Wednesday, April 30, 2008

CNBC's Maria Bartiromo's exclusive interview with Google CEO Eric Schmidt, from the Milken Conference in Los Angeles

Part 1: Part 2: Part 3:

The Fools at Motley Fail to understand..

..the importance of the May 30th American Society of Clinical Oncology (ASCO) conference as a driver for Genentech (DNA). POTC predicted the failure of Rituxan for Lupus after analyzing the CC psychology on April 10th. POTC also was forward-looking in suggesting investors WAIT until after the failed Rituxan studies are disseminated. Although we respect Motley Fool's opinions from time to time, we feel their story today is poor. It misleads investors in to thinking Rituxan was supposed to succeed. Also, Rituxan cannot be compared to Avastin in terms of future revenue and profit streams. Our readers would be wise to ignore the recent Motley Fool story and look-forward to the ground breaking news we see DNA presenting surrounding their block buster cancer drug Avastin's extended uses at ASCO on May 30th. POTC reiterates DNA is the leader in the biotechnology universe of stocks and we hope you do not become distracted by backward looking articles: Thank You for your attention, The Psychology of the Call team.

We said short Garmin at $56

And we took our profits. If you shorted and still need to buy back shares, you're in good shape.
"Garmin's shares hammered; results miss forecasts"

First Solar net income rises nearly 10x

We recommend that you hold your FSLR shares and buy more on market pull backs. This is a tremendous developing story in POTC's opinion and perhaps one that is only getting started...{4A3F6E36-8E20-4302-8B50-ED0CFD19F13F}&siteid=msn

The Good, The Bad & The Ugly of the Fed's Wednesday Movement

With Ben Bernanke conducting the Federal Open Market Committee (FOMC) movements, their short-term interest rate decision will reverberate throughout the world on Wednesday, April 30th at 2:15 PM ET. The FOMC has cut rates no fewer than six times in last eight months, so another cut would be their seventh, bringing the fed funds rate below its current 2.25%. Here's a graphical illustration of fed funds rate back to 1954:

The psychology of their call will be based on a mixed bag of data, therefore we bring you: "The Good, the Bad and the Ugly". The good data the FOMC will consider is two pronged; the strengthening dollar and the strengthening S&P Index. The S&P has sprinted 10% from its March lows, just weeks ago! This is a very positive development as the broad stock market is the best scientific predictor of macro economic conditions.

You’ll notice that the S&P Index is set to break through a critical technical resistance at 1,400. This very bullish development will be mentioned on Bloomberg, CNBC's Morning Call, Dylan Radigan's Fast Money, and Jim Cramer's Mad Money as "the market is climbing a wall of worry". Many will mention crude oil as the major hindrance and a sudden bursting of the crude oil bubble would have detrimental affects to stock market bulls (we know Jim Cramer agrees with us on this point). Why? The oil market is being used as a safe haven parking lot for many Institutional funds. Not too many sectors have done so well, and if it wasn't for the crude oil rally, the S&P Index would be much lower. Bubbles are good in that someone is making a lot of money, and eventually those profits will rotate to other asset classes, yes? Commandment ~8~ states there are two sides to the market; so try to analyze bubbles with more positive psychology, okay?

The second good bit of data the FOMC has is the stabilization of the U.S. dollar (greenback). Many economists predicted the greenback would continue its free fall after the last 0.75% (75 basis points) cut on March 18th, but they have been proven wrong so far. The greenback has raised its rebel head, and is now looking forward, from above the 50 day moving average:

Those are the two good nuggets conductor Bernanke and his FOMC orchestra will consider in their two day ensemble starting Tuesday. Now to address the bad and ugly skeletons.

The Michigan Consumer Sentiment, released Friday, April 18th, hit the lowest level in a quarter century: bad data. The psychology of the consumer remains extremely pessimistic:

The problems related to the housing and the credit crisis drag on and on and on, therefore this bad data will be included in the FOMC's notes. No one knows just how much this negative consumer psychology will influence Bernanke's orchestra. We believe there will be one dissenter in the final decision, and if that scenario occurs, the market could stumble. Wall Street hates uncertainty, so when the Fed isn't harmonious in their decision, sell offs follow. Maybe the FOMC will follow the Three Musketeer motto and prove us wrong: "One for all, and all for one".

Finally, the ugly reality of inflation in the continuing trend of rising food and energy prices, especially crude oil prices. At $117.00 a barrel, crude prices are up over 30% since January of this year alone.
Quick psychology: In 1954 American cars were heavy, made of solid steel, yet a barrel of crude oil cost $2.90. That’s cheaper than a single gallon of gasoline today! Of course that's not adjusting for inflation, but its mind numbing nonetheless. Few widely held assets have appreciated 4,000% (40X) since 1954. This development with crude oil is the ugliest note the FOMC must play in their concerted effort of attempting to strike that perfect harmony; not too loose/dovish/low, and not too tight/hawkish/high. Some economists argue further interest rate cuts could contribute to inflationary pressures, outweighing the benefits of potential growth that "cheap money" (lower interest rates) offers. Since consumer sentiment is so negative, we argue two more 25 basis point cuts could destabilize the good data, especially the greenback. Remember, a weak greenback is good for multinational blue chips exporting goods and services over seas. But nonetheless, consumers unrelated to Wall Street profits cannot afford to see the greenback fall and exacerbate inflationary pressures on everything we buy, especially gasoline.

With the good, the bad and the ugly elements having been addressed, how many feel the FOMC will strike the wrong chord in the markets come Wednesday? Perhaps they will do the right thing and leave the remaining bullets in their chambers, for potentially uglier days ahead? Taking too many quarter point cuts could bring us to a bloodied zero short-term rate rather quickly. Zero is one number that does not allow itself to be divided by anything, including the best mathematical modeling software on Wall Street. Ironically, a zero fed funds rate would signal the end and a new beginning at the same time, ringing in a paradigm shift in monetary policy. A zero fed funds rate shows tremendous macro economic weakness and would have disastrous effects on Wall Street Investment Banking and no doubt the consumer as well. Could the U.S. economy be in such jeopardy for rates to drop to zero, or even below zero, causing a "liquidity trap" like that which occurred in Japan in 1998? We surely don't think so:
The Japanese Nikkei was hitting 16 year lows during their 1998 banking crisis. Our S&P 500 would have to fall 400-450 points to reflect similar psychology. It won't happen:

The S&P Index climbing above 1,400 will signal resounding bullishness, so we feel things are not as gloomy as perma-bears would have you believe. Therefore, the week ahead will be a testament to the resolve of the U.S. stock market and foretell positive economic conditions, sending the bears into hibernation as the S&P closes above 1,400 on Friday May 2nd. Statistics show the U.S. economy remains the largest of any other country, so the rest of the world’s investors are watching and hoping the credit crisis finally be laid to rest.

POTC believes the strength in foreign currencies, especially the Euro-dollar will act as a fire starter for high end real estate, particularly coastal and prime urban cities like Manhattan and Chicago, along with blue chip stocks like Goldman Sachs (GS), Genentech (DNA), and Intel (INTC). POTC envisions these buy out/scenarios unfolding by the time the leaves turn color and Fall. Euro-dollar buy outs are on the horizon, so fasten your belt, especially if you're selling short the wrong stocks. If the saying "sell in May and go away" comes true this year, we suggest you take advantage of that set up, especially in blue chips mentioned above. The Fall season will be marked by major Euro-dollar buy outs of U.S. based assets. Could the fire sale ahead be the reason the S&P Index is breaking above 1,400?

The FOMC would be wise to give serious consideration to the recent strength in the S&P Index as well as U.S. dollar. POTC feels director Bernanke's orchestra should hold the notes steady at 2.25%. The crescendo for a 25 basis point cut is building at the Chicago Mercantile Exchange, we know, but we feel the FOMC should not chance an impromptu climax, desperately rushing to that dreaded number zero. A climactic sell off from the key technical level of S&P 1,400 will be avoided in our opinion; still the decision looms. No dissenters, and no bloody ‘Wild West’ endings please. We hope director Bernanke is bold, keeps fighting, but exhibits more patience. Leave the melody unchanged and keep the powder dry. Here's a relief video that ties our good, bad and ugly piece together. Please watch it in full screen mode:

We wish every one of our supporters a healthy, happy, and profitable week. Thank you for printing, copying, pasting, facebooking, MySpacing, commenting, and emailing our articles to all your friends and family members~

The Psychology of the Call team.

