The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

31 January 2007

GDP growth moderate, Fed on hold

The research commentary that follows is by Scott Grannis, the excellent and insightful Chief Economist at Western Asset Management.
-- David M Gordon / The Deipnosophist

The economy grew at a 3.5% rate in the fourth quarter, a bit stronger than expected. Growth for the year was 3.4%, just a hair above the economy's long-term average growth rate of 3.1%. Thanks to a big decline in energy prices, all measures of inflation were low, with the GDP deflator registering only 1.5% for the quarter. Not too bad, overall, and much better than the market had feared just a few months ago.

But as the charts below suggest, if we abstract from the quarterly ups and downs in the data, and ignore the mild recession in 2001, there has been a modest but gradual increase in inflation in recent years, and a modest but gradual reduction in the economy's growth rate. Neither of these trends is significant enough to be alarming, however, which is one reason the FOMC today made no change to its funds rate target for the 5th consecutive meeting. In the Fed's view, the slowing trend in growth, if it continues, would likely contribute to lower inflation in the future, but in the meantime they worry that "resource utilization" rates are relatively high (e.g., the labor market is relatively tight with an unemployment rate of only 4.5%) and this could contribute to inflation. So for now they will most likely just stand pat and wait to see how things develop, and it could take at least another 3-6 months before anything changes by enough to make a difference.

[click on each chart to enlarge]

Residential construction was the only significant drag on growth, subtracting 1.2%, but as the next chart shows, much of the decline in the residential sector in the past year has been offset by strength in nonresidential construction. Today's FOMC statement noted, as we have also, "tentative signs of stabilization" in the housing market; if housing should indeed recover later this year, that could result in stronger growth and a more concerned Fed.

Bond bears thus have two things to watch for as the year progresses: a growth surprise and/or renewed signs of a gradual upcreep in inflation. Bulls, on the other hand, will be rooting for an economic slowdown and declining inflation.


Am I Wrong?

It sure appears that way re the general market.

Based not only on the stunning rally following the FRB announcement, but also the fact that the market began the day down sloppy and ugly... and right on schedule. That reversal, even before the FRB announcement, initially heartened the bulls. Of course, the earnings reports from Google/GOOG and Starbucks/SBUX have yet to be heard. Those reports come ~1 1/2 hours from now.
What saves my portfolio's bacon, fwiw (a lot!), is that I had purchased those stocks I perceive to be the 'new' leaders.

As always, time will tell the tale of the tape. Soon.
-- David M Gordon / The Deipnosophist


29 January 2007

Rubber necking

I rarely intend to be cute or coy with my post's titles, only to get you to perceive differently. Necker cubes represent an excellent example. (Go here for more understanding re Necker cubes.) You will understand immediately that the market, as a primary system, and chart pattern analysis, as a sub-system, each qualifies as a Necker cube; the difference is in the perception.

In the two charts below, I identify several trend lines and standard Fibonacci retracement levels.

[click on each image to enlarge]
The NASDAQ Comp is obviously the weaker performing index of the two; not only lagging on the upside but also having already broken down beneath its accelerated up trend line. Both charts show a bull trap -- the recent breakout to new highs that so excited most market observers and participants -- and then the subsequent and immediate lack of upside follow-through, instead returning to the prior late stage base, and then some. Needless to say, this is not positive action.

But "not positive" action does not itself equal bearish trend action. No, observers must examine the total picture to discern that particular reality. A loss of price momentum (apparent on each chart above), negative price reversals on good news, other price trend reversals on lack of news (failed breakouts, again like the two charts above), bearish trend line breaks, and bearish patterns fast dominate the charts, and likely will soon pre-dominate. I suspect the markets could meander for 1-3 days, and then decline with some measure of ferocity. Again, the timing I perceive (in my own personal Necker cube) corresponds with the after hours release of Google/GOOG's earnings report. But anything could be the catalyst for the coming negative market action.

The charts above show readily why and how I find initial downside objectives to be 1325-1275 (SPX) and ~2315 (NASDAQ). Those are initial objectives; market action dictates actual objectives. Readers familiar with my market perceptions might recall one item that especially intrigues me: the notion of resistance during an up trend and support during a down trend. What force stems a minor trend in the face of the continuing primary or major trend? That is, when the prevailing trend is up, why is it not straight up? (And vice versa.) Once identified, by identifying trend lines that connect the highs during an up trend (and the lows during a down trend), then and only then, can the more commonly drawn trend line (connecting the lows during an up trend; connecting the highs during a down trend) be identified via cloning the original line. This study therefore both identifies, validates, and possible prove the trend line of rising bottoms (during a bull trend) and declining tops (during a down trend).

I know; this all is confusing. I will leave off here, as how to identify correctly trend lines is not in the lesson plan for this post. No, I prefer to make the message clear: risk increases with each new day. The longer we levitate up here, the more ferocious the decline. Simple peak & trough analysis betrays that much, if not more.

I will scan the market for those stocks resolute in their defiance to the potential decline in the market at large. In time, those stocks should prove be the new leaders. I have shared thirteen (13) specific opportunities that appear (to me!) to be good candidates; your generosity betrayed another handful. Yes, I continue to purchase leaders despite my perceptions and concerns.

Leaders have their own agendas.
-- David M Gordon / The Deipnosophist


27 January 2007

How many of ME...?

This site shows the numbers of people in the US who share your name, first and last.

Interesting, to say the least. Or the many, as the case is with my name.

-- David M Gordon / The Deipnosophist


26 January 2007

Early, on the downward slope

While at the gym yesterday, I had a conversation with a smart guy who also happens to be a professional investor. When he asked my thoughts re the market, I replied, "The market is very near cracking hard to the downside."

His reply was, "Everyone says that same thing."

I queried further, as my sources are universally bullish.

He explained that these same people had been bad-mouthing the market rally all the way up.

"Ahh," I said, as the light bulb over my head lighted. "Those investors probably rely on feel, and as such, the markets' many feints, diversions, and its meandering path to higher prices fooled them all the way up (if they bad-mouthed the rally all the way up)..."

It so happens that I too rely on feel. I mentioned previously that I see the necessary studies in my mind's eye, but there is a time and place for a mechanical interpretation, which is why I create the annotated charts I share here with you. I admit I have been light on the fundamental and valuation metrics of late while I attempt to show you how to discern true market action -- in particular in advance of its change. recall that, as investors, we express our interest in a company by buying its stock, not the company. (Yes, I acknowledge that in fact it is via the purchase of the company's shares.) It always is better to be in the wrong stock but at the right time than the right stock but at the wrong time.

The past several weeks I have been warning that a large decline is setting up... Nay, nears completion of that set-up. I have no notion, at this moment, how deep the potential decline will prove to be, nor for how long it could endure; only that it is coming. Soon. Using the S&P 500 as the market proxy, and beginning at the end (sorry, I feel compelled to write that clause in that manner!), the S & P 500/SPX index appears set to decline to ~1325-1275, a 100 to 150 point decline from yesterday's closing price. From the recovery high, such a decline equals ~10% -- not particularly nasty, and to be expected within any up trend. Individual stocks will fare worse; they always do. The question becomes the ferocity of the initial decline; how fast will it decline --will it meander its way to lower prices, or have the aerodynamics of an anvil?

