Our Thoughts For our records, for your amusement.

Ready for a 10k run?

Thu, 20 May 2010 13:38:26 -0500

I went to a speech/talk at Kellogg given by MIT’s Simon Johnson today. He seems like a cool and smart guy, and though there was definitely a lot of filler in that one hour, there were also a few nuggets of great insight. Anyhow, there’s probably a strong bit of confirmation bias here, but I was appreciative of his analysis of the long term impact of the bailouts: essentially that the risks associated with the moral hazard introduced by the bailouts and subsequent financial industry consolidation would not necessarily have an immediate negative impact but would build with economic cycles until we run into a situation where something that is “too big to fail” will fail, creating a credit freeze and financial chaos that will make 2008 look like a slight inconvenience.

Key Takeaways:
• He looks like he could be related to Robin Williams, and he has a nice accent.
• He’s disappointed that we rebuilt the financial sector without fixing it. Financial reform is a moderate position, as opposed to a leftist position.
• As everyone knows by now, the US financial industry got a lot more vulnerable to financial collapse over the last 13 years... (my note: If you don’t know this already, I recommend you read Bailout Nation by Barry Ritholtz)
• Finance is only an input, an intermediate good. It’s crucial to economic growth, but why are there such huge profits (and thus huge wages) in a supposedly highly competitive industry?
• Deregulation of finance is a result of lobbying plowbacks since the 1970‘s, and compensation policies are simply symptoms of the problem, not the problem itself.
• Moral hazard has not only presented perverse incentives, but also given an unfair advantage to large banks (creditors take into account the chance of future bailouts, and of course, access to the discount window...).
• my note: How hard it is for any big finance firm to make money, with 0 risk, when they can borrow from the Federal Reserve at a rate of zero, and then turn around and “lend” that same cash to the Treasury (buying bonds) at 3%?
• BOE idea of a Doom loop: moral hazard leads to reckless behavior (speed limit immunity example), the system of incentives needs to be broken.

Essentially, this would be a case for a long-term short in financials; he’s advocating much-increased regulation and reverse-consolidation of the financial industry (which would hurt financial stocks in the short term), which if not enacted will (in his opinion) eventually lead to a huge financial crisis (hurting stocks anyways). Johnson believes that today’s senate passing of (their version of) the financial reform bill is a step in the right direction, but that lobbying is such chump change for wall street that nothing bigger will come of it. I’d take that one step further and make the prediction that if this bill passes, it will, in appeasing the mainstream media/public, make significant financial reform essentially impossible in the short-term. The big financials will have free reign to make gobs of money until they make their next big gambling error. Therefore, I recommend closing out your FAZ position at market open tomorrow.
Finally, also today, the Dow has reached the trading resistance range of 9900-10100; expect some small bounces around here, but my short bias remains. To somewhat neutralize positions, put the FAZ sale into solar tomorrow morning. I’d recommend a spread-shot of JASO, SOLF, and STP. I haven’t looked at them recently, but these were the darlings of solar in 2007, and I’d imagine that they’re still good prospects. I’m leaving out SPWRA/SPWRB because last I checked, they were contracted over capacity already over the next few years... The BP spill is just getting ridiculous/disgusting, and given the risk-aversion in energy introduced by this recent disaster, I don’t see nuclear as being a viable political option.

All That Glitters isn't Gold

Thu, 13 May 2010 13:12:44 -0500

Quick little update; at 1250, gold has essentially hit the top of its trading range. With inflation pressures essentially out of the picture, it’s hard for me to recommend staying long in gold.
At the same time, the markets have bounced back to the fall-off point before the flash drop event (Dow 10900). Look to see significant downward pressure at this resistance range. The volatility introduced with the flash drop scared a lot of people, and all the financial news outlets are beginning to talk about “correction.” There’s just not much upside in the short-term, especially considering good ‘ole Europe...
Conclusion? Sell your shares of UGL asap (it closed at 55.24 today) tomorrow morning, and replace it with TZA (closed at 5.80). As you might realize, the current portfolio sets I’m recommending are strongly short biased.
To address this in the near future, I’d say that the short that I’m pulling out of next is energy (ERY); the gulf spill is really rearing its head, and people are starting to pay attention to what is legitimately a terrible environmental disaster. Having said that, I expect the market to be pricing large expectations of fines/regulation for the oil industry; expectations that are likely to be currently overstated, given big oil’s lobbying ability.