This article is dedicated to one of our friends, who is a genius of bond market mechanics and a virtuoso jazz pianist as well, go figure!! Hats off to you, Paul~

Tuesday, April 29, 2008

Jim Cramer and Merck

Although we respect many of the talking heads on TV, we want to bring to your attention Jim Cramer's #1 Dow stock for 2008, Merck (MRK).

We strongly disagree with Jim Cramer, and suggest our supporters sell MRK and swap into DNA.
The ASCO May 30th Conference in Chicago will be a huge positive for DNA's expanded uses of the cancer drug Avastin. It was VERY evident to us in the highly positive tone exhibited by the DNA executives on the CC. (

Thanks for returning and supporting our efforts for greater corporate transparency in the emotionally charged Q/A session during CC's. We look forward to uncovering more psychology for you in the Monster (MNST) CC Thursday night.

The Psychology of the Call team.

Merck hit hard by cholesterol drug rejection

GOOG Conference Call Analysis Rings True

In our detailed analysis of the Psychology of the Google Call on Thursday April 17, we wrote: "We come away convinced the DCLK and Google synergies will get greater as time goes by; therefore, why don't our readers consider competitors like Valueclick (VCLK), currently fetching a measly $17? Perhaps they'll be the next ones bought on the cheap…"
Today (12 days later) VCLK is trading at over $20.

DNA Conference Call Analysis Rings True

In our detailed analysis of the Psychology of the Genentech Call on Thursday April 10, we wrote: "We would wait for the Lupus studies to be announced within days and, since management sounded pessimistic on this front, buy shares on that potentially terrific pull back." The results of the lupus study were released today:

Study of lupus treatment fails to meet primary endpoint

We are initiating Genentech Inc. (DNA) as a BUY at $68.70. The news of the failed Rituxan Lupus study presents a temporary set back for DNA, providing a perfect buying opportunity, especially with the catalyst of the ASCO scheduled for May 30th-June 3rd, in Chicago. Look at our DNA CC analysis ( to see why being long DNA from this day forward makes sense. Congratulations to our supporters who waited: CC psychology and patience remain two integral parts for your success with Genentech going forward.

Friday, April 25, 2008

Friday Afternoon

The Psychology of the Call team (POTC) wants to thank every one of YOU, in more than 70 countries since our February 26th launch for returning to what started out as a little blog spot on the Internet. We wish you a happy and healthy weekend, with dreams of better days ahead~ Our aspirations for a bigger audience and greater ideas are now taking shape. You will soon be witness to our growth, as we've been asked to join a highly reputable forum of select financial blogs on the Internet; and we have nobody more to thank than you! Nothing will change as far as our insights and education we bring you; as we will continue to strive toward making Psychology of the Call the go-to financial portal for psychological conference call (CC) analysis and philosophical articles on geo-political macro issues as well as individual recommendations on micro ideas/stocks.
Now, as part of our Friday ritual/routine, we bring you the 11 Commandments. POTC wants every individual supporter to understand how critical they are to your financial longevity/success going forward. Without an actionable plan, many well known investors of our time have failed, but eventually succeeded due to diligent adherence to strict rules. Although there are thousands of financial forums on the Internet, filled with great facts, opinions, rumors, and educational information; POTC offers you a more scientific channel to help through this maze of information. We stress the need for actionable plan than mere hope. Hope and faith should never enter into your investment/trading ideas, ever. Perhaps no one is more qualified than "Master Kung", the great Chinese thinker/philosopher Confucius (479BC) to explain why modest words are important, but nonetheless, quantifiable methods of action/behavior must surpass mere modesty of solely well meaning words of hope: "The superior man is modest in his speech, but exceeds in his actions". [Confucius]

The 11 Commandments of Investing/Trading:
1. Never trade more than 10% of your total capital/account value in any one position.
2. Cash is King.
3. Cut losses to 15% maximum whenever possible. If your psyche is shaken, step away and don't trade for 1 week.
4. Take and enjoy profits of 30% or more.
5. Never fall in love with a stock and never force trades or over trade; remember commandment #2.
6. Never accept excuses from management, period.
7. Use technical and fundamental data & psychology/sentiment from the conference call to select trades.
8. There are two sides to the market, long & short; take advantage of that leverage.
9. Understand the significance of the macro geo-political economic environment.
10. Unforeseen events/shocks will happen, inverting the market upside down (remember commandments #1 & #2)
11. All of the above are void without reading the Psychology of the Call.

Thursday, April 24, 2008

Psychology of the Microsoft Corporation (MSFT) Q3 2008 Call

Most recent notable analyst changes
March 6th, Cross Research initiated coverage with a Hold.
March 5th, Jeffries & Co initiated coverage with a BUY.
March 4th AmTech Research initiated coverage with a BUY.
Jan 31st, Stanford Research initiated with a BUY.
Jan 22nd, DA Davidson upgraded from NEUTRAL to BUY.

Psychology of the Call (POTC) sees many analysts jumping on the Microsoft (MSFT) bandwagon of late and initiating coverage with BUY ratings. We have our doubts. Here are some quick insights we offered on MSFT in the "Psychology in the Upcoming Week's Data" piece posted Saturday night:

Microsoft's Steve Balmer is politicking of late and we don’t see him backing out, especially in light of GOOG's monster move last Friday.
Obviously, there are many opposing views on the deal judging by the incredible media coverage. We believe YHOO will continue to under perform GOOG and eventually go the way many well meaning companies went, that being extinct. The Google juggernaut might be challenged only by a collaboration between MSFT & YHOO, although our readers should realize that MSFT believes that GOOG is so far ahead their offer for Yahoo shows more desperation than promise.

11th and 12th minute (m) piracy of software addressed by Colleen Healy, General Manager of Investor Relations.
21st m guidance for fourth quarter provided from Chris Liddell CFO.
25th m fiscal 2009 guidance provided.
28th m Yahoo proposal addressed.
30th m Yahoo’s latest quarterly earnings were mentioned with a negative twist, definitely tried to under score Yahoo's value, but also made MSFT look enviable of Google, who they NEVER mentioned by name

The Question and Answer (Q/A) started at 32m

32m Charlie from Sanford Bernstein Q on fiscal 2009, U.S. economy getting weaker A: MSFT's diversification is good, but we've built in the potential economic slow down in the conservative guidance.
34 m Sarah from Goldman Sachs Q on why 2009 guidance is so robust, because of Yahoo? A: POTC feels management refused to answer the question. Sarah knows what most feel, that MSFT is guiding 2009 counting on having Yahoo in hand, perhaps a tradable development/tell given?
36 m Heather from UBS Q Piracy, looks like quarter over quarter (q/q) comparables (comps) getting tough for second half of 2008, and stock buy back? A: Piracy is very difficult to address on a q/q, it's something we look at on a year over year (y/y) basis more.
37 m Piracy and comps getting tougher, China mentioned as a problem.
39 m Stock buy back was low in the quarter because of potential Yahoo transaction; another tell/clue for our readers here...
39 m Kash from Merrill Lynch Q on guidance, word "philosophically" used twice, wondering about bottom line if Yahoo transaction were to not happen A: Again, POTC saw the answer as vague, completely "stuck on stupid, or yahoo"; (all analysts questions so far are questioning the future guidance, and whether it is too high based on the assumption that Yahoo is in hand).
43 m John from Bear Stearns Q On piracy, more color wanted "get a foot, give up a yard" phrase mentioned; A: You are right about piracy, but it could change from q/q.
45 m China mentioned as a negative in terms of piracy.
47m Follow up Q from John, how can you see OC sales increase given the macro environment. A: Dodged question, and as John attempted to ask another question, he was cut off, POOF ~ PLEASE LISTEN TO THIS… POTC recalls a similar event on Google's CC, but Eric Schmidt apologized and the analyst asked what he wanted at a later point in the call.
48 m Rob from RBC Q on Aquantive: A: Extremely happy, underlying business with 96 new various publishers.
50m Profitability another issue.
Here's a quick peek at the $6B cash buy out of Aquantive last year:
50 m Kirk from Banc of America Q Dynamics of operating margins A: Difficult in judging by one quarter, (but pointed out by reading some trends are positive). POTC again felt MSFT did not want to admit weakness as they position themselves for Yahoo.
52m follow up on PC inventory levels; A: Nothing we're seeing is unusual.
53m Brad from Citigroup Q on Vista and XP upgrade cycle/pricing; A: In the 3rd quarter no Vista related problems, channel shift to larger OEM's not a Vista issue, nothing in 3rd quarter specific to Vista

