US Videos

Housing Hurts, Merger Misses, and ETF High Jinks

Jason Stipp

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to the Friday Five. This is our look back at the week's most notable headlines for investors. Here with me, as always, with the Five is Morningstar Markets Editor Jeremy Glaser. Jeremy, thanks for joining me.

Jeremy Glaser: Hi, Jason.

Stipp: So what have you got for the Five this week?

Glaser: Well, we've got some not-so-great housing news. AOL laid off even more workers. American Express made a bet on the future of payments. Bill Gross discussed a little bit about how he sees all companies as utilities now. And finally, we have a bit of an ETF spoof.

Stipp: OK. Well, please, please, get the bad news out of the way first. Let's start with housing.

Glaser: Yeah. Housing starts took an unexpected tumble, down 10.6%, after a couple months of it really looking like the housing market was starting to stabilize. Now, this doesn't mean that prices are going to fall another 50% or that we're going to crater again, but it definitely raises some questions about the sustainability of what's happening in the housing market right now, that people aren't putting in new orders to build new houses, and we're just depleting the supply that we already have.

I think there are still a lot of concerns about unemployment, and no one's ready to quite make the splurge, or maybe to commission that new house, if they are not so sure they're going to keep their job.

Read Full Transcript

Stipp: So, speaking of employment, is that a dial-up modem that I hear sort of fading off in the distance?

Glaser: [laughs] Yeah. Believe it or not, AOL has another 2,500 people to lay off. They're getting ready for their spin-off from Time Warner next month, and they're cutting costs and trying to make sure that the structure makes sense as a standalone company.

It's amazing how poorly the AOL-Time Warner merger went. The idea of putting together the content that Time Warner had and the distribution channel that AOL had just never really came together. And it's particularly interesting when we see a company like Comcast looking at NBC Universal for somewhat similar reasons, to see if that merger will be any more successful than AOL-Time Warner was.

Stipp: So another Steve Case venture in the news this week: Revolution Money and AmEx deal. What's your take on that?

Glaser: Yeah. American Express spent $300 million to purchase Revolution Money, which is an online and mobile payment service. I think this probably makes a lot of sense for American Express. It's not a huge deal. It's not going to, in any way, effect what we think the earnings power of American Express is, but it shows the idea that we're really moving away from a cash society, and even a plastic society, and into new forms of payments.

I think the fact that American Express is keeping up with this and recognizes the trend and the potential threat is kind of neutralizing it now, I think, speaks well to management.

Stipp: So, speaking of big, broader changes, Bill Gross, also, continuing a theme he's been talking about for a while with "New Normal," but he actually had some investment recommendations this week based on that. What's your take on his theme there?

Glaser: Yeah, he did. Bill Gross sees, in the "New Normal," there's going to be so much government regulation around, basically, everything that companies are mainly going to act like utilities. So if everything's going to be a utility, you might as well just buy regulated utilities. If you have the choice between getting a 0% yield on a money-market account, which is essentially what you get right now, versus maybe a 4% or 5% yield with a utility, he thinks the utility is a much smarter bet.

And I think that we could all agree that earning 0% probably doesn't make a lot of sense, that if you're worried about inflation, if you're worried about not just protecting your capital but actually growing it, looking at a company that's paying that strong dividend that has a stable track record makes a lot of sense.

Though I think I disagree with him in that every company's all of the sudden going to look like a regulated utility. I think we've seen the government not having a lot of success in pushing a lot of very harsh regulations on a lot of industry. Whenever this discussion comes up, there's so much outcry from a lot of people to kind of pull back that regulation. Is there going to be more than there was before? Probably. But I think that capitalism is still alive and well.

Stipp: Certainly. Also this week, some people who perhaps loved capitalism a little too much...

Glaser: [laughs]

Stipp: Drove them to look at an investment option that really wasn't an investment option. There was some interesting news out of ETFs this week.

Glaser: Yeah, I think so. I have to give thanks to our director of ETF analysis, Scott Burns, for passing this one along. Jason Kelly, who's a blogger, wrote a post about a 100-times-leveraged ETF that would give you 100 times, either plus or minus, what was happening in the market. He wrote this joke post, and believe it or not, it got picked up by a few ETF news sources, who reported that this was launching.

And this is funny because, in the post itself, it admitted that the fund would go bust several times a day. So I don't know that investors would actually be interested in it. There seemed to actually be people who e-mailed him and wondered when they could invest in this particular instrument. I think it's amazing what investors will buy.

Stipp: Yeah. Sadly, it seems some investors will just buy anything.

Glaser: Yeah.

Stipp: Thanks for joining me, Jeremy.

Glaser: You're welcome.

Stipp: For Morningstar.com, I'm Jason Stipp. Thanks for watching.