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The Wall Street Greek blog is the sexy & syndicated financial securities markets publication of former Senior Equity Analyst Markos N. Kaminis. Our stock market blog reaches reputable publishers & private networks and is an unbiased, independent Wall Street research resource on the economy, stocks, gold & currency, energy & oil, real estate and more. Wall Street & Greece should be as honest, dependable and passionate as The Greek.



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Wednesday, October 31, 2012

Hurricane Sandy Stirs Stock Slide

Sandy storm rescue
The start of the trading week, postponed for a couple days due to a little lady named Sandy, ushered in a stormy slide for stocks Wednesday. After the full force of Hurricane Sandy, a.k.a. Frankenstorm, struck against the densely populated Northeastern United States, the consequences of its economic impact are being assessed by the market. As I warned in my article preceding the storm, Hurricane Sandy – A Catalyst for Recession, it has produced an October surprise that could put us over the edge even before we reach the fiscal cliff. As noted previously, at the very least, the stock market will have to consider the possibility, and price it in to some extent. This unfolded in part Wednesday, and should continue to play a role in valuations as the impact and economic picture become clear.

Economists are generally in agreement with me regarding the significant negative economic impact of Hurricane Sandy; there is only variance in opinion about the degree of impact. However, the concern of investors should be that the untimely and unexpected storm will add another weight to an already burdened economy, and one that is facing at least another two important obstacles over the next two to six months, by my estimation. Those impending and foreseeable obstacles are the fiscal cliff (and what it brings) and the military confrontation of Iran, though it’s interesting to note that neither has had much of an impact to stocks to date. Rather, it’s been the corporate earnings season that is offering a tangible wake up call for investors. The show me market now needs a reason to justify the gains of stocks that have come on hope created by the latest efforts of the ECB and Federal Reserve.

Economic forecaster, IHS Global Insight, says property damage from the storm could approximate $20 billion, and lost business may amount to $10 to $30 billion in the fourth quarter. The impact to GDP growth is not negligible, though based on estimates for Q4 GDP, would not be enough to cause economic contraction by itself. The problem is that it’s not the only issue facing us.

Greek Orthodox wedding candles
The broader markets were markedly lower at times Wednesday as a result of the storm, with the SPDR S&P 500 (NYSE: SPY), the SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares (Nasdaq: QQQ) each in the red. However, some are buying on the weakness, perhaps on the basis of past history and market opportunities that have been born of similar catastrophes. Still, just as we’ve discussed previously, the economic impact of this storm, not the storm itself, is what is troubling. Yes, it’s a one-time event, but it comes at a vulnerable time and could be a catalyst for recession given other issues. So it should not be perceived as old history, but instead as bad catalyst for an upcoming event.

The NYC area could be 2 to 3 weeks away from its subway system running normally, and some eight million people remain without power and many are also without water. Though, the storm struck a much wider span of the country than just the important city that never sleeps. Yours truly lost power, hot water and heat for twelve hours while staying with family far from New York. I previously spoke of the lost sales of consumer discretionary companies (see the prior article) due to the disruption. Today, the market is assessing the impact to the airlines, property & casualty insurers and refiners as well as others.

Company & Ticker
Wednesday Change
United Continental (NYSE: UAL)
-0.4%
Delta Air Lines (NYSE: DAL)
-0.4%
Aetna (NYSE: AET)
-1.2%
Chubb (NYSE: CB)
-1.2%
Tesoro (NYSE: TSO)
-2.6%
Valero (NYSE: VLO)
-0.7%


Just as I suggested previously, the storm will affect some companies more than others, even within industries. And as I forecasted, it would help some companies. Today the shares of Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW) are up 2.3% and 3.2%, respectively, as I forecasted. Also notable, the shares of Macy’s (NYSE: M) are down more than the shares of Wal-Mart (NYSE: WMT), just as I suggested in that prescient work.

Moving forward from here, we’ll receive better estimates of the impacts to the economy, specific industries and companies, and valuations will bear out those realizations. Stay tuned as I assess the impacts to specific industries and stocks in upcoming articles, and as we prepare an important pre-election employment report preview.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Saturday, October 27, 2012

Hurricane Sandy Could Catalyze Recession

Hurricane Sandy
Widespread destruction and disruption is expected across the most widely populated part of the nation, the Northeastern United States, starting this weekend. Hurricane Sandy will meet a deep arctic low cold front at the Jet Stream to perhaps generate the storm of the century for the Northeast Region of the United States. Imagine “The Perfect Storm” but over land instead of the Atlantic Ocean. Power outages are likely, tree falls should be commonplace, flooding widespread and high winds will strike areas unaccustomed to it, perhaps resulting in severe structural damage. A four to eight foot storm surge is expected as a full moon lifts tides as well. A foot of rain may fall in some areas, as high winds batter the East Coast.

alarmist
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Hurricane Sandy Recession

Northeastern U.S. residents will not likely leave home for a day or two or more depending on how well power holds up, and so discretionary spending at Macy’s (NYSE: M), Darden Restaurants (NYSE: DRI) and the like will be impacted. Though fast food providers like McDonald’s (NYSE: MCD) and Yum! Brands (NYSE: YUM) and supply stores like Wal-Mart (NYSE: WMT), Costco (Nasdaq: COST) and Sears (Nasdaq: SHLD) perhaps benefit ahead of the battle. Overall, while there will be a surge of spending for emergency items and groceries, such non-discretionary spending should be followed by a lull in shopping for similar items in the weeks that follow, leveling out the impact to the quarter.

