Amazon.com, Inc. is Taking on Apple

Amazon.com (NASDAQ: AMZN  )  has been aggressively investing in new products so far in 2014, and many of those product categories are directly competing with Apple. Amazon has in excess of 240 million e-Commerce customers and its smartphone launch will help it to generate more sales from them. Ultimately, Amazon is trying to grab market share from Apple (NASDAQ: AAPL  )  in at least four categories including tablets, smartphones, music, and video content. 

Hardware push
The recent unveiling of its Fire phone intensifies the company's push into hardware and could potentially see healthy rates of adoption with innovative features such as Firefly, a recognition technology that will identify and inform the user about more than 100 million items.

In addition to the Fire smartphone, Amazon's Jeff Bezos stated that the company already has tens of millions of Kindle Fire tablet owners. The Kindle Fire HDX is a great tablet, and competes with Apple's iPad line. Apple saw its iPad unit sales decline 16% year over year in the last quarter, and the company cited channel inventory issues.

However, IDC stated that larger-screen phones and consumers keeping their tablets for longer time periods were the major contributors for a weaker than expected quarter for tablets. According to IDC, the tablet market in the first quarter of 2014 saw a 35.7% decline from the holiday quarter, and was up only 3.9% year over year.

This deceleration was across all the major OS and screen sizes, which indicates the year ahead could be challenging for tablets. But unlike Apple, Amazon makes most of its money from content sales and e-Commerce transactions on tablets, and is much more likely to weather future declines in the tablet market. 

In addition, Amazon launched Fire TV earlier in the year which competes with video streaming players like Apple TV, Roku, and Chromecast by Google.

Media content
Amazon also made huge strides in its efforts to grow media sales in 2014. Its North American media sales have lagged the company's total North American sales. In the last quarter, Amazon's North America sales grew 26% year over year, but media sales grew only 12% year over year. So that might have prompted the big investments in media content this year. 

Amazon launched Prime Music, which is an ad-free music streaming service for Prime customers. Prime Music already has 1 million songs available for streaming and competes with Apple's iTunes Radio and its newly minted Beats Music service. 

In addition, Amazon also added a large amount of video content on Prime Video over the last one year, and now has more than 40,000 titles, including a number of exclusive and original shows. And since iTunes is a major retailer of video content, the growth of Amazon Prime doesn't bode well for Apple. Numerous Amazon Prime customers will probably reduce their purchases of a la carte video content on iTunes because they are already available on Amazon Prime. 

Disrupting Apple?
Amazon has a very high customer satisfaction rate; the company has been ranked number one in the ForeSee U.S. Retail Index for nine consecutive years. Amazon is taking on Apple and could become a worthy competitor.

The recent investments in the Fire phone and Fire TV demonstrate the company's willingness to come-out with product features that are differentiated and more consumer-friendly. Amazon could steal a lot of share from Apple on many different fronts as the competition between the two intensifies.

Will Amazon compete with Apple's next smart device?
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Friday’s Analyst Moves: ConocoPhillips, Kraft Foods Group Inc, Humana Inc, More (COP, KRFT, HUM, More)

Before Friday’s opening bell, a number of big name dividend stocks were the subject of analyst moves. Below, we highlight the important analyst commentary for investors.

Humana Upgraded to “Buy” at Stifel Nicolaus

Humana Inc (HUM) has been upgraded from “Hold” to “Buy” at Stifel Nicolaus as visibility is improving. The firm has a $155 price target on HUM, suggesting a 25% upside from Thursday’s closing price of $124.35. HUM has a dividend yield of 0.90%.

Oppenheimer Raises PT on ConocoPhillips

Oppenheimer has boosted its price target on ConocoPhillips (COP) to $90, suggesting a 12% increase from Thursday’s closing price of $80.05. COP has a dividend yield of 3.45%.

Leerink Swann Raises PT on Medtronic

Leerink Swann has raised its price target on Medtronic, Inc. (MDT) to $65. This new price target suggests a 5% increase from Thursday’s closing price of $62.04. Analysts see MDT’s deep pipeline and emerging markets driving long term growth. MDT has a dividend yield of 1.81%.

MKM Partners Starts Coverage on AMC Entertainment

MKM Partners has initiated coverage on AMC Entertainment Holdings Inc (AMC) with a “Buy” rating and $28 price target. Analysts see the company’s theater modernization driving growth. AMC has a dividend yield of 3.49%.

Entergy Upgraded at BMO Capital

Entergy Corporation (ETR) has been upgraded to “Outperform” at BMO Capital. The firm has a $89 price target on ETR, suggesting a 13% upside from Thursday’s closing price of $78.61. ETR has a dividend yield of 4.22%.

Lennox Upgraded at KeyBanc

Lennox International Inc. (LII

How to Pay Off $30,000 in Student Debt In 3 Years

Richard Levine/AlamyWhen paying off student loans, tackle those with the highest interest rates first. If you are tired of having student loans hanging over your head, welcome to the crash course for debt elimination. Our syllabus is simple, the course objective has been plainly stated and grading will be based on a pass/fail basis. Let's begin. What's the rush? You may be wondering why we have defined such a short period of time to pay off a substantial debt. After all, The Institute for College Access & Success says the average student loan balance was $29,400, which is based on the latest data available for the class of 2012. With a supersized debt of that magnitude, you need a lot of time, right? Yes, but a lack of urgency can encourage complacency, and with time the debt will grow even larger. This may light a fire: Calculate the amount of interest you will pay by only making minimum payments on your student loans. If you can't put your hands on the statements for your loans, check the National Student Loan Data System to retrieve your loan information. It's quite likely you'll be surprised by the big number you discover. You might even find you'll be paying as much interest on your loans as the original principal amount. Putting a short fuse on the debt bomb will inspire a significant financial turnaround. Once you retire the student loans, imagine the boost to your cash flow. You might even feel affluent for a change. With those monthly payments gone, you can focus on buying a home, saving for retirement, paying for a wedding and all the other good things in life. No student loan debt means you can kiss Sallie Mae goodbye. You'll feel like a different person, with less stress and real financial freedom. Debt limits options. While the task may seem insurmountable, consider the Harvard University alum who paid off $90,000 in graduate school debt – in seven months. Joe Mihalic is a supply chain manager in Austin, Texas now, but three years ago he was deep in debt and desperate to get out. "I simply felt an overwhelming feeling of being trapped," Mihalic, author of "Destroy Student Debt: A Combat Guide to Freedom," wrote in an email. "I felt that the debt was severely limiting my options, and I realized I would never be truly free unless I became debt-free." By committing to a frugal lifestyle and squeezing every bit out of his annual salary, which was less than the balance on the loans, Mihalic accomplished his goal of rapid debt reduction. "I didn't start feeling weighed down by my debt until my self-esteem finally reached a level where I didn't need to constantly spend money to feel good about myself," he writes. "At that point, the negative feelings associated with my debt were greater than the positive feelings associated with consumption. Only then did I seek out a life of frugality and living below my means." A cash budget is key. And consider Jackie Ritz, a Paleo diet aficionado from North Carolina who blogs at ThePaleoMama.com. She and her husband paid off $50,000 worth of debt in 10 months. "We sat down one night and wrote down all of our debt, including our student loan debt, which was the most baggage," she wrote in an email. "My husband had carried his student loan debt the past 15 years, and we wondered how long we were going to let that debt keep following along with us. So in order to have financial freedom we knew we were going to have to be more aggressive in paying the student loans down and turn our minimum payments into the maximum amount we could manage in our budget." Ritz adds that sticking to a cash budget was the key. "During this time, we made a budget for all our expenses and used the 'envelope system'," she explains. "You place the week's worth of money in your envelopes and when the cash is out, it's out! This was probably the hardest part of it all since we were so used to swiping our debit or credit card without even thinking about a budget." A prerequisite. There is a prerequisite to this course. It is Paying Off Your Credit Card Debt 101. As much as you would like to rid yourself of the burden of college debt once and for all, if you have substantial credit card balances, they must be attended to first. The interest rate you pay on credit card debt is likely to be twice as much -- if not substantially more -- than what you pay on student loans. When you do tackle the student loans, pay off those with the highest interest rates first. That will save you money and allow each payment to reduce more principal. And before sending in a substantial payment to a lender, call first. Ensure the payment will be applied to the loan's principal – not to interest. Extreme debt reduction. In order to abolish $30,000 of student loans within three years, the payments will total $923.57, based on a 6.8 percent interest rate for 36 payments. You can nerd the numbers for your own debt situation. The strategy will be a combination of increasing your monthly income while reducing your monthly expenses to come up with the extra cash.

