Mid-Summer Night’s Linkfestival

Wow. Was that not a wild and wooly week?

There was something for everyone as markets absorbed tremendously conflicted information — on inflation, retail sales, earnings, and M&A activity.

After Tuesday’s 148 point Dow drop, the market more than made up for it. On Thursday, a near 300 point gainer was one of the fiercest one-day rallies we’ve seen in years. For the week, the big winners were emerging market stocks, up 3.6%. The Dow tacked on 2.2%, while the Nasdaq gained 1.5%, and the S&P500 added 1.4%. The Russell 2000 was a non-participant, up just 0.4%, underscoring the big cap nature of this rally. Gold added 2%, Oil was plus 1.5%. Corporate junk, the US Dollar, and REITs were all negative on the week. Treasuries and European stocks were all in the green, albeit  slightly.

The bottom line remains that regardless of the many concerns out
there — the weak dollar, a selloff in treasuries, a sub-prime
implosion, the ongoing housing weakness and new signs of a consumer
slowdown — strength abroad, relatively low corporate borrowing costs
and, above all, plenty of liquidity, trumps all else.

Barron’s Trader column observed that:

"Buying is, of course, just another word for spending, and lately it’s the sustainability of America’s debt-driven spending that has worried the market. Those concerns drove the Dow down nearly 150 points as recently as Tuesday, as companies like Home Depot (HD) and Sears (SHLD) blamed a still weakening housing market for their glum forecasts. But each passing day without a new catastrophe from the mortgage world encourages the restless bulls, as does the recent stabilization of the 10-year Treasury yield just above 5%."

Where to begin this week? The Dollar? Retail Sales? Yields?
Housing? The biggest Dow rally in 4 years? No matter — we got it all
covered. Get clickin’:


Why the Skeptics May Be Wrong Last week nicely illustrated how welled-up anxiety often gives way to a quicksilver rally. The debt market was starting to attach strings to buyout financing, oil prices were levitating, bank stocks were ominously weak and the Standard & Poor’s conference call to discuss a mass downgrade of subprime securities literally exceeded the telecom host’s capacity to service all the interested listeners. (Barron’s)

•  Earnings Season to Test Market Rally: Most everyone on Wall Street expected profit growth to slow this year, but, at the same time, they quietly hoped that the slowdown wouldn’t veer into a contraction. With second-quarter-earnings season kicking off today, this hope is facing one of its biggest tests. (Wall Street Journal)

•  The 2007 Fortune Global 500, by revenue, profitability and losses.
The list is fascinating, with 6 of the top 10 firms being oil
companies, and GM barely edging Toyota (5 and 6). You can slice and
dice the data in all manners of ways: By Country (here’s Britain, Japan and Germany), by Industry group — even by City (in order: Tokyo Paris NY London have the most top 500 firms).  Here’s the list of firms rising fastest within the group’s ranking.   

• Sentiment discussion: The impressive Thursday rally broke a spread
triple top in the S&P500, leading to a surprisingly frank chat with a fund
manager who is fighting the tape. "This is a bull$%&* rally!"  You know when I’m the one making the bullish argument, you can be sure the other guy was caught leaning the wrong way.

Bear Market Tightens Grip on Treasuries:
The bear market in U.S. Treasuries is just getting started as investors
turn their attention to the strengthening labor market and faster
inflation instead of the decline in home prices. That’s the conclusion of economists at Lehman Brothers
Holdings Inc., Morgan Stanley and RBS Greenwich Capital. They
estimate 10-year government notes will return 1.28 percent this
year, not even enough to cover inflation. The performance would
be the worst since 1999, when they lost 8.25 percent, Merrill
Lynch & Co. index data show. (Bloomberg)

Top 10 Stocks With Big Insider Buying, Buybacks: The perfect setup, however, is when one of these company insiders or an entire board — in the case of a buyback — are making long bets on the stock along with savvy investors. (TheStreet.com)

