The Rayno Report

CES: What's Hot, What's Not

Mon, 16 Jan 2012 13:06:02 GMT

Returned from CES last week. Slept for a couple days. Woke up. Tried to remember something that will change the world. Couldn't think of anything.

Here's a problem: CES is becoming like the old Comdex. It's like a giant star that's gotten too big and general and will soon Supernova and collapse in upon itself.

Here's another problem. Apple generates the most excitement, both form the technology and a investment perspective, in the mobile consumer electronics space. And Apple doesn't go to CES. So what you have is a gigantic hallway filled with 150,000 people trying to copy Apple.

What's more important is what Apple will do next. Apple will do a sleeker tablet with LTE connectivity. Apple will try to do TV -- again.

That being said, there was stuff to listen to. If you want a list of some potential future tech trends, I wrote about some futuristic stuff on Investor Uprising.

In terms of investment ideas, I believe that the place to look in mobile and consumer is in suppliers and chips, because clearly as devices multiply it opens up many chip markets for many players. Read my CES Investor's Guide on Investor Uprising.

Market Chaos Breaks Loose: What to Do Next

Tue, 02 Aug 2011 15:11:41 GMT

So far our outlook has proven astute, as we advised readers to be continue to be involved in the precious metals as the best hedge in the mounting global debt crisis, which is far from over. Gold has hit a new high this week, and is likely to continue higher -- with periodic pullbacks. But this week, even more action indicates that the European debt crisis is metastisizing and likely to spread to other markets.

The U.S. approval of a new debt ceiling has taken a back seat to some important developments in key markets.The warning signs include the following:

* The Swiss Franc spiking to all-time highs against the dollar and other currencies

* 30-year Treasury bond yield dropping to under 4%.

* All European bonds being sold

* Gold hitting new highs.

The markets are telling you something. Personally I have gone to a much higher cash position, and I have bought more gold and silver as protection against mounting currency devaluation. I also believe there are certain places to hide such as high-yielding energy, dividend, and biotech stocks.

As a reminder, in March, Investor Uprising launched a premium investment newsletter service that gives you access to our best ideas and detailed research. Investor Uprising Confidential (IU Confidential) published an important report, "All That Glitters: The Ultimate Gold Report," which told you why at $1,450 gold was still undervalued and likely to go much higher. Gold traded today as high as $1,646.The report tells you why this is likely to be only a way-station to much higher prices.

IU Confidential also completed some detailed research on the Biotech market, which shows that it can be a "place to hide." The biotech market, as measured by leading biotech indices, did not lose as much during the 2008 financial crisis -- and when it bounced back, the performance was much better than the leading indices. In other words, Biotech has outperformed the S&P 500 with less risk during the last five years.

Our research indicates this is likely to continue. You can still get both of these reports individually -- or subscribe to the service and get both of them plus five more bi-monthly reports for the next 12 months.

As a Rayno Report reader, this research is available to you at an exclusive low price. Click below for these exciting offers:

The Best of Biotech -- $399 Special (Regular $500)

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The Acai Adventure

Sat, 04 Jun 2011 12:25:39 GMT

I have become fascinated by Acai, even though I can still not pronounce it correctly and I won't even bother trying to figure out how to print it with the accent which I can't find on my computer keyboard. I'm an admitted latecomer to the trend. Yes, it's old news. But it's still a good story. The recent New Yorker article did a great job outlining the background.

The New Yorker article tells the tale of how two SoCal chums and University of Colorado grads (Go Buffs!) Ryan and Jeremy Black "discovered" acai in the Braizilian jungle and started marketing it in the United States, kicking off what would become one of the most potent health-food marketing booms in recent history, aided and abetted by none other than Oprah.

What I found interesting about the article is not so much about the controversy surrounding the health benefits of acai (like most debates, the truth lies probably somewhere in between), but the entrepreneurial spirit of the two Black brothers and their partner Edmund Nichols. The went to the jungle with a load of credit-card debt, locked in a long-term contract to sell acai through a Brazilian producer, and spent hundreds of thousands in the first year to ship Acai to the United States. Within two years they were doing half a million in sales and now they do $50 million. Quite an adventure.

The other story in acai is about marketing. How does an obscure jungle fruit go from being a locally enjoyed delicacy to a multi-billion-dollar global business in ten years? Savvy marketing. The blacks hooked into real-world health research and captured the Brazilian mystique. The more nefarious marketeers later leveraged Acai into online marketing scams. But both the legitimate companies and online scammers had something in common: They knew that consumers like a good story, and you can't get much better of a story than a mysterious berry coming out of the Brazilian jungle.

Here is an abstract of the article from the New Yorker (full article available only in print):

ABSTRACT: DEPT. OF FOOD about açaí. Açaí was virtually unknown outside Brazil until ten years ago, when Ryan and Jeremy Black, two brothers from Southern California, and their friend Edmund Nichols began exporting it to America. Embraced as a “superfruit”—a potent mix of cholesterol-reducing fats and anti-aging antioxidants—açaí became one of the fastest-growing foods in history. Supermarkets have become filled with açaí-laced products. Lately, however, studies have questioned the extravagant health claims for açaí, and online vendors selling diluted products have raised the question of whether açaí is a fraud. Early boosters like Oprah Winfrey and Dr. Mehmet Oz sued to remove their names from the marketing, and the Federal Trade Commission shut down the operations of a major Internet açaí seller.

Read more http://www.newyorker.com/reporting/2011/05/30/110530fa_fact_colapinto#ixzz1OKFfI9Ay

Riverbed's Next Leg of Growth

Sat, 14 May 2011 10:16:59 GMT

It's hard to pick stocks in cloud computing, because so many of them have become absurdly overvalued. So what I do is look at a handful of them, learn about the companies, and try to figure out which ones have true staying power. Then you look for opportunities to buy them on pullbacks.

Riverbed is a company that I have been following for several years. I have published a profile of Riverbed here on my new site, Investor Uprising, in which I try to explain how Riverbed plans to expand. A true "best of breed" player in WAN optimization, Riverbed is now looking to use its leverage in that market to branch out and grow on more fronts. I had a chance to meet with several Riverbed executives at Interop in Las Vegas, and following those meetings I think the company is on the verge of taking it to the next nevel. CEO Jerry Kennelly very clearly described some growth opportunities for the company that will take it from a point-product company to a multifaceted networking power.

Here's the important thing about Riverbed: Its technology takes advantages of long-term trends in networking in computing: Data-center consoldiation, the migration of apps from the enterprise to the cloud, and outsourced networking optimization. If you are asking what this all means because it's too many buzzwords -- it's that large and small companies both are looking to outsource more of their technology and networking needs to service providers who operate in the "cloud" -- providing any application or computing online, at any time.

The reason this is important for Riverbed is because it flies in the face of what has built the existing networking juggernaut: Cisco Systems. Cisco is built on the emergence of Ethernet networks and IP routing. It comes from an era in which companies hired armies of IT people to configure and deploy Ethernet switches and routers. All of that is moving to the cloud and massive data centers run by service providers. The interesting thing here is that Cisco has displayed weakness in selling data-center products: Its software is aging and lacks the scale to handle the shift.

This is a profound shift and one to carefully watch in the networking space. On the valuation, Riverbed recently pulled back $10 from an all-time high and I used the opportunity to pick up some shares. The P/E is a palatable 30, given a growth rate in excess of 40%. The PEG is now 1.40, which is well of recent highs. You have to pay up for this company because it has such huge prospects.

(Disclosure: Long RVBD).

Uncle Ben: Gold's Best Friend

Wed, 27 Apr 2011 23:16:28 GMT

Another Fed day, another episode of serial money printing, another banner day and a new high for gold.

It really feels like gold has entered the final and most exciting stage of the bull market. As Jim Sinclair, long-term gold trader, Chairman of Tanzanian Royalty Exploration, and Publisher of JSMineset.com says, gold is ready to go ballistic.

It's another breakout in a series of powerful breakouts. We've been alerting you to these breakouts ever since this site was launched. Remember this one? Or what about this one? And this one.

It seems to happen at least twice a year now, gold consolidates for about six months and then breaks out into a powerful $200 move. But silver is now the star, having doubled in less than a year!

Here's some good reading on the topic:

Investor Uprising has a great technical look at gold by Fred Goodman.
My new site, Investor Uprising, has published an new exhaustive, 28-page report on gold, written by yours truly.
Jim Sinclair says we're headed for $1650 next on the way to $2000.

Introducing Investor Uprising

Mon, 11 Apr 2011 19:18:56 GMT

Investment comrades, I have helped launched a new site sponsored by PRNewswire called investor Uprising. There, you will find everything you love to follow, including business trends, rising companies, stock picks, and model portfolios.

The Guide to Investment Metrics tells you how to screen for more reasonably valued companies. Investor Uprising expands on the investment philosophy developed in these pages: looking for reasonably valued, growing companies and invest slowly over time, ignoring volatile market swings and focusing on dollar-cost averaging. It works in bull markets, and it helps you survive in bear markets. By focusing on stocks with low valuations, you can reduce your risk.

Go to the site now and register -- if you are among the first 1,000 registrants you will be entered into a drawing for a free iPad!

Check it out here.

Four Low-PEG Stocks

Tue, 29 Mar 2011 06:38:00 GMT

Next week I am launching a new Website for PRNewswire called Investor Uprising. It is going to focus on high-quality investment opportunities and business trends. We'll also pick and watch lots of stocks on a GARP (Growth at a Reasonable Price) basis.

For the first project, we are creating a list of 30 companies which we will use to build an Index. This comes from a methodology I have used for 10 years to screen stocks and build "monkey" portfolios that can be bought and passively left alone. Using this method, the portfolios have averaged a 30% (cumulative) return since 2006 and none of them has ever lost money.

Next week you will find these stock picks on Investor Uprising (which has not yet launched), but today I'm going to give you four of them. Here are some low-PEG stocks we will be following at Investor Uprising.

Dolby Laboratories (DLB)

12-month sales growth: 28%

12-month income growth: 17%

Forward P/E: 15

Return on Equity: 20%

PEG Ratio: 1

Summary: Dolby is dominating the business for digital music tools. Specifically, it licenses many of the leading digital sound and signal processing systems for digital film, DVS, Blu-ray, and digital 3D systems. It has been steadily growing for years.

Veeco Instruments Inc. (VECO)

12-month sales growth: 150%

12-month income growth: 1,000%

Forward P/E: 13

Return on Equity: 46%

PEG Ratio: .72

Qualitative: Veeco is a leading manufacturer of important manufacturing and testing equipment in the LED, solar, and seminconductor market. It also makes equipment for the manufacturing of disk drives. If Veeco's growth rates seem absnormally hight, its because it swung from losses to a profit in 2010, yielding what looks like spectacular earnings growth. It has also growth its revenue through merger.

Gilead Sciences Inc. (GILD)

12-month sales growth: 0%

12-month income growth: -20%

Forward P/E: 9

Return on Equity: 45%

PEG Ratio: .70

Qualitative: Gilead is an extremely well-managed biotech company with a long track record of high ROE. Recently, it's revenues have been flat and earnings have shrunk due to maturity of some key drug markets. However, it is still enormously profitable, booking $2.9B in profits in 2010, and its valuation is just plain cheap.

Medifast Inc. (MED)

12-month sales growth: 57%

12-month income growth: 147%

Forward P/E: 10

Return on Equity: 33%

PEG Ratio: .50

Qualitative: Medifast is a fast-growing producer of diet supplements and nutrition products. The Medifast brands include many varieties of diet and weight-loss shakes, vitamins, food bars, and other food products.

Stay tuned for the launch of the new site! We are looking for moderators and bloggers. If you are interested, ping me at scott.raynovich@investoruprising.com.

Wake Up: U.S. Budget is Out of Control

Wed, 16 Feb 2011 08:08:55 GMT

I'll try to spare you political rhetoric and speak in simple terms: The U.S. Federal budget is out of control. The deficit remains over a trillion dollars, interest costs are increasing, and if something extreme isn't done very soon it will enter a death spiral.

President Obama has put out a budget showing $3.8 trillion dollars in spending in 2011. The projected federal revenues are $2.1 trillion, creating a $1.7 trillion deficit. Huh? This is somebody who said he was heading back toward fiscal conservatism.

That's insane. Not only will the deficit run over a trillion dollars for the third consecutive year, but the total federal budget only four years ago was $2.5 trillion. Folks, the budget has increased 37% in four years!

What if you own budget did that? What if all of the sudden you were spending 30% more than you brought in? What if you were running a company whose revenues were $2.1 trillion but whose expenses were $3.8 trillion? You would try to bring it into balance, no?

Both parties are hiding their heads in the sand. We all know that the bulk of the money is spent on the entitlement programs and defense. Neither the Democrats nor the Republicans want to touch entitlements -- and the Republicans won't touch defense. So we're stuck.

No, they're sticking to rhetoric about ticky-tack discretionary programs that cost few billion there and a few billion here. It doesn't make a bit of difference. We're talking about hundreds of billions of dollars in cuts being needed.

And would it really be "Draconian" to go back, say, to a $2.6 trillion level of spending, which is what we were spending in 2007? Was the government really that much different then? Is it 37% better now? I don't undersand how this can happen.

Radical change is needed now. Social Security and Medicaire reform is imperative. If you don't think so, just look at the chart below, produced by the independent CBO, and tell me the current Congress is on track to fix things.

Look at the chart above and tell me where the "draconian" cuts are. The budget is skyrocketing. The deficits are skyrocking. There are no draconian cuts.

The current path ain't going to do it. it's just common sense. Another year or two of deficits like this with rising interest rates, and the costs of servicing the debt feed on themselves. Let's get out of denial. Let's fix it.

Rayno Report 2010 Portfolio Summary Letter

Tue, 28 Dec 2010 12:23:35 GMT

2010 was a great year in the markets, and a decent year for the Rayno Portfolio, but let's not get too excited. It's like being happy about getting a new Toyota after your buddy totaled your Porsche. That's how I view the 2009/2010 market in the context of the 2008 financial debacle. Yes, I like the Toyota, but can I get the Porsche back too?

The Rayno Model Portfolio delivered a solid 9% gain -- 10.4% total if you include dividends. This is a slight underperformance in the S&P gains. But please keep in mind that we advised readers to go to 100% CASH (or better yet gold) at the beginning of 2008 -- and so our 2008 Model Portfolio lost no money in one of the worst financial crises in history. A 10.4% gain looks a lot better when you managed to avoid the 35% decline two years earlier.

The Rayno Model Portfolio still has a track record of having NEVER LOST MONEY, and the cumulative returns since 2005 are now in excess of 40% total since 2005. Again, a lot of this goes back to the decision of going to 100% cash in 2008.

Sometimes the best way to make money is to avoid losing it.

The results of the model portfolio are below. To summarize, there were some volatile results in our picks. Our best pick was silver, via the Silver ETF (SLV), which was up 70%. As you know we have been fans of the precious metals for many years, and we believe they are in strong, secular bull markets that will continue. I'm still a huge silver bull.

The Rayno Report's Move in 2011: A Real Job

Tue, 28 Dec 2010 09:25:05 GMT

It's been an interesting year. Shortly after moving to Montana, in the "dark days of 2009" when nobody would pick up the phone, I found myself employment challenged. So I did what any crazy editor would do: I holed up in the office above my garage, with a view of the Rocky Mountains, and created The Rayno Report. It's been a labor of love for about 14 months, interrupted occasionally by powder days and the search for large trout.

The Rayno Report grew in 2010 and thanks to help from sponsors such as Adtran, it made money. My accountant reports I ended the year profitably. But these aren't the kind of profits that will allow me to buy an NBA team any time soon. A few weeks ago I was offered a job which will essentially allow me to do the thing I love -- cover and analyze markets in real time. So I did what any sensible father of three would do -- I decided to take the job.

Rayno Port up 9%: Full Letter Coming

Tue, 28 Dec 2010 09:10:37 GMT

Just a quick hit, I pulled the plug on our annual Rayno Model Portfolio for year-end preparation -- we locked in a 10% gain when you include dividends. This lagged the S&P by a couple of points but as a reminder the model portfolio in 2008 was put in 100% cash -- and we alerted readers to the high potential for the crash -- so we missed the downswoop. That means the Rayno Model Portfolio is up a cumulative 40%+ since 2005 which beats the market by a mile.

The results of the model portfolio are below. I'll have a full summary tomorrow. Our best pick was silver, via the Silver ETF (SLV) up 70%. As you know we have been fans of the precious metals for many years and we believe they are in strong, secular bull markets that will continue.

To recap how the portfolio works: In leading up to the January of each year, I use several stock screening and analayis methods to pick stocks I believe will have favorable returns. I then buy a hypothetical $10,000 of each stock ($100,000 total portfolio), and we let it ride as a passive portfolio for the entire year. It is never rebalanced or adjusted.

