Dec 27, 2011

Merry Christmas & Happy New Year

I wont' be publishing again until after the New Year.

Happy Holidays, Merry Christmas, and Happy New Year to you and your families.

Dec 21, 2011

RIMM Finds Some Love at $12

December 21, 2011

Continuing the on-again off-again return pattern, equity markets are down today on the back of Oracle (ORCL) missing numbers last night. Markets rocked yesterday after US housing construction starts jumped 9.3% in November, driven by strong multifamily unit starts. Additionally, the Labor Department reported that unemployment dropped in 43 states last month.

Research in Motion (RIMM), chart below), is finally getting some love today after rumors have swirled about possible takeovers by Microsoft (MSFT), Nokia (NOK), and/or Amazon (AMZN). The company has been struggling with share losses, and last week missed earnings and pushed out the launch of their new generation of phones until late 2012.

As I mentioned Monday, the Senate passed a two-month extension of the payroll tax cut and unemployment benefits, then left for vacation. The House had already passed a one-year extension, which the Senate refused to vote on. Now the House is refusing to vote on the two-month extension, calling it inadequate and kicking the can down the road. Paraphrasing Benjamin Franklin, we need a revolution every 200 years. I’d say we’re a bit behind schedule.

Moody’s has issued a warning about Britain’s credit rating, now triple-A. Although the summer downgrade of the US proved to be erroneous in the short run (treasuries have rallied since the downgrade), the downgrade of Britain will be based more on fundamentals than the US downgrade. Concerns about the ability to service the mounting public debt and sluggish growth are driving Moody’s decision process.

Christine Lagarde, head of the IMF, has warned that developed nations should prepare for a European recession by building up foreign exchange reserves.

President Obama has been receiving a bit of heat for his vacation plans. It seems that inflation is rampant in Hawaii as he is spending $4 million on his holiday trip to Hawaii, quite a bit more than last year’s $1.5 million.

DigiTimes is reporting that Apple (AAPL) will be launching a 7.9” iPad in late 2012, as well as a new iPad (iPad 3 or iPad 2A?) in the first quarter.

Nike (NKE) beat numbers last night on strong branded apparel sales and strength across all geographies except Japan. The company has a deal starting in April with the NFL that should help sustain growth in the back half of calendar 2012. NKE did suffer a 260bps decline in gross margins due to higher product costs.

AAPL won a court decision with the ITC regarding their patent suit against HTC and the Android operating system. The ruling didn’t go as far as AAPL wanted, which was to block the sale of HTC phones in the US. HTC must remove the offending functions, which allow users to “tap and go” to various functions. As an example, in unstructured data such as an email, the functionality would allow you to tap on a phone number for direct dialing.

AT&T (T) has decided to bow out of the T-Mobile merger due to pressure from the Justice Department. The deal, which would have merged the #2 and #4 wireless carriers, is good for Sprint (S) and Verizon (VZ) because it limits both companies’ ability to compete with new 4G technologies. Both companies are spectrum constrained, making it difficult to compete with Verizon.

Barry Bonds was convicted of giving misleading testimony to a federal grand jury and received two years of probation and 30 days of home confinement. Based upon the pictures below, I don’t see how people could even consider he might have used steroids.

Have a great day


Dec 19, 2011

Improving Profit Oulook for SBUX?

December 19, 2011

Equities are opening up this morning on a relatively quiet news day. The dollar is finding support on continued weakness in Europe and the death over the weekend of North Korea ruler Kim Jong Il. While the transition of power is unclear, the former leader’s son seems to have the support of the military. The transition is important to the region given the country’s nuclear position.

European banks have been borrowing low cost funds from the ECB. In exchange, the ECB has been pressuring the banks to use the funds to buy Eurozone government debt. Unfortunately for the ECB, the banks have been refusing to do so, citing concerns about the viability of the sovereign issuers. Since there were no restrictions on the use of funds, similar to the TARP funding of 2008-2009, the banks are at liberty to use the funds as they see fit.

Starbucks (SBUX) should benefit from recently falling coffee prices. Futures fell for the seventh consecutive week to $2.14 per pound, the lowest level in over a year. SBUX recently raised prices, and if they are able to capitalize on the lower coffee prices, profitability in the first half of 2012 should benefit.