Call ended in at 56 m

MSFT's management was forced to be highly political because of the pending Yahoo proposal.
CEO Steve Ballmer was a no show. Our team feels MSFT has reached such a tremendous scale and market capitalization, they would be wiser to split the company up than to buy Yahoo and later be Googled. We don't see Yahoo going for less than $35/share, so even though we don't like Yahoo based on operating metrics, we don't see Ballmer backing off; so psychology here is KEY. Valuation reflects sentiment and our readers would be wise to buy Yahoo in the $27 range, as we feel it'll go for north of $35 ~

$47B here (Yahoo estimate buy out) and $6B there (Aquantive) for MSFT shows one thing, Bill Gates’ claim to fame is a world changing operating platform that has in effect now saturated the market. We feel MSFT's Steve Ballmer is looking through old "Windows" at Yahoo while dreaming of future advertising revenues from search queries. We don't envision MSFT ever catching up to Google, ever. But what we have taken away from this call looks like easy money for our readers: BUY Yahoo! and make 30% on your money within months. Please, always follow the 11 Commandments when investing/trading. Thanks for reading the Psychology of this Call, now the "Ball-mer" is in your hands; a lay up in the offing!

Profit Update

Congratulations to our supporters who bought shares of China Life Insurance (LFC) at $55.87 on our recommendation only one week ago, April 16th, and now have realized profits of 20%. We recommend taking profits today at $66.50 as the move in many Chinese stocks has been overly optimistic of late. POTC sees too many moves being unrelated to company specific (micro) matters, and therefore a 20% gain in one week had the element of luck attached. We urge our supporters to have patience in the JRJC short position and strongly recommend taking the proceeds from the LFC winning trade and swapping into shorting JRJC. We thank you for your Thursday attention, and please tell your friends the Psychology of the Call team helped you beat the market once again ~


You can find our take on the ecomonic/earnings releases for Thursday and Friday by clicking here:

Wednesday, April 23, 2008

Psychology of the Apple Inc. (AAPL) Q2 2008 Call

Most recent notable analyst changes
April 22th, Lehman initiated coverage with an overweight..
April 22th, AmTech Research downgraded from buy to neutral.
April 8th, Morgan Keegan downgraded from market perform to underperform.
April 7th, Thomas Weisel upgraded from market weight to overweight.
Jan. 23rd, Needham & Co upgraded from buy to strong buy.
Jan. 23rd, Caris & Company downgraded from buy to above average.
Jan. 3rd, Needham initiated with a buy.

The Psychology of the Call team (POTC) will pay close attention to all analysts, but particularly Needham's, as he initiated a buy rating on Jan. 3rd and then 20 days later upgraded to a strong buy, perhaps his questions will be the most insightful due to his aggressive and optimistic rating change. We hope you enjoy what we hope to be a fruitful exchange and presentation of perhaps the best hardware company in the world, Apple Inc. (AAPL). All hats to Steve Jobs, please.

First, here's some brief insight on AAPL from a piece we wrote in the "Psychology in the Upcoming Week's Earnings Data" specifically related to Wednesday's APPL release: We expect AAPL to have a downward bias due to the psychological ramifications of iPhone shortages and questions on a new iPhone launch. Although both events are positive from a numbers stand point, here's where "psychological financial fusion" applies. It's never a matter of quantifiable data only; it's more a matter of perception/sentiment/psychology. Here's the scoop from an analyst our team follows and respect:

The CC started at 5:00 PM ET with Nancy director of IR reading safe harbor statement and announcing the executives.
6m Peter CFO excitedly read the disseminated public press release.
7m Healthy growth in all regions, 200 retail stores extremely strong, 50% of customers sold to were new.
9m Ended quarter with 3-4 weeks of channel inventory; 10.6M iPods sold, late June new software will be released for iPod.
10m Objectives continued to be achieved; 10m recently surpassed Wal-Mart.
11m Very pleased with iPhone momentum.
11m 1.7M iPhones sold; 12m developer software has been TREMENDOUS (with emphasis) in new iPhone software.
13m AAPL retail stores momentum explained.
14m Personal training sessions in Macs is growing in retail stores.
15m Tax rate 29% below expected 32%, second half tax expected to be 31%.
15m June Q OUTLOOK: $7.2B or 33% growth, gross margins 33% expected; EPS of about $1.00; very excited in late June new iPhone software delivery.

Q/A began at 17m

17m Ben from Lehman Q about gross margins, and why confident in 33% gross margin next quarter? A: Commodity pricing hit historically low levels in latest quarter, we do see coming back to historical levels; 20m Gross margin declines explained, stumbling through excuses in POTC's opinion.
21m Still Ben from Lehman Q about iPhone growth going forward, shortages etc. A: Inventories are currently low and believe more phones are bought with the intentions of wanted to be unlocked.
22m SIGNIFICANT unlocking.
23m Q color on product mix and Best Buy A: 53%, up from 49% in previous quarter, Best Buy by 600 by summer.
24m Follow up Q on education sales A: Can't predict exact numbers but 38% is highest number ever; 25m SURPASSED DELL; POTC readers should note that DELL has now been called out by INTC and AAPL; a good reason to be SHORT DELL.
25m Mike RBC Q on the reasons in delay in iPhone 2.0 release A: Stumbling through answer again.
27m Follow up Q on 3G and iPhone: A: We don't comment on new products but confident we will hit 10M units.
28m Follow up Q on economic headwinds; A: We will leave economic commentary to others, (POTC felt INTC's CC was 100X more transparent, as they didn't make 1 excuse and did say macro economic trends today are NOT affecting their business); we have outstanding innovative products, growth was twice of last year’s quarter.
29m Somewhat convincing argument offered in AAPL future going forward.
29m David from Goldman Q regarding the 2.0 iPhone software date; A: iPhone 2.0 intended to be delivered in late June; 30m management hesitant in NOT wanting to admit impact of falling gross margins, our readers should listen to the CC at the 30m mark.
32m Kathy from Morgan Stanley Q on gross margins, Kathy was more emotional/colorful A: "Katie"(management addressed her) when we gave previous gross margin guidance, we did do better, 33m IT IS A COMPETITIVE WORLD. Follow up Q on store openings: A: Nothing has changed from our previous plans.
34m Richard from Citigroup struggling with gross margin Q, very rational and prodding analyst, A: Our Mac Leopard revenues explained, by far our best selling release, ( less leverage on fixed costs (while clearing throat)
38m Follow up Q on memory pricing; A: We envision it trading at a narrow trading range, but I don't believe it'll go lower.(POTC saw this as a weak answer, when a company has pricing power, they do not have to rely on being lumped with commoditized issues.)
38m Andrew with Bear Stearns Q on cash flows and what delay in iPhone meant for this quarter, and tax rates, and consumer trends A: Laughed as he said we had a good Dec quarter, went over disseminated numbers, retail stores exceptionally well; tax rate was forecasted at 32% for year, but now see 31% for June and September quarter; we sold 1.7M iPhones during quarter and we recognize revenue over 24 months. POTC sees revenue recognition being an detrimental psychological issue here going forward, caution.
43m Piper Jaffray analyst Q on iPhone A: March 6th we'll realize revenue on iPhone; as I've said in prepared remarks we will then provide software for free; reiterated free, therefore deferring revenue. POTC hates deferring revenues; we've come across too many companies who offered that excuse, and we don't buy it! Even from APPL, caution.
45 Shannon from Croft Research Q on pricing, needed more color on carrier driven pricing A: Carrier information is confidential.
46m Shannon became animated and management declined to answer her question, as they cannot divulge all information for competitive reasons, follow up on channel inventory and linearity; A: Strength in all geographies, linearity explained in more detail in 47m mark.
Follow up from Shannon at 48m on gross margins A: Management began laughing, they said customers love it, referring to the iPhone
48 Steve from Bank of Montreal Q on revenues of 2.0 software; A: No catch up period involved; follow up about gross margins, large drivers A: Really hard to do year over year comparisons, I'd prefer to stick with sequential metrics.
50m follow up was variance in terms of geographies materially different A: 51m STUMBLING ABOUT PUTTING OUT 10Q SOON, THERE'S LITTLE BIT VARIABILITY
52m Merrill Q seasonality in June quarter A: June sees sequential in Mac shipments, especially K-12, September weighted more toward higher education.
53m follow up on iPhone unlocking A: STUMBLING ON UNLOCKING, IT IS SIGNIFICANT, HARD TO QUANTIFY, iPhones being used in many countries.
54 Tony from Sanfor Bernstein Q: iPhone supply was outstripping demand, VERY GOOD QUESTION, TOUGH ANALYST; A: Currently inventories low in store and in channel, in aggregate Europe is low, U.S. is low.
55m follow up on better balance inventory A: You can have short term imbalance, and today inventories are low in U.S. and Europe.
57m this is our first Q1 to Q2 we've been in the phone business; (see Commandment # 6 about excuses; POTC feels this will only get worse going forward.
Tony tried to pry more information A: Management dodged the question in POTC's opinion;
average selling price (ASP) was slightly down.
58m Charles from Needham & Co Q on providing color on Mac purchases A: No info on Windows users purchasing Macs, professors and travelers good customers.
CC ended at 60m