Based on the chart above, I expect a plummet that will begin soon; perhaps its first day was yesterday. On the chart, you can see quickly that I expect a decline to breach accelerated trend line #2, but to hold at primary up trend line 1. NB: the index has yet to breach anything, so this post is anticipatory. In addition to the primary up trend being old-in-the-tooth, the accelerated up trend rapidly loses up side momentum. In fact, the volatility that has occurred recently, and that has so confounded most market participants from obtaining a clear view of future directional trend, is itself a clue that the extant trend (in this instance, up) nears completion.

Do not wax overly bearish, however. I have shared the charts of many new leaders that quietly, almost secretly, lurk immediately beneath the breakout points from their massive, near decade-long, and profoundly bullish bases. Because each is so near their point of breakout, I would not buy any of them willy-nilly, but await the actual breakout. (You will recognize easily the moment.) Or, better yet, buy on or near each stock's primary up trend line. But that would be my methodology; I recognize buying on downside inflection points is not for most investors.

For the sake of being a completist, I include below the NASDAQ Composite index, which has an even more ominous picture...

[click on each chart to enlarge]

For the record, I detest posts of this type -- readers perceive them as predictions, whereas I intend them only as warnings of increased risk. And increased risk is what we, as investors, now face. For example, did anyone else other than me note the market's variant reception to Yahoo/YHOO's earnings report and its impact on the shares of Google/GOOG...? Previously, YHOO sold off on its report, and GOOG suffered sympathy pains, only to be redeemed by GOOG's report the following week. This week, YHOO initially rose, and GOOG exploded to the upside... before each failed yesterday. What does this change portend? The possibility that subsequent to Google/GOOG's earnings report next Thursday, its shares and YHOO's could decline. And possibly (probably?) lead lower the general market. I suspect GOOG's number will astound the Street for its profoundly bullish implications, but that it will suffer from the game of heightened expectations. If GOOG shares do decline, I expect initial support at $450-425.

This is why I pay no heed to 'predictions' re the general market's oscillations (yes, such as my warnings, including this one), and instead focus on the many and omni-present opportunities - where each lies within its continuum of probable risk and reward. Investing manifests as risk... but without risk there would be no reward.

And so it goes.

-- David M Gordon / The Deipnosophist


25 January 2007

One more opportunity, albeit not quite the same picture

The same reader who brought to our attention Avery Dennison/AVY offers a second opportunity, Minnesota Mining Manufacturing/MMM.

btw, MMM, as you well know, doesn't fit the classic pattern you're illustrating, but it is a very big value stock, and the current base is three years old. The company sells at an 18% discount to the S&P; it has gross margins of 50% vs. S&P 36%; it's selling at just about 2.6 times sales; and it is one of the best companies in America. As it works through various issues that the street is overly focused on, I believe it will, at the least, return to an S&P multiple. Quite simply, IMO, it's a great opportunity for LT investors to buy a world class company at a significant discount to fair value. So all this made me curious what there was on MMM at Seeking Alpha. Lo and behold, my old buddy Leon Cooperman offers a very good analysis of MMM. Pretty much bears out my thinking, but with a lot more detail. Guess that's why he makes the big bucks!

Excellent descriptions, both yours and Leon's. Thank you! Minnesota Mining & Manufacturing/MMM (hereonin, simply MMM) is a wonderful company, and a great opportunity. The truth is that the picture is not the same, nor even similar, as you note. ("...doesn't fit the classic pattern you're illustrating...") My objective in highlighting the particular pattern I do, is to have readers and investors see that price declines are merely part of the continuum, and thus not to be feared. And that at some point in the ambiguous future, the shares will again break out (up). Those 13 charts, plus AVY, DD, STI (and others I neglect to include) are very near the end of their lengthy (time) but shallow (price) corrections. Because all true patterns remain true in all periodicities, these specific opportunities particularly excite my investment interest. Keep in mind that these oscillations - up and down - create the opportunities for us, the investors.

The 2 1/2 year base to date for MMM appears more a consolidation in a continuing up trend than a massive, long term base...

[click on chart to enlarge]

The line of declining tops (#2) is crucial for the bullish case; at some point in the future, the shares will break out convincingly above trend line #2, and subsequently recapture the up trend. Trend line #1 represents the primary up trend; investors could accumulate on tags or near approaches of that line. The two lines do not converge until March of 2013, so two possibilities could occur:
1) The pattern continues to build as an intermediate term base in a long term up trend, and breaks out sooner rather than later;
2) The pattern instead builds as a long term base in a massive (even) longer term up trend with a breakout scheduled for sometime between now and mid-2010.

Please do not view the #2 possibility as a 'prediction' -- it merely would fulfill the 75% Rule of most area patterns. I prefer possibility #2, as it would afford me the opportunity to purchase at an increasingly inexpensive price and a cheaper (better) value. This would occur because the company would continue to do what it does so well -- innovate and make money. And the stock would then endure a lengthy time correction. Recall that the bigger the base, the bigger the ultimate price move.

btw (meaning, off the topic of this post), I drew trend line #4 to delineate two items:
1) The accelerated advance into the all time high during May 2004 from the prior intermediate term base; and
2) Point #3, which in technical analysis parlance is known as rocking the cradle.

In this instance, Point #3 represents the optimal moment to sell -- or, at minimum, hedge. Chart action now offers the certainty of a breakdown beneath a crucial trend line (#4), the retracement that proves what once was support is now resistance. Similar setups occur from the opposite perspective, and represent optimal moments to purchase, as you might suspect. When you find them, close your eyes, hold your stomach... And buy.
-- David M Gordon / The Deipnosophist


24 January 2007

Pictures hopefully worth 1000 words

Gosh, I had no idea a simple request -- or so I thought at the time -- would prove so confounding! :-) The opportunities that purportedly resemble "large cap value stocks trading in high level consolidations lasting for several years," are not each precisely that. Clearly the responsibility is mine for being unclear in my request, so...

1) "large cap value" has a specific denotation. Taken separately, large cap and value.
2) "high level consolidations" equal patterns that the lows typically range from 30-50% subsequent to its all time high. This definition excludes stocks down (much) more than 50%, and certainly those scraping along their all time lows.
3) "several years" is... well, precisely that.

As a reminder, below is the previously posted chart of Clorox/CLX...

Please note that, as deep as the initial decline from the all time high was, it was only ~50%. The base endures for several years (well, nigh on a decade now!).

Now compare CLX to Wachovia/WB...

The similarity between the two ended in October 2004, when WB emerged from its then 6 year base. It's subsequent up trend has run for ~2 1/4 years, although in terms of price movement the shares are only $8 higher from the breakout. So it is not extended, and is in fact a leader for this group (banking).

Now compare Avery Dennison/AVY to CLX...

