Friday, March 11, 2011

Mutual Fund Update

I just received news we should get our initial "letter of comment" from the SEC sometime next week.  Literally just heard this 10 minutes ago.  We filed with SEC mid December, so it will be some 80+ calender days by the time they bothered to respond back.   They claim to be "very behind"...

I'll start reporting more often from here on progress - next step is in the letter the SEC offers their questions/comments which we need to respond to.  Then once the responses are filed, the final review is done and then you are approved.  I will try to get a ballpark of how long that final review process is after we give them answers (which should take about 5 days since legal is involved) but last time I was offered a SEC time frame it took 150% longer than anticipated.   So not sure how accurate it is with this crew.


As an aside, as mentioned this morning I'd be bullish for the day unless the price action dictated otherwise.   So far so good.  We have had a nice bounce on the day, some 12 or so S&P points from the low with an hour to go.  Assuming we get the now traditional mark up in S&P futures between 6 AM and 9 AM Monday morning we will have gone a good way towards relieving some of the oversold conditions I mentioned this AM.

In a normal market this type of cursory bounce in a downtrend would be a good setup for a new leg down in the mid to latter half of next week - but in the abnormal market of the past few years, once we start a bounce we usually just go straight up on little volume for months on end.   Hence one has to be prepared for both outcomes ("the old way the market worked" and "the new normal market") nowadays.  The NASDAQ has an upside gap it might want to fill so if we keep bouncing early next week let's see what happens after NASDAQ 2739ish is filled.

[Video] Former FDIC Head Bill Isaac Talks about The Dud that Dodd-Frank Is, and the Potential for a Farmland Bubble

Former FDIC Chairman is a person I've been watching on the teletube the past few years and comes across as a very straight shooter.  He has been offering a lot of good ideas on financial reform but it appears the way the lobbyists folks in Congress wrote the Dodd Frank bill, very little of what he proposed was included.  And after all, what does the guy who was the head of the banking system have to offer in the reform dialogue that JPMorgan and Goldman could not?  I always listen to the foxes when getting advice on how to create safeguards around the hen house.

Anyhow we have 2 videos on Yahoo Tech Ticker on how......... (wait for it) Wall Street won again in reform, and the potential for a bubble forming in farmland as QE-infinity runs through the economy.  Stock market 99.... Real estate 2006.... commodities 2011 - notice one institution behind all our bubbles?  Yes the same one that has been handed even more power in Dodd Frank.

As always, these sort of videos are only for informational purposes and nothing in the country will change as the political-corporate/monied elite consolidate control - so don't get your blood pressure up too high after listening.  Better yet, just take the blue pill and this post will go away....

(I) Wall Street Won! Nothing to Prevent Another Crisis, Says Former FDIC Chair Bill Isaac

  • Crisis may create opportunity, but Congress completely flubbed its opportunity to enact meaningful financial reform in the aftermath of the worst crisis since the Great Depression, says the former chairman of the FDIC, Bill Isaac.
  • The Dodd-Frank reform bill--the one major piece of legislation to emerge since the financial crisis--is mostly meaningless, says Isaac, who is also the chairman of regional bank Fifth Third.  Dodd-Frank does nothing to address the root causes of the financial crisis, Isaac says, and it won't prevent the next one.
  • Specifically, Dodd-Frank will just create more bureaucracy and red tape. Meanwhile, our biggest banks are still "Too Big To Fail." Our commercial banks are still allowed to take way too much risk. Our regulators are still balkanized and political. And we still haven't addressed Fannie Mae and Freddie Mac.
  • Isaac suggests the sure may be to re-implement the Glass-Steagall Act which separated commercial and investment banking. But, at this stage of the game, that's not likely, considering the size and scope of the bank lobby in Washington.
  • In other words, it's fair to say that Wall Street won the financial crisis.  And it's no mystery who lost.

(II) Betting the Farm: Former FDIC Chair Fears Another 'Ag' Bubble Brewing

  • The housing bubble may have burst but another American real estate boom rolls on: Since 2000, U.S. farmland values have risen by 58% after inflation, according to the FDIC. And since 2003, they've risen by over 10% annually
  • Surging agriculture prices, a weak dollar, fear of financial assets and rising global demand for food have all contributed to this boom. The question now is whether it's becoming a bubble.
  • "It's very reminiscent of period we had in 1970s," when farmland prices surged 350% in less than a decade, says Bill Isaac, former FDIC chairman and current chair of Fifth Third Bancorp. "I'm hoping we don't let it get that far."
  • At an FDIC symposium in Washington this week, Isaac discussed the "worrisome trends and similarities between the 1970s and today," including: loose fiscal and monetary policies, massive deficits creating inflation, and a weak dollar spurring demand for agricultural exports.
  • When Paul Volcker became Fed chairman in 1979, he had a mandate to break the back of inflation. In the process, Volcker burst the farm bubble: foreclosures skyrocketed as land prices tumbled and about 300 farm banks failed.  "It was very painful," Isaac recalls. "I hope we don't go through another boom-bust cycle."
  • The FDIC symposium was designed to avoid such an outcome by alerting bankers to the potential risk of their ag-related exposure. Although the 100 largest banks account for about 25% of farm-related loans, Isaac says he's more worried about smaller, less diversified community banks in agricultural producing regions.
  • Suggesting regulators and bankers have learned the lessons of the 1970s farm boom and the more recent residential housing bubble, Isaac is hopeful this cycle will be less painful. That is, "as long as we don't let the bubble get out of hand," he says. "If we let bubble get out of hand, all bets are off. "
  • And as long as Ben Bernanke is at the helm of the Fed, the ‘smart money' is going to keep betting (on) the farm.

Fed's Dudley Says No Fed Tightening Soon, and Not to Worry about Food Inflation because iPad Deflation Makes Up for It

I wonder if these guys at the Fed understand income distribution in this country and the fact that those who skew in the bottom half of the economic strata are not going to be pleased that food inflation is being offset by iPad deflation.  Apparently not.  Showing he lives in the same ivory tower as his peers, it appears William Dudley was asked a series of questions about food inflation, and countered that while there is inflation in things we need, we have deflation in other places - hence no problemo.  I am sure the millions sleeping hungry each night will be comforted by this fact as they surf the internet on their iPad.  Dudley probably was confused about the laughs the audience gave that sort of remark...

Oh and don't worry - the Fed won't be tightening soon.  By soon I assume this decade.

  • A top Federal Reserve official signaled on Friday the central bank won't tighten monetary policy any time soon, even as the jobs recovery looked set to quicken.  New York Fed President William Dudley told business leaders in Queens, New York, that the economic outlook has improved in the past six months. But he said, the Fed is still "very far away" from achieving its dual mandate of high employment and price stability. "Faster progress toward these objectives would be very welcome," he said.
  • Dudley, who was a core advocate for the Fed's easy money policy, is seen as one of the more "dovish" members of the Fed's policy-setting Federal Open Market Committee.
  • "Although there is still uncertainty over the timing and speed of the labor market recovery, I do expect job growth will increase considerably more rapidly in the coming months," Dudley said. "A substantial pick-up is sorely needed."  Even if the economy were to add 300,000 jobs per month, though, there would still be considerable slack in the labor market through 2012, he said.
  • Dudley reiterated that a stronger recovery is not a reason for the Fed to reverse course.

