Thoughts

Bulls Have the Day

One for the bulls today.

Dallas Has a Winner

The Dallas Fed PMI, that is, not the Cowboys.

This morning the Dallas Fed PMI came in at 16.2 compared to only 2.6 in October and expectations of less than 5.

Thus, the Dallas PMI joins the Richmond and Philly Fed PMI in reporting an improving trajectory of growth.

Indeed the Dallas Fed PMI was the second strongest reading in almost four years, with all components strengthening (especially the new orders and employment components, which were the strongest in six months).

Banks Rounding the Corner?

If the strength persists, I view this as potentially meaningful (and constructive) in the days ahead.

Mondays After Thanksgiving

Here are some tidbits from the Stock Trader's Almanac.

* The Monday after Thanksgiving total DJIA point loss is 871 points since 1988.

* The Monday after Thanksgiving was down five straight years from 2004 to 2008.

* In the 58 years since 1952, the DJIA was down 33, up 24, unchanged only one time.

Here are the basic bullet points on why I like Yahoo!.

* The public company has $1.2 billion of earnings before interest, taxes, depreciation and amortization. Applying a normal multiple 6x to 9x creates $8.5 billion of value.

* Yahoo! boasts net cash of $3.4 billion.

* The company's public holdings total $9.5 billion. (AliBaba.com and Yahoo! Japan)

* Its private holdings total $6.0 billion.

Yahoo! owns 40% of private AliBaba through two assets:
1. Call option on Chinese search via Microsoft (MSFT) joint venture. Based on the value of Baidu (BIDU), Yahoo! has a 10% share of $5 billion, so the value to Yahoo! totals $1 billion. 40% of 50%

2. 40% of AliPay. This is the elephant in the room. Current AliPay payments are 60% of PayPal, but the company is growing much faster than PayPal. PayPal is worth $18 billion, while AliPay is worth $12 billion. Yahoo!'s 40% is worth $5 billion now but will easily be $10 billion in three years.

In summary, the current low-valuation case is $27.5 billion, or approximately $21 a share. The current high-valuation case is closer to $23 a share. By year-end 2011, the low-valuation case rises to about $23 a share, and the high valuation case will be $25 a share.

Last week's economic news over here and over there presented a study in contrasts.

On one hand, the trajectory of domestic economic growth has improved somewhat and is clearly on the ascent -- albeit from relatively low levels. While capital spending remains subdued and housing (plagued by mortgage-gate and a large phantom inventory of unsold homes) still resides in the basement, most indicators are improving -- including the regional district growth indices (Chicago's National Activity Index, Richmond Fed Manufacturing Survey and the Kansas City Fed Survey) -- the capacity utilization rate is well off its bottom, the ISM and ECRI's Weekly Indices are moving higher, personal income/spending growth is expanding, jobless claims/labor market trends are improving, inflation is quiescent, and other key barometers of expansion such as an upwardly revised third-quarter 2010 GDP of up 2.5% are better than consensus forecasts.

On the other hand, the European economic theatre has deteriorated, and the lower demand and economic growth from the imposed austerity measures will present profit challenges to the many U.S. multinationals that serve and have an important presence in that geography.

Other wild cards? They seem recognizable, contained and controllable:

* The Korean situation is a clear wild card and presents headline risk, but, in all likelihood, the crisis will be resolved before long and will not impact the markets.

* China's growth rate is a short-term wild card for the markets, but, in the near term, I don't expect a surprise much beyond a slight deceleration in the country's growth rate.

* Politics, too, looks relatively predictable. Gridlock is the likely outcome, as neither party has expressed a willingness to move to the center and compromise.

* Nor does a major surprise appear likely from the Fed. Short-term interest rates are anchored at zero, and the Fed will move uninterruptedly on its stated QE2 journey.