Please note that similarities abound between the patterns of these two charts. Avery Dennison/AVY remains in a very tight high level consolidation that to date has continued for slightly more than 7 years. And now begins to emerge from this pattern; quite effectively, as well. All quite bullish, and exciting! (Thanks to the anonymous reader who contributed AVY.)

The market appears set to open higher today. Do not be gulled by these lurches, as it could easily reverse (from opening higher to closing lower, if not down) by the day's close. As always, invest with discipline. Do not chase price action. Master the details, master the risk.
-- David M Gordon / The Deipnosophist


23 January 2007

Live Without Me. I'll Understand.

I do not understand what is happening to me; me, a big, burly guy.

Of late, I cry during the sappy moments of books and movies, am taken aback at people's tales of woe and wonder; moved emotionally as I have never been moved before. And then I read this essay (below). I felt its author's every anxiety, fear, and love; in fact, each heartfelt moment. I wonder: Must we suffer a near-death experience to cause us to relish life...?

Perhaps this woman's tale will have a similar effect for you, as it has for me. So I break with my tradition of sharing the humanities 'stuff' only on the weekends, and instead share now...

As always, I welcome your comments.

-- David M Gordon / The Deipnosophist
New York Times
Published: December 17, 2006

Live Without Me. I'll Understand.

WE are flying to a resort south of Cancún for the wedding of my husband's cousin. As we rise into the cloudless Los Angeles sky, I try, as always, to suppress my unease. I have always been afraid of flying, but today I am tired enough to doze off as we make our way south. I wake briefly to refuse the beverage service and then settle back to sleep.

Just over an hour into the flight there is a slight bump followed by a distinct click as overhead panels fall open and the oxygen masks unfurl. Then the plane begins to plunge.

''This is an emergency,'' the captain announces. His English is accented, but perfectly clear. ''Please put on your oxygen mask and fasten seat belts. This is an emergency.''

I look pleadingly at my husband of six months.

''It's O.K.,'' he says, just as he has on so many other flights when I panicked at an unfamiliar noise or dip. ''We're going to be O.K.''

But this time is different. The plane is racing downward, my seat belt pulling taut against my lap. My mind fumbles to assemble a picture of what is happening, but each piece of information seems disconnected, absurd. The cabin is eerily quiet, as if there is not enough air for noise. Shouldn't someone be screaming?

I think I hear a muffled sob, but I cannot look at the other passengers. The flight attendants, doubled against gravity, pull themselves up the aisles by the armrests, bent over like mountain climbers, one holding an oxygen mask to her face, the man behind her cradling the portable tank in his arm.

No one speaks. There is the smell of something smoldering. A fire? Engine failure? I look into my husband's eyes, begging for reassurance or an explanation. Again he says, ''We're O.K.''

The smoldering smell is strong now. And so we say what people say when they think it is the last thing the other will ever hear.

Speaking through our masks, we sound like we're underwater: ''I love you.'' ''I love you, too.''

So this is it. The scene in the diving plane seems choreographed, rehearsed, as if I have been waiting for it to happen my entire life, yet my reactions are alien.

Yes, my heart is pounding through my fingers and my pupils feel as if they are about to burst, but the sense of panic, the urge to scream or cry, is absent. There is no instant replay of my life. No existential secrets are revealed to me. Could the moments before death really be this banal?

I feel a deep and penetrating sadness for our parents and my sister. A wave of empathy for our friends when they hear the news. But I know life will go on for them. They have no choice. And so, in a falling plane, over the sand-coated Mexican canyons, I look out the window into the endless orange afternoon, and I wait.

And then the plane stops falling. It levels, dips, levels again. Our seat belts slacken. The captain's shaky voice informs us that we will be making an emergency landing. We can remove our masks. There is no need to assume crash position; it will be a normal landing. Some time later, we touch down at a small domestic airport three hours south of the American border.

If my imagination had tried to prepare me for dying in a plane, it had not prepared me for living through a near crash. As the plane taxies, the cabin is silent. A flight attendant wipes away tears.

Without speaking, we shuffle along the aisle and climb down the metal stairway. There are no exclamations, no hugging, no kissing the ground. Just the plodding of weary travelers debarking from a long flight. The pilot stands ashen-faced in the cockpit, nodding as we file past, but no one speaks to him and he offers no words of explanation.

In the tiny airport lounge, we scatter into clusters, not making eye contact, seemingly embarrassed to have shared this near tragedy. I try to reach out to a young girl who is traveling alone to meet friends for spring break. I can tell she has been crying.

''That was my worst nightmare,'' she says.

''Mine, too,'' I reply. But when I say it out loud, it doesn't seem to have any real meaning.

I don't cry until I hear my father's voice on the pay phone, and then I am afraid I won't stop, so I hand the phone to my husband, but not before saying to my father, ''I can't get back on a plane.''

''Yes,'' he says. ''You can.''

Still, my husband tries to rent a car, but the woman at the rental desk discourages us (particularly because we do not speak Spanish) from driving all the way back to Los Angeles from central Mexico.

So we wait for word. An airline official appears and says perhaps they will try to fix the plane and fly us out later in the evening, but the passengers rumble collectively in protest -- no one wants to board that plane again.

Instead, the airline detours a flight half-full of mildly surprised passengers to pick us up and take us to Mexico City. From there they put us on another plane to Cancún, where we are greeted at the airport by no one. I watch the other passengers from our original flight drift out the doors of the baggage terminal.

The hotel is colonial and enormous. We are tagged with white plastic wristbands for the all-you-can-eat-and-drink buffets and then we head to our room to sleep.

The next morning, predictably, is washed in sunshine. People are lined up at the activity desks and clotted in the revolving doors. At the breakfast buffet, the other guests crowd around the aluminum trays of glossy food, piling their plates with eggs, sausage, pancakes, waffles.

I stand and watch, transfixed. My husband and I have barely spoken since the events of the day before, and when we do, it is in low tones, as if we are watching a performance we don't want to disturb.

At the beach, children shriek and tumble in the gentle surf, their hair braided tightly into cornrows affixed with plastic beads. Everyone rejoices in the delights of this paradise, but I feel as if I am visiting purgatory.

There are meals to eat. Tours to take. There is a wedding, beautiful in its simplicity. Vows are exchanged and a marriage begins. There is dancing and music. We drink a little too much. My husband has a cigarette for the first time in months.

THAT night in bed I cling to him, much as I did on the plane, and he tells me the same thing as when we were falling through the sky: ''We'll be O.K.''

We try to talk about what happened on the plane, try to reconstruct it, and then we stop. He wants to move past it, I can tell. ''We're lucky,'' he repeats.

I nod. But the truth is, I don't feel lucky. Or even alive. I feel indifferent. All I can do is watch everyone around me experience what I should be feeling. No, it's worse: I watch them and condemn them for the utter uselessness of their joy.

I tell myself that this feeling will pass. I am still absorbing the shock. Give it a few days.

But the next day is much the same, as is the rest of our stay. I am still waiting for the wash of relief, the thrill of feeling reborn, of escaping death.

When it is time to go, we take the shuttle to the airport, where we stand amid bulging suitcases and overstuffed tourists. I wait for the familiar tingle of anticipation about returning home and the surge of anxiety upon boarding the airplane. But I feel neither.

