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Buzz Bits: Dow Dips Lower, Nasdaq Climbs


Your daily Buzz & Banter highlights...


Editor's Note: This is a small sample of the content available on the Buzz and Banter.

Earnings Report - MV News

  • Abercrombie (ANF) reports 4Q EPS in-line of $2.14 on revs of $1.14 bln vs. $1.13 bln cons.
  • Whole Foods (WFMI) reports 1Q EPS of $0.38 may not be comparable to $0.40 cons on revs of $1.87 bln vs. $1.89 bln cons.

Frosty Retail Earnings Parade - Jeff Macke - 2:16 PM

Just when you thought we'd put earnings season behind us, the retailers are poised to start talking to the Street in large numbers this week and next. We've already heard from Wal-Mart (WMT) and Home Depot (HD), now get ready for Whole Foods (WFMI), Skechers (SKX... ok, not exactly a retailer but a company with footprints all over the retail world), Lowe's (LOW) and Safeway (SWY); all before Friday's close.

Here's a non-comprehensive list of the questions going into the calls:

  • Is all the bad news, both organic and artificial, in Whole Foods' stock price yet? Sure, growth has slowed a bit but the stock is already 40% off its highs and coming into a somewhat interesting technical juncture.
  • On a related point, can Safeway (a stock in Mrs. Jeffmacke's portfolio) keep its mojo going now that it has converted so many grocery non-believers in the stock's climb from the low 20's to the upper 30's over the last year?
  • Can Lowe's survive a recovery in competitor Home Depot? For that matter, is there an actual recovery in Home Depot? And, on that topic, is there an actual recovery going on in housing or am I just spending way too much time with Realtors ("maybe" and "yes")?

Stay tuned, Minyans... it may be a shortened week but we've got miles to go before we sleep.

Position in SWY

War Stories - Todd Harrison - 1:19 PM

I am being deluged with emails from all sides as traders dig deep for a catalyst for the action in gold. And I'm not talking about retail investors--I'm talking about folks who run billions of dollars and are considered to be the most plugged in players on the Street.

Lemme say this--I don't know why gold all-of-a-sudden ripped $25 but I most certainly respect the fact that it has. And, while I hate assigning reason to the rhyme, I'll again say that my gut is that something geopolticial is afoot. I see the story on Reuters about Iran "reducing its dollar reserves to bare minimums" but there's more meat to this bone.

It would be irresponsible for me to offer opinions on the unknown
but IF there is something out there behind this move--and there likely is--there is a fair chance that that very same catalyst isn't good for equities. Again, I don't know but with vols this cheap, I scooped some puts in the financials (against my earlier gold purchases) until I have some clarity.

Thanks. We now return to the Fire on the Mountain.


position in gold, financials

Does the sub prime matter or does it not? - Bennet Sedacca - 12:38 PM

If you didn't already know, sub-prime (or lower quality) mortgage traunches are getting torched. The lowest grade that I track on (BBB-rated) is getting unmercifully hammered. Hammered to the tune of about 25% so far this YEAR. But does it matter?

Well, yes and no.

In the short run, it seems not. Stocks are ignoring the bad news as the wall of worry is climbed. Whether it is liquidity fed or not, it doesn't really matter. It simply doesn't want to correct. At least not yet. So I continue to be invested (mostly in large cap value/growth) with an eye on the 50 day moving average of the SPX, currently at 1430 and rising. Note in the chart here (the green line) that it hasn't been violated during this entire bull run.

In the yes category, the sub-prime implosion matters in a couple of ways. First, it shows what happens when risk is mis-priced, as I continue to believe most credit risk is... When it re-prices, the door shuts on sellers and you can't get out. Otherwise known in Wall Street parlance as a 'Roach Motel' where you can get in but not out. Second, it will matter, eventually I think, to the financial complex. So we need to watch the multiple breakout areas of 119 and 110 on the BKX. If they don't break, I guess leave the party hats on.

But, FWIW, I operate under the following guideline--If you are not getting compensated for risk, don't take it or the door will slam on you.

So I stay the course, happily, in Treasuries and agencies.

Position in large cap value, large cap growth, treasuries and agencies

Some signs of excess... - Jason Goepfert - 9:19 AM

One of the unusual aspects about the market over the past several months is that we've been seeing a real lack of concern over the possibility of a sustained correction, but there has been scant evidence of outright speculative activity.

That's starting to change.

The Nasdaq is full of young, higher-beta companies compared to those listed on the NYSE, so an explosion in volume on the Nasdaq suggests excessive speculation, which tends to be a negative for the market.

Yesterday, the Nasdaq had 1.7 times the volume of the NYSE, the highest ratio since late December 2004. Since 2003, ratios this high have led to pullbacks 4 out of 6 times it occurred. Twice we saw quick spikes higher (in December 2003 and early December 2004), though those gains were quickly given back.

Something else that's notable is NYSE Margin Debt. I've been poo-pooing the concern about this number over the past couple of years, since analysts kept referring to how high the number was getting, how it was approaching the levels of the bubble years in 1999/2000, but they kept neglecting to mention free cash balances - the asset side of the brokerage-firm ledger.

Using a more balanced view, we can calculate a "net worth" indicator for brokerage firm customers, subtracting debts (margin loans) from assets (free cash balances). This indicator suggests that we're nowhere near the deep indebtedness we were in 2000.

However, after this figure had almost turned positive last summer - a major buy signal - it has reversed course in a fairly big way. The current reading is -$39 billion, the 2nd-lowest figure since November 2000. The two other times it approached this level were July 2005 and April 2006 - neither of which was a good time to own stocks when looking out over the next 1-3 months.

There's definitely a lot of complacency out there, but there hasn't been a lot of outright, throw-caution-to-the-wind kind of trading activity in terms of aggressive call buying, Bulletin Board volume, inflows to speculative leveraged funds, or similar signs of excess. Given these two data points, though, we have to take note that that's beginning to change.

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