Filed under: Industry, Internet, Google (GOOG), Cisco Systems (CSCO), Verizon Communications (VZ)

Two stories in the news point to the growing stress the communication age is putting on our infrastructure.

According to ABI Research, cable providers could be approaching a crisis in capacity in their last-mile systems. As video on demand, online gaming and high definition television eat up more and more capacity, customers may find themselves on the slow end of a battle with their neighbors for packet priority. An analogy might be the line that would form at the only well in a neighborhood where everyone is putting in pools.

Others question whether the tubes of the internet’s backbone are large enough to serve the dramatically increasing call on them. Total capacity usage is roughly doubling every two years. Cisco Systems (NASDAQ: CSCO) estimates it will reach almost 8 million terabytes per month by 2011.

The Wall Street Journal (subscription) quotes an analyst at Deloitte Touche Tohmatsu as speculating the internet could be approaching its capacity, although this is not a widely accepted view. Some are concerned the providers of that architecture may not have sufficient monetary incentive to make the investments necessary to keep the electrons flowing unimpeded. Of course, they suggest that everyone enjoying the use of the system should kick back a little monetary love for the access.

We also are witnessing wrestling matches over the increasingly-crowded prime frequencies of the electromagnetic spectrum. As companies such as Google (NASDAQ: GOOG) vie for the soon-to-be-abandoned television frequencies so they can jump into wireless internet access, cellular providers like Verizon (NYSE: VZ) lust after them to reduce the cost of network maintenance and expand their package of products.

We’ll keep you up to date on these issues; while arcane, they could have huge implications on the business models of today’s top technology stocks.

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Filed under: Google (GOOG), Apple Inc (AAPL), Dell (DELL), Options

The Volatility Index (vIX) for S&P 500 Options is up 2.22 to 32.99, above the 10-day moving average of 25.20.

Google Inc. (NASDAQ: GOOG) — implied volatility flat at 29. GOOG is recently down $2.46 to $495.36. GOOG overall option implied volatility of 29 is near its 26-week average of 28 according to Track Data, suggesting non-directional risk.

Apple Inc. (NASDAQ: AAPL) — implied volatility elevated at 45. AAPL is recently down $2.88 to $117.29. Bear Stearns says, “iPhone tracking survey highlights new buying pattern, personal use; no estimate changes; reiterate Outperform.” AAPL over all option implied volatility of 45 is above its 26-week average of 39 according to Track Data, suggesting larger risk.

Dell Inc. (NASDAQ: DELL) — September implied volatility Elevated at 41. DELL is expected to report EPS in late August. DELL September option implied volatility of 41 is above its 26-week average of 27 according to Track Data, suggesting larger risk.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

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Filed under: Google (GOOG), China, Market matters, Consolidated Edison (ED), Duke Energy (DUK), Top Picks 2007, Huaneng Power Intl ADS (HNP), Bargain stocks, Chasing Value, Stocks to Buy

If I had to pick a stock to buy and hold for the next 50 years, Huaneng Power International Inc. (NYSE: HNP) would be one of my top candidates. As the largest utility in China, it will participate in the nation’s growth no matter what form it takes.

Imagine buying Consolidated Edison (NYSE: ED), Pacific Gas & Electric Corp (NYSE: PCG), Duke Energy (NYSE: DUK) or the Southern Company (NYSE: SO) when they were in their infancy. Now imagine that they were all one company and the growth curve was compressed into one third the time. If you can visualize this picture then you can understand why I favor HNP. I have been banging the HNP drum for a long time –see Huaneng Power: Get into China for 2007 — and last year I wrote GOOG is OK but HNP could be better! As it turned out, HNP was better then and it is better now! The chart shows a comparison of both stocks’ performance over the last year. Google Inc. (NASDAQ: GOOG) did very well, but HNP did about 24% better, including the dividend.

Huaneng Power closed Wednesday at $39.01. It traded down to $38.00 after hours. It is currently paying about a 3.5% yield, with a price-to-sales and price-to-book floating around 2. In addition to everything I have pointed out here and in the two previous stories, keep in mind that this company has room to grow 500% or more with nothing to get in its way except construction time and the normal economic swings that expanding economies are bound to have.

