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Twitter and the Taper: Motif's Big Ideas of 2013

30 December 2013 in Trading Ideas

For those not quite prescient enough to call the astronomical rise this year in the Greek stock market, US equities turned out to be a pretty good consolation prize. The S&P 500 has risen 28% this year, essentially doubling the run-up that most people thought pretty highly of in 2012.

Of course, not everything that touched financial markets went smoothly. The year in business was just as notable for some of its biggest miscues.

Here then, in no particular order, is Motif’s look at five of the year’s biggest investing ideas:

Taper Time

Will they, or won’t they? That was the yearlong theme for Federal Reserve watchers trying to discern from the body’s official meeting minutes as well as comments (on the record, and off) by individual Fed governors as to when the central bank would begin to ease its bond-buying program.

What eventually became common knowledge was that the intent among Fed governors to prolong the so-called quantitative easing was no longer unanimous, with some on the Fed’s Open Market Committee ready to begin the taper.

Ironically, the guessing as to when the Fed would act to acquiesce to higher interest rates came as interest rates spend the better part of seven months rising from its lowest point of the year.

Alas, the Fed finally stepped on the brakes in its last meeting of 2013, saying it would reduce its monthly bond buying program by $10 billion. The immediate fallout? Another record high for stocks and the rise of interest rates to within a fraction of their highs for the year.

The Fed Tapering motif is up 15.8% since its inception in September 2013; the S&P 500 has gained 11.3% in that same timeframe.

The Rising Interest Rates motif has increased 47.2% so far this year; the S&P 500 has risen 27.6% in that same period.

Still Too Big To Fail?

More than five years later, we’re still swimming in the wake of the financial crisis. At first glance, that’s not necessarily a bad thing, when you consider the cases of JPMorgan and SAC Capital.

In November, JPMorgan agreed to pay $13 billion to settle charges that it misled investors about the quality of mortgages.1 That was the biggest settlement to date to come out of the derivatives trading swamp that had a big hand in the financial meltdown.

The same month, mega-hedge fund SAC Capital pleaded guilty to wire and securities fraud related to insider trading and agreed to pay at least $1.2 billion in fines.2

Those crackdowns, combined with tougher financial regulations such as the recently passed Volcker Rule to limit risky bets by banks, have some convinced that “Too Big to Fail” banks are, or will be, a thing of the past.

In fact, Treasury Secretary Jack Lew said as much just a few weeks ago when he declared that new laws had done the job of no longer ensuring that banks had an implicit government lifeline.3

Others, however, aren’t particularly convinced. For starters, MIT economist Simon Johnson doesn’t believe the Volcker Rule will have much impact. “I doubt there is enough transparency in the global megabanks for anyone to see the new ways in which proprietary bets are disguised,” Johnson recently wrote.4

The Too Big to Fail motif has gained 36.1% in 2013.

All A-Twitter

One couldn’t hope wondering what sort of performance Twitter would deliver following its IPO last month.

After all, the run-up and hype to the event was something investors had not seen for 18 months, when social media rival Facebook stepped up to the plate. And we saw how that went – a botched first-day due to a technical glitch put immediate pressure on the company’s share, and just like that, the bloom seemed to be off the rose.

Facebook faded quickly from its $38 IPO price, and the company’s shareholders saw the stock price cut in half in just more than three months.

Twitter’s trajectory, however, made many of those same worries seem silly. The company’s shares bolted out of the gate, soaring 73% on its first day. And since its first trade on the NYSE, Twitter is up nearly 44%.

But guess what: Facebook hasn’t exactly been left in the dust, with its shares having more than doubled in 2013. Following the low-water mark of its post-IPO mockery, the view for Facebook only got rosier. Key for the company was showing investors (and advertising customers) that it had started to get a handle on growing advertising revenue amid its customers increasing use of mobile devices.

In its latest quarterly update, Facebook said its revenue rose 60% to more than $2 billion, with nearly half of that coming from mobile advertising.5

Ultimately, what Twitter and Facebook (and market-share king Google) have in common is that they all experienced that life was good this year for the top of the heap among purveyors of online advertising.

The Onward Online Ads motif has gained 70.7% in 2013.

