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Monday, March 2, 2009

March 2, 2009

Barrons profiled Dell, highlighting the company’s $5 in cash, its global presence and its cost cutting efforts.  I’m long some Dell from Friday for essentially the same reasons.

Intel and Taiwan Semiconductor are set to announce an agreement whereby Taiwan Semi will produce Atom processors for Intel.  This is a milestone event for Intel – their first foundry outsource agreement, I believe.

Citibank says Xilinx and Altera will at least meet if not raise guidance when they give their mid-quarter updates.  Altera has their mid-q scheduled for 3/2 post-close, Xilinx for 3/3 pre-open.  As the companies won’t give much more information than this brief snapshot of revenues and margins, there isn’t likely to be much follow through.  Xilinx indicated at the Goldman conference that demand had stabilized – the stock traded up $1.5 to 19 and then came right back again.  Business has remained somewhat stable, relative to their abysmal lower guidance.  A quick and powerful upturn is likely not in the cards.  This isn’t just an inventory correction – demand has plummeted also.

The NY Times ran an interesting op-ed piece where they asked a dozen economists when the recession would end.  It’s here if you’ve got some time.

Micron has allegedly offered their entire patent portfolio in the hopes of running the new DRAM conglomerate Taiwan is putting together.  If Micron doesn’t get the deal, people will be concerned about their competitive position, though encouraged by the inevitable capacity rationalization of the industry to come.  After competing with Samsung (who has the support of the Korean government) for so many years, Micron would rather not duke it out with Taiwanese chaebol if they can avoid it.   A decision from Taiwan on a proposed restructuring of the industry had been expected on 2/28 but the government postponed until sometime this week.


AIG got mo’ government money – their third dip into the kitty.  Their losses remain staggering.  Insurance stocks got absolutely slammed last week – expect to hear a lot about how they’re going to need bailouts soon as downdrafts in the markets bleed directly into their commitments now – annuities have guaranteed payments and those payments tend to be recouped in the stock market.  Insurance is based on the odds of an event not happening – as long as the counterparty doesn’t die prematurely, if their house doesn’t burn down, if they’re not robbed then the insurance company wins.  As insurance companies take premiums and invest them in the market, though, they’re all becoming undercapitalized as the market plummets.  The black swan event they typically model for is the counterparty getting paid off.  This time, the risk is in the market and none were prepared for this.

Markets typically wash out when there’s massive capitulation.  Government intervention removes risk of failure.  Without risk of failure there’s no incentive to sell.  By saving bad institutions, you keep the better capitalized and managed ones from reaping the gains of the losers in their industry.  By propping up all these institutions, guess what – no capitulation.  So guess what.  No bottom.

Good luck today.

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