It was an interesting week on Wall Street, with the normal chaos of earnings season compounded by the midterm elections. The Democrats took control of both the House of Representatives and the Senate this week, and all three major averages rose over the course of the five trading sessions.
bloggers were all over the market action, and we'd like to share the best of their commentary this week with readers of the
. These posts best capture the intent of these blogs, which is to provide intelligent discussion on the issues each writer sees as most pressing that day.
Let's take a look at
on a bullish satellite-radio play,
on avoiding a trading pitfall,
on the YouTube deal,
on the big message in bonds' action, and
The Street Research Team
on the latest hot gadget to hit the market.
Click here for information on
, where you can see all the blogs -- and reader's comments -- in real time.
Cramer's Blog: Get Serious About Buying Sirius
Originally published on 11/9/2006 at 8:52 a.m.
What do you do with a company that will have $3 billion in revenue in a few years -- up from a billion now -- has a loyal following, can raise prices and has huge market share and is taking more?
Do you sell it?
That's what people are doing with
, and I think it's a big mistake. When I
spoke with Mel Karmazin
last night on "Mad Money," I was struck by how Mel's delivered everything he promised, and then some.
He's got a $5 billion company with tremendous upside. Compare that with the $17 billion business of
that isn't growing at all. Or a radio business that, if spun out by
, would most likely be worth more, too, because it's profitable.
I think the quest for profits right now -- as opposed to free cash flow -- would be wrong for Sirius. This market's only used to going for earnings, but there was a time in the buildout of cable when all we looked at was cash flow, and we were thrilled to own those stocks.
The skepticism for this satellite business was right. The two companies,
and Sirius, had contempt for the shareholders and spent money like crazy. Their acquisition costs were out of control. Their willingness to pay anything for talent was cataclysmic.
Not anymore. Acquisition costs are going down. Business is less lumpy. I can see this network having hundreds of millions of dollars in commercials and twice its number of subscribers next year at this time because it is loved.
Plus, XM has blinked! It's ratcheted back spending and is not going to get into a price war, a content war or a subscriber war with Sirius. It has seen the light and the need for a benign oligopoly.
I was hoping for a combination of the two at some point. But two things have changed: This was the
breakout quarter for Sirius, and I don't think this new Congress would look kindly on a merger. We now have to deal with the notion that competition is good for the consumer, and the Congress is now pro-consumer.
So, let them sell. Let the brokerage houses downgrade Sirius, as Wachovia did this morning. The stock, after hurting people for years, is now done hurting people.
Worth buying. Worth buying right here.
Are you clicking on the "Ratings" link in our tickers yet? What are you waiting for? This is a prime chance to get help with your homework. Get another view on a stock.
TheStreet.com Ratings has collected tons of information on and given a grade to virtually every ticker you'll see on our sites, and we've made it all available to you. So get clicking! (Look for the "Rating" hyperlink that follows a company's name in the text of our articles, columns and blog posts, or just go right to
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CBS owns CBS Radio, which broadcasts Real Money Radio With Jim Cramer, on select CBS owned and operated radio stations. At the time of publication, Cramer had no positions in any of the stocks mentioned in this column.
Rev Shark's Blog: Don't Let Your Holdings Define You
Originally published on 11/10/2006 at 8:45 a.m.
"If I could define enlightenment briefly I would say it is 'the quiet acceptance of what is'."
-- Wayne Dyer
When it comes to the stock market, a very good idea is "accepting what is." Trying to impose our will on the market beast is always going to be a losing battle; the difficulty comes when we try to determine what in fact the reality is. Our view of the stock market is often like looking in a mirror that reflects our beliefs and feelings rather than the reality of the situation. If we are heavily long we tend to see the positives in the market and if we are short we see lots of negatives looming.
If we are holding positions, long or short, we are never going to be totally objective about the state of the market. No matter how much we try to convince ourselves that we are open-minded and objective, the positions we hold are going to assert some subtle, and not so subtle, influence on our thinking. After all, if we weren't believers, why would we be holding stocks long? Sometimes it is simply out of inertia, but that inertia often ends up coloring our thinking.
So what do we do?
Let's admit it and recognize that the only way we are ever going to be totally objective is if we hold no positions and really don't give a hoot about the market at all. We are always going to carry some prejudices and we have to recognize and embrace that fact. The key is to not become so entrenched in a particular view that we resist adjusting our thinking as the situation changes.
