I featured Jabil months ago as one of my favorite Electronic Manufacturing Services players - and the firm came out with a surprisingly good quarter today as it now looks like their restructuring efforts are fully taking hold. I'm not about to throw sunshine on this exceedingly disappointing day, but the market's putting a lot more emphasis on RIM's moderately negative quarter than Jabil's very solid quarter.
From a broad perspective, Jabil is a much better gauge of macro-level technology activity than RIM. RIM currently may be a better gauge of how the commercial short sellers are going to play this market now that the financials are off limits.
Broadly, what we're dealing with now is that everyone has shut down waiting on Congress across many industries including technology. If we get a deal, and it's good, and the money comes out fast enough there is a chance to still save many weeks of future economic activity. However, if we drag on too long, which is probably all of a half a week, that lost week will result in 2-3 lost weeks of real business and take another 3-4 weeks to regain any momentum. So it continues to be "wait and see" mode.
Again, I've done little the last few weeks other than restarting a Google long, playing the bounce last Thursday, and cautiously increasing my solar exposure.
Speaking of the solars, today we're seeing a large pullback off the spike this week. This is one area I feel I can trade the long side on large pullbacks in technology currently. I think the market is very much underestimating the power of that 8 year solar tax credit extension. Further, many of these co's are capital dependent and any material fix to the frozen credit markets may have a disproportional positive impact on this industry.
Lastly, with respect to plans on fixing the credit crisis. I believe I have a very elegant amendment to the Paulson plan. Here goes:
Let the banks sell their distressed assets to the Government at a price between the fire sales price and mark to model/cash flow, but shade to the side of the fire sale levels. However, the banks are granted "call options" on that paper, so they could rebuy the paper after a material rise in the price, but still well below a full market value.
In this way, you infuse the ability for many banks to help solve this problem once they get back on their feet and the market pricing returns to more rational levels. You build in an additional mechanism for the taxpayers to make money on the toxic paper, and part of that amount would be the known differential between the strike price versus governmental purchase price.
You potentially shorten the time frame the government has to carry this "extra" debt. You still give the banks the ability to make money on the recovery of the credit and real estate markets in the future. And this amendment may spur some banks to simply carry their marginal paper instead of selling it, thereby reducing the amount the government has to ultimately cover.
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