This Is, Suprisingly, A Logical Way Out For $RIMM
Oddly enough, after all of the fumbling around, the news broke yesterday that Amazon was looking at Research in Motion. What would this accomplish? Amazon could buy a handset maker, for cheap. It already has the obvious marketing platform to sell whatever to whoever. At this point, selling the handset business to Amazon makes sense, but only if done SOON. Market share of Blackberries is plummeting, and before the handset is entirely obsolete, RIMM needs to sell. Ask Palm what happens what happens when this occurs too late.
Sell the Enterprise Division
With the unwanted stepchild (Blackberry handsets) sold, the Enterprise division which includes the secure email network still favored by corporations can be sold to a company that is dedicated to business computing. Microsoft, Oracle, IBM, take your pick. Microsoft, in particular can attach this to its entrenched servers, and there it makes sense.
Patents? Auction.
The value investor crowd has speculated that the RIMM patent portfolio is valuable. This blog has been highly skeptical of this. That said, let the open market decide, and get a price. The worst that can happen is that the patent portfolio can be included in the sale of the Enterprise division.
A+B+C > 14? Probably, But Timing is Key
RIMM management has no time to lose. The reason? Market share falling, and corporate customers are exploring how to integrate iPhone into corporate networks. RIMM management cannot, by itself, stop the rot. This erosion is time dependent, so a split-up and a sale needs to happen, and the sooner the better for RIMM shareholders.
Disclaimer: After being short from the 30s, the author is the smallest long imaginable at 13/share.
Wednesday, December 21, 2011
Wednesday, November 30, 2011
Do You Know What A Blood Oath Is, Mr Ness? "Yes" Good, Cuz You Just Took One. (In Ben We Trust)
In Ben (Only) We Trust
This blog has pointed out that the market believes in one, and only one, decision-maker. That is Ben Bernanke. Period. Do not pass go. Do not collect $200. Today, dragging the seven dwarfs in tow, Ben "Snow White" Bernanke must've watched The Untouchables last night.
Here is what he said (actually Sean Connery is a Ben Bernanke doppleganger, don't you think?) to the rest of his monetary chief counterparts.
The rest is history. We can moan "they can't do that," "this is no solution," "this will devalue the dollar and bankrupt the U.S.," etc all we want, but that is not the point. The point is that Ben Bernanke fears one thing and one thing only: the liquidity trap zone. He will do anything to avoid it, even pulling out clips from movies 20 years old. The market has been lulled to sleep forgetting that fact. That all said, this clip has been played out before, and immediately preceded Bear Stearns, Countrywide, and AIG in quick succession. Forbes speculated today that something similar was noticed last night. Maybe, maybe not. Maybe this will prevent us from ever finding out. At this point, we know that the only one we trust, Ben Bernanke, still has the market's back.
In Ben (Only) We Trust.
This blog has pointed out that the market believes in one, and only one, decision-maker. That is Ben Bernanke. Period. Do not pass go. Do not collect $200. Today, dragging the seven dwarfs in tow, Ben "Snow White" Bernanke must've watched The Untouchables last night.
Here is what he said (actually Sean Connery is a Ben Bernanke doppleganger, don't you think?) to the rest of his monetary chief counterparts.
The rest is history. We can moan "they can't do that," "this is no solution," "this will devalue the dollar and bankrupt the U.S.," etc all we want, but that is not the point. The point is that Ben Bernanke fears one thing and one thing only: the liquidity trap zone. He will do anything to avoid it, even pulling out clips from movies 20 years old. The market has been lulled to sleep forgetting that fact. That all said, this clip has been played out before, and immediately preceded Bear Stearns, Countrywide, and AIG in quick succession. Forbes speculated today that something similar was noticed last night. Maybe, maybe not. Maybe this will prevent us from ever finding out. At this point, we know that the only one we trust, Ben Bernanke, still has the market's back.
In Ben (Only) We Trust.
Sunday, November 27, 2011
One Thing is (Almost) Certain: $RIMM is Doomed
Eurozone Fate Unknown, $RIMM's Fate All But Sealed Now
Even sell-side analysts have taken out their envelopes and started adding numbers like this blog has already done on October 18th here on this blog. Cash + enterprise/server services + patent portfolio + goodwill = terminal price. As fellow bears on $RIMM have pointed out more fluently than I: anytime a tech stock becomes a value stock, it's over. Friendly reminder: value investors buy at a discount, not a premium to net asset value.
From October 18th:
Breakup Evaluation
Again, the ltz vortex repeats its long-term view: single digits are in order as a terminal stock price. Cash is now down to $1.5/share. Patent portfolio? Again, Apple views its main competition as Samsung, as the two are in a bitter, and growing, battle in pretty much every jurisdiction on the planet. Apple and Samsung are fighting each other simply because $RIMM is not a relevant competitor. The Blackberry system outage has damaged its last remaining asset: diehards have stuck with Blackberry due to network security and exclusivity. Those features, along with RIMM's existence itself, must now be questioned. So unless a technology buyer appears to fuse the patent portfolio with one of its own, there is almost no chance of a bid. Time is running out, and management either needs to be replaced, or a further decline will be in order.
Technical Analysis "May" Help, Temporarily
Now, every chart on this stock is busted. There will be all sorts of different statistics that you can find/create. MACD, Bollinger Bands, EMA, SMA of every conceivable timeframe: you can see them all on www.freestockcharts.com for yourself. On a short term basis, it may/can work. Over the medium term? Nope.
Now that the M&A, activist shareholder rumors and hype have subsided, and the S&P has retreated, $RIMM has continued its excruciating decline to $16/share. Alexander Hamilton, soon you will be worth 1 share of $RIMM.
Even sell-side analysts have taken out their envelopes and started adding numbers like this blog has already done on October 18th here on this blog. Cash + enterprise/server services + patent portfolio + goodwill = terminal price. As fellow bears on $RIMM have pointed out more fluently than I: anytime a tech stock becomes a value stock, it's over. Friendly reminder: value investors buy at a discount, not a premium to net asset value.
From October 18th:
Breakup Evaluation
Again, the ltz vortex repeats its long-term view: single digits are in order as a terminal stock price. Cash is now down to $1.5/share. Patent portfolio? Again, Apple views its main competition as Samsung, as the two are in a bitter, and growing, battle in pretty much every jurisdiction on the planet. Apple and Samsung are fighting each other simply because $RIMM is not a relevant competitor. The Blackberry system outage has damaged its last remaining asset: diehards have stuck with Blackberry due to network security and exclusivity. Those features, along with RIMM's existence itself, must now be questioned. So unless a technology buyer appears to fuse the patent portfolio with one of its own, there is almost no chance of a bid. Time is running out, and management either needs to be replaced, or a further decline will be in order.
Technical Analysis "May" Help, Temporarily
Now, every chart on this stock is busted. There will be all sorts of different statistics that you can find/create. MACD, Bollinger Bands, EMA, SMA of every conceivable timeframe: you can see them all on www.freestockcharts.com for yourself. On a short term basis, it may/can work. Over the medium term? Nope.
Now that the M&A, activist shareholder rumors and hype have subsided, and the S&P has retreated, $RIMM has continued its excruciating decline to $16/share. Alexander Hamilton, soon you will be worth 1 share of $RIMM.
"Hello. Emerging Markets?", It's Me, Ms Lagarde (Updated)
The Crowd Doth Protest Too Much, Methinks
Universal derision of the reports that the IMF is readying a 600B Euro rescue plan for Italy are all over the internet right now. The US has, historically, been the largest contributor to the IMF. Most of the protestations are related to the idea that the IMF, and the US, do not have that kind of money to help Italy. Yeah, true. But, there are others....
Possibility: Asia Would, and Should, Answer the IMF's Cash Call
Forget the past, and the fact that the IMF has helped basically every emerging market country in some shape or form over the past 30 years. The fact is that now, right now, Asia has more than enough foreign reserves, and national pension money to be on call in a revolving credit line, should the IMF require. GIC Singapore, and their counterparts in China, Korea, Taiwan, etc have more than enough money to collectively be on call for a revolver.
The key point here is that the IMF is not the ECB. The credibility of the ECB is waning by the nanosecond. However, the IMF is different, and if you believe that Asia doesn't consider that credibility, then you are being short-sighted when considering what can actually be done.
Last thing: if you know the Chinese mentality, they know this is a long game with many iterations. Even if they want to win over the long run, Eurozone depression isn't the best way to achieve that from the Chinese perspective either. While the concept of schadenfreude may exist in every culture, Confucian ethics don't focus on this in the least.
(Update) Don't Think The IMF Can "Get Away With This?" Think Again.
Oh please. TARP was &750 Billion. POMO who the hell knows how large. Bloomberg reports secret loans to banks resulted in $13B extra profits (i.e. extra handout). Now, experts are telling us that the IMF doesn't have the capacity/ability to muster up $750B?? You must have missed "current events" in Current Events class; we have just been through 4 continuous years of actions that would have been called "They cannot get away with this."
In short, the suggestion above may not occur, but to summarily dismiss the IMF would also be erroneous. The protestations to the IMF rumor are too violent. A couple of phone calls are all that are needed, and the IMF has the credibility to make those calls. For now.
Update (Nov 30): China Lowers Reserve Requirements
China lowered their reserve requirements by 50 bps in a move to head off a weakening global economy. The PBOC has joined the global PPT. This does make sense. Read the passage from the original post:
Last thing: if you know the Chinese mentality, they know this is a long game with many iterations. Even if they want to win over the long run, Eurozone depression isn't the best way to achieve that from the Chinese perspective either. While the concept of schadenfreude may exist in every culture, Confucian ethics don't focus on this in the least.
The Chinese are now intertwined in the global economy. Add that to their own domestic issues, such as the loan losses at banks and weakening real estate prices, it makes complete sense to address stimulating its own economy, and attempting to pull the global economy with it. So while direct loans to the Eurozone are not yet in order, this is China's first step. With their foreign exchange reserves, China has plenty of bullets to spare.
