Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

EMPLOYMENT

NEW$ & VIEW$ (12 MARCH 2014)

Pretty long post today, but interesting, and not very encouraging…Disappointed smile

Fewer Confident Enough to Quit in Chilly Winter Job Market

The latest data on U.S. workers’ willingness to change jobs adds to evidence the job market slowed this winter — and just not because of the weather.

The share of U.S. workers who voluntarily resigned from their jobs — the nation’s “quits rate” — dipped to 1.7% in January, from 1.8% in December, the Labor Department said Tuesday. That was the first drop in this rate since March 2013, though it remains just below its highest level during the economic recovery. (The Labor Department revised its data on quits, which began in December 2000; originally, the rate in December 2013 was 1.7%.)

All told, some 2.38 million workers quit their jobs in January, down slightly from 2.42 million in December and the second straight drop following months of gradual improvement.

Economists, including new Federal Reserve Chairwoman Janet Yellen, consider the willingness of workers to leave their jobs an important gauge of the health of the labor market. When workers are confident about jobs, they’re more likely to jump ship to find a new one or because they have already secured a position. When they’re not confident about the labor market, they stay put.

A healthy amount of quitting also makes the labor market more fluid and dynamic. If workers don’t quit, there are fewer openings for other job seekers. Most job openings come from people leaving jobs, not from things like tech firms staffing up. (…)

Other data in Tuesday’s report also pointed to weakness on jobs this winter. The “hires” rate, or the number of hires as a share of the employed, remained stuck at 3.3% for the fourth straight month, suggesting firms aren’t picking up their hiring. (This rate was 3.2% in January 2013—and in January 2012.) (…)

Here’s the best chart on JOLT, courtesy of CalculatedRisk:

Mortgage Applications Decrease in Latest Weekly Survey

Mortgage applications decreased 2.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 7, 2014. The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier.

Lightning U.S. WHOLESALE SALES CRATER IN JANUARY

I did not see this important release in any media this morning.

image

A 1.9% monthly drop is huge. It may be the weather, but it may also be that Christmas sales were so bad that inventories need to be rapidly and radically worked down. Inventories seem to be particularly high in Automotive (+6.9% YoY), Furniture (+6.2%)

Obama to Expand Overtime Eligibility

Currently, many businesses aren’t required to pay overtime to certain salaried workers if they earn more than $455 a week, a level that was set in 2004 and comes to roughly $24,000 a year. The White House is expected to direct the Labor Department to raise that salary threshold, though it is unclear by how much.

Ross Eisenbrey, vice president of the liberal Economic Policy Institute, and Jared Bernstein, a former White House economist, recently proposed the limit be increased to $984 a week, or roughly $50,000 a year.

“That would mean between five- and 10-million people could be affected, but they might choose a lower number,” Mr. Eisenbrey said about the White House plans.

The rule change is expected to apply to salaried workers, as most of those paid by the hour already qualify for overtime. It would amend the implementation of the Fair Labor Standards Act and likely would require employers to pay time and a half for weekly work in excess of 40 hours by certain employees.

Euro-Zone Industrial Output Down Industrial production in the 18 countries that share the euro fell for a second month in January, underlining the fragile nature of the economic recovery.

imageThe European Union’s statistics agency Eurostat Wednesday said output fell by 0.2% from December 2013, although it was up 2.1% from January 2013. The decline in output was a surprise, with the consensus forecast of 22 economists surveyed by The Wall Street Journal last week being for an expansion of 0.5%. (…)

The decline in output wasn’t widespread across the currency area, with increases recorded in Germany and Spain. However, there was a very sharp fall in the Netherlands, the euro zone’s fifth largest member, which saw output drop by 6.4% from December, while in Finland, output fell by 3.5%, and in France, it fell by 0.3%.

Figures for December were revised higher, and Eurostat now estimates that output fell 0.4% during the month, having previously calculated they fell 0.7%.

High five Must be the weather! Well, it probably is. Europe has had a mild winter and energy production was down 2.5% in each of December and January.image

High five But it could also be due to this:

Power Companies Cut Dividends as Energy Subsidies Hit Earnings Renewable Energy Generation Erodes Wholesale Power Prices, Hits Profitability

European utilities E. ON SE EOAN.XE -0.71% and Enel ENEL.MI +0.16% SpA lowered their annual dividends Wednesday as the subsidy-led boom in renewable energy across the region undermined their fossil-fuel electricity business and hit earnings.

For decades utilities such as Germany’s E. ON and Italy’s Enel have generated vast profit with fleets of industrial-scale plants that powered Europe’s economies.

More recently, a surge in renewable energy generation, which Germany and other European Union governments have heavily subsidized in the hope of reducing carbon-dioxide emissions, has eroded wholesale power prices and diminished the profitability of conventional plants.

E. ON slashed its yearly dividend to shareholders by nearly half to €0.60 a share from €1.10 paid out last year. (…)

The utility said that underlying profit, an after-tax figure that strips out nonrecurring effects, was down 46% at €2.24 billion. Earnings before interest, taxes, depreciation and amortization fell 13.5% to €9.32 billion, on a 7.8% decline in revenue to €122.5 billion. E. ON adjusts Ebitda to exclude nonrecurring items.

The company expects 2014 Ebitda between €8 billion and €8.6 billion and underlying profit of between €1.5 billion and €1.9 billion.

Enel reduced its dividend by 13% to €0.13 but pledged to lift its payout ratio to at least 50% of ordinary net profit, which excludes special items, from its current payout policy of at least 40%. (…)

The poor results chime with the mood among most of Europe’s other established electricity providers in recent weeks. In response to the worsening business environment, utilities across Europe are cutting costs and thousands of jobs. Some have responded to the poor power price level by shutting down or mothballing unprofitable power plants. E. ON plans to shut down a total of 13-gigawatts of generation capacity, which equates to the output of at least 13 large nuclear reactors or more than a quarter of E. ON’s fleet of conventional power plants in Europe.

E. ON’s German rival RWE AG RWE.XE -0.94% last week reported its first net loss in more than 60 years, after booking billions in write downs as renewables continue to squeeze its plants and curb wholesale electricity prices. RWE lowered its 2013 dividend payment to €1 a share, half of what it paid the year before. The crippling impact of renewable energies on the European power generation industry was evident last month when France’s GDF Suez SA GSZ.FR -1.27% announced write-downs worth €14.9 billion. (…)

EMERGING SUBMERGING

imageEmerging markets have substantially underperformed U.S. equities in the past year as investors realized there is no such thing as a one way ticket. The underperformance occurred in spite of promising outlooks early in 2013 as per the global PMIs. Things changed radically in May after Ben Bernanke murmured “taper” for the first time and speculative funds got the jitters.