The 2010 Rayno Model Portfolio performance summary:

Symbol Last Bought Value Net %Change %Total

AMX 56.38 01/04/2010 11,557.90 1,541.85 15.39% 10.65

DO 64.15 01/04/2010 6,415.00 -3,692.00 -36.52% 5.91

LLY 35.07 01/04/2010 9,749.45 -232.39 -2.32% 8.99

MSFT 28.07 01/04/2010 9,066.61 -940.24 -9.39% 8.36

NYB 19.12 01/04/2010 13,199.70 3,288.20 33.17% 12.17

SLV 28.59 01/04/2010 16,582.19 6,578.79 65.76% 15.29

CTSH 73.08 01/04/2010 15,348.90 5,510.90 56.01% 14.15

SOHU 64.87 01/04/2010 11,029.59 950.50 9.43% 10.17

EWZ 74.04 01/04/2010 9,625.20 -419.50 -4.17% 8.87

CGA 9.31 01/04/2010 5,865.29 -4,054.59 -40.87% 5.40

Total 108,439.86 8,531.51 8.53% (without counting dividends) 10% w/dividends

Netflix CEO's Stock Battle: Bad Move

Wed, 22 Dec 2010 11:28:40 GMT

In my 20 years as a journalist, investor, and a trader, there is no bigger warning sign for a company or its stock as when its executives start taking it upon themselves to battle short-sellers who think the stock is overvalued. Such may be the case with Netflix.

Netflix CEO Reed Hastings -- who by the way has sold more than $40M worth of his company's stock in the last 12 months -- is stirring up a highly visible public battle with some well-known and respected hedge fund managers who are openly shorting his stock.

Bad idea.

A couple of points on this:

1) Netflix is a good company. Hastings is a brilliant man. But he should be focused on running his company not battling a few short-sellers. If the company is being run well the stock will take care of itself.

2) For some stupid reason, CEOs tend to seen their stock price as a direct measure of their ego. Of course, Netflix shares have traded to the stratosphere -- has Hastings' ego gone there too?

3) The action in the stock price is about fair valuation, not always about "is this company good or bad." If a stock gets overvalued and falls, it does not necessarily mean the comany is "bad," it could just mean the shares got overvalued. Hastings shouldn't take the trading personally.

4) These short-sellers -- Whitney Tilson and Manuel Ansensio -- are particularly smart and have good track records. Bad people to pick a fight with. Ansensio calls Hastings attacks "disrespectful." I agree.

5) It reflects poorly on the company. It is in bad taste. The street is littered with the bodies of CEOs who attempted to battle short-sellers and eventually lost.

6) Netflix has tons of cash, good cash flow and a great balance sheet. So what exactly are they worried about?

7) If Netflix executives feel so strongly about their stock why are they unloading as if they have just won the lottery? Sure, they have sold through "automatic sales," but that is a pat defense. If they are so confident in their company's stock price you would think they would have scaled back the selling. After all, if they are selling they are doing the same thing the short sellers are -- trying to lock in the value of a huge run in the stock.

Calm down Reed, get back to real work.

Metals Testing Bottom Today or Monday

Fri, 10 Dec 2010 12:21:03 GMT

The gold and silver negativity is suddenly back on financial TV after euphoria just a week ago -- you know what that means: Time to buy!

I picked up some more gold, silver, and mining shares on this AM's flush. We've come a long way back from this morning's sell-off. At one point we were down $20, now we are only down $6 on the day. Gold has now tested the $1370 level twice and survived; silver has tested $28 twice. Both of them are developing well-defined uptrend channels. I think the metals will bottom either today or Monday.

One of the overhangs has been the anticipation of a Chinese rate hike. That, and the fact that many people had a nice run in the metals meant profit-taking ahead of year-end. But everybody is talking about a Chinese rate hiike so how much of a surprise can it be? I say you buy on Monday whether or not there is a rate hike.

All of this sets up for a nice buy point some $50 or so off the recent high in gold. The last three corrections have been swift in violent: $74-$100 flushes in a matter of days, only to reverse higher. I think we will see a similar thing of this correction, most of which is probably done.

Jon Stewart on Money Printing

Wed, 08 Dec 2010 09:27:18 GMT

Nothing like a guy with a beard with the power to print money.

www.thedailyshow.com

Why LEDs Are Easily a $20B Market

Mon, 06 Dec 2010 10:48:51 GMT

I have been doing some more research on the LED (Light Emitting Diode) market and I have concluded that it could easily be a $20B+ market, which would represent enormous growth from here. It's an exciting market.

As described here in my post on EBN Online, the math is pretty simple. Right now, LEDs are estimated to have less than 5% penetration of the global lighting market, which is estimated to be near $80B. In Japan, LED penetration is already approaching 50%. If you assume that LEDs can get to 30%-40% penetration of the global lighting market in the next 10 years, you are talking about a $20B+ market.

The most common LED play is Cree (Nasdaq: CREE), a market leader with a strong patent position. Another good public-market play is VECO, which makes a variety of LED technologies as well as manufacturing and testing platforms.

(Disclosure: I have been in and out of CREE and VECO over. Currently long VECO, and looking for a better long-term entry point in CREE.)

Behind IDT's Bizarre Oil-Shale Rally

Tue, 23 Nov 2010 10:03:04 GMT

What do Michael Steinhardt, Lord Rothchild, Rupert Murdoch, and Howard Jonas have in common? Oil shale and IDT shares, obviously.

IDT Chairman Howard Jonas has presided over an eccentric -- and so far brilliant -- diversification of his telecom company into the oil-shale business. And somehow he's attracted some of the biggest moguls in the world.

IDT shares have rallied 600% since the company got into the oil-shale business, recently announcing plans to spin off subsidiary Genie energy. Read about it here.

What's Wrong With Cisco?

Sun, 21 Nov 2010 09:25:53 GMT

Wow. Cisco. Who would have thunk the stock would be back below $20 when the new bull market in technology is pushing many shares to new highs. CEO John Chambers is still smiling on TV, but you know he is seething behind the scenes.

Where to start... there are so many things wrong with Cisco right now I'm not sure what to pick first. On a technical market level, it's clear to me that Cisco shares are being sold on strength. Last week's puke-out in which Cisco lost 20% of its market cap came on gigantic volume.

On a strategic level, Cisco is adrift and its M&A strategy has been flawed. It has focused far too much on video and consumer products and less on cloud-computing infrastructure. I have been writing about this on Enterprise Efficiency.Cisco was buying flip-cams and settop boxes when it should have been focused on the cloud.

RightNow Makes a New High

Wed, 10 Nov 2010 15:39:43 GMT

RightNow (Nasdaq: RNOW), the best little technology company in Montana, today is powering to new all-time highs fueled by excitement about cloud applications and its recent success in garnering new customers and restructuring the company with a new COO.

The stock rose 1.54% today to $27.68, a new all-time high.

Scanning the news, it's hard to find anything particular that's driving the stock, unless you think a press release entitled "RightNow Helps Leading Consumer Brands Deliver Positive Customer Experiences and Drive Business Value." Nah.

I last wrote in detail about RightNow this summer when it was powering up its new applications strategy, which seems to be taking hold quite well. Since then, the company has also announced it recruited telecom veteran Wayne Huyard to be the new COO. The stock has more than doubled since the summer.

Right Now's riding the wave of a strong technology rally and also some excitement about cloud applications. It could also be an attractive takeover candicate for a larger cloud applications company such as Salesforce (NYSE: CRM).

Riverbed Makes a Cloud Power Play

Wed, 10 Nov 2010 15:07:03 GMT

Riverbed Technology, a company we've covered closely over the last year, is beefing up its clould services product portfolio in a bid to become the leader in cloud networking services.

Riverbed has been riding the cloud networking movement quite nicely. It sells a lot of gear that can be used by corporations and services providers to build cloud services. Now, it's doubling down. Today it introduced a product called Whitewater, which accelerates data connections to a cloud services, as well as Cloud Steelhead, a product that helps services providers build private cloud connectivity services with clients.

Why QE2 Is Wrong

Wed, 10 Nov 2010 09:00:20 GMT

Obviously, this strange beast called "QE2" is in the news a lot, and lots of folks are having their say. I'll have mine: It's wrong.

I'm with Mark Cuban. Unlike him, I'm not a billionaire. Like him, I am not an economist (thank god), and I agree with common sense. Common sense tells me that QE2 is wrong. Government solutions to market problems have failed in the past, and they will fail again.

Here are some of the reasons why QE2 is wrong:

The Fed's Dangerous Game: Buy Everything

Thu, 04 Nov 2010 09:00:42 GMT

Well, the Fed's dangerous game has commenced. Yesterday the Federal Reserve Board voted to crank up the printing-presses even harder, setting aside another $600B or so to buy bonds and other assets through June of 2011. This morning, markets are on fire, especially commodities such as copper, cotton, gold, silver, and the grains.

Keep in mind that this is an "experimental" policy on a historic scale. The most powerful central bank in the world is firing up the world's most powerful printing press in a way never used before -- to buy back trillions of its own bonds.

ConteXtream Grabs $14M for the Content Grid

Tue, 02 Nov 2010 13:09:13 GMT

Silicon Valley startup ConteXtream (yes, the company name spelling is that silly!) announced yesterday that it landed $14 million in Series B funding to go after a big problem in global networks: Virtualizing the management of broadband applications and content through data centers.

Here's the big picture: As the use of content and bandwidth-intensive applications such as movies, photos, social networking, and games explodes on mobile and wireline networks, service providers are having major headaches managing the bandwidth as well as allocating resources in the data centers to serve these applicatoins. ConteXtream's product, a software solution that loads on commodity PC hardware, adds "smarts" to the network delivery of these applications, allowing service providers to manage the resources on their data centers as a single virtualized "grid."

Markets Gone Wild: Idea Update

Mon, 01 Nov 2010 09:02:28 GMT

Well it's time for Markets Gone Wild, but you may not have the DVD, so let's recap: The Fed has been heavily telegraphing an accelerated money-printing schedule, driving bankers, traders, and speculators into all matter of commodities, stocks, and various exotic financial instruments.

Here's a summary:

* Silver reached a new 30-year high this morning. Incredibly bullish action. I think you should stay long silver here, a way to do that is SLV, or a mining company like Pan American Silver (PAAS), or silver futures. (Disclosure: I'm long all of the above). I've been bullish on silver for what seems like forever, and I remain so.

* Gold made a new high, and pulled back. With more money-printing on the way, it looks poised to break out, again.

* Our Riverbed/FFIV pairs trade worked out okay, in a strange way. F5 Networks (FFIV) has climbed 14% since we spotlighted the idea (we were short), but Riverbed (RVBD) is up 30% (we were long), so if you did the pairs long/short trade the difference has netted about 15%. Not bad for a month's work. The philosophy of this trade worked out okay -- the cloud "bubble" had pushed FFIV to a more unreasonalbe valuation, and it was time for Riverbed to catch up. (Disclosure: I am out of the trade, I think "cloud networking stocks" are getting overextended, though I still like Riverbed long term).

* New highs in stocks we like: EBIX, RVBD, PAAS

* Remember Right Now (RNOW)? Incredibly strong stock. Methinks something is up.

Welcome to MoneyPalooza

Wed, 13 Oct 2010 11:14:44 GMT

Wow. Things have really taken off here. Stocks, commodities, and most notably -- the precious metals. Gold is at an all-time nominal high of 1372 and silver at 20-year highs. Copper is pushing aggressively higher.

The trigger for the greedfest was yesterday's release of the Fed minutes, in which the fed governors indicated they are *this close* to unleashing the hounds of quantitative easing.

For those not into the Fed inside baseball or with only a passing knowledge of economics, "Quantitive Easing" is a central banker euphemism for "printing money." There is a reason why they call him Helicopter Ben. The phrase is interesting in that it makes money printing sound exotic and alluring, though it is not that at all: It's printing money.

Quantitative easing may sound sexy if you are an academic economist from Princeton, but in reality it is the siren song for central bankers. They can be dragged into the rocks very quickly. What can go wrong? Well, just take a look at the 1970s. Money-printing seemed great until inflation and the price of oil got out of control and pretty soon you were looking at 18% mortgage rates.

As I've been writing on this site for some time, the only way to prepare for this is to participate in the rally -- of everything -- but to keep tight stops on your trades and hedge with a healthy precious metals position. Metals are still outperforming everthing else, which is a symptom of central banker money printing gone wild. Think about the fact that the precious metals have been appreciating 10-15% per year for 10 years, while stocks are basically flat. That is the byproduct of money-printing: It has an unintended consequence on hard assets which are reflecting the devaluation of a currency.

Bernanke's Secret Weapon: Money Supply

Fri, 24 Sep 2010 15:21:25 GMT

Well, Ben Bernanke appears to be winning over the gloom-and-doom crowd, at least today. What an impressive rally. I was surfing some data trying to rationalize it, and I have noticed some interesting changes going on in the market. The clue may be in the money supply.

If you look at recent charts of the money supply as put together by the dark, yet excellent analysis of government statistics over on Shadowstats.com, John Williams's site, you can see something that is truly intriguing: an uptick in the money supply growth rates.

[img:/assets/10/0924/1538.500]

Source: Shadowstats.com

The Future is Cloudy: The CNBC "Pairs Trade"

Fri, 24 Sep 2010 09:46:35 GMT

Yesterday I was invited onto CNBC to discuss "Cloud Computing," an incredibly broad topic that somehow got boiled down to four stocks, thanks to the magic of television.

The sector is getting a bit overheated and I have been working out some ideas on how to head and/or short selected stocks. Right now I'm focused on the networking stocks because some of them are getting quite overvalued. CNBC correctly asked me how one could possibly short such a hot sector to which my answer is: hedge.

Anyhow, you can see the clip below. There is also a recap on CNBC.com.

The idea I came up with is that you could hedge with a pairs trade. After sifting through some names and valuations, I have decided that F5 Networks (FFIV) is more overvalued than Riverbed (RVBD), and I like Riverbed better in the long term. So a possible trade here is to stay long Riverbed, and short F5 as a hedge. The premise is that F5 is trading at a richer valuation with 10X sales and Riverbed is "only" trading at 6X sales. I would also note that Riverbed is smaller and growing faster so has more room to grow into its valuation.

Market Update: Watch Your Back!

Wed, 22 Sep 2010 12:44:44 GMT

Stocks are showing some early symptoms of rolling over. Yesterday, the Federal Reserve annnounced it was ready to print money ad infinitum to make sure the world does not run out of money. I do not know what Ben Bernanke's academic friends at Princeton call this, but I call it the "Banana Republic" strategy. Stocks are reacting poorly to the news today.

Perhaps it is the fact that the Federal Reserve statement read more like jawboning than an actual decision. They said in the statement that they will do what they can, but the fact remains that there isn't much left to do but print more money and monetize the debt -- an approach more familiar to countries such as Argentina than the United States of America. And we know how well that worked out in Argentina.

Stocks have rallied powerfully in the last month but they are running up against some heavy resistance levels and technical signals show some of the same patterns we saw before previous corrections -- see the chart below.

The precious metals breakout still has legs, you want to accumulate on pullbacks because precious metals will be the place to be through 2011. I believe in an "Innovation-Devaluation" barbell strategy, but tech stocks are more difficult because they have run far and fast. I believe it can be legged into on the next significant correction before the November election. Don't worry, it's coming -- it always does.

[img:/assets/10/0922/1249.500]

A Strategy for Innovation and Devaluation

Wed, 22 Sep 2010 10:14:05 GMT

Are you wondering how to understand the manic-depressive investment world that we have? I think it's about two things: innovation and devaluation. Innovation, because the only way to stay ahead in this sluggish economy is to have a superior product. Then there is devaluation, becuase the government is printing money to devalue the currency in the face of credit deleveraging.

Now that we've defined the two most prominent features of the market, you should ask yourself how you take advantage of this. The concept I've been thinking about for a while is a concept of a "Innovation-Devaluation" barbell. In bond investing, a barbell is a split between short-and-long dated maturities. I think we have a new barbell here: One that balances investments in innovation with those for inflation protection.

Evolution of Greenspan: Gold Rules!

Wed, 15 Sep 2010 10:42:13 GMT

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value."

--Alan Greenspan, 1966

The bizarre, hypocritical evolution of Alan Greenspan continues, as he drifts deeper into the Austrian economics camp. Greenspan is getting some airtime on Financial TV (FTV) this morning as he now says the rising gold price is the "canary in the coalmine."

Greenspan also gained some notoriety recently when it became known that he was advising John Paulson, one of the largest and most successful hedge fund players on the planet, on monetary policy and gold. This advice is ostensibly bullish for gold, as Paulson has built one of the largest gold positions of any hedge fund.

Infospace: Growth for Free

Wed, 15 Sep 2010 10:28:25 GMT

Infospace (INSP) is an interseting stock: Here is a profitable company trading at a Enterprise value/EBIDTA of 1.5, a price to sales ratio of 1, with $223 million of cash in the bank.

In fact, with Infospace trading at about $7, that's only $1 above its cash position, which is $6 per share. This stock is trading like a company that is about to lose a ton of money. The interesting thing is that the operating cash flow over the last 12 months is +$34M, which means it's actually putting money in the bank. What gives? Skeptics could argue that this company, which restructured several years ago, has lost its technology edge and is only a bit player in the Internet search market. But the upside is that you are buying the company only $1 above the value of its cash so essentially you are getting a call option on its growth for $1.