Universal derision of the reports that the IMF is readying a 600B Euro rescue plan for Italy are all over the internet right now. The US has, historically, been the largest contributor to the IMF. Most of the protestations are related to the idea that the IMF, and the US, do not have that kind of money to help Italy. Yeah, true. But, there are others....
Possibility: Asia Would, and Should, Answer the IMF's Cash Call
Forget the past, and the fact that the IMF has helped basically every emerging market country in some shape or form over the past 30 years. The fact is that now, right now, Asia has more than enough foreign reserves, and national pension money to be on call in a revolving credit line, should the IMF require. GIC Singapore, and their counterparts in China, Korea, Taiwan, etc have more than enough money to collectively be on call for a revolver.
The key point here is that the IMF is not the ECB. The credibility of the ECB is waning by the nanosecond. However, the IMF is different, and if you believe that Asia doesn't consider that credibility, then you are being short-sighted when considering what can actually be done.
Last thing: if you know the Chinese mentality, they know this is a long game with many iterations. Even if they want to win over the long run, Eurozone depression isn't the best way to achieve that from the Chinese perspective either. While the concept of schadenfreude may exist in every culture, Confucian ethics don't focus on this in the least.
(Update) Don't Think The IMF Can "Get Away With This?" Think Again.
Oh please. TARP was &750 Billion. POMO who the hell knows how large. Bloomberg reports secret loans to banks resulted in $13B extra profits (i.e. extra handout). Now, experts are telling us that the IMF doesn't have the capacity/ability to muster up $750B?? You must have missed "current events" in Current Events class; we have just been through 4 continuous years of actions that would have been called "They cannot get away with this."
In short, the suggestion above may not occur, but to summarily dismiss the IMF would also be erroneous. The protestations to the IMF rumor are too violent. A couple of phone calls are all that are needed, and the IMF has the credibility to make those calls. For now.
Update (Nov 30): China Lowers Reserve Requirements
China lowered their reserve requirements by 50 bps in a move to head off a weakening global economy. The PBOC has joined the global PPT. This does make sense. Read the passage from the original post:
Last thing: if you know the Chinese mentality, they know this is a long game with many iterations. Even if they want to win over the long run, Eurozone depression isn't the best way to achieve that from the Chinese perspective either. While the concept of schadenfreude may exist in every culture, Confucian ethics don't focus on this in the least.
The Chinese are now intertwined in the global economy. Add that to their own domestic issues, such as the loan losses at banks and weakening real estate prices, it makes complete sense to address stimulating its own economy, and attempting to pull the global economy with it. So while direct loans to the Eurozone are not yet in order, this is China's first step. With their foreign exchange reserves, China has plenty of bullets to spare.
Saturday, November 26, 2011
Eurozone Rumormill in Full Swing: Expect Fireworks
Updated Nov 28
This Weekend, The Sunday Headlines Begin on Saturday
NYT: Banks Build Contingency for Breakup of Euro
Bloomberg: Europe's Single Currency May Unravel Before Action, UBS Says
Bloomberg: Euro in Longest Losing Stretch in 18 Months
The Telegraph: Prepare for riots in euro collapse, Foreign Office warns
Reuters: Greece may miss 2012 selloff target due to Euro crisis
The problem with the extreme pessimism is that it presumes that everyone is completely stupid. That in itself is a wrongly placed assumption. If someone takes Merkozy for total idiots, I am pretty sure that is wrong. I am quite confident they are not, and they are not stone deaf either. They will respond, the question is speed, force, and whether the market is convinced or not. The lack of details given so far has been stunning. That the market has bought any of the "fixes" without the details is amazing, but the crowd is getting more pessimistic with each passing announcement.
Nevertheless, here are the "solutions":
Yahoo! Finance: Germany, France plan quick, new Stability Pact: report
Reuters: Euro zone integration may pave way for ECB bond action-officials
Economic Times (India): IMF readies 600-billion-euro rescue plan for Italy: Report
Within the next 24 hours, I suspect both lists are gonna get even longer.
The naysayers are out in force; you know what that usually means....
A bounce is probably in order.
Post-Mortem Monday (Update 1, Nov 28)
Rumors of IMF rescue plan were roundly denied, and the Franco-German stability pact remained sketchy at best. A euroland-within-euroland debt issue was also denied. Last, and not least, the notion of further leveraging of the EFSF was also denied. Whew, that is a heckaofalot of denials. So while the rally seemed tenuous and on low volume, the fact is that it didn't disintegrate when all of the denials arrived.
The market tell is, and will be, $DB, $CS, $ING; these three are Euro financial ADRs and yet are not within a PIIGS bloc. So, they represent the exposure to the Eurozone debt problem, and the liquidity problems all in one fell swoop. Add in some Euro exposure (due to their original denomination), and voila, you can tell whether the market move intraday is going to hold up. Today, $ING was up 12% out of the blocks, and didn't give much back. KISS, and that is as simple as it gets.
Market sent us everyone a message: the market is leaning short and punished those that stayed short. After the close today, Fitch kept the U.S. ratings but moved the outlook to Negative. Market reaction? Nada. We could be moving into a mode where bad-news fatigue is setting in again, and all bad news is good. 'Tis the season, after all.
This Weekend, The Sunday Headlines Begin on Saturday
NYT: Banks Build Contingency for Breakup of Euro
Bloomberg: Europe's Single Currency May Unravel Before Action, UBS Says
Bloomberg: Euro in Longest Losing Stretch in 18 Months
The Telegraph: Prepare for riots in euro collapse, Foreign Office warns
Reuters: Greece may miss 2012 selloff target due to Euro crisis
The problem with the extreme pessimism is that it presumes that everyone is completely stupid. That in itself is a wrongly placed assumption. If someone takes Merkozy for total idiots, I am pretty sure that is wrong. I am quite confident they are not, and they are not stone deaf either. They will respond, the question is speed, force, and whether the market is convinced or not. The lack of details given so far has been stunning. That the market has bought any of the "fixes" without the details is amazing, but the crowd is getting more pessimistic with each passing announcement.
Nevertheless, here are the "solutions":
Yahoo! Finance: Germany, France plan quick, new Stability Pact: report
Reuters: Euro zone integration may pave way for ECB bond action-officials
Economic Times (India): IMF readies 600-billion-euro rescue plan for Italy: Report
Within the next 24 hours, I suspect both lists are gonna get even longer.
The naysayers are out in force; you know what that usually means....
A bounce is probably in order.
Post-Mortem Monday (Update 1, Nov 28)
Rumors of IMF rescue plan were roundly denied, and the Franco-German stability pact remained sketchy at best. A euroland-within-euroland debt issue was also denied. Last, and not least, the notion of further leveraging of the EFSF was also denied. Whew, that is a heckaofalot of denials. So while the rally seemed tenuous and on low volume, the fact is that it didn't disintegrate when all of the denials arrived.
The market tell is, and will be, $DB, $CS, $ING; these three are Euro financial ADRs and yet are not within a PIIGS bloc. So, they represent the exposure to the Eurozone debt problem, and the liquidity problems all in one fell swoop. Add in some Euro exposure (due to their original denomination), and voila, you can tell whether the market move intraday is going to hold up. Today, $ING was up 12% out of the blocks, and didn't give much back. KISS, and that is as simple as it gets.
Market sent us everyone a message: the market is leaning short and punished those that stayed short. After the close today, Fitch kept the U.S. ratings but moved the outlook to Negative. Market reaction? Nada. We could be moving into a mode where bad-news fatigue is setting in again, and all bad news is good. 'Tis the season, after all.
Friday, November 25, 2011
Merkel vs Eurozone: Ms Lagarde (IMF) Enters
Structural Flaws of the Euro Exposed
The Euro experiment cannot continue in its current form, period. Fiscal harmony only works when the net export and fiscal equations are also harmonized. Since it is too late for that to be established, we are now back to old-school economics. Countries need to have individualized foreign exchange capabilities. Greece, Italy, and Spain need to devalue their domestic currencies dramatically to pay for their debts. Oops, there is no such thing as a domestic currency. We can dance around the different topics, but absent debt write-off, and simultaneous governmental intervention to prevent an all-out European banking crisis, the Euro experiment is entering its final stages.
Liquidity? Nope. Solvency is the Problem.
The headline is that European bank liquidity has dissolved. The actual problem is that the cause of this is that solvency of European banks is the question. The Merkozy debate is really about how to solve the solvency issue because without a solution, a liquidity solution is nowhere to be found. We will be able to figure out who the survivors will be at a later date; for those currently long European bank equities, the answer is that no one will be left unscathed.
Germany is Pathetic For Many Reasons
Without the PIIGS, you could say that the Euro or Mark vs the USD should be much, much higher. If that were the case, then the German economy would be in a world of hurt. If anything, Germany has benefited from the weak Euro the most; Siemens, BMW, et al have all made money that would have gone to their global competition if the Euro didn't have these problems. For Germany to now turn around and behave in a holier-than-thou way is pathetic at best. Chancellor Merkel is playing a dangerous game, because responding to internal German politics will result in a much weaker German economy in the medium term, and potentially in the very short term if the European economy implodes. However, Chancellor Merkel holds all the cards at the moment, and whether she is bluffing or just stupid is irrelevant. She holds all the cards and needs to get all the concessions she can, while she can. However, Germany, and thus Europe, cannot solve this problem by itself.
Dear IMF: Require Sales of Gold to Help Solve
The IMF is required to solve this multi-faceted Prisoner's Dilemma exercise. The IMF purchases out the individual country, after securing all the gold reserves of that country. Period. Absent that, let the ECB flail around. Although it was widely criticized, the IMF put itself in this position when dealing with the Asian currency crisis. Some believe that the IMF created more problems than it solved. That is Monday-morning quarterbacking at is worst. Individual countries dramatically devalued their currency, took the austerity measures under IMF auspices, the population worked its collective ass off, the debts were repaid early, and growth resumed. That is the ONLY blueprint that now remains. Delaying acceptance of this is making it worse. Much, much worse.
