Apple May buy Beats for 3.2 Billion (Unconfirmed)

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By David Docekal, The Hypercapitalist

@daviddocekal

The notion that Apple may be branching out even more by buying a third party brand has brought back memories of Apple of the 90s. Without Steve Jobs, Apple in the 90’s was making all kinds of products: Printers, scanners, digital cameras, tablets/PDAs (Remember the Newton?) and licensing out their Mac software to third-party PC manufacturers.

And what happened?

They almost went bankrupt.

Why? because rather than focus no innovation in their core business, they spread themselves too thin and diluted their brand. In 1997, Steve Jobs put a stop to that. Granted they branched out slightly with the iPod, iPad and Iphone but those were tightly researched, innovated and filled voids in the marketplace. Does apple need to have a headphone business? no.

What they need to do is create a TV and soon. Smart TVs are the next wave. Apple is in prime position now to do with a TV that the iPhone did back in 2007.

There have been rumors for years but no actual product. A TV running iOS needs to be out there and fast. Make 2014 the year of the TV. Allow networks to create apps for their content. Let local TV stations create apps for their content as well.

The future is knocking on the TV industries door. Apple needs to be the one to answer.

Read More on CNN:

http://money.cnn.com/2014/05/09/technology/innovation/beats-apple/index.html?iid=obnetwork

A $15 Minimum Wage Would Be Nice but….. (Opinion)

By David Docekal, Editor The Hypercapitalist

@DavidDocekal

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There has been much talk about raising the minimum wage to levels significantly higher than they are. But I always say: If you ask me what a bank teller looks like when there is a $15.00 minimum wage, Id be happy to show you a picture of an ATM machine. That’s where its headed. I would fight for more pay but it would mean fighting for my own financial demise. It’s simple business logic. McDonalds is not going to pay someone $15 an hour as a cashier when they already have automated technology that could be easily deployed to their locations. In the long run it’s more cost effective. You can clamor for a higher minimum wage but the reality is, that’s not how the economy works. You’ll be fighting the wrong cause.

Financial predictions to track in 2014 (CBS News)

Financial predictions to track in 2014

By Larry Swedroe

Every year, I like to keep track of predictions people make for the upcoming year, the “sure things” for the year. It seems like no one in the financial media holds others accountable, which is a shame since the evidence shows that there are no good forecasters. So I will. Today, we’ll look at the common predictions I’ve been hearing for 2014.

Our first sure thing is that with the Fed announcing its plan to end quantitative easing, interest rates will rise. Thus, investors should limit bond holdings to the shortest maturities.

Our second sure thing follows from the first. With the Fed tightening, emerging markets equities will perform poorly.

The third sure thing is that with the CAPE at 26.17 as we entered the year, about 60 percent above its long term average, stocks should be avoided.

The fourth sure thing is that with all the fiscal and monetary stimulus that continues to be injected into the economy, we’ll see a sharp rise in inflation (Note: This is guru Peter Schiff’s favorite subject).

The fifth sure thing follows from the fourth. The rising inflation will lead to a falling dollar. The dollar index closed 2013 at 80.29

And the sixth sure thing follows from the fourth and fifth: Gold will reverse the sharp fall it experienced in 2014. Gold closed 2013 at $1204.50.

The seventh sure thing is that the municipal bond market will be hit by both interest rate increases and default problems, keeping investors away.

The eighth sure thing is that the economic recovery will continue its tepid path, with the Philadelphia Federal Reserve’s Survey of Professional Forecasters predicting GDP growth of 2.6 percent.

The ninth sure thing is that after defying the gurus in 2013, the volatility of the market will rise. The VIX ended 2013 at 13.43.

Our tenth and final sure thing is that active management will beat passive in net returns. Seventy-five percent of advisors believed that, as stated in InvestmentNews, January 6-10, 2014.

That’s our list. We’ll report back to you at the end of each quarter. We’ll check in quarterly to see how things actually turn out. 

© 2014 CBS Interactive Inc.. All Rights Reserved.

