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Corrections Corporation of American back in the growth business?
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FIRST THEY CAME
“First they came …” is a famous statement and provocative poem written by Pastor Martin Niemöller (1892–1984) about the cowardice of German intellectuals following the Nazis‘ rise to power and subsequent purging of their chosen targets, group after group. Many variations and adaptations in the spirit of the original have been published in the English language. It deals with themes of persecution, guilt and responsibility.
The best-known versions of the speech are the poems that began circulating by the 1950s. The United States Holocaust Memorial Museum quotes the following text as one of the many poetic versions of the speech:
|“||First they came for the Socialists, and I did not speak out—
Because I was not a Socialist.Then they came for the Trade Unionists, and I did not speak out—
Because I was not a Trade Unionist.
Then they came for the Jews, and I did not speak out—
Then they came for me—and there was no one left to speak for me.
Since February 12th the stock market has been rallying strongly.
So what’s with these guys?
And to top it off, Bloomberg had an article this morning on CEO compensation at the biggest banks. Now we know where all the QE went.
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Not to make too much of this but…
(Reuters) – Wells Fargo & Co, the biggest U.S. residential mortgage lender and a major lender to the energy industry, reported a slight dip in quarterly profit on Friday as it set aside more money to cover bad loans to oil and gas companies.
Walls Fargo – whose latest balance sheet showed it had replaced Citigroup Inc as the third-largest U.S. bank – managed to increase revenue from mortgage banking for the first time in three quarters in the three months ended Dec. 31.
But its exposure to energy loans meant provisions for credit losses jumped by about $346 million from a year earlier to $831 million. Of the increase, about $159 million was mainly for oil and gas loans.
In the fourth quarter alone, the bank’s wholesale division set aside $90 million more for bad loans than in the third quarter, primarily for loans to energy companies.
And it has been reported the bank has as much as $17 billion in outstanding loans to energy companies. Wells Fargo is already admitting bad loans to energy but what about the rest of the big banks? Given the tumble in energy and its various companies (especially frackers) one has to wonder how much the sector is running on credit from the major banks (one suspects a lot), and how many of those loans are in jeopardy of default.
For the “deja vu all over again” (as Yogi would put it) see charts below:
Back in 2007, prior to the free fall of the financial sector into the crisis of 2008, the housing sector (ITB), so important in bank lending, was falling apart for a full five months while the financial sector continued to make new highs, until both sectors crashed in lockstep.
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This time around the energy sector (XLE) has been falling for 10 months while stocks in the banking sector continued to make new highs. Both sectors are now both in sync…and going down…
How far? No telling, but there is some historical precedent for sector divergences such as these.
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Every month or so I’ve written about renewable energy, particularly solar stocks. Since is been a month since I’ve written about anything here, I thought I’d start up again with this old favorite.
The bottom line in stock selection is “when in doubt buy renewable energy.”
As I’ve said before (back in August, see blog post below):
Always a good sector to buy with any market rally, solar may be the best chance to rack up a 50% gain in the next couple of months. Longer-term, no matter how volatile, it is a growth sector and preferable in the future to investing in fossil fuel stocks of any kind, particularly better than coal.
As it turned out I may have underestimated the sector.
Witness this past month in solar stocks (right click to view a larger image):
GoPro Inc. (GPRO) and Fitbit Inc. (FIT) sell gadgets, a versatile moving camera and mount, and a wrist fitness monitor respectively.
Not much to say about these equities that is not obvious now and was obvious from the start — they have limited product lines that appeal to niche consumers who will buy fast and quit buying as quickly. Never fails that the stocks like these run up in a hurry on what is essentially a fad and fade as soon as the fad wears off and/or the market is saturated.
Which is why, once again, market timing and technical analysis prove their worth in profiting from both runs up and sells down.
With my latest short-term market-timing signal to sell the market and short stocks from the open of November 5th, GPRO has a short profit of 8.7 percent and FIT a short profit of 15.2 percent as of the close today. With the market oversold it is time to either tighten stops to protect profits or just take the money and run.
Should be noted that GPRO has been in a hard selloff of more than 50 percent since August and longer term shows no sign of stopping that decline. FIT is just coming back into its IPO day, a level it better hold or it’ll soon look like GPRO longer term.
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The question for REM, the iShares Mortgage Real Estate Capped ETF, is it at a triple-bottom support or on a pause in an obvious down trend before a plummet into oblivion?
