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Is Biotech Too “Frothy”?

Biotech investing can be challenging for several reasons. Medical research and development is prolonged, undiversified, and usually unprofitable for extended periods. On a risk-adjusted basis, biotechnology has one of the lowest long-term returns in the market. However, like moths to a flame, investors keep coming back in hopes of picking the next 1000% winner. (more…)

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Janet Yellen, Rate Hikes and Utility Stocks

The Fed Chair, Janet Yellen, was very clear on Tuesday and Wednesday this week that while the FOMC may remove the word “patient” from its statements, that did not mean they were going to raise rates in the short term. That may or may not be true, but we know that expectations did continue to shift following those comments. On the one hand, traders seem to be taking her at her word and have priced in a rate hike for October 2015, rather than June or September. However, on the other hand, expectations that rates will be hiked (when that finally happens) beyond .5% have also grown. (more…)

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Complicated Financials and a Bear Market

The housing sector has been disrupted recently by mixed economic reports. Homebuilder sentiment was released this week, showing optimism, but a little less so than expected. Interest rates have been flat or in decline as stocks have been selling off, however, mortgage applications are continuing to fall. Home-centers have done well, but recent analyst downgrades have spooked many investors. The bottom line is a sector that may not really know where it is heading. (more…)

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Will Europe’s PIIGs Kill HOG’s Trend?

Harley Davidson (HOG) recently announced a new bike that will be added to their lineup in the future. The “Livewire” is battery driven and the motor sounds more like a very quiet jet engine than the traditional Harley-rumble. The announcement was a good PR move and we are optimistic that consumers will be as eager for an electric bike as they have been for Tesla’s cars and other hybrids once it is finally released. (more…)

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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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