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Showing posts from July, 2012

Seagate Really Mucks Up The OCZ Buyout Rumors

Anybody following OCZ Tech (OCZ) knows that rumors have been swirling that Seagate Tech (STX) has made a bid to buy the company for over $1B. Well the rumors suggested that the deal would be announced on Monday during the Q212 earnings report for Seagate.

After the close on Monday, Seagate reported disappointing numbers that sent its stock down some 8%. Unfortunately though for OCZ shareholders no mention was made of the OCZ buyout. Not even a question from analysts regarding the rumors.

Not to much of a surprise but the stock plummeted during the regular session and even further after hours. Closing at $5.36 most of the rumor gains were gone.

Then the story gets strange. While the CEO was busy claiming no real need for buying technology, the CFO trots out late and tells Reuters the desire to purchase a SSD company. Within a span of hours, the company appears happy with the in-house program to suddenly needing external sources.

Heck, even Piper Jaffray came out after the conference ca…

S&P 500 Approaches Recovery Highs

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Not many people probably realize this, but the S&P 500 is approaching the yearly highs and the post recovery highs. Back at the end of April the market peaked out around 1,420 and sold off down to 1,270. Amazingly though considering the turmoil still going on in Europe and the weakness in China, the market rallied to 1,386 on Friday. Placing it just a small rally away from those highs. See the chart below:


Chart - S&P 500




Note the higher highs and lower lows over the last two months very much indicating a breakout.

The small cap Russell 2000 has not had the same outcome. While not too far behind the large caps, the smaller cap index still remains below the July peak at 820 and further behind the end of March top around 850.


Chart - Russell 2000 



The main reason for the outperformance of the S&P 500 remains the popularity of dividend paying stocks that are more common in that index. As investors become more comfortable with the stock market and its ability to shake away from …

OCZ Technology Gets No Respect

After it released its Q1 2013 earnings report on July 10th, OCZ Technology (OCZ) dropped over 20% in a matter of days. Importantly, though, the stock did not hit a new 52 week low below $4.14, suggesting that maybe the worst was finally over for long suffering shareholders.

The leading provider of high-performance solid-state drives (SSDs) for computing devices and systems met on the revenue line and missed on the bottom line. So naturally the 20% selloff must've been justified with a earnings miss?

Earnings Miss

The company reported a $0.17 loss versus expectations of a $0.12 loss. The bigger than expected loss cemented all of the fears of the longs and encouraged the shorts to press further on the stock.

Read the full article at Seeking Alpha.



Disclsoure: Long OCZ. Please review the disclaimer page for more details. 




ConocoPhillips Reports Solid Yields, Concerning Production Declines

Prior to the market open on Wednesday, ConocoPhillips (COP) reported earnings that generally beat significantly reduced estimates. This earnings report was more interesting than normal since it was the first independent report since the company split from Phillips 66 (PSX).

Following completion of the split, ConocoPhillips claims to now be the world's largest independent exploration and production company, based on proved reserves and production of liquids and natural gas.

Read the full article at Seeking Alpha.


Disclosure: Long COP. Please review the disclaimer page for more details. 



Making Sense Of InvenSense Earnings

After last quarters disappointing earnings report, this once high flying maker of motion sensing technology dropped 50% to $9. On the previous conference call, InvenSense (INVN) spoke of a bright future amid a hiccup in the supply chain that was limiting the ability of handset makers to utilize the motion sensing technology for 4G LTE phones. Hard to justify the major selloff when the problem was well known to be caused by a major supplier by the name of Qualcomm (QCOM).

Fast forward to Q113 earnings and InvenSense reported numbers slightly above estimates. The company also guided to sequential revenue growth of roughly 40% which should capture investor attention. Not to mention, the results continue to be impacted to the tune of $3-4M by the known issue with 28nm chips provided by Qualcomm.

The absolute performance remains strong, but the question remains whether the relative performance will be enough. The market has a funny way of only being concerned with the comparison to analyst e…

Verizon Earnings Show Market Improvements, High Valuation

Verizon Communications (VZ) continues to be able to squeeze out costs from a slow growing revenue base. Though Q212 revenues only grew 3.7%, the bottom line grew by 12.3%. This gain was largely due to a reduction in the cost of services and sales by $262M combined with a $38M reduction in interest expense.

