Bill Cara's Blog for Apr 19, 2011 [See Post-Close report]

2007-2008 is but one example.

2001-2002 is another worth mentioning for balance. The xau:gold ratio was at a low of .18ish then, today it is at .14 ish a long term historical low. In 2007 it was at +.20ish

Pm stocks rallyied hundreds of percent while the spx fell close to 50%

http://on.ft.com/fYNqrs

The lawsuit claims Samsung violated 10 iPhone and iPad-related patents in its Android-based smartphones and its Galaxy Tab tablet computer.

The nub of it which they put quite eloquently:

“Instead of pursuing independent product development, Samsung has chosen to slavishly copy Apple’s innovative technology, distinctive user interfaces, and elegant and distinctive product and packaging design,” the suit argues.

Looks like Samsung is proving to be a vigorous competitor and Apple really doesn't like it. They do appear to be riding on Apple's coattails somewhat as their designs are definitely imitative as opposed to innovative. However, in order to win the case, Apple needs to prove prospective customers are so confused by the copying that the products are indistinguishable from the genuine article.

http://bit.ly/gYLSXA

A nice read on Intel vs ARM / PC vs tablet from last year.

thank you Bill, your two ratio charts permit me to look at potential tops and bottoms differently, if stocks are leading the underlying stuff.

I noted another author lamenting the behaviour of mining stocks relative to the metal. http://www.michaelkdawson.com/2011/04/18/sayonara-...

He can join the club. Do I want to lighten up on the 40% weighting I have in a couple of core juniors is the next question I want to ask myself. I probably do.

Ritholz poses an interesting suggestion - that this S&P downgrade might be official policy tightening. Has the market been put on notice?

http://caracommunity.com/content/bill-caras-blog-a...

Exactly!!! thanks for the post yesterday. I'm trying to catch up here but feel I'm falling behind - can someone loan me a extra day?

thanks,
Earl

CNQ - Canadian Natural upgraded to Buy from Neutral at UBS citing relative valuation and strong free cash flow.

Anyone have a bias going into IBM/INTC earnings? Can't say I have enough conviction to trade either way ahead of the news. But my bias would be to short any optimism.

JimG,

I agree. I'm not sure I would recommend anything other than a liberal arts program if I had college age kids. Flexibility looks like the recipe for the future.

We have friends whose son is brilliant and has several scholarship offers, but has decided against his former choice of medicine. This is partly due to the Obamacare, but mostly because of the huge loan he would incur.

Grym

This is the biggest time bomb in America. 20 something yr olds with no jobs and mountain of debt. and the graduates here are not as competitive as graduates in other countries. No accountablility by the parent, the individual child, or the school system.

As we consume like zombies, we learn like zombies too. Never questioning conformity. or why is tuition $50k + per yr? doo da doo da doo da.

Nike - Sewn in the USA.
BYD Cars - manufactured in Los Angeles
$350 per gallon at the pump *caused by dollar destruction

A future where everything is produced in America and consumed by a growing middle class elsewhere.

Coming to an America near you.

Everyone, including me, complains about the deficit. Even S&P has dinged the U.S. and cast doubt about our ability to pay in the future.

Most Americans don't want to raise taxes and I'll agree with that. But we as adults must realize that "we can't always have our druthers." The idiot children that got us into this mess were the ones that cut taxes without cutting any budget items and of course started two wars without raising taxes to pay for them.

While I don't support Mr. Obama in this case I must agree with him. In order to cut the deficit we must both cut the budget and raise taxes. Trying to do one without the other will have the effect of trying to clap with one hand.

Mayham, I somewhat agree on tax increases - I'm conservative as they come and felt totally betrayed by baby bush. IMHO - he is part of the reason the Tea Party took off (thank you Rick Santelli) but we also have to cut the size of government - I'm talking specifically the civil service people - the way too many civil unservice people - those ensconced in offices all over the country, doing nothing but giving away the bank.

SGR.TO is makiing a nice gain today...

regards,
Earl

Looks like the Bobcat is more aimed at competing with Intel's Atom. Why else would they put an out-of-order execution unit on it? With Intel it's all about performance. They haven't succeeded with reducing the power consumption enough to make it competitive in the smartphone arena.