Update (Nov 27): Sacre bleu! Ms Lagarde and IMF Right on Cue
The is no shortcut around a problem the size of Italy. This blog has suggested that the PIIGS be required to put up their family silverware (gold to be precise) to partially collateralize further rescue efforts. It has taken a month and a half (of time that we did not have) for these developments suggested here. The naysayers will look at the IMF plan/rumor and start throwing bombs at it; to which I say that TARP and POMO did what they were supposed to do, which is to avoid imminent depression, and allow the banking system heal. From that point, the economy could find a path back from the brink.
The objectives of TARP and POMO were achieved; the U.S. avoided instantaneous depression. That the banking system didn't use the steep yield curve along with much harsher government measures attached to TARP, is on someone else. Not the programs themselves. When you apply that analogy here, the IMF shouldn't be ignored.
The Euro experiment cannot continue in its current form, period. Fiscal harmony only works when the net export and fiscal equations are also harmonized. Since it is too late for that to be established, we are now back to old-school economics. Countries need to have individualized foreign exchange capabilities. Greece, Italy, and Spain need to devalue their domestic currencies dramatically to pay for their debts. Oops, there is no such thing as a domestic currency. We can dance around the different topics, but absent debt write-off, and simultaneous governmental intervention to prevent an all-out European banking crisis, the Euro experiment is entering its final stages.
Liquidity? Nope. Solvency is the Problem.
The headline is that European bank liquidity has dissolved. The actual problem is that the cause of this is that solvency of European banks is the question. The Merkozy debate is really about how to solve the solvency issue because without a solution, a liquidity solution is nowhere to be found. We will be able to figure out who the survivors will be at a later date; for those currently long European bank equities, the answer is that no one will be left unscathed.
Germany is Pathetic For Many Reasons
Without the PIIGS, you could say that the Euro or Mark vs the USD should be much, much higher. If that were the case, then the German economy would be in a world of hurt. If anything, Germany has benefited from the weak Euro the most; Siemens, BMW, et al have all made money that would have gone to their global competition if the Euro didn't have these problems. For Germany to now turn around and behave in a holier-than-thou way is pathetic at best. Chancellor Merkel is playing a dangerous game, because responding to internal German politics will result in a much weaker German economy in the medium term, and potentially in the very short term if the European economy implodes. However, Chancellor Merkel holds all the cards at the moment, and whether she is bluffing or just stupid is irrelevant. She holds all the cards and needs to get all the concessions she can, while she can. However, Germany, and thus Europe, cannot solve this problem by itself.
Dear IMF: Require Sales of Gold to Help Solve
The IMF is required to solve this multi-faceted Prisoner's Dilemma exercise. The IMF purchases out the individual country, after securing all the gold reserves of that country. Period. Absent that, let the ECB flail around. Although it was widely criticized, the IMF put itself in this position when dealing with the Asian currency crisis. Some believe that the IMF created more problems than it solved. That is Monday-morning quarterbacking at is worst. Individual countries dramatically devalued their currency, took the austerity measures under IMF auspices, the population worked its collective ass off, the debts were repaid early, and growth resumed. That is the ONLY blueprint that now remains. Delaying acceptance of this is making it worse. Much, much worse.
Update (Nov 27): Sacre bleu! Ms Lagarde and IMF Right on Cue
The is no shortcut around a problem the size of Italy. This blog has suggested that the PIIGS be required to put up their family silverware (gold to be precise) to partially collateralize further rescue efforts. It has taken a month and a half (of time that we did not have) for these developments suggested here. The naysayers will look at the IMF plan/rumor and start throwing bombs at it; to which I say that TARP and POMO did what they were supposed to do, which is to avoid imminent depression, and allow the banking system heal. From that point, the economy could find a path back from the brink.
The objectives of TARP and POMO were achieved; the U.S. avoided instantaneous depression. That the banking system didn't use the steep yield curve along with much harsher government measures attached to TARP, is on someone else. Not the programs themselves. When you apply that analogy here, the IMF shouldn't be ignored.
Monday, October 24, 2011
Netflix ($NFLX): Reed, NOW You Have Some Really Tough Questions to Answer
The Fundamental Problems Facing Netflix Are Known
In fact, this blog has listed many of them here. As a business model, Netflix controls few, if any, of the inputs that would determine its success or failure. That is a big problemo, but this blog has already pointed them out, before the warnings made by the company. It could be said, if you were a fan of management, that Netflix filled a void that existed between suppliers of content (studios) and delivery mechanisms (cable, tv, etc). No need to rehash that here.
Wasn't the Loss of Subcribers a Material Fact?
The troubling thing at this point, and perhaps most damaging, is the fact that management has held onto its business model for too long, without selling itself, and without putting itself in the monopolist position. Perhaps it could never put itself in the monopolist position in the US because the studios and the cable systems would never allow it. Fair enough.
However, given that the stock price was predicated on the growth of subscribers, and that Netflix would have had knowledge of the loss of subscribers, the fact that they have revealed this just now, without more clarity during the quarter is shocking, and will subject Netflix' management to class action lawsuits by investors who will claim, perhaps rightfully so, that Netflix management was negligent by not reporting an obviously material fact. This will weigh on the upside potential should a potential bidder emerge.
Who Would Buy Netflix? Ignore the Rumors
Much like $RIMM, there will be some speculation regarding Netflix as a takeover play. Unfortunately, given the fact that most of the weakness are known, and that those weaknesses are turning into a negative growth rate, enormous (insurmountable) barriers exist to repel any potential bidders. Just who would buy Netflix and why? Apple or Amazon could potentially buy, but to what end? Both have substantial cloud presences. Both have superior relationships with suppliers of media content. Maybe, one or the other would buy Netflix' portfolio of existing contracts to obtain exclusivity. Pixar has just signed with Netflix, and that could potentially be a jewel. The foreign expansion plans are still in their infancy, so that is still a wait-and-see proposition. In short, we are back to salvage value here: the value of the existing contracts could be sold to whom? A consortium made up of competitors? Unlikely. A buyer of existing subscriber base, who can change loyalties with a single click? Unlikely. This is probably not new news to Netflix' management, which has flip-flopped over the past couple of months over these problems. Unfortunately, the problems cannot be solved without selling itself to the highest remaining bidder, who would now face anger from existing shareholders. Still a sell. Even here.
In fact, this blog has listed many of them here. As a business model, Netflix controls few, if any, of the inputs that would determine its success or failure. That is a big problemo, but this blog has already pointed them out, before the warnings made by the company. It could be said, if you were a fan of management, that Netflix filled a void that existed between suppliers of content (studios) and delivery mechanisms (cable, tv, etc). No need to rehash that here.
Wasn't the Loss of Subcribers a Material Fact?
The troubling thing at this point, and perhaps most damaging, is the fact that management has held onto its business model for too long, without selling itself, and without putting itself in the monopolist position. Perhaps it could never put itself in the monopolist position in the US because the studios and the cable systems would never allow it. Fair enough.
However, given that the stock price was predicated on the growth of subscribers, and that Netflix would have had knowledge of the loss of subscribers, the fact that they have revealed this just now, without more clarity during the quarter is shocking, and will subject Netflix' management to class action lawsuits by investors who will claim, perhaps rightfully so, that Netflix management was negligent by not reporting an obviously material fact. This will weigh on the upside potential should a potential bidder emerge.
Who Would Buy Netflix? Ignore the Rumors
Much like $RIMM, there will be some speculation regarding Netflix as a takeover play. Unfortunately, given the fact that most of the weakness are known, and that those weaknesses are turning into a negative growth rate, enormous (insurmountable) barriers exist to repel any potential bidders. Just who would buy Netflix and why? Apple or Amazon could potentially buy, but to what end? Both have substantial cloud presences. Both have superior relationships with suppliers of media content. Maybe, one or the other would buy Netflix' portfolio of existing contracts to obtain exclusivity. Pixar has just signed with Netflix, and that could potentially be a jewel. The foreign expansion plans are still in their infancy, so that is still a wait-and-see proposition. In short, we are back to salvage value here: the value of the existing contracts could be sold to whom? A consortium made up of competitors? Unlikely. A buyer of existing subscriber base, who can change loyalties with a single click? Unlikely. This is probably not new news to Netflix' management, which has flip-flopped over the past couple of months over these problems. Unfortunately, the problems cannot be solved without selling itself to the highest remaining bidder, who would now face anger from existing shareholders. Still a sell. Even here.
Tuesday, October 18, 2011
RIMM: Breakdowns, Rumors, and Valuation ($RIMM)
The S&P Has Ripped Higher
Confidence in the eurozone "solutions" has led to euro strength vis-a-vis the US dollar, and the result has been a furious S&P 500 rally. Technology has led the charge, particularly in anticipation of Apple's earnings tonight. Earnings have done their thing, i.e. outperforming by a little, with cautious outlooks. It wouldn't take a crystal ball to predict this, as long as you believe that eurozone governments will attempt to kick the can, and hard, down the road.
RIMM Is Getting Hit on All Sides
The news for RIMM couldn't really get much worse, for now. First, Apple's 4S seems to be an enormous success, with 4 million units sold over its opening weekend. Second, Blackberry service has been interrupted, which prompted management to both apologize publicly, and offer $100 of free applications to users as compensation. Third, Carl Icahn stated on CNBC that RIMM was "not on the radar," thereby defusing buyout hopes.
