El Paso Agrees to be Bought by Kinder Morgan for $21.1B

Earlier today El Paso (EP) agreed to be bought by Kinder Morgan Inc. for a 40% premium to Friday's close, creating North America's largest Nat-Gas pipeline operator. I see plenty of M&A's in the pipeline industries future so I put together a screen of the companies similar to El Paso (EP) that I think are most likely to be snatched up next.

Check out the screen after the break:

Tomorrow's Gameplan

Google (GOOG) reported a stellar quarter after the bell, handily beating eps estimates by 11%. I'm guessing we'll be up off the news tomorrow (tech anyway), but this rally has been long in the tooth since Friday. If we are up, I'll be using it as an opp to close out my longs and add to my shorts. It's hard to get short into Apple's (AAPL) earnings due out Wednesday after the bell, but this market has been OB for a while. I'd rather miss some upside and perserve capital, than get caught too exposed.  If anything, let's pray Apple (AAPL) is down Monday so we can get in before earnings, but don't count on it. I promise we'll have a better entry point than tomorrow. I started a position in Western Refining Inc. (WNR) which is red hot right now. I started another position in $VXX and will open one in $FAZ if we have a real melt-up. PLEASE BE WARNED: There is pain ahead in this market so don't get caught up in the "jubilation" tomorrow.

This is not a recommendation to buy or sell any securities. DAK was long AAPL at time of publication but positions can change at anytime.

The brilliance continues....

Apple sold over 1M iPhones in the first 24 hours of availability bumping shipping times back to 1-2 weeks.

So, it's becoming more and more apparent just how brilliant a business move releasing the iPhone 4S instead of the iPhone "5" was. In just 24 hours Apple (AAPL) managed to sell almost twice as many iPhone 4S's as they did iPhone 4's even though this was a "minor" refresh. I admit they probably would have sold a few more "5's" had they done a major upgrade but let's look at this like as a business, not as a consumer.

It's been less than 2 years (the standard time until you can upgrade your phone at a discount) since the release of the last iPhone so this phone wasn't meant to target iPhone 4 users who would be less likely to upgrade anyway (unless the carriers waived those contracts which they may have done for a "5"). This phone was meant to go after the 70M+ iPhone, iPhone 3G and iPhone 3GS users (for which this is a huge upgrade) who are eligible to upgrade, the 1B+ non-smartphone users, and the fools still using Blackberry's, Nokia's and Droids. Then when Apple (AAPL) releases the "5" next summer, the carriers waive every ones contracts so we can all upgrade at the discounted price. Boom goes the dynamite. Also, Apple's (AAPL) margins will go up since there in no major redesign and there shouldn't be any supply shortages after the initial rush. I don't know if this move is one last flash of brilliance from Job's, or the first in many to come from Tim Cook, but look for Apple (AAPL) to continue it's dominance in the mobile market.

This is not a recommendation to buy or sell any securities. DAK was long AAPL at time of publication but positions can change at anytime.

Yay Socialism...Yay Beer

So the first European bank falls prey to the debt crisis. We're down 400 right? Wrong, face-melting rally actually. Dexia sold itself to the Belgium government for $4B (something you would have known hours before it actually happened if you follow me @freemrktcptlst) and instantly futures responded positively. Add to that the "promise" (ha!) by Merkozy that the whole thing we'll be handled in 3 weeks and it's off to the races, right? Well, yes this is very good news, but the algo's are still showing me we're much closer to OB (overbought) than OS (oversold) so I'd be using these rallies for taking profits and quick trades. I'm in about 48% cash and will be using today and tomorrow to lessen my exposure to ARM Holding (ARMH), Netflix (NFLX), and yes, even Apple (AAPL) because I see a 5%-7% correction in our not so distant future. I just want to raise cash so I can position myself well for the next leg up. Let's talk about Apple (AAPL) and Netflix (NFLX) for a second. Both are rallying today for different reasons. Apple (AAPL) reported that they shattered previous presale records with their new handset the iPhone 4S, selling over 1M in the first 24 hours of availability. Netflix (NFLX) (a FMC takeover target) is up over 6% on word the board has decided against spinning the DVD-by-mail business off into 'Qwikster', which has investors hopping. I bought Netflix (NFLX) around $110 and it's hovering around $126 today so I have to take profits, but I reiterate this stock is cheap and primed to be bought by, oh let's say Amazon (AMZN).