•  In 1988, Forbes argued that the preferential tax treatment of LBOs by private equity led to a rash of ill considered takeovers: How The Government Subsidizes Leveraged TakeoversThe Taxation of Carried Interest.      This past week, the CBO essentially repeated the argument:

•  Oh, no! Sears is still a retailer! Sears stockholders woke up and realized that instead of owning a hedge
fund, they own two huge, slipping retailers that happen to be run by a
financial genius without much stated interest or demonstrated
competency in middle-market retailing. (
Slate) See also The Top 100 Retailers

 •  Swarm Theory of Group Behavior: An important truth about collective intelligence: Crowds tend to be wise only if
individual members act responsibly and make their own decisions. A group won’t
be smart if its members imitate one another, slavishly follow fads, or wait for
someone to tell them what to do. When a group is being intelligent, whether it’s
made up of ants or attorneys, it relies on its members to do their own part. For
those of us who sometimes wonder if it’s really worth recycling that extra
bottle to lighten our impact on the planet, the bottom line is that our actions
matter, even if we don’t see how.
(National Geographic)


The Wall of worry continues to build:

• We had numerous separate commentaries on Retail Sales this week; Here’s the full Retail Roundup.

Are Business Births All That Healthy? Each month, the BLS surveys 160,000 employers at 400,000 worksites to produce an estimate of non-farm employment. It supplements this sample survey with a model-based estimate of new business formation. The so-called net birth/death model generates an unadjusted monthly estimate, which is added to the unadjusted sample survey before the whole piece is adjusted for seasonal fluctuations.  (Bloomberg)   

Haves and Have-Nots of Globalization: The United Technologies story is part of a broad structural shift in
how and where many American companies are making their money. The trend
has been in the making for decades, and by now it clearly carries major
economic implications, as well as significant investment opportunities.
The trend accentuates the divide between workers who benefit from
globalization and those who don’t, sometimes within the same company.
Financial analysts at United Technologies in Hartford overseeing
Carrier’s sales in India and Pratt engineers designing jet engines in
Connecticut for export to Europe certainly benefit; but people who
worked in Syracuse in the company’s air-conditioning plant, now
defunct, do not. (New York Times)

•  Fed’s Focus on ‘Core’ Inflation Raises Concerns: As food and energy prices climb across the nation, the
Federal Reserve is facing growing criticism for focusing on "core"
inflation, which excludes both those items, as the basis for its
interest-rate decisions. Many consumers question whether Fed officials eat or
drive, and some economists worry that the Fed is underestimating
inflation risks. Even some Fed officials share these concerns. (Wall Street Journal)


Why Harlem is Hot Hot Hot 

No housing slump for super-rich: "Twenty million dollars is the new $10 [million]," says Cecelia Kennelly-Waeschle, a Beverly Hills sales agent who tallies "the list," the unofficial log of the Westside’s high-end sales. Real estate experts say sales are being fueled by several factors, including the growing ranks of the wealthy. The richest 5% of the nation’s population saw its average household wealth soar 40% (adjusted for inflation) from 1990 to 2005, according to census data. That contrasts with a 7.3% increase for middle-income families. (Los Angeles Times)

Borrowing & Spending: Forget MEW (thats so 2005). Its back to good old fashioned credit card debt for homeowners.

•  States Push Ahead With Subprime-Mortgage Laws as Congress Lags:
State lawmakers, faced with a record number of constituents who may
lose their homes, are pressing to pass their own laws to halt
mortgage-lending abuses, saying they can’t afford to rely on the U.S.
Congress to act. Legislators in some 30 states have introduced about 85
bills to protect mortgage borrowers from deceptive-lending practices,
foreclosure or fraud, according to a Bloomberg analysis of data from
the National Conference of State Legislatures. (Bloomberg) 



•   Cleantech green-lights largest solar farm ever: San Francisco company said Friday it plans to build the world’s largest, solar power "farm" near Fresno, California. (Reuters) See also: Today’s Entrepreneur: He brings windmills to backyards

•  World will face oil crunch in five years:  The world is facing an oil supply crunch within five years that will force up prices to record levels and increase the west’s dependence on oil cartel Opec, the industrialised countries energy watchdog has warned.(FT)