While the world continues to be unpredictable, one thing is constant-the foolishness of the people running our government. After the House approved a one year extension of the payroll tax cut, the Senate offered their own, two month extension. I outlined Friday the folly of a two month extension. Now the Senate and House may work through their winter recess in an effort to do what both sides have already agreed is important-a one year extension.

Since we are close to year end, I thought the chart below, courtesy of Kimble Charting Solutions, might be interesting. It shows the S&P 500 going back to 1984. As you can see from the chart, the market has gone nowhere since 2000. Historically equity markets have alternated extended bull market runs like we experienced from 1982-2000 with equally long periods of futility.

The dollar and metals have been trading in well-worn trading ranges the past few months. Over the past few days the dollar has nosed slightly above resistance in response to the problems in Europe and a potential slowing of global growth. Metals have weakened as well, with gold and silver suffering after inflows into gold notably peaked. Should the metal weaken further and the inflows reverse into outflows, support could be broken. The chart below, also courtesy of Kimble Charting Solutions, shows the dollar on top with the CRX below.

The Packer’s hopes for an undefeated season ended last night with a loss to the Chiefs. The Packer’s win streak, dating back to last season, ended at 19.

Have a great day


Dec 16, 2011

RIMM Continues to Struggle

December 16, 2011

“All banks are leveraged black boxes.” Mike Mayo

Stock futures are up this morning after a relatively quiet evening in Europe and a better than expected CPI report that has investors emboldened about possible future Fed intervention. The CPI rose 3.4% vs. expectations of 3.5% as gasoline price increases eased. Core CPI (that’s the consumer price index for people who don’t eat or use transportation) rose 2.2% vs. expectations of 2.1%. Yesterday PPI came in at 5.7% vs. expectations of 5.8%, and the core measure rose 2.9%, in line with expectations. Unemployment claims were down yesterday to the lowest weekly number since early 2008, 366K.

Research in Motion (RIMM) missed earnings and lowered next quarter’s estimates for sales and earnings. The stock, which is already down 74% YTD, is down another 10% in pre-market action. Adobe (ADBE) is bid up 5% on slightly better than expected earnings and better than expected guidance.

Ascena (ASNA) is reportedly taking a look at $540 million market cap retailer Charming Shoppes (CHRS). ASNA has had a successful track record of acquiring troubled retailers and returning them to profitability.

You may have thought we were finished with threatened government shutdowns, but Congress averted another potential government shutdown by agreeing to fully fund most of the government with a $1 trillion spending deal. The Defense Department, Education Department, and EPA were all at risk for the rest of the 2012 fiscal year, which ends September 30, 2012.

Before we give DC too much credit, they still haven’t come to terms on how to extend the payroll tax break. There is now discussion about extending it for two months to give them time to figure out how to extend it for the rest of the year. What these folks don’t seem to understand is that the benefit of a tax cut is the certainty that the funds will be available to spend. A delay, then a two month extension, then a 10-month extension certainly puts extra money in people’s pockets, but it doesn’t give them the confidence it will be there so they tend not to spend the extra cash as readily on discretionary items that will help move the economic needle.

Fitch cut their ratings yesterday on a number of global banks, including BNP Paribas, Credit Suisse, Deutsche Bank, Barclays, Goldman Sachs, and Bank of America.

APAC markets were strong yesterday, led by the Shanghai, which was up 2% after falling for six consecutive days. The Hang Seng rose 1.4%, Nikkei 0.3%, S&P/ASX 200 0.5%, the Kospi 1.2%, and the Sensex 1.3%.

Online gaming maker Zynga (ZNGA) will begin trading today after raising $1 billion in its initial public offering, selling 100 million shares at $10. Texas Instruments (TXN) has announced it will move from the NYSE to the NASDAQ next year, but plans to keep its ticker.