Can Google or any other companies you can think of claim this level of opportunity? Utilities collect money in good times and bad. If someone built 1,000 homes and 100% of them were foreclosed on for any reason you choose, HNP would just collect its money from the new owners that acquired the properties. The power company is at the heart of all modern development. HNP is China’s largest power company and the government is integrally involved in HNP’s success.

We bought Huaneng Power at $26.50, so it is not the steal it was then when the metrics were even better and our dividend yield was closer to 5%. As they say it may not be wise to try and catch a falling knife, but I think that if you bought today at a 26% discount to its 52-week high of $48.30 and you make it a core holding in your portfolio, you will be well rewarded in the long run.

Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well - INCLUDING ANY BAD CALLS.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.

See all the posts in this special report:

• Volatile Markets: 11 stock plays for turbulent times
• Volatile Markets: Stick with General Electric (GE)
• Volatile Markets: Huaneng Power (HNP) is my pick for the next 50 years
• Volatile Markets: Target (TGT) is the retailer of choice
• Volatile Markets: Bank of America (BAC) offers low risk, high reward
• Volatile Markets: Starbucks (SBUX) is ready for a comeback
• Volatile Markets: Coca-Cola (KO) is the Real Thing
• Volatile Markets: Bet on Boeing (BA)
• Volatile Markets: Ride FreightCar America (RAIL)
• Volatile Markets: Anadarko Petroleum (APC) has valuable fuel reserves
• Volatile Markets: Dip makes Posco (PKX) a bigger bargain
• Volatile Markets: Steven Madden (SHOO) will wear well
• Volatile Markets: Precious metals are the safest place to be
• Volatile Market: Just ignore it; don’t try to time it

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UPDATE: Bloomberg confirms that First Magnus has stopped funding.

Apparently First Magnus Financial has shut down funding at its retail arm, Great Southwest Mortgage, the Arizona Daily Star reports. They cite an email from the corporate office sent to branch managers informing them of the company’s decision to cease funding loans effective immediately. From the article:

An e-mail Wednesday evening told branch managers of Great Southwest Mortgage, the retail arm of First Magnus, that the parent company was no longer funding loans. First Magnus ranked 61st in the Star 200 survey of the biggest employers of Southern Arizona, reporting 800 full-time-equivalent local employees.

“We will not be funding loans tomorrow,” wrote Erik Lutz, the president and founder of Great Southwest. A manager with the company, who spoke on condition of anonymity, said he was told Wednesday evening that First Magnus was closing. However, he said Great Southwest hopes to stay in business by brokering loans elsewhere. “All my employees were unaware until I told them, and they were pretty shocked,” the manager said late Wednesday. “As loan officers, we’re going to move on to some different companies. We’re still going to stay in our field. We’re going to regroup and figure out the best places to go.”

However, some employees believe that First Magnus is not yet finished:

Ron Briskman, a Great Southwest branch manager in Scottsdale, said he’s not convinced First Magnus is closing. “It could very well be that the company goes into a Chapter 11 (bankruptcy) situation,” which would give the company time to reorganize, he said.

The details are a little cloudy as First Magnus has not made an official release about their situation. In a release sent to brokers it announces a very tightened lending standard that speaks to the massive risks associated with selling loans in the secondary market. This email was sent to brokers at approximately 6 PM pacific time yesterday. However, they do not cite a cessation of funding activities.

As we’ve discussed before - banks that aren’t depositories have no control over their funding ability. They are at the whims of the market and their creditors. It’s not them that decides to stop funding; its the banks lending them the credit that decide the risk isn’t worth it and cuts them off. With no credit none of these non-depository institutions can fund loans and … poof.

Nothing has been posted to First Magnus’s web site as of this posting. We’ll keep you posted as things develop further.

