Chart: The S&P And 'Sell In May' In An Election Year [View article]
The t-stat for my data is 2.6. The sample size is still not very large, but you cannot dismiss it out of hand. In May, during election years, you have a 64% probability of losing money in a sample of 34. In any month that does not fit this description, the probability is only 42% in a sample of 1630.
In the disappointing jobs report, the most important statistic may have been the 63.6% labor participation rate, a 30-year low. Critics of the Obama administration are quick to seize on this as the “real” reason for the falling unemployment rate, but the downward trend has been happening for more than a decade as baby boomers have been retiring. [View news story]
Retirees do not affect the paticipation rate because this rate is calculated as a percentage of people IN THE LABOR FORCE. The labor force excludes retirees and children by definition.
Chart: The S&P And 'Sell In May' In An Election Year [View article]
I have calculated the returns in May during election years going back to 1872. That is as far back as data is available. For all months in this 140 year period, the average return is 0.4% with a standard deviation of 10.6%. For May, in all years, the average return is just 0.1% with a standard deviation of 9.7%. This doesn't change much even if you remove years when returns or declines exceeded 9.8%. In election years, the average return for May is negative 1.3% with a standard deviation of only 4.4%. Excluding outliers, the returns are still negative 0.6, with only a 3.2% standard deviation. Returns were negative in election year Mays 22 out of 34 times. This is a somewhat significant finding, but I would refrain from suggesting that it will make you rich. Markets are extremely over-bought and over-valued in my opinion, and my models are almost universally negative. So the way I look at the May statistics is that it would be really nice if we make it 23 out of 35.
Chart: The S&P And 'Sell In May' In An Election Year [View article]
Very interesting, but you only show three complete cycles in your chart. A pattern is not really statistically meaningful until you have about 60 cycles - which of course you don't have because the US stock market did not exist in 1772. I am short the market, but not because its May and not because its an election year.
Real yields on US 10Yr treasuries are almost 200 bps lower than on the equivalent Japanese bonds. This gap is almost unprecedented, and has never been sustained. There might be any number of reasons for this, but you cannot argue that US bonds will go lower becasue Japanese bonds did, because they didn't!
I am an avid follower of your work, but am taking it upon myself to keep you honest:
1. It is ridiculous to suggest that Amazon competes on price. I can walk to my nearest book store, and to my nearest Wal-mart, but I almost always buy from Amzon because it is EASIER. I have never compared prices and would not change my habits if tax were included. No one will ever compete with Amazon on convenience.
2. A decline in fcf in one quarter is of no material consequence. Cash earnings, which is a misleading term for a useful concept, which is just net profit plus depreciation, rose 41%. Normally, if a company is increasing its investments and is doing so wisely, the stock will go up. Only if the company is making very poor use of that cash, would it go down. Obviously the market is convinced that the investments are wise. Only time will tell, but you have to base your arguments on the wisdom of their investments, not on their operating performance. Have you discussed the wisdom of these investments? (Sorry if I missed it.)
3. Speaking of which, there's no gimmick in equity earnings per se. If you own a strategic but non-controlling share of another company GAAP requires you to account for the earnings of that company, as well as the losses, using the equity method. I notice that they have never included this item before, but that doesn't automaticaly make it illigitimate. If the company they owned for a long time, suddenly made a large profit, it's legitimate. If they just bought the company within the last year, it's legitimate as long as they pro-rate the earnings for the number of months held. Even if they just arbitrarily decided to include profits that were there but not included before, its the past exclusion rather than the current inclusion that is questionable. The market should definitely react positively to this if it was not already in the price. Besides, do you know that the earnings from this affiliate were not in the original guidance in the first place? Certainly it is something that management should have been aware of and it SHOULD have been in the guidance.
4. At any rate, the use of equity accounting may help to explain away the slow-down in revenue growth. If Amazon sees equity investments as the best use of its cash, then revenue growth will slow down, operating margins will decline, but earnings, and therefore value, will increase.
None of this hurts your valuation argument, of course, but I'm still not convinced there is a legitimate catalyst ahead.
When Netflix was $250, we read similar arguments between really intelligent, thinking analysts who were all short and getting taken to the cleaners, and a bunch of uneducated buffoons who know nothing about running a business or making a forecast all buying the stock and being smart asses about their profits when in fact it was going up for no other reason that a bunch of idiots were paying stupid prices for it.
Netflix was comparatively easy: They were clearly headed for a dramatic change that would force the longs to pull their heads out of the sand no matter how arrogant they were when it was going up. No such catalyst appears on the horizon for Amazon. If anyone can like the stock now, what will force them to not like it 3-6 months from now? I await your barrage of new articles with great anticipation.
