Custom Search

Wednesday, October 31, 2007

Bernanke's Treat!

Bernanke cuts .25 basis points, and the market roars. I expected a .50 basis point cut to help the financials, but I'll take what I can get. This means that the NASDAQ stocks are poised to melt up, as stock buyers will pay more for their earnings. They don't need the cuts, like the financials do!

Tuesday, October 30, 2007

Is Ip the Fed's Poole?

And if that headline doesn't make sense, then you're not prepared for tomorrow's Fed meeting. The last time, when the Fed first cut the discount rate, you had Poole saying nothing needed to be done. What happened? The Fed cut .50.

Today it's Grep Ip's turn, of the WSJ. He had an article today entitled: Why Rate Cut isn't a Sure Thing. Here's the nugget from that piece:

But for policy makers, the decision is between the quarter-point reduction and no cut at all.

Misdirection my friends. Wall Street bears and hedge funds would love a quarter point cut, because a .50 basis point cut will allow stocks to continue their ramp, and the professionals are positioned incorrectly for that to happen. The Fed still needs to break the pervasive bearish psychology of the market and the weakness of the financials. That's why they cut the discount rate the day before options expired and .50 basis points in September.

So now the market wants you to believe that the Fed is floating trial balloons in the WSJ, and Ip's the source? Believe it if you want, but I don't buy it for a second, as I've said for the past two weeks that they'd chop off 50 basis points. But if you don't want this blog to be the source for the rate cut, then get conspiratorial. At least this way you can pass the information off as your own.

Anyone recall how many times Bernanke met with Treasury Secretary Paulson, the former chairman of Goldman Sachs? 58 times. What does Goldman Sachs think on the real time economics blog of the WSJ? They had this to say:

Many Fed officials probably continue to view the current episode as a mid-cycle slowdown rather than an all-out fight against a possible recession. In our view, however, a [half-percentage-point] move would be preferable because a 4.5% federal funds rate is still too high given the outlook for inflation and economic growth.

The Fed cuts .50, and that information is not in the market. And now you have the cover to move on it-Goldman Sachs has blessed it!

Packer's beat Denver 19-13

Last week, Favre asked a Pack reporter who was questioning his arm to catch a few from him. So he throws an 82 yard bomb on the first play in OT to win the game, to go with the earlier 79 yard TD. Question that!

If you were bearish on Favre, you'd say it was the thin air in Denver. Just like the excuses the pundits make why the market should be going down. At least in sports; the scores silence the critics. But the market Cassandras? Their comments get play everyday, irregardless of how wrong they are.

Don't listen to these prognosticators. They should be on the bench! And that's why I had the Pack in the final leg of my four team parlay!

Sunday, October 28, 2007

Crack Spreads III

Tesoro (TSO 64.48) was up 7.48 on Friday, and up 18 points in a month since I mentioned it on September 27, on my piece "Crack Spreads." I highlighted the refiners again on October 10th. What caused it to move? Wall Street foolishness!

You had a shrinking of the crack spread margin, so Wall Street dumped these stocks, even though it was only a temporary situation. The enterprise valuation of TSO and Western Refiners (WNR 38.15) is substantially greater than their stock prices. But Wall Street didn't care. Maybe now they will.

90 year old young Kirk Kerkorian, who is worth $18 billion, decided to tender for almost 22 million shares of TSO at $64. If successful, he'll own 27 million shares.

If you missed TSO, look at WNR. The enterprise valuation of this stock exceeds 60, but it trades at 38? Give me a break. On October 10th, I said this:

TSO rallies next as it's a relatively cheap refiner with market rumours of a takeover, and WNR is the last to rally because it's hated by the street. And paradoxically, the stock loved the least, WNR is poised to rally the most, showing that in Wall Street, as in life, "the last shall be first."

It still stands. Let me be clear. If you followed this blog, in one month you got 18 points in TSO, and now you have the chance to get the same in WNR.

It's your choice.

Saturday, October 27, 2007

AIG's "$10 billion" writedown hysterics

Friday I wrote about AIG and the "scare" the market had over the rumour of the $10 billion writedown, that I summarily dismissed. Now I'll highlight the garbage that passes for research on the street, that's pinged between hedge funds attempting a raid on a stock.

Here's how the raid starts.

A junior level assistant attempting to make a name for himself, spots this tidbit of information on AIG's latest 10-Q on page 65. So the senior level trader lays out some shorts,and then this news is spread.

Since 1998, AIGFP has written super senior (AAA+) protection through credit default swaps, a portion of which is exposed to CDOs of residential mortgage-backed securities and other asset-backed securities. At June 30, 2007, the notional amount of this credit derivative portfolio was $465 billion, including $64 billion from transactions with mixed collateral that include U.S. subprime mortgages.

So how do you get the $10 billion dollar writedown? Look at the $64 billion figure, with CDO's. So mix apples and oranges and start a raid. Investors use the ABX index to track the subprime market. The triple A component trades at .84 cents on the dollar. So take $64 billion, x .84 and you have 53.8 billion. The difference? $10.2 billion dollars. So they scream AIG has exposure of $10 billion, and will take this writeoff when they report earnings. It's so sophomoric it's pathetic. But the street, blindly sells, and Thursday was another wonderful buying opportunity.

Maybe traders should have read AIG's 10-K. They would of seen this:

AIGFP maintains the ability opportunistically to economically hedge specific securities in a portfolio and thereby further limit its exposure to loss and has hedged outstanding transactions in this manner on occasion. AIGFP has never had a payment obligation under these credit derivatives transactions where AIGFP is providing credit protection on the super senior risk. Furthermore... no transaction has experienced credit losses in an amount that has made the likelihood of AIGFP having to make a payment, in AIGFP’s view, to be greater than remote, even in severe recessionary market scenarios.

$10 billion? Give me a break.

Now to finish the raid, the street screams that Genworth Financial, which was reporting after Thursday's close, and Countrywide Financial, which reported Friday before the open, were both rumored to be calamitous situations. What fools. Look at the prices that CFC (13.07), and GNW(25.48) closed at Thursday. To top it off, Cramer screams on CNBC at 2:30 that PMI and MTG were both going out of business.

Now the Treasury department was already talking with CFC. They didn't want CFC to cut the dividend because that would further erode the psyche of the market. We already knew this news. So let's play out the scenario. What if CFC was going to report terrible news Friday? We already knew this? If their was such a frightening scenario for the market, the Fed could of cut the discount rate before the market opened Friday. But MSFT had huge earnings Thursday after the close, so they did the heavy lifting! And if you can't follow this, you shouldn't trade these stocks. Trade those stocks that aren't battlegrounds. But don't sell your other stocks because you're getting panicked by these pathetic raids.

On Friday morning, when I said Cramer was completely wrong on the mortgage insurers, it was an easy call. I already saw the foolishness on Thursday.

What happened Friday? CFC closed at 17.30 up 4.23 or 33% on the day. The NASDAQ ramped, and the shorts were steamrollered, and the mortgage insures romped.

As advertised.

Friday, October 26, 2007

BEAS blanches

Oracle played hardball with BEAS, and sent them a letter saying their offer is $17. BEAS hired Goldman who said it's worth $21. When BEAS got it's offer from Oracle, RBC said a strategic buyer like HPQ could pay $25 for BEAS. Where's that offer? The story written here was decidely different than Wall Street's opinions:

Now analysts are speculating that Hewlett Packard will make a counter bid. Does that make sense? HPQ bidding against Ellison? What did they do, read The Art of War and get courageous? Give me a break. Larry Ellison beat the Justice Department when he acquired PeopleSoft. BEAS will go to Oracle.

Maybe BEAS just doesn't want anyone looking at their books.

Buy the financials

Yesterday, AIG (61.79) was rumored down on writeoff worries, but the market came to it's senses but not after some hapless souls sold stock at 58.46! Jim Cramer of CNBC adding gasoline to the fire by saying that the mortgage insurers PMI (16.02) and MGIC (MTG 17.90) were going out of business.

He's wrong. Completely.

