TrimTabs, a well-know independent research group that focuses on supply and demand of stock shares and money flows, recently reported that much of the hoopla about companies buying back their shares--a move that many believe has buoyed share prices--is waning.
Founded in 1990, one of TrimTabs premises is that stock prices are more a function of available money than just value. It's another way of saying it's about supply and demand not any different from any tradeable goods in the market.
Buybacks usually occur for one of two reasons: there's a lot of easy money around, as is the case now, or there's actual hidden value out there that's gone unrecognized in general. Some might refer to it as the Buffett play.
The moral of the story is this. As James Authers of the Financial Times points out today in his column, "Tide turning against buybacks ahead of the market top," one of the so-called pillars supporting and even helping push them higher is apparently ending. It's a mouthful of an headline, but worth a look if caution is still a registered word in your lexicon
Citing research from TrimTabs, Authers notes that money flowing into corporate buybacks the last two months declined to its lowest level since the first of 2013. Moreover, announced buybacks, according to TrimTabs, peaked in February 2013 and have drifted lower ever since.
So far this June around $22 billion went to buying back shares compared to about $63 billion last June. And there's more. Announced buybacks among U.S.companies, 38 so far this year, has trended to its lowest level since 2011, according to Authers.
Some have called buybacks the classic example of corporations' lack of imagination, a tactic resorted to when you can't come up with any good ideas to spend your cash. Recall a couple of years back one of MSM's raves was how much cash U.S. corporations were sitting on. It's sort of a business version of shoppers who buy just to be buying because they got the money.
But buybacks, like insider buying, can also represent a value play when corporations view their own shares as being cheap.With the huge run-up in the market most of that has all but changed for arguing this point in our view. Carried to an extreme, what this falls under is the category of the magician's art, financial engineering versus real growth.
The other side of that marker is insider selling, a figure that, according to TrimTabs, is up dramatically in recent weeks. A quick note on this. Given the recent take off in energy, much of it caused by the Iraqi situation, here's just one example. Twelve different insiders at Pioneer Natural Resources Company (PXD) between the end of May and now unloaded 90,400 shares.
Now one company does not a trend make. But there were no purchases during that time and four of the 12 cut their holdings by more than 10%.
No doubt bulls will come up with counter arguments like M & A activity, arguing that a number of them have been cash deals. But there's no unwritten rule that says cash deals create value. Call it a show of confidence or whatever you want. We call it caution.
The market seems set to go higher and there's no shortage of folks who want that. But pulling a few coins off the table in the next upward burst, if there is one, and going long some options if you need to be long might just be the better part of discretion.
Story has it back in my younger days as a cub reporter when if you have to write one more obit page or another story about a church bazaar you think you'll vomit, I was assigned to cover one of those political gatherings where the top politician's smarmy PR guy tries to wiggle his candidate's way into your byline via the libation route.
In the medical profession it's called liver rounds.
The top dog was a Congressman whose name shall remain as anonymous now as it was then. It wasn't as if he didn't have some clout 'cause he did. He was just a glad handing phony with a knack for delivering the Washington bacon to the home crowd. He loved it and so did they. Re-election every two years sealed.
My mother raised us to always be kind to old dogs, children and, whenever possible, drink watermelon wine. Besides being an an aphrodisiac, it soothes the urinary tract. So knocking back a few, no problem.
Hang around politicians and bureaucrats long enough and you soon can read them out loud like one of those classic children's books. Pretty much that's what they are. Self-centered, ego-driven, immature kids running around in adult bodies. Oh, and I almost forgot about temper tantrums when things don't go as planned or someone asks the right question at the wrong time.
On this particular occasion there were some rumors floating around about some land in the sticks that a big federal government project was set to plow its way through the middle of and two of its largest owners were guess who? If you say the Congressman and his PR guy you're gonna ruin the story.
Ikea the big Swedish retailer steps up to the minimum wage plate, announcing what amounts to a 17 % hike in wages set to kick in next year. The huge retailers has 36 stores in the U.S. and says its raise is based on a living-wage calculator that includes such items as housing, food, transportation and medical costs. There's even a provision for taxes.
