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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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Tuesday, March 26, 2013

Recession Omen - Consumer Confidence Collapse on Payroll Tax Hike

ApocalypseBy Markos N. Kaminis:

Tuesday’s consumer confidence report could be offering important insight into the real impact of the payroll tax break expiration. Confidence soared once politicians got out of the way of the stock market. However, as Americans noticed shrinkage in their paychecks, the consumer view changed. The government itself thinks there should be a 1.5 percentage point drag on economic growth as a result, but in a consumer driven economy, everything is at stake.

The Conference Board reported its Consumer Confidence Index for March Tuesday morning. The index, which had gained more than 10 points last month on new hope for stocks and the economy, shed all of its gains this month I believe on the reality of lighter paychecks. Economists surveyed by Bloomberg were expecting a slight slippage in the index, to 68.0, from the 69.6 reported in February. What they got was a far worse result, with the Consumer Confidence Index falling nearly 10 points to 59.7.

Stocks ignored the recession warning signal, with all the broader indexes higher on the day, as gold retrenched. However, the ignorance of the major indexes was in the shadow of the move of a broader grouping of stocks measured by the iShares Russell 2000 (NYSE: IWM), which was only fractionally higher toward the close. That was against the 0.7% gain of the S&P 500 Index at 3:30 PM ET.

Broad Indicator
Tuesday Through 3:10 PM
SPDR Dow Jones (NYSE: DIA)
PowerShares QQQ (Nasdaq: QQQ)
iShares Russell 2000 (NYSE: IWM)
SPDR Gold Shares Trust (NYSE: GLD)

The Confidence Report showed that the consumer view for the current situation fell off. The Present Situation Index dropped to 57.9, from 61.4. Still, the news about the future was even worse. The Expectations Index collapsed to 60.9 from 72.4 last month.

In the past I’ve talked about the importance of the Present Situation measure versus the Expectations measure. We want to see improvement in the present situation to realize real economic gains. Stocks may move on “expectations” just as well though. Still, we cannot really consider this measure as a good gauge of the economy unless the overall gain is driven by the Present Situation Index. Expectations can change on a whim, for instance on the passing of the fiscal cliff or the debt ceiling issues.

The truth today is that Americans are seeing smaller paychecks because of the expiration of the payroll tax break. This was made real for me when last week I shared a meal with a maintenance worker from my church. Vangelis told me that he no longer liked President Obama, because his taxes went up. When Americans feel like they’re poorer, they are less likely to spend. With so many just getting by, a little less income makes a big difference. Also, the expiration of the tax break is not viewed as such, but as a tax increase by people who are not following the complicated news flow. Tax hikes have a way of killing spending, whether they are real or perceived.

Last week, I talked about the Fed’s economic forecast, which were hardly changed even despite their own acknowledgement that the payroll tax break expiration and the sequester spending cuts could burden economic growth by as much as 1.5% this year. I said The Fed’s Math Just Doesn’t Add Up. What might add up though is if consumers stop spending, as indicated by the sentiment result Tuesday. Then the Fed’s nearly unchanged GDP expectation for 2.3% to 2.8% growth this year could also be exposed. Make no mistake about it, in this consumer driven economy, the March message from consumers could signal a recession. I’ll be following this week’s GDP revision and Personal Spending data so you may want to follow along.

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, March 22, 2013

Ignore the Home Builder Pessimism

homebuildersBy The Greek:

Earlier this week, the National Association of Homebuilders’ (NAHB) Housing Market Index showed an intensified level of pessimism for homebuilders. Yet, I’m telling you not to worry about it, because it doesn’t matter.

The NAHB’s Housing Market Index (HMI) dropped 2 points in March, after shedding a point in February. The HMI fell to a mark of 44 in March, from 46 the month before, and made fools of economists who on average were expecting the index to improve by one point to 47.

The NAHB explained the falloff and the third straight month of flat to deteriorating data on ancillary issues. The industry group said that builders were still seeing increasing demand for new homes, but were frustrated by “bottlenecks in the supply chain for developed lots along with rising costs for building materials and labor.” And despite what seems like a better capital position for housing lenders like Bank of America (NYSE: BAC), according to the Federal Reserve, credit availability was reported as an ongoing problem. The NAHB also regularly mentions faulty appraisals, which include the values of sold distressed properties as comparables.