That Said, $RIMM Has Been Resilient
What is most interesting is that $RIMM the stock has not really gone down very much. Now, there can be no doubt that much of this is due to the fact that the market, as a whole, has rallied more than 10% from the intraday lows earlier this month. At this point, the resilience must be respected, since it is clear that long-term holders have not entirely thrown in the towel. That said, the fundamentals of the above paragraph continue to apply, and note that $RIMM was very careful to not offer cash, and the reason is simple: it is running out of cash, as evidenced by last quarter's earnings report.
Breakup Evaluation
Again, the ltz vortex repeats its long-term view: single digits are in order as a terminal stock price. Cash is now down to $1.5/share. Patent portfolio? Again, Apple views its main competition as Samsung, as the two are in a bitter, and growing, battle in pretty much every jurisdiction on the planet. Apple and Samsung are fighting each other simply because $RIMM is not a relevant competitor. The Blackberry system outage has damaged its last remaining asset: diehards have stuck with Blackberry due to network security and exclusivity. Those features, along with RIMM's existence itself, must now be questioned. So unless a technology buyer appears to fuse the patent portfolio with one of its own, there is almost no chance of a bid. Time is running out, and management either needs to be replaced, or a further decline will be in order.
Confidence in the eurozone "solutions" has led to euro strength vis-a-vis the US dollar, and the result has been a furious S&P 500 rally. Technology has led the charge, particularly in anticipation of Apple's earnings tonight. Earnings have done their thing, i.e. outperforming by a little, with cautious outlooks. It wouldn't take a crystal ball to predict this, as long as you believe that eurozone governments will attempt to kick the can, and hard, down the road.
RIMM Is Getting Hit on All Sides
The news for RIMM couldn't really get much worse, for now. First, Apple's 4S seems to be an enormous success, with 4 million units sold over its opening weekend. Second, Blackberry service has been interrupted, which prompted management to both apologize publicly, and offer $100 of free applications to users as compensation. Third, Carl Icahn stated on CNBC that RIMM was "not on the radar," thereby defusing buyout hopes.
That Said, $RIMM Has Been Resilient
What is most interesting is that $RIMM the stock has not really gone down very much. Now, there can be no doubt that much of this is due to the fact that the market, as a whole, has rallied more than 10% from the intraday lows earlier this month. At this point, the resilience must be respected, since it is clear that long-term holders have not entirely thrown in the towel. That said, the fundamentals of the above paragraph continue to apply, and note that $RIMM was very careful to not offer cash, and the reason is simple: it is running out of cash, as evidenced by last quarter's earnings report.
Breakup Evaluation
Again, the ltz vortex repeats its long-term view: single digits are in order as a terminal stock price. Cash is now down to $1.5/share. Patent portfolio? Again, Apple views its main competition as Samsung, as the two are in a bitter, and growing, battle in pretty much every jurisdiction on the planet. Apple and Samsung are fighting each other simply because $RIMM is not a relevant competitor. The Blackberry system outage has damaged its last remaining asset: diehards have stuck with Blackberry due to network security and exclusivity. Those features, along with RIMM's existence itself, must now be questioned. So unless a technology buyer appears to fuse the patent portfolio with one of its own, there is almost no chance of a bid. Time is running out, and management either needs to be replaced, or a further decline will be in order.
Monday, October 10, 2011
Netflix ($NFLX) Dumps Qwikster Very Qwickly
Netflix Changes Course, and More Questions Get Raised
When Netflix ($NFLX) announced a split between its video streaming and DVD/Video Game delivery services, this blog suggested that it was the right, albeit unpopular, move. Today, when Netflix announced that it had changed course, and ended the idea before it got launched, the stock rocketed in pre-market trading to $128.5/share. However, the afternoon saw a dramatic turnaround, and the stock hit a low of $107.31 before recovering to above $111 a share.
Now, The Questions
The question is why the change of course. There could be three potential scenarios that this post will address.
a. Netflix is listening to its customers. This is what Netflix' management has said in public. This is what management would like you to believe. This is most likely true, in part. The company was pilloried in the press, and on its blog, with complaints. However, the problem with that is that there are now two other scenarios.
b. Netflix has seen a massive bailing out by customers. It is more likely, although unconfirmed, that Netflix has seen a huge outflow of customers. Given the negative attention resulting from the loss of Starz, and the upcoming Kindle Fire (with accompanying Amazon Prime video streaming service), management probably had to stem the tide. That cannot be good.
c. Netflix may have given up its only real hope for survival. This is most troubling. The way forward, perhaps the only way forward, over time, is to partner with either a consortium of studios, or a consortium of cable companies (unlikely). Netflix controls absolutely none of the main sources of entertainment. It is entirely subject to agreements with studios, etc, which control the creative process. By re-combining the DVD delivery service with the streaming service, it has lost the only way for it to sell itself, or to permanently combine with sources of distribution. Streaming service itself can be a viable business model. In countries with acceptable download speed, there is IPTV, which streams live TV, and video on demand, and doesn't use the traditional cable companies. Could that occur in the U.S.? Well, Time Warner, Cablevision, Direct TV, etc charge an enormous amount of money to its customers. An alternative would be welcome. Unfortunately, recombining DVD delivery with streaming effectively ends a clean path of exit or M&A for Netflix.
Finally: you know the company is in trouble, when Saturday Night Live does a parody, which can be seen here.
Disclosure: The writer has no position in Netflix, but has entered into daytrades, with the opening position as short.
When Netflix ($NFLX) announced a split between its video streaming and DVD/Video Game delivery services, this blog suggested that it was the right, albeit unpopular, move. Today, when Netflix announced that it had changed course, and ended the idea before it got launched, the stock rocketed in pre-market trading to $128.5/share. However, the afternoon saw a dramatic turnaround, and the stock hit a low of $107.31 before recovering to above $111 a share.
Now, The Questions
The question is why the change of course. There could be three potential scenarios that this post will address.
a. Netflix is listening to its customers. This is what Netflix' management has said in public. This is what management would like you to believe. This is most likely true, in part. The company was pilloried in the press, and on its blog, with complaints. However, the problem with that is that there are now two other scenarios.
b. Netflix has seen a massive bailing out by customers. It is more likely, although unconfirmed, that Netflix has seen a huge outflow of customers. Given the negative attention resulting from the loss of Starz, and the upcoming Kindle Fire (with accompanying Amazon Prime video streaming service), management probably had to stem the tide. That cannot be good.
c. Netflix may have given up its only real hope for survival. This is most troubling. The way forward, perhaps the only way forward, over time, is to partner with either a consortium of studios, or a consortium of cable companies (unlikely). Netflix controls absolutely none of the main sources of entertainment. It is entirely subject to agreements with studios, etc, which control the creative process. By re-combining the DVD delivery service with the streaming service, it has lost the only way for it to sell itself, or to permanently combine with sources of distribution. Streaming service itself can be a viable business model. In countries with acceptable download speed, there is IPTV, which streams live TV, and video on demand, and doesn't use the traditional cable companies. Could that occur in the U.S.? Well, Time Warner, Cablevision, Direct TV, etc charge an enormous amount of money to its customers. An alternative would be welcome. Unfortunately, recombining DVD delivery with streaming effectively ends a clean path of exit or M&A for Netflix.
Finally: you know the company is in trouble, when Saturday Night Live does a parody, which can be seen here.
Disclosure: The writer has no position in Netflix, but has entered into daytrades, with the opening position as short.
Thursday, October 6, 2011
Morgan Stanley: For Whom The Bell Doesn't Toll
The Annoying Thing About Goldman Sachs
The Vampire Squid has, on multiple occasions, stood on the stand, under oath, and proclaimed that their net exposure to AIG was negligible at the time that the housing market collapsed, FNMA and FHLMC took enormous bailouts, and Bear Stearns&Lehman failed. That, of course, was wrong at best, and a lie at worst. Why? The very parties that Goldman bought hedges from would have, in no small part, defaulted at the very time that they tried to enforce these hedges. Let's say that Goldman Sachs bought a CDS from Bank X to protect itself from AIG. If AIG were allowed to fail, then Bank X would have most probably failed. Goldman, in that case, would not have a chance to monetize its hedge on AIG. So for Goldman to claim, under oath, that it was "hedged" in the AIG case is wrong, wrong, wrong.
Why Morgan Stanley Isn't Goldman Sachs
Despite the Goldman "complex," Morgan Stanley isn't really in the same position that Goldman Sachs was during the financial crisis. The big noise being made is that Morgan Stanley has a great deal of exposure to French banks, which, in turn, have a great deal of exposure to Greece. Morgan Stanley has, not very successfully, stated that its net exposure is small. In other words, Morgan Stanley has used the same logic that Goldman did years ago. The difference? French banks are, although very important, not as pervasive and unknown as the mortgage-backed securities markets. The leverage factor is known. Of course, it is more complicated than that. If Morgan Stanley's hedges are bought from other counterparties that also dependent upon the solvency of French banks, then the same fallacy of the Goldman Sachs' logic above would apply in this case. However, this is most likely not the case, and the "net exposure" logic holds up much better than it did years ago.
Conclusion
None of this means that Morgan Stanley couldn't trade lower. Of course, owners of $MS, including employees, know that MS stock has been an unmitigated disaster. It didn't participate in the liquidity-induced meltup of 2008-2011, and has taken the full downside of 2011. So it is difficult to unilaterally state that Morgan Stanley stock is "cheap." However, the logic of French bank exposure to be the dominant cause? Nah. It is merely the easiest whipping boy of the financial shorts.
The Vampire Squid has, on multiple occasions, stood on the stand, under oath, and proclaimed that their net exposure to AIG was negligible at the time that the housing market collapsed, FNMA and FHLMC took enormous bailouts, and Bear Stearns&Lehman failed. That, of course, was wrong at best, and a lie at worst. Why? The very parties that Goldman bought hedges from would have, in no small part, defaulted at the very time that they tried to enforce these hedges. Let's say that Goldman Sachs bought a CDS from Bank X to protect itself from AIG. If AIG were allowed to fail, then Bank X would have most probably failed. Goldman, in that case, would not have a chance to monetize its hedge on AIG. So for Goldman to claim, under oath, that it was "hedged" in the AIG case is wrong, wrong, wrong.