Fast food CEO: How govt regulation is driving us abroad (CNBC)

In China, customers don’t order french fries—they’re shu tiao. In Turkey, they’re called patates and in Russia, you would ask for kartofel’ Fri.

Andy Puzder, the CEO of CKE Restaurants, the parent company of Hardee’s and Carl’s Jr., should know. His company is expanding rapidly abroad due to higher potential outside the U.S., which is hampered by what he sees as too much government regulation.

“It’s difficult to open in the U.S., but we love the U.S. and continue to fight the good fight to open restaurants and create jobs,” Puzder said. “It’s just that the government is making it hard for us to build those restaurants.”

Over the last three years, Hardee’s and Carl’s Jr. opened more restaurants internationally than in their own backyards—a first, he added. CKE now operates restaurants in 30 foreign countries.

(Read more: McDonald’s removes worker site after fast food flap)

On a percentage basis, the growth rate is striking. During this period, the company increased its restaurant count domestically by 2 percent. Meanwhile international locations jumped by 53 percent as CKE filled in “white space” or areas where it currently doesn’t have restaurants.

Easier to open in Siberia than California

“Under the current U.S. business climate, regulatory and tax restrictions tend to curb otherwise dynamic entrepreneurial energy,” Puzder said. “We’d love to see more growth in domestic markets. Unfortunately, it’s easier for our franchisees to open a restaurant in Siberia than in California.”

In the U.S., the company’s Hardee’s division is expanding in New York, New Jersey, Chicago and South Florida. Meanwhile, the Carl’s Jr. division is growing in Texas and the Seattle area.

(Read more: Recession’s over … so who forgot to tell diners?)

Puzder named Brazil, Russia, India, China and Europe as the places where he sees the greatest opportunities for growth.

“Other than Antarctica and the North Pole, I can’t think of any countries we’re not looking at,” he added.

Play Video
The end of auto tipping
CNBC’s Jane Wells reports the practice of automatically tipping larger parties is being phased out by many restaurants chains across the county due to new IRS rules.

Currently, the company has 36 locations in Russia, where it’s expanding “aggressively,” six in China through a joint venture and two in Brazil. He added that the number in Brazil could balloon to 500.

It’s “just hard to talk about the numbers in China,” he said. “You could have 1,000 (or) 2,000 there. It’s hard to estimate the potential in that country.”

CKE is currently in talks to open its first locations in Spain, Germany, Great Britain and Australia.

(Read more: Restaurants’ big bet to get you to spend more

It’s also “very close to a deal” in India, which Puzder said “would be an interesting country for us because they don’t eat burgers,” but would go for chicken sandwiches and veggie patties.

Challenges to U.S. expansion

Puzder named ethanol regulation, which has resulted in higher beef costs, a rising minimum wage and higher labor costs due to Obamacare as three obstacles that make doing business in the U.S. more difficult than in the past.

To help lessen the effect of these rising labor costs and to attract a tech-savvy generation, CKE is turning to technology and looking into options for mobile ordering as well as tablet ordering within its restaurants.

“I think it satisfies the needs of younger people. It also reduces your costs,” he said. “When they talk about raising the minimum wage or providing health care for employees over 30 hours, you’re really encouraging automation.”

—By CNBC’s Katie Little. Follow her on Twitter@KatieLittle

Snow Equals Opportunity!

By David Docekal, Editor The Hypercapitalist

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The 162nd Rule of Acquisition states that even in the worst of times someone turns a profit. Nothing could be more true about the hardworking private contractors whose primary business is to plow snow. While we whine about our commute and having to shovel our own driveway, this difficult time has profit being earned hand over fist.

Snow storms highlight entrepreneurship at its best. From the larger companies with dozens of plow trucks to the kid on the corner armed with his (or her) trusty shovel to clear his neighbors driveway. This is the American dream! Where some see adversity, others see opportunity. This is the attitude that keeps this country strong.

The economy is aided by the money spent by those snow plow employees. The kid on the corner might in fact be saving up for a new bike or the latest gaming console.

So while it took me over 2 hours to get to work this morning, I look out the window and see white gold.