The Fed wouldn't allow that to happen. If Microsoft didn't have blow out earnings last night, I think the Fed was prepared to cut the discount rate 50 basis points before the market's open. Now Mr. Softee broke the back of the idiotic shorts and sellers of stock. The Fed, will cut 50 basis points on Wednesday, and will cut more until the financial stocks weakened balance sheets are revitalized.

When Mother Merrill calls Wachovia for a lifeline, the street is panicked. Secretary Paulson has been meeting with Bernanke weekly. Do you think they don't know what is going on? Have we heard from the Fed buffoon Poole? He's been silenced. Moral hazard? Not a peep. Fear is back into the system, which means we have the winds of the Fed on our back, and the market, led by the NASDAQ, follows the script I advertised here a week ago Wednesday.

And now, the shorts have to cover their bets on the financials, fueling the fire to the upside!

How ironic is that?

Thursday, October 25, 2007

Microsoft blows earnings away

Microsoft is up over 4 dollars on the day including the after hour print. Remember the CNBC shill who said "you have to be brave to be long" ? Now you know why he made me puke. You have to be stupid to not be long. Brave? Save that verbiage when it means something. The market will continue to steamroll the bears who are so concerned with rumoring the financial stocks that they miss the beneficial effect of the Fed's interest rate cuts.

Market considers a 50 basis point cut

Last Wednesday, when there was only a 32% chance of a 25 basis point cut in the Fed futures rate, I said there was going to be a 50 basis point cut. At that time, the market had ZERO odds on that.

What happened?

Now there's a 100% chance of a 25 basis point cut, and a 14% chance of a 50 basis point cut, and a 50 basis point cut priced in by year's end. The market, is being dragged kicking and screaming to my position. What a difference a week makes.

And the bears, who are still short huge amounts of stock, will be dragged kicking and screaming into the poorhouse, blabbering about subprime, housing and mortgage messes, as this market steamrollers them.

The information I had given you, would of allowed you to buy stocks last Friday, on the 20th year anniversary of the crash, when the market was down 376 points, with bears everywhere, and Maria Bartiroma screaming, "look at the sell imbalances."

Even today some shill on CNBC said, "you have to be brave to be long." Are you kidding me? Brave? This talk makes me puke. I can't even turn the volume on the TV set. I just need to watch the tape.

If you want to follow Wall Street you might as well just burn your money. Or you can keep your cool, and keep your money, and make some manna from the opportunities the market is giving you.

It's your choice.

Buffett bless Korea's market

Warren Buffett said that "My impression is that the Korean market is modestly cheaper than other markets in the world. I think the Korean market would do better for the next 10 years" and that their valuation "are no higher and probably somewhat less" than US stocks.

Buffet owns a chunk of steelmaker POSCO (PKS 171.90).

Look for this and other Korean stocks that trade here to be gunned on this bit of news.

Wednesday, October 24, 2007

ISRG

On September 6th, I alerted readers to Luna (LUNA 5.64) at 3.79, a smidge above it's trading low, and ISRG at 229.97. Here's a bit of it:

..ISRG's COO Gary Guthart should, and he had this to say about it: "We view Luna as the clear technology leader in the area of advanced shape sensing and position tracking systems."

Today ISRG closed at 317.37, a gain of 88 points or 38% since September 6th. LUNA traded nice volume today, and is up 49% since then. In this market, it seems that the investor has made himself scarce. He needs to come back.

Investors should read the SEC filings on LUNA, and take another look at this company, as Wall Street is finally taking a bit of interest in the stock. Chartists will probably say that if it breaks through 6 on high volume, you'll have a multiple breakout on the chart. The stock is worth another look.

Sovereign wealth investors

I've written two articles on the influence of sovereign wealth investors on our stock market. Today at 3:30, on CNBC at the floor of the NYSE, the traders mentioned buying by these institutions. In another month, they'll tell you the reasons why. If they read this blog, they'd know already. But then, some people like to get the news after it happens. They're probably the same ones worried about this market.

Merrill Lynch's earnings

Here's what Merrill had to say:

"Third quarter 2007 results reflect significant net write-downs and losses attributable to Merrill Lynchs Fixed Income, Currencies & Commodities (FICC) business, including write-downs of $7.9 billion across CDOs and U.S. sub-prime mortgages, which are significantly greater than the incremental $4.5 billion write-down Merrill Lynch disclosed at the time of its earnings pre-release.."

Mortgage and leveraged finance-related write-downs in our FICC business depressed our financial performance for the quarter. In light of difficult credit markets and additional analysis by management during our quarter-end closing process, we re-examined our remaining CDO positions with more conservative assumptions. The result is a larger write-down of these assets than initially anticipated, said Stan ONeal....

Why is it so difficult for MER to value these positions? Because they don't want to sell them, and mark them down even farther. So they use a more "conservative assumption." So they're halfway there. They went from mark-to-myth, to mark-to-model. Eventually they'll get to marking to market.

But they need the Fed's help first.

Time for Stan to go

Mother Merrill estimated their losses at $5 billion a couple of weeks ago, and I'm estimating a number closer to $8 billion. It just isn't that Merrill Lynch is so bad; it's just that they're reporting earnings later than UBS, BofA and Citigroup which wrote down about $5 billion apiece. The deterioration in mortgage pricing is accelerating, and MER decided to take on more "risk" to increase profits.

To get a grasp on the size of this loss, just look at the wildfire calamity in California. About 1,500 houses burned already. At $500,000 a home, you have losses of $750 million dollars. Mother Merrill lost 10x that amount! But Stan O'Neal assured Merrill employees that they were watching the store in video feed. Let's see how true that is.

MER's Value at Risk for fixed income (VaR) in the 2nd quarter was $61 million. That's the amount that the quants say they could blow up on a very bad day. So divide $8 billion by 60 days, and I have a loss of $133 million a day. Maybe they need to adjust their VaR's.

Sovereign Wealth Funds II

Here's a nice chart from the WSJ showing the strength of the Brazilian real, Thai baht, Russian ruble and the Indian rupee versus the dollar. Here's the picture equity investors are missing.

The US economy is still the laggard in the world. We used to need the nations of the world to buy our bonds, to finance our deficits and to keep our interest rates low.

But our lenders in Europe bought bonds with our mortgages attached; and they are finding out, like Merrill Lynch, that those that leveraged these transactions, get pennies on the dollar.

Since our domestic economy is so weak, the influence of petro dollars and sovereign wealth funds pulling back on purchases of our treasury securities, (unlike subprime) is well contained. Here's where Treasury officials could of used that language.

But these nations around the world now have reserves, in dollars, that our depreciating, as the chart shows. So if the value of your dollar reserves has fallen, in your currency, by 20-55%, what's a central banker do to contain this dollar weakness contagion?

The housing and mortgage market is so moribund that the Fed has to continue cutting rates. Weakness in Caterpillar, Coach, Target, and Walmart give real and anecdotal evidence that the woes in housing have spread, and are affecting the consumer. So the Fed cuts. And even a central banker can recognize that.

Yesterday I chided a certain CNBC anchor for gesticulating on Friday's sell imbalances. Tuesday, when the market was romping, she was talking about "the flow" and the "conviction" of the buyers. In technical parlance you could call that the "hysterical" indicator.

It's not the flow from the programs that matter, it's the deployment flow from the long term strategic buyers of our stocks. And it looks like these sovereign wealth funds, like the NASDAQ names.

And that variable is not in the quant's equation.

Tuesday, October 23, 2007

Countrywide's SIV

CFC has 13,326 homes for sale, with an asking price of $2.8 billion. Now that they are getting stuck with billions of dollars in homes, and their CEO is under investigation for stock sales, CFC has "decided" to become proactive, and to change the loan terms, for anyone with an ARM that resets in 2008 provided they have a strong payment history. It's called their "home preservation" program. Looks like they learned from Citigroup. Keep the assets off the balance sheet, until pricing improves. Which they will, with a jumpstart from the Fed.