Verizon is a global leader in delivering broadband and other wireless and wireline services to consumer, business, government and wholesale customers. Verizon Wireless has more than 94M retail customers though it is 45% owned by Vodafone (VOD).

Though operating efficiency continues to improve the most concerning part has to be that wireless revenue is only increasing 7.3%. If Sprint (S) ever becomes a more formidable competitor, Verizon might see the ability to lower costs and improve margins come to an end with little growth to spare.

Read the full article at Seeking Alpha.


Disclosure: Long AAPL. Please review the disclaimer page for more details. 




Looking At Weatherford Based On Competitor Updates

Last Friday, oil services companies Baker Hughes (BHI) and Schlumberger (SLB) reported earnings that helped drive up the Oil Services Index (OIH) by 1.2%. A strong performance considering the market was weak with the S&P 500 falling more than 1%.

If anything, the price jumps were more based on a relief rally that the industry didn't keep falling off a cliff after a very weak start to the year. Stocks in the sector, including Weatherford International (WFT), had been trading close to two year lows.

The industry in general had been undergoing a boom with demand for more complex and time consuming drilling, completion, and pressure pumping services due to drilling deeper wells in more harsh conditions or requiring more complex techniques due to horizontal drilling versus the previously more common vertical drilling.

Read the full article at Seeking Article


Disclaimer: Long WFT. Please review the disclaimer page for more details. 



Riverbed Technology: When A New Product Cycle Is Just A New Product Cycle

The stock of Riverbed Technology (RVBD) had been absolutely decimated over the last six months as the company reported back on the Q411 report in January that it would be going through the growing pains of a massive new product cycle.

The stock dropped from $30 to $24 in January before rebounding back to $29 before falling off the cliff when Q112 results again disappointed. (See How Did A $5M Revenue Cut Turn Into A $1.35B Market Value Drop? article.) The company though remained resolute that the new product cycle and more importantly the important WAN Optimization market remained strong.

After the close on Tuesday, the company reported Q212 numbers that blew past analyst estimates, sending the stock up over 20% after hours back above $18.

Read the full article at Seeking Alpha.


Disclosure: Long RVBD and CSCO. Please review the disclaimer page for more details. 




Kayak: An Advantage In Mobile Travel Bookings

Kayak (KYAK) went public in an IPO at $26 on Friday. This price was above the original $22-$25 range and raised $91M for the company. The stock opened up 15% at $30.10 and now trades in the $33 range. The company proclaims itself as the best place to plan and book travel. The basic focus of the company is to enable people to easily research and compare accurate and relevant information from hundreds of other travel websites in one comprehensive, fast and intuitive display. The initial thought when the company filed to go public was that of just another internet travel company. My past experience on the website wasn't that impressive though my last visit went back a few years. At the time it was vastly underwhelming to use or at least that was my experience.
Read the full article at Seeking Alpha. 

Disclosure: No positions mentioned. Please review the disclaimer page for more details. 


Palo Alto Networks' Pricey IPO

Palo Alto Networks (PANW) went public on Friday trading above the IPO price of $42. The company originally filed for a range of $34 to $37. See S-1 here. The initial trade was above $55 for a 30% gain.

Palo Alto Networks pioneered the next generation of network security with an innovative platform that allows enterprises and service providers to secure their network and safely enable the increasingly complex and rapidly growing number of applications running on their networks. According to Gartner the company has done a good job of marrying enterprise firewall and intrusion prevention system technologies into a single, tightly integrated solution.

Read the full article at Seeking Alpha.



Disclosure: Long CSCO. Please review the disclaimer page for more details.




Stat Of The Day: June Leading Indicators Drop

The June Leading Economic Indicators dropped 0.3% versus expectations of a 0.1% drop. This marks the 2nd month in 3 that the indicators have dropped. This is a concerning trend as the leading indicators can be one of the best indicators of future economic growth.

Consumer expectations and manufacturing new orders remain the biggest problems with gains in the financial and labor components leading the way.

From the chart in the link, the leading indicators remain significantly below the peak at the end of 2005. The current is just over 95 after bottoming out around 80 at the end of 2008. The progress has been substantial, but the index has a long way to go in order to reach the pre-recession levels around 108.

