Tuesday, March 31, 2009

GM - More of the same

I predict that I will be having lunch today, or at the grocery store, or at yoga class and someone will say to me, "Can you believe that they gave the joker who ruined GM $21 million dollars to leave?"

The following WSJ headline, if that's all you read, gets one precisely to that spot:

For Wagoner, $21 Million at the Exit

If you do read the article, you will see that $20 million (of the $21) is pension and benefits (he worked at GM since 1992). The remainder is deferred comp and stock that he earned in prior years.

If the Journal wasn't interested in engendering outrage, a more accurate headline would have been, "GM's Wagoner had a pension plan, but then again so did every GM employee."

Another Bubble

We need one. Even a small one.

European markets are up and our futures are up nicely. It looks as though we will recoup some of the shellacking we were handed yesterday, but yesterday was truly awful.

It would be nice if something away from stocks would start working on a sustained basis - making people money and making people feel good. Oil is back below $50, gold is stalled out below $1000 - could it be all those Cash for Gold parties? Commodities are back to acting like commodities.

The extent to which the government is involved in the fixing and running of the economy is frightful - from managing auto and insurance companies to deciding which banks will survive and who will run them to an unrepentant rush to regulate both things that should have been regulated all along and things that shouldn't. Whether you like this body of work or not, it is going to take some time for it to bear fruit. If something else was working, and we weren't fixated daily on who is doing what, it would be much easier to get where we need to be.

Monday, March 30, 2009

Skype - This might work

"If we do it we will have to do it incredibly well,"
Scott Durchslag - Skype CEO

Everybody is reporting this morning that Skype is rolling out a Skype app for iPhone and Blackberry tomorrow at the CTIA show. I commented last week that Skype for business would be a tough proposition. Skype for high end phones is a natural, but the above quote pretty much defines the market opportunity.

Apple and RIMM have raised the bar consistently for functionality on handheld devices. The first version of any app usually isn't perfect. If Skype doesn't get one almost perfect very soon, someone else will, which will not only stick a fork in their smartphone aspirations but also jeopardize their 450 million user installed base.

AIG's Kiss of Death

The following is from today's WSJ:

"a transaction sold to Hewlett-Packard shows that AIG's tax-cutting deals spread beyond the financial sector, filings in a case in U.S. Tax Court show. According to a person familiar with the business, AIG's tax-structuring operation was even bigger than the credit-default-swaps business that led to the company's meltdown."

AIG was the gold standard for high-end insurance products. In the same way that nobody ever got fired for buying IBM, AIG had special cachet. Now everything that it touched is turning to the opposite of gold.

As it will be impossible for the company to regain its former market status, it's too bad that we taxpayers own it.

On a longer term and more positive note, they helped put a serious dent in the market for products that are so complex no one can understand them.


The futures are down big this morning. If the main reason is in fact that the GM and Peogeot CEOs have been forced out, then I'm betting that cooler heads will prevail later today. The U.S. autos may be too big to fail, but I don't think they're big enough to do serious dmage to the U.S. economy from this level.

edit: It looks loke the market is more worried about Geithner's comments yesterday, where he opined that there are banks that are still in trouble.

Oil is getting hit accordingly, almost back below $50.

Sunday, March 29, 2009

Stocks vs. bonds

John Mauldin's weekly (I think) newsletter samples index expert Rob Arnott in the article titled, "Why Bother With Bonds?"

The premise, or purpose, is the debunkification of the rumor that over every long period of time, stocks outperform bonds. We have just gone through a long period where that didn't happen. Like 40 years long.

That all makes an excellent argument for owning stocks.

Palm - Place you bets

Palm, as you can see from that chart, is up huge year to date in anticipation of next month's launch of the new Palm Pre smartphone.

The chart tells you all you need to know about expectations for the thing. They're huge. I would bet a lot of money that one of these two other things happen:

  • Dell buys them. The whole company, not the phones. Dell has cash and needs a boost. Lots of color over here.
  • The Pre is a flop. Apple and Blackberrry have the market pretty well covered for business. Everyone else has some version for the student crowd.

A much better OS would go long way to tilt the odds but I haven't heard much detail on that of late. The Dell thing feels likely.

Saturday, March 28, 2009

Cloud Computing

This is going to be interesting.

"Microsoft and Amazon.com have clashed with IBM and a group of other leading technology companies over an attempt to set some broad technology principles for the coming era of “cloud computing”.

The unusual public spat points to a deeper struggle under way between some of the world’s biggest technology concerns as they try to position themselves for what is expected to be the next big thing in the tech "

"Cloud computing" has not been precisely defined yet but the horses are jockeying for position. It's an open-ended reference to the idea that as the Internet increases to improve in bandwidth, it's possible and maybe optimal to have more of the computing power that you use centralized somewhere else as opposed to on your own computer.

Who will get paid for it? Obviously, the hardware guys, content providers or the guys who own the pipes. Or maybe Google. IBM? That I don't see. Watch that space.

Bases and bonuses

"March 28 (Bloomberg) -- Bank of America Corp. plans to increase some investment bankers’ salaries by as much as 70 percent following the takeover earlier this year of Merrill Lynch & Co., people familiar with the proposal said.

“The concepts we are considering would not increase total compensation,” Brian Moynihan, Bank of America’s president of investment banking and wealth management, wrote yesterday in a memo to employees obtained by Bloomberg News. “Rather, we believe it is responsible, and consistent with the emerging public consensus, that a greater percentage of overall compensation come from fixed base salary.”"

Oh really.

The public, according to Bloomberg, now believes that investment bankers should have higher base salaries. Maybe it's impossible to ever have an intelligent conversation about money. At least this chapter will be over soon.