Amazon tonight

With the earnings reation in AAPL, GOOG, ISRG and RIMM do you think it will be any different with Amazon (AMZN 91.29) tonight? Here's the close on the day before, and the day after the last two earnings release: 44.71 to 56.81 and 69.25 to 86.18; moves of 27% and 24% apiece.

AMZN has $240MM in convertibles, denominated in euros, (PEACS Premium Adjustable Convertible Securities-about $340MM US) that pay 6.875% and are convertible at 84.83 euros (120). Wouldn't it be ironic, if the shorts, who have hated AMZN, helped with the conversion of these PEACS via a nasty squeeze?

Monday, October 22, 2007

Bottom fishers only

The mortgage insurers PMI (PMI 20.29) and MGIC (MTG 20.82) showed nice buying interest all day. They should bounce from here. The Fed cut coming on Halloween won't hurt either.

Apple's Earnings

Here's the 10 second look at AAPL's earnings. They made $1.01 versus the .65 Apple originally projected for the quarter. They now expect $1.42 for the Christmas quarter. So they beat their previous street guidance by 55%, meaning Apple internally sees at least $2.00 for the next quarter.

Is that in estimates?

Send in the Clowns!

Anyone buy this morning when the market threw a "hissy fit"? The Dow was down 120, the NASDAQ was down 20, and the S&P futures were down 11. Well if you didn't buy, you only have yourself to blame, because I advertised it this morning. So in honor, of those jokers that sold, I give you the lyrics to "Send in the Clowns."

Don't you love farce?
My fault I fear.
I thought that you'd want what I want.
Sorry, my dear.
But where are the clowns?
Quick, send in the clowns.
Don't bother, they're here.


Isn't it rich?

Isn't it queer,

Losing my timing this late

In my career?
And where are the clowns?
There ought to be clowns.

Well, maybe next year.

And I hate to point this out, but one of the lead clowns was Maria Bartiroma of CNBC, last Friday at 3:45, gesticulating like Howard Dean, and screaming "look at the sell imbalances" for the option expiration close. Pathetic.

The sellers this morning? Moronic.

Hope you made some money off of them.

Buy the market's "hissy fit"

If you assume that the FED will cut 50 basis points on Halloween, should you be scared that the market throws a hissy fit? Did you read the story of the 75 year old grandmother, who took a hammer to a keyboard, and knocked over a monitor at Comcast because the cable tech rep failed to show up to install her triple play?

A spokeswoman for Comcast, Beth Bacha said, "Nothing justifies this sort of dangerous behavior."

The police arrested her on a charge of disorderly conduct. She received a three-month suspended sentence, was fined $345 and is barred from going near the Comcast offices for a year.

She eventually got phone and television service from Verizon and Direct TV.

She said many people have called her a hero. "But no, I'm just an old lady who got mad. I had a hissy fit," she said.

So the market has a "hissy fit." I wonder if the sellers of stock walk on the other side of the street when the 75 year old grandmother walks by.

"Hissy fits" happens.

Plug Power

Plug Power (PLUG 2.97) should be the daytrader's stock to play with because they got an order from Wal-Mart for fuel cells for lift trucks, from the "beta" test that started a year ago. PLUG has over $2 in cash, a big short base, and now the Walmart "green" halo.

Why would this move it? A few years back, daytraders took Host America to crazy levels, after news came out that they were doing a beta test for environmental lighting at Walmart. PLUG's battery beta test turned into an order, and the daytraders won't be able to resist striking again with a hot potato stock.

Ben Stein on subprime

Had this to say in the NY Times:

One is that it’s a bit too predictable that Mr. Paulson would basically pooh-pooh the subprime problems until major Wall Street powers got in trouble and then — presto! — swing into action. It might have been inspiring had he stepped up to the plate when smaller players like home buyers were getting burned, but that’s not really his style...

But the vicious, cruel truth is that some very greedy, selfish and, yes, stupid men made fortunes on deals that were economically and/or ethically wrong. (Why else hide them off balance sheet or abroad?) They got immense fees, stunning paychecks and the inheritance of maharajahs. Their great-grandchildren will be rich from their deeds and misdeeds. As far as I can tell, they are not being called to account in any major way. The ones at the top aren’t fired or, if they are fired, are fired very rich.

Friday, October 19, 2007

Market Selloff

Is a function of the weakness in housing, and the market's recognition that the homeowners losses are now shifting to the balance sheets of the banks. It wasn't Citigroup's ugly earnings that started this; they have been a serial under performer as long as Chuck Prince has run it. It was the weakness in Bank of America earnings, which is considered well run. Couple that with the complete carnage in the mortgage insurers, PMI and MTG, and their refusal to recognize the extent of their future losses, and the market blanches. The write downs in housing loans by Washington Mutual added just more fuel to the fire.

Today I'm recapping what has happened, but I'm just recapping what I wrote before it did.

On Wednesday, there was only a 32% chance of a Fed rate cut in October, when I wrote about the housing's implosion accelerating. I said there would be a 50 basis point cut:

The idea, that the FED will be on hold for it's October meeting is now completely ridiculous. Look for talk of a 50 basis point talk next.

Thursday morning, when discussing the breakdown in BAC's earnings I repeated it in case anyone missed it:

Thus the FED cuts in October, and they do 50 basis points. That is not in the market.

Today the Fed fund futures rate is now pricing in a 100% chance of a quarter point cut in October. The street has now come halfway to my viewpoint. That's a good start.

Thursday morning I talked about Goldman Sachs Level 3 assets, which I called "mark to myth." Today GS is down 10 points. Did someone else decide to read the 10Q or this blog? If you did, you saved yourself 10 points. You can get your news before it happens; here, or you can get when it has already happened, somewhere else.

This market selloff is all about housing. The homeowner was stuffed with higher mortgage payments, and unsalable homes; now the market has recognized their problems are now the banks. Being stuffed with bad loans is preventing banks from doing business, just as the multiple mortgage payments stopped the consumer from spending.

The good news, though is the Fed will be highly proactive and aggressive in their rate cuts, the dollar be damned. They need to stop the spiraling down of home prices, and prevent the banks from owning more homes. The homeowner needs the value of his home to go up, and he needs lower rates to stay in his house.

Nothing makes a central banker move faster, than when they have a whiff of fear. Especially, when their "children" are losing money in bad loans, and the mortgage insurers are losing the confidence of the market.

So the Fed cuts. And this time, there won't be a peep about "moral hazard."

Intuitive Surgical

(ISRG 256.44) blew away earnings again. da Vinci's systems are increasing being used in prostrate surgery, and minimally invasive gynecological procedures, and their service revenues will continue to grow over 50%. The stock will gap up, but they'll take out the volatility in the options, as they priced in the move before earnings. The derivative play is Chindex (CHDX 30.58) which sells ISRG's systems in China.

Thursday, October 18, 2007

Google's earnings

The stock was trading at 636 in the afterhours until this question was asked by Doug Anmuth of Lehman Brothers:

So can you give us some color on the timing of your hires during 3Q and also how we should think about this in relation to margins going forward? Thank you.


Eric Schmidt's reply:

Obviously can’t talk about margins going forward. What we said last quarter, as you know, is that this is an area where we needed to spend some more time and focus more on what is the appropriate rate. And the good news is we have done that. The numbers that you are seeing are essentially an overhang and they are an overhang from hiring that had been agreed to many, many months earlier. June, of course, is a major college hiring, university hiring, professor hiring kind of a cycle, so I don’t know that that will be repeated.

The important thing here is that we did in fact correct and I think going forward, you should be comfortable that we are paying a lot of attention to the headcount.

And that caused the stock to run to it's afterhour high of 650.

In a different tape, GOOG would have been down. These earnings already should of been factored into the price. But for the bears that want to put in their two cents, that's what foreign currency added to earnings for the quarter.

Tier and Capital level

I expect that the shorts will start talking about brokerage firms and asset pricing. In the example below, of Joe Sixpack, on a level 3 asset, his house is worth $300,000. (You could call this mark to myth.) That's the price it was purchased at. Level 2 pricing on this house would be what it is worth today, $225,000. (You could call this mark to model). Level 1 pricing is what it would sell for or $175,000. (You could call it mark to market.)

