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Signs of a Top and Few Opportunities for Value

Phoenix Capital Research's picture


Today we note that:


1)   The US economy is tipping back into recession again

2)   Corporate profits are at record highs and set to fall

3)   Stocks are extremely overvalued


All of these add up to a real problem for long-term stock investors today. The classic method of valuing stocks, the P/E ratio is comprised of market cap relative to earnings.


If earnings are at record highs today and stocks are already overvalued, how high will P/Es be when earnings begin to contract with stocks at these levels?


Speaking of earnings, let us now move to #2 on the list of items I listed at the opening of this issue: the recent collapse in revenues and earnings at economically sensitive firms.


We’ve seen a recent spate of terrible results from corporate America.


In the last few months alone we’ve seen disappointing earnings at:


1)   Caterpillar (global machinery)

2)   Microsoft (software)

3)   Google (search engine ad revenue)

4)   Chevron and Exxon Mobil (oil)

5)   Discovery (credit cards)

6)   Amazon (online retail)

7)   Charles Schwab (brokers)

8)   Wynn Resorts (casino)


There are dozens and I literally mean dozens of ways to craft earnings to be better than reality. You can writedown assets, alter depreciation methods, manipulate bad debt expenses in accounts receivables, game the closure of deals, take one time charges, utilize derivatives and mark to model valuation of assets, etc.


Indeed, a study performed by Duke University found that roughly 20% of publicly traded firms manipulate their earnings to make them appear better than they really are. The folks who were surveyed for this study about this practice were the actual CFOs at the firms themselves.


In this sense, it is safe to that 2013 earnings, as poor, are they are, have been “massaged” to look better than reality.


Indeed, we get confirmation of this from revenues misses. As I mentioned a moment ago, earnings can manipulated any number of ways, but revenues cannot; either money came in or not.


With that in mind, we’ve in the last few quarters we’ve seen revenues misses at:


1)   Merck (big pharma)

2)   Molson Coors (alcohol)

3)   Clorox (cleaning materials)

4)   US Steel (steel)

5)   McDonald’s (fast food)

6)   3M (conglomerate)

7)   GE (conglomerate)


This brings me back to an earlier point, that profits and earnings are likely peaking. Net profit margins today are at all-time highs. There is virtually nowhere to go but down here.


Finally, I want to draw your attention to the massive cash hoards value investors and wealthy individuals are sitting on.


Warren Buffett, arguably the greatest value investor of the last 100 years, is currently sitting on a cash hoard of $49 billion. This is an all-time record for Buffett. And it’s a strong indication that there are few great deals in the market today.


Few investors understand inflation as well as Buffett (though his views on Gold are confusing for many). But Buffett is a master of beating inflation. He’s well aware that by sitting on cash today with interest rates at zero he’s “losing money.” The fact he’s willing to do this rather than invest in stocks should be a major warning to investors that there is a dearth of great value opportunities in the markets today.


Buffett is not the only one.


Mega-private equity firms, Fortress and Blackstone have been urging their clients to get out of the market.


Moreover, a recent study by American Express and Harrison Group has found that the wealthiest 1% of clients has been shifting rapidly to cash with their savings rates soaring from 34% to 37% last quarter.


Bank of America had similar findings of its millionaire clients with 56% of them stating they have a “substantial” amount of their assets currently in cash.


This just confirms my concerns that the market is currently offering few opportunities for long-term deep value investors.


For a FREE Special Report on how to beat the market both during bull market and bear market runs, visit us at:


Best Regards


Phoenix Capital Research




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Sat, 12/14/2013 - 19:02 | Link to Comment algol_dog
algol_dog's picture

When Mr. Phoenix Capitol shows us an indication that he's short this Market, ala "skin in this game", I will respectively ignore the bearish rhetoric continually spewed forth ....

Sat, 12/14/2013 - 18:40 | Link to Comment disabledvet
disabledvet's picture

"chat room gone cold over." "Roger that. Move along...

Sat, 12/14/2013 - 15:45 | Link to Comment chunga
chunga's picture

If I wanted to pay for the full report could I use my Discovery card?

(sorry, raining outside, bored, too soon to start drinking)

Sat, 12/14/2013 - 16:37 | Link to Comment mjcOH1
mjcOH1's picture

"This concludes the

Protect Your Portfolio portion of the Phoenix Investor Personal Protection Kit . To other two report s, Protect Your Family and Protect Your Savings , can be downloaded at the Subscribers only Private Wealth Advisory website."

My brain started to gnaw its way out of my skull after about 5 min, so I had not yet progressed to the Private Wealth Advisor payment options.   I will now reload with a hot vodka and apple cider before returning further information.

Sat, 12/14/2013 - 16:51 | Link to Comment chunga
chunga's picture

So it's not too early to start drinking?

Mrs chunga's flight got delayed, it will be more fun when she gets home, as always.

Army/Navy football audio stream is hidden somewhere on the internet...just can't find the damn thing.

Still don't regret throwing away TV sets; but sometimes a distraction is good.

Sat, 12/14/2013 - 17:16 | Link to Comment sosoome
sosoome's picture

Try CBS Sports

Sat, 12/14/2013 - 17:02 | Link to Comment mjcOH1
mjcOH1's picture

"So it's not too early to start drinking?"


On the contrary, it is definitely time to start drinking.   And on that note, I'm happy to report that the "Private Wealth Advisor Kit" does accept Discover, as well as Mastercard, Visa, and American Express.


Sat, 12/14/2013 - 17:10 | Link to Comment chunga
chunga's picture

Awesome...bottoms up! I'll go easy so I'm not smashed before Lovey gets home.

I was just teasing the OP writer guy about the poor credit card companies (Discovery Card). I'd take my TV back before I'd buy this urgent report.

Do NOT follow this link or you will be banned from the site!