U.S. stock index futures were rallying on Monday morning.
Global markets were mostly higher overnight as the G-20 pledged to keep
economic stimulus plans in place until a durable recovery is in place.
Today's Economic Calendar:
- 4-Week Bill Announcement 11:00 AM ET
- 3-Month Bill Auction 11:30 AM ET
- 6-Month Bill Auction 11:30 AM ET
- 3-Yr Note Auction 1:00 PM ET
News For Thought
Alleged Fort Hood assailant may have ties to terrorism. According conservative
web site The World Tribune: "Major Nidal Malik Hasan worshipped at a mosque led
by a radical imam said to be a "spiritual adviser" to three of the hijackers
who attacked America on Sept 11, 2001. Hasan, the sole suspect in the massacre
of 13 fellow US soldiers in Texas, attended the controversial Dar al-Hijrah mosque
in Great Falls, Virginia, in 2001 at the same time as two of the September 11
terrorists, The Sunday Telegraph has learnt. His mother's funeral was held there
in May that year."
The Tribune added: "The preacher at the time was Anwar al-Awlaki, an American-born
Yemeni scholar who was banned from addressing a meeting in London by video link
in August because he is accused of supporting attacks on British troops and backing
terrorist organisations. Hasan's eyes "lit up" when he mentioned his deep respect
for al-Awlaki's teachings, according to a fellow Muslim officer at the Fort Hood
base in Texas, the scene of Thursday's horrific shooting spree." Among those
who are Very Angry about government policies, 80% say that neither political
party’s leaders have the answers."
Iran to transfer subsidy funds to fund nuclear program. According to Debka.com: "Iran's
parliament (Majlis) Sunday, Nov. 8, granted president Mahmoud Ahmadinejad unlimited
control of an estimated $30-50 billion of national treasure under legislation
empowering him to cancel government subsidies on food and fuel. He gained majority
endorsement for these measures over the objections of the Speaker Ali Larijani,
who demanded Majlis oversight of the recycled expenditure."
Hurricane Ida heads for Gulf of Mexico oil fields. According to Stratfor.com: "Hurricane
Ida headed toward oil and gas facilities in the central Gulf of Mexico on a path
to the U.S. Gulf Coast, Reuters reported Nov. 9. U.S. oil companies were shutting
down production and evacuating workers from the Gulf as Ida approached. The National
Hurricane Center said Ida was expected to weaken but would likely remain a hurricane
as it approached the northern Gulf Coast."
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Twice last week when this scribe went to a casual diner, one
was an Applebee's, and the other was a Chili's, the first thing the waitress
and the waiter, respectively did, was offer the new three course bargain platter
for two, where you can order three items for $20. This is now the routine,
not the exception, suggesting that cheap is the new hip.
Two things were fairly striking as well. One was that the Applebee's was nearly
empty. It was mid-afternoon, and we ordered the special. The waitress complained
about how slow it was, and was so not busy that she nearly became a nuisance.
The Chili's experience was over the weekend. This restaurant was at a local discourt
mall, and the restaurant and the mall were both crowded. We didn't take the special,
but the waiter told us it was a popular option.
All over the country, bargain hunting and penny pinching are in, and there are
companies that are looking to cater to the frugal. At grocery stores, and places
like Target that offer selected groceries, we've noted that sports and health
drinks are having price wars. This is especially notable with low cal sports
drinks, such as G-2, Powerade Zero, and Vitamin Water, especially the newly introduced
10 calorie version of the latter. Specials seem to rotate every few days on these
products. And sales seem to be booming, at least based on the fact that shelves
are often empty, especially when the sale price reaches certain levels.
And it's in the consumer brands where you see more and more discounting and promotion.
According to The Wall Street Journal: "Clorox Co. is keeping the price steady
on a new improved trash bag that grips the top of the garbage can," while "Campbell
Soup Co. recently reduced the promoted price of its V8 beverages in some markets
to 2 for $5 from 2 for $6," and "Burger King Holdings Inc. is selling double
cheeseburgers for just a dollar."
It's hard to predict how long this will last. But it's almost certain that with
a 10% employment rate, a significant amount of shoppers will remain price conscious
for some time in the future. According to The Wall Street Journal: "A new holiday
poll of consumers by consulting firm Deloitte LLP says 74% intend to buy items
on sale and 54% intend to use more coupons." Over the weekend, this scribe found
a leather jacket that had eluded him for years. By the time the sales clerk had
finished adding discounts and offers, the $300 jacket sold for $113, including
tax. The store was packed, and the sales people all had calculators in hand,
doing the discounting for the customer at the rack. Sales were brisk.
What is happening is that manufacturers and retailers are adapting to the changing
times and consumer tastes. By offering something of value, either at a lower
price, or by adding more to the product and not lowering the price too much,
sales seem to be improving. This was evident in our purchase of the leather jacket
which was not exactly something we needed. More specifically, it seemed as if
the price, and the value offered was nearly irresistible.
