Monthly Archives: August 2011

It’s Time to Buy in Hong Kong

August 31, 2011
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It’s Time to Buy in Hong Kong

After a brutal correction in both prices and valuations it is time to get long(er) China geared Hong Kong listed equities. I believe the timing is right because the single largest risk factor, inflationary pressure, is in the process of peaking, and is likely to abate moving forward. China growth persists at a 9% clip and I believe this growth rate is likely to slow gradually. Through a combination of currency appreciation, higher real interest rates, and credit constraints (the growth rate of credit) China will start the gradual process of focusing on domestic demand. Valuation is on the side of real investors as the H-Shares (HSCEI index) are at ex-crisis lows and sub 10x forward earnings. This is a 30%-40% valuation discount to what is “average” over the...

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Redbook Chain Store Sales Remain Strong – Don’t Indicate Slowdown

August 30, 2011
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Redbook Chain Store Sales Remain Strong – Don’t Indicate Slowdown

There has been considerable airplay relating to the “near recessionary” levels of many economic indicators in August. Readings for consumer confidence, economic optimism, and Fed Surveys from Philadelphia, New York, and Richmond have all contracted. These items have led many economists and forecasters to predict a sharp downturn in ISM (released Thursday), and have led to reductions in GDP estimates for the full year. I don’t believe it is being Pollyannaish to want to see some of the severe weakness in actual measured data (as opposed to weakness in survey data). The two series I am keying on to see signals of a “roll-over” in the economy are initial unemployment claims and higher frequency retail sales (from Redbook and ICSC –yes which are surveys – and from companies which...

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Greek Stock Market Surges on M&A

August 29, 2011
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Greek Stock Market Surges on M&A

The Greek stock market is having a melt-up this morning, with the largest gains in 20-years. The index as a whole is up 14%, which isn’t bad for those who managed to get long Greek equities on Friday. And for more adventurous and daring sorts, the Cypriot stock market is up 18.5% this morning; Cyprus is leveraged to Greece. The rally comes based on two of Greece’s largest banks (the 2nd and 3rd largest) agreeing to merge to bolster assets. EFG Eurobank Ergasias and Alpha Bank have commenced merger discussions and have been halted from trading. Cypriot banks rallied 20%+. The largest bank in Greece is National Bank of Greece – in case you were wondering (up 30% today). This is swell and all and I already sense what the cynics...

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Mother Nature vs NYC: Winner by KO – NYC

August 28, 2011
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Mother Nature vs NYC: Winner by KO – NYC

Shortly after 10:00am, everything started to clear up in NYC. I went for another run, like I did yesterday right before the storm hit. It looks like there will be virtually no major damage save for areas very close to NY Harbor downtown. I would be shocked if the New York Stock Exchange doesn’t open “business as usual” on Monday morning. “Wall Street Professionals” can be called many things – but they certainly aren’t lazy and generally rise to the occasion against adversity. The storm wasn’t nearly as bad as some of the more dire damage forecasts. I ran the entire downtown loop and was surprised to see no broken windows anywhere. With as many limitations as humanity has, apparently we can construct windows that withstand rain and heavy...

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Come on Irene – I Swear, Well He Means, At This Moment You Mean Everything

August 27, 2011
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Come on Irene – I Swear, Well He Means, At This Moment You Mean Everything

Ok – I know these lyrics are for “Eileen” and not “Irene” but the names sound similar and many confuse the name of the one hit wonder from Dexy’s Midnight Runners anyhow. This morning I woke up in downtown Manhattan and things were very much normal, the calm before the storm i suppose. From an economics and markets standpoint – i expect this all to end up being non-news news. I’m hanging out downtown, completely unworried, with a powerful reading flashlight handy. One implication of the storm will be a huge boost to August broad-line and supermarket retail sales. Public retailers such as Wal-Mart, Target, Costco, Whole Foods, Home Depot, Lowe’s and more, are going to see a significant boost to retail sales. This will make the data points...

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Ben Bernanke’s Jackson Hole Speech: A Step In The Right Direction

August 26, 2011
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Ben Bernanke’s Jackson Hole Speech: A Step In The Right Direction

I just read Ben Bernanke’s speech at Jackson Hole, and think it is one of the better speeches he has done in some time. I read some acknowledgement that there is little more the Fed can actually do to improve the US economy. This is of course true. Bernanke realizes he can only create an environment that fosters a recovery and that’s about it. A quote jumps to mind: “The Business of America is Business” This is one of my favorite quotes from President Calvin Coolidge. There is no solution which can come from either the Fed or Washington, the US economy needs to simply get going again the way it always has, through productive business investment, industrial production, research & design, innovation, and putting an American workforce back...

