Seeking Alpha by Adding Beta

From tomorrow, we have holiday shutdown at work. This is only way to get many folks in valley away from their work and computers. Overall this holiday season and December in particular is shaping up very well. Let's look at few factors to feel positive about new year. Politics: This may be one of the most productive few weeks in US congress history. President Obama after getting  shellacking in Nov elections bounced quickly by taking pragmatic approach and got three key victories: Tax-deal - while republicans must be happy that they got their wish of extending tax-cuts for wealthy, real winner is President and American Economy. With one swoop, economy got back-door stimulus of over $800 Billion. Who would have thought this could happen so soon Repeal of "Don't ask, Don't tell" policy - this is also significant victory for Obama since this was one of his election promise and it was overdue Ratification of Start Treaty - this was another major foreign policy

President Obama made smart move last week by cutting tax-deal with republicans. It was a good compromise on multiple fronts: While President had to compromise in agreeing to extend tax-cuts for wealthy Americans, he got good concessions on extending unemployment benefits by 13 months and payroll tax-cuts for everyone Removes uncertainty which was facing economy and markets Adds much needed nearly $900 Billion stimulus with this compromise. This would give a good boost to economy. Already many economists are raising 2011 growth forecasts by 1/2 point to 3.5% Markets have welcomed the move by continuing the Santa rally last week With Fed's $600 Billion QEII and Obama's tax-cut extension of $900 Billion, that's significant boost to economy nearing about 10% of total economy size  Fears of deflation and double-dip are gone - this is clearly evident with wild rise in 10-year treasury yields from low of 2.33% in Oct to 3.33% last week. (good that I had invested on this mov

The Santa Claus rally in stock markets began in earnest last week when all major US indexes went up by close to 3%. This is despite digesting lot of bad news coming from European debt crisis and US unemployment report. If markets can rally on bad news, imagine what can happen when good news start coming. As always stock markets are normally ahead of economy by about 6 months and it is expecting economy to pick up early next year. Retail sales on Black Friday and Cyber Monday were much better than expected. The momentum should continue for next three weeks. People are tired of "not able to enjoy" and hence they are willing to spend little more during this holiday season on themselves. Let's look at some of the catalyst for markets to keep going: Europe which is fast becoming "bailout" continent puts its house in order by expanding it's stability fund over trillion euros Obama and republicans extend Bush tax-cuts for 2 years and also extend unemployment b

Much awaited QEII announced by Fed under which Fed is planning to buy $600 Billion worth of short-term treasuries. While this is definitely essential to support recovery and overall economic, immediate impact was sudden rise in 10-year treasury yield. These yields have jumped from low of 2.33% to 2.96%. That's HUGH jump within 2 weeks. I am not surprised with this rise. What I was surprised was sudden rise. Let's understand potential impact of QEII in next 6 months and how one can position to make investment gains: Possible impact of QEII: It should achieve its intended result which is to support economy. It should grow between 2 to 3% in Q4VY2010 and closer to 3% in first half of 2011 Unemployment should start inching downwards but not by too much. I still see it hovering between 8-9% for most of next year which is not good for US. But Fed can do only so much about it Housing prices should stabilize at current levels. May start to see rise of less than 1% in prices in

Now that most exciting week of 2010 is over with some expected results, it's time to take stock of what happened during the week. Mid-term elections are over with results on expected lines. Republicans won house in big way while democrats managed to keep senate majority by thin margin. It was definitely a big defeat for Obama as he himself put, it was "shellacking". This was not the first time President's party got big drubbing in mid-term elections in his first term and still went on winning second term. Let's look at each one of them in last few decades: Truman:   In the 1946 US Congressional election, the Republicans regained control of both the US Senate and US House of Representatives, as a result of President Truman failing to handle the vast post-war labor strikes. However Truman went on winning 2nd term in 1948 and democrats gained back control of house   Reagan:   The conservatives (whom Reagan backed) lost a substantial number of seats in Congress

