Macro Tsimmis

intelligently hedged investment

Archive for May, 2009

Activision Blizzard (ATVI) update #5—strong lineup of future releases

Posted by intelledgement on Wed, 27 May 09

Activision Blizzard (ATVI), our game publisher company, published their lineup of forthcoming releases to be showcased at the 2009 Electronic Entertainment Expo (E3 Expo) taking place at the LA Convention Center 2-4 June 2009 today, and it’s pretty impressive:

  • PROTOTYPE puts the player into the shoes of Alex Mercer, a genetically mutated man without memory, armed with shape-shifting abilities, with the objective of discovering your purpose in life (and most likely rejecting it and punishing your creators for their presumption), for Xbox 360, PLAYSTATION 3, and Windows. Release date 2 Jun 09 (at E3).
  • Transformers™: Revenge of the Fallen is a licensed product based on the Dreamworks (DWA)-produced film—sequel to the 2007 film—based on the Hasbro (HAS) line of toys for the Xbox 360, PLAYSTATION 3, Wii, PlayStation 2, PlayStation Portable, Nintendo DS, and Windows. Release date 23 Jun 09.
  • Singularity is a new first-person shooter game set in a time travel scenario for Xbox 360, PLAYSTATION 3, and Windows. Release date 29 Jun 09.
  • Wolfenstein™ is the latest in a long line of sequels to the hoary 1981 Muse Software first-person shooter game, Castle Wolfenstein, for Xbox 360, PLAYSTATION 3, and Windows. Release date 4 Aug 09.
  • Modern Warfare 2, sequel to Call of Duty® 4: Modern Warfare™,  for Xbox 360, PLAYSTATION 3, and Windows. Release date 10 Nov 09.
  • Blur—a new car-racing game which can be played by up to four players on a console or up to 20 players online, for Xbox 360®, PLAYSTATION® 3, and Windows®. Release date not specified.
  • DJ Hero—the player controls a fully-rotating turntable, sample buttons, effects dial and cross fader, for Xbox 360, PLAYSTATION 3, PlayStation 2, and Wii™. Release date not specified.
  • Guitar Hero 5 features 85 of current bands plus several classic acts including The Rolling Stones, Santana, Tom Petty, Johnny Cash, and Bob Dylan, for Xbox 360, PLAYSTATION 3, Wii, and PlayStation 2 system.Release date not specified.
  • Tony Hawk: RIDE comes with a wireless skateboard controller and utilizes full motion sensing technology to enable the  player to control the action by performing various movements and gestures on the board that directly translate into skateboard maneuvers that are displayed onscreen, for Xbox 360, PLAYSTATION 3, and Wii. Release date not specified.
  • Ultimate Alliance 2 incorporates elements of the Marvel “Civil War” storyline, enabling players to choose their side and team up with such heroes and villains as Spider-Man, Wolverine, Hulk, Iron Man, Deadpool, Venom, Green Goblin and Captain America, for Xbox 360, PLAYSTATION 3, Wii, PlayStation 2, PlayStation Portable, and Nintendo DS™.Release date not specified.

Evidently, the lack of a mention of Starcraft II ensures it will not be released in 2009. Announced in 2007 and expected in 2008, the sequel to Blizzard’s 1994 real-time strategy game—which is still actively played online—will presumably require a large beta test before it is ready to be released, and there is no word on when that might start, either.

There is some WoW news from China, however. In the wake of Blizzard’s decision not to renew their WoW contract with The9 (NCTY} and instead strike a deal with Netease.com (NTES) last month, The9 have now filed suit in China against Activision Blizzard for property loss compensation and commercial defamation. Earlier this month, rumors surfaced that The9 are preparing a W0W clone game for release. Reportedly, The9 had agreed to cooperate with Netease.com to effect a smooth transition of the 1 million-plus Chinese WoW players from the former’s servers to the latter’s—The9’s license to run WoW games expires in June—but it is not clear how these latest developments may affect that situation. In the meantime, some Chinese WoW players, frustrated at the continued long delay in the deployment of the “Wrath of the Lich King” WoW upgrade module, have reportedly “defected” to Taiwanese WoW servers, where the upgrade has long since been installed. This is a real soap opera; stay tuned.

Previous ATVI-related posts:

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BUY ProShares Short QQQ (PSQ), Short Dow30 (DOG), & Short S&P 500 (SH)

Posted by intelledgement on Thu, 21 May 09

We’re back short as of the close today.

