Misdirection in the Mainstream Media
If you want to know what's wrong with media these days, it's headlines like the one that appeared on CNN Money today: “No cut here: OPEC output hits new record high.”
The article goes on to say that OPEC oil production hit a record 33.4 million barrels of oil a day in September. Average daily production was 32 million barrels a day in 2015.
The author notes that the increase was fueled by Iraq, Nigeria, and Libya, who each added about 100,000 barrels a day in production. And then the author concludes, “The new data show just how difficult it will be for OPEC to finalize its decision to cut production.”
But here's the thing: OPEC didn't even come to any agreement on lowering production levels to help prices until the last couple days of September. They were in full-on pumping mode for basically the entire month. Non-OPEC member Russia didn't get on board until three days ago.
There's absolutely no reason that anyone should have expected oil production levels to have declined for September. So the question for CNN Money is obvious: why write an inflammatory article about oil production now?
There's a cynical answer to this. And it is that CNN Money is actively trying to make investors nervous about the rally oil prices have seen. Maybe the authors are short oil, or know some big investors who are, and they are just trying to help bring the oil price down a little bit. Unfortunately, writing a one-sided article about an asset to influence the price happens all the time — it's called free speech.
Most likely, CNN wrote that misleading headline just to get you to read the article. After all, saying "No Cut Here" suggests that they have important information you are missing. So you click the link and read the article. It shouldn't take long to realize that they don't have any new information at all. It's all spin.
News like this isn't designed to inform you, fill in any gaps in understanding, or help in any way. It's completely self-serving for CNN. Maybe they can get you to click the link. Maybe they will show better engagement metrics and can attract more advertisers.
This is the problem with media these days. It's all about clicks and advertising. Good, solid, and insightful news and commentary is getting harder and harder to find.
****Mobile equipment maker Ericsson (NASDAQ: ERIC) is getting hammered today. The stock is down 18% after the company reported a massive 14% drop in sales and gross margins came in at 28%, when analysts were expecting 33%.
Now, CAPEX spending by the big carriers will continue to be weak. The latest version of mobile technology, 4G, has already been implemented. And the next generation, 5G, won't be ready for rollout until mid-2017 or so. Ericsson is also blaming weak economies like Russia, Brazil, and some Middle Eastern countries for its problems.
But as Bloomberg points out, it's not all CAPEX spending by the carriers' fault. Some of this earnings miss is on Ericsson:
It failed to cut its bloated costs fast enough. It failed to successfully develop its own products for fixed telecommunication networks, and then shunned acquisitions that could have plugged the hole in its product line.
Even worse for Ericsson's shareholders, the CEO said, “This is absolutely not the beginning of the end for Ericsson.”
Anytime a CEO offers some hollow reassurance that the company is fine and there are no big problems, well, you should automatically assume the company isn't fine and that there are big problems. I call that the Dick Fuld rule, after the Lehman CEO offered similar reassurance days before his company declared bankruptcy.
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Now, the mobile Internet is among my favorite investment themes, and it is making a lot of money for my Wealth Advisory subscribers. It's rock solid, if you can find the right plays. Because Internet data (a.k.a. cat videos) are making the transition from PC and laptops to mobile phones faster than anyone anticipated. And soon, the Internet of Things (IoT) will demand even better mobile networks. For instance, driverless cars are coming, and they require seamless connectivity so that the cars can "talk" to one another, or they'll all start crashing into each other. Hence the coming 5G standard...
At this point, Ericsson does not have much time to get its, ummm, act together, or it's going to miss the big orders when 5G testing and rollout starts next year. But you know who's going to be sitting pretty? Nokia (NYSE: NOK).
Have you seen Apple stock lately? It's rolling, up better than 15% in the last few weeks. You know why? A lot of it has to do with Samsung phones blowing up. Every time the flight crew on an airplane tells passengers to power down their Samsung phones, Apple stock goes up.
This will happen with Nokia/Ericsson, too. Nokia recently completed its acquisition of Alcatel-Lucent to make it the biggest mobile equipment maker. It now has sales to all the biggies. And when 5G comes around, Nokia is going to be the big winner. Shares are down today in sympathy with Ericsson, but I doubt the weakness lasts.
Nokia has a $30 billion market cap, $20 billion in trailing revenue, and $8 billion net cash. And it pays a 5% dividend. Buy it. Take the next few months to add, and you will be rewarded (but not by me).
****Nasty day yesterday, as the S&P 500 broke down out of a month-long pennant formation. Don't worry, I'm not going to bore you with an explanation of what a pennant is. But I will tell you that I don't think it's a real breakdown. I mean, yeah, stocks sold off and those price declines are real, but I don't think it's a harbinger of sorrow for investors.
I think we are seeing a little uncertainty regarding earnings and the election. Q3 earnings will not be particularly great. And we know the election is going to suck. So...
It's probably a good time to sit back for a week or two, try to set aside some cash, and get positioned for what's next. We have the components (i.e., better oil prices to help Q4 earnings) in place to get a decent year-end rally. So let's see if there's some more downside ahead of the election.
Until next time,
Until next time,
An 18-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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