stopped clocks and other foolproof prognosticators

At the start of this year, I did something I rarely do–I opened my big mouth and made some predictions about the stock market:

I expect stock indexes to post muted gains, somewhere in the single-digit range.

Well, we’re almost three full months into 2015 and, to my surprise, I haven’t changed my outlook. If anything, with the S&P almost exactly neutral YTD as of this writing and the Dow down a smidge, I’ve become slightly more bearish. With corporate earnings expected to underperform in the next two quarters and a rate increase almost certainly in the offing, it’s hard to see how stocks can break out and post another year of double-digit gains. Of course, this opinion is exactly that: an opinion. For all I know, stocks could take off again and break 20k by New Year’s Eve. I doubt it, but one thing I’ve learned in this game is that anything and everything is possible.

In case you missed it, I was in New York yesterday and I stopped by CNBC’s Closing Bell program to chat about market volatility and the challenges facing stocks (if you’re reading this by email, you can find the video here):

Thanks to everyone at CNBC for having me. I’d also like to thank David McCann at CFO Magazine for writing about Dead Companies Walking and for a great conversation the other day. I always enjoy meeting smart people, and it’s gratifying to hear that people I respect have enjoyed the book.


back on track: has trinity turned a corner?

(note: this post originally appeared on my Yahoo! Finance contributor page)

One of my favorite stocks went off the rails a few months ago. After chugging steadily higher and nearly doubling in the first nine months of 2014, railcar manufacturer Trinity Industries (ticker: TRN) went into the ditch—see what I did there?—as one piece of bad news after another hit the company.

T.S. Eliot said April is the cruelest month. He obviously didn’t live through last October as a Trinity shareholder.

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private inequity

Earlier this week, I watched the documentary Page One about the inner workings of the New York Times and the dire financial difficulties daily newspapers face to survive.  It’s a great movie. It’s also a very depressing movie. Journalism is one of my passions. Every year, I lecture at the journalism schools of UC Berkeley and Northwestern, and I believe an informed citizenry is vital for our country’s economic and cultural wellbeing. That’s why it’s so disturbing to see newspapers dying all over the country while glib, superficial, and often politically slanted outlets like Gawker and the Huffington Post thrive.

The movie also touches on another depressing trend in American business–the “strip and flip” mentality of too many private equity firms, and the warped way our tax system aids and abets these destructive behaviors.

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the first rule of short selling is: don’t talk about short selling

(note: this post originally appeared last Thursday on my Yahoo! Finance contributor page.)

Last week, a longstanding short in my fund released one of the grimmest quarterly reports I’ve seen in three decades of managing money. The company’s most important sales metric dropped at a double-digit rate, meaning its near-term revenues are going to be abysmal (after all, today’s sales are tomorrow’s revenues). Its long-term outlook isn’t great either because its most profitable product is fast becoming obsolete. Meanwhile, sales rates for new, less profitable products are modest and the business is hobbled by more than $2 billion in debt, all of which is coming due in less than two years. On the plus side, the company still generates a fair amount of cash, almost $400 million last year. Too bad interest payments to service its monstrous debt load were almost as large.

Declining sales, a sunsetting business model and crushing debt. If that isn’t a recipe for bankruptcy, I don’t know what is. Oh yeah, did I mention that this same company has already filed for Chapter 11 protection twice in the last decade?

I’d love to tell you the name of this business. Hell, I just wrote a book called Dead Companies Walking and this is probably the best example of a company heading for oblivion in the market today. But naming it would almost certainly wind up costing me and my investors a ton of money.

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still majoring in mismanagement

Last fall, I blogged about possible ways to disrupt and improve our vastly overpriced and underachieving higher education system. One of my bright ideas went as follows:

[T]here’s no reason [Harvard] shouldn’t build more campuses in other locations, increasing enrollment even more. If its product is so great, why not scale it out?

Fast forward to this week when I opened the latest Barron’s and discovered that Harvard’s biggest rival is already doing just that:

Yale University has done something that no other Ivy League school has attempted: built a new version of itself halfway around the world, in Singapore.