Friday, March 27, 2009

Seagate - something is up


Disk drive leader Seagate is up over 110% in the last 20 days. As you can see from the lower panel, the last time the name traded this much volume the name was gapping down.

My bet of late has been that if the market could put in a bottom, there would be some early cycle names that would work in the short term. In tech, semis, flat panels and disk drives fit the bill.

The semi index is only up about 25% over the same period (since the March 9 lows) so it's safe to assume that something else is going on with Seagate. This is pure speculation by if I was Samsung I would have been feeling very acquisitive at the levels that we were at a month ago.

Happier Friday

The S&P 500 is now down less that 8% ytd. The NASDAQ is actually up. Not many would have predicted this a month ago, so the whole thing does and should feel like a victory. If you're inclined to be uneasy at the amount of government that is the underpinning of this recovery, go right ahead.


Best Buy was up 12.5% yesterday. Reported earnings were down but not as bad as expected. Revenue held up pretty well. Best Buy is a winner and continues to gain share, especially share of the profit pool in consumer electronics. Sure, Circuit City folded, but they did so as much because of Best Buy as anything else. Buy winners.


I need to head into New York. Hopefully I'll have something intelligent to say this weekend.

Thursday, March 26, 2009

Blockbuster and Tivo II

Yesterday I wrote about the Blockbuster/Tivo deal and how both of the companies are strategically in need of something. Maybe not this deal exactly but something.

It is noteworthy that both stocks were up significantly yesterday, and not just a little - 3% for Tivo and 10% for BBI. Usually when a deal is announced, one party is viewed as giving something up and its stock trades down accordingly. Not so yesterday. Back out the short covering and there may nave been some real buying in there.

Don't do it

The WSJ is reporting that the Obama administration is renewing the push to raise taxes on oil producers. The higher that oil goes, the more palatable this notion becomes. The problem is that the more you tax producers, the less incentive they have to find more oil.

"In recent years, surging crude prices have led to record profits for the major oil companies. A report by the Congressional Research Service last year said the top five major integrated companies -- Exxon Mobil Corp., Royal Dutch Shell PLC, BP PLC, Chevron and ConocoPhillips -- generated more than $100 billion in profits on nearly $1.5 trillion of revenue in 2007.

Last summer, when oil prices were near record highs, Democrats in Congress proposed slapping a windfall-profits tax on oil producers, rescinding various tax breaks for the industry and using the money raised to fund alternatives such as wind and solar power. The oil industry said the proposals would do nothing to bring down $4-a-gallon gas prices. The legislation died."

I might suggest raising the tax on consumers of oil but I guess that would be silly.


Futures are up nicely this morning after that wacky up/down/up day yesterday.

Wednesday, March 25, 2009

Retro stock

Tech stock Salesforce.com is so 1999, or 2005, or something other than most of what is kicking around the market these days.

The company, which sells software on demand, or software as a service, has two things going for it (or against it) that are in short supply in this market. It is still growing quickly and its stock is very expensive.

A good analyst at Morgan Stanley downgraded the name this morning citing shrinking average deal size and a tougher pricing environment. Both of those are excellent reasons to downgrade a software stock and the shorts should be all over it for the foreseeable future. . I don't have an edge on the name but he's probably correct.

Blockbuster and Tivo

Blockbuster and Tivo ave announced a partnership whereby Blockbuster (BBI) will begin selling Tivo (TIVO) DVR boxes and later will begin to supply on-demand video to Tivo customers through those boxes.

Tivo's revenues have actually been declining of late as cable providers have their own DVR capability. Blockbuster (10-year chart of BBI's Bataan Death March included) is fighting for survival. In terms of watching movies, what Blockbuster is really competing with at the younger end of its customer spectrum is file sharing and piracy - why rent a movie when you can find it for free?

I'm very interested to see how the file sharing angle shakes out. If I own a movie, should I be able to lend it to you? I think so. Should I be able to lend it to 1,000 people? Probably not.

Holman Jenkins

In today's WSJ Jenkins takes big issue with the mess that has been the AIG bonus aftermath. He is pissed off and I don't blame him.

"Americans clearly cannot trust their elected officials to defend their rights and interests, or care whether justice is served, when the slightest political risk might attach to doing so."

Not coincidentally, there is another editorial in there praising the populist knee-jerk actions of the day. The populist version reeks of righteousness but I'm not buying it.

More tough sledding.

Tuesday, March 24, 2009

Can I go too?

The Wall Street Journal is reporting that President Obama is going to meet with a dozen or so Wall Street execs on Friday. He probably should have done this sooner.

He made a comment on 60 Minutes Sunday that the Wall Street guys "need to spend some time outside of Manhattan" or something to that effect. That is true for sure but what is also true is that Obama hasn't spent much time in New York or any on Wall Street. This and every country need an engine that can, among other things, make people rich. The boss should know what makes these types tick.

Not so fast, not so sure

Don't look now but the S&P 500 is now down less than 9% year-to-date and the short-term bias is clearly higher. The end of the world crowd is still being kept out of the party.

I still haven't heard anyone call this the Obama rally but that's probably right around the corner.

Windy Joe Kernen just went on a rant about how the government doesn't create wealth, which I happen to agree with.

Dollars to donuts

"China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”."

Wow. We don't exactly need any more dislocation. As you can see from the WSJ chart above, it has been flattening out but has a lot of room to go down is that's going to be the direction.

Monday, March 23, 2009

Party Pooper

Not just a theory.

