Stocks & Equities
With 2014 in the books, it’s time to look forward and see if we can exceed last year’s results.
Let’s start with the M&A picture for 2015, which should continue to be strong as long as interest rates stay low. The tricky part now is that the valuations have continued to rise in this cycle and there are fewer undervalued names from which to choose.
To further complicate things, we have the fragile world economy, oil dropping 50%+ in a few months, which has a bigger impact than most people think, then add in copper prices at 5-year lows, and it smells like deflation. With that in mind, we could be in for a very tough year.
Let’s start with our M&A picks for 2015:
Twitter (TWTR) Talk about a company not living up to its potential. Management is basically loathed by almost everyone. New talent ought to be able to better leverage the company’s assets. Maybe this year someone will.
Nokia (NOK): The company has a turnaround underway and a number of competitors look like they may have topped out. I also like Nokia’s investment and research around haptic technologies. While it would have been much cheaper to Nokia two years ago, it is still possible a big player will still look to merge or acquire them.
Nuance Communications (NUAN) – Repeat from last year but the story stays the same. Move to recurring revenue should have been largely digested. Tremendous underperformance with the CEO on the hot seat. The pressure will be even greater on the company to get it together or get the company sold.
Maxwell Technologies (MXWL) Growth has stalled but the market for ultracapacitors appears to still have major growth prospects. Maxwell could be a great tuck-in for a bigger player.
Lumos Networks (LMOS) Lumos has been unloved for some years now but is sitting on some great assets and appears to have a very motivated management team. The company can do fine as a standalone but with all of the fiber consolidation going on it seems like they would be a great fit for a number of larger providers. Like this one a lot especially on any pullbacks.
Now, let’s move onto my forecast for trends, technologies and products:
1) Shadow IT
The consumption of cloud services without any oversight will continue to grow putting many companies at risk. In turn, C-Suites will start to feel the heat and IT departments will have to do something constructive about the issue.
2) Augmented/Virtual Reality Hype Turns to Actual Reality
Augmented and Virtual Reality have yet to do much for the masses. Though I am down on Google (GOOG) Glass, I am very excited about this space. Facebook definitely thinks the space is worth having a seat at the table, buying Oculus Rift for $2 billion. Low cost, high bang-for-the-buck products such as MergeVR could entertain the masses. Tour kid could be asking you to buy one of these in the near future.
Higher cost products from Samsung and Oculus will help provide the marketing dollars to get this category noticed, but it is still way too early to pick a winner. The question is, who can deliver in mass with a killer app in 2015?
3) Security of Thing
The Internet of Things will have a host of new privacy and security issues to deal with as hackers look to exploit some of the early roll-outs.
Wearables will become the next frontier for BYOD, and many industries will have to grapple with managing new classes of products in order to leverage staff productivity. This will create a new set of headaches for corporate IT departments.
4) Mobility Pushes the Cloud
Companies already have incorporated push mobile devices in mass, but what type of ROI are they getting? Can they prove it? W
ith newly designed cloud applications available, recognizing the benefits of mobility and quantifying them will become much easier.
5) Xiaomi
Haven’t heard of them yet? Well you will as they have a huge war chest to try and invade the west. Look for them to try and exert their muscle on the mobility front as they are skilled copyists, just like Samsung was a few years ago.
Sound far-fetched? Well, just 4 years ag,o this company wasn’t even on the map and now they are #1 in China. Here is the crazy part — they run Android but have made their phone look and behave more like an iPhone than Samsung has ever come close to doing.
6) The Skill Shortage Continues
The world economies will likely continue to face a number of issues keeping the labor market soft, but key skills are in high demand. Just try hiring a Senior Big Data Analyst or a Chief Marketing Technologist. Many other highly skilled positions will continue to be in high demand with many slots going unfilled for more than 12 months.
7) Samsung Runs Out of Steam
Samsung helped lead the Android revolution as they have been great at copying features from competitors and delivering a quality product. Given that they lost market share this year, they will need to come up with something new. Can they finally innovate? I am doubtful and feel the company has hit a wall. This is part of the reason I think Nokia and others have a chance to rebound this year.
8) Wearables
2015 appears so far to be more of the same. Lots of products are coming out which include quite a bit of cool technology. The problem is that many of these lead to gadget fatigue, and it is still really hard to leverage all of the data. Many products miss key features and to get everything you want, you would have to wear 10 products at once. Even then, the overall benefits are minimal.
Until someone really figures this out, we won’t be able to see how disruptive this category could really be.
Could Apple (AAPL) have the answer?
