Divergence Convergence

Freedom To Publish Again

2011-04-08T16:05:00.003-05:00

There has been a long period of no commentary by me given that as the finance industry became more regulated, post the financial meltdown, the ability to publish on a blog disappeared. Given that I recently gave up my security licenses due to this requirement, there will be comments from me on a more frequent basis.

Comments will be derived from the various research firms I work with along several websites where I publish. The comments should incent one to inquire about the various research firms I work. Nothing is free in this world and too much is published on the web that is free resulting in poor investment advice. The last thing you will get from me is poor investment advice.

2009-08-28T16:51:00.005-05:00

"The reports of my demise are greatly exaggerated"

Is September a replay of August or do the "Ides of September" come to pass? Just like in August everyone was calling for the market to drop and now the skeptics will proclaim doom for September. The numbers do not back up another 9% or greater correction like we last saw in June/July.

The market call below is driven via Erlanger Chart Room. If you are not a client and you make investment decisions, then spend some time with our approach.

First the bias of the market is established. Then sentiment is reviewed. Third seasonal trends are noted. Fourth market timing tools from Phil Erlanger are reviewed. Next performance of the Russell 2000 to the S&P 500 is compared with breadth measures.

The process is rounded out with sector analysis of what is and is not working. Asset classes within the U.S. are compared against the world. The net result is a cohesive process that avoids making emotional decisions not ground on the facts. Numbers do not lie.

The bias remains positive. The S&P 500 is above its DMA channel on a daily basis, above it weekly and monthly. The Erlanger Trend Direction (ETD) is in uptrend on a daily, weekly and monthly basis. The one hitch here is the Erlanger Nantucket Sleigh Indicator (ENS) is in some trouble on a daily basis but weekly and monthly look great. The NASDAQ Composite looks to be in good shape but has a few more chinks in its armor. The daily ETD is struggling as is the daily ENS. The S&P 500 is leading the NASDAQ as of this update. The Russell 200o is still outpacing the S&P 500. No worries here in reviewing these indicators.

The prior reporting period saw short interest rise nicely. This has failed to confirm with the last two releases. Shorts covered and did not press their bets two periods ago and just and some shorts on an absolute bias but more stocks saw short covering than additions. This is not a surprise as the market motored the last two weeks of the month of July and continued its advance the first two weeks of August.

The fuel for a rally has been drained a bit here with the lack of shorts being led to the slaughter. I love the term "smart shorts" because the reality is they never make as much money as those on the long side. Somehow they are smarter than those long.

Call action has yet to reach an extreme as money is blindly bet on calls. There is more call action in equities versus indexes. We need to see the indexes get a little jiggy as well. Sentiment will not help the market continue to plug higher. It looks like the bulls will have to throw more money at the stocks they love.

The worst of the seasonal cycle lies ahead in September and the first half of October. The brief respite of positive seasonals played out perfectly on the S&P 500. However, the seasonals require some caution as it can be hard to make money during this period as the legislative branch of the government returns and corporate chieftains come back from the beach to tweak their business models. Also, mutual funds decide which dogs to sell for tax losses as their fiscal year ends on September 30th.

Erlanger's market timing tools the EBB and Squeezeometer remain in pretty good shape. The EBB is close to breaking below 0 on a daily basis. This could be another indication of sideways action. However, it is too early to reach a firm conclusion. Additionally, there is a negative divergence here that needs to be rectified.

The Russell 2000 (small cap) continues to dust the S&P 500 however it is slowing a bit at this juncture. In periods of market weakness, the S&P 500 takes control. It should be noted this has yet to happen.

Market breadth remains positive although the second derivate is starting to slow on several fronts. In particular, the Daily Advance/Decline Line and the Daily Advance/Decline Volume Line are struggling a bit.

There has not been a great deal of sector leadership change. What brought the market higher remains strong. Although technology, needs to be watched closely to make sure that its leadership position does not falter. The semis broke out above $25 today and some say this is a top and that Intel rung the bell. Such skeptics will feel the pain as the SMH runs to $27.50 without resistance. The sector technicals remain in good shape. Concern will arise when and if defensive sectors begin to perform. These include Utilities, Food/Beverage/Tobacco and Food/Staples Retailing.

In terms of assets classes stocks are doing well as are treasuries. Investment grade bonds are strong as are high yield. Mature overseas markets are strong while emerging is struggling just a bit here. The daily ETD is in pullback mode. A couple of weeks ago we noted that, "It looks like China is going to slow their growth a bit and kick start it later in the year when the world needs it more than right now." this is now widely known and it was not then. As such energy and materials are struggling a bit. The surprise in mid August had been the strength of the U.S. dollar which reversed course and fell over the cliff. This allowed equities to rock the second half of the month. The dollar should struggle as the reflation trade kicks into gear. As a result, the commodity patch cannot begin an uptrend until dollar weakness becomes more pronounced. IN OTHER WORDS IT IS ALL ABOUT THE DIRECTION OF THE DOLLAR. No bear can hope to make money if the dollar is weak. It is a matter of physics.

In the past few days, the equity market of several countries have begun to weaken and they include Malaysia, Taiwan, Mexico, South Korea, Brazil, China, India, Israel and Turkey. Themes here are pretty obvious. Countries with heavy commodity exposure are struggling while those ties to China are also failing to see more upside. This was the same motif in the last update.

That about wraps up the current state of things. Remain long and add to weakness. Shorts use tight stops unless you want your face ripped off and I would welcome this given the long bias. The uptrend is not complete. The bulls remain in control until as such time as data confirms trouble on the horizon.

New Format For Mid Week Update

2009-08-11T20:31:00.004-05:00

Since April we have been working on advanced workspace in Erlanger Chart Room (ECR) to perfect the "market call". This process will continue infinitely as making a market call is a series of waiting to find another tool or indicator that can be added into the mix to improve the sensors or tools present on the aircraft carrier.
(the aircraft analogy was written for my friend Fari Hamzei, the ultimate navigator).

Just like in July everyone was calling for the market to drop. Then the market had corrected from 950 to 875. A drop of 75 points or thereabout. Now we have dropped from 1018 t0 995. Almost 25 points. It is amazing two down days and the world is crashing by design. It is not that simple.

As Phil Erlanger noted in this morning's video on http://www.goodmorningwallst.com the crucial level is 975, a test of the head and shoulders double bottom neckline. These videos are a must watch each week.

http://budurl.com/gmws081109

The market call is driven via Erlanger Chart Room. First the bias of the market is established. Then sentiment is reviewed. Third seasonal trends are noted. Fourth market timing tools from Phil Erlanger are reviewed. Next performance of the Russell 2000 to the S&P 500 is compared with breadth measures.

The process is rounded out with sector analysis of what is and is not working. Asset classes within the U.S. are compared against the world. The net result is the "bad mama jama".

The bias is positive. The S&P 500 is in its DMA channel on a daily bass, above it weekly and monthly. The ETD is in uptrend on a daily and weekly and in rally mode monthly. The one hitch here is the ENS is in some trouble on a daily basis but weekly and monthly look great. The NASDAQ Composite looks to be in respectable shape but has a few more chinks in its armor. The S&P 500 is leading the NASDAQ as of this update.

The prior reporting period saw short interest rise nicely. This has failed to confirm with the latest release. Shorts covered and did not press their bets. This is not a surprise as the market motored the last two weeks of the month of July. The fuel for a rally has been drained a bit here. Numbers are still coming so expect to see some more comments tomorrow night on this. Call action has yet to reach an extreme as money is blindly bet on calls. Sentiment will not help the market continue to plug higher.

The worst of the seasonal cycle lies ahead in September and the first half of October. A brief respite is in place for the next few weeks on the S&P 500. This requires some caution as it is hard to make money during this period as the legislative branch of the government returns and corporate chieftains come back from the beach to tweak their business models.

Erlanger's market timing tools the EBB and Squeezeometer remain in pretty good shape although the EBB is close to breaking below 0 on a daily basis. This could be another indication of sideways action. However, it is too early to reach a firm conclusion.

The Russell 2000 (small cap) continues to dust the S&P 500 however it is slowing a bit at this juncture. In periods of market weakness, the S&P 500 takes control.

Market breadth remains positive although the second derivate is starting to slow on several fronts. In particular, the Market Trin 10 Day Moving Average has dropped under 1 which is where the market typically starts to struggle.

There has not been a great deal of sector leadership change. What brought the market higher remains strong. Although technology, needs to be watched closely to make sure that its leadership position does not falter. The sector technicals remain in good shape.

In terms of assets classes stocks are doing better than treasuries. Investment grade bonds long strong as does high yield. Mature overseas markets are strong while emerging is struggling just a bit here. It looks like China is going to slow their growth a bit and kick start it later in the year when the world needs it more than right now. The surprise has been the strength of the U.S. dollar. It should struggle as the reflation trade kicks into gear. As a result, the commodity patch cannot begin an uptrend until dollar weakness becomes more pronounced.

IN the past few days, the equity market of several countries have begun to weaken and they include Canada, Sweden, Germany, Singapore, Taiwan, South Korea, South Africa, China, India, Israel, Turkey and Russia. Themes here are pretty obvious. Countries with heavy commodity exposure are struggling while those ties to China are also failing to see more upside.

That about wraps up the current state of things. Overall, buyers should be cautious here and shorts use tight stops. The uptrend is not dead rather simply slowing. The bulls remain in control until more data confirms trouble on the horizon.

What no one will admit about Monday's rout

2009-04-21T07:42:00.001-05:00

What caused the selling today? Some or most media pundits said Bank of America's (BAC) earnings. This is rubbish. Why? There are several reasons why Bank of America's earning were not responsible for today's damage.

Over the weekend, White House Chief of Staff Rahm Emanuel appeared on ABC's "This Week" and stated that the existing loan money given to the banks will be converted to equity. This will prevent the banks from asking for more money as they will not have to repay the loan. Rather the government now becomes a shareholder. This is good for us as a taxpayer but bad a shareholder. As a taxpayer, our money will have the potential to earn a profit. However, if one held stock in Citigroup (C) then they could be diluted by 36%. Not good as dilution is a negative to earnings.

A follow-up to this story appeared in Monday's The New York Times. We view the sell-off on Monday as the equity market voting this proposal down. The media on the other hand blamed Monday's selling on a mixed conference call from Bank of America (BAC) on top of a huge earnings beat. A week ago these earnings would have driven Bank of America higher like it did for Wells Fargo (WFC). However, the earnings release occurred on the same day as this new proposal and the effect was investors buying the rumor last week and selling the news.

The problem with the current administration is they are simply floating trial balloons and seeing the reaction from the market. The market does not like this approach and every time it happens the selling begins. Sooner or later the administration will get how to handle markets. Once again, the lesson taught to us by Arthur Lafffer holds true. On days of extremes in the markets look to Washington for policy decisions. Unfortunately, this was a bad decision.

Another reason for the selling was the delayed reaction to last week's bankruptcy filing from General Growth (GGP). One may never have heard of General Growth but its properties are famous and include Ala Moana Center in Honolulu, Water Tower Place in Chicago and Grand Canal Shoppes at the Venetian in Las Vegas. In total, their are some 1,500 malls.

This failure is among the worst ever seen by the U.S. real estate market. Too much debt was coming due and it needed to be restructured. The problem is the bond market is not back to normal and such an event could not take place. Vacancies have risen from 5.8% to 7.1% in the past year and revenues have dropped for many stores. Could Sears be next?