One of the tendencies of many investors is to become more and more confident in their market view as a trend persists. That generally is the smart thing to do because trends often persist for much longer than seems reasonable, but it is important to not let that fact blind you to signs that conditions may be changing.
Our goal isn't to simply ride a market trend but to make sure we ride it and then get out with as much profit as possible. We can't afford to be too entrenched or stubborn with our thought process.
On the other side of the equation, we can't keep looking for illusive reasons to justify ignoring a strong trend. One of the easiest things to do in the market is to start finding reasons to justify a turn simply because we think it is reasonable that one should occur. We can come up with all sorts of great justifications for a posture that ignores the action that is taking the place.
True enlightenment about the market is never possible but being aware of our prejudices and biases can help us obtain better results.
Cody Willard's Blog: The Upshot of the YouTube Deal
Originally published on 11/7/2006 at 2:41 p.m.
is another big move in the tectonic shifts of media. The fact that the most-watched user-generated videos on the Net will now be leaping onto cell phones and TVs makes video content distribution more meritocratic than any other system.
It's a bit of a reversal from the Revolution per se. That's because the "new modes" of connecting to that end-user-generated content, Verizon's wireless network and FiOS cable system, are not the ubiquitous and standardized Internet. Rather, those "new" modes belong to the old, centrally controlled, closed networks of broadcast and cell phones.
That's different from the evolution of the written-word revolution. Despite all the success of blogs and their impact on society, news, politics and finance, no newspaper has ever made a deal to redistribute the end-user-generated written word to all its outlets.
Same goes for music and podcasts, as nobody is re-broadcasting the 50 most popular podcasts on the Net or the 50 most popular songs from unsigned bands on MySpace. (Of course, that doesn't mean that somebody won't be doing so soon. Heck, one of you old-world media executives who read this column should get on it right now!)
But the fact is that this Verizon-YouTube deal won't be very meaningful to either company. Verizon has nearly 60 million wireless subscribers to market this product to, but it'll take at least a few years for enough kids and young adults (along with the few early-adopting older folks) to start subscribing and using the service before it matters at all.
The same goes for Verizon's TV offering of YouTube content. You have to remember that Verizon just recently crossed the threshold of 100,000 total cable subscribers. Sure, that number is headed much higher, but it will be several years before Verizon has enough subs to make a real impact on the market. Compare that to the 65 million total cable households in the U.S. or the 100 million-plus households in this country that have a television.
The upshot? The Verizon-YouTube deal is a watershed event for end-user-generated video reaching the masses. But it won't affect the fundamentals of either Verizon or YouTube anytime soon.
And the "flip it" upshot? There are 65 million cable households and hundreds of millions of cable and TV viewers for end-user-generated content to eventually work out. That's called secular growth, which is the flipside of the cable companies' secular declining setup.
As an investor, I like to buy secular growth and sell secular decline.
and others are fueling this growth. I'm staying long 'em.
At the time of publication, the firm in which Willard is a partner was net long Microsoft, Google, Apple, Cisco and Adobe, although positions can change at any time and without notice.
Steven Smith's Blog: Step Into the Liquidity
Originally published on 11/10/2006 at 1:06 p.m.
Reader Mark M. asks, "Do you set thresholds as far as open interest and volume are concerned when evaluating a possible options position? Liquidity seemed like it might be an issue, especially in the
California Pizza Kitchen
This is a great question, and points up my love/hate relationship with using options. Dual listing, electronic trading, decimal pricing, reduced commissions, etc. absolutely have leveled the playing field and revolutionized the industry to the point where it would be negligent
to always look at the option chain for alternatives to trading the underlying security.
But while I believe that almost any stock position can be created and improved upon by using the leverage and flexibility of options, the fact is that once you move beyond the top 20 index and ETF products and 100 most active equity listings, the other 6,000 optionable issues have a severe lack of liquidity. And that can create a nearly insurmountable headwind to being able to use options as a profitable short-term trading tool.
My rules of thumb for avoiding the black holes, or options that trade "by appointment only" are:
Avoid issues in which the near-the-money strikes have fewer than 200 or 300 contracts open.
Avoid issues in which the bid/ask spread for options trading below $2 is wider than 30 cents; for options under $1, the b/a should be only 20 cents wide.
Generally, don't trade options on stocks priced under $15, unless the implied volatility is above 50%.
The option must be multiply listed, that is, it must trade on more than one exchange.