For the first time in my life, I am not afraid to fly. In fact, I am not afraid of anything.

But the feeling is not one of liberation. I am still searching for something -- even my old fear -- to tether me to my previous life, but there is only this feeling of utter remove.

And suddenly, as our plane pushes skyward, its engines roaring, I am taken back to that moment when the universe tightened its grip, threatening to peel me from my family, my friends, my memories, a future I would never know.

For a second, I resisted. I asked: How can my loved ones and I exist apart? How can I be lost to the world? We spend our lives binding ourselves to one another, attaching ourselves to this life like mollusks clinging to the reef.

But as that plane dropped from the sky, I knew that the world would go on without me. My friends would grieve and move on. My loved ones would endure. All I had to do was accept this and let go.

SO I did. I looked down at the staggering carbon canyons, which were cut like ribbons across the landscape -- beautiful and steep and no place for a soft landing -- and I let go. But we didn't crash.

And here I remain -- among friends and loved ones, at the beginning of my marriage and all the fierce entanglements of life. Yet in letting go, it seems I created a break between my former and current selves that isn't so easily bridged.

At home, I go to the grocery store, rub the dog's belly, fold the laundry, return my mother's calls -- all the routines and rituals that are supposed to give life structure and meaning. But week after week I am still in that other place, a half step removed, wondering when and how I am ever going to come back from this.

A month after my return, the answer comes in the form of a phone call summoning me to the emergency room: my father has had a heart attack.

And it is not until I am beside him in the intensive care unit, gripping his hand as he battles his weakened heart for each breath, that I feel my own heart pounding again for the first time since that day. It's all so familiar: the panic, the terror, the threat of imminent loss.

But this time I don't let go. My father, laced with wires and unconscious, is pulling me back.

Katherine Friedman, a freelance writer, lives in Los Angeles.


22 January 2007

... On the other hand, part 2

A reader writes in reply to part 1 of this post...
Thought that was all very well stated. I share your concerns, as I did before. Just feels like there's a lot of complacency everywhere I turn. I was particularly struck by the fact that there was not one single bearish strategist in Barron's when it came to their forecast for '07. Not one. I think there's a reasonable chance that we will see a highly bifurcated market with high PE growth stocks getting hammered while more defensive big caps hold up reasonably well, but there's no guarantee of that either. I agree completely with your bottom line: Hold only investment positions.
This second part is about the opportunities that keep cropping up, despite the markets' many oscillations of price. I note, and have mentioned, that institutional monies now move to large cap value opportunities. This becomes easily apparent when gazing at the truly long term charts. See charts below for some examples of what appear to me to be the market's newest new leaders. That is, as the former leaders lead the market down, the new leaders will lead it up, ending in a wash. Well, almost. The coming correction, after a scary initial decline, should settle into basing mode, as institional money continues its transition to these new leaders.

An example of a former leader due for a setback (and previously warned) is favorite, Under Armour/UA. I note that Barron's 'non-bearishness' endures only so long before the magazine decides to take another of its typical (pot)shots...

Barron's reports based on almost every valuation metric, investors are paying too much for Under Armour/UA. The stock is selling for more than 80 times its earnings of the past 12 months, and 53 times the 96 cents a share analysts are projecting for this year. That p-e ratio is 2.76 times the rate of earnings growth. In contrast, Nike/NKE, with a market value 14 times Under Armour's, is selling for 17 times this year's earnings and at just 1.16 times earnings growth. There's a good case that the stock ought to be no higher than the low 40s, about 12% below current levels. And if the still-young co stumbles in managing its growth, the shares conceivably could fall much further. Under Armour, for its part, has been diversifying into athletic footwear, including football cleats, to ward off competition. But that's a famously crowded arena, one likely to crimp margins. Concludes Brady Lemos, an analyst at Morningstar: "We believe the market's rich valuation of Under Armour is based on lofty revenue and profit-growth projections that will be difficult to sustain as the business matures."
Yes... perhaps. I suppose the stock will get spanked on the opening; the question remains whether it breaches support at ~$48. Should it do so, a decline toward $43-41 would offer a tremendous opportunity. But then this possible and potential decline is nothing new. Those with cash waiting for this opportunity could receive a gift within the coming days and weeks.

And continuing where I left off in the part 1, I see I failed to reply to this question...
I notice that the earnings aren't so historically good with Isis Pharmaceuticals/ISIS, and occasionally some other stocks that you mention. How big of a part does that play in your evaluations?
What can I say...? An excellent question, but predicated on a horrible misunderstanding of my methodology re investing. So my reply is simply that, yes, earnings are important. By the time positive earnings (surprises) or negative earnings (surprises) are announced, however, the stock has already made a good portion of the move in anticipation.

What follows are 13 stock charts of Tier 1 companies that I favor as investment opportunities right now -- of companies with earnings, increasing as their business increases and with high quality executives. Many of these companies will be familiar to regular readers. I selected 13 companies for the silly reason that each chart shows ~13 years of historical data. (Each bar = 1 month of trading activity.) Each picture speaks for itself; thus, each chart is lightly annotated, if at all. I prefer you to ignore the squiggles (short term oscillations), and instead see the big picture. As always, some moments manifest as better moments to purchase than others; nonetheless, each chart is very bullish long term. Most remain in massive bases (a high level consolidation, to be precise), but near their crucial breakouts. Some already have broken out to new all time highs (GIS, JNJ, PEP, etc). And some trade nearer the lows of their bases (KO). Colgate/CL, as only one example, looks especially promising -- yet to emerge from a profoundly bullish base but very near to doing so... (Click on each chart to view enlarged.)

JNJ qualifies as my poster child for the picture-perfect growth stock. Do not believe me, however; instead look for yourself at a chart that goes back even farther in time than merely 13 years.

Can you find others...? Please offer your favorite opportunities (specifically, large cap value trading in a high level consolidation of many years) and share here as a reply to this post.
-- David M Gordon / The Deipnosophist


20 January 2007

Weekend Cartoon Fest #1: Markets

Well, this cartoon is pretty much self-explanatory...

[click on cartoon to enlarge]

... but I must add one comment.

My objective with this blog is to obviate your need for this type of software. And to rely instead on your own intelligence and insight. Investing, like life, is far simpler than the charlatans make it [out] to be. I believe simplicity = elegance. Complexity is only its own reward. And objective.

Okay, a picture -- or a cartoon -- is worth 1000 words. So I will shut up now.
-- David M Gordon / The Deipnosophist

Labels: ,

Weekend Cartoon Fest #2 -- John Rain

[click on cartoon to enlarge]

Barry Eisler is the author who created the sequence of novels that feature assassin, John Rain. Five have been published to date and the 6th (and concluding?) novel, Requiem for an Assassin arrives on 26 June.

Barry and I are chums. On that basis, please expect Barry to contribute his remarks here from time to time, but especially upon publication of his new novel.
-- David M Gordon / The Deipnosophist


Weekend Cartoon Fest #3 -- Me (dmg)

I love creativity in all its guises -- even if I must serve as its muse. (A polite method of saying that I am the butt of this cartoon.) Nonetheless, I love it... Enjoy!