I question your absolutist premise re: "... when it ( the VIX ) gets around 16 it won't and can't stay there"

sorry but the VIX won't stay anywhere! it will go up, it will go down... When typing on my phone I tend to think 'short' comments. I have in the past traded VIX calls but typically 1 to 3 days and I posted my trade today - it may not work this time, for sure there's always that chance but I'm comfortable with the trade. If others want to try it fine if not fine it's not my intent to convince anyone anyway. I'm simply looking at what I'm comfortable doing and posting it. Today I bought 5 VIX110518C20 @ 1.8 and 10 at 1.65 - avg of 1.7 - all I need is a move back to the $2 for a good weeks gain. I'm not expecting Geithner to hand out pacifiers this week so the VIX could go back up like yesterday. Just a joke :-) Absent others posting lots of specific trade ideas I'm comfortable with I'll toss things out there for visceral dissection... ruminate on my friend ;-)
regards,
Earl

"...the progressive agenda." We had eight years to see what the opposite is like.

Is this panic of "mine cofiscation" all about making miners who extract from government lands (the citizens'lands) pay royalties?

Thats a free ride, conservatives are supposed to hate free rides.

Ciao, Z.

"We had eight years to see what the opposite was like".... unless I am mistaken Pelosi and Reid took over the house and senate w/the 2006 elections..... 4+ years ago....that's where all the spending/budgets are supposed to originate...remember the thing (budget) that they didn't even bother to pass last year for the fiscal year ending this Oct????

Hi Zed - No free ride for the miners in the U.S., and there hasn't been for some time contrary to the progressive talking points. The State(s) are the taxing authority for minerals, as it should be, without funds going to the national sponge ... Nevada's mining tax structure dates back to statehood in the 1860s, and taxes at 5 percent of net proceeds. Happy Trading

Gold tapping on the $1500 psychological resistance level this hour. Fascinating isn't it, how such an arbitrary number can affect valuation; and I can't help but think that it will make for a great support level if and when it is penetrated, (and I think it will be sooner rather than later).

I can't find anything about why no volume is showing for PMI, but I just read the great drill results for Extorre (XG-T), i.e. bonanza levels in some samples. Didn't I hear about that one from somebody here? If so, my thanks!

Dave - I agree. The MITK person I spoke with said the adoption rate is already 40% amongst USAA mobile banking customers...so maybe you need to open your eyes a little~!

Also, Chase is spending $75 Million on advertising this mobile deposit service to their customers and apparently that is driving a significant amount of demand for this service with other banks.

TOF -

I'm certain that once people use it - heck once people are even aware its possible and won't hurt them - they'll try it and likely keep coming back, its just too convenient. The issue is getting people over the hump of
a) knowing its possible
b) not being scared of it "doing something bad to them"

These things aren't insurmountable, and once word of mouth catches on adoption could be quite fast, I'm just laying out the case of what the barriers are in my opinion.

I'm surprised 40% of USAA mobile customers use it. It is right there on the main page - it is #4 on the menu of the USAA mobile app, but that's an astonishingly high (unbelievably high?) adoption rate, unless of course it is the primary reason most people want the app in the first place.

Next questions might be - how many USAA mobile customers are there, what percentage of USAA's customer base use the USAA app, what's the rate at which new USAA app users come in, and how long has the app been available.

"In the 1940s and 1950s the higest tax bracket was up to 90% and the top 1% of earners did not make as much as the lower 50%, the country just ran. We had a deficit but we were paying it back."

The actual rate in those days was 91% for incomes over $200K. However, the reality was much different when it came to what was actually paid. Almost no one paid these higher tax rates (there was one year in the 1950s where only a single taxpayer in the United States actually paid the highest tax rate) because while the rates looked almost confiscatory very few people ever paid them due to all of the tax credits, loopholes, and legal dodges that went along with the almost 25 different tax rates of this period. FDR had started these higher rates (top rate was 81% pre WWII) but also provided plenty of ways for all of his high income friends (and his own family members) to avoid them completely. And for all of the talk about tax rates during the Great Depression most people were never bothered by them at all. The lowest rate in those days was 13% starting at an annual income of $2000 (and up to $4000)but the average income for the majority of Americans was something like $1800 per year. My own father grew up in a middle class family in the Midwest during that period and once told me that he never knew a single family that ever had to pay any Federal Income Tax prior to WWII.

As for when the national debt started getting out of control (much more important than the deficit in many ways) it's been coming for decades. As Kaimu has been explaining to us an increasingly unsound currency is the root of the current problem and that has direct ties to Richard Nixon closing the gold window for international settlements in August of 1971. Just about every financial problem that has cropped up since can be traced back one way or another to that single event.

TXN - estimates cut at Oppenheimer through 2012. Company continues to face disruptions because of Japan. Outperform rating and $41 price target.

TXN - price target lower at Citi to $40 from $42 as Japan earthquake felt in both gross margins and EPS, Citigroup said. Maintain Buy rating.

