Month: December 2011

Is Twitter Really Worth $8.4 Billion?

by Jeannette Di Louie, Investment U Research
Monday, December 19, 2011

Back in 1999, well before Twitter came on the scene, everybody was ranting and raving about internet stocks. The World Wide Web was all over the news and inside everyone’s portfolios.

People couldn’t get enough of the big tech boom. Entire portfolios were comprised of high-flying investment beauties like WorldCom, NorthPoint Communications, Covad Communications, XO Communications and Global Crossing.

And everybody knew those companies were all going places.

Sure enough, they did… straight into bankruptcy after the dotcom bubble burst in 2000. And because investors failed to diversify, they lost entire fortunes, as well.

Easily Awed By the Next Big Thing

There should have been a lesson learned in all of that. Yet fast-forward to the present day and, somehow, not much has changed.

We’re still all too easily awed by the next big thing, especially when it comes to technology and the internet. Facebook, for example, had people panting over its (probable) upcoming IPO long before it ever announced any such thing.

And the same goes for its fellow social media site, Twitter. Far too many people seem certain that it will bring them the big bucks if they can only get into it. Even bigwig investors like Prince Walid bin Talal of Saudi Arabia, who recently bought a $300-million stake in the company.

Problem is, they’re focusing on just the surface. If they dug just a bit deeper into the company, they might not be nearly as impressed.

Twitter Doesn’t Appeal to Executives

On the surface, Twitter certainly looks like a phenomenal prize. With 2,400 advertisers and 100 million active users, it shouldn’t come as any surprise that it’s worth around $8 billion.

For a small glimpse into just how popular the service is, try going to a movie theatre. Chances are, someone sitting nearby will leave his smartphone logged into Twitter, which will ping every few seconds with alerts that Lady Gaga, Charlie Sheen, Kim Kardashian, Barack Obama, or Justin Bieber have just sent mass tweets.

Incidentally, all five are in the top 30 most tracked Twitter accounts, along with a host of other singers and entertainers.

But just because Twitter has a strong following, both among consumers and investors, doesn’t mean that it’s a healthy company.

Nicholas Carlson, a deputy editor with Business Insider, notes that influential members of the Twitter team just keep quitting, including former Engineering VP Mike Abbott, former Consumer Marketing VP Pam Kramer and former Engineer Adrien Gaarf.

That kind of exodus indicates a far less peachy picture of the company’s health than so many drooling investors would like to think.

A Twitter Insider Speaks Out

According to an anonymous former Twitter employee who confided in the aforementioned Carlson, the company executives who left had good reason to do so. Apparently, there are just too many negative issues surrounding Twitter’s modus operandi, mainly structural and cultural flaws.

Among the lengthy list the Business Insider recaps are these:

• A “self-congratulatory, complacent environment” based on the premise that “this is our product” and that’s that.

• A popularity driven workplace, which has led to a lot of infighting and employee discontent.

• Engineers who are more “lucky” than talented, and hire more of the same.

Now, as Carlson mentions, management turned over not that long ago, so it could possibly be in the process of changing its disconcerting policies even now. But even so, Silicon Valley’s MercuryNews.com still had to ask recently: “What is Twitter?” admitting that “almost six years after it stumbled into existence, that remains a surprisingly hard question to answer.”

An air of mystery might work well whenever Apple (Nasdaq: AAPL) gets ready to debut a new product. But it’s never a good thing when an entire company comes across as ambiguous.

Twitter’s lack of clear purpose puts severe limits on its future profitability and even existence. So unless it gets its act together, the company might become just another unwarranted investment craze… before it even gets listed.

Good investing,

Jeannette Di Louie

Article by Investment U

Dec. 19 (Bloomberg) — Arnout Van Rijn, chief investment officer for Robeco Groep NV’s Hong Kong division, talks about the outlook for Asian stocks and his investment strategy. Van Rijn speaks with Linzie Janis on Bloomberg Television’s “First Look.” (Source: Bloomberg)

The Best Place to Put Your Money to Work Today

by Justin Dove, Investment U Executive Editor
Monday, December 19, 2011

Anyone can make an investment forecast. But few forecasters like to have past prognostications put under a microscope.

At Investment U, we do it anyway. And with the year drawing to a close, this is a good time to do it.