Spring Refresh

Wed, 21 Apr 2010 15:15:58 -0500

The big news today: Paulson & Co. is turning bullish on housing! Is this a PR stunt to portray themselves as less "evil" (given the CDO suit), or a bullish technical read after 11k was (sort of) broken?
I'm not particularly pleased that 11k hasn't turned out to be the wall I thought it would be, but it isn't quite broken yet, so I'll hold my full bearish position until 11,200-300 is surpassed.
No one wanted to be the "cause" of a double dip, and Obama finally let the dogs out on Goldman after the market had ostensibly firmed up. There's blood in the water now, so expect waves of financial backlash legislation over the next couple months, as lawmakers clamor to cement their "tough on Wall Street" position in the minds of voters.
As I said earlier, I'm holding bearish, but if you're not as doom and gloom as me, a good hedge would be a 2 way split between Short Financial (FAZ), Long Tech (TNA). If you're not familiar with hedging, basically, this set of positions means that you believe that technology stocks will outperform financial stocks regardless of whether the market goes up or down. You could also just do a short financial mix combined with a long market index fund.
It seems like a pretty good time to dump AAPL stock, given the earnings cap today. The friction between Apple and Adobe can only bring negative things in the short term, and Apple still has a ways to go in terms of proving the worth of the iPad, an evolutionary device being marketed as being substantially revolutionary. As a summary of my recent flurry of posts, these would be my recommended holdings right now:
Aggressive: equally in... UGL (48-48.15), FAZ (11.5-11.75), ERY (8.6-8.8), TZA (5.75-5.9)
Balanced: equally in... UGL (48-48.15), FAZ (11.5-11.75), TNA (66.25-66.5)

Blockbuster and Gold

Mon, 19 Apr 2010 15:13:30 -0500

Whoa whoa, Blockbuster jumped 50% on a delayed shareholder meeting? Sure, you could get excited about recapitalization efforts, but that could just be cover for monkey business. Get rid of this dog and take the gains. If you want to put your money somewhere better, gold looks, well, golden right now. It took a huge hit on Friday with no real justification (other than, perhaps, margin covering after the Goldman SEC charges), and is long due for a breakout.
(by the way, UGL (at 46.75-47) is a pretty good ETF for gold).

Stockpicking

Thu, 1 Apr 2010 15:05:04 -0500

A quick little pair of stock picks today. BBI and AAPL.

BBI (at .25-.26): People are getting way too worked up about the possibility of Blockbuster going bankrupt. The store closings are an optimization plan, not a shutdown plan, and it's not like they owned the real estate anyways. I'm not saying I love Blockbuster's chances to shine, but they aren't going away anytime soon. They've secured new release contracts that Netflix and Redbox have been unable to obtain, they recently revamped their website (in a sort of me-too copy of Netflix's), and they've got plenty of cash on hand (well, at least enough to operate for another year). If they can further develop their on-demand strategies and develop some hardware partnerships, this stock could really jump. I also love underdogs, and I believe that Blockbuster has a surprising amount of potential latitude in its much-maligned B&M platform. At 25 cents/share, this dog is a huge short-term buy, as its dominantly institutional investors will be quick to pick up on this value.

AAPL (at 224-225): This is a pretty simple pick in the short term (at least through next earnings). People like to get jittery on Apple even when there are clear indicators of success.
iPad: huge preorders coupled with a straightforward evolutionary design means that Apple should be able to handle any competitive roadbumps (if any; there don't seem to be any close competitors here) that may come.
Mac: The fact that Apple has been able to sit on Core2Duo Macs for so long either indicates that A) their engineers can't figure out how to fit the higher thermal envelopes of the i5's into their machines or B) Macs are selling well enough that Apple is content to suck in the huge margins associated with these outdated chips. I pick B.
iPods/iPhones: Nothing new here. It's been a solid business for Apple for about a decade now, don't count on being surprised ;).

In the spirit of stockpicking, an inspirational image (courtesy of interfacelift.com)!

Winter Refresh

Fri, 22 Jan 2010 10:22:19 -0600

Happy FDIC Friday everyone…
So apparently, this week was the worst week for the indexes since just under a year ago. We’ve just completed a cresting pattern after establishing new highs in mid-November, and the market has been hit by bank reform rumblings, disappointing energy demand, tightening Chinese credit (I’m not sure why everyone seems to think this is a big deal, as the Chinese government has been warning about this for weeks) surprisingly large jobless numbers, and cautious blue-chip earnings. The S&P just broke through the 1115 resistance level, and VIX levels took a leap upwards. Are we going to get another dose of a sharp drop with a quick stop? Unlikely.
The rumblings in business/finance have been worrisome, but hardly come close to the panic levels of late 08 and early 09. While investors/sheeple were worried about collapse in the panic days of yore, they now worry about limited earnings growth and cuts in bank profits. Apples and oranges, solvency vs profitability.
What does this mean? We’ve got drops coming, but they should be fairly moderated through the next couple weeks with possible strong bounces (to my previous list of resistance levels, I’d like to now add DOW 9700). I’m still sticking to my bearish midterm view from mid-October (I didn’t foresee such optimistic forecasts), which I believe should culminate in late Spring (April/May). For now, all we’ve seen is a combination of consolidation and moderate fear-mongering. Obama’s posturing against the banks may be a bit of a bluff; reinstating Glass-Steagallish measures will be rebuffed by free market Republicans, and Obama may not want to be responsible for a double dip.
For the mid/long term, don’t forget that our economy is still pretty much in shambles. Barring some incredible development, the DOW 11000 line will hold. Finance is still the same (HFT is the new high leverage), the middle class (essential to healthy capitalism) is still being constricted, in part because of pervasive credit card debt (and on that note, the recent credit card reform legislation doesn’t really do all that much…), the universal healthcare battle is basically trench-warfare, and globalization (especially in the service sectors) will pressure American tech companies like never before. Oh, and GM and Citi are still around.
(Check out chart analysis by Thechartstore.com below)

