In Broker Bonus Wars, Rumors of Peace Are Premature

A recent Bloomberg article, Morgan Stanley Joins BofA in Broker Recruiting Truce, heralds the dawning of a new day of peace and profitability, where large wirehouses won’t squander their resources on large compensation packages for advisors.

But veteran recruiter Mark Elzweig says that late October article is already extremely out of date, assuming it was ever more than just “wishful thinking” on the part of wirehouse execs eager to protect their bottom lines.

Bloomberg reported that Morgan Stanley paid out 57% of its wealth management revenue as compensation in the third quarter, down from 63% the previous year, quoting its CEO, James Gorman, as describing broker bonuses as “a tax on the industry.”

But the principal of the Mark Elzweig Co., a recruiter for 28 years, says that Wall Street pay packages are as generous as they’ve ever been. In fact, his periodic “Elzweig Deal Forecast” shows 5 shiny suns, his highest rating, and shows that total pay packages for wirehouses rise into the 300% range currently.

“The amount [the wirehouses] are in fact paying has gone way higher than I ever dreamed it would go,” he tells ThinkAdvisor in an interview. “Barring a radical collapse of the stock market, I don’t see that changing.”

So how is it that wirehouses declare a truce yet, in Elzweig’s estimation (or Hamlet’s) “it is a custom more honored in the breach than the observance”?

Elzweig compares the situation to the OPEC cartel, which has frequently hammered out agreements among oil producers as to how much they will charge for a barrel of oil, to boost their profitability, but where each member has a perverse incentive to capitalize on its own excess supply through covert side deals.

Elzweig says a similar gentlemen’s agreement was attempted in the 1990s, between Sandy Weill, then CEO of Smith Barney, and his Merrill Lynch counterpart, Dan Tully.

“They decided that upfront money was some kind of evil that had to be ended," he recalls. "The wirehouses somehow made a pact, a tacit agreement that everybody was going to stop paying.”

Before long, however, somebody discovered: “‘They took two of our guys in the Midwest, now we can take two of their guys in the Midwest; within six months it’s all unraveled,” Elzweig says.

But the Manhattan-based recruiter insists the situation today is far less favorable to a truce in the recruitment wars.

“Right now wirehouses [face] so many people interested in going independent, regional firms have stepped up and are paying more than before. They’re all dealing with an aging and shrinking sales force. Cerulli says wirehouses are losing 2.5% of their advisors per year and the industry as a whole is losing 1.2% per year.

“We know the average age of an advisor is around 52,” he continues. “Basically, in the face of especially vigorous competition from wirehouses, regionals and independents, you have to have a very aggressive recruiting package. You never know when one of your teams is going to hit the bid…There are many cases of people who have worked for a major wirehouse for 20 years or more who are leaving; that’s not uncommon.”

While wirehouse firms would optimally prefer to avoid recruitment wars, another reason why peace is not likely to break out any time soon, says Elzweig, is that these deals generate lots of revenue for the firms, and are not seen as overhead. As such, the deals have worked out well for the firms who pay up.

“The average wirehouse broker has over $100 million in assets under management, compared to $20-odd million on the independent side,” he says.

But to justify the high costs of snagging the industry’s top producers, the wirehouses continue to extend the length of their contracts in order to retain their return on investment. Elzweig says wirehouse contracts currently average 9 to 10 years.

But it is exactly this dynamic that further fuels the arms race in recruitment, since a recruiting firm has to continually increase the amount of upfront money it offers in order to compensate producers who forgo some of the benefits of their current contracts.

Elzweig recalls his start in recruiting, in the mid-’80s, when firms were paying 30% bonuses to $500,000 producers, then considered very big, for three-year contracts. To protect their revenue, firms started giving these top producers retention awards, but that only impelled recruiting firms to increase their offers by a margin above the retention bonuses, so the advisor would realize a profit.

As for now, despite the propaganda — or wishful thinking — in the wirehouse recruitment wars, all parties have stepped up their offers, Elzweig says.

“If you have a solid practice at a wirehouse, you can count on getting 100% to 150% up front with a back-end bonus schedule to get you anywhere from 200% to over 300% — if you increase your assets by 50%.” That works out to total packages that could go into the low 300% range, he clarifies.

“We’re in a world where there is a finite and in fact declining supply of good producers and, like it or not, firms are going to have to compete vigorously to attract and retain talent,” Elzweig concludes.

“Optimally, firms would like to not pay signing bonuses, but it happens to be a business reality from which they cannot escape.”

(Check out Want a Big Paycheck to Switch BDs? Beware the True Price at ThinkAdvisor.)

Abercrombie & Fitch Co. (ANF) Q3 Earnings Preview: A Cold November Rain?

Abercrombie & Fitch Co. (ANF) will be holding its quarterly earnings conference call for all interested parties on November 21, 2013, at 8:00 a.m. ET.  The earnings press release is scheduled to cross the wire shortly after 7:00 a.m. ET.

Wall Street anticipates that the specialty retailer will make a profit of $0.45 per share for the quarter. iStock expects ANF to miss Wall Street's consensus number. The iEstimate is $0.43. While the iEstimate suggests a bearish miss, Brean Capital expects ANF's EPS will be on target and that management will maintain current guidance.

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Abercrombie operates as a specialty retailer of casual apparel for men, women, and kids. It operates through three segments: U.S. Stores, International Stores, and Direct-to-Consumer.

[Related -Abercrombie & Fitch Co (ANF): Lack Of Visibility May Keep Investors On Sidelines]

Until recently, Abercrombie had little problem topping Wall Street's consensus estimate as the retailer delivered bullish surprises 13 of the last 16 quarters; however, two of the three misses happened in Q1 and Q2 of 2013; falling short by 42.86% and 80%, from the most recent.

Not surprisingly, ANF shares backslid by 25% and 7.6% in the three days surrounding the last two quarterly checkups.

While the November announcement has typically been kind to ANF's shareholders, the third of the three misses happened in Q3 of 2011, when the risque retailer fell short by 21.92% and the stock dropped 18.20% - ouch!

[Related -Abercrombie & Fitch Co. (ANF): Multiple Levers For Greater Profitability]

The other three November reports were far friendlier. On average, Abercrombie & Fitch bypassed third quarter estimates by 35.75%, driving a typical gain of 16.17% in the three-days surrounding the profit news.

Brean specifically mentioned inventory build as a concern heading into T! hursday morning's news. According to the most recent 10-Q, the balance sheet line-item spiked 48.37% while sales dipped by 0.60%. Fortunately, total costs and expenses were relatively in line with sales, rising by only 0.28%.

High inventory levels can be real bad news for margins if deep discounts are required to move old merchandise off of dusty shelves. It could be really bad if foot and web traffic slows, which look likely according to Google Trends.

Year-over-year (YoY), search volume intensity dropped 24.32% for the keyword "Abercrombie" and "Abercrombie Hours" a similar 19.67%. Both numbers indicate that sales could slump more than the 9.2% Wall Street is projecting.

Overall: It could be a sloppy quarter for Abercrombie & Fitch Co. (ANF). If Google Trends are predictive and high inventory leads to substantial mark downs, then lower sales with lower margins could make for a second cold November Rain on shareholders. 

Guilty plea in $45 million 'cyber heist'

NEW YORK (CNNMoney) A third defendant has pleaded guilty to taking part in a global $45 million ATM fraud scheme, prosecutors said.

Evan Jose Peña was part of a cybercrime ring that allegedly stole debit card data, then hacked bank systems and ultimately emptied the accounts.

Peña and two other men, who pleaded guilty last month, allegedly formed the worldwide group's New York cell, which by itself fraudulently withdrew nearly $3 million in just hours.

"These three defendants participated in a criminal flash mob, using data stolen through the most sophisticated hacking techniques to withdraw millions of dollars in mere hours in an unprecedented cyber heist," said Loretta Lynch, U.S. Attorney for the Eastern District of New York.

Prosecutors said hackers targeted MasterCard-connected accounts at banks in the United Arab Emirates and Oman. They stole card data and changed withdrawal limits, then sent the card information to associates worldwide who withdrew nearly unlimited sums from ATMs.

The three defendants who pleaded guilty were allegedly involved in two such thefts, one in 2012 and another last spring. The first heist brought in $400,000 in under three hours, according to the U.S. Attorney's office.

