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business newsTurkey Day Randoms: German Bonds, Akamai Saga, Dollar Tree vs. Inflation
By
Fil Zucchi
Nov 24, 2010 12:40 pm
Overnight, an option of 10-year German bonds went off uncovered; why Level 3 is no competition for Akami, and why discount retailers should fear inflation.
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On a day when Akamai (AKAM) is flying, up almost $2 as I write, a couple of words about the saga of the last few weeks. In my humble opinion, worrying about competition from Level 3 Communications (LVLT) or Limelight Networks (LLNW) is complete nonsense. What these companies might be able to take from Akami is the lowest of low margin business. If I had to worry about the loss of one customer for the type of service that Level 3 will offer to Netflix (NFLX) I would not be involved in this thing. I've said this before and I'm going to say it again: Akamai has long stopped being a dumb reseller of bandwidth. It is a software company; much like BMC Software (BMC) lets operators control their networks, Akami allows content owners to distribute their information over the networks in a fail-safe manner. That is very different from what Level 3 does, which is simply to provide a slightly more efficient network of pipes on which the content actually travels.
At the risk of beating this horse to death, think of it in these terms: Akami provides a set of software tools that overlay on top of the pipes that Level 3 and other network operators are seeking to fill. Through these lenses, Akami does not have any real competition at this point, except for one gigantic potential competitor; the company whose name shall not be spoken, aka, Google (GOOG). Tell me that Google has content distribution software on a drawing board and I would indeed start getting very nervous. But for now there is nothing of the sort out there; indeed there is far more chatter about investment bankers buzzing around Akamai then there has been in the past, and the more I think about it -- maybe I should say “dream” about it -- it would make a whole lot of sense for Google to print $14 billion worth of shares and send them as a nice Christmas gift to Cambridge, Massachusetts.
I am slowly adding to my put position in Dollar Tree (DLTR). The stock reaction to the company's blowout earnings was a dud, and with the price revisiting the highs of that day, it offers me a chance to get a little bit shorter. To repeat my thinking on this one, I believe discount retailers are going to be seriously hurt by inflation once it starts to percolate up from the raw-materials stage to the finished-goods stage. I'm not sure how long that will take, and that is why my puts go out to January of 2012.
The 30-year Treasury bond rallied for three days after registering a TDST Buy Setup, and today it is giving up just about all of the gains. This is textbook DeMark behavior, and considering that the chart shows a qualified down break of the active TDST line, there is every reason to expect a TD Countdown Sell pattern to develop, which would entail significant more weakness ahead for the bond. The chart appears below.
Click to enlarge
With that, readers, I wish you all the happiest of Thanksgivings and I will see you on the other end of the weekend for the beginning of the stretch run into year’s end.
Positions in AKAM, BMC, Long Bond, GOOG, DLTR
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