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Thursday, July 5, 2012

some thoughts... market, banks, QCOM

market - The technicals look good again. The SP500 is gaining steam.

The push is corroborated by the semis.

The technically concerning aspect is the 10yr yield. It is still stuck in a rut.

banks - The Whitney down grade makes sense with the 10 yield so low, valuing banks with normalized earnings is tough. But with banks already trading over 25% below book value, the play on the banks is not about normalized earnings. Its about a reversion to book value. Especially now that the EU banks can be re-capitalized very quickly and US housing continues to improve.

GS looks like it finally wants to test around 102.5-104.

JPM still seems like it needs time. I'm looking to add around 34.

QCOM - The chart is not pretty, but QCOM is trading at a historically low multiple.

Part of the multiple contraction is justified due to the manufacturing issues. Another part was likely due to the lower US smart phone growth over the past few months. But the numbers in May stated to shift to a more positive out look.

Demand still looks intact, and the multiple contraction is already projecting a double digit earnings discount. Everyone knows the obvious negatives, and many analysts already took down their numbers. So will the numbers keep coming down or will the market begin to factor in the improved manufacturing capabilities forecasted for the 28nm toward the end of the year?

IMO, the bigger risk is longer-term with INTC processors below 20nm. But for now, the threat is a company road map. Intel currently sucks at mobile, and any discussion with them is a "could be" scenario. (They are making progress, but QCOM and others are obviously not standing still.) Also, intuitively, the smaller the processor the better, but from an engineering perspective, their maybe a limit to the benefit.

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