restrictions.

Congress will most likely mandate local state taxes be paid on internet transactions. Politicians also would love to be able to say they forced the repatriation of billions from overseas back to US. This will appease the Occupy crowds.

Watch for tax treaties between  the US and major European governments (EU as well) which will disadvantage off shore cash.

Investors after the initial sticker shock of increased tax rates will see cash coming into play more easily. Demands for effective economic deployment will grow. Investors did not buy to hold cash they can do that on their own.

George Gutowski writes from a caveat emptor perspective.