The violence is now out in the open. Here's an example. According to The Journal: "in
the northern town of García, near the industrial hub of Monterrey in Nuevo León
state, the town's new police chief, retired Brig. Gen. Juan Arturo Esparza, was
gunned down in an attack by some 30 assailants believed to be working for a drug
cartel. Five of his bodyguards also died.
And while the tactic is working in some areas of retail, it's not certain whether
it's an across the board success story. According to The Journal: "In a telling
sign, revenue at the nation's largest retailer, Wal-Mart Stores Inc., for the
12 months ending in January 2010 is expected to grow by only 1% to 2%—far less
than the 5% to 7% the company projected a year ago." And there have been some
significant events, as "Walmart recently unveiled a list of 100 toys available
at its stores for $10, reduced prices on several more expensive toys and slashed
to $10 the prices on 10 highly anticipated books available for pre-order on its
Web site in November, a move that set off a price war as Amazon.com Inc. and
Target Corp. followed suit."
So is it working out for the companies? According to The Journal: "DineEquity
Inc.'s Applebee's chain, which has been experiencing declining same-store sales,
is now offering two entrees for $20. Julia Stewart, DineEquity's chairman and
chief executive, said in an interview that the promotions will continue even
as the economy improves." Kroger, the nation's number two grocery store chain "recently
downgraded its 2009 earnings-per-share guidance" as coupon clippers are cutting
into margins.
Others are faring better. According to The Journal some upscale brands are "being
aided by affluent consumers buoyed by recent stock market gains."
Conclusion
The marketplace is adjusting to frugal consumers. But in many cases there are
too many variables involved to make the story clear.
This is a time when the Peter Lynch style of investing, actually going out to
kick the tires, may be useful. To be sure, going to a store and gauging how well
things are going based on traffic, and asking a few questions of the sales people
is an inexact science.
When sales are booming, but it's because discounting is taking place at the sales
rack, aided by a calculator toting salesperson, and the discount is about 60%
of the posted sales price, you've got to wonder if the store is just trying to
move merchandise at any price, just to keep its cash flow alive.
And when Amazon.com and Walmart are in a price war over books, that's notable.
We are indeed in a new normal. The question for investors, consumers, and taxpayers
is whether this is the bottom of the current wave or if things will get worse.
When we were at the local mall this weekend, we did note that a Virgin Superstore
that had anchored the midsection of the mall, with entrances on both corridors,
was shuttered. When we asked the waiter at Chili's what had happened to it, he
just quietly noted: "they just didn't renew their lease."
Retailers and those who work for retailers are certain to be wondering whether
their employers will be renewing their lease next time it's up for renewal.
Know when to sell and how to make money when the market falls. Get a detailed
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The Retail
HOLDRS Trust (NYSE: RSH) is near a breakout.
Chart Courtesy of StockCharts.com
Investors seem to be betting on the potential for discount
and special offers to boost profits for the retail sector.
High traffic in some stores, boosted by high discounting and special offers,
seems to be going over well on Wall Street. The Retail HOLDRS Trust which houses
the likes of Amazon.com, Radio Shack, Walgreen's and Safeway, has been quietly
risin of late.
The ETF made a double bottom in the December to March period, and is up 54% since
then, keeping up with the S & P 500.
What makes this rally remarkable is the fact that the price of RTH has risen
despite less than stellar earnings reports from many retailers, and the need
for heavy discounting as the primary sales strategy.
That's a sign of either relative strength, or of something else, such as indexing,
where money managers invest a certain amount of their portfolio in a sector just
to keep it moving at a similar clip to an index, such as the S ^& P 500.
We suspect that the latter is more of a reason for the rally in retailing than
the latter. We'll also note that retailing is a volatile sector, which is where
the diversification of an ETF can be helpful.
If RTH can move above 95, it may move as high as 105. But 105 is very tough resistance,
because that's where RTH rolled over in 2007, as the bear market started.
We are neither recommeding the sale or the purchase of RTH. The purpose of this
article is to educate subscribers as to the presence of an interesting trend
in the market. Dr. Duarte does not own shares of RTH.
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Technical
Look at the Market |
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Pre-Employment Number Rally Sets Market For Possible Further Gains
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The S & P
500 closed last week above 1060. Yet, despite the positive
action, the index barely closed the week above its 20-day
moving average.
The employment report was mixed. The payroll number was a bit better than expected,
but the 10% unemployment rate was a negative.
That means that the overall situation is still up in the air and that more volatility
could be on the way.
Chart Courtesy of StockCharts.com
Inside the S & P 500, technology failed to make a new
high, while oil, oil service, and natural gas also struggled.
Financial stocks seem to have bottomed but had little life. The small stocks
in the Russell 2000 Index also failed to show much life on 11-6.
Chart Courtesy of StockCharts.com
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