Stock up on that coffee

Coz the prices have gone ballistic, and it's about time the costs will be passed on to the consumer.

Of note, target has a great deal on Starbucks coffee right now...discounted + a small gift card for buying in bulk.

Overbought readings

At this juncture, the stock market looks very overbought. While timing declines based on such indicators in not of much value, it certainly does imply that any further gains from here will be tenuous and prone to sudden downdrafts. The indicators I follow for this are:

• CBOE index and equity put/call ratio
• ISE sentiment index
• VIX/VXO volatility indices

Long term dollar chart

As much as the fed has been trying to debase the dollar, this long term chart shows that it's fallen back to a little below where it was before the tech boom (the dollar index is the weighted avg. of the dollar against trading partners). If technical analysis has any value, the dollar should now bounce off that lower wedge line. On the other hand, a breakdown below that line will be mighty significant which might propel gold, silver and stocks to the sky!

Silver

All I can say is WOW!!

nflx

While the broader markets have gone nowhere since reaching their peak in April, Netflix stock has doubled! Of course, the company has been going gangbusters while the competition lays by the wayside. Reasons attributed to the meteoric rise are expansion into Canadian markets, savings from postage costs as more subscribers shift to watch content online and the potential to add more subscribers attracted to its increasing arsenal of entertainment programming.

In spite of these reasons, valuing such a company at almost 60 times earnings is insane! This is purely a momentum stock. While it may do really well as a company in the long run, the stock will most likely not give good returns for anyone buying at such lofty levels. I just shorted some, ready to get my fingers burnt a little but will bail if it continues to go stratospheric.

Junk

The junk bond rally through this year has been an absolute blessing for many companies. This means that companies with low credit ratings are able to issue bonds at favorable interest rates. Also, there is a lot of debt that needs to be refinanced in the next few years. Remember that the unavailability of short term financing was one of the big problems of the prior crisis. Although I don't have a sanguine view of the economy, it looks like the fiscal strain on many companies is being eased. Still, the household sector is in shambles and until that is restored, there will be no rapid growth in GDP.

Solving a pain point leads to opportunity

This is a strong belief..that a truly successful idea needs to come with a solid value proposition. On that note, I am almost ready to opt in for a 2 year contract in lieu of an upfront discount for the purchase of my next Android phone. However, what phone do I buy? Can I test drive a phone to check out whether I like it or not?

The open-source nature of Android and the already available emulation platform lead me to believe that it is in the benefit of the phone manufacturer to write a s/w program (or web interface program) that allows potential customers to take their product for a test drive. The main concern here would be a dilution of the experience the user has when physically handling the device. Any clever ideas to resolve this pain point?

Why is INTC getting hammered?

Intel recently reported results that looked very impressive, blowing past estimates on top and bottom line for the prior quarter and proving great guidance for the current one. However, even since the pop in stock from that report, there's been a slow slide in the price, taking it below the 20 and 50 day moving averages. My question is why?

The one reason I can surmise is that investors think we are at the peak for this cycle. Intel's results were heavily bolstered by their server sales with the consumer lagging. But aren't companies supposed to be in a new refresh cycle?

Or is it because Intel intends to buy Infineon's wireless baseband division? It is a much lower margin business than processors but does bolster Intel's ability to provide the entire suite of chips to sell phone manufacturers.

Any more thoughts from my adoring readers? :)

Why Chrome + ARM could dethrone Microsoft + Intel

Just the main points
- Cost: No need to pay for windows if you use linux. ARM licensing costs per chip are really small!
- Power consumption: ARM's focus till now has been low power. Intel will fight with Atom, but it's still such a small business for them
- Software over the web: This means there is no real need to get an x86 processor for all that legacy s/w. New companies will work on a cloud only model. Older ones will retrofit for this.
- Tablets looking more like smartphones with bigger screens: So how about deeply integrating the two? The iPad looks like a big iphone. So what about your phone being the on-go version of your tablet such that you can seamlessly move between the two?
And finally
Big backers: Apple, Google - the bread and butter for these companies is based on ARM and the browser. So even if the oldies don't want to change, their hand will be forced.

Truly exciting times in the mobile device market.

