Wisdom is something one does not gain in one lesson, and often the student is required to learn the hard lessons their teacher taught them by living through them. Often times, once is not enough, especially when a brilliant student manages to sidestep the storm and the humbling experience their peers must deal with. Jaimie Dimon is about to go through one of those humbling experiences and we think that he will come out of this wiser. It is nonsense to think that he would be stepping down over a $2 billion loss, but it appears that Monday he will be down two deputies and that should be the end of it so long as losses do not creep up next quarter on top of what the market already expects.
We thought Art Cashin said it best on Friday regarding hedges. On CNBC he stated that half a century ago he told his boss that his losses were hedged, to which his boss responded, "Kid, a hedge is something a dog pees on." Those are most certainly wise words from a great teacher, but how many are prepared to listen? Perfect hedges are few and far between, so there is always the possibility that something does not pan out, which is what happened to Mr. Dimon. You live and you learn, and pray that your mistakes do not deplete your capital.
Today there will be no economic news of significance, but tomorrow will be quite an exciting day. There will be a week's worth of news crammed into tomorrow. We suspect that due to this Monday may be susceptible to European rumors - but one thing to keep in mind is that the US market has been opening weaker only to rise once Europe has closed or is close to closing. There is no doubt that US markets will open lower, the futures are down strongly but the question is if they can rebound after the European closing bells.
Looking at Asian markets we see markets are mixed:
All Ordinaries - up 0.21%
Shanghai Composite - down 0.60%
Nikkei 225 - up 0.23%
NZSE 50 - up 0.21%
Seoul Composite - down 0.18%
In Europe markets are lower:
CAC 40 - down 2.34%
DAX - down 1.99%
FTSE 100 - down 1.71%
OSE - down 1.72%
Technology
Monster Worldwide (MWW) has reemerged as a buyout candidate in the headlines. The company has remained for sale, but they had been forgotten by Wall Street with all of the other news out there of potential buyout candidates. On Friday the shares rose $1.49/share, or 19.01%, to close at $9.33 on volume of 17.6 million shares. From what the company has stated, they are shopping themselves around, but the rumors were swirling around the last few days of who might be interested in buying the company and potentially integrating it into their platform.
LinkedIn (LNKD) was attached to many of the rumors, but they stated they were not behind this and to be fair they do have a recent acquisition they should integrate before doing a larger acquisition. Small steps for young companies is always wise and one should never bite off more than they can chew - it tends to lead to less than favorable outcomes.
Biotechnology
Arena Pharmaceuticals (ARNA) finished $2.70/share higher, or 73.77%, on Friday with volume of 76.65 million. If it were us, we would take profits here until the next FDA decision is coming up and then possibly initiating a trade there as well. It is silly not to take profits, especially when one literally played what we call 'lotto stocks'. It is our opinion one should take the profits from the trade and either sit in cash or place that capital into a high yielding company or MLP. This sounds boring, but is capital preservation and how we have built our portfolio over the years. The initial capital from the trade is the amount which should be redeployed into Arena should you feel that shares are fairly priced on a risk/reward basis before the next decision.
Banking
We mentioned that we would reveal more later on our favorite bank stock, and that will probably lead to a whole article at some point, but in regards to big banks we favor US Bancorp (USB). On Friday, when most of the big banks were down, shares rose $0.30 to close at $32.21/share on volume of 14.6 million. The stock currently yields 2.4% and we view this as one of the safest dividends in the industry. US Bancorp has a solid business in the US Midwest and the company has been aggressively expanding and grabbing market share from weaker competitors. The fact that the stock was up while Jaimie Dimon's bank was causing most of its peers to head lower just indicates that this is a real banking franchise not partaking in the nonsense and financial shenanigans of the other large banks. Interesting to note that US Bancorp is near its 52-week high, which is something not all in the banking sector can say, especially after Friday's trading.
BB&T (BBT) also fared well on Friday as its shares closed at $31.75. Ironically enough, as most of its peers were seeing high volume, the company traded about 20% fewer shares than its 3 month average. Make what you want of that, but at the end of the day this is one of the best run regionals in the US and sports a 2.5% yield. The company is aggressively taking business in the US southeast and is one of the few where getting a mortgage is not akin to going to the dentist for a root canal. BB&T is a bank which actually does banking and is not a bank masquerading as a hedge fund or a hedge fund masquerading as a bank or whatever one is to call those institutions in London, Paris and New York. Note that this stock is also trading just $1 off of its 52-week high.
By Mathew Smith
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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