The risk investors have nothing but green lights in front of them too! Risk is ON! Funny how things have changed, eh? I mean, in the “old days†an Industrial Production report from China would have been ignored, for it was “all about the US  But not any longer, apparently, because, the Chinese Industrial Production and Retail Sales reports over the weekend, have opened Pandora’s Box of currency rallies!
And here’s the real key to seeing that it’s an all-out assault on the dollar once more… Swiss francs (CHF) and Japanese yen (JPY) are both rallying versus the dollar! When the partners in crime, I mean flight to safety, turn on the dollar, and begin to rally versus the green/peachback, then you have a rout on the dollar.
Shoot Rudy, the Swiss franc reached parity to the dollar overnight, but has seen some profit taking since hitting that lofty figure. And… The Chinese renminbi (CNY) continues its 4-day move higher versus the dollar… No backing off here, folks!
The euro (EUR) http://finance.google.com/finance?q=EURUSD did hit a speed bump this morning, when Investor Confidence, as measured by the think tank, ZEW, reported a slide in Investor Confidence that has reached a 19-month low!
But… The single unit remained well above 1.28, and again that’s just another sign, for when a currency gets smacked in the mouth but is able to retain its footing, you know that it’s all good for the currencies…
Another thing helping the euro to maintain strength in the face of an awful ZEW report, is that the European Commission increased its projection for growth in the Eurozone to 1.7% for 2010, nearly doubling its May forecast of 0.9%. The strength of Germany’s economic recovery is a major factor for the change. The commission upgraded its forecast for Germany’s growth from 1.2% to 3.4%.
And gold? Recall, yesterday, I told you how in the initial reversal of risk aversion, that gold gets sold, but then turns around? Well, the turn-around has already occurred! Gold is up $7, and is now just 1.6% away from its all-time high! I read a story on the Bloomie this morning that had a title that was quite catchy, it read: “Gold’s soothing balm trumps slower inflation.†HA! That’s a good one! But it’s true, it’s true, I did see a putty tat! As I told the reporter from The Street two weeks ago… These are uncertain times, and gold is the “uncertainty hedge 
One currency that did get caught up the cross winds of a bad economic report was kiwi (NZD)… New Zealand Retail Sales fell 0.4% in July and some now fear that the earthquake that recently hit New Zealand, has sent consumers to the sidelines in fear… I don’t think that this is something that will carry on too long, and if the rest of the currencies continue to rally against the dollar, kiwi will look at this dip in its rear view mirror.
And the poor pound sterling (GBP)… It can’t get any traction, in either direction… It’s stuck in the mud… Inflation in the UK continues to be a bug-a-boo, as it printed at 3.1% in August… The UK, you might recall, has a 2% ceiling, but what are they going to do about it? Stuck between the rock and a hard place, I would say, for if the Bank of England (BOE) would hike rates to cool this inflation, the economy – which is nothing more than a house of cards – would come crashing down… The BOE is resigned to living with 3.1% inflation for now… But what happens when it begins to inch up again?
Now… I’ve said this many times in the past but it needs to be repeated right here, right now… Since the financial meltdown began, the UK experiences things before we do here… So… Is that what’s in our future? Rising inflation that the Fed can’t do a thing about? I believe so, dear readers… I do believe so…
An even more reason to buy and hold gold, eh?
And don’t forget silver! Yesterday, while gold was fluctuating up and down, the steady rise was in silver!
Japan’s PM, Kan, survived a vote last night, and that helped the yen to reach its 15-year high versus the dollar once again. What are Kan and his partners in crime going to do about this yen strength? The markets are convinced that they will do nothing, and that there is a green light to continue to mark up the yen versus the dollar… Hmmm… I’m still pinning my colors to the mast of Japanese intervention… I believe it will come, and when it does it will be with both guns a-blazin’! And those in short-term positions will get whacked! Long-term positions, will simply be able to either batten-down the hatches or sell with a profit…
The US data cupboard has August retail sales for us this morning… As I said yesterday, the BHI indicates that the report will be just “OK†nothing to get the recovery campers all lathered up about, nor will it be bad to get the “double dip†campers lathered either! Yesterday, the Monthly Budget Deficit came in better than expected, at “only†$90.5 billion! UGH!
Then there was this… Where do you stand on the tax cuts? Every US taxpayer will be affected by the outcome of the debate in Congress regarding whether to extend Bush-era tax cuts and credits scheduled to expire this year. Congress has a few options available, including extending all of the measures, letting them expire or continuing them with change, such as limiting their benefit to middle-income families.
I’ll say this, and be done with it… Tax cuts are great for you and me, AS LONG AS THEY ARE ACCOMPANIED BY SPENDING CUTS IN THE GOVERNMENT! The loss of revenue has to be offset by a reduction of spending… This is NOT what happened eight years ago, and one of the reasons we have such a mess on our hands! And can we really depend on this administration to cut spending? I doubt it seriously, folks…
To recap… The currencies, for the most part, added to their gains yesterday, overnight. Even Swiss francs and yen took a swing at the dollar, with francs hitting parity to the dollar overnight! Gold is back in the swing versus the dollar, and is now only 1.6% away from its all-time high. New Zealand saw a weak retail sales report, and kiwi suffered. Pound sterling is stuck in the mud, with rising inflation… Is that what we can expect here?
Currency Rallies Abound originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.
Whether the US continues to face the specter of a double-dip recession or a full-fledged second leg down, we’ll find out eventually. What’s more clear now is that many of the jobs lost in the global downturn are simply not returning any time soon… the economy remains due for more correction.
For three signs of ongoing joblessness during this lackluster “recovery” we turn to Fortune:
“Average workweek is still short. During the recession, many employers cut hours. And those hesitant to take on workers full-time hired part-timers. Until we see the average workweek in the private sector rise, there isn’t much reason to believe that there’s sustained job growth. After all, employers will use their existing workers for the maximum hours they can work before hiring new people…
“Unemployment claims and the magic number. Each Thursday, the Labor Department releases a tally of the newly jobless applying for aid. As with any statistic that captures data over such a short period, virtually anything from bad weather to holidays could impact the tally. So whether initial unemployment claims go up or down week-to-week doesn’t matter as much as the tally itself… at 451,000 — still too high to really celebrate…
“Corporate cash balances remain high. When companies are sitting cash at record levels, that means they’re either saving for some kind of strategic investment or simply not hiring. In today’s case, most companies have held off on hiring amid uncertainty of the economy. Non-financial companies in the S&P 500 reported $837 billion in cash at end of March, a 26% increase over the previous year’s $665 billion. This means companies are holding cash reflecting 10% of their value…”
These three factors — the short average workweek, massive overall unemployment claims, and high corporate cash balances — provide tangible evidence the US labor market is still incapable of showing any real signs of life. And, with the current unemployment level of 9.6 percent, it remains little improved from its worst levels during of the global meltdown. You can read more details in Fortune’s coverage of three signs it’s truly a jobless recovery.
