Party on markets!
Pending Home Sales were off 0.6% vs up 1.1% expected and the Dallas Fed fell to 1.9 vs 5 expected and 3.6 prior but no one cared and the markets finished flat to slightly higher on holiday volume levels. Note the stick-save at the close on Dave Fry's SPY chart as well as the Futures pop that was quickly sold off in the morning. Try adding up all the red bars and stacking them against the grey bars and THEN you'll get a picture of what's really happening.
What's really happening has been the subject of much discussion in Member Chat and we've been watching more reliable indicators like the 1.6M shares declining vs 1.3M shares advancing on the NYSE and the oil services (OIH) finally starting to roll over as the reality begins to sink in that oil is NOT going back over $100 anytime soon.
That's been our premise for shorting XOM ($95) and we're up to 20 Jan $92.50 puts on our Short-Term Portfolio, now .94. A 5% pullback in XOM, which has run up 13% since early October, would drop them back to $90.50 and yield $2 or better on the puts so that's our target. We're also short on USO and long on SCO (ultra-short oil) so plenty of ways to profit from continued weakness in the energy sector.
We're also shorting retail with XRT (Jan $90/85 bear put spread at $2.50 with 100% upside potential in 52 days) based on numerous factors, including the spending forecast chart on the left. Aside from Gallup's recent poll, Morgan Stanley predicts this will be the worst holiday season since 2008 with MAYBE a 1.6% rise over last year.
Consumer debt is at 5-year highs and consumer confidence was 72 in November vs 82.7 this time last year while "current expectations" are way down at 63.2 from 76.5 in July. Gas prices, while coming down from silly highs, are only .20 lower than last year (5%) and are unlikely to tip the scales. Finally, retailers aren't planning to hire and inventories were building – all bad signs as we head into the big Black Friday test.
I wouldn't be worried if XRT (retail ETF at $87) wasn't up 45% since last December ($60) – those expectations are what we in the highly intellecutual world of Fundamantal Analysis refer to as "Way to F'ing High!" I know, I shouldn't use technical terms like that but it is the best description of stocks that have gone up 45% on expectations of 1.6% greater sales – don't you think?
I know…. CHINA!!! That's the cure-all to all market fears but, just this morning, Remy Cointreau (RCO.FR) dropped 10% on very disappointing sales guidance in Asia and warned that China's crackdown on extravagant gifts is set to hit the company's profit sharply this year and dent sales for some time, the latest sign of broad fallout from the shift in policy on major drinks makers. The French company has suffered along with rivals in recent quarters as the Chinese government has scaled back on sponsored banquets and gift giving, which for years had propelled sales of high-end spirits and other luxury goods.
The stock's now 40% drop in 8 months is nothing more than a return to normal from irrationally exhuberant expectations – the same expectations that are still plaguing the majority of the market. As I said this morning to our Members in early morning Chat:
I would argue that entire classes don't have to have great runs. Tech's run in 1999 dragged the other stocks along with it. The money the banks made peddling tech IPOs inflated their earnings and the IPO money the tech companies spend on real estate, furniture, advertising, staff, cars, etc. caused "earnings" in other sectors but, when push came to shove, it was really all feeding off one specific bubble.
Now we have the Fed pumping $85Bn a month into the economy and that goes to the banks who are giving it to companies who are buying their own stock and buying other companies and refinancing debt (which gives one-time fees up front to lenders but lousy long-term returns) and, as noted above, 70% of home sales are going to speculators now. That's not a recovery but, as long as the Fed keeps pumping in the stimulus, it's still going to look like one…
…It's BS to say earnings are up 140% from the lows as the lows were spikes down and included AIG losing $100Bn in a quarter and LEH and BSC going bust and losing tens of Billions and FRE and FNM dropping $100Bn, etc. THAT is the low earnings we're talking about. Of course you can't do that again – well I guess you could but it would be tough to match.
So the comps are idiotic and you can't (or at least you shouldn't) use them to justify raised valuations when, in fact, the individual companies are earning LESS than they did in 2007, not more.
Aside from disappointing retail sales, the most likely reason the market turns down next week will be oil failing to hold $92.50, which will begin to take a toll on the still high-flying energy sector. Another thing that can spark a sell-off is one of our Central Bankster buddies cranking up the presses over the weekend and re-valuing the Dollar while we're eating our turkey dinners – that wouldn't be nice, would it?
The Nikkei was rejected at sharply at our 15,600 line again and is already down to 15,480 after testing 15,400 last night and you know that makes the BOJ very nervous and already this morning they've jammed the Yen back down from 101.35 to 101.60 – going for 102 again.
Europe also doesn't want a stronger Euro for Christmas and they are trying to talk it down from $1.355 and you know China wants a happy holiday, so they too want the Dollar stronger so we can buy more of their stuff or, in the very least, buy their stuff with a stronger Dollar to give them better-looking conversions.
That's the game that's going to play out this weekend and into our very short holiday shopping period (only 3 weekends after Thanksgiving to XMas, with Christmas eve on Sunday) so, if we don't get off to a big start this weekend – don't expect a happy Q4 – and we've already seen how severe the wrath of the investors can be towards those companies that dare to admit things may not be as bright as they imagined when they bought the stocks.
Be careful out there!
