Here’s the breakdown….

Current AT&T subs can keep their plans until they end, AT&T can’t just break their contracts.  Here’s the meat.  AT&T will eliminate its $30 unlimited data plan for new smartphone subscribers starting June 7th.  In its place, customers will be offered one of two plans, 200 megabytes of data per month for $15, or 2 gigabytes a month for $25.  Users who exceed 2 gigs will pay $10 a month for each additional gig.  AT&T is also dropping the $30 unlimited data plan for the iPad that it announced only a few months ago when the product was released.  Once again, iPad users currently on the plan will be able to keep their subscriptions.

So, just to be clear, I forewarned you all many months ago that this would happen.  Go back and read my 2010 predictions post published on 12/16/09.  The post reads, “Starting with AT&T $T, telecom providers will begin publicly restricting the bandwidth used by mobile internet devices as their networks literally choke on data.  I have the feeling that this is already happening in some form or another as they track massive network usage on my iPhone and degrade my service because of it.”

I’d say that was smack on.  It continues, “the war for net neutrality will become a headline topic as the telecom giants fight the edge developers for control over the future of the internet.”  And we’ve seen that take place as well as the FCC has stepped in to regulate for net neutrality.

Oh and just for kicks, the post also said, “Apple will introduce a tablet device, it will sell over 5,000,000 units in the first three months.”  Well, we’re at 2,000,000 in the first 2 months, so I guess I was a little over the top on that one, so I’d lose if we were playing the price is right, but, yea, the thing is a massive hit.

On April 26th of this year I wrote a post titled “In War, Always Leave The Enemy One Exit“.  The article generally said that it was now or never for the telecoms.  I quote, “Something has to give here, this can’t go on forever, and I think we are soon to see a resolution to the issue of the telecom giants paying for the network on which Apple and Google make tremendous amounts of money.  Maybe the telecoms chose the nuclear option and just stop building their networks holding Apple’s feet to the fire.”

Not only did they stop building and switch to a WiFi strategy, but now they’ve thrown down the gate so that they can benefit from the increase in data traffic on their network.  So let’s just take a look for a second at what this means for everyone involved, starting with me, because hey, at the end of the day it all comes down to how the individual is effected right?

Below is a chart from the AT&T Wireless web site showing my data usage over the past couple of months.  I use my iPhone a lot for stuff like checking the futures on the way to work, reading news on the Bloomberg and NYT apps, checking sports scores, and a host of other non streaming stuff.  Most of my data usage is done over the wireless network because I don’t use the phone too much around WiFi, mostly because if I’m in a WiFi area I probably have my laptop on hand and I’m using that.  So until the whole of NYC is covered with WiFi, I’m reliant on the cell network for my data when I’m away from home or the office.

As you can clearly see, I’m bumping right up into that 200 megabyte limit.  So yes, if I were to continue using the same amount of data I use now, I would save about $5 a month.

Now, I’ll be buying the new iPhone when it comes out at some point this summer.  Hopefully, it will have a front facing camera so that the Skype application actually becomes useful.  At that point my data usage will most likely at least double, if not more.  I also have the Pandora app downloaded but don’t use it, I’ll probably start doing so pretty soon.  What I’m trying to say here is that I’ll end up paying at least the $35 for the 2 gigs, whatever that’s another 5 bucks.

But wait, there’s more.  AT&T also announced yesterday that it will finally allow users to tether their phones to their laptops and use them as personal WiFi hot spots.  Of course this will cost you an extra $20 per month.  So now we get to the meat of the issue here, it’s not really about the data that I’m going to be using on my phone, how much content can I really consume on that little thing.  The issue is what happens when I tether that phone which is operating on the cell network to my laptop and stream massive amounts of content while I’m on the road, or on vacation, or whatever.

I’ve got no clue how much data I use on my laptop, I’m kind of like that kid who grew up in the super rich family who doesn’t understand the value of a dollar, I don’t understand the value of a megabyte.  I do know this though, it’s far greater than a measly 2 gigs, which means that I would end up paying a ridiculous sum for the service.  Turns out, 1 minute of streaming video uses about 2 megabytes of data.  You dot he math there, that means if you’re watching a 24 minute television show like lost, you’re burning through more than 1/4 of your monthly data plan under the new rules.

Going even further, I will most likely be a buyer of the second generation iPad, I skipped on the first because it didn’t have all the things I wanted, and I couldn’t even use it on the way to work because the subway in NYC doesn’t have cell or WiFi service.  You’re telling me that I won’t be using more than 2 gigs on that device when I get it?  Hell, I’m sure that thing will be attached to my hip at all times, people will think it’s another limb.  It’s such an amazing device, I can imagine a day soon when I consume most of my media on there.