3 Signs of the Ongoing Jobless Recovery originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.
Sometimes you don't have to scour the market for a good trade. Occasionally, it can be found in some of the most visible stocks on the market.
Clorox (NYSE: CLX), also known as “the bleach company,” looks to be one of those trades. As a top manufacturer of cleaning products, Clorox sells a number of other recognized consumer brands, including Hidden Valley salad dressing, Brita water-filtration systems, Glad garbage bags, Kingsford charcoal and Burt's Bees personal care products.
Already selling its products in more than 100 countries worldwide, Clorox continues to expand internationally by introducing new niche items like Green Works environmental cleaning supplies to growing markets in Asia and Latin America.
With competitive pricing, successful marketing and effective internal cost controls, Clorox shows the potential for solid future revenue and earnings growth.
Clorox is also technically strong. Since hitting a low of $43.46 in March 2009, the stock has soared +52.5%.
From May onward, the stock has been probing a series of new 52-week highs. In the September 6th trading week, CLX hit a high of $66.67, and is now attempting to pierce the upper Bollinger band, currently intersecting at $66.64.
Just this past trading week, the stock successfully broke $65.12 resistance — which it tested several times during the summer.
The stock bullishly broke out of a small ascending triangle formation, formed by $65 resistance and the major uptrend line.
In 2007, the stock reached an all-time high of $67.98. Therefore, there would be no historic overhead resistance above this level.
CLX has moved past its rising 10- and 30-week moving averages, which intersect at $65.62 and $65.03, respectively.
The indicators are bullish. MACD has just given a buy signal, while the MACD histogram is inching into positive territory.
Relative strength index (RSI) has been on a sustained major uptrend since February 2009. At 63, RSI has surpassed the key 50 juncture, but is not yet highly overbought.
Stochastics, has given a buy signal and is rising.
Clorox also has strong fundamentals and a promising outlook. In early August, the company posted upbeat fourth-quarter and fiscal year 2010 results (for the period ending June 30th, 2010).
Quarterly revenue increased in line with analyst projections, growing +2% to $1.52 billion, from $1.49 billion in the year-ago period. Growth would have been stronger if the company had not been negatively impacted by unfavorable currency translation of the Venezuelan Bolivar. However, increased sales of Kingsford charcoal and Hidden Valley salad dressing helped offset this loss. Clorox also repurchased 2.4 million shares during the quarter.
For the 2010 fiscal year, revenue rose +1.5% to $5.53 billion from $5.45 billion in the previous fiscal year. Company-wide cost-savings, combined with higher prices for several of its products, drove growth.
For fiscal year 2011, Clorox expects to achieve from +2% to +4% sales growth as the company continues to expand internationally. In fiscal 2012, analysts project revenue will increase an additional +3.5% to $5.9 billion.
The earnings outlook is similar.
In the fiscal fourth-quarter, earnings were $1.20, the same as the year-ago period. However, full-year fiscal earnings increased +12% to $4.24, compared to $3.79 in fiscal 2009. Lower expenses, combined with higher sales, created the gain.
For the full 2011 fiscal year, Clorox projects earnings in the range of $4.50 to $4.65, which translates to +8% growth from the previous year. By fiscal 2012, analysts believe international expansion, especially of the Burt's Bees brand, should cause earnings to rise another +8.5% to $4.97.
Clorox is also reasonably valued. Its forward price-to-earnings ratio (P/E) is 13.3. By comparison, competitors Colgate-Palmolive (NYSE: CL) and Proctor & Gamble (NYSE: PG) have moderately higher P/E ratios of 14.4 and 14.0.
Clorox also has a more attractive price-to-sales (P/S) ratio of 1.7. Colgate-Palmolive's P/S ratio is 2.3 and Proctor & Gamble's P/S ratio is 2.2 — the lower the P/S ratio, the better the valuation.
Furthermore, Clorox also offers a solid 3.3% dividend yield. This attractive yield isn't likely to go away anytime soon: Clorox has been paying an uninterrupted dividend since 1968 and has increased its dividend payment every year for the past 31 years.
Action to Take –> Because Clorox shows attractive valuation, steady growth potential and solid technicals, traders may want to go long on this stock if it pierces its upper Bollinger band, which currently intersects at $66.60. I would place a buy-on-stop order at $66.63, just above the upper Bollinger band. This means if CLX does not hit or go above $66.63, you will not enter the position.
– Dr. Melvin Pasternak
Dr. Melvin Pasternak is one of the most experienced market technicians in the nation and Chief Trading Expert behind Double-Digit Trading.
Sometimes you don't have to scour the market for a good trade. Occasionally, it can be found in some of the most visible stocks on the market.
Clorox (NYSE: CLX), also known as “the bleach company,” looks to be one of those trades. As a top manufacturer of cleaning products, Clorox sells a number of other recognized consumer brands, including Hidden Valley salad dressing, Brita water-filtration systems, Glad garbage bags, Kingsford charcoal and Burt's Bees personal care products.
Already selling its products in more than 100 countries worldwide, Clorox continues to expand internationally by introducing new niche items like Green Works environmental cleaning supplies to growing markets in Asia and Latin America.
With competitive pricing, successful marketing and effective internal cost controls, Clorox shows the potential for solid future revenue and earnings growth.
Clorox is also technically strong. Since hitting a low of $43.46 in March 2009, the stock has soared +52.5%.
From May onward, the stock has been probing a series of new 52-week highs. In the September 6th trading week, CLX hit a high of $66.67, and is now attempting to pierce the upper Bollinger band, currently intersecting at $66.64.
Just this past trading week, the stock successfully broke $65.12 resistance — which it tested several times during the summer.
The stock bullishly broke out of a small ascending triangle formation, formed by $65 resistance and the major uptrend line.
In 2007, the stock reached an all-time high of $67.98. Therefore, there would be no historic overhead resistance above this level.
CLX has moved past its rising 10- and 30-week moving averages, which intersect at $65.62 and $65.03, respectively.
The indicators are bullish. MACD has just given a buy signal, while the MACD histogram is inching into positive territory.
Relative strength index (RSI) has been on a sustained major uptrend since February 2009. At 63, RSI has surpassed the key 50 juncture, but is not yet highly overbought.
Stochastics, has given a buy signal and is rising.
