According to market researcher Celent, brokerage firms plan to cut spending on technology. The spending on technology will be reduced to an annual growth rate of merely 1.3% from 2008 to 2011, compared to a growth rate of 8.5% from 2004 to 2007.
Many new projects are going to be scrapped, and existing projects placed on hold. One area where spending will still remain strong is security as the financial industry struggles to stay ahead of online attacks.
This reduction in technology spending in the brokerage industry is reflective of the overall turmoil in the financial sector. More importantly it does not spell good news for technology providers. This dims the outlook for firms providing network equipment such as Cisco, as well as companies like Sun, HP, and Dell that provide workstations to the financial industry.
Monday, May 5, 2008
CSCO: Rising Expectations
Cisco stock has risen over the past days in expectation of the upcoming earnings announcement on Tuesday (May 6th). CSCO has a habit of rising into the quarterly report then sinking in after-hours trading during the middle of the call when forward guidance is provided. One can only hope that in midst of a fairly dismal earnings season that the guidance provided by CEO John Chambers outlines an expected rebound in U.S. IT spending for the remainder of 2008. Otherwise history may once again repeat itself.
Cisco is expected to report earnings of 36 cents on revenue of $9.74 billion, compared with 34 cents a share on revenue of $8.9 billion for the year-earlier period. Guidance has been provided for a 10% growth in revenue for the quarter in an uncertain macro environment. Analysts will look to the company’s comments as a barometer on the tech industry. [note: corrected]
CSCO stock has been showing strength over the past few weeks. Any type of quantitative analysis now shows that the probability of the stock going to $30 is greater than sinking to $20. This is positive news for Cisco bulls. However many are left wondering if the current price action is reflective of the traditional pre-earnings rise or if the stock is building a base for significant increases over the coming year.
The charts of CSCO provided below reflect the support floor at $22.80, and improving technicals. The stock has risen above its 50 day moving average and is approaching the 200 day moving average with increasing volume over the past days. RSI has increased from under 30 in mid-January to nearly 70 today reflecting the relative strength of the stock. The MACD indicator is above both the zero line and signal line, and appears bullish as the gap above the signal line is accelerating. Chaikin Money Flow (CMF) has turned positive as more money as flowed into CSCO stock over the past few weeks.
Of course, the quarterly earning report at Cisco always tends to throw a wrench into the technical evaluation of CSCO stock.
Fundamentally Cisco is still a cash generation machine. However institutional investors want to see the cash put to work in the form of large sized acquisitions or a dividend. Don’t hold your breath waiting for a dividend, but further sizable acquisitions that drive growth are likely given the history of the company. Investors hope for some meaningful insight about the company’s growth plans.
Investors are looking for something new to spark their enthusiasm for Cisco stock, otherwise most will simply hold their existing shares while listening to CNBC commentators muttering the now traditional quote, “Love the company, hate the stock” – and praying that the next quarter will bring some new magic.
Disclosure: Author holds CSCO long.
Cisco is expected to report earnings of 36 cents on revenue of $9.74 billion, compared with 34 cents a share on revenue of $8.9 billion for the year-earlier period. Guidance has been provided for a 10% growth in revenue for the quarter in an uncertain macro environment. Analysts will look to the company’s comments as a barometer on the tech industry. [note: corrected]
CSCO stock has been showing strength over the past few weeks. Any type of quantitative analysis now shows that the probability of the stock going to $30 is greater than sinking to $20. This is positive news for Cisco bulls. However many are left wondering if the current price action is reflective of the traditional pre-earnings rise or if the stock is building a base for significant increases over the coming year.
The charts of CSCO provided below reflect the support floor at $22.80, and improving technicals. The stock has risen above its 50 day moving average and is approaching the 200 day moving average with increasing volume over the past days. RSI has increased from under 30 in mid-January to nearly 70 today reflecting the relative strength of the stock. The MACD indicator is above both the zero line and signal line, and appears bullish as the gap above the signal line is accelerating. Chaikin Money Flow (CMF) has turned positive as more money as flowed into CSCO stock over the past few weeks.
Of course, the quarterly earning report at Cisco always tends to throw a wrench into the technical evaluation of CSCO stock.
Fundamentally Cisco is still a cash generation machine. However institutional investors want to see the cash put to work in the form of large sized acquisitions or a dividend. Don’t hold your breath waiting for a dividend, but further sizable acquisitions that drive growth are likely given the history of the company. Investors hope for some meaningful insight about the company’s growth plans.
Investors are looking for something new to spark their enthusiasm for Cisco stock, otherwise most will simply hold their existing shares while listening to CNBC commentators muttering the now traditional quote, “Love the company, hate the stock” – and praying that the next quarter will bring some new magic.
Disclosure: Author holds CSCO long.
Saturday, May 3, 2008
A proper stand: Canada will not bail out Investment Banks
The governor of the Bank of Canada says he will take a tough stand with financial institutions that wind up near bankruptcy because of poor decisions.
