RIMM's Not Dead

The biggest worry about RIMM today appears in the daily headlines.  Layoffs.  We know that white collar workers rely on their Blackberries to get thru their day.  We also know that there continues to me massive layoffs across industries in professional firms.  Yesterday, we had AXP announce a 10% chop.  Today, we hear ERTS cutting.  Law firms are downsizing.  HRB is cutting staff.  And we all know about the demised financial institutions as well as the job losses at the survivors.

I don't know which companies actually use Blackberries, but let's assume that these companies in fact use them.  That means about 10% of RIMM's corporate accounts will be shuttered.  Let's play this out.  If a laid off worker's phone was provided for by his employer, then he'll likely have to return it when he departs.  So, now what?  Is he going phone-less?  No.  What's likely to happen?  He'll likely buy the newer version of his returned phone and continue his Blackberry usage.  What does that mean?  It means that the retail market for RIMM should be expanding at a similar rate as the shrinkage of its corporate accounts.

The only other feasible option is to flee to AAPL.  I don't think the trade down mentality exists for RIMM users.  Once you've experienced the many advantages of Blackberries, you're willing to pay an extra premium (albeit small in absolute terms).  I believe RIMM's user base will actually find little deflection despite the headline layoffs.  Ironically, retail accounts should be blossoming this quarter.  There's a strong bid underneath RIMM heading into its Bold and Storm debuts.  RIMM is still the leader in smartphones.

Retooling Balance Sheet

Consumers are in the process of adjusting their balance sheets.  Given the swoon we've seen in home prices and stock prices, we now know that the average consumer is down 20-40% this year alone.  To have that much lopped off of your bottom line is painful.  Your confidence is in crisis mode and you don't trust any asset class.  So what do you do?

You start saving.  And I mean saving cash.  You're not buying equities, real estate, or anything investable.  You're not buying anything because you're not in a rush to buy.  You worry about unemployment and about slowing GDP growth.  You are extra cautious.  You don't want more debt.  So you ramp up your savings account and raise your savings rate.

This in part will help us out of the recession, but will also delay the new day.  The bear market may not last as long as you think, but there also will not be a roaring bull market any time soon.  Volatility should remain somewhat high since we're in unchartered territory.  Stock indices will likely reflect little growth but individual stocks can show significant growth.  I see us teetering like this for as long as 2-3 years.

Bottom line - we're an enormously wealthy country blessed with one of the most stable governments and a robust financial system.  If consumers hunker down and start saving more, we'll be in a period of hibernation.  But, they will wake up one day.

Bargain Hunter

This is a deadly market.  We move up or down hundreds of points in a matter of minutes.  We're seeing double digit percentage moves on a daily basis.  This market sucks - if you're on the wrong side of the trade.

To beat this market in the long run the key is to seek out companies that present real value.  You need to analyze their assets against their liabilities.  You need to familiarize yourself with their future growth and earnings potential.  You need to dig deep and discover their potential pitfalls.  You need to find their cash value.

Some stocks that I've been investigating: ASH DE EMC PFE TASR

Have the Courage of Your Knowledge and Experience

Think about the 5-year growth stories.  What are the next big hits?  What are the big needs of the world?  Search for themes and look for bargains in the current environment.  Will the stock market stop crumbling?  I don't know.  But, one day it will stop and the markets will go up.  When that day approaches, it's best to have a game plan already in place.

Web 3.0 ideas?  Cloud computing.  Netbooks.  iPhone for $99.  Virtualization.  

Green ideas?  Solar.  Wind.  Water.

Demographic ideas?  Baby boomers retiring.  Rising BRIC middle class.

Keep brainstorming.

It is well known that Warren Buffet takes less than 15 minutes to make an investment decision.  When faced with a decision, Buffet relies on his knowledge of history and past experiences to make the call.  We want to emulate Buffet in this regard.

Consolidation, We Need You.

Most everyone is looking for some kind of capitulation, some kind of event that will mark the bottom of this decline.  But, what I want is some sort of consolidation.  We need to start holding the lows and stop dripping lower by the week.  We need to re-test the lows and maybe even re-test it again.  This churning action will provide some backbone to work off of towards a stronger market.  At the minimal, it'll decrease the fear factor and volatility that has reached all-time highs.  

We need calmer waters.  We need to get investors back to focusing on the fundamentals and growth factors and to stop almost exclusively focusing on recession or depression or the end of the world.  That kind of thinking is unproductive at this point.  I say this because so many solid companies are trading at such value centric levels not seen in recent years.  And the kicker is that these companies are so much better (operations, profit, scope, etc.) than five years ago yet their ticker is below the print of that same time.  Ridiculous.  

