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Wednesday, March 31, 2004

Long Time, No Tech

I haven't been around in awhile because frankly there's not much new out there in tech land. I will point to this story on TheStreet.com because the talking heads are now coming out about the impact of high gas prices on the rest of the economy. Hello?!?! Wasn't I saying that on, oh, March 17th?!? Yes, yes I was. Thanks for coming around guys.
What else. The market is going to be choppy. Bush has lost the election. Mark my words, he won't make it. He barely won it in a squeaker last time and I think voters have migrated away from him on the Iraq war issue. Again this is not a political statement, just my assessment of the biggest political factor on the horizon. Make your Kerry assessments now because they're only going to increase in likelihood. Although, I will say this: Kerry's economic plan remains pretty 'fluid' and I expect to see several surprises in terms of sectors that will be supported or underfunded which could have a major impact on valuations. Make sure you know your Kerry policy going into November. I surely will.
What else? I guess econ data came in disappointing today. Actually when I use the word disappointing, I don't use it lightly. There's a difference between 'disappointing' and 'underwhelming' -- disappointing is worse. Growth just isn't there and I think that gas may finally be the spectre that takes down the consumer. That being said, I think that corporate profits are healthy and corporate governance is having a measureable impact. Next we'll get better shareholder representation at the board level. These last few factors are actually major positives for stocks. However, if Kerry eliminates the cap gains tax cut, this will be a major negative for stocks.
But let's talk tech. Tech is doing great. The companies that are out there today are 1000 times better quality than what we had floating around in 2000. Seriously, it's true. Many tech companies are making A LOT of money. Check out Yahoo!'s cash flow sometime. Additionally, expectations are somewhat more sane. I'd love to see what next year's earnings multiples are compared to what they were in 2000. I bet the difference is striking.
The caveat for tech is that I would be really worried if my companies weren't making a profit by now. Unless they have a damn good, rock solid growth story ahead of them, I'd sell and not look back. We are in a trend of the strong getting stronger in tech, not the small and weak suddenly becoming healthy. The turnaround stories are almost all wrung out here -- you should've been looking for those a couple of years ago. (Hello ValueClick!)
Earnings season could be interesting. Lots of companies may beat. However, that may be baked into expectations at these levels.
We'll find out!

Thursday, March 25, 2004

Rally Hats are Working!

Toasty day all around. Nice to see, but many tech names are still way below last month's levels. I think we'll see a hard run from here. Still concerned about Clarke's affect on the election. Kerry will fundamentally alter implied cash flows to investors if he mucks with taxes significantly. That could have a hard hammer effect on the market. ALternatively, Kerry's lack of differentiation from Bush will likely lose him the election as conservatives and moderate conservatives will stick with the incumbent. So maybe as Kerry's threat falls, the market will rally some more.

Gas prices are still high which is a little worrisome. When do transpo stocks start taking it in uncomfortable places?

Pick o' the week: Apple still in a good position to run for $30. I think we'll see it when people realize that they are targeting the soho biz consumer with a superior product.

Monday, March 22, 2004

Feels like a bottom...

I was watching the Daq approach and submarine the 1900 level when a voice inside my head told me, "If it hovers just below 1900 for awhile, then it'll pop back up." Sho'nuff, that's exactly what happened. I think we were shaking the technical traders out. I'm sure there were a few that decided to go short when the index fell below 1900 -- bad decision. The news is at such a negative crescendo that I think it's a good time to pick up positions. Tech continues to get hammered as fundamentals are in short supply. However, growth is still strong for many of my favored stocks and that means that fundamentals will follow.

On another note, CNBC is a bunch of freakin' idiots. How do these people get paid for the B.S. that spews forth? They continually demonstrate a lack of basic understanding of the market. I hate journalists who try to be analysts; it always ends up badly.

Anyways, look for a good day tomorrow. Could be interesting...

Ugly Start

This is what I expected. This is a hard down open that was triggered by the combination of the last night's 60 minutes report about Richard Clark, the former terrorism czar that alleges that Bush ignored Al Qaeda threats, and the killing of an important Palestinian terrorist/leader by the Israelis. So the increased threat of further terrorism is weighing on the market. Interestingly, I like to buy the tech markets at this point as I think terrorism fuels tech. I believe that the tech companies are aggressively developing most of the tools that will be purchased and deployed in the war against terrorism. Of course, I have to qualify that as I don't see many good values out in the market at the moment.