Have a great weekend


Dec 14, 2011

Intel and Best Buy Weakness

December 14, 2011
“The UK is as isolated as someone left on the dock in Southampton as the Titanic sailed away.”-Terry Smith of Tullett Prebon

Where’s the money? I watched part of the Senate inquiry into the MF Global collapse, and the Senators must have asked Jon Corzine and crew “where’s the money” at least 20 times. No one seems to know, although Corzine did admit to finding out about the missing funds October 30th.

The Fed met yesterday, with no change to their path or outlook. Markets seemed to be a bit disappointed as they reversed course after the announcement, falling from a 1% gain to about a 50bps loss. Markets in Asia were weak last night, reportedly on disappointment the Fed wouldn’t be providing more stimulus.

The US House of Representative passed a bill to extend the payroll-tax cut for one year, but both the President and Senate Democrats have threatened to block the bill and use the threat of another budget showdown to get some of the terms changed. The President doesn’t like a provision that forces him to make an up or down vote on the Keystone XL pipeline within 60 days (remember he tabled his decision until after the election). The President is stuck between two key contingencies: big labor and environmentalists, who are on opposite sides of the pipeline vote.

Richard Bernstein, formerly of Merrill Lynch and now the CEO of Richard Bernstein Advisors, wrote that shunning hedge funds are one of his five investment themes for 2012. He cited that hedge funds have been “inferior, more expensive products” than other assets, and provides the chart below for support.

Best Buy (BBY), the showroom for Amazon, fell 15% yesterday after reaffirming full year earnings and revenues but missing Q3 earnings. Comps for their Q3 rose 0.3%, which included a domestic increase of 0.9% and an international decline of 1.7%. Although the consensus was expecting a 1% decline, there had been rumors that comps might be better. Gross margins were weak on heavy discounting in the period, 80bps lower than the prior year. This is the 4th consecutive quarter of declining margins, and doesn’t bode well for the retail sector, which has been reporting strong holiday sales amidst heavy discounting. Mobile computing, mobile phones and appliances were strong while TV’s and gaming declined. Their e-commerce business was up 20%.

The Levy Economics Institute at Bard College just released a detailed report looking at lending, guarantees, government facilities, and Federal Reserve spending. The report concludes that as of last month, the total Fed bailout has been $29 trillion and counting. See the table below, courtesy of The Big Picture and the Federal Reserve.



Percent of total

Term Auction Facility



Central Bank Liquidity Swaps



Single Tranche Open Market Operation



Terms Securities Lending Facility and Term Options Program



Bear Stearns Bridge Loan



Maiden Lane I



Primary Dealer Credit Facility



Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility



Commercial Paper Funding Facility



Term Asset-Backed Securities Loan Facility



Agency Mortgage-Backed Security Purchase Program



AIG Revolving Credit Facility



AIG Securities Borrowing Facility



Maiden Lane II



Maiden Lane III









I have discussed the high correlation of stocks this year. The table below, from the Leuthold Group, shows that with the exception of the 1987 Market Crash, stock correlations are higher than at any point in the past 25 years. Steve’s information also shows that these correlations are at the highest levels since the 1930’s.

Intel (INTC) cut numbers on Monday, citing the impact of the floods in Thailand on PC availability. Just when it seemed no chip company would escape the quarter unscathed, Broadcom (BRCM) updated their guidance this morning to the high end of their prior guidance range. BRCM cited strong shipments and expense controls. Avon’s (AVP) Andrea Jung, the longest reigning female CEO in the S&P 500, has announced she will step down as the CEO next year, but will remain the Chairman. The stock is down 44% for the year, but is up 8% today.

I have mentioned in the past the benefits of the Euro structure to the Germans. The chart below seems to support that view and shows the different paths employment has trended in Germany, France, and the other countries in Europe since 2006.

I tend to focus on college football, so you’ll have to bear with my comments there for a few more weeks. Over the weekend Robert Griffin III of Baylor won the Heisman, with Andrew Luck of Stanford coming in 2nd, the same as last year. Believe it or not, UCLA actually found a replacement coach on its 5th try, hiring Jim Mora Jr., who has never coached in college. Who knows, maybe this will be their Pete Carroll moment? Finally, there was a great documentary on ESPN over the weekend which will be running periodically called The Marinovich Project. The trailer can be seen at

Have a great day