What We're Reading

A December Fed rate hike, uncertainty regarding the U.S. presidential elections, weak earnings growth, diminished buyback activity and concerns about European banks pose near-term risks to global equities.  Comments in italics are mine.

The summer rally has left equity valuations looking stretched. The median U.S. stock now trades at a higher P/E ratio than even at the 2000 peak. The Shiller P/E ratio stands at 27, but would be 37 if profit margins over the preceding ten years had been what they were in the 1990s. The fact that interest rates are low gives stocks some support, but with the Fed likely to hike rates in December, that tailwind will begin to fade.

Lackluster earnings growth remains another concern. S&P 500 and economy-wide profit margins have rolled over. Granted, the collapse in profits in the energy sector has been the major culprit, and this headwind should wane if oil prices edge higher over the next 12 months, as we expect. Nevertheless, faster wage growth and a f

Stock markets have enjoyed a banner half-decade, forcefully reclaiming the ground lost to the financial crisis, and then some. This vigorous performance has occurred thanks, above all else, to two key enablers: surging earnings and recovering valuations. On the surface, there is nothing especially questionable about either. Earnings naturally rise as economies grow, and valuations recover as risk aversion fades.

However, a closer examination reveals a significant vulnerability within this cozy equation. Corporate earnings growth has been, in a sense, too good – persistently outpacing both revenues and the economy. This has driven profit margins to multi-decade highs.

Worryingly, profit margins have long been assumed to be mean-reverting, arguing that these juicy gains may eventually have to reverse. Such a scenario would necessitate an eye-watering one-third decline in the S&P 500. With stakes as big as these, a clear sense of the downside risk is imperative. This report evaluates th

Stock repurchase programs as well as dividends, are a great way to "return value to the shareholder" and also a way to "prop up" a stock price or keep funds in the game.  Unfortunately, nothing lasts forever and repurchase programs are unsustainable longer term.  At some point the market must heed the fundamentals, earnings growth and if margins contract, the positive effect of buybacks is lessened.   This from one of my favs, Variant Perception

• MIT on unfilled job vacancies says “You do need skills, but they are within reach of most Americans.”  http://newsoffice.mit.edu/2013/mit-pie-conference-0924

• Analysts return from SPLK conference with high praise http://seekingalpha.com/news/1757723-analysts-return-from-splunk-conference-with-high-praise

• After Fridays' close CME changed margin requirements on Coal, Crude Oil, Electricity, Equity Index, Metals, and NGLs Outrights- Effective Friday, May 16, 2014 http://www.cmegroup.com/tools-information/lookups/advisories/clearing/files/Chadv14-192.pdf

• Iron ore prices drop below $100 as China cools it’s housing sector and focuses on it’s consumers http://www.bloomberg.com/news/2014-05-19/iron-ore-drops-below-100-for-first-time-since-2012.html

• Alibaba rep tells FOX they’re looking at July or August for their IPO

Growing in popularity, price matching has become the norm however I see it truly mutating and it's only going to get worse [for margins] if you ask me. 

Times were when clipping coupons in the Sunday paper saved you a buck or two with some retailers offering double coupon days and Senior discount days [generally the day before the new ad was to be released] in order to clear old merchandise off the shelf.  For those of us struggling to budget with small children, double coupon days at Venture and Zayres was a boon and if there was a Blue Light Special on ham at Kmart, we were there.  That was the 70's and inflation was taking a bite out of our pocket.

Evolution slowly lead to price matching between retailers *if* you had a valid ad in hand and your checker called over the Manager for approval who would scrutinize every detail, glasses pulled down to the tip of his nose.  This alone guaranteed you a good 5-10 minute wait [mininum], usually with a runny-nosed whining child, impatient a