Facebook will stab investors. $FB $TWTR $LNKD

Facebook (Nasdaq:FB) announces in precious few hours. Can you sense the anticipation. Great if you’re in financial media and need to create buzz. The story line is we expect some improvement in earnings per share. which is good because that’s what is needed. Improvement.

Share prices are the present value of future earnings. FB is trading at 209 times trailing earnings. Lets repeat that; 209 times. What other investment experience with a publicly traded mega cap stock has a 209 times PE ratio created more wealth.

But we are paying for future earnings. What the PE ratio is saying FB is worth 10 times the S&P valuation.

Personally if I was applying a for a Wall Street Job I would not let that one trip off my tongue. If I was a hedge fund manager or some kind of other type of money manager I would not suggest to potential investors that this is a good strategy. Who has a risk profile where 209 PE ratios are acceptable.

According to the Wall Street Journal there are no underweight or sell recommendations. Only ten say hold. 33 urge you to buy and or overweight. The stock has had a big run up in the past few months. So what is left. there are no new cheerleaders to drive in money.

In the past twelve months insiders have sold more shares than they have bought by a factor of 4:1. not bullish.

The legacy investors are all looking for a way out and will probably want to sell the moment they think the escape door is big enough.

So lay it on me with the conference call. Talk to me about on-line advertising and metrics. Yadda Yadda Yadda. But 209 trailing PE does not work. So what’s it gonna take to double and I mean really double net income and just a 100 trailing PE. Still insane.

This one will be the stalking horse that makes other companies like Twitter (NYSE:TWTR) look good.

George Gutowski writes from a caveat emptor perspective.

Bank Stock Splits Drive Canadian Banks $RY, $TD, $BMO, $CM, $BNS

Canadian banks all have a year-end of Oct 31.  Relax the results are all in and locked up. Earlier this summer they were under pressure because some American Hedge funds though Canadian Real Estate was over valued and a bubble was about to burst.

Some American hedge funds have lost money not understanding the dynamics of the local Canadian economy. Read substantial energy reserves, almost non-existent federal deficit and no culture of sub prime mortgages.

Share values have appreciated and speculation abounds about stock splits. Canadian banks have not split for about six years but they do have a historical tradition of using this contrivance to enhance liquidity and induce more retail investors.

Studies show that eventually stock splits have no long-term effect on securities valuation. But in the short-term you can expect good news for year ends and stock split whispers to drive up prices and then settle down.

Short term traders start your engines. Fundamental investors go have a coffee and  just watch.

George Gutowski writes from a caveat emptor perspective.

Sears Canada Commits Suicide $SHLD $SHOS $SEARF $M $SKF, $JWN, $TGT, $JCP

Sears Holdings (Nasdaq:SHLD) which controls Sears Canada (CA:SCC) is committing suicide. They will be vacating the lease they hold at Eaton Center in downtown Toronto. This is the prime retail space in Canada’s largest city Toronto.

Toronto is North America’s fourth largest city ranking after New York, Chicago and Los Angeles. Giving up the Eaton Center space is like Macy’s giving up on its West 34th St Herald Square location in Manhattan.

Several other locations also of great value will be vacated in complicated sale lease back transactions which generate short-term cash to deal with looming debt obligations. It’s that bad.

So if location location and location drive retail. Sears is dead, dead and more dead. End of analysis.

Rumoured new tenant is to be Nordstrom which has long wanted an entry to Canada’s richest and largest metropolitan market.

At the other end of Eaton Center is the Bay which currently is in a take-over offer for Saks. So you can just see the two square off for some serious competition when the financial engineers quit flipping leases around.

In the meantime the pension fund investors in Eaton Center are rejoicing over the coming rent increases.

George Gutowski writes from a caveat emptor perspective.

Apple Schizophrenia Distorts Long Term Value $AAPL

Apple (Nasdaq:AAPL) is expected to show some short-term weakness. You know this because all of a sudden the PR machine is talking about new and exciting future product launches.