Ok enough about me though, let’s get to the real point of this piece.  What does this mean for the telecoms, the hardware makers, and the content providers?

First, the telecoms needed to do this to survive, their business models were broken and they were on a runaway train to nowhere.  After this announcement AT&T is still a dumb pipe, and I think they’ve come to the conclusion that this isn’t going to change.  The government is going to step in to preserve net neutrality, meaning that the telecoms or cable companies won’t be able to downgrade the speed at which you get your data just because it’s coming from one place or another.  But what the telecoms have done now is go back door, instead they are going to become a toll road, the further you go the more you pay.  So in essence, they aren’t going to slow down speeds, but they will make it hard to use the network in an unlimited manner.  Does this fix their business model, ehhhh, I highly doubt it.

The cellular market is just about completely saturated, which means that the telecoms are betting that they can grow through getting users to pay more for more data.  Frankly, I think this is a mistake and it won’t work.  Would you pay $300 per month for a ton of data?  How about $200?  The average person is not going to pay more than $50 for data, they can’t afford it.  I just don’t see how they are going to make these numbers add up.

So what about Verison $VZ and Sprint $S?  You can bet that Verizon isn’t far behind in instituting the same measures, their network is already beginning to get bogged down with data as more users buy android devices.  Sprint is the interesting story.  They are trying everything under the sun to gain user base but they just can’t seem to push through.  When users go to the store, they are hardly looking at the network, they are looking at the hardware, and to a lesser extent the software.  For all of you tech nerds out there who think that users make informed decisions based on the operating system, or how great the network is, you need to walk down to your local Best Buy or something and get a clue.  People buy with their eyes, their hands, and their wallet.  I don’t care how good your operating system is, if your hardware is a piece of junk it doesn’t matter (see Motorola Droid or Palm Pre).

Sprint could pull a huge coup if it allows users to continue using unlimited data, which it already has the cheapest plan and fastest network for, and lands a big piece of hardware like the iPhone.  I’m not saying it will, but if it does, watch out.  Unfortunately they will then soon have the same network issues as the big boys, so really, where’s the business model?  But in the end I think of the three, Sprint is in the best spot, and if you don’t believe me, take a look at what the market thinks.  You don’t need to be a technical analyst to see what’s going on in these charts.

I’ve been bearish on Verizon and AT&T for so long and I don’t feel any different today, I think they are broken companies and broken stocks that aren’t worth investing in.  Sprint on the other hand has a shot, because they have the ability to grow just through gaining market share, some that the other two stand to lose.

So what about Apple.  Well, I can’t believe that Steve Jobs is going along with this, I can’t believe that only two months after he announced on stage an unlimited wireless data plan for the iPad, that it won’t exist anymore.  I would LOVE to be in the room when the heads of Apple and AT&T sit down to discuss this stuff.  I’ve got to think that Jobs is scared to shit that these telecoms are going to completely screw him over by putting the kibosh on data.  Jobs is trying to revolutionize the way we consume content and then this shit?  I’ve got to think Apple has something up its sleeve to deal with this mess.  People will continue to buy iPhones and iPads in crazy numbers because the hardware and the software are just that good.  But there will come a day, in the not too soon future, when this becomes an issue, I think it’s sooner than we all think.

The worst hurt by this announcement, besides the consumer of course, are the streaming mobile app and web site developers.  Thought you were going to watch Hulu on your iPad while riding the train to work did you, think again!  Any company which is basing its business on streaming a high volume of content to a mobile device took a hit.  There’s no doubt that these companies will find a way to make a ton of money, they are the future of content, but this is a big hurdle they are going to have to overcome.

So what’s the solution to this problem?  It’s actually quite simple.  It’s time to get rid of television broadcasting over the air.  Why does it seem to be a right for people to receive free television via their bunny ears?  Let’s take that spectrum and turn it into WiFi.  The government can lease the spectrum to the highest bidder, and then we can all have WiFi that works.  The technology is there, I had dinner the other night with a friend of a friend who is working on a project down in the Carolinas where they are able to send out a high speed WiFi signal at a radius of 40 kilometers.  Are you kidding me!

The telecoms will fight this tooth and nail of course, because they won’t be the ones to provide this service, it will more likely be Google or Apple themselves who do it.  I highly doubt these companies are going to wait much longer to see how badly the telecoms can screw up their future of getting the web on to mobile devices in a way that makes sense.

