Obama's Cold War Rhetoric Hurts Stocks More than Putin – EXCEPT FOR THESE STOCKS

Yesterday, President Obama spoke boldly about Russia’s incursion into the Ukraine. It was a must, given that he had just allowed the Russians to trample over a Ukrainian nation we promised to protect when they turned over their nuclear weapons. Now defenseless, we did nothing but complain about it while Putin ignored us and pushed through a sovereign state to “protect” a Russian speaking population, and oh yeah, the very valuable Russian naval base located in Crimea. After the fact, our NATO friends on the Russian border are worried we might leave them hanging out in the cold as well, so the President and Vice President have traveled to Europe to reassure our friends and allies that we really do have their back (and never mind that Crimea thing).

NOTE: I just authored an article at Seeking Alpha that is a must preliminary read to this report. Don’t worry, it will open in a new window so you will not lose your place here – JUST CLICK THIS LINK: Cold War Rhetoric Threatens US Stocks More Than Russia.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

We took note that the US stock market actually celebrated when the West did not face up to Russian aggression, because greedy traders would rather not see their portfolios disrupted for this obviously Russian territory (as some sought to see it) due to a small majority of Russian speaking people located there; never mind the fact that it has been Ukrainian for the last 60 years! After the official annexation by Russia and abandonment by the Ukraine, the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones (NYSE: DIA) and PowerShares QQQ (Nasdaq: QQQ) all took back losses that started when the Russians first moved in under cloak of unmarked cloaks. So I authored, Risk On, the Snake in Our Garden Promises Not to Bite Anybody Else.

At this point, all the President’s bravado does is test the pride of the proud Russian leader and probably push him to consider counter-actions to current and potential US/EU sanctions. Let’s think about some of the things Russia could do shall we? The most obvious counter would be to cut off the gas to Europe that runs through Ukraine and Belarus. This would further punish Ukraine, and is possible despite the Ukraine controlling 80% of Crimea’s energy supply. I doubt Russia cares if Crimea goes dark for a few days if it can severely scare Europe by doing the same to their Western neighbors. Many EU members are reliant on Russian energy, though Germany is obviously well-served by alternative energy resources. Don’t forget that Germany is a manufacturing hub and requires significant energy, some of which it sources from Russia.

Let’s also note here that some of the President’s threats have included public statements about re-sourcing energy from other places, like say the U.S., to Europe. That’s an open threat to Russia and something that could push the powerful Russian position into action; it might test the West by showing it just how needy it is of its energy. These issues obviously support energy prices and companies, including major players like Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX), ConocoPhillips (NYSE: COP) and Phillips 66 (NYSE: PSX). It should also benefit natural gas and mixed producers and explorers because of the expected viability of LNG over the next decade. That means look for benefits for Chesapeake Energy (NYSE: CHK), Pioneer Natural Resources (NYSE: PXD) and Cheniere Energy (NYSE: LNG). To avoid company specific risk, buy the Energy Select Sector SPDR (NYSE: XLE), or the United States Oil (NYSE: USO) and the iPath Crude Oil (NYSE: OIL).

Another thing Putin could do is harm the euro and the U.S. dollar, along with Western economies. Cutting off the energy to Europe would do direct damage to the European economy and currency, but the dollar might benefit as a relative substitute. So, I expect we can expect Putin to find other means to strike against the dollar as well. Let’s not speculate about the many legal and illegal means that might be employed by the former KGB man, but you can be sure he’s been thinking about it for a long time and has plans at the ready. So that means gold and silver should find demand again, as mankind’s fall-back currency. Therefore, investors would want to look toward the SPDR Gold Trust (NYSE: GLD), iShares Silver Trust (NYSE: SLV), Market Vectors Gold Miners (NYSE: GDX), Direxion Daily Gold Miners 3X Bull (NYSE: NUGT) and the physical commodity, along with many of the miners themselves like major producer Goldcorp (NYSE: GG) and Newmont Mining (NYSE: NEM). My recent write-up on this at Seeking Alpha entitled, The Asinine Gold Selloff, caught a lot of interest and debate – please feel free to comment as well.

Finally, the old defense sector plays should find some support from Congress given the reality of the dangerous world we’ve just been reminded of. Plus, we’re going to be supplying Ukraine and other weak Eastern European nations with weapons to defend against that bad neighbor. So, ideas like Alliant Techsystems (NYSE: ATK), Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC), Raytheon (NYSE: RTN), General Dynamics (NYSE: GD), Honeywell (NYSE: HON) and Boeing (NYSE: BA) all make the grade. To avoid company specific risk, buy the SPDR Aerospace & Defense ETF (NYSE: XAR), iShares U.S. Aerospace & Defense (NYSE: ITA) and PowerShares Aerospace & Defense (NYSE: PPA).

Therefore, even though the market might be threatened by this geopolitical tension, there are specific sectors within the broad pool of securities which might benefit. We suggest energy, precious metals and defense for some protection.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Hold Your Horses! The Mortgage Report is Misleading

The Mortgage Bankers Association (MBA) today reported is Weekly Applications Survey, which measures applications for mortgages. It showed a surge in activity, giving real estate relative stocks and especially mortgage originators, a lift in early Wednesday trading. Temper your enthusiasm, though, as the latest gains are not to be misread; the mortgage market is not quite that hot.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Mortgage Activity Report

The MBA showed that its Market Composite Index of mortgage activity gained by a seasonally adjusted 11.9% in the period ending January 10, 2014. Purchase activity, or mortgage applications on home purchases, rose by 12%, while refinancing activity improved by 11% on the week. That is amazing right? Wrong!

