The Daily Dose: Feeling Dumped On?

 | Dec 11, 2013 | 9:30 AM EST  | Comments
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OK, lol, what the hell is going on here this week? I think the majority of folks still have a small portion of their brain believing it's junior high school once again, where the couple of weeks before Christmas were max cruise control. Unfortunately, if you are utilizing that part of the brain in financial services then, sheesh, this week has been chock full of surprises for one who is not poorly prepared to navigate info overload.

There are end of the year analysts trying to be heroes by downgrading leading 2013 names (Starbucks). Darts are being thrown at possible 2014 winners (Caterpillar, Alcoa). Companies are being relentless in terms of information dissemination, anything from a new CEO announcement (Lululemon) to a returning jerk CEO (Abercrombie) to acquisitions (Sysco) to a random MasterCard 10-1 stock split! Oh yeah, as companies attempt to grab some facetime from the Fed for a change, we are definitely not running low on global macro news (decent industrial production from the EU and retail sales from China). Cray.

Listen, I can't sit here and say, "yes I have thoroughly analyzed each event this week," as doing so would be a colossal waste of my precious time. If you spread yourself too thin, the "jack of all trades master of nothing" mantra kicks into overdrive. So, here is a snapshot into a couple things I am pondering on behind the scenes...

Where Are Mutual/Hedge Fund Portfolios as We Conclude the Year

  • Overweight: consumer discretionary and industrials.
  • Underweight: consumer staples and utilities.
  • Why to care: consumers are telling anyone that wants to listen that they want/need super low prices to close the deal, and that makes the case for further margin compression in consumer discretionary land and an impending rotation out of the trade.
  • Stat to know: Mutual fund betas at 1.05, according to Citi, are at the highest level since the third quarter of 2005.  Risk on, baby, that is, until a Fed member drops a bomb and wreaks havoc on undisciplined, reckless portfolios.

Two Questions to Ask Your Financial Advisor

  1. Is recent buying in the market a function of fund managers chasing benchmarks so as to keep clients instead of genuine risk appetite? The market must have that genuine risk appetite should January start where 2013 ended up.
  2. Is recent buying in the market a function of hedgefund portfolio managers being forced to buyback stock to cover short bets in an environment awash with liquidity, where shorting has been a disaster decision (unless it was on JC Penney (JCP)). If so, expect these slick-haired individuals to put on new short bets in January, perhaps on 2013 leading names that are being looked at as overvalued hogs.

The Dance at #Abercrombie Is Not Over

The CEO's new employment contract does not start until Feb. 1, leaving January wide open for an activist investor to strike on a fumbling company and an embarrassing board of directors. I have hammered Abercrombie & Fitch (ANF) for the better part of 11 years, lately zeroing in on the puppets that comprise the board.  Look at these locals with little retail experience collecting checks! 

Costco Earnings, What to Really Look For

  1. I think Costco (COST), BJ's Wholesale, and Sam's Club are losing market share in electronics to a renewed Best Buy. Comps at Costco in this department have been soft.
  2. Has Costco been lured into an irrational holiday pricing backdrop? Costco already operates on super thin margins. You want to be looking for comments on "core margins" during the earnings call or when reading the free transcript.
  3. How much food deflation is Costco reinvesting in price?

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