First week of Nov 2010 would be arguably most exciting week of this year for following reasons: Monday: Week would start with news from Brazil about results from runoff election for President of Brazil Tuesday: Mid-term elections which could set course for American Politics and possibly where America is headed for next decade Wednesday: Federal reserve bank meeting to decide size and timing of QEII which could decide course of American economy for at least next 2-3 years Wednesday: World Series Game 6 - most likely SF Giants would claim their first world series win reviving sports enthusiasm in Silicon valley after long time Friday: Jobs report for month of October which should give an indication if employment is stagnant or making some progress Friday: Happy Diwali for all Indians ! Saturday: Obama's visit to India - crucial both for India and Obama who would like to forget democratic party losses in election and instead enjoy warm Indian hospitality Very few times s

What do US mid-term elections and Baseball world series has in common ? Few things: For US adult population, both are interesting discussion topics especially as Nov comes near This year, World Series is almost like elections between Democrats and Republicans with SF Giants representing Democrats and Texas Ranges representing Republicans. You cannot have better distinction than these two teams to represent their state's political affiliations Next week would be quite interesting with elections results on Nov 2 and Game 6 (most likely decisive one) on Nov 3 I am no baseball fan or expert, but would go ahead and take  chances on predicting: Giants would win world-series most likely in Game 6 or Game 7 - whoever wins would be their first win as SF Giants or Texas Rangers (Giants have won in past but as New York Giants) Democrats would keep senate majority by slim margin (52-48) while Republicans would gain control of house by about 5 seats Barbara Boxer would keep California se

By all means Apple had a blockbuster quarter with its first $20 Billion quarter. There are so many things to like about Apple's latest quarter: First $20 B quarter Over $4.6 Billion in net profits Beat earnings estimates by over $500 million Over 14 million iphone sales Revenue forecast for holiday quarter of over $23 Billion. I won't be surprised if holiday quarter crosses $24-25 billion in revenues for Apple No wonder it's stock was trading at all time high near $318 and it was second most valued company in America and most valued technology company in world ! Ok - but that was about past and as we all know, investors like to know what's in future. There are some concerning trends in same report: ipad sales were less than expected. Many folks were expecting over 5 million units. It came in around 4.2 million units. Not bad for any other company considering this was brand new category which did not exist just few months back. However since expectations were so

Finally DOW reached and closed above 11000. I predicted this back in June.  Even though my timing was off by about 3 weeks, my trend prediction was correct (which did help in my portfolio). Now that DOW has crossed 11000 once more (it has crossed so many times in last 11 years) - what's in store for last quarter of 2010 ? There are some interesting trends in market which are worth watching. Currencies: It is like race to the bottom . All countries are making all subtle and not-so-subtle efforts to make sure that their currencies are weakened so that they can grow by exporting to all other countries. This works only if one one or few countries do it. But if everyone does it, it's lose-lose situation unless we can find another planet to export to:-) Gold and commodities: Since all currencies are racing to the bottom, some folks are losing confidence in "fiat" money and instead putting their money in gold and other commodities essentially creating a "gold&quo

Two Sundays, two movies: Wall Street: Money Never Sleeps and The Social Network. Both had my interesting topics. But the movies turned out to be quite different. Wall Street was boring movie with very loose script and no-where near original Wall Street which came out in 1987. The Social Network which originally I was planning to see only on DVD but went due to one of friends insistence turned out be an excellent and very well made movie. Script by Aaron Sorkin was the key to very good movie. I am no movie critic but I would recommend watching The Social Network and passing Wall Street ! We are in final quarter of 2010. The earnings season should start earnestly this week. What's in store for Q3 earnings and Q4 forecasts and how would markets react to those ? Here are some of my predictions for Q4 and year end ! Corporate earnings would be good even though forecasts would continue to be cautious. In general more companies would have upside in earnings than downside Q3 GDP w

Last week two very important earnings from technology companies were published - ORCL and RIMM. Both beat earnings handily. But while Oracle stock went up by 8%, RIMM has resumed its downward slide. Despite having excellent products in fastest growing category of smart-phones, RIMM is at a point where it needs to seriously consider merger with bigger company fight against Apple and Google Android onslaught. Who would be best fit ? There are 2-3 companies which could fit the bill but here is one investment thesis which would address issues faced by both Microsoft and RIMM. Here are the reasons why Microsoft should buy RIMM: Both these companies are focused on enterprise market  Both have common enemies - Apple and Google and both are struggling to compete against these two  Both companies have complementary products with Microsoft dominating desktop/laptop market and RIMM dominating enterprise mobile market Microsoft Windows Mobile is not a success when compared with iOS (from

Election fever is rising with elections only about 6 weeks away. It's time to check out its potential impact on markets. Tea party backed nominee winning in couple of primaries - especially Christine O'Donnell in Delaware woke up GOP. This would only make GOP to become more conservative and give a slight hope  to democrats to revive their slumping election fortunes in Nov. Here are my predictions how elections results would turn out: Republicans taking control of house by a slim single-digit minority Democrats losing fee senate seats but keeping control of senate Obama remains president (no elections till 2012) This means that we will have a divided government in Washington similar to 1994. Is it good or bad when it comes to stock markets ? I think divided government (aka Gridlock) would be good for stock markets for following reasons: No one side would dominate and uni-laterally push their agenda.  All three branches would have to work together when it comes to budget

As predicted in last week's blog, 3PAR saga ended with HP winning the bid at $33. However in the race to win 3PAR at any cost, it ended up paying at least half a billion more. Only time would tell if HP was winner or loser in this race. Potash saga would continue for few more weeks - just read news that Chinese state companies (Sinochem etc) may be preparing a counter-bid for Potash. It would be interesting given price tag would be over $40 Billion So who is next "hunted" in the hunt which has started in last few weeks. Here are some of my predictions - these companies could get "hunted" and get acquired in next 2 years (CP: Current Price, PTP: Potential takeover price) Blue Coat - BCSI (CP: $21.50 ; PTP: over $30) Compellent - CML (CP: $18.50 ; PTP: over $25) Brocade - BRCD (CP: $5.60 ; PTP: Over $8) Symantec - SYMC (CP: $14 ; PTP: Over $19) Sprint Nextel - S (CP: $4 ; PTP: Over $6) Regions Financial - RF (CP: $7 PTP: Over $10) Synovus Financial - SN

One of the most anticipated talk by Fed chairman Ben Bernanke gave Friday boost to markets but still it ended in red for the week. This is 4th down week for markets and gave almost all the gains it made in July.  Now every word from Fed chairman and other members of fed are watched carefully to understand where is economy headed and how Fed would react. Bernanke's "unusual uncertainty" could be remembered similar to Greenspan's "Irrational Exuberance" comments in 1996. Final revision of GDP for Q2 came in at 1.6 % which was better than some of the worst fears. So what's in store for Q3 and Q4 since this is what would decide if markets are breaking from trading range. Based on my observations (while back-to-school shopping for kids), retail sales seem to have picked up - at least traffic in shops like Target/Walmart has increased during this season. The all important holiday shopping season is coming soon. It should be relatively ok shopping season. I a

Summer of 2010 is almost coming to end with labor day (un-official end of summer in US). Kids are back in school. Markets are trading water around same level as start of 2010. After peaking in Apr 2010, summer was mostly about few weeks up and then few weeks down - some professionals call it as risk-on and risk-off. Bond markets and stock markets are diverging. Yields on 2-year and 10-year T-bills (as wells as UK Gilts and German Bunds) are reaching all time lows. Few weeks back I wrote about treasuries in bubble when yield on 10-year fell to 3%. Since then it has dropped below 2.60 and heading below 2.50 very soon - looks like my short-term timing is wrong since treasuries has gone up by 7-10% since then. However I still stand by prediction about long-term that treasuries are headed for a fall (with yield going above 3% by year-end). Basically bond markets are saying that we are heading towards double-dip. Stock markets are pricing in very modest recovery (below 2%). Hence they ar

