Buzz Bits: Dow and Nasdaq End Lower
Your daily Buzz & Banter highlights.
Stealing Land - Ryan Krueger - 3:44 p.m.
To continue from an earlier Buzz, there is something like a game of musical chairs where farmers in some areas are able to switch crops in chase of higher prices. You'll see in a heavily anticipated crop report on Monday which supply's song stops and takes the legs right out from under analysts.
We had the ethanol craze in '06 cause a huge planting in corn, whose supplies in '07 then naturally kept a lid on prices compared to soybeans whose acres they stole. As Buzzed about in '07 the possibility for tighter supplies in beans set up their rally. My best guess on Monday? We get the exact opposite potential setup. And how 'bout an early '09 idea? They're both stealing acres for the first time like this - from cattle!
How many investors who strongly believe a commodity like corn must come down in price (there are plenty of reasons cited) could also tell you how many more acres of corn supply we'll plant next year? We'll see Monday, but it looks like about 3-4 million less.
The trades are not just in futures contracts, but in wondering what happens when you add people to the musical chairs in the middle of the game. We all know about hundreds of millions of new eaters. But there is a much smaller group we must watch. Profit potential has attracted enough talented scientists and engineers to make each acre more productive. Seed technology is going to make some investors wonder why they keep looking at Nasdaq technology instead.
Speaking of chairs, who's gonna join me for the Regionals in Houston tomorrow night? Any Minyans making the trip to see the 7-foot Stanford twins impress the crowd with their rebounding? I see one pulling a key one down the stretch right out of a nylon bath from Abrams.
Positions in corn, cattle, soybeans, wheat.
Goldman Downgrades Juniper - Sean Udall - 12:32 p.m.
While I may not totally agree with Goldman Sachs here, if I'm speaking with my money I do. Once Juniper Networks (JNPR) breached to high $30's it seemed to be quite pricey on a relative basis near term.
As with many niche leaders in the tech space currently, JNPR has a mixed near picture while a quite compelling longer term view. It may have the best core router on the planet and has made significant inroads into the edge space and I think this and its security offerings will be key areas of strength.
As Oracle (ORCL) shows, this next quarter is going to give us large doses of evidence that both bullish and bearish arguments can be made. Mainly the battle will be about valuations, balance sheet strength and relative performance vs. expectations for next quarter and how much negativity is already priced into stocks.
I suspect if ORCL had traded punk and declined a couple points into its call the stock would be flat today at about the same price, but possibly even trading higher.
Bottom line on JNPR. I like the stock under $23 and I basically agree with GS's call near term. Longer term I think the global bandwidth story will help JNPR as much as many names. My longer term fair value is around $36. So once we get some clarity or a cheaper price, it will be a name to focus on.
As for Cisco (CSCO) I still think you can be long the name and I'm planning on adding in the $23's.
Position in CSCO
Guess Y'all Better LEH-von - Adam Warner - 11:10 a.m.
The PPT was just here last week, I was under the impression we would never see headlines like this again.
10:41 LEH Lehman Brothers bond risk rises, credit default swaps rise 15 basis points to 265 BPS
OK, I wasn't really of that opinion, they just told me the worst was in the rearview on TV. But guess what, it's BAAAACCCCCKKKK. Volatility is exploding and puts are trading huge volume in the usual suspects. All we need is someone to reassure us on TV that the stocks are safe... I mean money held in accounts at Merrill (MER), Citigroup (C) and Lehman (LEH) is safe. Lehman of course having a huge retail business (not). But I digress.
Look, as soon as you see this action, you can't help but expect another Bear (BSC). Who's going to sell naked puts in any of these? Apparently that's an issue as Briefing reports much of the volume is in the form of put spreads. Which to me is the only sensible way to play them, whatever your opinion. Your risk/reward is well defined, no reason to be a hero.Position in LEH
Eye on Commodity Prices - Minyan Peter - 9:45 a.m.
Three things that caught my eye this morning:
- 1. The WSJ reporting that Valero (VLO) is cutting back refining output because of a surplus of supply.
- 2. Oil trading flat/down despite the announcement of a terrorist bombing of a major Iraqi pipeline.
- 3. The CME announced an increase in commodity trading margin requirements.
While discrete events, all again raise the question of peaking consumer commodity prices. Two things to keep in mind:
First, commodity price inflation has been cited repeatedly by the Fed as a concern. And given the view of many that the most recent price rises are a function of rampant speculation (versus fundamental demand) I would not underestimate a) the pressure placed on the CME to increase margin requirements by banking regulators to curtail speculation and b) how stability in commodity prices (let alone price declines) opens up the Fed's ability to drop short term rates further without pummeling the dollar.
Second, while everyone will likely cheer commodity price declines as the savior of the US consumer, asset deflation, whether in housing, commodities or anything else is like Kryptonite to the banking industry. And don't forget, too, how much lending (particularly M&A related) has been done in the past five years in support of commodity related companies - particularly in Asia.
At least to me, commodity price deflation eliminates any notion of decoupling.
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