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

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.

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.

Google Achilles Heel; European Income Taxes; Not so Good for Google $GOOG $YHOO $FB $TWIT

Google (Nasdaq:GOOG) pays next to no income taxes on European revenues. UK, France and Germany all have Google in their sights. Google currently designates units in those countries as providing marketing and support services to Google Ireland which in turn transfers most of its turnover to an affiliate in Bermuda.

The structure is legally sound for now. except the guys who make the laws no longer like it. Google is advertising for sales and marketing staff in UK, France and Germany. So if the sale becomes local because of the local sales and distribution arms taxes will become local as well.

European governments are all fighting austerity and other financial issues. Quite frankly they have no political choice but to increase tax revenues. Google is a fat cow which will be slaughtered as quickly as possible. The UK, France and Germany constitute and will always constitute the overwhelming bulk of Google European revenue.

While Google is currently in the tax mans sniper scope. Yahoo (Nasdaq:YHOO), Facebook (Nasdaq:FB) and Twitter (To be announced) who all will depend on European revenues will be treated in the same fashion.

Big increases coming to global income tax rates which means negative pressure on EPS and potential dividend rates.

Death and taxes are inevitable. Google is not on its death-bed so it must be taxes.

George Gutowski writes from a caveat emptor perspective.