Oracle reported revenue for the three months ended Aug. 31 fell 5%, to $5.05 billion. Analysts were expecting $5.2 billion of sales.

Net income rose 4% to $1.1 billion, or 22 cents a share, by Generally Accepted Accounting Principles (GAAP), but the company leaned heavily on support contracts and cost cutting to maintain profitability. The world’s second-largest software maker blamed the drop on declining overseas sales and a stronger U.S. dollar.

“Oracle’s results were impacted by the reduced value of foreign currencies when compared to U.S. dollars, reducing Q1 GAAP earnings by $0.02 per share,” the company said. “Without this impact, Oracle’s Q1 GAAP and non-GAAP earnings per share would have been $0.24 and $0.32, respectively.”

Oracle issued a more positive outlook for its fiscal second quarter, which ends in November. The summer is traditionally a slow period for the company which typically sees business pick up as its fiscal year moves forward. Additionally, the global economy is showing signs of improvement.

Oracle President Safra Catz said profit would be 35 cents to 36 cents per share in the second quarter. The company forecast revenue of about $5.6 billion to $5.8 billion for the period.

However, analysts remain skeptical that a fledgling economic recovery will necessarily lead to an increase in earnings.

“Just because people are starting to feel better about the economy doesn’t mean they’re ready to spend money on software,” said Partrick Walravens, an analyst at JMP Securities Inc. (NYSE: JMP), told BusinessWeek.

Sales of new software licenses – a key indicator of future revenue – fell 17% to $1.03 billion. Sales of database and middleware licenses plunged 21.5%. Middleware is software that helps different kinds of programs share information.

Additionally, Oracle’s $7.4 billion acquisition of Sun Microsystems has not gone as smoothly as planned.

Sun Setbacks

In April, Oracle announced it would takeover Sun in a move that gives it control of the database market as well as Sun’s coveted Java programming language. Java-based software is not operating system-dependent and runs on over 1 billion devices worldwide, from cell phones to supercomputers.

JMP’s Walravens believes the buyout is partly responsible for Oracle’s lackluster first-quarter earnings.

“There’s a ton of pre-merger planning you want to do before an acquisition, and [first-quarter sales decline] shows management were probably distracted by the Sun purchase,” he told Bloomberg in an interview. Walravens rates Oracle’s shares “market perform” and doesn’t own them.

Of course, the bigger threat to Oracle’s business is an ongoing antitrust investigation that has been launched by the European Commission (EC). While, the U.S. Justice Department approved the deal last month, the EC is worried that by acquiring Sun, Oracle will be too strong a presence in the database market.

“Databases are a key element of company IT systems,” said Neelie Kroes, The EC’s competition commissioner. “In the current economic context, all companies are looking for cost-effective IT solutions, and systems based on open-source software are increasingly emerging as viable alternatives to proprietary solutions. The Commission has to ensure that such alternatives would continue to be available.”

It’s possible that Oracle will have to spin off Sun’s MySQL open-source database to accommodate the EC. The commission has until January 19 to reach a verdict on the merger. But as the commission deliberates, former Sun customers are defecting to Oracle’s biggest competitors.

Hewlett-Packard Co. (Nasdaq: HPQ) says it signed deals with more than 100 Sun customers between February and July, BusinessWeek reported. Meanwhile, International Business Machines Corp. (NYSE: IBM) has lured 250 customers from Sun to its own computer systems since January, and is adding about two accounts a week, according to Inna Kuznetsova, IBM’s director of Linux strategy.

“The longer [the closing process] wears on, the more Sun’s business deteriorates, and the more market share IBM and Hewlett-Packard take away,” said Walravens.

Faced with an exodus of Sun clients, Oracle has taken some small steps to inspire more confidence in its fleeing customer base.

Earlier this month the company unveiled the Sun-Oracle Exadata Database Machine V2, a co-developed co-branded system that is meant to show that close engineering cooperation between the two companies is already underway.

The databased server is “a perfect example of what we can do together,” said Oracle’s Catz. “We continue to do what we can at arm’s length.

Oracle and Sun don’t have to be merged to make a product together. However, the first version of the machine was manufactured with Hewlett Packard.

“While the first version was built in partnership with H-P, this version leverages Sun’s hardware, clearly signaling the company’s intentions for Sun’s hardware division under the pending acquisition,” Tom Klasell, an analyst with Thomas Weisel Partners, wrote in a note to clients.

Oracle also took out an advertisement in The Wall Street Journal that said it plans to spend more money on Sun’s Solaris and SPARC development. That ad was meant to stem the tide of defections from Sun’s computer systems, as it made specific reference to increased competition with IBM. On its Web site, IBM describes Sun’s hardware business as “highly uncertain” and having an “undefined future.”

“I think someone at Oracle suddenly realized that Sun was bleeding so badly that what would be left when Oracle finally got control would be worth a small fraction of what they paid and no one would buy the hardware unit,” Rob Enderle, an independent analyst, told ComputerWorld.

The ad was a positive step for many Sun customers, but if Oracle is going to stop the bleeding it’s going to have to keep the pressure on until the merger is finally approved.

“A lot of our clients are nervous, and they want to know what’s going to happen,” Irene Griffith, Sun customer and owner of PetroSys Solutions Inc. in Houston, told ComputerWorld.