Nearly 12 months later, EM PMIs remain in contraction territory while the economic momentum has seemingly shifted to developed countries which now boast generally expansionary PMI readings, nearly opposite to their January 2013 levels (the RBC Capital table dates before the release of the U.S. February ISM at 53.2).

But EMs are primarily exporters to the DMs making the current situation rather awkward if not unstable. It may also be that the combination of a Chinese slowdown with the huge devaluation of the yen has shifted market shares in South East Asia. We will know shortly since losing countries will need to address their new found inability to compete.

image

China Export Prowess Wanes in U.S., Europe

The Made in China label is losing traction with its two biggest customers. After three decades of gains, China’s share of U.S. imports has plateaued and in Europe it’s in decline.

The steepest losses are in the European Union, where China’s share of imports slumped to 16.5 percent in the first 11 months of last year, from a 2010 high of 18.5 percent, according to data compiled by Bloomberg News. In the U.S. the needle has barely moved in the past five years, holding around 19 percent.

China’s low-cost vantage has been blunted by rising wages and an appreciating currency, with cheaper nations including Vietnam and Bangladesh competing to sell products from T-shirts to shoes. (…) The yuan has appreciated about 35 percent against the dollar since July 2005, wages have tripled in the past decade and China’s labor force has begun to shrink. (…)

The nation’s working-age population began declining in 2012, Chinese government data show. The pool of 15- to 39-year-olds — the backbone of factories making clothes and toys — has contracted by 35 million in the past five years, a U.S. estimate indicates.

The changes have led global manufacturers to begin shifting production to countries such as Bangladesh and Vietnam, which surpassed China in 2010 as the largest supplier of Nike Inc. footwear.

Higher costs and wages in China are prompting some Asian companies to set up manufacturing plans in neighboring countries. Samsung Electronics Co. is building a $2 billion plant in Vietnam that may make 120 million handsets by 2015.

U.S. and European clothing makers are also looking elsewhere. Some 72 percent of chief purchasing officers who oversee a collective $39 billion in annual purchases for apparel firms expected to shift to lower-cost nations — with Bangladesh, Vietnam and India as the top three destinations for the coming five years, a survey conducted by advisory firm McKinsey & Co. in 2013 shows. (…)

So,

Will China move to stimulate its economy?

(…) Stephen Green, head of Greater China research at Standard Chartered, said that a sharp easing in interbank interest rates in recent days may be an early indication that Beijing is preparing a more supportive economic policy. Further actions could include a cut in bank required reserve ratios – which would release more liquidity into the economy – and an invigoration of investment projects under the current five year plan, Green added.

Jianguang Shen, Greater China chief economist at Mizuho Securities, said that the recent depreciation of the renminbi against the US dollar and the decline in interbank rates signified that “monetary policy has started to ease already”. (…)

Several inter-related constraints conspire to make any stimulus initiative by Beijing delicate to execute. Any credit-centric stimulus would risk setting back the progress that China has made in slimming down its sprawling shadow finance system. An investment-centric programme, for its part, could end up compounding the issue of chronic overcapacity in heavy industrial sectors such as steel and cement.

However, analysts said, allowing the slowdown to continue unchecked in an environment of tightening credit could trigger a domino effect of corporate bond and trust product defaults. (…)

Judgments on whether or not Beijing will be able to pull off this balancing act, Botham said, defines the line between China optimists and China pessimists. (…)

Consider that this is a huge,complex ship to manoeuver and that its captains have little experience stirring in such heavy cross-currents…China clearly has decided to depreciate its currency. Others will likely follow.

Thailand cuts rates as others adopt rise

The Bank of Thailand on Wednesday chose to cut its policy rate by 25 bps to 2 per cent – the lowest level since 2011 when the country was battling widespread flooding. The monetary policy committee said in a statement that it was acting to “lend more support to the economy”.

Thai household debt has jumped sharply, from 55 per cent of GDP in 2007 to about 80 per cent now, while the country is also losing market share in exports. (…)

Indonesia and India have already carried out a number of increases since last summer, partly to stem rapid capital outflows sparked by the “taper tantrum” that rocked developing economies globally. Both countries have also been acting to cut stubborn current account deficits – something that can be achieved through lower demand for imported goods.

The Bank of Thailand said the economy was unlikely to grow by even 3% this year, down from a forecast of 4% as recently as November. Thailand saw growth slow to 0.6% YoY in Q4’13, from 2.7% in Q3.

Japan Business Sentiment Soars: A Flash in the Pan or Here to Stay?

Sentiment among large Japanese companies jumped to an all-time high in the January-March period, amid hopes for a consumer spending binge ahead of the April 1 sales tax increase, a government survey showed Wednesday.

The same survey predicts sentiment will drop sharply to become pessimistic overall in April-June, the quarter most likely to be hit by a fall in consumption under the higher tax. The results also indicate, however, that the setback to sentiment will be short-lived, with a quick recovery in the following quarter returning the index to a positive figure. Government officials say there’s no reason to doubt the results, based on a poll of 8,240 companies.

Hmmm…here’s a reason to doubt:

Japanese Consumer Pessimism Hits New High Under Abe Japan Inc. may be whistling a happy tune on the back of robust profit growth and a weaker yen, but a key survey shows that consumers aren’t in a similar Abenomics-induced state of rapture.

(…) The Cabinet Office’s monthly Consumer Confidence Index contracted for the third straight month in February to 38.2. That’s the worst reading since Mr. Abe entered office in January 2013 and the lowest since September 2011. Respondents were even more pessimistic than during Mr. Abe’s year-long term as prime minister between September 2006 and September 2007.

Undercutting hopes that consumers would have a greater urge to get in some last-minute shopping ahead of a sales tax increase in April, sentiment toward buying durable goods fell sharply in February, continuing a trend that started in October. (…)

More from Japan Business Survey:

But the survey has less encouraging news too. It predicts the bumper profits currently being enjoyed by corporate Japan will soon come to an end. For the fiscal year starting in April, pretax profits at big businesses are expected to fall 4.8%, following a 24% jump in the current fiscal year, as sales are expected to dip 0.1%, after a 4.0% gain this year. The results suggest that the cheap yen effect engineered by the government of Prime Minister Shinzo Abe and the Bank of Japan has largely run its course.

