Wednesday, May 25, 2011


Sad Goodbyes

Today's a sad day as it became known that one of my favorite Royals, Paul Splittorf, has died and also that Mark Haines of CNBC died Tuesday night.

Durable goods were horrific and so was the housing data (especially prices), extending the economic ambiguity.

Many formerly strong emerging stock markets are, at best, lifeless (see China's 10% drop).

I continue to see, as I have for months, an inconsistent and uneven economic recovery -- difficult for corporate managers and investment managers to navigate. Tail risk, greater earnings volatility and corporate margin and profit challenges are the headwinds I see above and beyond the nontraditional issues of fiscal imbalances, higher marginal tax rates and elevated structural unemployment caused by globalization, technological advances and temporary employment as a permanent fixture to the jobs market.

And I see a U.S. consumer, who has been victimized by screwflation, as particularly vulnerable and exposed. Money freed up from nonpayment of mortgages and recession fatigue have likely temporarily buoyed retail sales, but that slope is slippery and provides the sustainability of growth with a weak foundation.

Cisco's sounding the alarm.

From Cisco's (CSCO) 10Q, just released -- a slight tweak lower in its fiscal fourth-quarter forecast (the company had been looking for flat to up 2% sales growth):

"In light of all of the factors described above, we expect that our revenue for the fourth quarter of fiscal 2011 will be relatively flat compared to the prior year period, which represents lower revenue levels than we had previously anticipated at the beginning of fiscal 2011. We also expect our total gross margin, excluding the effects of restructuring activities, for the fourth quarter of fiscal 2011 to be slightly lower than what we experienced in the third quarter of fiscal 2011. In addition, as many of our headcount-related investments were based on projections of higher revenue than we now expect to achieve, and it will take time for the cost savings from our announced restructuring activities and voluntary early retirement program to take effect, we expect that operating expenses as a percentage of revenue will increase on a year-over-year basis. We also expect that operating income, net income, and earnings per share for the fourth quarter of fiscal 2011 will likely continue to decline on a year-over-year basis."

Still, I'm of the belief the market knew this was coming. My position remains that it will be difficult to lose $$ in CSCO long-term buying in the 16 to 18 range...

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