Trends, Thoughts, & Links For A New Decade In Tech

Interesting spotlight by mainstream media on cloud computing in this week’s Barron’s. Cloud computing is the inevitable and rapidly increasing use of the web in place of firmware and IT infrastructure. (Ex: Use web-based trading platform or database at work? Then a portion of your day is spent on ‘the cloud’.) It will be a long-term development with many small wins along the way with a handful of potential jackpots. Or for the Magellan/Lynch fans out there lots of two-baggers but ten-baggers will be few and far between from this play.

For those not swinging for the fences there will be many companies that help solve the security issue that is initial and important concern that I would look into. Anyone who, like myself, makes use of a ‘token’ to access/manipulate sensitive info knows the players in this market. And I imagine it to be sticky business, an easy sell to customers, and have high margins with somewhat light R&D expenditure for technology firms. All things that an investor that knows what separates also-rans from rockstars should like.

I think the elephant in the room of this trend is the long-term goals and aspirations of Google. What helps makes the connection in my head is web browsers.When initially loading up a PC which, of course, will be running on Windows the pre-installed, default web browser is Microsoft Internet Explorer. The function of which is only one non-differentiated task. Load and navigate websites. Rotten.com has the same content no matter what browser (Trust me). Unsurprisingly, taking this information under consideration, MSFT had 90% web browser market share four years ago. Recent data puts them in the 60% range currently.

In four short years they have lost 25% share (Firefox’s current %) to a company that is run non-profit; had little resources, R&D, infrastructure, or management that a 200 billion dollar company has. Also worth pointing out is the average tech savvy and overall intellectual curiosity of the majority of computer users is not geared towards exploring/finding other options for a program that already does the same exact thing. “Another web browser? Why? I already get the internet.”
Ever watch someone sit down on a computer with no IE icon and see the expression on their face? The uneasiness they feel? The only logical conclusion based on this info is that Internet Explorer was such an appallingly bad product (IE 6, yep) and that Microsoft’s attitude towards in-house development/closed-source coding (an extension of the firm being behind the code that was/is the cashcow of the computer era, the gift that keeps on giving, the operating system, Windows) forced the marketplace to shift away from a free program that does exactly the same thing. Pretty amazing.

Connecting the dots now. Google is pushing Chrome in a real, somewhat mainstream fashion. And they have the
resources, R&D, infrastructure, and management of a 200 billion dollar company. And I know for a fact that advertising works very well on a good portion of the “Another web browser? Why? I already get the internet.” crowd. In fact they butter advertisers bread by finding products in the media by recognizable names as instantly more credible. Proof: GOOG already has climbed to the market share it took Firefox three years to achieve.

Now what would stop Google from, I don’t know, completely undercutting MSFT on PC cost (they could pretty much just give then away), loaded with a Google OS that completely ran on ‘the cloud’ and the entire thing would be paid for through additional advertising (on the OS and as sole advertiser on websites). Or some other company. Or combination. Maybe MSFT will kick into gear.


Link - Barrons: Cloud computing, which shifts tech tasks into cyberspace, will be as revolutionary as the Internet itself

Following Venture Capital for Signs of Tech to Come (NYT)

CNN: Companies Google should buy (note: Currently they have 22 billion cash on their balance sheet, which is absurd. To give you idea they could buy out Garmin, Sun Microsystems, and AOL today and still hold seven billion for the next rainy day)

Enjoy All The Data While You Still Can - Tech/Telecom Thoughts

The iPhone is a mixed blessing for AT&T (T). Well it has been great for ramping up the subscriber base the performance of their network has steeply declined. What does it take for the iPhone to no longer be a gift but a curse?

In a research report out from Bernstein it is estimated the average iPhone user consumes 5x-7x as much monthly bandwidth as an average subsriber, and more than double the typical 3G smartphone user. With heavier users consuming 1-5 GB a month. The report goes on to predict that this will trigger usuage-based pricing in the future as competitors could take advantage of this with lower-priced alternatives for those who don't need as many frills.