We would not recommend buying or holding a single share of AAPL. The fact AAPL has entered in to the ultimate dog eat dog phone arena was a mistake, but for a company of AAPL’s size and dominance in one market it was a natural progression to try and succeed in another market. The exchange in the 33m when management admitted it is a "competitive world" was the theme of the CC as far as POTC's take away. Also, the stumbling and hesitation in multiple areas was unacceptable and not transparent. Intel's Paul Otellini and Stacy Smith, and Google's Eric Schmidt are giants compared to AAPL's executives. The fact Steve Jobs failed to show up for CC has a detrimental affect on psychology.

Lastly, when the 10Q is disseminated on Friday, or Monday of next week, we predict a 10% sell off. Please heed the warning. The Apple we saw today was no Golden Delicious. On the contrary, it was a sour plum dumpling filled with excuses. Our readers would be wise to avoid the stock until we see a change in executive psychology on the CC.

The Psychology of the Call thanks you for your continued support; and don't forget to print, copy, paste, email, and fax our blog spot to your friends!

Related Story: In Europe, Attempts to Fit iPhone to Needs of Service Providers

Wednesday's Economic and Earnings News

Scroll down the page, past the YHOO Conference Call, to find our take on the release of Crude Inventory data and Wednesday's earnings releases.

Tuesday, April 22, 2008

Psychology of the Yahoo! Inc. (YHOO) Q1 2008 Call

Most recent notable analyst changes
March 25th, Citigroup upgraded from hold to buy.
March 8th, ICAP initiated coverage with a buy.
Feb. 5th, Canaccord Adams upgraded from hold to buy.
Feb. 5th, Banc of America downgraded from buy to neutral.
Feb. 4th, Soleil downgraded from buy to hold.
Feb. 1st, Susquehanna Financial downgraded from positive to neutral.
Jan. 30th, Citigroup downgraded from buy to hold. Our team will listen and analyze the Psychology of the Call (POTC) of all these analysts closely, but especially Citigroup's analyst as he changed his rating on Yahoo! Inc. (YHOO) from a January 30th downgrade to a March 25th upgrade; perhaps his psychology during the question and answer (Q/A) session will reveal the freshest facts. Here are some of our team’s insights into the recent developments surrounding YHOO:

YHOO's CC will be dissected and analyzed more from a psychological perspective and less on a quantitative/number basis since there is a buy out offer of 44.6B or $31/share from Microsoft Corp. (MSFT) being debated. Microsoft's Steve Balmer is politicking of late and we don’t see him backing out, especially in light of GOOG's monster move on Friday.

Obviously, there are many opposing views on the deal judging by the incredible media coverage. We believe YHOO will continue to under perform GOOG and eventually go the way many well meaning companies went, that being extinct. The Google juggernaut might be challenged only by a collaboration between MSFT & YHOO, although our readers should realize that MSFT believes that GOOG is so far ahead their offer for Yahoo shows more desperation than promise.

The CC started at 4:00 PM ET with Marta from IR read the safe harbor

At the seventh minute (7m) Jerry, Co-Founder outlined strategy; the MSFT unsolicited take over proposal was mentioned and three components were addressed 1) MSFT 2) Q1 performance 3) growth drivers.
9m MSFT proposal substantially undervalues Yahoo franchise, read the reasons why board rejected MSFT proposal.
10m Board and management is open to all and any alternatives, including MSFT's proposal.
11m One thing is Yahoo will not enter into any transaction that will not maximize shareholder value; 25% growth q/q in display advertising, successful Maven Networks buy out mentioned:

12m Key elements recapped 1) increasing volume of properties, front page search, and mobile. 13m Advertisers will be served so well that they will insist on working with us; key to strategy is closing the gap in search monetization against rivals.
13m Largest opportunity lies in display advertising, estimated to be $40B by 2010.
14m Although not immune to macro economics, we are well positioned even in a slowing macro environment; brisk progress and strong momentum against the circumstances in the last 3 months (Marco issues), results have been extraordinary; 15% growth and executing well and maximizing shareholder value.
15m Sue, President mentioned healthy speed and efficiency in rolling out higher quality products.
16m Q1 Three key changes in strategy outlined; growth, simplification, innovation.. facilitating social connections across networks; Yahoo content like Answers and Flicker.
18m 10% compound search growth has been exceeded in U.S; #2 position in search; game changing features will continue to drive volume: search assist, video and volume, customer satisfaction is growing.
19m Search results will become more of a dynamic monetizing key, search 2.0 voice activated search has been initiated, search assist, one search, and mobile search mentioned.
20m We've closed the gap in the last 18 months, material gains in algorithmic search.
21m Non-search search 12% growth experienced; social connections, Buzz launched in Feb. proprietary algorithm.
22m comScore reported 4M new visitors in last month; enormous scale; here's an explanation of who and what comScore is: (
Repeat visits are strong.
22m Video on Flicker over 40M world wide users, leveraging social connections as no other company.
23m More objectives outlined; broaden advertising skills and networks.
24m Continually innovating to make it easier for others to do business with YHOO.
24m Search and display yield: Panama continues to make good gains: POTC gives credit to Ross from RBC Capital for calling out Yahoo executives in the 50m mark below; and questions regarding Panama did come up back in 2007: (
25m Coverage by click-through-rates explained, and price per click upside (PPC) developments. 26m 3 year goal is for 15% RPS gains.
27m GOOG deal mentioned; goal is to optimize near term monetization.
27m 3 year plan for 15% annual growth should benefit from display ad platform.
28m Right Media and Blue Lithium acquisitions mentioned, inventory is still highly fragmented, so YHOO will take advantage to fuse that element in the display market.
29m AMP announced recently, selected newspapers, inventory is undervalued today.
30m "We sell you sell" campaign, upside can even be greater.
31m Extraordinary time for YHOO; innovating and executing more effectively, we are on the verge of fundamentally changing the game in display.
31m Blake, CFO read the publicly disseminated results.
33m Reaffirmed 2008 guidance; $2.8B cash balance at year end.
35m Maven and Foxy Networks mentioned; Ali Baba and GMarket; YHOO owns 40% of Ali Baba; significant additional value is in other investments mentioned in a convincing/believable tone.
36 m Ali Baba IPO mentioned; $167M of $750M convertible were converted into common stock; conversion of notes explained in more detail.
39m Auto and pharma doing well, softening in finance, retail and travel seen (weak).
40m Advertising budgets may fall, but return on investment (ROI) may actually go up; AT&T and Rogers renewed, expect negative impact, higher payments.
41M Received $35M payment from AT&T,.
41m Headwinds mentioned in relation to AT&T and Rogers.
42m 39% Q1; other taxes mentioned, higher in next few quarters.
44m Jerry emphasized strategy very confidently, but POTC wants readers to read between the lines here… Jerry must be confident as there is a $31/share buy out offer on the table, so we accepted his remarks with a grain of salt.

