Posts Tagged ‘stock market


Is Target Corporation in Trouble?

Target Corporation a once promising retailer who drew in retail shoppers by the drove for their interesting line of merchandising which included mod retro fashions for women and men as well as interesting lines of home furnishings and accessories seems to be in trouble of late. After trying to aggressively expand in Canada, Target quickly closed all their entire Canadian operations and laid off their entire staff there after generating huge losses. They gave former Target Canada CEO Gregg Steinhafel’s a ‘walk-away’ package estimated at $61M (more than the entire severance for all the Canadian employee’s combined) for leading the expansion plan fiasco. Enter a Target store of late and you notice cheap, dull merchandising, limited hours of operation and empty parking lots. Although their stock is trading near multi-year highs, Target is inevitably in trouble. With stiff competition from other department stores, clothing chains and dollar stores competing for a declining demographic the fact is Target’s quality has dropped so dramatically it cannot compete. Recently downgraded by Barclay’s, Target has become too reliant on department store credit cards and huge markups on low quality merchandise as well as derivatives trading to generate profits and forgot what consumers want. It is following Kmart’s model and unless it strays away from that, it will follow the fate of the Canadian subsidiary.


Second Dot Com Tech Bubble

Thanks to Zero interest rates and the Federal Reserve, yet again another Dot Com or Technology bubble has formed in the stock market. From the collapse from a height achieved of over 5,000 points in 2000, the NASDAQ has reached a 12 year high recently (ironically very close to the Elliot Wave retracement for the Fibonacci followers out there). Let’s look at the following companies with the most insane evaluations for this recent bubble:

* Apple Inc with a market cap of nearly $500 billion trading at over 5 times book value

* with a market cap of nearly $100 billion at it’s height recently trading at over 14 times book value

* Microsoft with a market cap of nearly $260 billion trading at nearly 5 times book value

* Oracle with a market cap of nearly $200 billion trading at nearly 5 times book value

* IBM with a market cap of nearly $230 billion trading at over 11 times book value

* with a market cap of nearly $30 billion at it’s height recently trading at over 12 times book value

* Citrix Systems with a market cap of nearly $16 billion at it’s height recently trading at over 5 times book value

* VMWare with a market cap of nearly $45 billion at it’s height recently trading at nearly 10 times book value

* Google with a market cap of nearly $520 billion trading at nearly 4 times book value

* with a market cap of nearly $45 billion trading at nearly 4 times book value

* Linkedin with a market cap of nearly $12 billion trading at it’s height at nearly 20 times book value

With many of the above companies exaggerating Goodwill on their books to inflate their book values, can you imagine how even more overinflated their stocks actually really are? With various other tech companies trading at or near all time highs within this latest stock market rally, why does the US Fed and Treasury keep repeating their mistakes of the past? Are the Fed and Treasury doing this because they do not have the business knowledge to build a strong economy any other way (aka the old fashioned way)? Is it accidental or is it to deliberately make the few wealthy investors much wealthier?


Are Canadian Banks in Trouble?

With the recent global debt crisis starting to become a more serious problem than originally thought, there seems to be a shadow passing over another G7 country previously regarded to be a banking safe haven (namely Canada). Is it really a banking safe haven or is it next on the banking crisis radar? Let’s look back in history to Canada when Brian Mulroney was Prime Minister. In the 1980’s two Alberta based banks Northland Bank and Canadian Commercial Bank failed after lending out millions of dollars to oil and real estate companies whom defaulted on their loans. In 1985 Mercantile Bank of Canada (based out of Montreal), at the time the 8th largest bank in Canada with $4.4 billion in assets fell into trouble.

The largest banks at the time rushed to the rescue by pumping hundreds of millions into saving the Mercantile Bank of Canada. It later got bought out by National Bank of Canada. Today, the top Canadian Banks have expanded both domestically and globally. Their residential mortgage portfolios have sky-rocketed with the recent real estate boom in Canada. They also hold on their commercial loan portfolios various facilities to most of the largest banks and financial institutions in the world and noticeably the European Union institutions that have recently been noted in the news for their problems and exposures in the European Debt Crisis. But at what cost? They have borrowed immense levels of money by creating debt to finance such huge growth.

Banks such as Scotiabank (being Canada’s most global bank) as well as others would be really negatively affected by a collapse in global banks. With Canada’s consumer debts and combined government debts (federal, provincial and municipal debts) hitting record levels domestically a bursting of the real estate bubble could be a double edged sword in their hands. Canada, once thought of as a country whose banks are much safer than America and the rest of the world has seen de-regulation in the form of loosening of lending requirements over recent years with Prime Minister Harper in power and Jim Flaherty as Finance Minister compared to when Paul Martin was Finance Minister.