The above news validates that the credit crisis has not ended but now will enter the tougher phase of its life cycle, the workout. Never a pleasant event but clearly needed in all too many situations around the U.S. and world. Solutions that negatively impact shareholders will see equity markets suffer. Take note President Obama, Treasury Secretary Geithner and Dr. Summers.

This Rally Is Different Than Those Seen Since September

2009-03-28T08:34:00.004-05:00

BFG Outlier Research
BFG Comments Very positive as longest stretch since last summer for scores to remain above 0. Love to see the VIX crack 40. Market could run out of steam if VIX hits 36.54

Sector Potential Breakouts Based On Relative Strength to S&P 500 and 30 Day Exponential Moving Ave Cross

Improving Transports
Deteriorating Energy (watch closely) Food Beverage Tobacco Telecommunications (on the edge)

S&P 500 vs. Russell

Russell 2000 takes control. Move to high beta stocks.

Macro
Love It S&P 500 EEM EFA HYG

Like It TLT CFT IGE

Mixed S&P 500

Hate It UUP

Stock Specific Erlanger Review

Dow Jones Stocks criteria Weekly Displaced Moving Average (DMA)

+ BAC GM(speculative) HD INTC JPM KO T WMT
Close but no cigar
- JNJ KFT PG XOM

Transports criteria Weekly Displaced Moving Average (DMA)

+ JBHT UPS YRCW
- AMR CAL FDX JBLU LUV OSG

Stocks Getting Ready to Move as New Trend Ready to Begin

+ V FCL
- HANS (very aggressive sell or short) Y NDAQ ARO

MACD Special

+ PBCT
- BSY BPL

200 Day Upside

+ SOLR SHI

200 Day Downside

- HNG DEP

50 Day Upside

+ ZMH WAT MXB

50 Day Downside

- HMY EQT

Moving Average Crosses Of Note
+ PCLN
- ERIC

ETD Changes - Pullbacks and Downtrends crushing Rally and Uptrendx

+ AA PL LSR TMK DE LLTC BYD (for those that want a cheap priced stock)
- AWR LANC ACV

It's the bond market stupid

2009-03-05T19:26:00.003-06:00

In the early days of the Clinton Adminstration,1993 and onward,the powers that be would ask the question,"... how policy decisions would affect the bond market?" Robert Rubin, then Treasury Secretary, ingrained the concept that uncontrolled spending could cause interest rates to rise and these thoughts weighed on Bill Clinton, James Carville and other key advisors including Larry Summers.

It is about time that Larry Summers have a little talk with President Obama. Why? There are two bond markets and subsets of those two markets. First there is the government bond market. Second there is the corporate bond market. Within the corporate bond market there is the high yield (aka the junk market) and the corporate investment grade market. The ETF we use to track the high yield market is HYG and corporates are tracked via LQD and CFT.

Both these are in a state of quasi freefall. Meanwhile governments via treasuries remain strong. The November stock rally coincided with HYG, CFT and LQD moving lock step with stocks. If the equity market starts to rally and these ETFs do not, then one will know this rally has no legs.

President Obama declared on Tuesday that P/Es are low and valuations are cheap. Funny I guess he does not realize that the P/Es can go even lower and valuations could fall as cash continues to be depleted from the balance sheet of corporate America as the decession continues to play itself out. President Obama needs a few Economics 101 lessons from Larry Summers because such statements would not be made if he was watching the corporate bond market trade. Make no mistake about it there is trouble in corporates.

One of my oldest and dearest clients Bennet Sedacca ingrained in my head that stocks cannot do well if corporate bonds are in trouble. General Electric (GE) has fallen below $7 from above $10 in a few weeks because the corporate bond market is voting against General Electric and specifically General Electric Capital.

If President Obama and Larry Summers begin to talk about restoring the bond market then one can breathe a little easier. Until then, we are in trouble, James Carville noted, "Every time I would talk to someone, they would say, ‘You can’t do that, it will freak the bond market out.’ I said, ‘Goddamn, whoever the bond market is, these bastards are powerful.’” Indeed powerful bastards they are and the way they are voting is not pretty. Let's hope things turn around quickly with corporates but it does not look good.

Retracement Levels

2009-03-04T13:49:00.003-06:00

As stocks and indexes dropped they fell through what are called retracement levels. These levels take a move from a low to a high and then determine the normal pullback levels. These levels are 38.2%, 50% and 61.80% and the dreaded 100% pullback.

The two retracement periods we are watching are the November low to the January high. Also, I believe that the longer term October 2002 to October 2007 high. Tje November to January period see the Dow Jones and S&P 500 having broken all retracments. The S&P 500 needs to gete back above 741.02 and the Dow Jones Industrial Average above 7392.41. A plus is the NASDAQ Composite and S&P 400 are above their 100% retracement levels.

The longer term retracement level on the S&P 500 is 768.63. The Dow Jones Industrial Average 100% retracment is 7181.47. The longer term retracments have not been taken out on the NASDAQ Composite or S&P 400. These levels are 1108.49 and 370.83.

Interesting Stocks As Potential Buys

2009-02-18T22:14:00.002-06:00

Stocks on the buyside of interest are those that are short squeezes and above their Monthly Displaced Moving Average Channel, AVAV ATHN FRPT GERN OSIR HOTT. It should be noted that these stocks have earnings growth year over year AVAV ATHN HOTT.

Weekly Update

2009-02-15T20:03:00.001-06:00

BFG Outlier Research
BFG Comments Ugly remains the description for the overall market. Most ETFs are below 0. To be out of the woods, scores need to be above 0. That level is 839.29 on the S&P 500.

Sector Potential Breakouts Based On Relative Strength to S&P 500 and Moving Ave Cross

Improving Autos Commercial Services Capital Goods
Deteriorating Insurance Diversified Financials

S&P 500 vs. Russell

Russell 2000 looks ready to take control. High beta takes over.

Macro

Love It

Like It EEM UUP IGE

Mixed S&P 500 EFA IGE CFT HYG TLT

Hate It

Stock Specific Erlanger ReviewDow Jones Stocks

+ MCD
Close but no cigar HD MRK KO
- Everything else

Transports

+ CAL JBLU
- Everything else

Stocks Getting Ready to Move

+ UNH ABX SWN BCR AEM MYGN MYL OCR DLTR HCC WTR BLUD
- STFC AMP BRKA KLAC PRGS PCL PDA MORN

MACD Special

+ APSG NFLX
- JNJ ADP DE CBE MLM

200 Day Upside

+ TEVA SA BWLD

200 Day Downside

- none of note

50 Day Upside

+ RHB

50 Day Downside

- SLB COG SWK IFF EV IM LSTR BYI.

Moving Average Crosses Of Note
+ NSH
- Too many to count

ETD Changes - Pullbacks and Downtrends crushing Rally and Uptrendx

+ NWN CHE PNRA PSS NDN
- Too many to count. Not good.

Weekend Update (not as funny as SNL)

2009-01-31T20:10:00.001-06:00

Sector Potential Breakouts Based On Relative Strength to S&P 500 and Moving Ave Cross

BFG Comments Things Look Ugly. Most ETFs are below 0. To be out of the woods, scores need to be above 0. Not a surprise as this was the worst January for stock returns on record.

Potential Buys Nada

Potential Sells Food & Staples Retailing Retail Trade Capital Goods Media
Recently Confirmed Sells Insurance Diversified Financials Materials Consumer

S&P 500 vs. Russell

S&P 500 remains in control. Can you say low beta.

Macro

Love It

Like It CFT HYG UUP IGE

Mixed S&P 500 EFA EEM IGE CFT HYG
Hate It TLT

Trying to Gain Favor TLT

Stock Specific

Dow Jones Stocks

+ IBM MRK BA
- Everything else

Transports

+ LSTR CHRW
- Everything else

Stocks Getting Ready to Move

+ INTC MDT BA TXN CAH AZO LH CSC GWW HRL XRAY
- TCO BMS PPS JAKK

MACD Special

+ SNDA TFSL
- PG DIS KR AMAT GOS SII IP GRMN SEE SSO (double SPY ETF long)

200 Day Upside

+ HNP NEOG

200 Day Downside

- SGP DV GVA CBST

50 Day Upside

+ BVSN

50 Day Downside

- For the second update in a row, “Where do I start?” The list is too huge. Suspects include HPQ APC HAL YUM KYO PCU among others.

Moving Average Crosses Of Note

+ JPM HON GD FCX MFE NU JAVA PRGO ENDP
- IBM GSK RIO TGT DUK ITW SU MS BHI ZMH

ETD Changes - Pullbacks and Downtrends crushing Rally and Uptrendx

+ BEC GNTX SYNA FAST
- MON PPL ECL SHLD VAL PKI STU BKS

Mighty Mouse (IBM) saves the day

2009-01-21T22:51:00.002-06:00

Jeff Bailey of Option Investor wrote in his piece tonight rather brilliantly that, "Saturday Night Live groupies will remember comedian Andy Kaufman's lip sinking of the Mighty Mouse theme song, and at last night's close, even this morning; investor psychology looked ready to call it quits as the Financial Sectors SPDRs (XLF) $9.40 +16.33%, lead by the S&P Banks Index (BIX.X) 84.66 +12.71% were making new lows at 10:30 AM ET."

"But I'll argue that perhaps, the BIGGEST weighted stock in the Dow Industrials (INDU) 8,228.10 +3.50% "Big Blue" was just what BULLS and even some SHORT COVERING BEARS needed for the major averages to recoup the Tuesday's losses."

For those that want some humor here is that Andy Kaufman Video.

Mighty Mouse

Puts high in EEM

2009-01-21T18:38:00.003-06:00

Put action high today in EEM as 173,642 puts traded against 54,301 calls. Trouble ahead overseas in the emerging markets.

Weekly Stock Review

2009-01-20T22:14:00.002-06:00

Sector Potential Breakouts Based On Relative Strength to S&P 500 and Moving Ave Cross

BFG Comments Close to Many Buys. Be Patient

Potential Buys Nada

Potential Sells Cons Services Retail Banks

S&P 500 vs. Russell

S&P 500 takes control with Monday's action. Defense over offense?