“IBM is very good at creating FUD” – fear, uncertainty and doubt, she said. Adding to her anxiety, Griffith said that she has been unsuccessful at getting information from Sun. “They’re not talking to us, they’re not reaching out to us,” she said.

Source: Oracle’s Future Clouded by Sun Takeover Complications

Source: Investment News Briefs Friday, September 4, 2009

My little brother and his fiancée dropped into Reno/Tahoe for the weekend. They were wending their way west to go apartment hunting in San Francisco, visiting friends and family along the way.

On Saturday we took a two-hour catamaran cruise up at the lake. It was as perfect a day as I’d ever seen it. The water was so clear and blue, you could see 30 feet down through the netting of the boat. The sky was just as blue – not a cloud to be seen – and the day was just hot enough to be perfected by a crisp Tahoe breeze.

At one point in the cruise we sailed past the “Ellison project” – a stretch of lakefront put under construction by Larry Ellison, the billionaire founder of Oracle (ORCL:NASDAQ). The two adjoining $15 million mansions weren’t big enough for Larry, so he had them torn down to build something more to his liking instead.

At another, equally secluded bend in the Tahoe shoreline (the lake is 22 miles long), we passed by the Stack family estate. Robert Stack, the late actor best known for The Untouchables and Unsolved Mysteries, spent his boyhood summers there. Adjacent to this, a 5- or 6-acre parcel of waterfront land was on the market for “only” $19 million – a bargain-basement price by Tahoe standards.

As we noshed on beer and wine and cheese and fruit, I joked with my little brother that we should go in on the property together – get the ball rolling on a new patch of Litle estate.

“Not just yet, big bro,” he replied. “Unless I can make do with, say, a zero-point-five percentage ownership.”

“Couple years,” I chuckled back. We were joking, of course… $19 mil is a bit rich for a piece of undeveloped real estate… but then again, five or 10 years from now, who knows?

Perfect weekends like the one that just unfolded in Tahoe remind me of something Einstein once said – you can live your life as if everything is a miracle, or nothing is. I think that’s true. In hearing the stories of some of the families who built those lakefront estates, I was also reminded of something else I believe.

Of all the traits that separate those who live their dreams from those who don’t, courage and determination seem to be the biggest two factors by far. Smarts, connections, money, and even lucky breaks seem to pale in comparison to those first two. Luck is still an undeniable factor, of course, but in some ways luck is like an ocean wave. It’s not enough just to be standing on the beach… you have to have the gumption to get out there and surf it.

Anyhow, just some quick thoughts from an idyllic weekend…

Cliff Asness, Hero

Back to the slightly more grim (but important) matter at hand. It’s not the custom of Taipan Daily to direct readers to outside essays written by outside writers. But in this case, the piece to which I call your attention now is well worth it.

The piece is called “Health Care Mythology” by Clifford Asness. A friend forwarded it to me, but you can find it on this Web site (the WSJ has been directing readers there too).

As the founder of a multibillion-dollar quantitative strategy hedge fund, Cliff Asness makes for an unlikely hero. Your humble editor calls him a hero, in a tongue-in-cheek but not totally undeserved sense of the term, because Asness is wealthy, outspoken and exposed. The things he says – and he says them quite forcefully – could lead to trouble for his wildly successful fund management business.

In “Health Care Mythology,” Asness eloquently and brutally dismantles certain myths about the healthcare industry. Lest you think this is a boring exercise from a stuffy fund manager, consider some of these excerpts:

…Step one is understanding how and why they are wrong. Step two is kicking their asses back to Cuba where they can get in line with Michael Moore for their free gastric bypasses.

…. if one more person cites soaring health care costs as an indictment of the free market, when it is in fact a staggering achievement of the free market, I’m going to rupture their appendix and send them to a queue in the UK to get it fixed. Last we’ll see of them…

The Seven Myths, Summarized

In case you don’t have time to read Cliff’s more than 6,000-word commonsense manifesto – a good chunk of prose by even your humble editor’s standards! – the seven myths are summarized briefly here. (Keep in mind, though, that the summaries really are no substitute for reading the whole “Health Care Mythology” piece.)

Myth #1: Healthcare Costs Are Soaring

No they’re not, says Cliff Asness. They only appear to be soaring if you compare on price but forget to compare on quality. As Cliff puts it, “you cannot judge the cost of something simply by what you spend.” We may be spending a lot more dough than we did in the 1950s, but we’re also getting a lot more value for our money. As Asness puts it, “nobody in the US really wants 1950’s health care (or even 1990’s health care). They just want to pay 1950 prices for 2009 health care.”

Myth #2: The Canadian Drug Story

Those who cast a skeptical eye on healthcare reform are constantly beaten over the head with the Canadian success story. Our neighbors to the north have a far more humane and effective system, the reformers say. Cliff Asness calls B.S. on this argument by making a non-politically correct point…. the government-run Canadian system only works by leeching off the free-market U.S. one.

Asness’ case in point is the drug market. U.S.-based pharmaceutical companies have to spend ungodly sums of money on the testing, development and marketing of new drugs. Big pharma then has to charge a lot of money for their end product to recoup this massively expensive pipeline cost – otherwise the drug isn’t worth making in the first place.