Why is this important? Because you have certain tiers in Capital that banks need-Tier's 1, 2,and 3, and these are substantially different than the levels that brokerage firms price their assets. Today, you make hear whispering by the bears about Goldman Sachs (GS 227.62) and their asset level pricing. From their latest 10Q, (from memory) they had $73 billion of level 3 assets, and a $2.98 billion gain on it.

Maybe Goldman has their own SIV. Or at least, that's the whispers you may hear. So read their 10Q so you'll know how to answers the whispering bears.

Bank of America's earnings

BAC had a much larger loan losses than expected. Non performing assets were $3.37 billion vs $1.67 billion the previous year. Since BAC is regarded as one of the best run banks in the country, it shows that loan deterioration is happening at a quickening pace.

Now it's apparent that residential housing caught the banks off guard, and they'll say the same when it comes to commercial loans. Loan losses are accelerating for one simple reason. A typical homeowner will do his best to hold on to his home, until he throws in the towel. It's easier to throw in the towel, when your equity disappears. The home equity losses are appearing even faster because of "short sales" in a home.

Assume Joe sixpack in 2005 had a $300,000 house. He had a mortgage of $225,000 and an equity line of $50,000. That house is now worth $225,000 but will sell for less than $200,000. The equity line is a total loss, and their will be a 20% hit on the mortgage also. An investor or a buyer, will offer to buy the house for $175,000 even though $275,000 is owed. The bank eats the loss, and the homeowner "short sales" the home. The short sale only stays on his credit for two years, and the tax implications of this are negotiable.

Banks got stuck on dummy mortgages; now they are getting stuck on funky short sales. Home prices need to go up, for this mess to stop, and the FED understands the problem when their banker buddies continually take hits on their balance sheets. When the homeowner was getting hit, things were "contained." When the bankers get hit, it's contagion.

Thus the FED cuts in October, and they do 50 basis points. That is not in the market.

Wednesday, October 17, 2007

Housing implosion accelerates

Now the SEC is looking at CFC's Mozilo stock sales, Washington Mutual blows up it's earnings, and Citigroup trades at a yearly low. In mortgage insurance MGIC investment (MTG 26.16) was down 4.71, and they sounded terrible on their conference call, especially with their defense of FL real estate. It's cousin, PMI (26.65) was down almost 3. Citigroup traded 100 million shares, and only rallies on rumours that Prince will be fired. Here's how it works out.

The Fed couldn't care less about strength in the NASDAQ, but they are concerned about the weakness in the banks. Treasury Secretary Paulson stump speech yesterday was a back handed attempt telling banks that they need to keep homeowners in their houses. Why? What is the $80 billion SIV for? To keep these assets off the balance sheet until pricing recovers. It's the same in housing.

The idea, that the FED will be on hold for it's October meeting is now completely ridiculous. Look for talk of a 50 basis point talk next. This lowering of rates, is the only tonic that can stop the homeowner's from bleeding, and get the cozy home lookers, off of the couch, and into a buying mood. They feel they have the benefit of time. The home seller doesn't, so the sales closed are now distress sales. Other homeowners, seeing this markdown in their equity and their nest egg evaporating, are just giving the keys back to the banks. Now the banks are feeling the pain that the homeowner felt, and it is happening at an accelerating pace. And since the problem is now shifting from the homeowner to the banks, the FED is now very concerned.

If houses drop another 10%, you'll see $200 billion more in losses in these packaged mortgage securities, and theses SIV's will be a sieve. If this SIV wasn't a problem, but just a technical issue with a balance sheet, then why was Treasury involved?

So the FED cuts. And this cut, is what the NASDAQ buyers see. And those buyers will stay around, to the shorts dismay. The bears are getting the bad news that they wanted, but the bulls don't care. That story, already played out in August. Paradoxically, this bad news, is exactly the news that the bulls needed to bury the bears. May they R.I.P.

Fuel Tech romps as advertised!

Monday I had this to say:

FTEK 26.64 is another stock the bears have piled in on the short side. Barron's had a nice weekend story on the stock, and it's on the Regulation SHO list. Look for the bulls to try and gun this number. All the have to do is whisper that FTEK is going to sell more NOx reduction projects in China.

Today FTEK closed at 33.52 up 4.72 today. The news? A 7.2 million NOx contract with a Midwest utility and this blib in the press release..."Sales of our proprietary NOxOUT ULTRA technology continue to gain momentum in 2007 with announcements thus far in the United States, Italy and the People's Republic of China."

As advertised!!

A shark for $8 million?

Here's "artist" Damien Hirst's shark sculpture SAC's Steven Cohen paid $8 million for. It will be exhibited at the Met for the next 3 years. They're hoping everyone will forget about the salacious female hormones for traders episode at SAC, and that Andrew Tong won't spill any secrets.

It's called a sculpture for a reason. The first shark wasn't properly injected with formaldehyde and it disintegrated, and was replaced. So if you think your meal at the Ithaa at the Hilton Maldives, is expensive-it's not.

Disbelief

Pope John Paul back from the grave? The bonfire was lit during a service near the Pope's birthplace on the second anniversary of his death. Websites crashed as the faithful looked at the pictures.

Maybe the Nasdaq and technology stock participants would be a little better off, if they developed a bit more belief. A nice example is Intel (INTC 25.48) which reported bang up numbers. The WSJ headlines yesterday were Intel Soars: Did customers overorder?

Who helped the WSJ with this article? The analysts from Think Equity who downgraded INTC to a sell and cut their target to 22 last week?

In the conference call afterwards INTC saw higher margins and larger participation in the server market. To see a higher price for the stock, and you don't need to suspend belief. You just don't need to listen to Think Equity.

Tuesday, October 16, 2007

The dish on DISH

Citigroup this morning is touting Echostar (DISH 49.04) as a takeover target. Two weeks ago, DISH split its business into satellites and set-top boxes. If DISH has a tax-free spinoff of the new company, SpinCo, then AT&T can't buy it for two years. And if they're interested, they better move before the end of the year. The price touted is 65, meaning it would probably trade to 61-62 on a deal.

Monday, October 15, 2007

Blue Nile

Blue Nile (NILE 81.84)
Shares outstanding 15,889,000
Institutional ownership 19,528,391
Market cap $1.3 billion

Another heavily shorted stock. Did you notice that just the institutional ownership alone exceeds by 3,639,391 the the total shares outstanding? There is plenty of demand for the stock, from both shorts and longs, but Citigroup's Mark Mahaney downgraded the stock on Friday to a sell but left his target at 88. He felt that NILE would miss revenue estimates, or be in line at best. They report November 6. I think you need to buy the stock for a trade at these levels, and that the hedge funds that are short, got a gift from Citigroup, and will try and cover here.

The picture on the right is Lake Tana, the source for the Blue Nile, known in the Greek as Psebo, discovered by Straba in 22 CE, and known now as the "blue valentine." Lake Tana's center is at 12 degrees N, 37 degrees E, and is 1400 square miles with 37 islands, with 19 monasteries, one of which, legend says, stored the ark of the covenant along with other treasures. (Psebo in Greek is: psi epsilon beta omicron= 700+5+2+70= which adds to 777).

The most famous Blue (tavernier) diamond in the world, is the Hope Diamond. Jean Baptiste Tavernier, hocked it from the Hindu god Siva's, third eye, which represented fire, while the other two eyes represented the sun and the moon. He sold it to Louis XIV in 1668. 300 years later, before it made it's final home in the Harry Winston gallery in the Smithsonian, the diamond's phosphorescence was checked by gemologists. If you shine an ultraviolet light on a diamond, and the diamond glows afterwards, that's known as it's phosphorescence. The presence of one boron atom, a conductor of electricity for every million atoms of carbon, allows this to happen. The Hope's phosphorescence was expected to be light blue, but instead it glowed "orange red like a fireball." The eye did represent fire.