Public sector spending will fill the pockets of emergency workers putting in overtime hours and fill up the tanks of fuel and equipment suppliers. Construction materials suppliers should benefit as well, including the likes of retailers Home Depot (NYSE: HD) and Lowes (NYSE: LOW), and other construction materials companies like USG (NYSE: USG) and Builders FirstSource (Nasdaq: BLDR).

Still, business will come to a halt generally for a day to a week or more across a vast and important region of the U.S. That means fewer hours billed by lawyers, less frozen yogurts sold at the local shop, land bound fishermen with empty nets, unfilled barbershop chairs, and increased absenteeism across all business sectors. Thus, the net result should be a significant negative impact to fourth quarter GDP, and perhaps a catalyst for recession, given the vulnerable state of the economy. The broader markets have not had an opportunity to price in this quickly developing event, and so the SPDR S&P 500 ETF (NYSE: SPY) could take a hit next week as well, which strikes at the pockets of all Americans. Yes, Hurricane Sandy, potentially the storm of the century for the Northeast, could be a catalyst for recession.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Friday, October 26, 2012

Manufacturing Bouncing Like a Dead Cat

dead cat bounce, Marley Maltese
The manufacturing segment of the economy has been especially dynamic of late and so demands review. We know that over the past few years, manufacturing, assisted by international demand and a mild recovery here at home, has helped support the economy. We also know that nascent demand decline caused by European recession (depression in some areas) and slowing in the China Asia Pacific region have caused a recent contraction in the American manufacturing segment. However, more recent data have shown a mild bounce. What we must determine from here is whether the sector will bounce robustly or more like a dead cat.

bloggers
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Manufacturing Review

This week ushered in new global manufacturing data, offering information about the U.S., Europe and China. The data produced by Markit Economics showed the manufacturing sector in the U.S. expanded at a faster pace, China contracted at a slower pace and Europe contracted at a faster pace in October. On net, the news was improved, especially for America. The news very likely helped to lift the Dow Jones Industrial Average in early trading Wednesday, but by the close the SPDR Dow Jones Industrial Average ETF (NYSE: DIA) had succumbed to new pressure. The same was true for the Industrial Select Sector SPDR (NYSE: XLI). The catalyst for the turn downward was likely the Monetary Policy Statement of the Federal Open Market Committee (FOMC), through which it continued to intimate concern.

Region
PMI
Change
U.S.
51.3
+0.2
Europe
45.3
-0.8
China
49.1
+1.2


We knew Europe was getting worse when earlier this week the German Finance Ministry warned about an especially difficult fourth quarter for Germany. We noted that the German Chancellor was asking her countrymen to stand behind an economic stimulus plan that stood in complete perfect contrast to what the German led EU is asking of Greece. Markit Economics reported this week the Flash Germany Composite Output Index contracted a full point to 48.1, and the Flash Germany Manufacturing Output Index fell much further, dropping to 45.9. Each measure under 50.0 marks economic contraction, and so Germany is increasingly looking vulnerable to the contagion that is decimating its Southern brothers.

The improvement in China still marks contraction, and in a little less than two weeks, Mitt Romney might be a lot closer to labeling it a “currency manipulator.” While Romney is certain China’s dependence on the American end market will prevent a trade war, the market is probably not completely on board yet. Whether that happens or not won’t have any impact on soft European demand for Chinese made goods.

The American PMI data published by Markit Economics showed the New Orders Index declined to 51.6, from 52.3 in September. Now, that’s not a change that is necessarily worth getting up in arms about, but it may prove to be an early sign of a dead cat bounce in manufacturing. The last report published by the Institute of Supply Management showed a growing PMI, up 1.9 to 51.5, but that was for September. We’ll get October’s data on November 1st. ISM’s New Orders Index increased by 5.2 points on its way to 52.3 in September. Still, if this early data from Markit Economics holds true, the gains of September may not be long lived. At least one economist was skeptical of the ISM report the day it was published.

Anecdotal evidence or information from companies in the goods producing sector of the economy has mostly been contentious. Caterpillar (NYSE: CAT) revealed its concerns about the global economy in late September, sending its shares tumbling. The shares have fallen some more since reporting results at the start of this week and reducing its near-term forecast. General Electric (GE) finally made us look wise on our warning about it in June when it recently declined after reporting its third quarter. While GE met analysts on its third quarter EPS result, a trend of quarterly earnings outperformance ended. Also, analysts’ earnings estimates have been coming down almost without exception. The same is true for other industrials like Caterpillar, Cummins (NYSE: CMI), 3M (NYSE: MMM) and others. Though, there are segments of the sector where it is harder to find signs of trouble in earnings estimates, like in aerospace with Boeing (NYSE: BA) and in autos with Ford (NYSE: F).

