Blog Archives

On Brexit

June 28, 2016
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On Brexit

What a tumultuous 5 days. The lurching feeling is all the more acute after a period of one-way markets (up) and declining volatility. With polls shifting towards “Remain” last week, the prospect of all-time highs in the S&P 500 held an aura of inevitability. The unexpected Brexit vote, by a solid 4 point margin, tanked stocks for two consecutive sessions, eliminated Fed rate hike expectations for 2016, and catapulted gold. Monday’s continuation of trend points to Brexit being something larger than a one-off event catching market participants all on one side of a trade. The shock to the construct of the EU will impact financial markets through the end of the current cycle, which is already in late stages (7-years old). Perhaps, Brexit will be a tipping point, or...

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Valuing the Yellen Put

April 7, 2016
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Valuing the Yellen Put

The Yellen Put, follows a line of Federal Reserve inspired put options, valuable to market participants of specific Fed Chair eras. The rationale behind the Fed Chair put is simple; with the Federal Reserve so vigilant to support any downtick in the economy and/or markets with interest rate cuts (Greenspan), quantitative easing (Bernanke), and ZIRF (Zero Interest Rates Forever – Yellen) investors receive downside protection from the Fed. Actually paying for downside protection vis-a-vis real put options takes on a ludicrous feel; markets don’t go down much, and if they do, they never stay down. Duh. That markets are increasingly policy driven is a reality of the current investment/economic cycle. 2016 investors are learning (through force) just how valuable the Yellen Put is. Janet Yellen is the most dovish...

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Wall Street vs. Main Street Investment Attributes

February 29, 2016
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Wall Street vs. Main Street Investment Attributes

Market leadership is constantly changing as sub-sectors come in and out of favor and particular investment attributes ebb and flow in popularity. One new theme in 2016 is the resurgence of “Main Street” type investments and overall investment exposures relative to “Wall Street” investment exposures. More simply put, mass market exposures are outperforming higher-end, upper income/luxury exposures. Within the consumer space noteworthy moves and investment shifts are underway as some of 2015’s high fliers are dramatically tumbling back down to earth. A stark example is Restoration Hardware. The stock is cut in half since the start of the year and down some 60 points, to $40, from prices above $100 just last fall. The culprit for RH is a dramatic sales and earnings miss in a promotional environment for furniture....

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China Slowdown Will Plague Markets For Years

January 31, 2016
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China Slowdown Will Plague Markets For Years

What a start to the year. CJF’s contrarian prediction of 1,860 on the S&P came to be on January 20th. Subsequently, the market rallied strongly on the hint of more quantitative easing out of the ECB, and the adoption of negative interest rates by the Bank of Japan. Any doubts that 2016 will be a volatile, and difficult year, should now be erased. After a tumultuous January for investing, a period when seasonality and investment inflows are supposed to support markets, CJF is stepping back to assess big picture dynamics for the global economy and the overall investment environment. At risk of being overly obvious: Something is not quite right with the global economy In the seventh year of recovery since the financial crisis, Brazil is in recession, Russia...

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2016

January 7, 2016
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2016

“I would say happy new year but it’s not happy; it’s exactly the same as last year except colder.” -Robert Clark I find the quote fitting for financial markets, and CJF prognostications, after a very tough 2015, and an inauspicious start to 2016, with a week-one tailspin around the globe. The setup for 2016 isn’t pretty, and investors should brace for a potential sharp pullback in markets, and heightened volatility through the year. Decisive 2016 themes: 1) valuation (high) 2) deflation (pressures global earnings) 3) liquidity (tug-a-war between Fed and “other”) The S&P 500 valuation swelled from 12x forward earnings in 2011, to 17x in 2015. While the market multiple is now somewhat off its high, it remains in the 16x vicinity. High valuation raises the bar for economic/earnings...

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Nike Business On Fire; China Accelerates

December 23, 2015
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Nike Business On Fire; China Accelerates

Nike (NKE) is in the midst of a strong 3-year run; operating trends are at cycle-high growth rates, health & wellness as a category is growing around the world, and Nike’s brand stewardship is incredibly on point across all major sports. The stock price followed results this year, up over 37% ytd, and the 35th best performer in the S&P 500. Nike’s earnings are expected to grow 16%, so part of the strong return has been valuation re-rating. Nike’s forward P/E multiple reached the 30s, uncharted waters for the firm relative to its history. Keys to the successful Nike business model:   The outsourcing of manufacturing to China enables a capital light business model, allowing Nike to focus on the truly value added aspects of design, innovation, and branding. Nike...

