Congratulations New York Giants!

Let's take a break from the stock markets for a while and congratulate New York Giants on their emphatic victory over New England Patriots in Super Bowl XLII. Giants got into this NFL season as wild-card entrants and were considered the underdogs for the most part. New England Patriots on the other hand were a very strong team and were undefeated throughout the season. Well, the verdict is out. Giants defied the odds and are the Super Bowl XLII champions!

The Giants QB, Eli Manning did a repeat of what his brother, Peyton Manning (Colts QB) did for Colts last year by leading his team to victory and also winning the Most Valuable Player of Super Bowl XLII. Bravo!

Bernanke’s Dilemma: To cut or not to cut

The Wall Street, investors, banks and several others are eagerly awaiting Federal Reserve Chairman Ben Bernanke's decision today. After the emergency rate cut of 75 basis points last week, there is skepticism among economists and experts about another rate-cut from the Federal Reserve Chairman. Many people believe that Bernanke would not "dare" to offend the market right now. The market is expecting another 50 basis points cut and there is a high possibility that it will get exactly that. This is especially true after the GDP numbers came out today. The GDP growth dropped down to an extremely measly 0.6% for the last quarter (October – December). This was much worse than anyone's expectations. Even the Street which is in a pessimistic mode and a bearish mood was expecting at least 1.2%. In the third quarter the GDP growth rate was 4.9% which is what it should be for a strong economy like ours. 0.6% GDP growth rate does spring up fears of recession and that would be playing strongly in Bernanke's mind. I think that Bernanke will reduce the Fed Discount Rate by 50 points as well.

Fed Funds Rate is the rate at which banks and financial institutions lend money to each other. This is the rate that was slashed by 75 basis points last week. This rate is now at 3.50% and with another 50 basis points cut today, it would drop to 3.00%.

Fed Discount Rate (or the Discount Window) is the rate at which Banks and Financial Institutions borrow money from the Federal Reserve Bank. This rate is currently at 4.00% and if cut by 50 points today, it will drop to 3.50%.

The only question I have is should Mr. Bernanke do what the market wants or should he do whatever is best for the US economy? How will these rate-cuts affect the future of US economy? These incessant rate-cuts are driving the US Dollar to new lows every-day. The current inflation rate is 2% to 3%. If the Feds cut their benchmark rate today then the federal funds rate adjusted for inflation would be close to 0 or even negative. This indicates a significant risk of inflation just a few months from now. Also, let's assume that the Feds do cut the rate by 50 points today and the market rallies on this news. But will the rally sustain? Does this rate-cut indicate an end to the market woes? I don't think so. The fear will prevail in the market even after this rate-cut and may be after a few dead-cat bounces, the key indices will go for a free-fall. Even if there is a "false rally" for the next couple days or more, any bad news on the financial front would be enough to drag down the indices lower. Right now the fear in the market is unprecedented. Even the good news is viewed negatively and the investors need only an excuse to shift to a bearish mood. The market will need time to regain its lost confidence. Also the US economy needs much more than just rate cuts. The stimulus package might not be enough to bolster the economy. I am really hoping (and praying) here that the feds and the government are doing whatever is best for the economy in general.

I know it's easier said than done. The current situation is so dicey that no one would want to be in Mr. Bernanke's shoes right now. Recession? Inflation? Well, how about Stagflation? There is a growing fear of Stagflation here and the rate cuts would only bring it closer to a reality. Stagflation is like a 'double whammy'. It's a period of both economic sluggishness as well as rising price pressures. Basically, stagflation = inflation + recession. In the near term, the US economy will most probably have a very bumpy and unpleasant ride and chances are that absolutely nothing can prevent it; not even the fact that it's an election year. Of course the US economy will survive this appalling period like it always has and in several months from now everything will be bright and sunny again.

Microsoft, Yahoo and Google

Last week at the World Economic Forum in Davos, Switzerland, Bill Gates in an interview with CNBC mentioned that Google and Apple were good competitors. Here is the link to that interesting part of the conversation:
http://www.cnbc.com/id/15840232?video=629449301

The appealing thing to note is that when asked about Google, Bill Gates very confidently mentioned, "We are going to challenge them and surprise them." He also said that Microsoft is working on several good ideas. This could present an intriguing situation. Yahoo! (YHOO) is coming out with its earnings reports today and I will be really surprised if they beat the street's expectations. Yahoo! has unfortunately lost it's mojo. It still may be a good company thanks to its talent. It's very experienced in the field of search engine, web-based e-mail and other services they offer. If YHOO reports "not satisfactory" earnings today, it's stock is going for a free-fall. This might be a golden opportunity for Microsoft. Microsoft is one of the best companies in the world with a huge market share and tons of cash. If they want to, they can very easily buy Yahoo out and perhaps that is what Bill Gates was insinuating? Based on what he said, I initiated an equity position in Microsoft (bought MSFT stocks) and bought YHOO calls last week. If Yahoo does drop after earnings today, I will add more YHOO calls.