In conclusion, it’s still too soon to say if this bounce will resemble that of a robust rubber ball or of a dead cat. However, as readers of this column know, I’m looking for the furry feline sort of fall. Today’s GDP data for Q3 showed better than expected growth of 2.0%, exceeding the economists’ consensus for 1.9% and Q2 growth of 1.3%. However, the GDP Price Index increased by a higher than expected 2.8% over the immediately preceding quarter. Though, the increase was mostly attributable to food and energy prices; but as you know, we think those prices matter to Americans as well. With an Iran event near certainly looming, Europe deteriorating, and tensions with China heightening, I see heavy weights against the sector. Finally, while I’m expecting the next employment report to appear positive on the headline unemployment rate, I continue to view the data misleading and incorrect. Thus, watch out for feline road kill on this segment highway.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Tuesday, October 23, 2012

Merkel Hypocrite!

Merkel hypocrite
Germany’s Finance Ministry warned in a monthly report Monday that Europe’s largest economy would mark a significant slowdown in the fourth quarter. In an attempt to mitigate the economic issue, German Chancellor Angela Merkel last week suggested opposing German political party members stop blocking her proposed tax cuts. Merkel indicated that the German economy needed economic stimulus, and that tax cuts should help domestic economic growth by giving her countrymen more money to spend. Likewise, she is promoting pension contribution cuts to help German prosperity, and advising companies to give more lucrative pay increases to their employees. Sounds sensible no?

Greek
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Now imagine the perspective of a Southern European onlooker. The hypocritical divergence of the two directives being issued to the various groups must fill Greeks with disgust. European leaders, at the nudging of Germany, have pushed the complete opposite strategy for Greek and Spanish prosperity than those being promoted in Germany today. So which is the true path to prosperity, the one being promoted by the Germans for the Germans or the one being promoted by the Germans for the Greeks?

Obviously, the issue is more complex than that, given the debt and management problems of the Greeks versus the smooth operating German economic machine. The Greeks must adhere to the prescription of their emergency creditors in order to receive desperately needed funds. Still, why does the economic prescription contrast so sharply to the pill being recommended by Merkel for the Germans? It is after all for the same ultimate purpose, the betterment of the economy, and in Greece’s situation, the ensuring of debt repayment.

Perhaps the Europeans have it all wrong with regard to Greece, and instead of ensuring the repayment of their loans, are instead burying their money into a deep depression with the ruins of Ancient Athens. That’s what the esteemed student of the Great Depression now running the American Federal Reserve might suggest, given Ben Bernanke’s comments to U.S. legislators over the years. He would tell you that it was precisely the mistimed budget mindedness of American leaders that led our economy into the Great Depression. It turned an average recession into a once in a generation economic struggle.

A few voices, including from yours truly, have from the beginning warned that growth spurring initiatives for Southern Europe should precede and outweigh a graduated austerity program, and that Greece’s repayment program should have extended terms. We have been happy to see Europe more recently acknowledging the burdensome drag of its initial repayment demands.

Still, while Greece’s public entities reduce workforce, draw back pension benefits and raise taxes, they are constraining the Greek economy. This is something that the Germans can no longer dispute, given their own domestic policy push, though to be fair, Merkel’s opponents are calling her demands irresponsible. The repercussions of the actions in Greece are pushing away private industry, illustrated recently by the move of Coca-Cola Hellenic (NYSE: CCH), which is relocating its headquarters to Switzerland and relisting its shares in London. Merkel does not want to trigger that same sort of flight in Germany, but is asking for companies that face no foreign competition to pay an alternative energy surcharge from which they have long been exempted.

What drives German stocks, like those found in the DAX and the iShares MSCI Germany Index (NYSE: EWG), likewise drives Greek stocks, like those found in the Global X FTSE Greece 20 ETF (NYSE: GREK). For that matter, it’s what drives the iShares S&P Europe 350 (NYSE: IEV) and the SPDR S&P 500 (NYSE: SPY)! The rules of economic prosperity are indifferent to the language spoken or culture found within a given country; they are universal. Thus, the economic policy prescribed to Greece and Spain should be the same as that being recommended for Germany, or at least should stress growth over austerity.

It is ignorant closed-mindedness and ethnocentricity which has kept the groups of people within the euro-zone from fairly and effectively resolving their crisis together. The problem is most clear when the leaders of Europe go home to seek approval of international plans. We understand the cost of this issue through the observance of the most effective action taken to-date, which in my opinion was the brave plan of the Mario Draghi led European Central Bank (ECB) to support sovereign debt in a sterilized manner. When Europe can accept its unity on the streets of Brussels, Paris, Berlin, Athens and Madrid, then it will have the resources and the will to fulfill its brave dream. On that day, it can likewise stop lying to the Greeks and the Spaniards about what’s best today for their economies.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Kaminis

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This Market Can’t Walk its Talk

market
On October 2nd, when we advised readers to “Sell the Show Me Market,” we’re not sure whether we caught your attention or not. But with the shares of stocks damaged of late by high profile earnings reports like that from Google (Nasdaq: GOOG), we expect investors are listening now. Stocks are not confirming the valuations investors have built into them over the course of the last year. As a result, investors are reconsidering those values, and the shares of the ETFs representing the broader indices have reflected that over the last three trading days. I would continue to sell this market at least up to a couple days before the election. Follow the column to receive that pending report.