9) Startups
Look for a couple of things this year. Money should flow into a range of security related companies as major breaches continue to make headlines throughout the year. Also, look for more specialization around verticals. Many companies will be created to attack vertical industries and continue to disrupt them. Previously, potential customers for these products were stuck developing their own code or having to purchase a major vendor’s product before spending millions to customize it to their needs. This will keep many of the big players on their toes and potentially looking for acquisition targets.
10) Apple
You know I can’t leave this company out.
So here it is: Apple Watch is a hard sell. So far I have seen no compelling applications that make me want to buy one. Factor in the faithful and they will probably still sell 7-10 million of them in 2015. Can this product get legs and really redefine a category? Will this product release define the post-Jobs era? For now, prepare for disappointment.
On to other things. How about an overhaul of the Macbook Air and finally a new Apple TV. The watch better not be the only new thing Apple is banking on if it wants to start building momentum beyond 2015. But show me a killer app and I might change my mind.
I hope you enjoyed this year’s forecast.
What did I miss?
What big things do you see happening in 2015?
Read more: http://www.minyanville.com/sectors/technology/articles/don-douglas-tech-stocks-for-2015/1/9/2015/id/55920#ixzz3OMb34V4s
The USD hit a 5yr high against the floundering Loonie as divergent sets of economic data released this morning showed economies moving in different directions. The US added a better than expected 252,000 jobs in December, whereas Statistics Canada showed a 4300 decline last month when expectations were for a 15000 gain. Additionally US unemployment fell to 5.6% from 5.8% whilst the figure for Canada held steady at 6.6%.
Longer term the USD looks the currency to hold but given it’s the end of the week and we’ve seen a 2+% move so far this year don’t be surprised to see some profit taking and a pull back.
Late last year, with the U.S. economy experiencing falling unemployment and seemingly low inflation, observers were extremely confident that the Federal Reserve would move judiciously in 2015 to restore ‘normal’ interest rates sooner rather than later. However, in light of the recent fall in both stocks and oil, that conviction has softened considerably.
Many, such as the very influential Bill Gross, now believe that our current Zero Interest Rate Policy (ZIRP), which has been in place for six years, will remain in place throughout the year. While this likelihood is a disappointment to many, who would have preferred to see the economy move along without Fed-supplied training wheels, few really understand the pernicious effects these policies are inflicting on the economy the longer they are held in place. In short, ZIRP is slowly transforming the world economy into a dysfunctional basket case.
Historically, it has been estimated that a ‘normal’ fair rate of return on short to medium-term high quality debt is between 2 and 2.5 percent, net of inflation. Recently, the Fed published year-on-year U.S. CPI inflation for mid November 2014 at 1.3 percent. This would suggest normal short-term rates at around 3.5 percent at present.
However, using the government’s methodology that was in place prior to 1990, John Williams’ Shadow Government Statistics (SGS) newsletter calculates inflation to be currently some 5 percent. Using methods in place prior to 1980, it is a staggering 9 percent. At that level, current interest rates should be somewhere around 11.0%. Even if we estimate that real inflation is currently 3%, then our “normal” rate of interest should be around 5%. This is some 50 times the rate paid currently on most bank deposits. This gap is distorting the economy in untold ways.
In early December 2014, the U.S. Congress approved further Government spending of some $1.1 trillion. This came just as the U.S. Treasury’s debt broke through a total of $18 trillion. It wasn’t that many months ago that the $17 trillion barrier was first breached.
Currently, the U.S. Treasury can borrow for 10 years at around a rate of 2 percent. But if long term rates rose to 5 percent, which would be in line with the historic range of “normal,” the 3 percent difference would cost the Treasury an additional $540 billion in annual interest payments (based on the current $18 trillion in debt). This would considerably undermine the government’s fiscal position, and necessitate an upheaval in federal budgeting.
The financial repercussions of a tripling or quadrupling of interest rates truly are horrific. They lead to a sense of foreboding that the Fed, aware acutely that the U.S. Treasury simply cannot afford a return to normal interest rates, will not restore normal rates unless forced to do so by international bond or currency markets. It appears, therefore, likely that ZIRP will continue for years to come. This feeling is underpinned by a view that low interest rates are simply a benign stimulant that fails to appreciate the actual harm they impose, particularly in the fixed income markets.
Savings are the prime source of real long-term investment. Today, savers are being crushed by the Fed’s manipulation of interest rates to below a real return. To find even small real returns, investors have had to scour the financial landscape for sources of yield. In doing so, they have ventured into risky territory and have, for instance, flooded into the high yield market, pushing junk yields to record low territory. The repercussions of providing excess capital to risky businesses have yet to be experienced, but the energy industry should provide us with a hint of things to come. Over the last few years small and midsized energy firms were able to borrow cheaply and lavishly to fund drilling projects, thereby greatly increasing production. But in retrospect, these efforts look like they helped create an oversupply of energy that has depressed the price of crude and has exposed the energy sector to long-term financial stress. Bankruptcies and creditor losses may be inevitable.