Many analysts believe that wages are the critical shoe in all this inflation talk. If wages rise and firms can make the expected price hikes that usually follow stick, it'll be off to the races time again. So Fed Chair Janet Yellen with her noise comment may prove more prophetic than anyone thinks.
With any surprises it might someday rival another Fed Chairman's now infamous comment about irrational exuberance. For Yellen's sake one only hopes that unlike the former this one wasn't plagiarized.
And, too, Ikea is not alone in raising minimum wages. The lists is growing..
One of the things we enjoy reading is statements like this one that appears in this week's Barron's: "With no recession on the horizon, there's little need to fret about the bull market's imminent demise Strong economic gains, however, don't always lead to big stock gains."
Correct on both accounts. Inflation is what we're talking about. And inflation can be somewhat good for stocks, but it can also send pocket-book-rattling shivers up the spine of shaky investors that are needed to drive stock prices higher. If the Fed turns out to be wrong--and we believe they already are--it won't say much for their so-called vote of confidence.
There's another term here you see little mention of, though we've espied a few--stagflation. Now you can burn the midnight petrol checking out all the data of the pros and cons apologists will cite to prove their points of view if you want. And that could bring up a really big question bureaucrats and politicians never want to hear:
"Who in the hell is in charge anyway?"
Get caught up in the exercise at your own peril. Just be aware it hasn't made the rounds in a while and like the man said: "What goes about comes about."
Earlier today Federal Reserve of St. Louis President James Bullard, though a non-votng member, added some fuel to the debate by saying he thought the market was correct in looking past the dismal 1Q report "amid other signs that the economy is improving."
Speaking on the Fox News program "Sunday Morning Futures," Bullard added "... he expected that the economy would grow at around 3% for
the rest of the year, and that unemployment would fall below 6% in the
second half. He also said that the Fed’s preferred measure of inflation
could approach its 2% target by year-end"
The economy is in better shape than most realize, Bullard contended: “Both financial markets and the public at large doesn’t realize how close we are to normal, compared with postwar history.”
Should he turn out to be correct, the water filled balloon known as global markets will definitely bulge somewhere. Figure that out ahead of time and you'll save yourself a lot of unnecessary pain. And if you're lucky enough you might make some serious money along the way.
Until next time, that's the way the story has it.
What with the Fourth of July holiday on tap, it's a short week coming up. Again, from Minyanville here's a good summary of the week that is.
Monday, June 30
US Economics (Time Zone: EST)
09:00 ISM Milwaukee, June, prior 63.49
09:45 Chicago Purchasing Manager Index, June, exp. 63, prior 65.5
10:00 Pending Home Sales MoM, May, exp. 1.3%, prior 0.4%
10:30 Dallas Fed, Jun, exp 9.0, prior 8.0
11:00 Fed to purchase $850m-$1.1b bonds in 22-30 year range
11:30 Treasury to sell $25b 3-month bills and $23b 6-month bills
3:00 New York Fed to issue QE schedule for July
Fedspeak:
1:10pm Williams to speak in Sun Valley, Idaho
Global Economics (Time Zone: GMT)
01:00 AUD HIA New Home Sales (MAY)
01:00 NZD NBNZ Business Confidence (JUN)
06:00 JPY Housing Starts (MAY)
06:00 JPY Construction Orders (MAY)
08:30 GBP Mortgage Approvals (MAY)
09:00 EUR Euro-Zone CPI Estimate (JUN)
12:30 CAD GDP (APR)
Earnings
No major reports scheduled
Tuesday, July 1
US Economics (Time Zone: EST)
09:45 US Manufacturing PMI, June F, exp. 57.6, prior 57.5
10:00 ISM Manufacturing, June, exp. 55.8, prior 55.4
