The obvious answer is that they’re four of the most successful technology companies on the planet.

But they’re also heavily involved in the modernization plans for America’s “Smart Grid” – a topic I introduced in a previous column.

Make no mistake, with a decade-long project as monumental as modernizing the country’s “Smart Grid,” the devil is truly in the details. And the Commerce Department released the finer details of the initiative last week.

Until now, one of the big problems with the “Smart Grid” was the lack of set standards. Without them, each power company would be free to do as it pleases, resulting in a hodge-podge of small grids that, in all likelihood, wouldn’t work together.

To put this in perspective, just imagine how well the Internet would work if there weren’t hundreds (or perhaps even thousands) of standards in place so that everything works seamlessly.

So the National Institute of Standards (NIST) prepared the detailed standards that the Commerce Department wants the power industry to use as they build intelligence into the electrical power grid.

Job #1: Setting Up an American “Smart Grid” Standard

The standards released last week are the result of NIST’s review of proposed measures it sent out to companies like Cisco, IBM, AT&T and Intel, plus hundreds of others, seeking industry comments.

This plan basically details the integration and connection of smart meters, plus data sharing on energy usage among utilities and cyber security standards.

With regard to the latter, the big four firms lobbied vigorously for certain data and communications standards. This is because they want to integrate the essential “hooks” into their product lines as soon as possible.

And the NIST standards require internet-protocol (IP) technology in any system connected to the “Smart Grid.” The idea here is that the existing Internet could be used as the information highway for “Smart Grid” data communications and also for control purposes.

That’s good news for Cisco, in particular. It’s already a leader in IP technology, having integrated it into the “Smart Grid” systems that it currently sells.

But this brings up a potentially big problem…

Smart Meters By Name… But Not By Nature

If “Smart Grid” communication is based on IP technology, how vulnerable is it to hacking?

In order to attack the hardware, you first need to gain access to it to determine the kind of programming required to hack it. Smart hackers could simply walk up to a house where no one is home and steal one using a pair of pliers.

Once the hacker has access to the smart meter’s programming and special software codes, he can then begin communicating with all the meters made by that same manufacturer. As utilities continue their rollout of smart meters, those numbers will be in the millions.

As Mike Davis, a senior security consultant at IOActive, says, current smart meters are “probably not mature enough” and can easily be hacked.

Davis has tested a number of currently available meters (he hasn’t publicly revealed which ones) and identified vulnerabilities that could allow an experienced hacker to shut off large numbers of meters all at once from anywhere in the world.

Imagine a hacker issuing a command to several hundred thousand meters, telling them to simultaneously turn off all at once… and then immediately back on. The resulting surge would blow just about every breaker in the utilities’ grid, taking hours if not days to restore. And the next day, they could do it all over again.

Clearly, this is a serious problem for the utilities and meter makers to address. So what’s being done about it?

These Four Tech Titans Are Poised to Cash In

The good news is that with standards now in place, the Obama administration is ready to start issuing checks – perhaps as early as November. And those checks are worth a total $4.5 billion – money that the government earmarked for the “Smart Grid” project back in January.

And the beneficiaries of this windfall? Cisco, IBM, AT&T, Intel and others.

This just goes to show that it’s not just the obvious candidates that stand to profit from the electrical “Smart Grid” plans (utilities, etc). These great tech giants are ready and waiting to deliver crucial services, too.

Good investing,

David Fessler

Source: Four Companies Set to Profit from a Federal Cash Injection

For starters, Intel beat second-quarter earnings estimates by 10 cents a share, as its revenue climbed 12% year-over-year to $8 billion.  Beating earnings estimates is important, but beating on the top line and showing sales growth is even more important in a recession. The reason: It shows that you can do well in spite of a weak economy.

Like most chip stocks, Intel is an economic leading indicator of sorts – a fact that bodes well for the U.S. recovery. Intel said demand actually strengthened as the quarter moved along.  This is the precursor of a much more vigorous third and fourth quarter, which traditionally is when tech companies perform the best.

Adding more fuel to the fire, Intel increased it sales forecast to $9 billion from $8.5 billion and boosted the outlook for its gross margins to the upper end of the 53%-55% range.

One of the big reasons for Intel’s recent progress has been the launch of  Microsoft Corp.’s (Nasdaq: MSFT) Windows 7, which has been well received by many analysts.  Upgrading to Windows 7 from Vista in an existing machine is quite a task. It requires erasing the hard disk and installing the new operating system and all the other software from scratch.

This is different from the traditional incremental upgrades, in which many of the older files remained in place, while the upgrade took care of overwriting and deleting the unnecessary old system files and installing the new ones.  For small companies that have outdated technology, this process is too tedious and it is much more expedient to buy new machines with the new operating system preinstalled.

And there are a lot of old machines with outdated software out there in the business world.  It is not uncommon to see five-year old machines that are not capable of running new resource-intensive applications.  To verify my analysis, I called friends in Fortune 500 companies that manage PCs for their own corporations or for top technology vendors.

The feedback was unanimous in that Vista’s complexity – despite its significant features that were attractive to some specific users – made the operating system an overall disappointment to companies.  The operating system lacked the desired stability and increased maintenance costs.  So the consensus was that corporations would be quick to abandon Vista for Windows 7.

And given the complexity in upgrading existing Vista systems, and the old age of the equipment, it makes sense that many companies would seek to replace entire machines altogether.  So we have the old the “Wintel” symbiosis kicking into high gear.

Also, corporations have cut personnel deeply and need to increase the productivity of their now-overburdened workforce.  Some 70% of employees are not satisfied with their current position, given the additional stress and lack of additional pay.  Therefore, upgrading their technology to make their jobs easier is a high priority.

This won’t be too difficult, because companies’ profits have actually grown 23% in the last two quarters.  With Corporate America now having recapitalized, a new technological wave makes all the sense in the world.

Thus, the argument that the demand pickup is just filling the chain and inventory rebuilding, and that we will be disappointed come January does not seem to hold.  In either case, you will see an outperformance of earnings come the next report, so we should use any downdraft to get into Intel stock.

