Bill Cara’s Blog for July 14, 2010 [See post-close report]

Senators question BP’s Libyan links
http://bit.ly/9xok7V

Pimco caught out by strength of gilts
http://bit.ly/bNZsxB

Housing?

Well, around my northern Illinois neighborhood nearly all the same houses are for sale as a year ago. (2 of 12 have either sold or been abandoned) Two or three have been added to the market recently. One has been vacant after having been bought last year and a July 5, auction failed to draw bidders.

The problem IS the job market is worse than 12 months ago. I think it safe to assume several of these would not be on the market if the owners still had good jobs.

A property directly behind our house was taken off the market due to real estate agents giving the owner such a low likely sale price that he is now commuting daily to Milwaukee — the nearest he could find work.

Obama and Congress need to wake up — keep your grandiose plans — people want work and you're killing the economy!

Good morning.

FSLR - First Solar coverage assumed with a Hold at Jefferies. Target $138

GOOG - PT Lowered from $690 to $675 @ Stifel Nicolaus. Buy

INTC - PT Raised from $30 to $32 @ FBR. Market Perform

now hitting 50 and 200 DEMA.

"we do not yet have the evidence to indicate that a recession is imminent or inevitable"

What I get from consumer metrics suggests that a double dip in consumer spending is already happening. Presumably as the consumer goes, so goes the rest of the economy.

thanks a retest of the "Death Cross"

"In short, the risk of recession is increasing, but we do not yet have the evidence to indicate that a recession is imminent or inevitable. Important data to monitor in the next few months will be the ISM figures, consumer confidence (especially a sharp drop), employment, hours worked, and capacity utilization."

Recession? Depends who you ask.

According to Van Hoisington the National Bureau of Economic Research is not willing to say the recession ever ended. They say the ratio of people employed to total population has fallen from 62.7% 12-2009 to 58.5% today.

http://www.hoisingtonmgt.com/

Gold spiked about $7 a few moments ago. Any news?

EDIT: euro also taking off

Vad - You have talked in the past about those stocks where the 'smart money' is doing the 'heavy lifting'. Would you consider DCTH to be a case of that??

Thanks, Kyle

dunno.

Stockcharts.com shows it on the daily as does Yahoo finance. Etrade doesn't.

Meanwhile back at the ranch, INTC is trading almost 2X the average 10 day volume and below the open. See how it closes.

I found this extract from today's "Breakfast with Dave" interesting:

"But what about the stock market? I’m not saying it’s “manipulated” but it does have substantial “survivorship bias” — especially after a gut wrenching recession. Just cleaning the failures out of the system and erasing them from the S&P 500, from WaMu, to Wachovia, to Bear Stearns, to Lehman, to Fannie and Freddie, and replacing them with companies that survived, was responsible for nearly 40% of the rally in the market off the 2009 lows. Think about that, if those firms who went under were still in the index, according to some help from a strategy friend at an aforementioned bank, the S&P 500 would be trading closer to 900 today than 1,100."

not trying to butt-in on Vad.... several ' estimates ' have ' dcth ' at ' fair value ' around $ 8.00 - $ 9.00 at current growth projections ( but heck, its a traders equity, so who knows )... if interested, you might take a look at ' sppi '.. although two company officers left a couple of months ago ( one has been replaced, the other was, basically, an intermediary between company and physicians, and interviews are ongoing ) estimates are trending nicely.. will probably show its hand toward options expiration... best of trades to you...

Sorry, there is no way I could compare DCTH to MBI, for one simple reason... I don't remember anything about that play from a year ago :)

Changes in the components of the indexes have contributed a great deal to the perceived returns.

Go back to 1928 and look at a few of the DOW 30 stocks. (1928 was the first year there were 30 stocks in the index.' Here are a few;

American Can
Texas Gulf Sulpher
Postum Inc.
Paramount Publix
Nash Motors
General Railway Signal
Victor Talking Machine...

Generous Electric is the sole survivor. Many others survive today like GM, Woolworth, Sears Roebuck but are no longer deemed worthy for inclusion. I may be mistaken but I recall American Ice was once a DOW stock.

There has been no covert manipulation just changes to reflect the real economy over time. The next candidate to be rusticated will no doubt be Alcoa. I hope it is replaced with China Life! Nah, too unamarakin!

However, members noted that in addition to continuing to develop and test instruments to exit from the period of unusually accommodative monetary policy, the Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably.

In theory, dollar should strengthen from here as investors seek safety in US Treasuries.

ALOHA!!

Yes ... then there is this one!

