Yesterday, I sold almost all my equity-based positions. I also called my sister and suggested she sell all of her stocks and mutual funds. Of course, you should do your own due diligence, but as of August 3, 2009, the S&P 500 closed at 1002.63, an annual high. The potential for further upside does not seem to justify the risk of holding equities. My remaining major positions--held in a retirement account--include only an inflation-protected bond fund; a GNMA fund; and a corporate bond fund.
My earlier prediction that the S&P would rise to a range between 920 to 950 proved accurate. I made my prediction on April 1, 2009, when the S&P was only 811.08.
More recently, on July 2, 2009, I bought commodities, especially natural gas commodities. Within a month, some of these positions increased almost 20%.
Any economic "recovery" without rising employment will be short-lived. Right now, I see unemployment staying at 7 to 9%, which will suppress wages and disposable income. We will know more on August 7, 2009, when the BLS releases the unemployment numbers.
At some point, it will make sense to jump back in the stock market. Right now, though, I agree with Hilary Kramer's analysis, which can be found here.
Update on June 11, 2010: the S&P 500 was 1002.63 when I made this post. The S&P did go down to 979, but then rose to 1086.84 over the next ten months or so--an 8.4% gain. Although I was wrong about the stock market's direction, the other investments I mentioned--GNMA and TIPs--also had decent gains when including dividend/interest payments. Also, I correctly predicted the unemployment numbers. Where will the stock market go next? I have no idea, but my personal tolerance for risk has gone up. When people start talking about the disintegration of the EU and the collapse of the Euro, maybe it's time to go contrarian--as long as you have 20 to 25 years to wait.
Disclaimer: The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.
"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost
Tuesday, August 4, 2009
Public Sector Pensions and Politics
The SJ Mercury points out that public sector pensions are based on unrealistic actuarial projections. See here:
The current level of benefits is built on an assumption of an 8.25 percent annual gain on investments after expenses for Federated, and 8 percent for safety workers. These unrealistically high assumptions leave taxpayers solely on the hook when returns come up short, as they have — drastically — the past two years...
City Council members are reluctant to confront unions on bread-and-butter issues and, with term limits, have little incentive to tackle long-term problems. But if nobody faces up to this, a taxpayer revolt is inevitable. And waiting will only make things worse.
Find me an investment advisor who can guarantee 8.25% annual gains in perpetuity, and I will show you a Brooklyn bridge for sale. (For the record, Madoff doesn't count.)
The current level of benefits is built on an assumption of an 8.25 percent annual gain on investments after expenses for Federated, and 8 percent for safety workers. These unrealistically high assumptions leave taxpayers solely on the hook when returns come up short, as they have — drastically — the past two years...
City Council members are reluctant to confront unions on bread-and-butter issues and, with term limits, have little incentive to tackle long-term problems. But if nobody faces up to this, a taxpayer revolt is inevitable. And waiting will only make things worse.
Find me an investment advisor who can guarantee 8.25% annual gains in perpetuity, and I will show you a Brooklyn bridge for sale. (For the record, Madoff doesn't count.)
Monday, August 3, 2009
Gates-gate is about Police Power, Not Race
From Above the Law:
As Radley Balko argues in Reason, "[t]he conversation we ought to be having in response to [Gatesgate] isn't about race, it's about police arrest powers, and the right to criticize armed agents of the government."
More on Gates-Crowley here.
As Radley Balko argues in Reason, "[t]he conversation we ought to be having in response to [Gatesgate] isn't about race, it's about police arrest powers, and the right to criticize armed agents of the government."
More on Gates-Crowley here.
Sunday, August 2, 2009
Sigma Designs Inc's (SIGM) Shareholder Meeting (2009)
I attended Sigma Designs Inc.’s (SIGM) shareholder meeting yesterday, July 30, 2009. About eleven people attended, mostly company employees. The company offered shareholders juice, soda, mineral water, cookies, and cherries. CFO Thomas Gay handled the formal portion of the meeting and then turned the meeting over to Kenneth Lowe, VP of Business Development and Strategic Marketing. Founder, CEO and Chairman Thinh Q. Tran played a more reserved role in the meeting, helping Mr. Gay and Mr. Lowe answer some of the more technical questions.
