Tech Leads Trading Gains with Wind River's Acquisition by Intel
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June 4, 2009

 

*****Government Doublespeak

*****Deficits Threaten Growth

*****As the News Cycle Turns

 

Fellow Investor,

 

Software developer Wind River (Nasdaq:WIND) is the small cap leader today posting a 44% gain as of press time, 1:15 P.M. Eastern, on news of its acquisition by industry giant Intel (Nasdaq:INTC).

 

With the deal expected to close during the summer, Intel has committed to a price of $11.50 per share. As of this writing, shares of Wind River are going for $11.53. This certainly follows my thesis of technology, in addition to healthcare and energy, leading small caps for the foreseeable future.

 

Another big small cap gainer for today includes investment banker Cowen Group (Nasdaq:COWN) up 28.5% on news of its impending merger with Ramius, LLC, a privately held asset management firm. The new company will retain the Cowen name and is expected to continue trading on the Nasdaq.

 

Other small cap gainers include First Industrial Realty Trust (NYSE:FR) up 37.9% on news of closing three secured financial transactions for $154 million; Atlas Pipeline (NYSE:APL) up 16.1% to $7.57 (you’ll recall Atlas was a big winner yesterday after announcing it’s joint venture with Williams (NYSE:WMB)). Since Friday’s close, Atlas has rewarded investors with a 44% gain.

 

Small cap decliners include Abercrombie (NYSE:ANF), maker of popular clothing directed to the youth market, posting a loss of 10.6% in today’s trading after reporting same store sales had fallen 28%; Northeast Bancorp (Nasdaq:NBN) of Lewiston, Maine, down 14.7%; and The Gap (NYSE:GPS) down 7.9% on reporting that sales fell 6% versus one year ago.

 

All major indices are reporting positive gains as of press time with the Russell 2000 Index up 1.12% to 528.56, the Dow up 0.70% to 8,735.80, the S&P 500 up 0.96% to 940.74, and the Nasdaq up 1.07% to 1,845.37. Analysts attribute much of this to reports showing that the number of unemployed still receiving benefits dropped unexpectedly for the first time in nearly five months.

 

Also big in today’s news was crude oil hitting another high for 2009. New York Mercantile Exchange oil hit $69.56 in earlier trading today, meaning that crude oil is now nearly twice as expensive as it was in February.

 

Note: I’ve recently released a report on three small cap oil plays that will take advantage of crude oil’s drive to even higher prices this year. In fact, one of these stocks has already given investors a nice 148% gain since we added it on March 30th. And there’s still more action with this and the other two stocks. You can request your copy of the report HERE.

 

 

*****Yesterday, Ben Bernanke told the House Budget Committee:

 

“In recent weeks, yields on longer-term Treasury securities and fixed-rate mortgages have risen…[t]hese increases appear to reflect concerns about large federal deficits…”

 

Hmmm. I would swear that Treasury Secretary Geithner just told China that rising interest rates were a sign of optimism for the U.S. economy. Can rising rates be both good and bad? All I know is that if you listen to government long enough, anything and everything is possible.

 

Rising interest rates on Treasury bonds mean that prices are falling. Whether you’re talking dollars or doughnuts, prices tend to fall when there’s oversupply. And right now, with the Federal government raising trillions to fund stimulus spending and budget deficits, there’s a more-than-adequate supply of T-bills.

 

Competition also affects interest rates, or yields, on T-bills. If the arcane valuation formulas running on server banks in the basement of some hedge fund say that the stock market is likely to post an 8% gain, few managers will get too excited about the 5% return on long bonds. That 5% yield must rise (with the price of the bond falling) to entice buyers.

 

So when Geithner says that rising yields indicate optimism, he’s telling the truth to a degree. Yes, now that the economy is recovering a bit, investors believe that stocks are a better investment than bonds. And that’s good. But one reason stocks are attractive is because bonds are so unattractive.

 

*****I suspect the Chinese know all this. They probably also know that they benefit by lending us money. Heck, if Chinese money delays the hard choices long enough, they may ascend to the throne of world’s largest economy sooner than expected. 

 

*****Bernanke also took the opportunity to warn Congress about rising deficits. He said "Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth."

 

Let’s not forget Bernanke has supported the policies that got us where we are. Now let’s see what he proposes to help get us out of this mess.

 

*****The last time I made the observation that the news cycle was turning negative, we saw stocks consolidate their recent gains, instead of turning lower.

 

Well, it seems to me that the news cycle is starting to turn negative again. 

 

Bernanke repeated his belief that the recession is ending, but the financial media chose to latch on to his statement that recovery will be slow. Improving manufacturing data was deemed “not-as-good-as-expected.”

 

Will this lead to a sell-off, another period of consolidation, or will more positive data emerge to keep the markets moving higher? I don’t know, but I am on alert…

 

As always, please write and share your thoughts and comments: [email protected]. I’ll talk to you tomorrow.

 

Ian Wyatt

Editor

Daily Profit

 

P.S. One way to help insulate your portfolio (particularly if you’re retired or even if it’s a few years off) from the government’s loose monetary policy is by holding dividend stocks. These stocks give you a regular payout and have tremendous upside. Be sure to check out my new research report with five such winning stocks right now. You can get it HERE.





Posted 06-04-2009 1:48 PM by Ian Wyatt
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