ENRON
Enron grew wealthy due largely to marketing, promoting power and its high stock price. Enron was named "America's Most Innovative Company" by "Fortune magazine" for six consecutive years, from 1996 to 2001. It was on the Fortune's "100 Best Companies to Work for in America" list in 2000, and had offices that were stunning in their opulence. Enron was hailed by many, including labor and the workforce, as an overall great company, praised for its large long-term pensions, benefits for its workers and extremely effective management until its exposure in corporate fraud. The first analyst to publicly disclose Enron's financial flaws was Daniel Scotto, who in August 2001 issued a report entitled "All Stressed up and no place to go" which encouraged investors to sell Enron stocks and bonds at any and all costs.

and NVDA last night ?

Thanks Bill. The WSJ have summed it up perfectly.

Now might be an appropriate time to quote this again.

“With household balance sheets still over-leveraged, the key determinant of consumer spending growth going forward will be the pace of the recovery in the labour market and hence the path of wage and salary income,” said Joshua Shapiro, chief US economist at MFR.

tobyt...... sold ' pozn ' ( from 6.64 ) ok% ( To much like alth ).. sold orex, excellent % ... no positions at arna, orex, nor vvus... sold vnda ( from yesterday, ok % )started sppi early am... gl on vvus,arna,.. baz

15:35:47
Glaxosmithkline PLC *FDA ADVISORY PANEL ON AVANDIA (ROSIGLITAZONE) RECOMMENDS ALLOWING DRUG TO STAY ON THE MARKET WITH NEW RESTRICTIONS; 12 MEMBERS VOTE TO WITHDRAW FROM MARKET; 17 VOTE FOR LABEL CHANGES OF VARYING SEVERITY
- 33 total votes
- 1 abstention, 3 voters vote for no changes to current label.

ALOHA!!

Once again as a small business owner I represent the following ...

Small businesses represent more than 99 percent of all U.S. employers and have created 64 percent of all new jobs in the past 15 years, according to the U.S. Small Business Administration. A small business is defined as an independent enterprise employing up to 250 people.

My GROUND REPORT is that costs to produce a product are constantly rising as sales are constantly falling. 2+2=4 means I am not hiring!

Small-Business Confidence in U.S. Drops to Three-Month Low
July 13, 2010, 8:28 AM EDT

July 13 (Bloomberg) -- Confidence among U.S. small businesses fell in June to the lowest level in three months as projections for profits, sales and economic conditions weakened, a private survey found.

The National Federation of Independent Business’s optimism index decreased to 89 from May’s 92.2 reading that was the highest since September 2008, the Washington-based group said today. Seven of the index’s 10 components dropped, led by a decline in the economic outlook six months from now.

Smaller firms need to increase hiring and business spending to ensure the economic recovery that began a year ago is sustained. The report shows employment stalled last month while executives planned to trim investment and inventories as they waited for demand to strengthen.

“Headwinds for the economy are still strong, making forward progress difficult to make and to hold,” William Dunkelberg, the group’s chief economist, said in a statement. “The small business sector is not on a positive trajectory and with this half of the private sector missing in action, the poor growth performance is no surprise.”

“What businesses need are customers, giving them a reason to hire and make capital expenditures and borrow to support those activities,” Dunkelberg said in the statement. “But consumers are as uncertain about the future as the business owners waiting to serve them.”

The weak economy continued to help contain inflation, the survey showed. June was the 19th consecutive month that showed more small business owners cutting average selling prices than raising them, and widespread price-cutting led to declining sales.

This caught my eye the most ...

" ... and widespread price-cutting led to declining sales."

Yet my costs continue to rise ...

The best strategy I ever put in place was to own a home and business that were debt free. I did not fall into the trap of using debt to expand my business. I feel sorry for those that did as I can take you on a tour of all the failed nurseries here in Hilo. One of the oldest ones, with a PO BOX number of "1" is tops on the tour! Many nurseries lost huge sales as they lost big Japanese accounts. Times are tough and don;t let Obama or Bernanke ever con you into believing they have a solution. They're only solution is more debt. A great idea for bankers not so great for the rest of us who cannot print money.

(apologies to Bette Midler for stealing her book title!)

Bill,
Congratulations on becoming the grandpapa of a lady in waiting for her next career move. Being born female is fortuituous in this century as the trend toward humanism and collaboration, dare I say less competitive killer me me meism is needed by our universe. So sayeth the star gazers.

Meanwhile, you might encourage your grandlass that there are some jobs where women not only excell -- but get paid more than men in these increasingly enlightened times! (unfortunately these are mostly lower paid roles so let's hope she has inherited your nose for trading!) http://tinyurl.com/38jbfes

couldn't agree more Bill. I think today was even more bullish than yesterday. If the market wants to get everyone off board before making its true move (which I believe is higher) it will fall a bit over the next few days to gets bears more confident and bulls less confident, then it will power higher.