If a rumor of Microsoft trying to buy Yahoo starts, there will be a huge upwards spike in the price of Yahoo. If Microsoft does actually make an offer, I will close my Yahoo positions.

This should actually not affect Google in any way. Google is in a league of it's own and no potential merger between any companies in the near future can affect Google's prospects. I have been long Google for a very long time and continue holding and adding to my existing position.

As for Apple, Apple is way beyond Microsoft or anyone's league. It's led by a visionary who has no parallel. I will always be long Apple and constantly be adding more Apple as long as Steve Jobs is at the helm. The iPhone is just a start. Just watch what he is capable of. 

Apple Inc.

Apple was considered the 'Darling of the Wall Street' in the year 2007. Analysts, investors and people in general couldn't stop raving about the company, the stock, the products and of course the CEO, Mr. Steve Jobs. Apple more than doubled in the year 2007 and towards the end of the year crossed the $200 mark. This is year 2008. Apple is down to $130 as I type this. It's value on NASDAQ dropped by a whopping 35%. So, what changed suddenly? How did Apple suddenly become the stock that a majority of investors wanted to get rid off? Did the company's fundamentals dwindle? Is Apple not capable of making superior products anymore? Has the iPhone and iPod mania faded?

NO. Are you kidding me? Apple is still the same great company it used to be three weeks ago. It still makes awesome products and is capable of doing a lot more. Apple is still synonymous with style, innovation and quality products. Then why the sudden sell-off? Well, there are a few reasons for that. First of all, the overall condition of the economy is not good. Face it folks. Our economy is definitely not healthy. I don't think we will hit severe recession but we might already be in the middle of a mild one. The housing market is definitely in a serious recession. But the overall US economy is very robust and it has the stamina to weather bumps like these. The economy might grow slowly for the next few months but we will be fine. The government and the Federal Reserve have (finally) understood and digested this grim situation and are trying to take the necessary steps to avoid a severe recession. But the slowing economy and the growing fear of recession have definitely created a panic in the stock market and investors are running for shelter. What happens when there is panic on the Wall Street? Many investors start selling the best stocks in their portfolio. This panic has but naturally caused a serious sell-off in the Tech sector and all growth stocks (Apple, Google, Research in Motion, etc.) have been hit really hard. People fear that Tech companies would falter given the deteriorating economy. Investors are so panic-stricken that even on slightest "not good enough" news, they just do a massive sell-off. That's the main (and in my opinion only) reason that Apple has lost 35% of its value.

There was absolutely nothing wrong with the Macworld 08. Steve Jobs announced some great new products like the MacBookAir, iTunes Rental service, Apple TV 2, iPhone firmware update and Time Capsule. The numbers were absolutely amazing. 4 million iPhones in 200 days, 5 million Leopard OS sold since its release less than 3 months ago – those numbers are brilliant. What were some of these experts expecting? Another iPhone? That's insane. The tragedy with Apple (and Steve Jobs) is that year after year the company raises the bar higher and higher and people's expectations increase multiple folds. Given the current conditions nothing from the company was enough to satisfy the expectations of investors and Apple fans. Even if Steve Jobs had announce iPhone 2 or said that the company sold 5 million iPhones, the stock price would still have taken a beating. How else do you explain the panic that Apple's guidance for Q2 08 created? When has Apple not given conservative guidance? Apple reported marvelous earnings reports and as usual gave a conservative guidance. That's it. That conservative guidance led to the most brutal sell-off in Apple's history since 2001. Unfortunately until the street finds its sanity back, the stock might continue dropping lower. I hope I am wrong on this.

