Oracle: How will it weather a slowdown?

ORCL is trading at 23 times earnings, with a $101 billion market cap. The senior executive team has sold over $1.32 BILLION in stock over the previous 52 weeks, up from $428 million over a similar period last year, an increase of $888 million. The company has repurchased over $5 billion in stock over the past few years, $3 billion alone in 2006.

Yes, the company will continue to do well over the next few quarters as the sales cycle and pipeline will take time to adjust downwards, but the time to acquire put options and short positions is before the market figures this out. The housing and consumer led slowdown in the US will very likely trickle down to business spending. While some analysts believe IT is immune from a recession, it certainly doesn’t appear like this time is different.

Disclosure: we own 2009 and 2010 leap puts of ORCL.

Wake up to the dangers of a deepening crisis

November 25, 2007 (Lawrence Summers) – Three months ago it was reasonable to expect that the subprime credit crisis would be a financially significant event but not one that would threaten the overall pattern of economic growth. This is still a possible outcome but no longer the preponderant probability.Even if necessary changes in policy are implemented, the odds now favour a US recession that slows growth significantly on a global basis. Without stronger policy responses than have been observed to date, moreover, there is the risk that the adverse impacts will be felt for the rest of this decade and beyond. Continue reading

Global Coal Sales & Demand Booming

November 26, 2007 (Bloomberg) – South Africa’s Richards Bay Coal Terminal, the world’s biggest coal-export facility, expects a 30-fold surge in sales to India this year, increasing prices for European power producers competing for supplies. The terminal shipped 7.3 million metric tons to India in the first 10 months, compared with 300,000 tons for the whole of last year, Donovan Raj, the terminal’s shipping coordinator, said in an interview Nov. 22. That may rise by another 2 million tons before the end of the year, he said. Richards Bay coal prices have gained 72 percent this year.

Benchmark prices for thermal coal, used in power plants, have reached a record in Australia, South Africa and Europe in the last three weeks. Costs have risen because of shipping and rail bottlenecks as Asian customers compete for supplies with European utilities. Indian coal demand will exceed supply for the next five years, Tata Power Co. said last month.

“India is the golden child at the moment,” Raj said, speaking from the terminal on South Africa’s northeast coast, the biggest single source of coal for European power plants. Continue reading

Credit Market Losses May Cost Economy $2 Trillion, Goldman Says

November 16, 2007 (Bloomberg) – Goldman Sachs Group Inc., the largest U.S. securities firm by market value, said the impact of the slump in credit markets on the economy could reach $2 trillion.

Losses related to record U.S. home foreclosures using a “back-of-the-envelope” calculation may be as high as $400 billion, Jan Hatzius, chief economist at Goldman in New York, wrote in a report.

The effects of the losses on the economy will be amplified because the banks and hedge funds involved have borrowed heavily to finance their investments, Hatzius wrote. If leveraged investors realize half of the potential losses, at $200 billion, they may have to scale back lending by $2 trillion, according to the report.

“A $1 mortgage credit loss could result in a reduction in lending by significantly more than $10,” Hatzius wrote. “The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized.”

Now this is what I call a beautiful short

NFI 52-Week Chart 

Novastar Financial, Inc (NFI), is [soon was] a “speciality finance” company that deals heavily in the “origination, purchase, securitization, sale, investment in, and service of residential nonconforming loans and mortgage-backed securities.”  Today, the company announced a $600 million loss for the third-quarter, or $64.05 per share.  The stock reached a high of $127 earlier this year, and is now trading at $2.08.  Absolutely brilliant short. 

Next Phase of the Crisis: The Great Ratings Debacle

November 12, 2007 (Money & Markets) – Evidence of an imminent U.S. recession is now piling up so high, even Fed Chairman Ben Bernanke had to admit to a slowdown in his testimony to Congress last week…The housing crisis is gutting the home equity of millions of households, abruptly ending their ability to use it as a personal ATM machine.

Big retail chains are expecting a holiday shopping season that one leading analyst calls “a train wreck under the Christmas tree.”

Detroit is in shambles, with GM’s $39 billion loss the biggest in the auto industry’s history.

Even technology companies – thought to be a place for investors to hide from the fall-out of the housing crisis – are getting smacked, as evidenced by the rout in their shares last week.

And most important…

The credit crunch has spread to the nation’s banks with the force of an F5 tornado. It’s tearing into the banks’ portfolios. And it’s triggering their most intense tightening of lending standards in nearly two decades. Continue reading