Maybe it is time that the United States adopted this policy. Mark Carney says the central bank won't bail out Canadian financial institutions like the U.S. government did when the Bear Stearns brokerage, one of the giants of Wall Street, ran afoul of the subprime mortgage mess.
The absurdity of the U.S. Federal Reserve bailing out Bear Stearns simply to avoid a short term financial panic in the credit market is becoming more apparent as further details are being revealed about the situation. The action will only drive more bail-out calls. It teaches a lesson to Wall Street that firms can privatize the gains, and socialize the losses. There is no reason to adopt any type of reasonable risk control if the government will be available to bail out the investment banks every time the bad decisions come home to roost. This will only drive the investment banks to maximize revenue by taking more risk.
The most current variant of the Fed’s flawed policy is opening the discount window to the investment banks in the past few weeks; in the past this lending facility was reserved for commercial banks. The Wall Street banks have been hitting up window for over $38 billion per day far more than all the commercial banks in the U.S. combined. To think that some congressmen squawked and demanded an investigation when Countrywide Financial was provided with $50 billion over several months; these legislators are strangely silent on Wall Street hitting up the Fed for nearly the same amount each day.
Even more shocking is what the Wall Street is doing with the borrowed money. The intent of the Fed action is to inject liquidity into the system in order to ease the credit markets. The Investment Banks have been happily utilizing the low cost Federal loans as capital to fund large scale gambling. The major Wall Street institutions have used the Fed cash to implement international interest-rate “carry trades” with the intent of squeezing profit out of the market. This naturally will lead to hefty bonuses for the Wall Street staff; assuming the positions don’t implode over the coming months. No concern is given to loosening the stranglehold of tightening U.S. loan conditions or unwinding the derivatives that sparked the credit crisis.
If Wall Street is not using the discount window cash for its intended purpose of easing the credit markets then the spigot should firmly be shut off. The Bank of Canada has the right mind-set when it comes to dealing with investment banks – these risk-driven firms should be responsible for their own calamities.
Maybe it is time that the United States adopted this policy. Mark Carney says the central bank won't bail out Canadian financial institutions like the U.S. government did when the Bear Stearns brokerage, one of the giants of Wall Street, ran afoul of the subprime mortgage mess.
The absurdity of the U.S. Federal Reserve bailing out Bear Stearns simply to avoid a short term financial panic in the credit market is becoming more apparent as further details are being revealed about the situation. The action will only drive more bail-out calls. It teaches a lesson to Wall Street that firms can privatize the gains, and socialize the losses. There is no reason to adopt any type of reasonable risk control if the government will be available to bail out the investment banks every time the bad decisions come home to roost. This will only drive the investment banks to maximize revenue by taking more risk.
The most current variant of the Fed’s flawed policy is opening the discount window to the investment banks in the past few weeks; in the past this lending facility was reserved for commercial banks. The Wall Street banks have been hitting up window for over $38 billion per day far more than all the commercial banks in the U.S. combined. To think that some congressmen squawked and demanded an investigation when Countrywide Financial was provided with $50 billion over several months; these legislators are strangely silent on Wall Street hitting up the Fed for nearly the same amount each day.
Even more shocking is what the Wall Street is doing with the borrowed money. The intent of the Fed action is to inject liquidity into the system in order to ease the credit markets. The Investment Banks have been happily utilizing the low cost Federal loans as capital to fund large scale gambling. The major Wall Street institutions have used the Fed cash to implement international interest-rate “carry trades” with the intent of squeezing profit out of the market. This naturally will lead to hefty bonuses for the Wall Street staff; assuming the positions don’t implode over the coming months. No concern is given to loosening the stranglehold of tightening U.S. loan conditions or unwinding the derivatives that sparked the credit crisis.
If Wall Street is not using the discount window cash for its intended purpose of easing the credit markets then the spigot should firmly be shut off. The Bank of Canada has the right mind-set when it comes to dealing with investment banks – these risk-driven firms should be responsible for their own calamities.
Friday, May 2, 2008
Investools hit with SEC inquiry
Most people regularly see Investools commercials on television parading a string of allegedly successful investors across the tube singing praises of how they made globs of money from the program. These commercials seem to magically appear on every cable channel right before the company sponsors one of its sessions at a local hotel.
In a regulatory filing, the company said it was cooperating with an "informal inquiry" by the Securities and Exchange Commission. The regulators are looking at "representations by certain presenters in certain portions of their presentations at some of the company's seminars," the filing said.
The announcement of the SEC inquiry was made at the same time as an earnings miss. Shares of Investools (SWIM) fell sharply to below $9 on the news as numerous analysts downgraded the stock.