Judge needs more time on GM recall request

CORPUS CHRISTI, Texas (AP) — A federal judge in Texas said she would consider arguments made Friday and await additional information, before deciding whether to grant an emergency injunction that could force General Motors to tell owners of 2.53 million cars with a defective ignition to not drive them until repaired.

U.S. District Judge Nelva Gonzales Ramos said she had not had time to thoroughly read a new brief by the plaintiffs filed only shortly before the hearing. About 40 people listened to more than two hours of arguments and testimony.

A flawed ignition switch in Chevrolet Cobalts, Saturn Ions and other small cars allows the key to turn from the "run" position to the "accessory" position, causing the loss of power steering, power brakes and the airbags.

As of Friday, GM confirmed it has made more than 15,000 rental and loaner cars available to drivers who own the affected vehicles and are afraid to drive them. The recall repair is still on track to start the week of April 7.

GM has admitted to knowing the switches were defective for at least a decade, but didn't start recalling the vehicles until February. The Detroit automaker has linked the faulty ignition switch to 13 deaths and 32 crashes in the United States and Canada. Others, including the families of some victims, say there have been more.

On Wednesday, GM CEO Mary Barra told a Senate subcommittee that owners can continue safely using the cars if precautions are taken, such as just using only the ignition key with nothing attached.

On Friday, holding a steering wheel and ignition for the judge to see, plaintiffs' attorney Robert Hilliard described a defect that could occur at any time and was especially impacting young people because the cars were marketed to "newly-minted drivers."

"There is no safe way to drive this vehicle at all because of the unknown event that has to occur for the defect to show up," Hilliard said.

He pointed to the portion of GM's recall notice that said there was a! risk if "your vehicle experiences rough road conditions or other jarring or impact related events."

Hilliard scrolled through photographs of the victims projected onto a large screen in the courtroom and spoke of youth lost. He called witnesses who testified about accidents or close calls in their vehicles. One was Jesse Hernandez, 23, who survived a crash that killed his twin brother in a red 2007 Saturn Ion in April 2012. He said he had fallen asleep while his brother was driving. Their car hit a guardrail and flipped three times. The airbags did not deploy.

"He ended up dying in my arms moments later," Hernandez testified.

Laura Valle of Corpus Christi, said she did as instructed and removed everything except the key, but still suddenly lost power while driving to Wal-Mart in March.

"The car just died on me," Valle testified.

Hilliard implored the judge to force GM to do more. He would propose a "Do Not Drive" sticker that would be plastered on every vehicle until it was repaired.

But David Balser, a lawyer for GM, called the measure Hilliard was asking the judge to take "unprecedented." He said he knew of no court that had ordered such a move while a recall was underway. "It would cause mass confusion to GM's consumers," he said. "It would create chaos."

Balser also noted that the plaintiffs, Charles and Grace Silvas, had already stopped driving their Chevrolet Cobalt back in February. The Silvas did not testify Friday.

Furthermore, as individuals, Balser said the Silvas had no standing to get an injunction for the general public. He said at least 15 class actions lawsuits had already been filed against GM in relation to this issue.

"They do not need a mandatory injunction telling GM to tell them to park their car because they have already parked their car," Balser said. He said Hilliard only presented anecdotal evidence and no proof that the ignition defect was to blame in the incidents he cited.

GM's filing with the court included data ! from exte! nsive testing of some recalled calls at its proving grounds, showing that the automaker was unable to make the key move out of the run position.

However, Hilliard argued that the order was necessary because others were still driving the cars, making the roads dangerous for everyone.

GM is conducting an internal investigation that should be complete in 45 to 60 days. The Justice Department is pursuing a criminal investigation of how GM handled the recall.

Associated Press Writer Christopher Sherman wrote this report with some staff reporting contributed from USA TODAY.

Treasury moves up debt limit warning

WASHINGTON -- Treasury Secretary Jacob Lew has been warning for weeks that the government will run out of the ability to borrow money sooner or later if Congress doesn't raise the debt limit.

Wednesday, he said, it will probably be more sooner than later.

Lew previously said that Treasury could run out of money to pay its bills by "late February or early March." But in a letter Wednesday to House Speaker John Boehner, R-Ohio, Lew said it will probably be on the earlier end of that range. "Based on our best and most recent information, we believe that Treasury is more likely to exhaust those measures in late February," Lew said.

The bipartisan deal that ended the 16-day government shutdown last November also suspended the debt limit until Feb. 7. After that date, Lew said, the Treasury Department can use what it calls "extraordinary measures" to avoid having to borrow more money.

But Treasury won't have as much maneuvering room as it usually does. One reason: February is a big month for Treasury payments because of tax refunds. The government usually has a negative net cash flow of $45 billion a month; last February, it was $230 billion.

The national debt subject to the debt limit is now more than $17 trillion.

Boehner said last week that the debt limit is on the agenda when the House reconvenes next Monday, but he wouldn't commit to a specific plan or legislative vehicle for an increase.

"All I know is that we should not default on our debt," Boehner said. "We shouldn't even get close to it."

Follow @gregorykorte on Twitter.

America’s 50 Largest Websites

The battle between Google (NASDAQ: GOOG) and Yahoo! (NASDAQ: YHOO) for the lead in U.S. unique visitors continued into November. Once again, the portal edged out the search firm–based on desktop visitors, Yahoo! had 194.6 million in November, as opposed to 192.7 million, according to new data from comScore. Microsoft (NASDAQ: MSFT) sites, which include portal MSN, reached a total of 173.4.

Facebook’s (NASDAQ: FB) growth has put it in a place just behind the top portals, with a November unique visitor count of 140.7. AOL (NYSE: AOL), the third portal ranked fifth among all sites at 118.9 million unique visitors.

Five commerce sites made the list. First among them was Amazon (NASDAQ: AMZN) in sixth place at 114.4 million. Ebay (NASDAQ: EBAY) sat in 12th place at 71 million. Walmart (NYSE WMT) ranked 18th at 54.1 million, and Target (NYSE: TGT) in 34th place at 34.2 million. Best Buy (NYSE: BBY) was 37th at 31 million. The data show have far back the three huge bricks and mortar retailers are compared to Amazon.

Traditional media sites did unusually well, given that they are not the core products of their parent companies. Broadcaster CBS (NYSE: CBS) was in 9th place at 80.9 million unique visitors in November. Comcast NBCUniversal was 14th place with 64.4 million. Gannett (NASDAQ: GCI) sites were 16th at 57 million. Viacom had 54.3 million, and ESPN 38.7 million.

Unexpectedly, LinkedIn (NYSE: LNKD) had a larger audience of unique visitors in November than Twitter (NASDAQ: TWTR) at 49.6 million to 38 million.

Methodology: comScore, Inc. (NASDAQ: SCOR), a leader in measuring the digital world, today released its monthly ranking of U.S. desktop web activity at the top online properties for November 2013 based on data from the comScore Media Metrix service

comScore Top 50 Properties (Desktop Only) November 2013 Total U.S. – Home, Work and University Locations Source: comScore Media Metrix
Rank	Property	Unique Visitors (000)		Rank	Property	Unique Visitors (000)
	Total Internet : Total Audience	224,481
1	Yahoo Sites	194,631		26	Hearst Corporation	37,559
2	Google Sites	192,678		27	Defy Media	37,183
3	Microsoft Sites	173,435		28	Federated Media Publishing	36,163
4	Facebook	140,761		29	YELP.COM	36,109
5	AOL, Inc.	118,925		30	WebMD Health	35,188
6	Amazon Sites	114,429		31	TUMBLR.COM*	34,930
7	Glam Media	93,221		32	Meredith Digital	34,416
8	Wikimedia Foundation Sites	84,339		33	Adobe Sites	34,291
9	CBS Interactive	80,919		34	Target Corporation	34,181
10	Turner Digital	76,452		35	New York Times Digital	32,667
11	Apple Inc.	72,748		36	WORDPRESS.COM*	32,502
12	eBay	71,024		37	Best Buy Sites	30,974
13	Ask Network	67,253		38	YP Local Media Network	30,888
14	Comcast NBCUniversal	64,352		39	Scripps Networks Interactive Inc.	29,718
15	About	58,044		40	NETFLIX.COM	29,323
16	Gannett Sites	57,031		41	T365 – Tribune	29,024
17	Weather Company, The	54,225		42	Fox News Digital Network	28,685
18	Wal-Mart	54,124		43	Everyday Health	28,459
19	Linkedin	49,586		44	PINTEREST.COM	28,215
20	Demand Media	46,792		45	Conde Nast Digital	28,105
21	Viacom Digital	45,324		46	Time Warner (Excl. Turner/WB)	27,978
22	craigslist, inc.	43,095		47	AVG Technologies	27,974
23	ESPN	38,714		48	Disney Online	26,829
24	TWITTER.COM	38,042		49	NetShelter Technology Media	25,278
25	Answers.com Sites	37,934		50	Gawker Media	24,884

 

As Old Money Leaves J.C. Penney Will New Come In?