Why Morgan Stanley Isn't Goldman Sachs
Despite the Goldman "complex," Morgan Stanley isn't really in the same position that Goldman Sachs was during the financial crisis. The big noise being made is that Morgan Stanley has a great deal of exposure to French banks, which, in turn, have a great deal of exposure to Greece. Morgan Stanley has, not very successfully, stated that its net exposure is small. In other words, Morgan Stanley has used the same logic that Goldman did years ago. The difference? French banks are, although very important, not as pervasive and unknown as the mortgage-backed securities markets. The leverage factor is known. Of course, it is more complicated than that. If Morgan Stanley's hedges are bought from other counterparties that also dependent upon the solvency of French banks, then the same fallacy of the Goldman Sachs' logic above would apply in this case. However, this is most likely not the case, and the "net exposure" logic holds up much better than it did years ago.
Conclusion
None of this means that Morgan Stanley couldn't trade lower. Of course, owners of $MS, including employees, know that MS stock has been an unmitigated disaster. It didn't participate in the liquidity-induced meltup of 2008-2011, and has taken the full downside of 2011. So it is difficult to unilaterally state that Morgan Stanley stock is "cheap." However, the logic of French bank exposure to be the dominant cause? Nah. It is merely the easiest whipping boy of the financial shorts.
Friday, September 23, 2011
Precious Metals Aren't Working: Why?
Copper and FCX Showed Us The Path
Copper and the benchmark stock for copper, Freeport McMoran ($FCX, FCX) have led the way much lower. FCX alone has dropped 40% since August. The other precious metals have followed suit, with gold and silver grabbing more headlines. We can attribute some of that weakness due to over all strength in the US Dollar, as the dollar index has risen 10% (give or take) during this same period. However, that isn't the entire story.
Government Fiat Is On Trial, and Losing. Big Time.
Gold has been used as a type of anti-governmental stimulus mechanism. Simple really. Don't believe in the credit of a nation, or believe that additional stimulus will lead to a path of hyperinflation/deflation, gold was perceived to be the safe haven. Within limits, that perception has been widely held, and as a result gold has appreciated a great deal. However, that run has been dominated by a more powerful force. In short, we are well beyond the limits when precious metals serve their purpose as a hedge against governmental fiat.
Correlation Isn't Your Friend, and There is No Hedge (almost)
When the panic button is hit, then you will be able to tell because the correlation of ALL RISKY ASSETS approaches 1. That is what you have now. This is a major tell: managers of risky assets are liquidating, even the assets with handsome gains, in order to get into the safest assets (the US Dollar, and US Treasuries). In short, gold and other precious metals isn't safe either.
What then could be seen as a hedge for risky assets? Financials ($XLF/$FAS/$FAZ)
Financials are the only potential hedge. Even beyond the weak fundamentals, the lingering balance sheet problems, and flattening yield curve, a short financials could be seen as a hedge to the correlation of other assets. Only a short financials position addresses all of the ills that exist, plus offer a correlation hedge of sorts. Experienced persons in financial markets know that there is no hedge, per se, to correlation. That is the challenge of risk managers everywhere. The scenarios cannot be measured when correlations converge to 1. That is what we see right now. That said, a short financials position isn't risk free, and short $FAS / long $FAZ are full of structural problems due to the daily rebalancing of the instruments. However, a short $XLF position may be the best position until the correlations recede.
Copper and the benchmark stock for copper, Freeport McMoran ($FCX, FCX) have led the way much lower. FCX alone has dropped 40% since August. The other precious metals have followed suit, with gold and silver grabbing more headlines. We can attribute some of that weakness due to over all strength in the US Dollar, as the dollar index has risen 10% (give or take) during this same period. However, that isn't the entire story.
Government Fiat Is On Trial, and Losing. Big Time.
Gold has been used as a type of anti-governmental stimulus mechanism. Simple really. Don't believe in the credit of a nation, or believe that additional stimulus will lead to a path of hyperinflation/deflation, gold was perceived to be the safe haven. Within limits, that perception has been widely held, and as a result gold has appreciated a great deal. However, that run has been dominated by a more powerful force. In short, we are well beyond the limits when precious metals serve their purpose as a hedge against governmental fiat.
Correlation Isn't Your Friend, and There is No Hedge (almost)
When the panic button is hit, then you will be able to tell because the correlation of ALL RISKY ASSETS approaches 1. That is what you have now. This is a major tell: managers of risky assets are liquidating, even the assets with handsome gains, in order to get into the safest assets (the US Dollar, and US Treasuries). In short, gold and other precious metals isn't safe either.
What then could be seen as a hedge for risky assets? Financials ($XLF/$FAS/$FAZ)
Financials are the only potential hedge. Even beyond the weak fundamentals, the lingering balance sheet problems, and flattening yield curve, a short financials could be seen as a hedge to the correlation of other assets. Only a short financials position addresses all of the ills that exist, plus offer a correlation hedge of sorts. Experienced persons in financial markets know that there is no hedge, per se, to correlation. That is the challenge of risk managers everywhere. The scenarios cannot be measured when correlations converge to 1. That is what we see right now. That said, a short financials position isn't risk free, and short $FAS / long $FAZ are full of structural problems due to the daily rebalancing of the instruments. However, a short $XLF position may be the best position until the correlations recede.
Tuesday, September 20, 2011
Let's Remove the Names and You Decide ($NFLX)
What If This Was an HBS Case Study? Let's see. UPDATED
Acme Inc:
Doesn't control access to supply of inputs necessary to distribute.
Doesn't control pricing to supply of inputs neceesary to distribute.
Potential competitors have greater power to influence access and pricing of inputs than Acme Inc.
Potential competitors have MUCH greater access to capital, and a far wider range of related products.
One last thing, Acme Inc's real name? Netflix (NFLX)
Insert whatever industry you want, the facts above are true, and the conclusion would be that Acme Inc is doomed. When, not if, unless there is a game-changing event (like M&A).
That doesn't mean that you can't make lots of money trading NFLX. The Acme Inc summary above tells you that extreme caution is necessary in doing so. You cannot predict the movements because (presumably) there are more people with more money pushing around the prices for their own reasons. However, if you are long, then you must remember that the facts regarding Acme Inc are incontrovertible until proven otherwise.
We can talk all about momentum and technicals, which are fine when there is a conflict of information regarding the Acme Inc's of the world. In the short run, those factors may certainly dominate the price action for a day, or a week, or even longer. My only point: when the fundamentals are THIS negative, then be quicker than usual and close your position (long or short) if you are proven wrong, given your timeframe.
That all said, feel free to click on the left, where an advertisement is almost certain to appear, compliments of Google AdSense, for your free trial. How Yahoo! (YHOO) missed click advertising is beyond imagination. That it has survived that colossal mistake is no small achievement, I guess. Perhaps that is the subject of another post. Nah. Nothing much more to say than that.
UPDATE: Splitting up the company into two individual parts, one which is dvd/video game delivery and one which is streaming is the best solution among a number of bad alternatives. The dvd/video game can be seen as a commodity, whose competition will include Blockbuster kiosks, GameStop, et al. The streaming business, however, is built to be sold. Its subscriber base can be sold to any number of parties, from the media creators to Amazon to cable companies to TV manufacturers. That is the shareholder-maximizing move. That doesn't necessarily mean that it will be easily sold, but it is clearly an exit path. Management should be applauded for this move, since it does present an alternative. Assigning a multiple, however, is another matter. The issue now will be what multiplier gets assigned to the streaming business. So unless the streaming business gets sold to Apple, which along with an actual TV, could be the entire back-to-front delivery package, the other potential bidders may have large misgivings because of the pricing of access to media. That leaves Google, Apple, or a partnership with Hulu and studios. The issue is that the pricing of the streaming business is highly contingent on the quality of the potential buyer. Absent a buyer, all of the original post remains true, and Netflix ($NFLX) could see much lower prices, even from here.
Acme Inc:
Doesn't control access to supply of inputs necessary to distribute.
Doesn't control pricing to supply of inputs neceesary to distribute.
Potential competitors have greater power to influence access and pricing of inputs than Acme Inc.
Potential competitors have MUCH greater access to capital, and a far wider range of related products.
One last thing, Acme Inc's real name? Netflix (NFLX)
Insert whatever industry you want, the facts above are true, and the conclusion would be that Acme Inc is doomed. When, not if, unless there is a game-changing event (like M&A).
That doesn't mean that you can't make lots of money trading NFLX. The Acme Inc summary above tells you that extreme caution is necessary in doing so. You cannot predict the movements because (presumably) there are more people with more money pushing around the prices for their own reasons. However, if you are long, then you must remember that the facts regarding Acme Inc are incontrovertible until proven otherwise.
We can talk all about momentum and technicals, which are fine when there is a conflict of information regarding the Acme Inc's of the world. In the short run, those factors may certainly dominate the price action for a day, or a week, or even longer. My only point: when the fundamentals are THIS negative, then be quicker than usual and close your position (long or short) if you are proven wrong, given your timeframe.
That all said, feel free to click on the left, where an advertisement is almost certain to appear, compliments of Google AdSense, for your free trial. How Yahoo! (YHOO) missed click advertising is beyond imagination. That it has survived that colossal mistake is no small achievement, I guess. Perhaps that is the subject of another post. Nah. Nothing much more to say than that.