But Canada, in its capacity to act as a single government-backed customer, puts big pharma over a barrel. After a drug is already developed for the U.S. market, it only makes sense to sell into Canada too, and big pharma needs all the profits it can get to fund further research.

So basically, Asness argues, many of Canada’s benefits come from piggybacking on a functional American system. Take the functioning U.S. market out of the equation and what do you get? No more cheap drugs, eh.

Myth #3: Socialized Medicine Works in Some Places

As Asness sees it, the leech argument further applies to all the government-run healthcare systems in the world that benefit from an influx of U.S.-based medical advances originally developed for a profitable market.

And so, Asness argues, if America tries to go the way of Canada or the U.K. or what have you, there will be no one for America to leech off of in terms of drug development and innovation… and the U.S. centric march of progress towards better medical technology will simply collapse.

So, please [Asness begs], stop pointing to all those “successes” that even while living off the US still kill hard-working people who could afford their own health care while they stand in line for the government’s version (people’s cancers growing while waiting ten weeks for a routine scan, which these people could often afford on their own if allowed, is a human tragedy). Even the successes you gin up for them would not be possible without the last best hope of humankind (the US) on the front lines again making the miracles for the world.

Myth #4: Socialized Medicine Is Better Because Their Cost/GDP for Healthcare Is Lower

Asness argues that this is a failing of logic rather than statistics.

While technically correct in a pure statistical sense, the fact that countries with socialized medicine spend less per capita on healthcare is misleading for a number of reasons. For one, Asness points out, many of these countries are subsidized by U.S. drug development and innovation. Second, differences in overall spending do not account for choices made in the United States that simply aren’t available elsewhere.

There are a number of other arguments Asness uses – basic point being, you can’t always trust an upfront number to tell an accurate story. As Mark Twain liked to say, “there are lies, damn lies, and statistics.”

Myth #5: A Public Option Can Co-Exist With a Private Option

This is the myth that, under the guise of national healthcare reform, those who want to keep access to a private system can do so without seeing significant degradation of their choices.

Asness argues at length that this is basically a ruse. If we go “public,” Asness asserts, we are signing up for socialized medicine whether we like it or not. There are all kinds of technicalities and wavers and ways to artfully dodge this assertion, and Asness tackles many if not most of them in his piece.

Myth #6: We Can Have Health Care Without Rationing

For this myth, Asness points to the elephant in the room, addressing an ugly word – “rationing” – that no one in Washington seems comfortable with.

It’s simple economics, Asness says. No matter how much we might wish it weren’t so, idealism won’t change the fact that a scarce good cannot be provided in unlimited, equal amounts to everyone. As Asness puts it,

If you have a material good or service, like health care, that is ever increasing in quality, and therefore cost, there is no way everyone on Earth can have the best at all times (actually the quality increases are not necessary for rationing to be needed, it just makes the example clearer). It’s going to be rationed by some means. The alternatives come down to the marketplace or the government.

Myth #7: Health Care Is a Right

“Nope, it’s not,” Asness says. “But we are at the nuclear bomb of the discussion. The one guaranteed to get me yelled at or perhaps picketed by a mob waving signs printed up with George Soros’s money.”

Asness makes the case as to why healthcare is not a “right” with a mix of insight and sarcasm. Much of his argument centers around the difference between positive and negative rights – e.g. the right to be left in peace versus the right to some form of entitlement – and also touches on the crazy idea that new technology, a driving force in medical care, should somehow be instantly appropriated for the masses. (At one point Asness asks, “Did you have a right to chemotherapy in 1600 AD?”)

Asness further goes on to point out one of the ironies of “unfair” free market healthcare versus “fair” government provided healthcare.

In an “unfair” system, the initial users of a new medical technology are willing to pay an expensive price – a price the masses could not afford. But the profits generated from this early use lead to innovation and price competition, eventually making the medical technology available to everyone.

Think of it like DVD players. These days you can buy a serviceable DVD player for a whopping 30 bucks. Considering the technology involved, that’s damn cheap… and that’s why DVD players are so popular. But DVD players started out being ridiculously expensive… too expensive for the average family to afford. It was the “early adopters” willing to pay hundreds and hundreds of dollars for experimental technology (the first DVD player prototypes) who enabled profit-driven improvements and the migration to a mass market.

So now imagine what would happen if the government had declared home entertainment equipment to be a “right” from the outset. Under this “rights” based system, the idea of a super-expensive DVD player that only some rich technophile could afford would be considered an outrage. And in the absence of expensive DVD players at the outset, the competition-driven free market would never have figured out how to serve up cheap ones.

The DVD player story is Silicon Valley in microcosm. “First expensive, then cheap” is how innovation spreads. The difference between healthcare technology and home entertainment technology is an emotional one, not a logical one… and so viewing healthcare as a “right” creates the same problems you get when the government is put in charge of most anything at all.

