Commentary for the Week of March 8

Where would you invest $76 billion if you had it?  That’s the size of Apple’s cash hoard at the moment, and it would appear that they have no better idea of what to do with all that money than you or I.  Apple isn’t the only company with this “problem,” if you could call having a mountain of spare cash in the bank a problem. According to Standard & Poor’s data reported by the Wall Street Journal the other day, the 500 largest U.S. companies alone currently hold cash or cash equivalents that totaled $963 billion at the end of the first quarter, up from $837 billion a year ago.  Tech companies in particular are glutted with cash they apparently cannot use. Microsoft’s got $60.9 billion sitting around; Google, $39.1 billion; and Cisco, $43.4 billion. What’s a company to do? Traditionally, high-tech companies have shunned paying dividends because shareholders expect the companies to use the cash more aggressively for growth. But the likes of Apple and Google have been growing plenty fast without dipping into their so-called war chests. Come to think of it, maybe they should start a war with China, Europe or Brazil.  Hasn’t war always been good for business? As for the excuse that they need to hold cash in case a great acquisition opportunity comes along, Apple, Google and numerous other NASDAQ world-beaters could borrow all they want for next to nothing, at any time.  And so they have been. We reported on the surge in corporate borrowing a while back, mystified as to why a corporate sector with nearly $2 trillion to spare was nevertheless borrowing hand-over-fist. The ostensible reason is that the money can be borrowed for nearly nothing – and so, why not?  Indeed.  Even so, we can’t help thinking that a wave

We searched Google News in vain Wednesday afternoon for the latest, presumably sordid, developments in the U.S. budget crisis, finding instead only stories about the lethally hot weather that has blanketed much of the U.S., the apparent death of three hikers swept away by a waterfall at Yosemite, and yet one more setback between players and the NFL.  Google’s story-of-the-hour concerned an unlikely Internet hero, Rupert Murdoch’s wife, Wendi Deng, who has come to the media baron’s defense with the ferocity of the proverbial house ablaze. Murdoch’s chief offense, as far as we can tell, is not the sleazy tactics his reporters used to ferret out very private information on certain people, but the blatantly political uses to which he has put some of that information. Not that every politician in the U.K. is his sworn enemy.  Like any businessman who owns a newspaper, Murdoch has played favorites, and it is presumably only those whom his sensationalized reportage did not favor who have mounted an all-out assault on his publishing empire. There are rumors that Soros is behind it all, but if this is true, he is even cleverer and more devious, although not more treacherous, than we’d given him credit for.  It’s one thing for Soros to plot the destruction of a currency, but quite another for him to surreptitiously attempt to maneuver one’s formidably-armed enemy toward ruin.  If Soros has indeed been a prime mover against Murdoch (as he may well have been against Fox network’s fallen matinee idol, Glenn Beck), it is unlikely to be revealed in the explicit manner of accusations that Murdoch brings against him.  Rather, we should expect certain details harmful to Soros’ reputation and his far-flung business empire to dribble out over time.  Moreover, because Soros keeps such a high-profile, it shouldn’t be

If a millennial tide of Fed funny-money can push the broad stock averages higher no matter what the economic climate, just imagine what it can do for the shares of companies with strong earnings growth in these recessionary times. In particular, Google, IBM and Apple have soared in recent days on stellar Q2 reports and giddy rumors. Yesterday it was Big Blue that took flight, gapping up five percent on news of exceptional top-line growth.  Even better for investors was that the company expects this growth to continue for at least the rest of 2011 in all of its lines: hardware, software and business services. We wrote here a long while back that IBM bonds were probably a safer and better bet than U.S. Treasurys, and we still think this is so. There were a few other blue chip companies on our short list that one could imagine will do pretty well even if economic activity in the U.S. sinks to depressionary levels. Johnson & Johnson, Disney, Caterpillar, 3M and Safeway come to mind, as well as Apple, which, despite its pricey merchandise, stands to rake in tens of billions of dollars over the years from nickel-and-dime sales of iTunes to an imponderably large number of music lovers. Google’s explosive short-squeeze came earlier in the week, when the stock gapped from 529 to 598 overnight – that’s nearly 14%! -- on the sensational earnings report that nearly everyone must have expected. Apple’s numbers were to have been reported after the close on Tuesday, but the stock seemed uncharacteristically subdued ahead of the announcement. This is probably because AAPL, even more than GOOG or IBM, has spent the last few weeks discounting the best news anyone could imagine.  Apple shares that traded as low as 310 on June 20 have since