The money that hoped to build back the confidence from investors and customers in the century-old J.C. Penney Co. Inc. (NYSE: JCP) is now almost completely gone. William Ackman of Pershing Square Capital Management, the largest shareholder in the retailer for quite some time, left the board and sold his position at a loss of about half a billion dollars. Steven Roth of Vornado has left the board as well. He was the second largest shareholder. After their departures, the issue is whether any new money, at the institutional level — the really big money, will step into one of the riskiest turnarounds of a  large American company.

The answer to that question seems to be no. The shares continue to tickle their 52-week low, trading at $13.66. The stock is down 30% this year, and with no improvement in sight.

What new money would need to hope for, and cannot, is that any executive of any caliber can get millions of consumers to return to a retailer that they have fled in droves. The first part of this flight was because J.C. Penney’s stores had become old and unattractive to shoppers. The second was because rent-a-CEO Ron Johnson completely changed how the chain priced its merchandise.

The double-digit drop in same-store sales has triggered a double-digit drop in revenue. J.C. Penney management has not developed the wisdom to shutter dozens of its underperforming stores, which outsiders find amazing. To lure shoppers who have departed for Macy’s (NYSE: M), Target (NYSE: TGT) and another dozen retailers, there is not a single thing J.C. Penney can do — unless it wants to give merchandise away.  Rarely discussed is that J.C. Penney’s drop in online sales is sharper than the one in bricks-and-mortar. That data is buried in J.C. Penney’s press releases and SEC filings. In a world in which Amazon.com Inc. (NASDAQ: AMZN) continues to grow at a monstrous pace, Internet sales have become a barometer of a retailer’s future. In this department, J.C. Penney has none.

No new money for J.C. Penney, because no money is that stupid.

SEC Lifts Ban on Hedge Fund Advertising

The Securities and Exchange Commission on Wednesday lifted the ban on advertising by hedge funds and private equity firms. The rule, approved by a 4-1 vote, was a congressionally mandated rule required by the Jumpstart Our Business Startups (JOBS) Act.

SEC Chairwoman Mary Jo White said in her Wednesday remarks that under the rule, “only ‘accredited investors’ would be permitted to actually invest in these offerings.” Accredited investors are defined as those who have a net worth of at least $1 million, excluding the value of their home, or earn at least $200,000 annually.

SEC Commissioner Luis Aguilar cast the dissenting vote on the measure, arguing that the commission was moving ahead “recklessly.”

The JOBS Act passed by Congress in April 2012 required a “significant change in this marketplace in an effort to facilitate both capital formation and the accompanying creation of new jobs,” White said. “Specifically, Congress mandated that the commission eliminate the ban on general solicitation in Rule 506 securities offerings. Once the ban is lifted, issuers will be able to use a number of previously unavailable solicitation and advertising methods when seeking potential investors.”

White noted, however, the numerous concerns that have been raised stating that lifting the ban would “result in more fraudulent conduct.”

Both the North American Securities Administrators Association and the Investment Company Institute were quick to express their disappointment with the Wednesday vote.

A. Heath Abshure (right), NASAA president and Arkansas securities commissioner, said that the SEC approved lifting the hedge fund and private equity advertising ban "before approving safeguards," which "needlessly puts investors in harms way." The decision to lift the ban, he said, "without simultaneous adoption of appropriate limits, guidance and investor protections for the most common product leading to enforcement actions by state securities regulators underscores the prospect that investors and issuers alike will be exposed to an indeterminate gap in protection."

Therefore, he said, NASAA "strongly urges the SEC to move as expeditiously as possible to adopt the proposed amendments to Regulation D and Form D."

ICI President and CEO Paul Schott Stevens said that the SEC's final rule fails to include investor protection measures recommended by ICI, consumer groups and many others. "Instead, the SEC put forward a proposal to consider whether investor protections should be added at a later date," he said.

But White said that while protestors have urged the commission to defer lifting the general solicitation ban “while we pursue and adopt related discretionary rulemaking designed to provide more investor protections in this new market,” White argued that “given the explicit language of the JOBS Act as well as the statutory deadline that passed last July, the commission should act without any further delay.”

She added that the SEC should, however, “take steps to pursue additional investor safeguards if and where such measures become necessary once the ban on general solicitation is lifted.”

To that end, the commission also adopted by a 3-2 vote a plan that will allow that agency to collect additional data on how the new rule affects the private offering market and the offering practices that develop under the new rule. The proposal, the SEC said, “would address certain concerns raised by investors in connection with this new rule.”

Said White: “I believe the commission should closely monitor and collect data on this new market to see how it in fact operates, observe the practices issuers and market participants are using, and assess whether and to what extent the changes in the private offering market has led to additional fraud.”

The SEC also approved a rule mandated by Section 926 of the Dodd-Frank Act, which would bar “felons and other bad actors” from participating in a private-placement offering.

---

Check out NASAA Sounds Alarm on Private Placement Offerings.

Dark City - Portrait Of An Urban Mercenary As A Young Man

Everything I know about living off the grid, I've learned from F. Paul Wilson might be just a bit of an exaggeration. Still, I was just a bit disappointed that there were no new tax tips from Repairman Jack in Dark City.  One of the other characters had some good tax advice, if your life takes a certain path, but I'll give you some background first.

You Don't Know Jack?

Repairman Jack is sometimes referred to as "an urban mercenary".  He is a little like Zorro or the Lone Ranger saving the innocent and outwitting the bad guys.  "Repairman" is a metaphor that Jack reluctantly embraced.  What he fixes are situations where basically decent people need help, but cannot go to the authorities.  Suppose, for example, someone steals an historic sword from you.  Jack might help you recover it.  The authorities, on the other hand, are under the impression that it really belongs in a museum.  Jack tries to keep a very low profile.  When the fix is complete he does not want someone to say "Who was that masked man ?".  He would prefer "WTF?" The other difference is that Jack charges for his services – handsomely.

Jack lives in contemporary Manhattan.  If you need his services, you will have to luck into a referral.  The other thing you need to know about Jack is that he is a critical part in a much larger story, which is referred to as The Secret History of The World.  Most of the events of history for the last several thousand years are the result of a struggle that many people have intimations of, but few have the faintest idea of its true nature.  Our world is a very small part in a great struggle. It is not the eternal struggle between good and evil.  It is the very long struggle between not so bad and incredibly awful.  Jack has a special role to play in the struggle, but he is being dragged kicking and screaming into it.  His preference would be to just take care of himself and the few people he cares about.  It is really annoying to him that in order to do that he might have to save the world.

Those Cannons In Hamlet

A Cautionary Word from Value Investor Arnold Van Den Berg

When value investor Arnold Van Den Berg (Trades, Portfolio) of Century Management speaks, we should listen. A self-proclaimed student of the Benjamin Graham investing philogophy, Arnold has, " handily beaten all of the indices."

Observe an intreaging segment of his October 25, 2014 presentation.