Sigma Designs provides system-on-chip solutions (SoCs) for third parties, primarily in the home entertainment area. It dominates in the area of IPTV set-top boxes, where, according to Mr. Gay, it controls approximately 80% of the market. Its main competitors are STMicroelectronics NV (STM) and Broadcom (BRCM).
Here are the highlights from Mr. Lowe’s presentation.
1. Internet Protocol Television, otherwise known as IPTV, is a technology by which video is delivered to the home. It relies on broadband rather than more traditional formats.
2. Some of Sigma’s customers include Motorola, Cisco, Samsung, Sony, Celrun, Dasan, WD/Cowin, UT Starcom, and Netgem.
3. Sigma provides its SoCs to numerous telecommunication service companies, including the major players in the home broadband market.
4. For fiscal year 2009, Sigma had $209 million in revenue, with a net income of $26.4 million.
I asked several questions, and Mr. Lowe, Mr. Gay, and Mr. Tran answered all of my questions thoroughly.
I mentioned that 94% of Sigma’s revenue was from outside the United States, and asked why they did not hedge their currency risk. [10K: pages 18-19]. Mr. Gay said it was unnecessary to hedge any currency risk because all billings/prices were in U.S. dollars. Billing in American dollars may help Sigma compete with Swiss-based ST Micro (STM), which currently reports earnings based on the stronger Swiss franc. (Mr. Gay said he believed the company was French, but Yahoo Finance lists STM as headquartered in Geneva, Switzerland.)
I mentioned Sigma’s relatively small net income and asked Sigma whether it would be better served if it went private. As a private company, it would not have to comply with regulations imposed on public-traded companies and could better focus on its core business. Mr. Gay said that having publicly available stock allowed the company to “compete for talent”--in Silicon Valley, where companies have to compete for talent, employees will favor companies with publicly-traded shares. Mr. Gay also explained that Sigma’s publicly available stock could be used for acquisitions (which would allow Sigma to conserve its cash).
I asked what gave Sigma’s products an advantage in the marketplace, i.e., what constituted Sigma’s “wide moat.” Mr. Lowe told me that Sigma provided “full solutions” in the IPTV streaming business and Sigma’s technology was more “resilient” than competitors’ products. He indicated that Sigma’s products minimize data “packet loss” and disturbances (more so than the competition). He also told me that Sigma had “deeper roots” in the hi-def area than any other competitor. For example, he said, Sigma adopted the Windows Media Standard before anyone else.
I asked a question about Sigma’s financial restatements. Mr. Gay told me “those issues are behind us” and the last time the SEC had contacted Sigma about its financial restatements was in 2006.
Another shareholder criticized the smaller board of directors and the presence of the same three board members on three different committees. The shareholder also asked why insiders were selling shares. Mr. Gay said that insiders were selling shares primarily because of option expiration dates, and Sigma would be using more restricted stock grants to encourage long-term investing. Mr. Gay also said he regretted the company’s stock buyback plan, which was now completed and which caused the company to buy its own shares at the relatively high price of $20.50 per share (SIGM now trades at around $16/share).
The same shareholder pointed out that Sigma was focused on discretionary consumer products, which are being affected most severely in the current recession. Mr. Gay responded that telecommunications companies have not suffered as much as other companies, and despite the recession, some studies projected 30% growth in IPTV sales.
After the meeting, Mary Miller, Director of Marketing, treated shareholders to a product demonstration. It was fascinating to see the technology come alive. Basically, Sigma partners with other companies like Schlage to provide home control products. Sigma supplies the chips in the set top boxes and other devices, which allow third parties to offer unique consumer products. For example, for under $500 (not including the television), you can set up a home that Bill Gates would be proud to own. When we walked into the demonstration room, Ms. Miller adjusted the light, blinds, and temperature using just a few buttons on a remote control. Within seconds, the room went from regular lighting to the perfect movie and TV-watching environment. I had only seen such home entertainment options in movies like Iron Man, so it was fun seeing everything in person.