A Quick Framework

Fri, 23 Oct 2009 14:23:48 -0500

Apple and Microsoft are due to report this week, so here is my train of thought...
Apple (after-market Monday):
-iPod: Probably weak; classic sales should experience further declines, the Nano got some yawn-inducing improvements, and the Touch should suffer from continued secondary market sales due to "inventory" (and perceived loss) from the back-to-school-bundle period. Sure, the Touch has gotten a spiffy (and well-executed) ad blitz this quarter, but these ads have been aimed at a gaming crowd that is already well saturated with the current generation of portables.
-iPhone: My initial guess would be that iPhone sales would take a hit from recessionary pressures. However, this is the back end of this recessionary cycle (whether or not you think it will double-dip), and luxury spending was reportedly up 29% (on a quarterly basis). There might be a nice upside surprise here. Also, isn't everyone going to get excited about the China Unicom launch?
-Mac desktop: The all-in-concept is good and all, but it doesn't change the fact that Mac desktop's are like the Mac laptops from the 3rd quarter; overpriced. Everything the iMacs are competing with have Core i5's, the Mini is being ignored by Apple, and the Mac Pro line was never meant to post big sales numbers (nor do creative firms have the luxury of making such system upgrades in this environment). Expect Apple to fix the lack of competitiveness sometime before December.
-Mac laptop: The pro's got a solid bump from the introduction/inclusion of the 13's, and there should be decent growth there. Steam is building for the Macbook overhauls (also likely November), so expect mobile computing to figure largely into any positive forecast.
-Miscellaneous: This is the first xmas that Apple won't be held back by the timing of Macworld, and expect them to take full advantage of it. Product blitzes in November/December (desktop/portable updates, a new iLife release), and maybe even some decent xmas promotions will provide an upward nudge on Peter Oppenheimer's traditionally glum/restrained outlooks. Of course, if Apple provides plans/hints of a phased retirement of El Jobso, you can throw all that optimism out the window (in terms of the market's reception).
-Strategy: It's a mixed bag, but I'm leaning on the upside. If you're feeling iffy, you could reduce your risk significantly if you go long immediately before the forecast hits the headlines.
Microsoft (pre-market Friday):
-Office: Back-to-school sales probably got hammered by the recession (given the substitutes), but the outlook should be fine. Microsoft is demonstrating gumption with its announcement of the Stater Edition, and Google Docs isn't going to replace offline solutions anytime soon.
-Windows: Windows 7 sales will be solid, and Microsoft's outlook will reflect this sentiment. People bitter about Vista (primarily from the aftertaste of the pre-SP1 days) will be quick to forgive Microsoft. Granted, 7, like Snow Leopard from Leopard, is only a minor bump up from Vista SP2, but it gives Microsoft a nice, clean start. Snow Leopard is essentially just a turbo boost on Leopard, and speed was never one of the gripes of Leopard.
-Xbox (Entertainment and Devices Division): As Microsoft's "growth sector", the 360 seems to be doing fine. Crunch time isn't here yet (xmas), but there are no significant chinks in the outlook. ODST sales should pad the recent quarter nicely, and one should fully expect MS brass to continue to gush over Nadal, possibly firming up a release date.
-Search: Much ado about nothing here. Given all the marketing involved, Bing is at best a distraction. It doesn't offer anything substantially new that Google doesn't have; when is someone going to introduce an image recognition powered search engine?
-Strategy: It's a mixed bag here too (isn't it always), but again, expect the outlook to be solid. However, you might be best off monitoring Big Ben's speech that morning, as that will add substantial noise to any trading decision made on Friday [edit: did Bernanke end up speaking this morning? Maybe Bloomberg’s calendar was off...]. If the market response is negative (due to either earnings or Big Ben), I would hop in long around midday on Friday.

