Monday, July 27, 2009

7/23/09 (eBay great business, Ford survives!)


A mixed day after a long consecutive rally, the INDU and SPX gave up ground – yet the NDX finished higher (due to Apple’s stellar performance). An interesting statistic I heard this morning on Bloomberg is that this has been the longest consecutive rally in the NASDAQ in 12 years (yesterday was day 11).

Another interesting point made this morning on CNBC was that while earnings have been beating estimates, they have significantly fell short on a year-over-year gain and only a very few (so far) have shown an increase in revenue. Certainly (as they pointed out) that earnings forecast for 2009 have been lowered significantly that it would be hard NOT to beat, but the revenue short-fall story is a longer term issue. Making up for a couple of quarters from cost cutting and lay-offs to keep that margin gap wide and in the black is important, but how many quarters coupled with a drop in revenue can one continue to see growth. Interesting questions.

eBay – I just love this company….

There was really only one company out of the entire era that I fell in love with, it was eBay. Not only as a user, but more importantly from a business model. Just think – they don’t have inventory, they don’t ship anything, they have no sales people, they are simply a facilitating service. It was brilliant – simply bringing the world’s garage sale to the internet with the additional attraction of an auction. It was simple and yet eloquent. I could not see any downside to the business model (except technology – but they have that in the bag). Latter on they acquired PayPal – talk about a synergistic purchase.

Now the recession and global slowdown is in full swing and guess what – people need money – so why not sell you stuff on eBay? I would think eBay has a two-sided recession equation – those that need money selling their stuff and those needing something but looking for a bargain.
I could never figure out why it sold off into the 20s, oh yeah – I forgot – the market is about PERCEPTION, certainly NOT reality. While few companies actually reflect reality (Apple for instance) – many are just not sexy enough. eBay’s only fault is that they are not sexy – it’s just an online garage sale, that’s too bad – because it is a company with a solid business model and I can’t think of another company on the entire planet that has the ease of margin controls (No R&D, No manufacturing, No Sales, No Shipping, No products, No commodity exposure, etc.)
Of course eBay tops estimates and rather than go through all the silly numbers – note this – it is a solid company and the stock is up in the pre-market. I think they are a recession stock for sure.

Ford - the lone survivor

I have always been a Ford fan, not that I own one – but hey I am from Michigan and I also love the great story of the GT-40 going to Le Mans and kicking Ferrari’s butt (I have met Dan Gurney and have a picture of him and his GT-40 that he won in – great American story). Ask yourself, what kind of engine are you going to drop in that Cobra 427 (yeah – a Ford Roush Crate for sure). But beyond that – they suffered and made bad decisions and had their beef with the UAW. Unlike the rest of the U.S. automotive industry they got serious and quick – cost cutting, getting their game on, and looking to get out from under this recession.

They have a very long road ahead and are STILL losing billions of dollars, the outlook on sales doesn’t look that bright either. Now they have competition with GM (Government Motors) and Obama’s subsidy programs and incentives to buy government cars. That being said I think they will eventually rise as the others continue to suffer.

Is it a buy at this price? Ouch – I really don’t know. The stock is up in the pre-market, but future revenue for some time is looking bleak. If it was a buy it is a serious long-long-long term hold. The business model still needs lots of work and they could face problems down the road. It was nice to hear that they didn’t do as bad as people thought, but I don’t think I will be buying any stock in the near future.
Ford is up in the pre-market.

CIT – just might not make it….

CIT has been a secondary story in the news and if you are not following the financial news you might not even know about it. It is not a household name, but in the business world it is crucial to 100s of thousands of small to mid-size companies. The company was facing bankruptcy (and still is), the government is not giving them a hand-out or bail-out (for whatever reason – not a sexy company, didn’t donate to the right party, none of their board members have connections, who knows) – certainly if it was Goldman, JPM, Citi, or B of A they would get a hand out, not that I am in favor of that – but find it interesting that if one was really concerned about small to mid-size businesses in this country that one would help out in some capacity.

