August 25, 2014
- What really matters about the S&P touching 2,000 today…
- Why the war in Ukraine will wind down soon, and the investment implications
- The strangest businesses getting the best tax advantages…
- The $500 million market for a double-chin drug
- Violinists victimized by booze crackdown… reader insight into seller financing and Dodd-Frank… the length of The 5 becomes an issue (again)… and more!
For the first time, the S&P 500 touched 2,000 this morning. The move comes on the heels of a strong week last week, propelled by Kate Bush’s return to the concert stage after a 35-year absence.
Proof not all ’80s music was terrible…
Heh… We begin a new week with an old standby, finding silly reasons for stock market movements. Jonas Elmerraji of our trading desk dug up a few examples from last week, and they make little more sense than the enigmatic songstress’ live gigs in London…
- Reuters: “U.S. and German data drove confidence on economic growth and helped extend a stock rally”
- USA Today: “Boosting stocks Thursday, for example, were better-than-expected readings on manufacturing in the Philadelphia region, sales of existing homes and first-time jobless claims”
- Pittsburgh Tribune-Review: Earnings “pumped up the stock market.”
“Sure,” Jonas allows, “all of those things probably factored into the market’s price action for the week.”
“But so does your neighbor selling off 100 shares of XYZ Corp. to pay for his upcoming vacation,” he adds.
“So do rumors and ‘gut feelings.’ And the fact of the matter is that it’s impossible to measure the actual impact that any of those factors have on stocks.
“Ultimately, price is how we make money as traders. It’s the only thing that matters. I don’t care what earnings looked like or how housing numbers changed, as long as I can sell the stock I just bought for more than I paid.”
With that in mind, let’s check out where the market stands in the context of the last 12 months…
“We’re still very much in a ‘buy the dips’ market right now,” Jonas concludes. “But that’s not some kind of useless platitude like ‘buy low, sell high.’ Thanks to the simple technical lines on this chart, we were actually able buy to the dip once again in 2014.”
Indeed, Jonas’ STORM Signals readers played the S&P’s bounce in February for a 5% gain in five weeks. And right now they’re up another 5% in only two weeks.
“It looks like the conflict in Ukraine will wind down soon,” says our Byron King, putting on his military-technology hat.
Make no mistake, he cautions, “Ukraine will remain a dangerous military hot spot for some time to come. Still, the overall situation is coming to a point where major military operations will scale back.”
Tomorrow, Russian President Vladimir Putin meets with Ukraine’s President Petro Poroshenko. “This isn’t a mere social call for handshakes and photo ops,” says Byron. “No, the goal is to hammer out a peace settlement — or at least de-escalate bitter fighting in eastern Ukraine.
“Consider the timing. It’s near the end of August. Seasonal rain will soon fall, and that will turn vast swaths of Ukraine into impassable mud. It’s imperative to work something out soon, lest military operations of both sides literally get ‘bogged down’ like Hitler’s tanks.”
As it stands, “fighting in eastern Ukraine has been beyond brutal,” says Byron; “it’s utter carnage. I’ve seen one credible estimate of Ukrainian casualties in the range of 15,000 dead. Rebels have suffered thousands dead and more thousands wounded and in hospital in Russia. We may never know how many Ukrainian soldiers and rebels died, because casualty lists will become classified state secrets.”
The investment implications? “For as bloody and destructive as the war in Ukraine has been, pretty much all fighting has been with legacy weapon systems,” says Byron. Think AK-47 rifles, Soviet-era tanks and aircraft.
“The war has been a thoroughly mid/late-20th-century evolution. Across the world, defense officials, generals, admirals and other strategists are looking at what worked and what failed to deliver.
“So what comes next? Well, better communications systems, to be sure; better electronic warfare systems; devices to fool anti-air missiles; targeting systems; and much more.”
Byron wrote the foregoing to his Military-Tech Alert readers last Thursday. This morning, I asked him if he wanted to reassess in light of alarmist (and often misleading) headlines like “Ukraine Battles Russian Armored Column.”
“It may get worse before it gets better,” he wrote back. “But Ukraine has population of 46 million; the United States, 310 million. It’s as if the U.S. lost over 100,000 soldiers in three months of combat.
“It cannot last too much longer — but by late fall/early winter? Something has to end.”
“The number of publicly traded REITs is up 50% from 2008,” says our Chris Mayer — “to 209.”
REIT, as you may know, is short for real estate investment trust. “A REIT is a company that owns things such as office buildings or apartments or shopping centers,” says Chris. “The REIT structure is appealing, as it allows the company to escape corporate income taxes. The value of that tax shield is pretty big over time. Second, REITs have to pay 90% of their net income to shareholders as dividends.”
IRS rules for REIT conversions are surprisingly generous “As a result,” says Chris, “all kinds of businesses have turned into REITs in recent years — including prisons, cell towers, billboard operators, cropland, gas pipelines, an offshore oil platform, Internet data centers and casinos.”
Example: “Iron Mountain stores documents in steel racks that look like shelves. Last month, Iron Mountain announced it would convert, and the stock jumped 17%.”
Chris’ Mayer’s Special Situations readers are up 24% in three months on a company that might well convert into a REIT — with much more upside to come.
“The double chin is often hereditary,” says FDA Trader editor Paul Mampilly with our fun fact of the day.