Friday, March 19, 2004

Market Action Unconvincing

It looks like the market is trying to recover here. I see it has hit break-even for today, but I'm unconvinced that this is a sign of strength. In fact, I note that oil prices are still climbing which makes me even more negative. I get the feeling we're being set-up for a major downward move. The only thing that could propel the market is some serious government spending, which is not out of the question. In fact, my instincts tell me that Bush would be well-served to pump some money into the American economy very quickly. I suspect that P.O.'s are being accelerated in many government departments already. But what about the deficit, you ask? It's clear that increasing the deficit is not a concern of this executive branch. Besides, pumping a few extra billion into our economy would be relatively unnoticeable considering the absolute size of our current deficit. What's a few bill here and there when the headlines approach a tril? Not much.

Adobe posted really good results. Up 10% -- this is an earnings report I wish I would've been in front of. I need to look into their new enterprise .pdf offerings. I'm a little suspicious that this will be a major growth driver that merits substantial premium for the company. But, I could be wrong, this might be the first enterprise application to really demonstrate the merits of an XML infrastructure. Additionally, they're on the initial ramp of this effort and I don't like to run against a large company putting out new product initiatives. Usually, the product launch has been well thought-out and demonstrates decent growth in the initial stages. The real money will be made in figuring out how long this offering's legs are. (ugh...ugly sentence)

Wednesday, March 17, 2004

Oil Keeps Risin'

Oh joy, looky that, oil prices keep rising. Makes me feel like staying short. Also, recent comments by the heads of two of the largest private equity groups in the world make me want to go short American equities all together and go long the rest of the world.

Basic argument goes something like this:

America is now on the downslope of a British and Roman Empire like decline, as evidenced by:
- The lack of advantage in production and soon to be in intellectual property
- Our huge and growing current account deficit
- Our nation's inability to reform our educational system (the root of current evils) leads to competitive disadvantage versus China and India

Other comments include that our low unemployment rate is false due to people dropping out of the workforce. I'm kind of ambivalent about this. If someone doesn't want to work, then so be it. There is always work to be had. Now, whether its the type and pay level that someone wants to do it at is a different story...

So, we're in a hard downtrend. Stay short the market and stick to fundamentally valued stories with little downside. The risk is that if the market opinion changes for the better, then I will likely miss the charge up by more speculative names. Need to create a basket of names that I want to move into quickly based upon sentiment change.

Monday, March 15, 2004

Hypothesis Destroyed/Roxio Delivers/Overall Market Weakness Confirmed

I'm not sure the headline needs much explaining if you've been following up to this point. However, the market weakness is continuing along expected lines. It's as if the market needed an excuse to blow out valuations. My hunch is that the Spanish bombings may actually be a positive catalyst for the markets as it will support Bush's re-election. My logic is that with the terrorist threat reasserting itself, the hawks are validated and lends strength to Bush's campaign. Bush's reelection will be good for the markets in the short term, at least. Regardless, I still think we'll see gas prices take a chunk out of the economy for a bit.

In the long term, I still like secular equities. My companies are reporting strong results and slowly building momentum on end-game business models. Roxio's recent revision of expectations stands out as an example. Apple is continuing to show strength as well and I believe their next gen of products will blow people away. I think security stocks will get a boost, especially considering GE's purchase of Invision today. Should've developed my security trading strategies earlier...opportunity lost.

Friday, March 12, 2004

Morning Pop...Afternoon Drop?

Well, it looks like I get to test my hypothesis today. Let's see if we get a second-half sell-off. I think we will, I don't think hot money wants to hold stocks over the weekend given what happened in Spain. Another attack could drop the market again on Monday. Plus, there aren't many compelling values out there, at least in the big companies. I'm going to continue to look at small opportunities. I'm very familiar with small (ahem...micro) caps and I've interestingly heard a few names in the last few days that I've never heard of before -- can't have that.

Have a good weekend. Enjoy the weather!

Thursday, March 11, 2004

Ugliness Continued

The market continues to look queasy, which is fine with me. I'm trying to understand if I can understand this repetitive EOD sell-off. I wonder if there are any observable/proveable metrics regarding when retail activity is heaviest throughout the day. The flipside is that hedge funds may finally have found the top and are not holding positions overnight. In any case, the last three days have been interesting going into the closing hour.

