Leadership

Conventional wisdom would tell you that after we get a meaningful bottom (which we might have gotten November 20 but nobody knows for sure), either financials or consumer discretionary stocks will be the early leaders in the new bull market.

It might in fact be the financials since this is where the government is applying the pressure. With the ever diminishing dividends, caps on compensation and a very punk lending environment, extended upside in the financials seems unlikely.

The technology component of consumer discretionary has been making noise of late and yesterday acted very well as the chatter out of Asia post the Chinese New Year included talk of rush orders and gave a better tone to the PC supply chain. Commodity spot prices had a better January. This is certainly a sector that knows how to bottom - they've seen a lot of cycles - including a doozy less than a decade ago.

I'm not calling a bottom but tech is where I'd be looking.

Pesky Taxes

Geithner had a tax problem but is soldiering through.

Daschle had a tax problem but is soldiering through.

Killefer had a tax problem and said no thanks.

Daschle changed his mind and says that this is too much trouble.


These folks are good at raising taxes, collecting taxes, spending tax dollars. Not so good at paying taxes.

Tough Times at Sandisk

Flash memory maker Sandisk reported a terrible quarter last night as expected in what should be the best of times for flash memory, ex the macro evironment. Consumer electronics sales are quite strong relative to the rest of the economy, laptops with solid state drives are right around the corner for the mainstream of the market, there is a whole generation who don't know what camera film is.

A couple of highlights:

• product gross margins (GAAP) were -61%
• the company may issue stock down here ($9.25 in the aftermarket) despite declining Samsung's offer in the $20s

I'm not saying that Sandisk did anything wrong (other than not accepting Samsung's offer), this is what a semi down cycle looks like.

What really stinks about semiconductor investing in this decade is that you get all of the pain of the downside with little of the euphoria, end zone dances, obscene margins and multiple expansion of the upside.

Semi cycles tend to bottom when the commodity trades for a period below the actual cash cost of production (like right here). I'm hearing that the royalty portfolio for Sandisk is worth $6 - 8 per share so the stock will be a buy in the next few months if Samsung doesn't buy it first.

Important Michael Phelps Update

Nobody gives a crap about smoking dope.

"MANCHESTER, England -- The International Olympic Committee and two of Michael Phelps' leading sponsors expressed support for the Olympic great Monday...

Luxury Swiss watchmaker Omega termed Phelps' actions a private matter and "nonissue." Swim wear manufacturer Speedo called the 23-year-old American a "valued member of the Speedo team."

"Michael Phelps is a great Olympic champion," the IOC said in a statement e-mailed to The Associated Press. "He apologized for his inappropriate behavior. We have no reason to doubt his sincerity and his commitment to continue to act as a role model.""

I'm going to go out n a limb here and say that he could probably get away with cheating on his taxes as well.

Who will buy bank stocks?

From Dick Morris' weekly email:

"The federal government's acquisition of preferred stock in virtually all our major banks sets the stage for full nationalization. After all, if the feds are using their "preferred" status to hog all the dividends, why should any private person buy bank stock?"

I assume that the idea that investors only buy bank stocks for the dividends is intentionally overstated here, but the question of why buy a bank stock here is a valid one.

Dividends are great, especially in a low or negative return equity environment such as we have been in. With common dividends having been cut to the bone at most financials, the main reason that you or I would buy a bank stock is the prospect of the stock going higher. It's pretty simple. Business needs to stop getting worse for the stocks to work. At that point. brave/early buyers step in, shorts begin to cover, fearful sellers take a break and sooner or later you have more buyers than sellers.

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Oil seems to be very comfortable hanging out at $40/bbl or so.

A Little Misdirection at Apple

"Apple Planning Video-Call iPhone "

"Apple May Use ‘Nuclear Arsenal’ to Delay IPhone Rival"

It looks to me as though Apple used the weekend to roll out some tricks to get people's attention away from the health of their leader. If the innovation machine falters without Jobs at the helm, Apple's stock will as well, in a big way.

The more the debate around Apple is about whether the company should have disclosed more about Jobs' health, the more the multiple suffers, despite the beating that Apple has been laying on the digital competition.