Google China to be no more?

Google's (GOOG) foray into China had never gone swimmingly, the "Don't Be Evil" chants turned to scoffs as the company told the world its better to have a censored presence in China than no presence at all. The pitchforks subsided and its been business as usual for the company as it slowly built a base of business, taking on the dominant local Baidu (BIDU).

Having now built a business, that according to analysts represents about 20-25% of the market, Google is becoming entrenched into China's business culture and livelihood. The Chinese Google portal succumbed to Government pressure in the beginning but as new reports have surfaced of cyber-attacks on the search giant, the company is taking a stand for the individual. Gmail accounts of human rights activists, the exact opposite of persona embraced by the Chinese Government, were targeted in a set of complex hacks. Google has taken this breach as an opportunity to exert maximum political pressure in China. By issuing threats that it will completely pull all operations in China, Google is looking to foster a groundswell of individual support to force the Chinese Government into change, most important of which is the curtailing of Internet censorship.

Will it work? History would say no, as China is looked upon as the most vigilant of Governments when it comes to control, censorship and human rights. Google's timing could help shift the needle, but by how much? With a presence now built in China, Google has more influence than it ever had in the region, and perhaps just maybe, a compromise does exist and can be reached.

But what if it can't and Google leaves China for good? Well, that's the worst case scenario for the company as the business opportunity in China is only getting bigger. Analyst reports have pegged Google's China sales at about $600Million, but have highlighted the incredible opportunity that awaits Western companies in this region over the next decade and beyond. Not something that Google could seriously walk away from just like that if it indeed is balancing the needs of Consumers, Shareholders, Employees and its Don't Be Evil mantra.

Right now Investors are trying to figure out the seriousness of Google's threat. Company shares are down about 1%, which is a muted move to a potentially landscape changing decision. Baidu shares on the other hand, are up 11% as the potential to dominate the Chinese search market, without a looming competitor like Google is just too large to ignore.

Something will have to give and at the end of the day the opportunity of capitalism is too great and the pressures from shareholders will force Google's hand to have a presence in China. In the interim, Google's step will be to ensure complete security in its online services to try and isolate and prevent these types of attacks, even if the source may be a Foreign Government, but the smart money has to assume Google and China will be back at the table constantly, working to compromise, making it possible for the Chinese people to see and click on Google Ads for the next decade and beyond.

Disclosure: Author is long GOOG

Markets Continue Slide. Economic Worries Standout in Dow's 300 Point Loss

Slowing US Economics have pushed sellers to the forefront this entire week, and today's 300 point Dow tumble was another straw in the year to date tumbling market house. S&P stands down 9% year to date, while the Nasdaq is off 11%.

The Nasdaq was hit hard this week as technology sold off on those very same economic fears. The winners heading into the tail end of 2007 were those being bid up to ever higher 52-week and all-time highs and soon of these companies are feeling the financial fallout as their P/E ratios get slashed worst than Real Estate on Elm St.

It didn't help this week that Intel (INTC) missed numbers, by a couple cents, and came in on the low end of revenue guidance, even though business is just fine (Revenue guidance of up to $10Billion for next quarter versus the estimated $10.1Billion). The stock took a 12% hit that day, putting it under $20/share.

Apple's (AAPL) marquee event MacWorld, was deemed a failure this year as everything announced was expected and it included nothing as revolutionary as last year's iPhone. A Router/Storage hub, an iTunes movie rental service, new iPhone software and the new thin laptop that has been criticized by many as not hitting any particular market. Only time will tell whether the super thin Mac Book Air will sell decently well at its $1800 price point. Sony (SNE) has their ultra-thin laptop line well over the $2000 price point for years. Apple shares have fallen from their $202 record and now sit just over the $160 mark, with expected quarterly blow-out earnings numbers coming next week. A troubling fall for a company built on Steve Jobs hype, which now has analysts falling over themselves reiterating its cheapness/value opportunity.

These are troubling economic times nonetheless, as investors look for safer havens, seeing their financial, consumer and technology faithful stocks being sold off in great numbers.
The Googles (GOOG), Baidus (BIDU) and Amazons (AMZN) are all down significantly as the high P/E ratio game of Internet companies is shrinking due to recessionary economic factors and fears. The banks are steeped in mortgage losses and more potential dividend cuts are luring Investors away. Even hot commodities of late like Oil and Gold have cooled quickly and abruptly by the sell triggers.

All eyes now shift to the Federal Reserve and Chairman Ben Bernanke. Traders expect at least a .5% Interest Rate cut at the next meeting, and Bernanke has pledged the Fed will be aggressive in trying to fend off recession. We'll see at the end of the month how it all plays out, but till then expect the same volatility and uneasiness when choosing the right things to buy, or in fact short sell.

