Sunday, August 28, 2011

US markets rise on Bernanke statement

US markets rose on Friday on Federal Reserve Chairman Ben Bernanke's statement from Jackson Hole. After opening 4 points lower on Friday, the Dow fell 220 points on a lack of action from Ben Bernanke. However, the Dow rose after investors became hopeful of QE3, due to Bernanke extending the Fed meeting next month to 2 days. The Dow rose 134.72 points or 1.21% at 11,284.54. The S&P 500 gained 17.53 points or 1.51% at 1,176.80.

For the week, the Dow gained 4.3%, while the S&P 500 climbed 4.7%. US markets received a boost all week, as investors looked forward to Ben Bernanke's statement on Friday. However, all week analysts and economists were downplaying the likelihood of a QE3 to be announced on Friday, which decreased the market's expectations.

Initial jobless claims worse than expected

On Thursday, the initial jobless claims report showed claims rose 5,000 to 417,000, worse than the 410,000 that economists expected. In addition, initial claims in the week before were revised up to 412,000 from the previously-announced 408,000

Buffet invests in Bank of America

Bank of America had been plagued by bad news in recent weeks. On Monday, its shares were at $6.03, down 40% from $9.71 on August 1st. However, Warren Buffeted announced a $5 billion investment in Bank of America preferred shares on Thursday. As a result, the bank's shares rose 15%, and shares of other US banks gained as well.

Greece Bailout in Doubt

Finland reached an agreement with Greece early this week, in which Greece deposits $500 million euros into a Finish national account, as collateral for Finland helping other euro zone nations to bail out Greece. However, this will cause other nations to try to reach similar agreements with Greece, which throws into question the effectiveness of the euro zone bailout of Greece.

Durable goods orders impresses

On Wednesday, US July durable goods orders rose 4% over the June level, which was higher than the 2% increase expected. This helped to alleviate some double-dip recession concerns.

China manufacturing reading rises

On Tuesday, HSBC's China August PMI showed a reading of 49.8, which was a slight increase over July's 49.3. Although it was below 50, indicating contraction, it indicated that a hard landing is unlikely for China.

Rebels in Libya capture Tripoli

Oil fell after rebel forces fighting against Gaddafi captured Tripoli. Brent Crude settled on Monday at $108.36. However, as the week went on, analysts and traders realized that it could be 1-2 years before Libya reached full oil production. On Friday, Brent Crude was higher, settling at $111.36.

Gold surges past $1,900

Amid concerns about a double-dip recession, and hope for QE3, gold surged this week past the $1,900/ounce level. After the quick surge, gold corrected by about 8%. On Friday, gold futures settled up 1.93% at $1,797.30.

Using a strategy outlined in my e-book Gold Investing Mastery Guide, I decreased my positions in Barrick Gold and Goldcorp by 25% each, as the former reached C$52.23 and the latter reached C$53.85 on Monday. I also sold all my holdings of the SPDR Gold ETF, GLD, as gold hit $1,900. The rise was clearly too quick, making the metal prone to a correction. However, my outlook for gold is still very positive, with gold reaching $2,100 being a possibility before the end of 2011.

Looking ahead to next week

Because analysts and fund managers had talked down the possibility of QE3 for Friday, markets rose on Friday despite Bernanke taking no action. This slightly positive effect of Bernanke's statement is likely to continue next week. However, investors will be paying attention to the August non-farm payrolls, the revised July jobs report and the minutes from the Fed's August 9 FOMC meeting.

Market sentiment is now slightly hopeful, as investors look forward to QE3 during the September 20-21 Fed meeting. However, jobs data next week can have a big impact. Worse-than-expected jobs data would increase concerns of a double-dip recession, sending markets lower and perhaps causing the panic that was seen earlier this month. On the other hand, better-than-expected data would alleviate some double-dip recession concerns. 

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Thursday, August 25, 2011

RIM Takes Shot at iTunes With BBM Music

This morning, RIM announced its new BBM Music App. For $4.99 a month, users have access to 50 songs (can swap 25 of them each month). The feature that differentiates this service from others is that adding a friend gives the user access to their songs. Thus, with just 25 friends, a user would have access to 1,300 songs. This is an advantage over iTunes, which would charge an user $1,287 for 1,300 songs (assuming $0.99 per song).