Now the funny part...
  • Dudley faced persistent questions from the audience on food inflation. The president of the Federal Reserve Bank of New York said people forget that even as the price of food is rising, other prices are falling. He mentioned the price of the iPad 2, prompting guffaws from the audience.
  • "While rising commodity prices may be giving some of you a bad headache, they are not likely to lead to a sustained rise in inflation to levels inconsistent with our dual mandate," Dudley said.
Yes Mr. Dudley - I am sure rising food and energy is giving a room full of business leaders making 6 or 7 figures a few headaches.  It's a bit more of an issue for the average American however.

S&P 500 Undercuts 1294, but Getting Oversold in the Near Term

In the early minutes of the day the S&P 500 has slightly undercut the key 1294 level but I would not say it is a sure thing there is a big selloff today.  Indeed, I would not be surprised to see a bounce here as quite a few secondary technical indicators are showing oversold readings or close to it.  I've put a few on the chart below, but there are certainly others.  We can see quite a few at the same level as during the November 2010 selloff.

With bears constantly beaten over the head with the Monday morning premarket surge, the action later in the day will be interesting.  We've seen a lot of changes in character of late - another one would be bears not entering the weekend on the run. I am not counting on that one...this weekend at least.

Gun to head I say we rally today to work off some of the oversold condition and long side traders can make a short term bet with this morning's lows (S&P 1292ish) as a stop out level.  I'd be selling off any short side protection this morning and only putting new bearish positions on if we broke to new lows for the day - say sub S&P 1290.  Unless the action dictates it's better to be a bear, I'm more of a bull today. ;)

Best scenario for bears, is after a cursory bounce the market breaks to new lows of the days - then the 'buy the dip' crowd should run for the hills, and some real worry will creep in.  Let's see how it goes.

Despite Uptick in Revenues, February's Federal Deficit Highest on Record as Late 2010 Political "Compromise" Adds Another Layer of Debt

The tax/stimulus "compromise" (compromise is code word when both the GOP and Dem's get what they want) in the waning days 2010, adding another $800B in debt in 2011 and 2012, helped to push February 2011 to the highest monthly deficit on record.  Quite impressive considering there were only 28 days.  This is part and parcel with the massive steroids (excluding what the Fed is doing) being injected into the U.S. economy nearly 2 years into "the recovery".

Keep in mind we have a $14 Trillion economy and until a few years ago, $400B was considered a record deficit.  Now we're reaching targets of $1.5T+ per annum - effectively pouring an extra $1.1T over and above what would previously be considered record deficits, into the economy.   That's about an 8% of GDP steroid injection.   Very few seem to mention these costs when discussing the economic figures being generated.   Eventually the tax piper will be paid by "someone" (who knows what generation with this band of misfits running the country) because even finding $100B in cuts turns into a circus.

Via AP:
  • The government ran the largest-ever budget deficit for a single month in February. The shortfall kept this year's annual deficit on pace to end as the biggest in U.S. history.  The widening deficit reflects the impact of the tax-cut package President Barack Obama and congressional Republicans brokered in December.
  • As a result, the nonpartisan Congressional Budget Office in January raised its estimate for the annual deficit from $1.1 trillion to $1.5 trillion. It said the tax cuts would add $400 billion to this year's gap. The budget year ends Sept. 30.
  • The tax-cut package extended income tax cuts, reduced workers' Social Security taxes, extended unemployment benefits and accelerated business tax write-offs, among other steps.
  • The overall tax-cut package enacted in December has been estimated to cost $858 billion. The one-year Social Security tax cut reduces that tax for all wage earners, from 6.2 percent to 4.2 percent, on the first $106,800 in annual pay. Its estimated cost is $112 billion.
  • February's deficit of $222.5 billion eclipsed last February's record by nearly $2 billion. The full-year deficit would exceed 2009's record deficit of $1.41 trillion. And it would mark the third straight year of $1 trillion-plus deficits.
  • It's unusual for an economy to be running record-high deficits this far into a recovery. The recession that began in December 2007 ended in June 2009. The problem is that the financial crisis and the recession that followed fueled explosive deficit growth.
  • Republicans have pushed for more than $60 billion in spending cuts this year to help shrink the deficit.  Even if Republicans achieved their target for spending cuts this year, the 2011 deficit would still be on track to hit a record. 
  • Through the first five months of this budget year, government revenue totaled $869 billion. That was up 8.6 percent from the same period a year ago
  • Government spending totaled $1.51 trillion, a 4 percent increase.
  • One of the sharpest increases in government spending has been interest payments on the debt: $94.5 billion so far this budget year. That's up 9.3 percent from the same period a year ago. It reflects the growing size of the national debt from the annual deficits.

[Jan 27, 2011: Gallup Poll - Americans Want Federal Budget Cut... Just Don't Cut Anything that Affects Them Personally]
[Aug 26, 2009: US Federal Budget in Pictures]
[Aug 24, 2009: Cumulative Deficit Estimate for Next Decade Increased by $2 Trillion.... Since May
[Jun 12, 2009: NYT - America's Sea of Red Ink was Years in the Making]
[Mar 26, 2008: Annual Spring Entitlement Warning Falls on Deaf Ears]

Japenese Earthquake Dominant Theme this Morning, Some Video from NYTimes

Obviously the tremendously powerful earthquake and surreal tsunami is dominating this morning's conversation - always puts things in perspective.  This appears to be the 5th most powerful earthquake since 1900 - but closest to a large city.

1. 1960 -- 9.5 -- Chile
2. 1964 -- 9.2 -- Prince William Sound, Alaska
3. 2004 -- 9.1 -- Sumatra
4. 1952 -- 9.0 -- Kamchatka, Russia
5. 2011 -- 8.9 -- Friday in Japan
6. 2010 -- 8.8 -- Offshore Maule, Chile

Obviously when a tsunami is involved the video is nearly unbelievable - almost out of a movie.  NYTimes blog has a series of videos from various locales in Japan here

Thursday, March 10, 2011

The 1294 Dance

The SP500 keeps brushing against 1294 and bouncing.  If anyone has $500M worth of SPY and wants to see some fireworks please do a market sell order here. ;)

The NASDAQ is certainly going to close below its 50 day moving average and barring that crazy guy in Libya "retiring" in the next 30 minutes it looks like markets will close near or at the lows of the day.  Actually it is a bit ironic the market is being hit on a day oil has fallen considering oil has been the main worry the past few weeks.

Larger picture a market that closes on its lows should not have a premarket surge the next morning, but in this market we have seen that happen a few times the past 2 years.  If there is a weak open tomorrow that would be far more normal and again a change in character.  It does appear everyone is staring at 1294 today so we will see if a kettle of water can boil when everyone is mesmerized by it.