Also, Intel has regained its technological leadership against Advanced Micro Devices Inc. (NYSE: AMD), despite that fact that AMD is doing well in areas where integrated graphics are important, finally leveraging its acquisition of ATI.

With all cylinders firing, Intel is poised to deliver an upside earnings surprise in the third quarter and blow through estimates in the fourth quarter.  Valuation is cheap compared to the Standard & Poor’s 500 Index, considering the rate of growth that Intel is experiencing and expected to deliver both in the short term and well into next year as Windows 7 deployment motivates sales.

The stock is clearly above the 200-day moving average and seems a bit overbought short term.  So do not chase it. But start buying right away, looking to average down over the next 45 days if possible, averaging up until you reach your full position if it keeps running.

Recommendation: Buy Intel Corp. (Nasdaq: INTC) by averaging into the stock over the next 45 days, thus reducing market risk (**).

(**) – Special Note of Disclosure: Horacio Marquez holds no interest in Intel Corp.

Source:  Intel Corp. (Nasdaq: INTC) Is Poised to Top Estimates Over the Next Two Quarters

And as goes the semiconductor industry, so goes the U.S. economy.

These days, microchips are present in virtually every type of product – from coffee makers to cars: If it plugs into the wall or takes batteries, chances are good there’s a semiconductor inside.

Given the microchip’s ubiquitous nature, the companies that make them – as well as the companies that make the chipmaking equipment – can be viewed as a kind of leading economic indicator. Companies that intend to produce products down the road have to place orders for chips or for equipment now, meaning an uptick in semiconductor-sector business activity today and represent a jump in broader economic growth tomorrow.

“While most chip companies have as yet cited but modest improvement, and forecasts have been held in check, signs of a strong upturn are brewing that will significantly improve upon higher – but still modest – expectations,” Rick Whittington, an analyst with JSA Research wrote in a Forbes column earlier this summer. “High proprietary chip content stocks are poised for breakout sales and earnings, probably quickly returning to levels before last summer’s plunge.”

While consumer spending remains the chief U.S. economic catalyst, accounting for more than two-thirds of gross domestic product (GDP), business spending remains a crucial contributor – especially at a juncture in which consumer confidence has been flayed. Indeed, business spending has stabilized and will return to growth in 2010, semiconductor and other electronics manufacturers believe. In the meantime, they are ramping up production to meet what they believe is a growing consumer demand.

Microchips are used in a broad scope of products: DVD players, automobiles, calculators, coffee makers and televisions, telephones – as well as such stalwarts as personal computers.

Like other economic indicators, electronic-order levels have yet to traverse the economic neutral zone to break into positive territory (marked by the “year-over-year growth” label) but at least the hemorrhaging is subsiding: Sales of semiconductors in North America in the month of July were $3.1 billion, an increase of 5.9% from June, when sales were $2.9 billion, according to the Semiconductor Industry Association (SIA). The continent’s 8% year-over-year decline is significantly less than the rest of the world’s 18.2%, and was the smallest decline of any major market in the world.

“Sales of consumer products such as netbook PCs and cell phones are supporting the modest recovery that is now under way,” said SIA President George Scalise. “Purchases of information technology products by the enterprise sector continue to be tempered by caution and longer replacement cycles. There is evidence of a return to seasonal industry patterns.”

That evidence was further backed up by trade organization Semiconductor Equipment and Materials International (SEMI), which said North America-based manufacturers posted a book-to-bill ratio of 1.06, meaning that $106 worth of orders were received for every $100 of product shipped.

Inventories for many chipmakers are at a lower level compared to their average level for the past three years, Purchasing.com reported, citing market research firm iSuppli Corp. But with the holiday season approaching and retail inventory levels already lowered by a weak consumer demand in the first half of 2009, chipmakers are once again ramping up production, according to iSuppli analyst Carlo Cireiello.

Semiconductor inventory levels are now at “appropriate levels, down from previously excessive positions,” Ciriello told Purchasing.com. Ciriello forecasted in July that chipmakers would begin building inventories 5.5% in the third quarter and 1% in the fourth.

Semiconductors are used in a broad scope of products: DVD players, automobiles, calculators, coffee makers and televisions, telephones. Money Morning took a look at a few of the bigger players (and related companies) in the industry.

Chipmakers Fuel Business Spending

Intel Corp. (Nasdaq: INTC) reported its first quarterly loss in July, losing $398 million after setting aside $1.45 billion in funds to pay a fine from the European Union, which said Intel used illegal rebates to thwart competitors, Bloomberg News reported. Still, the world’s largest chipmaker saw its sales beat analyst estimates and the company late last month boosted its third-quarter revenue forecast to at least $8.8 billion, from an earlier projection of $8.1 billion.

Before Intel raised its guidance, analysts polled by Bloomberg were expecting sales of $8.57 billion. A compilation of analysts’ estimates by Thomson Financial Network now has the chipmaker’s revenue at $8.93 billion. Intel’s revenue in the third quarter of 2008 was $10.2 billion.

“Intel’s second-quarter results reflect improving conditions in the PC market segment with our strongest first- to second-quarter growth since 1988 and a clear expectation for a seasonally stronger second half,” Chief Executive Officer Paul Otellini said.

The increase in Intel’s sales forecast could be attributed to a rebound in PC orders by consumers in Asia, and Edward Jones & Co. analyst William Kreher says the higher guidance bodes well for the technology industry because Intel is a barometer for spending.

“Consumers are driving the strength and the relative strength in PCs,” Kreher told Bloomberg. “We do have an expectation that 2010 will bring renewed demand from the corporate sector as well.”

Chipmaker Marvell Technology Group Ltd. (Nasdaq: MRVL) Chief Executive Officer Sehat Sutardja also sees initial growth by consumer products such as cell phones, e-books and mobile Internet devices. Marvell makes chips that are used in everything from computer hard drives to smartphones such as Research in Motion Ltd.’s (Nasdaq: RIMM) BlackBerry and Apple Inc.’s (Nasdaq: AAPL) iPhone.