Internet stocks in China and India flying

Dave - The adoption rate of mobile apps ramps up really quickly so I wouldn't be shocked that 40% of USAA's mobile users actually deposit checks through their phone. It's such an easy thing to do and beats going to the ATM/teller any day of the week.

The man I spoke with at MITK.ob said that he doesn't anticipate such a huge adoption rate with other banks...he was thinking it would probably be half of that primarily because USAA tends to cater to military people who are more in need of depositing checks remotely. Still 20% would be great. BAC will be rolling this feature out next year and they have approximately 20 million users. That alone could bring $5-$10 Million in revenues annually for MITK (MITK charges $1 to $2 per subscriber annually (or $0.15 per check deposited) and given that net margins are 85% on mobile depositing, they would generate $4-$8 Million in profit. Total overhead is around $5 Million for the company. I know the adoption rate is the key to this...I just think this is a great 2-3 year investment. I could easily see this getting to a $1 Billion market cap (vs $120MM right now). We shall see. I'm in it.

http://www.prweb.com/releases/2011/04/prweb5262474...

MITK.ob is inside this.

Very tempting to take profits, but I will wait.
FD: long UNG calls.

VIX Call buying opportunity?

"But Obama can up the taxes to the moon on them...
Or hell, he can confiscate them, anyway. Change is good, LOL."

I would welcome a tax or royalty placed on US mines. Nothing will get permits approved and metal out of the ground faster than giving Uncle Sam a stake. Hey, come to think of it, they should be doing the same thing with oil!

There are still laws in place in the USA to prevent any nationalization.

jack- I can't believe the VIX numbers. I think it spikes soon enough. We almost have to move down.

Congrats if you were long. I think TOF talked about this one some time ago but I was too lazy to research it up.

Hi All - There seems to be a lack of communication by progressives about tax & benefits of the natural resource sector here in the U.S. to wit: U.S. mining in 2008 directly and indirectly generated nearly 1.8 million U.S. jobs,
$107 billion in U.S. labor income, $189 billion in contribution to U.S. gross domestic product, and $45 billion in federal, state and local taxes. Data is a bit dated, but clearly taxes are paid. Happy Trading
http://www.nwma.org/pdf/economic_contributions.pdf

TOF -

I actually worked at a company for several years writing mobile applications, and then I worked with our marketing department trying to figure out our customer adoption rates and other "business metrics" for the company - so I know a fair bit about both mobile apps, adoption rates, barriers to use, and how to model all of it.

The universe of customers that have the app is likely to be much bigger than the customers who will actually use it to deposit checks. This is a free app we're talking about. Some chunk of people will download it and then never use it. Many use it once, and then never use it again. (BAC may or may not have these numbers; it took work for us to get them at our company). And downloads does not mean users - folks may upgrade their phones, which ends up double or triple counting users. Discovering your actual active userbase is not as easy as you might think.

Modeling the average deposits per customer, and the percentage of customers with the app who actually use it will let you figure out likely real numbers for MITK.

Back of the envelope calculation - 3rd largest iphone app is TWC (the weather channel), and they had 12M iphone downloads (as of Aug 2010). 20M for BAC's ho-hum banking app doesn't feel right.

If you got half the 70M iphones in the country to download one of these apps, that would be perhaps 30-60M/year. Then say 20% of those did 2 checks a month, that's another 20M/year. I'm not sure I see a 1B company out of that. Perhaps if they have a placement memorandum you can get, these projections would be in there.

However, perhaps the actual number matters less than the sizzle factor. Once the app is widely used, they'll get well known, and the Peter Lynch effect will take over. "They'll make BILLIONS!" :)

Didn't own it but remember the touting here when it buzzed up and down between 3 and 7. I do own DANG, which is a China internet stock up 17% today. I'm still covering underwater tech stocks, but big earnings reports from IBM, VMW, INTC, and gambler WYNN may slow the # of participants exiting stocks. Not so happy to read Chris Martenson latest which focused on mountain of debt needing to be issued in the next two years, and concurrent China real estate bubble looking like it is bursting.
http://www.minyanville.com/businessmarkets/article...
Not good. Article confirms Kaimu reports.
Good piece by Jessie today linked above. Made me think of Gordon Brown ex PM of UK who wrote a book "After the Crash" which speaks of the lack of ethics at banking level. So they cleverly get around regulation, or convince politicos to tear it down. We all lose unless there is balance. Think Easter Island.

Clearly a hunch. CSCO to 50% of allocation in two separate transactions @ 16.7x. WFC to 50% of allocation @ 30.20.