Yet, I’m telling you that there’s nothing to worry about. This index has remained underwater since the real estate market collapse, despite the nascent success of the nation’s largest builders. That’s the issue here. The NAHB is made up of builders, large and small, liquid and insolvent. Many small builders remain constrained by an inability to access capital. However, the large publicly traded builders including those listed herein are doing fine and dandy and are on an optimistic high today. They have access to capital, and the ability to steal market share from their humbled brothers. The evidence of their success is clear here.

Publicly Traded Builder
Year-to-Date Gain Thru 03/21/13
SPDR S&P Homebuilders (NYSE: XHB)
K.B. Homes (NYSE: KBH)
D.R. Horton (NYSE: DHI)
PulteGroup (NYSE: PHM)
Ryland Group (NYSE: RYL)
Toll Brothers (NYSE: TOL)
Lennar (NYSE: LEN)
MDC Holdings (NYSE: MDC)

They are not all higher on the year though. Beazer Homes (NYSE: BZH) and Hovnanian (NYSE: HOV) are in the red. Some of the difference has to do with regional variation. Some of the once hottest markets fell far from their peaks, but those same markets are on fire today again, including Phoenix, Las Vegas, California and Florida. K.B. Homes’ (KBH) west coast operations are a big reason for its performance this year. The HMI Report showed that the three-month moving average for the West Regional Index was up four points in March, and was easily in positive territory above 50 at a mark of 58. The Northeast Index was unchanged at 39, while the Midwest and South Indexes skidded by a point each to 47 and 46, respectively.

The part of the report I’ve always found most interesting is where builders are asked to report on current sales conditions, forward expectations and actual prospective buyer traffic. I find the first two measures are purely perceptional, and that the measure of real traffic tells a different and truer story for the majority of builders, who are mostly small. The index measuring current sales conditions fell by four points to reach a mark of 47. The measure of sales expectations for the next six months rose by one point to 51. However, the measure of prospective buyer traffic rose three points, and still measured deeply under breakeven sentiment at a mark of 35. Remember, though, it doesn’t matter because the real estate recovery is underway nonetheless. It’s just being enjoyed by a select few publicly traded companies which have garnered a good deal of market share from the least among their peers.

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, March 20, 2013

The Fed's Funny Math

Fed mathI know our math skills are poor in this nation, but the Fed would not try to blatantly pull the rug over our eyes while testing our elementary math skills would they? Let me get out my calculator and try this again, because my math skills must be failing me. So the Fed is saying then that 3.0% – 1.5% = 2.8%? Did they really just say that? Let’s move on to the lower end of the GDP growth forecast range for 2013. So then the money men are saying that 2.3% – 1.5% = 2.3%? What is this phantom math or quantum physics? Are there assumptions here that are beyond human comprehension? Is it just me, or do the numbers not add up? Fed Chairman Bernanke just reconfirmed in his press conference that there was a 1.5% drag to economic growth this year. So why didn’t that drag show up in the latest Fed forecasts? Did the Fed just lie to me?!?!

the truth hurtsOur 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.

They say, “Fool me once, shame on you; fool me twice, shame on me.” I stopped getting fooled by Fed economic forecasts when they said the financial crisis would be contained within the real estate sector at the end of the last decade. Then some time passed and Ben started to grow on me I suppose. I even grew a beard like his. Before I knew it, I guess I can say in the words of Nicki Minaj, my new favorite American Idol judge, “I beez in the trap!” (Warning – the linked to video contains profanity) Actually, so does my ego right now. I mean, we just took the Fed for its word and authored this article, Fed Warning – Expect a Sharp Cut to the Economic Forecast. I suppose I should have continued, “but based on the new math…”

What bothered me most was that during his press conference, Bernanke reiterated that there would be a 1.5% drag to Real GDP growth this year. Okay then, so where did the 1.3% offsetting and quite suddenly arriving factor come from and what is it exactly? Because otherwise, this math just does not add up. I’m sitting here with a calculator, a sundial and the spirit of Nostradamus losing my mind over this thing. I may have to send Nosti to dig up Einstein or Steven Hawking, because this math may have dimensional aspects to it or fall under string theory. Unfortunately, I hear the genius mathematicians are busy battling. I would like to see an Epic Rap Battle between Bernanke and Greenspan.