market strategist
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Index ETF
Oct. 18 – 22
SPDR S&P 500 (NYSE: SPY)
-1.9%
SPDR Dow Jones (NYSE: DIA)
-1.6%
PowerShares QQQ (Nasdaq: QQQ)
-3.0%


In my view, the first big hit came with Caterpillar’s (NYSE: CAT) earnings warning, and the trouble was confirmed by Google’s (Nasdaq: GOOG) fumble. There will be flashes of hope, like that presented by Yahoo’s (Nasdaq: YHOO) report at Monday’s close, but I expect that the general message conveyed by stocks through this quarter’s earnings season will be negative. The gains companies have made through cost cuts can only take earnings so far. At some point revenue growth must take the wheel for sustainable stock price rise. The problem is that revenue is generally lacking in the globally constrained economy.

I see no significant positive catalyst until perhaps two business days before the election, when the government will report the next unemployment number. The Federal Reserve has fired its last bullet, and so this week’s FOMC meeting can only unearth its concerns about a still slumping global economy. Europe continues to deteriorate, with the German Finance Ministry Monday reporting expectations for a Q4 slowdown. The housing industry is recovering, but has been reduced so far in its importance, that it no longer has the broad power to lift all markets. Last week, the nascent labor market exuberance was tested by a new jobless claims climb. Economists see this Friday’s advance reporting of third quarter GDP showing a pace improvement to +1.9%, but the last revision to Q2 was for an unexpected reduction of pace to +1.3%. So, in my opinion, earnings season will continue to dictate the pace for stocks, and the reports should not have much good to say.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Thursday, October 18, 2012

Jobless Claims Return to Reality

job market USA
Weekly Initial Jobless Claims jumped by 46K in the latest reporting period, but it comes after the prior week’s sharp decline of 30,000. So where does the truth lie?

Just reported today, Weekly Initial Jobless Claims for the week ending October 13th, increased by 46K, rising to 388K. It was a notable jump in claims, but it came after a substantial decrease the week before, which took claims to a level not seen since early 2008. Many simply accepted the data for the truth, while others, including yours truly, were highly skeptical. Over the course of the last week, the Department of Labor and the media helped to uncover the truth, though in a less than perfectly fluid manner.

As it turns out, because the unemployed are required to recertify their state of unemployment at the start of a quarter, it can lead to swings in the first few weeks of data reporting. It seems that in at least one state, this certification period may have shifted by a week, causing the last two weeks of swing. While representatives of California last week refuted claims that some of its reporting regions had not reported claims, perhaps this explains why California, which usually posts increased adjusted numbers at the start of a quarter, posted a decrease last week. Again, this is only theory.

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Now, if you want a more solid number to base your perspective on, take note that the four-week moving average for jobless claims only increased by 750 in the latest period, to 365,500. Still, even the four-week figure would seem to be skewed, and should increase after last week’s low count ages out.

What we’re left with after the dust has settled is a labor situation that seems to better reflect the true state of the labor market today. Still, that true state is again fogged by the reported decrease of insured unemployment to 2.5% in the week ending October 6, from 2.6% the week before. The Bureau of Labor Statistics today said the number of unemployed Americans receiving benefits fell by 29,000. The number of people receiving a benefit of some sort fell by 42,664 in the week ending September 29, to 5.0 million. Of course, much of this is due to the long-term unemployed exhausting their benefits and falling out of the labor force count. We have covered this fact time and again, and once more in our report entitled, “The Under-Employment Rate Shows Same Misery.”

The market as illustrated by the ETFs measuring the movement of the S&P 500, Dow Jones Industrials Average and the NASDAQ, are relatively unchanged through midday Thursday. That’s probably because the bad news reported for the labor market contrasts with the better than expected Leading Economic Indicators Index.

INDEX ETF
Midday Change Thursday
SPDR S&P 500 (NYSE: SPY)
+0.1%
SPDR Dow Jones Industrials (NYSE: DIA)
+0.2%
PowerShares QQQ (Nasdaq: QQQ)
-0.1%


While reporting earnings, many companies are also announcing layoffs. Today it was Abbot Labs (NYSE: ABT) saying it would cut 550 jobs. Newsweek, owned by IAC/InterActiveCorp (Nasdaq: IACI), declared it would stop publishing its iconic magazine and go to digital only distribution, which means layoffs are pending. Layoffs are expected at Advanced Micro Devices (NYSE: AMD), rumored at eBay’s (Nasdaq: EBAY) Paypal unit, and being delayed at a Whirlpool (NYSE: WHR) development center due to attrition of employment ahead of the planned cuts. I continue to expect the weight of global economic issues to weigh on our economy further, along with the effects of the fiscal cliff crisis pending, and/or an energy crisis catalyzed by war with Iran. So, I continue to warn that some sad Thursday morning, when claims exceed 400K, stocks may retract more meaningfully.