The largest of the Canadian Banks RBC recently sold off it’s struggling American retail business arm Centura Bank to PNC Bank. The fact that the Canadian Banking powerhouse is exiting from the US as it’s economy struggles further is a very defensive move indicating further pain expected for time to come within the US Banking Sector. Unfortunately their Canadian counterparts BMO and TD have done the opposite and have been buying up US Banks recently to expand their market share in America at a time when the markets have caused stock values to increase dramatically compared to the crisis of 2008/2009. How will they fare if the US goes into another recession causing further strain on the US banking system?

With the 2008 collapse of Lehman brothers and AIG, Canadian banks like Scotiabank still had such financial institutions marked as highly rated safe and secure loans on their risk rating models after they became defunct. In fact Canadian banks accessed some of the TARP bailout money back in 2009 for their US arms of their business. As the European debt crisis spills over into the rest of the world, how can the Canadian Banks be saved as they would require billions of dollars of capital injections to bail them out, something the cash strapped Canadian government would have difficulty providing, especially still recovering with their finances from the precious recession in 2008/2009? Are the Canadian Banks heading into trouble?


Big Stock Market Crash Coming?

The Dow Jones has been volatile of late with 5 of the last 6 trading sessions in the top 20 of all-time in terms of point up/down.  Going back to 2008 (which held many of the records for all-time points up/down) there seems to be some strong similarities. With the Europe debt crisis contagion now spreading to the most powerful of European economies like Italy, Spain, France, UK and Germany, it has been over a year and a half since this crisis was first reported and it seems to be getting worse. With the US debt being downgraded for the first time in history, the debt crisis is making itself global.

The only solution for governments to contain their deficits is to cut spending. If you look back in history, each time governments have cut back spending a recession has commenced. In fact most if not all economic booms have heavily relied on heavy governments spending. Take a walk down history to the Great Depression. Contrary to Ben Bernanke’s opinion, in the early 20’s there was a depression and the governments turned on their monetary policy taps making credit very easy causing the roaring 20’s. Once the 1930’s hit, the debt hangover caused the government to make cut backs as well as the markets to further collapse after their violent rally after the initial 1929 crash.

Does this sound all but too familiar? Mutual funds and hedge funds are closing at a record pace due to lack of retail investors/subscribers, trading and investment firms are losing revenues and some generating big losses (run by big names such as the likes of James Paulson), overall volume is drying up and financing for non-big boy companies as well as IPO’s drying up. With the governments over-extended from the 2008 crisis, how can they protect from a crash to happen (especially with their pockets as empty as they are right now in terms of finances).  Is the recent volatility setting the stage for the biggest crash in the history of the stock market to occur?


What is Causing This Stock Market Rally?

With the stock markets catapulting up to over 70% from their lows experienced in March of 2009 you start to question what is causing this stock market rally? Let’s look at some facts. There has been a dramatic decrease in trading volume during this market rally on the NYSE. Of the daily trading volume well over 60% of it has been due to program trading. Mutual fund outflows are setting new records as retail investors have either lost faith in the stock market or need to keep their money aside due to barely making ends meet from poor conditions in the economy. The number of outstanding derivatives has grown from ten of trillions of $dollars (before the crash in 2008) to in the quadrillions of $dollars (1 quadrillion is a thousand trillion).

Revenues are down for investment firms (with further lay-offs at these firms pending) due to lack of participation from the retail investor in the stock market. Near zero precent interest rates imposed by the Federal Reserve Banks has spurred an increase in high risk investing as there is simply nowhere else to park money to receive a decent return. With the economy being weak and most of the growth coming from one-time incentives by governments as well as auto makers and retailers trying to boost sales it makes you wonder how long can this stock market trend keep going up?

With a second residential housing dip occuring and further debt crises’ forthcoming in the area of commercial mortgages/loans, corporate bonds, student loans, automotive loans as well as state and municipal debts, this will have a big impact on the performance of the stock market. Will it be eventually higher interest rates that cause it to come back down to reality (the Fed Chairman Ben Bernanke has guaranteed to keep interest rates low until later in 2011)? Will it be history repeating itself as in 1987 where program trading had caused the biggest one day percentage drops in history for the Dow or the 1929 crash where leverage investing (derivatives) had ballooned to excessive levals and many investors had to sell to cover their margin calls? Only time will tell.