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Close Calls: A whiter shade of pale

Welcome back to Close Calls for the week of September 29 through October 3, 2014. They give you the trend, I give you the forecast.

Recap

The Ebola apocalypse is on everyone's mind, so let's start there. From Wall Street's perspective, it makes no sense ever to take apocalyptic scenarios into account for this reason: If it doesn't happen, you'll be better off having bet that it wouldn't happen. If it does happen, it won't make any difference which you bet. If you think Wall Street doesn't use gallows calculus like this from time to time, you don't know Wall Street.

A host of international worries brought the markets sharply lower to start the week, though strong employment numbers on Friday seem to have set the world to right again. Still, the air has changed considerably due to a rising dollar and falling gold and oil prices. While a stronger dollar will hurt exports, low priced crude oil and natural gas will continue America's industrial/manufacturing resurgence. Now unemployment is below 6%. Truly, if Americans were just making more money as a result of all this, there would be every reason to expect another year of rising stocks.

So while the rest of the financial media was celebrating, I was looking up that other economic number that was released today, hourly earnings, and when I saw that despite the jobs numbers, wages were still unchanged, my face turned a whiter shade of pale.

So here's the news, without the sugar frosting: the worker/consumer is being pushed too hard and cannot possibly produce the increased spending needed to propel the next wave of a bull market. It's time to start keeping an eye out, because once a torrent of bad earnings has come in it will be too late. We either act fast to correct this, which, obviously, we will not, due to political paralysis, or it simply becomes a matter of knowing when to jump off the train.

Reappraisal

It's time to check in on a couple of the most boring – and, as it happens, most profitable – stock reappraisals I've made this year. (Note: these reappraisals appear first in this column, and sometimes nowhere else.) I'm talking about Microsoft (MSFT), which I identified as a buy on May 30, and Facebook (FB), which I identified as a buy on June 27.

MSFT closed on May 30 at an adjusted price of $40.69, and on closed Friday at $46.15. That's a 13.5% return in 126 days, or an annualized return of 39.1% (for comparison purposes only.) Microsoft's phone hasn't conquered the world, but it is eking out a niche of its own, and that's good enough for now. I'm still bullish.

Good, but not great, you say? Some people are tough to please, but how about this?

FB closed on June 27 at $67.60, and on Friday at $77.44. That's a 14.6% return in 98 days, or an annualized return of 54% (for comparison purposes only, as you surely know.) The world doesn't even know how tightly it is stuck to Facebook now, and now that the money is rolling in… you bet I'm still bullish.

Roundup

Here's what I had to say this week.

The vultures are starting to circle these stocks

Taking the market's temperature

Is Walmart addicted to public outrage?

Economic indicators are directionless and contradictory – as ever

Dollars win, haters lose

Does one of these companies have the cure for Ebola?

A job for everyone who has given up hope of ever finding a better one

Julian Close has been a business writer since the first day of the twenty-first century, having written for PRA International and the United Nations Department of Peacekeeping. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. He became a stockbroker in 1993, but now works for Fresh Brewed Media and uses his powers only for good. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.

Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.