Breadth Horrible

If you read the posts from earlier in the day you can guess what the low print of the day was in the S&P 500.  1294 to the point.  A perfect touching of the "Libya" intraday low of a few weeks ago.   No surprise it is being defended but thus far the bull's efforts have been relatively weak.  We'll see what magic - if any - is in store the next 2 hours.  Traditionally you would not expect anything positive in the closing hours of a day like this.

I have a group of about 2400 stocks/ETFs that are in my universe (loosely).  These are names that have some decent size to them ($300M+ market cap), and at least 100,000 in daily volume, and a stock price over $10.  Of that 2400 there are only 120ish which are green on the day.  That includes some inverse ETFs.   So this clearly fits the definition of a 90% down day (indeed, we're around 95%).

If interested here are the names that are positive - some have clear catalysts such as Green Mountain Roasters (GMCR) and Starbucks (SBUX) but on days like today I like to look for those who can pull a Kermit, and if they are not a utility or healthcare stock that might be seen as a safe haven, I like to investigate further.  With oil down $3ish something like airline stocks would also be expected to rally.

Here are the names gaining at least 1.5% today; I've shaded the inverse ETFs - interestingly with all the hand wringing out of China today due to the import/export numbers we have some Chinese stocks on the list.  NFLX, FN, and JDSU are recovering from some recent beatings...

Ticker Company  Mkt  Change
GMCR Green Mountain Coffee Roasters Inc.              6,179 38.18%
RCRC RC2 Corp.                  475 17.46%
HGSI Human Genome Sciences Inc.              4,854 12.66%
SMTC Semtech Corp.              1,426 12.53%
SBUX Starbucks Corp.            25,767 9.21%
LEAP Leap Wireless International Inc.                  983 8.88%
TZA Direxion Daily Small Cap Bear 3X Shares              1,473 7.45%
AUTC AutoChina International Ltd.                  709 6.91%
IRM Iron Mountain Inc.              5,265 6.39%
MYRG MYR Group, Inc.                  472 5.88%
MW The Men's Wearhouse, Inc.              1,383 5.57%
QCOR Questcor Pharmaceuticals, Inc.                  810 5.55%
FAZ Direxion Daily Financial Bear 3X Shares              4,139 5.54%
CHSI Catalyst Health Solutions, Inc.              2,375 5.47%
DK Delek US Holdings Inc.                  603 5.41%
HTHT China Lodging Group, Limited              1,057 5.18%
AREX Approach Resources, Inc.                  783 4.87%
SAFM Sanderson Farms, Inc.                  942 4.51%
AVAV AeroVironment, Inc.                  709 4.28%
SVN 7 Days Group Holdings Limited                  955 4.06%
SKF ProShares UltraShort Financials              1,590 3.81%
SNDA Shanda Interactive Entertainment Ltd.              3,028 3.76%
JOSB Jos. A Bank Clothiers Inc.              1,262 3.68%
NFLX Netflix, Inc.            10,207 3.66%
SDS ProShares UltraShort S&P500              2,187 3.44%
QID ProShares UltraShort QQQ              3,115 3.10%
HRB H&R Block, Inc.              4,635 3.09%
FN Fabrinet                  692 2.73%
YOKU Inc. American Deposit              4,213 2.66%
MCP Molycorp, Inc.              4,001 2.63%
EDMC Education Management Corporation              1,457 2.60%
ALLT Allot Communications Ltd.                  315 2.43%
CYOU Limited              1,817 2.30%
SWY Safeway Inc.              8,104 2.18%
PGH Pengrowth Energy Trust              4,185 2.03%
NOAH Noah Holdings Ltd. American Dep                  748 1.97%
DWA DreamWorks Animation SKG Inc.              2,209 1.91%
CCC Calgon Carbon Corporation                  794 1.63%
SYNA Synaptics Inc.                  938 1.52%
JDSU JDS Uniphase Corporation              4,740 1.51%

Almost to the (Wo)man

After watching some CNBC today it is consensus that this is a fantastic buying opportunity and we are blessed to get this chance to buy buy buy.


Apparently no one believes a 8-10% pullback is even possible anymore.

Deja Vu - NASDAQ Breaks 50 Day Moving Average

Let's try this again - we just had this conversation Monday.  The NASDAQ (yet again) has broken the 50 day moving average, although today's move is more impressive than the last occurrences as it was a gap down situation.   Hence, no part of today's range in the index has been above the 50 day moving average.   When this break of support happened early afternoon Monday, the NASDAQ turned on a dime and rallied 1% in just over 2 hours.

[click to enlarge]

As I state constantly, what matters is the CLOSING price not the intraday price BUT today's action is not looking prone to a 'stick save' situation (late day rally) as we saw the other times this happened the past few weeks.  Hence I would be quite surprised if 'dip buyers' were bailed out today. As for 'da bears' - they want to see a close below 2730 on NASDAQ.


The S&P 500 has come down to sniff the 50 day moving average as well, but the NASDAQ has been the indicator of where the bulls charge in the past few weeks so I'll keep a closer eye there.  Obviously a close below 1294 on this index would be a double whammy.  That would be both a close below the 50 day moving average AND a close below the intraday low of 2 weeks ago.

No place for heroes here - I continue to stress caution and de-risking.  Remember, we have major air pockets below these key supports since the rally has been so vicious and shorts eviscerated for half a year; therefore they are not going to provide the natural support as in a normal market when they cover.

It is fun to see a 2 way market once again - first time since November.

Despite 'Super Awesome' Stock Market, Plurality of Americans Say Worse Off than 2 Years Ago

Some interesting poll results via Bloomberg, showing despite the recession 'ending' 1.75 years ago, and a near doubling in the stock market, many Americans continue to simply not feel it.   Strange considering Main Street = Wall Street. ;)

No surprise here, based on a litany of reasons we've outlined the past 3-4 years, as the changing face of the American economy is creating a slice of outsized winners (who now drive most of the consumption) and an increasing host of losers.   We've outlined in the past why the stock market gains benefit a relatively small amount of Americans [Nov 10, 2010: Who Will Any Form of Intermediate Term Wealth Effect Really Help? Not the Masses] whereas the loss of good paying jobs, the ability for many to create a middle class lifestyle, drop in housing values (affecting many more Americans than the stock market), inflation in things we need, et al are causing havoc and consternation for many.  If not for unprecedented federal government support in social services, much of the rot under the surface would be seen more clearly.   That said, corporate profits are boffo, so as speculators "everything is good".  

But let's take a look at Main Street today.... keep in mind this data includes the fact every working American got a 2% pay increase Jan 1, 2011 due to the payroll tax holiday.