I believe this is a decent bet going into year-end, where Internet advertising and services sector is bouncing back, and Infospace traditionally has its strongest quarters in the last quarter of the year. I have initiated a position around $7 and might buy more if it dips below $7. My stop is at $6, its cash position. The price target is $10 for a risk/reward ratio of 1/3 on the trade.

(Disclosure: Long INSP)

Precious Metals Break Out

Tue, 14 Sep 2010 09:59:50 GMT

The mainstream media and financial press continue to downplay the action in the precious metals, which are staging a significant breakout this morning on news that the federal government is fueling up the choppers to drop more money.

Financial TV and your middle-of-the road pundits remain permanently focused on equities, and are somehow comforted by the meager summer rally in stocks. I'm not impressed, so far. Equities are still badly lagging gold. This has been the pattern for the last 10 years. For example, since October of '09, the S&P is up a paltry 5%, while gold is up 25%.

What does this mean? I think it signifies that we are still in the money-printing regime of the last 10 years, so that whenever the federal government prints money or creates stimulus, a disporportionate amount of the money flows into the precious metals. This is because the smart money knows that what the government is really doing is creating the illusion of growth through currency debasement.

This morning, Silver trades at $20,36, with its eye on the 2-year high of $21. Gold is at $1266, just dollars away from an ALL-TIME high. Imagine the horror in the Federal Reserve when they start reading the headlines about gold making new all-time highs in the midst of their latest money-printing campaign.

Ski Revolution! Boutiques Swarm America

Fri, 10 Sep 2010 10:56:46 GMT

Snow is already starting to coat the peaks of the Northern Rockies, so I've been talking to local ski aficionados and thumbing through the new Powder Magazine Equipment Guide. I'm shocked to find explosive growth in U.S.-based boutique ski-makers producing high quality skis

Many of these ski-makers are classic garage startups launched in the past decade by a few people with some dogs. They are definite leaders in the industry, producing the groundswell behind the "rocker" ski movement, a reverse-camber ski which is the new technology taking hold in the mainstream.

Not all of the skis are handmade in America, with many of them being produced in Europe. But I found very few that are produced in China, unlike the mass-market skis. What's interesting is that these small companies are gaining a lot of attention in the ski community for their innovation, high quality, and attention to detail. Here is proof that startups, jobs, and products can be created through hard work and innovation.

Flashback to 1987

Thu, 09 Sep 2010 15:27:05 GMT

Just in case you thought booms and busts on Wall Street were a new concept. Here is a classic clip from 1987. Check out the cameo appearance at the end by Max Keiser (now an avante-garde Web-based market commentator).

Market Update: It's the Wild West. What's up?

Wed, 08 Sep 2010 11:19:21 GMT

The market is pretty fascinating right now. It is currently featuring 100-point intra-month S&P swings, a solid rally in eccentric commodities like coffee, currencies bouncing around like ping-pong balls, and wild technology M&A speculation. What's not to like?

My bearish thinking is beginning to morph into a more bullish tilt. The reasoning for this is three-fold: 1) The Feds are printing more money 2) Technical "Commitment of Traders" (COT) reports show institutional buyers getting more bullish and retail investors getting more bearish -- usually a bullish indicator 3) it's looking like the bears have had trouble taking the market down in September, which is when they usually take it down.

News Brew: $33 for 3Par

Thu, 02 Sep 2010 11:02:07 GMT

Well, the 3Par bidding war saga looks to be coming to an end as HP's final $33 offer has been accepted and Dell has pulled out of the race.

It makes you wonder about the "efficient market" theory, doesn't it? I mean, here is a stock that was trading around $10 and basically flatlined for about a year, only to suddenly increase by more than 300% in a period of three weeks. The market certainly wasn't efficient at pricing 3Par shares.

Here are the latest stats on 3Par at the current near-$33 level:

Market Cap: $2B

Forward P/E: 122

Revenue (TTM) $203M

Price/Sales (TTM): 9.84

Enterprise value/EBITDA: 294

Hmmm. Not sure I'd call that a bargain.

Onto the rest of the news:

The Atlantic coast of the U.S. is prepping for Hurricane Earl (New York Times).
Andy Roddick is out at the U.S. Open (Wall Street Journal). But the real reason to cite this story is because of this great line: "Andy Roddick’s early exit breaks the hearts of T.V. producers dependent on repeated Brooklyn Decker reaction shots"
3G Capital is acquiring Burger King (Wall Street Journal). Will that yield downloadable mobile burgers?
Bernanke admits he "wasn't straightforward" on Lehman (Bloomberg). According to my thesaurus, here are some synonyms for being "not straightforward": dishonest, crafty, crooked, deceitful, evasive, fraudulent, oblique, shady, shifty, sly, surreptitious, tricky.
Jobless claims decline (CNNMoney.com). Barely.
Ten questions and answers on Apple TV (PCMag). Silliest uestion: Does Apple have a Twitter killer?
In case you haven't refinanced yet, you might want to note the current 30-year mortgage is at 4.32% which is a new all-time record since records starting being kept in 1971 (did they not have mortgages before 1971?) (Wall Street Journal).
Most interesting financial headline of the day: "I'm selling the house and piling the proceeds into Greek government bonds." (Telegraph)
The verdict is in: People hate the new Digg (Mashable). Yes, I do too.

CIO's 10 Loathsome Tech Industry Types

Tue, 31 Aug 2010 13:55:18 GMT

I'm a key influencer. I'm also a technology evangelist, analyst, and journalist. And I can also leverage core competencies. Uh-oh. Sick of me yet?

We live in a world of prototypes, buzzwords, hype, and cliche. That's why I think CIO has hit the market with an article on the "10 Loathsome Technology Industry Types."

Here's an excerpt:

Vendor Marketing EVP You've got great hair—and you know it. Every conversation inevitably returns to "synergistic opportunities for the brand" or "CSR initiatives." You've got an iPhone 4 and you're hip to Facebook and Foursquare. Your most recent and greatest idea (if you do say so yourself): "I know how we'll get potential customers' contact information: Free iPad Giveaway! No one else is doing it!"

Venture Capitalist Wait, wait, don't tell me: You're based in the San Francisco / Palo Alto area, right? Uh-huh. And you once worked for HP or IBM? Yes. You enjoy yachting and golf? You betcha. And, of course, don't forget about your passion for "fine wine." How unique.

The Influencer A relatively new moniker for the same old type of self-aggrandizing, undeserving attention whore of years past: You've probably referred to yourself as a "guru" or "visionary" before. But your "highly soughtafter" methodology for measuring your Twitter influence is a secret worth keeping close to the vest. Definitely.

Pretty good stuff. Go check out the full story at CIO.com: "Influence This: 10 Loathsome Technology Industry Types."

VMware: Cisco's Big Strategic Dilemma

Tue, 31 Aug 2010 12:27:10 GMT

If only you could have the problem of having a 2% investment in a company whose share price has gone to the moon, right? Well, that's where Cisco is with VMware. While its equity stake looks smart at this stage, in the longer term Cisco is going to have to make a bid for either EMC (VMWare's parent company) or figure out the next step to get in the virtualization game.

Here's the problem: Virtualization and cloud computing, VMware's bread-and-butter, is the technology flavor of the decade, and Cisco is relying heavily on a strategic partnership with VMware to get it done. Sources in Silicon Valley are chattering about what Cisco will do about virtualization, a party its been largely left out of. As VMWare's price has shot up while Cisco's share price has stagnated, it's now become all but unaffordable to for Cisco -- VMware now has a market capitalization of $33B.

Bloomberg Survey Sees Gold $1,500

Tue, 31 Aug 2010 09:42:32 GMT

Gold is popping this morning on a number of bullish forecasts, among them a survey of analysts by Bloomberg that sees the yellow metal going to $1,500:

Gold may rise as high as $1,500 next year, 21 percent more than the $1,240 traded at 1:45 p.m. in London, according to the median in a Bloomberg survey of 29 analysts, traders and investors. Dan Brebner, an analyst at Deutsche Bank in London who is the most accurate forecaster so far this year, says the metal may reach $1,550.

With the economy stuck in neutral and Ben Bernanke's money-printing minions firing up another round of Monopoly money, I don't see any reason why gold can't go to $1,500. However, if you are late to the gold party and are afraid of chasing it, here's an idea: Buy some gold mining stocks. They have lagged the gold rally most of the way up.

Some quality gold and silver stocks, including Newmont Minining (NEM), Royal Gold (RGLD), and Pan American Silver (PAAS), are breaking out this morning with bullish action.

News Brew: Litigation Central

Mon, 30 Aug 2010 12:08:46 GMT

What's on my mind this morning? Litigation. Like, Paul Allen suing everybody. And everybody suing Facebook.

What's up with that? Has the economy gotten so bad that the world is looking to lawyers to boost buisness activity?

In other news:

Genzyme rejects Sanofi bid (Wall Street Journal)

Intel to buy Infineon's wireless outfit for $1.4B (CNN Money).

Blackberry gets a stay in India (BBC). Quick -- figure out how to let people spy!

HP authorizes $10B buyback (Bloomberg). Bidding wars, buybacks -- who needs all that cash, anyway.

Government to propose new fuel economy stickers (USA Today). They'll come with pretty new graphics! Yay, now that's what I call bureaucracy at work...

Most people don't want to be located (NY Times). Especially me. Right now.

Google plans pay-per-view films (Financial Times).

Cisco is reportedly trying to buy Skype before its IPO (TechCrunch).

The M&A Boomlet: Is Big Tech Stuck?

Thu, 26 Aug 2010 12:29:57 GMT

This bidding war between HP and Dell for 3Par says something to me about big technology companies: They are stuck. They can't grow internally, so they have to look outside the company.

If you think about the evolution of all big industries, they trend toward consolidation and giant companies eating up new companies in the search for growth and innovation. This certainly appears to be the case with players like HP, Dell, Microsoft, and Cisco. The new innovation is not coming from within, it's coming from outside.

What's So Sexy about 3Par? Virtualization

Mon, 23 Aug 2010 10:19:12 GMT

Little storage player 3Par Data is suddenly the envy of many, as it gets caught up in a massive bidding war between Dell and HP which have caused its share price to nearly double in a period of a week.

What gives? Well, virtualization and data centers, in a nutshell. As traditional enterprise spending slows, data centers continue to grow like mad, fueled by Internet services, social networking, and "cloud computing." It turns out that storage and virtualization services -- 3Par blends both of these -- are crucial to this high-growth area of computing.

The Newest Green Fuel: Urine

Mon, 23 Aug 2010 10:11:10 GMT

First there was "greentech," now there is "yellowtech." A team of research scientists in the U.K. are investigating whether urea, a major component of urine, could be used to create energy through low-cost fuel cells.

From Physorg.com:

The biggest obstacles to commercialising these proton exchange membrane fuel cells are cost, with the membrane and conventional, platinum-based catalysts, and challenges involving the transportation and storage of the highly flammable hydrogen or the toxic methanol.

The Carbamide Power System involves far cheaper membrane and catalysts, and can be run on urea (also known as carbamide), a mass manufactured industrial fertilizer and a major component of human and animal urine.

Read the rest here.

News Brew: Intel Locks Down McAfee for $8B

Thu, 19 Aug 2010 09:38:43 GMT

Another day, another deal. Intel has agreed to buy security software firm McAfee for $7.68 billion (Wall Street Journal). That's $48 per share, or a 60% premium to Wednesday's closing price. Nice pop!

This is a pretty interesting move for Intel, as the chipmaker moves into the big security software market, taking on other giants such as Symantec.

Some more news:

Dick's Sporting Goods (DKS) reported earnings jumped 32% (Wall Street Journal).People need more tube socks.
Williams Sonoma posted strong earnings and raised outlook (ABC News). Pots and pans are back?
Germany's economy is growing strongly, expected to hit 3% growth this year (BBC).Get me a Porsche.
The dark side of Mark Hurd's management style (MarketWatch). Rumored to have locked employees in a room to make them watch bad B movies.
RIM is looking to get into mobile advertising (Wall Street Journal). Kinda late guys, no?
Facebook launches "Places" (TechCrunch). It's now gonna tell people where you are.
The tragic death of everything (Technologizer).
378 million shareholders voted against Michael Dell (CNNMoney.com).
Man killed by exploding mobile phone (Daily Telegraph). Really! The brand was Nokia, FYI.

Biotech IPOs Could Fuel Genomics Boom

Wed, 18 Aug 2010 16:30:33 GMT

Two big coming biotech IPOs are likely to reignite investor interest in biotech, specifically the genomoics sector. Complete Genomics (Future symbol: GNOM) and Pacific Biosciences (Future symbol:PACB) have filed S-1 Registration Statements with plans to go public in the fourth quarter. This also happens to be the time when the biotech market is bullish seasonally.

Biotech had a good year in a choppy overall 2010 market, with the NYSE Arca Biotech Index up 15.3% year-to-date (YTD). Selected molecular diagnostics stocks have fared well YTD with GenProbe (GPRO) up 12%, Illumina (ILMN) up 50% , and Sequenom (SQNM) up 44%.

Stock Watch: Looking at Our Picks

Wed, 18 Aug 2010 10:54:04 GMT

Let's catch up on many of the public companies and stocks we've been following:

Notebook Dump: Tech Thoughts, Trends, Rumors

Tue, 17 Aug 2010 11:38:32 GMT

After months of talking to smart people and taking notes, my latest notebook is filled. Usually what I do at this point is read back through the whole thing to see if there are any nuggets that I missed or forgot about.

Why not just dump it straight onto the Web? This is stuff that real people are saying in the real world. For your pleasure, here you go:

News Brew: iPhone 4 Goes to China

Tue, 17 Aug 2010 11:15:18 GMT

Is there a more explosive economic concept than combining iProducts with China? Didn't think so. In that vein, MarketWatch reports that China Unicom starts to ship iPhone 4 in China next month.

Our mind is boggled by the concept of hundreds of millions of frenetic Chinese citizens roaming the fastest growing country on earth clutching iPhones and iPads.

On to the rest of the news:

News Brew: Dell Ponies Up for 3Par

Mon, 16 Aug 2010 09:30:22 GMT

Dell is making a big move into the data storage market with a $1.15 billion all-cash deal for 3Par Inc. It comes at an interesting time, as 3Par's growth and share price had recently slowed and it is still losing money. The offer is an 86% premium to 3Par's closing price Friday of $9.65

The move shows Dell has an interest in moving outside the commoditized world of PCs and comsumer electronics and into higher margin data-center products. 3Par specializes in building large storage arrays for corporations and data centers which can be "virtualized," or partitioned so that the system can handle data from many applications at once.

At any rate, it's paying off big for 3Par shareholders this morning with the stock indicating it will trade up nearly 85%.

Hulu is said to be preparing an IPO that would value the company at more than $2B (New York Times).
Japan's economy is stuck in its tracks again. And theoretically, that means China is now more powerful (Bloomberg). Bullish on Moo-shu, bearish on Sushi?
Want a 4.4% mortgage? Good luck, says Fortune.
China's currency fell to a seven-week low agains the U.S Dollar (Wall Street Journal). Remember all that noise about them strengthening the Chinese currency?
This is what I want for Christmas: A Ferrari simulator (Physorg.com). Scratch that, I want a real Ferrari.
Facebook is buying Chai Labs for $10 million (VentureBeat). Here's a fun fact: it was founded by a former Google executive.
VCs and Super Angles: The War for the Entrepreneur (TechCrunch). Hmm, a bunch of rich arrogant people beating each other to a pulp. Sounds fun.
Tim Ferriss thinks he has a way for you to read 300% faster (Tim Ferriss blog).

Are Net Neutrality Fanatics Being Naive?

Fri, 13 Aug 2010 10:39:53 GMT

The "Net Neutrality" debate has taken a interesting turn this week, triggered by Verizon and Google's joint statement to move toward more tiered services on the Internet.

Here's where I am on net neutrality: It's not black or white. It's gray. Yes, we need to preserve an element of freedom to access applications over broadband. But also, the definition of net neutraility needs to leave some wiggle room to help telecom and media companies roll out some newer premium appications that make money.

I think the recent developments are actually exciting, because there is now a catalyst for change and the debate is out on the table. Verizon and Google getting together is kind of like the executives of the Boston Red Sox and New York Yankees coming to the table on a stadium-sharing deal. But this shows how crucial the issue is, if two of the most powerful corporations in the world are willing to come to the table to talk about it.

[img:/assets/10/0813/1241.500]

As the net neutraility fanatics grab their pitchforks and fire up their blogs, ready the roast the big evil corporations that are trying to swipe away their YouTube Internet, they're being naive if they think things can stay as they are. Stuff's gonna change.

News Brew: Oracle vs. Google -- Battle of the Titans!

Fri, 13 Aug 2010 09:35:42 GMT

Oh, this is fantastic, Oracle is suing Google. Larry Ellison vs. Eric Schmidt -- the Alpha Male vs. the Science Geek. This is going to be very interesting!

Oracle says in a press release that Google "knowingly, directly and repeatedly infringed Oracle's Java-related intellectual property." What's interesting is that it involves Java technology, which Oracle acquired when it bought Sun Microsystems earlier in the year. Hmmm, did Oracle lawyers know something that Sun lawyers didnt?

