Buzz on the Street: The Great Google Boondoggle of 2012
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
All day and every day, some of the stock market's best and brightest traders and money managers share their ideas, insights, and analysis in real-time on Minyanville's Buzz & Banter. Below are some excerpts from this week's Buzz. Click here for a 14 day free trial.
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Monday, October 15, 2012
5 Year Mirror Image Foldback in Google Possible
This morning's Daily Market Report showed the Google (NASDAQ:GOOG) chart you see below..
Hopes that GOOG would pick up the slack for the liquidation in Apple (NASDAQ:AAPL) may be just that -- hope.
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The Cost of QE
When deciding to start QE, the FOMC remarked that there were "costs and benefits" to the new program, of which the benefits outweighed the costs. Well, here is one of the costs. The entire mREIT sector has been getting smashed this entire month, and it's not getting any better this morning.
American Capital Agency (NASDAQ:AGNC) a largely GSE only mREIT is getting smoked out of the open. With rapidly compressing spreads and rapidly increasing prepayment speeds, this is a disaster. Not only that, but they're going to be reinvesting higher coupon (like 4+) into significantly lower coupon notes (2.5 or lower), so dividends will likely need to be cut significantly. The problem is, I don't think anyone has an idea "where" they'll be cutting the dividends too, or how much money they can make, but the market is already discounting a huge chunk.
They aren't the only one either, take a look at Annaly Capital Management (NYSE:NLY), Capstead Mortgage (NYSE:CMO), and Hatteras Financial (NYSE:HTS). For a broader view, you can follow the ETF REM.
This will continue to impact banks net-interest margin (NIM), specifically those that derive a large portion of their business from mortgages. I did some research over the weekend and ended up with Fifth Third Bancorp (Nasdaq:FITB). 12% of their revenues are from mortgages, second only to Wells Fargo (NYSE:WFC). I'm a little late to the party, as this got hammered on Friday after WFC's report, but I added a short this morning. Note that they report earnings on Thursday.
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Love For Sale!
Another session toggles toward the close as the bulls cling to the daily gains. A snapshot of today's action suggests they've won today's battle; questions remain, however, regarding The War on Capitalism.
Governments the world over have made no bones about their distaste for speculation. They look at Wall Streeters as profiteers who benefit at the expense of Mom and Pop America. They see hedge funds as acceptable casualties and shed no tears for fund managers grappling with performance anxiety. Someone has to pay and as far as they're concerned, it should be those who have already been paid.
In many ways, the populous has every right to be angry as a chosen few benefit in our bifurcated world. In others, and as we've seen before, the unintended consequences of policy--both written and implied--may create more profound issues than what was being addressed in the first place. I've said it before and I'll say it again: these are historical times, flush with obstacles and by extension, opportunities.
I've been trading less of late for two reasons. The first is that my stylistic approach warrants it (I returned to the surgical approach that served me in such good stead for the better part of this year) and the second is that I've been focusing more on big picture items, business development and other initiatives necessary when running a small business. It's all good, so to speak, but I'm compelled to put it out there.
Tape-wise, S&P (INDEXSP:.INX) 1450 and NDX (INDEXNASDAQ:.IXIC) 2730 (there now) are near-term resistance levels, so keep that in mind as Turnaround Tuesday approaches. We've got a slate of earnings on tap, a healthy dose of European banter painting the wires, the aforementioned performance anxiety in the street and angenda large and small. With that in mind--and now said--I'm content to keep my overnight risk leash nice and tight.
Fare ye well into the bell.
Tuesday, October 16, 2012
Citigroup Succession Plan
While the media are having a field day, I would note that Mike Corbat's selection as the new CEO of Citigroup (NYSE:C) is a perfect weak social mood socionomic pick.
- Long time employee
- An operator
- Clear native
- All stuff, no fluff
- Very safe hands etc.
Feels to me like the Citi board just took a page from the Barclays (NYSE:BCS) play book.