“Demand for a lot of consumer devices seems to be picking up from six months ago, both in the U.S. and non-U.S., particularly non-U.S.,” Marvell Chief Financial Officer Clyde Hosein said in an interview with Reuters. “That has picked up substantially since the April time frame and continues to improve or maybe accelerate.”

Investing to Build a Better Chip

If the health of microchip firms is a leading indicator of the outlook for the overall economy, then the outlook for semiconductor-equipment manufacturers is a harbinger of what’s to come for chipmaking sector.

The reason is simple: As chips become more powerful, they also become more complex – meaning the chipmaking process becomes increasingly demanding and deft. So before semiconductor firms can ramp up in a big way, they need to invest in the latest and greatest equipment.

That’s where the equipment stocks come into play.

Capital expenditures – known as “capex” in Wall Street parlance – is a closely watched statistic. Chipmaking firms invest in new gear to expand capacity, to move to the newest technology, or both.

Because of the global financial crisis, so-called “capacity utilization” – the number of chips being turned out as a percentage of what those factories are capable of turning out – plunged to 55.6% in the first quarter of 2009 from 89.7% during the same period a year ago, the SIA reported.

And with more than 40% of the industry’s “fab” capacity sitting fallow, new plants aren’t being built – especially since they cost about $3 billion each, TheStreet.com reported. Several of the equipment players have filed for bankruptcy as a result.

Coming into this year, only three semiconductor firms planned to invest more than $1 billion in new equipment: Intel, Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE ADR: TSM) and Samsung Electronics Co. Ltd.

That’s down from eight companies in 2008 and 16 in 2007.

But the tide appears to be turning – and investments will ramp up as the worldwide economy improves. Already, United Microelectronics Corp. (NYSE ADR: UMC) announced it is boosting its outlays for new equipment to $500 million from the $400 million it planned earlier in the year. Chartered Semiconductor will increase capex to $500 million from the $400 million announced earlier this year. That will be an increase from the $349 million the company spent in 2008.

Chartered Semiconductor Manufacturing Co. Ltd. (Nasdaq ADR: CHRT) is boosting its outlay from the $375 million planned early in the year to $500 million now, according to TheStreet.com. And Toshiba Corp will spend $900 million – down from $3.2 billion last year, but still more than many analysts initially expected.

Additionally, U.S.-based equipment firms will benefit from a weaker U.S. dollar, which makes American products cheaper in foreign-currency terms.

One such U.S. firm is longtime industry leader Lam Research Inc. (Nasdaq: LRCX), which is experiencing an improvement in its business despite a loss in its recently reported fourth-quarter results. Those results included better-than-expected revenue.

During the fourth quarter, which ended June 30, the company said “business conditions improved … contributing to Lam’s ability to show improved financial results for the quarter. Shipments and revenues increased as a result of customer investments to add [leading-edge capacity] in both foundry and memory.”

And while business continues to improve, Lam said it hasn’t lost sight of the need to carefully manage cash and to invest considerable care in choosing where to make next-generation strategic investments.

Lam’s shares have surged nearly 42% so far this year, although they remain 21% below their 52-week high of $37.96. The shares closed yesterday at $30.16, up 5 cents each on a day the major U.S. stock indices were down for a fourth-straight day.

Older PCs Set Stage For Hardware Refresh

Dell Inc. (Nasdaq: DELL) Chairman and Chief Executive Officer Michael Dell is on a mission to save his company $4 billion a year.

The company outsourced 40% of its manufacturing as of its second quarter, helping it achieve an 18.7% gross margin that exceeded analysts’ expectations. Dell’s profit of 28 cents a share also beat Wall Street’s estimate of 28 cents.

CEO Dell sees Microsoft Corp.’s (Nasdaq: MSFT) October 22 release of Windows 7, as well as faster processors from Intel, as the ignition for PC and server purchases next year.

“The size of the installed based of old hardware has never been greater,” Dell said in a conference call with analysts. “I’m here to tell you there’s going to be a refresh cycle next year. It’s not going to come in the first month or the second month, but over the course of the year.”

Dell remains confident that a majority of its business customers are deferring purchases and will accelerate IT spending to take advantage of technology improvements like Windows 7 and Microsoft’s Office 2010, according to Chief Financial Officer Brian Gladden.

“This acceleration remains predicated on an improving economy and related improvements in customer profits and government tax receipts,” Gladden said.

For Hewlett-Packard Co. (NYSE: HPQ), its earnings of 91 cents a share narrowly beat Wall Street estimates of 90 cents, and Chief Executive Officer Mark Hurd sees stabilization, but was reluctant to say the bottom has been reached.

“Business is stabilizing, and we are confident that HP will be an early beneficiary of an economic turnaround and will continue to outperform when conditions improve,” Hurd said.

Both H-P and Dell have already credited consumers in Asia for a rebound in orders in PCs, Bloomberg reported.

Source: Semiconductor and Electronics Makers Anticipate a Bounce in Business Spending Next Year

Three of the financial institutions that were key catalysts to the global financial crisis – and that owe the federal government billions of dollars as a direct result of those problems – have seen their shares triple in price so far this month.

That could signal that a big rebound in bank-sector earnings is just around the corner. Or it could be merely a speculative “short squeeze” that all but confirms that these stocks are basically worthless.

Shares of busted insurer American International Group Inc. (NYSE:AIG) have soared from $13.14 to $50.23, as of Friday’s close, a gain of 282.3% so far this month. Shares of mortgage giants Freddie Mac (NYSE: FRE) and Fannie Mae (NYSE: FNM) posted similar gains,MarketWatch.com reported. Fannie’s shares advanced from 58 cents to $2.04, an increase of 251.7%. Freddie’s shares zoomed from 62 cents to $2.40 each, a gain of 287.1%.

AIG actually gained for a ninth straight day Friday, reaching a 10-month high, as short-shelling speculators got squeezed and were forced to buy back the shares they’d sold short, traders told MarketWatch. AIG has 21% of its “float” – shares available to the public sold short, the sixth-highest proportion in the Standard & Poor’s 500 Index, according toBloomberg News.

