Buzz Bits: Dow, Nasdaq In the Red
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Look at me, I'm A.D.D! - Todd Harrison - 3:52 PM
For those who didn't have the time (or inclination) to chew through my previous bullets, I wanna make sure you caught one that caught my eye.
- Keep an eye on Snapper--he is lurking and smirking. It's not a high probability bet but I'm still in "pick not press" mode. For what it's worth.
Alotta smart folks will tell you that market timing is a loser's game--and they're prolly right, over time. However, as I like to assimilate my metrics first--and add my gut after--I'll again offer that I've been more aggressive, on the margin, over the last hour.
I've still got the basic tenets of my aforementioned bet on but I've layered into further longs and shaved some puts. I'm leaving the metaphorical costumes in the closet (they're too expensive to lug along when I travel) as I'm still somewhat balanced but I wanted to communicate this latest twist of fate. And yes, I've got half an eye cast towards looming CRB and S&P support.
I just pinged these thoughts to my pal Snoop Tone and finished with "for what its worth." He responded, from a tarmac in Michigan, that "they're worth a lot." If he thinks so, perhaps you will too. And if not, my sincere apologies for wasting this Buzz. Speaking of which, I'm told that we're "all systems go" for the Buzz 2.0 launch. Time will tell....tick tock!
Have a great night, my friends, and I'll catch you in the ayem.
Mini-Minyan Mailbag - Kevin Depew - 3:09 PM
Quick question....why is Circuit City (CC) red with such a good report this morning. What am I missing?
Minyan "Charles" Bronson
The CC report this morning was indeed positive. And yes, the guidance was positive as well (the company even specifically noted that they were monitoring - whatever that means - macroeconomic issues and have prepared "contingencies" and will "react accordingly.").
Since March 2003, the stock is up more than 500%, compared to a little less than 50% for the S&P 500. Of course, you may remember that the stock collapsed from the mid 30s to below 5 in a matter of about three years between 2000 and 2003. Hey, where were the macroeconomic monitors then?!
On a technical basis CC is in exactly the same high-risk technical situation as everything else - SPX, NDX, RUT, Crude, Copper, etc. etc. - that has been a beneficiary of liquidity since... anyone?... anyone? March 2003. It's all one market now.
Position in ES/U6
Healthy slowdown? - Fil Zucchi - 2:18 PM
- If this is what a "healthy slowdown" looks like in the housing market, I may have to reassess how an ugly case scenario may feel (and these are the cheerleaders speaking, a.k.a. National Association of Home Builders). That being said, I still believe that the next leg down for the homies won't start until the mortgage side of things gets messy, and that may take a while.
- Given the weight Aunt Fannie (FNM) carries in the MFX Index (MFX), I have shed my last puts in the latter.
- From these prices, I still think there's more risk to the upside than the downside for gold, but the here and now does not look too good.
Position in FNM, gold, homebuilders
Remember? - Woody Dorsey - 12:58 PM
Those who are "uber-friendly" to metals and energies" may want to keep in mind that yes, even secular moves correct.
Remember the 1987 stock market crash? It was a shakeout, relatively early on, in a bull market. This may be what is, has, happened in the hard asset area. We could be in for a rotational, churning period in which Crude is congesting but Nat Gas is bottoming.
If inflation continues its trend, pure gold plays may shine... Gold could become the new copper. If, the precious stuff is really still in a precious secular trend, we could be a matter of days before these sectors begin to prove themselves. Our behavioral profiles suggest just that. So sticking with the hard stuff may seem hard right now but that may make it easy for long term contrarian investors to just ride this out.
The "Red" Thoughts - Vitaliy Katsenelson - 10:21 AM
I am no longer surprised by some TV commentators and their inability to make a distinction between a company and its stock performance. Larry Kudlow made a statement on Friday - something along the lines that Microsoft (MSFT) management has not done things right because the stock has not moved in a long time.
Over the last five years, Microsoft has grown earnings and revenues 10% and 12% a year, respectively. It is a great achievement considering it came off the very large base of Y2K upgrades. The stock has not gone anywhere for a long time, not because of management's wrong-doing or mismanagement, but because it was overpriced in the late 1990's.
I am addressing this issue in my upcoming (sometime in 2007) book in greater detail. The performance of a stock or stock market is a function of earnings growth and a starting valuation at the time of investment. We seem to draw the parallel between earnings growth and stock performance very easily, but forget about starting valuation.
Position in MSFT
Bio-news - David Miller - 9:52 PM
Merck's (MRK) Zocor patent expires Thursday, so I would take Bear Stearn's "beat consensus" forecast for most of those drug makers as a one-time deal for the forseeable future. Zocor currently sells at about $4.50 a pill. It will sell for about 50% of that for the first six months then about 80-90% of that thereafter. Several news stories over the weekend noted how broadly anticipated this event is by insurers. Pharmacy-benefit managers expect 80-90% of Zocor patients will switch and a goodly amount of Pfizer's (PFE) Lipitor patients will follow.
Zocor sales were up 13% versus Lipitor's 2.5% drop, reflecting insurers switching patients to Zocor ahead of the expiration. Pfizer's worst nightmare is likely to be the increasing development of generic Zocor as first line treatment, leaving Lipitor and Vytorin to fight over the remainder. I think Merck and Vytorin partner Schering Plough (SGP) will do better in that battle than most analysts believe.
COT-CFTC reveals some VERY interesting data this past week. - Bennet Sedacca - 9:39 AM
As we have stated in the past, commercials are not considered 'smart money' for nothing. See this chart. On the recent decline, commercials reduced their short exposure in S&P futures by a HUMONGOUS 80,000 contracts. I don't recall that sort of move before, and I have been around a while. So as the SPX was falling 100 points, they were covering short. Smart, huh?
Over in bond land, they have now reduced their long position in 30 year futures from 250,000 to 100,000 contracts. Still long, but the net sell of 150,000 contracts is also huge and is one of the reasons we took off our position in 10's in the 4.98-5.00% area.
These were superb moves on the part of the smart money crowd and is why we keep it on our radar screen with such importance. Something tells me if we get towards 5.40% in 10's and 1280-1295 area in spu's we will see them re-establish positions.
Nokia - Siemens Deal - Brian Gilmartin - 9:25 AM
Regarding the Nokia (NOK) - Siemens (SI) deal, I don't follow Siemens, but I do follow NOK fundamentally, and the Networks group was approximately 18%-20% of revenues but a smaller percentage of NOK's operating profits, and much more volatile.
It is no great insight that the telecom networking sector was just devastated in the bear market from 2000-2002, but in the subsequent market recovery off the 2003 market bottom, NOK couldn't get any operating leverage out of Networks: even with healthy double-digit, y/y revenue growth in some quarters in recent years, Nokia Networks couldn't get anywhere near that growth in operating profits, even as the handset business recovered smartly.
I have yet to read any analyst notes on the deal, but my first take on this Nokia combo is that it will go a long way to improve earnings stability for NOK and reduce the inherent volatility within Networks. NOK is trading at about 1.5(x) 4q trailing sales and about 20(x) cash from operations currently.
We have always favored NOK over Motorola (MOT) and other handset manufacturers given NOK is the low cost manufacturer in the handset business, and my first pass at this combination is that it will benefit NOK over the long run. We are simply waiting on a better price to own NOK.
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