Here’s the actual Fed forecast. The simplicity of the PDF should have tipped me off I suppose. The math is reminiscent of something actually. It reminds me of the adjustments some of my superiors used to make to their tear sheet stock reports without earnings models to support them. Is the room spinning for you too? This is phantastic. I just can’t make sense of it, so it really deserves nothing more than a cynical editorial really. What really peeves me about it is that real money is moving on this news, and nobody (I mean nobody!) is questioning it. The market gained on the day and rose into the close. On what?!

Blind Direction
SPDR Dow Jones (NYSE: DIA)
PowerShares QQQ (Nasdaq: QQQ)
iShares Russel 2000 (NYSE: IWM)
iShares Dow US Real Estate (NYSE: IYR)
Financial Select Sector SPDR (NYSE: XLF)
SPDR Gold Trust (NYSE: GLD)

All those reporters got up and asked questions and not one of them said, “Um, Mr. Bernanke, could you help me get the math here?” I think the Fed has some explaining to do. What say you?

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. This article interests Bank of America (NYSE: BAC), J.P. Morgan (NYSE: JPM), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Citigroup (NYSE: C), Exxon Mobil (NYSE: XOM), Apple (Nasdaq: AAPL), Facebook (NYSE: FB), Google (Nasdaq: GOOG), GE (NYSE: GE), Microsoft (Nasdaq: MSFT), Cisco (Nasdaq: CSCO) and Ford (NYSE: F).

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Sell These Energy Stocks Today

By The Greek:

I believe that a Federal Reserve cut to its 2013 economic forecast Wednesday should serve as a driver of concern about cyclical energy demand. If I am correct, these energy ideas should see near-term weakness. Thus, I believe capital could be preserved by a temporary reduction in holdings here. Over the longer term (one-year), I favor energy for geopolitical and economic reasons, but I believe a nimble trade here could prove to be value-added.

I recently discussed long/short considerations for Exxon Mobil (XOM) in a stock specific article. However, as I considered the issue, I believe it has broader reaching impact than to just Exxon Mobil, and that investors in the five widely held energy stocks discussed here would also benefit from the investment thesis.

Year-to-Date Performance 
Exxon Mobil (NYSE: XOM)
Chevron (NYSE: CVX)
ConocoPhillips (NYSE: COP)
Halliburton (NYSE: HAL)

As you can see, the upward gains of the energy equipment and services and exploration and production companies have been outsized in comparison to the integrated behemoths. They tend to be more cyclical in nature, with exploration and development activity weighing heavily on demand and the price of the commodities. As a result, they are likely to exaggerate downside performance as well.

Year-to-Date Thru 3/19
Halliburton (HAL)
Schlumberger (NYSE: SLB)
Baker Hughes (NYSE: BHI)
Transocean (NYSE: RIG)
Chesapeake Energy (NYSE: CHK)

However, the entire energy sector should be impacted by a reconsideration of global economic activity. Each of these stocks should be negatively impacted by any such downgrade to U.S. economic expectations as discussed in my previous work, Fed Warning – Expect a Sharp Cut to the Economic Forecast.

In short, my expectation is that the Fed will revise its 2013 economic outlook significantly lower Wednesday. The basis of this view is multifaceted. I believe the fourth quarter GDP growth disappointment was born of the government’s fumbling of the fiscal cliff and debt ceiling issues. Economic growth was just 0.1% in Q4 2012, versus expectations for 0.5% growth. There’s strong possibility that the same issue impacted Q1 2013, though to a lesser degree. I do not believe the issue was adequately accounted for within the Fed’s December 2012 published economic forecast.

Also, we know from the Fed and the Budget Office that the sequester spending cuts will likely burden economic growth by 0.6 percentage points this year. We also know that the Fed expects a 1.5 percentage point burden in total from the sequester cuts and from the expiration of the payroll tax break and on other implemented austerity-like measures. These figures do not appear to be accounted for within the previous Fed forecasts, since December’s forecast was only cut slightly versus September’s, to a 2.3% to 3.0% growth range. If the Fed revises the economic outlook today, the shares of cyclical stocks and other major energy names should retrench along with oil and gas prices.