USD Climbing Against Yen
The ProShares UltraShort Yen (NYSEARCA:YCS) has hurdled its nearest-term resistance line around 42.00/05, and has continued higher towards a confrontation with its declining 200-Day Expo MA, now at 42.77.
However, beyond its short-term challenges, let's notice that the YCS has carved out a massive potential base formation during the past 18 months that represents an intermediate-term bottom for the USD, and a top for the YEN.
The huge base has taken the form of a BIG "W" formation, with the YCS just starting to climb the "right side" of the W.
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The rebound has pinocchioed the 145 SPY (NYSE:SPY) strike and the overhead 20 dma and is testing the low of the high bar reversal day from October 5th.
If you are bearish, this offers a good risk to reward short.
Note how the SPY accelerated once it cleared 145. A half hourly chart for the last 4 days shows short term support on any pullback now at 145 and 144.50.
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Wednesday, October 17, 2012
Recent Weakness in FFIV Explained by CSCO/CTXS Deal
Well today we finally have firm news on the Cisco (NASDAQ:CSCO)/ Citrix (NASDAQ:CTXS) partnership. There has been persistent rumors that Cisco and Citrix would announce a strategic ADC agreement under, which the Citrix NetScaler products would be sold through Cisco's channel. Those rumors were confirmed today. This is hitting F5 Networks (NASDAQ:FFIV) today. But here is the key point.
FFIV and CTXS were already going to grab the business from the void of CSCO leaving. The CTXS partnership with CSCO likely helps CTXS at the margin, but I don't see this as a material hindrance for FFIV. In fact, it's still a significant benefit as guess what -- FFIV has been competing with CTXS for years and leading in this segment over CTXS by 2.5 to 1 margin and leading CSCO by a 3 to 1 margin.
The lack of a 3rd product in this market will likely drive the CSCO defections to the market leader (FFIV) and not the CTXS/CSCO combination in my view.
Bottom line, I don't see the CSCO/CTXS tie-up really hindering FFIV from gaining a nice chunk of the CSCO business and view FFIV as poised to gain significant ADC share.
Watching the Small Caps
After underperforming for weeks, Russell 2000 (NYSEARCA:IWM) is at a critical technical juncture (Current level is 835 as I write). As I shared in a note last week, several indexes found key support at their closest important technical levels. Russell-2000 was one of these indexes, supported by lateral trendline and 50-day SMA).
A high volume breach above this bullish flag, coupled with ascend above the 20-day SMA will put this index in a strong technical position in order to attain Sept highs. (See chart 1)
Sept high is important as it is a part of a much larger picture, with multi-year resistance around that area. (See weekly chart 2) In my view, this is the most important index that will define future market action.
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I have been stressing in my various writings and specifically though my "Lead-Lag Report" which I put together exclusively for Minyanville that intermarket trends deteriorated starting around mid-September, suggesting that markets could undergo a corrective period before ultimately making new all-time highs for the year (the "Fall Catalyst").
Last week was one of the worst for equities since June, and the last three days have completely undone that decline. Yes, a surprising comeback occurred, but I remain cautious. While there has been some improvement within the market, it is unclear if it is enough to justify new highs in the here and now. Our ATAC models used for managing our mutual fund and separate accounts remain cautious on equities, ready to reposition into another full risk-on moment should enough reflationary signs return. The noise is pretty loud now given the elections. I still think waiting for more clarity makes the most sense, as market uncertainty persists. If Healthcare (NYSEARCA:XLV), Utilities (NYSEARCA:XLU), and Consumer Staples (NYSEARCA:XLP) begin to massively underperform, then the Fall Catalyst comes early.
Thursday, October 18, 2012
Google -- OH MY!
Google (NASDAQ:GOOG) just filed an 8-K with its Q3 results, and it's BAD! Was supposed to come out after the close -- not yet sure why it's out early.
Q3 EPS came in at $9.03 per share, which is way below the $10.66 consensus. Revs ex-TAC were $11.33 billion vs. the $11.87 billion consensus.