First up on the chopping block is Chief Investment Strategist Alexander Green. We scrutinized our archives – as you’re welcome to do – to review his investment calls for 2011… and also got his thoughts on the best places to put your money to work now.

What we learned startled and surprised us…

Last January, you may recall, prominent financial analyst Meredith Whitney was making national headlines with her prediction that 50 to 100 American cities would go bust in 2010 and municipal bond defaults would amount to hundreds of millions of dollars. Many pundits agreed – and the muni bond market sold off hard on the news.

Alex scoffed at the idea that this was the “next big crisis” and recommended readers pounce on the bargains developing. In particular, he recommended the Nuveen Insured Municipal Opportunity Fund (NYSE: NIO) as a great way to play it.

As I write, the fund (including tax-free dividends) is up 10 percent for the year, easily outpacing the far-riskier S&P 500. (And Alex opines that the fund – with its current tax-free yield of six percent – is still worth buying at current levels.)

Alex has also been a table-pounding bear on the euro all year. The currency just dipped below $1.40 last week, hitting a 52-week low. Forecasting a decline in the euro may look obvious now. But that’s only because cracks in the European monetary union are now clear to everyone. Yet most pundits this year were calling the decline of the dollar (not the euro) a “no-brainer.”

It didn’t work out that way. And Alex’s recommendation to buy into the Market Vectors Double Short Euro (NYSE: DRR) worked well, handing readers another double-digit gain. Alex insists that there are more dark days ahead for euro-holders and recommends holding this fund for further gains in the weeks ahead.

Perhaps the most unpopular call Alex made all year was his forecast that gold had gotten ahead of itself and the spot price was overdue for a significant correction.

We got plenty of mail from readers insisting that Alex “just didn’t get it.” And while it’s a bit early to determine the long-term trend in gold, the short-term action is no longer in doubt. Gold has plunged over 15 percent from the highs of mid-August. And Alex insists the worst isn’t over. He recommends that readers restrict their gold holdings to five percent of their liquid assets.

Of course, no one gets every call right. And Alex is forthright about one forecast that hasn’t panned out at all. He has persistently banged the drum about a developing bubble in U.S. Treasury bonds. Yet yields have only fallen further, driving Treasury prices still higher. Last week, the yield on the 10-year bond fell to two percent, a record low. Thirty-year bonds yield less than three percent, still another record low.

We checked in with Alex to see if he was ready for a mea culpa. The answer was no. And he had this comment to add:

“Treasuries are more of a bubble than ever. Yet no one can make a rational estimate about when irrational behavior will end. Eleven years ago, Internet and technology shares soared higher than anyone thought possible. In the real estate mania six years ago, prices became completely untethered from fundamentals… or even reality. A couple years from now, Treasury-bond buyers will slap their foreheads and say, ‘what the heck was I thinking.’”

He expects Treasury bonds to be among the worst performing assets in 2012…

But what about the best performing?

Alex notes that equity investors have yanked tens of billions from equity funds over the last few weeks and put them in money markets yielding essentially zero.

A big negative, right? Surprisingly, no. Heavy equity fund redemptions are among the best contrarian indicators. And right now, he insists, this one is ringing like a fire alarm. Despite the gloom and doom that prevails today, he expects stocks to give surprisingly good returns in the year ahead.

And in his next column, he’ll explain exactly why.

Good Investing,

Justin Dove

Article by Investment U

$600 Apple (Nasdaq: AAPL) Stock?

by Steve McDonald, Investment U Contributing Editor
Monday, December 19th, 2011

The street may be underestimating Apple’s (Nasdaq: AAPL) 2012 “iProducts” sales by as much as 40 percent.

Apple’s numbers have been amazing so far, but if the new numbers are correct, the stock price is going to explode.

Apple is shaping up to be next year’s big story, again, and our aversion to what appears to be pricey stocks will have those who ignore this one watching the money train leave the station – again.

Most stock buyers are in love with the $7 tech idea that can return 40 or 50 percent in a heartbeat. Stocks that sell for $380 per share just aren’t on most tech investors’ Christmas lists. It cuts against our grain to pay that much for a single share of stock.

The underlying, unspoken belief is; how much upside can be left in this one? The new numbers say a lot!