[click on each cartoon to enlarge]

Okay, I was somewhat mystified as to the cartoonist's meaning, so I requested understanding. Her reply...

Picture 1- Girl writes looong letters to this guy she met on the web and she really likes, but he ignores her...
Picture 2- Girl gets really happy when this guy replies (because that doesn’t happen too often)...
Picture 3- Guy writes his signature one line answer, so she is not happy...
Picture 4- She wants to see if his attitude changes if she talks about sex...
Picture 5- She is surprised to see how dramatically he changes. His one-line answers now become a novel. Ahhh!! The power of Sex!
David M Gordon / The Deipnosophist

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To prevent people from espying your computer's content, open your laptop and go to this website. Of course, make certain he or she sees it, as it will scare the bejeesus out of them. And thus keep them quiet for some time.
-- David M Gordon / The Deipnosophist


19 January 2007

On the one hand, part 1

There are so many things to say, I struggle as to where to begin. Perhaps if I compile and answer here your more pertinent questions:

1) I'd love to hear any new analysis you might have regarding Genentech/DNA, which I think was last mentioned in your Entelechy post. Lots of volume yesterday on good quarterly results, but possible overhang from new Imclone data.

I notice that the earnings aren't so historically good with Isis Pharmaceuticals/ISIS and occasionally some other stocks that you mention. How big of a part does that play in your evaluations?

3) ISIS really took a tumble today. Do you still think it's good to hold on to?

4) Would you comment on my observation that American Health Services/AHS has broken below its consolidaton stage?

I perceive these questions to be mostly of a piece. Each wonders about directional trends. The market decline that I posited several weeks ago gathers force. I suspect and expect a doozy of a decline that should occur soon. Very soon. If you want a time frame, I suspect that February will prove a difficult month, to state it gently. Although the market averages and indices might decline only 5-10% -- of course, the decline could be worse, if the decline even occurs -- individual stocks could, and would, fare worse. Far worse. The leaders, my stamping ground, bridle at the coming winds of change. They lead down. It also would not surprise me that a negative opening today for the markets and the leaders could reverse and close higher; such action is par for the course and also part of the clue set.

Yes, AHS has breached support (the rising 50 day sma). I would be surprised, however should the decline plumb lower than $24-22. Yes, upward trading (time frame!) momentum has dissipated for ISIS; investor support lies, as limned, at ~$10. That level is an inflection point for investors to purchase and its crucial line of support. Whether it remains good to hold depends on whether you have the intestinal fortitude to hold during a decline from above $12 to $10+. DNA looks phenomenally good; nonetheless, a return to ~$80 would not surprise me if the markets trip in the coming weeks.

5) Well, you warned your readers. Good call.

Yes, I did; what the subtle clues only hinted at several weeks ago, now becomes increasingly obvious to all observers. This means I have relinquished all trading positions, retaining only investment positions. Leaders are reversing down on good news. For example, Apple/AAPL, which I suggested mere days ago as a culmination run, now looks set to probe into the $70s; I look every day for countermanding clues. AAPL's first test of crucial trading support lies just beneath yesterday's closing price -- the 50 day sma now at ~$88; from that price a bounce could ensue, and the tea leaves reading would begin anew. Too, Google/GOOG looks likely to be spanked. Hard. That spanking, if it happens, could occur as early as its earnings report due in 12 days:
Google/GOOG will hold its quarterly conference call to discuss Q4 2006 financial results on Wednesday, January 31, 2007 at 1:30 pm PST (4:30pm EST). The live webcast of Google's earnings conference call can be accessed at
Alternatively, GOOG could decline toward ~$450 in advance of the report, and thus set up for a strong rally. At this moment, I see nothing that says a decline would be deeper than ~$425.

This potential decline for the markets, should it occur, need not be worse than a typical oscillation from relative highs to relative lows. It could be akin to the decline that occurred in mid-May last year. (Which so happens to be another major price movement I warned you about.) That decline, ferocious as it was (Do you recall?) ended officially in early-September, a mere 3 months later, when the price rallied above the early-May high price levels. The markets' structure, patterns, and set-ups today are eerily similar to those only 8 months ago.

Of course, I could be wrong; it would not be the first, nor the last, time. However, if you slice the market into epochal movements, then it pays to be aware of any possible and potential countervailing directional move. This sequence of posts serves as my warning. What you do with this information is, as always, your decision.
-- David M Gordon / The Deipnosophist


17 January 2007

Federal budget update - deficit shrinks to 1.6% of GDP

The commentary that follows is by Scott Grannis, Chief Economist at Western Asset Management. Scott is among the handful of good economists out there: intelligent, reasoned, and always sees the big picture.

btw, consider these commentaries as an exclusive, as they are distributed only to a small roster of Scott's clients... and you. Thanks to Scott's generosity.

-- David M Gordon / The Deipnosophist

The dynamics of the Laffer Curve continue to dominate the federal budget. Lower tax rates, especially the 15% tax on capital gains and dividend income, helped fuel a strong economy that generated tax revenues that far exceeded even the optimists' expectations. Revenues are up at a 9% annual rate since the Bush tax cuts that took effect in the middle of 2003, and they have soared at a 12.8% annual rate over the past two years. And although the growth rate of revenues has slowed to a 7.8% pace in the past six months, that's still faster than the growth of nominal GDP, which has slowed as well.

[click on each graph to enlarge]

Meanwhile, contradicting the popular notion that Bush has allowed government spending to grow virtually unchecked, federal spending as a percent of GDP did not increase at all last year, and today it is approximately equal to the average of the past 40 years. That's not too bad, considering all the money that has been spent on the Iraq war and Congressional earmarks.

The combination of strong growth in revenues and moderate growth in spending has resulted in a deficit that has shrunk from what was projected to be more than 4% of GDP per year for as far as the eye could see, to a mere 1.6% of GDP in 2006. Instead of the $400-600 billion annual deficits that were initially projected by Bush's critics, last year's deficit was just $209 billion. That's approximately equal to the annual interest cost of the federal government's $4.9 trillion debt owed to the public, which means that the supply of Treasuries held by the public is no longer expanding. In fact, the supply of Treasuries has actually shrunk by $30 billion since the end of November, according to the Bureau of the Public Debt.

These impressive figures argue strongly for resisting any calls to increase taxes. It just ain't necessary, and higher tax rates could cause a painful reversal of the budget progress that has been made so far.


16 January 2007

Meaninglessly random... Or randomly meaningful?

"Please help me - help us! - see what you see; how you see it, when you see it, real time, as it unfolds..."
Well, doing so is well beyond the capability of this type of venue. I could, however, take a longer term perspective that might help. To keep it simple and the charts uncluttered, I will use only one tool, trend lines. (Apologia: in the charts that follow, I erroneously included the simple moving averages; please ignore them in favor of this post's true purpose.)

