3/14 Kelly Letter Topics
Weekly market review
Fed oversees banks
EU bails out Greece
China likes Treasurys
Consumers still down
CT suing Moody's, S&P
US AAA rating at risk
Strong retail sales
Topping oil prices
Index chart patterns
Households suffering
Market at 1150
What range top means
FMD shooting higher
Bluefin tuna ban
2010 EDITION
Much has changed; good investing has not
The Neatest Little Guide to Stock Market Investing, 2010 Edition
Tracy Hess: In part, due to reading your article, I canceled my $24.99/month service. One phone call, and poof! -- sudden silence. They actually shut the service off during the phone call. That lasted a few days, and then I received a call offering me $9.99 a month for 6 months to receive CNN, Discovery and a few other channels, mostly news, which is what I primarily watched. I somewhat reluctantly accepted the offer.
So CNN is going again in the background as I write. Sometimes I watch the coverage, and think it is slanted, and that I would seem to have more choice in what I took in if I ordered a newspaper subscription instead. The video is interesting sometimes, especially when there is breaking news. And I can't imagine the September 11 attacks without TV. What was that like for you? Did you feel like you wished you had the TV so you could see motion and the live coverage?
Where this meandering letter is going is this: Do you feel it's wise to keep a TV to watch videos/DVDs that can be rented quite inexpensively or borrowed? I am considering canceling the service (and not accepting their last ditch offers this time), but am thinking maybe I'll hang onto the TV for videos. Do you go to the movies much? The theaters are so expensive, it would seem to make sense to keep the TV and DVD for videos.
Jason: Since writing that article, I have moved to Japan where I found that owning a TV is nice because of the ability to watch DVDs and videos. However, even in Japan, where watching would help my Japanese, I found that the programming is as inane as it is in America. So, although I own a TV, I don't watch broadcast programming.
As for news, you hit the nail on the head by saying that you would be wiser to get it in print. You're right about September 11th. I went to a neighbor's home to watch that. However, it was not until reading about it that I felt I understood what happened and what has happened since. I suggest that you take your TV money and subscribe to my favorite news magazine, The Week.
I don't want to hear back from you when SUNW is sitting at more than $5 a share that you should have bought when it was below $4. It's moving around the $3.50 range -- rather wildly, as usual -- and you could easily set a limit order at $3.50 and pick up some shares.
What's that you say? The news is grim? That's right, and that's when you buy. When would you rather buy? When the news is great and the stock is leaping 5% a day for two weeks? That's how it goes with Sun.
By the way, I told you this was coming last July. Here's an excerpt:
All this madness [of quickly-rising stock prices] is par for the course and a blessing, actually. It enables smart folks like you to chuckle and sell when the headlines are good, then chuckle and buy when the headlines are bad. When I bought Intel at $14.50, it was the end of the chip era -- according to the news. When I bought Sun at $2.90, it was the end of the workstation. When I sold each, it was the beginning of an Intel chip upgrade cycle and a Sun Linux revolution.
I think soon we'll be back to a hopeless future and tantalizing prices. And then we'll buy.
As you can see from today's headlines, the hopeless future has arrived.
Do what you must, but remember that I don't want to hear any whining later when this stock has doubled. You have had and still appear to have plenty of time to get your orders in.
One more thing. The tech sector is pretty hot these days and a correction might be just around the corner. A nice side of owning Sun at these prices is that it's moving contrary to the rest of its sector. The others have been up, Sun's been down. There's not much bad news left with Sun (I hope), so it might be the one that doesn't have far to fall when the worm turns.
I've been advising for well over a month now to build a position in Sun Microsystems at prices below $4. While I fully expected you to be able to buy under $4, I did not expect to see prices below $3.50. Today, however, the stock closed at $3.39 and after hours has risen to $3.40.
It went as low as $3.15 after an awful earnings report. You would have had to move quickly to buy at that price, but the stock lingered in the $3.20's for a couple of days. Don't fret it. We are now well below the $4 buy threshold that I specified and I continue to believe that buying this stock at these prices will look brilliant in the not-too-distant future.
The bad news is that on Sept. 29, Sun announced that in the first quarter of fiscal 2004, it would record a net loss of as much as $304 million, compared with the $61 million loss that Wall Street expected. The company is being hammered by serious rivals that include Microsoft, Intel, IBM, HP, and Dell. You really couldn't ask for a more formidable list of enemies in the world of technology.
The good news is that at prices under $4, Sun doesn't need to defeat those enemies in order to be an intelligent stock investment. Look at Apple. It has survived as a niche player for all of its existence and its stock has been a good investment at various times. If Sun can work out a strategy that makes its products cost-effective to customers, it will do well. It doesn't need to become bigger than Microsoft, Intel, and IBM. It just needs to be viable and profitable. As for the value of the stock, the only time it's been much cheaper than this was a year ago when I also advised buying.