I'm sure you'll be reading more about that in the days ahead. On to some more news:

IBM is buying software company Unica for $480 million (ZDNet). Unica helps retail sellers target marketing efforts and predict consumer behavior. I bet they can't predict my behavior.
Sequoia is backing Airstrip, a software company that makes mobile patient monitoring applications (VentureBeat).
WePay raises $7.5 million for group payment systems (TechCrunch).
Retail sales rise less than estimated (Bloomberg). Hmm, just a theory here, but does that mean everybody spent their tax refunds?
China mudslides kill more than 1,000 (CNN).
Russian fire spreads near nuclear facility (Bloomberg). No, they don't mean it's come close to Boris Yeltsin.
Google defends net neutrality plan (PCWorld).
New Google apps extend the cloud (InformationWeek).
Citizen scientists, using their computers in the Einstein@Home project, have discovered a rare star (BBC).
Belgium is looking to get greener -- by liquifying corpses (Greenbiz.com). Ewwww.
Liberals start "F*ck Tea" party compaign (CBSNews). Now, that's kind of funny.

Internet Advertisers in EU May Lose Their Cookies

Thu, 12 Aug 2010 10:24:58 GMT

Quietly, the European Union is moving toward broad privacy tightening of privacy on Internet applications, specifically in relation to advertising.

The European "Data Protection Working Party" is developing rules for online privacy, and one of the more commonly discussed elements of the new rules is the "cookie directive," which would require all opt-in by consumers to accept a cookie.

This, of course, is a big change in the way online advertisers currently track your activity. They don't need opt-in to insert a cookie in your browser.

Coming Privacy Freakout: Ad Industry in Denial

Mon, 16 Aug 2010 10:20:29 GMT

The Internet advertising industry appears to be in denial about the growing momentum behind Internet privacy -- and it should start to prepare for more protection of data through global privacy legislation.

As I noted last week, the European Union is moving toward privacy policies, most notably with the "cookie directive" which would require all advertisers to obtain opt-in to place cookies in user browsers. In addition, we are in the early stages of new privacy legislation in the United States which would introduce tighter Internet privacy.

All of these powerful new regulations are likely to put signficant pressure on Internet media, most notably the ecosystem of ad networks and data exchanges.

Chamberspeak Gone Bad

Thu, 12 Aug 2010 00:36:17 GMT

Something on Cisco's earnings call last night went terribly wrong. In a rational business sense, Cisco made plenty of money, even though they missed analyst estimates: $1.9B in profit and $40 billion in revenue for the first time in the company's history really isn't that shabby.

But something else was going on. The conference call was awful. It did not inspire confidence. Cisco executives bungled words, proceeded with a new "four-part" format as if they were trying to choreograph an opera at the Met, and struggled to explain the business climate. Even John Chambers himself, master of the bullish technology catchphrase, seemed to have trouble elucidating exactly what the problem was.

"We think the words unusual uncertainty are ... a description of what's happening."

Whaaa? Had we been suddenly been dropped into some metaphysical California Yoga retreat? Unusual uncertainty? What is that? That's not the Chambers I know. That's downright whimpy.

Cisco Misscos!

Wed, 11 Aug 2010 16:25:17 GMT

Cisco shares are getting hammered nearly 6% after hours after the company missed targets set by analysts.

The company said in a release that it earned $1.9 billion, or 33 cents per share, in the fiscal fourth quarter that ended July 31. That is an increase of $1.1 billion, or 19 cents per share, over a year ago. But analysts had expected 42 cents in earnings. Overall revenue grow to a record $40 billion.

That's a big miss, especially for Cisco, a company that often beats estimates. Given that it's a technology bellwether and often looked to for guidance on the economy as a whole, it will likely add to pressure on the general market tomorrow.

Internet Privacy War Gathers Steam

Wed, 11 Aug 2010 09:48:40 GMT

The Internet privacy movement appears to be gathering steam and leading to growing paranoia (warranted) among those who have the most to lose: Dozens of venture-backed ad networks and advertising data companies.

What's going on? Well, certainly the Wall Street Journal series on data privacy didn't help. This may be the high-profile media piece that tips public opinion toward the privacy advocates, who have been quietly ramping up their assault on the free-and-easy exhange of Internet advertising data.

What should be scaring the Internet marketing companies: The ideas are starting to gain traction in Washington, D.C. Reps. Ed Markey (D-Mass.) and Joe Barton (R-Texas) recently issued statements that "that the price of consumers' daily use of the Internet increasingly is surrender of their personal information."

At the same time, you have other escalating assaults on the Internet advertising marketing machine. Let me name just a few examples:

Europe is ramping up on Internet privacy, including cracking down on cookies. In fact, the EU has issued on opinion that all behavioral advertising must be opt-in. Why aren't more people talking about this?
The U.S. Senate is prepping online privacy legislation!! (Washington Post)
Facebook's privacy errors continue to boggle the mind (Christian Science Monitor)
Other countries aren't happy with Google's Street View. South Korea recently seized Google's computers in an office raid.
The media is starting to question free-and-easy Internet ad data. This may only be the beginning.
The solid privacy series in the Wall Street Journal woke a lot of people up to reality. Maybe this will start to tilt public opinion in the direction of more legislation?

This potentially huge development doesn't seem to be getting that much play. Over the past few years, the venture capital industry has funded hundreds of ad data and ad network companies, all of them based on the premise that ad data would be freely acquired, exchanged and even traded. One such company is Blue Kai, a company I've followed on this site, which has their entire business model based on the exchange of anonymous ad data. There are dozens more. What happens to companies like that if powerful privacy legislation is passed?

And then we have even a bigger story: What about Google? Imagine what could happen to Google's market cap if the legislators initiate sweeping changes to Internet privacy laws.

This story is currently being underreported and underhyped. If you are in the Internet advertising or media industry, you should watch it closely. It could change your life.

Market Update: Batten the Hatches

Wed, 11 Aug 2010 08:47:28 GMT

Let's see, the stock market rallied while economic data was weakening. Yet bonds were rallying at the same time, and yields have been plunging -- to near record-lows of 2.75% in the 10-year! This was a great dichotomy that had many people scratching their heads. Why would stocks rally and bond yields plunge while we got weakening economic data?

Well, if they were fueling up the helicopters, that would make sense.

Remember the bond market is often "smarter" than the stock market. The plunge in yields has been telling you something. Is it not interesting that the stock market and bond rally continued until the Fed announcement and then failed on yesterday's news? Sell the news, baby.

RightNow Opens Up the Customer Cloud

Tue, 10 Aug 2010 13:31:05 GMT

BIG SKY, MT -- RightNow Technologies (Nasdaq: RNOW), a provider of customer-service software, today launched an ambitious new platform to open up the way customer service applications are built "in the cloud."

With the new "Cloud CX Platform," RightNow is honing its focus around improving customer experiences across the Web. With so much marketing hype and confusion built around "cloud computing," this is an important expansion of RightNow's CX (Customer Experience) product that the company hopes will help differentiate itself in the larger cloud services market -- basically any software than can be sold as a service (Saas).

"This is our largest product announcement to date," said Greg Gianforte, CEO of RightNow, at the launch event here this morning. "We're exposing our cloud platform to our customers."

Marketo En Fuego: Close to $20M in Sales

Tue, 10 Aug 2010 08:37:29 GMT

Service-as-a-software (Saas) company Marketo is riding the trend of real-time analysis of customer behavior, making it one of the fastest enterprise software companies in the venture market and a solid IPO prospect for 2011.

The company, a startup founded in 2006, recently surpassed 600 customers in July. Marketo’s revenue is approaching the $20 million level, based on estimates from company sources that the average annual sales per customer is in the $30,000 rage. While the company is not yet profitable, it looks to be a solid IPO candidate for later in 2011 or 2012.

Zero Hedge & Nanex Confirm How HFT is Corrupting Markets

Tue, 10 Aug 2010 00:01:00 GMT

Still wondering why the market has such bizarre action? Why the Mom-and-Pop investor wants little to do with it? Wondering if fear of Flash Crash II runs high? Look no further, High Frequency Trading (HFT) has been indicted in full.

The blog Zero Hedge, one of the most cutting-edge and informative places to get inside knowledge on how the market works, has been pointing to anslysis from Nanex, a market data provider, on how HFT is corrupting markets and trigger May's "Flash Crash." It paints an incredibly disturbing picture of a dysfunctional market rigged by crooked robots.

I won't reprise the entire analysis -- you can wade through the orginal posting on Nanex discoveries yourself, and it's worth a look if only to see the fascinating and bizarre charts. But I can summarize it: The markets have run amok with diabolical "quote stuffing" programs that try to mine holes in the market system and fool other computers and markets into coughing up stock quotes at absurd prices.

Jodie Fisher: Who Is She, and Did She Do Porn?

Mon, 09 Aug 2010 12:11:21 GMT

There is never a dull moment in business scandal world, and the journos and bloggers are being kept very busy by this Mark Hurd story. But let's get down to the most important questions: 1) Did they have sex and 2) Was she ever a porn star?

I'm speaking of Jodie Fisher, the Hewlett-Packard contractor and "actress" which led to the demise of Mark Hurd, who resigned as the company's CEO on Friday following his having falsified expense reports that involve her.

First question: Did they have sex. Oddly, all of the news reports say no. Okay, but I'm real skeptical. It's hard for me to imagine this being a full-blown "scandal" without there being a little more than some aggressive courtship and falsified expense records.

News Brew: The Hurt's on HP's Hurd

Mon, 09 Aug 2010 11:42:48 GMT

Well, what's more important -- a generous severance package or avoiding being disgraced by a sketchy expense-account scandal involving a sub-contractor that happens to be a reality-show actress? That's the moral balance former HP boss Mark Hurd is contemplating this morning.

Hurd resigned on Friday after the Hewlett-Packard board had decided he had broken company policies by falsifying expenses and conducting a personal relationship with a contractor named Jodie Fisher, a former "actress" (yes she has been in porn) and a reality TV contestant. Meanwhile, Hurd's severance package could reach $40 million, reports CNBC.

Pretty weird. Pretty creepy, and I imagine it will only get more so. Here's some other goings-on in the news:

Skype files to raise $100 million in an IPO (Bloomberg). The phone calls might be free, but the investment bankers won't be, I'm sure.
Naomi Campbell took blood diamonds from a brutal dictator. She also flirted with him. Mia Farrow is testifying against her, saying she lied about it (ABCNews). I just find this story fascinating. Maybe Mark Hurd is involved as well?
Yet another Black Swan event: Tiger Woods now sucks at golf (WSJ). He might not even make the Ryder Cup.
Apple's executive in charge of the iPhone has left the company after only one year (PCWorld). Yeah, but how weird is it that his name is "Mark Papermaster"? Is he related to Chris Moneymaker?
Is Net Neutrality Socialism? (PCWorld). Some broadband apps are more equal than others.
A giant ice-sheet is breaking off a Greeland glacier (BBC). I don't know if y'all saw "Day After Tomorrow," but I think that means it's about to get really cold, before it gets really hot. Or something. As long as it doesn't involve Randy Quaid playing a scientist again, I'm cool with that.
Needham says AAPL will go to $375 (Macnn). But can they do it with out Mark Papermaster?
Why do people hoard (Time). I'm glad we have those serious journalists over at Time to answer these important questions for us.

Slip, Sliding Away: Google's Superpoke!

Fri, 06 Aug 2010 12:02:09 GMT

It's Friday, so rather than do any real work, I've been soaking in the news, networking, and catching up on all the gossip surrounding the developing sale of Slide to Google for some $182 million + employee retention bonuses.

Slide, you say? What's that? They make "casual games," which is Silicon Valley speak for: goofy cheap stuff you can build quickly then flip. And what's the big technology innovation Slide will leave the world for $182 million? Superpoke! -- the Facebook app. Yipppeeee! In 10 years will anybody give a damn what Superpoke! is?

The gossip is juicy. Credit where credit is due: TechCrunch had a huge scoop here, digging up the story before it was announced and even publishing the amount that everybody will make (or not make) on the deal. Judging from chatter on various message boards, the top employees at Slide make out well but the great-unwashed -- pretty much everybody on down the line below employee #10 -- didn't make diddly.

News Brew: Jobs, Yoko Ono, and the iPod

Fri, 06 Aug 2010 09:21:28 GMT

The engine of value creation, economic growth, and mortgage payments is jobs. To build stuff, you still need to hire people. Unfortunately this morning's jobs report was a bit of a disappointment, as private-sector jobs creation fell short of expectations, growing by only 71,000 for the month.

Unemployment remains elevated, with the number of unemployed persons, at 14.6 million, and the unemploymen rate, at 9.5 percent, unchanged in July, according to the Bureau of Labor Statistics (BLS) report.

Where are the jobs? Healthcare, and surprisingly, manufacturing. Healthcare added 27,000 jobs and manufacturing employment increased by 36,000 jobs in the month.

I've been doing my own research in the technology industry, and I will say, I have noticed an uptick in activity lately. Two sources at Internet jobs boards indicated that jobs listings are growing. Individual companies have also been expanding their hiring. For example, take a look at the "Careers" page of Right Now Technologies, a local company I have been following here in Montana. Their listings have expanded to 58 people.

Now, 58 jobs is not enough to counteract the macro trend, but it's clear that there is still growth in innovation markets (hey, I had to find the positive spin somewhere).

On to more of the news:

CNN's take on the jobs market. Before you read this, you have to realize the big headline loss was in temporary Census workers.
Wheat prices are hitting highs on the Russian drought situation. Meanwhile, millions of metric tons of wheat are rotting in India (AP).
Activision Blizzard fell on disappointing results (AP). No blizzard of cash, apparently.
Yoko Ono says the Beatles won't be coming to iTunes any time soon (AppleInsider). As long as they keep Yoko Ono's music off iTunes as well, we'll be okay.
Mixed metaphor of the day: "RIM, Adobe, and Microsoft Grasping at Mobile Straws" (PCWorld). I am trying very hard to imagine what a mobile straw is. Aren't all straws mobile?
All 1,000 studemts at Kearns High School in Utah will get an iPod touch (Salt Lake Tribune). And just in case you don't know how to get some people riled up -- point out that these were bought with stimulus money!
Neither Google or Verizon officials are talking about the latest net neutrality kerfuffle -- the rumors that they're going to do a "deal" for tiered traffic pricing (CNET). Meanwhile, I'm still campaigning for beer neutrality -- all the beer you can drink.
1 million little brown bats have been killed by a disease known as white-nose syndrome (BBC). That's not to be confused with white-man syndrome, which renders Silicon Valley executives unable to stomp their feet in rhythm to soul music.
Japanese social games company DeNA is on track for $1B in revenue (TechCrunch).That's a lot of sushi.
Avere Systems raises $17 million (VentureBeat).

WSJ's "DataGate": Did They Forget Google?

Thu, 05 Aug 2010 12:50:35 GMT

You have to commend the Wall Street Journal for assigning the resources and churning out the investigative pieces as part of the "What They Know" series. But I thought they missed a lot of things.

For example, didn't they forget Google?

The series of articles goes on at length about cookies, with much detail about data aggregation firms such as BlueKai and [x+1], and the way advertisers target you through your browsing. But there wasn't much in depth about the bigtime data machines like Google or Bing and where that will go in the future -- such as location-based tracking and artifical intelligence.

Marketing & Ads: it's the Metrics, Silly

Thu, 05 Aug 2010 11:25:13 GMT

There is a lot of buzz, hype, critical analysis, and downright drivel out there about trends in marketing and ad spending. Some have even asked whether advertising is dead. They're wrong.

Advertising is not dead folks, it has become more vibrant and complex than ever. It's growing in the online world where aggressive metrics and analysis demand instant accountability.

Here's an experiment: Try to go the next five minutes without seeing some kind of add. Ooops, too late, already happened, right?

In the Q4 of 2009, online advertising hit a new all-time quarterly high of $6.3 billion. What's changing about advertising is that its morphing, and the metrics and data used to track it are becoming more sophisticated than ever.

Take the famous "Cog" ad by Honda. Reportedly took $6M and more than three months to develop this high-concept, cross platform viral video ad. It got lots of media attention too:

News Brew: Intel Settles with FTC (As Expected)

Wed, 04 Aug 2010 13:43:28 GMT

Well, who doesn't like to say, "I told ya so?" I certainly do, which is why I'm pointing out that Intel has settled (again) with the Federal Trade Commission (FTC), promising to stop using bundled pricing to keep down the competition. On June 24 we pointed out that a variety of sources were expecting a settlement soon, with a minor wrist slap for Intel.

It has turned into a complete non-event. Investors today reacted with a yawn, as Intel shares in afternoon trading were exactly flat, at $20.71.