When giant companies fall, like we are witnessing with the large telecoms, they don’t go quietly, they are going to bitch and moan the whole way down, but have no doubt, they are going down.  In the mean time, the question remains, will they drag the content providers and the hardware makers down with them?  Will they crush innovation because they themselves aren’t getting a piece of the mobile pie?  I’m a little scared, and I know others who are as well, the fact that these companies can stand in the way of the mobile web moving forward is a tragedy.  Hopefully I’m wrong, but I doubt it.

]]> http://www.leighdrogen.com/it-was-inevitable/feed/ 11 http://www.leighdrogen.com/in-war-always-leave-the-enemy-one-exit/ http://www.leighdrogen.com/in-war-always-leave-the-enemy-one-exit/#comments Mon, 26 Apr 2010 18:27:18 +0000 Leigh Drogen http://leighdrogen.com/?p=2029 I want to get off a quick note this afternoon regarding the domestic telecoms, primarily AT&T $T and Verizon $VZ.  First, a quick review of the charts:

As you can see, both charts speak volumes as to both how poor these companies have executed on a fundamental basis and just how ostracized they have been by market participants who are looking for bigger dividends and or stronger growth.  Plainly said, they have not participated in the rally to any extent what so ever.

The fundamental outlook for these two giants is not good given that the US market for cellular phones is just about completely saturated.  They were hoping that fees from data subscriptions would cover what they were losing in pricing power for voice, but as we’ve seen with the iPad release and the 30$ all you can eat data plan, that’s pretty much gone out the window.  How about taking a piece of the growing revenue from third party applications downloaded on their phones.  Ummmm, doesn’t seem to me that Apple $AAPL is sharing any of that, nor is $GOOG with their android devices.  So where is the growth from these guys?  They’ve been relegated to being a dumb pipe, they are now just the infrastructure upon which the real money makers operate, and believe me, they’re not happy about it.

A main tenet of warfare is to always leave your adversary at least one way out, if you’re smart you construct the path to which you’d like them to exit in order to benefit from the direction they retreat.  Why is this a smart move, because an enemy with no way out and little hope of survival can be a very dangerous warrior.  They may chose to sacrifice themselves just to harm you, exacting a brutal tole on you in your quest for victory.

So how does this fit in with the telecoms?  The “we have no way out so fuck you” approach may have already started.  Verizon has already been resistance to putting the Apple iPhone on its platform for fear that it will use tremendous amounts of data without sharing any of the third party application profits with the carrier.  Now they are beginning to play games with Google saying that they won’t pick up the Nexus One which was planned to be released spring of 2010.  Google loses access to the carrier’s more than 90 million users and seems to have stumbled for the time being in becoming a major player in the mobile handset market.

AT&T has not picked up the phone either.  But AT&T has more problems than just Google to be sure, they are trapped in a mutually hated relationship with Apple now where neither party can get rid of each other, it really is the marriage from hell.  Apple doesn’t have another carrier, and AT&T can’t throw Apple off for fear that its massive amount of iPhone users will defect from its completely inferior network.  So AT&T is trapped having to provide Apple with more and more bandwidth, towers, and other infrastructure as the public and media scream at AT&T to get their network up to Verizon’s standards, not to even mention how well Sprint $S works.  $T is for sure frustrated that they have to make these capital expenditures and see no increased profit from them, it’s like bailing out the water from a ship with a 20 foot hole in the bottom, you’re just spending energy trying to stay afloat.

Something has to give here, this can’t go on forever, and I think we are soon to see a resolution to the issue of the telecom giants paying for the network on which Apple and Google make tremendous amounts of money.  Maybe the telecoms chose the nuclear option and just stop building their networks holding Apple’s feet to the fire.  Steve Jobs can’t revolutionize the content distribution market without a network to do it on, and believe me, the stuff that he wants to do is going to take a lot more bandwidth than is available today.  Do we really think the carriers are going to pay for that to happen.  Maybe Apple buys a carrier, or even builds its own network with a next generation technology they have been developing.

One thing is for sure, Apple and Google haven’t left the carriers at exit and that makes them dangerous.  As well, I highly doubt Steve Jobs is going to leave the future of Apple up to the idiots at the telecom giants who have utterly failed to innovate.  It will be an interesting soap opera for sure, stay tuned.

Look, I’m going to keep this very short.  The cat is out of the bag, governments will continue to see their attempts to censor the flow of information on the interwebs fail.  It’s a matter of the individual always being one step ahead of the larger system.  This is the case with any system, such as our own financial regulatory system, which has fallen so incredibly far behind the structured products created by the banks.  In any complex system, the individual always has the advantage of speed, the ability to change tactics, and create new solutions.  What does the government have?  The ability to control the means of transmission of information, but certainly not the information itself.  So Australia can go to the ISPs and say, don’t allow these sites to be reached by your customers, and China can say to the search engines, don’t allow these certain words to be search for, and Iran can block Gmail.  But as we’ve seen time and time again, the individual will find new ways to spread information, the technology is out of the box, and will continue to morph as governments attempt to catch up.  Frankly, I believe this pushes innovation.  There’s nothing more motivating than an overlord government when it comes to innovating ways to escape their censorship.