Although our bullish outlook for stocks remains unchanged, the 900-point Dow rally we projected in late May hasn’t been the quite romp we were expecting. In fact, springtime’s tiresome ups and downs appear to be continuing into summer, and it now seems possible this behavior could persist well into August.  If so, the risk of financial loss will be lower in the coming weeks than the risk of being bored half to death. Yesterday’s price action underscored the stock market’s reluctance to do much of anything, even when conditions seem right.  Such as Sunday night.  For a rare change, it looked like the slimeballs who control stocks in the off-hours were on the ropes. Usually, they take shares down as far as possible Sunday evening in order to exhaust sellers just ahead of Monday’s opening. This allows Them to short-squeeze stocks ahead of the bell, catalyzed by virtually any crumb of news that could be construed as even remotely positive. This time, however, with index futures getting pounded overnight, the familiar stage-managed rebound was nowhere in sight.  Stocks in fact continued their fall for the first few hours of Monday’s session, with the Dow down by almost 200 points at the lows.  Then, just when it looked as though DaBoyz might get trampled, shares suddenly reversed and headed north, recouping half the day’s losses by the final bell. So how might the markets continue to bore us in the weeks ahead? For starters, we expect yesterday’s weakness to resume, bringing the September E-Mini S&P down to at least 1280.50 today or tomorrow.  With the futures trading for around 1301.00 as of this moment, the implied 20-point drop would spell a relapse of about 160 points for the Dow Industrials.  We’d be cautious buyers at that level, using the Hidden Pivot

As gold ascends higher and higher into thin air, it continues to test every crag, jib, flake, crevice and runout on the rock face, much to the consternation of traders, investors and speculators. At these unaccustomed heights, it is perhaps only the long-term bull who acquired physical gold a decade ago who has the reserves of patience and calm needed to take corrective swoons and trendless tedium in stride. From a technical standpoint, we find that pullbacks both major and minor have gone to absolute extremes in order to prey on our individual and collective fears and doubts. For instance, when Gold and Silver futures prices plummeted from their May 2 highs, the seeming kamikaze dive brought them to within mere ticks of an extreme “danger zone” we’d identified using Hidden Pivot analysis. Then, just as suddenly, quotes rocketed skyward, recouping nearly half of the losses in just a few short days. And last week, a selloff that took two days to exhaust the nervous Nellies tested bulls yet again, with August Gold reversing sharply from within less than a single point of a 1576.90 Hidden Pivot support.  However, even knowing where, exactly, to expect the turn offered no easy path to profits, since gold’s trampoline bounce came in the dead of night, starting at around 3:25 a.m. Eastern. Of course, it is increasingly bullish expectations that have made bullion’s evasive moves more and more challenging.  Were it otherwise, anyone could get rich simply by betting on the favorite.  And talk about favorites! What could be more inevitable and obvious than gold’s continued rise?  Amidst a paper-money blowout the likes of which the world has never before witnessed, and the looming revelation that hundreds of trillions of dollars of global debt can never be repaid in hard cash, we can

Shouldn’t we be very afraid when Nancy Pelosi thinks she can live with Mitch McConnell’s deficit reduction plan?  Actually, it’s worse than that: What Pelosi in fact said is that anyone rooting for an increase in the debt ceiling should be saying “bravo to Senator McConnell.” Uh-oh. Somehow, “bravo” wasn’t the word that sprang to our lips when this story crossed the wire.  Nor are we even sure which side to take, since both parties were poker-faced yesterday on the matter of just what it is that they think they might be able to agree upon. It would also appear that taking the side we had thought House Speaker Boehner was on – “More taxes? Over my dead body!” (or something to that effect) – may no longer be an option. How could it be after Mr. Obama has invested so much time and energy demagoguing the filthy rich – i.e., anyone making more than $250k? At times like this, we look to Sen. Harry Reid to point the way…so that we can bolt in the opposite direction. Again, no clues. The Nevada senator continued to vilify House Majority Leader Eric Cantor, stopping just short of insinuating that Cantor’s mother may have worked in a Mexican brothel and that Cantor himself might have just one testicle. But that was just Reid being Reid. With respect to the political football, he did what he always does: wrap himself in the flag, the better to warn that GOP stubbornness is threatening to halt Social Security checks, veterans benefits and paychecks to our troops. That there is not a dime’s worth of difference between Democrats and Republicans on Capitol Hill is a recurring theme in the Rick’s Picks forum. Even though there is some truth to this, we’d rather take our chances with