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, March 19, 2013

MARKET CORRECTION WARNING - The Fed Will Cut Economic Forecasts

market correctionBy Markos N. Kaminis,

The Federal Reserve is on record discussing the economic impact of sequester spending cuts and austerity-like measures. However, the investment community may still not be prepared for what I expect the Fed to do on Wednesday, so this should be a value-added economic read. I expect a market correction starting as early as Tuesday and through at least to the 2:00 PM Fed releases, if not beyond. We broke this expectation in an article about Exxon Mobil (NYSE: XOM) earlier this morning at Seeking Alpha, and the market immediately began to look lower.

The Federal Reserve, through the Chairman’s semi-annual address to Congressional Panels, indicated that it agreed with the Budget Office’s estimated cost of sequester spending cuts on the economy. Chairman Bernanke suggested that the sequester cuts would likely cost economic growth 0.6%, and would contribute to a 1.5% drag upon economic growth this year caused by austerity-like measures, including the payroll tax break expiration.

The Federal Reserve’s most recent economic forecasts do not likely include sequester cuts, and might not include the impact of the failed fiscal cliff issues, including the expiration of the payroll tax break. In the Fed’s December forecasts, it projected Real GDP growth of 2.3% to 3.0% for 2013 and a slightly better pace for 2014. The Fed’s December forecasts marked only a slight revision lower from their September view, with the 2013 estimate at that time set for 2.5% to 3.0%. Because of the only slight downgrade in growth expectation, it would seem the Fed’s December view did not include much of a weighting for the sequester failure. It might also imply a lack of inclusion of the other stimulus removal by the Federal government.

So, it seems that at least a portion of the 1.5% cost to economic growth is not included in the December forecasts. It would seem certain that the 0.6% drag was not included. Considering recent downgrades to Wall Street forecasts for corporate earnings this quarter, and the other economic considerations that need to be reconciled, there could be further reason to expect economic forecast cuts on Wednesday.

The run up of the stock market has been substantial this year, with the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) up 9.3%, 11% and 5.2%, respectively. However, if an economic question is posed Wednesday, and as speculation about this builds today, stocks should correct. Likewise, the securities which had been hammered during the stock market rise, for instance, the SPDR Gold Shares Trust (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV), should gain. Still, Fed discussion may sooth the pain, if the Federal Reserve discusses a better long-term outlook. I advise investors to take appropriate action.

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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, March 14, 2013

Would Obama Prefer 7.1 Million Unaccounted for Jobless Americans Just Drop Dead?

cemetaryBy Markos Kaminis:

Major media is celebrating another decline in the flow of initial jobless claims today, but it’s missing the story on the long-term unemployed. It is certainly good news that new filers for unemployment benefits are declining in numbers as the weeks progress. However, it’s unacceptable that the long-term unemployed whose benefits have expired fall off the radar and are unaccounted for, and perhaps left to die.

The Department of Labor’s Weekly Initial Jobless Claims Report showed yet another improvement for the period ending March 9. Claims fell by 10K from the prior week and measured 332K. That was far below the expectations of the economists surveyed by Bloomberg, who in their infinite wisdom foresaw an increase this week to 350K. The four-week moving average for jobless claims illustrated the trend that both market and media seem to be celebrating today. The average declined by 2,750, to 346,750. Not coincidentally, the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrials (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) were each safely in the green through early trading. The shares of employment services firms Robert Half International (NYSE: RHI) and Monster World Wide (NYSE: MWW) were relatively unchanged through 10:00 AM and better reflected the slow pace of hiring activity in this country.

The report is undoubtedly good news if you have a job. Your job security is improving. However, for those of you who have been unemployed for more than 27 weeks or longer, some 40% of the total unemployed count, the government doesn’t know you exist any longer. We’re assuming you’ve retired comfortably and are living out your last days without a care or concern. If you are still active, we expect you’ve started up a solar panel company after all of our efforts to make your sweet solar dreams come true.

The truth, though, is that those poor people have lost their homes, crammed into apartments with higher rent rates along with other struggling souls, and are either selling furniture on Craigslist or walking dogs under the table to keep from eating further into their savings. Otherwise, perhaps they are members of the mass of people, some 1 in 6 Americans, collecting food stamps and hopefully still being accounted for by the government as a result. Somehow, I doubt the accounting is perfect though. Have you ever been to one of these offices? From what I hear, you’ll feel better putting a pencil through your eye, especially if it’s a lead pencil (the poisoning will help); just imagine the Department of Motor Vehicles times ten and that’s what you would experience if you got the bright idea to try to collect food stamps or some other relief our taxes and our government provide for us… at least that’s what I hear. I invite you to share your experiences in the comment thread below for the enlightenment of the rest of us.

