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Wal-Mart Restarts Growth Again: An Early Sign Of A Rebounding Economy?

November 15, 2010 by fundmanager

Wal-Mart (WMT) is among the most controversial U.S. companies.

Proudly American

Many American businesses fear Wal-Mart for its 10x force, to use Andrew S. Grove’s concept expressed in “Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company”. Wal-Mart as a competitor is hard to beat and as a purchaser hard to swallow. Where a Wal-Mart is in business, foreign suppliers get a foot in the door while more pricey American companies frequently get the boot.

Wal-Mart is one of the very few American brick-and-mortar stores to have a shot at keeping successful e-commerce businesses like Amazon.com (AMZN) at bay. It is constantly driving down both prices and wages, its way of surviving the New Economy.

Wal-Mart was founded in 1962 by Sam Walton and, true to its beginnings, is still run as a thrifty family business. It is an American mainstay with a storied history, but why does it matter right now?

When the recession hit hard in the 3rd quarter of 2008, Wal-Mart was nearly the only safe haven for many Americans to lock in good deals and purchase those products they need at an all-time low price. The worse the recession got, the more Americans flooded Wal-Mart stores from coast to coast across the nation. An indicator that we have been through challenging times is the fact that Wal-Mart increased its sales by 4.7% annually on average since 2007. That’s a stunning and impressive performance because all the other competitors were hit hard by stinging and ever-growing losses since 2007.

Wal-Mart proved that conventional wisdom can be wrong and showed that investing in an U.S. retailer can actually be a rather prudent idea, if you get the timing right of course. Wal-Mart’s quarterly return rose from 20% to 22%. If it still doesn’t sound impressive please remember that the industry average is 18% and the S&P 500 average is laughable in comparison, just a meager 13%. On the plus side of Wal-Mart are three facts: WMT pays dividends, price-to-earnings is a reasonable 13, the cash flow multiple is 7.8 and its book value multiple is with 3.1 very much comparable with its industry peers.

The median price target for WMT is $60, which suggests that Wal-Mart is on track to return 9.5% over the next 12 months (excluding dividends). In general analysts are bullish about the Wal-Mart stock and a whopping 22, or 69% rate it a clear “buy”.

Where are the downsides for the WMT stock? Well, as WMT is very much a counter-cyclical stock in a case of very strong economic rebound this might lessen its appeal. but a strong rebound. But still, a strong economic rebound is most likely not yet in the cards by any stretch of imagination. But even in this unlikely scenario WMT could pull off healthy gains off the hat just by its sheer economies of scale.

While Wal-Mart is a truly American company from the heartland, it now stands to benefit from growth through small stores in countless new locations around the world. Wal-Mart now grows by being present in emerging markets such as Mexico, Brazil and of course China. Wal-Mart’s international sales rose an 7.3% and its operating income jumped by an impressive 17%. As the growth in our nation is predicted to stagnate for the foreseeable future, Wal-Mart is prepared to continue growing at a healthy rate due to its activities in emerging markets.

In a nutshell: Wal-Mart’s performance is a muted sign of a rebounding U.S. economy at best, because it derives most of its growth from emerging economies such as Mexico, Brazil and–you guessed it–China.

You can certainly chose to agree or disagree with Sam Walton, but the legacy of Sam Walton: Made In America still lives on, if mostly overseas.


Filed Under: Economic Forecasts, Stocks Tagged With: AMZN, cash flow multiple, Donald J. Trump, emerging markets, growth, price-to-earnings, retail, Sam Walton, Wal-Mart, WMT

The Writing Is On The Wall: Apple Is About To Terminate Pro Products And Loose Out To Android

November 11, 2010 by fundmanager

When Apple Computer Inc. renamed itself to Apple Inc. (AAPL), the majority of investors and users didn’t think much about it. Analysts quickly dismissed the idea that the new name would actually signify a change in strategy which would have profound implications as the events of the following years unfolded.

Apple used to make the very best professional Macs in its entire history back in the late 90’s, at a time when the company’s prospects were dire and the threat of disappearing into oblivion was still looming large over its Cupertino headquarters. But with the growing success of its consumer product line during the first decade of the new millenium, the days of Apple products geared at IT pros were counted.

A Case Of Think Different Gone Bad

In order to improve its public image and lay a claim to uniqueness, Apple created the rebellious ‘Think different’ campaign at the turn of the century. But the company did not see fit to walk the walk. It did the exact opposite: it introduced uniform compliance.

With the release of Mac OS X 10.5, the days of the brilliant Mac OS X creator Avadis Tevenian at Apple were counted. Soon after the OS hit the market, Tevenian was shown the door.

The ousting of Avadis Tevenian, the creator of Mac OS X, was the first sign of the ongoing disruptive changes behind the curtains. A cultural revolution, if you will, occurred at the company with the departure of a few other brilliant nonconformists. Then a new bread of totally compliant top brasses climbed to the helm of Apple (all eleven Apple executives are, purely coincidentally, Caucasian males) with the likes of Tim Cook and Bertrand Serle. Then they embarked on decision making to appease.