Governments will always attempt to control the flow of information, this will never change, it is a crucial part of any power system, whether it be a government, a company, or a personal relationship.  Information is power.  I have absolutely no doubt that innovative individuals will find ways around these issues, and we will all be better off for it.

Every couple of weeks I run through my whole universe of stocks looking for momentum.  It’s really a very simple process, freestockcharts.com has an excellent feature that allows you to move down a list of stocks produced by a scan just by hitting the space bar.  I’m not quite sure exactly how many issues I cover, but the scan is very simple, over 300 million market cap, average daily volume of at least 200K, over 2$, and above the 200 day moving average.  I click through rapid fire looking for the best trends, put them in a list, and comb through them with a finer brush afterwards.  90% of the stocks are already on my watch lists, the others I dive deeper in to, looking at fundamentals.  I then go very quickly through another scan, with the same parameters, except this time stocks trading under their 200 day moving average.

I get two main things out of this process, the first is a list of stocks exhibiting the best trends which I watch on a daily basis and trade.  The second is a great view of overall market strength and breadth.  I’m going to make a long story short and just say this, the market is going higher.  Yes, we might pull back 3 or 4% here, to the 50 day moving averages, or maybe even to the 20 period weekly moving averages.  Absent a dramatic move which interrupts the bullish pattern in so many issues, I don’t see an end to this rally in the near future.  One off events are always a possibility and we must be able to change course at the drop of a hat, but outside of this, higher we go.

A few years ago I took a few months to travel around South East Asia.  My trip took me from Thailand to Cambodia, through Vietnam, and on to Japan, before returning home to New York.  Let me just say quickly that it was an amazing trip, a complete culture shock, and a nice hard slap in the western face.  I’ve been all over the world, but this was an eye opening cultural experience.  Here’s the main thing I took away, these people are amazing merchants and have a huge entrepreneurial spirit.  I would say this is the case in Vietnam above all others.

I traveled into the very most northern part of Vietnam, to a town called Sapa.  I noticed there while using my Blackberry that I was on the Chinese cellular network Chinacom.  It’s amazing that in this completely isolated place up in the mountains that I would get perfect cell service with data and everything, I was never out of touch with the world for a minute.  But while I was there, I was in contact with an old college professor who had significant experience traveling within the region, especially China, Hong Kong, and Taiwan.  She warned me sternly when I was there, that I should not connect to any data network, be it on a cell phone or a lap top, where I had sensitive information stored.  This lady has worked closely with defense and state department officials in the region, a well as having a vast network of local contacts.  According to her, the Chinese steal any and every piece of data they can get their hands on, and they get their hands on everything.  It goes even to such an extent that you shouldn’t be using a cellular phone in Vietnam on the Chinese cellular network.

The reason I bring this up has to do with $GOOG pulling out of China due to hacking, I don’t blame them.  For everything that China is, and it is many great things, it still has not excepted the idea of personal property and intellectual property as we see it in western law.  Remember that this is an open society, one that values the whole far more than the individual, it is deeply ingrained into their thinking.  I won’t opine on the positives and negatives of such a philosophy right now, but what you should understand is that there are some serious issues to be ironed out if we are to become true partners with China as they ascend the economic, social, political, and military ladders.  Right now we are at best reluctant trading partners, both unwilling to allow the global economy to collapse.  China, similar to the US (cough cough) may be fudging the data to some extent, I’ve got no doubt about that, but the first half of this century will belong to them.  Google leaving china is no big deal, I highly doubt this turns into a trend, but certain divides must be crossed in terms of rule of law.

First game of the Fall / Winter season playoffs for me tonight.  I’ll take some inspiration from Redden who actually got into a fight and showed some blood flowing through is veins last night in a rousing Rangers victor over Les Habitants.  It was an old time hockey game, really fun to watch.  Oh yea, and by the way, J-E-T-S JETS JETS JETS!

