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Friday, November 14, 2008

Even at Google

Google has started quietly cutting heads. This would be a sign of management acumen if they were still hiring instead of watching every penny.

The stock looks like its going to $260 on the chart.

NPD data shows surprising strength

Video games are showing surprising resilience according to the NPD data, coming in up 35% for October versus estimates of up 20-25%. The Nintendo (NTDOY) Wii is outselling the xbox by 2:1 and the PS3 by 4:1. Despite the malaise, the Wii with its $249 price point and family appeal grew 15% month over month.

It's interesting to note that Amazon (AMZN) is now showing the Wii available, something that I've never seen before. The Wii Fit remains on allocation. This says to me that Nintendo may be filling the pent up demand with availability. I think this likely leads to some softer sales next year. Go figure, the stock has been absolutely crushed already.

Guitar Hero: World Tour from Activision Blizzard (ATVI) was conspicuously absent from the top ten software titles. Considering this is a new title in their flagship line, concern is very warranted. Guitar Hero has created impossible comparisons for the company. I would expect their 2009 results will come in significantly below where they have guided. I don't like the stock at all.

Yesterday's action not good

I know it read great. And felt great. They were careening towards putting in some kind of hard bottom at 7500. Instead, massive rally took them back into the risk zone. The charts still read awfully. I come up with prices like RIMM $30. AMZN $30. DELL $4. INTC $11. I'm starting to think that 7500 isn't even going to be a bottom, just a waypoint on the way to 6000.

I know sometimes it sounds like I've got two faces. I remain long-term bearish but I'm trying not to get chopped to ribbons in the rallies. It's tough. Generally bear market rallies have a couple of days of strength. Sometime late Monday they're probably a sale again.

American Experience: The Crash of 1929

If you've got an hour and you're interested, watch this show. It's a documentary about the Crash of 1929.

Wednesday, November 12, 2008

So many known unknowns

My wife was in Crate and Barrel earlier and she overheard one employee explaining to another how banks package credit and resell it. If there's one thing we can be thankful for in this crisis, it's that people are much more cognizant of the problem. When subprime blew up a year ago, no one really gave it a second thought. Cramer dismissed it. Banks told us it was a small problem. Little did they realize it would lead to bigger and badder things. I do think that it's a good sign in a way that every day people are discussing these issues. There is definitely a consensus opinion now that the economy will be troubled for a long time. Stocks look cheap and no one wants to own them because of the big unknowns. Many hedge fund managers are in cash and plan to stay there. T Boone Pickens was on TV saying he's not going to be going back into the market any time soon. This kind of psychology can show up at the bottom.

Applied Materials and Network Appliance both reported okay numbers tonight and opted to give no guidance. Both always have given guidance in the past. The only thing visible from these reports is the lack of visibility. People are scared -- and not just investors. Managements don't have a clue what to think.

One of the best hedge fund managers I know once told me that Intel blowing up is typically a bottoming event. Of course, the world was different then. He's down 20% now. I don't know if those rules apply anymore. We'll see how Intel acts tomorrow. It went out down a dollar from the close in after-hours trading.

... and the hits just keep on coming.

Intel lowering guidance from prior range of 10.1 - 10.8 bil to 8.7 - 9.3 bil. Now THAT's a miss.

Tonight going to suck as I wonder why I needed to cover all my tech shorts right before Intel guided down.

Tomorrow should be interesting.

Action just horrible.

And the SOX is at 200 again. I can't be short tech with the SOX at 200. I don't know if I can be long tech either... but I've covered all my tech shorts for the time being.

Netbooks crushing competition, pricing, demand

I haven't talked much about netbooks. They're dinky but totally useful. I have one. It's the greatest telecommuter product ever -- it weighs 3 lbs, has a 5 hour battery and runs all my market software. They're completely swamping the PC market.

Here's Amazon's top selling list. I hope that link works. Anyway. On the list are 6 dozen netbook configurations priced at $500 tops and some Macs. That's. it. There's one low end Toshiba laptop on it that's not a netbook. It's a very scary picture for the top lines of companies like Dell and HP who are also rans in the netbook market. The Dell mini is fine but trust me, people aren't spending $300 on 4 year service contracts with a $400 computer. The success of these products is detrimental to upselling service and extras, which is a vital component of growth.

Still negative on HP and Dell.

Best Buy lowers guidance... again

October comps were terrible, down 7.6%. They're saying they can't predict consumer behavior and can't adjust fast enough to get costs aligned with the lower sales volumes. They throw out a down 5-15% number for the November 2008 - February 2009 period. It is unclear how much impact they foresee from Circuit City's bankruptcy. It is likely Circuit City will be gumming up holiday pricing with their fire sale.

Obviously this isn't good for gadget makers as Best Buy is the largest consumer electronics retailer in the United States.

Intel (INTC) estimates under pressure

Yesterday Piper and FBR cut estimates. Today Covello at Goldman takes a hatchet to his numbers, bringing 2009 from $1.15 to $0.75 and 2010 from $1.45 to $1.00. Builds for Q4 have been significantly below Intel's guidance of slightly up. The variable in Covello's cuts is gross margins, which he anticipates will trough at 48% in the June 2009 quarter -- for perspective, Intel guided to 59% for the current quarter.

Buyers of Intel stock are thinking it's a market leader and pretty cheap historically. I would say that Intel trading at close to 18* 2009 estimates would not be cheap. Over the last several years, Intel hasn't grown much. In 2005 revenue was higher than in 2007, for example. I maintain that Intel deserves a 10 P/E, which would put it at $10 on Covello's 2010 numbers.

For the record, Covello's calls often coincide with counter-moves. His timing can be just awful.

Tuesday, November 11, 2008

Meek inherit Earth

Fannie and Freddie are proposing to reduce interest rates and loan amounts to the most troubled loans on their books. If a mortgage owner misses 3 monthly payments and has less than 10% equity in the property, they're eligible for refinancing under the proposed plan. So quick -- tap that equity and stop making your payments.

Payments will be capped at 38% of gross income -- which is great if you've been recently laid off. No income, no payment! It's good to be a failure nowadays.

The rescue mechanisms continue to reward the most risky behavior. I wish I could say it dooms us to mediocrity because mediocrity would look pretty good compared to this. We are feeding the worst managed households and least successful businesses. It makes me wish I'd bought some mcmansion I couldn't afford instead of trying to be a responsible and conservative husband and father.

I know it sounds like sour grapes. It is.

Memory contract pricing for 1H Nov

DRAM contract ticked down again -- 8-10% in mainstream configurations of 1 and 2gb. Flash contract was pretty hellacious, coming in down very hard in MLC (16-20%). Oddly, 16gb SLC rose slightly but 4 and 8gb were both weaker.

The further softening in memory pricing reflects lackluster end demand and general retail sales phobia heading into the holidays. Memory companies have cut back dramatically and capacity is finally coming down but memory spending raged out of control for multiple years. The recovery will be protracted. Hopefully come January some of the weakly capitalized manufacturers in Asia will go belly up and the supply side will be reduced even further. Until then... more pain on the pricing front.

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