Q/A started at 45m

46 m Youssef from Jeffries Q: Questioning the optimism on long-term guidance. A: Guidance is reflected in the economic view we have today (POTC sees the guidance being overly optimistic, again, with the MSFT offer on the table, YHOO's best interest is to over promise, NOT guide lower) Credit to Youssef from Jeffries, who we crucified for downgrading Google days before their monster move and earnings; Youssef is redeeming himself of late, but here's a review of his GOOG call:

We all make mistakes, but his downgrade looks completely wrong after this CC and a $75 up move in Google! (Be cautious if the MSFT deal doesn't go through, as now YHOO has over promised on Q2 in POTC's and Youssef's opinion).
Jeffrey from Sanford Bernstein Q: Certain metrics are coming down, is there a slow down A: Overall TAC rates declined slightly, there is pressure on TAC rates, competitive dynamics have become more difficult; discipline mentioned, weak response in POTC's opinion.
48m Brian from Banc of America Q: More color on inventory and on weakness A: Sue didn't answer question in our opinion.
50m Ross from RBC Q: Why slowdown in Panama? A: Panama was roughly 20%, now 10%, so tougher comparison; we are pleased on click yield though.
51m Looking forward we will drive price per click (PPC).
52m Global basis RPS gains were 15%.
52m Mark of Citigroup Q: On Asian assets, hypothetical on Ali Baba and Yahoo Japan A: We can't talk about all the alternatives for competitive reason, but we our strategies are unique.
Psychological note to readers: POTC feels since Mark has most recently upgraded YHOO, as seen in our opening paragraph, we feel his question reflected that positive rating, neither good nor bad, but we want our readers to understand the rationale behind different analysts’ questions; obviously Mark is hoping the Asian markets see viral growth, and this must be followed, as we like analysts who make rating changes, rather resting on their laurels and simple hope.
54m Krista from Thomas Weisel Q: On ad networks and AMP A: AMP is built upon the open exchange.
55m AMP is a display platform today; over time the world will converge, so AMP is only first launch on that platform, you will see more from AMP; POTC's link for AMP: (
56m Emron Kahn from JP Morgan Q: Revenue growth rate and MSFT distraction effect A: No one time event in International, continued pressure of affiliates experienced.
57m Continue to see strong display growth Internationally.
58m No impact from MSFT proposal, no distraction.
58m James from Goldman Q: U.S. current economic weakness on search business, Panama. A: Financial, travel, and retail weakness, but other growth rates in double digits.
59m Development in a main stream advertising vehicle.
60m Panama global and advantage seen in pricing, especially International.
61m Justin from Merrill Q: Search: where did you get the 60%-70% improvement figure given last quarter A: Sue was confused by the question, perhaps you are referring to comScore statistics?
62m U.S. sponsored search we have closed the gap.
63m Cost savings seen, below originally forecast.
63m Keith from Credit Suisse Q: In terms of display, what kind of ad inventory growth are you seeing, particularly in finance? A: Still very early in display market (POTC feels the question was dodged, as YHOO didn't want to pepper the CC with negatives since a MSFT offer is pending).
64m we continue to invest in inventory, we have seen robust growth in display this quarter.
65m long term goal in 3 year plan is to grow 12%

CC ended at 6:05 PM ET

We feel YHOO is strictly an arbitrage play. Although we do feel MSFT's offer will have to be raised if they are serious about taking on one of our favorite stocks, Google (GOOG). Google’s CC was 10X more upbeat and 10X more transparent. We feel YHOO's management is definitely distracted with the MSFT offer. YHOO would be wise to continue their "power play" attitude; and ironically, they must thank Google for that company’s incredible Q1 results and stupendous CC, because now MSFT is hungrier.
We hope you learned something new and thank you for giving us the pleasure to offer you our little Psychology of the Call blogspot.

Monday, April 21, 2008


Just below you will find our analysis of the week's economics and earning's data. Please read and comment.

Saturday, April 19, 2008

Psychology in the Upcoming Week's Economic & Earnings Data

Hello to all of our loyal readers in every one of 62 countries and counting! Last week brought us many reasons to hear, see, feel, and witness a shift in stock and bond market psychology/sentiment. "Trend Setting Tuesday" of last week did in fact foretell the bullish days that followed, but especially Thursday and Friday. Congratulations to those who took advantage of that little known but often powerful forward-looking market mechanic nugget.

On Thursday, April 24th we look forward to Durable Goods Orders at 8:30 ET, Initial Claims for Unemployment at 8:30 ET, and New Home Sales at 10:30 ET.

The Durable Goods orders will be the most market moving data of the three, and since the estimates have been ratcheted down of late, we believe the potential AAPL sell off could be erased by this data. We would be buying selected technology that may get caught in the AAPL down draft, specifically RIMM.

After market close earnings and CCs come from Microsoft Corp. (MSFT) and Amgen Inc. (AMGN). Since MSFT is in a battle for YHOO, we look forward to the CC more than the generally accepted accounting principles (GAAP) numbers. The Question and Answer session on the CC will be focused on MSFT's psychology in their $44.6B, $31/share YHOO offer. Amgen's CC will highlight their time lines in the current Phase III studies and remind investors of the FDA police, a heavy regulatory burden evidenced by the DNA CC we analyzed.

On Friday, April 25th there will be NO market moving earnings releases. The only piece of economic data is the Michigan Consumer Sentiment Survey at 10 ET.

With consumer sentiment being at the lowest level since 1992, we wouldn't count on much change due to the crude reality of prices at the pump and depressed real estate. We want our readers to understand though, bad economic data releases force the Federal Reserve and Ben Bernanke to stay on the gas peddle and continue to lower rates. Although the Fed is in a very difficult situation with the weak dollar and rising energy prices, our team believes they will continue to lower interest rates to fend off a prolonged recession. Note: this is an election year, and the sitting Elephant administration does not want to see any Donkeys move in to 1600 Pennsylvania Avenue.

We hope you learned something new. We hope you make smarter trades and eventually profit from our forward-looking psychological financial fusion. Please exercise your first amendment rights by printing, copying, pasting, emailing, and faxing our blog spot. Words cannot express our appreciation and gratitude to have you back, reading and enjoying the Psychology of the Call.

Friday, April 18, 2008

The Eleven Commandments of Trading

We take our readers in to this Spring April weekend with this quote from Mark Twain: "The first half of life consists of the capacity to enjoy life without chance; the last half consists of the chance without capacity." Even on bullish days like today, don't lose sight of the 11 Commandments so that your money is always defended, and your chance to enjoy life occurs earlier than later! Until Saturday night's 'Psychology in the Upcoming Week's Earning's and Economic Data', we leave you with the Commandments. 1. Never trade more than 10% of your total capital/account value in any one position. 2. Cash is King. 3. Cut losses to 15% maximum whenever possible. If your psyche is shaken, step away and don't trade for 1 week. 4. Take and enjoy profits of 30% or more. 5. Never fall in love with a stock and never force trades or over trade; remember commandment #2. 6. Never accept excuses from management, period. 7. Use technical and fundamental data & psychology/sentiment from the conference call to select trades. 8. There are two sides to the market, long & short; take advantage of that leverage. 9. Understand the significance of the macro geo-political economic environment. 10. Unforeseen events/shocks will happen, inverting the market upside down (remember commandments #1 & #2) 11. All of the above are void without reading the Psychology of the Call.

Bullish Friday

Yesterday we showed you some 'Market Mechanics' by highlighting the increasing yield in the Treasury Note and predicted a bullish Friday.

Upcoming Live Conference Calls

Our team will do our proprietary psychological analysis of every one of the CCs listed ot the left. Please see Intel (INTC), Genentech (DNA), and or Google (GOOG) in our archives for more granularity and color. Our mission is to increase transparency between Corporate executives and Wall Street analysts in the emotionally charged Question & Answer (Q/A) sessions. We thank every one of you for loyalty and continued support. We are proud to have surpassed 30,000 readers since our February 27th inception; we will diligently strive to be your go-to financial source for trading ideas and education in market mechanics ~ Psychology of the Call, the blog spot where forward-thinkers congregate.