A Growing Wave of Demand

Wake up tech buyers, the iPod, iPad and iPhone revolution is in full swing, and what we have seen so far is just the leading edge of a growing wave of demand.

A recent survey of buying trends of iProducts for Morgan Stanley by AlphaWise was full of upside surprises. Katy Huberty of MS said the survey reported demand numbers that blew away the street and MS’s estimates.

Huberty reported that Morgan Stanley’s estimate of 2012 iPhone sales is 42-percent below what the survey found. Forty-two percent low! Sales this quarter, which have been described as brisk, are actually 20-percent higher than what she’s been estimating, and 30-percent higher than what the street is modeling.

Even more stunning, demand is accelerating.

The survey also reported that consumers expect to buy more iPhones in Q1 of 2012 than in the Q4 of 2011. Even allowing for a 10-percent error factor in the survey, worldwide Apple could move 41 million phones next quarter. Morgan Stanley was only estimating 30 million.

That’s a 36-percent increase. But it gets better.

According to Huberty, demand for iPads is showing no sign of weakening.

The survey reported only eight percent of consumers own a tablet and 27 percent plan to buy one. Even if AAPL gives up the expected market share to the Amazon’s (Nasdaq: AMZN) Kindle Fire, they could still sell 81 million iPads in 2012. Morgan Stanley had only estimated about 52 million worldwide.

If these numbers seem too good to be true, you aren’t alone. But when you look at the earnings estimates, this whole scenario seems very plausible.

The high EPS estimates for 2012 are at about $46 per share up from $34.76 for 2011. At the current P/E of about 13.8, that translates into a share price of $638.

Let’s back down towards a more realistic number, or more believable might be more accurate, and use the consensus estimate of an EPS around $38 for 2012. That still puts Apple in the range of $539 per share.

If Apple only hits the consensus, we could be looking at a 41-percent gain. If this survey is even close, $600 per share is a gimme.

Becoming a Believer

In the past few months, there have been analysts who have called for $450 and $500 per share for AAPL. In our current economic environment and with the EU situation, and the fear it has pumped into our market, I had been skeptical…

I am now a believer.

If the street and Morgan Stanley’s estimates are only off by half as much as the survey reported, this could be gigantic.

The next time you’re out and about, take a second and count how many people in your immediate area are texting or talking on their iPhones. It’s scary.

This is an addiction that’s totally out of control, and Apple stands to be the big, big winner. Their marketing and advertising is as good as I have ever seen, and the average 20- or 30-something can’t get enough.

We’re witnessing the most effective application of a new technology since the advent of the automobile. This isn’t just another new gadget; they’re literally rewriting the rules for the whole data/digital industry.

You don’t want to miss this one.

Good Investing,

Steve McDonald

Article by Investment U

Dec. 19 (Bloomberg) — Prince Alwaleed bin Talal, the Saudi investor with stakes in Apple Inc. and Citigroup Inc., agreed to buy a $300 million stake in Twitter Inc., the microblogging service with about 100 million users. Lara Setrakian and Maryam Nemazee report on Bloomberg Television’s “The Pulse.”

Dec. 19 (Bloomberg) — Gordon Kerr, founder of consultancy firm Cobden Partners, talks about banking industry risks and the European sovereign-debt crisis. He speaks with Linzie Janis and Elliott Gotkine on Bloomberg Television’s “First Look.”

London Gold Market Report
from Ben Traynor
BullionVault
Monday 19 December, 08:45 EST

WHOLESALE MARKET gold bullion prices rose to $1607 an ounce Monday lunchtime in London – 0.5% up from last Friday’s close – while European stocks and commodities were broadly flat and government bond prices eased.

Silver bullion meantime rose to $29.36 per ounce just ahead of New York’s open – 1.2% down on last week’s close.

Earlier on Monday Asian stock markets sold off following news of North Korean leader Kim Jong Il’s death. South Korea’s Kospi index fell 3.4%, while on the currency markets the South Korean Won sold off while the Dollar strengthened.

Gold bullion will fall below $1500 per ounce during the next three months, according to a poll of 20 hedge fund managers, economists and traders conducted by news agency Reuters.