They said the ringleader, Alberto Yusi Lajud-Peña, was murdered in the Dominican Republic in April. Four other defendants who initially pleaded not guilty are pending trial, said spokesman Robert Nardoza of the U.S. attorney's office.

The theft is one of the largest bank heists in history. The only larger theft in New York was the 1978 robbery of cash and jewelry at John F. Kennedy International Airport, which was depicted in the movie "Goodfellas."

Peña's attorney could not be reached for comment.

  How ! hackers stole $45 million from banks

--CNNMoney's Chris Isidore contributed to this report

Go Small for Safety? Yes — With These 2 Bank Stocks

Popular Posts: The Best Stocks to Buy in Q4: Market Leaders2 Top Healthcare Stock Picks for Obamacare2 Stocks to Avoid in Q4 Recent Posts: Go Small for Safety? Yes — With These 2 Bank Stocks Wall Street Still Open When the Government Shuts Down 2 Top Healthcare Stock Picks for Obamacare View All Posts

As we move into the fourth quarter today, the market faces some serious political challenges. Oddly enough, the best place to hide out might be in bank stocks.

We have a mixed bag of economic indicators, but on balance they show an economy that is recovering slowly but steadily. Consumer spending was up a little bit and the jobs outlook has steadied to some degree.

In a normal world, the stock market would be reflecting favorably on the economic outlook and continued low interest rates. Of course, with a government shutdown now in force and concerns about eventual tapering still hovering over our heads, we are not living in normal times.

I have talked several times about the fact that the rally would thin out and begin to favor stocks with the very best fundamentals. Well, one sector of the market — bank stocks — is seeing dramatic fundamental improvement, and could provide a little shelter from the storm.

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The smaller regional and community bank stocks tend to move a little out of step with the market anyway, and unless the government shutdown lingers far longer than anyone participates, they should not feel much effect from the process. Small business still will function and make deposits, meet patrols and apply for loans regardless of what goes on in Washington. Meanwhile, people still will write checks, use the ATM and conduct their normal banking operations.

In addition, the real story in bank stocks is one of credit sand collateral improvement, not earnings growth, and that is not going to change anytime soon.

Many of these smaller bank stocks have received the highest grade of “A” from Portfolio Grader, and are well-positioned for profits in the final quarter of the year.

A great example of these small banks with big potential is Firstbank Corp. (FBMI), a $155 million market-cap stock that operates 53 branch offices in central Michigan. Firstbank provides commercial banking products and services, including traditional deposit accounts and loans tailored to meet the needs of its business customers. FBMI also offers trust, security brokerage and title insurance services, and even armored car services. This bank stock has been rated an “A” all year, and the fundamentals just keep getting better. FBMI shares remain a “strong buy” at current prices.

HopFed Bancorp (HFBC), at $85 million in market cap, operates 18 branches in middle Tennessee and Western Kentucky and can be thought of as poster child for what is going on in the small banking sector. An activist investor took a stake in the bank and opposed an ill-advised acquisition. Instead, he suggested HopFed management get its own house in order. Management went along and canceled the deal, instituted a stock buyback plan and doubled the dividend. HFBC was upgraded to an “A” back in May and still is a “strong buy” right now.

Investors should note that both stocks are very thinly traded, at less than 20,000 shares daily apiece, so limit orders and stop-losses are advised.

Nonetheless, small bank stocks can give you a place to hide from the market noise and turmoil without sacrificing the return potential that comes from owning the very best stocks.

Louis Navellier is the editor of Blue Chip Growth.

Art, antiques investing is for the long haul

Most investments these days exist only as the ones and zeroes of computer code.

You can't get a bond or old-fashioned stock certificate in paper form even if you want one. But art and antiques—now there are two tangible, physical investments that also can grace your home. And if you have a good eye and a long enough holding period, you might actually make some real money.

A few lucky, inadvertent investors may discover a rare armoire in a grandparent's attic or buy a painting when they're young—just because they like it, finding out only years later that the artist got hot.

But what about true investing, as opposed to happenstance? Could you go about buying art or antiques the way you would invest in an exchange-traded fund or real-estate investment trust? Is there significant money to be made?

"Both art and antiques are great investments for people who have money they want to put aside long term," said Kevin Yardumian, a collector of 19th century art and partner with accounting and business advisory firm Gumbiner Savett.

These investments are, however, very illiquid, he cautioned. "You are not going to buy, and then sell, next week."

Despite the long holding periods, art investing is not exclusively for the rich, said Michael Moses, a retired New York University business professor and founder of Beautiful Asset Advisors.

"Our research has shown over the years that art is this wonderful asset class, in the sense that there's a painting for every purse," he said.

Moses added that "low-priced art tends to outperform high-priced art."

A person with a $500,000 investment portfolio might consider putting 10% to 20% into illiquid assets, according to Moses. But art and antiques should be only part of that 20%, he noted.

If an investor is going to spend more on the painting hanging over their couch than they did on the couch itself, "then they should do a little research," Moses said.

Moses is co-creator of the Mei Moses family of fine art in! dexes of art values, which are modeled after the well-known Standard & Poor's/Case-Shiller home price indices of home values.

The art indexes track the prices of individual works sold at auction more than once, for a true "apples to apples" comparison over time. The indexes show that art values rise at about the same rate as stocks.

"The returns of our World All Art Index the past 60 years are slightly below the returns of the S&P 500," Moses said.

So, why invest in art or antiques when putting money into an S&P 500 fund is so easy? There are several reasons, according to Moses and Yardumian.

As with stocks, an individual antique or work of art could perform far better than average. And the Mei Moses indexes show that art prices are, to use investing lingo, highly "non-correlated" to stock prices. So, when your stocks are down, your art might be up, helping to reduce volatility in your overall investment portfolio.

Finally, and most importantly, art and antiques investing can be an awful lot of fun. You might not get much day-to-day enjoyment out of your Dow ETF, but a painting on the wall can please every time you look at it. In addition, the hunt for promising works to invest in can be very exciting.

Much of this is true of antiques, as well, but there is no similar index of their values, according to Moses. Because most antiques sales are conducted through private dealers, he explained, it's too hard to find public sources of concentrated data for meaningful price comparisons over time.

As any viewer of TV's "Antiques Roadshow" knows, the value of antiques can rise over time, as specific craftsmen, styles or periods become popular.

But while an antique individual dresser or chest might soar in value, a virtually identical one might not, because someone refinished it or changed the hardware. Because each antique or work of art is unique, prices fluctuate wildly. This creates both opportunities and hazards for investors.

"Art, like real ! estate, i! s a heterogeneous good," Moses said. "Every object is different."

Yardumian concurred.

"You can get two people who really want something and they will pay an astronomical price," he said. "And then you get someone who really needs to unload something and there's only one buyer."

Both experts agreed that investors in antiques or art need to start with an appreciation of the objects, not a desperate need to make money.

People who become investors—actively seeking works for their potential returns—almost always start out as collectors simply buying works they admire.

"I'll give them the pros and cons," said Yardumian, describing his approach with clients interested in art. "I'll talk to them about the nature of investing in art, [which is] significantly different … than investing in real estate, stocks or bonds or mutual funds."

Art and antiques do not provide the steady income one might earn from stock dividends, bond coupons or rent on property, he noted. So money put into art and antiques is truly tied up.

"There also is no intrinsic value to a work of art," he added.

The paint, canvas and frame used, for instance, don't add to a painting's value. And you can't break an artwork or antique into its components for analysis, the way you can look at a public company's factories, fleets, cash flow and patents.

Collecting art or antiques also means shouldering costs for insurance, expert authentication, shipping and storage in proper conditions of heat, humidity and sunlight—expenses you don't incur with stocks and bonds.

And buying and selling artwork or antiques can entail commissions and markups that can range from 10% to 25% of the work's sales price, Yardumian said. All these expenses chew into returns.

Illiquidity makes art and antiques more akin to real estate than securities. It can easily take six months or more to get a fine painting or sculpture on the auction block, according to Moses.

And the pace of price gains is un! predictab! le.

"You have to have the stomach to just leave the money there," Yardumian said, pointing out that investors should not invest in art or antiques with funds needed for college expenses, retirement or any other purpose with a deadline.

"You would not put money into art that you need to maintain your lifestyle," he advised.