But the gains might also sign that the banking sector is poised for a major profit rebound, according to some new analyst research.

“Dating back to 1995, bank-sector outperformance has typically preceded [earnings-per-share] growth outperformance by one to two quarters,” Stifel Nicolaus & Co. (NYSE: SN) analysts wrote in a market-research note last week. “With sector earnings growth expected to exceed that of the general market in mid-2010, we question whether we will see another leg down in this rally before year-end. On the other hand, perhaps we should question the current growth expectations for the sector?”

Trading in financial-services stocks has dominated the stock-market volume this month. So-called “day traders” have gravitated to once-questionable financial stocks and helped fuel those stunning gains – and huge volumes.

Citigroup Inc. (NYSE: C), for instance, has seen daily trading volume topping 1 billion shares this week. The stock closed above $5.05 on Thursday and $5.23 on Friday. That represents a 439% gain from its 52-week low of 97 cents a share.

Financial stocks have led the market’s slingshot higher from the early March lows. Trading has been fierce in beaten-down shares of some companies that participated in the bailout, such as AIG, Citi and Bank of America Corp. (NYSE: BAC).

The New York-based AIG is trying to sell assets to repay government loans after accepting $182.5 billion in U.S. bailout money. AIG recently reported a profit for its second quarter – after having posted six straight quarters in the red. It engineered a so-called “reverse stock split,” in which AIG gave investors one new share for every 20 they turned in. The company did this to avoid a delisting action. That enhanced the short squeeze, since there were fewer shares available to for short-sellers to repurchase and “cover” their bets.

Despite the torrid run that AIG’s shares have been on, the insurance company’s bonds still trade at levels indicating the company’s shares may be worthless, Peter Boockvar, an equity strategist at Miller Tabak & Co., told Bloomberg.

“The value of the company is still the same,” Boockvar said. “AIG bonds tell you that the equity is possibly worth nothing and that they may not be able to pay back the government.”

AIG’s $3.24 billion of 8.25% bonds due in 2018 are quoted at 79 cents on the dollar, to yield 12.2%, Bloomberg reported. The insurer’s $4 billion of 8.175% percent bonds due in 2058 are quoted at 49.5 cents on the dollar to yield 16.7% Bloomberg said.

The Financial Select Sector SPDR Fund (NYSE: XLF), an ETF tracking the financial stocks in the Standard & Poor’s 500 Index, has rallied nearly 30% over the past three months and handily outpaced the market.

Market Matters

While the past few months have been anything but dull for the markets (euphoric may be more appropriate), investors enjoyed a few slow days of peace and quiet.

Another stimulus program came to a close as “Cash for Clunkers” ended with a last-minute flurry of activity.  Analysts claimed that more than 700,000 cars were bought over the past month and August auto sales should rise on a year-over-year basis for the first time since mid-2007.

While dealerships enjoyed a nice rebound in activity (even if just temporarily), banks continued to experience challenges as the Federal Deposit Insurance Corp. (FDIC)reported that 416 institutions were on its “problem” list at the end of the second quarter, up from 305 on March 31, and also conceded that its insurance-fund reserves were dwindling.

Goldman Sachs Group Inc. (NYSE: GS) was in the news again as controversy has continued to surround the investment giant since the AIG bailout and LehmanBrothers Holdings Inc. (OTC: LEHMQ) failures.  Regulators are investigating its weekly “trading huddles,” where its analysts allegedly gave short-term stock tips to select clients and traders, though most other customers were not privy to such insight.

Dell Corp. (Nasdaq: DELL) posted lower quarterly profits, though
the result still beat Street expectations and management projected stronger performance in 2010 when businesses get back in technology buying mode.  Intel Corp. (Nasdaq: INTC) boosted its revenue projections for the next few months, another sign that chip demand is increasing and the business climate continues to improve.

The Dow Jones Industrial Average roared to eight straight days of higher closes, before hitting a stumbling block on Friday (though no one may have noticed as volume was so light) and the days of triple-digit moves ended (for a week at least).

The other indexes traded relatively flat during the week and even the positive news from Intel did little to generate any investor enthusiasm in the tech-heavy Nasdaq Composite Index. Fixed income fared better than most would have expected, considering another $109 billion in government debt hit the street.

Oil surged to a 10-month high before a larger-than-expected inventory report indicated that crude demand remained weak despite expectations of an economic recovery just around the corner.  In fact, natural gas plunged to a seven-year low.

Economically Speaking

In perhaps the biggest news of the week, U.S. Federal Reserve Chairman Ben S. Bernanke will manage to avoid becoming a part of the so-called “jobless recovery” when he was nominated for another term as central bank chair by U.S. President Barack Obama.

While Bernanke certainly has his critics among grandstanding politicos from both sides of the aisle, few Fed watchers expect Congress to hold up his confirmation.  For now, continuity seems to be the best thing.

The economic data of the week was relatively favorable with signs of renewed strength in both housing and manufacturing.  New home sales jumped for the fourth consecutive month and the S&P Case-Shiller Index even depicted higher home prices last quarter for the first time since 2006.  Durable good orders surged in July on increased demand within the transportation sector as both General Motors Co. (OTC: MTLQQ) and Chrysler Group LLC put bankruptcy in their rearview mirrors and boosted production, while other companies also benefited from the “Cash for Clunkers” program.

When second-quarter gross domestic product (GDP) was announced as a decline of 1%, many analysts expected a downward revision (perhaps significant) in the months that followed.  Well, the initial revision again showed a 1% decline, a negative showing, but one that many economists believe will be the last contraction in overall activity for a while.

The U.S. consumer remains one big wildcard for the strength of the economy moving forward.  Though the Conference Board reported a better-than-expected increase in its August consumer confidence report, the Reuters/U of Michigan sentiment index offered a contrasting view as it fell to its lowest level in four months.  Personal spending in July got a nice boost from the increase auto sales (“Cash for Clunkers” strikes again), though the income component of the release was unchanged and concerns about the labor picture continued to hinder consumer activity.