UPDATE: Splitting up the company into two individual parts, one which is dvd/video game delivery and one which is streaming is the best solution among a number of bad alternatives. The dvd/video game can be seen as a commodity, whose competition will include Blockbuster kiosks, GameStop, et al. The streaming business, however, is built to be sold. Its subscriber base can be sold to any number of parties, from the media creators to Amazon to cable companies to TV manufacturers. That is the shareholder-maximizing move. That doesn't necessarily mean that it will be easily sold, but it is clearly an exit path. Management should be applauded for this move, since it does present an alternative. Assigning a multiple, however, is another matter. The issue now will be what multiplier gets assigned to the streaming business. So unless the streaming business gets sold to Apple, which along with an actual TV, could be the entire back-to-front delivery package, the other potential bidders may have large misgivings because of the pricing of access to media. That leaves Google, Apple, or a partnership with Hulu and studios. The issue is that the pricing of the streaming business is highly contingent on the quality of the potential buyer. Absent a buyer, all of the original post remains true, and Netflix ($NFLX) could see much lower prices, even from here.
Friday, September 16, 2011
75% Agree to Greece Bailout: Welcome to Multi-Party Prisoners' Dilemma
Only 75%? Are You Kidding Me?
According to CNBC (take that with a grain of salt), 75% of private sector banks have agreed to the Greek bailout. Many people have heard of the simulation called the Prisoners' Dilemma. For those who haven't, an explanation is here. If you Google "prisoners dilemma," you will find many academic papers describing it, as well as simulations that predict the most favorable outcomes.
The problem with that analysis is that it presumes multiple interactions, where you have the experiment over and over. However, in the case of Greece bailout, this is not necessarily the case.
What Does This Mean?
To agree means taking a haircut, maturity extension, etc of existing Greek debt. If anything, what you probably have is that 25%, who dissented, have not properly marked their Greek debt holdings to market. Acceptance of the Greek bailout will crystallize these losses. The French banks (Soc Gen, BNP) have seen their equity prices decline, and their credit ratings cut as a result of the instability caused due to suspicions that they have too much Greek debt. Who knows if this is true, but it is clear that the banking system has restricted funding to French banks due this suspicion. It is now also clear that the ECB and the Federal Reserve, along with other central banks, have basically turned the faucet to "full on" in order to provide the financial system with dollar liquidity. Also clear: these central banks knew full well that the acceptance rate was much lower than the 90% required for the bailout.
Dissent also implies that these banks believe that their survival is at stake, or that they believe that the ECB et al will cave, and provide the bailout in any case. If the bailout is not granted, then the dissenting banks must believe that they will not survive. Otherwise, they would have agreed to the terms as they were originally set. In short, this is mutually agreed destruction from the Cold War days, because if a bank fails (or 25% of them do), then the systematic risk would be catastrophic. However, each dissenting bank must believe that either a) they will perish anyway, or b) the Troika will bailout Greece in any case.
Variations
The reason that this case is so interesting is that it is difficult to ascertain just who is playing. Let's presume that the 25% represent one side. The question is, just who is on the other? The Troika? The other 75% of the banks? Both at the same time? That is why this situation doesn't exactly fit the Prisoners' Dilemma scenario, but it is instructive because the 25% of banks that dissented may, themselves, not agree on who is the other side of this.
Dear Timmy, Ever Hear of the Glass Houses and Stones Thingy?
One thing that Europeans seems to unilaterally agree upon: Mr Geithner's opinion was not, is not, and won't be welcomed. Now that has implications for the entire system, especially since the US has more than shouldered its share of the burden (failure?) of keeping the system afloat. Untold billions have been lent to the US branches of foreign banks, so in a way, it is peculiar indeed that Mr Geithner is receiving the cold shoulder from the Europeans. Perhaps, there is yet another dimension to this particular instance of the Prisoners' Dilemma, with very nationalistic overtones. Yikes indeed.
According to CNBC (take that with a grain of salt), 75% of private sector banks have agreed to the Greek bailout. Many people have heard of the simulation called the Prisoners' Dilemma. For those who haven't, an explanation is here. If you Google "prisoners dilemma," you will find many academic papers describing it, as well as simulations that predict the most favorable outcomes.
The problem with that analysis is that it presumes multiple interactions, where you have the experiment over and over. However, in the case of Greece bailout, this is not necessarily the case.
What Does This Mean?
To agree means taking a haircut, maturity extension, etc of existing Greek debt. If anything, what you probably have is that 25%, who dissented, have not properly marked their Greek debt holdings to market. Acceptance of the Greek bailout will crystallize these losses. The French banks (Soc Gen, BNP) have seen their equity prices decline, and their credit ratings cut as a result of the instability caused due to suspicions that they have too much Greek debt. Who knows if this is true, but it is clear that the banking system has restricted funding to French banks due this suspicion. It is now also clear that the ECB and the Federal Reserve, along with other central banks, have basically turned the faucet to "full on" in order to provide the financial system with dollar liquidity. Also clear: these central banks knew full well that the acceptance rate was much lower than the 90% required for the bailout.
Dissent also implies that these banks believe that their survival is at stake, or that they believe that the ECB et al will cave, and provide the bailout in any case. If the bailout is not granted, then the dissenting banks must believe that they will not survive. Otherwise, they would have agreed to the terms as they were originally set. In short, this is mutually agreed destruction from the Cold War days, because if a bank fails (or 25% of them do), then the systematic risk would be catastrophic. However, each dissenting bank must believe that either a) they will perish anyway, or b) the Troika will bailout Greece in any case.
Variations
The reason that this case is so interesting is that it is difficult to ascertain just who is playing. Let's presume that the 25% represent one side. The question is, just who is on the other? The Troika? The other 75% of the banks? Both at the same time? That is why this situation doesn't exactly fit the Prisoners' Dilemma scenario, but it is instructive because the 25% of banks that dissented may, themselves, not agree on who is the other side of this.
Dear Timmy, Ever Hear of the Glass Houses and Stones Thingy?
One thing that Europeans seems to unilaterally agree upon: Mr Geithner's opinion was not, is not, and won't be welcomed. Now that has implications for the entire system, especially since the US has more than shouldered its share of the burden (failure?) of keeping the system afloat. Untold billions have been lent to the US branches of foreign banks, so in a way, it is peculiar indeed that Mr Geithner is receiving the cold shoulder from the Europeans. Perhaps, there is yet another dimension to this particular instance of the Prisoners' Dilemma, with very nationalistic overtones. Yikes indeed.
Netflix or RIMM: Which is Worse? Its Close
Comparing Netflix ($NFLX) to Research in Motion ($RIMM) Isn't Quite Right
Both stocks had very bad days yestereday. Netlfix' bad day started before the market opened and Research in Motion's bad day started after the market closed. However, that is where the similarities end.
Netflix' troubles have been highlighted here.
Netflix Has a Brand Name, Research in Motion Doesn't
There is hope for Netflix at some level, i.e. it can still form partnerships with media companies in exchange for equity. It can try to secure licensing agreements for content in international markets (unlikely, since the blueprint already exists). In other words, Netflix has a brand name which needs to be levered into returns for equity holders. Fast.
Research in Motion, however, is in a huge amount of trouble. It is rapidly becoming irrelevant in the smartphone market, as it gets dominated by Android phones and of course, the iPhone. Enterprise email/server infrastructure? Being bypassed although it will be a while for the largest companies to entirely shift this infrastructure away from Blackberry due to security issues. If this gets moved to the cloud in a viable way, it will mean the death knell for RIMM.
Worse: RIMM is Running Outta Cash
It has been widely publicized that the RIMM tablet is a disaster, and that the marketshare of RIMM's smartphones is dropping. Perhaps most telling is the fact that RIMM itself used 50% of its cash in the last quarter, including something like $750 million on Nortel's patents. The return on those bids better come quickly, because management has lost the faith of the investing community.
RIMM's backers suggest that the enterprise franchise and patents make RIMM a value play. Granted, the enterprise franchise could be worthwhile but the problem is that users don't want to use Blackberrys, other than the 60 year olds who have been using them for 10 years.
Patents is another matter. People mistakenly believe that these are very valuable. Well, lets like the courts decide. Has Apple launched lawsuit after lawsuit attempting to block the sale of the Playbook? No. Apple has its sights set on the Samsung Galaxy Tab. Apple knows that Samsung is Apple's only viable competitor, with not only design but production capabilities as well. RIMM? Not worth of Apple's attention. That is all you need to know about the value of RIMM's intellectual property.
Correction: Netflix and RIMM Do Have Something in Common
Both are sells, and while you can daytrade or do whatever you would like in the very short term, and will remain so until any of the facts above are proven to be wrong. VWAP, EMA, SMA, Bollinger, MACD: all of them will merely be numbers that get sliced through unless something dramatic occurs, and soon.
Both stocks had very bad days yestereday. Netlfix' bad day started before the market opened and Research in Motion's bad day started after the market closed. However, that is where the similarities end.
Netflix' troubles have been highlighted here.
Netflix Has a Brand Name, Research in Motion Doesn't
There is hope for Netflix at some level, i.e. it can still form partnerships with media companies in exchange for equity. It can try to secure licensing agreements for content in international markets (unlikely, since the blueprint already exists). In other words, Netflix has a brand name which needs to be levered into returns for equity holders. Fast.
Research in Motion, however, is in a huge amount of trouble. It is rapidly becoming irrelevant in the smartphone market, as it gets dominated by Android phones and of course, the iPhone. Enterprise email/server infrastructure? Being bypassed although it will be a while for the largest companies to entirely shift this infrastructure away from Blackberry due to security issues. If this gets moved to the cloud in a viable way, it will mean the death knell for RIMM.
Worse: RIMM is Running Outta Cash
It has been widely publicized that the RIMM tablet is a disaster, and that the marketshare of RIMM's smartphones is dropping. Perhaps most telling is the fact that RIMM itself used 50% of its cash in the last quarter, including something like $750 million on Nortel's patents. The return on those bids better come quickly, because management has lost the faith of the investing community.