Stock prices are the present value of future earnings.

Everything cannot come out good every quarter. Business is too complicated. If a company can manufacture good every quarter something smells bad.

The market discussion on Apple is very schizophrenic. Investor behavioural behaviour case study at its best.

Buy on rumor sell on news is have a train wreck. News will be out shortly and rumour is out like right now.

Do not trade on todays rumour or todays news. Buy Apple if you believe in the story which has made billions despite the latest suggestions from Carl what’s his name.

George Gutowski writes from a caveat emptor perspective

Amazon to capture book reviews with Washington Post $AMZN $NYT

Jeff Bezos using some loose change he found in one of his coats bought the Washington Post. Old news. Everyone believes he is positioning himself for political power. Which might be somewhat correct.

But consider this speculation in the world of publishing. the old system had gate keepers and middlemen who did quite well. Publishers, editors, agents who would score very nicely with best sellers and near best sellers.

Entire Amazon and disrupt the industry to the point where many of the old school are utterly confused and have no vision. They cannot even pick JK Rowling out of the slush pile when given the opportunity.

One of the gate keepers has been the best seller lists maintained by the large newspapers. NY Times best seller list being the gold standard. This item is not under the control of Amazon and focuses on big dog authors doing big dog sales.

The indie market is much bigger. More hamburger is sold than filet minion.  But NY Times is not about hamburger.

Amazon just bought out Goodreads a few months ago.

Watch for a repurposing at Washington Post to match Amazons publishing ambitions and bringing more independent authors to the lime light. This is make it more compelling to read Washington Post and drive sales at Amazon.

But I’m just speculating. But it does create a virtuous circle of self sustaining activity which otherwise did not exist. The literary sections of many papers have been labours of love and chronically unprofitable. Watch for changes.

George Gutowski writes from a caveat emptor perspective.

China does not believe in itself. Why should we? $PEK, $GXC, $FXI, $SPX

The best metric is human behaviour. This one leads me to conclude China is doomed beyond hope. I live in a large urban center in North America. there is an olde school China Town nearby. The closest Home Depot has illegal undocumented Chinese labour most of whom speak no English.

No Mexicans just Chinese.

They work for $5 @ hour cash paid daily. Productivity is good. No injuries or health claims. Tomorrow same thing over again. The few who speak English claim to have managerial skills on large construction projects. The crews are clearly experienced at construction. This is not their first day at work. 

No one knows where they live at night. No problems for local police. But they are building in North America and not China.

The process to come over which clearly is illegal was expensive and fraught with danger. But they left.

At the other end of the spectrum look at wealthy Chinese buying condo’s in North America and elsewhere. Same dynamic just a different wealth category. How many rich North Americans are buying in China.

How McDonalds will screw Labour. $MCD, $WEN, $BKW, $YUM, $DNKN, $KKD #QSR

Union activists are making a noisy splashy push to unionize food service workers at Quick Service Restaurants. (QSR) The claim is wages are too low. Correct; the work does not pay very well. The further claim is big quick service restaurants can afford to pay big bucks. Disputable; but also way off the point.

Quick service restaurants are factories deployed close to consumers. Factories need materials, labour and capital equipment. As the cost of labour increases, the cost of capital becomes more attractive. We are in a low-interest rate high wage environment. Capital will trump.

QSR has grown by adding locations, expanding hours and growing the menu. Growth was never driven by labours input. As long as it stayed cheap, it stayed in. When labour gets too expensive it will be factored out.

Don’t believe me? Look at any factory environment which has increasingly turned to robotics to improve productivity. Labour has not kept up. So sad so sorry. In many extreme cases factories left and went off shore.

Labour understands one model and one model only. Organize and then leverage your power at the negotiating table. They have never understood competition and probably never will. They are  fighting yesterdays battles.

Right now technology is working over time to replace disgruntled low productivity workers.

The labour issues may become the silver lining for many quick service restaurants seeking the next thing.