Clorox also has strong fundamentals and a promising outlook. In early August, the company posted upbeat fourth-quarter and fiscal year 2010 results (for the period ending June 30th, 2010).
Quarterly revenue increased in line with analyst projections, growing +2% to $1.52 billion, from $1.49 billion in the year-ago period. Growth would have been stronger if the company had not been negatively impacted by unfavorable currency translation of the Venezuelan Bolivar. However, increased sales of Kingsford charcoal and Hidden Valley salad dressing helped offset this loss. Clorox also repurchased 2.4 million shares during the quarter.
For the 2010 fiscal year, revenue rose +1.5% to $5.53 billion from $5.45 billion in the previous fiscal year. Company-wide cost-savings, combined with higher prices for several of its products, drove growth.
For fiscal year 2011, Clorox expects to achieve from +2% to +4% sales growth as the company continues to expand internationally. In fiscal 2012, analysts project revenue will increase an additional +3.5% to $5.9 billion.
The earnings outlook is similar.
In the fiscal fourth-quarter, earnings were $1.20, the same as the year-ago period. However, full-year fiscal earnings increased +12% to $4.24, compared to $3.79 in fiscal 2009. Lower expenses, combined with higher sales, created the gain.
For the full 2011 fiscal year, Clorox projects earnings in the range of $4.50 to $4.65, which translates to +8% growth from the previous year. By fiscal 2012, analysts believe international expansion, especially of the Burt's Bees brand, should cause earnings to rise another +8.5% to $4.97.
Clorox is also reasonably valued. Its forward price-to-earnings ratio (P/E) is 13.3. By comparison, competitors Colgate-Palmolive (NYSE: CL) and Proctor & Gamble (NYSE: PG) have moderately higher P/E ratios of 14.4 and 14.0.
Clorox also has a more attractive price-to-sales (P/S) ratio of 1.7. Colgate-Palmolive's P/S ratio is 2.3 and Proctor & Gamble's P/S ratio is 2.2 — the lower the P/S ratio, the better the valuation.
Furthermore, Clorox also offers a solid 3.3% dividend yield. This attractive yield isn't likely to go away anytime soon: Clorox has been paying an uninterrupted dividend since 1968 and has increased its dividend payment every year for the past 31 years.
Action to Take –> Because Clorox shows attractive valuation, steady growth potential and solid technicals, traders may want to go long on this stock if it pierces its upper Bollinger band, which currently intersects at $66.60. I would place a buy-on-stop order at $66.63, just above the upper Bollinger band. This means if CLX does not hit or go above $66.63, you will not enter the position.
– Dr. Melvin Pasternak
Dr. Melvin Pasternak is one of the most experienced market technicians in the nation and Chief Trading Expert behind Double-Digit Trading.
Editor's Note: This story replaces an earlier article we published about the new banking reserve requirements. The original article was based on inaccurate information, which led to mistaken conclusions about the effect of the new regulations on earnings at the major banks.
Wall Street cheered the new bank rules announced this weekend — which is, I suppose, as good a reason to cheer as any.
The new rules govern how much capital needs to be behind a bank. Current rules say that common equity should equal 2% of total assets. The new regs call for 7%, or just more than three times as much as the current standard.
So if banks are going to be gob smacked by new capital requirements, why would Wall Street cheer?
Three reasons: An unknown became a known, which investors always like. Plus, the rules weren't as bad as they could have been, and — this is the kicker — most banks already exceed this capital measure, and by a long margin.
The good news for investors is that they can rest easy: Bank executives won't be scrambling to raise money from investors. The new requirements won't hurt earnings by as much as a single penny.
So how does your bank fare?
Well, if you bank at one of the nation's largest, the answer is likely “pretty good.”
Here's a look at common equity rates at the nation's largest banks:
J.P. Morgan Chase 8.3%
Bank of America 11.1%
Citibank 10.5%
Wells Fargo 11.5%
U.S. Bank 9.4%
PNC Bank 12.3%
HSBC Bank 9.3%
The Bank of New York Mellon 8.3%
SunTrust Bank 12.1%
TD Bank15.9%
BB&T 11.5%
Regions Bank 12.2%
That being said, about 450 banks in the country do not meet the new standard, though it's not like they are up against a tight deadline to meet the new standard — they've got eight years, which should be more than enough time.
On the other hand, plenty of banks are running short on time by other measures. Bank failures are happening at the fastest pace in memory, with roughly 120 banks being shut down by regulators so far this year. And to make matters worse, another 829 financial institutions — more than one in 10 — are on FDIC chairman's Sheila Barr's “troubled banks” list.
While there's no way to know if your bank is on the list — which is evidently the only secret in Washington that actually gets kept — there are metrics that show with a pretty good rate of accuracy which banks are in danger. I recently crunched the numbers on that score. [You can see my findings here]
The real reason Wall Street cheered, of course, is that the banks are going to be left alone to earn their way out of trouble. And that they likely will: Net interest margins are strong, banks are bringing in nearly $20 billion a quarter in fees alone, and for most of the big banks, the teetering-on-the-brink days of the financial crisis are over.
Since the market's ebb, many banks have seen triple-digit returns. One hasn't yet, though, and it might prove to be the last great investment in the class.
Action to Take –> If you've never considered Citigroup (NYSE: C), now might be the time. The bank, one of the nation's largest, is strongly reserved and profitable. Because it won't have to put its earnings to work building its reserves to meet the new 7% rule, Citigroup will be free to use its cash to buy back the stock it sold Uncle Sam during the bailouts, which could signal the bank's return to its pre-financial crisis state of good health (with a few lessons learned — I'd argue the bank has seen the folly of piling on more and more risk and has become somewhat more disciplined about managing costs). The stock is a steal under $4.
–Andy Obermueller
P.S. — Everyday investors may not realize it, but regulatory bodies with the power to change the rules (especially the government) can create a fortune for investors. Each month in my premium newsletter Government-Driven Investing, I go on the hunt, scouting out where government action is going to create soaring stock prices. Whether it's in alternative energy… healthcare… infrastructure… or anywhere else, I'm bringing it to light for investors. Learn more — click here now.
Andy spent a decade as a financial journalist writing for some of the largest newspapers in the nation. His acumen helped guide the financial news read by over a million people each day. Read more…
Disclosure: Neither Andy Obermueller nor StreetAuthority, LLC hold positions in any securities mentioned in this article.
Editor's Note: This story replaces an earlier article we published about the new banking reserve requirements. The original article was based on inaccurate information, which led to mistaken conclusions about the effect of the new regulations on earnings at the major banks.
Wall Street cheered the new bank rules announced this weekend — which is, I suppose, as good a reason to cheer as any.