If you own something (a stock, I mean) that you don't love, sell it. The S&P 500 has gone up, almost in a straight line, 21% in two weeks. Taking some gains. or getting your house in order even if there are losses in some cases, makes sense.

Even if all the government silver bullets hit home, there will be another selloff that you will want to take advantage of. Gold will not be the best performing asset class forever.

TALF quote of the day

From Tim Melvin at RealMoney;

"My bet? The hedgies and institutions tweak their models and come up with a way to rip the face of the banks and taxpayers and walk away with the bulk of the money."

There is a lot of money to be made from this public/private gambit. The dark underbelly of the above way of of thinking and quote is that if someone is making money, it's a good thing to some people. In totally amateur-hour fashion, higher prices are making me feel better about things.

The market today was a short killer.

TALF Rally

Futures are up big as the public/private partnership to buy toxic assets idea is being met with some optimism. At least it's finally out there. The question remains whether it will find any participants, as under-the-radar institutions don't want to get be subject to TARP-like fallout.

It looks like CNBC is very excited about TALF since it is very comlicated and gives them something to talk about.

The dollar is still getting hit but will not go to zero.


Skype is targeting the business market. Good luck. We have been using it for years and the quality stinks. Free only gets you so far.

Sunday, March 22, 2009

Nintendo has got to be killing it

Pokemon Platinum for DS (Nintendo's handheld dual-screen game system) came out today. I stood in line with my two boys outside of Gamestop this morning to pick up a game we had paid for in advance to reserve.

The Wii product cycle is long in the tooth and Wii Fit and Wii Music haven't taken off as they could have, so the stock hasn't done anything of late as you can see (5-year chart). Still, the franchise is super solid with preteens (and older kids in Japan) and the stock is cheap.

It looks like a good place to be.


Looks like it's on like Donkey Kong.

For Sun, 24 years of ugh with one half-decade of brilliance --->.

WSJ is stating rather definitively that the IBM lawyers are going through the Sun contracts to make sure they didn't give away the farm or something. The deal should be a wrap this week. Elsewhere in the Journal they remind us that Sun's market cap was over $200 billion at the peak. That looks like a typo but isn't. Those were the days, sort of.

"Throughout the bubble days there were reams of insightful, logical and compelling arguments from the bears on why things were destined to fail. Of course they were ultimately correct, but many of them were so early that they missed tremendous gains.

The idiotic bulls who bought into the new paradigm argument look absolutely foolish in retrospect, but they are the ones who made the big money if they employed a halfway decent money-management methodology." James DePorre

There will be another bubble. I wouldn't mind catching a piece of it.

Internet censorship

I wasn't sure how countries whose intent it was to censor internet content went about it:

"In February last year, Pakistan Telecom began routing the prefix to a null site inside Pakistan. This routing message was then forwarded to the rest of the internet so that all traffic to ended up in Pakistan. That turned out to be bad news for YouTube which owns the prefix and which was more or less unnaccessible during the hijacking of its prefix. The 28th February has since gained some notoriety for being the date of one of the most serious prefix hijacks in history."

I'm sure that there's a workaround for any conceivable censorship methodology, in this country at least.

Saturday, March 21, 2009

Apple again

If your average tech stock joined a gym and went every day at 5:30 am, it would be so it could look like this chart right over here --->. That's an Apple 2-year.

Pretty triple bottom.

The only thing that would make that chart nicer would be if the stock were already higher, but then the stock would already be higher.

People who know seem to think that this market is overbought short-term. We're down so far I don't think it matters. Apple is coming off a couple of tough Mac quarters, but that's nothing that a good global virus couldn't reverse. If you want to own tech, Apple is a decent place to be.

If it was easy

We could pay some kid 4 bucks an hour to do it.

I'm taking about running a newspaper.

I got this email from the Washington Post this week. They want me to join the Washington Post fan club on Facebook. Why would I do that? I have no idea.

Newspapers are a tough business. You need to create content and sell it. Every day. Most non-unique content is now free online.

Does the Post's Facebook fansite make me or you more likely to buy advertising on the site, or shell out for the printed version? Nope. More tough sledding ahead.


It has always been and will always be OK to not know something. Or to be unsure about something.

I'm not sure how I feel about the ridiculous bonus law just passed by Congress, other than the fact that I think it's ridiculous. Execs who screw up shouldn't get paid. There are folks at struggling companies who should. From the Washington Post:

"The bill passed by the House on Thursday would eliminate those bonuses for thousands of workers at eight of the largest U.S. banks, in addition to employees of AIG, Fannie Mae and Freddie Mac. It would slap a 90 percent tax on bonuses to employees with incomes above $125,000, or household incomes above $250,000.

A broader Senate bill, which could reach the floor next week, would also tax thousands of bonus recipients at regional banks."

Trying to paint every banker in the country with the same brush, in the same color, is a really sketchy idea. One might think that the time and energy devoted to the issues of the day might have created a heightened understanding of the subtleties of the situation at hand. Hasn't happened.

Bad Guys

<-- That cartoon has nothing to do with the following two paragraphs from a Financial Times story today. Nor is it timely.


"US federal regulators have warned of a “rampant Ponzimonium” as they disclosed they are investigating “hundreds” of possible scams in the aftermath of the $50bn fraud allegedly perpetrated by Bernard Madoff.

Bart Chilton, a commissioner at the Commodities Futures Trading Commission, the US regulator, said the watchdog was “seeing more of these scams than ever before” in commodities and other futures markets."

is an unprecedented level of shock, awe and outrage right now. Let's please get the bad guys off the streets so we have some hope of getting back to business.

Four Months Later

I wrote this 4 motnhs ago. Still true. Not sure why I was thinking about it this morning.



Citigroup, which has been backstopped by Treasury and therefore, according to conventional wisdom, should not be at risk of failing, is reportedly "looking at options." That's not-so-secret-code for trying to sell itself. My problem with this market is the same as that of lots of people I've talked to. Earnings and in some cases the equity have lost all importance when considering whether to buy or sell the equity.

How could that possibly make sense? The only important element for lots of names is the balance sheet. Note that I wrote "names" and not "equities." We're in a credit crisis-induced bear market. If a company has a balance sheet that you can't explain to a 6 year old, the stock is and has been trading like it's going to zero.

I'm not complaining. With what happened to AIG, and Lehman and Bear, it's obvious that managements don't even get it. How could investors be better off?

Let's continue with the Citigroup example. Citi earned the following:

2005 $3.07
2006 $3.82
2007 $4.25

Granted with leverage coming down, earnings power is not going to be what it was, but the company has proven definitively that it can earn $3 without breaking a sweat. Is the stock trading at 1.5x normalized earnings? Wrong question.

It doesn't matter. If you work at a publicly-traded financial institution, please complete the following survey:

Our balance sheet is:

[ ] highly leveraged
[ ] a ponzi scheme
[ ] I have no idea

Friday, March 20, 2009

Friday, Triple Witch, Tired Market

U.S. futures and foreign markets are generally down a little and oil is up a little (more) to $51. Something changed over the last week or so. Crude oil went from being a leading economic indicator to actually reflecting oil fundamentals. I'm not sure why. Could be currency.


Interesting take over here on Cisco's coming potential battle with Apple. Cisco purchased camcorder manufacturer Pure Digital to deepen its foray into digital home products. They already do set top boxes and home wireless networking. I am interested to see how this plays out. Apple = cool. Cisco = stuff that works, period. That's not about cool but Apple products tend to work too.


Taiwan Semiconductor Manufacturing Corporation (TSMC), the largest contract semiconductor manufacturer (they manufacture other companies' chip designs), released last night that beginning in April the company will cancel all unpaid leave for employees as orders have picked up.

More signs of semiconductors bottoming, but I wouldn't be to excited about the slope of the recovery in this weak demand environment.

The stock traded down a little last night but that's the way it goes in markets with no Reg FD. If you ask a company, "how's business?", instead of saying, "as we said on our last conference call...", they might tell you.

Thursday, March 19, 2009


Nice quarter by software giant Oracle last night. Powering through in a miserable environment.

Anyone notice that Oracle and IBM have vanquished the long-held truth that big mergers and acquisitions don't work in tech? More on that later...

Technical maybe

Merrill's technical analysis team yesterday opined that the semis completed a base yesterday, or confirmed one.

If you want to trade something in techland in an economic funk, you might want to look here.

Tech is early cycle, and semis have always been cyclical. That's a negative not a positive but the silver lining is that the semis know how to bottom - the companies and the stocks.

Back at the ranch, Morgan Stanley is recommending taking profits in the group.


Ed Liddy, the volunteer, out-of-retirement, pro bono CEO of AIG got treated very unfairly by some on the hill yesterday. Shame on those populist jokers.

May the best one win

<-- That little gem is a 2-year picture of the butt whooping that Amazon.com has laid on Google and the S&P 500. To be fair, Amazon has not exactly been competing with Google but that is about to change, kind of.

Bloomberg is reporting that Sony and Google are teaming up to combat the momentum that Amazon currently possesses with e-book Kindle. Google has access to a lot of titles, which leap frogs Sony ahead of Amazon's library. I'm not sure about the features and functionality on the Sony unit but since that market hates a monopoly, they've got a shot here.

The market also hates expensive single-function devices. Since both are selling over $300 the real volume battle is not going to be waged up here. One of them will cut price big, soon.

By the way, the name of the Sony reader is PRS-700, which is awful. My bet is that Amazon wins this round, then Sony or someone else catches them next upgrade. Maybe a Chinese ODM with a proprietary Google model.


MSNBC.com is reporting that swearing at your 401(k) statement is therapeutic. Probably less so if you don't have a job.

The futures are down a little at 5:00 am but Europe opened up so there's hope. The mighty mighty Fed's gigantic balance sheet maneuvers trumped all yesterday and sentiment over the same will win out today. They're going to buy everything except you house, but they'll lower your mortgage interest rate instead. Curiously aggressive.

Have a good one, I need to head down to D.C.

Wednesday, March 18, 2009

Made-for-CNBC Administration

CNBC has got to be loving the Obama administration and all of the serious up-in-the-air issues. I can't remember a time when so many momentous issues needed resolution and could go ither way. Mark to market, the uptick rule, AIG, taxic asset treatment, protectionism, mortgages, corporate welfare for the entire auto industry...

The is no end to people who can come on the air and debate either side of something of great significance to the financial markets. AIG is unfortunately dominating this week, but should wrap up shortly after Liddy's testimony today.

I'm looking forward to the financial media getting back to talking about individual stocks and not what's going on inside the beltway.


People generally attributed yesterday's rally to a better than expected housing start number, which seems wrong to me. We still have too much unsold inventory. Zero would have been a good housing start number.

Sometimes figuring out why is very difficult.

New and exciting

What's it going to be today?

The futures are down a little as the market might need a breather. Despite the fact that the S&P has risen more than 15% in seven trading days, you can see from the 6-month chart of the S&P 500 that we have not exactly scaled to dizzying heights.


