Seeking Alpha

Charles Payne's  Instablog

Charles Payne
Send Message
Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
My company:
Wall Street Strategies, Inc.
My book:
Be Smart, Act Fast, Get Rich
  • WHAT IS "THE MARKET" ANYWAY? - By Charles Payne

    We always talk about "the market." What is "the market" to regular people?

    • Wall Street is not the stock market, it is the physical location of the NYSE, and major brokerage firms where they manage transactions, and should not be confused with long-term investing.
    • The stock market does not always reflect the economy. Markets move on fear, manipulation, and other non-fundamental factors, typically for short periods of time, but also for longer-term periods as well.
    • The major indices are not effective proxies of Main Street; everything can look great or everything can look awful, which only angers the public that knows better.


    The "Dow" or "S&P" are indexes that are supposed to reflect the entire spectrum of business. The problem is they are older names and might not reflect the hot or exciting parts of the economy. Consider the Dow components that reported this week.

    Misses from food, beverage, and technology companies underscore how hard it is to reinvent yourself over and over, while beats in military hardware and insurance show how tough it is for innovation to change those industries.

    CompanyYear FoundedYear on DJIA
    MCD19401985
    KO18861987
    IBM19111979
    UTX19341939
    TRV18532009

    I am not sure how to communicate "the market." However, I think it is a major stumbling block for those who invest in the stock market and for those who own companies. I will admit there are all kinds of shenanigans that distort value. Fed action is designed to make stocks more attractive, although this time around I disagree; high-frequency trading distorts minute by minute.

    Corporate buybacks distorts the intermediate-term health of companies. It is important to read the entire income statement, the cash flow statement, and balance sheet, instead of focusing on the bottom line.

    One thing to remember, however, in the longer-term, great companies will have great stocks.

    Taking Risks

    When the market is all over the place, it is easier for those older Americans who remember the Harold Lloyd classic "Safety First." Nevertheless, when it comes to investing, older folks are more reckless or more confident than the younger generation.

    30% of 60-65 have all their investment money 100% in stocks. 52% of 60-65 have 70% of all their investment money in stocks. On the other hand, 39% of Millennials assets are largely in cash, while 13% are heavily invested in stocks.

    This chart of the Dow might give us a few clues why this is happening…

    If you are sixty-five, the Dow began that year at 1692; now up to 869%, but it has not been a smooth ride. In fact, you would have turned 17 when the Dow peaked at 7000, and drifted for 16- years, losing 73%.

    Compare the difference to that of the Millennials; since 1982, the market has been up 670%. However, this age group has experienced two stock market crashes since turning 17, and now has serious trust issues.

    I understand that young household wealth is substantially lower than it was twenty to thirty-odd years ago, but delaying investments and the accumulation of assets means retiring a lot later than previous generations.

    Average Retirement Age
    199157
    201462
    206473

    Oct 22 10:43 AM | Link | Comment!
  • OLD COMPANIES BLOWING IT...GRAND OLD PARTY...HOPE NOT! - By Charles Payne

    The midterms are two weeks from now, and either it's going to be the most boring midterm election in history, or the mainstream media isn't going to be happy about the polls, but investors might be, and of course, with so much despair out there, everyone is interested in where we go from here.

    Take a look at the messages both parties are spending money on for Senate seats:

    Matching Messages with Concerns and (Really) Winning

    Republicans seem to be on the right track, except for maybe spending too much time and money on Obama-care. Take a look at the table below and see what I'm talking about... the GOP polls higher on the top three issues this year.... economy, federal deficit, and taxes. The Affordable Care Act ranks third and the Dems are actually polling better there. Of course, the Dems have spent a ton of money on social issues that are barely on the radar.

    The bottom line is winning in November because the electorate is fed up with Democrats. President Obama isn't an overwhelming vote for GOP policies, which have to be proven to be better for America, but first must be concise and unified. Winning in two weeks and losing in two years is winning a battle, but losing the war. The economy should get a natural boost in the form of a sigh of relief in a couple of weeks if polls prove to be correct. The economy would get a bigger long-term win if the GOP stays on top of the topics most important to Americans right now.

    Hint: It's not gay marriage or bragging about not pandering.

    If Democrats retain control of the Senate, it would be a major blow, although it would underscore the point I'm trying to make. It would be unnerving that people would vote on issues they aren't truly concerned about like global warming simply because there was no cohesive counter-argument.

    Earnings Message

    It's been an uneven round of earnings since the closing bell yesterday. Apple simply blew away the Street and if it were any other company, the stock would be up 20%, but instead, it's up a couple of dollars, but it should still open at a new all-time high.

    Interestingly, the biggest losers are big time Dow components which are weighing on the index which was poised to be up 100 points. It might speak to the need to freshen up the index. Sure, many of these components haven't been in the index as long as it seems, but they're older companies that have to reinvent themselves again. Of course things haven't changed so much in insurance and aircraft that United Technologies and Travelers are in the same predicament as McDonald's, Coke and IBM.

