The Great U.S. Debt

Perhaps, there will be numerous case studies in the next few years tackling the rise and fall of economic super powers (e.g. U.S. and perhaps the PIIGS, Portugal, Ireland, Italy, Greece and Spain). But for now, we will just provide links to a few videos on the U.S. debt crisis. This crisis would perhaps drags the whole world in economic turmoil. Cash could be king again.

Enjoy the links:

International Impact of U.S. Debt crisis (Aug 2011)
http://www.youtube.com/watch?v=jMIR1d0RAdI

Jim Rogers on U.S. Debt Crisis (July 2011)
http://www.youtube.com/watch?v=ANMz91JmCKk

Banned U.S. Commercial on National Debt (Nov 2010)
http://www.youtube.com/watch?v=TYKAbRK_wKA&playnext=1&list=PL2250D382179607D2


Cheers !

PersianCat (Meow !!!)

Phone OS sales forecast - Gartner, Apr 11

Based on the forecast above, Android phones will dominant at 38.5% market share by 2011 and 49.2% by 2012. The market share for iPhones will be slightly increased from 15.7% in 2010 to 19.4%. Its' market share will then dropped slightly to 18.9%. One can assume that the growth in apps downloads from iTunes will also be curtailed. This will greatly impact on the revenue that AAPL made on iPhones.

Cheers !
PersianCat

C - How will it perform after the Reverse Stock Split

Fellow traders had been asking me about my thoughts on C after the 10-1 reverse stock split on 6th May 2011.

The facts:

• The reverse split will effectively reduce the pool of outstanding shares from 29.1 B to 2.91 B. 
• The stock should trade in the $45.50 neighborhood, rather than the current $4.55 level.

The Good:

• Most large funds can only buy stocks above a certain price level, certainly not below $5. As such, large funds are expected to buy C in the future. 

The Bad:

• The volume for C from small traders are expected to drop (though may be somewhat compensated by the volume from large funds).
• Based on the experience faced by AIG (it conducted a 20-1 reverse stock split on 1 July 2009), we can expect C price level to drop over the next few days after the split. The stock would then recover with the general market. While the general market dropped for a few days after 1 July 2009 (SPY drop range was just 6.7% off the previous High), AIG dropped by a far more significant percentage

The future:

• I am still bullish about C in the long run. However, I would only pick-up the stocks after the reverse stock split as I expect the stock to drop significantly before it mirror the general market somewhat. I have sold those C shares that I had. 
• Currently, C is at an interesting 38.2% Fibonacci retracement level. 
• A good level to pick up the stocks is near the $36.30 price level (after the reverse split) or even lower. 

Cheers!

PersianCat (Meow !!!!!)

iPad2 (as at 3 Apr 2011)

The Street estimates

• iPad sales account for roughy 7% of Apple's stock value, if pegged at $420 (about 17% ahead of market price)
• If the iPad 2 can help Apple keep competitors' tablets at bay, our forecasts for iPad unit sales could prove conservative, implying upside to our $420 price estimate for Apple
• Apple sold around 15 million iPads in 2010, and we estimate that it could sell another 24 million in 2011. We project that this total will continue its steady climb towards 54 million by the end of our forecast period. 
• According to IDC, the tablet market is expected to grow from around 45 million units in 2011 to 71 million in 2012, and Apple's market share could reach 60% in 2011. This implies an expected 27 million iPads sold in 2011.
• Although our 24 million unit estimate seems a little conservative by comparison, we believe that Google's(GOOG_) new Android operating system for tablets (Honeycomb) could pose a meaningful challenge.

PersianCat (Meowwww!!!!)

iPad Statistics (as at March 2011)

iPad 2:

• The iPad 2 ships on March 11, 2011
• Available on Verizon(VZ_) and AT&T's(T_) 3G network
• Starts at $499 for the 16GB Wi-Fi only version and goes up to $829 for 3G version with 64 GB
• Runs on iOS 4.3
•  9.7-inch LED-backlit LCD screen
• Offers 10 hours of battery life
• Available in both black and white
• Begin shipping in 26 additional countries on March 25
• Powered by a dual-core A5 chip, the iPad 2 is "dramatically faster" than its predecessor, which ran on an A4 chip.
• The A5 processor is up to two times faster than the A4 and can also handle graphics up to nine times faster.
• The iPad 2 is 8.8 millimeters thick, compared to its 13.4 millimeter predecessor
• Lighter, weighing in at 1.3 lbs compared to the 1.5 lb iPad
• Comes with both front and rear-facing video cameras

iPad:

• Apple has paid out more than $2 billion to developers selling apps on the App Store, which opened in July 2008.
• iPad will account for 80% of tablets sold in the U.S. this year - Forrester Research
• Has more than 65,000 apps designed for the iPad, compared with about 100 for devices running Google's (GOOG) Honeycomb Android operating system, according to Apple CEO Steve Jobs
• Apple should sell at least 20 million iPads in the U.S. this year. It sold nearly 15 million iPads worldwide in nine months of availability last year - Forrester analyst Sarah Rotman
•  iPads generated $9.5 billion for Apple in 2010 - Steve Jobs 

Cheers !