10:00 Construction Spending MoM, May, exp. 0.5%, prior 0.2%
5:00 Vehicle Sales, June, exp 16.30M, prior 16.70M
11:00 Treasury to sell 4-week bills
Global Economics (Time Zone: GMT)
JPY Tankan Manufacturing Index (2Q)
01:00 CNY Manufacturing PMI (JUN)
01:35 JPY Manufacturing PMI (JUN F)
01:45 CNY HSBC China Manufacturing PMI (JUN F)
04:30 AUD Reserve Bank of Australia Rate Decision
07:45 EUR Italy Manufacturing PMI (JUN)
07:50 EUR France Manufacturing PMI (JUN F)
07:55 EUR Germany Manufacturing PMI (JUN F)
07:55 EUR Germany Unemployment Rate (JUN)
08:00 EUR Italy Unemployment Rate (MAY P)
08:00 EUR Euro-Zone Manufacturing PMI (JUN F)
08:30 GBP UK PMI Manufacturing (JUN)
09:00 EUR Euro-Zone Unemployment Rate (MAY)
Earnings
No major earnings
Wednesday, July 2
US Economics (Time Zone: EST)
08:15 ADP Employment Change, June, exp. 205k, prior 179k
10:00 Factory Orders, May, exp. -0.3%, prior 0.7%
Fedspeak:
11:00am Yellen to speak in Washington
Global Economics (Time Zone: GMT)
01:30 AUD Trade Balance (MAY)
08:30 GBP Construction PMI (JUN)
Earnings
Before:
Constellation Brands (STZ)
Greenbrier (GBX)
Thursday, July 3
US Economics (Time Zone: EST)
Futures close at 1:00pm ET, equity trading at 1:15pm and cash trading of bonds at 2:00pm today
08:30 Trade Balance, May, exp. -$45b, prior -$47.2b
08:30 Change in Nonfarm Payrolls, June, exp. 210k, prior 217k
08:30 Initial Jobless Claims, June 28, exp. 312k, prior 312k
10:00 ISM Non-Manufacturing Composite, June, exp. 56.0, prior 56.3
Global Economics (Time Zone: GMT)
01:30 AUD Retail Sales (MAY)
01:30 AUD Building Approvals (MAY)
01:35 JPY Japan Services PMI (JUN)
01:45 CNY HSBC China Services PMI (JUN)
07:45 EUR Italy Services PMI (JUN)
07:50 EUR France Services PMI (JUN F)
07:55 EUR Germany Services PMI (JUN F)
08:00 EUR Euro-Zone Services PMI (JUN F)
08:30 GBP UK Services PMI (JUN)
09:00 EUR Euro-Zone Retail Sales (MAY)
11:45 EUR ECB Rate Decision
Earnings
No major reports scheduled
Friday, July 4
US Economics (Time Zone: EST)
US markets closed for holiday
Global Economics (Time Zone: GMT)
06:00 EUR Germany Factory Orders (MAY)
07:30 EUR Germany Construction PMI (JUN)
08:10 EUR Germany Retail PMI (JUN)
08:10 EUR Euro-Zone Retail PMI (JUN)
08:10 EUR France Retail PMI (JUN)
08:10 EUR Italy Retail PMI (JUN)
Earnings
No major reports
Valero Energy (VLO) is one of our PB picks.
Now, we had no intention of listing two energy stocks in a row since our last blurb was about MRO, but given the recent developments with the U.S. decision to start exporting oil (condensates), a move some think could force VLO to pay more for its crude, why not?
The U.S. has prohibited the export of oil since the Arab embargo in 1975. For those who don't recall, it caused long gas lines at the pump and more than a little irate behavior. Some states even had assigned days based on one's license plates when you could legally gas up. And topping off became a new term in the lexicon of American drivers.
So here's just three historical facts--911, the Arab embargo and FDR's confiscating gold--that should warn you anything can happen at any time. And that ought to signal a basic truth in this dimension that never changes: The only person, place or thing you can count on is a simple three-letter word--you. We realize such is anathema to the bureaucrats and politicos who count on you counting on them.
Valero fell last week 8.3% on the news. The largest independent U.S. refiner, Valero profited nicely from the recent shale boom, lowering prices for gas and oil and pushing up the bottom line of refiners. Another way of putting it is, it's all about spreads and margins.
Some investors believe this is the oil-export camel's nose under the edge of the tent. And it won't be long before more party crashers show up seeking more profits. In our view, however, much of the concern is another example of going to the show before you get there.