Potential Energy

Wed, 14 Oct 2009 20:31:29 -0500

Congratulations market, you're about to fall hard over the next 5 months.
Why?
-peaked just over the final major resistance level of the recession (10,000). crest time (initiate a phased short position).
-the (government) financial sector capitalization just reached half of its cycle peak (from $1.87T to $947B), a 300% return from the recent bottom of $290B. Too much bounce with too much unemployment, not to mention uncertain demand. Obviously this is what the bears have been saying for months, but we've basically hit the bear's keep.
-government reregulation is right around the corner. Look out, OSS banks...
-even given the rally, investors remain 6% below their mean allocation to stocks. This might be taken as showing that the market has more to run, but I'm leaning more towards the interpretation that common investors (traditionally only 20-30% of the market by total positions, and 5-10% of the market in volume) just don't have the funds to get in.
-the S&P is trading near 18x earnings. Not the best barometer, but dang, expensive.

Look out below.

PS: For those of you who like reading entrails, here are my mini-bounce point predictions (I myself have a low confidence in these, so be warned...):
-9800
-9500
-9200
-9000
-8500
-7550

Let’s go gold-digging!

Mon, 20 Apr 2009 22:35:37 -0500

The DOW's bouncing around the 8000 resistance level, and with earnings season coming up, there's bound to be a breakout or breakdown in equities. I'm leaning towards predicting a short-term peak of 8200-8300 followed by a very likely quick drop down to 7400-7500. By short-term, I mean that I expect this pattern to run itself within the next 3 weeks.

The muddiness of "mark to magic", and economic data (such as the stress tests) that might conflict with positive (after mark to magic) bank results has convinced me to mainly sit out the equities market during this period... to go gold-digging!

Gold is in a bit of rut right now, even as the money supply is skyrocketing with all the stimuli. Gold will regain its sheen soon; if equities drop, there will be a flight to safety, and if equities surge (along with expectations of the economy), inflation concerns will dominate.

In short, gold is a decent win-win situation. Increase your position slightly in UGL, and you should be set for the next few weeks (when I will reassess the environment). If I HAD to make an aggressive prediction, I'd say that I expect gold to be at $960-1000 per ounce and UGL to be at $36-39 in three weeks (they are currently at $887.50 and $30.72, respectively).

PS: This post was NOT written by Mark Alpert.

Riding the crests...

Fri, 20 Mar 2009 00:00:30 -0500

Since my last note, the DOW has jumped nearly 800 points, signaling to some (retrospectively) that a bottom has been observed. However, there have been jitters this week, as the indexes are technically overbought and many are speculating that the rally was simply a short squeeze; subsequently, we are down 200 from the 7560 level achieved on Wednesday. Many people are quick to point out that other "mini-rallies" in this recession cycle have sputtered out, and that this one will die too.

However, I believe that we likely have significant gains shortly ahead of us. Any big rally out of a 30 year low is going to look "technically" overbought (any rally for that matter, actually), and there is no such thing as a straightforward recovery (in any kind of market).

Note that this 800 point rally occurred without government intervention, and with consistent volume levels. Also note that over the past month, we've established a resistance range of 7200-7400. If we break convincingly below 7200, I'll turn extremely bearish. However if we break convincingly over 7500, not only will we be breaking out of the resistance range established this month, but we'll be surpassing the November bottom level.

In addition, we're starting to see coordinated government intervention: Mexico's interest rates, the EU's credit line doubling, and the Fed's Treasury purchasing. Sure, the FDIC's bank failure expectations announcement wasn't pretty, but it's nothing new at all, and if anything, is an outdated sentiment.

In conclusion, since we're in a resistance band right now, there's big upside and downside risks right now. However, I believe the upside potential is stronger, and encourage investors to cautiously ride this one long.

Here come the bulls

Tue, 3 Mar 2009 11:42:54 -0600

The temporary Obama "hangover" came earlier than I predicted in the previous post; the crunch time is now nearly over.

Rationale:

-The S&P 500 index is about 35% below it’s 200-day moving average.

-Contrarian analysis yields a strong and growing upside reading: just look at all the most-read financial news articles (or just the headlines) over the last two weeks.

-The recent sell-off (especially the last week) has shown massive volume, indicating a possible culling pattern.

-The 3 month RSI reading is incredibly low. Nothing particularly new here, but it underscores the relative weakness being exhibited by the markets.

In large part because of these observations, I am therefore once again calling for a 3 month bottom to be observed within the next 2 weeks.

Irrational Exuberance

Fri, 2 Jan 2009 15:10:02 -0600

So, Thomas Kostigen of Marketwatch is calling a business cycle bottom. I'm pretty ashamed to share his first name.

