Financial Almanac

This is the Financial Almanac for Thursday, February 10, 2011.

5-Minute Podcast Episode
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On this day in 1954, President Dwight Eisenhower warned against American military involvement in Vietnam to aid the French. Much of his concern came from a report prepared by Army Chief of Staff Matthew Ridgway, which outlined the enormous commitment that would be required to succeed because he believed air power and nuclear bombs would not eliminate the need for ground forces. Later, Eisenhower would famously caution against the influence of the “military-industrial complex,” but he less famously worried about America’s weakening finances as well.

In January 1961, he said, “As we peer into society’s future, we — you and I, and our government — must avoid the impulse to live only for today, plundering for, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without asking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.” When Eisenhower began his first term as President in 1953, America’s national debt was about $260B. Today, after the Vietnam War, entitlement spending, the Iraq wars, and the Afghanistan War, it’s well over $14T — and Eisenhower’s wise words have never seemed more appropriate nor, sad to say, more widely ignored.

On this day in 1996, IBM’s “Deep Blue” supercomputer defeated chess grandmaster Garry Kasparov in one game, though Kasparov won the match 4-2. It was the first time a computer program beat a world champion in a game under tournament regulations. The following year, Deep Blue won an entire match against Kasparov who then accused IBM of cheating and demanded a rematch, but the company refused.

At about that time, IBM stock embarked on a run from a split-adjusted price in the $20s to $130 in 1999. The bursting of the dot com bubble took the stock down to $60 in summer 2002, but it has since recovered to new all-time highs above $160. IBM was founded by Herman Hollerith in Endicott, New York in 1896 as the Tabulating Machine Company. Thomas J. Watson took it over in 1924 and changed its name to International Business Machines, hence IBM. The company’s breadth of information technology products is unrivaled, making it a one-stop shop that’s done a good job capturing the potential of cloud computing. With almost 400,000 employees in over 200 countries, IBM is one of the largest companies in the world.

Donald Luskin’s “Ahead of the Curve” column published three years ago in SmartMoney was headlined, “Futures Contracts Point to Obama Presidency.” He wrote that “at first stocks were frightened by the rising prospect that the Democratic nominee might be Barack Obama” but they later changed their minds to “prefer Obama to be the nominee instead of Hillary Clinton.” The data Luskin examined proved quite prescient. Obama not only won the nomination but also the presidency, and assumed office on January 20, 2009.

Today’s trading idea is Vimicro International, symbol VIMC, one of China’s premier semiconductor companies. It specializes in surveillance camera chips, so with China ramping up spending on surveillance projects in coming years, Vimicro’s core business looks to be a solid growth engine. The firm is also making a name for itself in the mobile phone multimedia chip industry, with a grasp on China’s fast-growing handset market. The stock is trading near its 52-week low of $3, down from more than $5 last May. A recovery gain of at least 50 percent looks likely.

From Sano, Japan, I’m Jason Kelly saying observe the world, find what makes it better, and profit from your discoveries.

Have a great day!
Jason Kelly

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