This is not a recommendation to buy or sell any securities. DAK was long AAPL, NFLX and ARMH at time of publication but positions can change at anytime.

Why no iPhone "5"??

The main reason the iPhone "5" was not released yesterday is because the chip they needed for LTE was not ready yet. They could have used the bigger chip already available in other LTE phones, but they would have to sacrifice that sexy new design we're all coveting. The table below suggests we could see iPhone "5" as earlier as Q2 of next year, but I would think it would be more like Q3.

The Final Word....

I'm so sick of hearing about Apple (AAPL) today I want to throw my phone out the window, but I'm gonna give you the final word on La Manzana. Today, no matter how you measure it, the iPhone 4S disappointed. Mainly, because it wasn't a homerun, and Apple hits in the 4 spot. In other words, Apple (AAPL) must outdo itself every year (which is impossible) or end up disappointing. The fact is they didn't give the public what they wanted. I'm here to tell you it won't matter. When you go to buy a phone, the iPhone 4S has the best specs on the market and that's the one most people will buy. Right now people are angry (including me) because they didn't get what they wanted and they want to spite Apple (AAPL) by protesting the new phone. But in reality, when you step back and look at the smartphone market, the 4S is leaps and bounds above it's closest competitors. But the real story is not the phone, it's the software. Today, iOS 5 was overshadowed by a "disappointing" hardware upgrade, but once people start using the upgraded OS it's going to blow up. Not only will Apple (AAPL) sell the same number of phones (if not more thanks to Sprint getting in on the fun) as they would have had they released iPhone "5" (Which I estimate at about 24M), but since they are using the same casing, there manufacturing costs will be lower and margins will rise. This will boost EPS more than enough make up for the 100 phones they don't sell to whiny customers expecting something more 5-ish because of leaked case designs. I'm reiterating my $45 EPS estimate for 2012 and think this stock should be bought on any weakness. I'm telling you, this phone is a sleeper. When it's gets in the hands of the people it will spread like contagion.

This is not a recommendation to buy or sell any securities. DAK was long AAPL at time of publication but positions can change at anytime.

Have you heard??

Don't know if you heard, but Apple (AAPL) announced the latest upgrade to it's iPhone today to overwhelming disappointment (at least according to the blogosphere). I mean people are pissed! Just search "Apple" on twitter! It looks like they'll maybe sell 10-11 iPhone 4S's if the comments are to be believed. If you don't believe in Apple (AAPL) you are more than justified. I mean how can one company keep winning, time after time, after time? They can't right? Everyone falls eventually. So I'll tell you what I'll do. If any of you have Apple (AAPL) stock you don't want, The Free Market Capitalist is taking donations, just send your stock certificates to the adress on. Look, all kidding aside, was it a disappointment? Yes, it was. But you can bet it will be the best selling disappointment of all time. Subsequently, after the announce, the stock was hammered 5% and dragged the whole market with it. After rallying back from the morning lows, the S&P 500 was just turning positive when Apple (AAPL) announced the iPhone 4S. In a matter of minutes, the whole market had reversed with Apple (AAPL) leading the way. Then call it "cooler heads prevailing" or some rumor out of Europe about bank solvency, but we turned around and turned around hard. The Dow ended up 153, the NASDAQ up 69, the S&P 500 up 25, and look at what we have here, Apple (AAPL) closed down a mere .56%! That's a bloody rally!

This is not a recommendation to buy or sell any securities. DAK was long AAPL at time of publication but positions can change at anytime.