The July report will be key to see if the indicators have truly stalled out. Consumer expectations remain the one component that doesn't appear to be accurately valuing the future. Expectations just aren't as accurate as in the past with consumers in a constant bad mood.



ConocoPhillips: Betting Against Buffett

On Friday, Warren Buffett let it be known on Bloomberg that Berkshire Hathaway Inc. (BRK.A) had sold shares in ConocoPhillips (COP) in favor of Phillips 66 (PSX). Okay, it was actually one of his deputy stock pickers that made the move, but in essence it still has his support.

Dividends

This move is interesting considering the recent split from ConocoPhillips and the announcement that Phillips 66 would have less than half the dividend yield of its big brother. The $.20 quarterly dividend will only amount to a 2.2% yield.

Maybe this shouldn't be a huge surprise as Buffett has long avoided paying dividends at Berkshire. The market though loves dividend paying stocks, and ConocoPhillips has one of the juiciest yields at nearly 5%.

Read the full article at Seeking Alpha.



Disclosure: Long COP. Please review the disclaimer page for more details. 




Mind Boggling Results From Mellanox Technologies

After the close on Wednesday, Mellanox Technologies, Ltd. (MLNX) reported quarterly numbers that sent the stock soaring as much as 50% after hours. A very incredible and unheard of move for a stock with a $2.7B market cap. A move typically only reserved for FDA approvals on biotech stocks or buyouts.

Mellanox is a leading supplier of end-to-end interconnect solutions for servers and storage systems. The company claims to have benefited from growth in the HPC, Web 2.0, storage, database, cloud, Big Data, and financial services market. Basically every part of tech that is hot except maybe that last one.

Read the full article at Seeking Alpha.


Disclosure: No positions mentioned. Please review the disclaimer page for more details. 




Looking At Selling CSX Corporation On The Reduction Of Stock Buybacks

CSX Corporation (CSX) has a been a mainstay stock in our Net Payout Yields model for over a year now. The company has a solid 2.5% dividend and has had a huge buyback plan that included over $1B worth of stock purchased in Q311 alone.

Earnings

After the close on Tuesday, one of the leading railroad operators reported earnings of $0.49 that slightly beat estimates of $0.47. The number also was a 7 percent year-over-year improvement even though the actual earnings amount only increased from $506M to $512M. In essence, the whole gain per share came from the reduction of diluted shares outstanding from 1,109M in Q211 to 1,043M in Q212 or a 6% drop.

Read the full article at Seeking Alpha.


Disclosure: Long CSX (for now). Please review the disclaimer page for more details. 



The Shrinking Yield At Magellan Midstream

MLPs or Master Limited Partnerships make for interesting investing dilemmas right now.

On one hand, the dividend yields on popular MLPs such as Magellan Midstream Partners, L.P. (MMP) at 4.5% are a lot more lucrative than Treasury yields. The rate on the 10 year at 1.44% is paltry in comparison to this MLP. On the other hand, the yields for most MLPs are at multi year lows from surging stock prices.

Magellan Midstream Partners is a publicly traded partnership that primarily transports, stores and distributes petroleum products. The partnership owns the longest petroleum products pipeline system in the country, with access to more than 40% of the nation's refining capacity, and can store 80 million barrels of petroleum products such as gasoline, diesel fuel and crude oil.

Read the full article at Seeking Alpha.


Disclosure: No positions mentioned. Please review the disclaimer page for more details. 



Velti To Benefit From Surging Tablet Demand

As Velti (VELT) hits recent lows below $6, investors are left pondering the reason for the sell-off. Especially considering every indicator points towards a robust market for mobile advertising, especially with the advance of the tablet. Velti is the leading mobile advertising and marketing technology and solutions provider for brands, advertising agencies, mobile operators, and media companies. Its Velti mGage platform allows its customers to use mobile and traditional media, such as television, print, radio, and outdoor advertising to plan, execute, monitor, and measure mobile marketing and advertising campaigns that reach consumers through mobile internet applications. Part of the reason for the concerns is that Velti is faced with a technology investor base that doesn't understand the receivable history in the advertising agency sector. The company hosted a financial conference call to discuss the large receivables, but that never helped the stock price.
Read the full article

8 Rate Cuts Are Enough In Brazil

After eight rate cuts totaling 450 basis points to a record low 8%, the Brazilian economy and stock market are still struggling to regain the growth of the last decade. Read this CNBC report for more details on the economy and interest rate cuts. Surely, now has to be the time to invest in this country.

