Investors Edge – Hour 1
GARY: “Intermune was bought out today by Roche Holdings. Why do I bring this up? Because we are simply told not to worry about froth and speculation and that is all well and good. Just want to let you know a couple of things that I noticed on Intermune today. First off, they have done two secondaries in the last year. In case you don’t know, that is adding stock onto the market or insider selling, whatever you want to call it. So, they are selling stock. And, of course, the year has been a good year for biotech and Roche decided to buy them, I think for 74 in cash. They are paying cash. You would think that when someone is paying cash that they would like to look at valuation. Ladies and gentlemen, here is the valuation on Intermune. Trailing fourth quarter sales, $110 million. How much money did they lose on that $110 million of sales? Looks to me about $200 million. We are not making this up. They did $110 million in sales but lost $200 million. Remember those numbers. Roche is paying in the neighborhood of $7.5 billion dollars, for a company that had a $110 million in sales and lost $200 million. But, there is no bubble. We are told there is no bubble. They are willing to pay nearly $8 billion dollars for a company in $100 million in sales and lost $200 million dollars. Just letting you know, they could have bought them a year ago for $1.5 billion. Anyway, this is a part of what we talk about froth and speculation and excessive valuation and by the way one of the characteristics is the buyouts at high prices, not just secondaries. We are just stating the facts. We are just letting you know. Not saying anything else, just stating a fact.”
MONTH END+BUYOUTS=2000 S&P
Roche is paying $8.3 billion for a company that has $110 million in sales and loses a couple hundred million on those sales. You think that 10 million shares that are short are happy today?
Europe economies soften…and that bottoms their markets as the still relatively weak Dax works it s way back up.
Financials started to perk up last week.
It is end of month.
Need not say more!
Gold vs. Financials
GARY: Gold and gold stocks are breaking down. Big financials are turning up, some of them coming out of range. It is as simple as that. If this continues…IF this continues, should be good for markets. equation. When you have a chance, here are a few things to look at and I am going to be brief. Put up the GLD, it hasn’t completely broken down but you can see it broke a little bit of support today. The GDX looked to be rolling over and then you have some individual names, AEM breaks the 50 day moving average today on volume. FNV, these are the stronger names, breaks the 50 dma on volume, GG breaks the 50 dma. On the other end of the spectrum, Citigroup moves above its six month range today on about 1.5 times average volume. Bank of America does about a four to five month move above range on almost three times volume. JP Morgan coming up to the top of range somewhat, and if you look at the XLF and this is where I am a little perplexed, the XLF broke into new high ground. This is the financial select sector index. I still can’t find financials at new highs but yet the XLF is at new highs so whatever the makeup is, they got a few things in there that are helping out. That’s it. One group going one way another group going another way and you know the motto here, not much bad happens if financials get a leg to the upside. If anything changes we will let you know.
GARY: Its not the news, its how the markets reacts to the the news. Why am I saying this? Because in the last week, just letting you know, Macy’s lowered their numbers. The stock had a little mini gap down last week, it’s gone right back up to highs. Today, Target, crappy numbers! The stock was down, finished up over a buck on volume, and just keep in mind Macys is at the highs, Target is more at the lows. Lowe’s, the brother of Home Depot, the stock gaps down, finishes up nicely on heavy volume. What do these three have in common? They are all retail.
We told you, up until about last week that retail stocks were acting horribly. We went through our retail list, horrid, gross and now all of a sudden bad news comes out and the stocks are getting jacked up. What is with that? Well, back to the point. It’s not the news it’s how the market reacts to the news. Maybe the market is looking at something forward, I don’t know but the laws of fear and greed and supply and demand are what we follow and I just found it interesting and just to mention to you at the outset here, retail looks like it’s getting the bid for the first time in a while. In fact, when I look at the two ETF’s that make up retail, RTH doesn’t trade a lot but you have one big gigantic ten month base that broke out yesterday. The XRT is the other one that is setting up for potentially breaking out. Combine that with Home Depot which I did a dissertation on yesterday, about how we thought that was a pretty darn good break away gap, but we were hopeful because of its lower beta that it would sit around a little bit…no it was up two and half bucks today. So, that helped too. As I went through retail earlier today and I’m going to do a little bit at the close, you are getting a bid there and they are on the radar for the first time in quite a while. And, some of the them have some big big bases that we are following.
So memo: lesson, when the news is reported as bad by the companies and the stocks reverse and go up, that is good news. When the news is reported as good by the companies and the stocks go down, that is bad and typically it defines bullish and bearish phases in the market, that sector or group. So, just letting you know, I noticed that today and I thought I would mention it early before we get into everything else.