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| 2010-01-21 09:31 |
THE WORLD IS WATCHING (FINAL EDITION)
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"My lungs began to crow like chanticleer
That fools should be so deep-contemplative,
And I did laugh sans
intermission
An hour by his dial. O noble fool!
A worthy fool! Motley's the only wear."
"As You Like It"- Shakespeare
Taking it on the chin and bouncing
back, that's the big question mark hanging over the stock market and White House. The stock market has already answered the call and proven its
ability to rebound in the face of universal doubt. It remains to be seen if the White House will be able to do the same. Of course, for the President,
before Tuesday's election in Massachusetts, his suit of confidence was only frayed, nixed by election losses in New Jersey and Virginia and a bad
intelligence report that said all he had to do was grace the stage and the world would lay the Olympics at our feet. The Christmas Day bomber
presented a form of comeuppance but the delay in responding to the nation left a larger stain after finally admitting the buck stops in the Oval
Office. I understand that among the more learned class it's important to seem contemplative and pensive as opposed to being only a knee-jerk
reactionary.
Yet, there are times when it's foolish to over think, especially when the world awaits your command. That suit of confidence is
looking worn, it has lost that new look that shouts ‘success' to the world. If bitterer partisan fighting is the course of action then look for that
suit to be ripped to shreds. Intermission has come early for the Executive Branch of government, and their opponents laugh while the masses soak in
rejuvenation. But questions linger, and worries are growing instead of fading. The stock market, too, has come to an intermission of sorts. The rally
has been fantastic to say the very least, but now what? The White House and stock market have stopped crowing like chanticleer. It would help the
stock market if the White House called off its myopic demonization campaign of big business and get to the task of turning the economy around.
I must say that I have much more confidence in the stock market finding a way to resume its rally than I have in the President altering his
game plan and his agenda. That's too bad because the recovery so desperately sought on Main Street will continue to go unanswered if the mantra is
agenda or bust. They say the entire world is a stage, and for sure everyone is watching with baited breath. Many Democrats came out swinging instead
of eating humble pie and putting their hearing aids back in. It's time to listen and time to stop crowing. You may feel your political opponents are
now worthy fools...the people have worthy needs.
In the meantime, the stock market took a pause and looked vulnerable yesterday. I mentioned
raising cash but that isn't the same as being totally in cash, nor is taking profits an indictment of a stock, but both are prudent ways to prepare
and ride through a period of adversity. I felt much better by the close in part because of the intraday reversal and also because of the action in
bank stocks. While technology stalwarts have posted impressive results only to see their shares come under pressure earning results from banks have
been mixed at best. It really is telling if the Street is willing to overlook missed results (top and bottom lines) to concentrate on lower loan loss
provisions and improving credit issues.
The KBW Bank Sector Index moved higher, led by its largest weighted component, Bank of America (BAC).
Banks may not have to lead the parade but they can't be a drag either, and right now they are on the cusp of breaking out. A rally led by banks gives
stocks fundamental cover. I realize that there was a midday upgrade on Bank of America and there has been a slew of upgrades on other banks, too. If a
well known bank would actually post strong results it might be the spark needed to send this sector higher; it's obvious to me they are champing at
the bit and want to rally higher.
The market needs a
spark to go beyond technical factors. Considering the fact that the S&P 500 is trading at its highest average PE since 2002, many are going to be
reluctant to force the issue unless the market can find a way to breakout.
I'm not bearish; on the contrary I'd like to see more of a pullback
to buy on weakness. By the way, our analyst Carlos Guillen has a piece on our website explaining the S&P 500 is 15% undervalued using certain metrics
including dividend, growth, and risk. Check it out at www.wstreet.com.
International Scene
The market was off in part
because the dollar was higher in part because Greece is in serious trouble and all of a sudden confidence in Germany has fallen off a cliff. But it's
all about China, right? This morning, the reaction to China's GDP will be counter intuitive. In other words, if China is growing too strong then the
fear is that government officials there tap the brakes too hard. But right now I'm not sure what "too strong" is. China is a monster, and a necessary
monster with 1.4 billion people drinking up capitalism. I understand that the government is really fascist; in the sense people are embracing
capitalism and the chance to lift oneself higher in life. However, the powers that be rule with an iron fist. At some point economic freedom will spur
political freedom, too. For now, I would like the party (economic) to keep moving along.
Economic Data
Initial Jobless
Claims
Jobless claims rose for the second week in a row last week to 482,000 from 446,000. This seems to have rattled the market, as
claims hit their highest level since November and the four week moving average increased for the first time since August. On the positive side, the
number of continuing claims decreased by 18,000 to 4.60 million.
Morning Notes of Wisdom
By: Brian Sozzi, Research
Analyst
* Starbucks (SBUX) pointed to "in store programs that reduced waste" as one item supporting robust operating margin expansion in
the U.S. store operations. One example of this program at work is through precise measurement of ingredients used to make the drinks, as associates
seemingly have gadgets at their disposal to produce consistent measurements time after time. Next time you purchase that "iced venti redeye" at
Starbucks, fancy a view on the process that the barista uses to construct your caffeine fix.
* Watch out WalMex, Target (TGT) is coming to a
neighborhood near you in the next 3-5 years. The company outlined an interesting set of strategies prior to its annual meeting today. All in all, we
like where the new CEO is steering this ship, allocating capital to growth within the store (increased fresh food penetration), international
expansion, and a disciplined amount of new builds in the U.S. The combination of these actions should ultimately boost Target's valuation as they are
probable to do one or more of the following (1) increase cash flows from existing investments, (2) enhance the growth rate in earnings, and (3) reduce
the cost of capital as risk associated with the business declines given a better diversified sales structure (fresh food is a consistent traffic
driver; international sales should smooth out the ups and downs in the U.S. market). |   
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Disclaimer: Securities Operations Forum is providing this research to assist investors in determining when to buy and when to sell. All investment decisions are yours and as a result you could make or lose money. Securities Operations Forum, its employees and/or its affiliates and family members may from time to time take positions in the open market or otherwise with respect to the securities discussed, but not have stock ownership equal to or greater than 1% of the outstanding stock of the covered company nor does any employee of Securities Operations Forum sit on the Board of Directors of any covered company. The statements made herein include information obtained from sources believed to be reliable, but no independent verification has been made and we do not guarantee its accuracy or completeness. The statements made herein contain general information and do not constitute an offer to buy or sell any security. |