Capital expenditure is also forecast to fall 5.1% in the new fiscal year, following an estimated 9.9% jump in the current fiscal year.

Sarcastic smile But there are reasons to doubt that:

Officials note, however, that capital expenditure estimates in the survey tend to start very low and rise as the year progresses. The minus 5.1% forecast is actually better than the minus 6.5% predicted at the beginning of the current fiscal year. (…)

Why a Jump in South Korea’s Jobless Rate is a Good Sign In South Korea, a jump in the unemployment rate is being seen as a positive economic indicator, because it shows a surge in the number of people looking for work.

The government said Wednesday that the seasonally adjusted unemployment rate surged to 3.9% in February from 3.2% a month earlier, its highest level in almost four years. (…)

The number of employed rose 835,000 in February from a year earlier — the fastest growth since March 2002 — but the labor market was unable to fully absorb the surge in job seekers. The country’s population of those employed or actively seeking employment increased by a record 1.02 million.

South Korean officials noted that the jump in job seekers was also due to a new set of college graduates entering the labor market. (…)

The central bank expects the economy to grow 3.8% this year and 4% in 2015, up from 2.8% last year.

As Ed Yardeni’s chart illustrate, EMs seem to be in “buy low” territory.

But there are so many moving parts in this story, including the highly murky China situation, that I don’t see a solid enough story to reduce the high uncertainty risk. First rule in investing is “Don’t lose money”. Second rule: “Never forget rule #1”.

If you are still wavering, being attracted by apparent low valuations, you should read Prem Watsa’s piece on China that I will post today (here). When (not if) things unravel in China, the world will change tremendously. Also, remember that the above valuation chart use FORWARD earnings.

CANADIAN HOUSING
Why the doomsayers are wrong about Canada’s housing market

A Globe and Mail analysis has found that a key measure, used by economists, underestimates the degree to which rents have been rising in the market. That inflates what is known as the price-to-rent ratio, feeding into fears that the market is overheated.

A report to be released Wednesday by housing economist Will Dunning reaches a similar conclusion, going further and arguing that price growth likely has been overestimated.

Economists believe house prices are too high: Rock-bottom interest rates have spurred consumers to take on more mortgage debt than they otherwise might. (…)

But the most bearish diagnoses of the market have been relying on flawed uses of data.

A report by New York-based economists for Deutsche Bank declared in December that Canadian home prices were overvalued by 60 per cent – the most in the world – with Belgium next at 56 per cent. “Canada is in trouble,” it warned.

It looked at a variety of indicators to assess Canada, including the debt-to-income ratio and record condo construction. But the conclusion that home prices topped the global list for overvaluation was based on two measures, price-to-rent and price-to-income. The report said that the price-to-rent ratio was 88 per cent above its historical average, and the price-to-income ratio 32 per cent above its historical average. The economists averaged those two numbers, and got 60.

They gathered rent data from the Organization for Economic Co-operation and Development, which in turn got the numbers from Statistics Canada, which compiles them for use in the consumer price index, a measure of inflation.

The data estimate price changes for a “constant quality” of rental units (comparing apples-to-apples units over time, or what economists call a “matched sample”). Statistics Canada says it is not meant to be a measure of change in prevailing market rents, and might not capture the shift away from apartments toward rented condos in cities such as Toronto.

The average rent for a two-bedroom apartment in the Toronto area last fall was $1,213 while the average rent for a two-bedroom condo was $1,752, according to Canada Mortgage and Housing Corp.

“Like the CPI in general, the rent index provides a measure of aggregate price change holding the quality of products constant (i.e., ‘pure price change’),” a Statistics Canada information officer said by e-mail. “Inferences concerning the change in the average prevailing market rents is not something that the rent index is designed to provide.”

Erwin Diewart, an economics professor at the University of British Columbia, says the federal agency should be taking depreciation into account since it is tracking a constant quality of product. (As the units age, their quality deteriorates and that should be factored in, or rent inflation is understated).

Even ignoring condos, the Statistics Canada rental index underestimates the market rise in rents, said economist Benjamin Tal of Canadian Imperial Bank of Commerce.

Mr. Tal calculated the price-to-rent ratio using apartment rents from CMHC. “Rent has risen twice as fast based on CMHC data than on CPI data,” he said. “The CPI numbers definitely understate the increase in rent … These numbers are widely used.”

The CMHC numbers are difficult to work with. The housing agency releases separate measures for apartment and condo rents. Mr. Tal used apartments, compiling data from various Canadian cities and then weighting them by population to arrive at what he believes is a reasonable national measure of rents.

Deutsche Bank’s analysis also relied on recent price data from the Teranet/National Bank house price index, and older data from the department of finance. Teranet seeks to go beyond averages by using a “matched” sample that tries to ensure a constant quality is being compared, only including homes that have sold twice.

It tries to factor out fluctuations that would occur in average prices from changes in the types and locations of homes that are selling. But Mr. Dunning argues that the price index is still exposed to bias because the actual quality of properties might have changed, for instance through renovations.

“The result might be that renovations of existing housing are causing the Teranet/National bank index to over-estimate the rate of house price growth in Canada,” writes Mr. Dunning, who has his own housing research business and is chief economist of the Canadian Association of Accredited Mortgage Professionals, which represents mortgage brokers.

“The price-to-rent ratio in Canada is indeed at an historic high,” but not nearly as far above its historic average as the OECD data would suggest, he concludes.

He also argues that measures of housing affordability have been distorted because economists are using posted mortgage rates (which have been about 5 per cent recently) as opposed to market rates (which for five-year fixed-rate mortgages have been in the neighbourhood of 3.5 per cent), making housing look less affordable.

Mr. Dunning is at the bullish end of the spectrum. He goes on to suggest that house prices are “justified based on record low levels of interest rates,” and might even be under-valued. (…)

Is political risk driving the loonie?

(…) The possibility of Quebec separating from the rest of Canada. It has been more than two decades since the question of Quebec succession has been front-page news. However, the spring election in Quebec, in which the Parti Québécois is expected to win a majority, has reopened the issue.

International investors, now better schooled in the macroeconomic issues of separation thanks to the upcoming Scotland sovereignty vote, could well be taking a skeptical look at the next developed-market country likely to become embroiled in such a debate. Scotland and Quebec bear many similarities, including cultural distinctiveness compared to the rest of their country, and a wealth of natural resource – base commodities in the case of Canada and off-shore energy in Scotland.