So, what's hot today?

With antiques, it's really impossible to generalize because the market is so fragmented. With art, post-World War II contemporary paintings and Chinese works have been doing well for some time, Moses said.

"New money tends to follow new art," Moses added. Chinese art is rising because newly wealthy Chinese collectors are repatriating works collected in the West over the past century.

If you want to invest in art, Yardumian advises first selecting an area to focus on.

"Find something that you're interested in. It doesn't have to be a lifelong passion," he said. Instead of "just buying a bunch of art, somebody might focus on 20th century modern masters," Yardumian said.

"Then, you should really find somebody who's an expert in that area and can put you in touch with people who can source that kind of art," he said.

And don't mortgage the house to pay for this. Until you're an expert yourself, limit the budget to money you can afford to lose.

CNBC is a USA TODAY content partner offering financial news and commentary. Its content is produced independently of USA TODAY.

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Can Nokia Continue to Explode to the Upside?

With shares of Nokia (NYSE:NOK) trading around $6, is NOK an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock's Movement

Nokia operates as a mobile communications company worldwide. It designs and develops mobile products and services; provides digital map information and related location-based content and services for mobile navigation devices, automotive navigation systems, and Internet-based mapping applications; and provides mobile- and fixed-network infrastructure, communications and networks service platforms, as well as professional services and business solutions to operators and service providers. Nokia operates in three segments: Devices & Services, HERE, and Nokia Siemens Networks.

Nokia's board is reportedly discussing a tie-up with Alcatel-Lucent (NYSE:ALU) as one of the options Nokia is exploring in the wake of the sale of its devices and services unit to Microsoft (NASDAQ:MSFT), although no official discussions with Alcatel have taken place, The Wall Street Journal reports. Nokia is focusing on its wireless holdings and its mapping software in the wake of selling its handset business. A person familiar with the matter who spoke to the Journal said that as of right now, Nokia is still far from certain about its future plans.

T = Technicals on the Stock Chart Are Strong

Nokia stock has seen a sharp decline for most of the past several years. However, the stock is currently exploding to the upside and looks to be ready to establish a new trend. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Nokia is trading above its rising key averages, which signals neutral to bullish price action in the near term.

Source: Thinkorswim

Taking a look at the implied volatility and implied volatility skew levels of Nokia options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Nokia Options	46.96%	43%	41%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
October Options	Flat	Average
November Options	Flat	Average

As of Thursday, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

E = Earnings Are Mixed Quarter Over Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Nokia's stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Nokia look like and more importantly, how did the markets like these numbers?

	2013 Q2	2013 Q1	2012 Q4	2012 Q3
Earnings Growth (Y-O-Y)	100.00%	13.64%	-87.10%	-778.57%
Revenue Growth (Y-O-Y)	-40.38%	-23.40%	-20.68%	-23.13%
Earnings Reaction	-0.24%	-12.93%	-8.92%	-5.00%

Nokia has seen mixed earnings and declining revenue figures over the last four quarters. From these numbers, the markets have been disappointed with Nokia's recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Nokia stock done relative to its peers, Apple (NASDAQ:AAPL), BlackBerry (NASDAQ:BBRY), and Ericsson (NASDAQ:ERIC).

	Nokia	Apple	BlackBerry	Ericsson	Sector
Year-to-Date Return	66.84%	-8.34%	-31.50%	35.25%	19.42%

Nokia has been a relative performance leader, year to date.

Conclusion

Nokia develops and delivers communications products to consumers and companies worldwide. The company is reportedly in talks with Alcatel-Lucent as it looks to offload its handset business to Microsoft. The stock has struggled in recent years but may be getting ready to establish a new trend. Over the last four quarters, earnings have been mixed while revenues have been declining, which has left investors disappointed with the company. Relative to its peers and sector, Nokia has been a year-to-date performance leader. Look for Nokia to OUTPERFORM.

The Code Phrases Wall Street Insiders Don't Want You To ...

When I received my MBA 20 years ago, I thought I was pretty well versed in the world of finance. But when I got to Wall Street that summer, I was quickly overwhelmed.

A litany of phrases were tossed out that I never read about in my finance textbooks. Here's just a small sample of investing phrases that they never talked about in b-school.

	"I'm looking for the stock to consolidate from here." Translation: I expect this stock to start falling and wouldn't want to buy it. This is a similar sentiment to a Wall Street downgrade from "buy" to "neutral" or "hold." Such downgrades actually mean a stock is very unappealing and bound to fall in price. Analysts use that code to avoid the dreaded "sell" rating, which can alienate them from the companies they follow.
	"I smell a secondary." A secondary public offering, that is. Whether it's due to a cash crunch, the need to raise funds to make a major investment, or just an opportune time to raise cash when share prices are high, companies periodically replenish their balance sheets. And investors try to handicap when a company will soon announce a secondary public offering (as opposed to the initial one-time initial public offering (known as an IPO) of shares.) If there is a good chance that a share offering is coming, many investors quickly sell their holdings. That's because lining up demand for fresh shares at current prices is often difficult, leading a company to lower its offering price! to entice investors. And any deal that is priced below the current stock price will invariably pull the stock price down to the new lower level.
	"Those spreads will kill you." The difference between the bid and ask prices for a stock (known as a trading spread) are established by market makers (on the Nasdaq) or specialists (on the New York and American Stock Exchanges). Smaller companies are often subject to low trading volumes, and without a lot of action, market makers and specialists are content to keep those spreads far apart, sometimes by a nickel or a dime. And that spread can act like a tax, robbing you of gains when it comes time to sell the stock back to the market maker or specialist. That's why some investors will only seek out stocks with tight spreads, usually 2 cents or less.
	"The deal is instantly accretive." Ever notice how a stock will sometimes fall sharply when a company announces a major acquisition? That's because investors express concern that the deal will lead to too many new shares being issued (which can dilute per share profits), or the acquisition will be hard to integrate into a company's existing operations (known as "acquisition indigestion"). Yet some deals hold instant appeal, simply because the acquisition is expected to boost profits at a faster pace than the share count grows. This is known as an "accretive" (rather than dilutive) deal and should almost always be welcomed by investors.
	"You want that in a paired trade." Analysts can sometimes be enthusiastic about a stock while conceding that the broader industry they follow may hold the same appeal. An investor exodus from a whole industry or sector can lead to losses in a stock that has comparatively better prospects. So these analysts suggest you invest in the company they recommend but also take a short position in another company in that industry. In effect, you are removing what is known as "market risk," "sector risk" or "industry risk" and just focusing on the relative upside for a given stock.
	"The earnings are high quality." Analysts often speak about the quality of a company's earnings, differentiating between companies that consistently deliver clean, transparent results and those that habitually resort to a series of one-time gains or charges to artificially generate a specific quarterly profit. In a similar vein, investors should always steer clear if a company has "one-time" charges or gains every quarter, simply because the practice is misleading. Most of the time, these repeated accounting changes are just a normal part of doing business, but if they constantly recur, then management is trying to slap "lipstick on a pig."
	"Whisper number." Investors often assess a company's near-term prospects by the directional change in earnings esti! mates. A ! rising estimate may signal an imminent good quarter. But as you get closer to the actual earnings release date, such numbers become irrelevant. In the final weeks leading up to earnings announcements, most analysts won't change their formal earnings estimates (which are published on sites such as Yahoo Finance). Instead, these analysts call up their favorite clients to privately share their current thinking about expected quarterly results. Pretty soon, these numbers are "whispered" from trading desk to trading desk, and by the time actual results are released, share prices will have responded to the whisper number -- and not the formal earnings estimates that most investors will see.

Action to Take --> It's important to think like an advanced investor, and understanding all of the little tricks of the trade, as embodied in these phrases, will help sharpen your game.

This article originally published at InvestingAnswers.com
7 Bizarre Phrases That Wall Street Insiders Use Every Day

It's a Marvel: Disney Extends Hasbro Contract

Was all that worrying for nothing? When entertainment mogul Disney (NYSE: DIS  ) bought cartoon character powerhouse Marvel Entertainment for $4 billion a few years back, Hasbro (NASDAQ: HAS  ) investors felt waves of trepidation that the biscuit wheels were about to come off the gravy train. While the toymaker had just inked a licensing deal for the portfolio's 8,000 or so characters at the time, the agreement only ran to 2017, and you could hear the doomsday countdown clock start ticking in the background.