The Bovespa (BVSP) now trades close to 3 year lows, only trading slightly lower in the August to October 2011 time frame last year. So why aren't the rate cuts propping up the stock market? For one, the market doesn't appear as forward-looking anymore. The original rate cut didn't happen until August 2011, meaning that it is just now impacting the economy. Unfortunately, it hasn't prevented the forecast for the economy from dropping to 2.5% now. Until this trajectory returns to increased growth, stocks probably won't move up much.

Read the full article at Seeking Alpha.


Disclosure: Long NIHD. Please review the disclaimer page for more details. 



The 401(K) Mess

It still amazes me that the prime method of saving for retirement is a closed system that allows limited investment options chosen by the employer where highs costs aren't disclosed. Clearly the 401(k) system is better than nothing at all and the old pension system. It just needs to be modernized to catch up with the current fast paced world.

When I left Verzion a couple of years back, the whole process of moving my 401(k) out of the control of Verizon and into a IRA at Fedelity was enlightnening. As somebody interested in the stock market and becoming a financial advisor it was always very frustrating to see my wealth accumulating in a 401(k) plan with little ability to direct my investments other than basic mutual funds.

Verizon of course had a strong plan compared to most in the industry with a high matching contribution and a decent selection of funds. Unfortunately though it didn't always provide the options that I wanted and expenses weren't readily available.

As the…

Avoid The Duke And The Sector

Duke Energy (DUK) made significant news recently with the resigning of new CEO right at the closing of the merger with Progress Energy. The news was mind blowing considering the deal with shareholders, regulators, and consumers was that Bill Johnson from Progress Energy would run both companies with former Duke Energy CEO Jim Rodgers moving up to Chairman.

How does this impact the stock? Outside of political and regulatory noise, it shouldn't honestly have a huge impact. Utilities are complex businesses, but it only takes a solid operator to run them. Jim Rodgers will have no problem running the merged entity. In fact, Jim Cramer remained bullish on the stock especially considering the stock price drop.

2012 Post Merger Earnings Guidance

The bigger concern should be the lack of earnings growth and limited growth in the future. The combination created the country's largest utility as measured by enterprise value, market capitalization, generation assets, customers and numerous oth…

Darden Might Be Signaling More Weakness With Yard House Deal

On Thursday night, Darden Restaurants, Inc. (DRI) announced a $585M cash transaction to buy Yard House USA. Is this a signal that growth at Darden restaurant mainstays such as Olive Garden and Red Lobster has peaked?

Darden Restaurants, the world's largest full-service restaurant company, owns and operates nearly 2,000 restaurants that generate $8.0 billion in annual sales. The company is headquartered in Orlando, Florida, and employs 180,000 people. The restaurant brands include Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52, and Eddie V's.

In reaction, the stock declined a little over 1% in after hours. The market appears mixed on the deal so far.

Read the full article at Seeking Alpha.


Disclosure: No positions mentioned. Please review the disclaimer page for more details. 




Marriott International Repurchases $400M In Q212

After the close, Marriott International (MAR) reported inline earnings and slightly lower revenue. The stock appears to be selling off slighting in after hours.

More importantly to Stone Fox Capital was the announcement of spending $400M on share repurchases. This number was slightly above the Q211 numbers helping push up the Net Payout Yield (NPY) just slightly.

The fundamental news for Q212 was decent with REVPAR holding up. The company has apparently guided down slightly for the rest of 2012.

On a fundamental basis, the stock will likely trade weak for a while. On a NPY basis, the stock is a huge buy on any dips. Marriott clearly isn't worried about any long term weakness from the 2H of the year. The company spent the largest amount on repurchases for the last 3 quarters.

The share count has now dropped to 338M from 369.4M in Q211 or roughly 8.4%. The company has 25.8M shares remaining on the authorization which is much higher than the amount spent so far this year. In addition…

OCZ Technology Drops On Mixed Results

Or at least OCZ Technology (OCZ) dropped due to missing the headline numbers. The stock dropped 9% in the regular session and another 9% in after hours to trade below $5. The company reported Q113 numbers after the close that generally missed expectations. The guidance though was maintained.