  • Only 1 American in 7 has faith a lasting economic recovery has taken hold and a plurality say they are personally worse off than they were two years ago.  Almost half of the respondents in a Bloomberg National Poll conducted March 4-7 believe the U.S. is in a “fragile” rebound and could fall back into recession. More than a third of the country believes the U.S. never emerged from recession.
  • Sixty-three percent of Americans say the nation is on the wrong track, (that is actually astounding - roughly 2/3rds of the country!) compared with 66 percent who said so in December, which was the lowest in the national mood in the one and a half years the Bloomberg poll has been conducted.
  • The gloomy outlook contradicts economic data showing an economy on the mend, including six quarters of economic growth, a 95 percent rise in the S&P 500 index over the past two years and job growth last month of 192,000. The National Bureau of Economic Research officially dated the end of the recession to June 2009.
  • Almost half of poll respondents say they are personally worse off than they were two years ago, when the country was losing 796,000 jobs a month and the economy was shrinking at a 4.9 percent annual rate. The stock market hit its post-financial crisis low two years ago yesterday.
  • Only 1.3 million U.S. jobs have been regained of the more than 8.7 million lost since January 2008.  “I don’t think it’s going to get much better,” says poll respondent Robert Lockhart, an 85-year-old retiree in Luray, Virginia. “Most of our jobs are overseas. They send the parts back here to put together. But your refrigerators, your TVs are produced overseas.”   
  • Concern over unemployment receded to 43 percent from 50 percent in December, though it remains the public’s top priority, ahead of the federal deficit. 
  • Assessments of the housing market are mixed, with 4 out of 10 Americans believing home values in their neighborhood are declining while about the same number believe prices have stabilized. Another 17 percent believe home prices are rising.
  • Antipathy toward Wall Street hasn’t changed since the immediate aftermath of the financial crisis. Only 30 percent of Americans hold a favorable view of Wall Street, compared with 31 percent who said so in September 2009. 
  • The poll of 1,001 adults has a margin of error of plus or minus 3.1 percentage points.

Somewhat related jobs data I've read over the past 2 days - if the labor force participation rate had held steady between February 2010 and February 2011, the unemployment rate would be 11% rather than 8.9%.  It continues to be a mystery where a few million American workers have disappeared to. 

Second, while 23% of the jobs lost during the great recession were of the lowest paying variety ($9-$13/hr), 49% of the new jobs created in this 'recovery' have been on this variety.  Meanwhile the higher paying level ($19-$31/hr) accounted for 40% of the jobs lost, but only 14% of new jobs during the recovery.  Hence we have a focus on quantity of jobs on Wall Street (which has been poor in and of itself) but the lost message is the quality of jobs created is flailing.

Both Copper and Semiconductors ETF Break Below 50 Day Moving Average

At the start of the week, I said market tops are a process, rather than a moment (usually).   Thus far this week, it's been a chop fest suited to only the shortest term of intraday traders.  While we won't know if this moment is a top or just a consolidation period, until we look back at it in a few weeks or months, there is definitely a change in character from the non stop rally since Thanksgiving.  I contend there remains no reason to make any outsized bets here, as if this is a consolidation period, one can jump back on the gravy train once a new high for the year is reached in the major indexes.  And by ratcheting down risk here, one can curtail potential losses if we finally have this ever elusive breakdown.

Let us continue to also keep an eye on the NASDAQ where the 50 day moving average has obviously been 'the tell' of late.

Back in the fall of 2010 I mentioned the semiconductors ETF (SMH) was not confirming the move up, and as a leading indicator type of sector that was making me cautious.  In retrospect, that did not matter as a flood of liquidity overwhelmed any doubters.   But for the first time since September, yesterday saw the semiconductor ETF break below the 50 day moving average.   That should provoke some caution.

Copper - another major leading indicator - has also been quite weak the past few weeks, and yesterday was punched in the gut.  It also has broken down below the 50 day moving average over the past week.

In "normal markets", these sort of events would be serious warning flags.  The current market acts very abnormal so I don't know if they hold the same sway, but you have to go with historical references unless you want to just fly blind and believe in the mantra that the Fed is an omnipresent being (which in time will be shown false).   So until proven otherwise, we have mounting yellow flags to heed.

No positions

Wednesday, March 9, 2011

[Video] Doubleline's Jeff Gundlach Returns to CNBC, Joins Chrorus Warning on Muni Bonds - Loosely Compares the Situation to Subprime Bonds

While nowhere as famous (or promotional) as PIMCO's Bill Gross, Doubleline's Jeff Gundlach would be considered among the top handful of bond investors in the country.   (He previously worked at TCW before a spectacular exit)  I've only seem him on CNBC once before [Jan 19, 2011:  Gundlach Visits CNBC] and he has made a return today, focusing on muni bonds.  With all due respect to Meredith Whitney, I would expect when Gundlach talks muni bonds, bond investors will be taking a much closer listen.

In this interview he offers that investors are complacent about the muni bonds, just as they were in the mortgage market in 2006 because after all housing prices could never fall nationally so why worry?   The key here is psychological - munis are supposed to be extremely safe, and they rarely default.  So if the ball gets rolling and we see a wave of defaults in 2012-2013, the hit to investor psyche could be an important event. 
  • "I don't think you need to know what the default rates are going to be, or need to know how low low is, munis are going to go down. There are going to be other shoes to drop. There might be so many it looks like Imelda Marcos' closet when all the shoes drop because all the states have to deal with this stuff.... Between here and the endgame lies the valley and the valley is full of fear. And I think the muni market is going to go down by at least 15 to 20%. At least." 
  • "It gets scary when the prices start to drop. The fear factor here is going to be palpable." 
While I don't expect states to default ("too big to fail"), the issue is going to be local government.   There will not be a real rebound in housing for years (ex Washington D.C. & Manhattan), hence a huge source of tax revenue shall remain depressed ....although expect CNBC and the uber bulls to start celebrating the 4th annual "housing rebound" we see EVERY spring, in the coming few months. We'll see how it plays out in the next few years - some of us are already speculating the Fed will ride into the rescue during QE4?5? even though Bernanke explicitly said it is not the Fed's role to buy muni bonds.  Ben's broken many rules the past few years.... guess who famously said this in fall 2007?
  • “It is not the responsibility of the Federal Reserve – nor would it be appropriate —  to protect lenders and investors from the consequences of their financial decisions."

If unfamiliar with Gundlach, Barron's had a cover story a few weeks ago titled 'The King of Bonds'.   If you really have some time to kill now that Charlie Sheen has left Two and a Half Men, for almost as good of a tale please see this Fortune story about the exit by Gundlach from TCW.  It's epic, indeed one could say full of tiger blood.

But back to business...

Video 1:  9 minutes video you can skip to minute 2 to begin the interview

Video 2 - more focus on munis here - 6 minutes

  • The municipal bond market will go down by "at least 15- to- 20 percent" in the long-term, Jeffrey Gundlach, CEO and CIO of the asset management firm DoubleLine Capital, told CNBC on Wednesday.
  • "The fear factor here is going to be palpable. People who own munis tend to own them for the tax benefit and they tend to own most of their assets, if not all of their assets, in the muni asset class. So when they get to fall, they get nervous," Gundlach said.
  • "You got a history of low defaults [within the muni market], which is comforting. But that kind of sounds like what subprime sounded like back in 2006. You had a AAA market that had never traded below par, the fundamentals were getting worse and it was owned for a technical reason," he added.
  • Gundlach pointed out that he is "agnostic" on whether there will be a muni crash, but says the fundamentals are bad and munis will go lower.