When we hit the eject button on the short positions in March, we expected to be back here sooner or later. We believe that the optimism the market has reflected in the 37% surge in the S&P 500 index between 9 March and 8 May has been sadly misplaced. The collapse of the residential real estate bubble is still ongoing, with concomitant credit card debt defaults, decreases in consumer spending, a continuing rise in unemployment, and coming soon will be a spate of commercial real estate defaults.

Furthermore, the new US government has disappointingly extended the policies of the previous administration to attempt to prop up the zombie banks and keep the easy credit spigots open. While these policies have been successful in staving off “systemic risk” defaults, they will only postpone the day of reckoning and, by throwing increasingly less good money after bad, are debilitating the already-weak dollar as well.

We are going with the Proshares Short QQQ (PSQ) ETF, whose managers “seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the NASDAQ-100 Index,” their Short DOW 30 (DOG) ETF, aimed at achieving “daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Dow Jones Industrial Average Index,” and their Short S&P 500 (SH) ETF, which seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the S&P500® Index.”

One strategy note: we seek to invest congruent with long-term, macro trends which, typically, should result in relatively rare adjustments to the portfolio lineup. Obviously that has not been the case in the last nine months or so, during which time we have switched from long to neutral to short to neutral to long (for five days earlier this month) to neutral to short! This unusually frenetic maneuvering is a function of off-the-scale levels of volatility, as outlined in this recent Motley Fool article. The specter of systemic risk has made it extraordinarily hard to assign valuations, and in the fog of this uncertainty, when you have the market moving as much in two or three days as it “normally” does in a year, more frequent adjustments are appropriate.

For example, while it would have been rational to ignore the rally that started in March and stay short—because eventually when reality reasserted itself, the market would come back down to us—by divesting ourselves of the short positions, we afforded ourselves an opportunity to reacquire them here, at a 25% discount. That is too big an opportunity to ignore.

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SELL MSCI Brazil Index (EWZ) & Global Energy Sector Index Fund (IXC)

Posted by intelledgement on Wed, 13 May 09

OK, the danger of irrational exuberance appears to have abated here, so we are cashing in our updraft insurance. The reality is that we are in far worse shape than justifies a +35% move in the market. We are back to neutral here and eying the short ETFs closely.

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Activision Blizzard (ATVI) update #4—1Q09 results surprize to upside

Posted by intelledgement on Thu, 07 May 09

Our game publishing company, Activision Blizzard (ATVI), today announced 1Q09 results that materially exceeded expectations. The company reported $981 million of revenues, as compared to guidance of $860 million and a profit of 14¢/share, as compared to guidance of 8¢. (Management had announced last month that 1Q09 results were tracking ahead of their prior guidance by had not provided any revisions to their guidance at that time.)

CEO Robert Kotick stated, “Our better-than-expected first quarter results were driven by strong global consumer response to the Call of Duty and Guitar Hero franchises and Blizzard Entertainment’s World of Warcraft, despite challenging economic times.” The company now expects 2Q09 revenues of $1B and profits of 10¢/share, powered by a spate of new product releases including three games inspired by theatrical motion pictures, X-Men Origins (which was released last week), Transformers™: Revenge of the Fallen and Ice Age™: Dawn of the Dinosaurs, as well as a new third-person action game Prototype™, Guitar Hero: Smash Hits™, a compilation of the most popular songs from previous Guitar Hero games that will now be playable as a full band experience and Guitar Hero On Tour: Modern Hits™ for the Nintendo DS. And they raised guidance for the full year from $4.2B of revenues to $4.3B and profits from 22¢/share to 24¢.

Highlights of the first quarter included:

  • Guitar Hero World Tour was the #1 best-selling third-party title in the U.S. across all platforms in dollars
  • In the U.S. and Europe, Guitar Hero World Tour was the #1 best-selling third-party title in dollars for the Nintendo Wii and the only third-party game to rank as a top-five best seller for the platform
  • Blizzard Entertainment’s World of Warcraft: Wrath of the Lich King remained the #1 PC game in dollars in the U.S.
  • Activision Blizzard had three of the top-10 best-selling PC titles in dollars in the U.S.
  • 1Q09 European sales for the Guitar Hero franchise grew 84% year over year
  • As of 10 April, Activision Publishing’s Crash Bandicoot Nitro Kart was the #1 paid app for the iPhone of all time
  • On February 24, 2009, Activision Publishing announced an agreement with Corus Entertainment Inc.’s Nelvana Enterprises to develop and distribute video games based on the breakout hit toy and wildly popular action animated television series Bakugan
  • On April 16, 2009, Blizzard Entertainment announced that its World of Warcraft (WoW) will be licensed to an affiliated company of NetEase.com, Inc. (NTES) in mainland China for a term of three years following the expiration of the current license agreement with The9 (NCTY).

