Cramer being timid and sad is like when you yell at a pet dog and it creeps towards you with its head down.

Those that work in the finance industry have heard the stories of Japanese housewives day trading currencies at home.  The media has now picked up on the story and has started to share personal tales.  I’m personally suprised about the level of sophistication these woman are using to determing trading strategies.  Could you imagine a 70 old lady in the US day trading?

As much as it personally and financially troubles me to say this; I told you so.  Recall my previous postings about the Subprime meltdown and the impending equity correction.  I saw this current disaster in the making.  Being a Japadamus sometimes is a difficult trait, you know something is about to happen but its hard to figure out what the proper defense is.  In this financial scenario, I moved many of assets into cash and sold a lot of my riskier assets (Indian stocks, Japanese Equities, Eastern European stocks, vanilla S&P 500 ETF,  Biotech) and tried to move into more defensive trades (long oil, long gold, long healthcare, long value stocks, long dividend heavy ETFs)  How did I fare?  I still got smoked! less than the S&P 500, but much more than I expected.  So it just goes to show you that being right and making money are too different things. 

Where does the market go now?  I think we need to see how the latest actions by the Fed are digested in the market.  Its true that this stealth easing helps create more liquidity and eases some of the credit crunch, but we also must remember a few things. 

1.  Only banks may avail themselves of this increased liquidity via the Fed Discount Window, so this increased liquidity doesn’t necessarily mean that Hedge Funds, mortgage originators, real estate investment companies are all going to see some flexibility in their capital requirements.  All this move does is assuage fears that there won’t be a run on the banks, but there is no incentive for banks, now with increased liquidity to turn a blind eye to their borrower’s risky behavior. 

2.  A lot of the recent market worries relate to an investment called “The Yen Carry Trade“   We are still seeing major moves in the dollar/yen exchange rate.  As the yen strengthens, more US investors have to unwind themselves of this trade by selling dollar denominated assets (equities, bonds, real estate) and repay the Yen denominated loans they borrowed in Japan. We can expect this behavior to continue unless the Yen begins to weaken against the dollar for some other macro reason.

3.  Risk will still need to be repriced.  We’ve seen the volatility index (VIX) spike to one of the highest levels in several years due to market jitters.  Where volatility eventually stabilizes is going to determine where riskier assets are priced.  Until we know what the real discount rate of risk (equity premium) is in the market, we can only guess if we are paying too much or too little for any “risky” asset.  It very well may be that the market decides to just step away from all risky assets until we have more information.

 For now I’m for the most part staying on the sidelines.  I may make some purchases of some biotech names that I think are at an interesting price, other than that we need to look to the market to tell us what to do next.  Also stay tuned for an all financial blog coming soon!

WSJ is reporting that Vonage Holdings is warning investors that bankruptcy is a potential risk due to ongoing litigation with Verizon.

I think this a REALLY bad sign, if the company feels compelled to legally make this statement, the outcome has to look pretty bleak.  I don’t know about you but I’d expect the stock to really sell off tomorrow in light of this statement.  For those that invested in Vonage from the IPO last year, I’d expect to see some class action attorneys to contact you soon regarding a lawsuit against those investment bankers.  This definately was a terrible IPO.

Japa did you call this one early?

Coming on the heels of the DoubleClick announcement, Google announced today that they inked a long-term deal with Clear Channel to provide radio advertising to their customers.

Radio?!?  Gimme a fucking break.  This is hilarious!  Who listens to radio anymore now that consumers can choose between satellite radio, Ipods, CDs and public radio.  Although the press release says this is an example of Google using its proprietary technology to help bring advertisers to consumers.  I call bullshit, I think Google has peaked.

New Century Financial (NEWC) announced today that they are seeking bankruptcy protection.  We have yet to see how this is going to send ripples through the investment community.  I haven’t followed how New Century debt is trading but I’m sure its a disaster.  I remember that a few weeks ago there was some news that Barclays Plc was demanding payment for a large amount of NEWC debt they held.  I wonder if that pushed the situation over the brink.  Like I said before in previous posts, keep an eye out for major bulge bracket banking losses in relation to trading this stuff.  The worst scenario would be increased scrutiny or a new law that “tries” to fix lending problems.