Here is your belated weekend reading:

This is rather long, but a good overview of global tactical asset allocation going into 2010, a good read (Zero Hedge)

According to Friedman, we can either obsess about another underpants bomber every few months or spend the money on math, science, and research, I agree (Thomas Friedman)

What does the fundamental picture look like for oil and natural gas and why are their prices diverging (WSJ)

We now have the same number of private contractors as military servicemen in both Iraq and Afghanistan, this is the new norm (Washington Post)

This is going to be an amazing book in 20 years, Israel doing what it does best, covert opps (Washington Post)

Brazil has the western world by the balls, and deservedly so, how can we help you Mr. Lula (WSJ)

It’s such a sad fact that we finally get Americans to start saving, at a time when they have every disincentive to be doing so (NYT)

An interesting look at how quantitative hedge funds fared versus their black box brethren (CXO Advisory Group)

China is no fake, get that through your head (The Economist)

Rail traffic still hasn’t picked up, neither has sea traffic, the global economy is still not working correctly (Calculated Risk)

If you aren’t surprised that Goldman and all the other banks are completely corrupt in how they handle their prop trading, please go and smash your head against the wall for 30 seconds (NYT)

I do trade commodities, but I’m sure as hell not an expert when it comes to the fundamental aspects of certain commodities markets.  Take for instance, the grains.  Would someone please explain to me WTF is going on, and why we just saw a massive dump over the past two days.  The major components of $MOO, also known as the holy trinity of cow shit, $MOS $POT $AGU are getting slaughtered.  It only takes one look at this chart to realize why, it’s the $JJG, a basket of grains.

Now, the volume here means nothing in an absolute sense, this ETF means nothing when it comes to moving the grains markets, unlike say, the awful natural gas trading vehicle that is $UNG.  But on a relative basis, there’s obviously something going on here, this isn’t just any sell off in this basket of commodities, someone holding this ETF wanted out, and quickly.

If you don’t have the ability to see futures charts on your trading platform, I highly recommend you take a look at this cool new Finviz tool.  The whole agriculture space is getting whacked, and it still looks bearish.  I own a piece of $CGA, but honestly, I feel it’s more correlated to the rest of the high flying Chinese stocks than the underlying commodities.  As for $POT $MOS and $AGU, amongst others, I’ve decided to sit it out from here unless we see a rebound in grains prices.  There are too many other trending stocks to be getting whipped around in these.

On to the broader market.

I told ya’ll that Tuesday afternoon’s run up was a trap, and so it was.  Mr. Market punched those buyers in the balls this morning by returning to Tuesday’s lows, after which it proceeded to rip higher, closing close to yearly highs.  I didn’t like it, I didn’t like it one bit.

I wanted to see the market puke, I wanted to see some fear, I saw none.  When it became evident that we weren’t breaking Tuesday’s lows, I stepped in and did some buying, reloading on the profits I had taken in $TSL, adding to $V, $MHS, $DECK, and adding new positions in $ALGT and $INFA.  I didn’t want to step in and buy today, I wanted stuff lower, even if that meant taking more pain in the process.

I sold out of $GOOG today, near the highs, with a profit.  I see no need to be involved in this battleground stock right now, there are too many great others.  I will look to reenter at higher prices, and that doesn’t bother me, I want to see the trend stabilize.  I also sold out of $EDU at a small profit, it just wasn’t moving and I was too loaded in Chinese high flyers.  I also sold out of $JCG for a profit, the trend is bending there.

I’m seeing a lot of rotation once again into healthcare and financials, but woooo nelly was that a rip your face off rally in tech today.  The 20 day moving average continues to be the place where you need to buy stuff, just do it.

I’m a little lost here now with the market having filled the gap down from Monday to Tuesday.  I think we’re in no man’s land and waiting for the next signal.  I will sit on my 10% cash cushion and hope to buy things lower, knowing that if we do explode to the upside I will out perform.

I’ve stayed away from the steel sector as I don’t believe we are going to see continued strength from them beyond this push.  I focus the portfolio on stocks that I believe will trend positively for the intermediate term, not just a week or two.  The real money is made by sitting, not trading.  I have not had exposure to coal, and I’m dissapointed about that.  I had a good opportunity to take a position in $MEE at the end of last week but balked, which was obviously a mistake.

My entry on $ARUN this week was perfect, already in the green by almost 5%.  I took off some exposure to $GS as it has traded straight up for a week now.  It was a heavy position, it is now a bit lighter.  $VRX finally woke up this week, patience really paid off there, I continue to like it going forward.  $TSL and $CREE continue to just move up, there’s no other way to describe it, these two stocks are unstoppable.  I have greater than a 55% gain in $TSL and have been peeling off bits along the way, which I guess has been a mistake because I haven’t found a place to reload the boat.  My two retail positions $JCG and $DECK are performing well.  I’m stalking $URBN which is giving a decent entry right here right now.

I will ruminate on the tech exposure this weekend, it may simply be too high.