Diamonds can capture the imagination, and the shorts of NILE shouldn't underestimate the psychology of stock investors. It's more with the public than the pros; just witness the action in the Chinese stocks. Compare the market cap of Amazon to NILE. Another river card that's an ace? They say diamonds are forever. Some shareholders may think the same.

IBM's earnings

IBM (118.03) reports earnings after the close on Tuesday. My over/under on the stock Wednesday is 123, and I like the over. IBM had a massive accelerated stock buyback, and it would make zero sense to have an accelerated buyback if they were going to deliver punk earnings. But sometimes Wall Street can't see beyond their nose, so I'll be clear. Crystal. And a bit more from A Few Good Men:
Jessup: You ever served in an infantry unit, Son?
Kaffee: No, Sir.
Jessup: Ever served in a forward area?
Kaffee: No, Sir.
Jessup: Ever put your life in another man's hands? And asked him to put his life in yours?
Kaffee: No, Sir.
Jessup: We follow orders, son. We follow orders, or people die. It’s that simple. Are we clear?
Kaffee: Yes, Sir.
Jessup: Are we clear?
Kaffee: Crystal.
http://www.youtube.com/watch?v=dwyj78FpYt4

Fuel Tech

FTEK 26.64 is another stock the bears have piled in on the short side. Barron's had a nice weekend story on the stock, and it's on the Regulation SHO list. Look for the bulls to try and gun this number. All the have to do is whisper that FTEK is going to sell more NOx reduction projects in China.

Sunday, October 14, 2007

SHO me the Money!

As in Regulation SHO, the pathetic attempt to reign in naked short selling or the failure to deliverer of purchased stocks. The rule had no teeth because those that were short, didn't have to deliver the stock, because they were "grandfathered in." The grandfather provision is eliminated on Monday, but those participants will have until the end of the year to close out their naked shorts. (35 trading days). The list of stocks on the below link.

http://www.nasdaqtrader.com/aspx/regsho.aspx

Here's why it is problematic. I'll use Take-Two as an example, because this stock has been hated by the bears forever. In August, TTWO had 31.7 million shares short, out of the 74 million shares outstanding. Institutions hold 95 million shares of TTWO, 20 million shares more than the total outstanding!

Overstock (OSTK 34.92) has been on the list for two years. As long as the price of the stock stayed down, the shorts could sell phantom shares, to offset any real buying to suppress the stock. This is the argument that the bulls made. The bears scoffed at it. But what has happened to OSTK's stock price as we approach the end of the grandfather clause? It was at 18 at the end of July and it's now at 34, and we know that the short interest only went down by 1 million shares in that time frame. Wacky Patty, as the bears call it's CEO, claims that the amount of shorts in OSTK is over 10 million shares. Maybe it is. Whatever you think of him, he's been winning the arguments in his lawsuit against the bears, and OSTK is the poster child stock for Regulation SHO.

Check out the list; there are stocks on here whose price has been affected by the bears shenanigans, and you have a wide assortment to chose from. One stock that has a particularly vocal contingent behind it is Local.com (LOCM 6.78). It may be worth a look.

Saturday, October 13, 2007

Heart of a Dog

This Chihuahua with the heart on its fur makes my daughter say "aahhh soo cute." It's probably how the banks in Europe felt when they bought the AAA SIV notes, before they caught the mortgage virus.

But right before the bell on Friday, financial regulators and the money center banks proposed the cure, whereby the NY banks would pool $100 billion into a "Super-SIV" (structured-investment vehicle) to provide emergency funding, and keep these assets off their balance sheets. Here's what you need to know about SIV's.

http://aaronandmoses.blogspot.com
/2007/09/sivs-sieve.html


Citigroup (47.87) traded up a buck in the afterhours, as it has $100 billion of SIV obligations, but that wasn't the catalyst for the move. It was the confluence of two factors. 1) Deutsche Bank's Mike Mayo criticized Citigroup's CEO, Chuck Prince in a blistering piece, and said he has to go. 2) Jim Cramer, of CNBC's Mad Money, said Prince would be gone by the end of next week. That led the market to believe they were leaking in NY, as they are in Washington DC, and dancing Chuck, would be shown the door. (Read my August 11 piece on Prince here)

http://aaronandmoses.blogspot.com/2007/08
/citigroups-chuck-prince-gets-hustled.html


So the street is attempting to contain the SIV virus, unlike the SIV virus Serge Voronoff started. He was the Russian surgeon who after observing the aging of eunuchs, began practicing "greffes testiculaires" or grafting monkey testicle tissue into man, qualifying him as the first surgical anti-aging Doctor. Lucky he practiced in the 20's so he wasn't writing scripts for HGH at Signature Pharmacy or George Mitchell would be investigating him. But now you know why the AIDS virus had a primate origin. (SIV Simian immunodeficiency virus).

Philip Philippovich Preobrazhensky, is the professor in the 1925 Russian Novel, Heart of a Dog, who transplanted human testicles, into a dog, in the fictional version, of the real life Voronoff. But the author, Mikhail Bulgakov, was known for his naming etymology. Philip's alliterated name means transfiguration, and Bulgakov's had his in his masterpiece, The Master and Margarita, his most acclaimed work.

But Wall Street has never taken to Chuck Prince, and has hoped that the Prince in Arabia, Alwaleed bin Talal, Citigroup's largest shareholder, would move to remove the Prince in NY. That hasn't yet happened. But when Margarita, made the deal with the Prince of Darkness to be reunited with the Master, at the spring ball of the full moon, the cat resigned the chessmatch with Woland and said: "I am unable to play in an atmosphere of persecution." I think Chuck will have words like that this week.

And dancing Margarita's directions to the ball were, "straight to the tulips." And at this price, I think the ukulele players will be buying the stock. And when Prince leaves, Citigroup's transfiguration begins.

Friday, October 12, 2007

Tiptoeing around TIBCO

With Oracle's bid for BEAS, the question on traders mind is: Who is next? Take a look at Tibco Software (TIBX 8.77), which traded up a buck today, on 10 million shares. Tibco recently bought Spotfire, which integrates your data by moving a slider across the screen, and you "see" the data. Software companies call it "interactive information visualization." Compare this to how traders look at charts, and manipulate the data, and see the results in front of you. It's intuitive and understandable, and you can "read" the data by the charts. Compare this to an excel spreadsheet full of stock quotes. Which would you prefer?

But nobody cares about TIBX. It's been a rumoured takeover target as long as BEAS. But things changed last week when SAP bought Business Objects, and today when Oracle bid for BEAS. Now analysts are speculating that Hewlett Packard will make a counter bid. Does that make sense? HPQ bidding against Ellison? What did they do, read The Art of War and get courageous? Give me a break. Larry Ellison beat the Justice Department when he acquired PeopleSoft. BEAS will go to Oracle. But Larry doesn't care about HPQ, he wants Oracle to upseat IBM as the No. 2 player in the middleware market, and that market is now being forced to operate in Internet time. And that's forcing IBM's and Hewlett's hand, as both SAP and ORCL have already announced acquisitions so now they're at the dance without a partner.

Ever go to a dance, and have a bit of a buzz, when it's getting late at night? Chances are, your first choice is already gone, but you're not thinking about the one that got away. You're thinking about who's left. And now that farm girl, TIBX, is looking like Erin Burnett of CNBC. So ask her to the dance and get out the ukulele, just so I can throw in another "Oracle."

On Wall Street the most famous ukulele player is the "Oracle from Omaha" Warren E. Buffett, but off of Wall and Broad it's still Tiny Tim, and his Tip Toe through the Tulips tune. Now Tiny Tim shared the same name with Tiny Tim Cratchit of Dickens' A Christmas Carol, and God Bless Tiny Tim was the title of his famous first album, and also the famous last sentence of Dickens' book.

But TibCo knows that they are cheap. They've bought back 25 million shares at an average price of $8.88. Someone else thinks they are cheap and it's secretive Bruce Sherman, of Private Capital Management, at 8889 Pelican Bay in Naples who at last count had bought over 15 million shares of TIBX. Haven't heard of him? Maybe you should. His firm owned over 41 million shares of BEAS!