Healthcare.dud

And you thought Facebook’s IPO didn’t go well.

Here was to be the crowning achievement of Barack Obama’s presidency – the Affordable Care Act, or what was once referred to only derisively as Obamacare – and its companion Healthcare.gov website, which aimed to simplify the buying of affordable health insurance, particularly for those who didn’t have any.

Unfortunately, as the president found out, the devil is in the details, and access to the website on its October 1, launch was something less than ideal – “botched,” in fact, admitted the president.

A December 1, relaunch worked out many (but not all) of the kinks, but the damage had already been done. Not only were the new patient rolls well below expectations, but President Obama’s approval also took a hit. A Quinnipiac poll in mid-November recorded for the first time that a majority of Americans – 52% — didn’t trust the president.6

And yet we pondered recently whether Obamacare could have such a damaged reputation right now that any upside is being ignored. For one thing, it does appear that the government’s website is beginning to do its job of adding more insured citizens to the rolls. In California, residents signed up during the first week of December at more than three times the rate they had a month earlier.

It’s also interesting to note that despite the problems associated with the website’s rollout, the stocks of companies that could be expected to benefit from the age of Obamacare generally performed well in 2013.

The Obamacare motif has gained 48.9% so far in 2013.

Here Comes the Sun

Solar power may not have grabbed as many headlines as Twitter in 2013, but its rags-to-riches transformation into a top-performing industry was likely not lost on its shareholders.

In North America, US and Canadian solar firms enjoyed strong demand from Japan and the US, while its cost structure began to decline, making for a more viable replacement for current energy sources.

In China, the liftoff has been even more dramatic: The Chinese Solar motif has gained 114.1% in 2013.

Chinese solar companies have finally brought their manufacturing capabilities more into line with market demand, which has them following a course laid out by U.S. solar makers. That led to the acquisition a few years ago of solar project developers to soak up the companies’ production and to take advantage of the higher value-added market for system design and installation.

Also giving Chinese solar companies a boost: more government money. Many of the sector’s stocks went into hyper-drive after the Chinese government announced its plan to provide low-cost financing for new solar projects, while adding solar downstream segments that are developing solar project pipelines and new feed-in tariffs.

However, solar power wasn’t the only clean technology to deliver for investors in 2013. Look no further than electric car maker Tesla, which stands to be 2013’s top-performing stock in the Nasdaq 100, sitting currently with a stock-price surge of 347% this year.

The green theme was definitely kind this year to investors: The Cleantech Everywhere motif has risen 97.9% so far in 2013.

1James O’Toole and Evan Perez, “JPMorgan agrees to $13 billion mortgage settlement,” November 19, 2013, http://money.cnn.com/2013/11/19/investing/jpmorgan-mortgage-settlement/, (accessed Dec. 23, 2013).

2Scott Neuman, “Hedge Fund SAC Will Pay More Than $1 Billion For Insider Trading,” npr.org, Nov. 8, 2013, http://www.npr.org/blogs/thetwo-way/2013/11/08/243995891/hedge-fund-sac-will-pay-more-than-1-billion-for-insider-trading%20, (accessed Dec. 23, 2013).

3Peter Schroeder, “Treasury chief confident ‘too big to fail’ will end,” thehill.com, Dec. 5, 2013, http://thehill.com/blogs/on-the-money/banking-financial-institutions/192153-lew-confident-too-big-to-fail-is-over, (accessed Dec. 23, 2013).

4Simon Johnson, “Celebrations of Too Big to Fail’s Demise Are Premature,” Bloomberg.com, Dec. 8, 2013, http://www.bloomberg.com/news/2013-12-08/celebrations-of-too-big-to-fail-s-demise-are-premature.html, (accessed Dec. 23, 2013).

5Vindu Goel, “Mobile Ads Fuel a Jump in Profit at Facebook,” nytimes.com, Oct. 30, 2013, http://www.nytimes.com/2013/10/31/technology/rising-mobile-ad-sales-propel-facebook-profit.html, (accessed Dec. 23, 2013).

6Richard McGregor, “Healthcare glitches risk derailing Barack Obama’s second term,” ft.com, Nov. 15, 2013.

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