"SANTA MONICA, Calif. (MarketWatch) -- It's the best of times. Think about it. When in modern history can you have pointed to a bottom with such assuredness? This is the bottom, folks. From here, it's all up.
We've cleaned the sewage system in the finance industry; we've purged the subprime mortgage bankers, brokers, and borrowers; we've blown open the biggest Ponzi scheme ever; we've uncloaked the automobile industry; we've admitted there never was nor is there a good reason for the war in Iraq; we've woken up to the war in Afghanistan; we've owned up to torture and unlawful rendition; we've discovered politicians' affairs, payoffs, and bribes; we've quashed gay marriage rights; we've unprotected protected parks and land areas; we've changed federal documents that show climate change is true; we've allowed genocide to rise and continue; we've been lied to (again) by a best-selling memoirist; we've experienced natural disasters and manmade ones; horses were slaughtered; bees went extinct; oceans suffocated; glaciers receded; and entire countries went bankrupt.
Now we know better."

We know better, just as the thief who's just been caught "knows better". Sure, with the Obama market bounce coming up, it's easy to be optimistic, but this economy is not set for a prolonged expansion.

Let's focus on this (a misguided contrarian analysis):

"We've cleaned the sewage system in the finance industry; we've purged the subprime mortgage bankers, brokers, and borrowers; we've blown open the biggest Ponzi scheme ever; we've uncloaked the automobile industry"

Really? Conjuring up an ill-planned 700b bailout, doing nothing for borrowers, and prosecuting almost no-one (in the pool of bankers or brokers) is purging? That's like saying you've cleaned up Detroit by giving all the homeless people $20 each. At this point, nothing has endemically changed about operations of any of the industries he's mentioned.

While watching the Rose Bowl game, I noticed that it was sponsored by Citi. This is the Citi that got bailed out by the fed government (read, our future taxes) for $50 billion, with $300 billion in guarantees on their own risky assets. What the heck are they doing sponsoring a Rose Bowl game. Not only that, but the commercial that they purchased expensive ad slots for portrayed a middle class woman lavishly redecorating her home with a credit card. Oh yeah, and her husband too, with the cashback. So. Dumb. Yeah ok, Mr. Kotigen, now we know better.

Blown open the biggest Ponzi scheme ever? I understand that bad news can often be interpreted as leading to a temporary bottom, but this Ponzi scheme is something that we don't know the consequences of yet. Funds and charities are the biggest losers here, and we've only accounted for (and by account, I mean literally, calculated, and not the usage that implies compensation) $20 billion of this $50 billion drain. Since we all know that funds like to do intra-investing within themselves, this could have severe systemic repurcussions for the rest of the financial community.

Uncloaked the automobile industry. Yeah ok, Mr. Kotigen. That's like saying we've uncloaked the emperor who wasn't wearing any clothes. Nothing's been uncloaked; we've known that the big three suck for decades. Decades. Obama promising to bail them out is no uncloaking; if anything, it's recloaking.

None of the rest of the stuff really matters when it comes to trying to predict the economy. This guy is right about a midterm bottom, but only because that bottom happened 1.5 months ago. Praising this guy is like calling the NBER prescient after they retroactively declare the beginning and end of recessions. Everyone under the sun is expecting an Obama bounce; the question is, can that sustain through the rest of 2009?

I believe that this santa claus (yes, that's the actual term for the traditional bullishness that arises post xmas) rally is bound to see some correction next week, but that there will be a prolonged bounce in the week after that because of Obama. I think that bounce will fade in the spring, leading into the real crunch time.

A Contrarian’s Dream

Wed, 12 Nov 2008 15:11:35 -0600

Over the last few weeks, we've had precipitous (and record) rallies and sell-offs, culminating in today, a 400 point drop of the DOW, in a nearly linear negatively-sloped day (consistent with panic). In the past week, we've had frightening unemployment stats, terrible earnings/forecasts by the techs (Cisco and Intel) and automakers (GM and Ford), and even had a Deutsche Bank analyst set a target price for GM at $0. Finally, we had Hanky P declare today that the core strategy of the $700 million bailout was rather flawed (this is after all the crooks at the banks made off with $650 million of it already). The Nasdaq just hit a 5 year low, and Russia, faced with a recession (just like everyone else), has been forced to hike interest rates to deal with runaway inflation.

This is some pretty serious stuff. Now:

"Be scared when others are greedy, be greedy when others are scared."

That's Warren Buffett speaking, arguably the most successful investor in the history of Wall Street, and the leading contrarian. Basically, contrarians try to beat the market by anticipating expectations and the flaws in these expectations. The most general expectations for the market as a whole (and in turn, the valuations of stocks) can be embodied in the form of pessimism (bearishness) and optimism (bullishness). Hence the logic behind the Buffett quote, and the logic behind inserting "most" in front of all the adjectives in the quote if you're looking for max/min points in sentiment.