Recall my previous postings regarding the market, I’ve been bearish all year.  I’ve been evaluating my current positions and I’m getting increasingly cautious on the US Equity Market.  Here are my current worries:

• Iran.  It seems like Iran is going to challenge us in a game of brinkmanship.  We all know that the middle east has an inherent vested interest in keeping tensions and oil prices high.  Unfortunately for the economy these increased fuel costs start cutting in the profitability of US companies.
• China.  The decision of the United States to impose trade restrictions on coated paper from China is negative.  In a time where China’s growth is the only thing keeping the commodity market going we need an ally to purchase US Treasuries and US securities.  Getting the 800lbs gorilla angry is a poor strategy.
• US Dollar weakness.  United States in a net import economy, we can’t afford to pay more for foreign goods.
• Technology weakness.  The desktop market has sucked for a while.  There’s no end in site.  Microsoft Vista was a non-event, personal computer sales are down.  What’s going to cause a rally in technology?  The problems at Dell are very troublesome, should investors actually see previous growth numbers drastically revised down, it might end up being that this segment is weaker than initially thought. 
• Subprime lending.  This situation looks like its going to get worst before it gets better.  I’d keep an eye out for bulge bracket bank losses.  I have to assume there’s some major desks holding on to a lot of this stuff in the face of selling.
• Housing.  Home prices seem to be heading lower.  Are we headed for a soft landing?  I don’t think so.  When I look around San Francisco all I see is new construction, who’s going to buy all this stuff?
• Personal credit.  Consumer credit is pretty high, we’re seeing a larger amount of people declaring personal bankruptcy and defaulting on student loans.  This type of behavior cannot continue before we see liquidity dry up and companies begin to refuse credit applications.  Somehow the government is going to have to figure out a way to get people slowly unlevered. 

So, I gave into the hype and bought a bunch of April Palm calls.  I’m thinking it will happen.  Well, I’m hoping it will happen.  Word on the street, and when I say ‘the street’ I mean idiots in forums, message boards, etc., so who knows how reliable that info is, but word is, that they will get bought tomorrow.Best case there is some sort of bidding war between, say, Motorola and Nokia - pushing the price far above Palm’s supposed $20/share minimum.  My understanding is that the current offers are around the $22 range - but again, who knows if that’s accurate or not.  Worst case is that this rumor turns out not to be true, in which case it’s Japadamus out.  Another possible scenario is that Palm drops the minimum price below $20 per share, which, again would be bad news.  The stock is priced with the $20 minimum in mind, so any flexibility downward would drive the stock down quickly.  And I bought Aprils, so time is a big factor here too.  It’s going to get dicey around here if this deal doesn’t go through and starts to drag on.  But, I’m relatively confident the purchase will go down this week.  We’ll see.  My calls are at $20, so it’s really all or nothing.  Palm will get hammered if the market thinks there’s any uncertainty with this purchase going through.

Remember my post on Feb 5th?  I told you the market was going lower.  Today was a rocky ride for the market.  DJIA closed down 3.29%, SPX down 3.47%, Nasdaq down 3.86%.

The selling was spurred by a correction in the Chinese stock market to tune of 10%.  So you may now be asking Sushiattack, what do we do now?

I think you wait on the sideline and see how the rest of the world digests this information.  Don’t react out of fear, remember markets have these days.  I personally wouldn’t bet against Chinese growth.  I’ll be honest I actually bought some FXI expecting a bounce, we’ll see if I’m right.  Stay tuned this week is going to be volatile.

XM radio and Sirius announced plans to merge creating a single satellite radio provider. Details about the merger are sparse. So far we know the combined company will be chaired by Gary Parsons the old head of XM and the CEO will be Mel Karmizan the current head of Sirius Satellite Radio.

