It’s very possible that the US and global economy will avoid a “hard landing”. Why do I think that?
1.) monetary conditions are lax, viz. a vis low interest rates and a weak dollar
2.) net exports are stronger, due to domestic growth within Asia
3.) inventories do not look excessive, viz., steel industry, as an example
4.) corporations are not over-leveraged or over-invested relative to cash flow generation
5.) outside of the housing market, there has been little labor hoarding ahead of this downturn. With high relative margins and limited pricing power in the labor markets, there is less need for lay-offs.
The global economy should avoid a recession because:
1.) China should grow at 10%. This is after economists have reduced estimates.
2.) China doesn’t have a non-food inflation problem—therefore, fiscal policy can be flexible
3.) worldwide, labor has limited pricing power, viz wage growth is actually shrinking
4.) given the economic environment, central banks can respond to weak/slow growth with rate cuts
5.) internationally based corporations are under-invested.
Look for the Fed to get aggressive with rate cuts. We could see the “Greenspan days” where rates are back down to 2.50% - 3.00%.
But, if we do have a recession, historically, the Fed has cut rates an average of 6% (obviously it won’t happen now). Know this interesting tidbit: the biggest rate cut was from July 1981 to November 1982, where the Fed cut rates 1100 bps, from 19% to 8%! That started a secular Bull Market from 1982 - 2000.
Thursday, November 29, 2007
Morning Notes
Although the economic news released yesterday was weak, stock prices soared after the Federal Reserve hinted that it may lower interest rates again. Assuming the market continues to rally: Prudent Investors may want to buy stocks at this time. Aggressive Investors and Traders should play the market to the upside.
Wednesday, November 28, 2007
Citrix Systems (CTXS) : Desktop Virtualization
Desktop virtualization involves separating the physical location where the PC desktop resides from where the user is accessing the PC. A remotely accessed PC is typically either located at home, at the office or in a data center. The user is located elsewhere, perhaps traveling, in a hotel room, at an airport or in a different city. The desktop virtualization approach can be contrasted with a traditional local PC, where the user directly accesses the desktop operating system and all of its peripherals physically (using the local keyboard, mouse and video monitor hardware directly).
When a desktop is virtualized, its keyboard, mouse and video display (among other things) are typically redirected across a network via a desktop remoting protocol (such as RDP, ICA, VNC, etc). The network connection carrying this virtualized desktop information is known as a “desktop access session”.
The data center is the desktop. Wall Street has underappreciated this area because they are focusing more on the growth of server virtualization. This creates an opportunity for the average Joe investor.
It is expected that the desktop virtualization software market should grow from current levels (small usage) to over $1.5 billion by 2011. In the same time-frame, it is also estimated by savvy investors and people in the know, like me, to grow to over 25 million end users, representing only about 6% of the corporate desktop PC installed base.
Any IT organization worth it’s pound of flesh is constantly looking for ways to reduce the cost of maintaining existing IT systems. The corporate desktop sucks more dollars out of a cost structure than IT managers care to put up with. Hardware and software costs typically account for 20%-30% of the total cost of the corporate desktop, with the remaining 70%-80% of the cost consisting of IT maintenance. Desktop virtualization would lower the annual cost of ownership of computing by 40%-50%, versus high-cost workstations. There is also a potential 5%-10% reduction in cost for low-end PCs.
Currently, it appears that desktop virtualization technology has developed to the point where it can be applied to the corporate desktop environment, thus improving performance, increased flexibility, personalization, and reducing operating expenses.
One way to play this area is Citrix Systems (CTXS). Both CTXS and VMW are seeking to leverage dominant positions in each of their core virtualization markets to enter into the desktop virtualization market. However, CTXS appears to be better positioned to capitalize on the opportunity at hand. The reason is based on the breadth and depth of it’s product portfolio, as well as a large installed based of over 70 million end users.
CTXS is the most leveraged play on desktop virtualization. The company will soon release it’s Citrix XenDesktop solution, which has the most feature-rich desktop virtualization software on the market.
I realize that many of you are excited about VMW. This is also a good choice, but not as attractive as CTXS, in my opinion.
Note: If you buy CTXS based on this post, beware that investing involves risk, and you might lose money.
When a desktop is virtualized, its keyboard, mouse and video display (among other things) are typically redirected across a network via a desktop remoting protocol (such as RDP, ICA, VNC, etc). The network connection carrying this virtualized desktop information is known as a “desktop access session”.