PIMCO's Total Return Fund (PTTAX) - the World's Largest Bond Fund - Dumps All U.S. Government Related Debt

Wow, quite a bombshell out of PIMCO's Bill Gross.  Apparently ahead of the end of QE2 he has simply dumped anything U.S. government related out of PIMCO Total Return.  This would indicate he believes everything in the market has been manipulated mispriced due to the Federal Reserve programs, and we're going to see some fireworks in the coming months.   Somehow I think behind the scenes the banking 'big boys' are going to help scratch the Fed's back, in return for all the gifts the Fed has handed to them the past few years, and we're not going to see any major dislocations in the bond market.  But we'll see.  If for some reason Gross is correct, there are going to be some very surprised (and unhappy) bond holders who thought they were in 'risk less' U.S. Treasuries, in the coming months.

Via Reuters:
  • The world's largest bond fund dumped all of its U.S. government debt in the biggest signal yet of how negative investors have become about the U.S. Treasury market. The move by Bill Gross's $236.9 billion PIMCO Total Return fund comes..... just days after he questioned who will buy Treasuries once the Federal Reserve halts its latest round of bond purchases in June.
  • Bond prices have come under severe selling pressure because of a strengthening U.S. economy and as investors brace for what could happen when the U.S. central bank ends its controversial quantitative easing program
  • Last week, Gross told Reuters Insider that a 4.0 percent yield for 10-year notes is a "rational expectation" if the Fed "disappears as the buyer of last resort," Gross said.
  • Pacific Investment Management Co's Total Return fund sold all its U.S. government-related securities, including U.S. Treasuries and agency debt, a source familiar with the fund's holdings said on Wednesday.
  • "It's certainly an important signal in the sense that they are allocating away from Treasuries in favor of a higher spread product," said Christian Cooper, head of U.S. dollar derivatives trading at Jefferies & Co.
  • Government-related securities include Treasuries, Treasury Inflation-Protected Securities, agencies, interest rate swaps, Treasury futures and options, and corporate securities guaranteed by the U.S. Federal Deposit Insurance Corp.
  • Gross, who also helps oversee more than $1.1 trillion as PIMCO's co-chief investment officer, has often railed against U.S. deficit spending and its inflationary impact. He has advocated buying bonds with "safe," higher yields -- such as emerging-market bonds -- that can withstand possible erosion of returns by inflation.
  • The Total Return fund's cash holdings surged to $54.5 billion as of February 28 from $11.9 billion at the end of January.  Cash is defined as anything that has a duration -- a bond's sensitivity to interest rate fluctuations -- of less than 1 year.
No position

26 Russell 3000 Stocks that Returned 2000%+ Since the March 9, 2009 Bottom

Bespoke has a fascinating chart of 26 Russell 3000 stocks that could have made you mad money if you took the plunge in spring 2009.   Bespoke says the average stock return in the Russell 3000 since March 9th is 260%, which if true shows a major outperformance in small and mid caps versus large caps.  But you could have had 10x the return of the average if you were willing to buy stocks in the $1 or $2 (or less) range back then. ;)

Quite a few of these are auto suppliers, (DAN, ARM, AXL, TEN, TRW) which frankly if the federal government had not come in to save GM and Chrysler, would have gone out of business.

Click to enlarge

Happy 2 Year Anniversary Bull Market

Today marks the 2 year anniversary of the March 9, 2009 bottom.  As noted before this has been a historic rally [Feb 2, 2011: Dow's Rally of 2009-2011 is Most Aggressive Since 1930s] but of course follows one of the biggest crashes in history as well.  While quite a few have been suspicious of how this market acts, and indeed how it rallied so incredibly with massive net outflows for much of the past 2 years [Jan 6, 2010: Charles Biderman of TrimTabs Claims U.S. Government Supporting Stock Market], in retrospect President Obama literally called this rally to the week (March 3rd) when in a nearly unprecedented moment he said to buy stocks. [Mar 3, 2009: Barrack - Buy Stocks]  While surreal at the time, for future use, when the sitting president (and head honcho on the plunge protection team) tells everyone it's time to buy stocks, I will take the hint. (wink wink)  [Jan 9, 2008: An Amazingly Blunt Commentary on the Plunge Protection Team]

According to this Bloomberg story, $12 TRILLION has been pumped into the financial system by governments and central banks - that's simply astounding.  It's almost equivalent to a full year of GDP by the world's largest economy.


I did a review of what FMMF was saying the previous week (March 1-7, 2009), and what the atmosphere was like.  [Aug 2009: March 6, 2009 - Generational Bottom? What was FMMF Saying]  While Monday the 9th was the "closing price" bottom, the intraday bottom actually came the previous Friday at S&P 666 (oooh, spooky).  I remember things were so sour, I actually did a post with nothing but positive "feel good" videos in it.   Of course as we all know, Cramer called the bottom - ahem, as the video shows below.   (Cramer was saying to get out, as Obama was saying to get in)  Funny for a guy who attacks the Roubinis of the world for being too negative at the bottom ;)  (I am sure if you ask him, he will tell you he changed his mind days later once Doug Kass convinced him to go long)

USA Today is out this morning with a piece on the 2 year bull, aided and abetted in no small part by historical non traditional forces.  One amazing statistic I had not know was that the 3rd year of a presidential term has not been negative since 1939.  This is generally the time the president tries to juice the economy to win re-election, so maybe we've always had a form of 'goosing the market' - it is just much more explicit nowadays.
  • The raging bull market in stocks — born at the depths of the most severe financial crisis since the Great Depression — turns 2 today. In stock market years, that means the bull is entering middle age and its future is more uncertain.
  • If history is a guide, the bull will show a touch of gray, produce more muted returns and have a less clear vision of its future as it ages.  Still, barring an oil shock that would keep oil prices above $100 per barrel for an extended period, and other bull market killers such as a sharp jump in interest rates or inflation, or a political meltdown in the Middle East, the consensus is that the bull will still be alive a year from now.
  • Year three of the presidential cycle is the most bullish for stocks. There hasn't been a down year in the third year of a presidential term "since war-torn 1939," according to the Stock Trader's Almanac 2011.  "Typically, each administration does everything in its power to juice up the economy so that voters are in a positive mood at election time," the Almanac says.

Bulls' run, historically

Bull market returns, on average, for S&P 500:
  Current bull
Year 1
Year 2
Year 3
Source: Standard & Poor's

  • Still, some worry that with the Fed's latest round of asset purchases set to end in June, and the higher concentration of conservative politicians at the national, state and local levels slashing spending, the economy's "sugar high" could end and growth could slow. 
  • "I do not believe this is a normal cycle," Ned Davis of Ned Davis Research wrote to clients. "It has been built on powerful government and Fed stimulus drugs. I fear that the withdrawal of these stimulus drugs could lead to a sharp slowdown in growth. I am watching for signs that my fears are justified."  (obviously we share views with Ned Davis)
  • .....The key, says Yardeni, is for the recovery to be sustainable and for the economy to be able to "walk on its own" and not be driven solely by government policies.

