Archive for November, 2013

• Morning News: November 29, 2013
  Eddy Elfenbein, November 29th, 2013 at 10:34 am

  UK’s Falkland Islands Eye Oil Exploration And Argentina Is Fuming

  Eurozone Unemployment Falls For First Time Since 2011

  Euro Inflation Rate Rises More Than Forecast to 0.9%

  Traders Ignore S&P Decision to Cut Netherlands Credit Rating

  Upgrade Lifts Spanish Shares

  Japan Price Gauge Rises Most Since ’98 in Boost to Abe

  Key Bangladesh Garments Factory Destroyed in Blaze

  Obamacare’s Secret Success

  Shoppers Gobble Up Thursday Deals

  ADM’s $2 Billion GrainCorp Offer Rejected by Australia’s Hockey

  Hertz Fix in Dollar Thrifty Deal Fails as Insider Warned

  A Growth Spurt for Middle Eastern Carriers, Led by Emirates

  Black Friday For Owner After $8 Million in Bitcoin Lost to Landfill

  Joshua Brown: My Favorite Chart on Earth, Updated

  Cullen Roche: Mark Freeman – Finding Income Without Taking Undue Risk

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• Happy Thanksgiving
  Eddy Elfenbein, November 28th, 2013 at 8:16 am

• Morning News: November 28, 2013
  Eddy Elfenbein, November 28th, 2013 at 6:59 am

  Euro-Area Economic Confidence Rises More Than Forecast

  German Jobs Miracle ‘Could Be Running Out of Steam’

  Carney Acts on U.K. Housing Boom Danger With Lending Restraint

  Philippine Growth Slows in Third Quarter

  ‘Cryptocurrency’ on the Rise: Bitcoin Tops $1K

  Why Not Black Wednesday Instead?

  AMR, US Airways Merger Clears Final Hurdle

  Burberry Appeals China Leather Goods Trademark Restriction

  KKR to Invest $200 Million in India Pharma Group Gland

  Men’s Wearhouse Eyes Jos. A. Bank; Investors Win

  Thomas Cook Posts First Profit Since 2010 as Cost Cuts Deliver

  Trader Messages Scrutinized as UBS Bans Chats Among Firms

  Analyst Says SAC Trader Sought ‘Edgy’ Information

  Joshua Brown: Two-Word Investment Outlooks

  Credit Writedowns: The U.S. Retail Outlook Remains Weak

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• Morning News: November 27, 2013
  Eddy Elfenbein, November 27th, 2013 at 7:17 am

  Norway Debates $800 Billion Wealth Fund’s Investment Options

  I.M.F. Shifts Its Approach to Bailouts

  Surfing Central Banks is a Benign ‘QE Trap’

  Fed Reveals New Concerns About Long-Term U.S. Slowdown

  Economic Forecast After The Federal Reserve Starts To Taper

  Obama Administration Proposes New Curbs on Campaigning by Tax-Exempt Groups

  Housing Overcomes Rising Rates as U.S. Permits Climb

  Thanksgiving Shopping: Can It Turn Retail Revenues from Bleak to Black?

  JPMorgan Tried but Failed to Satisfy Fed on Metals Warehousing

  Hewlett-Packard Sales Top Estimates on Corporate Demand

  Take-Two Falls After Icahn Ends Role on Board With Sale

  Warren Buffett Sees Hope For Detroit

  Don’t You Dare Eliminate The Penny

  Cullen Roche: Goldman Sachs: 2 Macro Investment Ideas for 2014

  Howard Lindzon: The Death of Television?…Death Never Looked This Good!

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• On “Bubble” Warnings, Bearish Sentiment and “Black Friday”
  Eddy Elfenbein, November 26th, 2013 at 1:59 pm

  Today, November 26, marks the day Thanksgiving was “invented” by three revered Presidents at three significant times in American history: at our nation’s birth, during the Civil War and in World War II:

  • On November 26, 1789, during his first year as President under the new U.S. Constitution, George Washington declared the first national day of Thanksgiving.
  • On November 26, 1863, a week after his stirring Gettysburg Address, President Abraham Lincoln proclaimed a national day of Thanksgiving, but the day was not mandated by law until 1941:
  • On November 26, 1941 – 11 days before the surprise attack on Pearl Harbor – President Franklin D. Roosevelt declared the “fourth Thursday in November” as a national day of Thanksgiving.

  The “fourth Thursday” falls anywhere between November 22 and 28, so this year’s Thanksgiving falls on its latest possible calendar date – November 28. Maybe that’s one reason why we keep seeing “early Black Thursday” sales advertised on TV, radio, the Internet, billboards and almost everywhere you look.

  Black Friday Comes Early – and So Does Santa Claus

  For 11 years, my son was store manager in a leading electronics chain, so he had to grab some short hours of sleep shortly after Thanksgiving dinner in order to get up at 2:00 am, or earlier, to rally his staff against the onslaught of hundreds of freezing but eager shoppers camped out in front of his store all night long.