But Ms. Miller wasn’t done. Using Schlage’s software and gateway (which used Sigma’s Z-Wave chip), she also demonstrated how you could open the door to your home from anywhere in the world, as long as you had internet access. For example, let’s say you left something at home and you wanted your friend to get it for you. With Schlage’s program, you could open your house’s door using a laptop. (Perhaps if Harvard University had invested in this technology, the situation involving Professor Gates and Officer Crowley would have never occurred.)
You can also activate home cameras from your iPhone or your laptop and check on your teenage children or other residents. Ms. Miller joked that from anywhere in the world, parents could have firsthand knowledge about whether their kids were at home and doing their homework. When I asked how much all this would cost, I received price estimates of $12.99/mo for Schlage’s software and about $500 for the lock, gateway and cameras. In terms of home control options, the future is here, and it’s surprisingly affordable.
With Sigma’s strong balance sheet and connections with established companies, it may become a potential takeover target. Right now, however, its revenues need to increase in order to boost its stock price and market exposure. Even so, in this economy, Sigma should be lauded for making a profit while its competitors posted losses.
Disclosure: I own fewer than ten shares of Sigma (SIGM).
Sigma Designs provides system-on-chip solutions (SoCs) for third parties, primarily in the home entertainment area. It dominates in the area of IPTV set-top boxes, where, according to Mr. Gay, it controls approximately 80% of the market. Its main competitors are STMicroelectronics NV (STM) and Broadcom (BRCM).
Here are the highlights from Mr. Lowe’s presentation.
1. Internet Protocol Television, otherwise known as IPTV, is a technology by which video is delivered to the home. It relies on broadband rather than more traditional formats.
2. Some of Sigma’s customers include Motorola, Cisco, Samsung, Sony, Celrun, Dasan, WD/Cowin, UT Starcom, and Netgem.
3. Sigma provides its SoCs to numerous telecommunication service companies, including the major players in the home broadband market.
4. For fiscal year 2009, Sigma had $209 million in revenue, with a net income of $26.4 million.
I asked several questions, and Mr. Lowe, Mr. Gay, and Mr. Tran answered all of my questions thoroughly.
I mentioned that 94% of Sigma’s revenue was from outside the United States, and asked why they did not hedge their currency risk. [10K: pages 18-19]. Mr. Gay said it was unnecessary to hedge any currency risk because all billings/prices were in U.S. dollars. Billing in American dollars may help Sigma compete with Swiss-based ST Micro (STM), which currently reports earnings based on the stronger Swiss franc. (Mr. Gay said he believed the company was French, but Yahoo Finance lists STM as headquartered in Geneva, Switzerland.)
I mentioned Sigma’s relatively small net income and asked Sigma whether it would be better served if it went private. As a private company, it would not have to comply with regulations imposed on public-traded companies and could better focus on its core business. Mr. Gay said that having publicly available stock allowed the company to “compete for talent”--in Silicon Valley, where companies have to compete for talent, employees will favor companies with publicly-traded shares. Mr. Gay also explained that Sigma’s publicly available stock could be used for acquisitions (which would allow Sigma to conserve its cash).
I asked what gave Sigma’s products an advantage in the marketplace, i.e., what constituted Sigma’s “wide moat.” Mr. Lowe told me that Sigma provided “full solutions” in the IPTV streaming business and Sigma’s technology was more “resilient” than competitors’ products. He indicated that Sigma’s products minimize data “packet loss” and disturbances (more so than the competition). He also told me that Sigma had “deeper roots” in the hi-def area than any other competitor. For example, he said, Sigma adopted the Windows Media Standard before anyone else.
I asked a question about Sigma’s financial restatements. Mr. Gay told me “those issues are behind us” and the last time the SEC had contacted Sigma about its financial restatements was in 2006.