IBM for Sun Micro? IBM has a long history of doing very standard, boring things for large companies. Sun has a history of doing some of that while treating the company's R&D effort like a massive junior high science fair project. It doesn't make a ton of sense to me but since the data center battle is all about IBM vs. HP, I can see the upside.

Tuesday, March 17, 2009

I'm back. Happy St. Paddy's Day

Y’know” said the Scotsman, “I still prefer the pubs back home. In Glasgow there’s a little bar called McTavish’s. Now the landlord there goes out of his way for the locals so much that when you buy 4 drinks he will buy the 5th drink for you.”

”Well”, said the Englishman, “at my local, the Red Lion, the barman there will buy you your 3rd drink after you buy the first 2”

”Ahhhhh, that’s nothing”, said the Irishman. “Back home in Dublin there’s Ryan’s Bar. Now the moment you set foot in the place they’ll buy you a drink, then another, all the drinks you like. Then when you’ve had enough drinks they’ll take you upstairs and see that you get laid. All on the house.”

The Englishman and Scotsman immediately scorn the Irishman’s claims, but he swears every word is true. “Well,” said the Englishman, “did this actually happen to you?”

”Not me meself, personally, no,” said the Irishman, “but it did happen to me sister.”

Monday, March 16, 2009

Monday, AIG etc.

It's nice to see that AIG is trying to throw Goldman and others under the bus. AIG voluntarily wrote billions in credit default swaps. Those bets are now coming due - it's not that sinister or complicated.

Futures are up nicely again. You never know.

I'm in Canada for a few days. I'll be back Wednesday.

Sunday, March 15, 2009

Here we go again

“We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he wrote Mr. Geithner on Saturday.

This new wrinkle in the A.I.G. saga is getting lots of attention on an otherwise quiet weekend. The WSJ is reporting that the bonuses are part of a long term plan and can not be voided, according to the company.

I'm not a fan of the Fed or the Congress micromanaging private sector compensation, but the "best and the brightest" from A.I.G. need to get zeroed this year.

Saturday, March 14, 2009

I forgot about this gem


OK, I do have a question. Where is the money?

Madoff had $50 - 65 billion of client money. That includes embedded gains so I'll assume it was $30 - 40 billion at the time that the clients and feeder funds gave it to him. He made no trades - that is a fact. The WSJ is saying that his net worth is $826 million. Poof.

There is no way that he turned $30 billion into $826 million by doing nothing. Can someone please find that money?

Understanding engineers

An engineer was crossing a road one day, when a frog called out to him and said, "If you kiss me, I'll turn into a beautiful princess."

He bent over, picked up the frog and put it in his pocket. The frog spoke up again and said, "If you kiss me and turn me back into a beautiful princess, I will stay with you for one week."

The engineer took the frog out of his pocket, smiled at it and returned it to the pocket. The frog then cried out, "If you kiss me and turn me back into a Princess, I'll stay with you for one week and do ANYTHING you want."

Again, the engineer took the frog out, smiled at it and put it back into his pocket.

Finally, the frog asked, "What is the matter? I've told you I'm a beautiful princess and that I'll stay with you for one week and do anything you want. Why won't you kiss me?"

The engineer said, "Look, I'm an engineer. I don't have time for a girlfriend, but a talking frog, now that's cool.

Come on guys

We really need some progress on this TALF initiative. I'm not sure whether it's a silver bullet but to get these assets moving and price discovery in place has to be better than the standstill we're at now.

"After failing to sign up enough investors in time to launch the Term Asset-Backed Loan Facility early this coming week, the Federal Reserve and Wall Street are reworking the TALF program at the 11th hour.

The Fed delayed the program's launch by two days, until Thursday. Wall Street dealers, including J.P. Morgan Chase & Co. and Barclays PLC's Barclays Capital, have created vehicles to participate in the TALF that would allow investors in the program to circumvent many of the restrictions laid out by the Fed. The vehicles resemble collateralized debt obligations, or CDOs, and use some of the financial engineering that was partially responsible for the collapse of the credit markets.

Through the program, an investment fund can put down $5 to $14 for every $100 it plans to spend, borrowing the remaining $95 to $86 cheaply from the Fed. It agrees to buy highly rated securities issued by lenders that the Fed deems eligible collateral for the loans."

It speaks to the skittishness of this market that the Fed wants to get involved to the tune of one trillion dollars and is having trouble finding partners. Soon, though.

Friday, March 13, 2009

How about this?

I'm going to just put this here in its entirety rather than link to it. Andy Grove, former CEO of Intel, has some words of wisdom for Obama, voters and all y'all.

Mr. President, Time to Rein In The Chaos
By Andrew S. Grove

Wednesday, March 11, 2009

"There is nothing more difficult . . . than to take the lead in the introduction of a new order of things."
-- Niccolò Machiavelli

Machiavelli's 500-year-old warning notwithstanding, we elected a president who is committed to "change." The economic meltdown in which our country finds itself at the start of his administration makes his difficult task even more daunting. In less than two months, the hopeful enthusiasm that welcomed the Obama administration has given way to growing worry and frustration. I find myself wringing my hands, not over the goals President Obama has set but over the ineffectual ways the administration has pursued them. I have no qualifications to judge how well the Obama team manages the political dynamics, but as a business executive with 40 years' experience, much of it managing change, and a part-time academic dedicated to studying why so few corporations succeed in navigating change, I feel compelled to comment not on the what of the Obama team's efforts but on the how.

I have found that to succeed, an organization must travel through two phases: first, a period of chaotic experimentation in which intense discussion is allowed, even encouraged, by those in charge. In time, when the chaos becomes unbearable, the leadership reins in chaos with a firm hand. The first phase serves to expose the needs and options, the potential and pitfalls. The organization and its leaders learn a lot going through this phase. But frustration also builds, and eventually the cry is heard: Make a decision -- any decision -- but make it now. The time comes for the leadership to end the chaos and commit to a path.