My thought is that they need to do something about the network, even if that means higher prices. Users getting 1-5 GB of bandwidth a month will pay, they prob. have the $ from all that time they are spending using the internets. Or who knows maybe they are just 'surfing' and 'taking names in web-based java app games' on their commute. Regardless, this user will pay. If not they are not worth it, the calls dropping, the dip in robustness needs to get fixed sooner rather than later. iPhone exculsivity is up next year and people who were quick to change in first place, might be quick to change back

Fun Way To Get The Hard Sell For Life

Just enter your phone number, dancing .gifs command you! It will be resold 99x! This is so 2k6. Makes me nostalgic.

Jesus christ I had no clue Monday would be an up day after the last tweleve Mondays that have got bid up. Needless to say this will be slow week, turkey gods and all. I am bullish due to it being my favorite holiday.

Top picks:

Turkey day is my fave holidays of all holidays due to it just feeling so American to stuff my face and pass out on the couch. Two activities I excel in. Eating and winning at the game of sleep.

Top Picks

I am bullish on the mainstream potential of the Keurig. Good revenue model and I see gloomy eyed caffiene addicts slowly realizing the benefits of having make@home espresso shots to the dome ON DEMAND. Triple shot plz.

I am bullish on coal. Global growth. Energy going up. Lack of a care for environment in large developing economies. Cheapest form of energy? Coal. To get raw materials to the coasts of countries to ship globally what do we use? Railroads. Which run on coal. Careful on this commodity trade as the momentum pendulum swings quick and hard. It 'trends' well. Trade with it. I sold Walter Industries (WLT) at $100 last year to watch it collapse to $10 as the world was imploding. So you may find yourself losing your Home Equity Credit line money you've been gambling with. Just warning.



Hope your weekends filled with many shake weight practice sessions. Take a report.

Professional Trader Profile - Gary Wagner - Candlesticks

Japanese candlesticks offer a "mathematical expression of psychological market sentiment" to trader Gary Wagner, who
utilizes these Eastern technical indicators in conjunction with Western tools to actively trade for himself. It took Wagner several years into the commodity business before he began utilizing Japanese candlesticks in his interpretation of the markets. After college, he entered the industry as a broker and around "1989-1990, FutureSource began displaying price
movements over time with candlesticks. It looked interesting, but I didn't know much about what they meant. I started doing a lot of research," Wagner said.

Wagner stumbled upon a book entitled The Japanese Chart of Charts, by Seiki Shimizu, which he calls the "Rosetta Stone of
every candlestick technician in the U.S ... I read it and it was like these light bulbs started going off in my head," Wagner
explained. "After it clicked in, my trading vastly improved. I started making money and my clients started making money," Wagner said. Japanese candlesticks are constructed differently from a traditional Western bar chart. A traditional daily bar chart reveals a vertical bar, representing each day's action. The bar chart reveals the session's high, low and closing price; the latter is seen by a tic to the right of the bar.

However, Japanese candlestick charts are comprised of a rectangular section and two thin lines above or below the section.
According to Trading Applications of Japanese Candlesticks, by Gary Wagner and Brad Matheny, “The candle or pole line is defined as one complete cycle with an open, low, high and close. The thick part of the candle is known as the real body. The thin lines above and below the real body are the shadows and represent the high and low for that cycle ... A white candle (empty) is created when the closing price is just above the opening price for the cycle. Black candles (full) are just the opposite-die opening price must be above the dosing price for the cycle.” However, Wagner utilizes Japanese candlestick charts in conjunction with traditional Western technical analysis.

"Utilizing candlesticks is a win-win situation for the Western technician. We use moving averages, stochastics, trendlines.
But, one can usually obtain more information looking at a candlestick chart. The reason for that is that the Western technician puts his emphasis on the close to the close," Wagner noted. But candlesticks reveal "the relationship between the open and the close of that day. Dynamically, there is a battle going on each day-the candle reveals its outcome," he explained.

"The best traders I've witnessed ... are successful because they maximize upside potential when they are right and they get out quickly if they are wrong," Wagner revealed.Wagner admits that "fundamentals rule the market, but you can distill that in a mathematical way," he says referring to candlesticks. "By removing myself from information overload of the fundamentals, I was able to glean a much more pristine view," he explained.

While Wagner started out as a day-trader, that changed about three to four years ago and now he has become a position trader. Wagner credits the change in his trading style to an actual change in the nature of the markets themselves, which coincided with the emergence of large fund players and large institutional players in the futures arena.