“Worldwide, this facial feature is seen as a cause of psychological trauma and emotional hurt. According to American Society of Plastic Surgeons, chin surgery is the 11th most performed surgery. In 2013, 19,108 chin procedures were performed, at an average cost of $1,942, but people end up paying much more than that.
“Even a casual Internet search will show you that there is a huge, untapped market for a nonsurgical solution for getting rid of the double chin. JP Morgan estimates that the market for a double-chin drug is at least half a billion dollars.”
Paul’s readers are eyeing the only company developing such a drug… and anticipating a 50% gain in the next 12 months.
[Ed. note: We’ve shaken up one of our most attractive “package deals”… and made it even better. Maybe you’ve heard of the Equity Reserve — which we first created in response to popular demand from readers who want all our stock-oriented advisories, with none of the options plays.
We open up membership every six months. We’ve made a lot of changes since February. We’ve added three new high-end services, each with a more short-term focus — think hold times of a few weeks to 12 months. And every premium service we’ve mentioned in today’s episode of The 5? They’re included.
Once again, the law of unintended consequences has struck unsuspecting violinists.
Here in Maryland, the legislature, having solved all other problems, recently banned the sale of 190-proof grain alcohol like Everclear. (As if college-age partiers won’t find another way to get wasted…)
The ban is proving a hardship for violinists. Turns out Everclear helps make a terrific varnish to repair chipped or broken string instruments. “There’s really nothing else that works,” says violin-maker Howard Needham. He’s hoarding all he can; possession of the stuff is still legal even if the sale is not.
Government is all but waging a war on string instruments, it seems. Last spring, we chronicled how musicians visiting from overseas are now barred from bringing in bows made from African elephant ivory, unless they were made before 1976. And those older bows require federal registration and a $75 fee…
“Moving from the Bay Area in California to Salem, Oregon, a year ago made a huge difference in our lives,” a reader writes, carrying on last week’s thread about the relative cost of living.
“Bought a house that would have cost at 2-3 times as much. No sales tax (I know it’s made up elsewhere, but for daily living, it’s sure nice). Great discounts for disabled veterans (licensing, parks, hunting, fishing, property taxes). Better fuel prices (and they pump it for you!).
“Employment, or lack thereof, is about the same for those of us in our 60s — dismal. But true in too many places.
“Overall, economically, we are much better off. I won’t go into how much happier we are to be away from family!”
“As a subscriber and a California attorney, I am more than curious about the Dodd-Frank provision discussed by a reader last Friday.
“I would like a full reference to the op-ed article to more easily seek to examine the law. What a travesty! More central banker control and more cost burden on the little guy.”
[Here it is. A search for “seller financing Dodd-Frank” turns up more.]
“I represent a smaller developer in a slow moving market. He historically has done some seller finance of lots over the years, though has been in a hiatus of selling with the downturn. Presently, we are gearing up for more selling.
“Someone forgot to clue in the California Department of Real Estate (DRE) on this Dodd-Frank provision, as the DRE currently requires us to disclose terms and conditions of seller financing as part of our public report to prospective buyers. Seller financing is part of its Web general disclosures document, with no mention of possible effect of (final) Dodd-Frank regulations.
“Apart from the above issue, I am convinced we have long surpassed the ability of the private sector to reasonably and profitably function (with or without government-favored subsidy) at a level to provide meaningful economic growth — given the millions of laws, old (and never removed) and new, and their obligatory thousands of pages of related regulations on major bills.
“Couple that with the government take at all levels, which makes government more than an equal profit partner with companies. It is only the companies with new and innovative products and services that get to temporarily operate under existing basic laws — and not all of them, whose profits could drive the potential for significant economic growth — before being buried under deluges of targeted regulations.”
“I read with great interest the review of Dodd-Frank and have been aware of the limitations for the private investor for well over a year,” writes another reader.
“I invest in property and buy and sell several pieces a year on owner contracts, so I was concerned on how this was going to affect my investing. I had legal counsel advise me that Dodd-Frank applied to sales of residences for occupation by the buyer as their primary residence. Investment property and commercial property is looked at differently.
“I only invest in bare land, so to my knowledge, Dodd-Frank does not apply to my situation. Of course, the government could take a different position at any time, but for now, I’m continuing on with my investment plan that has worked for many years and, hopefully, will continue that way. If you have more insight or a different opinion on the interpretation of Dodd-Frank, I would be very interested.
“I enjoy your newsletter and look forward to it along with The Daily Reckoning, the only two newsletters I read, as they cut through a great deal of the other noise from all the other so-called news sources. No buts or howevers here.
“Keep up the good work, and don’t take any of the complainers seriously.”
“Thanks,” a reader writes, “for all the great stuff you cover in your 5 Min. Forecast” …
[We’re already anticipating one of those “buts”…]
“…although it too, like the Washington Redskins, may be due for a name change.
“My reason for the change is that I can never get through one of these 5 Min, Forecasts in 5 min., even when there is stuff I just skip over. The writing is good and interesting (and it takes a lot to keep my interest up). From what I read of the Fed meeting in Wyoming, I would have walked out 30 min. into it. Keep up the good work, but maybe consider this for your new name.
“Never mind. That would never go on a coffee mug.”
The 5: Sure, open that can of worms again…
The 5 Min. Forecast
P.S. In case you missed our note earlier today… Did you know Uncle Sam has pocketed $9.2 billion with an investment strategy you can use in your own portfolio?
Over the next four years, you could goose your stock market returns by at least 111% — and maybe more — using this technique that Wall Street would just as soon you not know about.