We have gone through months of chaos experimenting with ways to introduce stability in our financial system. The goals were to allow the financial institutions to do their jobs and to develop confidence in them. I believe by now, the people are eager for the administration to rein in chaos. But this is not happening.

Until the administration does this, we should not embark on attempting to fix another major part of the economy. Our health-care system may well be ripe for a major overhaul, as are our energy and environmental policies. Widespread recognition that all of these reforms are overdue contributed to Barack Obama's victory in November. But if the chaos that resulted from initiating such an overhaul were piled on top of the unresolved status of the financial system, society and government would become exhausted. Instead, the administration must adopt a discipline; not initiating a second wave of chaos before we have a chance to rein in the first.

The point is, all administrations, including this one, have a finite capacity to deal with the details of monumental problems -- and the financial system's troubles certainly are monumental. Equally important is that society has a finite capacity to understand what created the problem, what the likely solutions are going to be and, most important, what can be expected from the new order of things and when.

Leading an organization, let alone a society, out of the chaos phase and into a new order requires explicitly clear and consistent messages from the top. The leader must paint a picture of the new and fill in lots of detail so that all relevant parts of society understand what they need to do to contribute. The answers to the questions "What is wrong?" "What are we going to do?" "How are we going to do it?" and "What should we expect?" should be drummed home relentlessly. This needs to be an ongoing process, where clarity, consistency and repetition are key. It is hard work and requires a laser-like focus on the solution.

First things first. Strive to achieve stability in our financial system. When the momentum is clear enough to allow trust in the system to return, then tackle the next mega-problem. As Machiavelli said, "One change always leaves the way open for the establishment of others."

Andrew S. Grove was chief executive of Intel Corp. from 1987 to 1998 and now serves as senior adviser. Since 1990, he has taught strategy at Stanford University Graduate School of Business.

Jon Stewart

“No one that ever lived has ever had enough power, prestige, or knowledge to overcome the basic condition of all life—you win some and you lose some.”
Ken Keyes Jr.

Financial blogs are buzzing over the ass kicking that Jon Stewart handed Jim Cramer last night on Comedy Central. You can see the interview over here (nsfw believe it or not). Folks seem thrilled to see a financial expert taken out at the knees by a comedian.

Jon Stewart is very intelligent, as I assume most really good comedians are. He wants CNBC to be more about informing and less about entertaining, which may be a noble goal, and is very thoughtful in articulating what is bad about the CNBC brand of infotainment. People want to make money and if you can entertain them while they're doing it, you'll be a winner. Nobody has made money over the last few years which creates a lot of unrest.

Cramer is annoying as hell but nobody has to watch his show.

Semi Caps

<-- That stinker is a 10-year chart of the leading semiconductor equipment manufacturer, Applied Materials (AMAT). The company has almost no debt, lots of cash, both of which are attributes that I wish I possessed.

has gone through the arduous 2-step, multi-year transition from growth company to growth cyclical to plain old cyclical. Not fun and revenue has flattened out in the $8 - 10 billion range despite a blossoming solar business and lots of acquisitions along the way.

Morgan Stanley is recommending buying the group today, in an argument that is elegant in its simplicity. Spending by AMAT customers - the semiconductor manufacturers themselves - was down 28% in 2008 and is expected to be down 50% this year. You buy this group when business is bad and everybody knows it. I like this call.


<-- That's a 2-year look at Goldman Sachs. Nice action.

Since November there are a series of higher lows. There's another 20% or so until resistance. More than a double to get to the previous high (dare to dream).

Goldman may be bad example but I'm wondering which bank will be first to raise money - common or preferred - without the govvies telling them to. They could pay back the TARP money, buy a healthy bank or buy a troubled one.

I'm sure the bankers still think their stocks are cheap. JP Morgan is up 45% this week. Is it time to sell some?

“Courage is not the absence of fear, but rather the judgment that something else is more important.” - Ambrose Redmoon

I was joking

I wrote yesterday after the GE debt downgrade that maybe even the U.S. government debt shouldn't be rated AAA any more. I was joking but maybe China was thinking along the same lines and isn't.

"March 13 (Bloomberg) -- Treasuries fell, halting a two-day gain, as stocks rallied and China’s Premier Wen Jiabao said he is concerned about the safety of U.S. government debt.

China, the U.S. government’s largest creditor, is requesting “the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets,” Wen said at a press briefing today in Beijing. "

That probably doesn't mean much since we have the secret weapon of being able to print money, but if China does decide to lower the weighting of U.S. bonds in its portfolio, we'll feel it.


Becky Quick just said "unch'd". Weird.

Thursday, March 12, 2009

This week's broken record

I still do not trust this market or this administration (with respect to capital market friendliness) but a quick 10% move hasn't gotten us anywhere near resistance.

I wish I were smarter and had something of great import to share but I don't. If you're nimble, enjoy. We are due for some worse-than-expected news.


One of the books I’m currently reading is Malcolm Gladwell’s latest, Outliers. I have mixed feelings about reading contemporary works by “thought leaders” but I usually do, and Gladwell makes some good points. This one is about why some people are really different or exceptional, not just that there are such people and yada yada about what they have accomplished. It's interesting to me at least that I used to think of the term outlier as more likely referring to an event, not a person.