With the sovereignty debate gaining momentum in Scotland ahead of the September vote and polls showing some possibility of success for the separatists, the currency markets could now be pricing in the possibility of a similar debate in Quebec. And since the investment view is forming outside of Canada rather than within, the currency market may be ahead of other financial markets, including bonds and equities, in discounting such a possibility. (…) 

Buyback Binge Takes a Breather U.S. companies authorized $80 billion in stock buybacks last month, a 32% drop from last year’s record-setting amount but also the third-strongest February on record, according to data compiled by Birinyi Associates Inc.

(…) There were 140 companies that authorized buybacks in February, compared to 130 authorizations in the same period a year ago. But as the chart below shows, the $80 billion in authorizations fell below the $117.8 billion amount that was authorized in February 2013, the highest monthly total in records dating back to 1985, according to Birinyi,  a Westport, Conn.-based market research firm.

Buybacks have an even more direct effect than dividends on companies’ share prices because they can boost earnings-per-share, a closely watched measure of profitability, by reducing shares outstanding, although some companies use the stock they buy to deliver shares to executives who exercise stock options.

But skeptics deride buybacks. They say the cash could be deployed in a more efficient manner; investing in research and development or buying an existing company are two options. And companies have a history of buying back shares at the wrong time. At the end of 2007, buyback activity was near record levels just as stocks were in the early stages of a precipitous drop.

Birinyi predicts buyback authorizations are running at a full-year annualized rate of $745 billion. That’s comparable to last year’s figure and well above $477 billion in authorizations in 2012.

The financial sector had 57 authorization programs last month, the largest among the S&P 500′s 10 large-cap sectors. Industrials had the greatest amount in dollar terms, coming in at $32 billion, Birinyi said. (Charts above from Birinyi Associates)

The next chart rom RBC Capital Markets illustrates that corporations continue to favour buybacks over dividends, in spite of their pretty poor timing record.

image

EARNINGS WATCH
Engine of Wall Street profits sputters Investment banks face 25% fall in quarterly fixed income revenues

Wall Street’s once lucrative fixed income divisions are set for their worst start to the year since before the financial crisis, with revenue declines of up to 25 per cent prompting banks to plan more redundancies on top of the tens of thousands of job cuts they have already made.

Citigroup and JPMorgan Chase have warned publicly that fixed income revenues – the engine of most investment banks’ profits since 2000 – will be down by double digits when they report first-quarter earnings next month. But other banks privately warn that their year-on-year declines could exceed 25 per cent after both institutional investors and banks shied away from trading. The first quarter is traditionally a high point for revenues.

Chevron raises projection for oil price Costs are rising and politics are constraining development

(…) John Watson, the chief executive, told analysts at a meeting in New York that the company was “bullish on oil” because of output declines at mature fields, political constraints on production in many parts of the world, and the rising cost of finding and developing new oilfields.

Chevron has raised the price assumption it uses when setting out its projections for investors from $79 per barrel for internationally traded Brent crude to $110 per barrel, its average over the past three years.

That is significantly higher than is implied by the futures market, which shows that the price of oil is expected to fall. (…)

Break-even prices for new oil developments could be over $100 per barrel, he said, after industry costs had doubled in the past decade.

The company showed a slide indicating break-even Brent crude prices for different types of oil, suggesting that US shale oil production needed about $65-$85 per barrel, while projects in Canada’s oil sands could need up to $100 and in deep water up to $110 per barrel to break even.(…)

SENTIMENT WATCH
By Barry RitholtzHow Market Tops Get Made

With all the bubble chatter and talks of over-valued stock markets, I thought it was time to have a discussion with someone expert on the subject. In this case, that person would be Paul Desmond, chief strategist and president of Lowry’s Research.

Desmond has spent the past five decades analyzing markets; his research is widely regarded as both unique and insightful, winning numerous awards from various technicians’ groups. If you want additional background into his thinking process, have a read of the long interview I did with him in 2006 (Part I and Part II)

(…)  He notes the health of a bull market can be observed by watching internal indicators that provide insight into the overall appetite for equity accumulation.

These four include:

1. New 52-Week Highs

2. Market Breadth (Advanced/Decline Line)

3. Capitalization: Small Cap, Mid Cap, Large Cap

4. Percentage of Stocks at 20 percent or greater from their recent highs

(…) What does all this mean for the current run? According to Lowry’s, “the weight of evidence continues to suggest a healthy primary uptrend with no end in sight.” For those concerned with a market top, that is rather bullish.

A few caveats about Desmond’s studies: Although he is rigorous and empirically driven, these data points all come from past market behavior. There are no guarantees that in the future, markets — that means you, Humans — will continue to operate the same way. Perhaps the changing structure of markets might impact market internals. Maybe the rise of ETFs will have an impact. Regardless, there are no guarantees the bull will continue.

However, based on the data Desmond follows, he makes a fairly convincing case that this bull market still has a ways to go before it tops out.

On the other hand, there are more and more such stories these days:

Zerohedge strikes again, posting an analysis from Citron Research (great name) unplugging PLUG:

Who is behind PLUG, and what do they do? This is simple: Plug Power sells fuel cell-powered forklifts …with fuel cells they acquire from Ballard Power. Nothing fancy here, folks. Same business model since the 2000 crash … Well over a decade as a public company, during which they have lost close to $850 million, while developing no IP or meaningful revenue growth.Profitability? Forget about it! (…)

Plug Power (PLUG):
Trades at 61x revenues
Market cap, fully diluted, (remember the warrants) currently valued $1.6 Billion

In the same vein, here’s a table from Fairfax Financial’s Prem Watsa’s letter to shareholders (thanks Gary). For those who don’t know Prem Watsa, he is often regarded as the Canadian Warren Buffett owing to his 21.3% compound annual growth rate since 1985.image

  • Candy Crush seeks $7.6bn value in IPO

King, the London-based games developer behind the addictive app Candy Crush Saga, said it plans to raise as much as $530m in a US initial public offering that would value the company at almost $7.6bn at the top of its pricing range. (…)

More than three-quarters of King’s gross revenues coming from a single game: Candy Crush Saga.

Prem writes:

This sort of speculation will end just like the previous tech boom in 1999 – 2000 – very badly!

Oh! there is also this:

G7 to warn Russia over Crimea occupation Stage set for diplomatic stand-off ahead of referendum
Russia dashes diplomatic hopes Kremlin says Crimea parliament’s independence intent ‘legitimate’

NEW$ & VIEW$ (10 MARCH 2014)

U.S. EMPLOYMENT:

1- FACTS IN THE MAINSTREAM

Jobs Rebound Eases Fear of Spring Stall Jobs growth picked up in February suggesting resilience in the labor market that should allow the Fed to continue rolling back its bond-buying program.