Market direction

It's really difficult to predict, and anyone who thinks they can time the market...watch out! So with that, here's what I see. Today. the S&P500 is just above the 20DMA of 1087. If and when it breaks past the 200DMA at 1107, there's going to be a mad rush in. My thinking is that the market goes down a little to maybe test 1070, then goes up like a rocket past 1107 up to 1130 (maybe even 1150!) and then begins a terrible downhill acceleration that takes it below 1040. As far as timeframes, given that we are seeing such crazy volatility, I wouldn't be surprised to see 1130 by month end (June) and then a waterfall decline for the next 2 months or so. I am currently not investing for the long term, trying to just get into some swing trades.

Google to start making processors?

Google's recent purchase of Agnilux, a company started by former PaSemi (and then Apple) folks, seems at first to be to improve the power/performance for the data centers. This would be the natural direction, since Agnilux was purported to be working with Cisco on more efficient chips. However, I think it's more likely that Google wants to seriously think about making chips that go into end consumer products such as mobiles, tablets and TV set-top and/or the TV's themselves.

Google has been a big proponent of improving the power efficiency of data centers. However, designing a chip that delivers the kind of performace for such heavy compute tasks is not easy. ARM architecture also doesn't seem to lend itself directly to use in server chips. On  that other hand, ARM is an ideal candidate for low-power consumer product chips as established by Apple designing its own processors based on such technology. Why would Google want to develop its own chips instead of buying them off-shelf from vendors. I think it's primarily motivated by the desire to own the entire ecosystem from design of the hardware and the software and eventually, design (or atleast create reference designs) for products they wish to see in the market. If Google controls the product, they control the display where they can show the advertising that will make them good money. This ties in well with their desire to encourage consumer access to high-speed broadband at home and wireless on the go.

I will post more info on this as and when I learn more. I'll leave you with a recent news I hear about Google reportedly preparing to intro TV software next month

Deflation

Considering we are still in the throes of a recessionary environment, it isn't surprising that consumer prices are falling, or atleast, hardly rising. Outright deflation as seen in Japan is a scary phenomenon as it can exacerbate a recessionary downward spiral in prices. As an aside, you would think that given the steep drop in house prices, this is a no brainer. However, the calculation of CPI (consumer price index) uses owner's equivalent rent (essentially rent) which has fallen much slower than housing.

Ben Bernanke (the Fed chief, aka Helicopter Ben as you will figure out in a little bit) had make a comment many years earlier saying that the Fed always had a ready tool to fight deflation - dropping dollars out of a helicopter! While that is a picture worth remembering, the fed doesn't really own choppers. What they have done so far is to drop the overnight lending rate precipitously (some may say this is exactly what got us into this mess) and gone into the market and bought shitloads of RMBS (residential mortgage backed securities) and treasuries. The prior move (rates) is part of monetary policy but the latter (buying risky securities) is getting into the realm of fiscal policy, and is almost the equivalent of pumping $$'s into the system (for every dollar worth that the fed buys, there is an extra dollar in the capital markets that can be used elsewhere). This is in addition to all the stimulus provided by the government. All of this would make us believe that the total amount of dollars in the system would increase leading to inflation!

Undermining the effect of all of these moves is the massive deleveraging by the consumer and the tremendous decrease in the rate of bank lending. Although the fed can decrease effective interest rates, there needs to be end demand from consumers and businesses to increase their indebtedness as opposed to paying off or walking away from their present commitments. Additionally, there is massive overcapacity of production making it difficult for companies to raise prices. So all in all, there's a big tug-of-war going on with respect to prices.

I'll leave you with a graph showing the month-to-month change in the CPI. After plunging in '08, prices seem to have stabilized but there is still the fear that they will drop into negative territory in the coming months. Interestingly, the prior month (Jan '10) was the first in a quarter century when core CPI (excluding food and energy prices) dropped!!

The Baltic Dry Index

From Wikipedia,

The Baltic Dry Index (BDI) is a number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the Index tracks worldwide international shipping prices of various dry bulk cargoes.

The reason I like this index is that it represents the true price of hiring a shipping vessel. While it is true that it is skewed towards commodity prices (and as such highly influenced by Chinese demand), I think it foretells things to come. China is the leading manufacturer in the world today and its imports should show the upcoming demand from the rest of the world! China has been stockpiling crude oil, copper, and many other materials. Once that demand slumps, shipping costs will plummet. Here is a graph for the latest value of this index. I'm already concerned since this value has fallen below the trendline, but I'd get even more concerned if it broke down below ~2240.