I have been following the real estate sector for over two decades now, and have gained some familiarity with the regular reports and their flaws. I have noticed something in particular about the MBA’s weekly mortgage report that keeps me from writing wildly varying summaries from week to week on the often volatile data point. For instance, last week we might have said the sky was falling given the decline in mortgage activity. This week, we would have climbed back off the ledge and celebrated life. Let’s take a closer look shall we?

Obviously, a weekly measure is going to vary around holidays. “But the report is seasonally adjusted Greek!” you might yelp in response. Yes, it is seasonally adjusted, as evidenced by the unadjusted 61% increase in the Market Composite Index week-to-week. Still, I have noted that around holidays, activity still seems to be more volatile than through regular periods. In the past, I’ve noted my belief that while the report may be adjusted for the one-day holiday, it may not adequately account for business drop-off that occurs on the day before and the first workday after the holiday, as Americans prepare for it and recover from it. This is something that number counters focused on the pure math might miss, but it makes perfect sense nonetheless. And the evidence is in the wild swings week-to-week, which I have noted in my regular following of this data point.

Chart at Yahoo Finance

As you can see, the shares of nation’s most important mortgage originators are moving sharply higher Wednesday. Now, a good bit of that is due to the strong EPS report from Bank of America (NYSE: BAC), which we recommended again yesterday in our EPS preview piece. BAC is up more than 3% today after a gap open start to the morning, and we are proud to have recently called it our top real estate play of 2014.

Mortgage Originator	1/15/14 Morning Gain
Bank of America (NYSE: BAC)	+3.1%
Wells Fargo (NYSE: WFC)	+1.5%
J.P. Morgan Chase (NYSE: JPM)	+1.1%
Citigroup (NYSE: C)	+1.1%
U.S. Bancorp (NYSE: USB)	+0.9%

Certainly, the company’s good news had something to do with the gains of the other major mortgage originators for real estate today, but it did not have everything to do with it. That is evidenced by the 1.0% gain on the morning by mortgage insurer MGIC Investment (NYSE: MTG). This latest stellar mortgage report from the MBA certainly is providing some uplift. Unfortunately, it is a bit overdone, and so I suggest you temper your enthusiasm in the real estate relative stocks today.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

The Prisoner’s Dilemma Dictates Selling Twitter Now

In my article, The Art of Valuing Twitter, I suggested that investment analysis incorporates both art and science. I made a point that the reason many analysts could not understand Twitter’s (Nasdaq: TWTR) flamboyant gains since its IPO was because of their inability to see the artistic beauty in TWTR. Take note, though, that my report late last year recommended finally selling the shares then because of what was to come in early 2014. Today, I’m looking good, because the stock is being cut at the knees by the very scientific factors I suggested in late December, and the disruption they are causing to the artistic argument. Investors now face the prisoner’s dilemma, whereby each is more likely to sell the stock out of fear that the others will first, which would cost them capital.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Twitter

Twitter (TWTR) shares soared in 2013, gaining 42% since its public open and 145% from its IPO price of $26 per share. This year, the stock has been facing formidable headwinds of increasing and intensifying analyst opposition. TWTR is down now about 10% year-to-date and by the same amount since I recommended investors sell the stock on December 27, 2013. Today alone, it’s lower by 5.6% as of the hour of scribbling here. I expect the shares to correct further heading into the company’s first earnings report for many reasons, but mostly because of fear of one another.

Chart at Yahoo Finance

The latest reason for decline is that yet another analyst has issued a negative view. Cowen & Co. analysts today initiated coverage of Twitter with an “Underperform” rating and price target of $32, or 43% short of the current price. I don’t know about you, but I would call that a sell-worthy expectation, because I do not see the benchmark stock market crashing this year!

For Twitter, the valuation has never made sense to most analysts. However, it makes some sense in one respect. Take note that while Twitter trades at a significant premium to its peers in terms of price-to-sales ratio, its sales growth far exceeds those rivals as well. Importantly, Twitter’s sales outlook for 2014 exceeds the company’s intrinsic sales growth rate. Still, on a relative basis, Twitter’s P/S-to-sales growth ratio shows a premium valuation to peers.

Stock	Price-to-Sales  ttm	’14 Exp. Sales Growth	P/S-to-Sales Growth
Twitter (Nasdaq: TWTR)	60.4X	77%	0.8
Facebook (Nasdaq: FB)	20.8X	36%	0.6
LinkedIn (Nasdaq: LNKD)	18.0X	43%	0.4
Google (Nasdaq: GOOG)	6.6X	16.4%	0.4
Yahoo (Nasdaq: YHOO)	8.7X	2.3%	3.8

Twitter does not earn a profit yet, so we cannot compare it to peers on a P/E or PEG basis. And this brings us to the main reason why I expect Twitter to “underperform” in early 2014. The company will finally report earnings for the first time in its young history. While I expect its forecasts were conservative when it came public, I’m not sure the company can live up to recently built in exceptional investor expectations. That upcoming EPS report will mark the first true trial of Twitter on the public scene.

Even so, Twitter is facing other trials today. First of all, “window dressing” is no longer helping the stock, as the close of the year ended that reason for public fund managers to buy it. Having done so in 2013 would have allowed managers to list the famously flying stock as one of their own successful investment decisions. They do this, hypothetically speaking, in order to attract new inflows of investment capital.

Secondly, investors who had enjoyed big paper profits through 2013, can now take those gains and put off paying taxes on them until next year. Given the stock’s amazing gains through 2013, investors had a lot of capital at stake, and the time value of money dictates delaying such tax payments on capital gains.

Without Street analysts’ support and without capital flow favor, what reason does an investor have to carry TWTR into earnings? The “prisoner’s dilemma dictates that shareholders will shed their shares now out of fear that other investors will before them and drive the stock lower.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.