By conventional investing wisdom, prices are low enough that there's a pretty darn good chance that within the next 5 years, prices will be higher than they are now. However, an investor should always be interested in the short term and the mid term if he's/she's investing for the long term. Hence the contrarian method to determine a bottom.

We then have an unknown to resolve: Is everyone most scared right now?

I find it highly unlikely. There are just way too many things (relative to a state of utter panic) for the average investor to be optimistic about:
1: Expectations of disinflation in the US.
2. Low oil price expectations.
3. Expectations of policy announcements after the G20 meeting this weekend.
4. Obama and his rhetoric.
5. Obama and his crack team of economists.
6. Expectations of rate cuts (related to 1).
7. Recent Chinese stimulus.

The cool thing for the contrarian looking for a temporary bottom is that several of these "happies" can be converted into "sadies". Namely, disinflation, G20, and Obama and his rhetoric. CPI numbers come out on Monday, as do the results of the G20 conference, which Obama is choosing not to attend. IF the CPI turns out higher than expected, and if the G20 conference ends without clear guidance (people will start to doubt Obama's economic leadership), I'm calling for a bottom within 2 weeks for the next 3 months.

Fortune Telling

Fri, 10 Oct 2008 11:03:19 -0500

Inflation: Don't sit on too many dollars. Relative to the dollar, I like the RMB, since China has so much frieken cash.
Look for China to be the only nation capable of mobilizing a substantial economic stimulus once the global recession hits. The US government has given itself very little wiggle room after the Fannie and Freddie debacle, and the upcoming Lehman situation. Oh, and the EU can never get things done in a timely fashion. They’ll finally have a stimulus package prepared when the recession is over.

Growth: above estimates (but still low) for November and December, expect an official recession to be announced by March 2009. Expect it to last till late 2009.

Stocks in general: Volatile for now. I’m calling a midterm bottom around 7800. The VIX index is just ridiculous right now, and (this is in correlation) people have generally accepted that the recession is either here or coming. Rate cut impending? Also, Cramer just announced that he thinks the market is gonna drop 20%, which is the contrarian investor's signal that a bottom is near (here comes a short bull run!)...
Once the early holiday numbers start rolling in, expect the market to get a little spark from the retail segment (even poorer people still buy gifts, and gas is/and will be unexpectedly cheap: due to low oil, lower energy demand because of low growth, and the fall of OPEC) and the dead cat bounce.
Suck time come spring (my guess is 6500). The only guys that will do well will be precious metals companies and developing Asian stuff that will pop at rumors of the aforementioned stimulus package. Go back in full throttle in late 2009.

Energy: Oil's run is over. OPEC messed it up by letting oil hit 145, and the alternative energy markets are now here to stay. Yes, credit OPEC, not Al Gore, with this increased interest in alts. Now that the Saudis handed OPEC its death notice, look to see oil float between 50 and 90 per barrel for the next year or so.
Solar stocks? Volatile now, with a small rebound to finish the year. It'll get dragged down with the mess of spring 2009, but will be one of the first to recover.

Gold: I'm a strong bull with this one. It's taken a hit recently, and is severely undervalued given the understood dangers of inflation. (Currently at 745) The gold bottom will be no lower than 700, and it could hit 1500 by late 2009.

Of course, these are very specific predictions. I'll be happy to be in the ballpark with at least 60% of these.

Storage

Mon, 30 Jul 2007 16:46:41 -0500

With little to jostle the market today, investors drove indexes up after the downer that was Friday. We're pretty much out of the woods in terms of condensed earnings reports, so unless something completely unexpected pops up, expect steady market growth for the next couple months (until the next earnings season starts to rear its head).

Anyhow, back to stocks. If you follow computers at all, you know that, ever since "Longhorn" was announced, companies in the personal computing businesses had been counting on Vista to provide a boost in revenue across the board. That boost came in under expectations, but most of these companies have found other ways to bolster sales and otherwise thrive. However, I believe that storage related companies may be reaching a critical point, a point at which the good times may be coming to an end.

Flash: Micron (MU) and Sandisk (SNDK) are the two juggernauts of the NAND flash industry. With MU heavily extended into the DRAM business (which has already seen good times come to an end), its stock has already seen significant downward pressures over the last few months, and thus isn't quite the prime target for overvaluation (though it can't be ruled out). However, SNDK is fairly focused in the NAND flash industry (it licenses and manufactures flash storage devices as well as flash media players), and the stock nearly reached a 1-year high earlier this month. With thumb drives and digital camera memory chips having reached a plateau in terms of market saturation and demand, (much like the DRAM business) competition will only increase while margins will decrease. In addition, I'm also rather pessimistic about SNDK because a) solid state drives haven't really taken off (and the traditional hard drive companies are making the most headwinds in this market anyways) and b) Sandisk media players are barely making a dent against the soon-to-be-updated iPods.

