A Kiss is Just a Kiss. But Month End thats Trader Angst $SPX $DJX

Month end trading. May ending up for first time since 2009, which as you know is the year following 2008 melt-down. so that’s kinda significant. Every month this major window dressing exercise rolls out. Those funds who want to show certain stocks in the portfolio will load up and make the statement look good. Then they sell when the investor losses visibility.

OK we know some investors are naïve and need to be tricked. Not good but that’s the way it is. This is called dumb money. Eventually the money part disappears and they just become dumb but in the meantime….

But who really is dumb. If you have built your investment house with dumb money and now need to play this game give your head a big shake. Maybe its you that’s dumb.

Investors need to look at returns after fees. Yes after fees. If you cannot prove your merit on the basis of returns then a month to month window dressing charade only fools the manager and the dumb money. Smart money will eventually catch on the move on.

So investor and investment manager, which one are you?

George Gutowski writes from a caveat emptor perspective.

Warren Buffett’s Annuity bias. Economic Slavery to Trump Green Energy $NVE, $BRK.B

Berkshire Hathaway (NYSE:BRK.B) through is Mid American subsidiary is buying energy company NVE at a substantial premium. Dividend yield is slightly north of 3%. Revenues jumped smartly after cost cutting and some environmental factors such as cost of fuel and plant closures. After some hard work the positive cash flow should start to kick in and reward investors. Sounds like a good deal.

But energy costs are still high for consumer and commercial accounts. Everything is about energy savings. Solar power if it ever truly takes root will obsolete the classic power utility. Warren Buffett just bet that green energy will not negatively impact this investment.
In the very near future he is correct.

However if solar power is to work it will be in areas with high sunshine. Like where NVE operates. Solar Power will come around. It’s a question of time. Individual homes and businesses will buy more and more panels and go off grid.

Then what Warren? Then what? That’s quite the Black Swan waiting.

The financial metrics appeal to Buffett’s mind-set. Supposed wide moat. Sustainable cash flow. Few serious competitors.

But when the disruptor finally happens it will spread like wildfire. Imagine and American economy with each household having another hundred bucks a month as disposable income.

Warren Buffet claims not to understand technology. He does not understand Microsoft or Apple or Google. but he has made a time bet against Solar Power. Are you with it or against it?

George Gutowski writes from a caveat emptor perspective.

Apple Behaviourial Investing Conundrum Growth vs Dividend $AAPL

How many articles and blog posts about Apple (Nasdaq:AAPL). The conversations in the investor marketplace come down to two solitudes which have yet to resolve.

There are those who focus on Apple as a growth company. constant product innovations. Constant increases in revenues and profits. It’s all so damn sexy. New iPad. New iPhone. Apple is the one to beat. Samsung has a compelling offering and may take share so load up on the market place news.

Then there are articles on the dividend. The tone is how boring that Apple pays a dividend and therefore supports price because of yield. Boo Hoo how sad but that is what a dividend is supposed to do.

Apple investors are in a transitional frame of mind. Is this a sexy growth company or do the dividend investors start to pile in. The dividend investor buys because they believe in the financial metrics. The growth investor buys because they believe in the next generation of product offerings. Two very different orientations.

So what of it?

The growth investors have the greatest psychological risks. They are anchored in their perspective of Apple being exciting and growing in leaps and bounds. They will seek and receive confirmation with product announcements. When the news cycle lessens in intensity they will become discouraged and find less reason to hold or increase positions. Sell buttons get punched.

They forget what a dividend investor is anchored to which is yield. So if Apple is on your watch list as a dividend investor watch the frenzy cycle. There will be buying  opportunities disguised a growth investor sell offs.

This battle will go back and forth several times before the growth investors lose their anchor when they have lost enough of their money.

George Gutowski writes from a caveat emptor perspective.

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.