I’ve been mentioning for a while that I felt there was a lot of institutional selling taking place into the end of the year.  I’ve also been adamant about the fact that tech would be the leader if we moved higher, and to stay the hell away from the financials on the long side.  It seems that at least two of those three were great calls.  But I still believe we saw large institutions close their books and greatly reduce risk in October to guarantee a solidly positive year after the drubbing they all took in 08′.

This has obviously turned into a stock pickers market.  Instead of being whipped around all over the place by the broader indices, stocks are carving out their own paths, making it far easier to see the wheat from the chaff.  I’ve got a long list of stocks on my screens that shows excellent momentum and is giving no sign of slowing down.  I’ve got another long list of stocks that look prepared to break out in a big way.  I’ve got yet another list of stocks that can’t get out of their own way.  The point here is that opportunities abound, and you need to take your eyes off the indices.

The best way to play this market is to pay attention to sector strength and weakness, find the leaders and the laggards, and ride them.  Wait for trending stocks to come back towards the 20 day moving average and take positions there.  Look for large triangular consolidation patterns, in trending markets they most always resolve themselves in the direction of the trend.

One interesting point I’m seeing now is a large resistance level in the transports $IYT.  We’ve been bumping up against the high from the crash reversal.  I say the crash reversal, because the overall equity market crash took place in October of 08′, although the transports were obviously not done with their greater than 60% sell off.  No other sector besides the financials showed as much relative weakness to the market back in March.  This important level, denoted by the red line, sits at about 76.  The chart you see below obviously represents an inverse head and shoulders bottom pattern.  In the short term, the transports look to be rolling over a bit, I wouldn’t be surprised to see another test of the 50 day moving average, now located at 72.

Lastly, please take a moment to bash your head in if you believed the Motorola $MOT Droid was going to sell any significant number of phones.  I don’t cheerlead or strut around proclaiming how omniscient I am, none of it really matters unless you have money in the trade, and even then, it’s not in good taste.  But for a second now, please just take a look at 5 charts, real quick, $MOT, $PALM, $NOK, $AAPL, $GOOG.  If it’s not obvious to you who is winning the mobile internet war, you need a better pair of glasses.  Apple and Google are head and shoulders above the competition when it comes to innovation.  The other pretenders are holding their stock prices up with smoke and mirrors, which are slowing being run over by large tanks in the form of iPhone sales numbers.  The Droid is a crappy piece of hardware, Palm’s Pre was a sham from the start, and Nokia hasn’t even tried to compete in this market.  It’s so glaringly obvious that Google is about to release an amazing piece of hardware to go with its great Android operating system, just look at the stock for god sake.

Brocade Communications $BRCD has been the biggest loser, I had to dump the position with a 21% loss, which has turned out to be the right play as $BRCD has gone nowhere.  I still believe in the company, and think it will be bought out in 2010, but there’s no sense sitting in this name while so many stocks show better relative strength.  I was a little impatient in Patriot Coal $PCX, taking almost a 12% loss.  $PCX is now surging above a major resistance level and looks great.

I’ve kept my exposure to energy low, but names in the space are starting to look attractive.  As well, some REITs, yes real estate, you didn’t hear me wrong, are looking strong to the upside.  I obviously missed the boat on much of the run in healthcare, but will be sure to add there on a pullback.  I have exposure in $ESRX, $MHS, and $CERN, but would like more.

Here are the current portfolio positions, for sales I’ve made, visit the momentum tab of the trading book.

]]> http://www.leighdrogen.com/momentum-book-update/feed/ 0 http://www.leighdrogen.com/weekend-reading-11/ http://www.leighdrogen.com/weekend-reading-11/#comments Sun, 20 Dec 2009 02:07:10 +0000 Leigh Drogen http://leighdrogen.com/?p=1349 I ventured outside today for a total of about an hour, it’s brutally cold and nasty out.  I can’t remember the last time we saw a massive snow storm in NYC, the past few years have been crazy warm.  Believe me, I’m not complaining, I hate the snow unless I’m snowboarding.  For the retailers this is a major disaster, the weekend before Christmas and the whole northeast is snowed under.  How much else can go wrong for the brick and mortar stores this year.  The consumer still has no cash, and no job, but at least their IRA is a little higher.  Amazon $AMZN is eating their lunch, and although the economy is still stuck in neutral, $FDX and $UPS are on a roll thanks to the online retailers.

I saw two more empty store fronts on the upper east side today a few blocks down the street.  Madison Avenue is a disaster, once the home to overpriced upscale boutiques, now retail vacancies all over the place.  Between 65th and 68th I counted 10 vacant lots.  This was the PRIME retail space serving the uptown ladies who lunch a few years back.  Even the richest still aren’t spending, unwilling to spend 500$ on a pair of sunglasses or 2,000$ on a suit.  When stores stop disappearing from Madison and start filling those empty windows, I’ll start believing the consumer is back.