The data center is the desktop. Wall Street has underappreciated this area because they are focusing more on the growth of server virtualization. This creates an opportunity for the average Joe investor.
It is expected that the desktop virtualization software market should grow from current levels (small usage) to over $1.5 billion by 2011. In the same time-frame, it is also estimated by savvy investors and people in the know, like me, to grow to over 25 million end users, representing only about 6% of the corporate desktop PC installed base.
Any IT organization worth it’s pound of flesh is constantly looking for ways to reduce the cost of maintaining existing IT systems. The corporate desktop sucks more dollars out of a cost structure than IT managers care to put up with. Hardware and software costs typically account for 20%-30% of the total cost of the corporate desktop, with the remaining 70%-80% of the cost consisting of IT maintenance. Desktop virtualization would lower the annual cost of ownership of computing by 40%-50%, versus high-cost workstations. There is also a potential 5%-10% reduction in cost for low-end PCs.
Currently, it appears that desktop virtualization technology has developed to the point where it can be applied to the corporate desktop environment, thus improving performance, increased flexibility, personalization, and reducing operating expenses.
One way to play this area is Citrix Systems (CTXS). Both CTXS and VMW are seeking to leverage dominant positions in each of their core virtualization markets to enter into the desktop virtualization market. However, CTXS appears to be better positioned to capitalize on the opportunity at hand. The reason is based on the breadth and depth of it’s product portfolio, as well as a large installed based of over 70 million end users.
CTXS is the most leveraged play on desktop virtualization. The company will soon release it’s Citrix XenDesktop solution, which has the most feature-rich desktop virtualization software on the market.
I realize that many of you are excited about VMW. This is also a good choice, but not as attractive as CTXS, in my opinion.
Note: If you buy CTXS based on this post, beware that investing involves risk, and you might lose money.
Wells Fargo (WFC)...Future Buy?
Wells Fargo disclosed that it will further tighten its home equity lending standards and record a special fourth quarter 2007 provision of $1.4 bln (pre-tax), largely from certain indirect channels through which it is no longer accepting business. The company will continue to provide home equity financing directly to its customers, but has decided to stop originating or acquiring new home equity loans through certain indirect channels. It's too early to buy the stock, but it deserves to be on the watchlist for signs of improvement or a technical breakout.
Transocean (RIG). Odd, no?
RIG has printed $139.50 this morning.
Yesterday, Fitch downgraded RIG’s senior unsecured bank facility to BBB from BBB+. Yet the stock was up almost 5% with oil down and closed at $135.75. Odd, no?
Maybe it’s because of the trend for the increase in day rates on deepwater drilling projects. Or maybe its because of the merger with Global Santa Fe (GSF), creating a $53 billion revenue generating monsta driller. (Btw, I like GSF because it has “Santa” in it). Or, could it be that RIG has no sub-prime or overly tanned CEO’s?
Like it or not, Green-turds, the world needs oil to run and offshore is a vastly untapped area. However, due to political asshattery in countries like Venezuela, Nigeria, and other third world countries, I would expect most of the offshore drilling to focus off North American and European shores.
FYI… RIG just inked a deal for a 4-month contract at a day rate of $600,000 on their Pathfinder rig to start in June 2009. As I mentioned in a previous PG post, they have a backlog of $33 billion and it is growing. IMO, there will be more of these deals to come as the cost of finding and recovering oil is getting harder and more expensive. Oil will go well over $100 in the coming year.
Note: Under the terms of the merger, RIG shareholders will get $33 cash per share plus 0.6996 share of the new company (”RIG”) for each share they currently own. GSF shareholders will get $22.46 in cash plus 0.4757 share of the new company. The combined company will have 318 million shares outstanding (322 million fully diluted). For tax purposes, the cash distributions will be treated as stock redemptions, meaning that shareholders will treat them as partly return of capital and partly gain or loss on sale.
By the way, insiders have been buying the stock.
Yesterday, Fitch downgraded RIG’s senior unsecured bank facility to BBB from BBB+. Yet the stock was up almost 5% with oil down and closed at $135.75. Odd, no?
Maybe it’s because of the trend for the increase in day rates on deepwater drilling projects. Or maybe its because of the merger with Global Santa Fe (GSF), creating a $53 billion revenue generating monsta driller. (Btw, I like GSF because it has “Santa” in it). Or, could it be that RIG has no sub-prime or overly tanned CEO’s?