Disclosure: Author owns AAPL, GOOG

What a Difference a Day Makes, Markets rebound Tuesday

Four Days of heavy sell-offs for North American Markets were met with enthusiastic buying as earnings, financial executive appearances and economic data supported a more bullish tone. Technology led the rise with the Nasdaq gaining more than 3.5% while the Dow Jones and S&P followed with gains of 2.5-3%.

Earnings from Wal-Mart (WMT) pushed stocks higher at the open as the benchmark retailer said it was expected a solid Christmas shopping season. Investors applauded the earnings beat and forecast and sent shares up more than 6%.

In the financial sector, a day after E*Trade Financial (ETFC) plunged 59%, a somewhat rebuttal to the bankruptcy fears from another analyst sent E*Trade soaring back 40%. A swing trader's dream stock the last couple of days, but the risks with this company still remain. E*Trade has assured it is well capitalized to absorb loan write-down losses and that bankruptcy is not in its future. In other financial circles, Bank Of America (BAC) reported that it will write down $3Billion more in losses, while Goldman Sachs (GS) CEO Lloyd Blankfein spoke at a conference showing the street once gain how brilliant the business and trading side of Goldman is. The context of Blankfein's talk; Goldman will not be taking any more write-downs and is still shorting Sub-Prime sectors. I for one think that Goldman's earnings will once again be stellar and prove to Investors it is not only Best of Breed on the Street but seemingly in its own Pantheon of Investment Banking. Shares of GS rallied heavily today, up almost 9% coming back to $233/share.

Technology was a big winner, as the Nasdaq paced gains, with Apple (AAPL) up 10%, Baidu (BIDU) up 13%, VMWare (VMW) up 13%, Google (GOOG) up 5% and Research In Motion (RIMM) up 9% all regaining some lost ground. I said very recently (Link) that Technology would be back and investors should look for strong fundamentals to find winners during the panic-stricken sub-prime selling crisis. Now by no means does today mean that all that can be forgotten and momentum will continue but it does provide a foundation for bullish sentiment.

There are several economic measures coming, including two key metrics this week; Producer Price Index - (PPI), and Consumer Price Index - (CPI), Wednesday and Thursday respectively. Now although the housing indicator released today showed a slight percentage gain, compared to the estimated percentage loss, the outlook pointed to things indeed getting worse from here on out before they get better for the home building sector.

Disclosure: Author owns GS, BAC, AAPL, GOOG

Markets continue slide Monday, Technology leads selloff

The Dow Jones now stands at a 4% loss over the previous 5 sessions. The Nasdaq 7.5% lower and the S&P 4%. In Canada the TSX index slid 6% in total the past week and 2% during Monday's trading session. Technology was the main culprit for the sell-off. Investors were looking for safer havens as the financial sector was rattled again with more credit losses, and the economic outlook seemed to worsen for the United States.

Those hit hardest have been the best performers over the last couple of months, since market lows in mid August. Technology stocks were on a roll for over 2 months as the latest round of earnings for the September quarter provided buying catalysts. Many of these names have come crashing down over the span of a week and a half as the markets have turned negative and traders locked it profits. Just a sampling of the fallen momentum players that were so successful in the run from August lows to October highs.

All Percentages are based on recent highs in these stocks.
Apple (AAPL): Down 20%
Google (GOOG): Down 15%
Baidu (BIDU): Down 30%
Amazon (AMZN): Down 24%
Las Vegas Sands (LVS): Down 23%
Wynn Resorts (WYNN): Down 27%
Research In Motion (RIMM): Down 25%
China Petroleum (SNP): Down 30%

All these names had tremendous runs over a 1 year time frame, many more than doubling in value and as market lore teaches every trader, it's not a profit unless its on the books. Now some Financial names have fallen much further than the above mentioned stocks but they weren't the ones leading the Tech and Growth charge into October. Money and the markets are cyclical in nature and money will return to Technology, but the market outlook these days is very hazy as talks of economic fears and recessions fill trading floors. Traders and Investors alike must be cautious here as the Credit Crisis spills over further than most expected. In times like these valuations and fundamentals play a bigger role in selecting winners for the next 6 month-1 year time frame.

Disclosure: Author is long AAPL, GOOG

Markets Experience Sharp Selloff after hitting New Highs

Thursday began as another bullish day in the extended rally for the North American markets as the Dow Jones set record highs on sales guidance from mega-retailer WalMart (WMT). Technology also got off to a good start as earnings estimates and price targets were getting bumped higher virtually across the board.

Apple (AAPL) received two price target bumps this morning from analysts at Merrill Lynch and Goldman Sachs pushing shares to an all time high above $170. Similar highs were seen in momentum favourites Research In Motion (RIMM), Google (GOOG), Baidu (BIDU) and VMWare (VMW).