Investools combined with the brokerage ThinkorSwim in February 2007. The company was not profitable for the 10 years prior this integration (except in 1999). Since the combination the company has been profitable during 2007. In the new model, the company educates people at its seminars and then funnels them over to the online brokerage to set up new accounts. Certainly this is an improvement in business model.
You also have to give credit to Investools for its marketing muscle. The company’s logo and advertising is pervasive on the web, in print, and on the airwaves.
The concern of most detractors is if there is anything beneficial behind the hype. Many of the resources pushed as the “Investools method” can easily be found for free on the web. A number of websites including MSN Money, Yahoo, and HingeFire provide outstanding fundamental and technical analytical software for free that enables investors to successfully put the market edge in their corner.
According to David Phillips at 10Q Detective the problems with Investools includes using independent contractors who aren't licensed advisors, being an unaccredited educational institution, and providing coaches with less than 10 years investing experience. He also sites cite numerous accounting red flags in a 10Q Detective blog post in December. According to 10Q Detective, Investools is a Seminar Selling company, with no magic under the hood.
A recent summary states that it is Too Late to Cry “Wolf” at Investools. Only time will tell the end result of the SEC inquiry. Investools may need to reform its seminar tactics, which will break the revenue model of the company. Certainly the stock price is not likely to climb significantly until the situation is resolved.
I regularly urge investors to read and learn about investing on their own. There is a lot of high-priced snake oil promoted in the financial industry. No magic system with green and red arrows is going to suddenly make an investor rich, only hard work and a deep personal understanding of how the market operates will enable you to excel.
Most investors are best off focusing on the long term using low-cost mutual funds & ETFs; only active investors with profound grasp about the dynamics of the market beat the indexes over the long term. These active investors did not obtain their edge by attending high-cost seminars.
In a regulatory filing, the company said it was cooperating with an "informal inquiry" by the Securities and Exchange Commission. The regulators are looking at "representations by certain presenters in certain portions of their presentations at some of the company's seminars," the filing said.
The announcement of the SEC inquiry was made at the same time as an earnings miss. Shares of Investools (SWIM) fell sharply to below $9 on the news as numerous analysts downgraded the stock.
Investools combined with the brokerage ThinkorSwim in February 2007. The company was not profitable for the 10 years prior this integration (except in 1999). Since the combination the company has been profitable during 2007. In the new model, the company educates people at its seminars and then funnels them over to the online brokerage to set up new accounts. Certainly this is an improvement in business model.
You also have to give credit to Investools for its marketing muscle. The company’s logo and advertising is pervasive on the web, in print, and on the airwaves.
The concern of most detractors is if there is anything beneficial behind the hype. Many of the resources pushed as the “Investools method” can easily be found for free on the web. A number of websites including MSN Money, Yahoo, and HingeFire provide outstanding fundamental and technical analytical software for free that enables investors to successfully put the market edge in their corner.
According to David Phillips at 10Q Detective the problems with Investools includes using independent contractors who aren't licensed advisors, being an unaccredited educational institution, and providing coaches with less than 10 years investing experience. He also sites cite numerous accounting red flags in a 10Q Detective blog post in December. According to 10Q Detective, Investools is a Seminar Selling company, with no magic under the hood.
A recent summary states that it is Too Late to Cry “Wolf” at Investools. Only time will tell the end result of the SEC inquiry. Investools may need to reform its seminar tactics, which will break the revenue model of the company. Certainly the stock price is not likely to climb significantly until the situation is resolved.
I regularly urge investors to read and learn about investing on their own. There is a lot of high-priced snake oil promoted in the financial industry. No magic system with green and red arrows is going to suddenly make an investor rich, only hard work and a deep personal understanding of how the market operates will enable you to excel.
Most investors are best off focusing on the long term using low-cost mutual funds & ETFs; only active investors with profound grasp about the dynamics of the market beat the indexes over the long term. These active investors did not obtain their edge by attending high-cost seminars.
Thursday, May 1, 2008
New Survey: Gas at the Pump
A new survey is out - Where will regular-grade Gas at the pump be on August 1st? Will the recent price increases keep accelerating, or will the gas prices drop during the peak driving season. Make your voice heard - Take the new survey at the top left of the blog.
The recent survey revealed that 70% of participants expected gold to be priced over $900 on July 1st - despite the current price being only $850. It appears that the investment community is bullish on gold.
The recent survey revealed that 70% of participants expected gold to be priced over $900 on July 1st - despite the current price being only $850. It appears that the investment community is bullish on gold.
New Stock Trading Contest: Join Now
The new Wall Street Survivor stock trading contest starts today! Join now for a shot at winning $50,000. Entering is FREE!
The WSS contest is an excellent way of learning to trade the market. Challenge your friends in the rankings. See who is the top investor!
Play to Win $50,000 - Fantasy Stock Trading Game
The WSS contest is an excellent way of learning to trade the market. Challenge your friends in the rankings. See who is the top investor!
Play to Win $50,000 - Fantasy Stock Trading Game
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