Nonfarm payrolls grew by a seasonally adjusted 175,000 in February, the Labor Department said Friday, following a two-month stretch of weaker growth. The unemployment rate ticked up to 6.7%, in part because more people joined the workforce.

The Labor Department revised up only modestly its estimates for payroll gains in prior months, with January’s gain now estimated at 129,000 instead of 113,000 and December’s gain at 84,000 instead of 75,000. The average increase of 129,000 over the past three months is far below last year’s average of 194,000.

Average hourly earnings rose 2.2% in the past year, a possible sign of less slack in the labor market that could help many newly unemployed get back to work faster.

Winter weather proved less of a drag than some had feared. Construction jobs, which can be sensitive to weather, rose 15,000 in February on top of a 50,000 gain in January. Retail jobs fell by 4,100, but employers in the leisure and hospitality sector added 25,000 jobs.

The workweek among rank-and-file retail staff dropped to 29.6 hours—the lowest on records back to 1972.

The nation’s labor-force participation rate held steady at 63%, near historical lows. The ranks of the long-term unemployed—those out of work more than 27 weeks—swelled 203,000 to 3.8 million.

The workweek for production retail employees was below 30 hours for consecutive months for the first time since 2009. That could reflect closures of malls and other retail outlets due to weather and disruptions to transit systems that prevented many employees from commuting to work.

However, other factors could also be at play.

Retail sales eased in January and stores may have cut back on hours in response. The hours worked figures have also been closely watched to determine if employers are reducing hours to avoid the health-care law’s requirement for large companies provide health insurance for full-time workers.

Weather appears to be the culprit. The Labor Department data showed 6.9 million Americans worked part time due to the weather last month. That is ten-times the number reported a year earlier and well above the February average of 1.5 million the past decade.

2. imageFACTS NOT IN THE MAINSTREAM

  • The positive view from National Bank Financial:

The February employment report was all the more interesting as it confirmed the continued shift from part-time to full-time employment. According to the household survey, there has been a cumulative gain of 1.5 million full-time jobs in the past six months, the best performance in two years. This development suggests that the U.S. recovery remains on track and that the recent bout of soft economic reports is mostly due to unusual weather. On that point, the Bureau of Labor Statistics reported that 600,000 people missed some work due to bad weather in February, 50% more than what is normally observed during that month.

  • But different ways of looking at the same data show drastically different trends. Which one is best?

 image image

Here’s why we are all driving blind:

  • December was the weakest month with 84k new jobs. Weather was only partly blamed, supported by the 20k construction jobs lost.
  • Weather got much worse in January and February but employment rose at a faster clip both months. Construction added 65k jobs during the harshest weather in many years (see AND NOW, THE WEATHER REPORT within the March 7 New$ & View$). Must have been inside jobs, or workers got used to the weather…
  • Total employment rose 388k in the 3 months to February 2014. Goods producers produced a mere 70k of these jobs but their 23k average monthly gain was very close to their 26k average of the previous 11 months. The weather seems to have left them cold! On the other hand, private service providers froze in their tracks as they provided only 107k jobs on average between December and February, a significant 40% slowdown from their January to November 2013 average of 183k. Is it only the weather? Or is it a reflection of a consumer retreat due to an income squeeze? For, excluding government transfers, real personal income has been flat since September 2013.

Mrs. Yellen is right, we need more data for more clarity. The hope is that job growth will spring back up with spring scheduled in 10 days. To get back to a 200k three-month average growth rate, employment needs to jump by 296k in March, or average +212k in March and April. The average gains during the first 11 months of 2013 was 204k. We clearly need a good spring break although even spring may be unseasonal. Easter is very late this year.

Or, the BLS may revise all the numbers upward and tell us all was fine. Who knows, they might also revise the weather upward!

Now, lets keep these other stats in mind:

  • Consumption of goods has declined in both December and January.
  • Weekly chain store sales rose only 1.9% YoY in February, less than 1% in real terms.
  • Thomson Reuters’ Same Store Sales Index was up only 0.4% YoY in February, the weakest showing since August 2009.
  • Car sales have declined 6.5% from their recovery high of last November, unchanged YoY in February.
  • Existing home sales have been weak for the past 7 months.
  • [image]New home sales rose seasonally adjusted in January, the slowest (meaningless) month of the year. They have been essentially flat at a low level throughout 2013.
  • While economists and central bankers debate on deflation risks, inflation stats get uglier. Total CPI was +0.9% YoY last October, +1.2% in November, +1.5% in December and +1.6% in January. Core CPI is +1.6% while the median CPI is +2.0%, unchanged for the past 6 months.  Core PPI jumped 0.4% MoM in January following a 0.3% rise in December. This is a 4.3% annualized rate over the last 2 months. Nonpetroleum import prices rose 0.4% in January. House and rent prices have been rising rapidly. Food-at-home prices jumped 0.7% MoM in January and the BLS is now forecasting they will rise 2.5-3.5% in 2014. We shall see how the California drought impacts fruits and vegetable prices. Gasoline prices rose nearly 8% since early November, 5.5% in the last month. Cold weather is certainly at play here but Brent crude is $109/bbl, up 12% from its April 2013 low while WTI is up 20%. Beef and pork prices are supposed to rise shortly.

Let’s hope it’s only the weather.

Pace of Student Lending Shows Signs of Easing

The pace of student borrowing from the federal government slowed for the third straight year in January, an indication that a major driver of overall consumer debt may be decelerating.

The increase in student borrowing in January, typically the top month of the year for education loans, was the smallest gain to start the year since 2010, according to Federal Reserve data released Friday.

The January gain of $28 billion over the previous month was $1 billion below the increase posted in January 2013 and well off the all-time peak of $37 billion recorded in January 2011. The numbers are not seasonally adjusted. The latest figure could foreshadow a slowing pace in federal student lending this year. (…)

Since the government performs no credit checks for most student loans, many Americans resorted to student loans to fund their expenses (Student Loans Used for More Than School).

Surging Home Prices Are a Double-Edged Sword

The U.S. housing market faces a challenge at the start of the spring sales season: higher prices. (…) But those gains have a painful edge, too, especially because prices have bounced back so strongly . The increases have rekindled concerns about affordability, particularly for first-time buyers, and could damp the gains of a housing rebound still in its early stages.