Macro

Love It UUP

Like It CFT HYG

Hate It S&P 500 TLT EFA EEM IGE

Trying to Gain Favor TLT

Stock Specific

Dow Jones Stocks

+ GM KFT
- Everything else

Transports

+ LUV
- Everything else

Stocks Getting Ready to Move

+ TFSL GNTX LLTC THS
- WTM COV HRL DLM

MACD Special

+ ZN URX
- MSFT ROH ZMH SII FFIV ENER

200 Day Upside

+ PEGA

200 Day Downside

- SHW SJI

50 Day Upside

+ CYBE

50 Day Downside

- Where do I start. The list is too huge. IBM GSK OXY CAJ SU SSL APC MOS MS WU

MACD Crosses

+ KMB GENZ DV IAG CYBX
- IBM GSK RIO TGT DUK ITW SU MS BHI ZMH

ETD Changes - Pullbacks and Downtrends crushing Rally and Uptrendx

+ BEC GNTX SYNA FAST
- INTU MCO MVSN MCD LOW

2009-01-06T06:11:00.003-06:00

Weekly Stock Review

Sector Potential Breakouts Based On Relative Strength to S&P 500 and Moving Ave Cross

Potential Buys Diversified Financials Energy Materials

Potential Sells Banks Food Staples Retailing Health Care Equipment

S&P 500 vs. Russell

Russell

Macro

Love It S&P 500 EFA EEM HYG IGE

Like It CFT UUP

Hate It TLT

Stock Specific

Dow Jones Stocks

+ HPQ MMM
- HD

Transports

+ EXPD FDX
_

Stocks Getting Ready to Move

+ MR SYK KBR WRB PRAA VMED
- MV NTLS

MACD SPecial

+ HURN stop $57
- DVA MV

200 Day Downside

- GOLD

200 Day Upside

+ ONXX TDG BVF TIVO NWPX SNS

50 Day Downside

- DV

50 Day Upside

+ MSFT AAPL CS DVN RIMM INFY ADBE CHK WFT BTU SII CP GME FST SEPR (The list is huge)

MACD Crosses

+ MSFT DVN XTO SU NKE STT KSS TYC GPS GPC NRG HK (Again the list is long)
- DVA RVBD

ETD Changes

+ NTAP WPI WEC WRLD CPO CIT VSH WAG COST
- DV ZNT DLX

Why eBay (EBAY) is toast

2008-12-27T14:21:00.002-06:00

Pretty obvious. The model was built around a strong economy driven by the consumer. Now that it is a buy not seller's market, most merchandise is getting marked down 50-75%. Who needs eBay in this environment?

They have lost their way. Let's see- new product 75% off or old used product 60% off. The choice is pretty easy.

Weekly Stock Review

2008-12-21T21:41:00.002-06:00

Dow Jones Stocks
+ UTX PG WMT T
-MCD MMM JPM DD GE

Transportation Stocks
+ OSG LUV UNP
- CAL JBLU AMR

Stocks Getting Ready To Move
+SPTN FSYS CHT EMC TD
-APOL COCO

MACD Special
+
- DO BMO HBC

200 Day Downside
-TSCO
200 Day Upside
+ DNA SUN TLGD

50 Day Downside
- CVX BP AAUK
50Day Upside
+ LMT NOC SBUX CMI OSIP

MACD Cross Negative
-AAPL EXC NE SHLD ELN
MACD Cross Positive
+BAX BEC OSIP MPEL

ETD Breakout
+WMI

Options Outliers For Tuesday

2008-12-16T16:09:00.003-06:00

In the stocks with the highest number of options, the following stocks were outliers of note. EEM saw options volume spike by 40% with the action on the put side. Morgan Stanley saw options ump on puts and calls into earnings. Best Buy (BBY) beat estimates and rocketed higher with put action in control. Can you skeptics? Last Coca-Cola (KO) saw options volume spike by 43% with serious put action compared to calls.

Interesting Lawsuit

2008-12-14T21:42:00.003-06:00

Bloomberg Financial Services has sued the Federal Reserve to get disclosure of where the TARP and other assets are being placed. Watch for this story to gain in coverage as the individual's rights are being taken advantage of my those in Washington D.C.
For full review of the story go to:

Bloomberg Story

Who is # 23?

2008-11-21T22:21:00.002-06:00

22 and counting. Yep, that is right there have now been 22 bank failures. Two in California and one in Georgia. Only 153 to go. The FDIC warned there would be 175 bank failures. One of the California failures was Downey Financial a very large S&L. U.S. Bancorp (USB) acquired the assets. Looks like the big keep getting bigger. Or do they?

The big question is Citigroup (C) number 23? Citigroup has ben run into the ground by Chuck "Hey the music is still playing" Prince. The phat bastard is living our his existance on several boards and shuttling his girthness around his many houses. Meanwhile, countless numbers of heads rolled due to his incompetency.

Options not positive for stocks

2008-11-17T17:09:00.003-06:00

Stock indexes continue to get pounded into the close each day. Pretty easy trend to identify. Equity Options are seeing more calls than puts as the put/call is 0.87. Only Index options see a put/call ratio above 1 as that ratio closed at 1.03.

There is no reason to rush into stocks. Remain calm and if you can trade intraday these are amazing days. Otherwise, keep cash high and prepare for a cold winter.

Obama's contributions questioned

2008-10-05T22:38:00.002-05:00

Hmm...it looks like many contributions coming in from overseas in small amounts. Foreign countries impacting our election, not good. No wonder Obama would not take Federal Election Funds. See the story beloq:

http://online.wsj.com/article/SB122324885800205919.html?mod=article-outset-box

Hmm...let's try one more time

2008-09-12T01:25:00.003-05:00

Hello blog long time no see. Let's see if we can connect more often this fall. The "one more time" reference is more to the U.S. Treasury Department and the Federal Reserve. Looks like they keep having to try one more time.

1. Save Bear Stearns.
2. Reorg Fannie Mae and Freddie Mac.

Now it get tricky. Next up are:

3. Figure out what to do with Lehman.
4. Throw darts on what to do with Washington Mutal.
5. Throw more darts on AIG.

Then down the road

6. Deal with 200 bank failures that are being predicited.
7.The continuation of the credit crisis and the deleveraging of the world.

This shit is bad. Seasaoned pros who are clients state they have NEVER seen such events. IMO this makes the Crash of 1987 look like a cake walk. The dynamics of globalization and the domino effect are mind boggling. Enough for now. I suggest that EVERYONE BUY SOME PUT INSURANCE TO COVER FOR A 20% DROP IN THE MARKET.

2008-05-12T10:44:00.003-05:00

Major Index Weekly Review
Index MACD ETD
WLX + +
SML + +
NYA + +
SPX + +
RUA + +
RUI + +
MID + +
OEX + +
NDX + +
COMPQ + +
XAX + -/+
INDU + +/-
UTIL + -/+

DOW JONES IDEAS

AS AA IBM
AB
CB CAT
CS

RUSSELL 2000

AS LAYN AP
AB TBI CVLT GAIA
CB
CS

MID CAP

AS ISCA RYL NDN
AB SCHL KMX SKS
CB CUZ
CS

SP 500

AS PHM EXPE PX
AB XLNX BMS
CB
CS WAG LLY

NEW 1S ADSK MFE DCI
NEW 4S EXC BIIB SCOR

ADRS + FLML TATA TV

ETD + WPO TIN CSL
- NTRS JEC RBN UTX GS CSX GLW

FORMER 2S SHOO SCHW MS WMB TEVA HD

Derby Picks

2008-05-03T15:23:00.001-05:00

Is picking the winner in the Kentucky Derby a hard thing to do? Not really if you know what you are doing. It is all about using statistics just like we do in picking stocks. First, eliminate the dogs just like we do in picking stocks. Top handicappers get it right at best 25% of the time. We like to think that if the work is done then the odds increase to 50%. Remember when we pick stocks we like to aim for a 75% batting average.

Horse not to bet on include Tale of Ekati, Big Truck, Smooth Air, Recapture theglory and Z Humor. These horses are all unproven and odds are too high to bet. That leaves us with 15 horses. Next we can throw out the filly Eight Belles as she is too unproven and is Hillary Clinton's pick. A great reason why this horse will not win. Now it gets tougher as we are down to 14 horses.

We need to look at trainers and jockey experience. Horses that stay based on trainer experience include Anak Nakal, Cool Coal Man, Court Vision, Monba, Visionaire and Cowboy Cal. Jockey experience adds in Z Fortune, Denis of Cork and Adriano. Favorites include Big Brown (aka UPS), Colonel John and Pyro. The long shot is Gayego.

The favorite is clearly Big Brown. Do we bet here? No. Why? The owners had the 4th to last pick and took the outside spot. Very cocky. This means the horse will have to move across 19 other horses to win. Unlikely. The horse may place or show but it will not win. The long shot Gayego will represent a big challenge for Big Brown as Big Brown will have to cross the path of Gayego early. Real tough.

Some when we compare experience, track conditions (good), trainer, jockey and win loss record. Who comes out on top? There is one more stat to look at the betting on Saturday. This is like tracking the options activity on a day to day basis in the stock market.

Odds that are less than 10-1 now include Eight Belles, Pyro, Big Brown and Colonel John. Horses in the 10-1 to 20-1 category include Court Vision, Z Fortune, Big Truck and Gayego. Our winner should come from here. So if we review our other paragraphs and compare statistics we come away with Colonel John as our winner in the 134th Kentucky Derby.

The long shot would be Gayego. Next we will offer a trifecta. This is where one bets on the order of first, second and third. A smart bettor would also box this bet as it pays off if all horses finish in the top three but in no order. The trifecta would be Colonel John, Big Brown and Court Vision. Good luck to all as these are simply our recommendations and hope that they help in thinking about the selection process.

Different not deficient

2008-04-27T21:40:00.002-05:00

The Reverend Jeremiah wright gave a speech to the NAACP tonight in which he let the world see the real deal. As someone who though his "God damn America" video was trouble for Obama, this speech will help Obama if he lets it do so from several viewpoints. Race relations are still an issue in the United States and as we become an even bigger melting pot race will remain an issue. Do yourself a favor and listen to or read this speech from beginning to end.

King

2008-04-06T21:52:00.002-05:00

If you did not watch King on the History Channel, then do yourself a favor and catch the replay. Brokaw again shows why he is in a class by himself. It is amazing how far the U.S. has come in the last fifty years on race relations but still has a long way to go before the dream is realized.

The horrible plight of poverty can only be lifted through education. It is with education the lower class advances the next generation. The next president of these United States needs to tackle the insipid interests that prevent our public school education system being all that it can be.

It is a shame that Obama is so clueless on economic issues because he has that same charisma that MLK had yet King understood capitalism much better than Obama does. More on Obama later as I am melting and need my beauty sleep.

Portfolio Update

2008-03-30T22:03:00.002-05:00

Since I started our portfolio, there are 3 winners against five losers. So much for passive investing. We will get active again with the portfolio and clean up our results as this is a trading environment. First, we will average down on Rite Aid (RAD) as well as Famous Daves (DAVE). If you have not looked at these names, then I would suggest that you do. By averaging down, that means if one owned 100 shares then another 100 should be purchased to bring down the cost of the purchase. The hope is the stock recovers and profits will flow more quickly.

I will add a buy with Apple (AAPL) as it is down from a high of $202.96 to its current price of $143.01. The perception is false that growth is slowing for this company. Hardly.

Who Are These Guys?

2008-03-29T08:28:00.003-05:00

We have been spurred back into writing. There is too much going on not to comment. It is amazing with the ease that politicians are granting the Federal Reserve to accomplish whatever it wishes to do in the current environment. Clearly, the "mortgage meltdown" has now become a "credit crunch" and with the current action by the Federal Reserve it seems we are heading into something much worse, "derivatives destruction". There clearly is the potential for financial armageddon.

On Monday, a proposal will be announced by the Treasury Department that the Federal Reserve be granted the power to regulate the ENTIRE financial industry under a Treasury Department proposal. This is out of control. My initial comments upon reading this cannot be written for this blog as they are unprintable. The Federal Reserve is not a government entity and now it will have control over all government agencies like the S.E.C. and Commodities Futures Trading Commission? One of my favorite movies is "Butch Cassidy and The Sundance Kid". In the movie, they are being chases by a posse and Sundance keeps asking Butch, "Who are these guys?" We need to be asking the same question of the Federal Reserve.