Below is Part I Summary of his Century Management 2014 Client Review

Part I:

Positive things in economy Hydraulic fracturing 3-d printing Nanotechnology Robotics Most competitive manufacturing in the world Cheap energy, competitiveness Unemployment down Federal deficit from an "official standpoint" coming down…but not real Residential real estate improving Consumers saving more All these things boost corporate profit margins to record high

Net worth of households & non-profit organizations Record high Very proud of this country creating this wealth Favorite because the charts shows the creativity, hard work, and resourcefulness of the American public Reason why it concerns him: $13T "wealth added", but he notes: "Have we really improved this much since 2007 or is it sort of an artificial thing that's being promoted by the Federal Reserve?" Wealth created because Fed has driven down interest rates Pushed people into stocks, real estate, and other assets This would usually be in savings, fixed income (bonds) "more secure investments" for retirements "Chasing yields," they are going into a lot of "riskier investments" than they should… "Driving some assets up way beyond their true worth…" "This is something we really need to be concerned about" Positive thing is it has driven corporate profits to a 70 year high

​

Asks, "is it only due to low interest rates?" Labor costs have not kept up, good for corporations Corporations are not using this money to advance the company e.g. new technology or CAPEX What they are doing instead is… "buy back shares" Concerned because they are "buying back shares at pretty high prices" "Never been a time in world history where the whole world got together and is printing money" Individual nations have done this with "disastrous results"

​

Potential for inflation if "this money gets into the economy" "something to worry about" Banks are keeping it in the bank, "parking it" This has led to a "real bubble in the junk bond market" Because they can't get a good yield [investors are] going into junk bonds… such as "Covenant-lite loans" they "don't have a lot of protections" Shows a December 2013 quote from Richard Fisher, Fed Reserve Bank of Dallas, "I worry about the fact that we've painted ourselves into a corner which is going to be very hard to get out of." Created all this money, how are we going to pull it back out? Shows Quote from Alan Greenspan, July 2014, "we just do not know how this things is going to work out when we begin to tighten." Shows Quote from Jeremy Stein, August 2014, "There's no real precedent for anything of this magnitude… I don't think anyone has yet figured out the right answer about how to deal with this." August 2014 Arnold mentions it will not be a soft landing, it will either be "Inflation or deflation" Talks about what the FED's role really is, "create stability in the economy and the currency… like a teeter tatter" Currently no sign of deflation in the US Deflation is a cultural thing, why it's so dangerous… "Once people realize the price is going down they stop purchasing, when people defer their purchases they can't sell as much product so they have to lay off people… if you can't stop deflation then it goes into serious deflation like we did in '29." "Will send the economy into a tailspin" Shows chart of an example of another country's monetary base, Japan, Talks about the consequences of pulling the money out deflation for 12 years and still have barely pulled themselves out Talks about Ben Bernanke quote in 2002 about fiat currency, "there was very little risk of deflation" because the resilience of the economy," "I am confident the Fed would take whatever means necessary to prevent significant deflation…" Arnold states Deflation is highly unlikely but would not rule it out "it's unlikely because the "printing press" The government could reduce the value of the dollar" Increasing the number of dollars, the govt. can reduce the value of the dollar "same thing as raising prices" On inflation: "if you've ever lived through inflation there is nothing positive about that"

​

3 Other reasons why we are not going to have deflation Fed reserve has Cultural bias They would rather risk inflation rather than suffer the consequences of deflation… such as the US depression Gives example of the other risk-inflation Germany's hyperinflation: 1913 1 Egg = 8 pfennigs, 1923 80 billion marks Shoes 1913 12 marks, 1923 32 trillion marks Currency became worthless Arnold states "Once the currency goes, it goes very very rapidly" Germany's cultural bias is worried about too much inflation (because what happened in the past) These are cultural differences that can lead to unintended consequences Dual mandate Balancing act between Price stability and maximum employment Shows chart of declining value of US dollar 95% of purchasing of the US dollar since the start of the Fed, "so much for price stability" Deterioration in the currency Political pressure

Part II To Be Continued

The remaining parts of his presentation is accesible to the public on his website.

Currently 5.00/512345 Rating: 5.0/5 (1 vote)

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Ron Muhlenkamp's Quarterly Memorandum To Investors

My first draft of this letter, which I wrote three weeks ago began with:

Europe has not solved its problems Nor has Japan; Nor has China; Nor has the U.S.

The rest of that draft is now obsolete.

Since mid-September, several items have changed—some economic, some market-related, some psychological.

Economically…

The International Monetary Fund (IMF) has lowered its estimate of world Gross Domestic Product (GDP) growth going forward. Germany (the strongest economy in Europe) has reported disappointing numbers, particularly in capital goods. It looks like Europe is back in recession. The U.S. Federal Reserve Bank (Fed) lowered its estimates of U.S. GDP growth for the next four years. Crude oil, which was trading in a range of $100-$110/barrel, fell to $82/barrel The surprise was an announcement by Saudi Arabia that they would not try to keep the price above $100/barrel. This is a change from their prior policy.

Markets…

Many hedge funds are having a poor year and are facing redemptions. CalPERS (California Public Employees' Retirement System) announced that they were withdrawing $25 billion from hedge funds. This drives "forced selling" by those funds. The difficulty is estimating the size of the forced selling. Ten-year U.S. Treasury bond yields fell from a range of 2.40%-2.6% to (briefly) below 2 percent. A huge move in a short period of time, the headline is "A Flight to Quality."

(Mostly) Psychological…

The battle against ISIS in the Middle East. Ebola and the Centers for Disease Control (CDC): It appears that the Center is not prepared for disease control.

All of this together resulted in stock market declines of 7-12% in a month, depending on which index you measure. The size of this "correction" was not unexpected, but the short time frame was unusual. On some days the forced selling appeared to feed on itself and bordered on panic liquidation. As I write this letter on 10/17, this selling has abated, at least for the time being. The good news is that we raised some cash coming into this period, and

Delta Air Lines Forecasts Strong 4th Quarter Despite Ebola

Ted S. Warren/AP Delta Air Lines (DAL) said Thursday that it expected strong margins in the fourth quarter despite widespread concern that the spread of Ebola could curb travel, and its shares rose nearly 2 percent. The Atlanta-based carrier anticipates its operating margin will be 10 percent to 12 percent this quarter, up from 8.5 percent a year earlier. It also forecast a rise of as much as 2 percent in passenger revenue per seat mile. Delta's outlook "suggests a relatively strong domestic revenue environment is more than offsetting weakening trends in [international] markets," Deutsche Bank (DB) analyst Michael Linenberg wrote in a research note Thursday. Fears of Ebola's effect on travel have caused U.S. airline stocks to plummet in recent weeks. Delta's stock has fallen nearly 16 percent in the past month, including Thursday's gains. The outlook came as Delta reported a higher-than-expected profit for the third quarter. Its earnings a share were $1.20, excluding special items, beating the Wall Street consensus estimate of about $1.18, according to Thomson Reuters data. The airline posted $1.6 billion in pretax income, excluding special items, up $431 million from a year earlier. To be sure, several one-time items cost Delta a significant amount. The costs of speeding up the retirement of its Boeing (BA) 747 fleet, in addition to fuel hedge settlements and other costs, lowered pretax income to $579 million, or $357 million net of taxes, on a GAAP basis. "Overall, the company reported a 15.8 percent operating margin, which was 260 basis points better than a year ago," Linenberg said in the note. Among other items, the carrier booked a $134 million loss on extinguishment of debt and set aside $222 million as an income tax provision. It also doled out $384 million in shared profits to its employees this quarter. Operating revenue increased 6.6 percent to $11.18 billion, and traffic increased 3.7 percent. The company paid shareholders a dividend of 9 cents a share in the third quarter. Delta's shares were up 1.8 percent at $33.02 on the New York Stock Exchange. -.

Dow Dips Over 100 Points; TriMas Shares Decline On Lowered Forecast

Related BZSUM NASDAQ Tumbles 1.2%; Dresser-Rand Gains On Announcement Of Deal With Siemens Markets Open Lower; Merck KGaA To Acquire Sigma-Aldrich For $17 Billion

Toward the end of trading Monday, the Dow traded down 0.61 percent to 17,174.24 while the NASDAQ dropped 1.22 percent to 4,523.85. The S&P also fell, declining 0.82 percent to 1,994.01.

Leading and Lagging Sectors

In trading on Monday, non-cyclical consumer goods & services shares dropped by just 0.33 percent. Top gainers in the sector included The Clorox Company (NYSE: CLX), up 6.9 percent, and Nature's Sunshine Products (NASDAQ: NATR), up 5.3 percent.