The Jobless Claims Report shows the total number of Americans receiving benefits of some sort under all programs actually increased by approximately 218K in the measured period ending February 23rd. However, at 5.6 million that figure was down sharply from last year’s 7.4 million. Certainly some of the difference in the count is represented by very happy Americans that are once again holding jobs. However, it also includes a bunch of people you might now inaccurately refer to as bums. Indeed, my latest analysis of the Employment Situation Report shows that there has been a significant change in the labor force participation rate over the last seven years. If we had the same proportion of our population in the labor force count today as we did in 2006, unemployment would be 11.8%, not 7.7%, and underemployment would be 18%! Furthermore, the trend in February would have been reported as deteriorated and not improved, as the government data expressed. That’s a tough chew, and it runs counter to the enthusiasm stocks are trading on today. The fact is that some 7.1 million Americans are missing. Are they assumed to be happily retired? Perhaps the government would prefer they just drop dead already?

It’s a good thing that big layoffs from large companies are declining in number, but we’ve still recorded big cuts at big firms like J.P. Morgan Chase (NYSE: JPM) and Citigroup (NYSE: C), and a little scrape at Goldman Sachs (NYSE: GS) recently. And the news from the nation’s small businesses has not been good, with the NFIB’s Small Business Optimism Index marking lower ground than the troughs of recent recessions this month. Small businesses do a lot of the hiring and firing in this country, so there’s little hope for the long-term unemployed who have been left to die. We need to address this issue by making it a priority in corporate America to prioritize Americans for jobs who have been unemployed longer; that’s if we care to revive our economy to its once super-healthy status. Government incentives to corporations which do so would be helpful in that regard. Those readers interested in critical analysis of data are welcome to follow along with this 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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Wednesday, March 13, 2013

5 Economic Issues that Need Reconciling

KaminisThere are times when the stock market and the economy diverge. In March 2009, for instance, when stocks started higher, the economy was still far from reflecting a turn. Today, the market is pricing in better days, but the economy is still flashing red. Only time will tell if the market has forecast correctly or not. For now, 5 economic issues still need reconciling.

  1. There’s a glaring issue with the most important data point measuring economic health. Real Gross Domestic Product (GDP) was just revised higher, but to just above zero. At 0.1%, the expansion in the fourth quarter could not have been any closer to recessionary territory. Furthermore, we know the sequester cuts will cost the economy approximately 0.6% GDP points this year, part of a 1.5% weight that the Federal Reserve says fiscal policy is adding prematurely to our backs in 2013. 
  2. Corporate earnings estimates are being revised lower, and that is a bad economic signal that is especially hard for stock investors to ignore, and yet they are. Factset (NYSE: FDS) reports that all 10 sectors reported downward revisions to Q1 2013 EPS estimates. There were 82 companies warning on first quarter earnings, while just 25 pre-reported positive surprises. 
  3. The improvement reported by the government in the Employment Situation Report is questionable. My review of the report indicates that an employment participation rate closer to that of 2006 would have unemployment at 11.8% and underemployment at 18%, and neither improved over the prior month’s data, as was reported by the government. 
  4. Small businessmen, who drive the American economy and employ a great number of Americans, are so pessimistic in this period of economic growth that the National Federation of Independent Business’ (NFIB) Small Business Optimism Index is lower now than it was at the trough of two previous recessions. 
  5. The well-being of the European economy is in serious question, with the European Central Bank (ECB) recently revising its expectations lower. Germany is facing recession and people are so fed up across Europe that the Italians almost brought back Silvio Berlusconi. The Greeks, who fought so valiantly in World War II that Winston Churchill said heroes fight like Greeks, have a faction raising flags in protest that makes me so angry I want to go knock a few ignorant brethren out. My father almost starved to death in the war and lost an Uncle as a refugee in Egypt, escaping only through that famed friend of Greece, Turkey on a boat so full of desperate people that it had just an inch left between it and the sea before it would fill with water in the middle of the night. A Nazi pig put the bottom of his boot onto my uncle’s preteen forehead, after he traded them wood for bread, and pushed him down a cement staircase without the bread. That was when they decided they had better leave. I just hope that the world realizes that the ignorance of a handful of Greeks does not represent nor even hold a candle to the love of many more God fearing Greek people who fought against fascism at great cost.