They are ones that got us in this mess in the first place and now they want to regulate everyone? Give me a break. A little education is in order here. The last Federal Reserve Chairman was Alan Greenspan. In 1999, he decided to grow money supply at 30% so that there would not be a run on the banks if Y2K became an issue. It did not. Everything worked fine on January 1st and Greenie then had to slow the supply of money back to 0% or inflation would have gotten out of control. This action caused the tech crash of 2000 to 2002. The only way out of the problem was to drop interest rates to levels so low that Crazy Eddie would proclaim "these interest rate levels are insane". With low interest rates, the subprime loan came into being and several years later here we are with a mortgage meltdown.

Understand the Federal Reserve was designed to regulate the banking industry and now it is going to be extended to all bodies? This is not the answer. Rather regulators need to do their jobs and constantly monitor and understand the direction that all financial bodies are headed.

The massive amounts of derivatives that have been created were never questioned until they became an issue. How many people in the financial industry even understand SIVs or CDOS much less auction rate notes? Suffice it to say this is an awful proposal and it needs to be scrutinized by all Americans and not receive blank check approval.

Blogging Again

2008-02-15T23:22:00.006-06:00

Yikes. Been too long. Back to pen again on a more consistent basis as I have been organizing, building, creating and generating for work but neglecting the free flow of ideas on the this page. Productivity is up, the business is in good shape and the thoughts are flowing as there is much to write about in perhaps the most exciting time over the last twenty years. The hegemonic presence of the United States is being challenged on multiple fronts throughout the world. Moreover, capitalism as we know it is about to undergo a huge challenge due to the greed of those in corporate America that threaten the fairest economic system created by mankind. First things first, we need to update our portfolio, make some changes and add new ideas to the mix. Once this is complete we will begin to tackle the bigger issues alluded to in this paragraph.

Above is where the portfolio stands after much neglect. First, we will punt Yahoo(YHOO) as there is only $1 more of reward with much risk if they fail to do a deal with anyone. Jerry Yang is clueless about how to monetize Yahoo. Don't get me started. Yang needed to study the Google model when he got back in the game but he did not and now he can leave the game a rich but unfullfilled man. Next we still love Intel (INTC) as they rock and the market will figure this out later than sooner.

Third on the list is Rite Aid (RAD) which is a nice blowup that can be saved by adding to the position which we will do on Tuesday's open. We doubt it goes BK and more than likely will be acquired. Fourth up is the Silver Trust (SLV) which rocks and is the complete opposite of Rite Aid. Thank an inept Federal Reserve that is going to let inflation get totally out of control because the only way to clean up the current financial mess is to reinflate all assets. Our fifth recommendation is Google (GOOG) which rocks and most on the street fail to understand the power that has been created here. As I write, I am listening and watching videos on You Tube. All content is quickly moving to this amazing conduit.

Our last open idea is Famous Dave's (DAVE) which has gotten hammered like all other restaurant stocks. Time to double down on this name as well on Tuesday's open. The two ideas, Amgen and Starbucks, we closed are much lower than where we exited. This illustrates that once it is apparent that a company is failing to execute its business model you need to exit stage right.

There you have it. Six open ideas and we will go up to 10 ideas. Expect to see some more ideas in short order. To quote Sholem Asch, "Writing comes more easily if you have something to say." There is much to say these days

Debate About The Fed

2007-09-10T21:55:00.000-05:00

Will they or won't they? Below are great links on two articles that explore the issues facing the Federal Reserve. The first is written by Brian Wesbury the Chief Economist of FirstTrust Advisors who states that any Fed action would be a mistake:

Wesbury Comments

The second is written by Paul McCulley who along with Bill Gross runs the largest bond fund in the world. He argues for a rate cut:

Pimco Comments

So who is right? Simply post an opinion and we will report on the results.

Update to Stockpickr Portfolio

2007-08-01T20:45:00.000-05:00

We just updated our results on this portfolio. We remain long Yahoo, Intel, Rite Aid, Silver Trust, Google and Famous Daves. We have modified how we track our results. They are now equal weighted and our results are updated to reflect this change. Several new ideas will be coming with the volatile market.

This portfolio is up year to date now 1.97% without dividends, we will add in dividens at the end of September. We began the year up 6.17% in January and then lost money for February through April down -1.29%, -2.88% and -.82% before finishing up 6.66% in May. In June, we were up .20%. July was nasty. We lost -5.95%. The S&P 500 is up 3.35%.

S.E.C. Chairman owned by hedgies?

2007-06-14T23:19:00.000-05:00

I am very disappointed in the actions of the current S.E.C. Chairman and many of my peers would strongly agree. To put in bluntly what the f#$& is he thinking? Two weeks ago his letter to Senator Chris Dodd was made public that he wants to repeal or substantially revise Section 28(e) of the Securities Exchange Act of 1934.

The money management businees is a simple model. Manage assets and charge a fee plus have your clients pay commissions. If the client does not like the results aka performance then he takes his money elsewhere. In 1975 Congress deregulated the brokerage business and now he wants to reregulate the business? Je ne sais pas?
More on this letter when we publish our letter to Senator Dodd where we take Cox on point by point.

Then on Wednesday Cox along with the S.E.C. decides to eliminate the uptick rule?? Totally inane. Two years ago the S.E.C. decided to allow a certain number of stocks to be shorted on a downtick as a case study. Cox and the S.E.C. concluded that the stocks that can be shorted on a downtick have not traded in a irregular manner and therefore the universe should be expanded to all stocks. No kidding as we have yet to see a bear market since 2003!!!

The inmates are now running the asylum. The hedgies can pour gasoline on a fire when the market melts. Before the uptick rule kept markets orderly when everyone wanted to run for the exits. No more. The purpose of a stock market is to raise capital so companies can grow and do so in a liquid environment not to create an environment driven by speculation.

The uptick rule was implemented in 1938 by one of the biggest short sellers on Wall Street during the period of the late 1920s through the 1930s, Joseph P. Kennedy. In 1938, Kennedy was the patriach of the Kennedy clan and became the first Chairman of The S.E.C. He knew the damage that short did to the market in the 1930s. More on this evolving story that on Thursday ONLY the New York Times picked up.

Both of these actions benefit only one group the hedge funds. The big question is who contributed to Cox when he was a Representative to The House? I bet we find Goldman Sachs and Morgan Stanley prominent on the list.

Update on Stockpickr Portfolio

2007-06-05T15:18:00.000-05:00

We just updated our results on this portfolio. We will punt Starbucks (SBUX) and remain long Yahoo, Intel, Rite Aid, Silver Trust, Google and Famous Daves. We have modified how we track our results. They are now equal weighted and our results are updated to reflect this change.

This portfolio is up year to date now 9.56%. We began the year up 6.17% in January and then lost money for February through April down -1.29%, -2.88% and -.82% before finishing up 6.66% in May. So far in June, we are up 1.73%. The S&P 500 is up 7.90%. There is no Bill Miller Syndrome here.

New ideas will be forthcoming shortly.

Why Geopolitical Events Must Be Followed

2007-04-12T21:20:00.000-05:00

Peter Lynch made the comment that politics and economics do not matter in stock picking. He was smoking crack when he made this statement and said only to be self serving. Tonight we have a classic example of why the geopolitical needs to be watched.

Russian billionaire Boris Berezovsky said he is planning a revolution in Russia to remove George Bush's pal Vladimir Putin from office. The quote is as follows:

"It isn't possible to change this regime through democratic means. There can be no change without force, pressure." Then he was asked if he was fomenting a revolution, he said:"You are absolutely correct."

The gauntlet has been thrown down and this could become a very disrupting event to the capital markets.

There are lots of "smart shorts" in this stock

2007-04-03T08:02:00.000-05:00

There are lots of "smart shorts in this stock" is a phrase we hear over and over again. Nothing could be further from the truth....... Take the latest example, Dendreon (DNDN). On Friday, the stock jumped from a Thursday close of $5.22 to finish at $12.93. So if you were short the stock it went up $7.71 or 147% in one day. Hmm, that seems whoever was short was not very smart in fact I might call them the opposite of smart, just plain dumb.

Here is the argument why the short sellers are the smart ones. The shorts had done their work and came to the realization that Dendreon's new drug Provenge had issues in the trial and would never be approved. Well this thesis was blown apart on Thursday afternoon when the FDA advisory panel supported approval of the first cancer vaccine for metastatic cancer.

A final approval by the FDA remains in the offing and the question is will the "smart shorts" stay around for this catalyst event or have they given up? Only time will tell.

Update on Stockpickr Portfolio

2007-03-31T14:43:00.000-05:00

I have been remiss the past two weeks as we have been busy post our ski trip. So time to pick up the blogging again. Our www.stockpickr.com portfolio fell -0.90% after rising 4.30% in January and 0.17% in February. YTD this portfolio is up 3.53% with dividends. Meanwhile, the S&P 500 is up 0.18%. In March, we added Starbucks (SBUX) and Famous Daves (DAVE) as new buys.

The only losing stock of note is Amgen down from $68.43 at the beginning of the year to $55.88. We will close out this name and look to reenter at a later date. We will be looking for new buy ideas this weekend.

Energized By The Mountains

2007-03-17T10:28:00.000-05:00

Probably my favorite place to visit is the mountains of Colorado. This time we deviated from our normal haunt and headed to the San Juan Mountains and Wolf Creek Pass. This was "old school" skiing. Fantastic although many bad skiers due to the abundance of Texans on the mountain. No fancy lodges and attractions at the base of the mountain. In fact, I would compare Wolf Creek to Alta in Utah. This may change and that would be a damn shame. Texas billionaire Red McCombs wants to develop the "Village of Wolf Creek. To read about this one should visit the following website, www.friendsofwolfcreek.org. Go home Red!

The skiing was great with no one was injured beyond a few bumps and one dramatic bruise. More important there were many laughs, some friendly competition and shared meals where wide ranging subjects from whether global warming exists to who was going to win the NCAA tournament. Now I am back at my desk to opin on the current environment which is what we would call a "prozac market".

The funniest thing about this break is that I entered the www.cnbc.com stock picking contest two weeks ago. The first week I traded every day juggling my positions and ended the week in the top 37%. This past week, there were no changes and I moved up to the top 7% up 3.85% in two weeks. Say it ain't so? The Warren Buffet style seems to be working. Current positions include ATML, CHB and NE. Both ATML and NE are potential buyouts with CHB a turnaround value play. That is all for now as I u-turn my attention to the NCAA tournament and root on my hometown Badgers and their amazing coach Bo Ryan.

Hedge Fund Managers Are Not Operators

2007-03-08T08:36:00.001-06:00

A new trend that has emerged is the the "activist shareholder". Simply an activist tries to make changes at a company. The playbook is typically pretty simple. Tricks include demanding that inept management be fired or companies buy back their outstanding shares with excess cash that they cannot seem to reinvest in the business or sell off/spinoff pieces of the company.

The problem with this approach is that most of these demands are driven by investors with little operating experience who simply know how to manage a portfolio. This strategy backfired big time on poker playing hedge fund manager David Einhorn of Greenlight Capital. He tried to have his way with New Century Financial (NEW) but failed to really understand their business and now has lost a ton on this stock and resigned from their board.

The lesson of this story is most hedge fund managers are nothing more than stock pickers and the thought that they know how to run a wide range of companies is a flawed approach. The skill set of someone who can run a portfolio is vastly different from someone who knows how to operate, build and constantly evolve the business model.