First things first: each chart is of Chipotle Mexican Grill/CMG. Please review this site's archives for my previous recommendations of CMG as an investment. In those earlier posts, I examined the company's fundamentals. This post serves a different purpose, so I will limit my comments to the stock; however, please recall that this company lies at the front end of its S curve.

[click on each chart to enlarge]

In the chart above, does a pattern emerge or become apparent that signals a directional trend? Or do the price bars appear of random occurrence?

The trend line (as drawn in the chart above) captures the primary trend, which has been up since the IPO. It includes three tags (see arrows) that help validate, but not prove, the line of rising bottoms. (Gimlet-eyed readers will argue the drawn line contravenes the rules in my trend lines primer post -- that the line must capture each low prior to a subsequent higher high. They would be correct but for one crucial observation: I believe this pattern to be a base and the shares will soon achieve a higher high.)

Then I clone the major up trend line, and place it accordingly to delineate a trend channel. (See chart above.) Note that on this basis resistance lies at ~$75 (and rising). The longer the shares move sideways (base), the higher the price rise before it encounters resistance. The inflection points are the lower and upper channel lines. The objective is to purchase the shares on the lower line and sell the shares on or near the upper channel line. This is difficult for most investors because:
1) They mis-identify and draw incorrectly the lines;
2) Cannot pull the trigger when the moment is at hand.

Some investors achieve succes via purchasing breakouts within the channel...

... In the chart above, note trend line 1. It obeys the rules, in that its tags occur at each lower high prior to a subsequent lower low. Whereas many investors worried that this trend line would prove to be the new primary trend line -- direction: down -- I grew excited as it neared its primary up trend line during September 2006. Not surprisingly, once there, the shares bounced nicely. The bears were foiled yet again.

And then, upon release of its Q3 earnings report, the shares broke out above bearish trend line 1, and with massive volume! The fledgling decline was aborted precisely where it should be (the primary up trend line) and the shares subsequently staged a bullish price and volume breakout within the channel. And then, to top it all, the share price immediately staged a mini-decline to trend line 1, with a diminution of volume, and again held! Once resistance, now support. All in all, very bullish behavior.

Trend line 2 fails to follow the rules -- at least to date -- but is important nonetheless because it is the trend line most investors will draw and act upon. It offers two data points -- the all time high and the recovery high at $62.36 on 21 November. Two data points provide sufficient information to draw a line, albeit not necessarily the correct trend line. That trend line lies now at ~$61. These minor trend lines are sometimes known as fan formation lines. (Not part of this post.) Once above $61, the next real resistance will prove to be the all time high, but even that level will not stem the coming advance.

I ask again: Is the chart below (shown without its handful of trend lines) a base or top...?

It is, indubitably, a base. I must admit, however, that I no longer go through the exercise of circumscribing the charts as I limn here; I see the patterns in my mind's eye. But I also admit that by circumscribing chart action, price movements assume order while simultaneously losing their seeming chaos and randomness. CMG, then, is what it is: very bullish, and with a future share price much higher than the price available today. And is that not the type of opportunity we investors seek?

It rewards the investor to take heed of directional trends. Traders represent a sizable constituency in the development of a chart pattern: the best traders obey rules -- pattern rules, money management rules, etc. As a result, price bars are rarely random and never meaningless; in fact, chart action is profoundly meaningful, if you learn how to read it. Please apprehend that within each major or primary trend channel occur trends of lesser primacy; these would be secondary and tertiary trends. These minor trends occur more frequently -- the whipsaw activity that confounds most investors. Many investors get their underwear in a twist over these short term oscillations of price; so close to the tree, they not only not see the forest, they also miss the bark. They see only the gnarls of the bark itself. Stand back to get the big picture.

With all that said, I was necessarily oblique in this post -- purposefully glossing over many rules to identify the correct data points, expectations from particular patterns and setups, etc to avoid unnecessary confusion. So I would think you have a question or two... Despite this admission, I wonder: Can you now see what I see? btw, you should not be surprised to learn I am a buyer of Chipotle Mexican Grill/CMG on each dip to support.
-- David M Gordon / The Deipnosophist


14 January 2007

A bushel-basket full of Apples

Almost immediately after the news broke re Apple's iPhone, Allan Harris and I scratched our heads, befuddled as we tried to understand, "Why Cingular?" At best, Cingular is a tertiary provider, its customer service and technology sucking wind behind the leaders. And what is this about relying on GSM technology? Even admitting that the iPhone is less a phone than a smart(er) communications device, why use GSM? Too much data on its thin pipes, and...

Allan reports from third parties that Cingular will roll out its own EVDO-like (Evolution Data Only/Evolution Data Optimized) high speed data network this summer, maybe in time for the iPhone. But Allan "finds that answer only adequate, as it still doesn't explain Jobs choosing a slower, less robust data network when better technology is available on better networks, i.e. Sprint and Verizon, right here, right now. But I also think we don't know all that Jobs, Apple, and Cingular know... Not yet, anyway."

I could not agree more with his two final statements. We can only speculate. Think Secret reports the iPhone represents just the first of several wireless products Apple/AAPL plans to launch exclusively with Cingular over the coming years. While terms of the agreement do not appear to restrict Apple from delivering other products with different mobile carriers, it appears that products launched jointly with Cingular will remain Cingular exclusives for the duration of their market life-span. Unconfirmed reports from other sources suggest a version of the iPhone capable of operating at faster network speeds is in the works for an early 2008 release.

The LA Times reports...
"... But the revolution is already well underway in Japan, where cellphones are used for everything. Besides downloading music and surfing the Net, Japanese use their cellphones to navigate their way home by global positioning system, to buy movie tickets and to update personal blogs from wherever they are.

"They have been a natural extension of daily life here for the last few years, spurred by Japan's decision to be the first country to upgrade to third-generation mobile-phone networks, or 3G, which increase broadband capabilities and allow for better transmission of voice and data.

"Apple's iPhone, by comparison, will operate on a second-generation network.

"It was 3G that sparked the boom in music downloads that makes it common for phones to be used as portable digital music players here.

"And it is 3G that has led the Japanese into a world where they can watch live TV on their phones and use them as a charge card to ride trains or buy milk at the corner store or take a taxi. Ticket Pia, Japan's major entertainment ticketing agency, has been selling e-mail tickets to cellphones since October 2003. The phones also can be used to conduct conference calls among as many as five people.

"Another widely used 3G feature enables users to point cellphone cameras at bar codes and be directed to websites. For example, every seat in the Chiba Lotte Marines baseball stadium has a bar code, which takes a cellphone to a special home page..."
The Washington Post comments...
"The iPhone is a cool innovation," said Verizon Wireless spokesman John H. Johnson. "But it's only as good as the network it's on. It will be six months before anyone knows how those two pieces will work together."

Some analysts suggested the exclusive deal with Cingular was the result of undisclosed agreements regarding profit distributions, shared advertising or other matters.

But Glenn Lurie, Cingular's president of national distribution, said the two sides reached compromises.

"Apple is used to getting what it wants, and we're used to getting what we want, so we both had to bend a little bit," he said, adding that Cingular took a risk by signing the agreement before seeing the device.