But the real question may be — is the technically over-sold condition in REM a sign that all the bad news from the Federal Reserve’s upcoming anticipated interest-rate hike already in the stock? Hard to tell, it is already down eight percent for the year. That may be enough.
The stock, which closed today at $9.91, has a yearly range from $12.69 to $9.76.
The triple-bottom at $9.76 is only a possibility since it always takes a confirming rally to complete the technical formation. That clearly has not happened…yet.
Almost needless to say, the ETF’s current 14.83 yield (as of Oct 31, according to Yahoo Finance) is compelling.
And, at this point the good news for traders, and for long-term investors who refuse to look at red ink each day no matter what the yield, is the stop loss, if the down trend is bound to continue, is nearby. Quite frankly I, for one, do not want to be here if this possible triple-bottom at 9.75 gets taken out (after all this could also be, technically speaking, a massive descending triangle with lots of downside left…gulp!).
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A pure technical play for day and swing traders.
Serepta Therapeutic (SRPT), Insys Therapeutics (INSY) and Retrophin, Inc. (RTRX) are three of the many biotech stocks to have had substantial tumbles since the bloom went off this leading sector with the advent of fall.
Each stock is in a down trend with with SRPT up 23.6 percent on its latest longer-term short signal, INSY up 22.7 percent short, and RTRX up 38.6 percent short, all of this in the midst of a screaming market rally.
It the market wavers (and it looks as if it is beginning to), it is likely these three stocks are about to take another step down and give traders a chance to scalp profits or to have another opportunity to get on the overall down trend..
All three of these health-care equities managed to move no more than sideways during the latest market rally becoming short-term overbought. Each have now have given individual sell signals.
These are shorts on tomorrow’s open with initial stops at yesterdays highs.
If the market, which is wildly overextended, comes down on top of them, I’m looking for all three to challenge if not break their recent lows. For SRPT that’s around 24, for INSY approximately 22, and for RTRX 17.20.
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First the good news. AAPL will make scads of money no matter what.
Now the bad news. The company, built on innovation and disruptive technology under Steve Jobs, has become a me-too company while slowly slipping on the tech fronts it once totally dominated.
When once the company revolutionized the computer market with high-end desktop computing and tablet computing, and completely transformed the music industry with the iPod and ITunes, and the personal phone world with the IPhone (it’s been calculated that people now spend and average of 46 minutes a day just checking their smartphones), the company appears now to have no more worlds to conquer, or at least worlds IT can conquer.
The “Me-Toos” include the iPhone sometimes chasing Samsung Android instead of the other way around, an Apple watch that makes so sense at all against the wristwatches of older generations and smartphones of the younger generation (what, are millennials too lazy to check the phone time and email? hardly); a TV service that is sort of Netflix-Amazon and sort of Roku-Google-Chrome and as such Apple is entering one of the most competitive business arenas in which they are already far behind; and now there is talk Apple might build an electric car to complete with Tesla (huh?) to say nothing of Toyota, GM, Mercedes, BMW and the rest of the auto world.
More bad news. Check out this link from The Street: 7 Incredible Apple Patents Than May Hint At The Next Big Thing. That headline may sound like good news but not so. Despite the hyperbole the “7 Incredibles” include a personal remote control, a virtual reality headset (to compete with Oculus — more “me too”), an “IPen” (it writes), a flexible phone (thought they already manufactured that…by accident), and a couple other noodles.
This is obviously not Steve Jobs’ Apple anymore.
So what about the stock?
First off, AAPL stock has generated an unprecedented market cap of more than $700 billion when the previous record was just over $600 billion (MSFT), and only four other companies in history have exceeded $500 billion market caps (CSCO, GE, INTC, XOM) and Apple spent more than $100 billion of the company’s massive cash trove to get there. They likely will have spend more to stay so high (which, granted, they certainly can do since they have more than $200 billion in reserve and the means to make more).
But more importantly, time and history is not on the stock’s side (all of those companies that flew over a $500 billion market cap with the exception of XOM have had their stock cut in half or more eventually, and XOM has lost more than 20 percent). That time too will come eventually to AAPL’s stock also — when a company’s stock is priced to perfection and over-owned by everyone the “next big thing” is an inevitable tumble.
So let’s consider the chart of AAPL below. The good news — it is at the bottom and a long-time range and it can move back up within that range (MSFT went sideways for 12 years after its fall), and AAPL with all of its cash might hold high ground going sideways. The bad news, the stock drops below 119-120 and all hell breaks loose when everyone who bought it basically this year realizes they are losing money.
The time for the tumble could be right now.
That’s it, one way or the other.
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