In other news:

BP says it has the oil spill solved (Washington Post). Really. No, this time, you should believe them.
Apple rumor mills are already cranking up for the fall, with speculation over the iPhone 5 and iPad mini (CNET). Also coming: iPad Double-mini, iPhoneMiniPad, the iPodPad, the iToilet, and the iToldYaSo.
Why the UAE is done with the Blackberry (WSJ).
ISM service index expanded in July (Bloomberg). Apparently, there was a surge in sales of Big Macs.
Billionaires like Bill Gates and Larry Ellison are pledging more money to charity (WSJ).
Time Warner revenues and earnings increased (TheStreet.com). Just in case it sounds foreign, let's repeat that: Time Warner revenues and earnings increased!
ADP sees slight uptick in jobs (Forbes). Apparently that Big Mac surge forced McDonalds to hire.
Priceline and Electronic Arts helped boost tech stocks (MarketWatch).
Toyota's back with $2.2B in profit (Detroit Free Press). I don't know why I used the DFP link. Mildly sadistic, I guess.
Senators are taking for-profit education to the woodshed (Reuters). Fifteen schools investigated.

Gold Update: Comex Inventories Under Siege?

Wed, 04 Aug 2010 11:13:26 GMT

There has been a remarkable turnaround in gold in the last week, which happens to coincide with the monthly futures roll from the August to the October or December contracts. Eric De Groot says this week's strong moves may be related to physical delivery notices at the COMEX exchange.

De Groot writes on his blog:

"There were unusual movements of COMEX gold inventories on July 28 and July 30 that 1) coincidentally roughly equaled what was needed for the sellers of contracts to meet delivery requirements, and 2) may indicate that unusually large quantities of COMEX gold will be withdrawn by the end of August."

This is a big deal, as it could be the start of the massive COMEX short squeeze that people have been waiting for for a long time. It follows rumors of a run on COMEX silver inventories.

Gold Bears Still Don't Get It

Wed, 04 Aug 2010 09:33:09 GMT

Amazing to me, having followed, traded, and invested in gold over the last 8 years, that there are still so many gold skeptics out there. Like being wrong for a decade isn't enough?

Gold bears have trouble with basic comprehension of the bull market. Primary example is Ben Bernanke, who naively stated before Congress that he "didn't understand" why gold was going up. Why Ben, it's easy: It's because you are creating mountains of debt and paper money. You want some gold coins or burning paper money? What's not to understand?

[img:/assets/10/0804/1007.500]

This morning, Gold is breaking out again into bull territory, the beginning of a new phase that will likely carry it back above $1,300 by year-end. The correction is over.

A China Reality Check

Tue, 03 Aug 2010 12:55:48 GMT

Today's story about garbage threatening the Three Gorges Dam could be seen as a metaphor of all things going on in China. China is huge. It's got a gigantic, expanding economy, which also yields huge amounts of trash, toxic waste, and social pressures.

[img:/assets/10/0803/1335.500]

China is hyped by the mainstream press and many investment gurus, including hedge-fund ace Jim Rogers. Sometimes it reads as if China is the golden growth story. But a lot of this hype is overdone, and ignores many serious problems within both the Chinese economy and political-social landscape.

This doesn't mean I don't like China. It's an incredibly complex country. It has immense cultural and political history, and an a deep culture -- not to mention good wonton soup. But, China's got issues.

The WSJ's "Data Panic"

Tue, 03 Aug 2010 11:18:42 GMT

Apparently the Wall Street Journal discovered over the weekend that companies can gather lots of data about you on the Internet.

I suppose this is their play for a Pulitzer Prize -- a groundbreaking story that exposes the evil of Internet data collection. Only one problem: The Internet -- and financial industry -- has been mining your data for over a decade. And unless you hide in a cave with Ted Kaczynski, you're not going to escape it.

In fact, everybody mines your data. Think of the credit-card companies or your bank. Or Google. They know everything. I like to tell my wife that, "Google knows more about me than you do."

News Brew: Rehab is a Booming Business

Tue, 03 Aug 2010 10:36:01 GMT

At the Rayno Report, we are always looking at hot new growth trends. Why not rehab? Charlie Sheen and Lindsay Lohan are doing it.

Now, I haven't done much research on it but I don't think there are too many publicly-listed rehab plays. Maybe there is a private-equity rollup in there somewhere.

What we really need is rehab for Washington D.C. and Wall Street. Now, that's a great idea! Can you see all the Federal Reserve officials, Senators, and Goldman Sachs bankers doing Yoga in California with Lindsay Lohan? Hey, it worked for Michael Milken.

Okay, onto more news:

Pfizer beats the street and its stock-price hiccups (Reuters). Gets my award as the most boring blue-chip of the last ten years. Maybe it's time to buy that 5% divvy?
Meanwhile, when's the last time you heard about Pfizer and Proctor & Gamble both listed in the WSJ as "Hot Stocks" (WSJ)?
For those who think China's now a preeminent global leader: China's Three Gorges dam is imperiled by islands of garbage (Reuters).
Blackberry threatened by a Gulf states ban (BBC).
Federal government declares Gulf Spill the "worst ever" (CNN). No report on what they think about Charlie Sheen's shenanigans.
Pending home sales decrease 2.6% (Bloomberg). Hmm. People are buying houses. Shocking, isn't it?
Blackberry is introducing it's new touch-screen phone today (Bloomberg). No word on whether you can use it to call Saudi Arabian intelligence officials.
Remember when the U.S. Dollar was a piece of trash? Well, that's back again... (WSJ). I will trade you dollars for rubles.
Is Bing outmaneuvering Google? (CNN).
Corning is trying to bring back "Gorilla glass," a product from the 1960s (AP). Can you call something 50 years old innovation?

Synaptics: Good Play on Tablets, Touch

Fri, 30 Jul 2010 12:30:14 GMT

A great why to find advantageous companies is to look at those driving key technology market trends and generating good business results when the rest of the market is struggling. This story fits Synaptics, the touch-interface specialists, perfectly.

Synaptics makes human interfaces (mostly touchpads and touchscreens) for a variety of PC and smartphone devices. Big customers include Dell, LG, Ericsson, HTC, and Sony. The company has grown fast, roughly doubling revenue and earnings since 2007, at a time when the economy has been dark, at best. During this time, the stock price has been volatile, but largely flat, and the stock price relative to earnings has gotten cheaper and cheaper.

[img:/assets/10/0730/1253.500]

The company announced earnings yesterday, reporting net income of $19.3 million, or 54 cents a share, compared with $12.4 million, or 34 cents a share, a year ago. Synaptics earned 70 cents a share. Revenue hit $145.8 million, a ries of 27% over last year.

Traders: Data Center Addicts, Too

Fri, 30 Jul 2010 11:13:08 GMT

Interesting post on Themis Trading which I picked up via Zero Hedge on the trading investment in data centers. Equity firms spent $1.8B in data centers last year, wow!

The only problem with this trend? Programmers are getting gypped:

"According to our buddies at the Tabb Group, equity firms spent $1.8 billion last year on data centers; half of that total came from sell-side shops. But even though they are spending tons of cash on the infrastructure, they are not exactly doling out the cash to their programmers."

Source: Themis Trading.

Market Update: Chop Suey

Fri, 30 Jul 2010 08:52:30 GMT

Trying to trade or game this market? Be careful, you can get your head ripped off. That being said, I believe the downtrend has now resumed and that the market is currently a downtrending market.

I expect we'll revisit sub-1,000 on the S&P again -- more likely even sub-900 -- before the federales start fueling up the helicopters for another money drop. I'd buy the market on a 200-point S&P drop Reasons why I remain negative on the market:

CEOs: Please Buy Stuff

Fri, 30 Jul 2010 08:19:07 GMT

Is leadership finally starting to lead? CEOs and corporate executives, who lead our business climate, have been victim of the same cautious and negative thinking as consumers and investors for a long time. But they may finally be emerging from the psychological funk.

The last few quarters have shown a capital-spending led recovery. Companies are sitting on record piles of cash and free-cash flow, and they are finally starting to invest. This is an important trend that show business leaders are finally finding the will to invest.

This would be a huge trend reversal, if it holds. What's interesting about cash and capital spending, as you can see in the chart below, is that it is not a recent trend established in the last recession. Companies have actually been decreasing their capital spending for the last ten years.

[img:/assets/10/0730/0834.500]

Let's face it, the economic engines won't get humming along until executives start getting a little more confident and start building new things, buying equipment, and hiring people. The equipment buying is starting to happen, which hopefully means the jobs are next. Jobs will be where its at. In fact, there is evidence that business leaders are starting to come out of the long slumber.

Bloomberg has a nice article pointing to this topic today.

RightNow: Steady as She Goes

Thu, 29 Jul 2010 10:44:58 GMT

RightNow Technologies, a scrappy CRM company that is starting to become a more serious competitor with CRM giants such as SAP, Oracle's Siebel, and Salesforce, just announced a solid quarter in which they continue to make customer and revenue gains.

The company reported GAAP earnings of $1.4 million, or 4 cents per share, for the quarter. The non-GAAP earnings, which analysts use in their estimates, were 9 cents per share, matching the street view. Revenue grew 20 percent from the year-ago period to $43.5 million. But company executives were careful to stress on the call that recurring revenue stream is growing at a 27% clip.

News Brew: Google Googles Gaming

Wed, 28 Jul 2010 11:49:09 GMT

The bandwagon story of the day is Google looking into creating a "Facebook competitor" by talking with popular online gaming companies (Wall Street Journal). That's funny, I thought Facebook was a social networking site and not a gaming company. Shows you what I know.

That's also not to mention that Google has already tried to "do" social networking, but looks to be failing miserably with Buzz.

The spin in the Wall Street Journal is that by talking to social gaming companies like Zynga, Google is contemplating creating an alternative to Facebook, where many of the social gaming companies are growing like weeds (e.g. "Scott has acquired a semi-automatic weapon to blow you away in Mafia Wars!").

Apple's Secret: The Billing Relationship

Wed, 28 Jul 2010 09:34:03 GMT

Very interesting article by Peter Kafka in AllThingsD this morning about Time Inc.'s frustration with Apple. Apparently Time executives are mystified as to why Apple won't give them control to sell their own subscriptions via an app for the iPad.

Well, I'll tell you why: Apple loves to control the billing relationship. They don't want to give it up. This was the brilliance of iTunes and how they ended up taking control of digital music from the music industry. It was the music industry's huge strategic error. Apple knows that if they control the billing relationship, they control the access to the customer, and therefore can dictate the terms of just about any ecommerce relationship.

Why Time Inc. executives are so "mystified" by this is a mystery to me. Apparently their magazine executives are not talking to executives in the same company that got reamed in the music business. Apple wants to control billing, they want to control pricing, and they want to control the consumer. Period. You want to try to mess with that? Take a hike.

This is one reason why I don't think the iPad will be the "savior" of the media industry that everybody has made it out to be. Unless Apple opens up, and starts sharing a bigger piece of the pie with content and applications producers, it will be the same movie all over again.

WSJ Pay Survey: Barry Diller #2, huh?

Tue, 27 Jul 2010 12:20:32 GMT

The Wall Street Journal pay survey is a fascinating read. My initial impression was surprise that Steve Jobs was only number five. But the thing that shocked me the most is that Barry Diller, the CEO of IACI, is number two on that list, having made $1.14B over the years 2000-1010.

This is egregious. Not because Barry Diller is incompetent. He's a a smart guy, and a media visionary. It's because it's way out of line with what his company did. If you include Expedia shares, an IACI spinoff, IACI shareholders lost 18% over the decade period in which Dillar's compenstation was measured, according to the Wall Street Journal. In fact, IACI alone stock fell 80% during the time that Barry Diller made $1B.

News Brew: Do You Feel Like a Squirrel?

Tue, 27 Jul 2010 11:34:40 GMT

I read somewhere recently that watching the market these days is like watching a squirrel trying to cross the street. It zigs, it zags, you're not sure if it will make it to the forest or get flattened by a bus. Couldn't think of a better metaphor.

How else to explain a market that gives up 8% one month and gains it all back another, only to sell off when consumer confidence numbers are announced? And by the way, how do you explain the fact that the market is at highs while consumer confidence is at a five-month low? The answer: We are all squirrels, zigging and zagging randomly across a economically screwed up landscape, trying to find our way.

If there's any good news to be had, it's that the cost of debt is approaching an all-time low. Greeaaaattttt!!! Go borrow some money (if anybody will lend it to you). Yes, today, the 30-year mortgage yield hit all-time lows. Can you figure it out? I can't.

Onto more of the news:

DuPont profits top estimates, raises guidance (Bloomberg). Well, at least we're still selling tons of chemicals.
So, we're now back to zero (Bloomberg). Is that really something to get excited about?
Apple has a new "27-inch Cinema Display." (Apple) Translation: Apple is selling TVs.
Yes, ComScore is cooking Yahoo's numbers (TechCrunch). And Yahoo is pissed.
BP CEO Tony Hayward -- one of the most popular people in the Gulf States -- is being banished to Sibera (AP).
Among Hayward's parting words, before he heads of to a Siberia oil-executive slave camp (we wish): BP was 'a model of social corporate responsibility' (The Guardian). Can somebody, uh, shut this guy up?
Funnest headline of the day: Blagojevich lawyer may be muzzled (Chicago Tribune). Why stop with the lawyer?
Fannie and Freddie conference to convene (MarketWatch). Lawmakers said to start with a game of "pin the losses on the asshole."
Home prices show stability after modest gain (CNNMoney). All five people who still have equity in their homes said to be ecstatic.

Biotech Diagnostic Stocks Rally

Mon, 26 Jul 2010 13:29:01 GMT

A rally in diagnostics stocks was triggered last week by earnings from for major players. This week, the AACC (American Association of Clinical Chemistry) meeting could add fuel to the fire, when close to 20,000 clinical lab professionals and over 500 exhibitors gather to discuss key industry developments.

As of mid-morning trading, many diagnostic stocks are up 2%. Here is a financial summary from last week's earnings announcements:

		7/26/2010	2010
Company	Symbol	P $	Q2 Rev $	Q2 EPS	PEG	P/S	Sh.Equity $
Cepheid	CPHD	16.5	49.6	-0.03	n/a	4.8	137
Immucor	BLUD	19.3	82.9	0.3	1.27	3.87	439
Meridian	VIVO	19.5	33.9	0.16	1.72	5.4	139
Neogen	NEOG	28.3	39	0.2	1.66	3.8	153

Among the topics that will be covered in Plenary Sessions at the AACC are: Biomarkers for Alzheimer Disease, the Changing Healthcare Landscape, Stem Cells, Inflammation and Cardiovascular Disease and Systems Medicine (P4).

There are several symposia such as Personalized Medicine and Immunosuppression in Solid Organ Transplantation. Laboratory medicine topics are very broad including diabetes, endocrinogy testing, pharmacogenomics,lipid management and sepsis diagnosis. The conference program is here.

Our focus for the Meeting will be companies in the "Tools and Diagnostics" area as well as hot topics in laboratory medicine. Some players exhibiting in our universe in addition to those four above are: Abaxis (ABAX), Alera (ALA), GenProbe (GPRO), Luminex (LMNX), Quidel (QDEL), SeraCare (SRLS) and ThermoFisher (TMO) .

Rod N. Raynovich is the principal with Raygent Associates, a biotech consultancy, as well as a regular contributor to The Rayno Report.

What Happened to Calix Shares? R&D Spending.

Mon, 26 Jul 2010 09:35:59 GMT

Calix shares got hammered pretty hard on Friday after the company issued weak earnings guidance on the quarter. But investors might have been panicking about a whole lot of nothing.

In fact, more intrepid investors might look at why the earnings forecast were down: More R&D spending, possibly related to more big customers. But on Friday this did not matter, investors were in no mood for optimism. The earnings started out well enough: The company announced record revenues that were up 50% from the year-earlier period. In the pre-market, shares were up 10%.

Then the conference call came. The company gave revenue guidance of $70-$75 million and said earnings would only be in the 4 to 8-cent range. Most analysts had earnings of 14 cents or so. Most analysts were also expecting $80 million in revenue.

Why the NYT is Competely Out of Touch

Sun, 25 Jul 2010 12:32:07 GMT

It's official, the New York Times has completely lost the plot. In a world racked by recession, a massive oil spill, financial fraud, and historic levels of debt and wealth inequality, the most popular article today on the Website on the bible of the "liberal media elite" is "36 Hours in Florence."

Yes, Florence. How refreshing! And symbolic. When the world is melting down in fianncial disasters and toxic sludge, why worry when you can sip some Brunello. This says it all about the New York Times.

That piece is followed quickly in the queue by Thomas Friedman's latest piece of hypocritical liberal 'tude: "We're Gonna Be Sorry." Thanks, Thomas: Another short-on-substance, 1,000-word diatribe about looming dangers of greehnous gas, mailed in from his own carbon-spewing 11,000-ft. mansion. Memo to Thomas Friedman: Shut down the AC in your West Wing, and you might do more to stop global warming.

Tech Earnings Winners & Losers

Fri, 23 Jul 2010 10:37:35 GMT

Tech earnings reports are rolling in like Budeweisers in a NASCAR infield, and we've got it covered. What's striking is the range of results, from earnings bombs like Netflix, and Amazon, to solid efforts from blue chips Apple and Microsoft.

Here's our recap of the Winners and Losers of earnings season:

Calix Breaks Out on First Earnings

Fri, 23 Jul 2010 09:20:53 GMT

Broadband equipment maker Calix is rallying on its first post-IPO earnings release, after it announced that revenue increased 50%.