I'm repositioning into non-tech sectors for a bit. I'm looking closely at BBA. It's a really cheap stock for the moment but they've got their issues. Wondering if they're turning the ship around or what's going on at that company. Restoration Hardware worked well for me. I liked it at 4.15 and its up to high 5's within a couple of months. Interesting move, need to decide if I want to continue to hold or exit here.

Roxi keeps floundering. I'm doubling as I think no one has any idea that their Easy Media Creator 7 is going to blow the doors off estimates. I think this could be a fast double.

Another theme I need to think about is the election. Right now Bush looks weak, but that's because he hasn't really launched his campaign. He has an amazing warchest of funds to throw at media and he's just started. Frankly, I think having a huge campaign fund is a great asset and it'll be interesting to see how he shapes public opinion with it. This election is his to lose. The flipside is that the Dems did have the popular vote last time around and Kerry has serious creds. However, if Kerry shows continued momentum, then I'd be short the market as rich people won't be happy. Although, the Reps will still have control over the house and the senate, which is what really counts. Need to think through my probabilities as to how this plays out and how that affects my macro bias.

Regardless of macro bias, I'm using weakness to pick up more digital media stocks as this is the most compelling secular trend in the market today. (Okay, maybe top 5, with Homeland Security, Communicable Diseases, Changing Demographics also in the mix.) Strong secular trends mean looking like a genius 5 years from if you find the right horses and hold on tightly.

Should've gotten me one of those Seabiscuit bobbleheads when I had the chance.

Wednesday, March 10, 2004

Day Two of The Correction

The more speculative stocks that I follow are being capped at the knees. Macrovision is getting beat up. If it continues to drop, it will be a compelling buy as I'm a believer in their future markets. Akamai, a company that I'm not so hot on is also getting punked. About time. $2 billion for a company that is currently break even is a bit absurd. Could be a good momentum short. Nothing to support it right now.

Nothing to support the market right now either. Not even Greenspan can support it at these levels. The problem is that too much equity capital is sloshing around looking for a home. Everyone, *has* to be invested right now so they throw money at quality names, leading to market overextension.

But don't worry, this will end and we will go back up at some point. The quality of companies compared to early 2000 is significantly better. Not so many b.s. business models out there these days. Most of the tech companies I like have significant cash flow. (What a novel concept!) This improves their capitalization as well.

The only big risk I see to tech companies right now is dilution from option grants. This is a very big problem that not enough people are talking about. Barron's did a story on Adobe a while ago and kneecapped that company, but they deserved it.

Tuesday, March 09, 2004

Shameless Self-Congratulations

I can't stop with the body rock. (Note yesterday's call and today's market action.)

Monday, March 08, 2004

Market Correction Ahead?

I'm getting the sense that the Market needs to correct soon. Gas prices are and have been extremely high for awhile now. I key off of gas prices because gas prices are key to our economy. Every physical good and consumer is impacted by the cost of gas, so high gas prices significantly deduct from expenditures that could go into other areas of our economy. I've keyed off of gas prices before and it's worked well for me.
Another factor is interest rates. I think they're going up. See analysis below of why I think it will happen sooner v. later. If they go up, the equity markets will get hit as it increases the discount rate. Although I could make a case that this won't happen as there aren't many stocks currently being valued based upon discounted cash flows. (Isn't technical investing great?)
Also, I think that the run-up in prices over the last few quarters was initially driven by a rebound in certain markets, but is now driven by the supply and demand for capital. The last year or so has felt like the mid- to late-90's. Stock prices are rising simply because there is excess equity capital to be invested, not because equities are compellingly underpriced.
There is a difference.
Unfortunately, there aren't many places to hide right now. Bonds are at risk from a rate increase at the Fed which feels likely to be any day now. The only thing holding back the Fed is the fact that we're in an election year and Greenspan doesn't like to make changes here. I'm trying to understand if inflation pressures become undeniable and force an interest rate increase prior to the election. I give it a 50/50 shot.
Real estate will also get hurt by a Fed increase. Consumer purchases will slow dramatically as prices have inflated to a point where increases in rates will make monthly payments to high for the average Joe.
Interesting times indeed.
I'd be putting my money in international investments right now simply to catch more currency effects. I need to refine what currencies look the most attractive. However, I think one could invest in almost any country besides dollar-based economies and be fine. Remember, 80% of international investment alpha returns are based upon country selection!

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