The Day Ahead: Don't Be a Hamster

 | Apr 03, 2013 | 8:00 AM EDT
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Lacking variety in your life? Tired of doing the same damn thing day in and day out? Then there is a good chance you've become a hapless hamster treading endlessly on a giant wheel, trying to stay alive in hopes of finding that piece of cheese when the wheel stops. But you know a hamster's life is no life at all. Take, for instance the plight of Mr. Market. 

Mr. Market is hamster, at least for the moment. Try as he might, he is simply unable to break free from the typical blah-ness that tends to appear prior to an earnings season. It seems to  me the feeling of boredom is even more pronounced in April as the positives in the market are well-known. And as for the negatives, they are debated and tossed aside quickly (can't scare the uninformed money as soon as they are warming back up to stocks... .)

Furthermore, individual stock stories have gone completely lame; the truth is that a privately held Dell (DELL) would have no impact on that McDonald's (MCD) you have owned since 2002.

I will offer a shout out to Apple (AAPL). This is a classic sell-side race to the bottom extravaganza. Every geek with Harvard-learned Excel modeling skills wants to cover his (are there any female sell-side Apple analysts?) rear-end into the quarter/June guidance, but leave the door open to talk smack should the stock regain a modicum of institutional support.

If any of the brokerage research on Apple actually lived up to the term "research," those slashing price targets and earnings estimates would drop the rating to a sell and have clients wait on the sidelines. Heck, it's not as if they would lose access to super-secret Apple data spoken by management (they hold boilerplate chats) or debt offerings amid a negative opinion on the stock. Be bold, grow a pair, guys.

Yours truly is somewhat guilty of morphing into a hamster. There isn't much intrigue in the open worth discussing (that is pre-jobs report), and I don't want to be the human that changes stances on the market depending on stock values at noon.

So, I have turned personal efforts to re-connecting with execs before quiet periods to get a sense of the business environment in plain sight of stalled M&A activity and, potentially, slower employment growth borne by sequester and the Eurozone, both of which have been hinted at in fresh data. Nobody cares to admit it but they will once the market punches them in the face along with their long only portfolio. Nevertheless, here are a few thoughts to consider:

  • Very low interest rates, along with expectations they are not heading higher, is putting no pressure on execs to do deals. Should rates creep a bit, I bet deal activity re-accelerates on fear of missing the boat on uber attractive financing.
  • Remember this equation: weak demand as seen in the ISM plus sharp drop in backlogs equals a hiring pickup that may not be sustainable (hmmm, this sounds eerily similar to Aprils gone by...take that, Stocktrader's Almanac disciple.)
  • Are you willing to pay 14x plus on a trailing basis to be exposed, at best, to 6% first quarter '13 EPS growth? An answer of "no" to that question essentially brings you to pondering risk exposure into earnings season.
  • Memo that any stock between today and mid-April is more susceptible than usual to a swipe from an analyst downgrade. These downgrades began to surface on Monday, not a surprise to me as I have played the game before.
  • Wicked negative combination: dying breadth inside the S&P 500 (SPY) plus indices defensive complex.

Complete Randomness

  • You own shares in consumer staples? Try breaking down whether to hold into this simple format: Kimberly-Clark (KMB) has zoomed higher, it had to have sold tons of tissues and at full price, and even then there is risk for sell the news. Get what I am suggesting? #OvervaluedSector
  • Wal-Mart (WMT) and TJ Maxx (TJX) have rocketed higher. Two recession stocks blowing the doors off sector comparables. OK.
  • Yes, still am a fan of GNC (GNC). Store shopping environment and direct marketing efforts are outclassing Vitamin Shoppe (VSI).
  • Not too sure the driver behind the downdrafts in construction suppliers Owens Corning (OC) and USG (USG), but it bears following.

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