I believe we’ve got things backwards in this country when it comes to higher education. In my opinion, a university’s reputation shouldn’t be based on how exclusive and expensive it is–that is, how much it costs and how few young people it educates. I think we should reverse that equation and judge our elite institutions by how many quality educations they provide, and at what value. Yale’s experiment in Singapore is a good first step in the right direction (even if it is in China), but it’s not addressing the biggest problem in higher education today:

It costs too damn much!

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you call this a bubble?

(Note: I have started writing for Yahoo! Finance’s new contributor platform. This piece originally appeared there. You can find it by clicking here. If you have a tumblr account, please feel free to follow me to receive my latest posts in your dashboard. If you don’t, I will continue to post them here, as well. Thanks!)

With the Nasdaq hitting 5000 last week and all the talk about whether we’re in a new dotcom bubble or not, it’s been easy to overlook something: most stocks are having a ho-hum 2015, at best. After Friday’s steep selloff, the Dow is virtually flat since January 1st and the S&P 500 is up a grand total of 13 points, or .6 percent, over that same period. The Russell 2000 has fared slightly better. It’s gained about one percent. That’s not bad. But it’s not exactly the stuff that bubbles are made of.

So, is the bull market stampede finally starting to slow? I’m always hesitant to make predictions. For all I know (or anyone else), the markets could rally again this week and shoot up double digits yet again by year’s end. But I will say that the same negative effects that have dampened stocks so far in 2015 will almost certainly get worse in the coming months.

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apple or exxon?

My apologies for the lack of blogging lately. Once again, my busy schedule has prevented me from sharing my observations. I did write an article for CNBC.com last week on the trouble with Apple’s recent rally and why I would buy Exxon over the iPhone maker if I had to choose between the two stocks. In case you missed it, you can find it here.

I am going to try to write more in the coming weeks. I have also been invited to become a contributor for Yahoo Finance, so please stay tuned for details on that and other news.

Thanks again to everyone who has bought the book and to everyone who has written to me about it or posted comments here and elsewhere. I am especially grateful to those who have taken the time to write positive reviews on sites like Amazon and Good Reads. Thank you!


borrow, baby, borrow

Before I get into blogging, I’d like to thank all the people who have written to me about Dead Companies Walking. I’m sorry I haven’t been able to respond to most of the messages, but I do try to read every email that comes in and it’s a thrill to hear that people are enjoying the book. Thank you for buying it and thank you for reading it!

Okay, on to this week’s blog:

Possibly the greatest surprise in 2014 was the decline in government bond yields. Ten-year treasuries fell from 3 percent to 2.2 percent by year’s end. Last month, I said that yields were unlikely to fall much further. Guess what? They did just that, dropping to 1.8 percent last week after hitting 1.65 percent two weeks ago. This surprisingly rapid drop in rates didn’t just prove (yet again) how silly it is to make financial predictions, it also has two important implications for investors:

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drilling down

[Note: I have a piece up on CNBC.com today about RadioShack’s impending bankruptcy. Click here if you’d like to check it out.]

Judging by the last few days of trading, it looks like oil prices might (emphasis on might) have found a bottom. That would be bad news for big oil consumers like airlines–not to mention ordinary Americans, who’ve been enjoying a de facto tax break at the pump–but it would come as a major relief to anyone hoping for our incredible domestic energy renaissance to continue.

Last week I attended a one-day energy conference in Denver. Sponsored by a West Coast brokerage, 25 institutional money managers and I visited six E&P (exploration and production) companies at their downtown headquarters. Four of the firms drill in the Niobrara, which is the basin underneath Denver that extends to the Wyoming and Nebraska borders. The fifth drills in the Bakken, which is the relatively new basin underneath North Dakota; and the sixth drills in the Texas Permian basin, the largest oil field in the lower 48 states.

The mood in those offices didn’t quite give me flashbacks to my early days in the investment business, when I watched the entire economy of Houston implode during the Great Texas Oil Bust of the mid-1980s, but I definitely experienced a few minor bouts of deja vu.

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cheap shots

First off, I’d like to thank Chuck Jaffe for a great chat about Dead Companies Walking on his MoneyLife podcast. I enjoyed it. You can listen to our conversation below (or, if you are reading this on email, you can download MoneyLife’s January 28, 2015 podcast on iTunes or by clicking here):


Now, back to blogging. I think I’ll write on a fun and uncontroversial topic that everyone can agree on. How about … American foreign policy in the Middle East?

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