February Results For Stockpickr.com Portfolio

2007-03-04T20:53:00.000-06:00

We made money in February! Up a whopping .17% but we will take those results. Through the end of February, this portfolio is up 4.48%. We will report on any additions to this portfolio tomorrow after we have had a chances to review new opportunities that may have arisen due to the markets sudden weakness.

Oops there goes gravity

2007-03-03T19:09:00.000-06:00

In reading www.dealbreaker.com, we found a rather funny story on a sellside analyst with a sense of humor. Michael Masdea of CFSB put out a little imitation of Eminem's "Lose Youself". Here is the link:

http://www.dealbreaker.com/audio/Masdea.wma

The song is a must for anyone who buys and sells semiconductor stocks.

How to Fix Back Trouble

2007-02-21T08:31:00.000-06:00

As a former hoop player and still an avid squash player, I have a rather precarious back. In my senior year of college during hoop season, I ruptured L3, L4 and L5. Yikes! Then I ruptured the disks again in 1998. Still no surgery and I am able to be very active with only minor flairups. As my wife says when this occurs, "You are crooked again." Given that several people have been complaining of bad backs, I thought I would post my preventive actions.

First and foremost I swim at least three times a week. Freestyle only. If you are not a good swimmer no big deal, simply use a pull-buoy found at most swimming pools and stick between your legs and then your legs will float and the swimming will work only your upper body and abs. Once you improve your swimming you will be able to use the pull-buoy less and less.

Notice above I talked about working your abs in swimming. This is key to improving a weak back. You have to work the abs constantly. I do 100 situps each day. They are done slowly and the impact needs to be felt. Here are my ab exercises.

1.Lie flat down on the floor with back on the floor. Bring legs a 45 degree angle with 45 on the floor. Press small of back into the floor ten times holding for three seconds then releasing for three seconds. Repeat 10 times.

2.Next remain in the same position and put hands on ears and slowly raise upper back of the floor ever so slightly. Hold for three seconds then release to the floor. Repeat 15 times.

3. The third exercise to to remain in the same position and fold arms across chest and then slowly raise back off the floor ever so slightly. Repeat 10 times.

4.Fourth, remain in the same position and now put hands on thigh and slowly move hands up to knees while raise head and shoulders off the floor. Repeat 15 tiimes.

5.Fifth, remain in same position and now join hands stretched between knees. Again slowly raise pushing hands through the knees. Do this 20 times.

6.Last do 30 crunches.

In terms of back stretches, there are also several great exercises. They are as follows:

1.Lie on the floor bring knees to chest. One at a time. Then both together. 10 times.

2.Hurdlers stretch. Butt on floor. Right leg out and bring left leg to 45 degree angle and put left foot into crotch area and on the right inner thigh. Reverse legs. 5 times.

3. Do the Kraus Weber exercises religiously. They are as follows:
a.Lie on side and bring upper leg up to the chest. Switch legs. 8 times.
b.Lie on stomach and pull butt checks together and hold for 3 seconds. 8 times.
c.Hands and knees on floor. Raise upper back like a cat arching its back. 8 times.
d.Lie on the ground with feet on the floor and the lift butt off the ground.

That should do it for now.

Stockpickr.com Account Jamming in 2007

2007-02-14T17:46:00.000-06:00

On January 1st, I created a portfolio on a new website, www.stockpickr.com. Here were my picks:

Yahoo (YHOO)
Amgen (AMGN)
Intel (INTC)
Rite Aid (RAD)
Silver iShare Trust (SLV)

For January this account was up 4.30% without dividends.

In February, we added one new long Google (GOOG). Our stocks continue to do well. In February, we are up 2.34% for the month. Scwhing. We will update this once a month unless we see a need to remove a stock due to some change in the business model. To access the portfolio on this site simply go to www.stockpickr.com and then on the search function type in Garbacz. You will then be directed to Geoff Garbacz's Mo On The Go and Shorts Must Go Portfolio.

Give me a f#$%ing break!!!

2007-02-06T19:56:00.000-06:00

No doubt about it!!! What was he thinking!!! Today Treasury Secretary Henry Paulsen defended Shrub's budget saying that the proposed tax cuts would save the budget. This is true IF we actually cut spending on a federal level. Shrub is spending money at a quicker rate than a sailor returning to port after six months at sea.

Paulsen should look at why Paul O'Neil ran away from the White House. He knew that Shrub like his pops never really believed in the supply side. A true supply sider cuts government spending when taxes are cut. I am out!!

The worst portfolio on www.stockpickr.com

2007-01-15T12:51:00.000-06:00

One of the worst investment or speculative ideas is to buy a stock because it has heavy short interest. Moronic. It makes sense to go long a stock with heavy short interest only when a.the stock price is moving against the short position b.the fundamentals are set to improve c.insiders are buying the stock d.earnings estimates are rising. Without several of these catalysts, this is a losing battle.

There is a portfolio that is receiving many views on www.stockpickr.com entitled "Short Squeezes. Right now only one of the ten ideas is in a short squeeze, Cons Tomoka Land (CTO). The others are dogs or just starting to head lower. Years ago Charles Ellis wrote a great article entitled "The Loser's Game". The article discussed how poorly most managers were at picking stocks on the long side. A worthy read of anyone who buys stocks.

Google (GOOG) to infinity and beyond!!!

2007-01-11T22:34:00.001-06:00

We believe that Google (GOOG) is now ready to rock higher. Last January, the stock was at $475 and tonight it closed just under $500. The stock has gone nowhere for a year. We owe the credit for this stock coming into our portfolio to one of our favorite and most insightful institutional clients in Avon, CT. He got us thinking about Google during a discussion about the likelihood they would acquire Sun Microsystems (SUNW).

For those who like options we will buy a June 700 call for $2.10. The premium in Google calls is very expensive but is rational. This is an extremely speculative options trade.

How can we recommend this stock? Easy!

First, earnings estimates for the year just ended are $10.30 and 90 days ago were $9.97. 90 days ago the December 07 numbers were $13.07 and now are $13.79. Google does not guide the street and analysts are left guessing and are constantly on the low side with their estimates. Next year's number could easily be $15. The December 2006 P/E will be around 48.5.

Therefore, if it can come in at $15 and the P/E were to remain the same our future price would be 15 X 48.5 = $727.50. I threw these numbers by my Dad last night and he pushed me to ask what is the risk? A very good question. This is what Tuck MBAs and former marines do. They never quit asking questions or pushing you to do that last mile. Thanks for the insight as the readers will like this extra step.

If the $15 were to be reached in 2007 and the P/E were to fall to 30 then the price would go to $450. A second scenario would be for the earnings to drop to $10 and the P/E to drop to 25 then the price would go to $250. However, if the P/E were to drop to 40 and Google could still hit $15 in earnings then the price would go to $600. There is your risk analysis and a good exercise that anyone with a major position should undertake a few times a year to determine if the stock is ahead of itself.

We note $800 invested in Cisco (CSCO) when it came public was worth $800,000 at the peak ten years later in 2000. Google came public in August of 2004, a little less than 2 1/2 years ago. A growth stock can grow for 10 years if the business model is great. Cisco split its stock 10 times between 1990 and 2000. Google has yet to do one stock split. $800 invested in Google is now worth around $3,600. We note the company has no long term debt with over $10.4 billion of cash and short term investments. Sales will exceed $9 billion from $6 billion.

Once the stock clears $500 it is off to the races. We will be long this stock for a ride it has not seen the likes of in two years. We note the Erlanger Short Intensity is 77%. Our friends at Bluehawk have a current target of $530.23 with a 39 week target of $691.49 and a 3 1/2 year target of $983.92. This valuation is based on cash not on some contrived EBITDA number. Clearly, the growth must be maintained but if Google can achieve such growth then this stock could rival perhaps the greatest growth stock of all time Cisco (CSCO) or Wal-Mart(WMT).

You're Fired

2007-01-07T22:08:00.000-06:00

The latest season of The Apprentice began tonight and we were happy to see a lawyer tossed! In fact, there are more lawyers than any other season we can remember. I have a great idea for Trump's next season of The Apprentice.

Let's have a season devoted to fired CEOs of the Fortune 1500. This is becoming quiet the list with the ever widening stock options scandal. I really doubt that Robert Nardelli the latest poster child of corporate ineptitude would last more than two episodes. Maybe we should even bring in a CEO or two from prison. The Koz would probably do great living in the mansion and Skilling would no doubt fit in tent city as he prepared for jail by doing an equivalent to Outward Bound and only ate bugs for a week.

Great Insight on Gerald Ford By Brian Wesbury

2007-01-02T17:12:00.000-06:00

I consider Brian Wesbury to be one of the premier economists in this country and have been following since I met him some 18 years ago. Hard to believe that long! Today he wrote a great piece on the legacy of "The Nightmare Fighter". Worth the read.

Gerald Ford: Nightmare Fighter
Brian S. Wesbury; Chief EconomistDate: 1/2/2007

Gerald R. Ford was a Congressman from Michigan in October 1973 when Spiro Agnew (beset by scandal) resigned as Vice President of the United States. For the first time in history, the vice-presidential vacancy provision of the 25th amendment was implemented and Congressman Ford became Vice President of the United States in December 1973.

Just eight months later, after the Watergate-induced resignation of Richard Nixon, Gerald Ford became the 38th President of the United States. This progression of events was about as improbable as the final minutes of the Boise State University football victory over the University of Oklahoma in this year's Fiesta Bowl. Instead of entertainment, however, the mid-1970s were a time of deep crisis for the United States.

To make matters worse, President Ford took office in the ninth month of a severe recession that lasted from November 1973 to March 1975. Real GDP contracted by 2.5%, unemployment rose to 9%, the S&P 500 fell 48%, and inflation jumped to 12%.

Richard Nixon's wage and price controls, tax hikes, and massive spending increases killed economic growth, while easy money (that forced the closure of the gold window) fueled inflation. Gerald Ford inherited a great many nightmares from President Nixon.

Keynesianism dominated, and President Ford could not move unilaterally on economic policy as he did with his pardon of President Nixon. Ford succumbed to pressure from a Democratic Congress and signed onto a series of temporary tax rebates and credits in March 1975. Many credited these tax rates with a recovery in the economy and stock market.

But temporary tax cuts do not boost economic activity. The 1975 recovery was driven by the Federal Reserve when it cut the federal funds rate from 13% to 5.25% in 1974-1975. This easy money fueled more inflation, and because high marginal tax rates and intrusive government were still a drag on growth, the economy remained mired in stagflation.

Alice Rivlin, who was the director of the Congressional Budget Office in 1975, was quoted in the Washington Post just five days ago saying, "Economists don't know how to cope with inflation, slow growth and unemployment at the same time." We assume she meant "didn't know," because policy mistakes caused stagflation in the first place.

Unfortunately, President Ford's proposals to deregulate many industries failed to gain traction. President Ford lost in the 1976 election to Jimmy Carter, and policies continued to spiral out of control until the election of Ronald Reagan. While President Ford ended the political nightmare of Watergate, it was President Reagan's embrace of deregulation, permanent tax cuts and tight money that finally ended the national economic nightmare of stagflation.

This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.

2007 The Year of The Pig

2006-12-31T13:06:00.000-06:00

In a recent poll produced by the Associated Press and AOL News, Americans are very bearish for 2007. Here are some of the poll results:

*Sixty percent believe that we will have a terrorist attack in 2007.