The company announced revenue for the second quarter of 2010 of $71.7 million, an increase of 50% from revenue reported for the second quarter of 2009 of $47.8 million. It also booked a GAAP net loss of $3.2 million, or pro forma $(0.09) per share, compared to a GAAP net loss of $8.8 million, or pro forma $(0.33) per share, reported for the second quarter of 2009.

In the pre-market, the stock was bid at around $11.75, which would be a 10% gain over yesterday's closing price of $10.80.

[Editor's update: Though the stock initially rallied, it later sold off on the conference call when the company issued weaker-than-expected guidance. Read our update here.]

Calix President and CEO said the results were due to gains in braodband sales and that the results represent gaining "momentum."

Calix is the beneficiary of several trends, among them the demand for broadband access brought about by mobile and the expansion of Web and video applicatoins, as well as a boost to the rural broadband market brought about by the broadband stimulus package from the government.

Two Markets: Technology and the Rest

Thu, 22 Jul 2010 10:29:14 GMT

One thing becoming clear in as the volatile stock market marches into they unknown world of bank stress tests, serious government intervention, and bank roulette -- technology is set apart from the rest of the field.

Many mid-to-large technology companies are well capitalized, cash-rich, and profitable. This means they can simply power through the economic doldrums, generate a large cash stash to reinvest through either acquisitions or R&D.

Below is a list of cash-rich technology companies. What will they do with all this money? My guess is that eventually, acquisitions will be on the docket.

Just for chuckles, I screened for stocks with more than $1B in cash. Below is what I got:

Some Thoughts on Bernanke

Wed, 21 Jul 2010 16:26:38 GMT

There has been a massive amount of attention focused on Fed Chairman Ben Bernanke's testimony before Congress today. The testimony lacked any new large developments. However, we did glean more insight into his thinking and what it means for the American -- and global -- economy.

My macro opinion of "the economy" is that it is being held hostage by debt and uncertainty. For too long, our financial markets have focused on government largesse, policy moves, and debt funding to drive growth on Wall Street. Unfortunately, this is not what the real economy -- "Main Street" -- is all about.

The economy cannot be controlled by Ben Bernanke and the federal government. You see that now when 0% interest rates are doing nothing. That is because for too long, the economy has been fueled by financing and easy money that drove Wall Street bonuses and the debt bubble. As we saw, the more debt we create, the more we borrow from the future.

News Brew: Goldman Goes Down

Tue, 20 Jul 2010 10:53:03 GMT

Just when you thought Goldman was a rigged, unstoppable money-printing machine, the bank's profits fell 86% in the first quarter of 2010, missing estimates badly, as it settles with the U.S. government for a half-a-billion-dollar fine.

Did you really think Goldman was that good? Or did you think they were just a bunch of proprietary traders playing with free government money. It would be interesting to see what Goldman's profits would be if they had to borrow at 4% like the rest of us, instead of the 0% gift from the U.S.A.

In other news:

Here's an update on the oil spill (AP). Now there's seeping. When will it end?
Five things to watch on Appl's earnings (Macworld). Will you be able to hear Steve Jobs on the conference call or will you get disconnected?
Home construction sinks again (AP). Shocking, isn't it?
Nokia-Siemens has won a $7B contract with the LightSquared venture (Reuters). That's a lot of bandwidth.
Great story: Social networking sites are as annoying as cable companies (TechCrunch). That's pretty annoying.
Amazon says its selling more e-books than hardcovers (Wall Street Journal).
Top 30 Android apps for 2010 (PCMag).
The mysterious Facebook claimant has a few questions to answer (Bloomberg). My question: Who the heck are you?

What's to Like About the S&P Chart? Not Much.

Thu, 15 Jul 2010 13:59:12 GMT

The other day I ranted on the many opinions of the economists. Everybody has an opinion. What's my opinion on the market? The S&P chart stinks.

The market action fits almost exactly the technical picture I expected: A rally to 1100 on the S&P might run out of steam and reverse. This is exactly what happened to the last rally, nearly a month ago, for those of you who forgot: We had a rather violent bounce of 100 S&P points that failed.

Today, like clockwork, the rally is starting to weaken. Don't listen to the pundits on TV telling you earnings matter. They don't. The market is marching to the beat of a different drummer.

We remain in a violently chopping, downtrending market that is switching direction roughly once per month. If you are an investor, stay away. If you are a trader, make sure you can switch teams quickly, as it appears to me the S&P may be starting another rollover. We topped out almost exactly at the top of the channel carved out by recent descending highs and lows. See the chart below to see what I mean:

[img:/assets/10/0715/1413.500]

Keep in mind, if you have been trying to jump on rallies or jump on bear raids, there's a high risk of a violent reversal. A post on Zero Hedge encapsulates this very well. The data below shows you that a 6% rally is just as likely to be followed by a 6% selloff, and vice versa.

[img:/assets/10/0715/1414.500]

What's really uncomfortable about this is how perfectly the market has alternated between aggressively rallies and vicious sell-offs -- a month up has been followed by a month down (often bigger) each time. I think if you are trying to pick stocks in this market you certainly need to do it carefully. If we were all geniuses, we would buy cheap stocks at the end of the selloffs and then put some hedges in after these 6% rallies. Or you could just sit on a lot of cash and watch the hedge-fund computers chew each other up, which is what appears to be happening to me.

What's my course of action? I have just re-initiated a small S&P short and bought a few index puts to hedge my smallish stock positions. Do I feel confident at all that this will work out? Not really. But my read on the chart is that we are rolling over again.

News Brew: Apple Under Pressure, BP Relieving Pressure

Thu, 15 Jul 2010 11:45:13 GMT

Funny how fortunes swing. Just a few weeks ago, BP was racing quickly to the bottom as Apple was contemplating world domination. This week, their fortunes have reversed -- if only a bit -- as Apple confronts antenna engineering problems and BP's shares are on the rebound on the promise of an oil cap and/or takeover.

Apple shares were down 3.73 (1.45%) to $249 and BP shares rose .84 (2.3%) to $37.02 in midday trading. Apple will be holding a press conference on Friday, as its antenna problems on the iPhone 4 appear to be expanding.

Read on, for the full news:

An Apple engineer alerted CEO Steve Jobs to the presence of an antenna problem, reports Bloomberg.
U.S. Sen. Schumer has written a letter to Steve Jobs about the iPhone 4 problems (AppleInsider). Dear Steve, my phone's not working. Can you fix it for a tax break?
The antenna problems don't seem to be stopping Apple's rollout of new products -- an 11.6-inch MacBook and new iPod Touch are on the way (DigiTimes).
Here's some fun: A writer says the Droid X self-destructs if you try to modify it (MobileCrunch).
If the Droid X is a big success, Verizon may not need the iPhone, says the New York Times. Somehow we doubt that.
The Pentagon is running out of funds (Reuters). Soon to be downgraded to a Triangle.
Manufacturing data bad = stocks down (Bloomberg). One question I've always had: If the stock market is "forward looking" and "discounting," why can it react so violently to news?
Billionaire Carlos Slim is digging for gold in Mexico (Bloomberg). Funny how even Billionaires want to find more money, isn't it? I mean, I'd hit the beach after the first $2B.
BP says it's repaired the cap on the well and a test is proceeding (New York Times). We can only hope this doesn't end in another disappointment.
I've seen lots of folks distributing the "Methane Bubble Doomsday" story on the social networks. Other journalists appear to be debunking it. Don't believe everything you read on the Internet, folks!
Thierry Henry has retired from International football (WSJ). All washed up, at 32 years old, apparently. Hello MLS!
I just don't know what to think of this headline. What do you think? Woman With World's Largest Breasts Fights For Life.
2.5 million muslims are threatening to quit Facebook (tnerd).

Innovation Succeeds: Growing in the "Great Recession"

Wed, 14 Jul 2010 13:44:24 GMT

Just because an economy is crummy, or just sub-par, does not mean you cannot make money. Plenty of companies have proven that innovation can create value even in a down economy.

This was a fascinating topic to me in the earlier part of the last recession as I watched Google and Whole Foods Markets climb steadily during the recession of 2000-2002. If you think about it, these were very strong companies that created lots of value, jobs, and profits during a period in which the economy was stagnant or shrinking.

What about now? Regardless of the worst economy in 80 years, there are still opportunities.

To give you some examples, where are some more ways companies create value in a down economy:

Providing a technology that performs a task more efficiently, better, and cheaper. This is a basic goal of technology innovation: Give your customer 5X the power at the same price, then they buy a product. Some examples I see of companies doing this include Riverbed (RVBD), in enterprise networking, CREE in LED lighting, and Western Digital (WDC) in digital storage. All three of these companies have grown during the "Great Recession."
Scientific discovery in healthcare. A scientific discovery can create value no matter what the macro economy is doing. Many biotech companies are still booming and creating value, regardless of what the economy does. This is because they can make discoveries that create new markets out of thin air. Some quick examples: Qiagen (QGEN) develops new test for human papillomavirus -- its stock us up 50% in five years. Illumina (ILMN) has outstepped the competition in sequencing genes. In five years, its stock is up 500%, compared with the S&P being down in the single digits.
Providing a high quality product and brand. Markets are constantly choked by competition, but if you can consistently provide high-quality product that gets consumers excited, you will take market share and grow your brand. Some great examples of this are Apple (AAPL), Green Mountain Coffee Roasters (GMCR), True Religion Apparel (TRLG), and the Intercontinental Exchange (ICE). All of these companies have grown in the last five years. In fact, Green Mountain tripled revenue in the years 2007-2009, and ICE doubled reveune from 2007-2009.

Adtran Ramps on Connectivity Buildout

Wed, 14 Jul 2010 13:09:41 GMT

One of the themes we've been following here is the buildout in more telecom connectivity -- whether it be Ethernet connections or all those data connections to mobile-phone towers -- and Adtran's earnings appear to bear that out.

The Alabama-based networking and telecom equipment company handily beat analyst estimates, announcing quarterly Earnings Per Share (EPS) of .44, whereas consensus expecations were for .35. The stock was trading up 7% -- about $2 -- to $30.90 in midday trading.

Morning Market Update: Don't Get Fooled Again

Tue, 13 Jul 2010 12:06:30 GMT

This morning I woke up and flipped on the computer and my market-monitoring screens to find a sea of green. Everything up: stocks, commodities, gold & silver. Then what happened? My music player, in shuffle mode, queued up the Who's "Don't Get Fooled Again."

Funny. Coincidence? I don't think so. Roger Daltry is onto something. It would be easy to get lulled into a newfound sense of complacency if you didn't consider that just a month ago, the S&P rallied from a bottom of 1,050 to 1,116. That was a huge fakeout.

This last rally has now taken us from a low of 1022 back to the current 1,094. Powerful, no doubt. But it's also giving me a funny sense of deja vu. Note that the last rally, in June, was about 66 points in the S&P. The current rally has retraced 82 points of the recent decline, but it's still below June's high. If it's going to fail, it should fail this week. If not, the bulls have a solid argument to get bullish again.

Are the bulls really confident? So far in the last two months or so, the 50-day moving average has turned down, it's cross the 200-day moving average, and we've traced out a lower low and a lower high on a subsequent high. Would that make you comfortably long stocks? Not for me.

Reddit: We're Totally Pathetic

Mon, 12 Jul 2010 14:37:10 GMT

Tired of touchy-feely blogs from arrogant Internet companies? Might want to take a look at the recent post from the Internet sharing company Reddit, in which company officials admit they are totally pathetic.

"We've been kinda bummed at reddit these days. It seems like every week something comes up that slows performance to a crawl or even leads to a total site outage. And we almost never get a chance to release new features anymore."

Huh? You mean, you have trouble running your business and I'm supposed to care? You're a business. You're supposed to figure out how to make money. It's not like you are some starving orphan in Somalia, right?

But wait... there's more:

"The good news is, our traffic continues to grow by leaps and bounds. In July 2008, we served up 51 million pageviews and it took four engineers to support it. Since then, we've added user-created reddits, self posts, sponsored links, self-serve sponsored links, awards, a mobile interface, RSS feeds, moderation tools, layers of anti-spam and anti-cheating code, we've gone open source, and our traffic has grown to about 280 million pageviews per month. But after all that, we still only have four engineers. We're reaching the limits of sustainability."

Um. Okay. So here you admit to "getting traffic," which on the Internet is akin to "seeing cars drive by on the freeway," but you have no idea how to make money from that and run a business. Sympathy level rising rapidly!

Then they go on to metion some experimental (stupiod) ideas, and then they ask readers they're advice:

"As long as we're going to be taking suggestions and money from you guys, we might as well also take the name you came up with: this new program will be called "reddit gold".

How much would you pay for this wonderful opportunity? $10? $30? $∞?

No, seriously, how much would you pay? We have no idea what we should be charging. So for now, we're just going to let you pay whatever you want. You can even just send us a postcard. Visit http://www.reddit.com/help/gold for details"

I'm hoping this blog is some kind of hoax or joke. I really didn't know much about your company, but now that I have read this I have concluded you are the most pathetic, sad company on earth. Good luck to you.

Prechter's Impossible Forecast

Sat, 10 Jul 2010 12:53:49 GMT

Thank you Jason Zweig. I was looking at a way to debunk Robert Prechter's absurd, self-serving prediction of Dow 1,000, when Jason Zweig picked up the baton and took it apart about as well as anybody, in his Wall Street Journal column.

Now, I'm as bearish as the next guy. But I'd be buying Dow 6,000 pretty aggressively. It'll never get to 1,000. Precter's apocalyptic forecast is clearly a publicity stunt, probably designed to sell more research from his company. The New York Times turned Prechter's obvious (effective) marketing ploy into a major feature story, without any critical analysis. That's where Zweig's analysis comes in.

When I first saw the "Dow 1,000" prediction, my first thought was, "What would the earnings of Dow companies have to be to get there?" Zweig effectively describes:

"A 90% drop in the Dow (if the weighting of its 30 companies didn't change) would leave only one of the components—IBM—trading above $10 a share. Alcoa, Bank of America, General Electric and Pfizer would be under $2 apiece, in danger of being delisted by the New York Stock Exchange.

To get to Dow 1000, the earnings of these leading companies would have to fall by a punishing amount—and investors would have to price them at record-low multiples of those ravaged earnings. Take Pfizer: One way it could lose 90%, says Jeffrey Yale Rubin, director of research at Birinyi Associates, is if its earnings shrank by 70% and its stock traded at a price/earnings ratio of 2.3."

As Zweig says, this is pretty much impossible. The entire global economy would have to grind to a halt, and P/E ratios would have to fall to historic lows. The entire population would have to stop buying basic items such as toothpaste, drugs, or gas.

But there's yet another component of impossibility. Where Prechter really goes wrong, other than not even considering the components of the Dow, is inflation. He completely ignores it, just like he's been getting the greatest bull market of the decade (gold) wrong for ten years. In fact, maybe Prechter is making desperate forecasts exactly because it's been so long since he's been right.

The last time the Dow was at 1,000 was 1983. The index currently treading water nearly ten times higher, around 10,000, but not all these gains since 1983 are from organic growth. Much of the gain in the index is due to the perpetual rise in inflation. According to inflation indexes, $10,000 today was worth $4,700 in 1983 in inflation adjusted dollars.

To get to Dow 1,000, not only would the world economy have to collapse, but we'd also have to reverse three decades of inflation with a 50% haircut in the value of the dollar. At the rate the government's printing money now, that does seem pretty much impossible. Zweig is exactly correct.

What if the Economy is Just Boring?

Tue, 13 Jul 2010 13:34:15 GMT

As you scan the landscape of pundits and economists these days, it seems as if there are only two options: Implode in a fiery economic inferno or come roaring back like economies of yore.

Just remember one thing: Economists are often spectacularly wrong.

I've found that if you hear too much chatter about one thing, it's more likely that the opposite will happen. How many times has the economy threaded the needle of non-expectancy, just as Nassim Taleb outlined in his now-famous book, The Black Swan.

Time for Microsoft to Reorg and Focus

Thu, 08 Jul 2010 13:23:20 GMT

Yesterday, I pointed out that it's absurd to consider Microsoft a declining company when in fact it's been making an average of $15B a year in profit and has increased the value of its balance sheet by billions of dollars every year for the past three years, during the worst recession of the past 80 years.

Today, to answer the critics, I will point out what's gone well and what's gone wrong with Microsoft. I'll even make suggestions about what the company should change. I believe the company is coming to a crucial point in its history, and CEO Steve Ballmer needs to make some radical changes.

First off: Microsoft's core businesses are as healthy as ever. Now that it fixed the Windows Vista debacle and Windows 7 is shipping, Microsofts' Windows Division and its Business Division are firing on all cylinders. Consider this: in fiscal year 2009, which ended June 30, 2009, the Windows division made $10B in profit. It has already equalled that in only 3 quarters of business this year. That means when Microsoft announces its earnings later this month it's likely to report year-on-year profit growth of more than 20% in the Windows division.

News Brew: Video & Search, What Else?

Thu, 08 Jul 2010 10:22:15 GMT

Today's headlines are filled with the usual obsessions: bank risks, online video, iPhone's and search.

What I find interesting about today's market dynamics is the dichotomy between Silicon Valley, where everything's gravy and people think it's still easy to get rich -- and the rest of the world, where people are worried about their state or country going bankrupt and making a dime is very tough.