Last week, when the low jobless count was reported, the shares of most employment services companies rallied. This week, the shares of major players are mixed on a significant degree of company specific data, so we’ll leave those numbers out of this report. For future coverage of the regular labor data points follow my column.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Monday, October 15, 2012

Retail Sales Lifted by iPhone 5

Apple store night time photo
Retail Sales gained by 1.1% in September, enthusing stocks. The SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) were each up robustly Monday on the news. The growth in sales offered reassurance about an economy that was recently drawing questions about its health. However, a special factor may have offered a temporary lift for the month and should play a smaller role moving forward - the iPhone 5 introduction. Still, Apple's major product launches are as good as economic stimulus.

Kaminis
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

The government said Retail Sales rose 1.1% in September, and August was revised higher by three-tenths of a point to +1.2%. At first brush, one would expect the gain came from the significant auto segment or on higher gasoline prices. However, when excluding autos, sales were also up by 1.1%, and when excluding autos and gasoline, sales increased by 0.9%, exceeding economists’ consensus expectations for growth of 0.5%. That’s impressive.

Closer inspection of the data shows that motor vehicle sales increased by a robust 1.3% rate, boding well for automakers Ford (NYSE: F), General Motors (NYSE: GM), Toyota (NYSE: TM), Daimler AG ADRs (OTC: DDAIY.PK), Honda Motors (NYSE: HMC) and Nissan (OTC: NSANY.PK) – some more than others. Auto shares were higher on the day, with Ford and GM lagging their foreign competitors’ gains. Auto sales were already reported for September, and so the gains in these stocks are also attributable to the general message conveyed by the overall sales growth.

Gasoline stations did see above average growth of 2.5% on the month, given the rise of gasoline prices, especially in California. The shares of Pantry Inc. (Nasdaq: PTRY), an important operator of gas station and mini-market stores, are higher by 1.5% on the news. The shares of major oils Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) are up a half point each on the news, as well as on news that Iran is contemplating causing a large oil spill in the Strait of Hormuz.

The special driver last month was found in sales at Electronics and Appliance Stores, which increased 4.5% over August. The gain was the largest of any segment, and was directly attributable to Apple’s (Nasdaq: AAPL) iPhone 5 introduction on the twelfth of the month. Apple sold five million of its new iPhone just through the first weekend of its availability. This certainly drove traffic into stores other than Apple’s, both at street level and on the web. Best Buy (NYSE: BBY), for instance, should have seen higher foot traffic and likely generated sales of products other than the iPhone as well as on discounted legacy Apple phones and on competitively priced competitor gear.

Greek Orthodox baptism set Christening kit
Sales of non-store retailers, which include catalog but also sellers on the web, increased by 1.8% in September. Though some of these retailers were not selling the iPhone 5, they still benefited from traffic to their sites and on the re-sales of Apple products and the sales of older Apple and competitive products through the month. Thus, the Amazon.com’s (Nasdaq: AMZN) of the world, along with eBay (Nasdaq: EBAY) and others benefited indirectly.

Food & beverage store sales increased 1.2%, likely on price increases in agriculturally based goods. Sellers like Kroger (NYSE: KR), SuperValu (NYSE: SVU) and Wal-Mart (NYSE: WMT) also make a good deal of money from the use of food stamps.

Building material & garden equipment & supplies dealers saw a 1.1% sales increase through September, as the construction industry benefits from the lack of supply of new homes and the building of rental properties to meet the demand of our new “renter nation”.

Sporting goods, hobby, book and music stores saw sales increase 0.8%, likely on seasonal demand related to the start of school. Yet, clothing & clothing accessories stores only saw a 0.6% increase in sales, while general merchandise stores like Wal-Mart (NYSE: WMT), Target (NYSE: TGT) and Sears (Nasdaq: SHLD) only saw a 0.3% increase. Department stores like J.C. Penney (NYSE: JCP) marked a sales decline of 0.2%, as they continue to lose share to discounters and warehouse club stores like Dollar Tree (Nasdaq: DLTR) and Costco (Nasdaq: COST).

Another measure of economic health tied to discretionary spending offered a different message than the electronics stores. Food services & drinking places only marked sales growth of 0.4% in September, offering an ominous perspective on the perhaps short-lived nature of iPhone sales. While the celebration today is understandable, investors should take into account that temporary short-term iPhone boost.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Monday's Premarket Slate

business report
A heavy hitting economic data point meets the market first thing Monday morning. Retail Sales data will be reported for the month of September at 8:30 AM ET. Autos are expected to give a lift to sales, as economists see a 0.7% increase in overall sales, but a 0.5% gain for sales ex-autos. That sort of a pace would be down a notch from August, when gains of 0.9% and 0.8% were reported respectively. When excluding autos and gasoline, sales are expected higher by 0.5%, versus the 0.1% gain marked in August. Motor vehicle sales have already been reported for September, so this is less likely to move autos stocks and more likely to move retail stores generally. The long-term trend of sales seems to show the data at a point of inflection, so the latest report will either reinforce concern or spell relief for it.

