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Wednesday, October 30, 2013

Pass the pipe, dear Fed

"The Committee decided to await more evidence that progress will be sustained before adjusting purchases."

This statement off the heals of 'downside outlook diminished since last fall.'

I am a fan of the Fed, and Bernanke, but this is now the second statement where their verbiage contradicts and goes against economic realities. 

Markets care about the weight of the Fed word. It's an important tool. Especially as we may need it incase China give Asia a credit shock. Thereby hurting the global markets. But statements like today, render this tool worthless.

Their 'monitoring for months' is no surprise, given the 6.5% unemployment rate target. (It must be getting very hard to phrase these statements.)

The biggest risk the fed has now is whether or not the markets get tired of the word smithing. With treasuries selling off, and equity markets declining, that risk  maybe very real. 

(Although at current levels, both treasuries and equity markets, were expecting a lot.)

Tuesday, October 29, 2013

$aapl controlling street expectations

Apple has regained control of the street's expectations, and are now firmly showing eps growth expectations again. 

The discounted multiple should be no more. Expecting AAPL to trade with a 14-15 trailing multiple. (Conservative given it is below market multiple.)

Sunday, October 27, 2013

Market Thought... Final Countdown

Its the F-i-nal C-ou-nt Down!

Earlier in the year, the tea leaves were projecting the markets would enter a new trading multiple, pushing to the high-end of the historic 15-17 trailing price-to-earnings (SP500) range.

The markets are pushing that high-end range to the limit. The SP500 for the June quarter and September estimates were taken down (for the reported earnings), and with the revision, the trailing multiple is near 18.

In September, the Fed's meeting minutes were pretty dovish. Surprising given the job data. But if taken at their word, no "easing" until the 6.5% Unemployment Rate target achieved, the markets should enjoy about 9 months of 'higher' multiples.

Markets rarely wait for news. Most of the time they anticipate, and the anticipation is usually a few months ahead.

After the Fed's green light in April, the markets started to push forward with trailing multiples touching near 18. 

When factoring the projected Q4 SP500 eps, the markets are currently pushing near 18 the estimated earnings. (The below graph highlights a year-end target of 1719 with eps of 98.28, allowing for a multiple of 17.5.)

The markets are already near the high-end.

From a trading pattern perspective, the SP500 is at a level that merits caution.  The first half of 2014 may stall due to the actual shift in tone from the Fed. (Can't ignore the data forever.)

In the above SP500 model, March has a trailing multiple of 17, while the rest were given a 16 due to the the easing. (Being conservative for now.)

The big $$$$ question is 'when'.  When will the markets care?  Based on the previous and projected drop of the Unemployment rate, probably some time in late Q1 - early Q2 2014. 

Friday, October 25, 2013

clock work $amzn

Revnues acceleration

Cash generation

Gross Margins

GM incorporating fulfillment and tech spending at a low.

Monday, October 21, 2013

$aapl technicals

Looks interesting here. Pretty over bought, and at a heavy resistance point.

A view of the fundies and subtleties of the price action suggest a new trading range (leaving behind the discounted trailing multiple).

Apple usually runs up prior to events, and this is no different. But knowing what is to come in their Q1, it may break out sooner then anticipated.

Looking to add near 500, and any oversold condition via the daily chart.

Saturday, October 19, 2013

$goog - everyone is a bull

Everyone is now a bull. Most are recycling the same thesis: Paid Clicks are growing fast, off-setting the decline in CPC. 

Below is a historic look at Paid Clicks and CPC.

Paid Clicks look to have decent growth, but nothing near the level of 2012. CPC are still in the same decline since 2011. 

In my most humblist of opinions, there is no awesome re-acceleration in Paid Clicks that merit a multiple expanding price action. Keeping in mind, these are the wildy referenced metric that added over $35 Billion in value.  At most, the gradual increase in Paid Clicks merits justifying the already elevated multiple existent prior to Friday.  And despite the gradual rise in Paid Clicks, there was still a gradual increase in declining CPC.

During the 2012 acceleration of Paid Clicks, GOOG saw a 100 point move, but the move took about a month, and prior to July 2012, the street gave a rats ass about +30% Paid Click growth. (I remember very vividly because I was actively criticizing the street for the lack of appreciation.) In fact the street was trading GOOG at a recession-level discounted multiple despite the growth. 

(The chart does not reflect Friday's expansion.)

So, now that the street wants to use 'Paid Clicks' as the justification for multiple expansion, I call bullshit.  The growth is not as fast as 2012, and the market capitalization is too large to justify a trailing PE of 28-30.

Looking at the above, Fridays move was a bit perplexing. Along with the lack of analysts questioning the move. Adding to the confusion was the low tax rate. Over the past year, Google's tax rate has been jumpy. So much so, I keep wondering why analysts dont question it.  Q3 tax rate was the 2nd lowest in three years. (Q1 saw an awesomely low 8% rate. wtf.)