Here's a chart of a longer timeframe view of this index. Notice the massive volatility during the financial crisis and a bottoming prior to the bottoming of the market. Today's prices are still a fraction of what it cost then!

KO = Knock-out!

From Coke's quarterly results

In emerging markets, Coke’s unit volume growth was even sharper, led by China, where the metric was up 29 per cent, and India, which saw a 20 per cent increase in unit volume.

Emerging markets => emerging waistlines?

Chemical Exposure Linked to Attention Deficit Disorder in Children: Scientific American

An important article. Key points...

"The connection was only detected for the types of phthalates used in perfumes, shampoos, nail polishes, lotions, deodorants, hair sprays and other personal care products."

"But there are no U.S. restrictions on phthalates in cosmetics and other personal care items."

"Engel said people should “press legislators” to restrict phthalates in adult, as well as children's, personal care products"

Here's the link to the article

iPad disappointments

Gauging from the rampant speculation, there would most likely be a number of people who think today's announcement didn't live up to the hype. A game changer does not come along very often so I didn't expect way too much, but came away with a few disappointments

• No ability to make calls from the 3G device i.e. it will not be attached to a phone number. You can still make calls over wi-fi but what's new about that?
• User interface seems almost like the ipod touch, so what's new about that?
• No camera (or is there one?). Very sad if there isn't one as this would have been ideal for video chats
• Can't multi task? I think it should be able to especially since it's competition is not phones but netbooks. I need to follow up on this

iPad surprises

Almost none. But I'll list a couple anyways

• A big one for me was that the processor is built in-house. I was sure there was an effort to build an ARM based processor, but I believed that the first edition tablet would have a custom designed one built by Samsung or Qualcomm.
• The price point of $499 is nice. However, I'm not sure of the punch this device has, especially with the "creation" of a new category of devices. Also, paying 100 bucks extra for another 16GB is steep! I wonder what external storage interfaces it has
• 3G not built-in by default. This is something new from Apple, which generally doesn't create too many flavors of the devices it manufactures. I think this is simply a pricing decision for those who like the tablet form factor but don't need the mobility factor
• Unlocked 3G. So it looks like AT&T decided not to subsidize the tablet like they do with the iPhone. Maybe the balked at the subsidy Apple was asking for. Or maybe they figured people who really wanted it would get one anyways. I wonder if there is any way to share a data plan between an iphone and the ipad or you have to pay separately for both

A book I'd like to read

Bright-sided: How the Relentless Promotion of Positive Thinking Has Undermined America (Hardcover)

The problem is I know I won't get through the whole book, so I just read the reader reviews! Can someone oblige me and read it. Viji?

What will bring the wow to the Apple tablet?

I think it will be the user interface.

Other specs I believe are: use of an ARM based processor, most likely from Qualcomm. Able to connect not only to wi-fi but to 3G data networks. A deal on pricing with a carrier with a data plan contract (i think given their current deal with AT&T for the iphone, it should be a GSM only device). An option to buy it without contract. Ability to run Iphone apps.

Only 3 weeks more to the big event! I think I'll wait until Apple starts using their own ARM based processor (designed in-house). This should be the next upgrade to the device - better power profile, able to run on both CDMA/GSM and so expand to include Verizon, Sprint.

A bold prediction: Google to sell netbook

It's already selling a smartphone, so why not a netbook? The specs you ask: around 10" touchscreen, snapdragon or other ARM processor, Chrome OS. They will sell this like they are currently selling the phone: standalone without contract and costing more, or bundled with a contract from a wireless carrier. I wouldn't be surprised if there were some way they could further bring down the price by putting in advertising directly into the browser, but I doubt that.

I expect this to happen in time for the holiday season 2010. I'll be watching.

Spout

Welcome to stimit.blogspot! I intend this place to be a safe haven for my ideas, thoughts, opinions. More often than not, these gush out with great vehemence - hence title of the blog. I promise to try and regale, inform, prod, offend. Almost certainly, you won't be bored.