*Ninety percent beleive we are in store for higher gas prices.

*Seventy percent of those polled believe the United States will have a major natural disaster.

*Eighty percent of people believe that the minimum wage will be raised from $5.15 to a higher level. There has been no increase since 1997.

My thoughts on these poll results are that the risk of a terrorist attacks looms over the economy and another event like 9-11 would have a dramatic impact on the economy over the short term but we have proven the ability to withstand such a shock to the system. All portfolios should have some type of insurance to protect against the "black swan" type of event. Such insurance should cost a portfolio no more than 2% of the value of the portfolio and it should be able to return 5-10% should a major sell-off occur.

Gas prices are heading lower as too many people are bearish here. However, as a country we need to begin to develop concrete policies to handle the eventual fact that demand is rising worldwide and supply is finite. We will see $100 a barrel for West Texas Crude but not in 2007.

The minimum wage will become a reality in 2007 and Bush cannot cave into raising taxes in 2007 if he is going to enact this change. A combination of a higher minimum wages and new taxes would drive the U.S. economy into a recession. Instead President Shrub needs to focus on earmarks and entitlement spending cuts not seen since "The Gipper" was in office.

That's it for now. Hope everyone has a safe New Year's night and best of luck in 2007. My 2007 New Year's Resolution is to write more often, find interesting subjects to write on and focus on the big picture.

SEC Caves Into Corporations on Stock Options and Unrest in China

2006-12-27T14:47:00.000-06:00

SEC Caves Into Corporations on Stock Options and Unrest in China and the future of the Yuan.

In July, the SEC handed down new requirements on how companies were handling the reporting of executive compensation via stock options. Now the SEC has modified those rules to the benefit of companies away from the institutional investors. Floyd Norris gave a great summary in today's The New York Times and we note it appeared on the A1 and then rolled to page 5 of the business section. May could have missed this story if they read on line of glanced at the business section headlines.

Companies will now change the way they report grants to make it more complicated to understand. Grants or stock options to the heads of corporate America will now seem smaller than they really are given how they will be measured. Last summer companies were required to disclose more and compile it in a summary compensation table. The December change will change the measurement to be amortized over a period of time.

As an example, if a C.E.O. got a $20 million dollar options grant the entire amount would appear in the summary table. Now only the portion applicable to the current year will appear and then it will appear in subsequent years making the tracking extremely difficult. The kicker here is the separate standard for executives retiring. It reads like another government regulation that no one can really understand. Even the usually eloquent Floyd Norris had a tough time with the document. The bottomline is it will be more difficult for the average investor to really understand how the executives are being compensated. For this, the SEC should be scolded.

Moving onto the issue of China, we picked up some great intelligence from one of my favorite clients. He notes that the visit by Federal Reserve Chairman Bernanke and Treasury Secretary Paulsen paved the way for the floating of the Yuan. We will continue to let our dollar fall in value so that when we ask the Chinese to float their currency the impact will be less. If the dollar appreciated, such a floating would leave a bad taste in the mouth of the Chinese leaders. So when the dollar continues to head so understand what is coming. The die is cast.

Also added was that there are increasing number of demonstrations in China that are failing to be reported by Chinese or the western press. However, Beijing cannot keep this quiet because the power of the internet is so great. Village protests are reported to hit 80,000 this year. Domestic unrest is China's largest issue for 2007. The big issue is land owners being forced to turn over land without the proper compensation. This unrest could wreak much greater danger to the Yuan than a devaluation if the civil unrest were to escalate into an Iraq type siutation. 2007 could be an interesting year as we enter The Year of the Pig.

Kohl's To Enter a Tough Stretch

2006-12-24T08:09:00.000-06:00

Here is a piece we wrote for Jefferson Research the other week on Kohl's Department Stores. Retailers have been having a tough time as they are weak traditionally on a seasonality basis for a few more days. If and that is a BIG "if" the shoppers came through, then our thesis of weakness for Kohl's may have to change. For the time being this is an overvalued stock.

On Wednesday we noted that Robert W. Baird & Co lowered Kohl's (KSS) from Outperform to Neutral. It is funny that they still have a $79 price target and the stock was at $71.89 with a neutral rating. Since we wrote this, the stock has moved to $69.82. We would hate to see what a buy looks like. But then again RobertW. Baird & Co is in Kohl's back yard of Wisconsin and who would want to offend a neighbor around the holiday season. They sighted tough comps for next year as the reason for the rating change.

We note the current Jefferson Torpedo Alert rating is a CAUTION (3).
The last filing is Q3 of 2006. Earnings are due in early to mid February. For January 2007 the company is expected to earn $3.26 and $3.84 in January 2008.

Earnings for January 2006 were $2.43. The growth rates for these years are 34% 2006 to 2007 and 17% for 2007 to 2008. The current P/E for January 2007 is 22. The P/E Ratio for 2008 is 19. If estimates are too high, then one could expect this stock to get hit in 2007. Clearly, the stock is priced to perfection.

The major reason Kohl's has done so well is that the orchestrated a very effective turnaround that is now complete. The turnaround has seen the stock move from $45 to a peak of $75. This represents a move of 67%. In searching the web, we note that several blogs are pointing to heavy discounting by Kohl's. Jefferson sees issues with liquidity driven by a decrease in cash. It looks like some more detailed analysis could be done on Kohl's as the bloom is off the rose.

Last we note that short sellers have given up on this stock and the technical are now rather mixed.

Stock Option Probes Do Not Matter Anymore

2006-12-15T23:53:00.000-06:00

What a week! They just keep on coming. More and more companies are announcing that they are either a.extending their stock option review and delaying filings or b.announcing new investigations. No one cares. Examples include SIGM, MNST and RIMM among others.

It is amazing. Often stocks under investigation are near all time highs, like Research In Motion (RIMM), and no cares that the way these stocks got to such valuations is by beating numbers that may never have existed. Yet, when they do restate they are not punished for their acknowledgement but rather rewarded with a nice slap on the back. The inmates ARE running the asylum.

We believe this WILL end badly as the investing public comes to the conclusion that yes the stock market is rigged by the corporate big dogs who have no ethics or moral conscience.

We need more corporate leaders who were of my Dad's generation- those born in the 1930s that ran our great country until the past five to 10 years. The current corporate leaders should be ashamed of how they handed out stock options and manipulated earnings.

International Markets Look Vulnerable

2006-12-12T19:29:00.000-06:00

With less than three weeks of trading left in 2006, are the international markets vulnerable? It looks that way. Most markets sold off on Tuesday and we will see what Wednesday brings. The potential threats of protectionism may be just that, threats. However, the possibility that Paulson and Bernanke visiting China signals the beginning of a new protectionist policy must be considered.

Remember Clinton is more of a Republican than Bush and given the inability of Bush to comprehend Economics 101 he could support traditional Democratic policies of tough trade talk. This would be scary. In a certain respect, tough trade talk makes sense when you consider the rather egregious copyright and patent violations of the Chinese.

Meltdowns often occur after political missteps occur. We would sell international funds or go short the EFA. Could investors get some coal instead of presents for Christmas?

Noble Ambitions

2006-12-09T17:00:00.000-06:00

It was my goal to write several times a week when I started this page. Oh well?!? Here is another attempt to relauch my writing efforts! Thoughts will be a combination of politics, stock market analysis, stories of interest and life lessons.

My thought with today's post is to do a quick review of what I have gotten right and wrong in my prior posts! We will start with the most recent post and work my way backward in 2006.

*On May 6, 2006 I wrote that Medifast (MED) could be the next Nutri Systems (NTRI). Since then the stock has moved from $12.70 to $13.23. Correct. Seven months later and we will remove this idea as active especially given Jefferson's Torpedo Alert sees trouble ahead with cash flow.

*On May 5, we wrote no action in Iran by the United States until post election. Correct. Iran and the Middle East currently seem to be watching how Iraq shakes out before increasing their actions.

*On April 11th, we said time to sell this buy recommendation at $39 and the stock sold off to a low of #33.62. Schwing! It has now moved to $43.70. Correct.

Other posts that were written in 2005 and 2004 take a similar approach. One should write to throw out interesting ideas and seek to continue working on a communication skill that in the 21st Century is going by the wayside- the art of writing.

From time to time, we may also post pieces of commentary we write for www.21stcenturyalert.com and James DiGeorgia as well as for BFG Outlier Research with my boys George Brandon and Mike Foley. For now, Audere est facare!

Loser's Game Part Deux

2006-05-07T18:55:00.000-05:00

We are now in the top 60% with not a signal trade. That is correct 0% gets us into the top 40%. The market is moving up nicely and yet the majority cannot make money. We note that many are swinging for the fences BUT this is not investing rather gambling. Investing is not supposed to be funny and often it is boring and tedious work. Remember that the next time you buy a stock.

The Next Nutri Systems?

2006-05-06T22:30:00.000-05:00

Word has it that the next "go to" stock in the diet space could be Medifast (MED). Unlike Nutri Systems (NTRI), Medifast produces, distributes and markets its products. Nutri Systems does not control its production. Earnings are due May 15th. Watch for a strong quarter.

No Iran Action Until The November Election

2006-05-05T10:51:00.000-05:00

Bush does not have the political clout to move into Iran at this point in time. Watch for oil to drop as this plays out and then look for action post November elections.

Uno De Mayo

2006-04-30T22:29:00.000-05:00

So much for Cinco de Mayo. We now have Uno de Mayo. This is a MUCH bigger story than what was reported today. This will be the most important story of the week and maybe the month and up there for the year. The politicians are out of touch with reality and do not understand what the public wants. This included Dems and Repubs alike. The impact that the immigrant, not just Latino, brings to the economy and the growth of this country cannot be underestimated.

Loser's Game

2006-04-29T07:57:00.000-05:00

Recently, Squawk Box on CNBC sponsored has sponsored a "fantasy portfolio" contest. Purposely, we entered but did not trade until the beginning of May. Thus, far we are ranked in the top 54%. That is correct. 46% of all entrants are losing money!!

The color of money is green not red. Apparently, most participants do not understand that concept.

Update on LIZ

2006-04-11T23:03:00.000-05:00

Since we wrote on LIZ , the stock has moved from $34.16 to tonight's close of $39.46. With the recent pullback in stocks, we are placing a stop on this idea at $39. Retail stocks have been losing their steam as the price of gasoline continues to rise and geopolitical fears abound.

Liz Clairborne approaching Buffet Levels

2006-02-12T22:31:00.000-06:00

Liz Clairborne (LIZ) is getting cheaper by the day, not dozen, and the shorts keep increasing their bets. This company is ruderless until a new CEO steps in which should be soon. Also, last week the company announced 5,000 job cuts would streamline Dana Buchman, Ellen Tracy, Laundry and Mac & Jane. Fair value is $38.34 with upper value of $43.59. The shorts ALWAYS get hurt shorting a good company like LIZ.

Microsoft and Yahoo Cater to the Chinese

2006-01-17T22:37:00.000-06:00

Read today's The New York Times editoral on Microsoft and Yahoo caving to the Chinese government's request to limit free speech. The end result is dissidents going to jail. Shameless. Bill Gates, for all your millions that you give to charity, you have compromised your morals. Ditto to Yahoo execs. Time to stand up for democratic principals boys!!

http://http://www.nytimes.com/2006/01/17/opinion/17tue2.html?n=Top%2fOpinion%2fEditorials%20and%20Op%2dEd%2fEditorials

Higher oil prices?