We’ve been treating the debt-limit donnybrook on Capitol Hill as a joke, just like everything else that goes on in Washington, but it now seems more than remotely possible that the issue could turn gravely serious. Even allowing for the usual brinksmanship, it’s hard to imagine what concessions either side might make at this point  that would be significant enough to break the logjam. For its part, Moody’s – as big a laughing stock as D.C. politicians since the Great Financial Collapse of 2008-09 – has put America’s AAA credit rating “on review” for a possible downgrade, sending the dollar into spasms late Wednesday afternoon. Of course, there’s no way in hell Moody’s would actually downgrade U.S. credit, since that would trigger financial Armageddon.  Consider the mayhem that downgrades have already caused in Europe, where credit spreads for the PIIGs have widened as much as 250 basis points over German bundts. This has put the PIIGs in a financial death spiral that all the official happy-talk in the world can no longer counteract. Now try to imagine how a mere 50-point widening of spreads would affect a U.S. credit edifice that dwarfs Europe’s.  Add just a paltry few basis points to the interest paid on nearly $15 trillion of federal debt for a year or two, and pretty soon you’re talking about real money.  And then you could start worrying about how it would affect adjustable-rate mortgages in a depression-bound real estate sector, and the interest paid by households on revolving charge accounts. It would also knock Obama’s fiscal assumptions for a loop, since he’s counting on the fed funds rate to average 2.5% between now and 2020. If credit problems should cause this rate to revert to the 5.7% average that has obtained since the early 1980s, the additional

Rick’s Picks subscribers were in on the fun in real time yesterday when gold quotes went ballistic around mid-session. The strong rally may have come out of the blue for some traders, but not for us, since we’d prepared subscribers with a bullish trading “tout” the night before.  We noted at the time that gold futures had looked “unintimidated” at the closing bell that day, and that they appeared ready to blast off.  The best part was that we were able to watch – and trade – the anticipated surge as it occurred because we held ringside seats at an impromptu online “webinar.”  Rick’s Picks frequently holds such sessions, alerting subscribers via e-mail when they are about to begin. Their purpose is to identify actual trading opportunities in real time, rather than merely talking about what the Hidden Pivot Method “might” have accomplished if only we’d used it. This time, our preparations paid off when gold behaved exactly as expected.  The bullish target we’d identified Monday night was 1574.40, about $23 above where August Gold was then trading. In the actual event, buyers pushed the futures to an intraday high at 1574.70 -- exactly three ticks from where we’d anticipated a short-term top. They then entered a shallow correction that was still going on as we went to press early Tuesday evening.  However, if and when the ‘Auggies’ regain traction, we’ll be looking for a second-wind push over the near-term to as high as 1589.40.  That target was included in the tout sent out Monday night and still looks like a good bet. Most gratifying of all yesterday was the e-mail we received from a subscriber, John F., who jumped into a gold trade while the webinar was in progress. “As a piano tuner on vacation in Lake Placid, I

It warmed the cockles to see the Dow Industrials and Gold moving in opposite directions yesterday, even if the latter swooned a nasty $15 intraday before scaling the wall a second time to close near the highs.  The world somehow makes more sense to us when gold prices are rising and shares are falling.  Isn’t that what’s supposed to happen when the central banks are hell-bent on trashing their respective currencies, and every economy outside of China’s continues to grind toward cliff’s edge?  The news wasn’t all bad, either. For one, scientists have apparently made some progress in figuring out why Lyme’s disease recurs in some people. Much closer to Wall Street obsidian heart was a report from Alcoa that profits had more than doubled in the second quarter.  Unfortunately, you’d have to be an old-timer to remember when good earnings from the likes of Alcoa was enough to push the U.S. stock market higher.  Anyway, probably a dozen Alcoas would not have made up for the deepening gravity of Europe’s financial plight. Whereas it supposedly was only Greece that was in need of critical care, now Italy has joined the short list of financial basket cases close enough to disaster to take the whole system down. And yes, we are being deliberately ambiguous when we avoid mentioning which “system” might come crashing down.  Europe’s financial house of cards?  The global banking system? The world economy? Frankly, we can’t even guess how far the damage might spread if “confidence” in Greece, Italy…Spain! were suddenly to evaporate.  We’ve put quote around the word “confidence” because only an imbecile could fail to see that whatever confidence exists is egregiously misplaced.  Even so, misplaced confidence is better for the time being than no confidence, since it’s all that’s keeping the global financial system