•  Financial Times, CNBC May Share Resources — This makes sense if and when WSJ ends up migrating to Fox. (free Wall Street Journal)

Banks’ anti-money laundering costs jump – study: Spending by banks to combat money laundering has
jumped almost 60 percent in the last three years and tackling crime is
taking up an increasing amount of senior executives’ time, according to
a global survey. Anti-money laundering costs have risen more than banks
had predicted as they face greater involvement in emerging markets and
greater complexity of financial markets, the survey by KPMG showed. (Reuters)


What is CNBC.com Thinking? They want how much to access their videos online?!?

•  An iPod Has Global Value. Ask the (Many) Countries That Make It: Who makes the Apple iPod? Here’s a hint: It is not Apple. The company outsources the entire manufacture of the device to a number of Asian enterprises, among them Asustek, Inventec Appliances and Foxconn.  But this list of companies isn’t a satisfactory answer either: They only do final assembly. What about the 451 parts that go into the iPod? Where are they made and by whom?  (New York Times)

• TED The Web’s secret stories (Video)

Alternative Energy Hurt By a Windmill Shortage:
The race to build new sources of alternative energy from the wind is
running into a formidable obstacle: not enough windmills. In recent
years, improved technology has made it
possible to build bigger, more efficient windmills. That, combined with
surging political support for renewable energy, has driven up demand.
Now, makers can’t keep up — mostly because they can’t get the parts
they need fast enough. (Wall Street Journal)



• Friday Night Rock: The Magic Numbers:
I learned an astonishing fact from the WSJ’s Weekend Adviser: the first
CD from The Magic Numbers sold a mere 44,000 copies in the US. That’s
astonishing to me, considering what a great CD it is. Long time readers
may remember a mention of this from our Best of 2006 music list.

Why YouTube is killing HipHop (Save your email, I know you don’t care)

•  Going Private released in December 1982 gives pointers on structuring transactions to take publicly traded companies private. This book analyzes the
fairness rule and burden shifting, state antitakeover legislation.  The more things change, the more they stay the same . . .

•  For economic wonks, an Efficient Market/Random Walk Joke   


That’s all from a lovely summer weekend in NY, where I think I may need to get me a hammock!


Got a comment, suggestion, link idea? Or do you just have
something on your mind?
The linkfest loves to get email!  If you’ve got something to say, then by all means please do.


Category: Financial Press, Weblogs

Retail Roundup

Category: Consumer Spending, Economy, Retail

The latest Agflation news: 8% increase in food prices

Category: Consumer Spending, Inflation, Psychology

Friday Night Jazz Rock: Magic Numbers

I learned an astonishing fact from the WSJ’s Weekend Adviser: the first CD from The Magic Numbers sold a mere 44,000 copies in the US. That’s astonishing to me, considering what a great CD it is. Long time readers may remember a mention of this from our Best of 2006 music list. I thought the…Read More

Category: Digital Media, Music

Coming Soon: the Touchscreen iPod

Category: Digital Media, Film, Music, Technology

Media Appearance: Bloomberg TV (07/13/07)

Category: Consumer Spending, Media, Retail

Retail Follow Up

Category: Consumer Spending, Data Analysis, Economy, Inflation, Retail

“This is a bullshit rally!”

Fascinating and instructive conversation with a few of our traders/clients this afternoon, including a hedge fund momentum gunner who asked me "if this rally really mattered."

The answer is simply if it goes against you, it matters to your bottom line and/or your clients net for the year. If you were long going into this you made money, you showed a better P&L, your assets under management grew, your clients are happy. If you were short, you got your nuts squeezed, and that’s that.

More importantly, the S&P cleared key resistance, the spread triple top so many technicians have been talking about is now toast (See chart at bottom). If this breakout holds holds the next couple of days, that will inform of us about the technical strength right here, and if it fails, that will also be quite instructive. Indeed, this is shaping up to be quite an important rally. 

So to answer the original question, yes, this rally matters.

"This is a bullshit rally"  he said.