In case you wondered, at Cupertino headquarters there is only one valid opinion: the one of its admittedly brilliant and nonetheless human CEO Steve Jobs. Whoever managed to stay employed at the company could get ISO certified for compatibility withe the opinions of the Supreme Leader and compliance. So much for Think Different.

In public Apple may never admit, but inside the company, a total reorganization was going on beginning around the time of Tevenian’s departure. The first visible sign of a product strategy heavily skewed in favor of consumers was delivered by Apple on February 19th, 2008, when the Apple Xserve RAID was axed. Apple’s loyal customers were told to the Promise Vtrak instead.

Then on July 30 2009 Apple finally discontinued Apple Shake 4.1, a powerful motion effects software, after having lowered the price of the product in June 2006 to just $499 to silence protests.

The reality distortion field around Steve Jobs spinned in a way that there where no reasons at all to be concerned with the future of the company. As the sales of the iPod, iPad and finally iPhone went through the roof and money poured in, the company became all the more arrogant.

On A Mission To Perdition

Obviously, Apple is on a radical mission to terminate Apple Pro products and the next step has been announced already. According to Apple’s website, the company decided to discontinue sales of Apple Xserve on January 31 2011.

In the spirit of full disclosure: this post was written and edited on an Apple Mac Pro.


It’s not about reviving flame wars between Apple and Windows users. Let there be peace. But it is high time someone finally shed some light on the direction Apple is headed and most of all how it might impact your investments in AAPL.

There have been a couple of tactical decisions Apple made in designing its product line which point to a clear intent: not integrating a Blu-ray player into any Mac, refusing to include the mainstream display and the HDTV connection standard HDMI in any Mac (except for the Mac mini), dismissing other popular standards such as eSATA and USB 3.0 as irrelevant. But that’s not all.

You may still remember when Apple was selling Mac OS X 10.5 (a.k.a. Leopard), ZFS (the Zetabyte file system) was touted as one of the major new features of the upcoming Mac OS X 10.6 (Snow Leopard). This state-of-art file system, developed by Sun Microsystems, was supposed usher in a new era of data storage for Apple’s customers. In the meantime, Sun Microsystems was acquired by its former arch rival Oracle Inc. (ORCL). Did Oracle demand license fees for the use of its intellectual property? We don’t know for sure, but what we do know is that Apple axed the project.

But how do these rejectionist and obstructionist policies add up for Apple? Well, HDMI is for Apple of course a ‘bad’ standard simply because Apple would have to pay about 4 cents per connector in license fees. Besides whenever you attempt the futile task of connecting a non-Apple branded display to a Mac, Apple cashes in again: $29,95 (plus shipping and taxes) per each DVI-to-mini-DisplayPort adapter. The same goes for Blu-ray, adopting Blu-ray would mean Apple would have to pay license fees to the arch rival and Blu-ray inventor Sony and to the Blu-ray consortium. Steve Jobs reportedly referred to Blu-ray as a “bag of hurt” presumably due to these license fees.

Apple wants you to shop for music and videos in the Apple iTunes Store and not for Blu-rays at Walmart. This is understandable, but what about professionals in in the business of non-linear video editing and post production, how are they supposed to handle Blu-rays? Without ZFS, it is not clear how Apple intends to make the archaic Mac OS file system, HFS+ Extended Journaled, fit to handle the kind of data storage requirements which are the hallmark of digital media production. Without the Xserve, products such as Final Cut Server make little sense and users of Apple’s flagship video editing suite, Final Cut Studio, will be left in limbo without nodes for their Compressor clusters.

The biggest cash cow for Apple so far has been the iPhone 4. The neglect of all pro products by Apple was a direct consequence of the smashing success Apple has experienced with mobile devices. But that success, at least in the cell phone market, might prove short-lived.

According to Garner, Android has been gaining momentum aggressively over the course of the last few months. A lasting success of the Android platform would undermine Apple’s dominance in the mobile sector. But while Microsoft’s Windows 7 Phone is a long shot at best, and a desperate attempt to play catch up with Apple and Google, the Android platform is a serious contender which can challenge Apple successfully. Over the long run, Android has the potential to displace Apple’s iPhone from the pole position Apple believes it is entitled to. If you think this scenario can’t happen, think again. According to Gartner, Android and Symbian are poised to lead the mobile OS market in 2012.

All in all, it’s a kind of a Deja-vu. Back in the 1980s, Apple was the most admired computer maker, mainly because of the original Mac OS, well until Windows 3.11 challenged Apple and by the time Windows 95 (and the subsequent Windows editions 98/ME/2000/XP) hit the market, Apple was fighting for its survival. A very similar scenario seems to be unfolding before our eyes.

Like with Microsoft DOS/Windows and the PC revolution, Google’s Android OS has created an open eco-system for cell phones, which is populated by multiple device makers. Unlike the iOS, the Android OS does support Adobe Flash.