  That’s the “Black Friday” tradition, but all that is changing. This year, I’ve seen all kinds of early “Black Friday” sales, on line or in the stores. TIME Magazine says Black Friday now starts the Friday BEFORE Thanksgiving. USA Today reported that retailers like Sears and the Disney Store are introducing Black Friday-style “door busters” (50% or more off) starting November 19 – 10 days before Black Friday. I just got a slew of promotions from Amazon about “Black Friday Week.” In time, the Friday after Big Meal Day will just be a time to relax after you make all those special deals on-line sometime in mid-November.

  In recent years, investors have imitated these savvy retailers by “stealing a march” on the competition to buy stocks before major calendar cycles begin. The January Effect, for instance, has moved back to the final week of the year, while the Santa Claus Rally begins in early December. As a result, December is now the best month of the year, as measured by the S&P 500 or Russell 1000 & 2000. December is #2 as measured by the Dow or NASDAQ, according to The Stock Trader’s Almanac, which wrote last week, “Market trading in December is holiday-inspired and fueled by a buying bias throughout the month.”

  Bubble Talk & Bearish Sentiment are Usually Contrarian Buy Signals

  With the market setting new highs almost every week, you might think that this “dream market” could run forever (it won’t!), but the fact that we’ve seen rising bearish sentiment and a slew of new “bubble” warnings lately is very encouraging. Growing gloominess usually means that the market will keep rising.

  When investors are overly euphoric at a market peak – as in early 2000 – a crash is often imminent, but today’s average investor is very suspicious. The American Association of Individual Investors (AAII) poll has become increasingly bearish as the market has risen to new highs. Last week, bullish sentiment at AAII fell 4.8 points to 34.4%, while bearish sentiment rose for the fourth consecutive week, to 29.5%.

  Although the percentage of bulls is still five points above the percentage of bears, the 34.4% bullish consensus remains four points below its average for the last 4.7 years of the current bull market.

  Short-term, the market usually performs well during Thanksgiving week. Since 1945, according to Bespoke Investment Group (BIG), the S&P has averaged 0.65% gains in this holiday-shortened week. In the best years, when the S&P 500 was up over 10% going into this week, the index has done even better, averaging 0.77% gains, with positive returns 65.5% of the time. Furthermore, since the current bull market began in March of 2009, Bespoke says that the S&P 500 has averaged a gain of 4.41% from the end of Thanksgiving week through the end of the year, with positive returns every year. Bespoke added: “The last time the S&P 500 traded down from the end of Thanksgiving through year end was in 2005.”

  In the Latest “Bubble” Wars, Buffett & Yellen Trump the Bubble-Bears

  Now, let’s examine the latest run of “bubble” talk from a remarkable array of noted investors who have each used the “B” word recently. In fact, last week’s Barron’s cover story was titled “Bubble Trouble?”

  Last Tuesday, when the Dow made its first assault on 16,000, the bears came out in force and the Dow paused in its ascent – for a New York minute. First, CNBC reported that Carl Icahn said the market “could easily have a big drop.” Icahn said valuations are rich and earnings at many companies are fueled more by low borrowing costs and buybacks than management’s efforts to boost earnings. He said “a lot of the earnings are a mirage.” Icahn, however, was merely saying that we should hedge a bit, not “sell all”: “Often when we are concerned about the market, we hedge to some extent and this is one of those times.”

  A clearer voice of doom, the perennial bear Marc Faber, said on CNBC last Tuesday that he sees “a bubble in everything that relates to the financial sector.” Faber said the financial bubble is caused by central banks, and the situation may worsen with the nomination of Janet Yellen as the next Fed Chair.

  A more credible warning came from Jeremy Grantham, who expressed concern that the stock market was too high. Grantham has high credibility since he predicted both the crash of 2008 and recovery of 2009. In a report titled “Breaking News! U.S. Equity Market Overvalued,” Grantham’s company, GMO, said that the S&P 500 is overvalued by about 40%. The author of this latest report, Ben Inker, head of the asset allocation group at GMO, warned that “The U.S. stock market is trading at levels that do not seem capable of supporting the type of returns that investors have gotten used to receiving from equities.”

  We’re also seeing some major firms predict a market drop in 2014 – a mid-term election year, historically the best year in the four-year election cycle. Last week, Goldman Sachs said that the S&P 500 could fall 6% in the next three months and 11% over the next 12 months, to levels of 1,700 and 1,600, respectively.

  Amid all this bubble talk, Janet Yellen was asked about bubbles in her confirmation hearings. To her credit, she said, “Looking at several valuation measures you would not see stock prices in territory that suggests…bubble-like conditions.” Meanwhile, Warren Buffett gave a talk at his old elementary school in Omaha, Nebraska, as part of American Education Week. He was asked what his #1 concern about the market would be, and he quipped, “I don’t have concerns about this market.” Buffet said that stocks are “in a zone of reasonableness. Five years ago,” Buffett said, “I wrote an article for The New York Times that said they were very cheap. And every now and then, you can see that that they’re very overpriced or very underpriced.” Today, “they’re definitely not way overpriced. They’re definitely not underpriced.”