I asked him Why? Specifically, I ask:

"Do you disagree with this because you were positioned improperly, or because you cannot find a rational basis for today’s move? Do either of those things matter?"

No answer. He then asks me, "What did you think of today’s Retail data?"

Sigh. . . I said it was weak, that most retailers were doing only fair, that in addition to anyone home-related (i.e., Home Depot (HD) and Sears (SHLD)), we saw the Department stores doing poorly, Macy’s (M) and JCPenney  (JCP). We already heard Target (TGT) was at the low end of their range.

Here comes the money shot:  "And Wal-Mart" he asked?

Mediocre. They don’t break out food (as they do energy), but we can draw some assumptions from their breakdown between Wal-mart and Sam’s Price Club (see our earlier post), as well as what BJs said. As we learned today, Food sales at Wal-Mart, Sam’s, Cost-Co (COST) and BJ’s Warehouse (BJ) were robust.

Here’s the key line from BJ’s report:

"Sales of food increased by 6% and sales of general merchandise increased by
approximately 1%."

So to answer all of his queries: yes, today’s rally mattered. Yes, the retail sales data was weak. Yes, it was essentially a celebration of higher food prices.

However, if you are looking for a rational basis for the day to day movements of markets, if you seek to find a degree of serenity by understanding why markets do what they do short term (A/K/A noise), well then you are going to drive yourself insane.


Read More

Category: Consumer Spending, Markets, Psychology, Retail, Technical Analysis, Trading

Economic Research and Retail Shopping

Mrs. Big Picture is smart enough to know that when she wants to go
shopping, she best not call it that if she wants me to come along. So
the clever lass has taken to calling sport shopping "Economic Research."

I do this sort of "research" every week.

That’s why I laughed on Tuesday night, when Noah Blackstein busted my chops for shopping at Sears (I’ve been a Land’s End client for years). While I was there, I looked at appliances, lawn mowers, plasmas, and Levis. On a Saturday afternoon, tumbleweeds rolled by — the store was totally empty.

I have the same routine every time I visit a store: I look at the merchandise, see how well the store is stocked, merchandised, organized, cleaned, etc. Typical Peter Lynch stuff. I lurk around, watching other customers interact with store employees. I often buy something, if only to return it and see how the process is. (A pair of Levis went back to Sears 3X — they were defective and split in the wash).

Over the past month, I have been to the following stores:

Target (TGT)
Home Depot (HD)
Lowes (LOW)
Best Buy (BBY)
Circuit City (CC)
Ralph Lauren Polo (RL)
Macys (M)
Apple (AAPL)
BJs (BJ)
Nordstrom (JWN)
Starbucks (SBUX)
Smith & Wollensky (SWRG)
Saks Fifth Avenue (SKS)
Pottery Barn (WSM)
Coach (COH)
Williams Sonoma (WSM)
Gap (GPS)
Sears (SHLD)
Blockbuster (BBI)

Netflix (NFLX)
Amazon (AMZN)

Lord & Taylor
Century 21
Barneys (formerly BNNY)


That doesn’t count all the small mom and pop stores and restaurants.

Over that period, I purchased items at Home Depot and Lowes (all sorts of stuff), Fortunoffs, Target, Polo, Century 21 (my Ted Baker ties come from there as well as Saks and Ebay), Lord & Taylor, Amazon (books and DVDs/CDs), and an auto dealer (I used Swapalease.com to replace the wifes RX8). Oh, and I got a new keyboard at Apple.

I avoid Wal-Mart (WMT) in NY, as the stores are these horrific garish fluorescent nightmares. In California, where they seem to be open til midnight or even 24 hours, I have made emergency/lost luggage purchases at the only slightly less ugly versions. I cannot recall the last time I was in a K-Mart (SHLD), but many years ago they wrere the only big box retailer in the Hamptons/Riverhead.


Sandy in comments asks: Aside from Sears, how does everything else look?

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Category: Consumer Spending, Economy, Retail

Retail Day !

Category: Consumer Spending, Inflation, Retail