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Dos Hombres: Weak Macro Data and an Aged Microsoft

Fin - Breakout - US

Welcome to Dos Hombres: Two guys, two takes, two minutes... go!

Matt Nesto kicked things off by taking a look at the market's macro field position -- specifically, the tape's reaction to the ever weakening macro data. Nesto's one-minute screed was inspired by Goldman Sach's (GS) downgrade of next year's S&P 500 earnings forecast from $106 to $104. Goldman also lowered its year-end target for the S&P by 50 points to 1,450, encouraged a move to consumer staples and health care and frowned on info tech and consumer discretionary.

While Goldman's viewpoints are the same as those Nesto and others have been espousing on Breakout for weeks, the bearish brute is neither hailing nor burying the banking Ceasar (all-powerful dictators about to be killed by their Senate). Nesto is merely noting that Goldman's call is yet another blow to those who would be buying the now three-and-a-half-week old lazy sell-off. The S&P500 is making lower highs and lower lows, which is the very definition of a downtrend, as opposed to a dip.

Nesto is 6'3" and has hands the size of toaster ovens; I'd put him at even money in a cage match with a small bear. But he'd get his face ripped off if he fought a trend and he knows it. "This is Wall St, not Fight Club," he concludes. Around here you don't have to fight anything.

I used my minute by taking a poke at David Einhorn and Microsoft (MSFT). At a conference yesterday the über successful Einhorn compared Microsoft CEO Steve Ballmer to Charlie Brown and said Ballmer's "continued presence is the biggest overhang to Microsoft's stock."

I'm openly covetous of Einhorn's checking account and hair, but he's wrong about Mister Softie. Steve Ballmer isn't Microsoft's problem. Mr. Softie is simply running up against the laws of large numbers and nature. There's nothing MSFT can do to move the needle meaningfully on revenues or margins, or to revive the long-dead stock. The company has accomplished amazing things but its days as a growth company or scrappy start-up are gone. And they won't be coming back.

Ballmer has tried big-ticket purchases, innovation and an absolutely enormous one-time dividend. Alas, Skype, Xbox and a $5 a share pay-out did nothing for shareholders, and that's unlikely to change. Microsoft is enormous, outrageously successful and old. Asking them to do something other than manage a global operating system monopoly is like asking your great grandpa to whip the Huns once more for old time's sake.

Einhorn would be better off bringing "noted" investor and former Met Lenny Dykstra out of retirement than agitating Microsoft. At least in baseball there's "always next year."

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