Basic materials sector was the top decliner on Monday. Top losers in the sector included TriMas (NASDAQ: TRS), down 9.9 percent, and Cliffs Natural Resources (NYSE: CLF), off 8.5 percent.

Top Headline

Germany’s Merck KGaA (OTC: MKGAY) announced its plans to acquire Sigma-Aldrich (NASDAQ: SIAL) for $17 billion in cash.

The offer price of $140 per share represents a 37% premium to Sigma-Aldrich’s closing price of $102.37 on September 19.

Equities Trading UP

Sigma-Aldrich (NASDAQ: SIAL) shares shot up 33.63 percent to $136.80 after Germany's Merck KGaA (OTC: MKGAY) announced its plans to acquire Sigma-Aldrich for $140 per share in cash.

Shares of Viasystems Group (NASDAQ: VIAS) got a boost, shooting up 35.81 percent to $15.89 after TTM Technologies (NASDAQ: TTMI) announced its plans to buy Viasystems for a total value of $16.46 per share.

Dresser-Rand Group (NYSE: DRC) shares were also up, gaining 2.60 percent to $81.99 after Siemens AG (OTC: SIEGY) announced its plans to acquire Dresser-Rand for $7.6 billion.

Equities Trading DOWN

Shares of TriMas (NASDAQ: TRS) were down 10.05 percent to $26.57 after the company cut its full-year profit outlook. The company also announced its plans to buy Allfast Fastening Systems for around $360 million.

CARBO Ceramics (NYSE: CRR) shares tumbled 17.85 percent to $69.43 after the company provided an update concerning marketplace conditions and related impact to sales volumes.

Yahoo! (NASDAQ: YHOO) was down, falling 4.96 percent to $38.90 after Bank of America downgraded the stock from Buy to Neutral.

Commodities

In commodity news, oil traded down 1.03 percent to $91.46, while gold traded up 0.09 percent to $1,217.70.

Silver traded down 0.41 percent Monday to $17.77, while copper fell 1.65 percent to $3.04.

Eurozone

European shares were lower today. The eurozone’s STOXX 600 declined 0.53 percent, the Spanish Ibex Index fell 0.49 percent, while Italy’s FTSE MIB Index declined 1.43 percent. Meanwhile, the German DAX fell 0.51 percent and the French CAC 40 fell 0.42 percent while UK shares dropped 0.67 percent.

Economics

The Chicago Fed National Activity Index declined to negative 0.21 in August, versus positive 0.26 in July.

Sales of existing homes fell 1.8% to an annual rate of 5.05 million in August. However, economists were estimating the sales rate to rise to 5.2 million.

Posted-In: Earnings News Guidance Eurozone Futures Commodities M&A Markets

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

  Related Articles (CLF + BZSUM) Dow Dips Over 100 Points; TriMas Shares Decline On Lowered Forecast NASDAQ Tumbles 1.2%; Dresser-Rand Gains On Announcement Of Deal With Siemens Markets Open Lower; Merck KGaA To Acquire Sigma-Aldrich For $17 Billion #PreMarket Primer: Monday, September 22: Scotland Seeks To Repair Divide Following Referendum Concur Technologies Gains On Acquisition News; Yahoo! Shares Drop NASDAQ Falls 0.35%; Alibaba Shares Surge

Will Apple's iPhone 6 Save Sprint?

Sprint's (NYSE: S  ) future is anything but certain: though it remains the nation's third-largest wireless provider, it continues to bleed subscribers, shedding 181,000 last quarter. Its planned acquisition of T-Mobile might've helped, but it now seems highly unlikely, and Sprint's longtime CEO, Dan Hesse, was recently replaced by an outsider -- Marcelo Claure.

Amidst these shakeups, the one factor that could help turn Sprint around may be outside of its control. Apple's (NASDAQ: AAPL  ) iPhone 6, expected to debut next month, could have a major effect on Sprint's business.

Sprint's one advantage
In terms of call quality, reliability and coverage, Sprint's network often ranks near the bottom. While its rivals make bold claims as to the size and speed of their networks, Sprint has no illusions about being number one. In the past, it has urged its subscribers to "pardon [the] dust" as it makes much-needed improvements to its network.

Yet, Sprint does have one advantage its rivals can't match: spectrum. Its 2008 acquisition of Nextel has been widely recognized as a colossal failure, but it left Sprint with a treasure-trove of valuable spectrum, one that was further bolstered by last year's acquisition of Clearwire.

Sprint has found a way to utilize its spectrum holdings in the form of Sprint Spark -- a unique form of LTE that relies on different bands of its wireless spectrum to deliver impressive speeds. Sprint claims that Spark is capable of reliably achieving download speeds of 50-60Mbps, making it faster than its rivals' traditional LTE networks.

In need of a tri-band iPhone
But not every smartphone is capable of tapping into Sprint's new network. To take advantage of the speed offered by Spark, Sprint subscribers need a tri-band handset.

For Android users, that's not a problem, as nearly every Android flagship (including the Galaxy S5, the G3, the One M8, and the Nexus 5) is compatible with Sprint Spark. Fans of Apple's iPhone, however, are completely out of luck, as Apple has not yet released a tri-band iPhone. Sprint has remained mum on the possibility, with management declining to comment.

From Sprint's perspective, the importance of a tri-band iPhone cannot be overstated. Although Android smartphones sell in greater numbers than Apple's iPhone, Apple's share of the market in the U.S. is massive -- near 40%.

Where loyalties lie
That 40% of the market is notoriously loyal -- more loyal to Apple than to their wireless carriers. Surveys of smartphone owners have put Apple's customer retention around 80-90%; in contrast, U.S. wireless subscribers tend to switch carriers as often as every two years.

In other words, it seems more likely that Sprint's subscribers would switch to a different network before they'd switch to a different phone, a factor that obviously limits the appeal of Sprint Spark. If a customer loyal to Apple's iPhone can't take advantage of the best feature of Sprint's network, it seems unlikely that they'd switch to (or stay with) Sprint.

But the iPhone 6 could give Sprint a boost
Of course, should Apple choose to release  a tri-band iPhone 6, it could give Sprint a boost. Capitalizing on the hype surrounding Apple's next flagship, Sprint could target buyers of the much-anticipated handset, offering them unprecedented download speeds.

To be clear, Sprint Spark is not ubiquitous -- right now, it is only available in 24 cities. Sprint plans further roll outs, but even if it hits its goals, Sprint Spark will cover less than one-third of the country by the end of the year.

But the struggling wireless giant needs every advantage it can get. Spark is Sprint's biggest advantage, but until Apple gets on board, the appeal of Sprint's lightning-fast network will be limited.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Did The NLRB Just Make It Easier For Unions To Organize Walmart?

A decision this week by the National Labor Relations Board could make it much easier for unions to get a foothold in large retailers include Walmart, which has thwarted eorganization efforts by the United Food and Commercial Workers for years.

The board, in a case involving Macy's, ruled that the UFCW can organize a subgroup of workers within a single Massachusetts store. By targeting just 41 cosmetics workers at the 150-employee store in Saugus, the union stands a better chance of winning the required election and establishing a position within the store to try and recruit more workers. It was based upon a 2011 decision involving a nursing home, Specialty Healthcare, that retailers hoped to contain within the healthcare industry.

"These are significant decisions, and put employers in a position where it's much easier to organize" segments of the workplace, said Gerard Golden, a partner with Neal Gerber Eisenberg in Chicago who frequently represents employers in union negotiations. "Typically a union had to organize all the employees in a related sales position in order to hold an election."

Walmart is the largest U.S. private employer with 1 million workers and thus is a big target for the UFCW, not only because of the dues it would collect from unionized employees but because it could eventually put Walmart on the hook for its critically underfunded pension fund. Kroger Kroger agreed to pay almost $1 billion to shore up several UFCW pension plans in 2011, in an agreement that also allowed it to take over financial management of the troubled funds.

Would a union fix this? (Photo credit: Wikipedia)

The union has tried to organize Walmart before, losing a 17-0 vote on unionizing an automotive department of a Pennsylvania store in 2005. Since then the union has mostly engaged in a cat-and-mouse game with Walmart, using front groups like OUR Walmart to snipe at the company with news releases like this one hailing the resignation of former U.S. chief executive Bill Simon, and this union-issued report deriding the billions of dollars Walmart heirs have given to charity.