Short Recommendation on China Finance Online (JRJC) grows stronger

We don't recommend covering until the shares fall below $10.00. The JRJC subscription business model is running into the head winds of rampant inflation and a deteriorating Shanghai Index.

We believe that the saying: "Fridays open with a bang and close with a whimper" will be in order today. Please follow the 11 Commandments and look-forward to the 'Psychology in the Upcoming Week's Earning's and Economic Data Saturday night'! Also, Congratulations to Google holders and all our readers who enjoy Psychology of the Call.

Thursday, April 17, 2008

Psychology of the Google Q1 2008 Call

Most notable recent analyst changes:
February 1st, Jeffries & Co downgraded from buy to hold.
January 29th, Canaccord Adams initiated coverage with a buy.
January 24th, Stanford Research downgraded from buy to hold.
So Canaccord Adams is more bullish than Jeffries & Co and Stanford Research. Our team will pay special attention to the exchanges between these analysts and Google's management. Keep in mind that analysts are human, and do not like to be wrong, therefore, sometimes their questions reflect their ratings - - another dynamic of interpreting conference calls.
- Quick note: Google was trading up over $69 to $518 seconds before the CC.
- Hope you enjoy the Psychology of this Google Call.

CC began at 4:35 PM ET with Krista, director of Investor Relations. Mentioned executives and read safe harbor statement.
2m CEO Eric Schmidt PhD, pleased with another strong quarter, positioned in 2008 and beyond, regardless of business environment. Eric's tone was extremely impressive.
4m many, many quality improvements in advertising, fewer adds, but better adds; DoubleClick (DCLK) mentioned as a huge strategic positive;
5m all pieces in place; partnerships and new models will lead to people spending more time online; many, many talented googlers on our team.
6m CFO George Reyes mentioned DCLK reflected in results from March 11th George read the results from the public press:
Employee reductions mentioned at DCLK, initially had 1,900 employees; no head count reductions outside U.S. though.
11m Goal is to develop three themes going forward: Search, Ads, and Maps
12m Sergey Brin co-founder excited about past quarter; highlighted search improvements in quarter, one improvement per day added, Japan new home page, Korean search now has a universal search, other countries doing better as well;
14m universal search since launched in the past year were able to double query search; deployed universal search in many countries;
15m Maps and street view mentioned; plugged; (Sergey spoke very eloquently, Professorial type of delivery in our opinion, very relaxed yet confident);
16m mobile launch in 40 languages, that's four-oh Sergey annunciated; YouTube mobile site launched, in past it was subset, now all videos available;
17m pleased with participation in mobile spectrum auction even though didn't win; the winners will be adopting the open concepts that will benefit Google; (we felt Sergey addressing this issue was very positive, since they didn't come away as direct winners, Verizon out bid them, but the Wall Street friendliness and credibility aspect scored huge points).
18m Larry Page co-founder sounded very nasally; demographic targeting launched; google analytics helps track customers;

19m YouTube VERY excited about; in video ads great adoption;

20m much better click through ads seen in video ads; very excited about DCLK;
21m huge opportunities with DCLK ahead;
22m sales force partnership is very excited, very, very excited
; honored to get Fortune's 5th best place to work

Question & Answer (Q/A) began at 23m

Analyst Ben from UBS Q: what are the key initiatives for DCLK, and CFO search? A: whole bunch of candidates for CFO, we are happy and proud George Reyes has stayed on, looking to maintain customer momentum that DCLK has enjoyed, over all goal is bringing more accountability and effectiveness to user experience, you will hear new product announcements in the coming months;
25m YouTube mentioned again; nature valley campaigned through YouTube, Forex, Toyota, World Economic Forum in Davos, Dunkin Donuts, Verisign
27m Justin Merrill Q: display model explanation A: visual sites like Orkut, no specific plans to announce to you today, making great progress on display and network as well; DCLK approval behind us, so you'll see the customer list grow substantially
29m Doug Lehman Q: 100 quality improvements you mentioned, and can you comment on not seeing any macro economic impact? A: we have not seen any macro economic impacts, we are well positioned if economics changed, targeted advertising does well in most scenarios; 100 improvements were in search quality not advertising; landing page quality improvements have been substantial; UK trademark policy restriction announced
34 Mark Citi Q: data points in mobile search, and paid clicks growth A: mobile I don't have hard stats in front of me, but mobile search in countries like Japan working very well, nothing to dissuade me it is worse than desk top search; you will see a greater volume in mobile usage; even though screens much smaller
37m very optimistic on quality in mobile
38m James Goldman Q: universal search in other countries, and seasonality A: I don't agree with seasonality, there are so many technology issues/adoption curves etc, etc; Q2 and Q3 are weaker quarters; universal search is a very big win for us; lots of foreign language YouTube videos and books; narrowly, there are things like Easter falling in Q1 for seasonality; broader question moving forward is dependent on market share
41m JP Morgan Q: monetization of social networks, and frequency of search volume per person? A: demographic targeting has been very successful, MySpace, YouTube, Orkut; optimistic we've made many improvements
44m Krista Thomas Weisel Q: UK and more color on Yahoo collaboration A: we are very excited to be participating on the test, we won't speculate beyond that; UK Q1 slow down in retail, but nothing significant to see one vertical market affecting/bleeding into another.
47 m macro economic explanation given, luxury goods, autos, finance/real estate; every foreclosure becomes a sale eventually; possible that our prices actually go up.
48 m Brian from Banc of America Q: China and new initiatives A: China is going well (call dropped).
52m Credit Suisse Q: clicks through of overlay, what are barriers on running ads on YouTube? A: we are focusing on working with YouTube management on the plumbing and streamlining and promotion, very comprehensive plan with specific mile stones, still early to make any judgment which ads are working better than others.
54m David Morgan Stanley Q: DCLK integration into Adsense, and Google add manager A: we are optimistic; DCLK advertisers will have Adsense platform; positive dynamics
57m Brian Bank of America Q: International and China A: good market share growth, believe China will continue to be a good market for us.
60m Mark Needham and Co Q: U.S. revenues, DCLK's contribution, is sequential growth far lower in the past? A: it's not macro economic, it's timing of deals; you have to be careful to look at year over year comparisons, we added a lot of large corporate partners to Adsense, that skewed the numbers
62m Eric said Google is now an international company, as witnessed by 51% of revenues in Q1; he went on to congratulate what sounded like Hamid for his London initiatives under taken last year; Eric Schmidt is stole the CC, very well spoken and confident executive.

First, Google is trading up over $75/share after the CC; do we need to say more? Please allow for some psychological insights we took away. This CC was a tag team event of many geniuses and muchly appreciated by many we're sure. Often times, a CC has one or perhaps two executives being involved, Google is different. Google had five executive managers involved in the Q/A and everyone was very prepared and minced no words. Eric was very forceful about the macro economic environment not affecting Google. He added that it may actually help its pricing, even in the foreclosure/mortgage mess at the 52m mark; we were impressed and happy for the bulls.

The analyst from Jeffries and Co, Youssef Squali, who downgraded shares, we assume just listening from afar with mouth wide open. We all make mistakes, but his downgrade looks completely wrong after this CC and a $75 up move in Google! Canaccord Adams analyst, Colin Gillis, initiated Google a buy on January 29th, and therefore his universe of stocks under coverage must be followed closely.

In conclusion, the CC was a tag team of five Google executive champions. DCLK was mentioned a lot, and annunciated with great excitement at least 5 times. YouTube explosion and the fact Google has surpassed the 50% revenue barrier outside U.S. bodes favorably in our opinion. We come away convinced the DCLK and Google synergies will get greater as time goes by; therefore, why don't our readers consider competitors like Valueclick (VCLK), currently fetching a measly $17? Perhaps they'll be the next ones bought on the cheap…

We hope you listened to our bullish conviction on the market yesterday. We are more confident that the worst economic fears have been laid to rest by Intel on Tuesday, and the Google juggernaut today. From all of us at the Psychology of the Call, happy trading ~

More Evidence for Bullish Sentiment

Market Mechanics

The increasing yield of the Treasury Note provides another compelling reason for a bullish outlook. The S&P has some catching up to do and we see a very bullish Friday for stocks.