DIA Chart 1 Month

Chart by Yahoo Finance

I suspect I could dig up a few more economic issues than this, and I welcome readers to add their own pet peeves within the comments hereunder. We have not even broached the schizophrenic state of affairs in Washington D.C., and yet on Tuesday, as the Dow was flirting with ending its streak of higher highs, the SPDR Dow Jones Industrials (NYSE: DIA) and the Dow itself broke into green ground just before the close (marking 8 straight days of gains). Still, the SPDR S&P 500 (NYSE: SPY) and the PowerShares QQQ (Nasdaq: QQQ) ran out of trading time to get there, and closed down 0.2% and 0.4%, respectively.

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, March 12, 2013

Buffett Genius Fails Apple

BuffettBy Markos Kaminis,

There is a theory going around the corporate world that allowing your stock price to rise beyond the reach of round-lot seeking civilian investors builds a sophisticated shareholder base. It’s a theory born of investment genius, and one seemingly shared by Apple (Nasdaq: AAPL), but it’s a theory that has just been effectively challenged.

The theory goes that a sophisticated investor base will do less trading and prove to be less reactionary to temporary anomalies and news flashes. As a result, companies with ridiculously large stock price figures are supposed to see less volatility in their shares. It should provide for a steady stock price that best reflects the value of a company, which makes perfect fiduciary sense. After all, what is best for shareholders is best for a public company. When you can keep your stock price clear of noise, you help to keep it as close to its intrinsic value as possible. Perhaps not coincidentally, it should also allow corporate bonus incentives tied to stock price performance to be unadulterated by sinful day traders and greedy profit seekers, otherwise known as the efficient market. This begs to question whether an excessively high stock price fosters inefficient valuation, but that will be the subject of an academic research report well suited for the blog.

The idea was born of Warren Buffett genius, as far as I know; or at least Buffett’s Berkshire Hathaway is most famous for it. Berkshire’s A Class Shares (NYSE: BRK.A) trade at a preposterous $155,411.27, and yes, I satirically included the cents to pose protest to the silliness that some might call a form of class warfare. It is really not class warfare, though, because those interested in riding along with Buffett genius can still buy the B Class Shares (NYSE: BRK.B), which trade at a pauper’s price of $104. Other companies with high trading points, like Google (Nasdaq: GOOG), for instance, have determined to offer other classes of shares to maximize capital access opportunities.

In Berkshire’s case there very likely is a real impact to the shareholder base. It’s because of the significance of the numbers and the fact that they represent dollars. As the share price rises toward the big bucks that better resemble the cost of a home (though not anywhere near New York), it gets impossible for little guys with big dreams to afford even one share.

Apple stock chart

Chart at Yahoo Finance

However, that genius did not prove true for Apple over the last six months as the company’s shares fell 39% from their September intraday high of $705 to their $432 close last week. Though, I suppose an Apple (AAPL) fanatic might attribute that to the share price just not reaching that certain threshold point where the short-sighted could no longer get in. In any event, it’s one of the reasons one might argue against an Apple stock split, or at least one of those I listed in September 2012. For those of you praying for AAPL to keep falling so you can buy a share, I also made the case for an Apple stock split just to be fair.

In recent works about Apple, I have attributed the stock’s performance to investor concern as to where future growth will come from. I have indicated that For Apple, No News is Bad News. Though some will argue that despite the stock’s performance of late, there’s no problem, I have suggested The Problem with Apple is Apple and what seems a late in arriving next best thing, which I have openly hoped would be an Apple Television.

This turn of events for Apple seems to say that no matter how high a stock price is kept, the operating performance of a company and expectations about its future will always dictate what its investors do, whether they are small-money bearing individuals, affluent and wealthy people, or sophisticated institutional investors.