PersianCat

U.S. Smartphone Statistics (Nov 2010 - Jan 2011)

The smart phone market will be dominated by 3 phone operating system since Nokia will be abandoning its Symbian OS. The OS to watch for this year will be Android, iPhone OS and Blackberry. The Microsoft Windows 7 OS will only gain significant traction towards the end of 2011 when Nokia starts introducing its Windows 7 phones.

Cheers !

PersianCat

Jewish Holidays in 2011

Just a reminder. During the "no work permitted" Jewish holidays, the market for equities, forex and others will significantly drop in volume. Significant drop in volume could dramatically skewed price movement.The Jewish holidays for 2011 could be found in:

http://www.chabad.org/calendar/holidays_cdo/aid/672022/jewish/2010-Holidays.htm

Cheers !

PersianCat

A 10% correction in the making?

The general market has been on a bull run without much rest since Sep 2010. It is due for a correction. Analyst is now calling for a 5-10% correction. Looking at the charts, it looks like a good possibility that it might happen. Technically, the DOW index just tested 12,000 level (a logical resistance level) before it started the drop last Friday. Likewise, the S&P 500 index also touched the 1,300 level (a logical resistance level) before it also dropped last Friday. The drop in the markets on Friday does not mean that the markets are starting to correct. However, it seems like a good logical point to start to correct.

The political crisis in  the Tunisia, Egypt and perhaps elsewhere in the Middle-East might create the catalyst for the correction. Initially, the worries about Egypt was that shipping through the Suez canal could be disrupted because of the turmoil. The worries worsen with the scenario painted that if the turmoil spreads to the countries in the Persian Gulf, then oil supplies from the Persian Gulf might be disrupted. That is a bigger worry!

Regardless of what is going to happen, I am just playing with the flow. I have shorted ES (S&P 500 futures) on Friday. I also left some SPY Puts over the weekend.

Cheers !

PersianCat

AAPL - Analyst Estimates

iPads
(info from DigiTimes)

• iPad 2 to be released and shipped in January 2011. More than 500k units to be prepared
• iPad 2 shipment could reach 40 million units in 2011, accounting for 65% to 75% of the global tablet PC market.
• 12 - 16 million iPads shipped by end 2010.

iPhones 

• Apple upped the global shipment order of new iPhones from 19 million to 20-21 million

Cheers !
PersianCat

U.S. 2011 Market Holidays

January 17 - Martin Luther King, Jr. Day
February 21 - Washington's Birthday/Presidents' Day (3rd Mon. of Feb)
April 22 - Good Friday
May 30 - Memorial Day
July 4 - Independence Day
September 5 - Labor Day
November 24 - Thanksgiving Day
November 25 - Half-day (closed at 1:00pm EST) due to Thanksgiving Day
December 26 - Christmas (observed)

- extracted from http://www.nyse.com/

Cheers !
PersianCat

Quantitative Easing Explained

Found this - a simplified version of the explanation of the QE2. Quite comical.

http://www.youtube.com/watch?v=PTUY16CkS-k

Cheers !

PersianCat (Meoooowwwww!)

9 Reasons Why Quantitative Easing Is Bad For The U.S. Economy

(extracted from thetradingreport.com)

The Fed says that the plan is to purchase $600 billion of U.S. Treasury securities by the middle of 2011.  In addition, the Federal Reserve has announced that it will be “reinvesting” an additional $250 billion to $300 billion from the proceeds of its mortgage portfolio in U.S. Treasury securities over the same time period.

#1 Quantitative Easing Will Damage The Value Of The U.S. Dollar
Each time you add a new dollar to the system, it decreases the value of each existing dollar by just a little bit.  Now the Federal Reserve is pumping 900 billion dollars into the system and that is going to have a significant impact.  Bill Gross, the manager of the largest mutual fund in the entire world, said on Monday that he believes that more quantitative easing could result in a decline of the U.S. dollar of up to 20 percent….