New York area manufacturing was reported poor in September, with the Empire State Manufacturing Survey showing its General Business Conditions Index down to negative 10.4. Economists see improvement for August, with the consensus expectation set at negative 3.0. Some of the more recent data has indicated stabilization, especially the ISM Manufacturing Index, which marked 51.5% for September. However, we expressed healthy skepticism of the message offered by ISM when it was reported last week. The New York area measure might offer a sort of test of truth here.

Business Trade data will be reported at 10:00 AM, measuring the sales and inventories of manufacturers, wholesalers and retailers. Inventories increased by 0.8% in July, as sales gained by 0.9%, so the inventory-to-sales ratio improved to 1.28, from 1.29 the month before (on an adjusted basis). Economists’ projections are only available for inventories, and those are seen rising by 0.5% in August. The data is old and shouldn’t prove important, except in the case of a significant surprise.

Federal Reserve representatives William Dudley, Jeffrey Lacker and James Bullard are addressing three separate audiences Monday. Overseas, Finance ministers from Asia and Europe are meeting in Bangkok. China will publish monthly data on consumer and producer prices. Portugal issues its draft budget for 2013, which should show a smothering austerity program.

The United Nations Security Council begins discussion on the Middle East.

The corporate wire has Citigroup (NYSE: C) on the marquee, with reports also expected from Gannett (NYSE: GCI), Packaging Corp. of America (NYSE: PKG), WD-40 (Nasdaq: WDFC), Art’s Way Manufacturing (Nasdaq: ARTW), Brown & Brown (NYSE: BRO), Educational Development (Nasdaq: EDUC), ICU Medical (Nasdaq: ICUI), Joe’s Jeans (Nasdaq: JOEZ), Premier Exhibitions (Nasdaq: PRXI) and Uranium Energy (NYSE: UEC).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Thursday, October 11, 2012

Jobless Claims Improvement Likely Just Seasonal

jobless claims
Report Update: One unnamed important state failed to report claims for all of its regions this week. Due to the unreported claims from an important state, not noted within the DOL report, today's gains in stocks and employment services firms were on soft or even false footing. They should vanish and reverse accordingly.

Prior to our discovery of the anomaly, and due to the poor reporting of the DOL on this issue - leaving it out of the weekly report release, we initially sought to explain what seemed to us to be surely erroneous data (we were right) as follows.

Weekly Initial Jobless Claims improved impressively last week, but there might be a seasonal reason for what could prove to be an exaggerated improvement. I see two possibilities, an obvious one which is likely only slightly skewing the number, and one theoretical idea that could be playing a larger role. Of course, there’s also the possibility that the flow of jobless claims is legitimately improving, but I find that difficult to believe given the flow of other economic data.

Markos Kaminis
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Jobless Claims

Jobless claims fell by 30,000 in the period ending October 6, declining to 339K. The four-week moving average for jobless claims also fell, by 11,500, to 375,500. It certainly would seem like good enough news if not for the time period covered.

While the Jewish holiday of Yom Kippur was on the 25th and 26th of September (outside of this reporting period) with work forbidden during the period, the Jewish holiday of Sukkot, with work likewise forbidden, ran through the period of reporting last week. This could have affected both the filing of unemployment and the processing of claims, but to what degree?

It is hard to measure the exact extent of impact for the reporting period, because religious holidays are not necessarily strictly followed in America by followers of all faiths today. For example, I know a great many people of my own faith who work on Good Friday. Thus, we cannot be sure of the percentage of Americans for whom the factors of faith and new unemployment mattered last week. Still, we neither can be sure the reporting period was clear of noise. Next week’s data will not be clear of holiday issue either, as it has Columbus Day to incorporate.

Another seasonal factor could have played an important role in the reported improvement. As it is earnings season, companies about to report results below their forecasts or the estimates of analysts may be saving layoff announcements to coincide with their earnings results. When a company misses, it will often take action immediately in order to reassure investors that it is actively working to end the trend. Thus, new jobless claims that might have been announced over the last couple of weeks may perhaps have been postponed for announcement with pending poor earnings reports. The third quarter earnings season is not expected to be robust, and earnings warnings continue to threaten stocks generally.

Looking further into the data, the insured unemployment rate was unchanged at 2.6% for the period ending September 29. The exact count of the insured unemployed improved by 15,000 to 3.27 million Americans. The number of people claiming benefits under all programs for the week ending September 22nd declined by 43,970, though still numbering 5.04 million. It’s important to note that extended benefits were only available in New York.

The highest insured unemployment rates in the week ending September 22 were in Puerto Rico (3.9%), Alaska (3.7), Virgin Islands (3.7), Pennsylvania (3.2), New Jersey (3.1), California (3.1), Connecticut (2.9), Nevada (2.7), and Oregon (2.7).

The largest increases in initial claims for the week ending September 29 were in New York (+2,764), California (+2,069), North Carolina (+1,217), Pennsylvania (+989), and Arkansas (+538), while the largest decreases were in Mississippi (-3,393), Michigan (-2,639), Florida (-1,972), Ohio (-1,723), and Oregon (-1,135).

The shares of employment services companies tend to move on this data and are listed below. All of the companies are higher, and some relatively more than the move in the market represented here by the SPDR S&P 500 ETF (NYSE: SPY). To the extent that the gain is more than the general relationship of each security to the market, as represented by beta, it is likely due to the new claims data.