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Bernanke’s Jackson Hole Speech: Market Could Close at 1,100 or 1,200 Today

August 26, 2011
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Bernanke’s Jackson Hole Speech: Market Could Close at 1,100 or 1,200 Today

The market remains destabilized which is quantified by the VIX index stubbornly remaining in the 40 vicinity. As long as the VIX remains in the 30-40 range investor should expect to see 2-3% moves both up and down in the market from these levels. I believe that the propensity for violent up moves is as probable as sharp selloffs because we are close to levels in the market where a recession is being priced in with a 50% probability. Today, with commentary coming from Ben Bernanke out of Jackson Hole, and a wide array of expectations on what he will indicate from a monetary policy standpoint I see decent odds that the S&P 500 closes at either 1,100 or 1,200 today. That is how destabilized and volatile markets have...

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Guess (GES) – Q2 Results Fine, Exceptional Opportunity

August 25, 2011
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Guess (GES) – Q2 Results Fine, Exceptional Opportunity

Guess – Q2 Earnings  8/25/11 Guess (GES) reported Q2 earnings last night after the close with results at the higher-end of the company plan coming into the quarter. The knee jerk reaction in the after-hours was a selloff in the shares. Guess is one of the consumer sector’s best positioned companies and any weakness in the shares can be bought. In other words, my “Focus List” buy recommendation at $37, is well, even a better buy here and now. Analysts often get things wrong and simply claim that timing was off etc…..I’ll go out on a limb and state that the analysis per Guess posted on 8/1/11 remains valid and investors with time horizon and perspective are presented with an opportunity. Here is s link to the Q2 conference...

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Ohayou Gozaimasu! Moody’s Downgrades Japan

August 24, 2011
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Japan_model

Moody’s came out today and downgraded Japan’s Sovereign Credit Rating from Aa2 to Aa3 based on the size of its deficit and large buildup of government debt. As a result of this downgrade, a number of Japanese banks and insurance companies will be downgraded by Moody’s as well. This news will make much less of a splash than the US Sovereign Credit rating cut from S&P earlier this month because Moody’s is the third of the three credit rating agencies to downgrade Japan. Moreover, the markets are largely unconcerned with this downgrade as the JGB market still has the lowest yields in the world at 1.01% for 10-YR borrowing rates. Really what the market is saying, is that despite Japan’s large accumulation of debt, there is no visibility for...

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Google (GOOG) – A Focused Internet Giant

August 23, 2011
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Google (GOOG) – A Focused Internet Giant

Google (GOOG) was highlighted in a post we did after the announcement to acquire Motorola on 8/15/11. In actuality, Google has the opportunity to produce 20-30% stock price returns for a number of years as investors today are buying into the stock at the ex-financial crisis low valuation. We break down Google into the following 5 drivers: 1) Google Search – own the business that redefined the internet 2) Google Display Networks – the emerging beast 3) Mobile Dominance – Android many moves ahead on the chess board 4) International Growth – under-appreciated gem 5) Social and Relevance of Google+ – other irons in the fire As opposed to more formulaic Wall Street thesis, we’ll present the Google investment thematic and keep things big picture. Towards the end of...

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Chicago Fed Index – a “Not in Recession” data point

August 22, 2011
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Chicago Fed Index – a “Not in Recession” data point

This morning, the Chicago Fed National Activity Index came out “better than expected” for the month of July. This measure is released with a bit of a lag and is one of the last July data points to be released. The measure is comprehensive and incorporates national activity relating to inflation, employment, consumption, and housing. So while it may not reflect the sharp selloff in the market (market dropped in August), it does provide additional evidence that the economy remained stable up to the point of this recently heightened uncertainty. This is good news, because a couple of weeks of uncertainty aren’t enough to tip the US economy into a recession. In October 1987, the market crashed and pulled back 24% in a day, and there was no recession in 1987....

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Here’s how it’s different this time

August 19, 2011
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Here’s how it’s different this time

How is 2011 different than 2008? As the financial press quotes “investment professionals” each and every morning on the front page of the WSJ or the TOP bloomberg story with mention of how dire the market and economic situation is, and how there are many similarities to the feel of 2008 – I thought it was a good time to highlight how things are actually different: 2008 vs 2011: 1)  In 2008, the housing market imploded, which was a seminal event in terms of US household wealth destruction. House prices ran unabated (up) for three decades and were proclaimed to “never go down”. The value of the national housing stock is down 33% from the peak. The wealth destruction from leveraged ownership to housing has and is impacting consumer...

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