Here are my thoughts on the merger. Obviously XM was getting killed in the subscriber race after making the bonehead move of turning down Howard Stern….Really dumb choice Gary! Howard Stern was able to bring over more subscribers than originally projected and basically forced XM into action. So this begs the question, is this merger a good thing for Sirius shareholders? My guess is no and here’s why:

• The company (Sirius) is currently being valued a price to revenue multiple that is being driven by company growth. Sirius in the is case now is being merged into a slower growth company. So the revenues of the Sirius are going to be valued at the slower growth rate of the blended company.
• The programming from XM aside from their sports rebroadcasting is worthless. Especially those Howard Stern imitators Opie and Anthony! It would be safe to assume that all the duplicative music channels will be eliminated. The cost savings from losing these channels are minimal.  The biggest savings I think will be from the elimination of staff and office space.  With the removal of channels you can expect to see more esoteric types of music added just because the extra capacity is there, look at the cable TV model for an example.  Can’t wait for the tribal music station.
• What is going to be the universal subscriber rate? This is going to be interesting. Economics would dictate since their will be no competition between satellite radio stations, prices should increase. My thoughts are that this will NOT be the case since this merger will be heavily scrutinized by the FTC and DOJ. I don’t think they want to risk non-approval by price gouging. My guess is that the basic package will stay around the current subscriber rate of $12.95 and additional “premium” channels/services will cost more. Expect sports to call into the premium category.
• Equipment: This is going to be a quagmire. The two systems are currently very different from one another. Assuming they will want to combine into a single platform there is going to have to be a generational move off the old equipment.  This opens the door to more churn. Customers not wanting to buy another expensive radio for essentially the same service will just cancel their subscription.
• Howard Stern.  Now that his show is going to be broadcast to the subscriber base of XM as well he’s going to want to renegotiate his contract.  I guess its only fair since now more people are going to be listening to him.  Howard’s agent Don Buckwald is a tough negotiator, expect their to be some posturing before a deal goes through.  This means the new shareholders are going to bare the costs of a new Stern contract.

So now that we have a combined company with two different radios, a basic subscription and the same programming; whats going to make this new company vastly different from the old one?   Enter the Sirius Video Player!   Howard Stern has mentioned that he knows the capability is there to stream a few video feeds off the current satellite technology.   This discussion came up when he was talking about launching Howard TV, Stern’s on demand channel.   My guess is that this video technology will be the next generation application to move all the current subscribers on to a new platform.  This solves the following problems:

• All the new users of the Video player will be on the new service.  Which will require a new reciever that can be programmed to integrate the XM satellites(which should now be devoid of programming.)
• Users will be given the option of “paying up” to watch the Howard TV channel (which has already been producing shows for cable, I dont think its too far of a stretch to think they port the current programs over to the video service.)  They could also include sports into the video feed so people will be able to watch their favorite teams playing anywhere at anytime.  You can imagine this being a major growth driver for the company to move people off the current $12.95 subscription.  What Red Sox fan wouldn’t pay and extra $10 bucks to watch all the away games on a mobile device?
• The new player can also be integrated to add informational services like weather, traffic, scores, quotes and news headlines.  Creating a “dashboard” like information panel so people can quickly stay in touch with current conditions.

I’m very excited to see how this all comes together.  Stay tuned!

Let me first disclose something…I own gold.

Gold has been a hot topic lately for anyone that follows financial news. If you take a good look at chart showing ETF ticker:GLD you’ll notice the dramatic move that has happened over the past two years.  On a personal level, I’ve been getting excited about the current rally. I Think this rally continues based on the technical and fundamental factors.

Here’s my thesis:

• Growth in China and India are going to increase the demand for all metals. Gold is used in industrial manufacturing for semiconductors and other electronic components.
• As emerging countries increase their wealth, I do think savings via gold will grow. This is because most of these countries have histories of extreme inflation and turbulent boom and bust cycles. People that live in these areas want the security of a hard currency.
• Jewelry will always be popular.
• As the dollar continues to weaken, foreign investors are going to move assets possibly to gold or other markets for more stability.
• New financial products based on gold. The GLD ETF for example is a trust backed by actual gold bullion sitting in a vault. You are also able to open online bank accounts that are backed by physical amounts of gold that can be withdrawn if requested.
• The gold chart has broke through some major technical levels, 65 was a major resistance level and the next resistance point looks to be above 70.

My guess is that gold will eventually hit 72 before the year is over. Am I wrong?