As mentioned before, forced selling/liquidation is a major cause of this dislocation.  But, also retail investors are selling in droves as well.  Not only that, they are also standing on the sidelines via not contributing money into their 401(k)'s, IRA's, etc.  "Why put money in a poor stock market?"  Ironically, a poor stock market is when you want to invest.  You want to buy low and sell high...REMEMBER!?!  

My advice, and it goes hand-in-hand with the consolidation that I'm awaiting, is for investors to step-in and take advantage of this decline.  Slowly and periodically invest...keep those 401(k) and IRA contributions steady.  This will allow you to benefit over time and also help form a market base.

Outsmart This Market

Is that possible?  To outsmart the market?  Probably not.

I am an investor by and large, so I have recently started to build longer-term positions.  My strategy is to nibble.  But note that I have only been buying in lots of 1/5 - 1/10 of my full position.  That means I am expecting to make five to ten buys to fulfill my position size.  And, that also means I expect the stock to fall some more.  How much more I don't know.  But, my scales can be really wide.  I'm not trying to time the market's bottom, but there are some strong companies that I want to own and believe will be stronger when we come out of this financial maelstrom.  Fundamentals, in the end, matter.

When the smoke clears, growth and earnings will count again.  Find companies that are strong in both areas and you will be rewarded.  Obviously, seeing red marks day after day on your screen doesn't help your psychology, but having stamina and determination today is important. The forced liquidations will stop one day, the volatility will die down, the negative sentiment will turnaround.  Know that this period in time is a once in a lifetime opportunity.  We are seeing stocks getting beaten up really, really bad.  Smashed!  Dislocations may continue for a while longer, but it will end.  I'm investing for that day.

Volatility Remains

This market action is still way too erratic.  The negative sentiment is screaming out loud.  And the bears are still pounding the market tickers down every minute.  It's scary that we take out lows so quickly.  Where's the support?  Where are the dip buyers?  Where are the value hunters?  Where are the big money sidelined players?  Sadly, it looks like everyone's standing still and just too afraid to make a move.  

Until we get some stability, until the market stops free-falling...we're just going to see a sea of red on our screens.  It's hard to imagine what will get us out of this stance.  Everyday the selling keeps up.  Everyday new lows are printed.  My targets (already set very low) for stocks I'm watching are taken out in droves.  When I think a stock is cheap, it gets cheaper.

The redeeming point, once again, remains that there is tremendous value out there.  I'm practically salivating over a bunch of companies I want to own.  My advice...keep watching and keep alert as to what companies you want to own when this massacre ends.  Look for the leaders and hop on.  Keep your head up and stay in the game.  We're bound for calmer times.

Mean Reversion

Stock markets tend to migrate back to the mean every few years.  We had an incredible ramp from 2003-2007 that propelled the DJIA to eclipsing 14,000.  Stories of the greatest housing boom, BRIC growth, ag shortages & energy conundrums were headlines every single day.  Traders and investors alike took to the frenzy and helped create one of the best 5-year stretches in recent memory.  Even mom-n-pops wanted to become realtors.

And then the bust.  It took only a year to bring us back to prints we last saw a decade ago.  The momentum fizzled and paper wealth destroyed. More important, the US financial system changed.  We lost Bear, Countrywide, AIG, Lehman, Merrill, WaMu...and so many more.  Goldman and Morgan are traditional banks now.  We need government intervention and look forward to foreign support.  We can't stand on our own two legs.  It's a sad, sad time in American history.

I imagine that we still have a little more falling to go.  Maybe by the end of 2009 we'll learn to crawl again.  And then walk in 2010 back to the mean.  But watch out 2012...we'll be jogging and then by 2016 it's marathon time.  And you know what happens from there.

AAPL Revisited

AAPL smacks the bear on its face.

Amazing resiliency considering the current economic turmoil.  And what sandbagging!!  Looks like the big AAPL's got things under control.  With a strong lineup heading into the holiday season I continue to expect solid numbers from this growth monster.  

Remember, we're still in the early chapters of both the Mac and iPhone stories.  The Mac is winning hordes of next generation users (i.e., anyone attending school and looking for a new notebook) who will become tomorrow's workforce.  This means that the commercial side of the application is still vastly untapped.  Sure, Mac's have been the workhorse for creative and high-style shops for many years now, but I can't wait to see a glowing apple on the desk of your accountant, lawyer, insurer, etc.  That's when the Apple story peaks.  But, until then there's a long, long road ahead.

Oh, did I mention that the iPhone was just introduced a little over a year ago?  The same growth story holds here, maybe even scarier.