Valero trades at a decent price per forward earnings, pays roughly a 2% dividend and has some other goodies to recommend it to the patient and prudent. So it remains on our pullback list when the pullback--and it will--arrives.
"How long's this going to take,' the student queried the master?
"However long it takes," the master replied.
And that's the correct answer here. Nobody knows for sure.
As we pointed out before, there's something largely amiss when Spanish 10-year bonds yield less than their U.S. equivalents. And that's just for starters. It's become a wide spread phenomena in the global bond market that literally no one anticipated. Well, there may have been a few like those who always enjoy talking about their fishing ventures.
The Bard may have noted that "All's well that ends well," but the chances of this turning out good when the day of reckoning arrives are slimmer than the waistline on a runway model at a New York fashion show.
As the believers and the apostates line up to debate the convergence issue, investors have to decide whom to believe. And caught right smack dab in the middle is, you guessed it, central bankers. In this case the Mario Man. With his we-got-this-covered assurance he's essentially put a put option, ala Mr. Greenspan, under some raggedy debt instruments that is now spreading to the corporate bond market as well.
One can only fathom the number of books with catchy titles that will in a few years hit bookstore shelves: "When is Junk Junk?" "Why Nobody Told Us" "Where Oh Where Did Mario Go?"
"We Got This Covered!"
Also caught in the middle is the euro, a currency Mario Man and his fellow central bank buccaneers are hoping to depreciate as they swash-buckle their way to some much hoped for inflation.
Much of this on-going saga was recounted today in the Financial Times article, "Eurozone bond rally nears high water mark." To be completely accurate that headline should've had a question mark at the end as the debate rages on.
Nobody knows how long it takes. But if you have any spare crash helmets lying around, now might be a good time to start dusting them off.
What do retailers like Whole Foods, Coach, Bed Bath and Beyond and Best Buy share in common?
The short answer is their stock prices are down more than 20% so far this year. How's that in an economy where consumer confidence just hit record highs and the stock and bond markets hover near their tops?
Sure there's that ugly revised 1Q number of -2.9% and one excuse retailers used was inclement weather that most who went through it hope doesn't return anytime soon. Given all the carnage, as John Authers reports in today's Financial Times, "the sector is is still only about 6 percent below its high."
With Coach (COH) it's more a case of Michael Kors. But what about the others? Of course there's the Internet with all of its online selling. In yesterday's WSJ, Darrell Craves, the CEO of Zulily, the fast growing Seattle online retailer, is hiring and ramping up its product line with thousands of new products daily for limited-time discounts.
Once primarily a kid's apparel shop, the firm is taking what sounds like an old-fashioned kitchen sink approach, selling everything from antique outdoor furniture to men's loafers to ukeleles.This might all sound weird, but Cravens, the co-founder and chief executive, is not without a focus.
It's a simple four letter word and one of the most common in any language, moms. Zulily targets moms. Founded in 2010 the company, according to Cravens, expects to book $1.1 billion in sale this year. In case you're wondering this is known around the industry as flash sales. Now we don't know which came first or who stole what from whom, flash trading or flash sales. But apparently both are alive and doing well..
Cravens has taken in our book a page right out of behavioral science.You can divided shoppers into two groups, those who know what they're looking for and those who don't. Craven's firm is looking for the latter. It's counter-intuitive to be sure, but so is the size of Zulily's product line of 6,000 items.
Initially they started with 2,000 but worried that would be too many for consumers to browse. Ophs! Hello something called relevancy technology. Simply stated, people who come to the site "see different versions based on what they've previously looked at."
All of this from a company that has long shipping times. When asked what customers least like about the firm, it's those long shipping times. So goes the next logical question, when asked why they keep coming back, according to the company's surveys, the answer is about as block and tackle simple as it gets: "unique products paired with value."
And of course that brings up another question the company had the insight to ask: "If we can get it to you faster but we may have to charge you a little more, most say please don't."
There's probably enough lessons in here, not that government officials will ever pay any attention, to teach a basic class in entrepreneurship.
And for those of you who want to know, Zulily is a NASDAQ-traded company with a 52 week H-L of $73.50-$28.75 currently changing hands around $40.66. The p/e ratio is higher that the new Trump Tower in Chicago and its owner's ego stacked on top of each other. Revenue per employee is $726,647 with earnings per share of $0.02.