#2 Inflation Is Going To Hit Already Struggling U.S. Consumers Really Hard
Already, investors have been fleeing from the U.S. dollar and other paper currencies and have been flocking to commodities, precious metals and oil.  That means that the price of food is going to go up.  The price of gasoline is also going to go up.  American families are going to find their budgets stretched even more in the months ahead.
#3 Once An Inflationary Spiral Gets Going It Is Really Hard To Stop
The Federal Reserve is playing a very dangerous game by flirting with inflation.  Once an inflationary spiral gets going, it is really difficult to stop.  Just ask anyone who lived through the Weimar Republic or anyone who lives in Zimbabwe today.  If the Federal Reserve is now going to be dumping hundreds of billions of fresh dollars into the system whenever the economy gets into trouble it is inevitable that we will see rampant inflation at some point.

#4 Inflation Is A Hidden Tax On Every American
Tens of millions of Americans have worked incredibly hard to save up a little bit of money.  These Americans are counting on that money to pay for a home, or to pay for retirement or to pay for the education of their children.  Well, inflation is like a hidden tax on all of those savings.  In fact, inflation is a hidden tax on every single dollar that all of us own.  We have been taxed more than enough – we certainly don’t need the Federal Reserve imposing another hidden tax on all of us.

#5 The Solution To The Housing Bubble Is Not Another Housing Bubble
Today, approximately a third of all U.S. real estate is estimated to have negative equity.  The Federal Reserve apparently believes that by flooding the system with gigantic sacks of cash banks will start making home loans like crazy again and home prices will rise substantially once again – thus wiping out most of that negative equity.

But the solution to the housing bubble is not another housing bubble.  The kinds of crazy home loans that were made back in the middle of the decade should never be made again.  Market forces should be allowed to bring the housing market to a new equilibrium where ordinary Americans can actually afford to purchase homes.  But that is not how our system works anymore.  Today, everything has to be manipulated.
#6 More Quantitative Easing Threatens To Destabilize The Global Financial System
We have already entered a time of increasing global financial instability, and the Federal Reserve is not going to help things by introducing hundreds of billions of new dollars into the game.  Over the past two decades, bubble after bubble has caused tremendous economic problems, and now all of this new money could give rise to new bubbles.  Already, we see financial institutions and investors pumping up carry trade bubbles, engaging in currency speculation and driving up commodity prices to ridiculous levels.
#7 Quantitative Easing Is An Aggressive Move In A World Already On The Verge Of A Currency War
Quantitative easing will likely help U.S. exporters by causing the value of the U.S. dollar to sink.  However, this gain by U.S. exporters will come at the expense of foreigners.  It is essentially a “zero sum” game.  So all of those exporting countries that are already upset with us will become even more furious as the U.S. dollar declines.  Could we witness the first all-out “global currency war” in 2011?

#8 Quantitative Easing Threatens The Status Of The Dollar As The World Reserve Currency
As the Federal Reserve continues to play games with the U.S. dollar, quite a few nations around the globe will start evaluating whether or not they want to continue to trade with the U.S. dollar and use it as a reserve currency.

#9 It Is Going To Become More Expensive For The U.S. Government To Borrow Money
Right now, the U.S. government has been able to borrow money at ridiculously low interest rates.  But as the Federal Reserve keeps buying up hundreds of billions in U.S. Treasuries, the rest of the world is going to start refusing to participate in the ongoing Ponzi scheme.

Peter Schiff, the CEO of Euro Pacific Capital, says that one of the big reasons for more quantitative easing is because the U.S. government is already starting to have difficulty finding enough people to borrow from….

At the end of the day, all this deflation talk is a red herring. The true purpose of QE 2 is to disguise the decreasing ability of the Treasury to finance its debts. As global demand for dollar-denominated debt falls, the Fed is looking for an excuse to pick up the slack. By announcing QE 2, it can monetize government debt without the markets perceiving a funding problem.

But the truth is that foreigners are not stupid.  They can see the shell game that is being played.  As Bill Gross noted on Monday, U.S. government debt will soon become a lot less attractive to foreign investors….

QEII not only produces more dollars but it also lowers the yield that investors earn on them and makes foreigners, which is the key link to the currencies, it makes foreigners less willing to hold dollars in current form or at current prices.

As foreigners begin to balk at all of this nonsense, the U.S. government will either have to start paying higher interest rates on government debt in order to attract enough investors, or the Federal Reserve will just have to drop all pretense and permanently start buying up most of the debt.  Either way, once faith has been lost in U.S. Treasuries the financial world will never, ever be the same.