"When the large institutional traders came in, they had such a voracious way of moving the markets because of the mass of
orders," Wagner explained. "I found it difficult from a computer to win because the risk reward changed. My stops didn't hold.”

Now, Wagner believes the "most profitable way to trade is with the trend.” Advice for the beginning futures trader: "Invest in education,” Wagner suggests. He says the new trader is "jumping into a shark-infested pool. In order to survive ... you need good protection ... and very large teeth. Staying power or stamina," is important in order to succeed.

Technical Analysis Mutual Fund

A very rare occurrence in the mutual funds sales world circa 2009, a long-only strategy with no track record, just raking in the dough.

John Hancock Technical Opportunities Fund (JCTAX),[link] is consistenly pulling in $1 million a day, despite a 5% front end load (or I guess maybe because of it) and a 2.05% expense ratio.
JCTAX: http://www.jhfunds.com/Fund/PortfolioMonthlyHoldings.aspx?FundID=2Y30&ProductType=MutualFund&ClassCode=A

Now that we have had 135 long/short funds open since ‘06 and PM’s/wholesalers/fin. media all had their shot at explaining the value of uncorrelated assets since they could raise money there maybe they all actually learned something and realized that the most intelligent and logical thing to do is put the long-only equity money across index ETF funds, even the fixed portion, wont really make difference over most time-frames.

And thus, the only funds you should be looking at are strategies that you could not come close to implementing on your own and/or have low/negative/nil correlation with the market.

More: (some good tidbits on MF distribution/how shops are run)
• Only one other U.S. MF the $8.6 million Huntington Technical Opportunities Fund begun in May 2008, uses technical analysis exclusively.
So you can see the difference in distribution - never heard of Huntington Technical Opportunities and despite being part of a relatively large bank, it only has $8.6M in assets in about 15 months of life. Meanwhile the John Hancock fund, with an army of brokers pushing a product (to share in the load) can acquire that much within 9 days. If you are curious the Hutington fund is down 24% in the past 1 year period and has a whopping 2.94% expense ratio. (from it's holding list it simply holds various ETFs - which makes sense since that seems to be all anyone is doing nowadays when not speculating in Fannie Mae or AIG)

What was the impetus at John Hancock? One of the reasons actually is one of my main beefs with the industry - the fact a cash holding is considered "wrong", when in fact it can be a "position".
• Hartstein developed a fund that could shift all its money out of equities after attending a conference of financial advisers at the Ritz-Carlton in Boston in January. “Listening to those folks talk about their frustrations about managers not being able to raise cash, I came back from that and starting asking, ‘Who out there has a strategy that we could leverage, that has the flexibility to raise cash?’” he said.

The more alpha-centric strategies, the better, it will seem very obvious in some years down the road. I picture the 401k plan in the next 20 years stocked with 20 different managers who all did 10% annualized for multiple years with different investment styles. (not long-only, stay fully invested, a.k.a vanilla style box options)

Hat Tip: Fund My Mutual Fund

Back To Basics - Stock Operator vs. Warren

The world's richest investor and his famous line: "Be fearful when others are greedy, and be greedy when others are fearful." – Warren Buffett

The market right now is the epitome of what Buffett describes in this quote. For anyone who follows Buffett or the literature that is written about his philosophy could reason that "Mr. Market" is acting irrationally and offering many companies at cheaper with no regard for the underlying fundamentals. It is time to load up and buy the greatest companies now that they are selling far below fair value! So start buying! Right?

Confusing times in financial markets lately with the themes of corporate credit, the leveraging of risky mortgages, liquidity injections, and open-market fed operations. There are very few people who can really grasp these concepts and understand the broad implications of them. I am not one of those people and you probably are fooling yourself if you think you are. What I can understand is price. In my last post I advocated a short/neutral position until the trend reversed. Nothing has changed except for the loss of 2.1% of the value in the overall market. There is only money to be lost until the tape begins to turn green.

This is as fundamental to the analysis of the markets as Buffett's quote except Warren never tells investors how a market turns from fundamentally supported greed to a bear market. When does "fear" really set in? How do you sense fear in the markets? My next post will look into periods and reference technical indicators that show investors fear.