Just before 2pm in this afternoon's trading the markets were up over half a percentage point. It appears whispers travelled and the buyers dam broke and flooded into a massive sell-off. Within minutes the Nasdaq was in the red and major technology stocks saw their new highs evaporating. Cautious comments from JP Morgan regarding Chinese Internet portal Baidu's revenue for the upcoming quarter sparked slight profit taking which seemed to snowball throughout the technology sector. Further adding to the panic were comments made in Europe by European Central Bank Council member Axel Weber who insinuated that 1) the ECB may need to raise rates in order to keep inflation in check, and 2) that inflation should be priority number 1, not economic stability.

There was concern with the Federal Reserve's half point rate cut that the action signified a more worrisome approach to economic stability, rather than inflation. These comments out of Europe show that the ECB seems to be standing firmer towards the side of inflation concerns.

These comments seemed to rekindle trader fears of Inflation and pushed the selling further. A rally that was built around the Fed cutting rates by half a percentage point will certainly not hold up well if there's talk of a potential rate hike being needed to curb inflation. The sectors that have been gaining the most during the rally were the ones hit the hardest; Technology and Energy.

Investors should take heed that the indices were brought back after the drop, meaning that the Dow was able to hold and close above 14,000. If inflationary comments come further to light this could add tremendous volatility for the markets ahead, but investors should be concerned with specific company fundamentals, especially as the earnings season gets into high gear.

Disclosure: Author is long AAPL, GOOG

Major Techs hit 52-Week Highs, Can the Rally Continue?

Post Fed Meeting, stocks have been on the upswing with new highs seemingly being made daily. While the market has rallied broadly, will we see a pause or can the ride continue? The Dow still sits about 200 points from its highs, Nasdaq 50 and the S&P about 30. In other words, there are still gains to be made towards the end of the year.

Technology has been on fire lately, as early earnings reports have been positive and multi-national companies are cashing in overseas as the US dollar weakens against other major currencies. Oracle (ORCL) had a great quarter and hit a 52 week high of $22.17 on Friday. It wasn't alone as many major tech players were just at or set new highs at the end of trading on Friday. Those companies included Google (GOOG) at $560, Ebay (EBAY) at $39, Cisco (CSCO) at $32, Amazon (AMZN) at $91, Research In Motion (RIMM) at $93, BIDU (BIDU) at $285.

So what's the trade for Monday and the rest of the year? Success will come to those companies that are getting a majority of their revenue in International currencies. Due to the US Dollar's record decline against the Euro, European business will drive profits this quarter and next. Big Tech is in good shape to continue to rally into the next round of earnings numbers due to and increasing dependence on Worldwide business for accelerated growth.

It's seemed lately that you can toss money into any tech stock and watch it rise, however, to truly pick a winner into the end of the year it's important to stand back and pick apart the business and the stock's valuation and determine which bet is best. It's vital to look at growth projections and current valuations to see that AMZN with a P/E in the 120s and a forward P/E of 51, is a much shakier bet than high growth GOOG or RIMM who sport forward P/E's in the 30 as the latter companies can seemingly growth into P/E's in the 40s and 50s. Steady Oracle and Cisco, who are experiencing revitalized business growth sport forward P/E's around 18, and a strong case can be made that these companies deserve P/E's in the 20s going into next year.

Technology has gotten its spark with the market rally over the last week and this sector will be a good one to be in come Christmas and the last calendar quarter of the year. Investors should take heed and come up with a criteria of which Technology companies should become the best investments. Here's a primer of things to look for when evaluating potential technology investments this holiday season.

1) Which companies will create, advertise, sell or re-sell the upcoming must-have gadgets or be involved in the back end of another record online-shopping season.

2) Determine which companies sport the largest percentage of International business.

3) Determine which companies have the ability to mold into their inflated P/E ratios so that any downside risk can be minimized with strong growth.

Disclosure: Author is long GOOG

Earnings Week: July 23-July 27

Some earnings of note for the week of July 23rd to the 27th

Monday July 23
Merck (MRK): expected $0.72/share

Tuesday July 24
AT&T (T): expected $0.67/share
LeggMason (LM): expected $1.24/share

Wednesday July 25
Akamai (AKAM): expected $0.30/share
Apple (AAPL): expected $0.72/share
Baidu (BIDU): expected $0.43/share
Colgate-Palmolive (CL): expected $0.83/share
GlaxoSmithKline (GSK): expected $0.94/share

Thursday July 26
ExxonMobil (XOM): expected $1.94/share

Interesting week ahead as more financials and world banks report, and big oil takes center stage later in the week with Exxon. All eyes will be on AT&T and Apple for an incling of how well the iPhone sold in the first 2 days of its launch.