Weekly Economic Calendar

Source: Soaring Prices for AIG, Fannie and Other Financial Stocks Sending Mixed Messages to Investors ]]> http://www.contrarianprofits.com/articles/soaring-prices-for-aig-fannie-and-other-financial-stocks-sending-mixed-messages-to-investors/20240/feed 0 http://www.contrarianprofits.com/articles/more-empty-houses-in-america/19662 http://www.contrarianprofits.com/articles/more-empty-houses-in-america/19662#comments Tue, 04 Aug 2009 17:30:51 +0000 Bill Bonner http://www.contrarianprofits.com/?p=19662 Is it time to buy a house? Depends…

If you need a place to live and want to own a house, why not? Prices in some areas are fairly reasonable. But if you’re speculating, our guess is that you’ll get a better deal if you wait.

Why? For the many reasons we have given you in these Daily Reckonings. House prices may be firming in some areas – that’s what the Case-Shiller numbers seem to show. But nationwide, they are probably headed down for quite a while longer.

Herewith, four reasons why:

First, as you know, this is a depression. It will probably be long. And deep. You wouldn’t know it from looking at the stock market or reading the news. The Dow…

With options running out over the weekend, CIT advisors began preparations for a bankruptcy filing. As of Sunday, JPMorgan Chase & Co. (NYSE: JPM) and Morgan Stanley (MS) were talking with other banks about a debtor-in-possession loan, used to fund a company’s operations after it seeks court protection from creditors, Bloomberg News reported.

Bondholders held calls last week to discuss whether to swap some claims for equity to reduce indebtedness. Thomas Lauria, a lawyer at White & Case LLP, told Bloomberg that a group of CIT creditors he represents offered to provide $3 billion in new loans to bridge CIT to an out-of-court restructuring or an orderly bankruptcy, but had yet to hear back from CIT management.

“It seems CIT was ill-prepared for this moment, so they’re scrambling,” Scott Peltz, a managing director at consulting firm RSM McGladrey Inc. told Bloomberg. “Unless you have all these bondholders holding hands and singing Kumbaya, I think they’re too far behind the eight ball to avoid filing.”

While CIT is not nearly the household name of Citigroup Inc. (NYSE: C)or Bank of America Corp. (NYSE: BAC), the lender finances over 1 million businesses – including Dunkin Donuts and Eddie Bauer.

Three prominent retail trade groups sent letters to financial regulators this week warning that the failure of CIT would undermine the industry supply chain.
“[Retailers] are unbelievably concerned right now,” New York bankruptcy lawyer Jerry Reisman told the Buffalo News. “What we may have here is a total disruption in small business.”

Reisman said he received more than two dozen calls from panicked stores and apparel manufacturers, some of which said they may not have the money to pay their employees.

An otherwise light week on the economic calendar gives way to the next round of earnings as Apple Inc (Nasdaq: AAPL) and Texas Instruments Inc. (NYSE: TXN) highlight the corporate releases this week, while consumer companies The Coca Cola Co. (NYSE: KO),McDonalds Corp. (NYSE: MCD), and Amazon.com Inc. (Nasdaq:AMZN) join the mix.

U.S. Federal Reserve Chairman Ben S. Bernanke will head to Congress where several critics await.  As for the healthcare debate, the August deadline seems less likely, though the Senate has its two cents to add in the coming days.  Expect plenty of politicized talk about the ballooning deficit and the impact on small businesses.

Market Matters

The financial sector appears to be on the mend as earnings season brought several positive signs that the worst is over and soon “business as usual” will return to Wall Street.  Goldman Sachs Group Inc. (NYSE: GS) easily surpassed analysts’ earnings estimates on solid trading revenues, while JP Morgan got a boost from its investment banking division to shatter the forecasts.

Even Citigroup and Bank of America posted solid results (thanks to one-time gains), though both entities have many ongoing challenges to overcome before the Feds let them fend for themselves.

Of course, the possibility that CIT will file for bankruptcy protection has left panicked customers without a significant source of funding for their daily operations.  After late hour negotiations failed, the government chose to pass on another sizable bailout and allow true capitalism to play itself out.  CIT turned to private firm and bondholders to help devise a financing plan and avoid the fate of Lehman Bros. and others.  But now, nervous retailers and manufacturers are lining up alternative funding sources with the hope of dodging significant business interruptions.

Bed Bath & Beyond (Nasdaq: BBBY) and Wal-Mart Stores Inc. (NYSE: WMT) are among CIT’s largest customers, though many are small independent operations.  A CIT failure could prove devastating for those firms considered the lifeblood of American business.

In other earnings news, techs enjoyed another decent quarter as Intel Corp. (INTC) easily bested expectations (that is, before that $1.45 billion antitrust fine) and International Business Machines Corp. (NYSE: IBM) earnings grew by double-digits, while management raised its outlook for the next few quarters.  Though both offered encouraging signs for the sector (and economy as a whole), Dell Inc. (Nasdaq:DELL) warned that lower margins are impacting its operations andGoogle Inc. (Nasdaq: GOOG) experienced its lowest rate of revenue growth since going public five years ago.

The travel industry continued to struggle as consumers and business professionals delayed trips and Marriott International Inc. (NYSE:MAR) and American Airlines parent AMR (NYSE: AMR) posted disappointing results.

Market/ Index	Year Close (2008)	Qtr Close (06/30/09)	Previous Week (07/10/09)	Current Week (07/17/09)	YTD Change
Dow Jones Industrial	8,776.39	8,447.00	8,146.52	8,743.94	-0.37%
NASDAQ	1,577.03	1,835.04	1,756.03	1,886.61	+19.63%
S&P 500	903.25	919.32	879.13	940.38	+4.11%
Russell 2000	499.45	508.28	480.98	519.22	+3.96%
Global Dow	1526.21	1,629.31	1,561.11	1,664.23	+9.04%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	2.24%	3.52%	3.30%	3.65%	+141 bps

Economically Speaking

The White House also experienced a “good news/bad news” week as House Democrats began to push forward a major healthcare overhaul.  Before the real lobbying could begin in earnest, the Congressional Budget Office (CBO) Director proclaimed the proposal would have no positive results on reducing costs or expanding coverage and would actually increase government spending.