I hate saying I told ya so, but did you see the $PALM numbers this week, uuuggggllllyyyy.   Sales are down year over year, and this is after releasing the Pre and Pixi.  The smoke is lifting and the mirrors are being shattered.  This company is royally fubar.  $RIMM killed earnings and sold one hell of a lot of phones, frankly this took me by surprise.  I wasn’t on board with the $RIMM doom and gloomers, I see them more like I see $MSFT, stuck in neutral, piling up cash with no real vision of the future.  Remember, in this business, if you’re not inventing your dieing.  The Bold is an excellent device, and enterprise users love it.  But on the retail side they are falling behind $AAPL and the soon to be released $GOOG Nexus.  The Storm is a piece of crap, I don’t know anyone who doesn’t wish they had gotten an iPhone instead.  Look for the $AAPL numbers to be out of this world, if they’re not, oh boy, can you say blood bath.

Into the new year I still like certain consumer goods companies who sell excellent products at decent prices.  People still need to buy shit, they are just buying smarter.  Here are your winners, all good investments: J-Crew $JCG, Urban Outfitters $URBN, Ralph Lauren $RL, Whirlpool $WHR, Green Mountain Coffee Roasters $GMCR, Tupperware$TUP,  Lululemon Athletics $LULU, Treehouse Foods $THS, Diamond Foods $DMND, Amazon $AMZN, Costco $COST, Colgate $CL, Whole Foods $WFMI, Apple $AAPL, and a host of foreign retailers.

Here is your weekend reading:

If you read one this this weekend, read the mobile internet report from (Morgan Stanley)

Has Exxon $XOM finally woken up to the reality of depleting oil reserves (Gregor McDonald)

This is one of the best pieces of writing I’ve read in a long time (Chris Nelder)

To all of those who believed we went to Iraq for the oil, you people were cynical idiots (Washington Post)

Has China embarked on its own green power moon shot (New Yorker)

Here it is, the $GOOG Nexus, the first phone that will take a bite out of $AAPL iPhone (TechCrunch)

What happens if the banks need another bailout down the road (Washington Post)

The military and state department realize the issues in AfPak, now do they have a strategy to deal with them (Thomas Barnett)

Goldman Sachs $GS is betting on global warming, rule #1, don’t bet against Goldman (New Republic)

I can’t believe how badly the treasury screwed the pooch on their Citibank $C sale, oyyyy (The Atlantic)

Glass-Steagall needs to be reinstated, I am 100% for it (The Big Picture)

]]> http://www.leighdrogen.com/weekend-reading-11/feed/ 0 http://www.leighdrogen.com/a-look-to-201/ http://www.leighdrogen.com/a-look-to-201/#comments Wed, 16 Dec 2009 23:07:32 +0000 Leigh Drogen http://leighdrogen.com/?p=1282 StockTwits has organized a new stream of tweets focused on the symbol $TWENTYTEN for the community to make predictions and share their views about the year to come.  I encourage you to participate by writing a blog post or simply tweeting your predictions or views.  Just tag your tweet with the symbol $TWENTYTEN.  Nothing in this post or on this site should ever be considered investment advice or an invitation to buy or sell any security.  Please feel free to leave comments or argue against my predictions, I love the banter.  I may add to this post as we approach the new year.

The Market

After two years of massive swings in each direction, the market settles down.  The trading range in the S&P 500 $SPX will not exceed 30%.  In 2008 investors dumped everything.  In 2009 investors bought everything.  In 2010 we get back to a more “rational” market as investors start making bets on companies instead of asset classes as a whole.  While the past two years have been marked by a high level of correlation amongst many assets and asset classes, in 2010 we will see this break down.  2010 will be the year of the stock picker.

Google $GOOG will buy Twitter $TWIT because they want to own the world and know “real time” is the next step in search.

The Google phone, also known as the Nexus, will be the first to take a real bite out of the $AAPL iPhone.  Google’s business strategy was insanely good.  Release your excellent operating system on a bunch of marginal hardware, get everyone else to pay for the advertising to introduce said operating system, Android, build an awesome piece of hardware yourself, launch it with a ton of buzz, own the hardware and the software and take a real bite out of the iPhone.

Facebook $FBOOK will go public, it’s too big to be bought at this point.

Palm $PALM will either trade under six dollars at some point, or be acquired, maybe both.

Financials as a whole $XLF will continue to lag, along with the homebuilders $XHB.  Healthcare $XLV will take the lead, outperforming the market as healthcare reform is finally out of the way, one way or the other, and investors are able to place bets knowing what the new rules are.  I’m especially a fan of the electronic medial records providers like Athena $ATHN and Cerner $CERN.