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The Fed Awakens; Creates Negative Global Market Backdrop

December 21, 2015
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The Fed Awakens; Creates Negative Global Market Backdrop

At the widely anticipated December 16th Fed meeting, the Board of Governors did the expected, and finally raised the US federal funds rate by 25 basis points. The rate-hike failed to surprise markets; the move was telegraphed and written about in advance by Jon Hilsenrath in an article on the front page of the Wall Street Journal, Wednesday morning, before the actual hike. So why did markets soar in anticipation of the hike, soar some more after the hike, and subsequently mini-crash on Thursday and Friday? No good answer on market action from CJF, but the volatility, exaggerated moves, and declining breadth, are all bearish indicators going forward. CJF takes a contrarian view to the initial goldilocks interpretation of the Fed hike; the Fed action is hawkish, creating a major obstacle...

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Policy Driven Markets are Treacherous

December 10, 2015
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Policy Driven Markets are Treacherous

Volatility in the stock market is rising, intraday swings more violent, and high-to-low ranges increasing. The lurching action of the market is not driven by fundamentals, it’s difficult to profit from, and disconcerting. There isn’t a single item to pinpoint with respect to market angst, rather, a combination of factors, leading to manic sentiment changes. The sweeping issue of late-2015 is the extent to which global financial markets remain policy driven. During the financial crisis and subsequent few years, the degree of governmental and regulatory involvement in the economy and markets was prudent. Letting a crisis flare served no one. However, it’s worrisome that markets are still sooooo policy dependent 7-years into a recovery. One shudders to think what will happen if the economy really slows. China markets sit...

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ISM sinks to post-2009 lows; Industrial Economy Recession a Catch 22 for Fed

December 2, 2015
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ISM sinks to post-2009 lows; Industrial Economy Recession a Catch 22 for Fed

November ISM sank to the lowest level since 2009. Stunning, that the ISM (Institute for Supply Chain Management) survey, formerly known as NAPM (National Association of Purchasing Managers), printed 48.6, the lowest level since the throes of the financial crisis. For perspective, the last time the ISM printed sub-48, in June 2009, the S&P was 900. Today, at 2,100+, the market is a cool 134% higher. The S&P is up by 1,200 handles, after having earned approximately 620, the cumulative EPS for the market from 2010-2015. The market is up at a much faster pace than earnings as the multiple swelled from 12x to 17x. What a 6-years. Awkward that December marks the potential lift-off, delayed that is, of a sea change in Fed policy: the end of ZIRP (zero interest rate...

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Black Friday Retail Dud; Online Share Shift Accelerates

November 28, 2015
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Black Friday Retail Dud; Online Share Shift Accelerates

Bah humbug. Black Friday jumped the shark sometime around the turn of the century. Nonetheless, a disproportionate amount of retail and media focus continue to emphasize Black Friday’s importance as an event. While declining over several years, this year got markedly worse, to the point where media reports were forced to highlight the “normality” of shopping on Black Friday and the notable empty parking lots. This year, the Grinch brought store based retail sales over to online. Sources of information are disjointed but echo the same themes enough to draw some early conclusions: WSJ: “Early Sales Thin Black Friday Rush “Driving up to a nearly empty parking lot at a Wal-Mart in Houston Friday morning, Dora Rodriquez, 39, stopped her silver hatchback in surprise and called out her window...

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Tiffany (TIF) Tourism Business Slows; Strong Dollar Constraints Evident

November 25, 2015
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Tiffany (TIF) Tourism Business Slows; Strong Dollar Constraints Evident

Yesterday, Tiffany & Co. (TIF) reported lackluster results for the third quarter, reducing annual earnings guidance for the second time in 3-months. Tiffany is a useful barometer for the global luxury consumer; business spans across all developed geographies, across multiple price points, in a variety of retail formats. Tiffany is iconic for its branded diamonds but over the years, product expansion into accessories broadens assortment to more consumers into different income strata. Expansion into luxury watches is even underway with a multi-year marketing budget to build dual-gender brand over the next several years. While American public companies dominate most global sectors, Europe wins in luxury. Tiffany is the purest true luxury company America has to offer and a success story over several years. Tiffany holds a certain panache from its scarcity...

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Qui n’avance pas, recule

November 16, 2015
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Qui n’avance pas, recule

We all eat at restaurants, go to stadiums, and walk down the street. The tragically successful terrorist attacks in Paris highlight the vulnerability of the human condition at any instant. While this has always been the case, and will continue to be so, civilization, and human progress, over past centuries and decades, reduces the chance of random death from a vulgar, inhumane cause. Radical Islamic terrorism is so deplorable because the aim is to destroy, to undo, to move backwards in time, and to return to a harsher world. The impossibility of the ultimate success of the radical Islamic movement is matched with the fervor of the very small percentage of the world population that supports this movement. To create the scale necessary to carry out such large scale...

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