2006-01-16T11:12:00.000-06:00

With Sunday's attack of a Royal Dutch Shell plant in Nigeria and Iran threatening to use oil as a weapon against the west over its decision to ramp up nuclear facilities, oil prices are going to have a hard time dropping in spite of warmer weather in the United States this winter. It is interesting to note that Royal Dutch's (RD) stock is beginning to reflect these production issues.

The real threat in Iran's decision to go nuclear is that Israel will bomb Iran's facilities to prevent the development of nuclear energy. If this were to occur, then one could expect Middle East tensions to rise even further. An excellent summary of the situation can be found at:

http://http://quote.bloomberg.com/apps/news?pid=10000006&sid=abPY8v9tdFxo&refer=home

M3 No longer to be reported and tie to Iranian Bourse

2006-01-15T12:07:00.000-06:00

Concerns exist here over the decision of The Board of Governors of The Federal Reserve System to no longer publish the M3 monetary aggregate as of March 23, 2006. The Board of Governors will also cease publishing large-denomination time deposits, repurchase agreements and Eurodollars. The announcement appeared on November 10, 2005 and has received very little press:

http://www.federalreserve.gov/releases/h6/discm3.htm

A quick summary of M1, M2 and M3 is found below:

M1: The public's currency plus traveler's checks plus net demand deposits at commercial banks plus other checkable deposits at banks and nondepository institutions.

M2: M1 plus small deposit time and savings deposits plus overnight repurchase agreements plus overnight Eurodollars at foreign branches of U.S, banks plus money market mutual funds plus money market deposit accounts.

M3: M2 plus large time and savings deposits plus term repurchase agreements plus term Eurodollars.

This decision by the Board of Governors is flawed in several respects.M3 is the broadest measure of the supply of money for the U.S. economy. M3 has doubled in the past nine years while the economy has not produced such returns. As a result, we have financed our growth only to pay a price down the road. Moreover, foreign countries like China and Japan, not to mention the countries that are part of OPEC, have become large holders of our debt, specifically treasuries. To a certain extent, our future lies in the hands of our creditors- these foreign countries.

They will not be happy with less disclosure of our monetary policies. It is akin to a company like General Electric deciding to remove key components of its balance sheet so that investors cannot analyze what is going on at the company. As an investor, I would sell General Electric's stock immediately should they move to such a policy. Will foreigners decide to sell their holdings in 2006 and create a possible disruption of the capital markets?

At the end of January The Board of Governors will appoint a new chairman as Federal Reserve Chairman Greenspan retires and Ben Bernanke takes the reins. The decision to end the reporting of M3 could not come at a worse time than the transition to a new chairman of the Federal Reserve. Even more problematic is Iran's decision that is will open a new oil exchange, The Iranian Bourse, in March of 2006.

This exchange will compete against the NYMEX and IPE for trading of international oil. The Iran Oil Exchange will be Euro based. This exchange will allow for oil as well as gold to be bought and sold in Euros. If successful, then Foreign Central Banks may no longer believe they need to hold dollars or U.S. treasuries so that they can import oil. It is rather ironic that the Federal Reserve's cut off is March 23rd the same time that the Iran Oil Exchange begins.

These are serious issues and I have noted several links on the internet for review on this subject:

http://www.dailykos.com/story/2005/11/11/16272/574

http://www.peakoil.com/fortopic14770.html

http://www.globalresearch.ca/articles/CLA410A.html

To quote from Thomas Jefferson:

"Whenever the people are well-informed, they can be trusted with their government. Whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights."

Saturday Reading

2006-01-14T09:46:00.000-06:00

Must reads from Saturday papers:

The New York Times had two great articles on 1.the value of Google(GOOG) is being called into question against the value of Yahoo(YHOO), IBM Corp (IBM) and Berkshire Hathaway (BRK.B). The second article highlights the upcoming change in disclosure requirement related to C.E.O. pay. Maybe greed is not good?

Asia to be the center of attention after missile launch

2005-05-01T21:28:00.000-05:00

North Korea's firing of a short range missile into the ocean over the weekend along with last week's admission at a Senate hearing that North Korea's current missile technology would enable a missile to reach the United States is sure to be front and center. This is worth watching closely to see if it develops further

Elimination of the uptick rule to cause havoc next week?

2005-04-30T20:25:00.000-05:00

The SEC in its infinite wisdom has eliminated the uptick rule for 1000 of the Russell 3000. Short sellers will be able to short on a downtick. In our review with clients this past week, we found 80% of buyside managers were clueless.

This is not a positive for a stable low volatility we remain skeptical that there will be any positive effects.

2005 is the year of the blog!!

2004-12-27T19:22:00.000-06:00

My goal in 2005 is to write on a daily basis about something of interest in the markets or related. I thought the piece on today's email from www.paidcontent.org was a great summary of the blog.

This quote comes from Ogilvy & Mather's vice chairman Steve Hayden:

"If you fudge or lie on a blog, you are biting the karmic weenie. The negative reaction will be so great that, whatever your intention was, it will be overwhelmed and crushed like a bug. You're fighting with very powerful forces because it's real people's opinions."

The article goes on to discuss Mister Softie(Microsoft) and their entry into the blog space.

Election Thoughts

2004-11-03T07:07:00.000-06:00

Here are a few random thoughts:

1.Exit polls are always BIASED by whoever is doing the polling. Witness what an AWFUL job the pollsters did in predicting results. Things that make you go hmmm....

2.Eliminate or fine negative campaigning. A candidate can do it but it will pay a hefty fine, say $1 million per incident. The candidates should only be allowed to discuss their views on issues not destory or fabricate stats on their opponent. Written pieces would allow criticism of an opponents views.

3.Make all voters register and check their status within two weeks of any election.

That's it for now. Look for Hillary in 2008. That will be fun.

Minnesota Senator to close Senate office due to terror threat

2004-10-12T21:06:00.000-05:00

Wow!! This will be interesting to see how the press plays this. U.S. Senator Mark Dayton because he fears for his staff's lives. Apparently, there is a "top secret" memo floating around D.C. with the risk of attack. You can find this story on www.cnn.com

Must See Piece on PBS on Bush-Kerry

2004-10-12T21:02:00.000-05:00

A must see very objective to both Bush and Kerry. Will really make you think about the man behind the candidate.

The Corporation: A Must See. Problems for WMT.

2004-09-07T16:04:00.000-05:00

Interesting movie about the role of the corporation in today's society. The point of the movie is that if the people get pissed enough they can overturn any corporation just like a government. Could Walmart be facing this type of threat as in Washington D.C and Chicago they were denied requests for new stores by a zoning board?

Drudge Report Notes Bin Laden to Be Caught Soon

2004-09-05T19:29:00.000-05:00

Drudge Reports that Bin Laden time is running out. Short sellers beware as the market would rally huge off this news. It reports all his lieutenants will be captured as well..... To access go to www.drudgereport.com

Erlanger Notes Link Between Bush Popularity And The Market

2004-09-04T08:53:00.000-05:00

Phil Erlanger of www.erlangerresearch.com and www.erlangersqueezeplay.com has noted the correlation between Bush's popularity and the strength of the market. Recently, the market has made a nice move to the upside and Bush's popularity has risen. To monitor Bush's popularity go to http://www.zogby.com/ and register to fill out their online poll. Get involved!!

Yukos and the risk to globalization

2004-08-05T23:37:00.000-05:00

The crux of the problem is that the head of Yukos, Mikhail Khodorovsky, has supported opposition candidates to Russian President Putin and as a result Putin has decided to charge the founders of Yukos with failing to pay three billion dollars in back taxes. The solution is for Yukos to pay their tax bill or get a compromise from the Russian government. Yukos does not owe three billion dollars to the Russian government but Putin has decided to make an example of anyone who would threaten his rule. Even worse, Putin will not grant them access to their bank account to pay the bill.

So much for the concept of democracy in Russia and we believe the markets are more concerned about the implications of whether globalization can work in such an environment. Meanwhile, everyone seems concerned only that the Russian oil supply will be cut off until a solution is reached over the Yukos tax bill which is causing oil price to spike. The bigger issue in Russian and the Middle East is can democracy thrive? If the answer is no, then globalization may be in serious trouble. This is a much more serious issue than the price of crude and the market is aware of the risks.

Martha, you are no Nelson Mandela!!

2004-07-19T21:25:00.000-05:00

Amazing comment from an amazing story. The saga continues.

Andor Part II

2004-07-14T15:40:00.000-05:00

We wrote back on May 21st about "The Andor Dilemia" and it looks like this puppy will come full circle soon. Andor's famed CIO Chris James who is perhaps the most knowledgeable semi expert is giving up on Dan Benton, founder of Andor, to take control of his destiny and start a new shop. It is only a matter of time until the liquidations starts. Tech will stay dead for an even longer period of time because of this announcement.

Bottled Water Costs Rise as Water Co Charges For Gasoline Increase!!

2004-07-09T10:59:00.000-05:00

This morning my water company added a surcharge for water being delivered. The surcharge was for increased fuel costs. The surcharge will be removed when gasoline drops below 1.80. Seems like businesses are trying to pass along price increases. Yet Greenspan claims inflation is under control?? Hmm

Battleground Poll: This election may not be that close see below

2004-07-08T09:50:00.000-05:00

This is from Gary Halbert's Weekly Newsletter. Great read. Interesting thoughts

Bush Should Be 10-20 Points Behind Kerry Now

With Bush having come through nothing short of a political apocalypse, and with the Democrats and the media exploiting the events to their advantage, John Kerry should be 10-20 points ahead of Bush in the polls. Bush should be down for the count. Kerry should be ahead just as Bill Clinton was against Bob Dole at this point in 1996.
Yet the race has been a statistical dead-heat in the national polls for the last several months. Over the last 2-3 weeks, Bush has actually pulled slightly ahead of Kerry in five of the last six major national polls, in some cases by more than the margin of error. Folks, this is devastatingly bad news for John Kerry and the Democrats! Any candidate worth their political salt would have been ahead of a bludgeoned and bloodied president by 10 to 15 points or more at this point. Yet the best Kerry has been able to do is stay neck and neck, and now he’s slipping behind.

The media want American voters to remain fixated on the national polls, several of which still show the race to be a statistical dead-heat. However, as I will discuss below, Bush is faring far better than Kerry in the state-by-state internal polls. If the election were held today, Bush would win by a comfortable margin as you will see.

The “Battleground Polls” Show Bush Ahead

Let’s look at some of the “internals” of the most recent Battleground Poll. The Battleground Poll is a bi-partisan poll that has a long, respected and accurate history. The most recent Battleground Poll has the following approval ratings:

FAVORABLE
UNFAVORABLE

Bush 52%
Bush 46%

Kerry 51%
Kerry 43%

At first blush, the favorable/unfavorable ratings look to be statistically close. Yet again, we have to keep in mind that Kerry should be way ahead at this point. Instead, he is slipping.

On several of the major campaign issues, the results are surprising. For example on “keeping America prosperous” (i.e.- the economy), the latest Battleground Poll is split, with Bush 47% and Kerry 46%. That’s amazing considering this is “the worst economy since the Great Depression,” according to Kerry and the Democrats (at least until recently). Only when it comes to creating jobs does Kerry beat Bush 49% to 42%.