After plotting the tax rates, the quality of earnings for Q1 and Q3 really stick out. To add to my discomfort, while Q2 had a historically normal tax rate, Google met earnings expectation through a one time addtion from Discontinued Operations.

There are serious questions of earnings quality for each quarter in 2013.

Google is by far the king of online ads. I love their services, and use most of them. They will definitly benefit as more and more of the content business goes online. But I hate it when Eric Schmidt talks because he says stupid, blatantly factually incorrect things. I hate it when Google's management acts hypocritical. I hate the way the company has morphed into a competitor to so many sectors instead of a partner. 

As a company I think they deserve a premium multiple. But the only time a +$200billion Market Capitalization company has held a near 30 trailing mutiple is during times of euphoria.

Friday, October 18, 2013

$ibm - the golden crow

A long-term thesis trading IBM was that the stock would eventually see trailing multiple equivalent to the market due to the company's consistent performance and investor friendly financial engineering. The Q3 report is servicing me up some crow.

The Q2 report started to merit caution to the multiple expanding thesis, as well as the breaking of the 100sma on the weekly, needed a solid Q3 report to regain confidence in the above thesis.  Unfortunately Q3 was not the catalyst as the relative weakness in emerging markets (aka "growth" markets) did not boost revenue enough.

Some other bear thoughts included:

1. Poor earnings quality from a lower tax rate of 17%.  (Google's tax rate is actually lower than 17% this quarter. Their rate went from 23% to 15%, and earnings are considered 'great'. Stock is up over 8%.)

2. Lack of revenue growth. (There really is no sugar coating this one. Although much of the weakness came from hardware sales, and earnings were made up for in services.)

The last time revenue declined was in 2010.  IBM's trailing multiple was allowed to contract to 11.7-to-12.5. 

IBM has been maintaining their EPS expectations. If IBM does see a similar trailing multiple, the stock price can see a price range of 168 - 180.

Technically, the stock seems to be nearing oversold support territory. After breaking the 100sma, the stock is now 10% below the sma. (Also a bunch of horizontal support throughout this area.

The monthly trend indicates three oversold conditions over the last 10 years. IBM just entered the third.

Thursday, October 17, 2013

$goog - higher market cap, higher multiple

After Hours GOOG surpassed $300b in market cap, and will have a trailing GAAP PE of mid 27 (with a price of 958).

Law of large numbers need not apply.

MOT continues to be a drag, although margins rose a slight bit.  

Why isn't any respected analyst highlighting the 14.7% tax rate this quarter is beyond my comprehension. But that would fuck with the apparent "blowout" quarter. 

Wednesday, October 16, 2013

$ibm decline in perspective

In after hours, IBM is approaching 175. This allows for a GAAP Trailing multiple of 12.2.

Management also maintained their 2015 $20 eps. Thereby placing a forward multiple of 8.75. (Stock price of 175/20.)

The report just doesn't look as bad as these numbers are suggesting. 

$yhoo is confident

Good info coming out of Yahoo this evening:

1. 800million monthly users

2. 390million mobile users

3. A pretty clear signal that they are under promising, to over deliver, in Q4. (Highly recommend viewing the CFO answer JPM's question on low guidance. Love the fact that I can see managent as they answer the questions. Adds a whole new level of psychology to a call.)

Yahoo looks to be managing the street's expectations, while increasing user engagement on core products. 

A beautiful set up is brewing. The arbitrage will continue. Looking to add as yhoo is becoming one of my favorite plays. 

Friday, October 11, 2013

$fb into earnings

As fb approaches earnings, here is an assessment. 

Facebook is a high-flyer that has to show a few things:

1. Revenue growth accelerates

2. Earnings grow into valuation

3. Key metrics suggesting the above two will take place

Over the past couple of years, during the September Quarter, Facebook had quarter-over-quarter grow of 7.5% (2010), 6.2% (2011) and 6.2% (2012).

High-flyers need to show accelerated revenues. This is what sparked fb recent rally. (As such, I'm not as concerned about an earnings miss.) 

Can fb produce revenue growth above last years 6.2%?

Analyst estimates are for revenue of $1,900. To produce a 6.2% growth rate from Q2 revenue needs to be $1,9250.

Few obvious scenarios to playout:

1. Beat analyst expectations, but don't show an acceleration of revenue. (Stock could see an initial pop, but i would expect a consolidation around $50.)

2. Beat expectations and show an acceleration. (Obviously the stock should keep rallying.)

3. Misses analysts expectations. (Depending on what key metrics are saying, assuming they are relatively positive, the stock may take a hit and see near $40. Or the 14sma on the weekly. As this sma has historically acted as resistance, it may act as support.)

Facebook has made great progress in their mobile ad model, but a lot was due to App Ads via mobile. Also, the PC ad pricing held as mobile ad placements accelerated. 