What do you think? Is Cliff Asness on target? Or do views such as these count more as part of the problem than the solution? Let me know: justice@taipandaily.com

Source:  The Seven Myths of U.S. Healthcare Reform

• Google Inc. (Nasdaq: GOOG) saw its revenue grow 3% in its second quarter, which ended on June 30. The Internet search giant reported a net income of $1.4 billion, or $4.66 per diluted share on revenue of $5.5 billion. That compares to a net income of $1.2 billion, or $3.92 per diluted share on revenue of $5.3 billion in the same quarter last year. “These results highlight the enduring strength of our business model and our responsible efforts to manage expenses in a way that puts us in a good position for the economic upturn, when it occurs,” said Eric Schmidt, Google’s chief executive officer. Ad revenues accounted for 97% of Google’s revenue. The company was able to maintain its 65% market share for searches amid increasing competition fromMicrosoft Corp.’s (Nasdaq: MSFT) Bing search engine, which launched in early June.

• International Business Machines Corp.’s (NYSE: IBM) second quarter profit grew 12%, but revenues fell 13%, the company said yesterday (Thursday). IBM’s net income was $3.1 billion, or $2.32 per diluted share on revenue of $23.2 billion for the quarter ended June 30. That compares to a net income of $2.8 billion, or $1.97 per diluted share on revenues of $26.8 billion in the same quarter last year. Shares of IBM were up 1.46% in after hours trading on the news.

• Foreclosure filings in the United States jumped to a record 1.9 million on more than 1.5 million properties in the first half of 2009, according to RealtyTrac. “Despite everybody’s best efforts to datewe’re not really making any headway against the problem,” Rick Sharga, senior vice president at RealtyTrac said in an interview with Reuters. “I don’t think this suggests the economy is any worse than anyone expected but I certainly don’t think it shows by itself any signs of improvement.” In related real estate news, builder confidence for newly built single-family homes grew by two points to 17 this month, its highest level since September according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index. Still, the index was well below 50, the threshold for which builders view the market conditions as good. “Builders are seeing slightly better sales conditions this month as consumers take advantage of the first-time buyer tax credit, low interest rates and attractive home prices, but many remain quite concerned about the road that lies ahead,” said NAHB Chairman Joe Robson, who is himself a builder from Tulsa, Okla.

• Initial unemployment benefit claims in the United States fell by 47,000 to 522,000 for the week ended July 11, to their lowest level since January, according to the Department of Labor. The less volatile four-week moving average also shrank, falling by 22,500 to 584,500. “The annual auto retooling shutdowns almost certainly explain the sudden dive in claims,” Ian Sheperdson, chief economist at High Frequency Economics told the Financial Times. “The shutdowns happen every year but GM and Chrysler started early this year.”

• Lawmakers in Washington yesterday (Thursday) accused former Treasury Secretary Henry Paulson of misleading Congress and looking the other way as major mistakes were made at Bank of America (NYSE: BAC) as it was about to merge with Merrill Lynch, Dow Jones Newswires reported. Paulson defended the U.S. government’s response to the financial crisis and his role in ensuring Bank of America closed its acquisition of Merrill Lynch, but took a verbal drubbing on Capitol Hill, mostly from those who voted against the Troubled Asset Relief Program (TARP). “I don’t think anyone’s buying what you’re saying,” said Rep. Dan Burton, R-Ind. “The biggest, most powerful bankers have essentially received a free ride at taxpayers’ expense,” Rep. Dennis Kucinich, D-Ohio, added.

• Sun Microsystems Inc. (Nasdaq: JAVA) shareholders approved the sale of the company to Oracle Corporation (Nasdaq: ORCL) for $9.50 per share in cash Sun said yesterday (Thursday) in a statement. Roughly 62% of the outstanding shares of Sun’s stock voted in favor of the merger. The deal represents a total of $7.4 billion, or $5.6 billion of Sun’s cash and debt.

Source: Investment News Briefs Friday, July 17, 2009

Documents brought to light by key by congressional investigators hightlight real disagreement between top-level U.S. Federal Reserve officials about how it should address the Bank of America Corp.(NYSE:BAC) acquisition of Merrill Lynch & Co. Inc. are almost certain to fuel the ongoing congressional debate over the central bank’s push to expand its authority over the U.S. financial system.

This growing concern manifested itself Thursday, when Fed Chairman Ben S. Bernanke; was grilled by Capitol Hill lawmakers during a congressional hearing looking into the central bank’s conduct in BofA’s buyout of Merrill Lynch. Bernanke’s failure to resolve some of the most-pointed questions posed by congressional leaders – (especially Republicans) who wanted to discover whether the Fed overstepped its authority and interfered with merger-related decisions – may undermine a proposed financial system overhaul that would imbue the central bank with broad authority over big U.S. financial institutions. One example: In the Bank of America deal for Merrill Lynch, lawmakers felt that Bernanke & Co. should’ve required more concessions in return for the taxpayer-supplied financial aid, Bloomberg News said.

The bottom line: The additional oversight powers that Bernanke is seeking – and that are part and parcel of the proposed Obama administration financial-system overhaul may prove to be one very tough sell.

Both parties are likely to find fault with U.S. President Barack Obama’s plan to put the Fed on the point, positioning it as the single agency responsible for supervising the U.S. economy’s largest and most-interconnected banks and financial institutions, giving the central bank the power to dictate financial standards on capital, management of risk and even liquidity requirements.