Likewise, Apple was looking for "a partner that was trying to innovate, and the similarities we've had with Cingular were more than you might expect," said Eddy Cue, Apple's iTunes vice president.

And with Apple's ambitions to market the phone globally, Cingular seemed like a logical choice. Cingular -- unlike Verizon Wireless and Sprint Nextel -- operates on a technology standard known as GSM, which most cellphone providers in other countries use.

"When you go to the world with a phone, it has to be based on world standards, it has to be GSM," Bajarin said. Others, however, noted that T-Mobile also uses the GSM network but was left out of the deal with Apple. Some said Apple could develop an iPhone compatible with the
CDMA network used by Sprint Nextel and Verizon Wireless.
Finally, The Economist offers its thoughts, albeit more on the iPhone itself...
"WE'RE going to make some history here today," said Steve Jobs this week at the beginning of his annual speech at Macworld, his company's cult-like trade show in San Francisco. He was as good as his word. First, he launched a product that promises at last to bring digital entertainment from people's computers to their television screens without fuss. Then he unveiled an even more impressive device that transcends the description “mobile phone”.

"The mobile phone is called the iPhone. It will go on sale in America in June starting at $499, in Europe in the autumn and in Asia next year. The television-set add-on is called Apple TV and will hit stores next month at $299. With these two products, Mr Jobs intends to enter and transform new industries, and ultimately people's lives—just as he did in 1984 when Apple transformed computing with the launch of the Macintosh, and again in 2001 when it introduced the iPod, which shook up the music industry."
So it seems we have something of a conundrum. Until we read David Pogue, who conducts a Q&A FAQ...
Does it get onto the HSDPA (3G) high-speed Internet network that Cingular has rolled out in a few cities?
–No. But Steve Jobs said a later version of the iPhone will — once there’s enough HSDPA coverage in this country to justify it.

“Why is everyone missing the fact that this phone/device will seamlessly switch between Edge and Wi-Fi saving big $$$ on data rates?”
–Because nobody bothers to post about what they like. If Internetters can’t say something disparaging, they say nothing at all.
Plenty of excellent questions and answers on David's blog; I suggest you mosey on over and check it out. For all that, here is David Pogue's complete (p)review of the iPhone...
Remember the fairy godmother in "Cinderella"? She'd wave her wand and turn some homely and utilitarian object, like a pumpkin or a mouse, into something glamorous and amazing, like a carriage or fully accessorized coachman.

Evidently, she lives in some back room at Apple.

Every time Steve Jobs spies some hopelessly ugly, complex machine that cries out for the Apple touch - computers, say, or music players - he lets her out.

At the annual Macworld Expo in San Francisco, Mr. Jobs demonstrated the latest result of godmother wand-waving. He granted the wishes of millions of Apple followers and rumormongers by turning the ordinary cellphone into ... the iPhone.

At the moment, the iPhone is in an advanced prototype stage, which I was allowed to play with for only an hour; the finished product won't be available in the United States until June, or in Europe until the fourth quarter. So this column is a preview, not a review.

Already, though, one thing is clear: the name iPhone may be doing Apple a disservice. This machine is so packed with possibilities that the cellphone may actually be the least interesting part.

As Mr. Jobs pointed out in his keynote presentation, the iPhone is at least three products merged into one: a phone, a wide-screen iPod and a wireless, touch-screen Internet communicator. That helps to explain its price: $499 or $599 (with four or eight gigabytes of storage).

As you'd expect of Apple, the iPhone is gorgeous. Its face is shiny black, rimmed by mirror-finish stainless steel. The back is textured aluminum, interrupted only by the lens of a two-megapixel camera and a mirrored Apple logo. The phone is slightly taller and wider than a Palm Treo, but much thinner (4.5 by 2.4 by 0.46 inches).

You won't complain about too many buttons on this phone; it comes very close to having none at all. The front is dominated by a touch screen (320 by 480 pixels) operated by finger alone. The only physical buttons, in fact, are volume up/down, ringer on/off (hurrah!), sleep/wake and, beneath the screen, a Home button.

The iPhone's beauty alone would be enough to prompt certain members of the iPod cult to dig for their credit cards. But its Mac OS X-based software makes it not so much a smartphone as something out of "Minority Report."

Take the iPod features, for example. As on any iPod, scrolling through lists of songs and albums is a blast - but there's no scroll wheel. Instead, you flick your finger on the glass to send the list scrolling freely, according to the speed of your flick. The scrolling spins slowly to a stop, as though by its own inertia. The effect is both spectacular and practical, because as the scrolling slows, you can see where you are before flicking again if necessary.

The same flicking lets you flip through photos or album covers as though they're on a 3-D rack. All of this - photos, music collection, address book, podcasts, videos and so on - are synched to the iPhone from Apple's iTunes software running on a Mac or Windows PC, courtesy of the charging/synching dock that is included.

Movies are especially satisfying on this iPod. That's partly because of the wide-screen orientation, and partly because the screen is so much bigger (3.5 inches) and sharper (160 pixels per inch) than those on other iPods.

The iPhone can get onto the Internet in two ways: using Wi-Fi, at least when you're in the presence of a wireless hot spot, or using Cingular's disappointingly slow Edge network.

That's right: the iPhone's exclusive carrier will be Cingular. (Nor is the phone "unlocked"; you can't use it with any other carrier.) At least it's a quad-band G.S.M. phone, so it will work overseas.

You can also conduct text-message conversations that appear as a continuous chat thread. And like any smartphone, the iPhone can download e-mail from standard accounts at regular intervals. In fact, Yahoo will offer free "push" e-mail - that is, messages will arrive on the iPhone in real time, just as on a corporate BlackBerry.
The iPhone is not, however, a BlackBerry killer. The absence of a physical keyboard makes it versatile, but also makes typing tedious.

Instead of raised alphabet keys, you get virtual keys on the screen. They're fairly small, and of course you can't feel them. So typing is slow going, especially for the fat of finger.

Fortunately, you don't have to be especially precise. Even if you hit the wrong "keys" accidentally, the super-smart software considers adjacent keys - and corrects your typos automatically. If what you actually managed to type is "wrclme," the software proposes "welcome." You tap the Space bar to accept the fix. It works beautifully.

The real magic, however, awaits when you browse the Web. You get to see the entire Web page on the iPhone's screen, although with tiny type. To enlarge it, you can double-tap any spot; then you drag your finger to scroll in any direction.

Alternatively, you can use a brand-new feature that Apple calls multitouch: you slide your thumb and forefinger together (like pinching) or apart on the glass. As you do so, the Web page before you grows or shrinks in real time, as though it's printed on a sheet of latex. It works with photos, too, and it's wicked cool.

All of this is cooked up with Apple's traditional secret sauce of simplicity, intelligence and whimsy. It's these ingredients, not the features themselves, that inspire such technolust in Applephiles.