"...just days after I made favorable mention of Sun Microsystems in this column, the company issued an earnings warning and the stock dropped, though not as much as I might have guessed. Since then I've read that Hewlett-Packard has mounted an aggressive campaign to steal Sun's customers, while Dell Computer continues to benefit from the move away from Sun's Unix-based servers. There's no way this can be construed as good news. But how significant is it? I've read numerous analyst reports on the latest developments (analysts are overwhelmingly negative on the stock), but what it seems to come down to is this: You either believe Sun has a future or you don't. Quarterly developments are just so much static in the long-term outlook. Though I haven't added to my Sun position, since we're not at one of my buying thresholds, I believe Sun does have a future. At the very least, it could be an attractive takeover target. (Sun has $5.9 billion in cash and securities, and just $1.5 billion in debt.) Meanwhile, the company said it will clarify its outlook when it announces earnings in mid-October. If you have a very strong stomach, a contrarian streak and the courage of your convictions, this could be an attractive stock at just over $3 a share."
Count me among the people described in the last sentence. I'm using about 40% of the money I'm willing to invest in Sun to buy at $3.40. I have a limit order in to buy more at $3.20 (which, I'm frustrated to say, was missed by just pennies in the last few days).
This stock will definitely see itself priced higher than $5 in the future and most likely much higher than that. You can read more about Sun's latest challenges and strategy in this article at BusinessWeek Online.
It's getting harder and harder to support President Bush. I supported the Iraq war and so did friends of mine living abroad. My friend in Germany took a lot of flack from his neighbors as the Bush administration bulldozed through the U.N. on its way to war in Iraq. My friend in Paris, as you can imagine, felt even more heat. Here in Japan, where most native English speakers are not from the U.S., I stood up for my country's efforts to stamp out terrorism.
Now, all three of us feel that the rug has been pulled out from under us. There are no weapons of mass destruction in Iraq. There is no connection between the former Iraq regime and September 11th. We fought a war to get a single man -- and billions of dollars and thousands of lives later we still haven't got him. We're spending a billion dollars a week and the national debt under this administration is getting so out of hand that we're about to have our nation's credit rating cut. Have you noticed the freefalling dollar? That's good for me as a holder of Japanese yen, but it doesn't look good for America as our debt approaches 7 trillion dollars. It doesn't take a financial wizard to realize that falling income in the form of tax cuts combined with skyrocketing expenses for endless wars creates an imbalanced balance sheet.
But the real thumbs-down comes from this increasingly unjustifiable Iraq war. To hear people talk of the good we did by removing a bad man is nauseating. Come on. How many bad men are there in the world? How many more will there be? How many are waiting right now to pounce on Iraq once we leave with fewer than we came with? If we went to war to get rid of one dictator who posed no direct threat to us or our allies and had no connection to September 11th, we're driving a pathetic foreign policy. Guess what? We're driving a pathetic foreign policy.
Meanwhile, in this part of the world, Japan is scratching its head over the North Korea situation. No need for faulty intelligence briefings here. No need for carefully massaged speeches that give the impression of cause and effect. The bad man in North Korea came right out and told the world that he has a nuclear program and is stepping it up. The result from blustering Washington? Talk, talk, and more talk. No WMD means war in Iraq; known WMD means talk in North Korea. The situation is so tense that Japan, the world's most anti-nuclear country because of Hiroshima and Nagasaki, is considering arming itself with nuclear missiles.
The situation is deteriorating abroad. The situation is deteriorating at home. This is some record, Mr. President. I feel very proud to have stood up for my country and for you against foreign criticism. To their credit, none of the detractors has said to me, "I told you so." They certainly could.
For a clear look at the president's follies in the desert, I suggest reading former senator Max Cleland's article that ran in an advertisement in the New York Times. To understand why he is uniquely qualified to level such criticism, consider his bio:
Former U.S. Senator Max Cleland volunteered for duty in Vietnam where he lost both of his legs and his right arm in a grenade explosion. He headed the Veterans Administration in the Carter administration and was elected to the U.S. Senate in 1996. In 2002, Cleland lost his bid for reelection when his opponent ran attack ads that questioned his patriotism and featured photos of Osama bin Laden and Saddam Hussein. He has received numerous awards for his bravery and service including the military's Silver Star for Gallantry in Action. When the Reserve Officers' Association named Cleland its "Minute Man of the Year" for his work in the Senate, he joined past Presidents Bush, Reagan and Ford in receiving the association's highest honor. Currently, Max Cleland is a distinguished adjunct professor at American University's Washington Semester Program.
