Happy 14,000!
I said this morning that nothing mattered until we hear from Google but the market did do it’s leveling best to look like it mattered today.
We made it through Uncle Ben’s testimony and the Fed minutes relatively unscathed and we shook off some very shakey leading indicators (-.3%, down from +.3%, -.1% expected) and a pathetic 9.2 reading at the Philly Fed, down from 18 last month and far lower than the 13 expected. So Q3 starting with a real downward turn but the party seems to march on with an unstoppable momentum but I’m worried it’s going to be like a New Year’s party where the action really heats up around midnight (pick your target level), even though everyone is tired, and then quickly breaks up, leaving a very big mess.
Google’s topline revenues rose 62% but they made the unforgivable mistake of investing in the future by hiring 1,500 very highly paid employees (+13%) AND expensing the bonuses paid to capture the best and the brightest. In the conference call Eric Schmidt said: "We have continued to make significant investments, as we have previously discussed. We are growing rapidly, building the best infrastructure, hiring the best to extend our footprint internationally, all the things that we talked about. Building better and better products and invest in doing so in the model that we’ve talked about: 70/20/10, 20% of the time, and that sort of thing."
That’s right, they are doing EXACTLY what they said they would do and missed earnings by .03 out of $3.59 and took a $15Bn hit in after hours trading for it. I have been blaming corporations for ruining this country by focusing more on stock buybacks and bottom line earnings than capital investment and R&D but now I’m going to blame — YOU! What is wrong with you investors? Are you people 5 years old? If you don’t get the results you want every single quarter do you just have a little temper tantrum and dump a stock? Apparently so…
Oh well, Mr. Buffett and I thank you for your skittishness!
Seriously people, I know that attention deficit disorder is some kind of national disease but isn’t this taking things a little too far? Here is a list of the wealthiest Americans who ever lived, adjusted for inflation. Mr. Buffett is only #16, with $46Bn and Bill Gates is #5 at $82Bn and if you read through the rest of the list, you’ll find on thing almost all of them had in common: THEY WERE LONG-TERM INVESTORS! I know this may sound funny coming from an options trader but I am a fundamentalist who uses options for leverage, not a momentum trader and my preference is to pick up good companies when they go on sale. In a normal year (and this isn’t one) the bulk of our earnings come from the Long-Term Virtual Portfolio (up "just" 147%) where we take positions in companies that are presenting a good value and sell calls while we wait for you guys to jump back on the bandwagon (Ka-Ching on SBUX by the way!) when they have a penny beat or some gives them an upgrade to counteract the downgrade he gave them a month earlier.
I’m not even going to go into all the reasons Google is a great company, lots of people will be arguing this all weekend and Tate Dwinnell has a good summary on Seeking Alpha. Instead, as I do pretty much once a quarter, I will direct my readers to take a 30-minute time out to watch the most important investing video ever created, it’s called "The Man Who Planted Trees." The less patience you have to watch this film – the more you need to!
After you watch this, think of the 1,548 trees Google planted this quarter and how they will, in a short amount of time, add to the $290,000 PER employee NET profit that the company averaged last year.
Please don’t confuse this for sour grapes, "investors" did exactly what we thought they would and we had (as I mentioned in the morning post) a 1:1 ratio of Aug $530 puts against our Sept $550 calls and I would have been mildly disappointed if I didn’t get out of my puts at least even. Now we have a squeeze play planned (see last night’s comments) for the morning and will be rolling our longer calls to reposition once the dust settles but I basically feel like a shopper lining up at the mall for the big one-day sale!
Tomorrow will be a great test for the markets as we have another tech disappointment and oil is now over $76. Gold ran up to $678, closing at the day’s high while the dollar found minor support at 80.30 but couldn’t make it back over 80.50.
It’s crunch time for the S&P at 1,553 and, as I said on Wednesday, I just can’t get comfortable about the rally until we break 1,555 so tune in tomorrow for more fun and profits!
