February 27, 2014

Can that cool app I created make me a billionaire, too?


Just about everyone is entranced with the recent news out of Silicon Valley about billions of corporate dollars being used for acquisitions. Many of the buyouts we’re hearing about are software companies that were startups just a few years ago. There is almost an 1849 Gold Rush mentality now in California. Who can think of the next software application that can be sold to a big Internet company for billions of dollars? Basement and garage software entrepreneurs work feverishly, hoping their ideas can make it big.

But what do company takeovers and buyouts mean for those of us who invest in the market?
 

February 20, 2014

Watching one tea leaf: The relative price of credit


The price of riskier corporate bonds such as high-yield and emerging market debt is measured in terms of extra yield. This is the price of credit, which is measured relative to the highest-quality bond issuers, like the US government. Credit-sensitive bonds are backed by companies with uncertain financial strength, and accordingly have lower credit ratings. Because these bonds represent a category of risk higher than other markets, they often signal distress or economic deterioration before other markets decline. These markets can be good "tea leaf" indicators about the path ahead. Also, when these markets show strength (less excess yield), they often signal better times for stocks and other assets.

 

February 14, 2014

Hard winter, soft economy


Data falling with the snow

At the end of last year, virtually all economic reports in the United States were accelerating. Nonfarm payrolls were consistently better, manufacturing activity was picking up and consumers were poised to spend again. Since then, we’ve seen softness in home sales and car sales — the two linchpins for my case that the economy has continued to move forward. Factory orders and retail sales have also been disappointing relative to expectations.

Can we say that the steady storm of harsh winter weather has been the culprit? Certainly that could be the case with autos and perhaps housing in the affected regions, but not with factory orders. I doubt that weather is the whole story. There must be something else.