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, March 07, 2013

Are We Ignoring Recession Symptoms?

dangerousBy The Greek:

It’s just one day before the granddaddy of all jobs reports, the Employment Situation Report. Still, today’s jobs data said something about the economy, and perhaps offered a warning for us. Weekly Jobless Claims were good enough to distract investors before the open, but did we miss a key economic warning in the Challenger Job-Cuts Report in the process? Let’s not overlook the fact that the last quarter barely produced positive economic growth and that the previous Employment Situation Report to tomorrow’s revelation showed deterioration in the unemployment rate. These are recession-like symptoms. So are we ignoring recession signs?

Weekly Initial Jobless Claims showed a 7,000 decrease in new unemployment benefits filers last week, as it fell to a level of 340K. The four-week moving average for jobless claims also decreased by 7K, as it fell to a mark of 348,750. That was the lowest point for the average since March of 2008, and I heard that while watching CNBC like the majority of traders who bid index futures higher thereafter. Unfortunately, that sort of erased from market memory important information gleaned from the Challenger Job-Cuts Report.

In its reporting of monthly job-cuts for February this morning, Challenger, Gray & Christmas informed us of a sharp spike in layoffs. It is information that certainly runs counter to the market’s direction today, and it asks an important question about the economy too. In the early afternoon, the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrials (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) were all in the green, though they seemed to be losing ground.

Maybe it’s for good reason. Job-cuts increased by 37%, to 55,356, which is a rather high level and could offer another warning about the economy. After all, fourth quarter GDP was just revised barely into positive territory and last month’s Employment Situation Report showed deterioration. Those are important recession-like symptoms, and hard to mistake for anything else.

Challenger said Wall Street drove the decline, with J.P. Morgan Chase (NYSE: JPM) announcing the most planned layoffs in the period (19K over 2 years). Late last year, Citigroup (NYSE: C) also announced a massive purge and Goldman Sachs (NYSE: GS) let hundreds go. Bank of America (NYSE: BAC) let so many go a year ago that they didn’t have to this year. Bonuses were up 8% this year on Wall Street, but the securities industry is getting leaner. It’s conflicting information, considering securities industry profits were up this year roughly three-fold, to $24 billion, according to a report by the New York State Comptroller’s Office. Wall Street tends to grow when the economic outlook is good, so is this yet another symptom of recession?

The housing industry is certainly not in recession, but perhaps it’s a lonely bastion of an otherwise decimated fortress. It’s hard to ignore the symptoms, whether they are on Wall Street or in the GDP data. And as for GDP, we expect forecasts for 2013 will be revised lower due to the sequester cuts. The Europeans quietly cut their own GDP forecast today. Has a sort of blindness come over us? Are we ignoring recession signs? What do you think?

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, March 01, 2013

Don't Get Caught in JCP Short Squeeze

JCP chart
J.C. Penney (JCP) divergence from retail stocks (XRT).
J.C. Penney’s (NYSE: JCP) shares tanked more than 17% Thursday on the company’s latest EPS report disaster. Sales at Penney’s stores and its internet shop fell by 28.4% in its latest quarter against the prior year period. The company lost $1.95 a share this past quarter on an adjusted basis, against last year’s adjusted EPS of $0.21.

However, JCP’s embattled CEO Ron Johnson stated the company would seek to “reconnect” with its old core customers. Such an effort required the new chief to swallow his pride and back off his previously determined path away from sales promotion. With JCP shares down 59%, though, from their peak last February, shareholder and likely Board pressure was building on the once heralded boss-man to do something. Had he not acted, Johnson might have gone the way of Groupon’s (Nasdaq: GRPN) Andrew Mason, who was let go yesterday after his company’s earnings disappointment (one of many for Groupon).

Last May, I suggested at Seeking Alpha that investors sell J.C. Penney, which to me seemed to be taking on too much change too soon in its effort to more closely resemble Macy’s (NYSE: M). Those who sold the stock preserved a good deal of capital or made money on the short side. Today, though, I upgraded JCP to hold from sell, basically due to Johnson’s decree to revert to tried and tested sales methods. I could not bring myself to call it a buy just yet, though, as I’m not sure JCP’s team will do enough fast enough to make a meaningful impact. Besides, it may be too late to recover much of those lost sales, though I believe it can be done.