Basing Action Never Feels Good

We're trying to find some footing here.  After the treacherous decline of the past few weeks, it will take some time to patch the road to recovery.  Don't expect a V-shaped bounce but instead look for a combination of "W" and "M" patterns over the next several months.  If this happens, it will be promising.

We need to build a solid base for stocks to work up from.  We need to get ready for 2009.  We need to see backing and filling to create strong support levels.  This action will rid any doubters and those who just want to make a quick buck.  Volatility necessarily has to come down and the trading atmosphere has to be boring.  When this happens, we will be there.

At that moment, things will slowly creep up week-by-week.  You'll see earnings estimates stop going down and upgrades handed out.  But, that's too far in the future to talk about right now.  All we want now is some churning action.  No more big surprises is good for this market.

China GDP Growth

Saw a report today indicating that China is growing at "single" digit rates for the first time in recent memory.  Boo-hoo.  Any country sporting a 9.9% growth rate is nothing to sneeze at.  That's still a torrid pace.  Let's not forget that China's experiencing its industrial revolution this decade and that's likely to continue into the next one.  

China just woke up after slumbering for the past 50 years.  It has a lot of catch up to do.  Its coffers are filled with vast amounts of money and will rightfully deploy them as the century progresses.  The rising middle class will continue to demand a better quality of life and so companies will continue to find opportunities to sell and serve.  With close to 1.5 billion people, there are unthinkable opportunities to be seized.

The 9.9% rate is all relative.  The Chinese stock market has corrected over 50% during the past few months and although the stock bubble has bursted the growth that the country experienced is real.  The paper money may be lost but the real money is still around.  It's not too far-fetched to conceive that double digit growth will resume in a year or two...or maybe even sooner.  With China, you have to expect the unexpected.

AAPL - The Telltale Ticker

Apple was the one stock that was holding and ramping on the incredible reversal day last week.  This was the one stock that the bulls were propping up to make their statement.  They succeeded.  

This will be the stock to watch for again this week.  Apple's reporting earnings after the close on Tuesday.  Look for strong iPhone and Mac sales with steady iPod numbers.  More importantly, hone in on the guidance - this is key!  Google slapped the bear market on its face last week.  We need Apple to smack it on the face one more time.

I did my part last month and picked up a Macbook Pro alongside an iPod Touch.  I'm rooting for you, my beloved AAPL.

Successful Retest?

Last week's action felt like we've put in a tradable bottom for this year.  We hit the low point two Fridays ago and retested it midweek.  If we can get a little more buying action early next week then volatility should go down and a base should form from which we can rally into year end.

The combination of uncertainty and forced liquidations have created an air of fear and panic.  No one has a good idea of when the market will stop falling as most every market pro thinks it's time for a reflexive bounce.  But, day after day we get more and more selling.  When we do get a pop up on the indices the market doesn't hold it up but instead pounds and sells it into the closing bell.  It's erratic to see so many stocks let alone market indices make 5-10% moves in one trading session.  All this has created a trader's paradise, but for those who are longer term investors it's pretty grim when you check on your portfolio and see monster percentage declines.

So what should investors do now?  For one thing, they should ignore the headlines but, more importantly, start thinking how they can profit from such crazy dislocations in the market.  Start pondering what the future will look 5 years from now.  Do you think the US will remain globally competitive or will the BRIC countries stampede over the western hemisphere?  Do you think the USD will remain weak given the huge cash infusion the government has promised (and may promise some more) the economy?  Do you think that multi-nationals with strong balance sheets can continue to take share in foreign markets?  Do you think the entrepreneurial spirit of Americans will somehow break thru with new technology, new ways of doing business that will create value?

Some companies I'm observing: MCD, KO, SBUX, TASR, DE, AAPL, RIMM, FWLT, NOV, ZMH, DEO.

Finding Opportunities

Now is the time to find opportunities.  I don't now what 5, 10, 20 years out will look like but given our market history things should be much better than it is today - we can be knocked down but we always come roaring back stronger than ever.

What we're experiencing today is a great leverage unwinding...financial firms are selling, selling, and selling more.  And this has caused great panic.  Many financial firms have gone bust and lots are being speculated as going bust.

My take...endure some short-term pain for longer term benefit.  The stimulus (or bailout, depending on your perspective) package will help the economy, maybe not today but it will have an effect sooner rather than later.  And the forced selling will stop, maybe not today but it will sooner rather than later.  Be selective.  Pick and buy only those companies that will weather this financial meltdown...and buy with big cushions - we're not rocketing back to Dow 14k anytime soon.  Remember, this cold be the once in a lifetime opportunity for Gen X'ers, including myself.

Warren Buffet seems to agree.

http//www.nytimes.com/2008/10/17/opinion/17buffett.html?em