And via Bloomberg
  • Even after almost doubling in 24 months, the S&P 500’s two- year return is 36 percentage points below the average bull- market gain of 131 percent since 1962, according to data compiled by Bloomberg and Birinyi Associates. 
  • The 730-day rally without a decline of 20 percent or more compares with an average duration of 1,407 days, the data show.

Finisar (FNSR) Set to Fall Roughly 40% This Morning on Guidance Cut, Roiling Optical Networking Space - JDS Uniphase (JDSU) Down 14% Premarket in Sympathy

No matter how many times you have seen it, it still takes the breath away when a momentum stock missteps.  The optical networking space has been one of the hottest sectors in the market the past few months, bringing back memories of 1999 when a small group of companies were that era's "cloud computing" stocks.  We've seen a bit of a rebirth of these names.

Last evening, Finisar (FNSR) issued a pretty serious warning, and the stock is being obliterated premarket to the tune of nearly 40%.  Amazingly, the move up in this name has been so intense this crushing blow only takes the stock back to MID DECEMBER pricing.   That's how relentless the advance in some stocks has been.  Based on the pricing around 8 AM the stock should open in the vicinity of its 200 day moving average near $25.  Obviously if that breaks, the gap near $20 from early December comes into play.

Competitor JDS Uniphase (JDSU) - which has had its own 1999-like run lately, is down in sympathy, about 14% in premarket, to around $22.  While there is also a huge earnings related gap in this chart, I would find it doubtful this episode helps to fill the gap, especially in a market that simply no longer has corrections.

Barron's has some commentary from the conference call last night here.

Via AP:

  • Finisar Corp.... warned of a litany of factors that are hurting its business, particularly slowing demand in China.  The commentary alarmed investors because it suggests that China's aggressive rollout of new telecommunications networks is slowing. That deeply damaged other, related stocks. Finisar executives said what it is seeing is an industrywide problem.
  • The penalty for Finisar's worse-than-expected outlook was so severe, in part, because its explanation for what went wrong was so pointed.  Growth markets, particularly China, have been crucial for many technology companies as the Great Recession has taken its toll on spending in the U.S. and Europe. Any serious problems in those markets have ramifications across many industries.
  • Building out telecommunications networks costs billions of dollars, and the industry's spending tends to come in waves. Finisar's guidance shocked investors because it suggested that the industry could be in for a prolonged slowdown.  (still too early to say that, but it could be a shot across the bow if anyone else in the industry confirms FNSR's issues)  Finisar executives said on a conference call with analysts that the slowdown is part of an "industrywide phenomenon." 
  • They said they've seen the dramatic reduction in orders in China for a couple of months and weren't sure when it would ease. They emphasized that the weakness was with multiple customers in China, and that Finisar isn't losing market share.
  • Other factors the company identified in its guidance were price cuts for customers, a 10-day long shutdown at some customers for the Chinese New Year last month, and the fact some telecommunications customers are reducing how much gear they buy and keep in their inventories.
Financial Impact
  • For the fiscal fourth quarter, which ends April 30, the company said expects earnings of 31 cents to 35 cents per share, excluding items. Analysts had expected 48 cents per share, on that same basis, according to FactSet.
  • It expects revenue of $235 million to $250 million. Analysts had expected $267.2 million.
  • The guidance overshadowed Finisar's better-than-expected numbers for the fiscal third quarter, which ended Jan. 30.  In that period, Finisar's net income more than tripled to $18.8 million, or 22 cents per share, versus $5.6 million, or 8 cents a share, in the previous year. Excluding items, the company earned 47 cents per share, matching the average estimate of analysts polled by FactSet, on that basis.
  • Revenue was $263.0 million, a 58 percent increase over last year. It topped the analysts' expectation of $257.3 million.

No position

Tuesday, March 8, 2011

Someone is Finally Making Money Shorting Netflix (NFLX)

After torching short sellers for seemingly years on end, it might be ironic that Netflix (NFLX) topped within days of the date (Feb 10th) famed fund manager Whitney Tilson finally threw in the towel on his unsuccesful short.  The stock peaked 4 days later.

This morning's news that Facebook is moving into movie streaming has caused a ruckus on a stock that was already looking as if it lost momentum.  Netflix, flirting with its 50 day moving average, has clearly broken down now and the first "gap" in the chart at mid $180s looks to be a formality.  Of course this stock has been on such a rip roaring ride there is more than 1 gap - the next interesting level would be $150s from late October.  Put another way - there is a lot of meat on those bones and once a 'momo stock' loses momentum - watch out.  Whitney, reconsider!? ;)   You can short versus that 50 day moving average near $205 and give it another whirl.

Some comments on this latest news event from Goldman Sachs via Barron's.

  • Goldman Sachs’s Ingrid Chung today writes that Netflix (NFLX) could in time be threatened by Facebook’s role in movie downloads, citing the announcement today by Time Warner’s (TWX) Warner Bros. studio that it will let Facebook users pay for movie purchases or rentals with “credits” on Facebook.
  • Warner actually touted the Facebook offer as making it the first studio to sell and rent movies “directly.”  Chung thinks this is no immediate threat to Netflix, given that this is effectively “pay per view,” more like video-on-demand than Netflix’s streaming subscription.
  • But, she adds, Facebook has more than 500 million active users, half of whom are online on any given day, versus just 20 million subscribers at Netflix. And the “wisdom of friends” can drive viewership on Facebook. Plus, the gap Facebook has in the livingroom — i.e., devices — may be fixed over time with new Facebook-enabled gadgets. All of which means, “Facebook could become a credible threat.”

More on this morning's announcement here.
  • Warner Bros is making some of its films available on Facebook, opening up a new revenue source for the Internet social network and signaling new competition for online entertainment companies.
  • Consumers can pay for the movies using Facebook Credits, a virtual currency so far used mainly in social games on the site, according to Warner Bros.  Facebook, which makes money mostly through online advertising, takes a 30 percent cut of the revenue from sales by third parties on the website using Credits
  • Rentals cost 30 Facebook Credits, or $3, for 48 hours, and viewers can pause and restart a movie whenever they log back in.

    No position

    CNNMoney: Petrobras (PBR) Destined to Pass ExxonMobil as Global Oil Colossus

    I have not written about Brazilian oil giant Petrobras (PBR) because frankly the stock has been a quite poor performer due to its pseudo government-private stature.  Sort of the Fannie Mae of oil production.  With the recent spike in oil, the stock has perked up, but some horrid terms on a share sale put immense pressure on the name through most of 2010.  This would be a "no brainer" company to invest in for the next few decades if not for the heavy handed government involvement - much like Saudi Aramco, this company is in part run for the benefit of the Brazilian people rather than directly for shareholders.  I am not saying that is wrong or right but as a shareholder one must have that point in mind.

    Fortune magazine has an excellent story on the company, and its destiny to pass ExxonMobil as a global powerhouse, for those interested - some blurbs below.