Microsoft pulled out of CIT (as a credit facilitator to their client business) and other bond holders have been looking to raise $3 billion fast to keep it from collapsing, but that may not be enough. It looks like bankruptcy is in the cards – most likely Chapter 11 – the problem is what kind of fall out will that have with businesses? I have read several stories (Bloomberg, Economist, etc.) mostly interviews with CEO’s of these mid-size companies and many just might not make it – since they rely on everything from client credit facilities to short-term non-equity loans to facilitate inventory, payroll, import/export, to many special financing needs of a small business. Other’s like Wells Fargo who is picking up some of the business is not familiar or has the capabilities to facilitate all these companies loan structures. CIT seems to be a one of a kind bank that has been servicing this sector for decades.
Only 3 options.

1. Other banks pick-up the slack and facilitate these special loans (which doesn’t seem to be happening or very slowly)
2. CIT gets some kind of bailout (which doesn’t seem likely)
3. CIT files for chapter 11 or 12 – many small-to-mid size companies struggle or close shop – which seems like what is happening.

It is an interesting story to watch and could have rather large repercussions with 100s of thousands of small companies.

Futures Pre-market

The futures are up small – mostly right around fair value. Earnings looking good for the most part – but guidance and revenue is shaky at best. For now expect a flat to slightly higher opening.

Support / Resistance

The breakout seems to be struggling a little.

INDU 8500 / 9000 (Are first pull back after the mighty run – a couple more earnings of Dow Jones’ components and then it will be over – buy the rumor and sell the news? It looks like it is giving up a little bit. That doesn’t mean we can’t go higher for the rest of the year, but a retracement is likely – don’t be surprise to get back to 8500 in the near term.)

NDX 1500 / 1575? (I thought we would of seen a little hold out at 1550, but Apple single handedly drove the index up. eBay is looking strong in the morning – which is helping futures up a little – but it is certainly no Apple or overweight at that level. Keep an eye on the 1550 level.)

SPX 950 (Sure we are still slightly above it – but two days of struggle at that level is not confirmation of the broader breakout – yet. Watch the close.)

RUT 500 / 540 (We were up a couple of points – but the steam seems to have run out for now – we need a good boost in the broader market – which doesn’t seem to be happening – yet.)

Gold is back above 950 (As the dollar weakens and if it continues to weaken we could see a sharp pop to 1000 )

Silver is back close to 14 after it’s slight pull back.

Oil is back up above 60, in fact back up above 65.

Dollar continues to slip.


I listen to Bernanke yesterday take a beat down in the questioning, he certainly doesn’t want Congress to take a look at his books or poke around too much. From a 500 billion balance sheet to over 2 trillion in months and suggestions by Bloomberg that off-balance sheets could show another 9 trillion. Additionally – special lending facilities at the Discount Window have made now failed loans to many companies (AIG, Lehman, Bear Stearns, CIT, etc.) that will never be paid back. Bernanke’s time is coming and I think in January that Mr. Summers will be filling his shoes. Summers is a very close advisor of Obama’s and has (in my mind) be stroking him for that position. That is not something that would necessarily be good for this nation – Executive Branch, Congress, Senate, and the FED all in one party hands – with all the special interest groups in line. There is more here than meets the eye – maybe it is best we really don’t know about the trillions of dollars of printed money. Bernanke said he has some tools to reel in all that printed money, I don’t think he has a tool big enough. Are we getting to a tipping point?

Earnings look good, if one only measures from estimates and doesn’t bother to look at revenue or year-over-year. Sure there are some excellent stories out there (Apple, eBay, Coke, CAT, etc.) but these are few that have a top-to-bottom story that supports the numbers. Goldman is living off trading as they (as well as other banks) continue to lose on the loan side and mark-to-mark billions more in losses. I think 3rd and 4th quarter will show that the 2nd quarter was about cost cutting to hit those black margin numbers and meet (or beat) estimates, can they continue to cut in the 3rd or 4th and will consumers spending pick up to take up the slack – those are the key questions.

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