If I'm wrong, I'm willing to take the hit.

Most recent sales of each: CSCO @ 17.40 April 21, WFC @ 31.80 March 21. Can't deny a psychological tint to the trades.

http://tinyurl.com/5jl3mc

Should have taken a flyer on INTC. That's the danger of having a 'bias.' Can't really say I made the wrong move, however. No way for me to have known reaction to INTC earnings.

Of course, you can also say I have no way of knowing reaction to WFC earnings. That one's a pure hunch. Something will eventually light a fire under financials, and being a long-time WFC customer + wife an ex-employee I believe if any bank has a shot at it, it's WFC.

Above.

http://www.bloomberg.com/tv/

TOF -

I've never been a big fan of "if they get 5% of the market" method of analysis since it doesn't take into account any breakdown of why 5% of the transactions would really care enough to use the product. Why not choose 1%? Or 10%? In VC-land, they typically shred presentations that rely on such assumptions. "Its a big market, we're sure to get some of it and 5% seems like a nice number" doesn't pass muster.

I feel a more credible methodology is to identify the customer for whom this service is just right - the occasional check depositor. Estimate the number of those customers, determine how many use smartphones, use the adoption rates for mobile app use in banking, and determine your revenue and profit ramp from that. It still uses assumptions, but they are ones you can fact-check and change as time passes and more information becomes available.

The hints about using their tech for other areas I think are interesting, but until they have a signed customer, I think its just sizzle and not steak - they are just throwing stuff against the wall to see if it sticks. It reminds me of some of the stuff done in my previous companies with products we thought were interesting, but didn't really have a business case for. My gut says its probably not the killer app here, but there might be a pony in there somewhere.

Remote check deposits are cool because it involves money. People want to get money a lot more than they want to pay it out. And taking a picture of money and having it appear in your bank account just seems magical. I don't think the same feeling applies to paying a bill. It just doesn't feel as cool...

And banks are aligned with this too. Offloading check processing to the customer, why that's just a dream come true for them. Thats why they are willing to pay out for the technology.

TOF, I don't think it's that hard to find numbers. For instance, some numbers we have seen from these articles:

* 4 million checks deposited with Mobile Deposit at USAA in 2010
* USAA has 8 million customers
* 15 million mobile banking customers total in the industry

http://blog.mobilestrategypartners.com/2010/04/18/...

USAA Mobile Banking:
* 14% penetration Q4 2009 (1.1M customers)
* 17% penetration Q1 2010 (1.4M customers)
* 20% ramp per quarter

So if we assume a 20% per quarter ramp of mobile banking customers, Q4 2010 ends with 2.3M mobile customers, with 4M checks deposited. That's pretty occasional. Perhaps only a few customers know how to do it or feel comfortable with it. Maybe that usage has a ramp as well.

We can also calculate overall industry-wide mobile banking customers this way too. 15M mobile banking customers now, growing 20% per quarter.

You could probably do a spreadsheet and come up with something within a factor of 2 of what will really happen based on announced rollout dates and customer counts for each organization.

My guess is usage growth rates will be impressive (perhaps 100% per year?) but beginning revenue numbers won't be as high as one might hope.

ALOHA!!

The basis of QE2 and QE1 is to buy US Treasury debt, but what happens to QE2 if it ends before June because the Debt Ceiling is reached? Officially the Debt Ceiling prevents the US Treasury from issuing debt, meaning Treasury Bills, Notes and Bonds. How can Ben Bernanke buy something that cannot be issued legally? I think such a scenario would jolt the markets severely due to the unexpected "mini black swan" event of having the US Treasury's debt hands legally tied behind its back. How long that situation lasts would be anybody's guess, but I am sure Bernanke must be calling Congress and the US Treasury and addressing this issue. It'd be like having your credit card physically taken from you out of the blue.

On April 15th the US DEBT went up by nearly $35BIL that day and then it went up again on Monday, April 18th, so that now there is only a cushion of $37BIL left before the Debt Ceiling is reached. If this coming week is anything like the last week then in one day the Debt Ceiling would be breached.

I can read all day about how the Debt Ceiling is irrelevant since we could exist on tax revenues for awhile or we could just take more funds out of various entitlement Trusts to get by, but I have not read anything about how QE2 would be dead in the water without legal Treasury debt issues to buy.

Then again if Congress were forced to just live off tax revenues then all but three line items would need to be shut down. Most days there isn't even enough tax revenues to pay for the basic entitlement outlays, but the US Treasury can dip into its Federal Reserve Account which now has around $107BIL in it to get by for awhile. Never mind that what about QE2?