[Via guest blogger Andy Alpari]
Last Wednesday saw many investors focus on UK after several days of concentrating entirely on America. As the deadline for increasing the debt ceiling grows closer, focus will undoubtedly revert back to the US but, for now at least, positive data coming out of the UK has taken the tension out of the markets. The global outlook, however, remains relatively bleak and the emerging markets in particular are still struggling to create growth.
A Lack of Progress in the US
(UPDATE: an agreement is in place to fund the government and raise the debt ceiling]
In America, no progress has been made between Republicans and Democrats thus far and, as the 17th October deadline draws closer, an agreement is looking less and less likely between the two sides.
President Obama is still forwarding his idea for a ‘clean increase’ of a debt limit which means that no conditions are attached to the debt limit rising. Mr Boehner, however, insists on the fact that this is simply not possible as “it is not how government works”.
As we are now in the second week of the government shutdown it appears less and less likely that either side will budge significantly. As a result, the prospect of America completely defaulting on its debts is a real prospect. This is extremely worrying for governments the world over as an American default would lead to a global recession. The economic calendar, however, appears busy and there is still time for the situation to change drastically.
The Situation in the UK
In the UK, however, the news was much more positive as the IMF was forced into an ‘embarrassing about turn’. In April, the IMF had accused George Osborne of ‘playing with fire’ by enforcing yet more austerity on the UK economy. After singling him out for specific criticism back then, they upgraded the UK’s growth forecast by more than any other advanced economy only 6 months later.
The IMF now believes that Britain’s economy will grow by 1.4 percent this year (double the rate they projected in April). This comes as great news for the Chancellor of the Exchequer George Osborne who is currently planning the Conservative election strategy for the 2015 General Election- economic growth will greatly help his cause.
How Global Markets are Reacting
Across the rest of the globe, however, the IMF was less positive about the prospect of growth. Global growth was down to 2.9 percent from 3.2 percent three months ago. Emerging economies such as Brazil faced the largest downgrading and, as the debt crisis in America looms large, this is incredibly bad news.
To conclude, although the debt crisis in America still looms large, much of the focus of late has shifted back towards the UK’s growth in what is an embarrassing about turn for the IMF. Globally, however, the outlook still appears bleak as global growth has been revised down 0.3 percent over the past three months alone. Now, it looks likely that all eyes will turn back towards America as we enter the second week of the government shutdown.
What a day today. It began like so many in the past few months with low volatility and volume. Another lazy Friday. Then the big sell spike came just after 10:30AM EST. Moments later the reason for the sell spike hit CNBC and an ordinary Friday turned into Freaky Friday. The SEC was filing a civil fraud suit against Goldman Sachs (GS). Rarely a dull moment in the stock market eh?
The Goldman Sachs (GS) fraud charge by the SEC is big news and the blogosphere is buzzing with opinion as the facts continue to come out. This won’t go away anytime soon and I’d imagine the SEC is out to prove it’s new and improved and ahem… actually doing its job. Of course this may lead to overreactions and firms and individuals will be made examples of to prove they mean business. Going after Goldman certainly makes a statement.
Read Entire Post “Buried In Goldman Sachs (GS) Fraud Buzz – SEC’s Failure On Stanford Ponzi” Here
Janet Yellen A Cog In The Easy Money Wheel
With the the likely appointment of Janet Yellen to Vice Chairwoman of the Fed, don’t expect the easy money policy to grind to a halt. In fact, Janet “easy money” Yellen is more dovish than Kohn and another cog in the easy money wheel. She supports extremely low rates to keep this economy artificially inflating. In February, she commented on the economy saying that while the economic tide appears to have turned and recovery is well under way, “the economy faces a long period of subpar growth, high unemployment and downward inflation pressure, and so it will continue to need “extraordinarily low interest rates.” Let the good times roll.
The news has certainly helped pressure the dollar in the last couple days, but the dollar remains bullish for now and just consolidating recent gains.
Reactions To Cisco’s CRS-3 Router
The internet changing news from Cisco (CSCO) the tech world has been anxiously awaiting was unveiled today. Cisco’s CRS-3 router has been heralded by CEO John Chambers as a system that can download the Library of Congress in a second, stream every movie made in four minutes and allow simultaneous video calls by every single person in China. It will be available at a cost of $90K in the 3rd quarter of this year. Mighty impressive, but let’s see what the tech experts have to say. I thought I’d do a run down of some of the reactions to the big announcement today.
BNET doesn’t see any immediate gratification unless others get on board and says, “Chambers’ promise depends on cable operators and their telecom rivals abandoning greedy habits like doling out bandwidth in metered increments and randomly hiking service rates. So, this could take a while.”
ChannelWeb reports that Cisco’s statement of 12x the capacity is aimed at competitor Juniper which has issued a statement saying the claims are misleading: “The claim of 12 times the traffic capacity of the nearest competing system is based on a theoretical maximum of 72 interconnected CRS-3 chassis in order to achieve the 322Tbps total capacity — this will likely never be deployed in practice due to space, power, and manageability realities.”
The Yankee Group notes that the CRS-3 is IPv6 ready, designed to handle the explosion of mobile devices, “cloud ready” and 10x the speed of the closest competitive product but doesn’t quite live up to the big hype.
Quote: “So, did the Cisco CRS-3 live up to the immense hype that preceded it? No, I don’t think so. But they did set a very high bar. It’s a good solid announcement that will allow network operators to put a foundation in place to drive differentiated multimedia and mobile services.”