Another shareholder criticized the smaller board of directors and the presence of the same three board members on three different committees. The shareholder also asked why insiders were selling shares. Mr. Gay said that insiders were selling shares primarily because of option expiration dates, and Sigma would be using more restricted stock grants to encourage long-term investing. Mr. Gay also said he regretted the company’s stock buyback plan, which was now completed and which caused the company to buy its own shares at the relatively high price of $20.50 per share (SIGM now trades at around $16/share).
The same shareholder pointed out that Sigma was focused on discretionary consumer products, which are being affected most severely in the current recession. Mr. Gay responded that telecommunications companies have not suffered as much as other companies, and despite the recession, some studies projected 30% growth in IPTV sales.
After the meeting, Mary Miller, Director of Marketing, treated shareholders to a product demonstration. It was fascinating to see the technology come alive. Basically, Sigma partners with other companies like Schlage to provide home control products. Sigma supplies the chips in the set top boxes and other devices, which allow third parties to offer unique consumer products. For example, for under $500 (not including the television), you can set up a home that Bill Gates would be proud to own. When we walked into the demonstration room, Ms. Miller adjusted the light, blinds, and temperature using just a few buttons on a remote control. Within seconds, the room went from regular lighting to the perfect movie and TV-watching environment. I had only seen such home entertainment options in movies like Iron Man, so it was fun seeing everything in person.
But Ms. Miller wasn’t done. Using Schlage’s software and gateway (which used Sigma’s Z-Wave chip), she also demonstrated how you could open the door to your home from anywhere in the world, as long as you had internet access. For example, let’s say you left something at home and you wanted your friend to get it for you. With Schlage’s program, you could open your house’s door using a laptop. (Perhaps if Harvard University had invested in this technology, the situation involving Professor Gates and Officer Crowley would have never occurred.)
You can also activate home cameras from your iPhone or your laptop and check on your teenage children or other residents. Ms. Miller joked that from anywhere in the world, parents could have firsthand knowledge about whether their kids were at home and doing their homework. When I asked how much all this would cost, I received price estimates of $12.99/mo for Schlage’s software and about $500 for the lock, gateway and cameras. In terms of home control options, the future is here, and it’s surprisingly affordable.
With Sigma’s strong balance sheet and connections with established companies, it may become a potential takeover target. Right now, however, its revenues need to increase in order to boost its stock price and market exposure. Even so, in this economy, Sigma should be lauded for making a profit while its competitors posted losses.
Disclosure: I own fewer than ten shares of Sigma (SIGM).
Saturday, August 1, 2009
Imogen Heap
I was listening to Imogen Heap's song, "Hide and Seek," this morning.
The best part starts at the 2:58 mark. (And yes, I know about the SNL skit.) I've never heard of Imogen Heap before. Her song , "Let Go," is also very good.
The best part starts at the 2:58 mark. (And yes, I know about the SNL skit.) I've never heard of Imogen Heap before. Her song , "Let Go," is also very good.
Jamba Juice Coupon (good through 8/9/09)
FYI:
http://www.summerblissisback.com/eb7/sbbg7.html
Buy one, get one free at Jamba Juice. Good through August 9, 2009.
http://www.summerblissisback.com/eb7/sbbg7.html
Buy one, get one free at Jamba Juice. Good through August 9, 2009.
California's Pension Problem
The next time a California government worker starts talking about furlough days and pay cuts, remind them about their pensions and lifetime medical benefits. Or, just give them a link to this Judy Lin 7/31/09 article:
http://news.yahoo.com/s/ap/us_california_budget_pensions
California has at least $63 billion in unfunded pension liabilities, an amount equal to roughly two-thirds of all annual general fund spending...
Government workers and their union representatives often say the more generous pensions offset lower pay.
But the latest U.S. Census survey, from 2007, shows the average annual salary of California state government employees was $53,958, compared with $40,991 for the average private-sector worker.
"The pension benefits for public employees in California are extravagant and they are going to bankrupt cities and counties, along with the state," said Keith Richman, a former state assemblyman who said he plans to launch an initiative campaign to change state employee pension benefits.
I predicted California's pension problem back in December 2007:
Someone must pay for all of these employees and their pensions, sabbaticals, and health care. Teachers’ unions usually ask for more money, but the California State Teachers Retirement System is already worth around $125 billion. It has around 750,000 members and is the third largest public retirement fund in the country. Yet, after health care, education reform remains crucial, and the CTA continues to ask for more money.
As a result of government salaries and benefits spiraling out of control, California’s bond ratings have gone from AAA to single A and are approaching status that is slightly above junk (see http://www.treasurer.ca.gov/ratings/current.asp). The high salaries and unusual benefits of local government workers are just one small part of major fiscal problems that will not get better on their own.
Regarding the state's bond ratings, my prediction recently came true: "Moody's Investors Service downgraded California's general-obligation bond rating to Baa1 from A2, a drop of two notches and only slightly above junk status." (See Sacramento Bee, Capitol Alert, July 14, 2009)
It's nice to see the mainstream media finally discussing public sector benefits--even if it is over a year late. Having $63 billion in unfunded pension liabilities is shockingly irresponsible. No wonder California can't balance a budget.
Update: the SJ Mercury points out that public sector pensions are based on unrealistic actuarial projections. See here:
The current level of benefits is built on an assumption of an 8.25 percent annual gain on investments after expenses for Federated, and 8 percent for safety workers. These unrealistically high assumptions leave taxpayers solely on the hook when returns come up short, as they have — drastically — the past two years...
City Council members are reluctant to confront unions on bread-and-butter issues and, with term limits, have little incentive to tackle long-term problems. But if nobody faces up to this, a taxpayer revolt is inevitable. And waiting will only make things worse.
http://news.yahoo.com/s/ap/us_california_budget_pensions
California has at least $63 billion in unfunded pension liabilities, an amount equal to roughly two-thirds of all annual general fund spending...
Government workers and their union representatives often say the more generous pensions offset lower pay.
But the latest U.S. Census survey, from 2007, shows the average annual salary of California state government employees was $53,958, compared with $40,991 for the average private-sector worker.
"The pension benefits for public employees in California are extravagant and they are going to bankrupt cities and counties, along with the state," said Keith Richman, a former state assemblyman who said he plans to launch an initiative campaign to change state employee pension benefits.
I predicted California's pension problem back in December 2007:
Someone must pay for all of these employees and their pensions, sabbaticals, and health care. Teachers’ unions usually ask for more money, but the California State Teachers Retirement System is already worth around $125 billion. It has around 750,000 members and is the third largest public retirement fund in the country. Yet, after health care, education reform remains crucial, and the CTA continues to ask for more money.
As a result of government salaries and benefits spiraling out of control, California’s bond ratings have gone from AAA to single A and are approaching status that is slightly above junk (see http://www.treasurer.ca.gov/ratings/current.asp). The high salaries and unusual benefits of local government workers are just one small part of major fiscal problems that will not get better on their own.
Regarding the state's bond ratings, my prediction recently came true: "Moody's Investors Service downgraded California's general-obligation bond rating to Baa1 from A2, a drop of two notches and only slightly above junk status." (See Sacramento Bee, Capitol Alert, July 14, 2009)
It's nice to see the mainstream media finally discussing public sector benefits--even if it is over a year late. Having $63 billion in unfunded pension liabilities is shockingly irresponsible. No wonder California can't balance a budget.
Update: the SJ Mercury points out that public sector pensions are based on unrealistic actuarial projections. See here:
The current level of benefits is built on an assumption of an 8.25 percent annual gain on investments after expenses for Federated, and 8 percent for safety workers. These unrealistically high assumptions leave taxpayers solely on the hook when returns come up short, as they have — drastically — the past two years...
City Council members are reluctant to confront unions on bread-and-butter issues and, with term limits, have little incentive to tackle long-term problems. But if nobody faces up to this, a taxpayer revolt is inevitable. And waiting will only make things worse.
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