How Sony Got Into This Mess And How It Can Be Saved [View article]
Sony's SG&A in 3/12 was 72% of what it was in 3/02 and cost of goods was 67% of what it was. Despite the rising yen, the company has done a pretty good job of cutting costs, but has failed to come up with a product strategy that could sustain its revenues. The company tried to force consumers to buy the complete suite of Sony products by making it difficult to use non-Sony peripherals and software with Sony consols, while competitors focussed on just making the best in each class and outsourcing everything but the design. Sony's new chairman is making huge improvements by allowing the Sony software to work on non-Sony equipment, but I'm disappointed at the timidity of this new move. It does not seem to extend beyond the gaming division. It is an important change, but it's not yet as compelling as I had hoped for.
Randgold And The Secret To Successful Contrarian Investing [View article]
Thanks for all the comments.
One point I may have not emphasized enough is that Mali is a large country. The rebel strongholds are very far away from the mines. Timbuktu is 500 miles from the capital. Gao is about 600 miles and Kindal is almost 800 miles. The mines are even further away than the capital. This is a small arms conflict. I do not dispute the possibility that mining costs can go up, especially if there are any unplanned explosions, but my point is that the gold will still be there. Besides, why would anyone blow up a mine? It is much easier to stop production by blocking the transportation routes.
Chart: The S&P And 'Sell In May' In An Election Year [View article]
Amazon.com, The 10-Q Surprises [View article]
In the disappointing jobs report, the most important statistic may have been the 63.6% labor participation rate, a 30-year low. Critics of the Obama administration are quick to seize on this as the “real” reason for the falling unemployment rate, but the downward trend has been happening for more than a decade as baby boomers have been retiring. [View news story]
Why 'New York Times' Economist Paul Krugman Is Partly Right But Mostly Wrong [View article]
Chart: The S&P And 'Sell In May' In An Election Year [View article]
Chart: The S&P And 'Sell In May' In An Election Year [View article]
5 Reasons The Bond Bears Are Wrong [View article]
5 Reasons The Bond Bears Are Wrong [View article]
Is Amazon The Next Netscape? [View article]
1. It is ridiculous to suggest that Amazon competes on price. I can walk to my nearest book store, and to my nearest Wal-mart, but I almost always buy from Amzon because it is EASIER. I have never compared prices and would not change my habits if tax were included. No one will ever compete with Amazon on convenience.
2. A decline in fcf in one quarter is of no material consequence. Cash earnings, which is a misleading term for a useful concept, which is just net profit plus depreciation, rose 41%. Normally, if a company is increasing its investments and is doing so wisely, the stock will go up. Only if the company is making very poor use of that cash, would it go down. Obviously the market is convinced that the investments are wise. Only time will tell, but you have to base your arguments on the wisdom of their investments, not on their operating performance. Have you discussed the wisdom of these investments? (Sorry if I missed it.)
3. Speaking of which, there's no gimmick in equity earnings per se. If you own a strategic but non-controlling share of another company GAAP requires you to account for the earnings of that company, as well as the losses, using the equity method. I notice that they have never included this item before, but that doesn't automaticaly make it illigitimate. If the company they owned for a long time, suddenly made a large profit, it's legitimate. If they just bought the company within the last year, it's legitimate as long as they pro-rate the earnings for the number of months held. Even if they just arbitrarily decided to include profits that were there but not included before, its the past exclusion rather than the current inclusion that is questionable. The market should definitely react positively to this if it was not already in the price. Besides, do you know that the earnings from this affiliate were not in the original guidance in the first place? Certainly it is something that management should have been aware of and it SHOULD have been in the guidance.
4. At any rate, the use of equity accounting may help to explain away the slow-down in revenue growth. If Amazon sees equity investments as the best use of its cash, then revenue growth will slow down, operating margins will decline, but earnings, and therefore value, will increase.
None of this hurts your valuation argument, of course, but I'm still not convinced there is a legitimate catalyst ahead.
Amazon.com, The 10-Q Surprises [View article]
Netflix was comparatively easy: They were clearly headed for a dramatic change that would force the longs to pull their heads out of the sand no matter how arrogant they were when it was going up. No such catalyst appears on the horizon for Amazon. If anyone can like the stock now, what will force them to not like it 3-6 months from now? I await your barrage of new articles with great anticipation.
Money For Nothing: Navigating Fixed Income Investing In A Low Yield World [View article]
Randgold's Rapid Growth Trumps Political Risks [View article]
The Main Target Of China's Housing Regulations: Home Price-To-Income Ratios [View article]
How Sony Got Into This Mess And How It Can Be Saved [View article]
Randgold And The Secret To Successful Contrarian Investing [View article]
One point I may have not emphasized enough is that Mali is a large country. The rebel strongholds are very far away from the mines. Timbuktu is 500 miles from the capital. Gao is about 600 miles and Kindal is almost 800 miles. The mines are even further away than the capital. This is a small arms conflict. I do not dispute the possibility that mining costs can go up, especially if there are any unplanned explosions, but my point is that the gold will still be there. Besides, why would anyone blow up a mine? It is much easier to stop production by blocking the transportation routes.