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In my post a few days ago I asked “Is Countywide the next Titanic?” I didn’t know; and I still don’t know if it is or not.  But there has been a flurry of news about Countrywide over the last couple of days.  Let’s take a look at some of it and see if we can distill it down at all:

• Yesterday Merrill Lynch analysts downgraded the Countrywide stock from a “buy” to a “sell” - that is a huge swing for analysts.  They cited bankruptcy and liquidity concerns at the company that just overtook Wells Fargo as the #1 mortgage originator in the country.
• Brian Brady over at Bloodhound Blog calls for a federal bail out of Countrywide should the company crater.
• Over the past week Countrywide has been busy canceling thousands of residential loan applications that fall outside of guidelines.  My sources told me that underwriters were more busy canceling files than approving new ones.
• Countrywide is also sitting on a $2 billion pool of residential mortgages that can’t find a buyer anywhere; their just holding the pool looking for someone to buy it, somewhere.
• Rumors of its commercial division paper rates jumping astronomically have been unfounded as of yet; but if commercial papers is indeed getting expensive it could signal difficulty in raising capital for large loan issuances.
• Today the stock tanks to below $20 a share (currently around $17.50) as news arises that the company tapped their entire $11.5 billion credit line to increase liquidity needed to fund ongoing operations.  Not just some of their credit line - all of it.

I am revising my statement from the other day - you know the one about Countrywide being the next Titanic; its not severe enough in analogy.  If Countrywide craters it will be to the mortgage industry what the meteor was to dinosaurs.  If you’ve read my post on the tangled web of banking and read the comments you’ll see how tangled Countrywide’s web really is.  A collapse of Countrywide would mean a collapse of a large portion of the mortgage industry; and then Jim Cramer would be right - we would have armageddon.

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Asinine.

The National Association of Realtors released its latest existing home sales report for the second quarter of 2007 and - if you ignore the 10% year-over-year decline in sales volume and the drop in median prices - guess what? The NAR says things are improving!! Yipee.

Not that they haven’t been saying that, oh, for the last year or so, but finally some signs of life! The report shows that some (even a majority) of marketing areas have seen year-over-year price increases. We’re all saved and the housing market is recovering just on the NAR’s schedule.

Excuse me while I clean the vomit off my shoes … As our good friends over at Housing Wire point out the analysis used to come to the conclusion of an improving market is about as reliable as the analysis pointing to WMD’s in Iraq.

From our PhD friends over at Housing Wire:

I usually try to avoid rants on this blog, but as someone who has studied for a PhD and understands econometric analysis at a very high level — yes, really — I simply can’t take it anymore when I see a well-cited trade organization absolutely fail to do any sort of basic analysis to support its own rhetoric. Who did their analysis? A second grader?

HW readers should by now understand the awful truth — that housing is still in some serious trouble. Prices aren’t leading indicators of where a market is headed; so it’s sort of silly, really, to see a senior economist at the NAR expounding on how some perceived “movement” in prices might signal better days ahead.

…

If Lawrence Yun gets paid to pretend to be an economist, why am I sitting here writing a blog for free? Why are you reading this blog? After all, I can pull my own opinions out of thin air and make up conclusions without actually doing any analysis. I’m pretty sure you could do the same, too.

I mean to me the NAR has already discredited themselves plenty of times over; but if there is any doubt please look at the Housing Wire post on this “analysis” and please make a big mental note to 100% for the rest of your days ignore anything the NAR has to say about anything.

Thank you.

Please note that I have now added any posts about the National Association of Realtors and their forecasts to the “Why I hate My Industry” section of Blown Mortgage.

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Filed under: Scandals, Housing

Shares of Beazer Homes (NYSE: BZH) have lost almost 80% of their value so far this year. Investors have worried about the subprime meltdown and housing softness, and now you can toss those dreaded “accounting irregularities” into the stew. Last week the company told investors that its former chief account officer had improperly recorded “reserves and other accrued liabilities.” The company fired him in June after he was caught trying to destroy company documents. Sweet.

The SEC had already begun investigating Beazer in May. According to The Wall Street Journal’s Heard On The Street, “One possible focus of the SEC’s inquiry is whether Beazer was properly disclosing its mortgage practices to investors […] Accounting irregularities in the company’s books, however, can be easier for investigators to pursue, this person said.”

