Seeking Alpha by Adding Beta

Nasdaq is at 10 year high. Almost all "pundits" on markets are way too optimistic. It's almost feel like 1995-1996 when Fed Chairman at that time Alan Greenspan famously quoted about "Irrational Exuberance" in markets. It was another matter than markets keep on drinking the "new Internet age" cool-aid for another 3 and 1/2 years before bubble burst. Greenspan was 3 years earlier in his prediction. One of the reason was his own policies at fed which caused this bubble. IMO we are seeing similar signs of "Irrational Exuberance" in markets at least for last few weeks. However it is not clear if this would go on for another month, year or week. To be frank, at this time, I cannot predict short-term move by markets. Markets can be insane longer than one think (both on upside and downside) ! Here are the reasons I feel markets are due for correction: Geo-political risks in Middle-east which could cause oil to jump European debt problem - two (I...

There are not too many historic moments one get to see in their lifetimes. One of such moment came this week when Egyptian President Hosni Mubarak resigned after 30 years of rule ! Congratulations to all of Egyptians for this historic moment ! 2/11 would have same kind of profound significance in Egyptian history as 9/11 has on American history. I was glad to see the peaceful revolution of 18 days and final outcome. There was every possibility that outcome at Tahrir Square could have been similar to another Square starting with "T" 22 years ago. But Egyptian Military had displayed great level of maturity and sensibility in handling this revolution. We all hope that they continue to display this going forward and take this moment to make some real changes which could lead to overall reforms not only in Egypt but also in Middle-East. Markets continue to show great level of resilience despite so much turmoil and un-certainities in Middle-East. Even though oil went above $90 ...

Congratulations Green Bay Packers and Aaron Rodgers for winning 4th Super Bowl and 13th NFL championship. It was well deserved win over Steelers. In every aspect, Packers played a superior game and deserved to win. Congratulations to Aaron Rodgers who was major force in this win - being a Cal alum, it was a great pride that another Cal Alum has gone into history books with his performance. I was just checking how DOW performed when Packers won Superbowl in 1967, 1968 and 1997. Each of those years, DOW was up by about 10% or more. This is good news for 2011 (if you believe in such co-relation). If we go with this co-relation, we should see DOW go up by 10 plus % in 2011. It is already up by 5% so another 5 plus % in 11 months is not that difficult. Markets have big tail-winds behind them. Despite revolt in Egypt, markets are quite resilient and taking news coming out of Egypt in stride. In fact, Energy stocks are on rise in last two weeks giving a big boost to all indices. On simila...

I watched President Obama's 2nd State of Union speech of members of congress. Overall it was good speech. Nothing spectacular but good confidence building speech. President tried to define this generation's  "Sputnik" moment but did not get same level of excitement which he must have expected. His overall focus on jobs, clean energy, education and tax reforms was indicative of his priorities for next two years. No more big policy initiatives like health-care bill. Being pragmatist, he took voters message and changed the course of his presidency. After watching him, I am pretty confident that he would win 2nd term ! Fed as expected announced to keep QEII on and interest rates low for extended period. No surprise there. With an acknowledgment to recovery gaining momentum and commodity prices rising, it is opening the door for first interest rate hike towards end of year. If GDP growth for last quarter and next two quarters come close to 3.5%, I won't be surprised ...

JP Morgan started the earnings season with a big bang - it earned over $17 Billion in 2010 ($4.8 Billion in Q4 itself). This is just after 2 years when many of these banks were teetering on verge of vanishing or falling under government control. This bodes well for earnings due from other banks in next two weeks. What are the catalysts for this earnings boost  which is expected to be over 30% compared to Q42009 across banking sector ? Here are my thoughts: Say thanks to Ben for keeping interest rates at historically low rates for extended period. When banks can borrow below 1% and give loans anywhere between 4-10%, that's big spread giving major boost to earnings. This "golden" period would continue for another 2-3 quarters since Ben (Bernanke) has promised to keep rates low till unemployment shows significant progress (read below 8%) Banks have become very picky when issuing loans or mortgages. The amount of documentations they are requesting during refinance has sw...

Happy new year to all my readers ! It is your feedback (as comments as well as in person) kept me going with my almost weekly blog. It helps me personally to articulate my thoughts and also make personal investment decisions - thanks to all of you ! Year 2010 is over. It's time to reflect on past year and get ready for new year. Let's start with how my recommendations in 2010 did. If you are regular reader of my blog, along with my commentary on markets, politics, economics and occasionally on other events (like World Cup), I have made stock recommendations in almost every post with target buy prices. Assuming one does around $1000 investment in those recommendations at target buy prices, the portfolio would have returned approx. 17.77% for year 2010. Though it is not as stellar as last year's performance of 80%  , it still beat S&P by 5%. Not bad considering till Nov, it was lagging S&P by couple of percentage points. Here are top 3 winners and losers of l...

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...

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 i...

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...