Investors shrugged off the CIT developments and focused on positive earnings and economic data.  Stocks surged early on the Goldman news and soared right through the technology reports.  Technicians joined the fun as the Standard & Poor’s 500 Index broke beyond resistance at 930, a strong sign for traders who monitor charts.  Major indexes snapped a month-long losing streak and the tech-heavy Nasdaq Composite climbed to levels not seen since last October, while fixed income suffered reverse “flight-to-quality” trades.  Oil rebounded on the favorable market and economic signs.

While the debate over a healthcare overhaul rages on, the Treasury Department reported that the budget deficit ballooned beyond a record $1 trillion and seemed prime to move even higher if Congress cannot reign in spending.   Analysts fear that interest rates ultimately will move higher should the alarming trend continue and foreign investors shy away from U.S. securities.

But for now, inflation seems very much under control, despite sizable jumps in both the retail and wholesale gauges.  Though gasoline prices surged by 17% in June, prices have already begun dropping at the pumps and most economists do not expect a repeat performance in the months to come.

Though retail sales increased in June for the second consecutive month, much of the gain was related to the rising gas prices and consumers remain reluctant to part with their hard-earned income in light of the weakening labor picture.

On a positive note, weekly jobless claims fell to its lowest level since January. However, naysayers claimed that much of the decline was due to calculation problems stemming from auto closures and layoffs are still very much on the rise.

Finally, the hectic economic calendar ended on a positive note as the housing sector showed renewed signs of a rebound as both new construction and permits for future activity experienced unexpected strength.  Even Dr. Doom himself, NYU professor Nouriel Roubini, the man best known for predicting the current crisis, reversed course and claimed the global economy would move out of recession by late 2009.

The minutes from the June Fed meeting showed that policymakers revised (positively) their forecasts for economic activity in 2009 and 2010, though they expect the unemployment situation to remain weak through next year.  Most Fed watchers do not see any change in the funds rate for the foreseeable future.

On another note, numerous renown economists (about 200), including a few Nobel prize winners, called on Congress to cease the grandstanding and stop criticizing the Fed’s handling of the financial crisis and economic downturn (particularly Bernanke’s “tactics” surrounding the Bank of America/Merrill Lynch deal).  The strongly worded letter by some of the nation’s sharpest minds stated that such politicizing could prove detrimental to the recovery.

Weekly Economic Calendar

Source: Market Recoils as CIT Edges Toward Bankruptcy

• Tech stocks spurred a rally among U.S. markets yesterday (Wednesday), as by Intel Corp.’s (Nasdaq: INTC) earnings exceeding of Wall Street expectations. All three major indices rose: The Dow Jones Industrial Average was up 3.07% to close at 8,616.21, the Standard & Poor’s 500 was up 2.96%, closing at 932.68, while the tech-laden Nasdaq Composite was up 3.51%, closing at 1,862.90. “There’s no doubt that the catalyst started with the report from Intel,” Chemung Canal Trust Co. Senior Investment Officer Tom Wirth told Bloomberg News. “It seems obvious to me that there’s more optimism, that we’ve seen the bottom and things are getting progressively better.”

• Crude oil futures on the New York Mercantile Exchange (NYMEX) rallied $2.02, or 3.37%, to $61.54 a barrel yesterday (Wednesday) after Energy Department figures showed a smaller-than-expected increase in oil and diesel inventories. “There’s no demand number that you can point to … it’s just that (distillate) inventories didn’t build as much as expected,” Standard Chartered PLCcommodities trader Morgan Downey told The Wall Street Journal.

• The newly launched Bing search engine from Microsoft Corp.(Nasdaq: MSFT) couldn’t touch the stranglehold Google Inc.(Nasdaq: GOOG) has on the market. Bing recorded just a 0.4% gain in its market share to settle at 8.4% last month. The gain came at the expense of second-place Yahoo! Inc. (Nasdaq:YHOO), which saw its market share fall to 19.6% in June, down from May’s 20.1%, The Washington Post reported, citing data from Comscore Inc. (Nasdaq: SCOR). Google’s share, meanwhile, held steady at 65%. Bing was launched in early June to much buzz from tech pundits and Wall Street analysts.

• States will get a $4.7 billion boost in federal stimulus funds to weatherize drafty homes, dwarfing the $447 million originally planned by Congress this year and the $227 million spent last year. The increase is so huge it has raised fears of waste and fraud, and set off a scramble to find workers and houses for them to repair. President Barack Obama said the program would lower utility bills for cash-strapped families, create new construction jobs and make the United States more energy efficient. “You’re getting a three-fer,” President Obama said. “That’s exactly the kind of program we should be funding.” Some worry that states won’t be able to keep track of the copious amounts of money. Council for Citizens Against Government Waste spokeswoman Leslie Paige said the program is open to fraud because of the way oversight is divided: The government passes the money to states, the states pass it to community action agencies and the agencies pass it to contractors who work with customers. “It’s such a Rube Goldberg operation it should be setting off alarm bells,” she toldThe Associated Press.

• Former U.S. Treasury Secretary Henry Paulson will tell the House Oversight and Government Reform Panel in Washington today (Thursday) he acted appropriately in warning Bank of America(NYSE: BAC) Chief Executive Officer Kenneth Lewis that top executives could be ousted if they abandoned merger plans withMerrill Lynch, Reuters reported. “It would be unthinkable for Bank of America to take this destructive action for which there was no reasonable legal basis and which would show a lack of judgment,” Paulson said in his prepared testimony. Some lawmakers are criticizing what they say was government heavy-handedness in pressuring the taxpayer-funded Bank of America to go through with the deal after escalating losses at Merrill came to light.

• U.S. Commerce Secretary Gary Locke has weighed in China’s detainment of Australian and Chinese Rio Tinto PLC employees accused of espionage, saying multinational companies in that nation “need to have assurances and confidence” that their workers will be treated fairly, adding he will raise the case in a meeting with Chinese Premier Wen Jiabao today (Thursday), The Wall Street Journal reported. The workers are accused of bribery to obtain state secrets relating to iron-ore price talks, but Australia has yet to be officially advised of the allegations, The Journal said.

