Top 3%

Disclosure: This investment note was sent to my followers last week.

What a market! I'm not sure whether to reference a bloody scene from Rocky or the scene in the first Alien movie when the acid-blood burns its way through several levels of the ship before finally sizzling to a stop. Drawing from both, the market is a bloody mess and seems intent to go lower no matter what gets in its way (and good news has been in short supply).

On the macro front - we are seeing the predicted demise of the dollar and the sagging of the American economy as a whole. I have cautioned on American stocks for at least a year now and see only further gloom for at least another 6-12 months with the exception of an odd bear-market rally here and there. The reasons would take pages to adequately explain but I think a view of the Fed is the best perspective.

- With inflation ratcheting up higher and higher (look to shadowstats.com for "real" numbers) they really *ought* to raise rates but can't because...

- With a sagging economy they would drive stocks further down with a rate raise.

- Thanks to the credit crisis they are handing money from their press out the "discount window" to the ailing banks. Money supply is being expanded which is inflationary when you have zero or negative growth. Europe has raised rates which will further pressure the dollar downward.

- Internationally, America is hopelessly dependent on creditor nations for *daily* loans in the hundreds of millions of dollars (I have read three billion / day). These countries are getting a little tired of seeing their Dollar holdings become worth less and less. I read an interesting quote the other day about how some Chinese have come to view the dollar as a "broken promise." In many ways it is. America is still a great nation with a giant economy but if the blood of the economy, the greenback, turns more poisonous, there will be, for lack of a better term, greater suffering. I motion towards my giant SLV holding.

Let's get back to AMD. The company is tanking further today thanks in part to its main graphics competitor NVIDIA (NVDA) taking a 30% (!!!!!!) loss due to lowered earnings and some really disturbing material problems that have resulted in failed equipment (they don't know how many products this faulty material ended up in). They also noted they have had to lower prices to keep up with "competition" - AMD.

The price reduction is largely due to AMD's recently-released graphics cards which have been roundly praised for their price/performance. AMD looks set to gain some serious market share from NVDA. Keep in mind that NVDA's market cap is 2x AMDs (even though AMD makes a much wider range of products) so small gains translate to magnified advances in share price.

On the CPU front, AMD has, at the least, stopped making an ass of itself. Their chips still lag behind Intel's from a technological perspective but the gap has closed significantly of late (quad cores finally in market, getting closer to 45nm fabrication). I expect their market share to stabilize and possibly improve through the next couple quarters.

Now let's reconcile the lagging US economy with my AMD buy. AMD is an international company. Something like 75% of their revenue comes from overseas. They make more affordable products than Intel and NVIDIA which bodes well for emerging markets. I feel that they are oversold due to general market conditions and specific company bias. AMD has certainly erred but don't fall victim to the "bad company" sentiment. There is a little bit of magic that goes into designing the world's most complex objects and all major companies in the field have occasionally found their jar of pixie dust to be empty. This is a great entry point for AMD.

Addendum: While I don't mind being a pessimistic investor, I am shy of saying the sky is falling. That being written, expect the unexpected. If things really start to go wobbly internationally value plays like AMD will suffer with the pack. Stay informed.