Crushed

I told you yesterday I was setting up a "go for broke" scenario this morning and I covered all my shorts, got long some names, and held my Apple (AAPL). While I had predicted that the announcement today would take down the stock, I didn't listen to my own advice and remained heavily invested. What I underestimated was how much this market, nay, this world needed something magical out of Cupertino today. With China collapsing, Europe on it's way out and our government looking like a chicken with it's head cut off, all eyes were on Apple to show us something that we "had to have". Something that would inspire everyone to find a way to get $300 so they could acquire the "must have" phone. That is why when Apple (AAPL) disappointed the whole market began to sell off. I actually already bought some Apple (AAPL) off the news because I told you yesterday, this is an earnings story. They're still going to make $45 next year and at $356 per share, when you back out the $72 in cash per share they have right now, that's has them selling at a 6.3X next years earnings. For a company growing at 20% YOY, this multiple seems pretty low. The biggest danger in the short-term is if one of the 181 hedge funds that holds Apple (AAPL) decides to liquidate it could send the stock down another 20%. When big growth gets hit, it gets hit hard

This is not a recommendation to buy or sell any securities. DAK was long AAPL at time of publication but positions can change at anytime.

iPhone "5": What to expect

Today we finally find out what the mythical iPhone "5" is. A minor upgrade dubbed 4S? New body design? Let me run down what I think happens here today.

1. Apple gives us glowing numbers and updates on how many iPads have been sold in recent quarters.

2. Apple will announce 2 phones. The iPhone 5 and the iPhone 4S, the latter of which being a cheaper pre-paid version aimed at EM in Asia.

3. Apple shows off improved voice-control capability.

3. Apple announces partnership with Facebook and Zuckerberg comes out to demonstrate the much anticipated iPad App.

4. Apple defines it's 3-screen strategy taking Apple TV form hobby, to serious strategy. I don't think they announce actual television sets, but they should outline their 3-screen strategy going forward.

The biggest one in doubt is is the second prediction as there has been a report this morning from a source "close" to the project that only one model will be released, the 4S. This would be a huge disappointment in the short term so I wouldn't buy any stock here until we get some clarity. Would I sell what I have? I'm not, but do as you must.

Update: 2 for 5...huge miss! I'll do better next time ;)

Just a disclaimer....

Before we embark on the Apple (AAPL) overload that will be the next 48 hours, I thought I'd remind everyone of a very dangerous, very real possibility that will hammer Apple's (AAPL) stock price if it's true. It's been mainstream thinking for a while that tomorrow, Tim Cook, Apple's (AAPL) new CEO, will unveil two versions of the next iteration of the iPhone; the iPhone 5, and the cheaper, maybe even prepaid, iPhone 4S. But there is some chatter this morning that there will be no iPhone "5", but only the 4S. Even I have posted evidence that there will be no major upgrade but only a slight bump in speed and camera quality. In reality, the star of tomorrow will be iOS 5, not the hardware introduced (unless they really overhauled the design like some leaked cases from manufacturers have suggested), but that won't matter to the street, because if we don't get iPhone "5" the stock will get crushed. To be honest, I see no reason to buy Apple (AAPL) today because given this possibility, I see very little short-term upside for the stock. There's a good chance we get both phones and still sell off in a "buy the rumor, sell the news" situation. If I wrong and we miss a little upside it's not the worst thing in the world. After all, the moto on this blog is "perserve capital". I think the next leg up past the $420 level will come when 3rd quarter results are released next month and we see how much money they made, and how many people have lined up to buy the new iPhone. Right now Apple (AAPL) is down $1.65 in early trade....does the street know something we don't?

P.S. There's even a rumor Stevie will show up tomorrow but I don't buy it....here's praying *fingers crossed*

FoxConn Brazil Deal DOA?!?!?!??

Last week, contrary to a rumor from JPMorgan, I suggested that the 25%, Q4, iPad order "reductions" were just a result of FoxConn moving some of it's operations to Brazil. If this iPhone 4S part pictured above is legit, the report leaked late last week looks like JPMorgan taking it down so they could get in under 4...or maybe Apple (AAPL) has peaked? You decide.......

