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Buzz on the Street: Twitter Leaves the Nest

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A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.

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Tuesday, November 5, 2013

Is Larry Ellison going to Dreamforce ?
Marc Lewis

The third quarter always provides opportunities to buy companies on the cheap, mostly due to the proclivity of earnings misses that occur. This third quarter caught a lot of companies off guard due to spending disruptions from China, Europe, and our Federal government. It's not uncommon for a company who missed on third-quarter earnings to spend the rest of the fourth quarter trying to rebuild the trust that was just lost. This is done in the form of conferences, roadshows, or conference calls. All you need is a glimpse or murmur of increased confidence or the mention of a "push out" closed, and you have the makings of a great fourth-quarter-to-first-quarter long idea.

These communications intensify this week as conference season begins and we wind down earnings. Name a bank, and there is a good chance that they are hosting a conference or an event in the next two weeks. Red Hat (NYSE:RHT), Citrix Systems (NASDAQ:CTXS), Qlik Technologies (NASDAQ:QLIK), Symantec Corporation (NASDAQ:SYMC), Akami Technologies (NASDAQ:AKAM), Broadcom (NASDAQ:BRCM), EMC Corporation (NYSE:EMC), IBM (NYSE:IBM), and Juniper Networks (NYSE:JNPR) are some of the names that are worth paying most attention to as they all have been stricken with the overused legacy, broken, old, and secularly-challenged labels. Citrix Systems, Red Hat, and Qlik Technologies are interesting contrarian longs at this point.

Besides Fusion's private company event on November 18 in San Francisco, the conference expected to generate a lot of buzz in two weeks (Nov 18-21) is Salesforce's (NYSE:CRM) Dreamforce, with 120,000 attendees expected. Hopefully, Salesforce delivers solid numbers beforehand. Larry Ellison was invited to present, and there is speculation that he will be there to talk about big data analytics, talk about Exadata, and update on the Salesforce-Oracle (NYSE:ORCL) partnership that was announced in June. There have been questions about of whether or not this "bromance" still exists, so his attendance will confirm that it does. The reality is they are still on a collision course in many areas, so it feels like a lot of marketing fluff.

Don't miss our amazing line up of private companies on November 18 at the First Fusion Private Company Summit in San Francisco. Confirmed to speak include the likes of Corel CEO Tom Berquist, Sumologic CTO & Co-Founder Christian Beedgen, Hummer-Winblad Managing Director Lars Leckie, Nimble CEO Jon Ferrara, Echo CEO & Co-Founder Khris Loux, Impermium CEO & Co-Founder Mark Risher, Saasmax (OTCMKTS:SAAX) CEO Dina Moskowitz CEO, Paymentwall VP Bus Development Jon Wintermeyer.

Email mlewis@fusioninvest.com for more information about the conference.

GT Advanced Technologies Deal Has Interesting Apple Implications
Sean Udall

Folks, this GT Advanced Technologies (NASDAQ:GTAT) deal (to secure sapphire production) for Apple (NASDAQ:AAPL) supply components is very interesting, intriguing, and illuminating.

"Apple signs $578M sapphire deal with GT Advanced Technology" (Apple Insider)

My first thought is more of a question. Did Apple just effectively lockout the rest of world from pursuing its TouchID security tech? There is more to this point. Apple has unfortunately learned how ineffective having "rock solid" patents are in preventing others from stealing your designs and IP.

Yes, the company will probably eventually win some more lawsuits and money from a few iPhone-clone makers. But that pales in comparison to the 10s of billions in lost sales.

So now, Apple is using it's vast cash stockpile smartly and strategically by locking in supply for what is likely an already constrained component material as well as what is likely a proprietary technology developed by GT Advanced Technologies.

Looking back, Apple now probably wishes it had used some similar negotiation points in its dealings with Samsung (KRX:005930) as Apple has secured exclusivity and likely a slew of protective terms under the GT Advanced Technology contract.

Bottom Line: If patents can't protect your designs and IP, exclusive secure deals with key suppliers just might! Moreover, on the innovation front this TouchID, sapphire and potentially new screen materials and designs show that Apple still drives much if not most of the innovation in the smartphone and tablet segments.

About the Unemployment Threshold Being Lowered to 6% From 6.5%...
Michael Sedacca

A big theme today has been the note by Goldman economist Jon Hatzius that the Fed will lower its unemployment threshold to 6% from 6.5%. I've discussed this likelihood at length on the Buzz for the last 4 months, but I don't deserve special credit for that as I am not alone by any stretch - and in my eyes the Fed already implicitly lowered the threshold at the September meeting, which is THE prime reason behind the recent decline in yields (as we had discussed before the meeting).

In addition, the Evan's rule, which is the name of the 6.5% unemployment and 2.5% inflation thresholds, has all but been abandoned since the September meeting (see posts here and here) by its namesake. The reason is because unemployment does not totally reflect economic activity anymore due to the structural problems in our economy.

Anyway, so what does that fundamentally mean for the market? By lowering the threshold, the Fed is - for lack of a better word - synthetically lowering the Fed Funds rate by 100 basis points. This is because rather than the first rate hike coming in the 4Q 2014 - when the Fed expects unemployment to be 6.5% - it is being pushed out to 4Q 2015, when the Fed expects unemployment to reach 6% (see SEP from Sept here). So, for example, a 5-year note issued tomorrow would effectively reflect 1% less interest for the life of the note because the rate in year four would be 1% lower than previously assumed, and so on.

More importantly, the structural shift that I expected is occurring on in the Treasury market. As recently as two months ago, interest rate futures had been pricing in a perfectly linear 112.5bps of hikes per year. Now, this has been reduced to a more conservative 94bps-106bps per year. I say perfectly linear because the current path expects zero problems within financial markets or economic activity, which is not realistic.

Lastly, let me be clear on the current state of the Fed's forward guidance and the markets. The Treasury market is already pricing in the reduction in the thresholds - implicitly or explicitly - so it is not a new development. The Fed could move around the goalpost or whatever, but the market is already pricing off lower unemployment targets and, in my honest opinion, GDP targets.

No positions in stocks mentioned.

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