Blackstone bought Dynegy with nearly 62% premium. What did Blackstone see in DYN which markets could not see for last few years since all power producers have been in rut since Enron saga ? Is it time to look at some of these independent power producers and utilities ? The investment logic goes something like this: With economy eventually growing, there would be higher need for power thus increasing demand for power / energy Creating new power plants cost quite a bit of capital which is not easily available With Blackstone deal, there would be more companies / PE firms looking at these companies  These companies have steady cash-flow They are trading dirt-cheap compared to their book values Here are couple of companies worth taking a look with potential of 20-30% return over 12-18 months: RRI ($3.5) or MIR ($9.80) - both these companies merging to produce a power producer with over 24000 MW. Both are trading at about 35% of book value NRG ($20) - With over 21000 MW capacity,

After having best month in a year, one starts wondering - what's in store for August for markets ? There are quite a few positives for markets to keep on inching towards DOW 11000 over next 5-6 weeks. Here are some of those: European mess seems to be over at least for now with Euro over $1.30, I am sure Europeans would enjoy their summer holidays in August US GDP growth came in at 2.4 % which is lower than expected but much better than sub-par recovery (with growth of less than 1%) and puts "double-dip" fears at rest (for now) Company earnings came out much stronger than many have expected across the world - this bodes well for second half Shippers (Fedex/UPS) have raised their full year earnings guidance and these are best companies for understanding economic activity across the world Many emerging markets (except China) are trading near their YTD highs - good for developed markets to catch up  So for now, except unemployment report which would be out next Friday

Markets have been really looking for direction - one week up, one week down. 3 weeks back, DOW had a great week with over 500 points gain, then it was down again and up again last week. After having this roller-coaster ride, DOW is back to where it was at start of 2010. So that begs the question - where is market really headed ? Since I am history buff, I went back and checked recent history of DOW returns when economy was coming out of recession but not sure if recovery would be sustainable or not ? Here are two years which I found similarities with 2010: 1994: DOW start (3754) end (3834) Return: 2.13% 2004: DOW start (10409) end (10783) Return: 3.5 % - this is after it had a major run in 2003 With this brief history lesson, most likely DOW would return about 5% in 2010 and end year between 10700 to 11000. However in next 5 months there would be significant volatility as markets inch towards year end and await for election results. It's great to see closure on many key it

Congratulations Spain for winning the Soccer World Cup first time and becoming 8th nation to join exclusive club of world cup winners. Congratulations Paul the Octopus for correctly predicting all results of all Germany matches and outcome of semi-finals and final. It's really amazing to see 100% record on predictions. In all, it was a great world cup and I enjoyed watching these matches with friends (even though India was not playing and US was out before quarter-finals). I was rooting for Spain for two reasons - they were really playing excellent and other reason is Spain as country needed this win to boost their confidence and along with it's confidence. Spanish economy which is 3rd biggest in Europe is important for European as well as World economy ! Now that world cup is over, I am looking forward to earnings season which should start from tomorrow with Alcoa announcing earnings on Monday after market close. Markets are at crucial juncture and looking for direction. It

Looks like Soccer world cup mania is building up to such extent that we have to look to Paul The Octopus to predict what would happen in these matches. Evidently Paul, a Octopus has till now correctly predicted results of 5 matches in which German y played (before the match:-). Now the real test would be next semi-final match between Spain and Germany. Who needs referees when you have Paul the Octopus - anyway, referees are not doing a very good job in this would cup ! It was disappointing to see both Brazil and Argentina crash out of Would Cup. But Germany was definitely a much better team on Saturday and deserved the big win ! It's good to see Spain win on Saturday just few minutes before match end. I hope Spaniards have celebrated which may help country's economy and prevent it from getting downgraded by Moody's. Last two weeks in particular and Q2 in general was very brutal who has invested in stock markets. Not only all gains of Q1 got wiped out but Q2 also took ma

Last week was a downbeat week for stock markets when major world stock indices fell by more than 3% in one week. At same time, treasury market was going up with yield on 10 year US treasuries touching 3.08 at one point. There are multiple factors in play on why investors are willing to buy treasuries when everyone knows that US deficits are unsustainable and if not for US $ as "reserve currency", US case is worse than Greece. So why treasuries keep going up (and yield going down) ? Here are some factors: Flight to safety - investors have to park their money. With Euro and Yen in trouble and no other alternative (except Gold), governments as well as big investors have to park their money and at this moment there is only one alternative which is US treasury US $ status us world reserve currency AAA rating of US government - US has never defaulted in recent history When stocks are going down, 3% assured return is not bad Despite stocks going down in recent weeks, investors are s