With Android Apple has a formidable challenger. After all, what made Microsoft Windows a smashing hit wasn’t its superior quality but a thriving Windows eco-system. It certainly looks like Apple Inc. is repeating its mistakes of the past by deliberately excluding everyone else from the playing field it invented and is poised to suffer the consequences. Again.

What it means for investors in a nutshell: AAPL might be overvalued and a decline could be in the cards.


Filed Under: IT, Stocks Tagged With: AAPL, Android, Apple, iPhone, Power Mac

Midterm Elections 2010: Is It A Time to Buy Stocks?

October 26, 2010 by fundmanager

The midterm elections will set the the stage for a major power redistribution in Washington. Now that Democrats and Republicans are in the final stretch of the midterms, a much-anticipated Wall Street rally is in the air.

[Read more…]

Filed Under: Economic Forecasts, Stocks Tagged With: Buy Stocks, Charles Schwab, E-Trade, George Soros, March 2009, Midterm Elections 2010, Midterms, October 2008, Scott Trade, Sir John Templeton, Stock Market, TD Ameritrade, Warren Buffet

FED’s QEII Is No Shot In The Arm For The Real Economy This Time

October 18, 2010 by fundmanager

The FED’s current unease about QEII can prove prophetic. Not that this unease is going to impact the monetary policy in any significant way.

QEII (quantitative easing, part two) is no shot in the arm for the real economy. The reason why quantitative easing will not have the desired effect this time around is that the underlaying problem has evolved. The challenge we are facing now is not a lack of liquidity. It is a lack of credit. More cash will only fuel new bubbles.


Filed Under: Economic Forecasts, Forex, Stocks, Taxes Tagged With: QEII, the Fed

George Soros at Columbia University about Deflationary Perils of Austerity

October 6, 2010 by fundmanager

George Soros gave this speech at Columbia University on October 5. 2010 warning about the deflationary perils of austerity and speculating about what governments should be doing instead. See if you can tell where the markets are headed (and buckle up for safety!)

As you know I have written several books which serve to explain the crash of 2008. Two years have elapsed since then – it is time to bring the story up to date. That is what I propose to do today.

[Read more…]

Filed Under: Commodities, Economic Forecasts, Forex, Stocks, Taxes Tagged With: austerity, deflation

Property Prices in Free Fall Reflect The State of The Economy

September 15, 2010 by fundmanager

Distressed sellers slashed their asking price for a third consecutive month in August. Government-backed mortgage refinancing is a flop and jobs aren’t here (yet). Only the stock market reflects none of that.

Government-backed mortgage refinancing programs such as HAMP and HARP don’t work as advertised. Banks seem to be misusing the bureaucratic quagmire for surprise foreclosures “through the back door” in order to clean up their balance sheets. It only raises the question how long banks are going to play this game.

But one thing is very clear. The real estate market can’t really recover so long as the economy isn’t fixed and about 20% Americans are unemployed, underemployed or completely gave up looking for a job.

It brings to mind a remark of Donald Trump on Larry King Live (04/29/2010):

If President Obama does a good job it’s not good enough for this country, that’s how bad the country has become.

If President Obama does a good job it’s not good enough for this country, that’s how bad the country has become.

Right now, President Obama’s approval hovers around a mere 41%. A clear majority of 53% dissaproves of his performance.

Given such a high dissaproval rating the midterm elections look bleak for the Democrats. (Are you ready for some midterms?)

Several Democratic House members are now even going so far as to call for a full renewal of the Bush tax cuts for every tax bracket.

According to Politico, Reps. Jim Matheson (Utah), Glenn Nye (Virginia), Melissa Bean (Ill.) and Gary Peters (Mich.) drafted a letter to gather support, mostly from the moderate Blue Dog and New Democrat coalitions, for at least a temporary extension of the rates for top income earners as well as those in the lower brackets.

It is also estimated that up to one-third of high-income taxpayers are small business owners, our nation’s job creators and the backbone of our economic recovery. After the Health Care Reform and the Frank-Dodd Act, most small and mid-sized bussiness owners put further investments and hiring on the backburner. And many Clinton Democrats are fed up with Obama’s over-regulation and either abstain from voting or cast a vote for the Republicans.

If that happens, you can count on an extension of Bush’s taxt cuts, British-style austerity, and a general gridlock in Washington.

Filed Under: Economic Forecasts, Stocks Tagged With: over-regulation, President Obama, tax cuts, unemployment

Hedge your bets for 2011: The importance of Mid-Year Tax Planning

August 23, 2010 by fundmanager

While the Congress is in recess until mid-September and most Americans are on holidays, for investors it is now the best time to hedge your bets for 2011 and engage in mid-year financial planning activities. Of course the best tax planning never really stops, but 2010 is a very special year and you need to be extra vigilant.

[Read more…]

Filed Under: Stocks, Taxes

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