From our 'Psychology of this Week's Data' post

Thursday is more about earnings: after market close brings American Express (AXP), and Google (GOOG). We look to Friday, April 18th as a "naked" economic day in terms of data. So the open will be dictated by earnings from UTX, AXP, and GOOG. We suspected a very volatile day with a downward bias, but now have turned decisively bullish. The earnings after market close come from Caterpillar (CAT), and Citigroup (C).

Wednesday, April 16, 2008

Transports Rise Almost 4%

The Dow Jones Transportation Average closed 3.9% higher today (5 day chart above). This is one of the reasons why we have turned bullish in our sentiment for the markets.

ALERT - Allocation & Market Sentiment Change

We are issuing a change in sentiment and asset allocation alert for all our readers! We have turned decidedly more bullish for two compelling reasons: the strength in the Transport Index and the Intel CC.

1) Strength in the Transport Index:
Transports lead the stock market and the index looks set to penetrate 5,000 and stabilize above that level. Please go back and read this post:

2) The incredibly bullish Intel Q1 2008 CC.
In a ‘chest-pounding’ conference call, management gave insight on the effect of strong foreign currencies, the continuing and expanding positive emerging market, and the effect of the weak dollar on U.S. Corporate earnings. Please see our Psychology of the Intel Q1 2008 Call interpretation directly below this post.

Although we urge you to continue to look at it as a "market of stocks', and NOT merely a "stock market", we do have a decidedly more bullish bent today, April 16th, than we did yesterday. We recommend covering all short positions, specifically BIDU and FXI. We continue to see problems for JRJC based on their subscription business model directly correlated to a rising Shanghai, and that hasn't been the case lately, so we recommend holding the JRJC short position until after the next CC in May. We recommend selling 20% of the ishares Lehman "TIP" position and buying a small position in Monster WorldWide (MNST) and China Life Insurance Company (LFC); never more than 10% in any one position please, see Commandment #1.

Thank you for you continued support wherever you may be enjoying our blog spot from, sincerely, the Psychology of the Call team.

Psychology of the Intel Inc (INTC) Q1 2008 Call

Most recent notable analyst rating changes for INTC:
April 10th, Banc of America upgraded from neutral to buy.
April 9th, Wedbush Morgan initiated coverage with a buy.
January 4th, JP Morgan downgraded from overweight to neutral.
Note: On 2nd January, 3 months and 8 days prior to their buy recommendation, Banc of America, downgraded INTC shares from buy to neutral. We'll pay close attention to the questions posed by all of these analysts, and the answers that they receive, but especially those asked by Banc of America as they have exhibited the most frequent change in opinion. Perhaps their analyst is doing the most aggressive in depth analysis of Intel Inc as shares are up nearly 7% post report.

We know you'll love the Psychology of this blue chip Call, if you're long that is~

The CC started at 5:32 PM ET with Kevin Vice President of Investor Relations; he mentioned that CEO Paul and CFO Stacy would be on the CC as well. Kevin read the safe harbor statement.

CEO Paul at 1 minute (1m) delivered the general results.
2m inventory healthy and in balance; server business all time record revenues, particularly in North America; quad core shipments continued to grow, Paul's non-flinching delivery reinforced the better than anticipated numbers.
5m assure shareholders that we entered this business to make money, very powerfully worded statement directly to investors; we like that a lot.
6m Trends: 1) core business superb, 2) control of cost structure, and 3) product development strong (delivery and tone were was very powerful/reassuring)
7m CFO Stacy delivered the detailed results outlined in the public press release. His tone was upbeat and optimistic, non-flinching like Paul's.
10m sales growth strength in America mentioned again.
11m number employees down by 1,700.
13m $13.26B cash at end of quarter; cash flow from operations over $2B
13m outlook for 2nd quarter given: revenue between $9B-$9.6B and other details offered.

Q/A began at 18m
Deutsche Bank analyst Ross Q: Demand environment in general, please give color/linearity A: Quarter came in as expected, nothing unusual, normal.
Follow up Q: Competitor average selling prices (ASP) A: Flat, pricing environment is what we've seen, benefiting from strength of product line up.
Follow up Q: Capital expenditures (CAPEX) A: On track for CAPEX, we see no change to previous forecast.
19m Merrill Lynch analyst Q: Will we see a surprise in memory (NOR) or NAND business? A: Don't expect anything significant going forward, pricing environment continues to be weak
Q: Share from AMD server market or notebooks or desk tops A: Strong on server segment, record server revenues, mobile was strong, desk top to notebook transition happening ahead of forecast
23m Banc of America Q: Macro economic issues, financial industry A: 74% of revs are not in U.S., Manhattan (Wall Street) effect not impacting us. (MUST LISTEN TO), extremely reassuring/confident tone.
Follow up Q: 1,700 employee reduction issue A: NOR (memory) divestiture incorporated in yearly forecast.
Follow up Q: Tax rate A: Higher proportion of revenue in higher tax jurisdictions, so raised in the current quarter, likely to move to lower tax in 2009
27m Glen from Citi Q: Clarify macro environment, especially Europe A: We had a very good Q4 in Europe, and very good Q1 in America. In Europe just 2 weeks ago and did not see any slow downs. Q1 saw growth in every geographic region VERY POSITIVE DELIVERY.
Follow up Q: Unit costs, and 45 nanometer mix A: We're not seeing weakness in the 2nd quarter, 45 nanometer at very healthy inventory level.
30m ramp curve moving very quickly, very reaffirming tone witnessed by the Psychology of the call team.
31m UBS analyst Q: Surprised on comments of North American strength, if Manhattan financial fallout isn't the issue, where is the strength coming from? A: Those questions are best answered by HPQ, DELL, and IBM when they report, I take issue with your assertion, (Incredibly in your face conference call, the guts of management was that of a Navy Seal, fantastic to hear such confidence and straight forwardness). A: 34m Atom based net book sales unknown, awfully good margins, but we feel it'll be net accretive.
34m John from Credit Suisse Q: Market share gains or product mix is a better driver in your opinion A: I think it's probably both, one of the things is the growth of the large Internet data centers, they're growth is really quite large for "cloud computing"(AMZN GOOG).
Follow up Q on revenue growth A: New markets are the driver.
Follow up Q: Gross margins A: We see continued over supply in NAND market, we do see pricing and costs come down, so gross margin neutral. Our gigabit production doubled, so those are net positive for us.
38m Jim Goldman Q: Quantify NAND A: We won't break it out, it'll be gross margin neutral.
Follow up Q: What is helping back half of '08? A: Growth in core business is strong.
Follow up Q: Sounds like product differentiation is creating problems for your competitors A: You'll have to ask them that question, we drive "dynamism" in the market. That has been the Intel's CEO job for two decades, don't see that changing (more chest pounding).
42m Chris JP Morgan Q: Utilization rates A: Pretty much the same as we showed at our analyst meeting a month back.
Follow up Q: Buy back A: Can't comment on that specifically, but will follow the Board’s recommendations.
Follow up Q to Paul, no trouble witnessed from Asia or Europe A: No end!
42m Lehman analyst Tim Luke Q: Server operating margin color A: Price of success of mobile business is reflected, one year ahead of schedule
Q: Note books ASP color. A: Emerging markets affecting ASPs, but offset positively by server business.
Note to readers: Tim Luke asked at least 2 questions we missed, but you would be wise to read his opinion in the future, an extremely patient analyst who prodded for answers incredibly well.
48m Q Raymond James, NAND regarding Micron A: I really don't think it's appropriate to discuss/comment on that, (transparent answer given though), NOR raised similar questions one year ago and we couldn't answer it because we were in the middle of an auction.
49m John from Cowen and Co Q: Anything changed A: Too soon to call that, early sales of net books have been in China, it's like early days of Apple iPod, we see emerging market growth of these net books, HP Via mentioned, we are in a very good position to take advantage of our position.
52m analyst Joan Q: Spending, restructuring budget A: Our long term goals haven't changed, they are the same as I told you a month ago.
Follow up Q: 53m has INTC become more nimble A: No question we have become more nimble and efficient, we will continue this focus, incredible competitive tool for us.
54m Doug from Amtech Q: Impact of Euro and other currencies, any benefits A: Weaker dollar is increasing our costs, but that translates to increased sales because technology sold in dollars in more attractive
55m Q: commodities market. A: The same as we see on the macro economic business, we see costs coming down q/q/q Q: Success in Atom happening and gross margins, how quickly will Atom processors ramp? A: Too early to call, but we're excited about level of interest in Atom
57m John from Jeffries Q: Underlying dynamics in emerging markets A: Most of growth in the next 5 years will be in non U.S., Apple product line growth mentioned A: The unknown dynamic is what happens when these $200-$300 "net books" are released in India and China and Indonesia; as dollar weakens against most currencies, the amount of money needed to buy a PC relative to local disposable income is less and less, so we're seeing PC penetration move rapidly than in previous years. That's why we pointed a growth forecast of low double digits in terms of units this year.