Here's the news for today:

As we predicted a while ago, YouTube would go to HTML5 soon. It has now, with a mobile version of YouTube (TechCrunch).
Fast Company says Twitter now has the world's fastest growing search engine. But Silicon Alley Insider begs to differ, saying the numbers are inflated.
Speaking of Twitter, it can get you in a lot of trouble. A CNN Senior Editor is leaving the company following a tweet in which she praised Hezbollah leader Sayyed Mohammed Hussein Fadlallah. Say that three times, very fast (Mediaite).
It was only a matter of time before we got naked pictures of the "Sexy Russian Spy" (Mediaite). “I found her Russian accent such a turn-on,” says her ex-husband.
Meanwhile, back to the economy. A reader of Jim Sinclair's Mineset has pointed out that the banks being seized by the FDIC had their assets inflated by 20 to 80% (MineSet). Amazing stuff, that is.
Speaking of greedy, lying banks. Yes, the European stress tests probably are a joke (Bloomberg).
"American Dream Elusive for New Generation," declares the New York Times, profiling a recent college grad. And then you read that da guy lives in a "comfortable suburb West of Boston," he's pictured with a nice road bike and a computer, and he turned down a job for $40,000 per year. Shall I play the violin on my small pinky?
They've picked an English ref for the World Cup final (Telegraph). Hmm, it's hard to figure out who he'll be more biased against, the Dutch or the Spanish.
Bond market signals depression, nobody cares (Telegraph).
Pharma giant Merck is closing 16 factilities (WSJ).They just don't make drugs like they used to.
Greece "Paralyzed By Strike" ahead of key pension vote (WSJ). Let them eat Souvlaki!
Experimental solar aircraft makes a historical overnight flight (BusinessWeek). Yes -- a solar night flight. I had trouble figuring it out to. Add in the fact that it averaged 26 miles-per-hour, and it becomes a real head-scratcher.
The next iPod Touch will include most of the features of the iPhone 4, says this reporter (CNET). Yes, that means all of the features except for the phone -- which doesn't really work that well anyway.

AT&T: Software Patch Will Fix Data Problems

Wed, 07 Jul 2010 16:31:25 GMT

Following the reports yesterday of dysfunctional data downloading on the iPhone 4 via AT&T's network, AT&T sent us an email today with an offical response -- saying it's a software problem in Alcatel-Lucent equipment that will be fixed shortly.

Here's the response from AT&T:

"AT&T and Alcatel-Lucent jointly identified a software defect -- triggered under certain conditions – that impacted uplink performance for Laptop Connect and smartphone customers using 3G HSUPA-capable wireless devices in markets with Alcatel-Lucent equipment. This impacts less than two percent of our wireless customer base. While Alcatel-Lucent develops the appropriate software fix, we are providing normal 3G uplink speeds and consistent performance for affected customers with HSUPA-capable devices."

The Absurdity of a Microsoft "Death"

Wed, 07 Jul 2010 13:23:00 GMT

It had become popular in the mainstream media to popularize the "dying" of Microsoft. This is absurd. What is common with a "dying" company is a deterioration of its financial position and diminishing assets. Microsoft is a money machine.

I'm not saying that Microsoft does not have challenges. I'm just saying that the negative sentiment against the company does not reflect certain business fundamentals.

Martin Armstrong Predictions Still Look True

Tue, 06 Jul 2010 14:46:36 GMT

Martin Armstrong is a fun character to follow. The famous economic forecaster -- the fomer head of Princeton Economics who is now spending some time in jail for conpiracy to commit fraud -- regularly writes market missives from jail. What's interesting is that his predictions have been uncanny.

For example, look at the chart below. This chart was actually published in 1997. It correctly predicted a major top at the end of the millenium, an interim bottom in 2002, and another top in 2007. It is now predicting the resumption of the downtrend into a major, secular bottom in the 2011/2012 timeframe.

[img:/assets/10/0707/1218.500]

Armstrong is a big believer in Kondratieff cycles -- long-term market cycles that are said to follow and predict long-term human psychology in economics.

Here is a description of his beliefs from a recent New Yorker profile:

"One day, in a newspaper, the young Martin Armstrong came across a list of financial panics between 1683 and 1907. He found that, on average, there had been a panic every 8.6 years. As he read more, he began to suspect that 8.6 was a highly significant number. In the early seventies, Armstrong became a trader and dealer in gold, and began compiling forecasts about commodities and currencies, which he sent out to clients. Over time, forecasting became his business. He constructed what he called an Economic Confidence Model, which he relied on to predict an upturn in the price of commodities in the early days of 1977. It worked."

The legal intrigue and conspiracy theorists behind the famous economic forecaster make him even more interesting to follow. Armstrong was stuck in a long-term legal battle in which he was held in contempt of court for 7 years. He finally pleaded guilty this year and is now serving a 5-year sentence for conspiracy to commit fraud. He regularly published writings from his jail cell which can be followed here.

iPhone 4 Upload Caps: More to Come?

Tue, 06 Jul 2010 12:30:17 GMT

Word on the street is that more iPhone 4 users are complaining about mobile data upload caps (hat tip to Gizmodo). Shocking, isn't it, that as carrier networks are brought to their knees by massive data consumption, that they would try to dial it back? Expect more.

The users are complaining that AT&T is capping the download speeds to 100Kbit/sec in some regions, predominately New York. I have put a call into AT&T to see if they will comment on this.

This is only the beginning. Expect to see more aggressive "traffic management" from service providers as the smartphones proliferate in the market. As we have analyzed in the Rayno Report sponsored whitepaper, "The Data Deluge," mobile data consumption is about to take off with the next generation of smartphones, and the problem of managing data consumption will increase by an order of magnitude.

July 4th News Brew: Explosions or Implosions?

Mon, 05 Jul 2010 10:54:51 GMT

I hope all the Yanks -- and anybody else celebrating -- had a happy July 4th. Yesterday we hosted two riders from the Texas 4000 who were doing a lot more than I will do this month -- riding 4,000 miles from Texas to Alaska to help fight cancer. Kudos to Joel and Shilen and good luck! You can track our friends on the "Rocky Route" here.

In the news, ironically the July 4th festivities were marred by financial pyrotechnics rather than the celebratory kind, as the papers jumped on the fiscally depleted state of the nation -- and the world:

Illinois is drowning in red ink (New York Times). Depressing story. And you thought California was bad?
Huge pension problems in Illinois were not helped by the fact that they turned to the OTC derivatives casino to make back their lost money (Medill).
Bank meltdowns continue (Fed.gov). Yikes!
The recession has now killed of 7.9 million jobs in America (CNNMoney). Hey, I hate to be a downer, but it's reality, bro!
Hey, not everything's bad! Markets are stable today (Associated Press). Maybe we should just keep the U.S. markets closed.
The BP tab is now over $3B (USA Today). That's if you can actually put a price on the total environmental and economic destruction.
The first test of the "superskimmer" are inconclusive (Reuters). Let's all hope it works.
All about Google's $700 million purchase of ITA (TechCrunch). Vertical search is the new deal.
Apple is sucking wonton in China, says Lenovo chief (Financial Times). Hmm. Big competitor trash talks big competitor, says "C'mon over." Why, exactly.
The Kin was the mother of all consumer toy flops, says the New York Times. File under Microsoft's epic flops along with "Bob."

Biotech Buyout Targets: Who's Best?

Fri, 02 Jul 2010 13:11:17 GMT

Bloomberg yesterday started the rumor-mill going that Sanofi-Aventis is on the prowl for a large biotech company, sending many biotech stocks higher on Friday (on a day in which the market is down).

The rumors make sense, as big pharma is constantly on the prowl for solid biotech companies. Let's take a look at the dynamics and which companies would be most attractive from a valuation standpoint. The three companies mentioned cited by Bloomberg as targets include Allergan (AGN), Biogen-Idec (BIIB), and Genzyme (GENZ).

The Wall Street Journal, trying to catch up with Bloomberg, has tossed in Amgen (AMGN), Gilead (GILD), and Celgene (CELG).

Let's take a closer look at all of these stocks to try to see who is the best bet. Biogen jumps out to me the most. Including the most recent quarterly results, Biogen is trading at a forward P/E of 10. It has an operating margin of 30%, return on equity of 16%, and has been growing at a 7% clip. The market cap is $13B.

Google Gets ITA for $700M

Fri, 02 Jul 2010 12:54:36 GMT

After a long, drawn-out bidding process, Google has finally scooped up ITA for $700 million.

Reports of the bidding war for ITA first surfaced in April. From what I understand, Google first approached ITA with a cash affer (in the $700 million) range, but then ITA's Internet travel partners freaked out about the prospect of Google owning their chief travel-software provider. Other companies in the bidding included Orbitz and Kayak.

This deal is going to cause a lot of competitive hand-wringing because Cambridge, Mass.-based ITA, which has 500 employees, supplies travel software to a lot of Google competitors, including Orbitz and Microsoft's Bing. It is widely anticipated to be challenged along anticompetitive lines, though Reuters today quoted law experts as saying it's not likely that the deal will be blocked.

Google's CEO Eric Schmidt says that Google will honor all of ITA's contracts and that its intention is to improve its travel search information, not get into the business of selling travel services.

Look Out Below: Market Cracks Key Technicals

Wed, 30 Jun 2010 16:17:50 GMT

Well, today's fairly predictable late-day puke will give the "technicians" a field day tomorrow.

Here are just some relevant technical points:

Market back below 200-day moving average (MA), which has flattened and looks to be turning down.
"Death Cross": 50-day MA crosses the 200-day MA.
12-month moving average is turning down.
Market made a new 6-month low.
Significant level of support -- 1030 to 1050 -- taken out with conviction.
Market has been rallying on low volume and selling off on high volume.
The tape has generally been ugly, with a bear-market morning rally, late-day sellof mode that was characteristic of the bear market 2008/2009.

Now, I am not a technical black magician, but I do believe that techicals have a way of confirming changes in fundamentals and psychology. The fundamental data has been weakening. A weak jobs report on Friday could be the nail in the coffin.

Technically, all of the above indicates resumption of the secular bear market. It will have all the talking heads, traders, and banks in a new psychological framework.

As they say, at any point in time the market has a way of creating the most pain for the most people and I think the violent reversal off the recovery rally and the contrairian plunge in bond yields has taught everybody that lesson once again.

Mobile App Usage: An Apple and Android Story

Thu, 01 Jul 2010 01:00:00 GMT

Apple and Google Android application development communities continue to flourish while others languish.

This has huge implications for everybody. Growth in application environments often represent key turning points in tech markets. If you think of Microsoft's ascendancy, it was the emergence of the PC (more bandwidth) and the Windows application envrionment which provided an explosion in business applications.

Want another example? The Web and pervasive broadband sparked an explosion of Internet applications. Now a similar thing is happening in the mobile world where an explosion of bandwidth and device power is providing a fertible market for new apps.

What's that mean for the legacy players? It means they are in a world of pain. If RIM and Nokia don't do something soon, their leadership in the worldwide phone market will quickly become a footnote. I continue to believe that Nokia's connection to the Symbian operating system is its biggest liability. As Apple and Android gain steam, Symbian is being marginalized and the longer that Nokia puts all its eggs in this basket, the more trouble it will be in.

Below is an interesting chart from the latest Morgan Stanley report on Internet developments, which I think is a must read.

[img:/assets/10/0701/0936.500|Source: Morgan Stanley]

The explosion of apps in the mobile market is a fascinating, positive development for the technology industry and its implications should not be underestimated.

Morning Market Wrap: A Snoozer, So Far

Wed, 30 Jun 2010 13:05:12 GMT

Time to write up the morning market wrap, before I fall asleep. Kind of a snoozer. Markets are enjoying a small relief rally this morning as no new disastrous news emerged overnight. Data was relatively benign.

The ADP jobs number came out weak, but market digested that. We all know the jobs situation sucks. None of the European banks blew up overnight, and the CDS spreads (an indication of risk) stabilized after hitting new highs yesterday. Euro banks also apparently borrowed less from the ECB than believed, which we are supposed to take as good news.

What to expect going forward? I say, watch the bond market. The fact that bonds hit record highs yesterday, sending the 10-year yield down below 3%, is a big warning sign. This is the trade that has caught everybody -- even the biggest smarty-pants hedge funds -- flat-footed. Yields were supposed to go up, remember? Apparently a lot of hedge funds are being trashed on "yield-steepener" trades (that is a bet that short-term rates do not go up as fast as long-term rates -- i.e. the spread widens), or so says Zero Hedge.

The fact that the yield curve is flattening is surprising a lot of people and does not transmit a good signal about the economy.

In the meantime, it does not look like anything big will happen today. Grab a sandwich, call your mortgage broker about refinancing your mortage at 4.50%, and check back on the market with 60 minutes to go, when all the wild stuff usually happens anyway.

News Brew: Smartphone Madness

Wed, 30 Jun 2010 11:21:32 GMT

If you think about what's happened the last 4-5 years in smartphones, it's truly remarkable. Apple has created an entirely new, multibillion-dollar franchise. Nokia and RIM's dominance have been severly damaged. And entirely new app and OS systems have been developed.

What's it all mean? As we surmised back in January, it probably means more pain for the legacy market leaders -- people such as Nokia, Ericsson, and RIM. Clearly their market-share is eroding, but more importantly they are losing their grips on OS and apps markets. Apps willd drive this market forward, and Apple and Google's Android are leading here.

With that, on to the news, which in the tech world today is dominated by smartphones:

With Verizon rumored to be close to picking up the iPhone, look for them to sell upwards of 12 million (Apple Insider). Boy, Nokia and RIM are totally screwed now.
ZDNet answers your Verizon iPhone questions (ZDnet)
Credit where credit is due: Bloomberg had the original iPhone-on-Verizon story (Bloomberg). The big Bloomie can still rock out!
RIM CEO puts on the gameface, even though quarterly subscribers were weak and clearly the iPhone-on-Verizon story is scary for RIM (WSJ). Rearranging deck chairs, anybody?
RIM is trying to lure developers to its App store (WSJ). Here, kitty kitty.
How to troubleshoot the iPhone 4 antenna problems (BGR). 1) Get out of car 2) Put on tin-foil hat.
Cisco introduced a tablet device! (ZDnet). Picture John Chambers speaking in his soothing tones: "This will really enable collaboration and innovation in the workplace.. " yada yada yada.
Cool international espionage news of the day: A Russian spy worked in the Barclays office in London (Guardian). I love the fact that she had a LinkedIn profile. Think of all your Facebook friends that could be spies!
Market looks pretty snoozy today (MarketWatch). Time for the hedgies to spruce of their end-of-Q marketups and markdowns and then grab a facial. Don't be lured into complacency, becuase the next market facial may be coming.
Wall Street psychology cheat sheet (The Big Picture).
Profiles of "Open Carry" advocates (Time). In Montana, this is not news. My friend pointed out that he walked by a guy carrying a shotgun down the street the other day.

Five Reasons to Stay Negative on the Market

Tue, 29 Jun 2010 10:45:25 GMT

For the past few weeks I have been alerting readers to some negative technical signs in the market, including the development of a "Head & Shoulders" pattern in addiction to a potential "Death Cross."

But is that all? Am I saying sell the market because of a couple eccentric technical indicators for stock-market geeks? No, in fact. Technicals should be used to confirm a fundamental view. There has actually been a lot of confirmation of the technical indicators via fundamental data.

I am still short the market, and I in fact added to that position this morning. Here are my top five reasons why the market will remain weak:

Jobless claims aren't really declining that much. The four-week moving average has only declined by 1,500 claims. In other words, the employement situtation remains weak.

Barry Ritholtz points out in his blog that the Chicago Fed National Activity Index appears to be peaking, and still reflects negative consumer and housing activity.

The Death Cross is here. This reflects a flip in investment sentiment and a growing negative picture in the stock-market technicals.

Mutual fund cash levels recently hit an all-time low. This means that mutual funds have less cash to invest, and potentially more stock to sell.

Head & Shoulders: Never a stock chart to like.

Tesla IPO: Money-Losing Mania

Tue, 29 Jun 2010 10:07:26 GMT

The Tesla Motors IPO is the talk of the town today, but to me it is a bad flashback to the poor IPO practices of the 1990s. The electric car company priced 1 million shares yesterday at $17 per share and it is expected to start trading today.

Tesla doesn't make a dime, and it's still a cash-flow negative entity, bringing back fond memories of the late 1990s when hundreds of unprofitable venture-capital backed firms were floated on the public markets, making entrepreneurs and venture capitalists rich while draining the accounts of millions of unsuspecting investors. A very small percentage of these compeanies ended up doing well. It's a high-risk prospect. This is not an IPO for my taste. When investing in public companies, I prefer companies that actually make money.

But set aside these fiscal details for a moment and consider this: Tesla sells expensive electric cars -- each of which require complex battery packs made up of thousands of cells -- for close to $100,000 each. They are trying to market this product in the teeth of the worst recession in 100 years.