The new rules govern how much capital needs to be behind a bank. Current rules say that common equity should equal 2% of total assets. The new regs call for 7%, or just more than three times as much as the current standard.
So if banks are going to be gob smacked by new capital requirements, why would Wall Street cheer?
Three reasons: An unknown became a known, which investors always like. Plus, the rules weren't as bad as they could have been, and — this is the kicker — most banks already exceed this capital measure, and by a long margin.
The good news for investors is that they can rest easy: Bank executives won't be scrambling to raise money from investors. The new requirements won't hurt earnings by as much as a single penny.
So how does your bank fare?
Well, if you bank at one of the nation's largest, the answer is likely “pretty good.”
Here's a look at common equity rates at the nation's largest banks:
J.P. Morgan Chase 8.3%
Bank of America 11.1%
Citibank 10.5%
Wells Fargo 11.5%
U.S. Bank 9.4%
PNC Bank 12.3%
HSBC Bank 9.3%
The Bank of New York Mellon 8.3%
SunTrust Bank 12.1%
TD Bank15.9%
BB&T 11.5%
Regions Bank 12.2%
That being said, about 450 banks in the country do not meet the new standard, though it's not like they are up against a tight deadline to meet the new standard — they've got eight years, which should be more than enough time.
On the other hand, plenty of banks are running short on time by other measures. Bank failures are happening at the fastest pace in memory, with roughly 120 banks being shut down by regulators so far this year. And to make matters worse, another 829 financial institutions — more than one in 10 — are on FDIC chairman's Sheila Barr's “troubled banks” list.
While there's no way to know if your bank is on the list — which is evidently the only secret in Washington that actually gets kept — there are metrics that show with a pretty good rate of accuracy which banks are in danger. I recently crunched the numbers on that score. [You can see my findings here]
The real reason Wall Street cheered, of course, is that the banks are going to be left alone to earn their way out of trouble. And that they likely will: Net interest margins are strong, banks are bringing in nearly $20 billion a quarter in fees alone, and for most of the big banks, the teetering-on-the-brink days of the financial crisis are over.
Since the market's ebb, many banks have seen triple-digit returns. One hasn't yet, though, and it might prove to be the last great investment in the class.
Action to Take –> If you've never considered Citigroup (NYSE: C), now might be the time. The bank, one of the nation's largest, is strongly reserved and profitable. Because it won't have to put its earnings to work building its reserves to meet the new 7% rule, Citigroup will be free to use its cash to buy back the stock it sold Uncle Sam during the bailouts, which could signal the bank's return to its pre-financial crisis state of good health (with a few lessons learned — I'd argue the bank has seen the folly of piling on more and more risk and has become somewhat more disciplined about managing costs). The stock is a steal under $4.
–Andy Obermueller
P.S. — Everyday investors may not realize it, but regulatory bodies with the power to change the rules (especially the government) can create a fortune for investors. Each month in my premium newsletter Government-Driven Investing, I go on the hunt, scouting out where government action is going to create soaring stock prices. Whether it's in alternative energy… healthcare… infrastructure… or anywhere else, I'm bringing it to light for investors. Learn more — click here now.
Andy spent a decade as a financial journalist writing for some of the largest newspapers in the nation. His acumen helped guide the financial news read by over a million people each day. Read more…
Disclosure: Neither Andy Obermueller nor StreetAuthority, LLC hold positions in any securities mentioned in this article.
One of the reasons Microsoft (Nasdaq: MSFT) was such a great stock for so many years was that it was essentially a monopoly. And even the most inexperienced investor should know that a monopoly is one of the best investments one can make.
Two months after a judge declared Microsoft a monopoly, the company hit its all-time high… and has never come close to it again. That's why the second best investment one can make is in a duopoly. There's a lot less risk the Department of Justice will come calling, and investors can still reap most of the same benefits.
This brings us to the world's largest flooring manufacturer, Mohawk Industries (NYSE: MHK), which controls roughly 23% of the domestic flooring market. Along with the second largest company, Shaw Industries (NYSE: USG), which controls 27% of the domestic market, it's pretty clear that limited competition can do wonders for a company's financial results.
Astute investors might ask why a company that deals in anything having to do with building materials would even be worth talking about, given the devastation to the housing sector. It's a fair question, but this is why being a massive player in a fragmented industry works to a company's benefit.
Mohawk has several advantages that smaller players do not. Besides having all the raw materials it needs, the company can produce virtually every kind of flooring, use its own sales and support force and have built an efficient, broad-ranging distribution network that smaller players simply can't afford. The distribution network, in particular, means that the return the company sees on capital invested into that network is stronger and more consistent than a smaller manufacturer.
Mohawk's greatest advantage may be that it sells almost two-thirds of its product to mom-and-pop flooring stores. This approach is preferable to selling to big box home improvement companies like Lowe's (NYSE: LOW), because the big boys can wield their own market share with consumers to negotiate lower prices. Without such pricing power, mom-and-pops must pay more for Mohawk products. In addition, because of the de facto duopoly, those retailers don't have a lot of other choices. Walk into your local carpet store and look around — you'll find the majority of products are Mohawk.
Mohawk, however, doesn't behave like a Mafia-run protection racket with this pricing power. The company backs it up by helping out with advertising, superior service and providing support for its 27,000 clients. If you are essentially forcing customers to buy from you, why not make them glad they are? Good relations mean that should some other competitor eventually appear on the market, customers will think twice about switching.
Financially, the company is on very solid ground. Whereas Shaw has lost money three years running, Mohawk has been profitable. It even broke even in 2008 and 2009, at the height of the housing nightmare. For the first half of this year, the company already shows $88 million in net income, following $54 million of profit in the second quarter of last year.
However, it's the cash flow statement that shines. Even during the troublesome past two years, the company still cranked out $910 million in cash flow. Debt service of $127 million annually is easily covered, while margins run consistently at around 9%.
Some investors may still be concerned about the housing market. What if foreclosures continue to increase? It's true that Mohawk can't get away from the fact that its business' DNA is wrapped around housing. However, Mohawk's 10-K filing states that its long-term market is more dependent on remodeling than construction by a factor of two-to-one. And when foreclosed homes get snapped up by distressed real-estate investors, what do they do? Remodel it and either flip it or rent it out.
Action to Take –> Mohawk is a buy for long-term investors. The housing debacle has depressed earnings, but its fantastic distribution network and massive product line give it and Shaw the advantage over everyone else in the marketplace. An expected earnings growth rebound of +40% this year and +30% next year put fair value at twice today's price.
– Melvin Halcomb
Contributor
StreetAuthority
Disclosure: Neither Melvin Halcomb nor StreetAuthority, LLC hold positions in any securities mentioned in this article.