This morning, though, both companies announced that they had agreed to extend their royalty arrangement through 2020, and for a cool guaranteed royalty payment of $80 million by Hasbro, the day of reckoning has been put off for a few more years. Maybe things aren't so bad after all.

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Maybe, but Marvel's characters are an integral part of Hasbro's success, and when the studios aren't releasing one of their iconic figures to the big screen, the toymaker is the one that suffers. In its second-quarter earnings announcement also just released this morning, Hasbro said its boys segment suffered a 35% plunge in revenues based in part on tough comparisons its Marvel IP had with the year-ago period. Sales tumbled to $253.7 million from $389.1 million last year, too much of a decline to make up for the increase in revenues experienced in the categories of girls (up 43%), games (up 19%), and preschool (up 4%).

Although today's news gives the toymaker a few more years of breathing space, it highlights the importance of Marvel -- and movies generally -- to Hasbro's bottom line. 

The new extended contract actually has its genesis in Hasbro's licensing agreement with Lucasfilm, the owner of the Star Wars franchise that Disney also acquired last year for $4 billion. Hasbro has licensing rights to the characters and the cartoons that appear on its Hub television network are a perennial revenue enhancer. The TV channel is still a small portion of Hasbro's overall revenue picture, and won't challenge anytime soon Disney's own TV work or that of Viacom's (NASDAQ: VIAB  ) Nickelodeon, but it is gaining critical acclaim if not more revenues. 

Hasbro's contract with Lucasfilm extends to 2020 and with both properties now part of the House of Mouse, Disney sought to align both contracts, which is why the toymaker was able to get the contract for Marvel extended. Yet because there are three more Star Wars films planned by the time the agreement runs out, Hasbro has agreed to pay Disney $225 million in guaranteed royalties, with $75 million due at the signing.

As we saw with Marvel, Hasbro's Star Wars relationship is also key because the first-quarter dropoff in sales would have been a lot worse had there not been Star Wars toys put into the sales channel in anticipation of the May 2013 release of Star Wars Episode 1: The Phantom Menace, which was re-released in 3-D. They've also got other tie-ins with the franchise scheduled for the back half of the year, including an Angry Birds Star Wars II release.

While it's interesting that Disney would agree to extend the contract rather than bring production in-house with its own considerable marketing muscle, it seems to me Hasbro was negotiating from a position of weakness. It needs those portfolios more than Disney needs the toymaker, which has had a longtime relationship with Hasbro's rival Mattel (NASDAQ: MAT  ) and could always switch over if it wanted.

The countdown clock may have been reset again, but I'm not particularly worried. Analysts had expected Hasbro to fall apart after Disney pulled its portfolios from the toymaker, but that didn't happen. Not only have they extended the agreement for an additional period of time, but Marvel character-based cartoons appear on Hasbro's Hub, something Wall Street didn't think would happen either.

Once the deadline draws near again, it is possible Disney decides to cut out the middleman after 2020, but they could also be just as pleased with how Hasbro has handled Marvel's characters, and while the House of Mouse might not get all the profits as it would if it brought development in-house, it avoids the costs as well and spreads the risk. Armageddon may have been avoided after all.

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K12 CFO to Step Down

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K12 (NYSE: LRN  ) will soon have a new CFO. Harry Hawks has given notice that he will leave the position by the end of the company's current fiscal year. He plans to continue to assist the firm during the succession period and beyond, working as a consultant, in order to smooth the transition to a new CFO.

Hawks has worked at K12 since 2010. In the press release announcing his upcoming departure, the firm commended his "meaningful contribution to the substantial growth of the Company."

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The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

Mercedes-Benz enlarges new 2015 C-Class

Mercedes-Benz just revealed the new C-Class sedan, a popular model that grows significantly larger while also going on a diet.

The new C will be 3.7 inches longer and more than an inch wider. Most of the extra space goes into the rear seat and trunk. Why? All the luxury makers have been adding more rear-seat room lately mainly to cater to the Chinese luxury market, where more luxury car owners have their own drivers.

Yet despite its larger size, the C-Class will be 220 pounds lighter than the outgoing one, with better aerodynamics and new, more fuel-efficient engines in a bid to save more fuel. It is expected to be 20% more fuel efficient.

The once smallest Mercedes in the lineup -- remember the "Baby Benz" tag? -- the C-Class now is sandwiched between the smallest CLA at the low end and popular E-Class above it. Now Mercedes is referring to it as a "midrange."

"Mercedes at its best - that's the new C-Class, which sets new standards for the midrange segment on many fronts," says Thomas Weber, Mercedes' research chief in Germany, in a statement. "It is characterised by an emotional yet clear designm which is continued in the high-quality and modern interior."

In the U.S., the C will come in two versions. One is the the C300 4MATIC, which will have a 2-liter turbocharged direct-injection in-line four -cylinder engine. It is expected to be rated at 235 horsepower. The other is the C400 4MATIC with a 3-liter, turbocharged, direct-injection V-6. It's good for 329 horsepower.

Inside, C-Class has a new head-up display to try to reduce driver distraction.

Home Depot Apologizes for Racist Tweet

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Getty Images NEW YORK -- Home improvement maker Home Depot (HD) on Thursday apologized for a tweet that showed a picture of two African-American drummers with a person in a gorilla mask in between them and asked: "Which drummer is not like the others?" The tweet, from Home Depot's official Twitter account, @HomeDepot, was part of a "College Gameday" college football promotion on ESPN. It was quickly pulled, but not before people took screen shots of it and it was widely circulated on social media. NBC and CNBC, among others, reported on the Tweet.

.@HomeDepot Apologizes Profusely After An Insensitive Tweet http://t.co/s2gQKC6Z5d pic.twitter.com/GG3ELegj2t

- BuzzFeed News (@BuzzFeedNews) November 8, 2013

Home Depot said Friday that it has fired the person and outside agency that was responsible for the tweet, but didn't disclose their names. "We have zero tolerance for anything so stupid and offensive," said Stephen Holmes, spokesman for the Atlanta-based company. Holmes said the company is "closely" reviewing its social media procedures to determine "how this could have happened, and how to ensure it never happens again." Allen Adamson, managing director of branding firm Landor Associates, said the tweet is "the worst possible message Home Depot can send out ... even if it gets attributed to stupidity." "In a Twitter world where everyone can see everything instantly I think you'll see more rather than less of this because people tweet before they think," Adamson said. Home Depot isn't the first company to get in trouble for offensive tweets. In September, AT&T (T) apologized for a Twitter message that commemorated the Sept. 11 attacks because of complaints the company was using the event to promote itself. And KitchenAid (WHR) faced backlash in 2012 when one of its employees mistakenly posted a tweet about President Barack Obama's grandmother death on the official KitchenAid Twitter account. Percentage of U.S. population who visited in March: 14.2%  Revenue: $73.3 billion  1-year stock price change: 27.56%  Store category: Discount & variety stores

Charter Prepares Bear Hug for Time Warner Cable

Charter Communications Inc. (NASDAQ: CHTR) is reported to be preparing an offer to acquire larger competitor Time Warner Cable Inc. (NYSE: TWC) at a price below $135 a share. Time Warner has reportedly indicated that it would likely accept an offer north of $150 a share, so if Charter comes in with its low-ball (a bear hug) offer the primary reason is that it wants to get the ball rolling.

Time Warner, the country's second largest cable operator with some 11.4 million subscribers, has indicated its preference for a tie-up with Comcast Corp. (NASDAQ: CMCSA), the country's biggest cable company with 22 million subscribers. Whether such a pairing would pass antitrust review is highly dubious.

Time Warner lost 306,000 cable TV subscribers in the third quarter. Comcast lost nearly 130,000 and Charter had about 4.2 million residential cable subscribers at the end of the third quarter, a net loss of 143,000 in the past 12 months.Total cable subscriber numbers are down more than 350,000 compared with last year.

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Time Warner is probably dreaming if it thinks it can command a price of $150 or more a share. It is losing customers for its pay cable service and though its residential and commercial Internet and phone businesses are growing, there is a lot of competition for those customers and Time Warner may not be able to make up the cable losses.

