NOTE: This Trading alert was originally emailed to subscribers at Ritholtz Research & Analytics on Mon 9/18/2006 10:30 AM EDT.
This is posted here not as investing advice, but
rather as an example of a trading call for potential subscribers. We
expect to post future advisories in a similar manner — after the call,
but in the correct chronological location on the blog.
That’s one of the questions I ask myself all the time. The
answer is a combination of economic shifts and technical characteristics that more
typically underpin healthier markets.
On the economic side, if things started to improve across
several metrics we track: Income and wages, Consumer debt and spending
patterns, interest rates, and money supply, it would bode well for the macro
environment. Conversely, if the environment got acutely worse – a rapid
spending drop off for example, or a surge in unemployment, that would move us
closer to a cycle bottom, and ironically make me want to start thinking more
On the technical side, this market seems to want to go
higher, only in an ugly way. The internals do not impress: The A/D line – the
number of stocks advancing versus declining – is unimpressive. The new 52 week
High/Lows is particularly ugly. They certainly do not reflect broad
participation in an up-move by lots of equities – and that’s what we typically see
during strong sustainable bull moves.
Make no mistake about this: we are in a period where the
reward is modest at best and the risks remain high. These technicals are why we
are not very long here, and continue to raise cash on rallies, but the price action
– grinding higher regardless – explains why we are not yet short. It is a
“tweener” market, and that implies one undergoing a transition.
The past few weeks saw a lot of headline risk come out of
equities: The Fed on hold, Oil process down 18%, Gold pulling back to support
at $580. While Iraq remains
a morass, the Iran
nuclear problem is also unresolved, but at least the parties seem to have ratcheted
down the saber rattling.
Sentiment may also help explain why the market has been so
reliant: As long as so many people were looking for a collapse or a correction,
it was unlikely to have happened. So this spate of good news allows the bulls
to reassert themselves, and that perversely makes the correction more likely.
In other words, it won’t happen when everyone is looking for
We continue to watch and wait for our pitch to move to the
A few items to look for today and the rest of this week:
1) We take a look at the S&P 500 Homebuilders Index,
along with a few components (today);
Also. be sure to check out these two data sets on Real
-Comstock claims: The Hard Landing
For Housing is Already Here;
- Typical profile
of sub-prime mortgage applicant, according to a San Diego sales manager of a branch office of a national lender;
2) A special situation, low priced stock we will be recommending
(today or tomorrow);
3) CNBC TV: This
week, Kudlow & Company moves to
8pm, and taking its old slot on a one week trial will be Dylan Ratigan’s Fast Money. It’s a new program that
CNBC thinks can be an anchor at that slot. They are gearing up in advance to
compete with the upcoming Fox business channel.
I have been contacted by the producers of the show, and asked
for feedback – about the format, content, segments, guests and 4 panelists. If you have ever wanted to help shape a new tv
program, then feel free to submit comments – good and bad – to me about your
take on the show. If you want to remain
anonymous, let me know that also.
4) I found this chart (via Matt Blackman of EquiTrend Weekly Market Watch) particularly insightful:
September 18, 2006
What do you think of the new Zune?
That question led to fascinating discussion about Microsoft on Thursday. What they do, how they work, brainstorm, etc. It also covered how Microsoft develops new products (notice I didn’t say innovate).
A few quick thoughts on the Zune: The coolest thing is its owners ability to zap songs back and forth via a Wi-Fi
connection — but those songs expire after "three plays or three days, whichever
comes first," which is kinda poor. The 3 inch screen versus the 2.5 inch on the iPod also looks pretty nice. Other than that, its not a particularly compelling piece of hardware.
Brown? How long til that gets cancelled?
We don’t know the price yet, but I expect it to be in the $249 – 349 range, and a function of how much MSFT is willing to lose/subsidize each unit.
What I found most fascinating about "This Week in Microsoft" were the 3 separate products that leaked out over the past few days:
• The Zune iPod challenger (in classic "steal the other guys thunder" following Apple’s event)
Let’s get a few things straight about Mister Softee. First, forget all the chatter coming from Redmond about innovation. They are now and have always been uttery shameless copycats. They do not innovate; They do not create cool products; They are boring code writing cubicle dwelling drones — and that’s what they should be.
The second thing you need to know about Microsoft: They print money like they were a branch of the U.S. Treasury Department.
That is the bottom line for investors, and the cash ain’t coming from all these other products attempting to recapture lighting in a bottle. Its Windows 1st, Office 2nd, and then a big 4 way tie for SQL, Hardware (mouses etc.) Server SW, and then everything else. All these other products — including Xbox, hotmail, MSN, etc. — are what happens when you have more money than God and still want to be one of the cool kids.
And, they’d probably get just as much criticism if they didn’t make all these attempts at imitating other successful innovators. Otherwise, they would just be a mature company milking their monopoly products until the next paradigm shift came along.
Understand my complaint about Redmond: I don’t begudge them these many attempts to stay relevant and hip, to keep pressing buttons until they find the next thing that works. Hey, after you become one of the most successful firms in the history of Capitalism, it becomes hard to repeat that performance every quarter.
I’m just tired of the bullshit about all their terrific innovations (Spare me the techno-babble about multithreading processors or dynamic ram usage).
To understand how Microsoft got to be the "innovator" it is today, you need to have some background into the psychology of its leadership. My favorite example comes via Robert Cringely
If there is a reason, it has to come from the competitive nature of Bill
Gates as Microsoft’s spiritual and ethical leader. Everything is a competition
to Bill, and every competition has a winner and a loser. Microsoft people have
always been encouraged to see the game, not the consequences, and to win the
game even if winning this way makes no sense.
Let me give an example of this behavior. In the early days of Microsoft, one
of the popular games was to see how late the boys could leave work for the
airport and still make their flights. These weren’t people who were habitually
late, they were playing a game. The eventual winner was Bill Gates, of course,
but to win he had to abandon his car [a new Porsche 911] at the departures curb.
Tht pretty much says it all. They are competitive to a fault — its in their DNA. Its also why they have been such a vast money machine. But please: Spare us the sanctimonious garbage about Microsoft the innovator, and keep the focus on Microsoft the moneymaker.
Here’s some more recent ideas out of the innovation factory: