potential debt ceiling deal

The potential deal looks like 4 trillion dollar cuts in 10 years, which means average 400 billion out of the economy every year (2-3% of GDP). Of course, the debt deal may bring some certainty to the market and induce some corporate investments (one trillion? at most). It definitely will slow GDP by at least 1% a year. I do not see the positive for stock market.

Apple

The earning and cash flow is incredible at Apple and given its growth rate, the stock is very reasonable priced. Most analysts have a 450 or higher price target on APPL. The only thing I will be cautious is new product line. Over last five years, APPL has brought two new products (Iphone and Ipad) to the market and generate 100% growth every year. If Apple does not have new blockbuster product come on line, the growth will slow and competition will intensify.

The worst option

Benarke testified that the Fed is ready for extra stimulus. This is the worst possible option. The mere mention of possible QE3 has get market excited but it also pushed the oil up by 2 dollars and Gold another 20 dollars. The speculation in raw materia will push them mush higher and the inflation will not moderate as expected by the Fed. That's enough to get the Fed out of any further stimulus. So it will be high inflation and no QE3 at the end.

europe debt problem and QE3?

The Europe debt problem is getting worse but the market is rallying on the hint that Fed may start QE3. My take is that QE3 is not going to happen. The cost is too high. The market reacts to push oil up 2 dollars and gold 20 dollars. The inflation will outweigh all the benefits QE3 may bring. Buy protection when it is cheap

unintended consequences of lower oil price

The IEA released 60 million crude oil and the crude price dropped 5%. It may backfire. The supply in crude is tight and the high price is keeping a lid on demand. When the high price lasts longer, it can change people's behaviour, such as buying electronic car. If the prices turn lower quickly then people will go out buy those SUV again and demand will shut up. The longer the crude price is kept low, the bigger the supply problem will be. I hope the IEA release is one-time only. if not, we will see crude price shut up to 150 in the summer of 2012.

lsx increase bid for TSX

Just as I expected, London stock exchange increased the bid for TSX by 4 dollars. In response, Maple group increased its bid by $2 to $50. There are still regulatory hurdles to overcome. I will sell the share around 46.

RIMM

Research in Motion dropped 20% today. Just as I predicted in Nov. 2009, smart phone would become a commodity and competition would intensify and margin would drop. Sure it all happened in 18 months. How should we value RIMM right now. From income point view, a p/e of 5.5 does not give you much for a negative growth company. Instead, I would turn to the balance sheet. RIMM has 3 billion dollar cash and very little debt. 3 billion cash transfer to $5.5/share. The ongoing business is selling about 13 billion dollar. The real estate and equipments probably are worth 3-4 billion dollar and Patents are worth 1 billion dollar. Given that the company is still profitable and make 2-3 billion dollar a year, I do not see the share go lower than 20 dollars (around 12 billion Enterprise value). I would buy it below 25 dollar.