Still, the writing is on the wall. Cable subscriber numbers are down by nearly 10 million since reaching a peak of nearly 67 million in 2001 according to research firm SNL Kagan. Streaming video customer numbers are headed in the other direction, from 14.5 million in 2001 to 46.8 million in 2012, not far behind the 56.4 million total cable customers.

Charter was reported to have been talking with several banks about putting together a deal for the larger company and today's reports may be the beginning of a serious round of bidding for Time Warner. Other bidders might include Dish Network Corp. (NASDAQ: DISH), whose chairman Charlie Ergen has made no secret of his belief that the pay TV industry needs to consolidate but has so far been unable to strike a deal for wireless spectrum or a terrestrial based partner.

At $135 per share, Time Warner would be valued at about $67 billion (including debt), which is nearly 5 times Charter's market value of around $14 billion. Charter might also be angling for a deal that would include a swap with Comcast if Time Warner and Comcast make a deal and are forced by antitrust regulators to hive off some assets.

Time Warner's shares are trading up 0.3% at $131.48 in the late afternoon on Friday in a 52-week range of $84.57 to $139.85.

Charter stock is trading down less than 0.1% at $131.76 in a 52-week range of $68.44 to $144.02.

John Rogers Comments on Bristow Group Inc.

First comes Bristow Group Inc. (BRS), which provides helicopter services to offshore energy rigs, and is a holding in our traditional mid-cap, small-to-mid cap, and small-cap portfolios. Although energy exploration and production can clearly fluctuate, Bristow offsets those shifts through long-term contracts lasting roughly three to five years. Furthermore, Bristow receives "monthly standing charges"—meaning it gets paid whether its helicopters fly or not—amounting to 70% of its operating income.

From John Rogers' November 2013 commentary.

Also check out: John Rogers Undervalued Stocks John Rogers Top Growth Companies John Rogers High Yield stocks, and Stocks that John Rogers keeps buying