Bill,

"WSJ: Federal Reserve policy makers raised the possibility at last month's rate-setting meeting that further monetary stimulus may be needed if the economy shows more serious signs of slowing, according to meeting minutes... Meanwhile, Fed officials rolled back their U.S. economic outlook for the first time in more than a year, saying a soft job market will restrain growth."

My biggest fear is that in order to "stimulate" growth and spending (and of course garner votes) we may see a bailout of state pension funds by the federal government.

Certainly seems an effective way to inject money into circulation quickly.

lessmore -

"This is a dubious business model. Ten years ago Intel was the leader in its field and its market cap was over $500 billion. Today Intel remains the leader but its market cap is $119 billion, and it reported its best quarter ever and it is upbeat about the future. If its business model is good why is its market cap not at least equal to what it was 10 years ago?"

In regards to Moore's Law: In 1975, Moore extended it to 24 months and physical limitations may be reached by 2017.

I don't believe we've come close to computing power DEMAND saturation with ever increasing code, global user expansion, and the shorter economic life of a computer chip product. Intel's market cap dropped due to modest loss of it dominant market share to AMD and the pullback from the dotcom bubble hysteria, my friend.

Not so dubious a business model, really, as chips can be found in more and more products used by more and more of the global population. Just look to Apple for a spectacular rebound in market cap as the chip/computer groups mature. Why can't Intel do the same as Apple? Moreover, show me why semiconductor demand is in decline and I'll buy your thesis.

Cheers.

It appears people are taking matters into their own hands:

http://www.connectmidmichigan.com/news/story.aspx?...

I think it does require explanation why INTC's market cap has shrunk by a factor of four. I think I first read about this in a Peter Lynch book - the transition from growth stock to slow grower is very hard on stock price multiples. Several technology stocks went through that transition at the end of the dotcom boom. MSFT, CSCO, and INTC all went from PE ratios of 30-50 and massive yearly growth rates to dividend-paying, PE 13-15 stocks. Because of multiple collapse, prices never recovered to the dotcom glory days even though revenues are similar if not higher.

Ultimately, it was the realization that instead of being driven by the massive yearly growth in customer base, these companies would be driven by the replacement cycle because at some point, everyone in the world that wanted their product already had one. It was the *success* of their business model, not the failure, that ultimately caused the problem. This has happened with any new invention. It will eventually happen with the smartphone/Apple as well. Once they start paying a dividend, you know the days of the high P/E ratio are over.

Look at MSFT. In 2000, revenues 22B, PE 70. Now, revenues 58B, PE 13. Stock price went from 60 to 20. It's trading at lower multiples than PG, MMM - it's almost a utility now! INTC revs are basically unchanged from 2000, but the multiple has declined from 50 to 20 (10, if you look at forward PE) - stock price went from 80 to 20. It took a bigger beating because it didn't manage to grow revenues the way MSFT did.

So is INTC a buy? Is the PE compression cycle over? I think 10 years later, it probably is. Probably for MSFT too, although I honestly don't like their product - which is another matter entirely.

gforce,

In addition to competing currencies, the barter system is alive and well! Locally a very organized barter network allows people to trade goods and services. People post their offers and wants in the network. Many an enterprenuer will accept massages, dental work, auto repairs or home cooked meals for their own goods and services. It's based on an hour per hour or value as agreed. HAAAA to the Fed!

Thanks for your analysis. Its very good.

gforce,

Several interesting and believable points. Why they may be so is a more complex issue than meets the eye.

Why do so few Americans vote? Well, perhaps they are just a little quicker than I. I've voted in every primary and major election since I came of age. My first vote was cast for Nixon over Kennedy. With only a few exceptions (John B. Anderson, Ross Perot) since then I have voted not for, but against who I believed to be the worse candidate. This spring I didn't bother to vote — I wanted none of the above and didn't want the deep sense of regret I have for having voted FOR Obama.

Anderson got my vote in 1980 due to his plan to charge $0.50/gal. to develop alternative energy sources. Nothing was ever done to wean us away and now we have the BP mess and $3 to $4/gal. gas.

Now that a large number of individuals have protested enough to acquire a group name "Tea Party" they are being painted as racist by everyone form D.C. to NAACP and a bunch of others to boot.

I expect things to get far worse before enough people rebel and real change can be forced through. (Not just a meaningless "Hope", "Believe In" or other verbal vomit.)

With this kind of "official truth" being fed to us I feel like I'm in 1930s Germany.

http://tiny.cc/zzgzr

Three Million Imaginary Jobs
The White House says the stimulus worked beyond even its hopes. Seriously.

Loannetter,

Same here in Illinois.

Just as it was in the Soviet Union when my son's high school class visited in 1980. Levis were a preferred currency as were Elvis records and US news magazines like TIME and News Week.

The "real market" eventually trumps government pretense.