There’s gold in those snow mounds!

Manufacturing sector growth slows slightly in December (CNBC)

By Rick Santelli, CNBC

U.S. manufacturing grew at a slightly slower pace in December, but hiring hit a 2½-year high and the volume of new orders soared to a level last seen in early 2010, an industry report showed on Thursday.

The Institute for Supply Management (ISM) said its index of national factory activity stood at 57.0 last month. That was in line with economists’ forecasts but a touch below November’s 2½-year high of 57.3. Readings above 50 indicate expansion.

Even so, December’s result was the second-highest reading of the year. The goods-producing sector contracted in May but its growth accelerated over the second half of 2013.

And the forward-looking new orders index, at 64.2, checked in at its highest level since April 2010, suggesting momentum in the sector could quicken in 2014. It stood at 63.6 in November.

The employment index rose to 56.9, its best showing since June 2011, from 56.5 in November.

A separate report showed that construction spending grew at the fastest rate in five years in November.

Slow Shopping Season? I Think Not.

By David Docekal, Editor The Hypercapitalist

@DavidDocekal

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Some analysts are saying that it is going to be a slow holiday shopping season. My gut says “No!”. The numbers coming out this morning regarding Home Depot and Best Buy are pointing towards a long term recovery. Now those that know me know that I am not an optimist by any definition of the word. This time, for once, I am! Companies like Home Depot and Lowes point to a better housing market. The housing market is the key to long term recovery. Whenever you have a store that sells building materials and housewares beginning to do well, you’ve might have yourself a recovery.

The companies are going to be betting a lot on housing in the upcoming year. I think it will pay off for them. Even people who already own houses are going to be in a position to improve their existing property. New kitchens, new decks, a fresh coat of paint. After all that hard work, it’s time to treat yourself to a brand new TV at Best Buy!

These companies are going to be applying the 62nd Rule of Acquisition: The riskier the road, the greater the profit.

The song “We’re in the money” will be playing quite a bit in 2014. Trust me.

163rd Rule of Acquisition and Drunks That Hinder Profits

The 163rd Rule of Acquisition: A thirsty customer is good for profits. A drunk one isn’t.

By David Docekal, The Hypercapitalist

@DavidDocekal

Go home Squirrel, You’re Drunk!

The last time I quoted this rule. I got a standing ovation from a longtime bar manager.

Interpretation: This rule is inspired by the inevitable customer in a bar that makes more trouble than their worth. Establishments spend a lot of money every year on security to help quell misbehavior. What is considered misbehavior?

Starting fights,molesting waitresses and bartenders, stumbling about and running into things, throwing up and of course the ever-classy trashing the bathroom. The list goes on…. and I have seen all of these first hand in my years of bar-patronizing experience.

While there are many customers who come to have a good time and not get crazy (I am one of them), there are a few that decide that a good time consists of drinking more than their body weight, for whatever reason, and proceeding to take on a behavior from the list above. This reduces my bar enjoyment. Or what economists call Diminishing Utility. Why would I want to spend money at a place that allows the drunk and unruly? I would prefer to spend money at a bar that is NOT like that.

Long story short: I am good for profits. The guy who just kicked over my beer in a drunken rage is not. (Also happened to me for real). Fewer customers seeing red means you seeing more green.

Implementation: When using the 163rd rule at your establishment, always remember: Cut off customers in a timely manner if possible and hire more bouncers! Their salaries will be well worth it.

Is Puerto Rico the next Detroit? (CNN Money)

By Maureen Farrell   @CNNMoneyInvest

puerto rican bonds

Interest rates in Puerto Rico have soared since the summer as investors grow more worried about whether the U.S. territory can repay its debt. But hedge funds smell an opportunity.

NEW YORK (CNNMoney)

Puerto Rico has been called the next Detroit and the next Greece. It’s buried in debt and possibly teetering on the edge of bankruptcy.

But that isn’t scaring away hedge funds. So-called vulture investors that buy the bonds of troubled companies (and municipalities) have been scrambling to purchase as much of Puerto Rico’s roughly $70 billion in outstanding debt as possible over the past several months. Their interest comes following a huge plunge in Puerto Rico’s bond prices over the summer.