BBM Music comes on the heels of RIM's push to promote BBM, including the launch of BBM 6.0 on July 28 and the BBM Hackathon in NYC August 11-12. With BBM 6.0, developers can now embed BBM into their app. This allows users to invite their BBM contacts to download the app, share users' BBM profiles and chat on BBM (while in the 3rd party app).

BBM 6.0 leverages the popularity of the service (45 million active users) to deliver an unique experience to BlackBerry users. With BBM 6.0, BBM is now more than an app. In fact, it is now a platform. Apps that are BBM-integrated include the popular FourSquare and ScoreMobile. In fact, many games on App World are now BBM-integrated.

BBM is miles ahead of iMessage and Facebook Chat

When iMessage was announced, analysts became concerned that it would threaten the advantage that RIM enjoys. The above shows that it is clear BBM is far ahead of the yet-to-be-launched iMessage and Facebook Chat app. BBM offers additional features over iMessage and Facebook chat, by allowing users to share pictures, voice notes, files and their location. With BBM 6.0, BBM is now a platform that is integrated into various 3rd party apps.

Developers love BBM Hackathon

A complaint in the past about RIM has been developer support. RIM has been changing that, with its free BBM Hackathon in NYC August 11-12, for example. 30 developers received help and support from RIM employees while they developed BBM-integrated apps. The feedback from developers has been tremendously positive, and RIM intends to host additional hackathons in other cities.

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Sunday, August 21, 2011

US markets fall for 4th week on double dip concerns

US markets fell this week on concerns about a double-dip recession in the US and the euro zone. On Friday, investors were concerned about banks in Europe, when the Swiss Central Bank revealed that it has borrowed $200 million from the US Fed to lend to a Swiss bank. On Friday, the S&P 500 fell 17.12 points or 1.5% to 1,123.53. The Dow dropped 172.93 points or 1.57% to 10,817.65. 
For the week, the S&P 500 tumbled 4.7%, while the Dow lost 4%. The S&P 500 is down 17.6% from its April high, and down 10.7% for the year.

Horrible economic data shocks markets

Markets had appeared to be stabilizing early in the week. However, on Thursday, Philadelphia's manufacturing index was reported at a stunning -30.7 for August. It was much lower than the 2 that economists expected, and a big drop from the 3.2 in July. The reading caused panic among investors, sending the Dow down over 400 points.

Also on Thursday, initial jobless claims was worse than expected. Claims increased by 9,000 last week to 408,000. In addition, existing home sales fell by 3.5% in July over the month before.

German and French leaders meet

On Wednesday, the German chancellor and the French president discussed an economic council, a constitutionally-guaranteed deficit control and a financial tax. However, markets were not encouraged by a lack of concrete action.

Euro zone close to recession

On Tuesday, the euro zone reported 2nd quarter GDP growth at only 0.2%. In addition, Germany's GDP grew only 0.1% over the previous quarter. It caused investors to become concerned that the euro zone was very close to a recession.

Japan provides better-than-expected GDP reading

On Monday, Japan provided a boost to markets when 2nd quarter GDP was reported at -1.3%, better than the -2.5% expected. However, it was the 3rd consecutive quarter of negative GDP growth.

Looking ahead to next week

I am currently relatively bullish. I expect Ben Bernanke to announce measures supportive of the stock market on Friday, after his meeting in Jackson Hole. I expect events to be similar to the same time last year, when stock markets rallied after Bernanke hinted about QE2 in late August (it was officially announced on Nov. 3).

I expect the size of the Fed's proposal to be smaller than QE2. It is expected to include buying of longer term Treasuries and selling of shorter term Treasuries, and a decrease in the interest that the Fed gives to banks for depositing cash at the Fed. Additional measures are possible, including decreasing the 0%-0.25% interest rate. I expect Ben Bernanke, a well known dove, to act aggressively to boost the economy and decrease unemployment. 