Mockups demonstrate Apple's anticipated iPhone 5 'Assistant' feature

This stuff is incredible....Next Tuesday people, next Tuesday.

Looking ahead to next week

Today's economic data wasn't all that bad, but China and Europe are driving the action. We'd be down a lot more but America is actually getting healthier, and our companies have strong fundamentals, unlike Europe. On the other hand, if you're company even knows where China is on the map, it's selling off today. Anything related to China is getting swept up in talk of what could be the hardest "hard landing" in history. Throw in an SEC investigation into the balance sheets of Chinese ADR's, most of which are traded on the Nasdaq, and you have a real problem. I forever the optimist don't think it will unfold like this, but it's not the time to be buying anything Chinese. Next week we get a slew of economic data, starting the week with the ISM Index, then construction spending, auto sales, truck sales, and factory orders. At the end of the week we get the big ones, Nonfarm payrolls and Unemployment. We'll see if the US data moves the market, or if it's still all about China and Europe. My guess is on the latter with one caveat, Apple (AAPL). If you read my blog you know next Tuesday, Tim Cook will release the much anticipated iPhone 5 and iPhone 4S. It's hard for me to say whether the market will like the phone or not until it's unveiled, but if Apple (AAPL) gives us a positive surprise or two, I think it can take the tech sector up along with it. ARM Holdings (ARMH) and Broadcom (BRCM), both of which are down close to 2% today, will be great ancillary plays off any good Apple (AAPL) news.

This is not a recommendation to buy or sell any securities. DAK was long AAPL, BRCM, and ARMH at time of publication but positions can change at anytime.

Stocks & Commodities Fall as German Parliamentary Vote Takes Front Stage

These late day fades are killing the bulls. You wonder how much longer they can take it before they just throw in the towel. We were dancing between gains and losses all day, opening up 100 points only to give it all back and then some by 3PM. Then, as usual, the fast selling started and took us another 100 points lower in the last 15 minutes of trading. I'll reiterate my view that you shouldn't be buying anything in this market except Apple (AAPL) and Alexion Pharma (ALXN). Overnight or early tomorrow morning there is a vote in the German Parliament to decide on Greece's bailout package. If it fails, you can bet we'll be taken down hard. Remember, when TARP was first introduced to Congress it was shot down, then the market plummeted and forced Congress' hand. TARP was finally passed, eventually saving us from a total collapse. You have to think, over in Europe they have a bunch of lefties in office who are anti-capitalist to begin with. You think they want to bailout the "fat-cat" bourgeoisie bankers that got them into this mess in the first place? Talk about moral hazard. They hate the bankers over there more than we do. Then, even it passes, it has to be the right plan. How did we react when the Fed didn't give us the stimulus we wanted last week? Down 700 in the blink of an eye. Gold and silver resumed their drop Wednesday but expect and bounce back up to the $1700 level if the vote fails. I'll be adding to my Proshares Ultrashort Silver ETF (ZLV) and Proshares Ultrashort Gold ETF (GLL) positions if we do bounce on a failed German vote, but if it passes, look out below.

This is not a recommendation to buy or sell any securities. DAK was long AAPL, GLL, ZLV, and ALXN at time of publication but positions can change at anytime.

Amazon's Kindle 'Fire' vs. Apple's iPad----Fight!