Company & Ticker
Thursday Change
Robert Half (NYSE: RHI)
+0.1%
Korn Ferry (NYSE: KFY)
+0.6%
Monster Worldwide (NYSE: MWW)
+1.2%
Manpower (NYSE: MAN)
+1.7%
Paychex (Nasdaq: PAYX)
+0.1%
On Assignment (Nasdaq: ASGN)
+2.4%
Kelly Services (Nasdaq: KELYA)
+1.5%
SPDR S&P 500 (NYSE: SPY)
+0.6%


Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Wednesday, October 10, 2012

Earnings Warnings & EPS Season Threatens Shares

threatening
Alcoa (NYSE: AA) officially started earnings season Tuesday afternoon, but earnings warning season is at full stride. I see stocks at risk broadly speaking, as it is put up or shut up time now. With the SPDR S&P 500 (NYSE: SPY) up 16.7% year-to-date after adjustment for dividends and splits, and given that earnings estimates are moving in the opposite direction, the pressure is weighing against stocks to prove their worth. Of course, valuations might still benefit from improved investor expectations which could coincide with a Romney rise in the election polls. However, the weight of earnings and EPS warnings should prove meaningful.

Wall Street Greek, Markos Kaminis
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Earnings Warnings & EPS Season

Tensions are high for good reason, including high profile warnings already booked by the likes of Caterpillar (NYSE: CAT), McDonald’s (NYSE: MCD), Applied Materials (Nasdaq: AMAT), FedEx (NYSE: FDX), Hewlett-Packard (NYSE: HPQ) and Express (Nasdaq: EXPR). Indeed, concern about Apple’s (Nasdaq: AAPL) outlook after an analyst’s downgrade drove it down 2.3% intraday Tuesday before it recovered to close just 0.4% underwater. The SPY collapsed a full point Tuesday as tensions rose ahead of reports from Alcoa and Yum! Brands (NYSE: YUM). The week’s reporting schedule is light overall, but it’ll close with high profile (and impact) news from J.P. Morgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC).

Earnings expectations do not match up well against stock performance. According to a Zack’s report, total earnings are expected to decline by 3.2%, marking the first drop since 2009. You recall 2009, when the market reached rock bottom. When I was an analyst, I tracked analysts’ expectations and was not surprised to find that they really were late in catching up with reality. They tended to follow results, even quarter to quarter, and so I’m not surprised to discover that expectations for the fourth quarter are still for EPS growth of 7.9%. I expect that after this quarter’s reports, growth for Q4 will be severely altered.

Much of the more recent earnings growth has been on cost cuts, as revenues have proven soft. As you might expect, there’s only so far you can cut and continue to function somewhat efficiently. It looks to me like the fat is all gone now, and only muscle attrition can follow, or EPS attrition. Another issue has been stealth price increases, meant to keep customers from noticing. I plan to report on some of the creative ways companies have passed off price increases to their customers in a near-term article at the blog and at Seeking Alpha, so stay tuned.

The SPY is down fractionally in morning trading Wednesday, after mixed news from Alcoa (-3.8%), Yum! Brands (+8.9%), Chevron (NYSE: CVX) (-3.6%) and Costco (Nasdaq: COST) (+4.7%) on their individual earnings reports. As the season continues to test stocks, I expect pressure to increasingly weigh against them. Though, as we pass warnings season, the outperformers will increase in number and begin to balance the message against the companies reporting bad news or outlooks. Still, in my opinion, on net, earnings season threatens stocks this quarter.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Tuesday, October 09, 2012

Apple Television – The Next Game Changer

Apple television
When Apple (Nasdaq: AAPL) entered the mobile phone market, it had no presence and yet followed through to change the game for the electronics segment. With the iPad and iPhone, Apple has changed the way we think about our web surfing, opening up computing to a slew of new hardware possibilities. The company did the same thing for mobile music, and I propose, it is capable of changing the game yet again, this time for television. The Apple television solution, however it may develop, should be the driver for the next leg of mind-blowing growth for this innovator of our age. At the same time, I believe that how Apple proceeds could determine whether its age of innovation has peaked, or whether it goes on.

Apple blogger
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

In television, Apple will find no lack of competition. The deeply embedded list of experienced players includes iconic electronics producers and some companies that Apple is already butting heads with. The leading large-screen brands globally in terms of market share based on Q1 2012 revenues are Samsung (KSE: 005930.KS), LG (KSE: 003550.KS), Sony (NYSE: SNE), Sharp (OTC: SHCAY.PK) and Panasonic (NYSE: PC).

So Apple finds its arch-nemesis, Samsung (OTC: SSNLF.PK), which it recently battled in patent court, atop the list in television sets. Samsung is not sitting idle either, having already introduced a Smart-TV of its own, striking before Apple could introduce a model. Samsung has built on what it has learned works in its experience competing with Apple in mobile phones. Yet, I still believe Apple can become the leading player in televisions. Why?