    Here is a video tour of an oil rig servicing Petrobras from CNNMoney

    • P-52 is one of the largest and most advanced oil-producing structures ever built. It belongs to PetrĂ³leo Brasileiro, or Petrobras, the government-controlled but publicly traded Brazilian oil giant. Finished in 2007 at a cost of more than $1 billion, P-52 has a main deck bigger than two football fields, and its displacement of 81,000 metric tons is greater than that of the Queen Mary 2.

    • Since BP's (BP) disastrous Deepwater Horizon accident in the Gulf of Mexico last April, the risks of offshore oil drilling have been a hot topic. One place it isn't questioned much is Brazil, whose oil production industry is one of the fastest-growing in the world because of vast new deepwater oil reservoirs discovered in the past five years. The largest finds are in the Santos Basin, which, at nearly 200 miles off the coast of Rio, is much farther offshore than even Campos. The mega-fields there lie more than three miles below the ocean's surface, underneath a salt layer in the crust of the earth some 6,000 feet thick. The technical and logistical challenges of drilling in these areas are immense.
    • Together, the so-called pre-salt reserves off the coast of Brazil have been put at 50 billion to 100 billion barrels or more -- potentially a deepwater Kuwait. Vast amounts of money and manpower are being mobilized for what is shaping up to be a historic investment boom. Foreign oil-services companies like Schlumberger, (SLB) Halliburton, (HAL) and GE (GE) are rushing to set up offices. It has been estimated that offshore oil and gas could be as much as a $1 trillion industry for Brazil over the next decade.  

    • The company spearheading all this activity is Petrobras (PBR). By every measure the energy giant is already one of the world's most important corporations -- and it stands to grow vastly more influential. Last year Brazil's biggest corporation ranked No. 54 on Fortune's Global 500 list of the world's largest companies; in its most recent fiscal year revenues jumped 32% to $121 billion. Excluding wholly state-owned oil companies such as Saudi Aramco or NIOC of Iran, Petrobras is the fifth-largest oil company by production (2.15 million barrels a day in 2010) and the third-largest in market capitalization ($240 billion). By the end of the decade, Petrobras is likely to pass Exxon Mobil (XOM) to become the largest publicly traded oil company in reserves and production. 
    • Developing the pre-salt assets is a daunting task. For starters, it will be mind-bogglingly expensive. In its five-year plan through 2014, Petrobras has committed to invest $224 billion, much of it on platforms, rigs, and other infrastructure for pre-salt production. (It's also building five new refineries.) To help fund the effort, last year the company conducted the largest share offering in world history when it sold $70 billion worth of new stock to investors. It plans to sell up to $40 billion in bonds by 2014.
    • Petrobras has 14 ultra-deepwater drilling rigs -- far short of what it needs. By 2012 it will have added 20 rigs that are now either under construction or being used by other companies. After that there's no supply. The shipyards in Singapore and South Korea that build most of the world's offshore drilling devices are maxed out. So Petrobras is helping create a rig-building industry at home. It is awarding contracts worth a total of about $18 billion to four Brazilian shipyards to supply 28 rigs starting in 2014.
    • For all the excitement about the growth in Brazilian oil, investors haven't been all that pleased with Petrobras lately. In 2010 the stock dropped 27% even as the overall Brazilian market was flat. The catalyst was dissatisfaction with the company's stock sale last summer. Regular shareholders had their holdings diluted by the $70 billion stock sale while the government's total stake in the company rose from 40% to 48%. (It holds 54% of the voting shares.) Petrobras handed over $42.5 billion of the $70 billion it raised to the government for the right to produce 5 billion barrels of pre-salt oil in areas not previously awarded to the company. Famed emerging-markets investor Mark Mobius of Franklin Templeton called the transaction an "abomination."

    No position

    Broadsoft (BSFT) - Wow

    This name has only been on the periphery of my watch lists, but not anything I've really sat down to investigate deeply as it seemed somewhat remarkable in fundamentals - although a fantastic performer in stock price since IPO.  Today's nearly 40% move post earnings report for Broadsoft (BSFT) is certainly telling me that was an error on my part.

    I will have to take a second pass and look into this one much deeper for future purposes.  Any reader actually use this service? Just curious about your exxperience.

    BroadSoft, Inc. provides residential and business voice over Internet protocol (VoIP) application software. It offers BroadWorks for combining a range of VoIP applications in a single platform. The company’s BroadWorks delivers communication solutions that integrate video, fax, voice, and email communications for businesses and residences through IP PBX/centrex, mobile PBX, business line, trunking, and residential broadband. 

    Some head scratching earnings estimates - the company did 44 cents vs 30 cents expectation this quarter, but analysts are only in for 4 cents next quarter (5 analysts) on a substantial dip in revenue.  This certainly does not seem like a cyclical business from quarter to quarter so on first glance I'm bewildered.  Will have to sniff around.

    Via AP:

    • Communications software company Broadsoft Inc. said Monday that its net income jumped as revenue grew 85 percent and costs did not rise in tandem. It also gave guidance for the first quarter and full year that exceeded analysts' forecasts.
    • Net income in the three months to Dec. 31 hit $11.2 million, or 41 cents per share, from $375,000, or 5 cents per share, a year earlier.  Revenue rose to $35.8 million from $19.3 million. Adjusted to exclude stock-based compensation expenses and amortization related to acquired intangible assets, earnings came to 44 cents per share. Analysts were also looking for $32 million in revenue.
    • For the first quarter through March, BroadSoft said it expects adjusted earnings of 4 cents to 11 cents per share and revenue of $27 million to $29 million. Analysts were expecting 7 cents per share of adjusted earnings on $25 million in revenue.  (again, why such a drop in revenue - $36M to $27-$29M quarter over quarter?)
    • It also said it expects full-year adjusted earnings of 56 cents to 66 cents per share. Analysts had been forecasting 57 cents a share. It forecast full-year revenue of $116 million to $120 million, better than the $115 million analysts had been expecting.

    No position

    Forbes: Sina (SINA) Weibo

    For those of you who are interested in China's twitter service, Sina's (SINA) Weibo, there is a huge story in Forbes on the history and vision behind it.  It is definitely an interesting read due to the hurdles and potential issues involved because of the Chinese government.  Much like Baidu in search, Weibo seems to have the government's blessing - for now - and hence a huge advantage.

    As an aside, technically, this chart would have been incredibly difficult to trade the past few weeks.  It has broken support twice - then bounced back as if any resistance that the technicals created was not there.  So if you were trading respecting support and resistance you'd have been stopped out twice and losing money chasing the bounces.  Ugh.