Traditional: Seagate (STX) and Western Digital (WDC) both took hits early this year as investors speculated that flash storage would soon make hard disk based storage obsolete. As the basic advantages (sustained transfer and maximum capacity) became evident, and as perpendicular based hard disk technology entered the market, the two companies naturally saw their stocks float right on back up. In a manner akin to what I predict for the flash market, I believe that consumers have reached a plateau (of growth) in terms of how much storage they will consume. Midrange desktops have been hovering around 320-500 GB of storage for some time now, and there are no new technologies on the horizon that necessitate tremendously more consumer storage (such as the digital revolution of audio, cameras, and camcorders). Sure, the notebook storage market is growing, but overall, I still believe that growth for these two companies will slow as competition in mass storage increases and margins decrease.

On Bubbles...

Thu, 12 Jul 2007 16:37:29 -0500

Today's session was apparently the best so far of 2007, which just goes to show how moody and erratic the market can be. In any case, I'm going to cover three stocks that I think may deserve a short soon. These are, in order of increasing confidence, Google (GOOG), Nvidia (NVDA), and Crocs (CROX).

(GOOG): Google, aka Microsoft junior, is the cash cow of cash cows. Like Microsoft, Google insists on gobbling up company after company after company. Unlike Microsoft, Google seems to be content sitting tight with what is basically a single source of revenue. Internet search and advertising may be highly profitable, but this business is nowhere near the diversity level that Microsoft has achieved with its model (software platforms, hardware, games). I'm not saying that Google's search and advertising business is volatile or risky, but I do believe that it won't be able to churn out the growth that investors have come to expect. With as many resources as it has to work with ($3 billion profit in FY06), one would think that Google would be able to acquire/develop more susbstantial products. YouTube is a joke of a business model, Gmail is an excellent service with negligible advertising revenue, the spreadsheet and document editing online applications are yawn-inducing, Google Checkout is struggling, and Google Maps and Earth are cool but not quite profitable. I definitely see Google announcing its plans for additional sources of revenue when it reports earnings next week, which could be a nice change of pace. However, be prepared for investors and analysts to punish GOOG if these announcements don't particularly impress (and can GOOG really continue its streak of earnings beating analyst expectations?), and especially if the DoubleClick acquisition runs into resistance from the FTC.

(NVDA): Buoyed up over the past few months by takeover rumors and the Tesla GPU computing announcement, Nvidia is at an all-time high. However, seeing as how the takeover rumors turned out to be bunk, and as Tesla is still in its infancy (and won't be contributing meaningfully to Nvidia's bottom line anytime soon), I believe the stock is greatly overvalued. Vista hasn't provided the boost to discrete graphics solutions that analysts had expected, and pc gaming (from which Nvidia derives its high-margin sales) is seeing a lull that may be linked to a cyclical shift toward consoles. At the same time that it is losing high-margin sales, Nvidia has failed to make ground in the lower-margin integrated/value VGA market dominated by Intel. Though the chipset, mobile graphics, Mac, and PS3 businesses seem to have seen healthy growth recently, I believe that the losses in discrete graphics sales might make investors do a double take come the next earnings report.

(CROX): Fads are fads, and Crocs will be no exception. With a boatload of analysts on board, CROX has surged lately after a short pause. Investors have been encouraged by the company's acquisitions of various outdoor OEM companies, and sales of the namesake footwear remain strong. However, the fact still remains that the main source of revenue is basically a fad that has already peaked. Because the company seems to be moving in the right direction in terms of meaningfully expanding product diversity, I am relatively optimistic about CROX's long-term viability. However, in the mid term, I believe that investors attracted to CROX's high growth properties in the short term will run for cover once the fad part of the equation inevitably runs out of steam.

Apple and the iPhone

Mon, 9 Jul 2007 15:44:28 -0500

What would any market blog be without some commentary on Apple's current darling, the iPhone? Launched just over a week ago, this sleek device has garnered the focus (and mixed praise) of the media, and has most certainly grabbed the attention of consumers. Apple stock has skyrocketed just over 50% since the iPhone was announced at MacWorld 2007 in January, and most analysts seem to have cast all doubts aside after the glitzy launch on June 29th.

Though normally a huge fan of Apple, I believe that the market (and especially Apple's impulsive investor crowd) is exhibiting a whole lot of irrational exuberance (yes, that's an intentional allusion). The iPhone may be the most ambitious and innovative device launched by any company in recent memory, but it may also be the most overhyped gadget ever. I don't consider the iPhone a mistake, but I definitely do think that it hurts Apple in the short term. I believe that Apple's shor term game plan for the iPhone is unrealistically optimistic, and though many investors believe that the iPhone can still be a success if it falls short of Jobs' gargantuan sales target (10 million units in the first year), it remains to be seen how far sales might fall short, and what net effect the iPhone will have on Apple's other sources of revenue.