 

“There’s so much Puerto Rican debt out there. When the prices became really low, the situation suddenly became interesting,” said a manager at a distressed hedge fund who declined to be named.

The price of Puerto Rico’s debt plummeted nearly 40% in just a few months. That pushed interest rates on Puerto Rico bonds up to nearly 10% from 5%. (Bond prices and rates move in opposite directions.)

Related: The hottest, riskiest muni bonds around

Analysts at Citigroup said Puerto Rico’s debt was one of the most actively traded types of municipal debt in August and September, and hedge funds were thought to be the biggest buyers.

Why did Puerto Rico’s bonds fall so dramatically? Concerns that the Federal Reserve would soon cut back on its massive bond buying program caused a broad-based slump in the bond market earlier this summer.

Even though the Fed has yet to taper its asset purchases, Detroit’s bankruptcy filing in July spooked investors further. Puerto Rico, which already was struggling with a stagnant economy, was widely viewed by municipal bond investors as another problem about to explode.

Once prices dropped to a certain level, the sell-off intensified because many U.S. mutual funds that invest in tax-free municipal debt had a high concentration of Puerto Rico’s debt and were forced to sell to avoid massive losses.

Roughly 80% of Puerto Rico’s $70 billion in debt is held in these muni bond funds, and Morningstar estimates that 180 mutual funds have 5% or more of their portfolio concentrated in Puerto Rico’s debt. Among the major holders: nine tax-free funds operated by Franklin Mutual; six of Oppenheimer’s funds and funds operated by Nuveen, Putnam, and Dreyfus.

Vultures smelled opportunity: But several hedge fund managers thought that Puerto Rico wouldn’t default on its debt in the short-term, and the bonds were oversold. Many hedge fund managers, including the one quoted in this story, tried unsuccessfully to buy up Detroit’s debt earlier this summer.

Because the stock market has been doing so well and most municipalities are not in dire fiscal straits, distressed debt hedge funds have struggled to find good investment opportunities. Puerto Rico suddenly looked like a place with big profit potential.

Why there isn’t a bond bubble

The price of Puerto Rico bonds have since rebounded a bit and yields have drifted back to 8.5%.

What’s next for Puerto Rico: Hedge funds and longer-term investors have sharply divergent opinions on what will happen to the price of Puerto Rico’s bonds.

Most analysts believe Puerto Rico has enough financing to make it through mid-2014 without tapping the public markets again. Hedge funds are betting that Puerto Rico can survive longer than that, but how long is the question.

Puerto Rico has been stuck in a recession since 2006. The situation seems to be getting worse. Between 2012 and 2013, Puerto Rico’s economy contracted roughly 6%. The unemployment rate tops 13%.

Related: State finances are looking good

Ratings agency Fitch noted in March that even though Puerto Rico has been cutting costs and taking other steps to cure its fiscal problems, its economy continues to shrink, making the problems worse. It’s similar to the challenges Europe faced when many European nations were emphasizing austerity over economic stimulus.

Puerto Rico’s pensions have been underfunded, and the government has been operating through a budget deficit.

Investors are waiting to see whether Puerto Rico’s government can radically reform its pensions and balance its budget. Fitch is skeptical. It downgraded Puerto Rico’s debt in March 2013 to BBB negative, a level just above investment grade. S&P also downgraded Puerto Rico’s debt in March to near-junk levels.

“Right now Puerto Rico really needs a plausible economic development scenario,” said Matt Fabian, a managing director at Municipal Market Advisors.

Should things get worse quickly for Puerto Rico few investors expect the United States government to offer aid to Puerto Rico. The thought is if the U.S. didn’t bail out Detroit, why would it rescue one of its territories? That would be bad news for the citizens of Puerto Rico and longer-term muni bond investors.

Still, it may not take much for the hedge funds that bought Puerto Rico’s bonds at distressed prices to make a profit. To top of page

First Published: October 31, 2013: 4:55 AM ET