    • Weibo, launched in August 2009, was the Internet phenomenon of China in 2010, reaching 50 million users by the end of October--and is likely fast approaching 100 million users now.   And with the help of Beijing, Sina Weibo had effective first-mover advantage: The chief competition, Fanfou, back up after the Tiananmen anniversary, had been taken offline indefinitely after the July 2009 riots in northwest China's Xinjiang region; Twitter and Facebook, too, had been blocked and have remained so since then.
    • Filling this government-manufactured void was Chao's government-trusted sandbox for cynics, celebrities, influential bloggers and media elites. It has become China's most potent incubator for subversive Internet memes, much to the consternation of bungling local officials across the country. From a deadly fire in Shanghai to a fatal hit-and-run by the son of a police official (producing the catchphrase, "Sue me if you dare, my dad is Li Gang!") to a recent online campaign to find and retrieve kidnapped child beggars, Weibo has forced authorities to reckon with popular opinion in a way unprecedented in Communist-ruled China.
    • Other big competitors joined the fray since Sina's entry: Social networking giant Tencent has the most serious challenger in its QQ microblog, with more than 100 million users but far less activity; rival portals Netease and Sohu have their versions, with far fewer users; search king Baidu has tested out a real-name service that hasn't gone far; Hong Kong's Phoenix media group has a little-used service; and the Communist Party's mouthpiece, People's Daily, also has a lightly trafficked microblog. 
    • Chao hopes his Weibo's market-topping success will one day remake Sina, already China's leading news and entertainment portal with a successful display ad business, into a dominant social networking platform like Tencent. Much as Tencent did in building on its free QQ instant messaging service in its early years, Chao has put off monetization of Weibo to draw in more users, layer on more Facebook-like functions and improve the service's user "stickiness."
    • But Weibo's market-leading position also makes it even more of a gamble, as Beijing's nervousness about information sharing and the madding online crowd has not waned. In fact, it has intensified in the wake of the so-called Jasmine unrest in the Middle East, making Weibo a critical choke point for social control.
    • Weibo is a rambunctious sandbox, yes, but with walls and adult supervision: Play with the outside world is limited (there is still no English-language interface, for example), and what goes on inside is monitored and censored rigorously. Try searching for posts related to "Egypt" in the last few weeks and Weibo would tell you that, pursuant to "relevant laws, regulations and policies, the search results have not been shown."
    • Chao is aware of the politics, and, not surprisingly, he doesn't enjoy talking about it. In the same Beijing conference room where he approved the creation of Weibo, he reluctantly told FORBES ASIA that his company has at least 100 staffers devoted to monitoring content 24 hours a day (many believe the figure is much higher).
    • China's business mantra, though, has always been less "too big to fail" than "too government to fail." A huge market presence does make it more difficult for the government to shut a service down, but for an Internet site purveying content, close, trusted relations with top leaders and regulators are always vital. In that respect Chao and Sina have an interesting trump card: He is close friends with President Hu Jintao's son-in-law, Mao Daolin, who, before marrying into China's First Family in 2003, was CEO of Sina.
    • How much is Weibo worth, then, compared to Twitter's estimated valuation in the $4 billion neighborhood? ($4B? The social media bubble has pushed the value up to nearly $10B already!) Investors, unable to buy into privately held Twitter, had seemed to bet on Weibo hopes instead, running up Sina's stock 170% from early July to mid-February, over a period when the company's revenue streams and projections remained largely unchanged. But the stock has taken a hit since then, as Goldman Sachs and Deutsche Bank showed skepticism, the latter's note emphasizing the political risks facing the Weibo platform.
    • "The likelihood of the government shutting down Weibo is zero," says Zhao Chunming, senior analyst at SIG. "I think if they do shut it down, then China will become Egypt. So that's actually a risk the government can't afford." Zhao says the government will instead keep a tight leash on Weibo, which he understands has "hundreds" of censors, not just 100, and will need to update its technology to scale up censorship.
    No position

    Full Round Trip from Friday's Close

    Chop. Chop. Chop. Chop.  We've already completed a full round trip from the close Friday in a session and a half on the S&P 500.  Amazing that oil can rally 15-20% and it puts a 2% drop in the market, but when it falls 1% the market rallies 1%.   We of course had another very positive overnight session on little news other than vague rumors in Libya...

    Looks clear now that the 50 day moving average on the NASDAQ is the current market 'tell'.  Nearly 2% of a bounce once we made the slight break of that level mid afternoon yesterday.

    Monday, March 7, 2011

    Huge Bounce off 50 Day Moving Average in NASDAQ

    Buyers came out in force once the NASDAQ threatened the 50 day moving average.  We've seen a 1% move in about 2.5 hours.  No real headway for bears or bulls on days like this; just a lot of churn - start up, sharp selloff, rally strong lately.  Only good for daytraders.

    As always the close is more important than intraday so its a 3rd successful hold of serve on the NASDAQ for the past 2 weeks.

    Spreadtrum Communications (SPRD) Beats Expecations by 4 Cents, Raises Future Revenue Guidance Significantly

    A very nice earnings report from old friend Spreadtrum Communications (SPRD) late last week, along with a big upgrade in revenue guidance - frankly I am surprised the stock only gained 6% (it was up some 12% in after hours Thursday night)   The stock obviously stalled at an almost identical place as the mid February intraday high.  This makes it tricky; one would probably like to buy in any 'gap filling' moment, and/or at a new high - currently it is sort of in no man's land.

    The main worry here is the product mix as China (and other emerging markets) move to 3G.  Spreadtrum seems to be growing leaps and bounds in the older technology interfaces - but hard to know the competitive landscape in the newer generation build.
    •  Sales of wireless chips by unit volume rose 46% from Q3 for chips serving “2G” and “2.5G cellular connections, the company said. Sales of chips for 3G connections rose 7% from quarter to quarter. Average selling price was down 2% from Q3 and down 26% from the prior-year period.

    But for now that is an issue for another quarter as there seems to be enough global landscape in 2 and 2.5G, as the guidance raise was significant.
    • For the current quarter, the company sees revenue in a range of $130 million to $135 million, beating the average $109 million estimate.
    An interesting blurb by Needham as well late last week:
    • Needham & Co.’s Quinn Bolton today reiterated a Buy recommendation on Spreadtrum and a $30 price target, writing that the ability of its chips to support phones with multiple “SIM” cards is helping Spreadtrum to expand in India, Africa and Latin America.

    Via AP:
    • Spreadtrum Communications Inc., a Chinese company that makes semiconductors for wireless devices, on Thursday reported fourth-quarter results that beat analysts' expectations as sales of its 2G and 3G chip products jumped.
    • Spreadtrum said it earned $30 million, or 56 cents per share, compared with $1.4 million, or 3 cents per share, in the fourth quarter of 2009.  Excluding one-time items, the company said it earned 61 cents per share. Analysts polled by FactSet expected 57 cents per share on that basis.
    • Revenue tripled to $126.5 million from $42.3 million in the same quarter in 2009, topping analysts' estimates for $123.5 million in revenue.
    • Fourth-quarter operating margins at the Shanghai-based company rose by 16 percentage points to 22.3 percent,. 
    • For full-year 2010, Spreadtrum earned $67.2 million, or $1.28 per share, compared with a loss of $19.3 million, or 43 cents per share, the year before.  Revenue more than tripled, rising to $346.3 million from $105.1 million in 2009.

    [Nov 18, 2010: Boggling Reaction to Great Earnings Report from Spreadtrum]
    [Aug 13, 2010: Spreadtrum Communications with Big Beat but Hostage to the Market]
    [May 27, 2010: Bookkeeping - Beginning Spreadtrum Communications]

    No position

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