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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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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Down 419 but a surge higher at the close

August 18, 2011
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Down 419 but a surge higher at the close

From 3:45pm, in today’s darkest hour (for the market) when the S&P was bang on the lows, we saw a glimmer of hope with a fast 135 point DOW rally in literally 8 minutes. Calling a spade a spade, the market was soundly clobbered today. But this is not a “financial crisis” or a market that is peering into the abyss (this was happening in 2008/2009). This market is down because we may be heading into another recession. This recession will be very different from 2008-2009 and not as deep and the market pull-back won’t be as deep either. From the highs we are already down over 16% (so this is partially already priced in). I’ll just point out that the bear trade is just as risky as a...

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It’s Getting Real with the Recession Indicators

August 18, 2011
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It’s Getting Real with the Recession Indicators

What is the Philadelphia Fed Index? Why has it exacerbated the market’s sharp declines from the morning? (see previous post) In short, the measure is an activity-based survey. It isn’t an actual measurement of anything, other than how people feel or sentiments on a given day. The survey-based results are indicating we are currently in (or on the cusp of) a recession. Period. I feel it prudent to lift my “probability of a recession” up to 50%. Before it appeared to be more of a 1-in-3 shot. There simply hasn’t been an instance in the past 40-years where this particular measure was -30 and we weren’t in, or about to enter, a recession. In the attached chart, the grey bars are recessions. We believe this survey represents the height...

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Morgan Stanley: “Dangerously Close to Recession”

August 18, 2011
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Morgan Stanley: “Dangerously Close to Recession”

Reasons for the weakness at the open: Morgan Stanley takes estimates from global GDP growth from 4.2% to 3.8% for 2011. Scary front page of the WSJ: “Fed Eyes European Banks” which is what they should be doing but it is still scary as presented. NTAP cut guidance last night and the stock is off 13%. Orders slowed in July and macro concerns exist. Initial unemployment claims came in 408k, which still not indicative of a recession, or even a slowdown, but the number of initial claims is up 9k from the 399k posted last week (which incorporate revisions). And for good measure, the French, Spanish, Italian, and German banks are all down some 3-7%. Tough markets to navigate. The primary investment focus is simply “recession” or “not in...

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ICI Mutual Fund Flows – “A Waterfall”

August 17, 2011
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ICI Mutual Fund Flows – “A Waterfall”

  ici_flow_aug ICI mutual fund flows for the equity asset class (Aug) were released today with an outflow of $23.5B which rivals the exit from equities back in the depths of the financial crisis (late 2008). This marks a stunning, abrupt, run for the exits. While the analogies to 2008-09 abound, we think there are “dramatic” differences. Our banking system is much better capitalized, households have deleveraged, and the economy has shown no signal of imminent collapse. The good news: the data is reflective of what already happened, not what will happen! There is no predictive statistical significance between mutual fund flows and go-forward stock market returns. The relationship is spurious and as much a contrary indicator as anything else (see the large outflows in late 2008 and early...

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The US Economy – not as bad as the headlines (7 reasons why)

August 17, 2011
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The US Economy – not as bad as the headlines (7 reasons why)

While many pundits are talking about recessionary conditions – we would like to point out that the actual environment is much better than this, and in many regards, running at about the same pace now as Q1. We acknowledge that GDP growth has disappointed this year, and come in lower than bullish forecasts from Wall Street banks like Goldman Sachs. Much of the delta in GDP comes from a push-out in the housing recovery as well as a slowdown in government spending. On the consumption and private sector side, things are hanging in. Some rays of light: 1) Retail Sales are strong – the weekly sales surveys from Redbook and ICSC are running at the high growth rates of the year (exhibiting 3-4% growth). 2) Retail company earnings are healthy...

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German Economy – The End of Detachment

August 16, 2011
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German Economy – The End of Detachment

The German economy has detached from other developed markets over the past year. Real GDP growth in Germany grew at 3.6% in 2010, and accelerated to 5.5% growth in the first quarter of this year. This morning, we learn that the initial estimate of Q2 GDP growth has fallen sharply to 0.5%. This is the weakest rate of growth since Q1 2009. While much slower GDP growth in the world’s 4th largest economy creates challenges, the abruptness of the decline may serve as a wake-up call to aloof German politicians who think that all of the problems around the rest of the developed world were unique to other places and that German was exempt because of superior fiscal policy choices over the past couple of years. No Way! Here...

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Google (GOOG) to acquire Motorola – Investment Analysis

August 15, 2011
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Google (GOOG) to acquire Motorola – Investment Analysis

Google announced an agreement to acquire Motorola Solutions (MMI) as it continues a push into mobile internet and mobile hardware. The deal was announced for $12.5B and shareholders of Motorola Solutions will receive $40 per share in cash. This is a cool 63.5% for shareholders of MMI relative to Friday’s closing prices. Larry Page and Patrick Pichette (Google’s CFO) did a quick conference call explaining the deal this morning. You can listen to the call over at Google’s investor relations site. The call didn’t say too much other than point out that the deal will be accretive (ex amortization of intangibles) immediately from the time it closes. This is because Google is funding the transaction with excess cash sitting on the balance sheet earning very low yields. For perspective,...

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Buy Dillard’s (DDS) – stock selloff overdone

August 12, 2011
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Buy Dillard’s (DDS) – stock selloff overdone

Dillard’s investment presents an opportunity. This post is different from a “focus investment” which is a much more in-depth analysis and suitable for longer-term investment. See the post on Guess (GES) with the attached PDF for a “focus investment” selection (we still like Guess btw). This trade idea is an observation on a market dislocation. Dillard’s (DDS) is down 17.5% on not beating expectations. The results at Dillard’s were not fundamentally bad. EPS were up from $0.10 last year to $0.32 this year (adjusted EPS). Same store sales trends remain healthy (+6% for Q2) and margins are expanding. The key quarter for full year earnings is Q4 – so you have to believe we won’t be in recession by the holidays. But if you believe we avoid recession, Dillard’s...

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“Risk On” – DOW surges 423!

August 11, 2011
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“Risk On” – DOW surges 423!

European banks, the cause of yesterday’s collapse, all rallied today. CDS spreads in Europe narrowed across the board, French and Italian sovereign debt rallied, and Gold sold off 41 dollars (down 2.3%). Earnings continue to meet low expectation (Kohl’s, Cisco). The BOVESPA rallied sharply, and the VIX declined all day. After an exhausting first 4-days of the week we have: 2-2 (in terms of terrifying market collapses vs euphoric booms). Again, this is just this week. If you need some water to mix with your alcohol IV, you aren’t alone.  Rubber match on Friday.    

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