So this isn't going to be a "bash Amazon (AMZN)" post even though they seem to have their sites set on my favorite growth story, Apple (AAPL). First off, I mentioned earlier that I don't consider this competition for the iPad, but for Barnes and Noble's (BKS) Nook (which Wall St. seems to agree with since BKN is down 4.5%) so I'm not worried about it eating iPad market share. The Kindle 'Fire' actually looks pretty cool and it's hard to beat the price. I really like Amazon (AMZN) long-term and think they are where Walmart was 20 years ago. This is great company with rising margins and mo-mo like growth so they would be a nice add for any portfolio. Apple (AAPL) didn't really dip off the news and has remained flat all day, shifting between slight gains and losses. I think Apple (AAPL) needs to be bought hand over fist here since it's grossly undervalued, but there is one thing I'd like to point out. If the reports out of Asia are true and iPad demand is slowing, this will be reflected in the Q3 results slated to be reported next month. This could whack Apple (AAPL) even if they beat EPS estimates, but as I mentioned yesterday, I believe the 25% reduction in iPad orders out of China was actually just a shift in production to the new Brazilian plants opened by Foxconn. You know how these rumors start, some low-level managers at Hon Hai Precision (TPE:2317) and Foxconn (HKG:2038) (if you didn't know this already, stocks symbols in China are comprised of numbers, not letters) saw that orders were being yanked from their plants and extrapolated from that that Apple (AAPL) is reducing orders. These managers wouldn't be high up enough in the company to be privy to the fact that those orders were moved to Brazil. So what happens, JPMorgan bribes these guys for the info and voila, rumor started. I'm not saying this is exactly what happened but I disagree whole-heartedly with JPMorgan's report.

This is not a recommendation to buy or sell any securities. DAK was long AAPL at time of publication but positions can change at anytime.

Robots That Sing Disney Tunes, Really?

Solyndra. Oh, Solyndra. I'd love to relish in this disaster of a story but it's just so depressing. This type of backdoor bullshit is what's wrong with Washington, and "our savior" Saint Obama, who was supposed to be different, fell right in line with his predecessors. In summary, the government, in a push to be "green", backed a $535 million loan to Solyndra, a solar start-up. They would have just given the money directly to Solyndra but as you may know the country is broke so we cosigned on their loan instead. What happened? They went belly-up of course, and guess who's stuck with bill! I go into how the main culprits in this scandal are our President, his "people", and Goldman Sachs in this post which is a must-read. Jon Stewart also does a brilliant piece on the scandal. Now we've learned some new details about their $733M mega-factory. Bloomberg News reports:

It wasn’t just any factory. When it was completed at an estimated cost of $733 million, including proceeds from a $535 million U.S. loan guarantee, it covered 300,000 square feet, the equivalent of five football fields. It had robots that whistled Disney tunes, spa-like showers with liquid-crystal displays of the water temperature, and glass-walled conference rooms.

Europe still driving the car...

We've rallied off the lows of the year, again, on the idea of a German TARP-like plan that will save Greece from a classic default, and bring the entire Euro Zone back from disaster. If we had some sort of solution over there it would be huge positive for this market, but what about Operation Twist? Didn't we get a little more stimulus than we expected from the Fed? What happened after that? Down 700 points in two days. Maybe it doesn't happen this time, but until this market breaks out of the 1120-1220 range it's been trading in, I'm a very selective buyer. This may be your last chance to get in on the Apple (AAPL) train before the next big leg up. Amazon (AMZN) is debuting it's iPad competitor dubbed the "Kindle Fire" or some nonsense like that. I think the Kindle Fire is DOA like all the other "serious competitors" that have come and gone (I'm looking at you Xoom, Galaxy, and Playbook!), and if it brings Apple (AAPL) down today and/or tomorrow, I'll be adding to my position. I actually like Amazon (AMZN) a lot, but this tablet is NOT an iPad competitor. It may take share from the Nook. Gold is basically unchanged and silver is down a percent. I bought back some Proshares Ultrashort Gold ETF (GGL) a little cheaper than I sold it on Monday for, and I started a position in the Proshares Ultrashort Silver ETF (ZSL). I think both precious metals have 10%-15% downside form here. Yesterday's rally fading hard into the close is disconcerting, but right now it looks like today may be a non-event. With all the different investment vehicles I watch, I'm stressed to find one that's even moving by a percent either way. Europe is basically unchanged right now down about 30 points on the DAX.

This is not a recommendation to buy or sell any securities. DAK was long AAPL, GLL, and ZSL at time of publication but positions can change at anytime.