The provider of high-performance solid-state drives (SSDs) for computing devices and systems still reported 54% revenue growth even if it slightly missed expectations at $115M

What the market has missed is that the company reported record bookings of $140M or some $26M above the reported revenues. The company typically has minimal bookings that push over to the next quarter. The main culprit this quarter being a power regulator shortage. Otherwise, revenue for Q113 would've been closer to $140M and earnings undoubtedly would've smashed estimates.

On top of the parts issue, the company increased marketing expenses in order to capture the bookings revenue that ended up not shipping. So expen…

Is AerCap Holdings On The Auction Block?

News came out from Flightglobal today that AerCap Holdings (AER) has placed itself on the auction block. With the stock floundering in the $10-12 range for the last few years, it wouldn't surprise me if big investors would be willing to walk away with a sizable premium.

AerCap is the world`s leading independent aircraft leasing company and has one of the youngest fleets in the industry. AerCap has a portfolio of 350 aircraft with a focus on fuel-efficient narrowbodies and widebodies. AerCap is a New York Stock Exchange-listed company (AER) headquartered in The Netherlands with offices in Ireland, the United States, China, Singapore, and the United Arab Emirates.

The stock is currently trading up 15% so clearly enough people believe the deal is on the table. Or at least the deal news has brought attention to the stock trading significantly below book value. Once aircraft values are marked up to current appraisal levels, the company might fetch closer to $20 then the suggested …

Campbell Soup To Buy Bolthouse Farms, Impact Net Payout Yield

Before the open today, Campbell Soup (CPB)announced a $1.55B deal to purchase Bolthouse Farms. The deal gives Campbell access to the rapidly growing market for packaged foods. The deal is expected to be accretive by $.06 in 2013 with the use of cash and/or debt to finance the purchase price.

Founded in 1915, Bolthouse is a vertically integrated food and beverage company focused on developing, manufacturing and marketing proprietary, high value-added natural, healthy products. The company has leading market positions in fresh carrots and super-premium beverages in the U.S., along with a growing presence in refrigerated salad dressings.

While an intriguing deal, it does bring up an interesting dilemma for our Net Payout Yields (NPY) model that owns Campbell Soup. The company expects to suspend the strategic share repurchase plan in order to use the cash to pay for this deal. Campbell was recently yielding around 11% with only 3.5% coming from dividends…

Investment Report - July 2012: Net Payout Yields

This model was up 5.2% in June versus a 4.0% gain for the benchmark S&P 500. As expected the model jumped back after a weak May as investors jumped back into high yielding stocks.
Trade No trades were made this month, but several stocks remain on the radar to sell as dividend stocks continue to outperform the market. Some of these stocks are reaching valuation levels were capital gains are likely to be limited for possibly the next few years.
Bottom Performers With a strong market in June, it is always worthwhile to review the losing stocks to confirm the long term story remains intact. The model ended the month with 26 stocks, which is slightly higher than normal, and only two stocks had a negative price change.
WellPoint (WLP) was particularly weak following the Supreme Courts upholding of Obamacare.  The stock had a nice gain for June until the ruling came out and caused the stock to plummet from near $70 to close the month at $63.79. The company has a significant buyback prog…

A Tale Of 2 Secondaries

In a world of constantly changing financial data and press releases, investors need to be able to interpret the differences between two seemingly similar announcements. Over the last couple of weeks, two hot technology companies announced public offerings with completely different implications to shareholders.

First, 3D Systems (DDD) announced a $100M secondary on June 12th with proceeds to be used by the company to finance acquisitions and working capital. Second, Splunk (SPLK) announced a $300M secondary on June 27th where existing shareholders are selling shares with no proceeds going to the firm. The benefit to shareholders is the increase to the public float.

Notice that both scenarios involve insiders of the company with major shareholders or management concluding that the stock is an attractively priced currency to utilize. One wants to utilize the cash to grow the business while the other wants to cash out and exit the business.

Read the full article at Seeking Alpha.


Disclosure:…

Brazil Interest Rates To Continue Falling

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According to this Bloomberg report, Brazil expects to continue cutting the interest rate by 50 basis point intervals for the time being. The Selic rate is already at a historical low of 8.5% after five rate cuts. Yes, you read that correctly.