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Tuesday, December 10, 2013 Bogle: Apply fiduciary duty to anyone 'touching other people's money' Bloomberg News A longtime financial markets leader called on federal regulators Tuesday to stiffen their spines and propose rules that would require everyone providing investment advice to act in the best interests of their clients. There is widespread opposition to fiduciary duty rules being considered by the Labor Department and the Securities and Exchange Commission, John Bogle, founder of The Vanguard Group Inc., said by telephone at a conference in Washington sponsored by the Institute for the Fiduciary Standard. But instead of focusing on safe harbors for certain kinds of brokerage activities, the agencies should keep the big picture in mind, he said. “There has to be at some point a great willingness of the government — particularly the SEC and also the Labor Department — to take responsibility for making sure that if you're touching other people's money, you are a fiduciary,” Mr. Bogle said from Philadelphia, where he was stuck due to inclement weather. He acknowledged that some accommodations would have to be made in fiduciary duty rules that allow brokers who are strictly sales representatives to continue to do their jobs. “The overriding thing is to put the principle first and the carve-out second, if we need one,” he said. The Labor Department and SEC are working on separate fiduciary duty rules. The Labor Department regulation would expand the term “fiduciary” as it applies under federal retirement law to any financial adviser working with 401(k) and other qualified plans as well as individual retirement accounts. The SEC's rule would establish a uniform fiduciary standard for anyone providing retail investment advice. The Labor Department originally proposed a rule in 2010 but withdrew it after strong opposition from the financial industry, which argued that it would subject brokers in the IRA market to fiduciary duty for the first time. In a recent regulatory calendar, the Labor Department said that it would re-propose its rule next August. The SEC recently put its measure on its “long-term actions” calendar. One industry representative said that the opposition to the Labor Department rule doesn't revolve around fiduciary duty. The bigger concern is that the original DOL proposal wouldn't have permitted brokers to receive revenue-sharing or 12(b)-1 fees from funds within IRA or plan products, said Kent Mason, a partner at Davis & Harman. The amount of the fees vary within IRAs and plans, a situation not permitted for advisers under federal retirement law. “If this was about the best-interest issue, this would have been over in 2011,” Mr. Maso! n said in an interview. “The brokerage model is illegal as it's currently structured [under the original DOL rule],” he said. “That's the issue.” Under the law, investment advisers must act in the best interests of their clients or meet a fiduciary standard. Brokers are held to a less stringent suitability rule when selling investment products. A former SEC official told the conference that it would be difficult for the commission to craft a uniform fiduciary standard that would satisfy advocates in the audience. If the SEC is able to propose a best-interests standard, it would accommodate elements of the brokerage business, such as principal trading, rather than subject it to the adviser standard. Part of the reason is that brokers are better funded and organized politically than advisers, said Robert Plaze, a partner at Stroock & Stroock & Lavan. “The SEC is not going to threaten the broker-dealer business model,” he said. “Broker-dealers are the market.” Monday, December 9, 2013 Low volatility strategy looks like a stock, works like a bond Income-seeking investors migrating into equities to escape low bonds yields face a new challenge: living with the volatility that comes with stocks. Peter DeCaprio, portfolio manager and principal at Crow Point Partners, has been working for more than a year on an equity income strategy that tamps down on wild price swings. Even though the Crow Point Hedged Global Equity Fund (CGHAX) is technically defined as a long-short equity fund, it is designed to be used as an alternative to traditional bond portfolios. “We've all been watching the trade move away from fixed income because the yields have gotten so low, so we're using global equities to replicate income and bond-type volatility,” Mr. DeCaprio said. Crow Point Partners has about $1 billion under management, but less than $10 million in the year-old fund. Mr. DeCaprio acknowledges that a lot of advisers will be reluctant to rush into a relatively new fund with a small pool of assets. “We're a small fund and we're not on any wirehouse platforms,” he said. “But the story itself resonates really well with advisers who have clients with 30% or 40% allocated to bonds.” The strategy is relatively fundamental. The portfolio is made up of mostly non-U.S. dividend-paying equities and preferred stocks. And those individual positions are hedged with broad market put options. The dividends provide the income that bond investors are seeking, and the downside protection from the put options keeps the volatility at a level that makes the portfolio feel like a bond fund. “We're trying to give bond investors an alternative that will not expose them to the risks of the yield curve,” Mr. DeCaprio said. Even though the fund derives its income from dividends, the strategy is not to load up on the highest-yielding stocks, because the goal is to establish stability and predictability in the income stream. “We have stocks in the portfolio yielding anywhere from 2% to 14%,” he said. “You have to balance pure yield with total return potential, and you need to buy healthy companies that can sustain their dividends.” The fund is targeting a gross dividend yield of between 5% and 7%, and over the past 11 months the fund's net dividend yield was 4.2%. Since the start of the year, the fund has gained 4%, which does not get a lot of attention against research screens comparing it with a 29.1% gain by the S&P 500, or a 13.2% gain by the long-short equity fund category as tracked! by Morningstar Inc. But Mr. DeCaprio is quick to point out the fund is not being managed to stack up against equities, particularly in the middle of such a momentum-driven market. The fund's performance looks much better when compared to the 2% decline this year by the Barclays U.S. Aggregate Bond Index. “It's a bond alternative, and that probably means nothing to the guys whose portfolios are designed around the momentum market,” Mr. DeCaprio said. “But there still are people out there who want low-volatility income strategies.” Sunday, December 8, 2013 Does JPMorgan Chase Have a Bright Future? With shares of JPMorgan Chase & Co. (NYSE:JPM) trading around $55, is JPM an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework: T = Trends for a Stock’s Movement JPMorgan Chase is a financial holding company that provides various financial services worldwide. The company is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management, and private equity. Financial services companies like JPMorgan Chase are essential for well-functioning economies around the world. JPMorgan Chase is warning some 465,000 holders of prepaid cash cards issued by the bank that their personal information may have been accessed by hackers who attacked its network in July. The cards were issued for corporations to pay employees and for government agencies to issue tax refunds, unemployment compensation, and other benefits. JPMorgan said on Wednesday it detected that its web servers used by its site www.ucard.chase.com had been breached in the middle of September. It then fixed the issue and reported it to law enforcement. T = Technicals on the Stock Chart Are Strong JPMorgan Chase stock has done relatively well in the past couple of years. The stock is currently trading near highs for the year and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, JPMorgan Chase is trading above its rising key averages, which signal neutral to bullish price action in the near-term. (Source: Thinkorswim) Taking a look at the implied volatility (red) and implied volatility skew levels of JPMorgan Chase options may help determine if investors are bullish, neutral, or bearish. Implied Volatility (IV) Top Canadian Companies To Invest In Right Now 30-Day IV Percentile 90-Day IV Percentile JPMorgan Chase options 21.96% 90% 88% What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days. Put IV Skew Call IV Skew December Options Flat Average January Options Flat Average As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months. On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion. E = Earnings Are Mixed Quarter-Over-Quarter Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on JPMorgan Chase’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for JPMorgan Chase look like and more importantly, how did the markets like these numbers? 2013 Q3 2013 Q2 2013 Q1 2012 Q4 Earnings Growth (Y-O-Y) -112.14% 32.23% 33.61% 54.89% Revenue Growth (Y-O-Y) -7.67% 13.67% -3.57% 10.16% Earnings Reaction -0.01% -0.30% -0.60% 1.01% JPMorgan Chase has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about JPMorgan Chase’s recent earnings announcements. P = Average Relative Performance Versus Peers and Sector How has JPMorgan Chase stock done relative to its peers, Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and sector? JPMorgan Chase Bank of America Citigroup Wells Fargo Sector Year-to-Date Return 27.50% 32.82% 29.15% 27.18% 30.16% JPMorgan Chase has been an average relative performer, year-to-date. Conclusion JPMorgan Chase is a bellwether in the banking space that forms an essential part of the United States financial system. The company is warning some 465,000 holders of prepaid cash cards issued by the bank that their personal information may have been accessed by hackers who attacked its network in July. The stock has done relatively well in recent months but is now trading near highs for the year. Over the last four quarters, earnings have been increasing while revenues have been mixed, which has produced conflicting feelings among investors. Relative to its peers and sector, JPMorgan Chase has been an average year-to-date performer. WAIT AND SEE what JPMorgan Chase does this quarter. Saturday, December 7, 2013 Benzinga Weekly Preview: Europe's Central Banks In The Spotlight The European Central Bank and the Bank of England are both set to make interest rate decisions next week. Although both banks are expected to keep rates constant, investors will be watching the ECB expectantly as President Mario Draghi has hinted at using other tools to help spur the region's recovery and fight falling inflation. Key Earnings Reports Next week investors will be waiting for several key earnings reports including FedEx Corporation (NYSE: FDX), Thor Industries, Inc. (NYSE: THO), American Eagle Outfitters (NYSE: AEO), and Big Lots, Inc. (NYSE: BIG). FedEx Corporation FedEx is expected to report second quarter EPS of $1.63 on revenue of $11.43 billion, compared to last year's EPS of $1.39 on revenue of $11.11 billion. JP Morgan reiterated FedEx with an Overweight rating with a $153.00 price target on November 14.  