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Monday, August 15, 2011

BlackBerry 7 devices to boost RIM's share price

Today, Verizon announced that the BlackBerry Bold 9930 will be available in stores August 25, while Sprint announced that the 9930 and Torch 9850 will be available August 21.  Meanwhile, AT&T announced that the Torch 9810 will be available August 21.

In fact, these 3 BlackBerry 7 devices have been available for almost a week in other countries such as Canada, the UK and India.  On August 10, the Bold 9900 became available on Rogers (some customers purchased it on August 9) while the 9900 and the Torch 9810 were available on Bell on the same day.  In India, the Bold 9900 became available on August 11.  Meanwhile, the 9900 was available in the UK on August 12 from Vodafone UK

RIM's Fiscal 2nd quarter ends on August 27, and some analysts have been concerned that the new devices would miss the quarter.  In fact, RIM gave a wide guidance for 2Q of between $0.75-$1.05 because of the uncertainty of when the devices will launch.  The market's consensus had been that the devices would launch in late-August, between August 21 and 29.  RIM's ability to launch the devices over 11 days earlier than expected (and in multiple countries) is certainly a positive, and will allow RIM to sell more devices in 2Q than expected. 

RIM's launch of BlackBerry 7 devices is different from previous launches in 3 ways, which most analysts have overlooked.

1. Simultaneous Launch of Multiple Devices

Unlike RIM's last major launch (of the Torch on August 12, 2010) RIM has launched 3 devices simultaneously (Bold 9900/9930, Torch 9810 and Torch 9850/9860).  This will boost sales by appealing to users with different tastes for screen sizes and presence/lack of a physical keyboard.

2. Simultaneous Launches Across Hundreds of Carriers


During RIM's AGM, the company stated that they were engaged in 491 carrier certification programs with 225 carriers worldwide.  This is unlike the launch of the Torch 9800 last August, when the device was available at AT&T on August 12, but users in other countries had to wait several months (which is how most smartphone makers launch devices).  Instead, this time, the BlackBerry 7 devices became available in Canada on August 10, India on August 11, the UK on August 12 and the US on August 21.  Thus, RIM will sell more devices in the current quarter than most analysts estimate.

3. RIM Strengthens Touch Screen Offerings

RIM is significantly expanding its touch screen offerings, an area that was previously lacking compared to Android and iPhone.  All 3 BlackBerry 7 devices launched contain a touch screen.  In fact, the Torch 9850/9860 is a full touchscreen device that will compete directly with Android devices and the iPhone.  This will help RIM reverse its market share loss in the US to its rivals.  In addition, of the 7 BlackBerry 7 devices that will be launched this year, most will sport a touch screen. 

RIM shares will receive a boost

On July 25 (RIM closed at C$25.19 that day), I wrote an article stating that I expected RIM shares will rise by at least 20% in the next 2-3 months on the new devices.  With the earlier-than-expected launch of BlackBerry 7 devices and Google's acquisition of Motorola today, I now expect RIM's shares to rise at least 30% in the next 2-3 months.  With the shares closing today at $26.59, that would put the shares at $34.57. 

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Sunday, August 14, 2011

US markets fall for 3rd week in volatile trading

North American markets rose on Friday on better-than-expected US retail sales and a rebound in European stock markets. The S&P 500 rose 6.17 points or 0.53% to 1,178.81. The Dow added 125.71 points or 1.13% to 11,269.02. For the week, the S&P 500 dropped 1.75%, while the Dow lost 1.5%. The S&P 500 has fallen in 11 of the past 15 sessions, for a total lost of 12.4% in 3 weeks.

On Friday, US July retail sales rose 0.5%, the largest increase in 4 months. In addition, the decision by France, Italy and 2 other euro zone nations to band short-selling of financial shares boosted European markets. However, also on Friday, the University of Michigan reading on US consumer sentiment for August was only 54.9, much lower than the 63 expected. It was also the lowest level in 30 years.

Low Initial Jobless Claims Boost Markets

On Thursday, markets received a boost from better-than-expected US initial jobless claims. Claims fell by 7,000 to 395,000, which was lower than the 400,000 that economists expected.