One of the reasons Microsoft (Nasdaq: MSFT) was such a great stock for so many years was that it was essentially a monopoly. And even the most inexperienced investor should know that a monopoly is one of the best investments one can make.
Two months after a judge declared Microsoft a monopoly, the company hit its all-time high… and has never come close to it again. That's why the second best investment one can make is in a duopoly. There's a lot less risk the Department of Justice will come calling, and investors can still reap most of the same benefits.
This brings us to the world's largest flooring manufacturer, Mohawk Industries (NYSE: MHK), which controls roughly 23% of the domestic flooring market. Along with the second largest company, Shaw Industries (NYSE: USG), which controls 27% of the domestic market, it's pretty clear that limited competition can do wonders for a company's financial results.
Astute investors might ask why a company that deals in anything having to do with building materials would even be worth talking about, given the devastation to the housing sector. It's a fair question, but this is why being a massive player in a fragmented industry works to a company's benefit.
Mohawk has several advantages that smaller players do not. Besides having all the raw materials it needs, the company can produce virtually every kind of flooring, use its own sales and support force and have built an efficient, broad-ranging distribution network that smaller players simply can't afford. The distribution network, in particular, means that the return the company sees on capital invested into that network is stronger and more consistent than a smaller manufacturer.
Mohawk's greatest advantage may be that it sells almost two-thirds of its product to mom-and-pop flooring stores. This approach is preferable to selling to big box home improvement companies like Lowe's (NYSE: LOW), because the big boys can wield their own market share with consumers to negotiate lower prices. Without such pricing power, mom-and-pops must pay more for Mohawk products. In addition, because of the de facto duopoly, those retailers don't have a lot of other choices. Walk into your local carpet store and look around — you'll find the majority of products are Mohawk.
Mohawk, however, doesn't behave like a Mafia-run protection racket with this pricing power. The company backs it up by helping out with advertising, superior service and providing support for its 27,000 clients. If you are essentially forcing customers to buy from you, why not make them glad they are? Good relations mean that should some other competitor eventually appear on the market, customers will think twice about switching.
Financially, the company is on very solid ground. Whereas Shaw has lost money three years running, Mohawk has been profitable. It even broke even in 2008 and 2009, at the height of the housing nightmare. For the first half of this year, the company already shows $88 million in net income, following $54 million of profit in the second quarter of last year.
However, it's the cash flow statement that shines. Even during the troublesome past two years, the company still cranked out $910 million in cash flow. Debt service of $127 million annually is easily covered, while margins run consistently at around 9%.
Some investors may still be concerned about the housing market. What if foreclosures continue to increase? It's true that Mohawk can't get away from the fact that its business' DNA is wrapped around housing. However, Mohawk's 10-K filing states that its long-term market is more dependent on remodeling than construction by a factor of two-to-one. And when foreclosed homes get snapped up by distressed real-estate investors, what do they do? Remodel it and either flip it or rent it out.
Action to Take –> Mohawk is a buy for long-term investors. The housing debacle has depressed earnings, but its fantastic distribution network and massive product line give it and Shaw the advantage over everyone else in the marketplace. An expected earnings growth rebound of +40% this year and +30% next year put fair value at twice today's price.
– Melvin Halcomb
Contributor
StreetAuthority
Disclosure: Neither Melvin Halcomb nor StreetAuthority, LLC hold positions in any securities mentioned in this article.
Every Monday, I like to look at all the stocks that saw fresh rounds of insider buying in the previous week. Such so-called insider buying can alert you to undervalued stocks before most investors take note. That's because insiders (defined as any officer or director of a company, or any investor that owns more than 5% of the company's stock) have deep insights into how a business performs. Insiders must file a copy of their activities with the U.S. Securities and Exchange Commission. Several websites, including insiderinsights.com and edgar-online.com, track these transactions.
Most weeks, I am lucky to find one or two intriguing insider purchases that merit further research. But I noticed an unusual cluster of buying last week. At least two separate insiders stepped in to buy up large chunks of stock at three different retailers. Taken together, insiders at these companies snapped up more than $8 million in stock in last week. Investors have been selling off retail stocks throughout the summer, and these retailers seem to have been especially hard hit. Let's take a deeper look to see which one of these stocks holds the most appeal right now.
Office Depot
Looking over my notes, here's what I wrote back in April: “Analysts at Jefferies have a bit of egg on their face today after talking up shares of Office Depot (NYSE: ODP) on Monday. The analysts' bullish preview of first quarter results pushed shares up above $9 on Monday to a 52-week high on an intra-day basis. Shares gave back all of those gains — and more — in Tuesday trading, as sales and profits missed estimates.”
Not only did shares of this office supply store fall on that late April morning, but they've fallen ever since and are now below $4 — roughly the same price they traded for back in 1993. Simply put, rival Staples (NYSE: SPLS) has taken Office Depot to the cleaners. Shares of Staples have risen more than +2,000% since 1993. Staples has delivered more appealing stores, generated higher sales per store and has been vastly more profitable.
And when you see how investors are valuing each of these companies, you start to see a stark disconnect. For example, Staples sports an EV/sales ratio of 0.66, while Office Depot has an EV/sales ratio of just 0.10. And Staples is valued at a+ 40% premium in terms of EBITDA-to-sales.
Every Monday, I like to look at all the stocks that saw fresh rounds of insider buying in the previous week. Such so-called insider buying can alert you to undervalued stocks before most investors take note. That's because insiders (defined as any officer or director of a company, or any investor that owns more than 5% of the company's stock) have deep insights into how a business performs. Insiders must file a copy of their activities with the U.S. Securities and Exchange Commission. Several websites, including insiderinsights.com and edgar-online.com, track these transactions.
Most weeks, I am lucky to find one or two intriguing insider purchases that merit further research. But I noticed an unusual cluster of buying last week. At least two separate insiders stepped in to buy up large chunks of stock at three different retailers. Taken together, insiders at these companies snapped up more than $8 million in stock in last week. Investors have been selling off retail stocks throughout the summer, and these retailers seem to have been especially hard hit. Let's take a deeper look to see which one of these stocks holds the most appeal right now.
Office Depot
Looking over my notes, here's what I wrote back in April: “Analysts at Jefferies have a bit of egg on their face today after talking up shares of Office Depot (NYSE: ODP) on Monday. The analysts' bullish preview of first quarter results pushed shares up above $9 on Monday to a 52-week high on an intra-day basis. Shares gave back all of those gains — and more — in Tuesday trading, as sales and profits missed estimates.”