“Prices ran up so fast in 2013, it hurt first-timers’ ability to become homeowners,” said John Burns, chief executive of a home-building consulting firm in Irvine, Calif. “It’s going to be a slower recovery than people had hoped because a number of people have been priced out of the market.”

Home values nationwide are up 11% over the past two years, according to real-estate information service Zillow Inc., leaving values around 14% below their 2007 peak. Mortgage rates, which jumped a full percentage point to about 4.5% in the past year, have sharpened worries over housing affordability.

Even as prices have increased, housing still appears affordable by one traditional gauge. Since 1990, American homeowners have spent about 24% of monthly income on their mortgage payments, according to data from Morgan Stanley. Today, that payment-to-income ratio stands at around 20%, below the long-run average.

The problem with that view of affordability: It assumes borrowers have great credit and large down payments. The ratio isn’t favorable for first-time buyers and others with lower incomes and smaller down payments, which increases their monthly financing costs. The payment ratio for first-time buyers was around 24% at the end of last year, in line with its long-run average, according to the Morgan Stanley analysis. (…)

Making matters worse, home prices are going up fastest in markets that are already expensive, such as San Francisco and Los Angeles. Just 32% of California households at the end of last year could afford the monthly payments on a median-priced home in the state of $431,510, assuming a 20% down payment, according to the California Association of Realtors. That was down from 56% of households that could afford the payments on a $276,040 median-priced home in early 2012.

Rising prices are only part of the problem for first-time buyers. Inventory shortages and tougher mortgage-qualification standards benefit buyers who can make large down payments and those who can forgo a mortgage altogether. Because many markets have low supplies of homes for sale, all-cash buyers have routinely beat out first-time buyers by guaranteeing a quick, worry-free closing for sellers.

Pointing upMeanwhile, federal officials have repeatedly increased insurance premiums on loans backed by the Federal Housing Administration, which serves many first-time buyers because it requires down payments of just 3.5%. While mortgage rates at the end of 2013 reached their highest levels in more than two years, the all-in cost of an FHA-backed loan—due to insurance-premium increases—was closer to a five-year high. (…)

(Related: FACTS & TRENDS: U.S. HOUSING TO STAY COLD)

Manufacturers Blame Expiring Tax Breaks For Restrained Investment More than a third of U.S. manufacturers say they’ll scale back investment plans this year because a pair of federal tax breaks expired at the end of 2013, according to a survey by the National Association of Manufacturers to be released Monday.

(…) The tax breaks, known to insiders as “enhanced Section 179 expensing” and “bonus depreciation,” helped firms write off costs associated with replacing old equipment or adding factory capacity. Almost two-thirds of manufacturers said they took advantage of them in 2012 and 2013, according to the NAM/IndustryWeek quarterly survey.

About 35% of firms responding to the survey said the expiration of those two provisions at the end of last year altered their investment plans this year. Among small and medium-sized manufacturers — firms with fewer than 500 employees — 40% said their plans changed. (…)

The survey of 318 NAM members was taken Feb. 13-28. About 42% said they plan to increase capital investment in the next year, while roughly 13% said they plan to decrease capital investment. About 10% expect to reduce their full-time workforce in the next year, while 42% expect to hire more full-time employees.

About 86% described the outlook for their business as somewhat or very positive, versus 14% who described the outlook as somewhat or very negative. The primary challenge, identified by 79% of companies, was an “unfavorable business climate” in terms of taxes, regulations and uncertainty about government actions. Nearly as many firms, 77%, said the rising cost of health care was a major challenge. (…)

CHINA
China Consumer Prices Rise 2% China’s consumer price index rose 2% in February from a year earlier, slower than a 2.5% on-year rise in January, while the producer price index fell 2% in February from a year earlier.

Consumer prices rose a modest 2% year over year and factory gate prices fell for what now makes two consecutive years of monthly declines, underscoring the weakness of demand.

The consumer price index in February compared with a 2.5% rise in January, according to data released on Sunday. Food prices were up 2.7% and contributed most of the increase. Non-food prices rose just 1.6%.

Meanwhile, the producer price index, which tracks prices for finished goods at the factory gate, fell 2.0% year over year, an even faster pace than in January, when it dropped 1.6% from a year earlier. (…)

China February exports tumble unexpectedly

image(…) combined exports in January and February fell 1.6 percent from the same period a year earlier, versus a 7.9 percent full-year rise in 2013. Imports rose 10 percent year-on-year in the first two months, compared with a 7.3 percent rise in 2013.

Exports to the United States edged up 1.3 percent in the first two months from a year earlier, while sales to the European Union rose 4.6 percent, according to official data. (…)

Ting Lu, an economist at Bank of America-Merrill Lynch in Hong Kong, said that inflated export data in January-February 2013 means that a direct year-on-year comparison can be misleading. Fake trade deals to sneak cash into China past the country’s strict capital controls were rampant early last year before Chinese regulators cracked down.

After adjusting for such distortions, export growth in the first two months of this year could actually be up about 8 percent, he calculated. (…)

China’s crude oil imports in the first two months of the year rose 11.5 percent from a year earlier, while imports of copper jumped 41.2 percent and iron ore shipments rose 21.8 percent, data from the customs administration showed.

Copper Slumps Again on China Worries

Copper for May delivery fell 2.6% to trade at $6,602 a metric ton, taking losses over the past two days to 5%, and the slide this year to 8.8%.

The latest trigger was an industry report Monday showing China’s manufacturing sector activity fell to a seven-month low, potentially damping demand for the metal used in everything from household plumbing to smartphones. (…)

Adding to the worries are concerns that many Chinese companies that have been struggling to raise cash have instead turned to a risky type of funding which involves importing copper and using it as collateral for bank loans. If the price of copper falls then borrowers will be forced to dump the metal to help cover losses, adding more selling pressure to the market.

“The copper plunge is tied to the growing use of the commodity as financing collateral in China—there are fears there that, with many asset valuations marked to copper prices, a continued sell-off could bankrupt those holding too much copper on their balance sheets,” Scott Schuberg, chief executive officer at Rivkin Securities Pty Ltd., said in a report.

China accounts for 40% of the world’s global consumption for copper. Already high level of copper imports in the first two months of the year has raised worries about a supply overhang.

China’s copper and copper product imports rose 27.5% on the year in February to 380,000 tons, but were down 29% on the month, data over the weekend showed.

Copper financing activity too has put a “cloud” over the total supply overhang at the moment, Australia & New Zealand Banking Group ANZ.AU -0.83% said in a report.