The largest holding in my wife’s IRA Rollover is T. Rowe Price Midcap Growth Fund, which has been a wonderful performer for years. Yesterday she got the annual report in the mail and she was actually reading it. A 42 year old Central New Jersey homemaker and gym rat with a liberal arts education and a marketing background reading a mutual fund report – now there’s an outlier.

Sure they were

February U.S. retail sales ex autos rose 0.7%. Right. January was also revised up. Maybe they only surveyed Walmart.


Mea Culpa

I forgot that I wrote the following Tuesday morning at 5:54, just ahead of a 6% rally. Even I don't read me.

"The futures are up nicely (yawn) and oil is flattish. There continues to be smart money around calling for a rally. I'll know it when I see it."


If you've been waiting for a chance to sell Ebay, you might as well do it today. The stock is trading up a couple of percent coming out of yesterday's analyst meeting where the company gave super rosy projections for 2011. Alrighty then.


GE's debt is no longer AAA. It may be that the U.S. government's debt is no longer AAA.

8 cent stock

Nortel Networks, the once mighty telecom equipment provider, looks like it is done. Things do not end this way very often. It is very hard to kill a tech company.

There is no scale on the x axis of that <--- chart but it doesn't matter. You get the picture.


Doesn't feel like Thursday

Don't read too much into that, though. It is Thursday.

The market appears to be a little tired after the last two days. The shorts probably did most of the work on Tuesday fueling the rally. That we didn't give half of the gains back yesterday is notable.

The futures are down a little as we approach 6:00 am. Oil seems like a non-event this month and the currency markets are still showing the "hide in quality" trade.

I don't know whether the market has bottomed. Still. To me, the more interesting question is whether stocks have reached a level where good fundamental ideas can work. I, and most investors, don't need every stock to go up. It is an impossible market when every stock is going down. Something in between as a new normal would be wonderful.


I don't really care what happens to Madoff from here. I would like to know where the money went. I would like to see folks get as much back as possible. Don't bother shutting the barn door. The horse is gone.
If I had a helicopter there are about a zillion things I would rather be doing than following Madoff's ride to the courthouse.


Finally a battery breakthrough? The BBC is reporting the following:

"A new manufacturing method for lithium-ion batteries could lead to smaller, lighter batteries that can be charged in just seconds."

Big deal etc.

Google wants all your information

They might let you see it too if you're lucky.

The news yesterday:

"For years now, Google has watched and often recorded where you've gone online, what you've searched for, what videos you've watched and even what you write in your e-mails.

But the advertising and search giant has always said it only used that data to make its services work better, and that the company did not build dossiers on its users. Instead Google used the term someone searched on that moment or what content was on a partner's web page to decide what ads to show.

That wall toppled Wednesday -- when Google announced that it would begin selling behavioral profiling ads."

Google will track your behavior to determine how to best show ads to you. The good news is that if you're an 18 year old man, you'll see fewer ads for old age homes. The bad news is that this probably doesn't stop here. I don't want anybody, let alone a large corporation, tracking my every click. How much information "sharing" is too much? We're getting there.

Zero Newspapers?

The NY Times today talks about the rapid demise of newspapers, particularly in two-newspaper cities.

"Denver, Seattle and Tucson still have daily papers. But now, some economists and newspaper executives say it is only a matter of time — and probably not much time at that — before some major American city is left with no prominent local newspaper at all.".

Local news, weather, sports and classifieds are still a real business and not everybody can get the info they're used to from a computer. I will be interested to see what fills the void.

Wednesday, March 11, 2009

What’s Working

Party Gaming Plc., owner of poker website Party Poker, is up over 160% since the November low. The stock was up 7%+ in London today as the company indicated that it is optimistic that it will be allowed to re enter the U.S. market.

The company withdrew from the U.S. in 2006 as the UIGEA was passed, and its stock got hammered.

The overall growth rate of online poker has cooled. Party’s revenues grew only 3% in the just-reported quarter. If they do in fact get back into the U.S. market, the revenue acceleration will be breathtaking. I’m not entirely sure how much of that has been priced in.

The fear of missing

It is a fact of life that it is easier for a professional long-only investor to get fired for underperforming in an up market than a down market. Most of the money comes in when stocks are flying. This unfortunate set of circumstances leads to chasey, momentum-type behavior when stocks are ramping like they were yesterday, even for folks who are not momentum investors.

The very early continuation action is strong which should suck more people in. I don't know if this is real or not but since we've got so much room until we get to important technical resistance, I wouldn't aggressively fade this strength.

I guess I'm in no man's land as well.

Irony Alert #17

Times are tough.

"Saks, General Motors, newspaper group McClatchy, clothing company J.Crew, FedEx, UPS, Coca-Cola Bottling, Reader’s Digest, Motorola, Regions Financial and Sprint Nextel are among the growing list of companies which have suspended contributions in recent months.

Even the AARP, the influential advocacy group formerly known as the American Association for Retired Persons, will suspend contributions to its staff 401(k) plan from March 22 for the rest of the year."

I wonder if these matching payments are ever coming back.


The futures have been gaining momentum over the last hour as the chatter is that Geithner may actually have some details to share.

Round Two

You know that huge move that we had yesterday with the S&P 500 up over 6%%? You can hardly even see it on that 1-year chart to the left.

The futures are green this morning as it looks as though the bulls will give it another push. There is upside running room for this market but nothing has been fixed so it is probably a bad time to fall in love with stocks again.


Libor as been creeping higher from its recent low on January 8. Could the banks be getting worse again?

Tuesday, March 10, 2009


That was different.

The worst bank still standing - Citigroup, thanks to a goldilocks yield curve - leaked that they had two good months in a row and we're off to the races - maybe.