    CompanyYear FoundedYear on DJIA
    MCD19401985
    KO18861987
    IBM19111979
    UTX19341939
    TRV18532009

    CompanyTickerEPS (Actual)EPS (Est)Rev (Actual $M)Rev (Est $M)
    Apple*AAPL1.421.31$42,123.00$39,839.13
    Chipotle Mexican GrillCMG4.153.84$1,084.10$1,059.77
    Rent-A-CenterRCII0.490.47$769.50$772.95
    Steel DynamicsSTLD0.470.44$2,339.02$2,143.61
    Texas InstrumentsTXN0.760.71$3,501.00$3,452.72
    Werner EnterprisesWERN0.360.36$551.96$542.47
    Canadian PacificCP2.312.38$1,670.00$1,689.37
    Coca-Cola**KO0.530.53$11,976.00$12,145.31
    Harley-DavidsonHOG0.690.60$1,130.56$1,144.50
    Kimberly-Clark*KMB1.611.54$5,442.00$5,352.63
    Lockheed MartinLMT2.762.71$11,114.00$11,272.77
    McDonald's**MCD1.511.37$6,987.00$7,191.89
    Travelers**TRV2.612.28$5,983.00$5,931.34
    United Technologies**UTX1.851.81$16,168.00$16,164.42
    Verizon**VZ0.890.91$31,586.00$31,585.98

    * = Open WSS Idea ** = Dow Component

    Yesterday, the Dow climbed off the canvass despite IBM's big miss. On one hand, it wasn't a real "surprise" and one wonders what the analysts covering these names are thinking with models that aren't catching what non-analysts could tell them from anecdotal observation.

    Oct 21 2:28 PM | Link | Comment!
  • BIG BLUE'S BLUES - By Charles Payne

    Big Blue, otherwise known as IBM, reported a disaster of a quarter this morning, sending its shares lower and crushing the stock market in the process. It should be noted that IBM has been in trouble for quite some time now. Big Blue was slow to jettison poor performing units and slow to be an aggressive buyer in spaces like the cloud. I'm not using IBM as a proxy for the economy, or even tech, or at least not new tech.

    Nonetheless, the market is on edge, as it should be during earnings season. In the meantime, the economic backdrop is improving.

    Like a lot of the economic data last week, most news outlets, including financial, didn't think much of the 6.3% surge in housing starts. Those that mentioned it, just shrugged it off to more apartments being built, but the story is a lot more than that.

    The rate of growth for multi-family is still remarkable, but single family was up month to month, and year over year, and was two-thirds of the total.

    Housing Starts

    September

    One-FamilyMultifamily
    Total646,000371,000
    Previous Month639,000318,000
    Year Ago582,000281,000

    Some say housing data is backwards looking, but one forward looking indicator is the Architecture Billings Index (NYSE:ABI) and it's in a great uptrend right now. The index covers inquires and contracts. The number is being driven by multi-family units, but mixed use is strong in institutional projects and commercial projects which are all on the cusp of pre-recession growth.

    (click to enlarge)

    The problem with the economy is that this recovery is where it should have been four years ago, and the key characteristic is the lack of wage growth. On the contrary, wages are lower than the start of the recession. That's only changing slowly as the National Association for Business Economics' (NABE) quarterly report compiled from leading economists point to not only slow rising wages, but a nice divergence between hiring and firing.

    NABE
    Added Headcount32%
    Lowered Headcount7%
    No Problems Finding Workers66%
    Raised Wages24%

    Today's Session

    I'm not forcing the issue as earnings season is crazy all the time, but with recent weakness and angst, companies that miss will be greeted with harsher selloffs. I do see the economy getting better and I think investors should start to consider midterm elections in two weeks. Yesterday, President Obama was greeted with jeers and lots of people walked out of a campaign stump appearance. He might not want to pull a Bill Clinton, but might not have a choice and that could mean lower taxes and fewer regulations.

    Below is a chart of some of the companies that reported this morning:

    CompanyTickerEPS (Actual)EPS (Est)Rev (Actual $M)Rev (Est $M)
    Community BankCBU0.590.56$92.50$92.65
    HalliburtonHAL1.191.10$8,701.00$8,525.59
    HasbroHAS1.461.45$1,469.90$1,470.28
    IBM**IBM3.684.32$22,397.00$23,372.72
    Phillips ElectronicsPHG0.280.26$5,547.00$5,591.48
    SAP AGSAP0.840.82$4,256.00$4,230.69
    V.F. Corp*VFC1.081.09$3,520.00$3,572.46
    Valeant PharmaVRX2.111.99$2,056.20$2,062.08
    * = Open WSS Idea **= Dow Component

    Oct 20 2:31 PM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.