The firm noted that 13F filings showed that although there was a rise of hedge fund positions in FDX, the size of the positions were quite modest. "Activist positions are modest…. Earlier this week Dan Loeb of Third Point disclosed he had taken a position in FDX and he had met with FDX Chairman and CEO Fred Smith. As of September 30, Third Point owned a modest 2.0 mm shares or 0.6%. Other high profile hedge funds also established positions in 3QCY13 that were smaller than Third Point including Pointstate, Soros, Paulson, and Eminence. The combined position of all of these funds, along with the 1.3% owned by Perry Capital and 0.5% owned by Highfields, was 4.0% as of September 30, 2013." Thor Industries, Inc. Thor Industries is expected to report first quarter EPS of $0.70 on revenue of $844.74 million, compared to last year's EPS of $0.58 on revenue of $875.61 million. Analysts at Wedbush reiterated Thor Industries with an Outperform rating with a $69.00 12 month price target at the beginning of November. The team at Wedbush noted that order backlogs indicate that the company will see stronger growth later this year. "While Q1 Towables sales were softer than expected, order backlog in Towables accelerated sharply, indicating stronger sales growth to come in upcoming quarters. Total order backlog, a leading indicator for sales in future quarters, rose an impressive 42%, sequentially higher than 32% growth in Q4:13. In Towables, backlog rose a stronger than expected 14%, sharply higher than flat backlog a quarter ago, indicating sales growth in this segment should similarly accelerate in upcoming quarters." American Eagle Outfitters American Eagle is expected to report third quarter EPS of $0.19 on revenue of $846.75 million, compared to last year's EPS of $0.41 on revenue of $910.37 million. Goldman Sachs reiterated American Eagle with a Neutral rating with a $17.00 price target at the beginning of November, noting that the company has responded well to stalling consumer spending. "We are positively surprised by the better performance in 3Q, particularly in light of ANF's announcement that 3Q comps deteriorated to -14% and gross margins were worse than feared. AEO's proactive management of the softer consumer backdrop, which included aggressive discounting through August and September, appears to have given them a competitive edge as others took longer to follow suit. AEO mentioned on the 2Q call it had re-assorted 4Q in response to the softer environment, but we do not believe much of that effort benefited 3Q. It may influence the 4Q outcome." On November 7, Jefferies took a similar stance and reiterated American Eagle with a Hold rating with a $17.00 price target. "AEO reported upward revised 3Q EPS guidance, which sends an encouraging signal for a potential turn around in this name. As sales trends become less negative, we think margins have troughed, inventories are controlled and earnings revisions can start to move higher once again. However, we remain on the sidelines until we see more consistent improvement and a more compelling entry point. Maintain Hold, raising PT to $17." Big Lots, Inc. Big Lots is expected to report a third quarter loss of $0.08 per share on revenue of $1.17 billion, compared to last year's loss of $0.10 per share on revenue of $1.13 billion. Analysts at Deutsche Bank reiterated Big Lots with a Hold rating with a $38.00 price target on November 12, noting that the company had long term potential. "After a trip to CA to understand the depth of BIG's recent cooler tests, we believe certain strategic changes could propel a fundamental turnaround at the retailer. To this point, the addition of coolers in conjunction with a store remodel program based on category refinement, an improved marketing strategy, as well the development of an online business, should boost recent stagnant SPSF performance. We remain sidelined for now given ongoing SSS headwinds and a likely multi-year timetable for changes to take hold." Economic Releases PMI data will be in focus next week as several countries will report their manufacturing PMI figures, including the US. US manufacturing PMI likely dropped in November, something that will likely cause taper watchers to push back their estimates for the Fed's cutback. Daily Schedule Monday Earnings Releases Expected: FedEx Corporation (NYSE: FDX), Goldmans Stores, Inc. (NASDAQ: GMAN), Thor Industries, Inc. (NYSE, THO), Krispy Kreme Doughnuts, Inc. (NYSE: KKD), Shoe Carnival, Inc. (NASDAQ: SCVL) Economic Releases Expected: Spanish manufacturing PMI, French manufacturing PMI, German manufacturing PMI, eurozone manufacturing PMI, British manufacturing PMI, US ISM manufacturing PMI, Reserve Bank of Australia interest rate decision. Tuesday Earnings Expected From: Bank of Montreal (NYSE: BMO), United Natural Foods, Inc. (NASDAQ: UNFI), OmniVision Technology, Inc. (NASDAQ: OVTI), Universal Technical Institute, Inc. (NYSE: UTI) Economic Releases Expected: Chinese HSBC Services PMI, Australian GDP, Brazilian GDP, eurozone PPI, British construction PMI. Wednesday Earnings Expected From: Christopher & Banks Corporation (NYSE: CBK), Brown Forman Corporation (NYSE: BFB), Express, Inc. (NYSE: EXPR), Avago Technologies (NASDAQ: AVGO) Economic Releases Expected: US nonfarm employment change, US trade balance, Canadian trade balance, US new home sales, US ISM non-manufacturing PMI Thursday Earnings Expected From: UTi Worldwide Inc. (NASDAQ: UTIW), Renesola Ltd. (NYSE: SOL), Royal Bank of Canada (NYSE: RY), Kroger Company (NYSE: KR), Dollar General Corporation (NYSE: DG), Diamond Foods, Inc. (NASDAQ: DMND) Economic Releases Expected: US factory orders, French unemployment rate, Bank of England interest rate decision, US GDP Friday Earnings Expected From: Big Lots, Inc. (NYSE: BIG), Bank of Nova Scotia (NYSE: BNS), American Eagle Outfitters (NYSE: AEO) Economic Releases Expected: French trade balance, Swiss CPI, US non-farm payrolls, US unemployment rate Posted-In: Bank Of England European Central Bank Mario DraghiEurozone Commodities Previews Economics Federal Reserve Pre-Market Outlook Markets Trading Ideas Best of Benzinga (c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.   Around the Web, We're Loving... Lightspeed Trading Presents: Thunder and Tubleweeds: Trading Techniques for the New Market Enviroment Pope Francis Rips 'Trickle-Down' Economics Come See How the Pro's Trade in this Exclusive Webinar Wynn, MGM, Other Casino Giants Vying For U.S. Turf What Should You Know About AMZN? Most Popular 3 Reasons Every Family Office Should Own Microsoft Stocks To Watch For November 29, 2013 Zoom Shares Rise More than 200% Pre-Market Following Wednesday's Announced Acquisition of Beijing Baifen Tonglian Information & Technology 3 Reasons Every Family Office Should Own JP Morgan Cyber Monday's Hottest Tech Deals: iPod Touch, PlayStation 4 Bundle, Samsung TV And More UPDATE: Topeka Capital Markets Reiterates on Pioneer Natural Resources as Severe Weather Impacts 4Q13 Production Related Articles (AEO + AVGO) Fire at Bangladesh Garment Factory Destroys Months of Stock for Major Western Retailers Benzinga Weekly Preview: Europe's Central Banks In The Spotlight Earnings Expectations For The Week Of November 25: Hewlett-Packard, Tiffany And More Mizuho Initiated Softlines Specialty Apparel Sector American Eagle Raises EPS Estimate Mid-Morning Market Update: Markets Mixed; Wendy's Adjusted Profit Beats Estimates View the discussion thread. adsonar_placement Friday, December 6, 2013 What the Rush of Money into Stock Funds Means Individual investors have finally decided that it's safe to buy stocks again. So far this year through October 31, investors poured $404 billion more into U.S. and foreign stock funds and exchange-traded funds (ETFs) than they took out, research firm Strategic Insight reports. For the full year, the firm projects that net inflows will total more than those for the previous four years combined. See Also: 24 Stock Picks for 2014 Here's the bad news. Market strategists, analysts and money managers almost unanimously believe the rediscovery of stocks by individuals is not a good thing for the market. It's as close to Wall Street gospel as you can get: Individual investors almost always buy and sell at the wrong times. Want samples of that kind of thinking? After a particularly big week of fund buying in late October, David Santschi, chief executive officer of TrimTabs Investment Research, said in a note to clients, "As Silicon Valley bestows multi-billion valuations on technology outfits with neither revenue nor profits, investors are piling into equity funds at the fastest rate since the technology stock bubble popped in 2000." Two days later, Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, headlined the firm's weekly report on fund flows "It's Getting Frothy, Man!" Just one problem with that analysis: The relationship between fund flows and subsequent returns is actually much more complex. At my request, Morningstar crunched the data on flows in and out of domestic stock funds and ETFs since 1993. Morningstar totaled flows over each January–June and July–December six-month period along with stock market returns for the subsequent six and 12 months. If you average all the periods with positive net inflows into U.S. stock funds, Standard & Poor's 500-stock index returned an average of 4.5% over the next six months and 10.6% over 12 months. That certainly doesn't raise any bear-market warning flags. By comparison, averaging all the periods with net flows out of stock funds, the S&P 500 returned an average of 5.8% during the subsequent six months and 9.4% over 12 months. In other words, over the short term (six months) the stock market did better on average after periods during which more money came out of stock funds than went into them. But the average 12-month return was slightly higher after a period of net inflows than it was during a period of net outflows. At first blush then, the relationship between fund flows and subsequent returns seems nonexistent. Indeed, for all 40 six-month periods measured by Morningstar, the S&P went up about two-thirds of the time. And, lo and behold, the S&P went up about two-thirds of the time after investors were net buyers or net sellers of stock funds. In fact, after the six periods with the largest net outflows from stocks, the S&P rose. Conversely, the market gained after six of the eight periods with the largest net buying of stock funds. One relationship that's clear from the data is that individuals tend to buy U.S. stock funds after the market has risen and to sell after it has fallen. They're not contrarians. Unfortunately, that information is of no use to investors attempting to forecast the future direction of the stock market. Sometimes the market trend is your friend; sometimes it isn't. But there is one nugget buried in the data. When net flows out of stock funds are massive, that tends to be a good time to buy stocks. For instance, the biggest net outflows from stock funds since 1993 were recorded for the last six months of 2011. And the S&P rallied 9.5% in the next six months. The second biggest bout of selling was posted in the last six months of 2012. Similarly, the S&P rose 13.8% during the subsequent six months. Bottom line: A flood of individual investor money into stock funds isn't particularly useful as a contrarian indicator that portends a market decline. But overwhelming investor pessimism, as measured by large outflows from stock funds, has some value in predicting a strong market. Steven T. Goldberg is an investment adviser in the Washington, D.C., area. Thursday, December 5, 2013 Should We Employ Indicators Used by the Majority? Should We Employ Indicators Used by the Majority? In today's active markets environment, traders have a wide variety of trading systems and technical indicators to use when constructing a trading plan that is meant to deliver success on a long term time horizon.  While it can be difficult to separate the “wheat from the chafe,” new traders will be required to do diligent research when looking at the strengths and weaknesses of any system.  Without this, new traders are putting themselves (and their money) at risk so it is important to make sure that any trading system has been well researched and tested under a variety of market conditions so that the system can be trusted when real money in put at risk. It is important to look at the most commonly used and trusted technical indicators that can be found in the forex markets today, as this will give the best sense of what the rest of the market is thinking at any given moment.  Common examples include the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD) and Stochastics. It is relatively rare to see a successful trader that does not use or at least monitor some element of these strategies on a regular basis.  So, it makes a great deal of sense (especially for new traders) to at least have a firm understanding of how each of these indicators and oscillators work so that you can have a better sense of what the rest of the forex markets is seeing and how accurate and successful trading strategies are actively constructed. Starting from the Bottom It can sometimes be very confusing for experienced traders when they see newer traders investing their money in technical analysis strategies that they do not understand and have not even attempted to research.  Why would any trader want to use a technical indicator if they do not understand the basic calculation that go into each signal?  