The union aggressively supported walkouts and protests on Black Friday in 2012, then urged the NLRB to discipline Walmart for threatening workers who left their jobs. The NLRB filed a complaint against Wal-Mart earlier this year  accusing it of unlawfully threatening workers who engaged in strikes and protests.

Walmart has fired back, accusing the UFCW and OUR Walmart of illegally picketing the company. After the labor board threatened to take action, OUR Walmart agreed to stop picketing for 60 days and the UFCW said it "has no intent to have Walmart recognize or bargain with it as the representatives of Walmart employees." Undeterred, OUR Walmart called for   "one of the largest mobilizations of working families in American history" on Black Friday last year. Neither Walmart nor the union responded to requests for comment.

Under the previous understanding of labor law, Golden said, Walmart could present the union with a tough strategic choice: Shoot the moon and try to organize entire stores or even entire regions, or hang back and wait for its efforts through groups like OUR Walmart to convince enough workers to side with the union. If a union holds an election and fails, it can't make another attempt for a year.

Until the Macy's Macy's decision there was only one precedent for allowing piecemeal organization of a retailer, and that involved the automotive department of a Sears store. The previous understanding of the law gave Walmart "a potential argument that one store standing alone isn't a sufficient bargaining unit," Golden said, because multiple stores in a state or region might be under one management, with identical pay and incentive programs.

The board rejected that theory in the Macy's decision, however, saying that under the Specialty Healthcare ruling, which was upheld by the Sixth Circuit Court of Appeals, the employer has the burden of showing that a bargaining unit is too small and that a larger group shares the "community of interests" labor laws require. That removes much of the discretion the NLRB had to reject small bargaining units and makes it harder for employers to argue against unionizing subgroups of the work force.

The decision represents the power of Democratic appointees who took charge at the board after the President's recess appointments were rejected. The chairman Mark Gaston Pierce wrote the opinion and was joined by Nancy Schiffer, a former AFL-CIO assistant general counsel, and Kent Y. Hirozawa. Philip Miscimarra, a Republican appointee, wrote a dissent urging the board not only to refuse to recognize a subgroup of retail employees but not to follow the reasoning in Specialty Healthcare in future rulings.

"Specialty Healthcare constitutes an unwarranted departure from standards developed over the course of decades," he said.

Among other things, the ruling might make it hard for retailers to move employees around within a store and cause workplace strife by forcing the employer to adopt different pay practices for workers doing essentially identical jobs.

Fed Says Districts Were Optimistic On Economic Outlook; Yahoo! Falls On Downbeat Results

Related BZSUM Yahoo Falls On Downbeat Results; Time Warner Shares Spike Higher Markets Rise; Bank Of America Q2 Profit Slips 43%

Wrapping up this Wednesday of trading, the Dow traded up 0.44 percent to 17,135.90 while the NASDAQ jumped 0.46 percent to 4,436.65.  The S&P also rose, gaining 0.45 percent to 1,982.24.

Leading and Lagging Sectors

In trading on Wednesday, basic materials shares were relative leaders, up on the day by about 0.85 percent. Meanwhile, top gainers in the sector included Joy Global (NYSE: JOY), up 7.78 percent, and Cliffs Natural Resources (NYSE: CLF), up 5.74 percent.

Healthcare shares dropped by 0.34 percent in the US market on Wednesday. Top losers in the sector included POZEN (NASDAQ: POZN), down 7.57 percent, and Ligand Pharmaceuticals (NASDAQ: LGND), off 6.77 percent.

Top Headline

Bank of America (NYSE: BAC) reported a 43% drop in its second-quarter earnings.

The bank’s quarterly profit declined to $$2.29 billion, or $0.19 per share, versus a year-ago profit of $4.01 billion, or $0.32 per share. The latest quarter results included a litigation charge of $4 billion, or $0.22 per share.

Its revenue slipped 4% to $21.96 billion. However, analysts were expecting earnings of $0.27 per share on revenue of $21.65 billion.

Equities Trading UP

Time Warner (NYSE: TWX) shares shot up 17 percent to $83.00 after the company confirmed that it rejected a proposal from Twenty-First Century Fox (NASDAQ: FOXA) to acquire all of the outstanding shares of the company.

Shares of Intel (NASDAQ: INTC) got a boost, shooting up 8.17 percent to $34.30 after the company reported better-than-expected Q2 earnings. Analysts at UBS upgraded Intel from Neutral to Buy and raised the target price from $30 to $37.50.

HCA Holdings (NYSE: HCA) shares were also up, gaining 10.32 percent to $60.91 after the company lifted its 2014 earnings forecast.

Equities Trading DOWN

Shares of Interactive Intelligence Group (NASDAQ: ININ) were down 15.47 percent to $42.25 as the company warned that Q2 results will be below expectations.

BlackBerry (NASDAQ: BBRY) shares tumbled 10.18 percent to $10.16 on Apple-IBM deal news.

Yahoo! (NASDAQ: YHOO) was down, falling 4.90 percent to $33.87 after the company reported weaker-than-expected second-quarter results. The company announced it will reduce the number of shares being offered in the Alibaba IPO from 208 million shares to 140 million shares.

Commodities

In commodity news, oil traded up 1.17 percent to $101.13, while gold traded up 0.08 percent to $1,298.20.

Silver traded down 0.67 percent Wednesday to $20.75, while copper fell 1.06 percent to $3.21.

Euro zone

European shares were higher today. The eurozone’s STOXX 600 gained 1.34 percent, the Spanish IBEX Index jumped 1.84 percent, while Italy’s FTSE MIB Index rose 3.17 percent. Meanwhile, the German DAX climbed 1.44 percent and the French CAC 40 rose 1.48 percent while UK shares surged 1.11 percent.

Economics

Industrial production increased 0.2% in June, versus economists’ expectations for a 0.3% gain.

The producer price index gained 0.4% in June, versus a 0.2% drop in May. However, economists were expecting a 0.3% rise in the index.

The NAHB housing market index increased 4 points to 53 in July, versus a reading of 49 in June. However, economists were projecting a reading of 50.

US crude-oil inventories declined 7.5 million barrels in the week ended July 11, the Energy Information Administration reported. However, analysts were estimating a fall of 3 million barrels. Gasoline stockpiles increased 200,000 barrels, while distillate inventories rose 2.5 million barrels.

The Federal Reserve Beige Book report at 2:00 p.m. ET showed most districts were optimistic on economic outlook.

Posted-In: Earnings News Guidance Upgrades Futures Price Target Commodities Options

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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Stock Focus: CalAmp Corp. and Splunk

There are two different ways to play the Internet of Things: vertically and horizontally. CalAmp (NASDAQ: CAMP  ) is the vertical strategy; Splunk (NASDAQ: SPLK  ) is horizontal.

CalAmp has a couple of industries it knows really well, and it wants to use the Internet of Things as a tool to optimize those industries. For its mobile resources management offering, CalAmp can promote to its customers their returns on investments by saving fuel and optimizing routes if CalAmp's telematics devices are installed in their heavy industry vehicles.

Meanwhile, Splunk is looking at unstructured machine data. Any device that can transmit a signal, whether it's a cell phone or an airplane, can use Splunk to better monitor its performance -- and therefore allow those in charge to make better managerial decisions for their businesses.

In this episode of The Next, Motley Fool tech analyst Eric Bleeker and Rule Breakers analyst Simon Erickson break down the stock performances of CalAmp and Splunk in 2014 and what they might hold for the future.

Are you ready for this $14.4 trillion revolution?
Have you ever dreamed of traveling back in time and telling your younger self to invest in Apple? Or to load up on Amazon.com at its IPO, and then just keep holding? We haven't mastered time travel, but there is a way to get out ahead of the next big thing. The secret is to find a small-cap "pure play" and then watch as the industry -- and your company -- enjoy those same explosive returns. Our team of equity analysts has identified one stock that's ready for stunning profits with the growth of a $14.4 trillion industry. You can't travel back in time, but you can set up your future. Click here for the whole story in our eye-opening report.

 

Bill Ackman vs. Allergan, Inc.: Who Will Win the War of Words?

