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Bob Carey
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  In Search of the Next "Big Thing"
Posted Under: Sectors


View from the Observation Deck

  1. The chart above shows the quarterly venture capital (VC) flows into Internet-related and biotechnology companies over the past decade. These two themes, along with traditional technology industries, have consistently been the most popular.
  2. Historically speaking, many retail investors have been interested in knowing what the so-called "smart money" is buying. Smart money is somewhat synonymous with institutional/high net worth investors.
  3. VC investing is speculative in nature. Capital is funneled into companies at various stages of development. A stake in a biotechnology firm, for example, could hinge on the success of a single new drug or medicine.
  4. While VC investors are looking to get in at or about the ground floor of an opportunity, ultimately, the financial reward is realized when (and if) the company they invest in goes public (IPO).
  5. Retail investors can participate and seek to prosper in these same themes by investing in established companies already listed on an exchange.
  6. From 12/31/01-12/31/11 (same span as in chart), the Dow Jones Internet Composite Index and NYSE Arca Biotechnology Index posted cumulative total returns of 135.8% and 88.1%, respectively. The S&P 500 returned 33.3%. (Past performance is no guarantee of future results.)
Posted on Thursday, February 23, 2012 @ 2:55 PM • Post Link Share: 
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  Financial Stocks Off to Good Start But Near-Term Hurdles Persist
Posted Under: Sectors


View from the Observation Deck

  1. The S&P 500 Financials Index has posted a total return of 13.4% year-to-date through 2/21. It is the second-best performing sector to technology, which is up 14.2%, as measured by the S&P 500 Information Technology Index
  2. Financials were the worst performing major sector in 2011. The S&P 500 Financials Index plunged 17.1% last year. To date, this year's rally has simply been recouping most of last year's sell-off.
  3. While we admit that valuations are attractive, we do suggest that investors consider purchasing shares of financials based on a multi-year time horizon.
  4. This would allow the banking institutions, in particular, to navigate all of the new regulations coming. Reportedly, only about 25% of the 400 new rules in the Dodd-Frank Wall Street Reform and Consumer Protection Act have been finalized.
  5. RealtyTrac expects the number of home foreclosure filings to rise from 1.9 million in 2011 to between 2.2 million and 2.5 million in 2012 now that a settlement ($25 billion) has been reached between the states and mortgage servicers.
  6. The silver lining for investors is twofold: Earnings have been improving since the 2008 global financial crisis (see chart) and the S&P 500 Financials Index is currently trading approximately 60% below its 10-year high on 2/20/07.
  7. Keep in mind that we are in an election year. The Republicans believe that there is too much regulation and would like to curb Dodd-Frank. We'll know more after November 6.
Posted on Tuesday, February 21, 2012 @ 3:51 PM • Post Link Share: 
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  US Economy and Credit Markets Week Ended February 17, 2012
Posted Under: Weekly Market Commentary

Generally improving US economic data and increased optimism that Greece will be able to secure an aid package from European leaders lead treasuries lower for the third consecutive week. On Monday, treasuries closed higher when Moody's Investor Service cut credit ratings on six European countries, increasing demand for safe assets. News was mixed mid-week as People's Bank of China Governor Zhou Xiaochun said that China would participate in aiding Europe, but speculation still surrounded an announcement from European officials on progress toward a Greek aid package on Wednesday. Advance retail sales ex autos, reported on Tuesday, beat consensus (.6% vs. .5% survey) but sales with autos missed expectations (.4% vs. .8% survey). More mixed U.S. data was released on Wednesday with Empire State Manufacturing beating expectations (19.5 vs. 15) and Industrial Production flat in January following an upward December revision. On Thursday, yields jumped when U.S. jobless benefits dropped unexpectedly and January housing starts were reported at 699,000 vs. a 675,000 estimate. In addition, it was reported that the ECB would exchange current Greek debt for new instruments, adding to treasuries decline. This positive sentiment carried through to Friday and treasuries finished modestly lower across the board. Major economic reports (and related consensus forecasts) for the coming shortened holiday week include: Wednesday: January Existing Home Sales (355,000) and sales MoM change (+.9%), December house price index MoM (+.1%); Thursday: U. of Michigan February Consumer Confidence (72.8) and January New Home Sales (315k) and sales MoM (2.6%).
Posted on Tuesday, February 21, 2012 @ 8:41 AM • Post Link Share: 
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  US Stocks Week Ended February 17, 2012
Posted Under: Weekly Market Commentary

Investors shrugged off the latest developments from the seemingly never-ending Greek debt negotiations and instead focused on good economic numbers in the US and companies' strong earnings reports. Both the Nasdaq and the Dow Jones Industrial Average indexes touched 52-week highs this week while the S&P 500 fell just shy of joining them at the top. Each one of the ten sectors finished the week in positive territory, led by energy companies whose shares were boosted by higher oil prices. Shares of General Motors shot up on Thursday after the auto maker reported its largest annual profit in the company's history. Lowering its earnings forecast after weak margins last quarter was not enough to prevent shares of Fossil to soar as the company reported that sales rose an impressive 19% last quarter. Ancestry.com's shares took a hit despite reporting a 60% increase in EPS as customer acquisition costs rose to an all-time high. A higher-than-expected forecast for production volume growth in 2012 led shares of the oil & gas producer Cimarex Energy to skyrocket on Wednesday. Cloud computing server provider Rackspace Hosting reported strong growth in both sales and profit last quarter which caused the shares to advance for the week. Poor pricing in semiconductors caused revenue to fall 16% last quarter sending shares of MEMC Electronic Materials lower for the week. Looking ahead to the coming shorten week, investors will be watching for the release of the January Existing Home Sales on Wednesday and the January New Home Sales report to be released on Friday. Oneok, Home Depot, Range Resources, Kraft Foods and Hewlett-Packard are among the companies due to report earnings this week.
Posted on Tuesday, February 21, 2012 @ 8:35 AM • Post Link Share: 
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These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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