Moral of the story. Stay in school, acquire skills, develop a positive can do attitude and add value. The world is Darwinian and will eventually weed out the inadequate.

In the mean time if I was running Quick Service Restaurants I would be worried about the nutritional quality of my offering. Health consciousness is growing stronger every day.

George Gutowski writes from a caveat emptor perspective.

Boeing Crash and Burn $BA

Boeing (NYSE:BA) my my my. Despite recent news reports and market commentary Boeing is doing rather well. Earnings and revenues are up. Deliveries are still strong. Margins are improving. Passenger air travel will increase driving demand for fuel-efficient new aircraft.

Everything is peachy keen good. No worries. Just buy a little bit more. Yes all the metrics everyone is talking about are positive. so lets talk about the 800 lb gorilla sitting in the room that can disrupt everything.

Oil or more precisely jet fuel JP4 if I have the nomenclature correct.

If oil jumps and stays up the cost or air travel will increase. People will cut back on air travel. air lines will cut back on order purchases etc etc etc.

So its nice to follow the Boeing story. The 787 Dreamliner with its carbon body that flexes on take off is very sexy.

But it comes down to the price of oil which is a geo-political risk that even the most astute and sophisticated businessman cannot manage around.

So yes the new fleet is more fuel-efficient. But a terrorist can drive up the price of oil faster than an engineer can wring fuel efficiency out of the technology.

George Gutowski writes from a caveat emptor perspective.

Starbucks walks into Chinese Buzz Saw. Does cultural icon get it? $SBUX

Starbucks (Nasdaq:SBUX) is expanding all over he world. Starbucks is pretty cool and has been reasonably clever with cultural issues. But they just stepped on a Chinese land mine. State owned media has criticized Starbucks for over charging compared to other prices for comparable products around the world.

Normally who cares? Charge what the market will bear. It is free choice.

China is not a free market. There are reactionary forces who are suspicious of globalism and western influences. Apparently they have some editorial influence in state media.

Starbucks may be guilty of the same mistake Google experienced in China. Not understanding the game properly. Starbucks is in a consumer business where PR and public perception is critical to short and long-term success.

Starbucks has walked into a Chinese buzz saw. They should have seen it coming. The question becomes how do they fix it? How fast can they fix it?

China is too big for Starbucks to abdicate.

George Gutowski writes from a caveat emptor perspective. Follow him on Twitter @financialskepti

Twitter Psychology. How investors will screw themselves. $TWTR, $FB, $LNKD, $GOOG, $MSFT, $YHOO #SEO

OK so Twitter (NYSE:TWTR) will report today after the close. This will be the very last earning announcement before they go public. You can hear the feeding frenzy coming. Surely this IPO will fare better than that last when with Facebook (Nasdaq:FB) taking a huge dump for a whole year.

Here are a few ways that investors will screw themselves with exuberant enthusiasm.

  1. They will dismiss the lack of profitability and ignore that a stock is the present value of future earnings less the present value of near term losses.
  2. They will focus on the wide-screen big picture without clear proof of concept. When TV was in its golden period, Mad Men on Madison Ave knew how to manipulate viewers. Despite hordes of SEO experts no one is turning away business because he or she is so damn good.
  3. The earnings call will try to dampen investor expectations. The market is in a frenzied state as is. Investors in their excitement will ignore management.
  4. Management may lay out what needs to be done by way of capital expenditure to finish building this marvellous money machine. investors will probably ignore this also.
  5. Twitter will not explain how they co-operate with the US Intelligence community. Other countries may sanction Twitter in the future. Significant geo-political risk exists.
  6. Twitter will stick to basics when discussing revenue growth. We all know they will acquire other companies but they will refuse to discuss it now. Twitter will need booster shots of rapidly growing earnings.
  7. Facebook can stop its financial levitation act. Now that it’s north of $50 you can sell it to pay for Twitter. How much higher can Facebook go any way.

George Gutowski writes from a caveat emptor perspective. Follow him on Twitter @financialskepti