At $500 or $600 a pop plus an AT&T monthly plan starting at $60/month, the iPhone is surprisingly anemic on substance at the moment. Users who were looking forward to the flashy iPod features will undoubtedly feel the squeeze of the 4/8 GB (minus the 700ish MB’s already consumed by system software). This kind of storage works great for the photo/audio only Nano, but it hinders the iPhone from realizing its design potential as the ultimate portable media device.

Factor in the iffy virtual keyboard (note: I've tried the keyboard myself and was rather impressed, but I understand that a significant number of people do have problems with it), the much criticized EDGE browsing speeds (and lack of flash support), inflexible mobile email support, and the notable lack of Internet chat support, and you have a device that really lacks the knockout punch that it should have had to start with. Granted, AT&T might improve their EDGE speeds and Apple will eventually release software updates to alleviate many of the software issues, but all these initial drawbacks detract from the iPhone’s exceptional design and feature set (and leave openings that RIMM and PALM will not hesitate to take advantage of). In my opinion, the iPhone is too pricey and too flawed to make it the “luxury impulse buy" that Apple needs to reach the target of 10 million units sold by 2008.

Even if the iPhone ends up selling well, it’s still a major thorn in Apple’s heel. The 55% estimated gross margin (by iSuppli) really isn’t anything to get too excited about when you think about what Apple is losing. The full-size iPod line (which boasts similar gross margins) is bound to lose much of its appeal in the shadow of the flashier iPhone, as fashion-conscious (read: everyone to some degree, especially iPod buyers) consumers realize that the most trendy device isn’t the iPod anymore. While the vast majority of people won’t care about this changing of the "iFlagship", I believe that many of the same consumers unwilling to purchase the iPhone anticipate iPhone features “trickling down” to the iPod line and will be content to hold out on their iPod purchases for now (especially since the plain iPod line hasn’t had a significant update for some time).

UItimately, I believe that the Macintosh computer line is going to be hit the hardest. It’s almost common knowledge that Apple is planning a hardware redesign across the Mac line to debut with the launch of OSX Leopard, the next major version of Apple’s operating system. With the huge expenditure of resources on the iPhone’s hardware and software development, Apple was forced to delay Leopard from June 2007 to October 2007. The largest Mac purchasing demographic is students, and missing the opportunity to capitalize on last year’s impressive growth in the laptop and desktop markets (with a brand new operating system and flashier hardware in time for the blistering back-to-school season) was a huge mistake on Apple’s part.

To wrap things up, I believe that while the iPhone itself is a big short term question mark, the negative short term impact on the rest of Apple’s streams of revenue is almost guaranteed (not to mention the lackluster Apple TV). Though the hype machine will likely drive up the stock price in the extreme short term (with upcoming iPhone launches in foreign markets), I see AAPL giving up its recent iPhone-driven gains as the hype dies down and reality sets in over the next few weeks (especially after the July 25th earnings report).

Activist Investing (notes)

Fri, 9 Mar 2007 10:55:41 -0600

Potential (environmental) activist investments...

Favorites:
Weyerhaeuser Company (WY) - Toured their headquarters in 2001, and their (real) sustainable growth model is really quite inspirational. Their 5.7 million acres of logging land has recently been appraised at above $3,000/acre, demonstrating the financial value of responsible logging.
Sunpower Corporation (SPWR) - One of the most mature solar stocks
General Electric Company (GE) - The most environmentally responsible blue chipper out there, as well as the only original DOW Industrial still in the index. It’s a huge company though, so make sure you do your research.
Suntech Power Holdings Company Limited (STP) - Big name, big volume. This stock moves like nobody's business...
First Solar (FSLR) - Same profile as Suntech...

High Risk Solars:
Canadian Solar Incorporated (CSIQ) - O snap, not really Canadian (they are actually Chinese). Played right, HUGE yields. Played wrong, look for a window.
Evergreen Solar Incorporated (ESLR) - Quite possibly the only VALUE solar stock.

Super High Risk Solars:
Ascent Solar Technologies Incorporated (ASTI) -These guys have seen a ton of volume lately, with loads of volatility as well.
Solarfun Power Holdings Co Limited (SOLF) - What's in a name? Anyhow, don't we love badly named IPO's? Reminds me of the 20's...knock on wood.

Speaking of IPO's
...these guys have had rocky starts, but MAY turn out well:
Clearwire Corporation (CLWR): Proprietary technology, yet-to-be-released service, WIMAX competitor, what's not to love? (note the sarcasm in the prior sentence) Could be bust or a boom.
Xinhua Finance Media (XFML): You know the drill. Chinese demand for tech and entertainment will no doubt grow. The question is, who is gonna sell all this stuff? These guys? Who knows...