“It may be more important for us to find another systemic risk regulator,” U.S. Rep. Paul Kanjorski, D-Pa., who is a member of the House Oversight Committee where Bernanke appeared, told Bloomberg TV. Congress should “hesitate to put any more authority on the back of the Federal Reserve.”
The internal central bank documents – e-mails, written notes and even official memos paint a picture of a government institution that’s “wrestling” with how tough it should be on BofA and other big banks,The Wall Street Journal reported. In December, Bank of America told federal officials it was looking to possibly end the deal, and current and former bank officials contend that the Fed and former Bush administration officials pressured BofA to go through with the deal, which has turned out to be much-less beneficial than hoped for.

On the other hand, these disclosures could bolster the argument by Fed officials that the central bank needs these powers to address future financial crises. The reason: These  disclosures show that it lacked the “tools” (the legislated power and authority) needed to tackle the problems as soon as they surfaced. The inability to do so probably lengthened the crisis and exacerbated both the damages – as well as its ultimate cost.

Market Matters

In non-financial news, U.S. commercial aircraft giant The Boeing Co. (NYSE: BA) struggled through a miserable week as it postponed testing of the new 787 Dreamliner aircraft and also lost orders from Qantas Airways Ltd., as the entire industry continued to suffer the ill effects of the economic downturn on travel.

Apple Inc. (Nasdaq: AAPL) reported better-than-expected early salesof its new iPhone 3G and appeared close to welcoming its fearless leader, Chief Executive Officer Steven Jobs, back to work.  Tech giantOracle Corp. (Nasdaq: ORCL) announced declining profits, but offered favorable forecasts for the current quarter and beyond.  Likewise, retailer Bed Bath and Beyond Inc. (Nasdaq: BBBY) experienced a surprisingly strong quarter, a nice sign that the ailing consumer may be showing renewed life.  State-owned Sinopec Shanghai Petrochemical Group (NYSE ADR: SHI) is attempting to purchase Swiss-based Addax Petroleum Corp. for $7.2 billion in what would be the largest global acquisition by a Chinese company.

Investors breathed a collective sign of relief when the final leg of the record $104 billion U.S. Treasury auction came to a close and interest rates had not soared through the roof.  Instead, institutions and sovereign funds seemed to maintain a hearty appetite for U.S. government securities, despite rumors to the contrary.  In recent weeks, naysayers have been predicting that foreign buyers would shun domestic fixed income as the ballooning U.S. deficit spiraled out of control with expensive new programs to cure all that ailed the country.  For the time being, at least, Treasuries remain a safe-haven investment, and the yield of the benchmark 10-year bond even fell to around 3.5%.

From an equity standpoint, investors remain confused about the future direction of the markets and whether to ride the prior upward trend or take profits from the rally that exceeded 30% in anticipation of a return to the lows set in early-March.  Some believe the indexes will trade sideways for the foreseeable future.  The Dow Jones Industrial Average lost ground (thanks in large part to Boeing), while other major indexes closed relatively flat from the prior week’s levels.  Despite a bit of volatility, oil hovered neared $70 a barrel level and gasoline prices fell slightly for the first time in two months.

While the economic numbers appear to be getting stronger (see below), many investors want to see more than just “less” contradiction or “slower” weakness in the economy and various sectors.  Many believe that the “worst of times” may be over, but the “best of times” may still be far away.  Some even approve of the job Bernanke is doing (despite what their elected reps are saying).

Economically Speaking

A Congressional tongue-lashing didn’t keep Bernanke and Fed policymakers from completing their business at hand.  Last week’s policy meeting provided few surprises as the Fed left the benchmark Fed Funds rate unchanged at (virtually) 0% and announced that no rate changes seem likely in the near-term.  The Fed also confirmed its intent to buy $1.45 trillion in mortgage-related securities and $300 billion in Treasuries, though made no commitment to purchase more than that previously announced amount.  The accompanying statement depicted an economy that remained weak, but seemed to be exhibiting some signs of rebounding (ever so slightly).  For the time being, inflation (or even deflation) does not appear to be of major concern.  The policymakers also continued to apprise the public on the success of the various “stimulus” actions and announced the closing of several lending programs that they no longer deem necessary.

The World Bank said the worldwide slump would be worse than it has previously projected, boosting its forecasted slump to 3% from the previous forecast which called for a slump of 1.75% – and claimed that activity would be the worst on record.  By contrast, the Paris-based Organization for Economic Cooperation and Development reported that the “worst may soon be over” and revised its economic forecast to more favorable terms for the first time in two years.

Among weekly releases, new home sales declined in May and existing home sales rose less than expected as much of the buying centered around distressed sales and foreclosures.  The median price of an existing home purchased in May was more than 16% below last year’s level.

Higher durable goods orders lent some confidence to manufacturers, as activity rose for the second consecutive month.  Personal income and spending both increased in May and the administration was quick to praise the benefits of the stimulus package.  However, the savings rate also climbed to its highest level in 15 years as consumers remained uncertain about the economy in general and their job situations in particular.  On a bright note, the Reuters/University of Michigan Sentiment index increased to its highest level since February 2008. Gross domestic product (GDP) in the first quarter was revised again – to minus 5.5% (from minus 5.7% reported last month), a positive sign, though impatient economists and investors alike seem ready for even better (positive) data in the quarters to come.

