Buzz Bits: Dow, Nasdaq Slip Lower
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Employments Report Analysis - Scott Reamer - 2:09 PM
Everywhere I look this AM I hear and read that the May employment picture is a good one. Yes, a good one. Why? Because the unemployment rate dropped to 4.6% from 4.7%.
That this stat is a massively lagging indicator is clear; what is clear as well is the fact that it is based on the household survey which is statistically far weaker (if you can imagine it) than the survey the NFP is based on. But forget those caveats.
If you want perspective on the usefulness of the official unemployment rate in a highly managed economy, look at Japan's: in the 1990s, Japan's official unemployment rate hovered in the mid 3% range: by any measure then Japan must have been going through a massive economic boom. But of course we know they were not, instead suffering multiple recessions in that period in GDP, in corporate profits, in personal incomes, and of course, in a deflationary asset bust.
So this weekend when you read and hear the headlines and spin from those foot soldiers of the establishment testifying to the 'resiliency,' 'robustness,' and 'strength' of the economy, you'll know it's poppycock.
Just Look Around - Ryan Krueger - 1:09 PM
There was an interesting not-so-little nugget in the New York Times this week. "Three of the country's most influential fashion emporiums – Neiman Marcus, Saks Fifth Avenue (SKS) and Bloomingdale's – have quietly eliminated or drastically scaled back their petite departments in the past several months, infuriating many longtime customers."
The exact same day I got my annual review from Charming Shoppes (CHRS) with record sales, record earnings, along with ample and expanding margins. If you're not familiar with the stores, they cater to full-figured gals and they are growing at a rather large clip. I couldn't help but notice this trend after returning from Fenway Park five years ago and then going to our new ballpark in Houston with huge cushioned seats. Most people looked for drink holders, I looked for a trade.
I couldn't help but notice Todd's "let's just call it Texas" suggestion earlier today, and perhaps a subtle entry into the next Presidential race. He's wisely figured the state is up for grabs in the next election for the first time in decades, so why not throw his 10-gallon hat in the ring. The man does have a lot of good ideas. Or…..he's just jealous that we have it all figured out down here and we're ahead of the curve and....ahem...curves. New York wonders what happened to the petite section? Just look to your left and right next time you wonder about your disappearing arm-rests at the game.
"Uh….I don't want to look like a weirdo, just give me the moomoo."
(Homer J. Simpson while shopping on disability leave for being obese. It ain't the most popular show in history by accident)
Position in CHRS
Red Thoughts - Vitaliy Katsenelson - 12:58 PM
When Toddo writes his Random Thoughts column, he is allowed to use that title as not all of his thoughts are random. Well, in my case all my thoughts are random, therefore, I'll name these comments as "Red Thoughts."
- Both Walgreen (WAG) and CVS (CVS) reported incredible numbers this morning. Walgreen's same store pharmacy sales were up 16.6%. An extra Wednesday and one less Sunday helped sales by 1.9%, but still these numbers are truly astounding. Not all of the growth came from drug inflation as prescriptions went up 6.7% - again, great number.
- CVS's pharmacy same store sales were 10.7% (no mention in the press release if calendar days had impact on them, I assume they compute them the same way Walgreen's does). But CVS did mention that generics shaved 2.3% of pharmacy sales. I presume generics had a similar impact on Walgreen . Interestingly, CVS's front-end (non drug sales i.e. toilet paper, diapers, bottled water etc...) same store sales were at 6.3%, a bit higher than Walgreen's 5.7%.
- Interesting comments by Kevin (Pepe) about the Russian ruble. I remember when people went to jail for changing Russian ruble for US Dollars on the Russian black market. As low global interest rates drove housing market worldwide (in many cases) into the bubble territory, high oil prices have lifted Russian economy and Russian ruble to unprecedented levels. Unfortunately, these correlations works both ways
Positions in WAG, CVS
Do you think I'm sexy? Ewwwww... - Jeff Macke - 12:48 PM
I come into the 'Ville to get my game airtight for tonight's Fast Money (CNBC at 7pm, East Coast Time) only to be greeted by Todd-O's complaining that I'm a "distraction." I can't really speak to what things are like when I'm NOT here (lifeless? sad? empty?) but you can color me skeptical of the idea that Todd-O has laser-like focus the other 6 days of the week.