“You’re looking at Euro weakness, rather than anything else, as the driving force behind the sell-off [in gold bullion last week],” reckons David Jollie, analyst at Mitsui Precious Metals, adding that many traders will be reluctant to buy gold so close to the end of the calendar year.

“Whatever your [longer-term] view, you have to ask what the chances are of making money by the end of the year…that says to a lot of people that this is not a market to get longer in.”

Over in New York, the difference between the number of bullish and bearish contracts held by noncommercial gold futures and options traders on the Comex exchange – the so-called speculative net long – fell 10.6% in the week ended last Tuesday, the latest data from the Commodity Futures Trading Commission show.

“The key factors that will determine how supported the gold market is on the downside will be whether the ‘sticky’ ETP [exchange-traded product] holdings remain relatively stable and whether physical demand responds to much lower prices,” says a research note from Barclays Capital.

The volume of gold bullion held to back shares in the world’s largest gold ETF – the SPDR Gold Trust – has fallen 1.4% since the end of last month to just under 1280 tonnes. Over the same period, gold bullion prices have dropped around 8%.

European finance ministers are meeting Monday in an effort to meet a self-imposed deadline for arranging €200 billion of loans promised to the International Monetary Fund at the European Union summit earlier this month. Ministers also hope to make progress on drawing up new budget rules for national governments.

“They’ll try to get as much done as they can before Christmas,” says Carsten Brzeski, Brussels-based senior economist at ING Group.

“But it’s doubtful they’ll put markets in a Christmas mood…there is still so much uncertainty.”

Ratings agency Fitch warned on Friday that it may downgrade Belgium, Cyprus, France, Ireland, Italy, Slovenia and Spain. Fellow ratings agency Moody’s meantime announced that it has cut Belgium’s rating by two notches to Aa3.

“A ‘comprehensive solution’ to the Eurozone crisis is technically and politically beyond reach,” said a statement from Fitch.

“Of particular concern is the absence of a credible financial backstop. In Fitch’s opinion this requires more active and explicit commitment from the [European Central Bank] to mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent Euro Area Member States.”

ECB president Mario Draghi however says his organization will not step up its program of buying government bonds on the open market – said to be capped at €20 billion per week.

“People have to accept that we have to, and always will, act in accordance with our mandate and within our legal foundations,” Draghi says an an interview in today’s Financial Times.

“The important thing is to restore the trust of the people – citizens as well as investors – in our continent. We won’t achieve that by destroying the credibility of the ECB.”

Fitch’s warning follows a similar move by Standard & Poor’s earlier this month, which saw S&P put every Eurozone member on CreditWatch negative.

Back in August, S&P cut its rating on US sovereign debt. Newswire Bloomberg today suggests that downgrade has proved to be “absurd”, since US Treasury bond prices have since gained more than 4%.

“It is the ability to print one’s own currency to pay government bond investors back under any circumstances that makes a government bond a government bond, i.e. a (credit) risk- free asset for hold-to-maturity investors,” points out Elga Bartsch, London-based chief European economist at Morgan Stanley in London, in a recent client note.

Here in the UK, chancellor George Osborne is expected to give his full backing to the Independent Commission on Banking and promise to pass legislation by 2015 that will separate investment and retail banking.

UK house prices meantime have fallen 2.7% over the last 12 months, according to figures published today by Rightmove.

“It looks like no nation, no market, no investor is free from this negative outlook. And gold is no exception,” says a note from Swiss gold bullion refiner MKS.

“Gold appears to be playing a difficult role at the moment,” adds the latest note from German precious metals group Heraeus.

“On one side it is the stability anchor in times of economic and financial crisis, on the other hand there are increasing signs…that gold is in wake of the equity and interest markets.”

Ben Traynor
BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Dec. 19 (Bloomberg) — James Rooney, chief executive officer of Market Force Co., talks about the outlook for North Korea after the death of Kim Jong Il and impact on the financial markets. Rooney speaks from Seoul with Scarlet Fu and Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

Dec. 19 (Bloomberg) — Kit Juckes, head of foreign-exchange research at Societe Generale SA, talks about the European Central Bank’s handling of the sovereign-debt crisis and the outlook for currencies including the euro, Swiss franc and Korean won. He speaks with Owen Thomas and David Tweed on Bloomberg Television’s “Countdown.”