Does Bruce play the ukulele also? No, but he's great at spotting value, and he sells to the ukulele player, Warren Buffett, who picked up Dairy Queen, Shaw Industries, and Garan clothing, companies he had substantial positions in.

Did IBM invent the ukulele? No, but the ukulele was first plucked in Hawaii in 1885, the same year that the first computing scale was patented by Pitrap, the predecessor company of IBM. And Tibco's name came from the initials of The Information Bus Company, just like IBM's came from International Business Machines.

So I threw in some numerology, history, literature and pop culture, with six degrees of separation from those in the world of money, along with real reasons to buy the stock. And I'll also throw in a November 10 call option at .15 for those who don't have much money, but would like to make it.

And hopefully, we'll be able to say "God Bless you Tiny Tim" when the big elephants come to the dance.

The Genesis Code

Oracle buys BEAS! As advertised!

Oracle offers to buy BEAS for $6.66 billion! Did you miss this? It was advertised here on Monday, under "derivative" plays, and I asked readers to reread it Wednesday. If you didn't, you missed action in China, and a takeover. If you don't read your daily manna, you don't get fed.

"Business Objects (BOBJ 50.26) got a cash takeover by SAP close to $60 bucks. (Where have all the midcap software stocks gone? Oh that's right, they've already been bought.) One that hasn't is BEA Systems (BEAS 14.01) a stock Ichan has bought a 13.2% stake. So that's the 10 second "derivative" play on SAP's buy."

But why the picture of the earth? Earth in Hebrew is eretz, and converting the earth from Genesis 1:1 into the numerical equivalents gives you a value of 296. Now if you cube 6.6666666666 you have 296.296296296296, the number of the earth. And the earth travels 66,666 miles an hour around the sun. Of course this story is in Genesis, where most think about Adam, Eve and the apple in the garden of Eden. But what was the price of the first Apple computer? $666.66. So $6.66 billion for BEAS? Larry Ellison dialed up the right numbers!

Thursday, October 11, 2007

Mozilo gets monkeyed with

North Carolina State Treasurer Richard Moore is bugging the SEC to look into Countrywide's chairman, Angelo Mozilo's stock sales. He netted over $132 million by dumping stock in a pre-arranged plan. Moore believes Mozila messed with the plan so he could cash out of his stock at a quicker pace before the proverbial doodoo hit the fan.

Mr. Moore should just look at page 103 of CFC's lastest 10Q, and ask one question. Why was CFC propping up their stock in May by purchasing 21,507,817 shares of stock at an average price of $40.39?

CFC spent $869 million buying back stock in May, but they only bought back 1,494 shares in June, when CFC didn't have to sell $4.5 billion of convertible debentures like they did in May. CFC had this to say on May 9th when they reported their April operational results and were selling the debentures:

"Strong year-over-year improvement in all other business lines rounded out the month."

Contrast this with the statement in April, when CFC reported their quarter and gave "fictitious" earnings guidance of $3.50- $4.30 for 2007, when they spoke rather soberly. Here it is.

“Countrywide’s earnings for the first quarter of 2007 were $434 million, despite adverse subprime and housing market conditions,” said Angelo R. Mozilo, Chairman and Chief Executive Officer. “While the Company’s core operations delivered what was otherwise a strong quarter, earnings were impacted by charges relating to our subprime activities as well as increases to our loss reserves and related asset valuation adjustments stemming from higher delinquencies and softer housing markets.”

It appears that CFC propped up the stock in May, with it's buyback to help sell convertible debentures at favorable pricing to bring in billions of much needed cash. CFC's massive buyback sucked in Wall Street when their fundamentals were deteriorating rapidly. After they sold the debentures, they walked away from the market.

Or may wily Angelo was unaware of the impending disaster in housing, and was just fortuitous in dumping stock in his "pre-arranged" plan.

You make the call!

Retail sales

Ooooooh is it Halloween already? We are supposed to be worried about today's retail sales number. Does CNBC sell worry or ratings? Does this script sound familiar? It should, as I used the same wording last Friday before the "big" unemployment number. Whatever the number Wall Street smiles on it, as the worriers sold yesterday, just like the worriers sold the day before the unemployment numbers, and picked up stock late in the day. That's the playbook, and the script, and if you don't like it, think about this.

Remember when Matt Estrella did a little video work on behalf of the Patriots? The sportswriters said the Pats' were "tarnished" and this was a "blemish" and the NFL sent a big bad signal to Belichick in the form of a $500K fine. Does anybody care now? No. Because the Patriots have completely crushed their opponents. It's the same as Wall Street.

Eventually people will wise up that these sideline antics have nothing to do with the game, but until they do, they'll only be be able to commiserate intellectually. It took Vegas only two weeks until they widened the point spread sufficiently on the Pats, but bookies, unlike pundits, have their own money on the line, so they learn quicker. Learn from them.

Wednesday, October 10, 2007

SEED germinates!

Origin Agritech (SEED 12.73) was up 5 dollars today on 23 million shares! Monday I brought this number to your attention at 7.69. It was named on Forbes Asia "Best under a Billion" companies. If you missed the move, maybe you should reread my blip Monday on "derivative" plays. And when you re-read that, you should read the September 7th SEC filing on CSCA, and the information on Liaoning GaoKe Energy Group of which CSCA is acquiring.

Upon completion of a successful merger, I think CSCA could have a two handle. The warrants, CSCAW, with a strike price of 5, could be worth three times their current price. However, the merger must go through, or you'll be left holding the bag, as CSCA is a SPAC (Specified Purpose Acquisition Company), and you'll be left with $5 of cash, and worthless warrants on a failed deal. The merger is supposed to close this quarter; so it's a stock that's worth watching the news for.

So how do you get a "free play" on CSCAW on the Chinese Casino taking over Wall Street? Well, if you read the SEC filings, you'll see that GaoKe is a leading provider of distributed power generation and micro power grids. Now follow carefully. Jinpan International (JST 26.93) which sells resin transformers for the power industry in China, on their last earnings report in August, saw big growth ahead for the power industry. And I think you should be able to make enough off of this play, to have your CSCA play for free. Here's why.

Sometime in the next day or two, I suspect some hedge fund or daytrader will do some digging on SEED. And they'll come across Jinpan International. They'll see it has a small float, it's on the AMEX, 95% of their business is in China, and they see strong second half growth. When they discover it, and ping their buddies, the stock should move like ATV did today.

Why would someone who bought or missed the SEED trade stumble across JST? Besides being fundamentally cheap, the catalyst for Origen Agritech moving, was the blessing of being on Forbe's Asia "Best under a Billion" list.

Who else is on that list?

Jinpan International.

Crack Spreads II

On Sept 27, I talked about crack spreads and put a picture to make you laugh, but the real deal was the price of the refiner stocks, and the prices advertised two weeks ago: Tesoro (TSO 47.14), Valero (VLO 67.56), and Western Refining (WNR 40.30). Today TSO closed at 55.25 up 8.11, VLO closed at 74.25, up 6.69, and WNR 41.75 up 1.45 from the crack spread piece. Did you laugh at the picture, or make some money off the information?

Today VLO announced lower earnings before the open. Some joker sold stock under 70 in the premarket, (probably the same clown that sold TSO down to 50 1/2 in the premarket despite getting an upgrade!) and that's where the specialist bought his stock. This was done by the pros to panic the public, who watch the pre-market prints. The correction in these stocks are already over, but they needed some pre-market prints to bag the last holdout longs on these stocks. The ruse used was the "news" of lower earnings, but at 7 times earnings, the hereafter is already discounted in these prices. So the stocks rally.

Now think about this. Do you really think that refining margins are going to stay this low? Of course not. But most people let stock prices affect their thinking at turning points, so they can't buy at bottoms. But if you look at some bottoms, you might just laugh enough to think about buying. Now that Wall Street reverses the stocks on bad earnings, and puts a green candlestick on the charts, the public can come in and buy. Wall Street will then say the bad news is already in the prices of the stocks. The difference is I'll tell you before it happens, while they tell you after it happens. The difference in price? I already did the math for you.