• Microsoft Corp. (Nasdaq: MSFT), which in February said it would open branded retail stores in the United States., will place them “next to existing Apple Inc. (Nasdaq: AAPL) stores this fall,”ZDNet reported, citing a statement from Microsoft’s Chief Operating Officer Kevin Turner. Microsoft has been mum on details of what exactly the stores will sell, but it is said they will be “more showcases than actual retail outlets,” anonymous sources within the company told ZDNet.

Investment News BriefsThursday July 16, 2009

Source: Investment News Briefs Wednesday, July 15, 2009

Stock investors will key next on earnings from tech giant Intel Corp.(Nasdaq: INTC) and banks including J.P. Morgan Chase & Co. (NYSE:JPM) for hints of what to expect in the third quarter — and how badly the recession hurt businesses in the second quarter.

The Standard & Poor’s 500 Index and Dow Jones Industrial Average delayed declined for the fourth straight week last week – the longest string of losses since stocks hit their low point in March – and investors are looking at the tech sector to squelch the ongoing decline. The Nasdaq Composite Index complost 2.47% in the week ended Friday.

Earnings reports this week from computer-chip giant Intel and several big banks – including JPMorgan Chase & Co. - could provide investors and economists some insights on where the U.S. economy appears to be headed. Earnings are expected to improve over the last quarter, even though they’ll still be down substantially on a year-over-year basis, Binky Chadha, chief U.S. equity strategist at Deutsche Bank AG (NYSE: DB), told MarketWatch.com,

“A necessary condition for the markets to go up from here is that earnings have to deliver, and we need a dissipation of the uncertainty about earnings,” Chadha said.

Year-over-year (annual) earnings comparisons are typically the financial yardstick that analysts use to assess whether the U.S. economy is growing or declining, meaning that “sequential” (quarter-to-quarter) earnings aren’t as crucial. This time around, however, the quarterly numbers may be viewed as important because they might give a better picture of the economy’s health.

During periods of extreme uncertainty, earnings estimates for companies tend to be widely dispersed – a function of investors not really knowing what to expect. That’s particularly true right now of banks and financial-services companies – and companies that derive most of their income from discretionary consumer spending.

And that makes sense, given that those are the two most uncertain portions of the U.S. economy – thanks to the ongoing global financial crisis and a jobless recovery that is badly crimping consumer confidence.

After mounting one of the strongest surges in history from their March lows, U.S. stocks have fallen back in recent weeks as investors dealt with a growing realization that the U.S. economy – and its counterparts abroad – won’t rebound with the speed or strength that had been widely expected. Further evidence of this came on July 2, when a U.S. payrolls report said the economy had lost more jobs than had been expected.

Against that backdrop, analysts and other investors are looking to the U.S. high-tech sector to pull the economy out its doldrums, Money Morning recently reported as part of its mid-year forecast series.

Thomson Reuters predicted that S&P 500 earnings will decline by 36% from last year’s levels, with financials (-53%) leading the way and techs (-24%) performing better than other sectors.  This should represent the eighth-straight quarterly decline, though analysts seem more concerned about the ensuing management comments on future operations, since that will shed some light on where the economy is headed.

When Intel reports tomorrow (Tuesday) analysts expect to see that /quotes/comstock/15*!intc/quotes/nls/intcsecond-quarter sales and earnings plunged, but some analysts believe demand may be returning to the battered market following a sharp slowdown in demand for high-tech goods. Internet-search juggernaut Google Inc. (Nasdaq: GOOG) will report on Thursday.

Other firms that report this week include Goldman Sachs Group Inc. (NYSE: GS), Bank of America Corp. (NYSE: BAC) and Citigroup Inc. (NYSE: C). JPMorgan reports Wednesday.

“The market is filled with folks who want to be optimistic, but simply cannot find enough genuine reasons to buy into the market,” Mike Gambale, an analyst at Informa Global Markets, told journalists. “We don’t expect impressive numbers across the board, but there will be some surprises, as there always are.”

[If you're new to the commodities-investing arena, and are uncertain about the landscape - or even if you're an "old hand" at natural-resource stocks, but want some insights into the new profit plays and new players - consider hiring a guide: Money Morning Contributing Editor Peter Krauth, a recognized expert in metals, mining and energy stocks, is also the editor of the Global Resource Alert trading service, which ferrets out companies poised to profit from the so-called "Secular Bull Market" in commodities. A former portfolio advisor, Krauth continues to work out of resource-rich Canada, which keeps him close to most of the companies he researches. Against the growing global financial malaise, Krauth says that commodities are among the most-profitable and least-risky investments available, and notes that this may well be the most powerful bull market for commodities we'll see in our lifetime. He makes a strong case. To read more about his strategies, and the sector plays he likes the most, Please click here. ] 

Market Matters

“New and improved” was the market mantra of the week. General Motors Corp. (OTC: GMGMQ) emerged from Chapter 11 bankruptcy protection after just over a month, eager to start anew as a “new and improved” automaker.

The Commodity Futures Trading Commission (CFTC) set its sights on “new and improved” trading regulations to limit excessive speculation within the energy and other commodities markets.  Some politicos are calling for a “new and improved” stimulus package to move the economy beyond the worst recession since the Great Depression.  A “new and improved” Public-Private Investment Program (PPIP) was scaled back dramatically as selected managers will begin purchasing toxic assets from ailing banks.  Unfortunately, as the week progressed, investors did not seem too keen on these “new and improved” developments.

Despite harsh protests by consumer groups and creditors, new GM reopened for business, “leaner and meaner” than ever.  A judge’s ruling allowed the once-bankrupt company to sell its performing assets to a new government-controlled entity (thanks to a $50 billion “investment” by taxpayers).

The government then shifted its attention to the regulatory world and announced plans to propose trading restrictions on certain commodities and increase the oversight over risky derivative products that have proven so detrimental to the financial markets.