Speaking of China, that remains one revenue wildcard for 2009. Over 10% of WoW players are in China, and the transition path for them from The9 servers to Netease.com servers is still unclear. (That is, will players be able to keep their characters—and in some cases months and years of invested gameplay—intact? Or will they have to start over from scratch?) Not to mention the prognosis for the “Wrath of the Lich King” WoW upgrade, the release of which in China has been long delayed, reportedly due to government review/approval issues (although some have speculated that The9 engineered the delays as a negotiating tactic). The The9 license expires in June and if Netease.com is not up-and-running by then—or there are issues migrating The9 players to the Netease.com servers—it would have an impact on revenues. Stay tuned.

Previous ATVI-related posts:

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BUY iShares S&P Global Energy Sector Index Fund (IXC—again)

Posted by intelledgement on Thu, 07 May 09

In a world where rising energy demand outstrips supply, the macros dictate being long energy, as we said back at the inception of this portfolio. Tactically, we dropped the position when we entered the storm shelter last year. We are reinstituting our position here not because we think the storm has passed, but because while in the eye of the hurricane here, the market is making a serious move northwards and—just in case we are wrong about this recovery having legs—we are protecting ourselves against that risk.

We are still in a downward trend, and there are still shoes overhead but for now, the sun is peaking through so it’s time to make hay. The stress test results whitewashing the banks seem zany to us, but the market is seeing everything through rose-colored glasses just now. We could be seeing a replay of 1933-37 when, starting within a few months of the inauguration of the new administration, the market rallied furiously, even though the depression was far from over. If the speeded up 21st century depression-related market collapse lasted 21 months as opposed to four years (1929-1933), then this false dawn, which lasted four years back in the thirties could persist for up to two years here. We doubt it, but the risk is significant enough to be positioned appropriately.

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Golden Star Resources (GSS) update #11

Posted by intelledgement on Wed, 06 May 09

Our gold mining spec play, Golden Star Resources (GSS), released 1Q09 results today and although the bottom line was more red ink—the ninth consecutive losing quarter—things are definitely looking up. The company lost $1.1 million (half-a-cent per share) on record sales of 96,971 ounces of gold, at an average price of $904/oz. It was the narrowest loss the company has had since the progression of consecutive red-ink quarters began 1Q07. The record production amounted to a 69% year-over-year improvement, and was up 13% from 4Q08. Even better, production costs were $571/oz, which was the second lowest quarterly cost performance since commercial-scale BIOX® processing began at the Bogoso mine in early 2007, and a healthy improvement over last quarter (-10%) and a year ago (-12%). The 1Q09 decrease in production costs was also the second consecutive…one more data point and we will have us a bona fide trendline!

It still ain’t all roses. Bogoso continues to lag expectations. Production this quarter was lower than projected, principally due to a two-week hiatus “due to electrical issues including an electrical fire in the liquid resistance starter and continuing poor quality power from the VRA,” according to the press release (click here and on “Golden Star Reports Record Quarterly Gold Sales of 96,971 Ounces”). And costs are still high, running $813/oz for the quarter, which was not even an improvement over last quarter’s $799. (Fortunately, costs at Wassa came in quite low at $397/oz.) Management expect the Genser power plant being constructed cooperatively by several mining companies to come online during 2Q09, which should improve the power reliability problems.

Still, it is hard to see how the company will meet their target cash cost of $650/oz for all of 2009 at Bogoso. FWIW, management are still projecting production of 400,000 ounces for the year. Be that as it may, the prospects of increased production at a profitable cost has the stock up 46% YTD as of today’s close, and with these improved 1Q09 results (announced after the market closed), tomorrow should see further gains. For now, we are staying on this train; it’s running way late and the amenities are considerably poorer than advertised, but at least it is now headed in the right direction, and appears to be picking up steam.

Previous GSS-related posts:

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BUY MSCI Brazil Index (EWZ—again)

Posted by intelledgement on Wed, 06 May 09

The strategic rationale for being long Brasil has not changed since 2006 (when we first initiated that position). Tactically, we dropped the position when we entered the storm shelter last year. We are reinstituting our position here not because we think the storm has passed, but because while in the eye of the hurricane here, the market is making a serious move northwards and—just in case we are wrong about this recovery having legs—we are protecting ourselves against that risk.

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