For example, voice mail messages appear in a list, like an e-mail in-box; you can listen to them in any order. A proximity sensor turns off the touch screen when the phone is up to your ear, saving power and avoiding accidental touches. The screen image rotates when you turn the phone to see, for example, a landscape-orientation photo. A light sensor brightens the screen in bright light. Finger smudges and streaks are inevitable, but are visible only when the screen is turned off. (They disappear with a wipe on your sleeve.)

The speaker is on the bottom edge, rather than the back, where it would be muffled when the phone is set down. The optional tiny Bluetooth wireless earpiece has its own little charging hole in the iPhone's charging/synching dock - and it snaps in magnetically for convenience. Apple says that this earpiece "pairs" with the iPhone automatically, sparing you the usual ritual of pressing buttons in a baffling sequence.

Nonetheless, the iPhone won't be the smartphone for everybody. You may well consider the Cingular exclusivity or the price a deal-breaker. You may also be disappointed that the iPhone can't open Microsoft Office documents, as the Treo can (although Apple says it can open PDF documents), or wonder why it's not a 3G cellphone that can exploit higher-speed, next-generation cellular towers as they arrive in the coming years. And you may worry about putting all your digital eggs into one losable, droppable, glass-front basket.

Note, too, that the software is still unfinished, and many questions are still unanswered. Will you be able to turn your own songs into ring tones? Will there be a voice recorder? Will the camera record video? Can you use Skype to make free Internet calls? Will the battery really last for five hours of talking, video and Web browsing (or 16 hours of audio playback)? Will you someday be able to buy songs and videos from the iTunes Store right on the phone?

At this point, Apple doesn't yet have the answers, or isn't revealing them.

What it does have, however, is a real shot at redefining the cellphone. How many millions of people are, at this moment, carrying around both an iPod and a cellphone? How many would love to carry a single combo device that imposes no feature or design penalties? Considering that the cellphone is many people's most personal gadget, how many would leap at the chance to replace their current awkward models with something with the class, the looks and the effortlessness of an iPod?

Apple has done its part: it has packed more features into less space, and with more elegance, than anyone before it. The rest is up to the godmother.
This post has been necessitously lengthy. The iPhone promises to revolutionize Apple's core business; the oddity is that the Apple TV has been ignored amid the buzz for the iPhone. And it is Apple TV that is the possible game-changer for Apple, as well as for the consumer appliance industry.

As investors, we must ask what all this portends for the stock. Obviously excitement, as the shares soared 27.5% in a matter of days (to ~$98 from ~$77); such price moves, however, often typically manifest as culmination moves, signifying the end of an extant trend. But this is the sole item that signals a possible reversal from the new all time high trade. Nothing else in the charts signal caution. So I remain bullish, long -- and now excited. I already own an iPod, the Apple-designed stereo system for the iPod arrives Wednesday (ordered in place of the BOSE system, which I favored until a side by side comparison)... and I admit my next computer purchase will be a MAC. Hmm, have I been converted...?

As always, but especially now, I welcome your comments and insights. On the topic of Apple and its (new) products, I truly would like to hear from you...
-- David M Gordon / The Deipnosophist


How many years remain in your life?

This age longevity site is fairly interesting. Watch your age prediction (top right corner) change as your answers change the values...
-- David M Gordon / The Deipnosophist


12 January 2007

Frustrating mess

I have been locked out all day from this site. This frustrates me, as it deepens an already deep hole from which I must clamber out. I have several replies and three disparate posts to write. And so it goes.

This post -- if it transmits successfully -- serves only to let you know that I am here and intend to post new content this weekend.
-- David M Gordon / The Deipnosophist

10 January 2007

Big move coming

I have posted previously (several times, in fact) re the growing opportunity for us investors in Isis Pharmaceuticals/ISIS. Remember, among its other pipeline opportunities, this company has a key statin deep into the clinical trials process, and all accounts have it that this drug shows a marked improvement over other statins currently available or in trials. (Including the one from Arena Pharmaceuticals/ARNA.) This helps make the company a leading takeover candidate by an old-line ethical drug manufacturer such as Pfizer/PFE, whose own drug felled its hopes to create one internally. (Verily, half of that drug was the result of the wholesale purchase of another company to obtain its drug!) I prefer a buyout not occur... Well, at least not yet.

So, yes, as ISIS shares near an inflection point (in fact, two distinct inflection points from opposite directions), a big move appears imminent. Multiple levels of trading support lie at ~$10, and multiple levels of resistance converge at ~$11.50. This translates as an approximately 10% range between the two. This squeeze can continue to compress, could even breakdown albeit ephemerally; upside momentum, however, busily and quickly refreshes itself. And nears completion. The moment -- a breakout in one direction or the other -- appears nigh. I believe the breakout will be up. (btw, please recall that investor support lies at ~$8, above which the long term dynamics for this stock changed immediately and positively. The difference is time frame, and thus objectives. Always align the two!)

Thus, I place this opportunity front & center. It joins other recent winners, which includes among other favorites, Apple Computer/AAPL (remember that one, naysayers?) and Zumiez/ZUMZ -- which also nears an explosive move higher.

-- David M Gordon / The Deipnosophist

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More fun online tests

This first is a test of your reaction time when driving...

And the second tests your ability to parallel park.

Neither test is as simple as it might appear at first glance.
-- David M Gordon / The Deipnosophist


09 January 2007

Away for the day

I am at CES (Consumer Electronics Show) today.
-- David M Gordon / The Deipnosophist

06 January 2007

Jobs still growing at a moderate pace

The following commentary and charts are by Scott Grannis, Chief Economist at Western Asset Management.
-- David M Gordon / The Deipnosophist

Today's jobs number was more than the bond market had been expecting (+167K vs +100K, plus a modest upward revision to prior months), but it doesn't reflect any change in the underlying dynamics of the labor market. Jobs are growing about 1.5-2% per year, as they have been for the past several years. The household survey continues to report stronger growth than the establishment survey, probably because it is better able to capture those who have left traditional businesses for more entrepreneurial ventures or to work for themselves. But in either case, jobs are growing at a fairly moderate but steady pace, and there is no sign of any deterioration or spillover from the still-weak residential construction sector. Jobs that are being shed in residential construction are being picked up by other sectors--the dynamic U.S. economy is managing to adjust fairly well, which shouldn't be too surprising.

[click on graphs to enlarge]

Although jobs growth is largely unchanged in recent years, economic growth has "downshifted" from the 3.5% pace of 2003-2005 to the 2-2.5% pace of recent quarters because labor productivity has declined. The decline in productivity may be due in part to the return of pricing power in certain sectors of the economy; some businesses find that it is easier to boost profits by raising prices than it is by investing in things which boost productivity. Labor is pretty productive as it is, though, since corporate profits are as strong relative to GDP as they have ever been.

With the unemployment rate down to 4.5%, the labor market is gradually tightening up, and average hourly earnings are growing at just about the fastest rate since the late 1970s/early 1980s. Is this incipient "wage inflation?" Or simply labor finally beginning to enjoy a bigger (and well-deserved) share of the profits pie? At the very least it's enough to give the Fed pause. Certainly there is no case for reducing rates at this point, and if current trends continue, the Fed would likely consider raising rates.


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