So here's the script as I see it. VLO rallies first because they have the biggest buyback (they bought back 11% of their shares the past year). TSO rallies next as it's a relatively cheap refiner with market rumours of a takeover, and WNR is the last to rally because it's hated by the street. And paradoxically, the stock loved the least, WNR is poised to rally the most, showing that in Wall Street, as in life, "the last shall be first."

Tuesday, October 9, 2007

Hershey's parks

Sweet deal for Hershey's?

The WSJ had leaked the news of a possible buyout of Hershey's (HSY 46.05) on July 25, 2002 with these headlines: "The sweetest place on earth may lose it's sugar daddy." In August, with the town in an uproar, the Harrisburg paper quoted 102 years young Monroe Stover who said, "Mr. Hershey would never have considered" the sale of Hershey's, and Wrigley's walked away, as the Hershey trust balked.

Today, five years later the WSJ had this statement from the Hershey Trust..."the Trust is not satisfied with the Company's results. The Company has been underperforming both the market and its own stated expectations. The Trust's holdings in The Hershey Company, on behalf of the children it serves, have lost more than $1 billion in market value during this period of unsatisfactory performance..."

Further news was that the Hershey Trust had discussions with Cadbury without then CEO Lenny knowing about it, a month before he announced his retirement.

It appears they were looking to structure a deal without diluting the interest of the trust. Reminds me of when the WSJ sold themselves to News Corp. while getting editorial assurances.

Hershey PA is a beautiful slice of picturesque, quaint, and wonderful Americana. With it's chocolate kiss streetlights, rolling gardens, and the intoxicating aroma of chocolate it's also a romantic honeymoon destination. It really is a special town, and the market is incorrectly valuing the company's intrinsic worth.

But if the Heshey's Trust wants to sell or build, in my mind, there is only one person in the world that could buy Hershey’s and give it the autonomy it deserves to continue to allow it to grow, while aligning everyone’s interests from the shareholders to the Hershey trust, and to the workers and to the people in the communities where Hershey’s has its plants. And there is only one person that would have the reputation and influence that would bring all these people together, to unite them, and to make them happy.

And that would be Warren E. Buffett, my choice for "the sugar daddy of the sweetest place on earth."

Maybe the Hershey Trust should give him a call.

Tuesday morning quarterbacking

The IMF downgraded the growth of the US economy from it's July estimate of 2.8% to 1.9%, and is also cutting their growth forecasts for Europe. So why is the US dollar rebounding against the Euro and the Yen? Because their growth is slowing also, and they are lagging behind the interest rate cuts of the Fed. In this slower growth environment, stock investors will pay more for growth. As the slowdown in housing continues, further cuts in interest rates are still needed, which allows growth investors to expand the earnings multiple that they pay for stocks as rates come down. And the beneficiary of this is the move in technology growth stocks. Cramer's four horseman of the Nasdaq, AAPL, GOOG, RIMM and AMZN are a microcosm of the multiple expansion taking place in the market, and as certainty increases over the estimates of other companies earnings, they'll have an expansion in their multiple also.

The market is like the MNF game last night with the Bills and the Cowboys. With about six minutes to go in the game, it looked like the Cowboys were toast. (And if you missed the game, watch the highlights on ESPN). It was the same with the market. The bears had the bulls on the ropes in August, but they couldn't put them away. The recovery of the onside kick was like Bernanke's 50 basis point cut. It gave the bulls hope, and turned bad news into good. Folk's 53 yard field goal that put the game away, is like the earnings reports that the companies are giving. When they report, it's game over for the bears. It was the professionals who panicked and dumped stock while the common folk stood their ground. Now they get paid. Not quite the script the bears had in mind. That's why they play the game!

Monday, October 8, 2007

CDO's and CDN's

Remember how the market cratered and the financials collapsed when the collateralized debt obligations couldn't be marked to market? All you had to do was short (then cover) those stocks with CDO exposure. Wall Street loves lingo and now nobody cares about CDO's. That trade is over. It's now about CDN's. Take a look at Akami (AKAM 33.92) and Limelight Networks (LLNW 11.60). And this time, to make money, you just have to buy the CDN companies.

CDN stands for Content Delivery Network, and it simply optimizes your speed on the 'net, when you're moving big bunches of data. Web caches store the most popular "stuff" and when web traffic hits one of the switches it goes directly to the "stuff" on the server attached to the switch. That gives you your "stuff" faster, and companies pay for it. It's analogous to taking the freeway to your friend's house when you're late for a hot date, when the drive through town is shorter, but covered with traffic lights. You just want to get there fast. It's the same with data, but now we're not talking about the most popular videos on YouTube. We're talking business. Telecommuters remote wireless web applications, can be handled quicker and more efficiently, and the procrastinators can meet their deadlines. Today, AKAM unveiled their IP Application Accelerator, and the stock moved up two and change, and LLNW moved in sympathy.

Now look at AKAM's arguments. WAN optimization hardware? Fuggedaboutit. No client-side software is needed, no expensive hardware to maintain, and you have a global network. In the 15 second sound bite that Wall Street understands it will be spun as this: AKAM is doing to networking, what VMWare (VMW 95.09) is doing to storage. And that's the sound bite spin on Wall Street bytes.

"derivative" plays

Wall Street loves talking about the next thing, so we always hear this internet stock could be the next Google, or this software company could be the next Microsoft and daytraders need a 15 second pitch to buy a stock, unless its under $15--then they just need 10 seconds. So with that as the background, here's some "derivative" plays.

Business Objects (BOBJ 50.26) got a cash takeover by SAP close to $60 bucks. (Where have all the midcap software stocks gone? Oh that's right, they've already been bought.) One that hasn't is BEA Systems (BEAS 14.01) a stock Ichan has bought a 13.2% stake. So that's the 10 second "derivative" play on SAP's buy.

The daytraders, are clamoring for China ideas. RCH (China Architectural), was floated at 3.5 and you could of had all you wanted at six, and a week later and it ran to 25, before coming back down to earth, and Agrfeed (FEED 12) popped 4 dollars on Friday. The 10 second derivative play for those that missed these? The Chinese SPAC's- Origin Agritech (SEED 7.69) which sells crop seeds in China, and Chardan South with common and warrants at 5 (CSCA and CSCAW 5.38).

CSCA is a SPAC that signed a deal to acquire Head Dragon, the owner of a controlling interest in GaoKe, the largest private Chinese engineering company for 13 million shares of stock. CSCA brings $32 million in cash and a publicly trading vehicle to the table, while GaoKe brings expertise in power generation and micro power networks, and $54 million in revenue for the last three months with $6 million in net income. If the deal closes, in the next couple of months as expected, it could rock. And that's the 10 second "derivative" play for China themed stock speculators.

Friday, October 5, 2007

China Direct's action

CDS traded up 3 dollars to 11.85 on over 7 million shares. Did you miss that? Only if you missed this blog's tout of the stock Wednesday morning at $7.80. It traded down to $8.06 this morning, and then was picked up by a newsletter, and the stock screamed. Today China Natural Resources reversed, and it looks like the hot money that moved that stock from 10 to the high 40's, in a week is now looking for a new home. The PR continues Monday morning, when CDS rings the bell on the AMEX. And unlike Wall Street's market pimps, I give you the news before it happens.

The "big" unemployment number

Ooooooh is it Halloween already? We are supposed to be so worried about today's unemployment number. Remember how worried we were supposed to be before Benarke's big interest rate decision? Does CNBC sell worry or ratings? Whatever the number, I think Wall Street smiles on it, and later in the day, you'll have some economist talking about the adjustment for teachers. At least that's the script I see before it plays out.