Investors Panic About France

On Wednesday, major stock markets in Europe fell between 3% and 5.5%, while the Dow dropped more than 500 points. It was due to investors panicking about a rumour that France's AAA rating would be downgraded.

Fed Keeps Interest Rates Low For 2 More Years

Markets received a big boost from the Fed on Tuesday, when Ben Bernanke announced that the Fed will keep interest rates low until mid-2013.

ECB Buys Italian and Spanish Bonds

On Monday, the ECB carried out its promise to buy Italian and Spanish government bonds, bringing the yield on 10-year bonds of both countries down to around 5%. However, the Dow ended down by over 600 points on Monday, as markets reacted to S&P's downgrade of the US.

Gold Shines

Gold received a significant boost on worries surrounding the twin debt crises of Europe and the US. On Wednesday, gold reached a record high above $1,800/ounce. On Friday, gold futures settled at $1,742.60. For the week, gold rose $90.80 or 5.5%.

Looking Ahead to Next Week

The fact that US markets managed to post gains on Thursday and Friday is a positive sign. Markets showed signs of stabilizing towards the end of the week. However, if economic data announced this week is weaker-than-expected, markets will tumble once again. In addition, investors will pay attention to talks between the French President and the German Prime Minister. If the situation in France worsens, then markets will likely be pulled lower. In addition, markets would also be negatively affected if Italian and Spanish debt yields increase.

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Sunday, August 7, 2011

US markets tumble in worst week in years

US markets had their worst week in over 2 years as investors lost confidence in US and European governments. On Friday, the Dow managed to rise on hopes that the ECB would start buying Italian government bonds to prevent the yield from increasing further. This followed a meltdown on Thursday, when the Dow dropped 512 points. 

On Friday, the S&P 500 edged down 0.69 points or 0.06% to 1,199.38. The Dow rose 60.93 points or 0.54% to 11,444.61. For the week, the S&P 500 lost 7.2%, while the Dow dropped 5.8%. The S&P 500 has fallen 10.8% in the last 10 sessions, and is down 12% from its April 29th closing high. 

Better-than-expected payrolls data 

On Friday, better-than-expected US jobs data barely boosted the markets. Non-farm payrolls showed an addition of 117,000 jobs in July, better than the 85,000 jobs expected. In addition, the unemployment rate fell from 9.2% to 9.1%. However, after the Dow rose 150 points after markets opened, it was in the red by about 200 points later in the day. After markets closed on Friday, S&P downgraded the US' rating from AAA to AA, and maintained a negative outlook.

Weak world economic data cause worries of double-dip

The US was not the only reason for the massive fall in the markets this week. On Monday, China's July PMI fell for the 4th month in a row, to 50.7. It was the lowest since March 2009, though was better than the 50.2 expected. Meanwhile, Euro zone PMI fell from 52 in June to 50.4 in July, the lowest level since October 2009. These weak data were in addition to the US' July PMI, which fell from 55.3 in June to 50.9 in July. It was much worst that economists expected, since they were expecting a decrease of only 1 point. In addition, US consumer spending in June fell 0.2%, which was the first decrease since September 2009. 

All eyes on Italy

While most of the attention was previously on Spain after the turmoil eased in Greece, attention is now fully on Italy. Italy's 120% debt-to-GDP ratio and slow economic growth has put it in a worst situation than Spain. Currently, both Italy and Spain's 10-year government bonds are yielding at a dangerous level of over 6%. In a hopeful sign, the ECB today signalled that it is ready to buy Italian and Spanish bonds.

Looking ahead to next week

Italy and Spain will be the biggest factors for markets next week. The ECB signalling its intention to buy Italian and Spanish bonds will provide a boost for markets. Meanwhile, slow economic growth in the US has already been priced into stocks, and Friday's better-than-expected jobs data will temporarily ease concerns of a double-dip recession. With US markets significantly oversold, a temporary bounce-back is a definite possibility. If markets have lost so much confidence in US and European governments that they doubt the ECB's resolve in buying Italian and Spanish bonds, then markets will continue to fall next week. In addition, the US being downgraded to AA after markets closed on Friday will likely add to the bearishness of investors next week.

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