CC ended at 59m

If this was a baseball game with the slaughter rule in effect, Intel won. The call was the MOST UPBEAT TECH CALL we've been on in YEARS, considering the soft macro cloud everyone other than Intel seems to be seeing. Please recall the phrase we stress over and over; this conference call is a perfect time to use it: It is NOT a "stock market" as many would lead you to believe, it is a "market of stocks". And Intel is one stock to not miss.
So, IF the overall market remains weak or pulls back due to other micro or macro factors over the next few days, we strongly recommend buying shares on dips. Unless we learn or hear a change in tone or behavior from management, you'd be wise to buy this incredibly well managed company, we reiterate incredibly well managed.

Management was very transparent and extremely optimistic; we reiterate a "chest pounding" call at many points, especially at: 23m, Intel said "Manhattan effect" is not affecting their business, at 27m no slow down in Europe seen after just being there recently, 31m, smack down of HPQ and DELL and IBM was effective, 49m the mention of the Apple i-Pod convinced us Intel's management is on the right track, angry and aware at the under performance of share price, 57m the "unknown dynamic" mentioned $200-$300 net books in China and India and Singapore was beyond exciting for bulls...

Hats off to Banc of America analyst for doing his homework and upgrading on April 8th. That showed courage, intelligence, and conviction. Lehman analyst Tim Luke was the most thorough and impressive.

Our team has NEVER left a conference call this impressed. We’re willing to put our necks on the line for our trusted readers and predict that Intel shares break $30 by the New Year, barring any unforeseen shocks/events (Commandment #10.) A better than 40% return from a blue chip monster like Intel should be music to your ears: it sure was to ours. The Psychology of this blue chip Call mattered, thank you once again. And for increased Corporate transparency, please oblige:

Tuesday, April 15, 2008

Psychology of the Week's Data

Please click here for the Psychology of the economic and earnings data for Tuesday and the rest of the week.

Shanghai Composite Cracks 52-week low

As we predicted might happen, the Shanghai Composite Index dropped below its 52-week low before recovering to close up 1.5%. This doesn't bode well for the Chinese economy as we approach the Summer Olympics, the supposed 'Crown Jewel' of 2008, the Year of the Rat.

On March 7th, in response to the Oracle of Omaha's utterance of the word 'recession', we wrote: "So, Warren Buffet's use of the 'R' word on CNBC could still reverberate much, much more, perhaps around the Globe, maybe even, oh.. Asia?!"

We asserted many times over the last 6 weeks that the Chinese economy is in decline. The inability of the individual Chinese investor to sell short Chinese stocks, coupled with the growing swell of anti-Chinese government sentiment around the world is pressuring Chinese markets into retreat. Again we reiterate our short recommendations on FXI and BIDU and implore you to pay careful attention to this dynamic and dangerous combination of financial and geo-political events.

Monday, April 14, 2008

On Monday the Shanghai Composite Index closed at 3,296, a mere 25 points above the 52-week low. It seems likely that the Index will break 3,271 very soon, possibly tonight. Coming a matter of weeks ahead of the Beijing Olympics, this cannot be considered a good omen for the Chinese people or their economy.

We advise extreme caution with Chinese stocks and reiterate our short recommendations on FXI, JRJC and BIDU.

The Psychology of this Week's Data

We offer you the most market moving earnings and economic data for the remainder of the week; please position yourself accordingly. We anticipate TREMENDOUS VOLATILITY during the week of April 14 - 18, with the overall bias being lower. Be especially prepared for Wednesday.

The markets are deep and dynamic, so avoid getting brain washed by any one camp fire, bear or bull. Although if you do chose to be bear or bull forever, you will learn to exhibit great patience and make money, circling more and trading less. Position trading is what these camps rely on. George Soros is a great example with his British Pound short windfall of one billion dollars in one day in 1992. Bubbles and climactic sell offs are wonderful events for these two camps. The perma-bears, like Mr. Stephen Roach, a man I met while at Morgan Stanley in one of the late, great World Trade Center Towers, seem so wrong when the market rises, but everyone flocks to them when the market collapses. But you must realize that the "perma-camps" will always eventually be right, as long as they stay their course. We respect the perma-bears (Roach,Soros) and perma-bulls (Kudlow) alike at the Psychology of the Call, and because the free market system has two sides, men like Roach, Kudlow, and Soros deserve some attention.

We look to Wednesday, April 16th with GREAT ANTICIPATION. This is the day after the INTC report and it will see a slew of economic and earnings releases. Are the markets efficient and have they discounted all this data already? They'll sure be tested today. Consumer Price Inflation CPI comes at 8:30 ET.

Housing Starts, Building Permits will be posted at 8:30 ET as well. These data sets have been depressed and we don't see that changing just yet. We look for the housing crisis to recover in bits and pieces. Just like the market of stocks, not the stock market as many would have you believe. We see strong foreign currencies stepping in to buy prime high-end real estate at HUGE discounts, both on a principle basis and currency translation impact. The Euro dollar will step in and bail out a lot of real estate investors come Autumn/Fall. Please remember our prediction. Here's a chart of the Euro/US: dollar:

We reiterate our belief the Euro will be a FIRE STARTER for US real estate as well as blue chip stocks like Goldman Sachs (GS) perhaps.

9:15 ET brings Industrial Production and Capacity Utilization:

This data has been trending down lately as well, but we predict improvement in manufacturing before the Europeans step in to buy our coastal and prime city (Manhattan & Chicago) real estate.

10:30 ET brings Crude Oil Inventories.

With crude hitting $112.00 last week, this data will just remind and reinforce traders that the hurricane season is approaching. Perhaps an opportunity to make money on the short side? 2005, the year of Katrina and other major hurricanes was a horrific season and a freak occurrence. Since it's all still fresh in people’s minds, and crude oil did spike to $76.00 soon thereafter, we feel the contrarian trade is to short crude. If crude were to climb to the $120.00-$130.00 range going into the Olympics, we would strongly recommend shorting crude oil in the futures market.

We whole heartedly wish the Chinese people a successful Olympic Games, but we have to call it as we see it today; a geo-political disaster. We believe once the 2008 Olympics begin, crude could begin its fall to the $80.00 level
. At least a 25% premium is built into the Chinese economy chugging along at the same pace, and we predict the Chinese economy will falter before or after the Olympic games due to political unrest, rampant inflation, and cries for human rights from within China, Tibet, and European countries like France, Italy, and Germany. This is the type of Psychological Financial Fusion we addressed in the beginning. The ‘cheap’ Chinese Yuan is causing great problems for European manufacturing, but especially the steel industry. Europeans may not boycott the Olympics, but they could penalize Chinese imports through tariffs and other political legislation measures available, so exhibit caution.

Market moving earnings after market close come from Wells Fargo (WFC), International Business Machines (IBM), and eBay (EBAY).

We look to Thursday, April 17th with tremendous volatility continuing. 8:30 ET brings us the Initial Claims for Unemployment and the Philly Fed Index:

We will make a quick prediction here: employment could improve because of Spring Break, so a head fake of sorts, and since the "Philly Fed Kick Started Stocks" last time in a piece we wrote, we hope for the bulls sake, that happens again!

Thursday is more about earnings: after market close brings us United Technologies (UTX), American Express (AXP), and Google (GOOG).

We look to Friday, April 18th as a "naked" economic day in terms of data. So the open will be dictated by earnings from UTX, AXP, and GOOG. We suspect a very volatile day with a downward bias. The earnings after market close come from Caterpillar (CAT), and Citigroup (C).

Thanks for reading the Psychology of the Call. We wish you a comfortable, healthy, and profitable week.