Not only did shares of this office supply store fall on that late April morning, but they've fallen ever since and are now below $4 — roughly the same price they traded for back in 1993. Simply put, rival Staples (NYSE: SPLS) has taken Office Depot to the cleaners. Shares of Staples have risen more than +2,000% since 1993. Staples has delivered more appealing stores, generated higher sales per store and has been vastly more profitable.
And when you see how investors are valuing each of these companies, you start to see a stark disconnect. For example, Staples sports an EV/sales ratio of 0.66, while Office Depot has an EV/sales ratio of just 0.10. And Staples is valued at a+ 40% premium in terms of EBITDA-to-sales.
While Americans haven’t completely abandoned their spendthrift ways, there’s no doubt that the typical shopper is thinking a lot more about their purchases … and in general, our nation is revisiting the idea of saving for a rainy day.
I’ll discuss the broad implications of this shift some other time. Today, I’d like to talk about the specific companies most affected by our nation’s newfound frugality — the retailers.
Let’s Start with a Basic Breakdown of the Industry …
The typical newspaper article or TV reporter tends to call any store that sells goods a retailer, and that’s a fine generalization.
But as investors, it’s important for us to make more detailed distinctions … especially if we want to understand where the real dangers and opportunities are.
First on the list would be traditional department stores — the ones you used to find around your local town square, and which now typically anchor malls. Names like Nordstrom and Saks occupy the top of the hierarchy here, catering predominantly to wealthier shoppers and so-called “aspirational” buyers — the regular folks overusing their credit cards to snap up Louis Vuitton bags and designer clothes.
In the middle are the moderate department stores like J.C. Penney and Sears.
And underneath them are the discount stores — everyone from Target to 99 Cents Only Stores.
What about Wal-Mart? Although it is a discount store, Wall Street analysts technically group the company with “consumer staples” because it is so large, and sells so many necessities like groceries and health products.
Wal-Mart’s sales dwarf those of its competitors.
To give you an idea of just how big Wal-Mart actually is, consider that its 2009 U.S. sales were $304 billion — 44 percent more than the next largest 14 mass merchandisers combined!
Beyond the various levels of department stores lie the specialty retailers who sell sporting goods, home and bath products, consumer electronics, apparel, auto parts, and everything in between.
Plus, there are plenty of other companies that rely on retail sales, but aren’t technically considered retailers — including fast-food restaurants, drug stores, etc.
So How Are the Different Retailers
Faring in This Tricky Environment?
At the high end, Nordstrom and Saks have lost many of their aspirational buyers since lines of credit have now been all but shut off.
How are these luxury stores dealing? By catering to the truly wealthy in their flagship locations.
Meanwhile, they are also garnering more business from other shoppers through off-price stores. These can be found in outlet shopping complexes and sell clearance merchandise as well as goods bought directly from vendors. Bloomingdale’s has also decided to go this route by opening at least four outlet stores in the next year.
Other retailers farther down the food chain are finding unique ways to stay competitive, too.
Sears reintroduced layaway plans in November 2008 … and Kmart, which is now under the same corporate umbrella, also offers a layaway option in its locations.
J.C. Penney, meanwhile, has been trying to re-position itself as a more fashion-forward destination through initiatives like its in-store partnership with the Sephora cosmetics chain and a new line of clothing with Mango, a popular European fashion label.
Specialty retailers are somewhat at the whim of the specific items they carry. For example, during recessionary periods auto parts retailers often fare well as consumers choose to keep their existing cars on the road rather than trade up to new vehicles. In contrast, chains that sell home products are suffering because of the real estate bust.
And no matter what type of store you’re talking about, controlling inventory levels and other fixed costs are now critical for success in this tough environment.
Which begs the question …
Are Retailers Good Buys for Investors Now?
Let me start with a caveat: There are always companies that are doing everything right even when the big forces are going against them. And among those firms, you can usually find an undervalued stock or two.
But based on the challenges the group is facing, I don’t think most retail shares are attractive at the moment.
Take a look at the following chart …
As you can see, the group is up sharply off their lows reached during 2009. So in my mind, they are not currently pricing in the potential for extended economic weakness ahead.
For income investors, it’s worth noting that many retailers have managed to maintain their dividend payments throughout all the fundamental weakness. Some have even continued to increase.
But because they tend to pay below-average dividend yields, I view the very best stocks from this group as a good way to diversify a portfolio … not as income anchors.
If we see a substantial pullback in the market, especially in the more economically-sensitive groups, that could provide a good time to get more aggressive. For now, most traditional retailers aren’t on my shopping list.
Best wishes,
Nilus
P.S. I did recently recommend one company with a strong retail presence to my Dividend Superstars subscribers. But I think there are a number of circumstances that make it a major exception to what I said above. If you want the full scoop, sign up for a risk-free subscription to Dividend Superstars today. A full year of issues is only $69!
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
Attention editors and publishers!Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.
While Americans haven’t completely abandoned their spendthrift ways, there’s no doubt that the typical shopper is thinking a lot more about their purchases … and in general, our nation is revisiting the idea of saving for a rainy day.
I’ll discuss the broad implications of this shift some other time. Today, I’d like to talk about the specific companies most affected by our nation’s newfound frugality — the retailers.
Let’s Start with a Basic Breakdown of the Industry …
The typical newspaper article or TV reporter tends to call any store that sells goods a retailer, and that’s a fine generalization.
But as investors, it’s important for us to make more detailed distinctions … especially if we want to understand where the real dangers and opportunities are.
First on the list would be traditional department stores — the ones you used to find around your local town square, and which now typically anchor malls. Names like Nordstrom and Saks occupy the top of the hierarchy here, catering predominantly to wealthier shoppers and so-called “aspirational” buyers — the regular folks overusing their credit cards to snap up Louis Vuitton bags and designer clothes.
In the middle are the moderate department stores like J.C. Penney and Sears.
And underneath them are the discount stores — everyone from Target to 99 Cents Only Stores.
What about Wal-Mart? Although it is a discount store, Wall Street analysts technically group the company with “consumer staples” because it is so large, and sells so many necessities like groceries and health products.
Wal-Mart’s sales dwarf those of its competitors.
To give you an idea of just how big Wal-Mart actually is, consider that its 2009 U.S. sales were $304 billion — 44 percent more than the next largest 14 mass merchandisers combined!
Beyond the various levels of department stores lie the specialty retailers who sell sporting goods, home and bath products, consumer electronics, apparel, auto parts, and everything in between.
Plus, there are plenty of other companies that rely on retail sales, but aren’t technically considered retailers — including fast-food restaurants, drug stores, etc.
So How Are the Different Retailers
Faring in This Tricky Environment?