In my opinion, the technology is great and a big step towards handling the explosion of data, but let’s put it in perspective. As a UBS analyst pointed out today, the high end router market represents less than 5% of Cisco revenues. The new router may be a game changer for the internet in the years to come, but it’s probably not a game changer for the stock price.
Shares of Cisco were flat today. Get your CSCO trend analysis here.
A brief reprieve from regular programming to bring you this entertaining story out of fantasy land.. I mean Hollywood. Lindsay Lohan, clearly confused and out of touch with reality OR “just following the advice of a greedy lawyer”, is actually filing a lawsuit against Etrade (ETFC) because she feels that the Etrade Milkaholic ad is referencing her when they use the name Lindsay. No joke.
The ad debuted during the Superbowl and features the baby boy apologizing to his girlfirend for not calling her. She accuses him of having that “milkaholic Lindsay” over. The lawsuit claims that many celebrities are known by their first name (ie Madonna, Cher) and that Etrade is knowingly trying to profit from the name Lindsay which everyone assumes is Lindsay Lohan.
She’s suing for $100 million and removal of the ad. The Grey Group, which produced the ad, is saying it’s just a popular name and is the name of someone on their team. As for Etrade, they are basking in the glow of free media attention which this is sure to generate. Well done.
Facebook IPO In 2011?
The biggest IPO story since Google will continue to leave investors wondering. While the Facebook IPO will happen, there are still no imminent plans with founder Zuckerberg saying “we’re definitely in no rush”, according to a WSJ article today. He makes a good point in that the company is in the envious position of not requiring massive capital to build factories or even market the product, so the same motivations for going public quickly aren’t there. Adding to the delay may be the fact that Zuckerberg, as the WSJ points out, is a micro manager who may be having a tough time relinquishing some control of the company of which he owns 25% of and controls voting power.
However, an IPO will take place as investors and shareholders have been promised and the company has been taking measures to prepare for it. In 2008, the executive team was expanded highlighted by the hiring of Google exec Sheryl Sandberg and adding Netscape founder Marc Andreessen to the board. Of course, the rumors, speculation and predictions are flying and many think the company will go public next year with a market cap of nearly $40 billion based on the current revenue number and applying a multiple similar to that of Google. The company apparently was cash flow positive last year and believes revenue could reach $2 billion this year.
In the meantime, Zuckerberg found a way to ease the growing impatience of its employees for a big pay day ahead of an IPO. Last year, $100 million in shares were sold to Russian firm Digital Sky Technology which also invested another $200 million giving them a 3.5% stake in the company without increasing the shareholder base. Just an appetizer of what will likely be a rain of cash for Facebook employees.
A Summer Hiatus Begins..
It’s been more than five years now running Self Investors and it’s time for me to reflect and revitalize. Blogging, researching and trading the markets can be incredibly demanding at times, particularly over the past two years and quite frankly, I’m exhausted and need a break. I’m not breaking 100%, but am scaling back for a stretch, so likely no posts here at the Self Investors blog until after Labor Day. Until then, good trading!
Amazon (AMZN) just made a terrific move after the bell today, making its largest purchase ever. It’s acquiring Zappos.com for about $890 million in stock (based on today’s closing price) plus another $40 million in restricted stock and cash. Zappos.com is the leading online shoe retailer that did a billion bucks in revenue last year and continues to grow at an exceptional pace despite a slow economy. Considering the kind of valuations that are placed on the likes of Facebook and other social media sites that have trouble monetizing, $930 million looks like a good deal for Amazon. As for Zappos.com, you have to wonder why they didn’t attempt the IPO route with the market improving. If the margins are thin at Zappos then perhaps this is a better deal for them.. we shall see. It will be interesting to see a breakdown of the financials of Zappos.com in future earnings reports of Amazon.
I’m a big fan of Zappos.com and won’t buy shoes anywhere else. Great customer service. Free shipping both ways and a huge selection. They will continue to operate independently as a wholly owned subsidiary of Amazon with current management in place. If Amazon is smart, they’ll let keep it that way.
Both companies are big on customer service, making the purchase a good fit. Here’s a video that Bezos did for Zappos employees discussing the importance of the customer.
Swine Flu Stocks
According to StreetInsider.com, the following companies may benefit from protection, therapy and/or vaccination against swine flu. Most of these are highly speculative so trade at your own risk.
Alpha Pro Tech (APT) – protects people with disposable protective apparel such as masks.
Generex Biotechnology (GNBT) – developing drug delivery systems.
Hemispherx BioPharma (HEB) – engaged in drug therapies for viral and immune based chronic disorders.
BioCryst Pharmaceuticals (BCRX) – develops drugs that block enzymes involved in cancer, viral infections and autoimmune diseases.
AVI BioPharma (AVII)- developing of ribonucleic acid (RNA)-based drugs targeting a range of diseases.
Sanofi-Aventis (SNY) – pharmaceuticals and human vaccines through sanofi pasteur.
CombiMatrix Corporation (CBMX) – develops molecular diagnostics, nanotechnology and defense, and homeland security markets.
Gilead Sciences (GILD) – could benefit from TamaFlu sales.
Off the top of my head I can think of 3 companies that might be hurt by swine flu fears ..
Sanderson Farms (SAFM), Zhongpin (HOGS), Tyson Foods (TSN)
The airlines could very well be hit as well Alaska Airlines (ALK), AMR, Delta (DAL), Southwest (LUV), Continental (CAL), Allegiant (ALGT)