Most Americans have absolutely no idea how fragile the world financial system is right now.  Once the rest of the world loses faith in the U.S. dollar and in U.S. Treasuries this entire thing could completely unravel very quickly.

The Federal Reserve is playing a very dangerous game.  They are openly threatening the delicate balance of the world financial system. Once the toothpaste is out of the tube, it is really hard to put it back in again.  Cross your fingers and hold on tight, because things are going to get really bumpy ahead.

3 scenarios after the Fed Decision today

What's QE2? It is not Queen Elizabeth the 2nd. It did remind me of a cruise liner called the QE2. 

The U.S. Federal Reserve will be making an announcement of its meeting today at 2:15pm EST. QE2 or the 2nd round of printing more money had been priced in by the various markets such as stocks and forex.

The stock market major indices such as Dow Jones 30, S&P 500 and Nasdaq Composite, had been hovering at or near the 2010 April Highs (a strong resistance level).

In the forex market, the U.S. currency had been weaken against most of the currencies such as European dollars, British pound and Australian dollars.

In brief, the following scenarios could happen today:

1.   The Fed will say nothing new and continue delivering the message that if they see the economy weaken they will step in with quantitative easing (i.e. printing more money). Then it is likely that the U.S. stock market will drop significantly. The U.S. dollar could possibly significantly strengthen against the Euros, pound and Australian dollars.


2.  The Fed does take action and announces QE2 but less than the expected plan where the Fed will buy about $100 billion in Treasuries a month, possibly for the next 12 months. Then it is likely that the U.S. stock market will drop significantly (may be not as drastic as the above scenario). The U.S. dollar could possibly significantly strengthen against the Euros, pound and Australian dollars.

3.  The Fed takes action and comes in line with what Wall Street is expecting or maybe even more. The outcome is trickier as the market could either rally or sell off. It could rally because of the size and scope of $100 billion a month is so inflationary, everyone will want to put their money into stocks and commodities. We could see a market sell-off as the market had "bought the rumour and is now selling the news". It is then likely that the market is extremely volatile for the 1st half hour after the Fed announcement. The forex market could react the same way.

It would be a very interesting night.

Cheers !

PersianCat (Meow!!!)

U.S. Mid-term election results

In brief (as at Wednesday, 3am EST or 3pm SG time):

• House (Republican majority)
• Democrats 180 (before 256)
• Republicans 233 (before 179)
• Senate (Democrats majority)
• Democrats 49 (before 57)
• Republicans 46 (before 41)
• Governor 
• Democrats 15 (before 26)
• Republicans 27 (before 24)

The S&P futures showed a muted response to the results so far. As most analysts seem to agree, the election result is given or goes as expected.  The market is then focused on the Fed decision today on the quantitative easing or printing more money. While the ADP non-farm payroll results will be out at 8:15am EST, the movement of the market is likely to be limited unless the results are very significantly different.

Cheers !
PersianCat (Meow!!!)

AAPL Quarterly Earnings Details - Oct 2010

The Quarterly Figures ended Sept. 25:

• Profit of $4.31 billion, with revenue of $20.34 billion. That compares to a $2.53 billion profit on sales of $12.21 billion for the same period last year.
• Earnings of $4.64 per diluted share against analyst expectations of $4.06 a share on $18.86 billion in revenue for September quarter.
• Sold 4.19 million iPads; it was the company’s first full quarter of iPad sales. (Note that iPad sales fell short of analyst expectations of between 5 million and 6 million)
• Sold 14.1 million iPhones, fueled by the launch of the iPhone 4. By comparison, Apple says smartphone rival Research In Motion sold 12.1 million phones during its most recent quarter.
• The iPod segment continues to shrink, with Apple selling 9.05 million music players during the quarter -  that’s an 11-percent drop from last year’s figures.
• Sold 3.89 million Mac computer, up 27 percent from its year-ago sales. That’s a new record for Mac sales. Laptops account for 71 percent of the Macs sold during the September quarter. Sales of desktops rose nearly 28 percent to a little more than 1 million units.

•  Nearly half of Apple's revenue - $8.8 billion - came from the 14.1 million iPhones it sold
• Apple earned $14.3 billion in revenue from iPods, iPhones, iPads, and iTunes downloads, representing 70 percent of the company's revenue for the quarter.
• AAPL is sitting on slightly less than $41 billion dollar cash hoard

Cheers !