Irvine, Calif.-based Botox maker Allergan  (NYSE: AGN  ) is desperately trying to fend off a takeover bid from Valeant Pharmaceuticals  (NYSE: VRX  ) , a company with a history of buying rivals and slashing their work forces. In an interesting twist, this deal is being driven by activist investor Bill Ackman, who has viciously attacked Allergan's management for refusing to agree to a deal.

In a recent letter to Allergan's board, for instance, expressing his displeasure, Ackman said, "Your actions have wasted corporate resources, delayed enormous potential value creation for shareholders, and are professionally and personally embarrassing for you."

Allergan's board, on the other hand, responded in kind: "... the Offer is grossly inadequate, substantially undervalues Allergan, creates significant risks and uncertainties for Allergan stockholders and is not in the best interests of Allergan and its stockholders."

To top it off, Allergan's brass has repeatedly called Valeant's business model that focuses on acquiring other companies "unsustainable." 

Who is right in this war of words? 
Valeant has now upped its offer to a reported $200 a share (approximately $59 billion), meaning a deal would come at a stunning 72% premium compared to where Allergan shares were trading prior to this news hitting the Street. I've argued previously that, based on Allergan's projected 2015 sales growth and cost-cutting measures, $64 billion wouldn't be out of the question. Valeant's latest offer gets them close to this number, yet Allergan's board has remained resolute in its attempts to find an alternative buyer, such as Actavis  (NYSE: ACT  ) . In fact, Allergan's board refuses to even consider the offer, according to Valeant's board of directors.

Turning to Allergan's claim that Valeant's business model is unsustainable and overly reliant on acquisitions for growth, Valeant's third-quarter numbers cast serious doubt on this claim. In the third quarter, Valeant saw strong organic growth from segments such as Bausch & Lomb, a company that was acquired over a year ago. 

Allergan's courtship with Actavis also suggests that the concerns over an acquisition-focused business plan are overblown. Actavis has been one of the most active players in the M&A game over the past two years, and has taken on billions in debt as a result.

So the sticking point really looks like Valeant's history of cutting jobs following a buyout, more than a valuation or integration issue. All told, I think Bill Ackman has some valid points, and Allergan's board is simply hoping to delay the deal in hopes a so-called "White Knight" can be found.

Actavis' obstructionist strategy isn't without merit
Even though Allergan's statements about Valeant's offer and business model may not hold up to the light of day, the company does have the right, and perhaps the obligation, to explore any and all options on behalf of its shareholder base. If a deal with Actavis can get done at comparable levels, for instance, this route looks like a more appealing option, given Actavis's stellar growth prospects. In the third quarter, Actavis' non-GAAP EPS grew by an astounding 53% year over year, and this trend looks likely to continue as more branded drugs begin to launch. Put simply, Allergan's board may look stubborn to outsiders, but they appear, to me, to have the best interests of their shareholders and employees in mind. 

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here.

 

How Will This Downgrade Affect Keurig Green Mountain (GMCR) Stock?

NEW YORK (TheStreet) -- Shares of Keurig Green Mountain Inc.  (GMCR) were downgraded to "neutral" from "buy" at Roth Capital which maintained its price target of $120.00.

The stock is down -1.18% to $112.46 in pre-market trade.

Must Read: Warren Buffett's 25 Favorite Growth Stocks STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Separately, TheStreet Ratings team rates KEURIG GREEN MOUNTAIN INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate KEURIG GREEN MOUNTAIN INC (GMCR) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, good cash flow from operations and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity." Highlights from the analysis by TheStreet Ratings Team goes as follows: GMCR's revenue growth has slightly outpaced the industry average of 3.0%. Since the same quarter one year prior, revenues slightly increased by 9.8%. Growth in the company's revenue appears to have helped boost the earnings per share. GMCR's debt-to-equity ratio is very low at 0.08 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 2.84, which clearly demonstrates the ability to cover short-term cash needs. KEURIG GREEN MOUNTAIN INC has improved earnings per share by 18.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, KEURIG GREEN MOUNTAIN INC increased its bottom line by earning $3.16 versus $2.28 in the prior year. This year, the market expects an improvement in earnings ($3.74 versus $3.16). 47.54% is the gross profit margin for KEURIG GREEN MOUNTAIN INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 14.69% is above that of the industry average. Net operating cash flow has increased to $320.94 million or 19.95% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -20.80%. You can view the full analysis from the report here: GMCR Ratings Report STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Sears is selling hundreds of stores. Investors cheer.

NEW YORK (CNNMoney) Sears is deploying its biggest weapon -- its vast real-estate holdings -- in an attempt to avoid a death spiral. So far investors love it.

The core business of Sears (SHLD) is crumbling. Sales have plunged, red ink is mounting and cash is going up in smoke. The once great retailer is a shell of its former self.

Things have gotten so bad that Sears plans to raise cash by selling hundreds of its prized stores to a newly formed real estate investment trust, or REIT. Sears said the move would generate "substantial proceeds" and "enhance our liquidity."

Wall Street loves the move, instituted by CEO and majority shareholder Eddie Lampert. Sears shares rose as much as 48% Friday.

"At the end of the day it was always going to be a real-estate play" by Lampert, said Paula Rosenblum, managing partner at RSR Research.

"The fact he's creating a REIT to raise money tells you the business has tanked faster than he thought it would so he's got to play out his end game sooner," she said.

Sears expects to distribute shares of the REIT to the retailer's shareholders, giving them potential upside to the new vehicle.

A REIT is a security that invests in real estate like shopping malls or skyscrapers. They usually don't pay corporate taxes, but must pay out at least 90% of their income as dividends.

'Slow motion train wreck'

The REIT lifeline is just the latest in a series of moves by Sears to liquidate its real-estate holdings to keep the core business alive.

Last month, Sears announced plans to shut down 77 Sears and Kmart stores just before Christmas, which in retail is the equivalent to raising a white flag.

"We're just watching this slow-motion train wreck. The death of this once-venerable company," said Rosenblum.

That wreck only got worse in the past three months.

Net losses totaled as much as $630 million last quarter, building on a $497 million loss from the year earlier.

Cash on the balance sheet shrank to $330 million, compared with $839 million at the end of the second quarter.

"The core business remains horrible," said retail analyst Brian Sozzi, who is CEO of Belus Capital Advisors.

Sears pushed back against that characterization.

On an adjusted basis, Sears' third quarter losse! s are expected to be comparable to a year earlier, indicating that its "operating performance has stabilized," company spokesman Chris Brathwaite wrote in an email to CNNMoney.

"This represents a meaningful change in the trend of the business," he said, adding that Sears expects this "positive development" to continue into the fourth quarter.

Postponing the inevitable?

And shares of Sears skyrocketed to their best level since December as Wall Street cheered the REIT plan.

Sears said it may sell 200 to 300 stores -- likely some of its most valuable ones -- to a REIT. Sears, which cautioned such a move is not a done deal, would lease back the stores and continue operating them.

The retailer could then use the cash it generated from the sale to keep funding its business.

"This may just postpone the inevitable. Sooner or later they are going to get into this death spiral where they can't sell because vendors won't ship and vendors won't ship because they can't sell," said Rosenblum.

CVS Health Corp Beats Analysts’ Q3 Expectations (CVS)

Before Tuesday’s opening bell, CVS Health Corp (CVS), which recently changed its name from CVS Caremark, released its third quarter results. Despite lower earnings, the company was able to beat analysts’ expectations. 

CVS Earnings in Brief

CVS reported net income of $948 million, or 81 cents per share, down from $1.26 billion, or $1.02 per share, a year ago. Excluding special items, earnings were $1.15 per share – above analysts’ estimate of $1.13 per share. Revenue rose to $35.02 billion from $31.93 billion last year. Analysts expected to see revenue of $34.74 billion. Looking forward, CVS expects to see Q4 earnings between $1.18 and $1.21 per share. Analysts expect to see earnings of $1.21 per share. For FY2014, the company expects to see earnings between $4.47 and $4.50 per share. Analysts expect to see earnings of $4.49 per share.

CEO Commentary

President and CEO Larry Merlo commented: “I’m very pleased with our strong results in the third quarter, which reflect better-than-expected revenue growth across the enterprise and expanding retail gross margins. The 2015 PBM selling season continued to be highly successful with a significant number of new business wins across all lines of business.”