Hannah Montana tickets

Here's my daughter at her 4th birthday party (she's now 5), a big fan of "Hannah Montana." In the WSJ this morning there's a story on how computer bots have taken over Ticketmaster, and that the ticket prices for Hannah Montana's "The Best of Both Worlds" on the "secondary" market are pricier than the big name acts. Ticketmaster is now suing the software company that allows these "bots" to swarm their website and purchase the tickets. And this is a great lesson in markets and the inefficiencies that exist, and the simple way to beat the system.

Hannan Montana tickets are pricier because parents will do almost anything to make their kids happy. If they have floor seats for $63, and they can sell them for $400 will they? Most won't, as the smile on their kids face and the memories are worth more than that. So those tickets sell for $800. Ticket scalpers know that so they write software to steal the tickets before the parents can buy them. That's the market mechanism at work. Exploiting those without information or access to speed in trading, and then pretend they are a master of the universe.

How to you beat them? Join Hannah Montana's fan club, "Miley's World." For $29.95, your kid will get her Miley kicks. And then you can buy the presale tickets for $63, before they go on sale to the general public and fight the computer bots at Ticketmaster, with the code that the fan club gives you. And since you are a member of the fan club, you get the best seats in the house-floor seats in front of the stage. (Disney understands marketing better than anyone.)

It's the same with the market. There are ways to acquire those stocks when their isn't competition for them. When Wall Street is puking them up and giving them away, because they don't do their homework, or see past the next week. The only difference is you don't need to spend $29.95 to join the fan club, you just have to read this blog.

Thursday, October 4, 2007

Colon CAT scans

Vital Images (VTAL 21.99) was up two bucks today because their Vitrea software creates dimensional images from body scanners, and virtual colonoscopies have gotten a lot of press. But the market completely missed iCad Inc.(ICAD 3.23). It would be easy to miss, since only one analyst covers the stock. www.icadmed.com

iCAD is the only stand alone company offering CAD (computer aided detection) solutions for the early detection of breast cancer, and is the industry leader in breast cancer detection. But check out page 12 of their latest 10Q, where ICAD had this to say. "CT Colonography or CTC is emerging as an alternative imaging procedure for evaluation of the colon. The Company is developing a product for computer aided detection of polyps using CTC. Colorectal cancer has been shown to be highly preventable with early detection and removal of polyps."

If the market does some digging, the day traders could get a hold of this stock, and it could be a cheap play on the potential of virtual colonoscopies.

Wednesday, October 3, 2007

Morning touts and tips

Back in the 90's Blodget was famous for his $400 target on Amazon, which seemed outrageous until it was hit three weeks later. Today he said the Google could eventually hit 2,000. That will get headlines, until you read the whole article. He says it may take 20 years. Maybe you're just better off buying the Chinese high fliers. The Investment banks are finally getting into that game. $50 billion of private equity is going into China and they'll want some stocks. Look at China Direct (CDS 7.80) on the Amex. It's a great day trading small cap stock, that gives traders a lot of action.

Speaking of selling ads, Microsoft said that business will eventually be about 25% of their revenue. Maybe that price of $6 billion for aQuantive isn't so outrageous. Wasn't Google's buy of YouTube universally panned also?

Morgan Stanley downgraded AMD. INTC, and NVDA this morning, while Merrill Lynch upgraded CIEN (42.66) after it was up $4 yesterday. In the financials Deutsche Bank announced a $3 billion charge, so that stock will trade up. Finally, high flier Intuitive Surgical (ISRG 233.12) was reiterated buy and the target was increased to 270 by OPCO. The stock reports earnings in two weeks, so watch the volatility on the options on this stock.

Tuesday, October 2, 2007

Melco to build "Trinity" casino

Melco (MPEL 18.92) is now poised to build it's third casino. They've built the Crown Macau which caters to VIP's, and they are building the City of Dreams Casino scheduled to open in 2009.

Here is the artist rendering of their third casino, which is in a prime location by the Macau ferry terminal, scheduled to open in 2010. MPEL would then have the VIP play at the Crown, mass market play at the City of Dreams, and the play of the Macau day trippers here, next to the ferry terminal.

Mr. Packer already showing his plans would make someone surmise that he may already have a deal similar to a sub-concession/licensing in his back pocket. If that's the case, this casino and the rest of the build out of the City of Dreams could be paid for. The buyers of the stock may already have a whiff of this news, while Jim Cramer of CNBC's Mad Money, who's been bashing the stock, may in fact be the "one that knows nothing." How ironic would that be?

Monday, October 1, 2007

Chris Wallace and the Clintons

Remember when Chris Wallance of Fox News interviewed Bill Clinton a year ago ? Bill Clinton made mincemeat of Chris. Well Chris exacted his revenge a year later with just a three second clip of Hillary laughing. Check out this clip. Her laugh is horrendous.

http://www.youtube.com/watch?v=TmajocHPU_U&NR=1

William Blake's "madness"


Here is William Blake's interpretation of God creating the world. Of his paintings, Blake said "that not a line is drawn without intention." His contemporaries, in 1809 said he was mad. Or were his critics so simple-minded that they couldn't understand his genius? That's for you to decide; but today, I'm not writing about his critics; they have nothing that speaks past their graves. But Blake? His works speak for themselves.

Blake was a complex man; he used vivid imagery, and wrote poems that people didn't understand. He fought for the rights of the poor and women, and was skeptical of the power of the church and the monarchy. His creator evoked the imagery of the "Ancient of Days" from the book of Daniel, but he called him "Urizen" which was a pun for "your reason." In another poem, The Lamb, the Alpha and Omega was the creator. So whatever your view, I'll call Blake's creator "Verizon." Maybe the skeptics will hear him now.

But what's this have to do with the market? Well Navteq (NVT 76.45) was offered $78 in cash by Nokia today. There are rumours of competing offers. Google is always mentioned and the "whispers" are that Garmim (GRMN 107.23) may offer a share for share swap. Maybe I'm hallucinating but how about "Blake's" Verizon (VZ 45.40)? They already use NVT's maps; they are a leader in wireless, and the acquisition would be easily digestible. And the speculative play would be the Navteq November 80 calls. They are only .75, so it's a cheap call on the upside of a competing offer.

Now these critics said Blake's drawings were inspired by hallucinations. Or were they? His wife said he was inspired by the divine. He got more than the colors right. The above constellation was catalogued by Charles Messier of France in 1774. The 110 objects that today make up the Messier catalogue are the most wonderful and studied objects outside our solar system. It's name? The Omega Nebula. "Urizen?" Maybe they can hear him now.

Nokia to pay $78 in cash for NVT

421, 422 and counting!




At age 37 Favre breaks Marino's all time TD record, and the Pack is 4-0! Oh my!

Nokia to bid for NVT?

According to the WSJ, Nokia is in deep discussions to buy NavTeq (NVT 77.97). They'll have to go to at least 103 to get it, giving it a take-out PE of 50 on 2008 earnings. Let's see private equity do that! Garmin (GRMN 119.40) then is the only GPS public play, and a 50 multiple on 2008 earnings estimates of $4 gives you a $200 target!

But what's with the picture of the moon's craters? Well, they are named for scientists, but Seth Chandler's crater is on the far side of the moon. He's the scientist in 1892 that discovered, the variation of latitude, now known as "Chandler's wobble." Now ICBM's and GPS systems will work. The poles had a twelve and fourteen month periodic motion cycle. When the phases were exactly out of phase, they canceled each other and there was was no variability of latitude. When a twelve month phase was completed, the other pole was behind by a 1/7 of a rotation, since it was on fourteen month cycle. So the variation would increase for 3 1/2 years, and then decrease the next 3 1/2. Now you know why 1/7, or .142857 is the greatest cyclic number in the world. But a target of 103? That comes from irony-its the months of data Gould used in his attempt to discredit Chandler's observations!

"Brown's" pension

Last week, GM set up a trust for health care benefits and the stock romped. Last night UPS (75.10) signed a five year agreement with the Teamsters, to allow them to withdraw from the Central States Pension Fund that covers trucking employeees. In the long run, this will be a net positive for UPS, and will help them get their costs in line. The stock goes up on this news, just like GM did.