It is not as if innovation was not already present in the mobile phone industry when Apple entered it, and yet Steve Jobs’ vision was still able to revolutionize it. Motorola (later Motorola Mobility), which was acquired by Google (Nasdaq: GOOG) not too long ago, was flattening the phone and Nokia (NYSE: NOK) and everybody else were shrinking it and adding features, including cameras. Yet, Apple came in with an exciting new idea, a fresh look and two brands people respected, Apple and Steve Jobs, and it earned the demand of the market. Its latest mobile conquest has been in a last bastion of mobile dominated by one of its rivals. Research in Motion (Nasdaq: RIMM) had dominated the business market, and yet today it is struggling to keep from following the fate of Palm, which was acquired by Hewlett-Packard (NYSE: HPQ) before it could fail. However staggered, the competition is arguably catching up in mobile phones now, and Apple will need a new front to keep its stunning growth going.

Presumably, Apple will do a little of the same innovating in its television development. Though without Jobs at the helm, one must question whether it will be as clairvoyant in its vision. Even with Jobs, Apple may have been over-thinking television. Certainly Apple could have had a smart television on the market long ago, but the company wants to provide more than what other smart TVs are offering today. Jobs’ vision was that the Apple television should offer both new content and new access to existing content for it to be disruptive enough to change the game. However, the company has run into roadblocks in its discussions with content and cable providers like Time Warner Cable (NYSE: TWC) and Comcast (Nasdaq: CMSCA), which have been skeptical and cautious about letting Apple into their realm. It’s understandable, considering Apple’s impact upon some of the players in other fields. The trick is in getting the cable providers to see themselves like the communications companies in mobile, the AT&T’s (NYSE: T), Sprint Nextel’s (NYSE: S) and Verizon’s (NYSE: VZ) of the world, and not like the decimated mobile phone makers.

However, even without the degree of disruption Apple wants, it still could dominate television, in my view. That’s because whatever Apple may today be missing in creativity and persuasion without its iconic visionary, this time, should be offset by the draw of its strong brand name and its excellent reputation. So the company could be missing an opportunity and possibly a stepping stone toward its end goal for as long as it stays out of the television market. Or, it could be smartly controlling its image in television, and keeping from weakening its future role by waiting. The evolution of television is complex and developing, and offers a range of scenarios for companies of all sorts, including those already mentioned and the likes of Netflix (Nasdaq: NFLX), TiVo (Nasdaq: TIVO), DirecTV (NYSE: DTV), Amazon.com (Nasdaq: AMZN), Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT).

Television sets have been viewed as a commodity for so long now, that no manufacturer has yet been able to establish its brand as a destination driver. In other words, I do not believe people go to Best Buy (NYSE: BBY) to buy a Samsung Smart TV. This is proven by consumers’ defining televisions by their features, rather than by their brand names. You hear people talking about their flat screen TV, not their Samsung TV. The newest technological nuance has been 3D technology, but I expect that if you surveyed consumers, very few could definitely tell you which brand they like best in 3D. People assume that everybody makes one, and so they decide on which to buy while shopping; and based on their store experience, TV image quality at viewing, consumer reviews and on price.

Yet, if Apple enters the fray, even with a less powerful offering than the company targets, I feel comfortable saying Americans will stampede for their latest Apple toy. The fact that smart televisions already existed before Apple entered the market would be quickly forgotten. I expect an Apple television would instantaneously become a market share leader, if not the top player. Perhaps only price would slow its rise to the top in TVs, but only as much (or as little) as it has slowed its stellar growth in other segments. Apple has proven that enough people will pay up for a better solution. Analyst Peter Misek at Jefferies & Company, figures an Apple television priced at $1,250 would have generated $2.5 billion in sales in the fourth quarter of this year. That’s about 6.9% of what Apple is currently projected to make in fiscal Q4 (Sept.) without a television. It’s not negligible, but it’s not blockbuster either, though I believe it is understated.

Apple’s valuation has for some time now reflected skepticism about whether the company could continue to grow at its amazing pace as it comes against the law of large numbers. I broached this subject in my article entitled “Should I Buy Apple?” Apple’s high stock price has drawn questions as to whether a stock split could add value or not, and I covered the pros and the cons of a potential Apple stock split in recent works as well. But if Apple could provide investors with a viable new vehicle for growth, some of its valuation gap would narrow, adding fuel to capital appreciation that would also benefit from boosted EPS growth.

Today, AAPL shares trade at a P/E ratio of about 11.8X the analysts’ consensus EPS estimate of $53.45 for fiscal year 2013 (Sept.). That compares to analysts’ projected five-year growth expectations of 24%, giving the stock a P/E-to-growth ratio of 0.5. It’s apparent here that there is some skepticism with regard to the company’s ability to grow at the estimated pace. Investors betting on the company’s follow through would thus have a margin of safety to play with. Furthermore, if the company can successfully enter a new market segment like television, I expect it would prove those investors right. My expectations for television are an important reason why I favor AAPL shares today, especially at the stock’s valuation. Still, how well Apple capitalizes on its opportunity is completely dependent on the execution of its Jobs-less management team. As I have determined to pick up regular coverage of Apple for investors, you may want to stay in the loop by following my column.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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