CVS Dividend

CVS paid its last 27.5 cent dividend on November 3. We expect the company to declare its next quarterly dividend in December. It is likely that the company will boost its dividend in its next payout.

Stock Performance

CVS Health Corp shares were up 88 cents, or 1.02%, during pre-market trading Tuesday. The stock is up 20.33% YTD.

CVS Dividend Snapshot

As of market close on November 3, 2014

Click here to see the complete history of CVS dividends.

John Deere (DE): Expected Returns And Potential Downside

(Full disclosure: my clients and I own shares of Deere.)

In preceding articles, I've covered Deere's (DE) general situation, competition, economics, management, and opportunities & risks. Now it's time to put those thoughts together with some math to figure out what kind of returns can be expected from John Deere.

[Related -4 Confident and Secure Companies Boosting Dividends]

Before I jump in, I want to make it clear that my expected return discussion is based on the long run. For that reason, it is important to read the full article and see the second half, where I talk about how bad valuation can get in between now and the long run. Caveat emptor.

Long term expected return

My approach to projecting long term returns is to look at long term trends and normalize that for cyclical factors. I want to know what long term, normalized sales per share, net margins, growth and multiples are so that I can estimate a five year price (not necessarily as a five year price target, but a normalized level for price in five years).

[Related -Deere & Company (DE) Q2 Earnings Preview: Bulldozing EPS - Again]

Sales per share

In Deere's case, sales growth from 1982 to 2013 (using the exponential fit function in Excel) is quite stable (96.7% R-squared function, Excel). If it weren't, I wouldn't use it. Deviating from this fit would have to assume a secular change in the farming or farm equipment market different from anything seen from 1982 to 2013. A fit from 1982 to 2013 shows a $33.8 billion normalized sales level a year from now. Applying 377 fully diluted shares (I take basic shares and add all options, restricted stock, etc. to that number) to that sales level implies around $90 in sales per share. 

To adjust for the ethanol boom, I also did a fit from 1982-2004, and that showed sales per share of $75. To estimate what things would look like if the last 10 years were the trend going forward, I also did a fit from 2004-2013, and that showed sales per share of $95. Now, I have estimates for normalized sales per share with low, average and high trends in mind.

Net margin

Net margins at Deere have moved a round a lot over the last 32 years. The median net margin over that time was 5.9%, but it has also been steadily trending up (due both to Deere being better managed and a nice tailwind from farming growth scaling up). Below are the the longer to shorter term median net margins:

30 year: 6.1% 25 year: 7.2% 20 year: 7.7% 10 year: 7.7% 5 year: 8.2% 3 year: 9.2% With these numbers in mind, I'll base my estimates on a low end net margin of 6%, mid point of 7.5%, and high end of 9%.

Growth

I break growth into three parts: sales growth, margin growth, and share growth/buybacks. For Deere, the historic growth trend has been 7.5% (the first fit referred to above). Looking at the trend from 1982-2004 (pre ethanol boom), the trend was 6.7%. These numbers were confirmed by looking at long term averages as well, which show and average of 7.6% and a median of 9.8%. For my estimation, I will use a low end sales growth estimate of 5%, a mid point of 6.5%, and a high end of 8% (I'm being conservative on this because I know the ethanol boom of the last 9 years won't be repeated).

Margin growth has varied widely over the last 32 years, but has generally trended up at a median rate of 1.6%. I think it would be imprudent to assume that Deere can recreate that accomplishment in the coming 5 years, so I will use a low end of 0% margin growth, a mid point of 0.5%, and a high end of 1% (I'm still assuming management can bring margins up with scale, manufacturing efficiencies, etc.).

Share count has also varied a lot over the last 32 years. In the more distant past, share count actually grew, but as management has refocused on building shareholder wealth, and been incentivized to do so, share count has declined at a median rate of 2.3% over the last 18 years and 3.9% over the last 10 years. I don't expect that high rate to continue assuming the agriculture market cools off, but I do expect a low end of 0% buybacks, a mid point of 0.5%, and a high end of 1%.

Putting together these pieces, I'm estimating 5% (5+0+0), 7.5% (6.5+0.5+.05) and 10% (8+1+1) growth rates at the low, mid and high ends.

Multiple

What multiple of earnings has the market been willing to pay for Deere? That has fluctuated widely, too. Because Deere is a cyclical business, investors have been willing to pay high multiples when earnings were low and low multiples when earnings were high. Multiples have also trended up over time as Deere has become a better business with wider profit margins. Given that, the median, low and high multiple to earnings over the last 32 years has been 10.5x and 16.5x, with 13.5x in the middle, so that is what I will use.

Expected returns

If you put together all the low, medium and high end assumptions above over a five year period, plus dividends growing at the same rate as sales per share and an $85 price tag on Deere, you get return expectations (annualized) of -2.9% 11.2% and 23.2%. Now, I assign a range of probabilities to those returns to come up with expected returns. Assuming a probability of 45% and 20% for the low end, 50% to 65% for the mid range, and 5% to 15% for the high end, I come up with a return expectation of 5.5% to 10.2%. (If you plug different numbers into the framework above, you can come up with vastly different results, so a lot depends on your assumptions being valid, or at least reasonable.)

This may not be the barn-burning return you expected, but it looks good compared to my projection of a 3.4% annualized return from the S&P 500 (at $1,982.30) over the next give years.

Keep in mind that my 5-10% return expectation on Deere is a long term projection. The path to that return may be bumpy, as I highlight below in my section on how bad things can get.

How low can you go?

To buy a cyclical company like Deere, it's not enough to have an idea what average future returns may be. You must also be ready to ride the cycle down to an uncomfortably low point, and be willing to buy more on that difficult trip down. This is particularly important with Deere because a long agricultural boom is coming to an end and farm equipment sales are clearly already tumbling. So, how bad can things get for Deere's stock price in between now and the long term?

One way to look at how low Deere's stock price can go is to look at multi-year sales per share (I use sales per share to account for the fact that earnings per share can get so low as to make earnings multiples meaningless) compared to the lowest multiples that have been experienced historically. Looking at an average of 3 year of sales per share relative to lowest annual prices, I can see that Deere got down to a 0.2x multiple of sales per share in 1986. Looking at 5 year average sales per share, 7 year, and 10 year, I see multiples of 0.4x, 0.5x and 0.5x. Below are the prices that Deere could get to, accordingly, from around $85 today:

3 year sales per share, 0.2x multiple: $17 5 year sales per share, 0.4x multiple: $29 7 year sales per share, 0.5x multiple: $33 10 year sales per share: 0.5x multiple: $29 I'm not predicting such low prices, but I am saying that Deere could get that low if history is a guide and an equivalently bad downturn occurs.  As I said above, caveat emptor. It should be noted, though, that I don't think the 1986 scenario is likely because this farm boom did not include the debt binge of that period (Kansas City Fed study), but it is best to consider all empirical evidence.

Another way to think about how low Deere's price can get is to look at prior peak to trough sales declines and apply low end multiples. Between 1982 and 1986, Deere's declined peak to trough by 24%. From 1990-1992, 16%; from 1998-1999, 19%; from 2008-2009, 21%. The 1982-1986 scenario, the worst I have on record, would see Deere's 7/31/13 LTM peak sales go from $35,250 to $26,920, or to $71 per share. The 1990 drop, the least bad drop, would pull sales down to $29,573 or $79 per share. Applying the 25th-percentile low multiple (0.5x in both cases) to those figures gives share prices of $35.50 and $39.50. 

A final way to prepare for low prices is to look at my normalized sales fits above and compare them to the lowest multiples of sales seen historically. The trough multiples on normalized sales were 0.2x sales per share in 1986, 0.4x in 1992, 0.6x in 1999, and 0.4x in 2009. Applying those multiples to the fitted sales per share above of $75, $90 and $95 gives price bottoms of $15-19, $30-38 and $45-47.  (Once again, keep in mind I consider the 1986 scenario quite unlikely.)

As I hope I've made clear, although I expect Deere to provide good long term returns, the path to those returns may be quite uncomfortable. Such is the nature of cyclical companies.

The upside is that Deere's price getting that low would likely generate truly amazing returns going forward (as they did for smart investors who bought in 1986, 1992, 1998 and 2009). Prices may never get that low, but it is best to prepare for such an eventuality even if it never occurs. Forewarned is forearmed.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.