  “If you live long enough,” Buffett said, “you’ll see a lot higher prices. I don’t know what stocks will do next week or next month or next year, but five or 10 years from now, they are very likely to be higher.”

  That’s a great quote to pin on your refrigerator – an appliance you’ll visit often this Thanksgiving week!

  – Gary Alexander

• Welcome to the New Economy
  Eddy Elfenbein, November 26th, 2013 at 8:05 am

  Consider some recent news items:

  Tiffany Profit Tops Estimates as Jeweler Raises Prices

  Tiffany & Co. (TIF), the world’s second-largest luxury jewelry retailer, posted third-quarter profit that topped analysts’ estimates and boosted its annual earnings forecast as the rising U.S. stock market gave wealthy consumers the confidence to snap up higher-priced merchandise.

  Wal-Mart profit beats estimates, outlook weak

  Wal-Mart Stores reported quarterly earnings Thursday that topped Wall Street estimates by a penny, but the world’s largest retailer came in shy on revenue and offered a tepid outlook for the holiday selling season, noting that U.S. sales in that key span will be “relatively flat.”

  Ross Stores Profit Up 7.6%, Gives Downbeat Guidance for Current Quarter

  Ross Stores Inc.’s (ROST) fiscal third-quarter profit rose 7.6%, driven by a bump in sales.

  However, shares of Ross were down 6.9% at $74.75 after hours as sales growth underperformed expectations and the company offered guidance for its fiscal fourth quarter below analysts’ estimates.

  The company raised the low end of its per-share earnings guidance for the year by three cents to $3.83 to $3.87.

  For the current quarter, the discount clothing and home-goods retailer said it expects per-share earnings of 97 cents to $1.01. Analysts polled by Thomson Reuters recently expected $1.09 a share. The company also said it expects same-store sales to be up 1% to 2% in the period, compared with 5% growth last year.

  Target trims forecast as quarterly sales fall short

  Target on Thursday reported comparable sales rose a smaller than expected 0.9 percent in the third quarter, blaming what it called “constrained” consumer spending, and it lowered its full-year profit forecast.

  The high-end seems to be doing well, while the lower-end is having trouble.

• Morning News: November 26, 2013
  Eddy Elfenbein, November 26th, 2013 at 7:00 am

  BoE to Review Power Over Banks’ Balance Sheets

  Sinopec Personnel Detained After Deadly Pipeline Blast

  N.S.A. May Have Penetrated Internet Cable Links

  Gold Fix Drawing Scrutiny Amid Knowledge Tied to Eruption

  NASDAQ Touches 4000 on Mixed Day

  Goldman Currency-Trading Definition Shows Disclosure Gap

  China Probe May Be Aimed at Qualcomm’s 4G Royalties

  Bayer Makes $2.4 Billion Takeover Bid for Norway Drug Maker Algeta

  Comcast Considers Time Warner at Customer’s Expense

  Remy Cointreau Hit by China Slowdown

  BlackBerry Shakeup: Third Time’s a Charm?

  Apple May Have Just Acquired The Final Piece It Needs To Make A Killer Apple TV

  Facebook and Google Are About to Overtake All of TV in Audience Size

  Cullen Roche: The Kalecki Equation: A Brief Follow-Up

  Credit Writedowns: When Are Markets “Rational”?

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• Cyclicals Relative Strength Hits Two-Year High
  Eddy Elfenbein, November 25th, 2013 at 6:23 pm

  Here’s a look at one of my favorite ways to measure the stock market’s mood. It’s the Morgan Stanley Cyclical Index divided by the S&P 500.

  

  The ratio closed today at its highest point since July 26, 2011.

  The ratio’s all-time high came in February 2011, but cyclicals were clobbered that summer.

  What I find interesting is that, in retrospect, we can see how important Mario Draghi’s bold claim to stand behind the euro changed the direction of the market.

  That came on July 26, 2012, and the cyclical’s relative performance hit bottom on August 2. Since then, the cyclical stocks have been leading the market.

• Buy When Others are Fearful….
  Eddy Elfenbein, November 25th, 2013 at 10:05 am

  With all this bubble talk, I was curious to see how the stock market has performed compared with the unemployment rate. Not surprisingly, stocks have done better when unemployment is higher.

  I looked at all the data from 1948 though 2012. When the unemployment rate was below 6%, stocks delivered a real annualized return of 3.19%. Below 4%, stocks have been nearly flat.

  But when the unemployment rate was over 6%, the real return jumped to 14.68%.

• Stocks to Rally on Iranian Deal
  Eddy Elfenbein, November 25th, 2013 at 9:22 am

  This should be a very quiet week of trading. The market looks to open higher this morning thanks to the Iranian Nuke deal this past weekend. The only news that I’m looking forward to is tomorrow’s update on Q3 GDP. Outside that, this week will probably be very dull.

  I want to comment on the painful day that Ross Stores ($ROST) had on Friday. While the stock opened much lower, it gradually gained ground during the day. By the closing bell, Ross had lost 5.7%.

  

  The stock is still higher than where it was one month ago, and it’s still outperformed the S&P 500 over the last two months.