Paid clicks are up 33% YoY, cost per click down 15%. Motorola revs were $2.58 billion, or 18% of revenues, and were down a big 22% year-over-year.
This is really bad news considering that just about everyone was counting on a BIG quarter here -- I've been close to buying the stock myself! It's now down 10% on the day and is under $700.
Fellow internet names like Facebook (NASDAQ:FB), LinkedIn (NASDAQ:LNKD), Amazon (NASDAQ:AMZN), and Yahoo (NASDAQ:YHOO) are all getting hit with the ugly stick.
Boy, What a Difference a Quarter Makes
A couple of days ago I tweeted the following:
"If I remember GOOG CEO got a big pass last Q on OpEx jump. Not sure the same will happen from these levels. I have no position"
One of the first things that jumps out from the Google (NASDAQ:GOOG) early release is a jump in costs in multiple areas. I continue to have no position in GOOG and probably won't for a long time. My humble opinion is that with the change of CEO's from Smith to Page this company has lost its cost/spending discipline and when discipline goes out the window of a behemoth as big and complex as this one, good luck getting it back.
Google Earnings Bust Illustrates Collar
This morning I posted an article on how to use collar to avoid earnings debacle. I cited Google (NASDAQ:GOOG) as good candidate to employ this strategy ahead of this afternoon's report. Little did I know they would have a premature implosion. While that didn't leave much time to get the position established but we can at least now look at how it would have worked.
The suggestion was to use next week's options and buy the $745 put for $17 and sell the $755 calls for $17 , or even money for the collar. With shares of GOOG halted at $687, or off some $63 from where the position was established the collar is worth $56 ( $56 for the put and $0.00 for the call). Meaning right now the loss would be just $6 rather than $63. Keep this strategy in mind for the reminder of earnings season.
Friday, October 19, 2012
Large Spec Puke-Fest
Perhaps I will enter the hedge fund business after consistently witnessing such poor performance by the game's supposedly sharpest minds. There were a handful of reasons to sell gold and silver at the end of September, most of which we listed here.
Explosive COT buildup, two former peaks just shy of 1800, outlandish RSI, the coming of the typically subdued at best October. For weeks, shorts were pinched at every turn. All weakness was bought aggressively, often to new marginal highs. When I publicly covered my week-long short attempt, it was out of frustration. I knew better but the 500 contract bids kept coming in. This round goes to JPMorgan (NYSE:JPM). Nice job. Shame on the big funds, your investors will figure out who you are.
Now at 32 on silver where I suggested earlier silver would make a stand, we see massive capitulation. Open interest is likely shrinking like the P&Ls of the momentum guys. I am a buyer here. Obviously, the charts show a clear path to 30.30 silver and 1660-90 gold. Vigilance is needed, but Octobers typically have a strange knack of bringing sufficient pain along with a nice entry, but often fail to usher in a full -fledged 10% gold correction.
Larry's Fuzzy Math
Just some basic math on Google (NASDAQ:GOOG), which in all fairness, I was getting ready to buy ahead of the quarter (but I didn't pull the trigger):
Let's throw out the 45% revenue growth Larry Page bragged about on the call. They got that number because Motorola was included in this year's results and not last year's.
The core Google business grew by 19%.
And the Motorola unit? Revenue there fell by a whopping 21%.
So if we compare Google's consolidated results on an apples-to-apples basis, revenue growth was actually 9%, not 45%
Fuzzy math? I vote YES.
The problem comes in that eliminating the Motorola drag means dropping a neutron bomb on it and shutting it down so investors can focus on the faster-growing standalone Google.
It's the most shareholder-friendly scenario, but it would also be a political and PR nightmare, and therefore unlikely.
So what's this patent stuff really worth? It better be more than $18 billion, because that's how much value Google's lost since yesterday
afternoon, and who knows what the damage could be in the future?
NDX Head & Shoudlers
A Head & Shoulders on the NDX (INDEXNASDAQ:.IXIC) shown in this morning's report projects to its 200 dma.
If the market is in a fast move down, the NDX could make a beeline for the 200 in hours/days.
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