Most importantly to traders, JCP is on the rise Friday. I think the shares could continue to get some lift after the prior day’s deep decline, given the CEO’s important announcement. Also, there’s a decent chance Johnson could still get the boot, especially after GRPN got a double-digit lift Friday on the firing of Mason. Given JCP’s divergence from the SPDR S&P Retail (NYSE: XRT), it seems to me that a great majority of the blame could be attributable to Johnson and his team’s strategic changes. Yet, short positions should be closing out now and a squeeze would support JCP shares near-term whether the company deserves it or not.

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, February 28, 2013

Beware A Downward GDP Revision is Coming

GDPReal GDP growth for the fourth quarter was revised higher Thursday, into positive territory from the initially reported contraction. However, I expect forecasts for the full year of 2013 to be revised downward near-term given what looks like sure spending cuts that will cost growth.

Whether it be via the sequester plan or a more politically plausible set of cuts devised in a midnight hour negotiation, cuts are coming. The Budget Office and the Federal Reserve Chairman see those cuts as costly to economic growth by six-tenths of a percentage point. In his testimony to House and Senate financial committees this past week, the Fed Chief said the 0.6% impact would be part of a 1.5 percentage point drag to economic growth this year on recent changes to fiscal policy. Chairman Bernanke suggested policy makers would do better to limit near-term cuts while the economy remains vulnerable, and plan out more aggressive reductions for the long-term.

The market celebrated Thursday’s revision to fourth quarter GDP, which took it to +0.1%, up from the initially reported contraction of 0.1%. Through the close of trading on Thursday, each of the major ETFs measuring the market was higher. In fact, the stock market defiantly stood against the probable austerity measures for most of the week, as investors received a slew of reassuring positive economic data. The strange contrast of economic impact and stock market strength led to some question as to the real significance of the sequester cuts.

Index Security
Thursday to 1:20 PM
SPDR Dow Jones (NYSE: DIA)
PowerShares QQQ (Nasdaq: QQQ)

custom cakes
However, one very important positive economic data point will very likely be revised shortly. Revisions to economic growth forecasts must follow the latest cost cutting measures. In its December 2012 publishing, the Federal Reserve saw improving economic growth this year and next. As you can see in the table below, revisions to those projections should not reflect recession, but my simple 0.6% adjustment may prove to be understated. That’s because when the estimates were last produced, the economic prognostication had not foreseen or incorporated the depth of slippage that actually resulted in Q4 2012.

A relief recovery for Q1 2013 GDP might be expected post the passage of the fiscal cliff and debt ceiling circumstances. Those issues likely stymied economic activity at the end of 2012, due to the uncertainty they created about the economic environment. However, the expiration of the payroll tax break may not have been included in those forecasts either, and supports the case for a slower set of growth forecasts nonetheless.

December Forecast
Likely Revised Pace
2.3% to 3.0%
1.7% to 2.4%
3.0% to 3.5%

Reductions to economic expectations will quell some of the latest enthusiasm generated by recent economic reports. They should also serve to settle stocks a bit, especially cyclical leaders within the financial and industrial sectors. Names like Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), BHP Billiton (NYSE: BHP) and Caterpillar (NYSE: CAT) should soften short-term. Also, high beta stocks that may have been accelerating in an environment more accepting of risk might ease off a bit temporarily. For instance, biotech names lacking FDA news catalysts and ETFs like the iShares Nasdaq Biotechnology (NYSE: IBB) should see short-term softness as a result of the economic recalculation. The same should go for Tech and Telecom ideas like Oracle (Nasdaq: ORCL) and Cisco Systems (Nasdaq: CSCO).

However, I expect just a short-term slip here, as the economy does seem to have traction on the back of a finally recovering real estate sector and special opportunity therein. Low mortgage rates and dissipating distressed inventory are finally allowing for a favorable imbalance between supply and demand in housing. The sector has such broad reach that it affects the economy significantly. Though, the high flying (and high beta) housing stocks are vulnerable to profit taking if economic worries become excessive. Ancillary ideas like Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW) are still attractive, though they are getting harder to find.

Capital wants to flow into equities, and it has been, given the start of a more positive outlook for the U.S. economy. Such capital flows and the relative strength of the U.S. versus some of the world’s other markets offer important supports that will only allow for slight slippage. However, partisan politics in the U.S. have been an obstacle to efficient recovery, and must be resolved in these times of perilous economic and financial consequences. This sequester issue has only served to shine a spotlight on the problem.

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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