As mobile takes on more views, PC rates should decline and mobile rates rise. The transition could be a bumpy one. There could be a nice off-set as mobile ads become more than just App references, and Instagram ads enter the mix. But these things were not seen this quarter.

Not sure FB will produce an acceleration in revenue this quarter, but they may very well beat or meet expectations.

Thursday, October 10, 2013

tweet tweet @twitter

A few thoughts on Twitter as the ipo nears:

Quarter-to-quarter revenue growth is pretty good. March 2013 quarter was a bit of an outlier.

Gross Margins doing well. 

Despite the lack of profits, Gross Margins have been increasing while operating losses (as a % of revenue) have been decreasing. (2013 is an estimate from the current 6 months of data provided.)

This is good for profitability. (My estimates suggest profitability in 2014.)

The above numbers have me very interested in Twitter, as a company. As a stock, the amount of shares issued will obviously be the make-or-break. As of April 2013, twitter's second market price was over $20, per the S-1.

The stronger the trends, the better the stock price.

Market's message:

Everyone gets along, everyone makes money. 

Tuesday, October 8, 2013

Market Thought... First political slap!

Hear that? That's the sound of the market giving Boehner, Ried and Obama the political-slap across the face. (Although, the s&m-liking president asked for it a few days ago.)

The bond market is seeing it with spike in the 1- month bills yields. And now with the SP500.

Here we go. This game is tiresome, but here we are, dealing with childern in Washington. 

How many more slaps do they want?

Sunday, October 6, 2013

$yhoo arbitrage

In late August I wrote Yahoo was at a turning point.

In that post I highlighted that Yahoo has established value for Yahoo Japan and the remaining shares of Alibaba of about $17 Billion.

-Yahoo Japan estimated to be $10B
-Alibaba estimated to be $7B

Yahoo's current market capitalization is near $35 Billion.

This mean the market is currently valuing Yahoo web and mobile properties at $18 Billion (excluding cash and assets). (Since the 'turning point' post, the properties saw an increase value of $7 billion.)

Yahoo consistently ranks among the top web properties and high on the list of mobile properties. As per comScore:

The mobile race for applications is of three horses: Google, Facebook and Yahoo.

For web properties, Yahoo has regained the top spot from Google.

As per comScore, Yahoo is racing against two companies.  Google and Facebook have market capitalizations of $290 Billion and $124 Billion, respectively.

There is a huge Gap in valuation here.

GOOG: $290B
FB:        $124B
YHOO: $35B

I would argue Yahoo's real valuation to web and mobile properties is only $18B, which brings the gap strikingly wider.

When Yahoo decided to bring Marissa Mayer as CEO, they were making the conscious decision to bridge this gap.  In the most simplest of terms, the great arbitrage had begun.

To ensure the arbitrage continues we need to see Marissa's initiative continue.  IMO, they include:

1. Yahoo needs to maintain a culture of high-pace productivity. Pumping out quality mobile apps and web improvements quickly. (As quickly as Facebook and Google.)  So far Yahoo has shown to sprint pretty well, they simply have to keep it up.

2. Tie in a social element to all their properties.  Leverage the data from web, mobile and social sharing (via tumblr and Facebook logins) to produce better ad targets. Thereby increasing its value proposition.

If Marissa can keep these initiatives going, the valuation gap between their online ad competitor will shrink. (Albeit, Google's valuation does not belong near $290. Inefficient multiple expansion will eventually correct itself.)

The Yahoo arbitrage could see YHOO increase 3-5x current market valuation.  Now, if only the chart can see another proper consolidation. (Looking for the 10sma on the weekly.)

Thursday, October 3, 2013

Market Thought... President rarely addresses market dynamics, listen

The last time the President specifically addressed market dynamics just prior to the start of the multi-year rally which started in March 2009.
Profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal - March 3, 2009 President Obama.

The President directly addressed wall street again the other day. He told the players to be concerned, very concerned.

There maybe legitimacy within his concern. His political machine knows how many votes are needed. They see the day-to-day interaction. Whether you like President Obama or not, his reputation as a straight shooter is firmly intact, and he just warned each and every investor of a shit-storm potentially brewing.

The market is in no way discounting for a debt disruption via the treasuries. Not by a mile.

If the debt ceiling is not passed, and the US has a default on its debt (the only risk-free modeled debt still in existence) the markets will collapse. They will collapse hard. Let me repeat that:

Treasury default = collapse of equity markets.

It will create so much havoc on the markets equity investors do not see, that everything will get fucked up.

There is no such thing as a "technical" default either. The US already experienced an inadvertent "technical" default in the late 70s. The mistake was quickly fixed, but rates remained elevated for a long time.  Given that a default would not be fixed very quickly, and the economy (especially the emerging market economies) are currently relying on low rates, a "technical" default will be very bad.

Expect a 15-20% drop in equities if the US defaults, a persistently discounted market thanks to elevated rates, and a global economy that may actually contract.