At the high end, Nordstrom and Saks have lost many of their aspirational buyers since lines of credit have now been all but shut off.
How are these luxury stores dealing? By catering to the truly wealthy in their flagship locations.
Meanwhile, they are also garnering more business from other shoppers through off-price stores. These can be found in outlet shopping complexes and sell clearance merchandise as well as goods bought directly from vendors. Bloomingdale’s has also decided to go this route by opening at least four outlet stores in the next year.
Other retailers farther down the food chain are finding unique ways to stay competitive, too.
Sears reintroduced layaway plans in November 2008 … and Kmart, which is now under the same corporate umbrella, also offers a layaway option in its locations.
J.C. Penney, meanwhile, has been trying to re-position itself as a more fashion-forward destination through initiatives like its in-store partnership with the Sephora cosmetics chain and a new line of clothing with Mango, a popular European fashion label.
Specialty retailers are somewhat at the whim of the specific items they carry. For example, during recessionary periods auto parts retailers often fare well as consumers choose to keep their existing cars on the road rather than trade up to new vehicles. In contrast, chains that sell home products are suffering because of the real estate bust.
And no matter what type of store you’re talking about, controlling inventory levels and other fixed costs are now critical for success in this tough environment.
Which begs the question …
Are Retailers Good Buys for Investors Now?
Let me start with a caveat: There are always companies that are doing everything right even when the big forces are going against them. And among those firms, you can usually find an undervalued stock or two.
But based on the challenges the group is facing, I don’t think most retail shares are attractive at the moment.
Take a look at the following chart …
As you can see, the group is up sharply off their lows reached during 2009. So in my mind, they are not currently pricing in the potential for extended economic weakness ahead.
For income investors, it’s worth noting that many retailers have managed to maintain their dividend payments throughout all the fundamental weakness. Some have even continued to increase.
But because they tend to pay below-average dividend yields, I view the very best stocks from this group as a good way to diversify a portfolio … not as income anchors.
If we see a substantial pullback in the market, especially in the more economically-sensitive groups, that could provide a good time to get more aggressive. For now, most traditional retailers aren’t on my shopping list.
Best wishes,
Nilus
P.S. I did recently recommend one company with a strong retail presence to my Dividend Superstars subscribers. But I think there are a number of circumstances that make it a major exception to what I said above. If you want the full scoop, sign up for a risk-free subscription to Dividend Superstars today. A full year of issues is only $69!
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
Attention editors and publishers!Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.
I am always alarmed at most things these days, given my low regard for governments who have power over me and people who have power over me, who always screw things up and then make me pay for it, one way or the other.
But I am never more alarmed than when something is characterized as setting some kind of new record, as in “first time ever,†or, phrased perhaps more famously, “for the very first time in the entire history of mankind, which is highly significant, 3 out of 4 scientists agree!â€
For example, I pay particular attention when my wife grabs me by my tie as I am leaving for work, choking me and practically breaking my neck, and says, menacingly, that it is vitally important that I come directly home after work, and if I come home late, by so much as a millisecond, then she is going to punch me harder than she has ever punched me before, which is not exactly “for the first time ever,†but you get the point. Ouch!
My sad, sorrowful story of such abuse at the hands of a little old woman who can’t even punch her weight anymore is apparently sickening to see, judging by the face of the famous Lew Rockwell, of LewRockwell.com and who is, among other things, founder and chairman of the Mises Institute, for which the Austrian school of economics owes him a great deal of thanks.
Turning away from me to avert his eyes, he writes, as if to compound my pain and misery, of a new “first,†in this case that “there are no new banks started in the US in the last quarter – the first time in 38 years that this has been true.â€
Well, it is not exactly “never†or “first time ever,†but alarming, nonetheless, that nobody wants to start a new bank for the first time in 38 years.
And how many banks are there? Well, Mr. Rockwell says, “The FDIC has admitted that some 829 banks remain at risk of failure. That’s one in ten,†which means that there are 8,290 banks, which are apparently in for decimation, at least.
Well, I figure that banks are like all other predators, always sniffing around for ways to loan desperate or hopeful people money created out of thin air, and thus pay themselves exorbitant salaries and enjoy enormous power.
And now, for the first time in 38 years, there are none! “Hmmm!†I say to myself.
Perhaps it’s because there are no loans to be made to overly-indebted people and businesses so that they can continue operations and acquire assets that are grossly over-priced in an environment of economic contraction that seems destined to continue for a long time, as, for example, evidenced by Mark Lundeen, of the Bear Market Race To The Bottom newsletter, looking at the yield on the stocks in the Dow Jones Industrial Average going back to 1925, and writing that “The DJIA’s dividend yield has fallen to a level never seen when the US dollar was backed by gold.â€
Another level “never seen†before! It’s everywhere!
Indeed, everything has seemingly fallen to a level never seen before when the US dollar was backed by gold, which made dollars of limited supply, which meant that dollars had to be gotten by working for them or borrowing them from someone, instead of, like nowadays, having the filthy Federal Reserve create dollars out of thin air for the socialist federal government to blithely give away to legions of various rent seekers and other dependent parasites.
In case you were wondering, the dividend yield for the DJIA used to average about 4% or 5% over the long term, whereas right now it is at a miniscule 2.62%, which is even below the 3% historical lows achieved at those times when everyone was maximally bullish and were willing to pay top dollar for a dividend-paying stock, which they do at the market tops, right before the market cycles back down, down, down to where the dividend yield shoots up to over 6% in ordinary market downturns, and which even goes over 10% in times of extreme crisis when nobody wants to own stocks, regardless of their stupid dividend, like in 1930.
Anyway, it stands to reason, to ordinary guys like me that really have no idea what is going on despite our best efforts to understand, that the amount of income that investors would receive from owning a stock would seem to be important to the price of the stock, although, of course, I am not sure how or why I even brought it up.
I am pleased that Mr. Lundeen agrees, and says that “As a tool of predicting future price trends, information on Dividend Yields is more important than Earnings – until Doctor Greenspan became Fed Chairman in August 1987.â€
Instantly, at the mention of the name of the loathsome Alan Greenspan, chairman of the Federal Reserve from 1987 to 2006, people reflexively grow alarmed that I am going to Go Freaking Berserk (GFB) about how much I despise that little piece of lowlife intellectual poseur crap who single-handedly created so much money, committed so much intellectual fraud, like creating the infamous Hedonic Adjustment of inflation statistics, and who has caused all the economic problems of crushing debt that bedevil us, that he belongs in a filthy, rat-infested prison where he never sees the sun as a “best case†scenario for him, the little bastard.