California Pizza Kitchen is on the bubble in terms of the first two criteria, but trips on hurdles 3 and 4. And as a stock that I had an opinion on -- a very wrong opinion, as it turned out -- I was willing to accept the "slippage" or pay a higher VIG to place a longer-term directional bet.
In this case, I was wrong. Shares have tanked following earnings. But the value of the options, as both a means of gaining leverage and reducing risk, performed as expected.
The position was originally established by purchasing the January $30 calls at $3.40 per contract when the stock was trading $32.80 two weeks ago. The stock has declined some 8% to the $30 level today, and the calls are trading around $2, or 30% lower, for a $1,400 loss on the 10-contract position. If I had bought $1,000 shares at $32.80, I'd be out $2,800 so far.
Of course, the percentage loss on the stock is lower, just as if the stock had climbed, the option would have delivered a larger percentage gain -- but possibly a smaller dollar amount. The issue of using delta to determine contract size can be taken up again at another time. The point here is that the options basically performed as expected.
But for positions that are not straight directional bets or for strategies that are probability-based such as butterflies or condors or even basic credit spreads, an option market that is liquid and offers tight bid/ask spreads is crucial to establishing an attractive risk/reward profile. If you give away a 20-cent edge or 15% -20% on both the exit and entry on multiple strikes, it can mean the difference between realizing a profit and incurring a loss. At best, it means you'll be forced to hold spread positions, especially those done for a credit, right until expiration to realize a profit.
Worse is that even only slightly adverse conditions can turn what seemed to be a manageable limited risk into an unexpectedly large loss. Most typically, the trade causes frustration; despite a correct market hypothesis, the result is a scratch or a position that fails to deliver a measurable profit.
As the saying goes, "There is no such thing as a good trade done at a bad price."
Tony Crescenzi's Blog: Big Message in Bond Action
Originally published on 11/10/2006 at 11:29 a.m.
The behavior of the bond market this week has been revealing. When combinedwith the big drop in copper and the near inversion of European yield curves(first since August 2000), it is clear that sentiment toward continuedslowing economic growth runs deep in the global fixed-income markets.
It was just a week ago that employment data for October were released, and the data pushed the bond market to its worst single-day decline in about 1 1/2years. No important economic news was released this week to offset theemployment news, yet Treasuries rallied, so something else must be at play.
It must be the lingering view that the economy is under intense pressurefrom housing, higher rates, and this year's spike in energy prices. Thisweek's price action in U.S. bonds, global bonds and copper make it clearthat it will take a compelling set of strong economic data to change mindsabout the ultimate fate of the U.S. economy in 2007.
This is not to say that the markets are expecting recession, but it is clear the markets believe that downside risks on growth remain high.
Stock Talk Blog: Mixed Reception Meets the New Zune
Originally published on 11/9/2006 at 8:02 a.m.
Reviews are starting to come in on
Zune, and so far, they're looking pretty mixed.
The Wall Street Journal's
Walter Mossberg said the "Zune has several nice features the iPod lacks: a larger screen, the ability to exchange songs with other Zunes wirelessly and a built-in FM radio," but "this first Zune has too many compromises and missing features to be as good a choice as the iPod for most users. The hardware feels rushed and incomplete. It is 60% larger and 17% heavier than the comparable iPod."
David Pogue of
The New York Times
noted that "the player is excellent. It can't touch the iPod's looks or coolness, but it's certainly more practical." He also noted that that Zune music store is much smaller than
, with just 2 million songs vs. 3.5 million on iTunes.
Overall, it doesn't look like the Zune's media reception will match the generally very positive one given to the iPod, but the device certainly looks promising. Personally, I'd wait for a second generation with a smaller form factor and friendlier wireless features before considering a Zune.
Of course, one has to consider whether the Zune makes financial sense for Microsoft, which has made its money selling high-margin software rather than extremely low-margin consumer electronics. To make any meaningful dent in the bottom line, the Zune would have to sell millions upon millions of units, which is a clear uncertainty at this point.
However, I do credit Microsoft for its strategy with the Xbox 360, where users will be able to download video directly to the console. This has the potential to turn the Xbox 360 into a nice little center for microtransactions while increasing the stickiness of the device. Of course, Microsoft had better rethink its hard-drive repricing strategy, as the 20-gigabyte model for the Xbox 360 costs an absurd $99.
On a related note, reviews of the highly awaited "Gears of War" game have been very positive, and could result in higher Xbox 360 console sales as a killer app is finally here.
In keeping with TSC's editorial policy, Michael Comeau doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.
David Morrow is editor-in-chief of TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;
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