“The credit default news (of Chaori) is negative for the market,” which has been plagued by tight credit supply, said Li Yusheng, senior analyst at Beijing Antaike, who estimates that copper supplies in China are 600,000-700,000 tons more than the demand.

However, imports could still hover above the levels seen in the first six months of 2013 in the next month or two, as Chinese buyers likely booked more term imports this year and financing demand is still alive, just weaker, Sijin Cheng, an analyst with BarclaysBARC.LN -0.69% said. She expects copper prices to be under pressure in the short term.

China Auto Sales Gain

China’s auto sales were up 10.7% in the first two months of the year, on the back of strong demand in the world’s largest car market.

Data from the government-backed China Association of Automobile Manufacturers on Monday showed that motor-vehicle sales totaled 3.75 million vehicles in the January-February period, up from 3.39 million vehicles in the year-earlier period.

Sales of passenger cars totaled 3.16 million vehicles, up 11.3% from a year ago, the association said.

Market share for domestic brands in the first two months of the year was 22.5%, down from around 30% in the same period a year earlier.

Car exports from China were down 12% year-over-year to 123,800 vehicles in the combined January-February period, the industry group said.

imageChina Weakens Yuan by Largest Degree Since 2012

The People’s Bank of China set the daily reference rate Monday at 6.1312, 0.18% higher than Friday’s 6.1201, the largest one-day change since July 2012.

Indian Industrial Output Likely Contracted in January

Industrial production, which includes the output of factories, mines and utilities companies, likely shrunk 0.40% from a year earlier, according to the median estimate in a poll of 15 economists by The Wall Street Journal.

In December, it contracted 0.6% after a 1.3% decline in November and 1.6% slide in October.

The weak forecast on the industrial data, which the government will announce Wednesday, underscores the wider slowdown in the economy that has seen growth plummet from close to 9% a few years back to under 5% in recent quarters. (…)

THE LOONIE: WHAT’S GOING ON?

imageTwo views: first, from BMO Capital Markets:

After following commodity prices almost note-for-note in the past four years, the Canadian dollar has gone its own way in 2014. While commodity prices have — to the surprise of most — risen solidly so far this year (up almost 9% for the CRB), the C$ has dropped more than 3% (even with its recent rebound). And this separation is not due to some quirk in the CRB, as other more Canadian-centric commodity price measures have also made solid gains this year on strength in oil, gas and gold.

So, what’s going on?

We would make the case that the C$ was consistently overvalued during much of the past four years, and it has made a level adjustment back down to reality. However, with commodity prices stronger, and the BOC now decidedly neutral, markets are rapidly reassessing the bearish C$ view.

From Palos Management’s Hubert Marleau:

It is generally acknowledged by investors that the course of monetary policy can have serious implications for stock, bond and commodity market returns. What is less well known, is that the different monetary stance between trading nations like Canada and the USA, where money is allowed to freely ebb and flow, can alter the relative exchange value of their currency. In fact, there is plenty of empirical evidence and theoretical validity that when monetary policy is different than it ought to be amongst trading nations, currency markets usually absorb the shocks.

The performance of the Canadian economy ended 2013 on much stronger footing than first thought, surprisingly matching that of the USA. During the last quarter of 2013, the Canadian economy grew at the annual rate of 2.9% compared to 2.4% for the USA. Put simply, Canadian monetary policy should at the very least be similar to the one practiced in the USA.

As a matter of fact, a Canada-US comparison of the Palos Monetary Index, the inflation content of the Misery Index and the contribution of cyclical spending to GDP suggests that the Canadian monetary stance ought to be easier than it is in the USA. Yet, this is not the case. The Canadian yield curve is not as steep as it is in the USA; moreover, the cost of money and real rates are higher in Canada.

In this broad connection, it does not surprise us that the Canadian dollar has found a new trading range between 89 and 92 US cents and that long term Canada Bonds can attract foreign investors with 25bps less in yield than comparable US Treasuries.

It appears to us that the negative sentiment surrounding the Loonie is much more about the application of moral suasion by both the Federal Government and the Bank of Canada than anything else. A reversal of fortune for the Canadian Dollar could emerge if Statistics Canada continues to report improvements in trade balances and/or foreign investors start focusing on Canada’s strong fiscal position and/or Obama was to decide that the XL Keystone is in the interest of National Security. Turmoil in the Middle East, Venezuela and now Ukraine may force the White House to use the abundance of energy in North America to supply natural gas and crude oil to secure US interests abroad and provide energy to those who are hostage to Russian energy supplies.

French Economy Shows No Improvement

(…) The Bank of France’s monthly survey published Monday showed sentiment in manufacturing fell further below the long-term average of 100 to 98 in February from 99 in January. In services, the sentiment indicator was steady at 94 in February.

Based on business activity, the central bank kept its forecast for a 0.2% gross domestic expansion in the first quarter of this year from the end of last year.

Separately, statistics bureau Insee said French industrial production dropped unexpectedly in January, weighed down by a contraction in energy output. Analysts polled by Dow Jones Newswires had expected output to hold at the same level in January.

A steep fall in energy output masked an improvement in manufacturing output, which rose 0.7% in January from December. But analysts warn that combined with other areas of the economy, growth will be overall weak in the short term.

Meanwhile, Italian industrial production jumped 1% in January from December.

ECB’s Noyer Not Happy With Euro Strength

image(…) “It is clear that when the euro starts to strengthen it creates additional downward pressure on the economy and additional downward pressure on inflation. Both cases aren’t warranted at the moment,” Mr. Noyer said in an interview with Bloomberg TV. “We are clearly not very happy at the moment.”

The euro has risen 6.5% against the dollar in the past year, sapping demand for European exports and bearing down on prices in the 18-member currency union. Annual consumer price inflation in the euro zone was 0.8% in February, well below the ECB’s target of just below 2%. (…)

Europe’s Lower-Gear Car Recovery Investors may be too optimistic on a rebound in vehicle sales in Europe, which are well below 2007’s peak.

Registrations of new cars in Western Europe were up 4.6% in January year over year, the fifth monthly increase in a row, notes the European Automobile Manufacturers’ Association. In February, while sales in France contracted, they expanded further in Germany, Italy and Spain, according to their national associations.

The average age of cars on European roads has risen from 7.7 years in 2007 to nine years, estimates Sanford C. Bernstein.

But consensus forecasts for growth of 5% to 6% in Western Europe to just over 12 million new cars this year could prove optimistic.