Here are some more facts about Tesla you may want to consider before you buy any of the stock:

The company's loss in the first quarter rose to $29.5 million from $16 million a year ago
Production of Tesla's sedan, which is years behind schedule and is consider the key to making the company money, has slipped again. The big guys, such as GM and Nissan, are catching up in electric vehicle production.
The company will have a market cap around $1.3 billion after it floats.
Venture Beat did some fine work in uncovering that founder and CEO Elon Musk has been having cash-flow issues. Might that have rushed the IPO along?

Good luck, Tesla.

News Brew: iPhones, G-20, and FIFA

Mon, 28 Jun 2010 10:22:30 GMT

Another Monday, another predictable news flow: Apple is selling millions of iPhones, oil is gushing into the Gulf of Mexico, the stock market is falling, and FIFA refs are botching calls in the World Cup.

It would be more fun to be distracted by the World Cup if there were better officiating (On two hand, I can count major, game-changing botched calls I have witnessed). Bloomberg has pointed out that it may now be time to use technology -- can I suggest some eyeglasses?

Meanwhile, Apple's money machine churns along and the G-20 accomplishes exactly nothing. Here's this morning's news:

Apple says iPhone 4 sales have topped 1.7 million already (Apple).
Oh dear. What's Steve Jobs going to do about iPhone sex chat? (Business Insider)
BP says it's now capturing 24,000 barrels of oil per day (Reuters). Of course, this is the same company that once pegged the spill at 5,000 barrels a day.
Elevation Partners -- otherwise known as the VC Firm of Bono -- is putting another $120 million into Facebook (TechCrunch).
G-20 decides that debt is bad, flying in the face of Obama administration policy of running up the tab (Bloomberg). Go ahead, a dare you to name the 19 and 20 countries in the G-20.
A Macallan 50-year-old for $10,000, anybody? (Bloomberg)
Wondering why gold is rallying? Veteran bank-watcher Ambrose Evans-Pritchard says another round of quantitative easing is on the table (Telegraph).
Senator Robert Byrd, 92, is dead, and there's a scramble on to figure out how he will be replaced (Wall Street Journal).
England gets a good kicking from the press after its demoralizing 4-1 loss to Germany (Guardian).

California: "Screwed Up and Dysfunctional"

Fri, 25 Jun 2010 09:55:39 GMT

The situation in "Greece by the Pacific" -- a.k.a California -- is truly fascinating. The state filled with Hollywood actors, Porsche-driving venture capitalists, and mega-yacht owning entrepreneurs is in the middle of a financial meltdown, and nobody seems to care.

The fiscal situation continues to devolve, yet it's amazing the complacency and nonchalance you encounter in discussions about the world's 8th largest economy.

I think CEO Bob Nichols of Windward Capital Management Co. in Los Angeles nails it when he calls it "screwed up" and "dysfunctional" in a Bloomberg article.

“It’s unbelievable,” says Nichols. “How do you screw up a place with the growth capability of California? It’s so dysfunctional.”

What Will Intel's Wrist Slap Look Like?

Thu, 24 Jun 2010 12:13:43 GMT

There are wide-ranging reports, including this one from the San Jose Mercury News, that Intel and the Federal Trade Commission are in settlement talks and a resolution may be imminent.

Given the history of the FTC and technology companies, this is not surprising. They aim for settlement and wrist-slaps as opposed to brack-beaking fines, unlike the Euro trade commission, whose goal is often to slow down as many American technology companies as possible with gigantic fines. Intel was fined $1.5 billion by the EU last year.

The basic claim is that Intel used customer rebates and discounts, as well as other tactics, to unfairly compete with competitors AMD and Nvidia.

Gleacher & Company is out with a report today saying they do not expect any big fireworks in the settlement, but rather a consent degree that is already priced into Intel's stock. Gleacher says a settlement could be more of a "tailwind" for AMD than Nvidia.

"The FTC is unlikely to issue a fine in the same way the EU did. It is likely to issue a consent decree, whereby INTC is required to comply with certain practices as outlined by the FTC; non-compliance could result in criminal prosecution," says the Gleacher note, issued by analysts Doug Freedman and Ian Eng.

Overall, Gleacher expects the market to react favorably to a settlement for AMD, negatively for NVDA. It has a favorable opinion of Intel going forward.

Morning Market Report: Soft and Soggy

Thu, 24 Jun 2010 10:55:45 GMT

An analyst I often consult with described this morning's market as "soggy," which is just about the best term I can think of. The Fed did nothing to buoy spirits yesterday, as they downgraded their outlook on the economy, keeping rates artificially low (perhaps forever?).

This morning, equities are trading down. Right now the market is trading on headline news, the regulatory framework in Wasthington, and largely ignoring corporate profits news, which has been positive-to-benign.

Tonight we have big tech reports from RIM (RIMM) and Oracle. Lately the trend has been for the market to sell off on good news, which is indicative of a bear market approaching, so this will be interesting to watch. Remember: it is the reaction to the news not the news itself that matters.

I am looking more at technicals as I believe this is a technical/supercomputer driven market and I continue to believe we are setting up for a "death cross" as the 50-day moving average threatens to crossover the 200-day moving average shortly. I am surprised that more people are not talking about this, as it is a medium-trend indicator not to be ignored. In addition to that, we have formed a large head-and-shoulders pattern in the S&P, another formation that I do not like, especially given the recent action in the market.

In my long-term investment accounts, I am currently largely in cash. In my short-term trading accounts, I am short the S&P. I added to that S&P position this morning. I also re-entered a gold position.

(Disclosure: Short S&P futures, long gold)

iPhone Fanatics Queue Up in NYC Heat

Thu, 24 Jun 2010 09:39:06 GMT

According to recent news reports, it's 84 degrees in NYC, and climbing rapidly. And it's only 9AM. Of course, that doesn't stop iPhone fanatics who are queuing up like mad to get their hands on the new goods.

See below, for some video footage shot and posted to YouTube by BTIG research.

Yes, these people are fanatics. Apple seems to manufacture more of them every year.

In other iPhone news:

Piper Jaffray says 1 million iPhones are likely to be sold in the first 3 days (MocoNews).

A shortage of the devices is likely to frustrate consumers (The Guardian).

Bloomberg puts the tally at 1 million in the first day (Bloomberg).

News Brew: iPhone Mania, U.S. Victory!

Wed, 23 Jun 2010 12:42:16 GMT

Nothing to get a bunch of slathering sycophantic tech journos rolling like a new iPhone upgrade. This morning's news focuses on the rollout of the new iPhone and related upgrade and connectivity issues.

Excuse the brevity, but this morning we were delayed this morning by the important professional business of watching the U.S. World Cup victory over Algeria! Here are the links:

Walt Mossberg: iPhone is "Top of Class." (Wall Street Journal)
Engadget: iPhone 4 is the best smartphone on the market.
If you are shopping for all things Apple, the iPhone 4 is slower than an iPad, says MacRumors.com.
In non-Apple news, how many people would like to be a fly on the wall for the Obama/McChrystal meeting? (Bloomberg). I would!
Sales of new homes plunge to lowest level on record (Bloomberg). But seriously, would you expect anything else? The country is awash in empty, new houses.
Unemployed people are frittering away their free time (Wall Street Journal). This comes from a government study. Better question: is the government studying unemployed people a good use of government-employed people?
The Fed is likely to do nothing (Wall Street Journal). Possibly for another 10 years.
Uh-oh. BP's taken the cap off (BusinessWeek). What will they screw up next?
Scammers were all over the U.S. homebuyer credit, says a watchdog (Reuters).
Adobe was down on earnings of 28 cents per share, up from 24 cents last year (MarketWatch).
Facebook CEO says: We're really gigantic (Guardian).
New meaning to the word, "GOOOOOOOOOOLLLLLLLLLLLLLL!" (USA Today).

Can Google Win With Free? Doubtful.

Tue, 22 Jun 2010 13:42:36 GMT

There is a growing "meme" out there that Microsoft is on the verge of death and that Google will take over the world with free stuff. Please.

I'm actually anti-Free. I haven't even read Chris Anderson's book titled "Free." Don't really feel like I need to read it either. I think free as a business is almost always representing subsidy -- a crutch to gain market share in the eary going. Eventually, if you want a business, you need to move to premium, paid services.

Think of all the free stuff out there, and then try to give me an example of some free stuff that holds the best market position: That is: Highest quality, high margins. I can't think of anything.

Market Update: Dancing on the 200-Day

Tue, 22 Jun 2010 09:41:16 GMT

The equities markets are reaching a critical juncture following a two-week rally off the "flash-crash" bottom. What now? My view is that we are still in the process of forming a rather signficant top, which will be confirmed if this rally starts to fail in the next week.

Much of the trading being done now -- the battles between the large hedge funds and juiced-up High Frequency Traders -- is a technical skirmish over key levels. The market worked hard to recapture the 200-day moving average (MA). This would be a common place for the rally to either fail or bust through in recapturing the bull trend. Another technical level that many traders have their eye on is S&P 1150.

The problem I have with the notion that we could be re-entering a bullish mode is this 1) Volume on rallies has been light 2) The 200-day MA is starting to flatten out, rather than upslope. This is an indication that the one-year-old cyclical bull market is losing some steam.

[img:/assets/10/0622/1256.500]

But here's an even bigger problem I have with the market: It looks to me like we are going to get the "death cross" within the next month. This is a technical indicator that occurs when the 200-day MA crosses over the 50-day MA. At the same time, there is a bearish "head-and-shoulders" pattern forming in the S&P, as marked by the triangle above. Of course this formation would not be completed unless the rally fails here -- but if the rally does fail, that would paint a very bearish picture for the markets.

I realize it's bad to "anticipate" technical market events, but this is just a gut feeling I have from looking at the chart knowing that it's very similar to market charts in 2007. This leaves me extremely cautious and I am now out of most stocks. If we get the death cross, I will have no problem being short this market.

Technicals can be used to onfirm fundamental ideas. And here is a fundamental idea I've been considering for quite some time: the year-long rally from March 2009 to April 2010 was created largely by government stimulus programs and the creation of liquidity by the federal government. Wouldn't it confirm that idea if just two months after they announce the end of many of these federal programs (the buying of treasuries and $1T in mortgage-backed securities), the stock-market rally starts to fail? That would confirm to me that this "steroid market" has been juiced by government money and has little to do with economic reality.

A really economic boom and stock-market rally cannot be built on the Feds artificially lowering the cost of financing -- it must come from actual business growth.

My Neighbor: I'm in All Cash!

Tue, 22 Jun 2010 09:31:36 GMT

I like to chat about the market, with anybody who will tolerate it (I'd say this is about 30% of the public). Yesterday I was out in the beautiful Montana sunshine, talking to one of my neighbors about the market.

I think it's good to get this "man on the street" perspective as much as you can, just to get a qualitative sense of what the individual investor thinks of the market. Here's it in a nutshell: My neighbor hates the market. He's in 100% cash. He scoffs at the notion of the economy recovering. "Recovery? What Recovery!?"Now, he qualified this by pointing out that he is sending his kid to Dartmouth, so he needs to come up with $50,000 in tuition every 12 months, so it doesn't make sense for him to risk a lot of cash in the market.

My neighbor says that he was lucky in that he pulled most of his money out of the market in 2007, because his kid was going to college. So he missed the "great collapse" as he called it. Many of his friends were not so lucky, he points out. Many of them had their nest eggs seriously damaged.

This perspective is important, I think, only because you really don't read about it much in the mainstream media. I think the individual investor feels burned by Wall Street and won't be back as a major player for a long time. This is why the market liquidity remains somewhat thin and is being driven by mostly large hedge funds and institutional players battling each other.

News Brew: Gold, China, and e-Book Readers

Mon, 21 Jun 2010 10:14:45 GMT

We live in a world of well-defined growth markets. These appear to now consist of Gold, eBook readers, emerging markets, and anything manufactured by Apple. If you go to sleep for 5 years do you really think any of this will change?

This morning, markets were driven by the much-ballyhooed news that China will allow its currency to float more freely. This ends a two-year peg to the U.S. Dollar, which many economists and U.S. politicians say has made goods in China unnaturally affordable (take a trip to Walmart, if you don't know what they mean).

Lots of people seem to think that a Chinese currency revaluation is the cure for the world's ills. But trying to derive market direction out of a Chinese currency decision is problematic. Here's why: China only announced that they will widen the band in which the Yuan will trade, which means they will still tightly control it. And past moves have been slow and methodically controlled by the Chinese government.

To put things in perspective, take a look at what happened to the Yuan in 2005 -- it was revalued 2.1% against the dollar, a more powerful move than the one just announced. But if you read this Washington Post story from 2005, you can see how quickly these moves can fade in importance.

More news from this morning's market activity:

The latest government revaluation helps the Chinese Yuan rise to its highest level ever (Wall Street Journal). Waiting for the new movie: A Fistful of Yuan.

U.S. ambassador says China's move will help us get along (Reuters). Yes, until China introduces a $5,000 automobile to the U.S. Market.

Gold hits an all-time high of 1266.50 in overnight trading, before backing off after the New York open (Kitco News).

The stocks analysts like the least performed the best (Bloomberg). Any real surprise here?

Looking for a private suite for your transatlantic flight? No problem. (Wall Street Journal)

Bernie Madoff has allegedly told prison inmates he's got a secret $9B stash (Fox News). Is it held in Gold? Or Yuan? In China?

Abnormal levels of radiation have been discovered at the North Korea/South Korea border (AP).

A large armada of U.S. warships are heading toward the Persian Gulf (Debka.com). That can't be good.

Telecom New Zealand: 10% Div Worth a Shot

Wed, 16 Jun 2010 01:00:45 GMT

I've been poking around Telecom New Zealand (NZT) for quite a while. It first showed up in a dividend stock screen when the dividend was paying about 8%. Forbes' Ken Fisher, who is a pretty good stock picker, recommended it. Now the stock is lower and the dividend is at about ten percent.

What happened? They recently reduced guidance. Then the CFO left. But as the stock goes down, the dividend goes up. This company has generous free cash flow -- somewhere in excess of $150M in 2010, likely. It's got $1.5 billion in debt, but it also has EBIDTA approaching $1B, so it is adequately covering the debt payments and the dividend.

The forward P/E is about 11. Basically, I feel lucky that I waited to buy this stock, because it looked like it was cheap, and then it got even cheaper. But now that it's fallen to a level of about $6 and is paying 10% dividend, which is almost irresistable to me. I think it's worth a shot. After all, we are talking about a telecom services stock in one of the healthiest regiona economies in the world.

With this week's bounce off of $6, the stock could be forming a long-range double-bottom. A buy here with a stop at $5.50 seems like the right thing to do.

[img:/assets/10/0615/1417.500]

(Disclosure: Long NZT)

The Meaning of 4G

Tue, 15 Jun 2010 10:15:41 GMT

I recently penned a column for Light Reading on the arrival of 4G and what it will mean for the large global service providers. I think this is a watershed moment for the telecommunications industry and not many folks seem to be paying attention to it.

The business models of the major service providers are about to change radically -- as they go from a heavily regulated, profitable, "utility" model of landline-phone service to the Wild West of the mobile Web. in the pre-4G world, the bulk of their revenue came from predictable and profitable voice services. In the post 4G-world, they will have to provide larger amounts of commoditized data at a lower price point. The bottom line is that 4G is expensive and their margins on mobile data are much lower than voice.

Not only that, but data traffic will predominate the traffic and revenue on 4G networks. When 4G networks get rolled out in 2011-2012, the delivery of mobile data will increase by an order of magnitude. This will present challenges to them on the cost front.

Here are a few facts you might want to follow:

The global mobile data revenues reached $220 billion and mobile data now contributes 26 percent of the overall global mobile service revenues, according to Chetan Sharma Consulting.
2009 also marked the year when the global data traffic (monthly) exceeded the global voice traffic. In the US, the yearly mobile data traffic exceeded the voice traffic for the first time.
It is expected that 2009 marked the year that mobile data traffic reached a new milestone of 1 exabyte (EB) or 1 million terabytes (TB). By 2016-17, the global yearly mobile data traffic is likely to exceed 1 zettabyte (ZB) or 1,000 exabytes, according to Chetan Sharma Consulting.
Over 50 percent of the world's households carry a mobile device, according to Accel Partners.

You can read the article in its entirety here.

Twitter on the Fritz: Back to Real Work?

Tue, 15 Jun 2010 08:34:16 GMT

Millions of people yesterday had to resort to verbal communication with friends and colleagues in addition to returning to actual, productive work as Twitter was down for several hours. We're not sure, but this may have resulted in a slight, although temporary, uptick in the global economy.

Meanwhile, the techno-pundits are also all over the fact that the Twitter is moving into the geo-location business. Obviously they have to do this, given the popularity of rising social networking company Foursquare.

Now, I'm not a big geo-location guy. Maybe because that's because I'm worried that if I tweet that I'm out of town, somebody will rob my house. Or maybe it's just because I don't want people to know where I am.

The Twitter blog notes that geolocation is especially timely with the World Cup. I'm trying to figure out this spin. You mean, you need the right technology tool to tell people in the office that you are blowing off work to watch the World Cup?

In the interest in geo-location disclosure: I will note to readers that I'm technically on vacation this week so updates will be sporadic, at best. Here's a clue: At some point, I will be checking into a Broadway show, and possibly a beach on the Atlantic.