Story has it the Greek philosopher Diogenes one day picked up his lantern and went traipsing around the countryside looking of an honest soul.
And somewhere along the way he grabbed a space on a vessel, sailed across the Atlantic, landing in New York where, after quickly wolfing down two Nathan hotdogs at Coney Island, he hitched a ride on a Greyhound bus to Washington, D.C.
After about two weeks of dogged searching, and we only have this on hear-say, so a little slack might be indicated, he pulled up weary and worn near the Washington Monument where he reportedly said: "Screw it!" And tossed his lantern away.
In a recent Wall Street Journal/NBC News/Annenberg survey 49% of Americans said Washington has no responsibility to assist the Iraqi government in protecting it from insurgents attempting to overthrow the government there.
Want to guess why Republicans are in such poor stead these days? We aren't sure you do, but here's one of the reasons anyway. Pennsylvania Republican Governor Ton Corbett, facing a $1.5 billion budget gap and an re-election bid he's trailing in, is considering slapping on a severance tax drillers would pay for gas gathered from wells.
Pennsylvania is one of several drill-boom states profiting form the shale boom where in 2012 gas production grew by 72% over 2011. So reckless politicians, past and present, are salivating like a big dog watching someone eat a juicy steak dinner.
Pennsylvania drillers already pay a hefty politically-correct levy called an impact tax that in 2013 totaled $225 million, some of which gets spread to counties where most of the drilling takes place. Now for your next guess, where do you think they want to waste some of the funds if the bill passes? It's a difficult seven letter word but we'll give you a hint, schools.
It looks like we Americans are getting about as happy as a bunch of hog in a huge slop pen. According to one report, consumer confidence just hit a six-year high, the highest level since 2008. So the report states consumer confidence in June registered 85.2, up from 82.2 in May. Consumers apparently are also more upbeat about jobs with those positive about jobs prospects in June registering in at 14.7 versus 14.2 in May.
Until the next time, that's the way the story has it.
A recent Financial Times editorial (6/25/14) on global warming, "Common Sense On Climate Change," should've been titled "A Leaky Faucet" because if it had any more leaky points it would be labeled such.
Let's start at the bottom first.
American politics has been polarized since day one, not any different from the editorial writer's apparently beloved UK. The only place in politics that bipartisanship ever prevailed is in the dank, foggy misguided minds of do-gooders and editorial writers.
If those pathetic, incompetent Republicans via some miracle gain the White House and Congress, a feat that would put the Immaculate Conception in third place in the Guinness Book of Records, one can only hope they would find the testosterone--certainly not a given with this crowd--to roll back all the damage this administration had done. A consummation devoutly to be prayed for, religious or secular.
Now when it comes to Mayor Bloomberg the editorial writer and I both know deep down inside he really believes climate change is caused by over-sized, 16 ounce sugary drinks in all those plastic cups. If the wacky, schizophrenic Bloomberg were anything but a spoiled billionaire, he'd have the influence of a toothless chip monk. Money buys its privileges.
Next, the writer comes up with this cutie-pie "....with the aim of moving past the reflexive partisanship that too often defines the debate in America." One can only suppose the writer suffers from the shallow belief he and his fellow Brits have cornered the market on studying British economic and political history. Such understated condescension is truly British.
Then there's a few of the main characters in the drama, Henry Paulson, Robert Rubin and others, all along with Oil Can Harry excellent choices for villainous roles in a decent Shakespearean yarn. Most are former Goldman Sachs hacks with an axe to grind that has nothing to do with putting money in your pocket and everything to taking it out.
Along with the anti-gluten hysteria, it's our belief that climate change or global warming, take your pick this week, will turn out to be one of the biggest scams of the 21st Century. We'd give it top billing but, alas, that most likely will come from one of two unique American places, Washington, D.C. or Wall Street.
Meanwhile, here's another view about the fallacy of climate change.
http://www.dailyspeculations.com/wordpress/?p=9459
That's our view. We hope you know yours.