Since the underlying math is not difficult to understand and takes very little time to research, it should be very clear that no trading strategy should be undertaken without at least a general understanding of the basics involved when these calculations are made, so first we will look at these basics so that the more advanced techniques presented later can make more sense. Minority vs. Majority “One of the classic arguments in technical analysis is over whether or not we should employ indicators used by the majority,” said Rick Bartlett, currency analyst at CornerTrader. Some expert traders want to use exotic indicators, because they feel this gives an edge on the market that most traders cannot see or comprehend.  But it is important to avoid this mindset, as it prevents you from seeing what the majority of the market is actually doing.  After all, it is the majority opinion that ultimately decides market prices so it makes sense to have at least some id of the current MACD, RSI, or Stochastics reading before any trades are placed. The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited. Posted-In: Markets   Around the Web, We're Loving... 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Partner Network Wednesday, December 4, 2013 Utilities: The Capex Conundrum While credit-rating agencies are applauding the first few utilities to reach the end of their multi-billion dollar capital expenditure programs, there is some debate in the industry as to whether this will be a positive for future earnings growth. Some have argued that those utilities that finish their programs early will have more cash on hand, which will not only help them endure rising costs such as potentially higher taxes, but will also afford greater financial flexibility to take advantage of mergers and other opportunities for investment once interest rates start to rise. But others have argued that the expected jump in electric power prices in the coming years will make it difficult for utilities to take on new projects, as regulators will be less willing to approve them as rates come under pressure. So those utilities still in the midst of large capital expenditure programs may have the advantage, since they’ll enjoy higher earnings as they complete each project, while those that finished their programs earlier may not be able to find new projects of similar quality with the same attractive terms. Regardless of the relative timing of such investments, faith in management’s ability to generate shareholder value from capital projects is at an all-time low, based in part on the industry’s experience during the last period of major capital expenditures. As depicted in the chart below, the percentage of firms able to deliver returns on invested capital (ROIC) that exceeded their weighted average cost of capital (WACC) dropped precipitously toward the end of that period. Chart A: Will Utilities Be Able to Generate Better Shareholder Value This Time? At the heart of this debate is which situation will provide investors with the best combination of strong growth and sustainable income. Before proceeding, however, it should be noted that this discussion could end up being moot if new regulations on carbon emissions require significantly higher spending levels. Based on available capital expenditure forecasts, according to an SNL Energy report, “Spending is projected to decline after 2013, with the drop-off due largely to the completion of large generation projects and the finalized installation of environmental projects to comply with Mercury and Air Toxins Standards (MATS) and other standards promulgated by the Environmental Protection Agency (EPA).” Among those companies that are winding down their spending programs, NextEra Energy Inc (NYSE: NEE) accounts for almost 30 percent of the projected $10 billion decline in annual spending from 2013 to 2015. Other larger-cap companies with projected 2015 budgets that are below their 2013 levels include: CenterPoint Energy Inc (NYSE: CNP), Dominion Resources Inc (NYSE: D), PPL Corp (NYSE: PPL), Public Service Enterprise Group Inc (NYSE: PEG), and Southern Company (NYSE: SO). Meanwhile, the companies that are projected to be spending more in 2015 than they are presently include The AES Corp (NYSE: AES), Ameren Corp (NYSE: AEE), American Electric Power Co Inc (NYSE: AEP), CMS Energy Corp (NYSE: CMS), and Northeast Utilities (NYSE: NU). When Cash Is King The main reason to be concerned about the timing of major capital projects is that there are a number of financial and economic challenges looming ahead. In addition to the potential for higher taxes in the near term if bonus depreciation is not extended, the eventual rise in interest rates will make it costlier to pursue debt-financed deals as well as initiate new capital investment projects. Overcoming these challenges will be more difficult for utilities that are in the midst of capital-intensive investments, and that could lead to dividend cuts. Below, we survey these headwinds’ potential effects on earnings: 1) Bonus Depreciation and Capital Spending: According to a report from Moody’s Investors Service, “The US telecommunications and utilities industries could face more than $100 billion in combined federal tax payments in the coming years resulting from accelerated depreciation benefits they have taken since 2008. Assuming the ‘bonus depreciation’ allowance expires as scheduled at the end of 2013, companies will have to adjust capital spending and shareholder dividends to offset higher taxes.” Though the credit-rating agency asserts that time is on utilities’ side if the bonus depreciation expires, as there are various tax strategies that firms can undertake to offset higher taxes, this could still undermine dividend coverage. Indeed, Moody’s says, “Our projections suggest that the industries’ combined dividends will rise to $52 billion in 2020 from $44 billion in 2013. Such dividend payouts are unsustainable because net income and free cash flow will remain essentially flat, in part owing to higher taxes.” 2) Interest Rates and Merger Deals: Slower load growth is causing utilities to look beyond their service territories. According to Moody’s, “Growth has been moderating in recent years primarily because of greater energy conservation and efficiency, and increased distributed generation and the 2008-09 economic downturn.” The rating agency says, “These growth trends have pushed some utilities to look beyond their service territories for additional load growth in areas that are growing faster than the national average. Recent deals have been credit neutral as they have been financed with a balanced mix of debt and equity.” But the report notes that once interest rates start to rise, an increase in the cost of capital could slow or impede mergers and acquisitions, or at least those transactions that are heavily financed via debt. Thus, during a rising-rate environment, companies with relatively strong balance sheets should be better positioned to secure low-cost financing than those in the midst of large capital expenditure programs that may have to wait until their credit position improves. 3) Interest Rates and Equity Risk Premiums: Higher interest rates would not only affect the cost of debt financing, but would also raise the cost of equity issuances. A report from analysts at J.P. Morgan, dating from 2010, examines the cost of equity should Treasury rates revert to a level between 5 percent and 6 percent in the medium term. Assuming that stocks generate returns consistent with their long-term premium of roughly 6.5 percent above risk-free investments such as Treasuries, the utility industry’s cost of equity would increase to 10 percent to 11 percent. The implications are significant. “At 11 percent, the regulated utility sector’s cost of equity would outstrip the current industry median allowed return on equity (ROE) of 10.7 percent. Even at 10 percent, the cost of equity would be outside the historical margin of error of what utilities have been able to realize relative to allowed ROEs. Over the past decade, the utility industry has typically under-earned its allowed ROE by approximately 75 basis points,” J.P. Morgan found. Even more concerning, the banker added, not only have realized industry ROEs compressed since 2004 to a median of 9.6 percent as allowed ROEs have ratcheted down, but the under-earning spread has widened as well, from a median of approximately 60 basis points that prevailed prior to 2005 to 110 basis points since then. “Thus, if we assume that the industry is likely to continue to under-earn its allowed ROE by approximately 100 basis points, then with a current average allowed ROE of approximately 10.7 percent, the industry is likely only to be able to earn approximately 9.7 percent–below its cost of equity should the 10-year Treasury rate increase to 4.7 percent or higher,” J.P. Morgan concluded. Trust, but Verify So how do investors evaluate which utility management teams are most likely to not only skillfully allocate their capital, but also get the timing right on its deployment? Since we can’t see into the future, it all comes down to trust in their decision-making based on their track record (See Chart B). The big question to ask is whether management is generating a return on invested capital (ROIC) that’s greater than the company’s weighted average cost of capital (WACC). ROIC is a ratio that incorporates shareholder returns from equity and debt to help investors identify managers who maximize profits from all sources of capital at their disposal. Many investors usually highlight earnings and dividend growth, yet these come with a heavy price for regulated utilities. That heavy price is a growing investment base funded by large and usually increasing long-term liabilities on their respective balance sheets. Earnings growth rates and return on equity do not consider the impact of these higher liabilities. ROIC provides insight into how effectively total capital is deployed, regardless of its origin. Some have argued that ROIC is not a good metric for the utilities industry since it doesn’t reflect issues such as regulatory lag, while under-collection on capital investments can distort it. But a 2007 study by Accenture found that ROIC was 58 percent correlated to high total shareholder return. Conversely, a high dividend yield had a negative correlation to total shareholder return. Furthermore, in its own historical analysis, J.P. Morgan found that utility stocks whose underlying companies had higher spreads between ROIC and WACC realized greater returns over the same period. Chart B: Top ROICs Meant Top Total Shareholder Returns in the Past At present, when looking at the top five utilities with the largest capital expenditure programs, we found many firms were barely exceeding their cost of capital, while there were a few that weren’t. According to Bloomberg analytics, those that earned above their cost of capital were: Duke Energy Corp (NYSE: DUK) (1.32 percent), American Electric Power (1.12 percent), NextEra (0.64 percent) and Southern Company (2.94 percent), while those firms not earning their cost of capital were Dominion (-2.27 percent) and PG&E Corp (NYSE: PCG) (-0.36 percent). There may be various reasons why ROICs are low for these firms, such as the effectiveness of management decisions or regulatory lag. According to McKinsey, “Since a company’s continuing value is highly dependent on long-run forecasts of ROIC and growth, this result has important implications for corporate valuation. Basing a continuing value on the economic concept that ROIC will approach WACC is overly conservative for the typical company generating high ROICs.” Investors should look closely at individual capital expenditure programs and past management effectiveness to determine which firms are the best investments. But if the prospect of examining the spreads between ROIC and WACC makes your head spin, there’s another way that’s even easier. In the end, we believe the answer to the capex conundrum is the balance sheet. A strong balance sheet is always preferable, as it gives management options against the unknown. Furthermore, strong balance sheets create more value and, therefore, lower the long-term cost of capital. Subscribe to: Comments (Atom) Blog Archive ►  2019 (38) ►  March (18) ►  February (20) ►  2018 (23) ►  August (2) ►  July (11) ►  June (3) ►  May (7) ►  2015 (150) ►  July (5) ►  June (17) ►  May (20) ►  April (18) ►  March (27) ►  February (21) ►  January (42) ►  2014 (412) ►  December (28) ►  November (26) ►  October (46) ►  September (45) ►  August (41) ►  July (59) ►  June (53) ►  May (27) ►  April (24) ►  March (24) ►  February (13) ►  January (26) ▼  2013 (140) ▼  December (22) In Broker Bonus Wars, Rumors of Peace Are Premature Abercrombie & Fitch Co. 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