Tomorrow the guys and gals who have been afraid to proclaim their bullishness will be coming in the windows. I haven't talked to any professional traders today but this felt like a whole lot of short covering, which won't have much follow through without real investors coming in behind.

Better than down, though. Gold stocks got hammered, obviously.

They're killing it


March 10 (Bloomberg) -- Citigroup Inc. Chief Executive Officer Vikram Pandit said his bank is having the best quarter since 2007, when it last posted a profit.

“I am most encouraged with the strength of our business so far in 2009,” Pandit wrote in an internal memorandum obtained today by Bloomberg. “In fact, we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007.”

Recent history lesson

From a recent edition of the Economist:

"Over the past 35 years it has seemed as if everyone in finance has wanted to be someone else. Hedge funds and private equity wanted to be as cool as a dotcom. Goldman Sachs wanted to be as smart as a hedge fund. The other investment banks wanted to be as profitable as Goldman Sachs. America's retail banks wanted to be as cutting-edge as investment banks. And European banks wanted to be as aggressive as American banks. They all ended up wishing they could be back precisely where they started." (The Economist, "A special report on the future of finance," January 24, 2009, p. 17.)


The futures are up nicely (yawn) and oil is flattish. There continues to be smart money around calling for a rally. I'll know it when I see it.


Fund family Dodge & Cox Chairman John Gunn on his firm's performance last year:

“The performance of several of the fund’s holdings in the financials sector was breathtakingly bad,”


Texas Instruments held its mid-quarter update last night, narrowed the range and didn't go out of business as far as I can tell. I wouldn't buy it but tech overall should act better today, which is not saying much after yesterday.


Awesome article on quants taking over/not taking over Wall Street.

The Physics of Money

I gotta go to NYC. See you tomorrow.

It's a battle

“Life can only be understood backwards, but it must be lived forwards.”
Soren Kierkegaard

Yesterday, Bloomberg.com published an article opining that Ben Graham would still think that this market is overvalued. The argument is that in bear markets, stocks have traded at less than 10x earnings (10-year trailing average earnings) so they probably will this time as well. My friend Charlie Minter from Comstock funds makes this argument all the time and it puts me on tilt. Charlie bears it up weekly over here.

As follows is a summary of recent earnings revisions for the S&P from the excellent John Maudlin:

  • On February 13, David Rosenberg, Bank of America's North American Economist, recently reduced his 2009 and 2010 S&P 500 operating EPS forecast to $46 (from $56) and $55.50 (from $63), respectively. Mr. Rosenberg is now forecasting an S&P 500 low of 666 based on a 12x multiple of forward (i.e. 2010) earnings.
  • Francois Trahan of ISI Group dropped his S&P 500 earnings forecast from $60 to $45 on February 23. Mr. Trahan used a 13x multiple to forecast a potential market low of 585.
  • On February 26, Goldman Sachs' David Kostin dropped his 2009 and 2010 S&P 500 operating EPS forecast to $40 and $63, respectively, after deducting $23 and $8, respectively, for provisions and write-downs. Mr. Kostin uses a 13.2x multiple of 2010 earnings (pre-write-downs and provisions) to come up with a year-end 2009 S&P 500 target of 940.

That ^^ is bad. No denying it.

If we're doing a 10-year exercise, I'd rather value something I'm going to buy today based on the next 10 years' earnings rather than the trailing 10 years. Trailing earnings are history, not analysis. That being said, I've invested in crappy semiconductor stocks for long enough to have trouble with the idea that with all the information available, stocks will trade at trough multiples on trough earnings again, absent consensus that there is something very much worse looming.

Monday, March 9, 2009

Daily Blueprint for 2009

  1. Really ugly pre market futures

  2. Fake rally in the morning

  3. Afternoon fade as everyone realizes there's nothing good going on

  4. End

Another day that makes folks want to do anything other than trade this market, let alone invest in it.

Not quite full circle

Henry Blodget, the former star Internet Analyst at Oppenheimer and Merrill Lynch, saw his Wall Street career ended by Eliot Spitzer et al over conflicts of interest in research.

Henry - a good analyst and a good writer - was forced to reinvent himself. He founded and now presides over a family of websites where he writes prolifically and with insight and humor. Silicon Alley Insider, Clusterstock, Green Sheet and The Biz are his properties and today in Silicon Alley Insider he questions the achievability of the 10% growth rate that analysts are expecting for Google over the next three quarters.

The reason that I bring it up is that Blodget's call was highlighted as market moving news in the morning email of a Wall Street sales guy today.


Despite the Merck / Schering-Plough merger announcement, U.S. futures are ugly this morning. The lack of fun continues.

BofA is good at acquisitions

Another setback:

"A Merrill Lynch currency trader has been suspended after racking up more than $400m in undisclosed losses in recent months, raising further questions about the financial health of the investment bank bought by Bank of America last September.

Merrill is poring over the books of Alexis Stenfors, a London currency trader, who was suspended after Norwegian and Swedish currency trades went wrong, according to people familiar with the situation. Merrill is in talks with UK regulators after uncovering what it called a trading “irregularity” in London."


According to today's WSJ, Mozilla's FireFox browser has gone for 19% market share last June to 22% last month.

"The most recent version of FireFox, released last June, makes it much easier for Web surfers to return to a site they've previously visited. They won't need to know the site's address -- the browser's address bar offers what's essentially an automated bookmarks list.

This is likely to reduce the number of search queries per person over time. People frequently use search engines as a de facto address bar to find a site they visit repeatedly but haven't bookmarked."

The above feature is not enough to build or sustain momentum, however. FireFox is cooler than Internet Explorer, which may be.