Retail investors will lose money trying to ride the gold miner $GDX train, getting whipsawed all over the place.  Smart fund managers like Paulson will make a killing in gold and gold miners.  Gold $GC_F will hit 1300 dollars.

Citibank $C will not trade over 7$.

Bank of America $BAC will spin off Merill Lynch $MER.

Economics

While the low end of the housing market will only fall another 5-7%, the upper end, above 1,000,000 will fall another 10%.

Commercial real estate will fall another 10%, but large well capitalized REITs will benefit from their ability to prey on distressed situations, setting themselves up for a positive year.

New York City residential real estate prices will continue to fall.  Phantom supply from recent construction that was turned rental will hit the market after developers default on their debt and banks take control, willing to sell at any price to liquidate inventory.

The official unemployment rate, which stands just north of 10%, will not dip below 8% by the end of 2010.

The Federal Reserve $FED will raise interest rates to no less than 2% by the end of 2010.

Politics and International Relations

Iran will announce that it has the capability to build a bomb, but won’t overtly say they’ve built one.  Neither Israel or anyone else will attempt a military strike on Iranian nuclear facilities.

No less than 5 senators or governors will be disgraced by some type of scandal.

Technology

Starting with AT&T $T, telecom providers will begin publicly restricting the bandwidth used by mobile internet devices as their networks literally choke on data.  I have the feeling that this is already happening in some form or another as they track massive network usage on my iPhone and degrade my service because of it. The war for net neutrality will become a headline topic as the telecom giants fight the edge developers for control over the future of the internet.  If you think that Verizon’s $VZ network is any better, just wait, they will choke on data as well.  The network providers will partition the network and charge an extra fee for your data to be priority.

Cloud computing will take over your computer experience like never before.  Soon, you will subscribe to programs in the cloud and access them over the internet instead of hosting them on your personal machine.  You may already be using Google docs, Pandora Radio, or Lala, the cloud based music service recently bought by Apple, but you haven’t seen anything yet.  The Google Chrome OS will usher in a new paradigm in how we interact with our computers.  Companies like Rackspace Hosting $RAX will continue to grow and are solid investments going forward.  Sales of netbooks by $HPQ will continue to grow as the computer requires less and less, everything is moving into the cloud.

I’m not a huge fan of location based services like fouresquare, I have no desire to tell people where I am at all times.  I don’t believe other’s will choose to make this information public in a massive way either.  But……location based marketing will take off in 2010 and a company will come to the forefront and rule the space.  You will download an application to your mobile internet device which will recognize you are walking into a certain store, let’s say Urban Outfitters $URBN, it will know your previous purchases and offer you discounts tailored to your history when you walk into the store.  It’s already starting with Google.  It will be huge, and you will love it, no more clipping coupons.

Mobile payments through services such as Square will be ubiquitous.  You will be able to pay for a t-shirt in the stadium parking lot by sliding your credit card through a little reader attached to an iPhone.  Once again, it will be awesome and you will love it.

Mobile video will be all the rage with USTREAM on your mobile phone.  You will broadcast your kids soccer game live to your husband, or wife, traveling on business.  Is this StarTreck shit or what!

Apple will introduce a tablet device, it will sell over 5,000,000 units in the first three months.

The Large Hadron Collider (CERN) in Switzerland will create miniature black holes, the earth will not be sucked into one of them, and if it is, you won’t be around to bash me for being wrong.

Other

Plans will be announced by the NHL to move a hockey team to Quebec within three years, most likely the Phoenix Coyotes, Atlanta Thrashers, or Tampa Bay Lightning.

Derek Jeter will be publicly embarrassed by something, no one is that perfect, everyone has skeletons, I love you Jeter but no one’s a saint.

Tiger Woods will NOT go on Oprah with Elin, and @stein will owe me a hamburger.

The brokerage firms put out price targets for most major assets, along with average prices for most commodities so that clients can hedge their exposure.  Let me make this very clear, the only time when price targets make sense is when you are a deep fundamental investor and are willing to buy or cover when things look ugly and sell or short when the market is in love.  I have such a great disdain for much of the sell side community, I won’t even get started.  Ignore these predictions, all they are is marketing.  Ignore anyone who tells you they know where an asset will trade any more than 6 months from now and are willing to put money on that prediction.  It’s fun taking a guess at where things will fall in the months and years to come, but as a trader, price is king.  Pay attention to price above all else, allow it to confirm or refute your thesis.

I wish you all an excellent new year, and hope to see your predictions in the days and weeks to come.