Like it or not, Green-turds, the world needs oil to run and offshore is a vastly untapped area. However, due to political asshattery in countries like Venezuela, Nigeria, and other third world countries, I would expect most of the offshore drilling to focus off North American and European shores.
FYI… RIG just inked a deal for a 4-month contract at a day rate of $600,000 on their Pathfinder rig to start in June 2009. As I mentioned in a previous PG post, they have a backlog of $33 billion and it is growing. IMO, there will be more of these deals to come as the cost of finding and recovering oil is getting harder and more expensive. Oil will go well over $100 in the coming year.
Note: Under the terms of the merger, RIG shareholders will get $33 cash per share plus 0.6996 share of the new company (”RIG”) for each share they currently own. GSF shareholders will get $22.46 in cash plus 0.4757 share of the new company. The combined company will have 318 million shares outstanding (322 million fully diluted). For tax purposes, the cash distributions will be treated as stock redemptions, meaning that shareholders will treat them as partly return of capital and partly gain or loss on sale.
By the way, insiders have been buying the stock.
Tuesday, November 27, 2007
Citigroup (C)
A $7.5 billion cash infusion from Abu Dhabi into Citigroup sparked a broad rally on Wall Street today. Although we still have a down/bearish situation, the market could easily move up tomorrow. With that in mind:
Investors should get their shopping lists ready.
Aggressive Investors and Traders should play the market up or down as it develops. Citigroup is a stock to put on for a potential trade
American Eagle Outfitters (AEO)
AEO - American Eagle reported Q3 earnings of $0.45 per share, in-line with the First Call consensus of $0.45; revenues rose 6.9% year/year to $744.4 mln in-line with the company's pre-announcement. Company issues in-line guidance for Q4.
Update: AEO was down $0.15 with the market up 215. Apparently AEO investors didn't take the pic seriously.
Monday, November 26, 2007
American Eagle Outfitters (AEO), $21.77
They report earnings tomorrow before the open. Expect to see $0.45 for the quarter. They have already reported that same store sales were up 2% and revenue up 13% from last year at this time.
Store traffice was good this past weekend. They should earn $.70 for Q4.
Within the next few months, expect them to announce details about their fourth concept and an aggressive share repurchase program.
One of the best values in retail stocks out there. Don't forget that their customer base is the younger crowd who exercise little or no restraint when it comes to buying clothes.
Disclaimer: Investing involves risk. You should be willing to potentially lose some or all of your investment. I am not recommending that you buy this stock. Your situation, objectives and risk tolerance should be considered before purchasing any stock highlighted on this blog.
Store traffice was good this past weekend. They should earn $.70 for Q4.
Within the next few months, expect them to announce details about their fourth concept and an aggressive share repurchase program.
One of the best values in retail stocks out there. Don't forget that their customer base is the younger crowd who exercise little or no restraint when it comes to buying clothes.
Disclaimer: Investing involves risk. You should be willing to potentially lose some or all of your investment. I am not recommending that you buy this stock. Your situation, objectives and risk tolerance should be considered before purchasing any stock highlighted on this blog.
Euro Overvalued?
Gavekal Capital has come out recently with their view on the Euro. They're thinking that in a couple of years, the Euro could be trading at $1.05 - $1.10. For the most part currency rates are determined by relative rates of return on capital. They cite slower growth, as Europe has an aging population. Also the "Islamic-ization" of Europe could impact the EU negatively. Wealth generation is higher in the U.S., as is productivity, capacity utilization and technological innovation.
Their view on the Euro is not the consensus view, but is noteworthy.
Their view on the Euro is not the consensus view, but is noteworthy.
Transocean (RIG), $126.28
Credit Suisse/First Boston has come out with an upgrade on the stock with a target price of $158.
RIG currently has a backlog of over $33 billion and is expected to earn $17.25 in 2010 vs. current estimate of $8.05 for FY:2007. That is a CAGR of over 29% on earnings. The 2008 earnings estimate is $13.75, up from $11.25, and 2009 is $16.75, up from $13.58.
This also is a core holding for many mutual fund managers in the large cap growth area. I bought more shares today.
Disclaimer: Investing involves risk. You should be willing to potentially lose some or all of your investment. I am not recommending that you buy this stock. Your situation, objectives and risk tolerance should be considered before purchasing any stock highlighted on this blog.
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