A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Long-term, conservative investors are becoming increasingly uncomfortable with a trend that sees some of the world's most reliable corporate profit machines disappoint. McDonald's Corp., IBM Corp. and Buffett favourite Coca-Cola Co. have all posted earnings or forecasts below expectations.
As Abnormal Returns' Tadas Viskanta reminds us, "blue chips die all the time" and investors can't invest blindly based on market cap and history: "What is interesting is that these companies are not necessarily losing out to direct competitors. McDonald's isn't getting crushed by Burger King. Coca-Cola isn't losing big chunks of market share to Pepsi. They are losing out because the market they are targeting are undergoing dramatic shifts. Everyone today knows soda, even diet, isn't good for you. "
"Blue chips: big and trapped " – Abnormal Returns
Business Insider published a terrific overview of the tensions surrounding the attempted Valeant Pharmaceuticals International Inc. takeout of Allergan as the deal starts to resemble a classic Russian novel.
The story details a recent conference where hedge fund manager and deal champion Bill Ackman was on stage while Kynikos Associates manager Jim Chanos, who has a large short position in Valeant, was in the audience,
"As [the moderator] asked the same questions about Valeant-Allergan that critics have been asking for months — "Does the company actually make money?" "Does Valeant overpay for its acquisitions?" "Doesn't it need to spend money on R&D?" — Ackman started to bristle a bit.
Suddenly, he turned toward [the moderator]. "Are you short because your daughter is working for Jim Chanos?" he asked pointedly."
I'm usually bored by corporate intrigue but this is great and not just because of Valeant's Canadian roots.
"Bill Ackman's Big Pharma Trade Is Making Wall Street A Very Awkward Place" – Business Insider
The Wall Street Journal's China RealTime blog continues to chronicle the demise of China's bloated real estate industry after a report indicated the first drop in housing prices in two years, "Housing sales in China in the first three quarters of this year fell 10.8% to 4.05 trillion yuan ($661 billion), according to data released on Tuesday by the National Bureau of Statistics."
"All Is Not Well in China's Real Estate Market" – China RealTime
"To rein in its debt, China must be willing to let companies fail" – The Economist
See also this tweet from Oxford Economics: "China real estate correction much quicker than 2011/12 downturn, annual fall in prices close to previous trough pic.twitter.com/P0fDK0RlSw"
Alphaville's Matthew C. Klein detailed the ongoing shenanigans in the legal marijuana corner of the equity market. Mr. Klein cites research with some disturbing observations: "Many of the 250 or so companies involved in the pot industry had nothing whatsoever to do with high times in previous incarnations. Instead, they were involved with the airplane industry (AvWorks Aviation, now known as Vapor Group) or the coffee business (Hemp Inc.) or oil (PetroTech Oil and Gas) or mining (Next Gen Metals), and apparently failing at those enterprises big-time."
"Don't get your marijuana investment advice from Twitter " – FT Alphaville (registration required)
Tweet of the Day (with link) is from @pdacosta : Frack It: Shale Boom's Allure to Wall Street Tested by Bear Market bloom.bg/1DCGKLS
Diversion: "The most dangerous toilet in the world" – Sploid
Scott Barlow