Weekly Economic Calendar

Source: Will Week of Controversy Undermine Financial System Overhaul That Calls for Broad Expansion of Central Bank’s Power?

Peter Schiff: Why this Money Should Replace the U.S. Dollar There’s a new universal currency, backed by solid gold. You can use it to make online purchases anywhere in the world. Converting some money to the new currency takes just 5 minutes. You can start with as little as $10… or as much as $10 million. According to CNBC star analyst and Euro Pacific Capital President Peter Schiff, this money could double the value of your savings – automatically – in just 6-9 months. For Schiff’s full analysis and recommendations, please go here.

Investors awaited a statement from the Federal Reserve, due at around 2:15 p.m. EDT (1815 GMT), for clues on how the U.S. central bank assesses the economy.

Technology shares rose after better-than-expected quarterly profit and sales from Oracle Corp . The software maker’s stock was among the Nasdaq’s top advancers, up 7.9 percent at $21.43. Shares of IBM rose 0.7 percent to $105.17 on the New York Stock Exchange and helped left the Dow industrials.

The Fed is widely expected to leave the benchmark fed funds rate at almost zero, but investors will hone in on its statement for clues on the central bank’s economic outlook.

“The policy statement is likely to say the economy is still mired in slow growth and inflation is not a problem,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville, Tennessee.

The Dow Jones industrial average  was up 55.40 points, or 0.67 percent, at 8,378.31. The Standard & Poor’s 500 Index was up 12.69 points, or 1.42 percent, at 907.79. The Nasdaq Composite Index was up 38.48 points, or 2.18 percent, at 1,803.40.

New orders for durable goods, which are long-lasting U.S. manufactured products such as refrigerators and washing machines, increased by a much stronger-than-expected 1.8 percent in May, and the median price of new homes hit its highest level since December, even though sales slipped, economic data showed.

“… There was a lot of concern about the economy and all of a sudden the economy shows some signs of life, and so does the market,” Bittles said.

Although stocks rose sharply from early March through May, gains have stalled recently as investors sought signs the economy is recovering enough to justify the market’s rally.

The broad S&P 500 index is up 34 percent from a 12-1/2-year closing low on March 9, it had soared as much as 40 percent during the spring rally.

NEW YORK, June 24 (Reuters)

Monday
Earnings Announcements: Walgreens (WAG)

Tuesday
Economic Reports: Existing Home Sales

Earnings Announcements: Oracle (ORCL)

Wednesday
Economic Reports: Durable Orders, New Home Sales, FOMC Rate Decision

Durable Orders are expected to fall dramatically since last month. I am not sure if this is due to no more income tax refund checks to spend on big ticket items or not, but with Personal Spending for May expected to increase, a drop in Durable Orders is surprising.

New Home Sales are expected to climb this month, and after last weeks surprise in Building Permits and Housing Starts, I have a hard time trying to figure out the New Home Sales report. If I had to pick, I would expect the report to meet or beat expectations. Just a gut feeling.

The FOMC Rate Decision is announced at 2:15, and I don’t expect a change to be made to the current 0.0-0.25 percent rate

Earnings Announcements: Monsanto (MON), Rite-Aid (RAD),

Thursday
Economic Calendar: Q1 GDP Final

Expectations are for no revision to the first quarter GDP figure. At this point, I doubt there would be a surprise showing improvement. If anything, the report may show a tenth of a point or so larger contraction for the first quarter GDP.

Earnings Announcements: Con-Agra (CAG), Palm (PALM)

Friday
Economic Reports: Personal Income and Spending, Michigan Sentiment

As mentioned earlier, Personal Income and Personal Spending for May are both expected to show an increase. I guess the surprise is that the expected increase in spending is larger than the expected increase in income. With money tight for everyone, an increase in spending is quite surprising.

The Michigan Sentiment reading is expected to show no change since the last report, which is about what I expected. With rising gas prices, uncertainty about the economy and slowing  job losses, the consumer has many offsetting considerations.

Source: Will Housing Continue Its Uptick? GDP Could Scare The Market on Thursday

And even with the ugliness caused by the release of the banking stress tests last week, it doesn’t look like we’ll be seeing values plunge. There’s simply too much money sitting on the sidelines, and it’s slowly creeping back in.

Since 1987 the American Association of Individual Investors (AAII) has conducted a monthly survey on how we allocate our money between stocks, bonds and cash. And per the most recent survey, the percent of direct investments in individual stocks is at an all-time low of 17%, nearly half the historical average of 31%.

Thus, a mountain of cash remains on the sideline. If even a quarter of that cash returns to the market – and I suspect more than that will – we could feasibly march another 15% to 20% higher from here.

Investors who have been waiting for the perfect entry point could be quite disappointed to learn that we’re not going to get it. We may not see a second bottom or this “perfect entry point” everyone expects.

Even if there is a slight pullback, we may not see these price levels from March 6 again – realistically, in our lifetimes.

So what is a careful investor to do? Easy. Follow the time-tested steps we use to pick out undervalued companies in any market – including insider buying…

Insider Buying – The Best Buy Signal Investors Can Get

Quite simply, the single best buy signal that investors can get is strong insider buying. Heavy insider trading is the surest way you can tell if the management believes their company is undervalued.

