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Interest Rates Steer the Economy

E*Trade (ETFC) has many issues besides poor fundamental performance, and unfortunately, they have absolutely no control over one of their most serious problems. Since the financial crisis, brokerage profits have been stunted by low interest rates. Brokers make money from the spread between what they pay on deposits and what they earn. During a “Zero Interest Rate Policy” (ZIRP) period, earnings on that side of the business are difficult to drive. (more…)

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Blow Offs in Overvalued Stocks

There has been a recent rash of blow offs among fast-growing or turnaround stocks in the apparel industry. A blow off can be described as a three-step technical signal that indicates a short term top. The first stage is a parabolic rise in price that can last from a few months to a few weeks. The stock then sees a significant spike in volume and a big decline. Blow offs are commonly triggered by news events like an earnings report. (more…)

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Two Wrongs Don’t Make a Right

Office Depot (ODP) merged with OfficeMax (OMX) last November. Prior to the merger, the two companies sold an undifferentiated product from too many stores with territories that overlapped significantly. The strategy was simple – ODP and OMX would merge to cut costs, consolidate stores, and the resulting ‘synergies’ would allow them to compete with Staples (SPLS), Wal Mart (WMT), and Amazon (AMZN). (more…)

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Will We Still Need Screen Protectors Next Year?

As a hobby I rebuild pre-1970 Hamilton mechanical watches. These old time-pieces are interesting and fun to rebuild but weren’t always made with the best parts. If you used to wear one of those watches, or have ever seen the movie “Platoon”, you know one of the big issues with watches from those days was that they aren’t sealed very well and the crystal over the face will scratch very easily. (more…)

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Squeeze the Joy Out of the Market

A short squeeze is a commonly misunderstood investing phenomenon where a heavily shorted stock rallies very quickly and then retraces. They can be difficult to predict, but they do happen from time to time and can be dramatic. There are common characteristics of short-squeezes that can be useful for forecasting purposes but we have to be careful about how those events are used to create a forecast. (more…)

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Trading the Dead Cat Bounce in MGI

The money transfer business is in a state of flux. New competition and technology changes have proven to be a formidable problem for the traditional players in the business like Western Union (WU) and Money Gram International (MGI). Traditionally these firms had large barriers to entry and were income generating cash-cows. Unfortunately changes in the global economy have turned these advantages into disadvantages as the entrenched companies have been too slow to adapt. (more…)

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AOL’s Short Covering Rally is out of steam – be Bearish

On November 5th, America Online reported revenue that beat the street’s expectations, 561m vs. 531m estimated. That surprise led to an impressive gain in AOL shares as the stock ran from $40 to $47 from 11/5 to 11/15. The earnings report to me though was mixed because the company missed on the earnings per share estimate (reporting .02 cents when a profit of .36 cents was expected). The rally in the shares looks to me to have been mostly related to short covering. For proof of this, you need only pull up AOL’s short interest data. (more…)

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