It's early morning on another seemingly monotonous weekday as the members of the board of governors, still half-awake, mechanically file in and take their seats around the huge mahogany table in the center of the dreary room. All were awakened from their slumber hours earlier to attend an emergency meeting.
Something has gone terribly wrong. Unexpectedly wrong, according to the message.
First the big central banks flood the world with unprecedented easy money and then, owing their third-rate abilities as economic fortune tellers, they've had to crank up rates faster and higher than anyone thought with debt in the developed world much greater than before the whole financial mess started. It's a portrait more dreary than the big room.
Without much imagination this could be the setting for an opening scene in economic blockbuster that's coming to a playhouse near you.
Inflation is stable so the gurus say. And there's a new normal on the interest rate horizon. Likewise for employment. Wages are flat with only the weakest of chances they'll rise significantly anytime soon. The typical boom has unsurprisingly led to the typical bust. As interest rates fell debt accumulation strolled the upward path. It's an easy equation.
Like most ointments, however, more than a few flies usually find their way there. Neither in the U. S. nor in Europe has much, if anything, been done to repair structural weaknesses. Leaders as they have in the past opt for the business as usual road. In the U.S. that's anemic savings and media-urged excessive consumption.
In the stock market front-running is supposed to be illegal. But apparently nobody has informed MSM yet. Choose your cheerleaders carefully .
Americans will consume almost anything, especially if its edible. It's the American disease and not content with it ownership, many are now trying to export it to far flung places like China. Concern about inflation in the U.S. recently took a hit when Fed Chair Janet Yellen fluffed off the risk of rising prices as just so much "noise." Still others believe that there is not enough inflation premium in U.S. bonds.
The seas are currently calm. Complacency seems to be spreading faster than a bad case of tina pedis in July. Bears are growling, bulls howling about the possibility of a long-term ride with some even suggesting an S & P 500 that could hit 4,200 in 10 years. Both sides daily roll out reams of data to support their case. Meanwhile, with few exceptions, just about every investment from bonds to commodities to equities to gold are so far up on the year.
To date foreigners have expressed a huge hunger for U.S. Treasury bonds, partly owing to the safe haven aura. If the Chinese catch the American disease that could lessen their appetite for that widely hawked American dish.
So who is correct? Who is to say? But one things remain sure: You're guess is just about as good as the next guy's.
To the see what the next act entails, however, most of us will just have to exercise another attribute not very common in America, patience.
In the meantime, we'd love to know your guess.
A blurb in today's Financial Times notes, "France is seeking help from its European partners as it seeks to limit US punishment of BNP," the big French bank caught up in financial irregularities.
The U.S. has been on the warpath, taking to task and levying fines against other banks such as HSBC, ING, JP Morgan and is about to punch Citigroup where it hurts most, the wallet. Now France is France and it will try to weasel out of whatever it can weasel out of. That's a given and not the point here.
Maybe France and Argentina ought to get together and form their own union and we could all watch to see which one evaporates first. Maybe some Chinese free enterprising sucker could even make it into a successful video game. U.S. consumers will consume almost anything, especially if it's edible.
The strong arm policy and money grab of U.S. regulators leaks over into foreign policy, a fact that apparently never dawns on these bureaucrats. A few short weeks ago this administration was asking for foreigners to help sanction Mr. Putin during another one of his passive-aggressive moods.
Shareholders of Citigroup are calling for the bank's leaders to suddenly grow a pair and take the matter to court, owing to the excessive amount of the fines and harsh sanctions the U.S. government has been ladling out. Has anyone asked where that money goes? And even more important does anyone ever get an accurate report.? Before that happens you could probably commandeer the keys to Fort Knox and discover all the gold that isn't there.
If the former Bush administration had it feet held to the flames for its black-and-white, you're-either-with-us-or-against us attitude--and it did--this administration from the Justice Department to the IRS to Benghazi has taken intransigence to whole new level.
The message has been clear: Disagree with us at your own peril. For an administration that will most likely go down in history as one of the most corrupt in history to hold the office, it's not surprising. Bill Gross may have his New Normal or New Neutral, but these people are the New Neocons. The only difference is these guys and gals are from the left.
That's our view. We hope you know yours.