Sales in economically stronger markets already have improved. Germany is less than 200,000 vehicles below its long-term annual sales average, while sales in the U.K. are close to record levels, notes Nomura. Elsewhere, high unemployment makes recovery more challenging. Sales in Italy, Europe’s fourth-largest market by new-car sales, are still one million units below peak.

Other factors may put the brakes on recovery. Europe’s driving-age population is shrinking overall. The proportion of young adults with a driver’s license has stopped rising in France and Germany and is actually falling in the U.K., according to the Institute for Mobility Research.

Additionally drivers are seeking alternatives to owning their own wheels. Car-sharing programs could have more than 15 million members in 2020, up from 700,000 in 2011, forecasts Frost & Sullivan. That would likely weigh on new-car sales. In the U.S., each car that goes into a company like Zipcar means 32 subsequent purchases are avoided, says Alix Partners.

That could mean that Europe’s car market just doesn’t get back to its precrisis levels. IHS thinks new-car sales in Western Europe will barely reach 13.5 million to 14 million units by the end of the decade, below 2007’s 14.8 million peak.

Did you notice how currencies are back in the limelight? Canada has already acted, the BOC openly encouraging the market to stimulate exports. The Bank of China is now doing the same, by itself. The ECB is getting more and more worried that the strength of the Euro will undermine its efforts.

SENTIMENT WATCH
Are Small Investors a Sell Signal?

(…) Small investors, well known for poor market timing, are flocking back to stocks. Does that mean it is time to sell? (…)

The trend worries some strategists, who argue that small investors are notorious for clamoring to buy just before a market top. An analysis of small-investor sentiment shows that the widely held belief is true, but perhaps not reliable enough to warrant any major buying or selling on its own. (…)

AAII asks its members whether they think the stock market will rise, fall or stay the same over the following six months. The difference between the percentage of bullish investors and bearish investors is seen as a measure of how small investors feel that week. (…)

In the 1,362 surveys since July 1987 that are at least six months old, investors correctly guessed the direction of the S&P 500 slightly more than half of the time.

That isn’t good by any means. If small investors always bet that stocks would rise, they would have been right 72% of the time. (…)

The AAII survey works as a better buy or sell signal at extremes.  After weeks when a net 38% or more of AAII members were bullish, the S&P 500 went on to lose 1.4% over the following six months on average. In weeks when a net 31% or more were bearish, stock prices subsequently climbed 11%. (…)

Lately, some researchers have come up with ways to detect specific emotions and how they affect stock moves. Richard Peterson, founder of MarketPsych, analyzes text in news stories, social media and other sources to estimate whether investors feel, say, “joy” or “trust” about specific stocks and sectors.

In particular, Mr. Peterson has found that anger—for example, a series of tweets about the Apple chief executive that say “Tim Cook is an idiot!”—is a better predictor of good returns than general bearishness. In international stocks, future returns are better when investors feel that a country’s government is unstable, he says.

Right now, the sectors that investors are angriest about on social media include Internet companies, industrials and banks, according to MarketPsych. Individual stocks registering angry sentiment include defense company General Dynamics, tech company Oracle and real-estate developer St. Joe.

Investor bullishness also seems to be a stronger sell signal for stocks with speculative attributes, such as those that deliver low profits or don’t pay dividends, Prof. Baker says. “Stocks that are difficult to value are more prone to sentiment,” he says.

And, right on cue:

Dot-Com IPO Insanity Returns With Coupons.com

This is one of those days where I realize I don’t understand anything about finance or capital markets. I’m a dinosaur. I don’t get it. People are saying things like “this time is different” again in news articles about initial public offerings by Internet companies, and they mean it. All I can do is watch, dumbfounded.

Today a 16-year-old company that loses money called Coupons.com Inc. went public. Had I been paying attention to Coupons.com sooner, I might have guessed after the disastrous post-IPO performance of Groupon Inc. that investors’ appetite for yet another online-coupon company would have been sated. But no, that would have been wrong.

Coupons.com, with Goldman Sachs as its lead underwriter, raised $168 million, selling 10.5 million shares for $16 each. And the stock rose as much as 103 percent to $32.43, making it today’s biggest gainer by far. If that doesn’t remind you of 1999, then you probably weren’t following the stock market back then.

The company has about a $2.3 billion stock-market value, which is more than 13 times its $167.9 million of revenue last year, when its net loss was $11.2 million. But like so many other companies in these golden times, Coupons.com simply told investors to exclude about $13 million of normal everyday expenses and, abracadabra, it claims to be profitable on a nonstandard, cockamamie “adjusted Ebitda” basis. It’s all part of the show.

One of the popular themes during the late 1990s dot-com bubble went like this: “It’s dumb for startups to show profits, because then investors might get some sense for what their limits are. So go ahead, lose money. The worst thing you could do is have a denominator in your price-to-earnings ratio that’s greater than zero, because then your ratio would be positive, assuming your stock hasn’t gone to zero yet. But if you lose money, that’s terrific, because it means the sky’s the limit.”

A lot of people bought into that concept, especially investment bankers and easy marks who signed up to take a flier on the greater-fool theory. But that rule about losing money applied to start-ups. It didn’t apply to companies that had been around for 16 years and still were losing money. Because if a company is still around after 16 years, it’s not a startup. It should be making money if it wants to go public. It should be making money, period. Or at least that’s how it worked in the old days when IPOs were for real companies with real profits.

Coupons.com has incurred net losses since its inception in 1998. It had an accumulated deficit of $168.8 million as of Dec. 31. The money the company just raised is only about $1 million less than that figure. So you have to at least admire the symmetry. Maybe in another 16 years, Coupons.com can come back to the markets for more money and do it all over again?

This is where that first idea I mentioned comes in. There must be something wrong with the way I’m wired. I obviously don’t get this. But Mr. Market does, whether you choose to imagine him as a man of great efficiency or as a hopelessly addicted angel-dust addict who has a habit of running into burning buildings and defenestrating himself every few years.

But at least I’m willing to admit I have a problem. So please allow me to excuse myself while I go check the Coupons.com website for a discount on some Kool-Aid. I have a hunch I’m going to need it.

Back to sanity:

Seth Klarman: Investors Downplaying Risk “Never Turns Out Well”

(…) If you’re more focused on downside than upside, if you’re more interested in return of capital than return on capital, if you have any sense of market history, then there’s more than enough to be concerned about.

(…) on almost any metric, the U.S. equity market is historically quite expensive. A skeptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix, Inc. and Tesla Motors Inc. (…)

Contact: edgeandodds [at] gmail.com