On dealing with Iraq, Bush leads Kerry 51% to 42%; on safeguarding America against the terrorist threat, Bush leads commandingly at 55% to 36%; and on holding the line on taxes, Bush crushes Kerry 54% to 36%. The wide spreads on those issues are, again, not good news for Kerry, but it gets even worse.

When asked who best represented the qualities of a strong leader, 54% said Bush and only 38% said Kerry. That is not good for Kerry. On who is a steady, consistent leader Bush is also in front 54% to 37%. Kerry is closer on which of them best represents “my values” with Bush at 48% and Kerry 44%. On being “honest and trustworthy,” Bush is at 45% and Kerry 42%.

However, on the critical “says what he believes,” Kerry is again crushed by Bush 57% to 34%. This coupled with Bush’s strong leadership scores helps to explain why he currently holds a fairly impressive electoral vote edge, as you will see below.

The Red States, The Blue States & The Undecideds

The general election is not a coast-to-coast popularity contest, as is the case with the national polls. Instead, the presidential election is a series of 50 individual state elections where the winner takes all. It is the Electoral College vote that decides the president, as it has throughout our nation’s history. This is why the real story lies in the state-by-state polls, more so than the national polls.

The so-called “Red States” are those believed to be solidly locked up by Bush. They include AK, AL, CO, GA, ID, IN, KS, KY, LA, MS, MT, NC, ND, NE, OK, SC, SD, TN, TX, UT, VI and WY. These 22 Bush states total 190 electoral votes.

The “Blue States” are those believed to be solidly locked up by Kerry. They include CA, CT, DC, DE, HI, IL, MA, MD, NJ, NY, RI and VT. These 11 Kerry states and DC total 168 electoral votes.

There are good sources for tracking state-by-state polling. These polls are run by professional organizations that are respected and reliable. One of the best places to find a consolidation of state-by-state polling is at Real Clear Politics. Their polling center can be found at http://www.realclearpolitics.com/bush_vs_kerry_sbys.html. Actually, realclearpolitics.com is one of my favorite websites for political commentary.

Lets look at the so-called “battleground states” to see who is ahead where and why. For purposes of this discussion, the battleground states are those in which the presidential vote could go either way.

Broadly speaking, there are 17 possible battleground states including AR, AZ, FL, IA, ME, MI, MN, MO, NV, NH, NM, OH, OR, PA, WA, WI and WV. As noted above, the remaining states are believed to be solidly locked up by Bush and Kerry.

In the 2000 election, Bush won eight battleground states (AK, AZ, FL, MO, NV, NH, OH and WV), while Gore won the other nine. So far the split looks similar, but there are some very interesting differences.

Here are Bush’s current standings in the eight battleground states he won in 2000. AK, less than 2% down but within the margin of error (typically + or – 3 to 4 points). AZ,12 points ahead, well beyond the margin of error. FL ranges from +10 points ahead for Bush to dead even. MO, two points ahead but within the margin of error. NV, three points ahead but within the margin of error. NH, four points behind but within the margin of error. OH, four points ahead but within the margin of error. WV, six points ahead, beyond the margin of error.

Given the recent rocky times for the Bush administration, these standings are not too shabby. Those states total 88 electoral votes, with Bush currently winning 78 of them. Now lets look at how Kerry is doing in the “blue” states that Gore won in 2000.

Starting with IA, Kerry is up by two points (Gore won by 1 point in 2000), which is well within the margin of error. In ME, Kerry is up by two and a half points, again within the margin of error. MN has Kerry well ahead, outstripping the slim Gore victory there in 2000. Not bad so far, until we come to MI, where Kerry trails Bush by a narrow margin. Bad news here since MI is a must win for Kerry, he cannot be elected without it.

Grim news from PA as well, where Bush leads beyond the margin of error. These two states represent 38 electoral votes that Kerry absolutely must have in order to win. Fortunately for Kerry, he is well ahead in the remainder of the blue battleground states.

In all, this gives Kerry a battleground state electoral vote total of 54. Even if you give him the 10 leaning votes from the Bush states, Kerry is still 14 electoral votes behind in the battleground states: Bush 78, Kerry 64.

So why is Bush running ahead in Democratic strongholds like MI, PA, and OH, all states heavily hit with unemployment? I can only speculate, but I think it goes back to the issues pointed out above - leadership, trust, terrorism, etc. - and Kerry’s inability to inspire big labor. Kerry has also failed to articulate a coherent and passionate national message. As one political commentator recently put it, hating George Bush will only get you so far and it certainly won’t get you elected president.

All in all, an unpleasant picture is emerging for the Democrats and Kerry. You can see that while the national polls are close, they are not the best indicator of how well a candidate will do in the Electoral College.

Despite what you have heard in the mainstream media, if the election were held today, Bush would win. Here are the projected electoral vote totals based on the most recent states polling data: BUSH 322 / KERRY 216.

This outcome includes giving Kerry the 10 electoral votes noted above from the blue states which are currently leaning toward Kerry. By the way, political commentators Fred Barnes and Mort Kondracke did a similar state-by-state analysis over the holiday weekend. Their projection: BUSH 318 / KERRY 220.

Dell to develop services to deal with viruses and pop ups

2004-06-15T23:00:00.000-05:00

There is an opportunity and a risk here. This subject was discussed in today's USA Today. The risk is that Dell has to spend too much time on dealing with these issues and it hits the business. The opportunity is that they convert this problem into extra dollars in terms of services revenues. My take, Dell is one smart company and they make hay out of grass clippings.

Perhaps one of Reagan's greatest quotes

2004-06-11T13:40:00.000-05:00

“We who live in free market societies believe that growth, prosperity and, ultimately, human fulfillment are created from the bottom up, not the government down. Only when the human spirit is allowed to invent and create, only when individuals are given a personal stake in deciding economic policies and benefiting from their success –only then can societies remain alive, dynamic, prosperous, progressive and free."

President Ronald Reagan, March 28, 1995 Speech to the New York Stock Exchange

Best quote to sum up the week for Reagan

2004-06-11T12:52:00.000-05:00

We suspect there's something far sturdier at work, in particular the desire for Americans to regain their sense of national pride and direction. Even Mr. Reagan's critics have praised his "optimism" this week but as if to reduce it to a smile. The Gipper's optimism was much deeper, connected as it was both to specific policies (which we discussed on Monday in this space) and to a faith in America's fundamental goodness and moral purpose. Mr. Reagan genuinely believed, and said regularly, that democracy and freedom are universal aspirations and that America has an obligation to promote them to the rest of the world.

From the WSJ.com Review & Outlook section in Friday's paper.

Carville a.k.a. The Snake Man with the Quote of The Month

2004-06-02T22:36:00.000-05:00

"Back in 2000, a Republican friend of mine warned me that if I voted for Al Gore and he won, the stock market would tank, we'd lose millions of jobs, and our military would be totally overstretched. You know what? I did vote for Al Gore, he did win, and I'll be damned if all those things didn't come true."

James Carville

The U.S. Energy Policy = no energy policy

2004-06-01T19:25:00.000-05:00

For the past twenty years, the U.S. energy policy has been not to have one. We have not learned from our past mistakes and once again will repeat them. The problem is not the lack of crude production by the Saudis but rather 1.the lack of any new refineries in the U.S. and 2. a screwy policy of the composite of gasoline that impacts how gasoline is produced state by state. Bottomline, time to invest in companies that will 1.help build new refineries 2.alternative sources like natural gas 3.auto companies that manufacture cars that are fuel efficient.

Compensation must be in line with services rendered. What a joke!!

2004-05-24T12:12:00.000-05:00

So Spitzer now sets the compensation for American companies? What a joke. Grasso did a great job of running the exchange. Now he gets penalized because the board awarded him what is viewed as excessive comp. Excuse me but the amount of business that Grasso brought to the NYSE should be reviewed. The logic of the NYSE being a not for profit is totally flawed. Spitzer will lose this battle.

The Andor Dilemia

2004-05-21T12:58:00.000-05:00

Just when you should be shorting you go long and just when you go long you should be short. After a while, you are blind and can no longer negotiate the markets. That is Andor's problem. They were great investors in a TRENDING MARKET. We are now in a TRADING market. They will continue to get it wrong until they embrace shorter term tools or we go back to a trending market.

That is a sad thing.

Semis rocking this evening

2004-05-20T19:20:00.000-05:00

Book to bill rocks to 1.14 from 1.09 in March. This could get the semis moving on Friday. We like AMD and MU. AMD is cutting into INTC's market share. Heard Dan Benton of Andor Cap plead for his life and his investing style on a UBS call. If you believe him, there are going to be chips everywhere. So its makes sense for the semis to rebound here if this economic rebound is for real. Right now it is just a trade not an investment.

Worms and we do not mean tequila

2004-05-17T19:11:00.000-05:00

The worm has taken on a new meaning in the web world. Each day www.techweb.com posts great stories that ultimately filter to the big publications. So much for writers driving their ideas with original thought. This a great story to read from today's postings. Stocks like SYMC, MCAF and RSAS are winners in the war on the worm. We would buy these names in any pullback.

2. MOBILE & WIRELESS NEWS OF THE WEEK
Group Warns Of Wireless DoS Attack Vulnerability
A newly discovered vulnerability in the 802.11 standard makes it
relatively easy to launch DoS attacks against hotspot users.
http://update.techweb.com/cgi-bin4/DM/y/eg8N0GN8eB0G4U0CXMV0AM

Inflation or Deflation?

2004-05-16T20:53:00.000-05:00

In the past year, we seem to have gone from a deflationary environment to an inflationary environment. Is this perception reality? Commodity prices have been driven by increased demand for raw materials around the world. China is a big piece of this and a prolonged upturn to their economy could be a nightmare for the Fed to model. At the end of the day, one must remember that inflation is nothing more than too many dollars chasing too few goods. That is the problem right now.

Evening thought on CSCO

2004-05-13T20:51:00.000-05:00

Come on John Chambers. You can do better than just buy back shares to help push your earnings higher. That game is old and well known. This is cosmetic and no one cares about this action to drive earnings. Either invest in R&D or buy a company who earnings and revenues are accretive. Do not short Cisco here but also not worth buying. The stock is dead money and Chambers is the boy who tried wolf.

Morning thought

2004-05-13T07:49:00.000-05:00

Everyone in the world is calling for a bottom. This usually occurs when no one expects it to appear. The Dow 30 and the Russell 2000 broke back below their 200 day. Everyone is focused on the SP 500 breaking above the 200 day. It to will fail. Other concerns, PPI up strong this a.m. Inflation = too many dollars chasing too few goods. The bear is lose on Wall Street and knocking over the garbage cans. I am out.

Bottoming here?

2004-05-12T22:16:00.000-05:00

Had to laugh when the former Oracle of Wall Street now just a gnome proclaimed that the market was the most oversold in twenty years. Gimme a break. Barton you remember 9/11 or July 2002? Not to mention 98, 97, 94,90,89 and the mother of all overold conditions, 1987. Barton Biggs aka "the gnome" was holding too much on the long side and had nothing to lose going on CNBC and telling its viewers that they needed to step in and buy so that he could sell. The fact that CNBC did not challenge this comment is much more pathetic than Barton groveling. Hey Barton, let's see your Morgan Stanley blotter today and in 5 days. I'll lay money that you own less on the long side. Shame on CNBC for producing this type of dribble.