Cautiously Optimistic

It's amazing how quickly things go from the "end-of-the-world" to "Paradise Island" nowadays. This is one broad rally with all but 2 of the stocks I watch rising over 1%. Volume is pretty normal out of the gate, but will see how the day unfolds. As much as I'd love to jump into the names that are rebounding like Baidu (BIDU), Arcos Dorados (ARCO), and Wynn Resorts (WYNN), I think it's best to continue to be cautious here. We've been following the pattern of pricing in a "smooth" default in Greece before it actually happens, and then at any sign we were wrong we sell of, and we sell off violently, hence my caution. The lows of the year held again, the best contrarian investor out their, Doug Kass, has called a bottom, and investor sentiment is almost as bearish as the 09' bottom. These are all very positive signs, but any bad news out of Europe will take precedent over anything else. I'm still buying Apple (AAPL) and Alexion Pharma (ALXN) as I continue to believe these companies will buck any macro trends. In fact, I'd like to talk about the report form JPMorgan yesterday citing parts suppliers, that Apple (AAPL) cut iPad orders for Q4 by 25%. My sources are confirming something I suspected the minute the report dropped and mentioned twice twice yesterday. Not only is Apple diversifying it's supply chain in Asia, it is moving an unknown amount of production to Brazil. How much you want to bet that "unknown" amount is 25% ;) Even if we do continue this rally, we should take a breather the next couple days because we've come up so quickly. I'd lighten up on your aggressive longs and add to any solid shorts as I think tomorrow we could see a pullback. If you have any shorts not working out, like the Fossil (FOSL) puts I bought before the big rally yesterday, than don't sell them for a loss, wait for tomorrow to unload. If you don't have a short position in gold or silver, I like starting one right here. Both precious metals are rising hard today and I think they have a good 10%-15% downside form here. Put on half what you'd like to short today and wait to see what happens. We could see $1700 before $1500, but I expect $1700 to act as resistance if we do get there. The Euro is also rising today and I'll probably add to my shorts via the Proshares Ultrashort Euro ETF (EUO) by day end. Regardless of how the European debt crisis unfolds, I belive the Euro comes out the other end much cheaper than today. I'll be using days like this to add to my position and look to start covering around $1.28-$1.30. Don't forget you can always check the twitter feed to see my trades live.

This is not a recommendation to buy or sell any securities. DAK was long AAPL, ARCO, BIDU, ALXN and EUO, and short FOSL at time of publication but positions can change at anytime.

Two iPhone Models to be Released Oct. 4th

When I posted the above picture a few days ago, I speculated that Apple (AAPL) would not be releasing a major upgrade to it's next-gen handset and would instead release the iPhone 4S which would be a major blow to the stock. Apparently I was half right. Today the word is that Apple (AAPL) will release two versions of the iPhone on Oct. 4th, the redesigned iPhone 5, and, an updated iPhone 4 dubbed the "4S" that will serve as the companies low-end offering. 

This is not a recommendation to buy or sell any securities. DAK was long AAPL at time of publication but positions can change at anytime.

Chink in Apple's Armor?

This morning, in a rather off-putting note to investors, JP Morgan reported that Apple (AAPL) has cut orders for parts of it's iPad 2 by 25% for the 4Q, the first such cut JP Morgan has ever seen. This seems like a glaring blow to Apple (AAPL) which has been invincible up to this point. I do believe this report is disturbing but not because Apple (AAPL) is faltering. Apple (AAPL) is far from off its game as this latest report shows they are still gaining market share in a market they created and dominate. This report is much more telling of the global economic picture, specifically Europe, and continues to make me think I've underestimated the global slowdown. When a "recession proof" company like Apple (AAPL) has to cut it's orders, it's an ominous sign. Let me also stress that report has not been substantiated. Also, Apple (AAPL) could just be diversifying it's supply chain as numerous reports have stated the last few weeks. I'm betting on the latter.

This is not a recommendation to buy or sell any securities. DAK was long AAPL at time of publication but positions can change at anytime.