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About American Express - Minyan Peter - 1:10 PM

A few quick observations from Minyan Peter, popular author of such pieces as

About American Express - Minyan Peter - 1:10 PMA few quick observations from Minyan Peter, popular author of such pieces as How Asset-Backed Commercial Paper Works.

On the American Express (AXP) front, I would add one thought to John Succo's piece. Amex is in an enviable position versus every other U.S. credit card issuer. Two of its three legs are doing extremely well – international and card system. As the premier global financial services luxury brand, international growth will continue to drive card issuance. And the company's decision to open the Amex brand to third-party bank issuers is driving huge year-on-year volume growth here in the U.S. At least for the foreseeable future, these two parts of the business will more than offset its deteriorating U.S. lending business. And if I were to run a long/short in financial services, Amex would clearly be my long.

On the importance of financial services to the S&P, I can not emphasize enough how credit-related tentacles touch every business sector. While to some the past decade of consumer credit may represent "normal", I believe it will go down as one of, if not the most, lenient periods of credit extension in history. And while we are still very early, 0% introductory rate financing across all forms of consumer debt (from credit cards to 30 year mortgages) fueled excesses that are just now being realized. And I, for one, strongly believe that the commodity (including energy) and China trades reflect the market's extrapolation of our consumer debt induced buying into the next 100 years in the same way broadband was to grow "forever" at the top of the Internet bubble.

Where capital was once freely available, though, I believe we are at the beginning of a credit tightening cycle that will result in only the best credits (consumers, corporations and even governments) having access to incremental debt. Further, with the re-intermediation of assets already ballooning bank balance sheets, I believe that the premium for capital will rise far more rapidly than the global equity markets anticipate. And while there will be efforts to slow the re-pricing of risk (by further interest rate cuts and public/private initiatives such as the SIV Superfund), ultimately credit will be marked to a much different world market.

Position in SKF.

High Quality on Sale Today - Sean Udall - 1:03 PM

I added Texas Instruments (TXN) just minutes ago and added Cisco (CSCO) on last Friday's big selling. I might ramp the CSCO size if it falls 5% or more below my cost basis or around the $28.50-29 level.

Both companies are well-positioned for the future. Both companies have very solid balance sheets, maybe two of the best in the world, and both companies are better buys into weakness than strength.

Based on the results from Apple (AAPL), Google (GOOG) and what I expect to see from Microsoft (MSFT) and Verizon (VZ), I think the companies providing the underlying building blocks for the wireline and wireless world will benefit immensely the from the many drivers that are increasing the loads in those spaces. Though these companies may require more patience in your holding periods, at current levels they should also be subject to less downside risk.

Randoms - Fil Zucchi - 12:42 PM

  • F5 Networks (FFIV) reports tomorrow afternoon. I have no feel for how it will be except that it would not shock me if the sell side flesh-out that FFIV did in fact pay a pretty fat price for Acopia Networks. As I noted when I got involved, $35 rather than $45 is where I liked it, and I have now bought downside protection accordingly.

  • I stepped up my shedding of Citrix Systems (CTXS) in this morning's pop.

  • Nothing new from Stephen Roach, except a superbly written piece bringing most of Boo's arguments together.

  • Countrywide Financial (CFC) has gotten a $2 bln "investment"; then it lined up lines of credit for many multiples of that; then it fired 12,000 employees. And what it's got to show for it is new lows in its stock price and spreads in its Credit Default Swaps that have almost doubled to 375 bps since October 9. What happens if this puppy blows?

  • In my humble opinion, yesterday's big high volume upside reversal bar in the Dollar Index (DXY) has now drawn the line in the sand for the greenback. If those lows are broken I think it means trouble. I've put on a smallish bet on the Euro futures (ECZ07), that it will not happen quite yet and the dollar will put in some kind of rally.

  • If yesterday's dollar lows are in fact a critical line in the sand, will that influence Boom Boom's decision a week from now? If it does, how will the equity markets feel about that?

Position in ECZ07, CTXS, FFIV

Mini Minyan Mailbag - Todd Harrison - 11:38 AM


I am not saying financials don't matter-- of course they do. But when you can't turn on the TV and hear "overweight energy/ underweight financials," doesn't energy matter most?

-Minyan J


Great question.

The answer is "yes and yes." Financials matter most, in my view, because they're A) the highest weighting in the S&P and B) an encapsulation of our finance-based economy. And given the $500 trln of derivatives and the interwoven nature of credit, any fire will begin to smoke there (hence, as goes the piggies, so goes the poke). And it's why the "poke" lower (2007 lows) in the BKX continues to warrant attention (in my humble view).

Energy, through a leadership lens, is also an important tell. And I'll group crude into that as well. I said on television Friday that I was more concerned with a precipitous drop in oil versus a continued rally, and that, while $90 oil is clearly taxing on the consumer, the "rising tide" of a lower greenback has been the driver (along with every other asset class) of dollar-denominated assets. Oil didn't "matter from $30 to $85, so I just don't buy that it "matters" now. Well, it does on the margin, but not as an absolute catalyst, not in a multi-linear equation.


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