• Insiders are the officers who run a company, the directors who oversee the officers, and 10% beneficial owners of the stock who are presumed to be more than ordinarily well apprised of the company’s business and future prospects.
• Insiders know virtually everything that can be known about the company they run. They know the pace of sales day to day. They know of new products in development. They know whether the company is a takeover candidate or is already getting unsolicited offers.
• They know everything that reasonably can be known about their company’s business prospects, employees, customers, suppliers and competitors…

In short, insiders have an unfair advantage when they go into the market to trade their own company’s stock shares. After all, they know not only all the public information about their company but a great deal of non-public information as well.

For this reason, the U.S. government requires all insiders to report their transactions to the SEC by the tenth day of the month following the month in which they buy or sell their company stock shares.

It’s how “Uncle Sam” helps level the playing field for smaller investors. It opens a window on what the insiders are doing with their money. It also gives us an insider advantage when deciding whether a value play truly is undervalued.

Why It’s Risky To Base Your Investment Decisions on Insider Buying

It’s important to be careful when basing your decisions on the movements of insider buying. They can easily give you mixed signals. And while insider buying is the clearest signal you can get, insider selling is about the cloudiest.

Take a look at most publicly listed stocks and you might be surprised at how many sales are being recorded. Every day executives and officers are selling their company stock. But unlike purchases, there are a number of reasons why.

It could be that these officers have a large amount of their salary given to them as stock. Many executives receive salaries of $1 and the rest of their multi-million-dollar compensation packages are paid in stock. The only way they get that money is through regular stock sales.

It could be that these individuals are going through a nasty divorce, putting kids through college, building a new house, supporting a family member, or even has a gambling addiction.

Either way, the point is clear: Insider stock sales are not a clear signal to sell.

Bill Gates has been a regular seller of Microsoft (NYSE: MSFT) for decades. So has Larry Ellison at Oracle (Nasdaq: ORCL). Yet if you’d held these stocks for the past 20 years, you would have done okay. In fact, you would have earned many, many times your original investment.

Even in the case of Enron where company executives were dumping billions of shares en-masse’, we cannot guarantee that there were no other motivations outside of the companies performance.

On the other hand, there is only one reason an insider purchases a stock: They believe it’s undervalued. That’s why insider buying is the best buy signal that you can get when trying to find undervalued companies.

Three Insider Buying Triggers To Watch For

Here are three “insider buying triggers” you should look out for:

• Purchases around price points. Keep an eye out for upper management, executives and directors consistently buying large amounts of stock around a specific price point. You’ll start to notice that they stick below a certain price level.
• Insider purchases relative to their current holdings. A director who owns a million shares, and who buys 10,000 more isn’t as interesting as one who’s buying two million more shares. Are they buying larger amounts than their current holdings?
• Salary levels of insiders. A director making $40 million who risks $30,000 isn’t as interesting as a middle manager that risks a majority of his annual salary on the same $30,000 purchase. The size of their purchases relative to their salaries lets you know how sure they are of their investment.

These are some of the biggest tips that the insiders give us that the markets are undervaluing a particular stock. By taking these simple cues, we can turn their insider knowledge to our advantage.

Insider Buying: The Best Buy Signal You Can Get

]]> http://www.contrarianprofits.com/articles/insider-buying-the-best-buy-signal-you-can-get/16490/feed 0 http://www.contrarianprofits.com/articles/takeover-targets-3-steps-to-finding-them-3-stocks-for-any-portfolio/16346 http://www.contrarianprofits.com/articles/takeover-targets-3-steps-to-finding-them-3-stocks-for-any-portfolio/16346#comments Wed, 06 May 2009 19:31:11 +0000 Louis Basenese http://www.contrarianprofits.com/?p=16346 I promise. Alexander Green and I are not in cahoots about the coming boom in corporate takeovers… We both researched the possibility separately. Unprompted, I might add. And yet, armed with different evidence, we arrived at the same conclusion. If you ask me, such a convergence of analysis in a narrow space of time shouldn’t be ignored. So today, let’s move on from why a takeover boom is imminent and focus exclusively on three takeover targets you can profit from…

Identifying The Market’s Next Takeover Targets

The task of identifying the market’s next takeover targets can be daunting. Literally thousands of potential targets exist, which is probably why most investors liken it to a crapshoot and in turn, shun such a strategy…

The problem I have with this dogmatic definition of a bear market rally is the following: Assuming (and this isn’t a forecast, since I really haven’t the foggiest idea where stock markets will be in six or 12 months’ time) the S&P 500 moved up to 1350 and then declined to 500, as an investor should you care if the move to 1350 — a 100% gain! — was a bear market rally?

My impression is that investors’ fixation on the recent rally being a bear market rally has actually kept most investors on the sidelines and hoarding cash. Now, put yourself in the shoes of a fund manager who, in the last 18 months, has lost 50% of his clients’ money and missed the recent rally (34% for the S&P 500). What is he likely to do? I would think that he would be inclined to purchase equities as they correct the sharp advance since early March, especially as the economic news in the near term becomes less negative.