RIMM's backers suggest that the enterprise franchise and patents make RIMM a value play. Granted, the enterprise franchise could be worthwhile but the problem is that users don't want to use Blackberrys, other than the 60 year olds who have been using them for 10 years.
Patents is another matter. People mistakenly believe that these are very valuable. Well, lets like the courts decide. Has Apple launched lawsuit after lawsuit attempting to block the sale of the Playbook? No. Apple has its sights set on the Samsung Galaxy Tab. Apple knows that Samsung is Apple's only viable competitor, with not only design but production capabilities as well. RIMM? Not worth of Apple's attention. That is all you need to know about the value of RIMM's intellectual property.
Correction: Netflix and RIMM Do Have Something in Common
Both are sells, and while you can daytrade or do whatever you would like in the very short term, and will remain so until any of the facts above are proven to be wrong. VWAP, EMA, SMA, Bollinger, MACD: all of them will merely be numbers that get sliced through unless something dramatic occurs, and soon.
Thursday, September 15, 2011
The PPT Weighs In
The Fed and the ECB Support 50% of the Equation
In a joint announcement, The Federal Reserve and the ECB basically announced the "massive force" measure needed to protect liquidity problems striking European banks. 3 month liquidity, all at one price, for basically as much as you need, is their offer. More than the largest, well-known stories, Societe Generale and BNP, this helps those that have no other alternative sources of liquidity.
Now For the Hard Part
The question, of course, is solvency. The question is still bank balance sheets, and what losses can be taken, if moved from unrealized to realized. This presumes that not all unrealized losses are properly marked to market, which is almost certainly a problem.
Until Then, It's Safe
Don't fight the Fed, etc: apply all of the rules here. Get outta the way, ride the longs, which mean: DB, CS, ING, STD if you must. These are swings, but for now, it will be fine. XLF? No, except that shorts will have to cover but that will be secondary to the European bank ADRs mentioned here.
In a joint announcement, The Federal Reserve and the ECB basically announced the "massive force" measure needed to protect liquidity problems striking European banks. 3 month liquidity, all at one price, for basically as much as you need, is their offer. More than the largest, well-known stories, Societe Generale and BNP, this helps those that have no other alternative sources of liquidity.
Now For the Hard Part
The question, of course, is solvency. The question is still bank balance sheets, and what losses can be taken, if moved from unrealized to realized. This presumes that not all unrealized losses are properly marked to market, which is almost certainly a problem.
Until Then, It's Safe
Don't fight the Fed, etc: apply all of the rules here. Get outta the way, ride the longs, which mean: DB, CS, ING, STD if you must. These are swings, but for now, it will be fine. XLF? No, except that shorts will have to cover but that will be secondary to the European bank ADRs mentioned here.
Precious Metals: Lower
Scenarios for Gold and Silver Are Both Bad
Gold is down about $120 from the all-time nominal highs. Where now?
Scenario #1: Governmental Fiat Failure
Let's say that Greece defaults and pressure builds on Ms Merkel and the ECB to issue Eurobonds. It is the view of the LTZ Vortex that Ms Merkel, at the end of the day, will have to cave. One potential solution: partially gold-backed bonds. Germany and France reach a compromise by telling the PIIGS: you want liquidity, put up the nation's assets that have a firm price, i.e. gold. Greece, Italy, Spain, Portugal hit the sell button on Gold to fund the backing. That would satisfy the rest of the Eurozone who don't want to bail out the weak, and avoid the Lehman scenario (maybe). Result: gold lower.
Scenario #2: Kick the Can, and the World Buys It
Risky assets get a huge bid because the world is convinced that governments will succeed. Those investors using gold as the safe haven sell gold to buy riskier assets. Simple, and well-known scenario. Actually, risky assets need not appreciate, they just need to stop whipping around 2% a day in order for this to occur. Result: gold lower.
Recommendation: Sell the rips in gold against your long equities/risk-on assets.
Silver: Only If Fundamentals Change
The worst trade of all is the gold/silver ratio trade. That is a total punt. Silver is part industrial metal, and part precious metal. Which one dominates is anyone's guess, unless you know something VERY specific about the supply/demand equation that isn't reflected in the market prices.
If you want a hedged position with volatility, I'd prefer Gold/Copper, or Freeport McMoran ($FCX). It is very, very interesting that FCX hasn't participated in the recent 70 handle increase in the S&P. The experts call that "divergence," ie when there are conflicting signals. The all-out green light will be if FCX starts to run, but if it starts to drop (and XLF stays muted), then it could be time for a reversal and more volatility ahead.
Gold is down about $120 from the all-time nominal highs. Where now?
Scenario #1: Governmental Fiat Failure
Let's say that Greece defaults and pressure builds on Ms Merkel and the ECB to issue Eurobonds. It is the view of the LTZ Vortex that Ms Merkel, at the end of the day, will have to cave. One potential solution: partially gold-backed bonds. Germany and France reach a compromise by telling the PIIGS: you want liquidity, put up the nation's assets that have a firm price, i.e. gold. Greece, Italy, Spain, Portugal hit the sell button on Gold to fund the backing. That would satisfy the rest of the Eurozone who don't want to bail out the weak, and avoid the Lehman scenario (maybe). Result: gold lower.
Scenario #2: Kick the Can, and the World Buys It
Risky assets get a huge bid because the world is convinced that governments will succeed. Those investors using gold as the safe haven sell gold to buy riskier assets. Simple, and well-known scenario. Actually, risky assets need not appreciate, they just need to stop whipping around 2% a day in order for this to occur. Result: gold lower.
Recommendation: Sell the rips in gold against your long equities/risk-on assets.
Silver: Only If Fundamentals Change
The worst trade of all is the gold/silver ratio trade. That is a total punt. Silver is part industrial metal, and part precious metal. Which one dominates is anyone's guess, unless you know something VERY specific about the supply/demand equation that isn't reflected in the market prices.
If you want a hedged position with volatility, I'd prefer Gold/Copper, or Freeport McMoran ($FCX). It is very, very interesting that FCX hasn't participated in the recent 70 handle increase in the S&P. The experts call that "divergence," ie when there are conflicting signals. The all-out green light will be if FCX starts to run, but if it starts to drop (and XLF stays muted), then it could be time for a reversal and more volatility ahead.
Monday, September 12, 2011
Dramatically, the S&P 500 Recovers, and The Chinese Excuse
Technicals Are Driving The Boat If Fundies Don't Interfere
Today, the market looked into the abyss yet again overnight, with the S&P mini trading in the 1120s. However, by the US regular trading hours, every lunge lower was parried away, and technicals starting taking over as the downward channels held and bounced.
Ludicrous Rumour Triggers Follow-Through
After meandering, there was a blurb in the FT that Italy was reaching out to China. Where there are a few problems with that. First, the Chinese have said aloud that they wouldn't if the ECB wasn't. Actually, that isn't that convincing either, since the ECB is buying Italian bonds. However, second, you need to ask yourself: why would the Chinese sink more of their foreign reserves in Euro-denominated Italian bonds when it has loudly criticized the U.S. and its budget difficulties? Does this make any sense whatsoever? As as a wise man once said, "Just because we don't understand Mandarin doesn't make the Chinese stupid." We attach all sorts of illogic simply because we don't understand the Chinese, their culture, their customs, or pretty much anything else either. We simply shrug our shoulders and attribute any 'ole reason to the Chinese. Inane.
Next Up: 10B Eur of Italian Bonds for Sale
Now THIS bears watching. Given that the main buyers of Euro-denominated bonds are European banks, which are riddled with Greek issues, and proposed regulatory restraints, the question must be: who exactly will be buying these bonds? That, we will see soon enough.
Today, the market looked into the abyss yet again overnight, with the S&P mini trading in the 1120s. However, by the US regular trading hours, every lunge lower was parried away, and technicals starting taking over as the downward channels held and bounced.
Ludicrous Rumour Triggers Follow-Through
After meandering, there was a blurb in the FT that Italy was reaching out to China. Where there are a few problems with that. First, the Chinese have said aloud that they wouldn't if the ECB wasn't. Actually, that isn't that convincing either, since the ECB is buying Italian bonds. However, second, you need to ask yourself: why would the Chinese sink more of their foreign reserves in Euro-denominated Italian bonds when it has loudly criticized the U.S. and its budget difficulties? Does this make any sense whatsoever? As as a wise man once said, "Just because we don't understand Mandarin doesn't make the Chinese stupid." We attach all sorts of illogic simply because we don't understand the Chinese, their culture, their customs, or pretty much anything else either. We simply shrug our shoulders and attribute any 'ole reason to the Chinese. Inane.
Next Up: 10B Eur of Italian Bonds for Sale
Now THIS bears watching. Given that the main buyers of Euro-denominated bonds are European banks, which are riddled with Greek issues, and proposed regulatory restraints, the question must be: who exactly will be buying these bonds? That, we will see soon enough.
Sunday, September 11, 2011
More News From Europe (Hint: None Good)
It's Sunday, Markets Will Open Soon
Unlike 2008, when the Fed actually tried to do something, the silence of their European counterparts in 2011 is deafening and troubling.
Bloomberg: Greek ‘Orderly’ Default Can’t Be Ruled Out, Roesler Tells Welt
Reuters: Euro seen under pressure on lack of G7 support
Are Gold-backed EUR bonds Inevitable?
Perhaps the only answer is to require the PIIGs to sell their familysilver gold or use it to partially collateralize EUR-denominated bonds (and no tranching, please). Is there any other solution that actually works? Stabilize the EUR, keeps the unity, and thereby stabilizing global equity markets. Not sure why this hasn't been floated more strongly. Guess we will see.
Unlike 2008, when the Fed actually tried to do something, the silence of their European counterparts in 2011 is deafening and troubling.
Bloomberg: Greek ‘Orderly’ Default Can’t Be Ruled Out, Roesler Tells Welt
Reuters: Euro seen under pressure on lack of G7 support
Are Gold-backed EUR bonds Inevitable?