If you think that, then you can relax! Instead, I am going to give you a valuable little investment-timing nugget, courtesy of Mr. Lundeen’s research: “Since 1925, no DJIA bear market was over until it saw a 6% dividend yield.â€
With calculator in hand, I see that for the current level of dividends ($281.20) to be 6% of the price of the DJIA, indicating the bottom of the bear market, the index would have to drop to 4,687 from today’s 10,447! Yikes!
And this is with the optimistic assumption that dividends don’t drop! Double yikes!
But, of course, all of this all depends on so much other stuff, as in “everything else†as proved by Chaos Theory, so much so that my Poor Mogambo Head (PMH) aches from considering just a few of the possibilities out of the billions of possibilities that probably exist, which is too, too much for a lazy man like me.
For this reason, I just buy gold, silver and oil, which are guaranteed to go up in response to the debasement of the dollar thanks to insane levels of government spending and monstrous increases in the money supply by the Federal Reserve, a horrific prospect that makes the decision to buy gold, silver and oil stocks as Mogambo High-Return Investments (MHRI) so easy that I happily exclaim in gleeful delight “Whee! This investing stuff is easy!â€
Never Before Seen Banking Phenomena originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.
“Home on the Range†is regarded as the unofficial anthem of the American west. It’s also a slogan available on vanity license plates in Kansas – where few Buffalo now roam. The wide-open spaces are now rangeland for the final installment of commodity critters: chicken, hogs and cattle.
As I’ve said before, it’s important to know the market relationship between livestock and the grain market. The price of livestock plays an important role in the grain market and vice versa. That’s exactly why this chart caught my eye:
As you can see from the chart, livestock demand has been tricky to forecast over the past few years. That’s partially because so many factors influence consumption: income, diet, price, just to name a few. Overall livestock consumption since 2006-2007 is down – but a resurgence looks to be on the horizon, led by strong demand for chicken.
And that’s only one side of the story – the other side is supply.
Much like the expedited hog harvesting mentioned last week, cattle farmers also stepped up slaughter when economic conditions turned bad with the financial crisis. The cycle from birth to maturity is longer with beef than with chicken. So it’s difficult to increase supply quickly. The dramatic herd reduction in 2008-2009, sending off even milk cows, is being felt now in reduced supply.
As the chart above shows, we’re at the lowest supply level of beef cows in 25 years. And even though beef consumption is lower, the mass reduction in cattle head has now supported price recovery that looks to pressure $100 per hundredweight on the upside once again.
This from The Financial Times:
Americans face higher beef prices for their traditional end-of-summer Labor Day barbecues following a late-night stampede by meat packers this week that helped send cattle futures to their highest levels in nearly two years.
Negotiations between slaughterhouses and feedyard operators with cattle to sell took on a frantic tone this week, with talks stretching late into the night on Wednesday – a rare occurrence for cattlemen used to wrapping up their affairs by sundown.
“[Wednesday] night may have been the latest bidding I have ever seen,†said John Josserand, president of AzTx Cattle in Hereford, Texas, which operates facilities that can feed 250,000 cattle at a time. By Thursday, the frenzy spread to the Chicago Mercantile Exchange, where live cattle trading volume broke records and futures prices jumped to $1 a pound, the highest level in 22 months.
The tumultuous trading came after rallies in markets for other agricultural commodities have raised fears about global food price inflation. Wheat prices have soared as a drought in Russia destroys grain crops. CME pork bellies, used for bacon, have hit all-time highs this month.
“There is growing concern that food prices are going to head north,†said Bob Goldin of Technomic, a Chicago food industry consultant. US cattle supplies have declined as ranchers culled herds to offset losses during the recession and calves emerged from the hard winter with less meat on their bones than usual.
However, exports from the US, the world’s largest producer, are expected to rise 13 per cent this year, led by shipments to Japan and South Korea. Americans also appear to be regaining a taste for beef after cutting back during the economic downturn.
“What’s exciting is beef demand has stabilised into the summer,†said Rich Nelson, director of research at Allendale, a futures broker in McHenry, Illinois. Meat packers bought heavily this week to secure supplies for the September 6 Labor Day holiday, Mr Nelson said.
By Thursday, meat packers had bought 201,000 head of cattle across the central US, up 11 per cent from the previous week, the agriculture department said. Cargill, JBS, National Beef and Tyson Foods account for three-quarters of US beef packing activity, analysts say.
Supply and demand will help show the way for livestock – but pricing and risk/reward payouts will ultimately decide if we should saddle up and wrangle a cattle position. I’m watching this situation closely.
Home on the Range originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.
The Expo will take place November 17-20, 2010 at Caesar’s Palace – check out full information at the Traders Expo Website.
The Expos are a great opportunity not only to learn from leading trading experts, but it’s a chance to network with fellow “at-home” full or part time traders in similar points in their learning curve as you. Some of the best connections come from the social nature of the Expo from speaking to fellow traders – new and experienced – like yourself.
Of course, the many presentations are free, and some are broadcast over the internet (webinars) either live or archived for later viewing, and you will have access to these with your free registration even if you are unable to make it out to Las Vegas for the expo.
From the Traders Expo Website, here are five quick reasons to attend:
Learn Specific Strategies That Work from Top Trading Pros
Network and Exchange Ideas with Other Traders
Gain a Broader Perspective of the Markets
Find the Tools You Need to Make the Best Trading Decisions
Get the Best Trading Education Money Can Buy—For Free!
And I will be conducting two presentations, as listed below:
Thursday, November 18, 2010 | 8:00 am – 9:00 am
“Join Corey Rosenbloom, CMT, in this eye-opening presentation on how to turn a loss into a potentially winning profit by trading PATTERN failures, which trap participants and confuse new traders.
You see a trade set-up that can’t fail. You enter your position, watch as the market moves in your direction, and then suddenly reverses course to stop you out. What happened?!
Learn the four components of a trade, common trade set-ups, and how to profit from the failure of obvious chart patterns that seem too good to be true (they usually are).
Learn how to recognize patterns that the crowd loves to trade and how to profit from situations where the crowd is wrong and forced to hit the exits at the same time, giving nimble traders a powerful opportunity for easy, quick profits.
If you’ve ever been frustrated by a good set-up gone bad, then this presentation will reveal why obvious chart patterns sometimes fail and how you can make the most of these busted patterns.”
In addition to the free, public presentation above, I will be conducting a similar intensive half-day workshop session as I did at the Los Angeles Expo in June.
The description is lengthy, so please browse over to the “full-information” page at the Expo page (link above) for full details on the four-hour session.
I strongly encourage new and even experienced traders to attend the Expo, either in person (for the best experience) or through the free live webinars or archived sessions.
Most Comments