Inverse Head and Shoulder formation

The downtrend since April 2010 for the major indices was broken when the August high was breached.
The major indices look like they are forming a Inverse Head and Shoulder formation with the current price already broken its neckline.

SPY (5 Oct 2010)

SPY, the ETF for S&P500 also has similar Inverse Head and Shoulder formation. If the formation continues its form, the SPY and the major indices are on the way up. Baring extreme negative conditions, it is likely to be so. As a Head and Shoulder formation has a measured move, the target price is around $125 ($9 to go). Be mindful that the U.S. mid-term election is going to be held in November. The market is likely to be going up till the election as it expects the Democrats to be denied of the majority. Thereafter, we shall see.

In Singapore, there will be a general election by Feb 2012. The market in Singapore is also expected to be up until the general election. Though the electoral boundaries are not finalised, it can be done one day before the nomination day. As for the possible election dates, it could be:

• As soon the primary school year-end exams are over (as new primary schools a now rather large, the elections dept need not use Secondary Schools & Junior Colleges for Voting & Counting venues) but after the mourning period (if there is any) is over for PM's family over the death of MM Lee's wife
• Soon after the GCE 'O' and A' level exams
• Anytime in Jan to Feb 2011

Cheers !

PersianCat

Market Indices at the crossroads




S&P500 Index

 




Dow Jones 30 Index

 


NASDAQ Composite Index

 

The 3 major indices (Dow Jones 30, NASDAQ Composite and S&P500) are all near the Aug 2010 High. A close above the Aug 2010 High will symbolise the end of the current downtrend since April 2010. Whether that happens remains to be seen. What's important is that the markets are near its strong resistance level and itself presents a good trading opportunity.

Note that the current earnings season is ending and a new season starts in Oct.

Cheers !

PersianCat

Jewish Holidays in September

In September, there are a number of Jewish holidays with "no work is permitted" ruling. On these days, the market volume for equities, futures and forex are expected to be significantly lower. The "no work is permitted" days are:

• Rosh Hashanah - Sunset of September 8 through nightfall of September 10
• Yom Kippur - Sunset of September 17 through nightfall of September 18
• Sukkot - No work permitted on Sep. 23 - 25
• Shemini Atzeret -  Sunset of September 29 through nightfall of September 30
• Simchat Torah - Nightfall of September 30 through nightfall of October 1

Trade with care.

Cheers !

PersianCat

SPY - Commentary 23 Jul 2010

SPY broke and more importantly closed above the mid-July high. If it remains above that level on Monday, I will abandon my bear position for now.

Cheers !

PersianCat

Citibank Play

I like the new Citibank - a bank which has promised not to be involved in proprietary trading and resume its role as a traditional bank. A traditional bank would not make humongous profits (and can lose humongous money too!) but it should make good profit and minimise itself from future financial meltdown. I have not invested in Citibank yet as I am closely monitoring the US govt sales of its shares in Citibank. Here are the current statistics (as at 23 July 2010):

• US govt received 7.7 billion shares of Citigroup common stock in 2009 when the Treasury exchanged the $25 billion in preferred stock it received in connection with Citigroup's participation in the TARP Capital Purchase Program. The exchange rate used in the conversion puts the government's cost at $3.25 per common share.
• The Treasury has already sold 2.6 billion Citigroup shares in two separate trading programs, grossing $10.5 billion in proceeds. The sales have brought the Treasury's stake in the bank down to 18% from a prior 27% level.
• The Treasury has authorized Morgan Stanley (MS), its sales agent, to sell an additional 1.5 billion Citigroup common shares.

Market participants have speculated that the U.S. Treasury would like to be fully exited from its stake in Citigroup by the end of the year.

Based on the US government's cost at $3.25 per common share, I believe that it would not sell below that price. That price (slightly above) is now my benchmark for consideration for investing (not trading). They are 3 good ways to play this game:

1. Buy the shares around $3.25 (around 50% Fibonacci level) or $3.65 (around 38.2% Fibonacci level)
2. Sell the $4 Put (a few months away). The idea is to collect the shares at $4 minus the Put option premium collected. If the options expires worthless, then collect the premium fully. This is one of Warren Buffet favourite strategies.
3. Buy the Call (preferably leaps)

Of the 3 ways above, I am more inclined for now, to play the Sell Put strategy.

[Update! - 8 Dec 2010. The government announced late on Monday that it was selling its remaining stake of 2.4 billion Citigroup shares, at a price of $4.35 per share, and booking a total profit of $12 billion. ]

Cheers !

PersianCat