On less creepy Freudian trains of thought, the retailers are generally squishy after yesterday's Same-Store-Sales catalyzed rally. As alluded to in Wednesday's column, Wal-Mart (WMT) set the table for yesterday's action by blaming the price of gas for WMT's light top-line. As it turned out, the rest of the retail world was doing just fine, thank you, gas-prices be damned.
For every failing bellwether blue-chip there's a no-excuse-making up and coming company happy to take share. In that sense, I would compare Wal-Mart to Intel (INTC) circa 2003; losing share and alienating customers while blaming outside forces and "one time events" all the while. Not even I think Wal-Mart is a great short (too popular to break all at once, among other reasons). What I'm looking for are long ideas among the retailers playing the role of Advanced Micro Devices (AMD)-esque giant killer to Wal-Mart's Intel.
In the spirit of sharing ideas (rather than "advising"), I think the numbers from Target (TGT), Prof. Gilmartin's Walgreen (WAG) and even the suddenly life-like department stores figure to do well in a retail world where a company doing a billion a day (and holding) in revenues is stumbling; regardless of Wal-Mart's boo-hooing about prices at the pump.
Stagflation sandwich, anyone? - Bennet Sedacca - 10:06 AM
So, the Fed is talking about 50 basis point rate hikes while job growth comes in lower than expected. The fly in the ointment of course is the 4.6% unemployment rate, which by most standards, would be deemed 'full employment.'
Yet, the economy is showing signs of strain, in housing (THE engine for growth since 2001) and the consumer is starting (just ask Wal Mart (WMT) - 'where America shops') to feel the pinch of higher fuel prices and higher short-term rates.
We continue to stand by our call that the economy weakens, possibly in a big way, by Q4 and the fed will be in easing mode. After all, Boom Boom is a professor - that is what the textbook would tell him to do. So we stay long bonds that we bought last week, respect the positive seasonality in stocks until July 4th, but ultimately think that one day, the market will wake up and realize that margins are peaking and earnings comparisons will get tougher and tougher.
One last thing - a reminder. The market typically begins to rally after the second rate EASE, not at the end of the rate rise cycle. I would definitely not want to be in Big Ben's seat right now. He almost has to raise rates due to the unemployment rate, but in the finance-based, overleveraged economy in which we live, that could and I think will, eventually wreak havoc on risky assets. Particularly when those assets are priced for perfection.
Position in Treasuries
Walgreen's May Numbers Look Very Good - Brian Gilmartin - 9:43 AM
Walgreen (WAG) reported May '06 comp's this morning, with several of the numbers reversing a downward spiral, most notably the pharma and prescription comps we referenced in our note earlier this week. (See attached spreadsheet).
At its current price WAG is trading at a level not seen since late 2004, and is as oversold as it was in early 2003, before the March '03 market bottom.
Front-end comp's of 5.4% are about in line with the historical average, and should continue to benefit from the generic launches.
Position in WAG
Slow down, you move too fast
You gotta make the morning last
The new phone books are here and the jobs data is out. As it's weaker than expected, the natural knee jerk reaction is to assume that Bennie will take his foot off the rate-hike gas. That's pressuring the dollar (-70 bips) and lending a bid to asset classes (including equities and metals). Pre-market futes are up 6ish and 14 (S's and N's) while copper, silver and gold are trying to get jiggy.
We've spoken of the next levels (1300 and 1635) and you know how I'm positioned (weighted to energy and metals with some piggy puts as a pairs). So, while I'm not opposed to further liftage, I'm also quite aware of two things. First, the Fed is still stuck between inflation (energy, healthcare, education) and deflation ("commoditized goods" such as cell phones, lap tops and cars). And second, despite popular perception, the end of a rate hike cycle in no way infers that the market will rally.
Indeed, the 'light at the end of the tunnel' crowd is likely running directly towards a train.
Position in metals, energy, financials
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