With the company’s debt already in junk territory, I think you’d have to be nuts to even consider buying Beazer right now. The fundamentals of the business are terrible and there are serious questions about the ethics and legality of the company’s practices. The company has repeatedly denied rumors that it is on the brink of bankruptcy, but if it is, the stock will likely go to zero. With its current market cap of over $400 million, that’s a pretty steep fall. Oh yeah: we’re still waiting for the 10-Q.

Shares of Beazer, along with shares of just about everything else, have opened substantially down this morning.

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Filed under: Earnings reports, Forecasts, Products and services, Wal-Mart (WMT), Market matters, Target Corp. (TGT), Economic data

Target Corp. (NYSE: TGT) has become the discount retailer of choice as demonstrated by the actual key metric –same store sales. Target has beaten its principal rival Wal-Mart Stores Inc. (NYSE: WMT) 46 of the last 47 months in the head-to-head match up of same store sales.

Bottom line is Target is capturing and maintaining market share gains. The good news is Target’s story has more growth prospects in front of it. Target is headquartered in Minneapolis, Minnesota and was established back in 1902. The company was a division of Dayton’s, an upscale retailer that had its core presence in the Northwest. Target stores were the after-thought. Target emerged in the 1990’s as THE growth vehicle for Dayton’s and eventually, the company was re-named Target and the Dayton stores are now part of Macy’s. Things do indeed change!!

With a store base of 1,684 spread over 47 states, Target has the room to more than double the base over the next decade. In comparison, Wal-Mart has more than 4,000 stores in the United States alone. Target stores present a more pleasant shopping experience for the customer and have a fresher offering of products. Bottom line is people enjoy shopping at Target and the same store sales numbers completely reflect that fact. The fashions, cosmetics, linens, housewares, sporting goods, etc. are as up-to-date and fashionable even when compared to full-price retail concepts.

Continue reading Volatile Markets: Target (TGT) is the retailer of choice

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Filed under: General Motors (GM), Home Depot (HD), UAL Corp (UAUA), Economic data, Level 3 Communications (LVLT)

Indicators are lining up this morning for the market to bottom. The Dow will hit its 200-moving day average and virtually every other oscillating tool is suggesting the market is tremendously oversold.

The S&P 500 and Russell 2000 have all also corrected to their long-term moving-average support levels. As with most major corrections, the averages have broken through or will break through them this morning, providing that additional fear investors feel when the market finally capitulates.

Noteworthy pundit Bryon Wien, of Pequot Capital and long-time Morgan Stanley strategist, said in a CNBC interview earlier this week that his target for the S&P 500 is 1,600. Tom McManus, who has also developed a good long-term track record, upped his target for the S&P 500 not too long ago.

All told, fear has replaced greed. It is time to line up your wish list and start buying. Stocks Theflyonthewall.com has recently blogged about that investors may want to look at include National Semiconductor Corporation (NYSE: NSM), General Motors Corporation (NYSE: GM), Global Crossing Limited (NASDAQ: GLBC), Level 3 Communications Inc (NASDAQ: LVLT), AES Corporation (NYSE: AES), UAL Corporation (NASDAQ: UAUA) and Home Depot Inc (NYSE: HD).

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Filed under: General Electric (GE), Newsletters, Bargain stocks, Stocks to Buy

“The big decline in stocks begs the question, is this the beginning of a bear market?” says Chuck Carlson, the editor of The DRIP Investor. His answer: “I don’t think so.”

For blue chip exposure, quality management, and diversification across many industries its hard to beat General Electric (NYSE: GE). Unfortunately, despite the fundamental accolades earned by the company, its stock has been a rather lackluster performer in recent years.

Carlson explains, “Indeed, the issue has been extremely sluggish over the last six years and trades well below its 2000 high of more than $60. Decent earnings, a massive stock buyback, and the prospects for portfolio restructurings are driving these shares.

“With an above-market yield and reasonable valuation, these shares should outperform the broad market over the next 24 to 48 months. The stock represents a quality selection among Dow stocks.

Continue reading Volatile Markets: Stick with General Electric (GE)

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