Is This Stock The Next Big Thing?

Is This Stock The Next Big Thing?

Unless you’ve been hiding under a rock, you’ve probably read and heard about an industry in radical reformation, attracting entrepreneurs, venture capitalists and investors in droves.

There’s a lot riding on this movement – political elections, cultural shifts, medical benefits, and oh… financial windfalls. Let’s take a look together at what we have discovered as possibly one of the best investment opportunities you may come across this year. Read more

1 Big Problem Hiding in Fresh Home Sale Data

1 Big Problem Hiding in Fresh Home Sale Data

Data on home sales is one of the first places market watchers look when they’re trying to gauge the health of middle-class America. And when the health of middle-class America starts to dip, it’s a huge red flag as to where the rest of the economy might be heading.

So when we get new home sale data that indicates home sales are crashing despite the lowest home prices in years, it’s more than a little unsettling.

Unfortunately, that’s what just happened. Zero Hedge reports that new home sales are tanking, while home prices themselves are at their lowest in over 2 years:

Following July’s exuberant spike, August saw new home sales tumbled 7.6% MoM (better than expected 8.3% drop) catching down to Existing and Pending Home Sales (and Housing Starts) plunge. Perhaps more problematic, the median new home price slipped to $284k, its lowest since September 2014.

Spot the odd one out…

 

As Home prices tumble…

The median sales price decreased 5.4 percent from August 2015 to $284,000.

Purchases fell in three of four regions, including a 12.3 percent slump in the South, the area that makes up the bulk of nationwide sales. Purchases declined 2.4 percent in the Midwest, and climbed 8 percent in the West to the highest level since September 2007.

The supply of homes at the current sales rate rose to 4.6 months from 4.2 months in the prior month. There were 235,000 new houses on the market at the end of August.

Probably a good time to hike interest rates…

Charts: Bloomberg

What are the wider implications of this trend in real estate? Do you think there’s more than meets the eye? Give us your analysis in the comments.

New Trouble for Wells Fargo Worrying Investors

Banking giant Wells Fargo, easily one of the foremost banking institutions in the U.S., is starting to worry investors after a recent scandal involving unauthorized account creation over the past several years.

Allegedly, Wells Fargo opened millions of checking and credit card accounts for their own nefarious purposes without notifying the owners/holders to which the accounts were allotted. Now the bank is being taken to court, and the consequences for its actions could be devastating.

Business Insider has more:

Wells Fargo has a lot of explaining to do.

The bank, once the largest bank in the US by market cap, and its CEO John Stumpf have been raked over the coals following the revelation that 2 million accounts were opened without customers’ knowledge between 2011 and 2015.

According to Mike Mayo, a banking analyst at CLSA, even after Stumpf’s testimony on Capitol Hill, there are still some important questions the bank has to answer.

“Shareholders have a right to know what will be done to the pay of top executives, to the composition of the board, and for impacted customers,” said Mayo in a note to clients. “We believe Wells Fargo is bigger than the CEO, notwithstanding a good financial track record during his tenure, and there should be no more excuses for the lack of answers to key questions.”

Mayo asserted that his support of Stumpf is “wavering” and there are five key questions Stumpf has to answer in order to win back his trust. They are:

  1. Clarify why the issues went on for years: “Wells needs to clarify how and why these problems could continue for so long, so that investors are assured these problems are resolved.”
  2. Give specifics on how it’s helping customers: “Wells needs to specify what it is doing to help impacted customers. (Also, what percentage of impacted customers remains at Wells?)”
  3. Put measures in place to take back executive stock: “Clawbacks should be put in place or, at a bare minimum, Wells should provide a timeline for these decisions.”
  4. Stumpf should lower his pay: “The CEO should voluntarily reduce his compensation for the current calendar year.”
  5. Shake up the Board of Directors: “Wells needs to restructure the board, with changes on the Corporate Responsibility Committee and Human Resources Committee (we think both failed shareholders in terms of oversight and incentives), and possibly splitting the Chair from the CEO.”

Additionally, Mayo said that Wells Fargo can move on from Stumpf if need be, citing the strength of the underlying business.

“[Stumpf] may still be the best to provide closure on the regulatory, legal and political issues,” said Mayo in the note. “Yet Wells Fargo has been around since 1852 and should show improving financials over the next couple years regardless of who is on top.”