I returned to USA last week and coming back to my normal life. Tomorrow is official start of Summer and good time to make forward looking predictions for market direction. Last 2-3 weeks, markets have been consolidating between 10K and 10.5 K and almost looking confused about its direction. But now that Euro crisis seems to be understood (but not solved), markets can find some footing and start looking forward to Q2 results. Now that we are past dreadful May month, there is upward bias in markets and my prediction is that DOW would cross 11000 before summer ends on Sept 21. Here are the reasons for my prediction: Debt crisis of Europe in general and PIIGS in particular seems to be coming under control and doubts of viability of Euro have subsided. This is visible from Euro almost touching $1.24 after touching 4 year lows of $1.18 Growth story of emerging countries - in particular of China and India is very much intact. I have personally seen all the excitement in Indian economy during

I am glad that May is over. It is one of the most terrible month personally for me. My dear father passed away at age 69 due to post-surgery complications on May 16. If you are around Pune and had to go to hospital, AVOID Ruby Hall at all cost. It is one of the worst hospital in terms on post-operative care. I wish someone had warned me about this before my father's bypass surgery. Please spread the word about avoiding Ruby Hall, Pune at all costs for any treatment ! It has been 2 weeks since my father passed away - myself and my family are coming to terms and returning to our normal lives. Life would never be same when you lose someone dear to your heart and has been an inspiring figure all your life. But life must go on ! I am so looking forward to forgetting this dreadful month of May 2010. Coincidentally it is worst May month since 1940 with 8% monthly loss. I never thought my prediction about "Sell in May and walk away" would be so right on target. I wish it did

Market action in first week of May gives new meaning to English word "mayhem". Dictionary meaning of this word is: needless or willful damage or violence. The afternoon action in stock markets on Thursday May 6 was so true to this dictionary definition. It was indeed needless/willful damage to the confidence which was just getting started to build up. Many folks are still searching for answers what exactly happened at 2.45 pm EST on May 6 when DOW had its biggest intra- day points loss in its history ! I was amused that my previous post about selling in May would be so much on target - unfortunately when it comes to selling, I don't follow my own advise ! Storms were building for this fateful day for last few months with slow and erratic European response to Greek debt mess. Now the problem has become much bigger since contagion virus has spread to other European nations and may cross to other nations outside Europe. Unless Europe acts decisively over this weekend and

Looks like there are various G-forces holding down the market from taking off beyond 11000. First of all, blame it on PGS (Portugal, Greece and Spain) of " PIIGS " club for bringing down markets due to rating cut. But let's look at these G-forces which are in work: Greece: It has been in news for last 4-5 months and due to structure of EU, there is no quick closure on this. Now that it has only 2 weeks left, Europe better hurry up to help Greece avoid default which may lead to end of Euro as we know it. If Greece defaults, contagion would very quickly spread to other nations in PIIGS and many other nations outside Europe. This could be repeat of 2008 with difference that this time it would be nations defaulting (instead of corporates). Europe needs to have its own TARP for it's member nations and that too very quickly ! Goldman: Since SEC filed civil suit of fraud 2 weeks back, Goldman cannot catch a break. After senate hearings, now there are talks of criminal suit

Finally IPL mania is over with IPL final played between Mumbai Indians and Chennai Super Kings. Considering IPL is only in its 3rd season, the level of excitement it has created both due to exciting cricket and off-the-field politics, corruption and celebrity involvement, I won't be surprised if it takes similar level as Superbowl in USA. We had few friends at our place to watch IPL final - most of them from Maharashtra were supporting Mumbai Indians. So it was little dis- appointing that Mumbai lost to Chennai - but looking at today's game, Chennai deserved to win today's game. Overall it was great IPL season. By rough estimates, IPL with its 60 matches create economic activity of close to $1.5 to 2 billion per year ! Good for Indian economy. Last week of 8 th week when DOW had positive week. I was surprised at the strength and positive momentum markets had especially on Friday last week despite upcoming financial reforms and GS/SEC saga. Regional banks were v