Another concern of the Fed is that despite an unprecedented increase in liquidity and part-time employment, real job creation is still sluggish at best. Furthermore, the Manhattan Institute’s Power & Growth Initiative Report of February 2014 notes that the U.S. oil and gas boom has created some one million jobs with a further ten million in associated occupations. The oil boom has improved net employment and kept the economy out of recession. But oil prices have fallen dramatically, threatening these economic bonuses and high-yield bond defaults. It’s hard to see what other distortions and hidden pitfalls have been created by negative real rates. The traps often become visible only after they have been sprung.
But with major economies such as the European Union, Japan and Russia flirting with recession (and China slowing down considerably), there is growing fear that normal interest rates would be dangerous at present. This fear likely will encourage the maintenance of ZIRP, possibly for years, with financial markets disconnected increasingly from the real economy.
Therefore, investors may continue to benefit for some time from the consistent boosting of financial markets by central banks. However, the longer a major correction or even a crash takes to develop, the more sudden, deep and devastating it may be.
John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.
‘The good times are over’ and this will be a ‘terrible year’ says the former ‘Bond King’ Bill Gross laterly head of Pimco and now of Janus Capital, providing his economic outlook for 2015. He’s the only major forecaster on Wall Street to call for a decline in all asset classes, and frankly a bit late in the day too with markets tumbling across the board and oil at $48.
Once again the professional analysts are leading investors over the edge and into oblivion! Or maybe Mr. Gross is wrong again this year? CNBC’s Dominic Chu reports…
The Dow rose 323 points yesterday, or 1.8%.
People come to think what they must think when they must think it. But what do they think now? Why do they think stocks are so valuable?
Apparently, they believe that Janet Yellen, Mario Draghi and Haruhiko Kuroda – the powers that be – will continue to make stocks go up.
The Fed has stopped active liquidity pumping. But it still has its hand on the pump handle, just in case.
The European Central Bank is promising and preparing to pump as soon as it can get the Germans out of the way. And the Japanese – the world leaders in modern state finance – are pumping with both hands.
Gaming the System
Since 2009, the Fed has put more than $3.5 trillion to work on investors’ behalf.
This – along with the help of the ECB, the Bank of Japan, the Bank of England, the People’s Bank of China, etc. – has helped lift stock markets by $18 trillion.
And corporate chiefs – now back in their cushy seats after the holidays – are borrowing more money to buy their own shares. They, more than anyone else, have figured out how to game the Fed’s system.
They take the Fed’s zero-interest-rate credit. And they use it to buy back their own shares. This pushes up the value of the remaining shares. Which leads to big, fat bonuses.
And so one of the wonders of the modern financial world unfolds before our dumbstruck eyes: borrowing from someone who has no money… charging it to someone else’s account… and pocketing a good part of the cash.
The average S&P 500 CEO got an $11.7 million compensation package in 2013. Last year must have been even better, though we don’t have the figures yet.
Meanwhile, the dollar rises and foreign investors move their money into US stocks and bonds, seeking safety and capital return in a market where the former is illusory and the latter is fraudulent.
Good luck to them all!
Sooner or later Mr. Market will have his say. He always does.
Bubbles Always Pop
But this may need explanation…
If central banks are committed to pumping more money into the system (birds gotta fly, fish gotta swim, the Fed’s gotta pump), why should stocks ever fall?
Good question. Beneath the phony market created by artificial intervention is a real market. Real buyers and real sellers.
At some point, the supply exceeds the demand. Then the smartest people in the room get worried. They move toward the door… quietly.
Then the next smartest people notice that the geniuses have left the room… and they, too, begin edging toward the door. Then short sellers move in. Prices drop. And pretty soon, the market is in free-fall.
That is what always happens. Bubbles always pop. It happened to the dot-coms, to houses, to subprime mortgage companies, to oil and to the oil-slick debt.
A Frightening Fall
“Prospects dim for US high-yield debt,” reports the Financial Times.
We have no special insight into this process. But we have faith in it. Nothing lasts forever; of that we are sure.
We also have faith in certain reliable patterns of human behavior. No one escapes the cemetery. And markets follow boom-bust cycles. Always have. Always will.
We are now in what appears to be a boom cycle on Wall Street. It could last much longer… and go much further.
Often, a boom of this magnitude needs an all-out, barn-burning, super-duper final stage before it blows up.
Our guess – and it is just a guess – is that there will be another big scare before the final top of the equity bubble is achieved.
We expect a frightening fall… a quick reaction from the Fed… and then the great race to disaster will enter its Last Looney Lap.
Regards,
Bill Bonner
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