Market watchers pointed to a poor showing in the auction of
German government bonds for today's market weakness. This
development has certainly added another layer to the crisis of
confidence in the Eurozone.
The financials were once again selling off today, including
shares of Morgan Stanley (
), J.P. Morgan (
), Citigroup (
), and Bank of America (
). BAC is now heading toward the $5 mark, and it wouldn't surprise
me a bit if the company were to plan a reverse split, as its
embattled competitor Citigroup did back in May. That split failed
to put a floor under Citigroup shares, however.
This development shows, thankfully, that investors realize a
reverse split is nothing more than an accounting maneuver. Until a
company's fundamentals begin to turn up, a stock's direction -
reverse split or not - is most likely downward. As I've said many
times, we remain on the sidelines when it comes to the financials
in general. Our stance contrasts the view of many mainstream
pundits who claim there's plenty of "value" in the sector.
The selling in the market was pretty widespread, but one name
bucked the downward trend today. Deere & Co. (
a solid earnings report this morning
and was one of the very few names ending the day in the green.
Groupon and the IPO Game
I couldn't help but notice the share price of Groupon (
) break its IPO syndicate price of $20 a share today (closing at
$16.95). If you remember, the stock debuted on Nov. 7 amidst plenty
of controversy surrounding the company's accounting methods and
recent personnel shuffling. The stock ran up on its first day
toward the $30 level, but it's been a steady drip down from
Although many skeptics in the business media warned investors
about the company's prospects, plenty of retail investors still put
their hard-earned capital in the stock. That gamble is certainly
not working out for the "hot money" players.
Netflix Fiasco Highlights the Dark Side of Share Buybacks
) has spent over $1 billion on share repurchases since 2007, all
the while depleting the company's cash hoard. Much of those shares
were bought back as the stock climbed toward the $300 level, prior
to its implosion down below $70.
What happened to all that money the company squandered buying
back shares? It's gone to a place I like to call "share buyback
And as I have pointed out in the past, company insiders often
benefit the most from buybacks. They may have lucrative stock
options that need to be exercised, and guess what? The company
itself buys those shares from the insiders.
This development from Netflix further reinforces my belief that
share buybacks are a waste of company money and more often than
not, wind up hurting investors. In contrast, the idea of
repurchasing shares is often sold to investors as a purely positive
thing - both by the business media and the company itself. Then a
situation like Netflix comes along and people get up in arms. I
only wish people were more skeptical about buybacks in general.
Maybe then, companies would use the money to boost their dividend
payouts rather than wasting it buying back shares at high prices
prior to a big drop.
One last note on Netflix, the company announced a secondary
offering of $200 million in new shares at $70 each, and another
$200 million in bonds convertible to stock at $85.80. The timing
couldn't have been any worse, as shareholders argued why the
company didn't sell shares when the stock was trading more than 4
times higher ($300) a few months ago.
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Thanksgiving Newsletter Will be Delivered Tomorrow!
Thanks for reading everybody, and I'd like to wish everyone a
Happy Thanksgiving. Be safe traveling if you are on the road. I
will be sending out a newsletter tomorrow, so be sure to check it
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