Looks like old wall-street saying about "Sell in May and Walk Away" could be more applicable this year considering following factors: Markets have seen best rally in 7 decades with all major indexes up by over 70% in one year Major indexes have crossed key psychological levels of DOW 11000, S&P 1200 and Nasdaq 2500. Many investors must have kept these as key levels where they were thinking of selling Financials could be in trouble again with all the "sins" catching up with them - Goldman Sachs fraud case could be first of many to come. This could shatter confidence once again in wall-street and banks While corporate earnings till now have been excellent, economy is still in delicate stage. It is possible that these earnings could be one-two quarter phenomenon before comparisons with 2H2009 would start kicking in Unemployment still over 9.5% SEC case against Goldman Sachs was interesting in many ways - but most importantly it highlighted that regulators have fin

Finally I got my MINI Cooper S - check out my new car and sold my beloved Toyota Camry which I used for 12 years without any major problems. We had fun ride to Livermore Temple and now I can drive it on regular basis. Next week seems to be exciting week for markets - my prediction is that finally DOW would cross and close about 11000 tomorrow and S&P would cross 1200 sometime this week. Now that Europe has come to terms and helped set up emergency fund of $40B for Greece, markets should be assured that Greece won't default and Euro is here to stay. This is big positive for markets. Earnings should be very good with Alcoa announcing tomorrow and major banks in next 4 days. Last year was the season of write-downs - I won't be surprised if banks start announcing "write-ups" (if there is term like that). This should not only help reduce banks losses but also help improve their capital positions. Most of the big banks ( BAC , C, JPM , GS) and their regional brothers (

Mr President was on roll for second week - he made some more key moves in the game of politics for to push some of his key domestic initiatives (for good of country I must say). Now that health care is out of way, he puts his focus on Energy Policy. This is as important to America as health care . America imports nearly $500 B worth of energy from outside and any dent in this bill would help address trade imbalances. Here are key steps Obama took to start addressing energy issue America is facing: Opened up vast areas to start drilling again - by sharing revenues with states, state governments who are in desperate need of additional revenues would be more open to this Increase CAFE standards for higher mileage for cars from 2016 Additional focus on clean coal, nuclear energy Changing vast fleet of government vehicles to hybrid, Eco -fuel equipped These are small steps towards a very big policy initiative of "cap-n-trade". If congress can pass even minor version of "cap-

Congratulations Mr. President on enacting health care law which America needed and was in works for last 6 decades ! After setback of Mass senate elections in Jan, everyone had almost given up on health care reforms for few more decades. But Obama took charge of overall game-plan and led from front to get health care reforms done. This week was the the best week in Obama's presidency with following key achievements ! Health care reforms done - this goal eluded for all previous presidents and Obama would be remembered for this in same way as FDR for enacting Social Security and Lyndon Johnson for enacting Medicare for elderly ! Major arms reduction treaty with Russia Some tough talking to Israel's prime minister about settlements in Jerusalem Proposal of using some TARP money to help struggling home-owners Financial Reform bill getting momentum and has potential to get it done in next 2-3 months Lot can be done when Obama leads from front and Congress gets a taste of win !

IPL (Indian Premier League - cricket's equivalent of NFL) started its third season with a bang. It's fun watching cricket in India. I would be able to see couple of IPL matches on TV. I am rooting for Mumbai Indians - Sachin Tendulkar being in top form should help it get into Semi-finals. Markets are holding onto gains made in last couple of weeks with each of last three sectors I recommended (Energy, REIT and Banking) making significant gains. Now onto my next sector recommendation: Insurance Sector: This sector is kind of proxy for asset valuations since companies in this sector invest policy premiums in various kind of assets ranging from bands from banks, REITs and government bonds. Many companies in this sector were on verge of bankruptcy in 2008-2009 - AIG being the biggest and well known company. Now that asset valuations have stabilized and many companies have fixed their valuations, there are many stocks in this sector which could return 50% in next 18-21 months