The widely anticipated earnings season got started as Alcoa Inc. (NYSE: AA) reported another quarterly loss (with better-than-expected numbers) and oil giant Chevron Corp. (NYSE: CVX) warned that its results would be hindered by poor refinery operations and a weak dollar.

Investors have taken a more cautious approach heading into the new (but not improved) earnings season, particularly after last week’s pessimistic labor data.

Stocks fell throughout the week and fixed income again became beneficiary of safe-haven trades.  The tech-heavy Nasdaq now remains the only major domestic stock index “in the black” for the year.

Fickle energy traders suddenly turned bearish, as well, as the weak economic data implied that oil demand would be curtailed for the foreseeable future (or, at least, until 2013 according to Organization of the Petroleum Exporting Countries’ “2009 World Oil Outlook”).  Crude oil plunged beneath $59, or more than 10% during the week, on ongoing economic concerns,  although consumers ultimately may be recipients of cheaper gas prices.

Economically Speaking

Talk of a second stimulus surfaced this week, with several leaders – including U.S. Vice President Joe Biden and investing icon Warren Buffett – stating that the Obama administration’s $787 billion stimulus isn’t enough to jumpstart the U.S. economy.

On the other hand, Senate Majority Leader Harry Reid, D-Nev., believes the plan needs more time to work through the system as only 10% or so has even been distributed thus far.  Economists seem to agree with “Hank,” as the latest Wall Street Journal survey reported that over 80% of respondents feel that the country does not need a new round of stimulus in the current environment.  Still, the “Oracle of Omaha” painted an optimistic picture of the future by stating that the United States is “going  to come out of this better than ever, the best days of America lie ahead but not next week or next month.”

On the global front, the International Monetary Fund (IMF) revised – upward – its forecast of economic growth for 2010 and confirmed its belief that the developing economies in China and India will greatly contribute to the global rebound.

The May trade balance highlighted a slow week of data as the deficit declined to its lowest level since late 1999 and the weak labor market helped reduce consumer demand for foreign goods.

While initial claims for unemployment benefits fell to levels not seen since the beginning of the year, continuous claims (those folks who remain on the unemployment rolls for over a week) rose by another record amount.

In other words, no matter how one dissects the numbers, the labor picture looks dire and may not begin to improve for some time.  As such, the latest University of Michigan consumer sentiment reading dropped for the first time since February, another sign that the optimism of the past few months may be fading fast.

Weekly Economic Calendar

Source: Investors Looking to Tech to Pull U.S. Stocks – and the Economy – Out of Their Doldrums

If you missed the chance to buy into the computer industry when it was young, this is a second shot…

Currently, the mainstream electronics industry processes data by moving bunches of electrons about in huge batches. Think of the components in your PC as electrical plumbing. Data are usually stored as batches of electrons. Imagine your computer’s hard drive as a bunch of very small buckets, some full of water, some not. This will change.

Improved materials technologies from emerging nanosciences are allowing us to replace batches of electrons with the smallest individual unit: the electron. As a result, computers will work at far higher speeds. Additionally, far less electricity will be required to do the same amount of work.

Much of this exciting news is being ignored by the market. It’s an unfortunate truth that investors often lose sight of long-term opportunities to create wealth because they get distracted by the short-term noise and news in the markets. When it comes to big transformational technologies, don’t worry about timing. The returns that disruptive technologies yield justify getting in early.

Quantum Superposition

One important quantum effect that will be used in future generations of computer technology is “quantum superposition.” In a nutshell, this means that a quantum particle can exist in multiple states and everything in between at the same time. This is because a quantum particle, such as an electron, behaves as both a particle and a wave.

Have you heard of the particle wave theory? In practical terms, it means that bizarre and counterintuitive effects occur on very small scales, and they can be harnessed.

This “quantum superposition” effect will, for example, utterly transform how we do “computer math.” Currently, nearly everything done by computers is done in binary. The smallest piece of information a computer handles, the bit, is either one or zero. A quantum computer, though, would be able to store and work with number systems other than binary.

This means computers would become exponentially more powerful because each “quantum bit” (qubit) could store a much greater range of numbers than the two that binary math restricts us to. Imagine a laptop with the computing power of the world’s 10 most powerful supercomputers. Then you begin to grasp the potential of quantum computing.

Decoding Quantum Encryption

Quantum computing also offers the means of making our communications and business transactions far more secure than they are today. Quantum cryptography exploits several remarkable effects of “quantum entanglement.” One is the ability to generate pairs of utterly unique and unbreakable keys. Basically, two random but identical particle keys can be created using entanglement. Since reading a quantum particle alters it, any effort to eavesdrop on communication is detected and that communication is either disrupted or ended.

Using this technology, we can create completely secure communications networks. Recently, Toshiba’s R&D labs announced the successful testing of quantum cryptography over fiber-optic networks. Austrians were able to send entangled photons between two Spanish islands nearly 90 miles apart.

Spintronics

One of the likeliest quantum technologies to go mainstream is the field of spintronics. This is the exploitation of different electron states. The only property of the electron that we use in electronics now is charge. Electrons, however, have another property called “spin.” Because we can change and read this spin, it can be used to compute. Already, the tech giants are investing in this technology. And there’s a reason.

I’ve written a lot about HP’s work on memristor technology. Memristors are going to provide the next great leap in computer technology. HP has been making rapid and well publicized advances. It could, in fact, have product on the market next year. This initially concerned me because HP is too big to get us anything close to a memristor pure play.

Fortunately, memristors can be built using techniques other than HP’s. My associate Ray Blanco has been poring through patents and tech journals. What he’s found is enormously exciting.

Basically, a number of other groups have made similar memristor advances using different technologies. One is based on spintronics. Seagate Technology (NASDAQ:STX) scientists believe, in fact, that spintronic-based memristors would be more efficient and customizable than the ion-based tech debuted by HP’s labs. There are other players here, and we’ll tell you about them in the future.

The big question now, however, is not which of these technologies will emerge as the best solution. The question we’re looking at today is who will build these new components. Who, in effect, will be the Intel (NASDAQ:INTC) of the future?

For transformational profits,
Patrick Cox

Source: The Quantum Leap of Quantum Computing