Perhaps the only answer is to require the PIIGs to sell their family
Saturday, September 10, 2011
Euros For Nothing, Greek Islands for Free
Maybe Europe Should Outlaw Weekends Altogether
The G7 is meetings, and the blurbs are coming out, slowly. Highlights isn't really the right word, but...
Reuters: Marseille lays bare G7 differences and lack of policy room
Guardian: Greece on verge of default as doubt grows over €8bn bailout
Of course, BHO is golfing, so it cannot be all that bad.
Soon, we will be able to afford to travel to Europe again (at least southern Europe).
I doubt this is what The Vapors meant by "Turning Japanese."
The G7 is meetings, and the blurbs are coming out, slowly. Highlights isn't really the right word, but...
Reuters: Marseille lays bare G7 differences and lack of policy room
Guardian: Greece on verge of default as doubt grows over €8bn bailout
Of course, BHO is golfing, so it cannot be all that bad.
Soon, we will be able to afford to travel to Europe again (at least southern Europe).
I doubt this is what The Vapors meant by "Turning Japanese."
Wednesday, September 7, 2011
Everyone (?) Back in the Pool
Let's See if the Dog Swims This Time
One reason for pause: this NY Times article, largely unsubstantiated, which suggests a large European will face imminent danger. Nice that they get a free option to get Pulitzer consideration if they are right, and no penalty if they are wrong.
The German court ruled that the EFSF is constitutional. Let's restate more accurately: The German court ruled that the EFSF is not un-constitutional. That tells you all you need to know: a non-negative equals a positive, even if fleeting.
As posted two days ago, we were looking 1120 as a destination point, but the buyers stepped in, defended 1138, and with the news, voila! Back in the pool...and so with it you can expect the dogs (European banks) to be the leaders for this nanosecond. Barclays, Deutsche and Credit Suisse, this means YOU. UBS, Santander: we will need a lot more market cooperation for those dogs to swim.
As posted two days ago, we were looking 1120 as a destination point, but the buyers stepped in, defended 1138, and with the news, voila! Back in the pool...and so with it you can expect the dogs (European banks) to be the leaders for this nanosecond. Barclays, Deutsche and Credit Suisse, this means YOU. UBS, Santander: we will need a lot more market cooperation for those dogs to swim.
One reason for pause: this NY Times article, largely unsubstantiated, which suggests a large European will face imminent danger. Nice that they get a free option to get Pulitzer consideration if they are right, and no penalty if they are wrong.
Tuesday, September 6, 2011
My Currency is Weaker Than Your Currency: Japan vs Switzerland
The Swiss National Bank (SNB) has entered with unprecedented force
Just wow. The SNB has pegged its currency to the EUR at a 1.2 level and then issued a statement to the world basically saying that they were gonna defend it. We can debate free-market mechanisms blah blah all you want, the fact is that the world will accept this policy without putting up a fight whatsoever. The SNB deserves respect in that it has made its policy clear and unequivocal: the Bank of Japan may need to do the same, and soon.
National Sovereignty Trumps Economic Theory
We cannot create a list that is long enough to sufficiently describe all of the times that governments have intervened in the national interest. France, S Korea, China, Japan, you name it. When it occurs, people put up half-hearted arguments, to no avail, largely because every government doesn't want to throw away a card that it may need to use at some point in the future.
Governmental Fiat on Trial
The issue here is that currency intervention is dicey at the minimum, highly suspect at the mean, and a guaranteed disaster at worst. There are two "safe haven" currencies at the moment, CHF and JPY. The world has flocked out of every other currency into those two. Both the SNB and Bank of Japan have intervened, in size, to no avail, by attempting to talk the market down, and by intervening in markets on a sporadic basis.
In the past this has worked to some degree. However, that presumed that government policies were not ridiculed as they are now. The US and European Community has cemented that fate, as their policies have proved to be ineffective, or worse, have been the subject of endless political wrangling. The result: governmental fiat itself is challenged. Thus, the endless demand for gold, the sovereign-less currency (sorry Ben, if it walks like a currency and talks like a currency, it's a currency), persists. Put it this way, the most volatile credit derivatives position on Wall Street is now developed nations' sovereign credit, due to the sheer size x volatility. That should tell you all you need to know.
Dear Asian Neighbors: Strengthen Your Currencies or ELSE, Love BOJ
The real untold story at this point is the fact that the Bank of Japan shouldn't be buying US dollars. It should go around to the other regional currencies and start buying all of them. In size. That would be far more effective in improving Japan's competitive position. Toyota and Honda aren't getting beat by Ford/GM. They are getting absolutely CANED by Hyundai. The competition for Japan Inc doesn't come from the US: it comes from Singapore, Taiwan, South Korea, Thailand, Malaysia, etc. Maybe these countries will protest. However, it is more likely that they will fold, given the fact that none of their track records allow them to complain too loudly. In short, Japan should take a page out of the SNB playbook, get on the phone, and call the Asian central banks. That would be a far better use of the Japanese Yen.
Just wow. The SNB has pegged its currency to the EUR at a 1.2 level and then issued a statement to the world basically saying that they were gonna defend it. We can debate free-market mechanisms blah blah all you want, the fact is that the world will accept this policy without putting up a fight whatsoever. The SNB deserves respect in that it has made its policy clear and unequivocal: the Bank of Japan may need to do the same, and soon.
National Sovereignty Trumps Economic Theory
We cannot create a list that is long enough to sufficiently describe all of the times that governments have intervened in the national interest. France, S Korea, China, Japan, you name it. When it occurs, people put up half-hearted arguments, to no avail, largely because every government doesn't want to throw away a card that it may need to use at some point in the future.
Governmental Fiat on Trial
The issue here is that currency intervention is dicey at the minimum, highly suspect at the mean, and a guaranteed disaster at worst. There are two "safe haven" currencies at the moment, CHF and JPY. The world has flocked out of every other currency into those two. Both the SNB and Bank of Japan have intervened, in size, to no avail, by attempting to talk the market down, and by intervening in markets on a sporadic basis.
In the past this has worked to some degree. However, that presumed that government policies were not ridiculed as they are now. The US and European Community has cemented that fate, as their policies have proved to be ineffective, or worse, have been the subject of endless political wrangling. The result: governmental fiat itself is challenged. Thus, the endless demand for gold, the sovereign-less currency (sorry Ben, if it walks like a currency and talks like a currency, it's a currency), persists. Put it this way, the most volatile credit derivatives position on Wall Street is now developed nations' sovereign credit, due to the sheer size x volatility. That should tell you all you need to know.
Dear Asian Neighbors: Strengthen Your Currencies or ELSE, Love BOJ
The real untold story at this point is the fact that the Bank of Japan shouldn't be buying US dollars. It should go around to the other regional currencies and start buying all of them. In size. That would be far more effective in improving Japan's competitive position. Toyota and Honda aren't getting beat by Ford/GM. They are getting absolutely CANED by Hyundai. The competition for Japan Inc doesn't come from the US: it comes from Singapore, Taiwan, South Korea, Thailand, Malaysia, etc. Maybe these countries will protest. However, it is more likely that they will fold, given the fact that none of their track records allow them to complain too loudly. In short, Japan should take a page out of the SNB playbook, get on the phone, and call the Asian central banks. That would be a far better use of the Japanese Yen.
Monday, September 5, 2011
OK, So She's (Merkel/DAX) a Dog...
Europe Wakes Up, Looks at Screens, and Starts Hitting Bids
Well, that was resolved quickly. The DAX hit a new 3-month low, as Europe returns from its August-long holiday, takes in the information, and eureka! Nothing has changed, except that in the U.S., employment numbers are woefully below the +500,000 jobs necessary to turn the ship around.
As long as the DAX continues lower, and the issues in Europe remain unresolved, the S&P 500 has little hope of sustainable upside. Closet technicians look at the daily charts and say...no meaningful support until 1120, another 30 handles lower.
Well, that was resolved quickly. The DAX hit a new 3-month low, as Europe returns from its August-long holiday, takes in the information, and eureka! Nothing has changed, except that in the U.S., employment numbers are woefully below the +500,000 jobs necessary to turn the ship around.
As long as the DAX continues lower, and the issues in Europe remain unresolved, the S&P 500 has little hope of sustainable upside. Closet technicians look at the daily charts and say...no meaningful support until 1120, another 30 handles lower.
Sunday, September 4, 2011
Drumbeat Against the Euro Banging Loudly
The populist popular press is out early today
FT: The worst of the euro crisis is yet to come
Reuters: Euro bond would get member's weakest rating (S&P)
Of course, bloggers/FX advisory sites are out, en masse
FX Daily: EURUSD: Hold short as selling accelerates
Zero Hedge: Merkel Loses Big, See Ya (ok, so i summarize)
3-day weekends have not been good for global equity markets (Federal Reserve Bank announced emergency liquidity measures, Soc Gen, October 1987, all occurred on a Tuesday following a long weekend).
S&P Futures down only 5, gold up (of course). Just a bunch of screen jockeys playing poker with each other, and some irrelevant babble about a lower Aussie Dollar can be ignored for now. We will see when Europe opens. More as it comes in.
FT: The worst of the euro crisis is yet to come
Reuters: Euro bond would get member's weakest rating (S&P)
Of course, bloggers/FX advisory sites are out, en masse
FX Daily: EURUSD: Hold short as selling accelerates
Zero Hedge: Merkel Loses Big, See Ya (ok, so i summarize)
3-day weekends have not been good for global equity markets (Federal Reserve Bank announced emergency liquidity measures, Soc Gen, October 1987, all occurred on a Tuesday following a long weekend).
S&P Futures down only 5, gold up (of course). Just a bunch of screen jockeys playing poker with each other, and some irrelevant babble about a lower Aussie Dollar can be ignored for now. We will see when Europe opens. More as it comes in.
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