From the chart below, the interest rate has averaged 16% since 1999. An incredibly high level when you consider the rates in the US or Germany. Heck, the 10 yr Treasury in Italy and Spain doesn't even match 8.5%.













The amazing part is that the Bovespa trades closer to 3 year lows than highs. Shouldn't the significantly lower rates spur growth and investment demand? Well that use to be the theory but investors appear less forward looking than in the past.

Just as the higher rates in 2011 hurt growth these rates should fuel growth. Unfortunately any gains are likely to lead to a spike in the markets followed by sharply higher interest rates. The drastic cuts by the government are going to lead to volatile times.

The next meeting takes place …

Top 10 Net Payout Yield Stocks For July

Not too surprisingly, the top net payout yield stocks from June (see article) remained mostly intact as the month ended. Only Motorola Solutions, Inc. (MSI) was confirmed as a new addition to the list. Both Ameriprise Financial, Inc. (AMP) and Time Warner Inc. (TWX) tied for tenth on the July list with a 15.37% yield. So technically, no stock rolled off the list.

The Covestor model typically holds over 20 stocks so neither stock would need to be sold, but anybody playing at home with ten stocks could just leave the model alone in order to avoid trading costs. Look to add Motorola Solutions to the model as one of those stocks lowers the yield via more stock gains or the reduction of a buyback.

For those not familiar with net payout yields, it is the combination of the dividend yield and the net buyback yield. In essence, it is the percentage paid to investors. A typical fund focuses on dividends while some focus on buybacks, but recent history has shown that the stocks paying the largest…

Bristol-Myers Agrees To Expensive Buyout Of Amylin: Stay Away

Last week, Bristol-Myers Squibb (BMY) announced an additional $3B buyback program (see article here on avoiding stock) that signaled to investors to be cautious. While the amount sounded significant, the details suggested the buyback wouldn't amount to much more than 1.5% of the outstanding stock each year.

Now after the close on Friday, Bristol-Myers announced the agreement to purchase Amylin Pharmaceuticals (AMLN) along with AstraZeneca (AZN) for $5.3B. This deal surely suggests that the company won't buyback as much stock as expected at least in the near term.

The timing of the two announcements has to be in question. Why increase a buyback with the stock hitting a ten year high? Not to mention right before announcing a cash intensive acquisition that will not only strain any cash that could be used for a buyback, but also that is dilutive making the stock less attractive. Investors buying last week have to feel duped.

Read the full article at Seeking Alpha.


Disclosure: No p…

Lincoln National Downgraded For Being Too Cheap

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Ok, Barclays Capital didn't downgrade Lincoln National (LNC) for being too cheap. One has to wonder if the stock trading around .4x book value actually played a roll. Or maybe these analysts just use recent history as a basis for price targets.

Honestly don't understand how a price target below book value could ever be justified. The company has made at least a $1 in each of the last 4 quarters and trades at 4.7x forward estimates. In what book is that a stock to sell?

Even worst is the Daily Political website throwing in the P/E ratio of 30 to make the analyst call appear smart. Not sure why that website is even commenting on stocks, but it had the most detail that I could find on the downgrade.

While the stock is down 3% today, the bounce off the 10ema will be bullish if it holds. Also, the stock came close to closing the gap from Friday just below $21. Anybody buying at these levels at least has limited risk if it goes ahead to fill the gap today or sometime this week.

Figur…

S&P 500 Forward Earnings - $110

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Even with tall the downbeat economic forecasts, S&P 500 earnings expectations for the next 12 months remains around $110. At a average PE multiple of 15, the S&P 500 would be trading at 1,650. The low interest rates and inflation would normally suggest a higher PE in the 16-17 range. That might sound crazy, but that is the reality if normality returns to the stock market.

The current bond markets and interest rates remind me of the real estate market around the end of 2006. Everybody thought housing prices in California and Las Vegas were extremely high yet most people kept piling on. The logic didn't make sense, but the end of momentum can be difficult to predict.

Fast forward 6 years and now the bond market is doing the exact same thing. Investors are jumping into bonds even though conventional wisdom suggests the opposite to be the best move. Stocks are very cheap on historical standards and earnings remain very strong yet few people want them.

Investors fear another re…