With claims from former bank employees about the high-pressure sales culture and the compensation of Carrie Tolstedt, the head of the community banking division where the fraud occurred, still to be resolved it appears the scandal isn’t going away anytime soon.

What do you think this means for Wells Fargo moving forward? Will it be a major issue, or just another indiscretion of the banking elite that goes unpunished? Give us your take in the comments.

Bernie Madoff All Over Again?

Bernie Madoff All Over Again?

When Bernie Madoff was exposed, it dropped a bombshell on the financial sector, showing just how corrupt dealings in the business can get. Not only that, but it ended up costing millions of dollars from countless investors tied to Madoff’s Ponzi scheme.

Naturally, after the dust settled, everybody thought it could never happen again. But now there’s another questionable character operating in Atlanta that looks to be stewing something just as big or bigger than Madoff’s scam.

The Daily Reckoning has more on the story:

An obscure hedge fund manager in suburban Atlanta is doing something highly unusual…

He’s guaranteeing that his clients will never lose any money. Never.

And he claims he’s been getting double-digit annual returns each and every year.

How does he do it?

Nobody seems to know exactly. Not even his clients. And his story gets more bizarre from there…

My Bull**** Detector Just Went Off

So just who is this investing wunderkind that’s putting all legitimate fund managers to shame?

His name is Joseph A. Meyer Jr. And his Arjun LP hedge fund was ranked as one of Bloomberg’s Top 10 Best-Performing Global Hedge Funds in 2015.

So some guy in an anonymous business park near the Atlanta airport is outperforming the titans of the global hedge-fund industry while never losing money?

Forgive me, but my bull**** detector just started blaring.

Chew on these facts for a moment…

Bloomberg reports that Meyer doesn’t send audited financial statements to his investors, so there’s no way for them to independently verify his performance claims.

Meyer also claims some of the highest returns in the entire world by investing most of his clients’ money in low-yielding Treasury bonds.

Plus, he requires that investors hand over their cash to him for a decade. If they exit early, he keeps half of it.

And when asked to explain how his “groundbreaking” system works, here’s what Meyer told a Bloomberg reporter…

“All it does is look at the last trade and calculate trades that would be equivalent of, ‘What if this security increases 50 percent in value in the next three seconds.’”

Would you fork over your hard-earned retirement savings to someone spouting such gibberish?

Many do.

Bloomberg reports that Arjun has $338 million under management.

How to Spot an Impending Disaster

In late 2008, Bernie Madoff shocked the investment world when he confessed that the wealth management arm of his business was an elaborate Ponzi scheme.

Prosecutors estimated the size of the fraud to be a staggering $64.8 billion. It was the largest investment/accounting fraud in American history.

Madoff fooled some of the United States’ wealthiest individuals by knowing one thing: He did not have to make big returns. All he had to do was fake 1% per month over and over again and be mysterious about his operations.

You see, Madoff claimed an average annual return of roughly 12%. And what drew so many investors to him was that he did it with no volatility. The firm “produced” a steady 1% a month and never suffered an annual loss.

That 1% per month with no losses was enough to satisfy believers… the same believers who lost everything when the scam predictably came crashing down.

Look, I can’t know if Meyer is the next Madoff. This former business management consultant may have come from nowhere to become the single greatest investor the world has ever known.

But his claims and obscure operations cause the skeptic in me to raise an eyebrow.

The bottom line is this: If an investment claims to deliver a positive return every month, with no down months, that investment is either a royal scam or a hidden disaster that will eventually blow up.

Markets are volatile. There will be up and down months. Successful trading depends on having a system like trend following that automatically limits those downside events. But you can never eliminate them altogether—ever.

Losses are part of the game at all times. If you can’t accept that fact of life, don’t play the game. Don’t bother to invest or trade if you think equity curves are only a straight line up.

To close the loop on Arjun, Bloomberg reports that the securities division of Georgia’s secretary of state has discovered “multiple irregularities” at the fund. A formal investigation of the fund’s potential violations of the Georgia Securities Act is underway.

Do you remember the Gomer Pyle character from “The Andy Griffith Show”? I can see Gomer delivering his classic line now: Surprise, surprise, surprise.

Who knows what investigators will find when they start peeling away the facade of this guy’s operation. If this turns out to be as bad as it looks, what do you think the implications will be? Tell us what you think in the comments.