Based on our conversations with numerous managers in recent weeks, we believe that most quantitative managers’ portfolios were not positioned in expectation of a rally. Of the nearly 80 managers we have talked to, only one manager said they were up since March 9th and the clear majority admitted to being notably down or stopped out on their positions. These managers were both long-only and long-short quant managers using market neutral and non-market neutral strategies, sector neutral and non-sector neutral strategies, longer term and intermediate-term holding periods. It is fair to say that just about everyone is bewildered and trying to understand when this rally will end.

Another factor to consider is that there has been a significant improvement in the technical position of world stock markets. In the US the largest number of new 12-month lows was reached in October. At the November 21 low at 741 for the S&P 500, the number of new lows had already contracted, and even more so at the index’s March 6 low at 666. Also, market breadth and the number of stocks moving above their 200-day moving averages have taken a decisive turn for the better, indicating that the stock market advance is broadening and that the number of stocks that have bottomed out (at least in the intermediate turn) is expanding.

I have explained repeatedly in the past that if a government is really determined to try and postpone an inevitable collapse by “printing money” in order to lift or support asset prices, it can be done. However, the result of such a monetary policy is to lower the purchasing power of its paper currency, with catastrophic long-term consequences for its economic and financial volatility.

It forces individuals and institutions with cash to buy something…anything. So, this cash is channeled into gold and/or different paper currencies, commodities, equities, bonds, real estate, and consumer goods and services, but obviously with different intensities and at different times. For instance, at some times, such as in 2008, more money will be allocated to gold; while at other times, such as since early March, more money will flow into equities and industrial commodities. It is well understood that these money flows are driven largely by speculative activity (and more than a little dose of manipulation). The result in all asset markets is very high volatility and price fluctuations that don’t appear to make any sense to most market participants and observers who don’t understand the new rules of the investment game that were brought about by “money printing”.

This is where we are today, irrespective of whether or not you and I like policies of “quantitative easing, massive bailouts, and frightening fiscal deficits” and their long-term consequences! Another positive factor for stock markets is that a large number of Asian stock markets and individual stocks in the region had already bottomed out in October and November of 2008 and didn’t confirm the new low in the S&P in early March.

In Asia, the Taiwan and Shanghai indexes, and Korea’s Kospi Index, are all up by more than 50% from their late October 2008 lows. (The Shenzhen Index is up 90%.) But it is not only the Asian equity markets that have outperformed the US and Western European markets over the last few months; since late January 2009, the RTS Russian Index is up 66% and the MSCI Emerging Market ETF is up by 55% from its early November 2008 low.

This is not to say that the global economy is about to embark on a strong and sustainable growth phase. It also doesn’t mean that a new bull market in global equities à la 1982– 2000 has begun. But I think that, at least in nominal terms (inflation-adjusted), the global printing presses being run by the world’s central banks and fiscal deficits have begun to impact asset prices positively. Therefore, in the case of resource and mining stocks, as well as Asian equities (and, for that matter, most emerging and other stock markets around the globe), the lows thatwere reached between October and March of this year are likely to hold — that is, for now.

The markets that have the highest probability of having made major longer-term lows are resource-related equities, emerging markets, and Japan. Conversely, the asset market that has the highest probability of having made a secular high (such as Japan in 1989, or the Nasdaq in March 2000) is the US long-term government bond market.

Despite a still-weakening economy and massive quantitative easing, long-term bond yields appear to be on the verge of breaking out on the upside. I have listed again below all the equity recommendations I have made since December 2008. Some of these equities have already moved up substantially (resource and mining companies, in particular) and, therefore, I would only buy most of these recommendations on a correction.

In addition, a number of BRIC and other (mostly emerging market) closed-end country funds and ETS were recommended, such as Brazil ETF (EWZ), the Templeton Russia Fund (TRF), the Greater China Fund (GCH), the Asia Pacific Fund (APB), Taiwan iShares (EWT), the Japanese ETF (EWJ), the Japan Smaller Capitalization Fund (JOF), the Morgan Stanley India Fund (IIF), the Turkish Fund (TKF), and the MSCI Emerging Market ETF (EEM).

In the US, late last year we recommended buying the iShares iBox Investment Grade Corporate Bond (LQD) and Nicholas Applegate Convertible & Income Fund (NCV), while earlier this year we recommended the accumulation of stocks of high-tech companies such as Cisco (CSCO), Intel (INTL), Oracle (ORCL), and Yahoo (YHOO). More recently, we recommended beaten-down insurance companies and financials as rebound candidates, including Leucadia National (LUK) and CNA Financial (CNA), Citigroup (C), the BKX, the Financial Bull 3x Shares (FAS), and the Financials Select Sector SPDR.

The market’s advance had been broadening and that more and more groups such as airlines (AMR), homebuilders (TOL, CTX, HOV), and cyclicals such as Dow Chemical (DOW), International Paper (IP), and Alcoa (AA) are showing signs of having bottomed out. Among commodities, I am particularly intrigued by natural gas. There are natural gas ETFs (UNG, GAZ), but costs are high. A better way is probably just to buy future contracts, or Pioneer Natural Resources (PXD) or the First Trust ISE Revere Natural Gas Index Fund (FCG).

Source: What to Buy…or Not Buy