But, look at the bigger and brighter picture. This is the best time to start building your position in Apple slowly. Again, I am not saying that the stock has bottomed out but it is very close to forming a bottom. You do not want to try and find a bottom. No one can. If Apple still goes lower, you can always add some more. In a few months from now, Apple should start rising steadily again. I am still predicting that Apple will at least cross $250 before the end of the year. Apple cares about the people who invest in the company and the users who love the products. The Apple CEO takes a $1 salary. His income is the Apple stocks. Of course Steve Jobs has a few million Apple shares but relying solely on the stocks as income shows his own confidence in his company. This should be a good confidence booster for the investors. I am positive that Apple will continue doing major product enhancements and building global partnerships. In February Apple will be releasing the iPhone SDK to third party developers. This means that outside developers would be creating fantastic new applications for the iPhone and of course Apple will continue doing a great job with the iPhone firmware. Every firmware update for iPhone keeps making it a better product. For e.g. the latest firmware (1.1.3) has enhancements for Google Maps with 'locate me' feature (useful GPS-like feature), new Webclips feature, multiple home screens, etc. The best part is that these firmware updates are free for iPhone users. There is also a possibility of a 3G version and a 16 GB model of the iPhone. Apple will definitely be announcing new partnerships with wireless service providers around the world and we might soon see iPhone in China, Canada and other Asian/European countries. Apple's future is brighter than ever before and it just keeps getting bigger and better.

People also tend to forget that Apple is not just about iPhones and iPods. Apple is much more. Apple is also about computers (iMacs, Mac Pro, MacBookPro), operating systems (Mac OS X, Mac OS X Server), network and server products (Xserve RAID, Xsan, and Xserve), etc. It's run by a very smart management team which is headed by a brilliant CEO. They know what they are doing and they know it better than all the experts sitting out there commenting about Apple's slow down. Ever since Steve Jobs has returned to the helm of affairs, I don't remember Apple ever disappointing its fans, users, investors or people in general. They are known to revolutionize any industry they set their feet in – be it personal computers, portable music or mobile phones. I believe that Steve Jobs will keep continuing this trend.

One of the arguments that people make about Apple is that it only has a very small market-share compared to Windows based PCs. That's true. But Apple's market share has been consistently increasing and there seems to be no stopping ahead. Apple designs in the personal computer space (iMac, MacBook, Mac Pro) are phenomenal. Leopard operating system is certainly the best and fastest operating system I have used. Now you can run Windows OS on a Macintosh using programs like VMware Fusion. Why do I need a non-Apple PC anymore?

Another negative opinion about Apple is that its products are not nearly as widely used in the enterprise arena as compared to the consumer market. That is absolutely true. But it might be changing sooner than many people expect. Apple is doing its best to make an impact in the enterprise world. First of all, Apple's licensing is very simple and straightforward in desktop as well as server operating systems. You do not have 10 different variants to choose from. You have one strong operating system which provides all the functionalities. Leopard OS X Server has all the features like file sharing, mail services, web-hosting, directory services, calendar, wiki, etc, all built into it. It supports both Windows and Mac clients. Apple has got rid of Client Access licensing. That's right. It has a 10-user license ($499) and an unlimited user license ($999). This could mean huge savings for large enterprises. Apple has also changed its virtualization policy and Leopard OS Server does permit virtualization.

Never invest in a stock; invest in the company. There are immense possibilities and hi-tech innovations that Apple can and will explore. Amazing technology coupled with awesome management led by one of the smartest CEOs should be enough to bolster your confidence in the company. Stocks go up and down depending on the overall economy but as long as company fundamentals are strong your investment should be safe. Apple is one company with very solid fundamentals, superior technology, international presence and remarkable innovation. If you are a long-term investor in Apple, you will surely be smiling in the years to come.

What is Goldman Sachs (GS) up to?

Goldman Sachs (GS) has been stressing that they are doing great and they don't have any huge write-downs to report. It's very difficult for me to believe this. When all these financial institutions are reporting nightmarish write-downs, how can everything be hunky-dory with GS? The worse part is that investors actually believe that and GS was up as much as $221 today, finally settling down to $214.71 (up by 1.6%).

So what is going to happen when GS reports their earnings sometime in December? What if they come out and say, 'Oops! We made a calculation error'. Is the market prepared for the worse? If GS does come out with bad news, it will crash the market again.

These big financial institutions really need to get their act together and come out with all the bad news they have to report. What's happening right now is not good for the economy. Everyday some institution comes out and reports big write-downs and the market goes in a frenzy. Look at what happened with E*Trade today. It is down 60% today after reporting worse write-downs in the fourth quarter. To make matters worse, Citigroup analyst said that E*Trade might go bankrupt.

If these financial institutions come out and give us a clear picture, it will be good for the market and the economy in the long run. The investors need to know the truth. Also, these institutions need to get together and come up with a long term solution to protect the economy, investors and the consumer. Hopefully, the Merrill Lynch Banking and Financial Services Investor Conference on November 13th will bring out some positives.