U.S. stock index futures were pointing to a higher opening
on Monday morning. Global markets were mostly higher overnight. This is
an options expirations week, which means that volatility is likely.
Today's Economic Calendar:
- Retail Sales 8:30 AM ET
- Empire State Mfg Survey 8:30 AM ET
- Business Inventories 10:00 AM ET
- 4-Week Bill Announcement 11:00 AM ET
- 3-Month Bill Auction 11:30 AM ET
- 6-Month Bill Auction 11:30 AM ET
News For Thought
Cannabis Cafe to open in Portland. In what may be a very early first step
toward the legalization of marijuana, a cannabis cafe is opening in Portland,
Oregon. According to Reuters: "The United States' first marijuana cafe opened
on Friday, posing an early test of the Obama administration's move to relax policing
of medical use of the drug. The Cannabis Cafe in Portland, Oregon, is the first
to give certified medical marijuana users a place to get hold of the drug and
smoke it -- as long as they are out of public view -- despite a federal ban."
It's still the economy. According to Rasmussen Reports.com: "The latest
Rasmussen Reports national telephone survey shows that 85% of voters consider
the issue of the economy as very important, topping a list of 10 key electoral
issues regularly tracked by Rasmussen Reports." According to the poll: "ethics
and corruption has fallen back to second place, with 76% of voters viewing it
as very important. The change may have been spurred by the release of a new government
report showing the country’s unemployment rate at 10.2 percent, the highest level
in 26 years."
Madoff computer programmers arrested. According to The Reuters: "Two computer
programmers designed codes to falsify thousands of fake trade blotters and phantom
records for swindler Bernard Madoff and took hush money to help keep the massive
fraud going, U.S. authorities said." The wire service added: "The FBI arrested
Jerome O'Hara, 46, and George Perez, 43, at their homes on Friday morning on
criminal charges of conspiracy for falsifying books and records at both the broker-dealer
and investment arms of Bernard L. Madoff Investment Securities LLC (BLMIS) in
New York."
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Bare bones staffing, scrimping on in room ammenities, while
shifting emphasis toward service and well kept facilities is the new normal at
one Hilton Hotel.
What do you do if you have a string of prime properties but suddenly can't pay
the financing charges to keep the mortgages solvent? Aside from trying to renegotiate
the contracts and restructure the debt, you restructure your cost structure.
And that was evident in our weekend visit to Wichita Falls, Texas over the weekend,
where the junior tennis juggernaut took this scribe this month. This is a familiar
spot for us, as last year's visit allowed us to spot an important trend in the
economy, the fact that small towns that depend on a college were, at least at
the time, weathering the recession better than large cities.
Last year, we chronicled the state of two businesses, a local Mexican restaurant,
and a franchised Atlanta Bread restaurant. Both shops were busy, based on location
for Atlanta Bread, and on a pretty good Mexican meal for the local south of the
border shop. This year, just to be consistent, and because we had good meals
at both places, we revisited.
We arrived at the Mexican shop, a place called "Los Tres Amigos" around 6 PM.
And to our surprise it was sparsely populated. Yet, there were lots of waiters
and hostesses hanging around. By the time we left about an hour or so later,
there was a line waiting to get in, the bar was full, and the outside chairs
where the tobacco aficionados hang out were packed. So much for the recession
here.
The story at Atlanta Bread was pretty much the same, both at lunch and at dinner.
Tables were crowded, both with locals, and tennis players, coaches, and families.
Again, no real change was evident here.
We visited a local Walgreen's and noticed some interesting things. First, they
had a liquor aisle. More interesting was the discounting. Anyone who spent more
than $30 got $5 off. And there were lots of 2 for 1 offers for products that
people actually use, not the things that the store was trying to get rid of for
lack of customer interest.
When we asked a clerk about the booze aisle, he nonchalantly told us that this
was a growing trend in the company. Well, at least you can buy the drinks and
the morning after headache remedies together.
Even more significant change was evident was at the Homewood Suites where we
stayed. First, the parking lot was about three fourths full, compared to last
year, where it was hard to find a spot, even on an early arrival.
Second, the front desk staff was very sparse. One clerk was there at all times,
but spent a lot of time in the back office, suggesting that he or she was probably
doing other things, such as squaring the books and answering phone calls, instead
of sitting at the desk smiling.
The custodian staff was also different. Instead of the usual female housekeepers,
the lobby and halls were being swept by retirees who were likely supplementing
their lack of a COLA increase from social security by cleaning the Hilton outpost.
Third, in the rooms, which were spotless, the coffee and tea concessions were
very spartan, with one coffee bag for regular and decaf and two tea bags. There
were only two cream and sugar setups available.
The same with the complementary shampoo and rinse. None of these complementary
articles were replaced on the second day of the stay, since they were only partially
used. In past stays at this hotel the items were replaced automatically, whether
they had been used or not.
What we saw, though, was lots of hustle from the reduced staff. Breakfast was
set up earlier than usual. And the quality of the food was actually better than
the last time we stayed, when the eggs seemed to have been extracted from the
space station.
In fact, what we saw at the Hilton Homewood Suites is part of the "New Normal," where
cost cutting and rejiggering operations is keeping companies afloat during periods
of falling sales.
According to The Wall Street Journal: "A record number of U.S. companies beat
earnings expectations in the third quarter, but a big portion of their profits
came from cost-cutting, disappointing investors who were hoping for boosts in
revenue." In fact, the proof is that productivity was a record high last month,
surging to an over 9% improvement, as more workders are doing double and even
triple duty in order to keep their jobs.
Sales translate to revenues. And when there are no sales, as when the parking
lot of a popular hotel in a small town is 3/4 empty, revenues also fall. In fact,
of the 32% of S & P 500 companies that actually beat revenues expectations,
these surprises "were heavily concentrated among health-care and technology companies,
and more broadly among "intermediary" companies that make products, such as semiconductors,
rather than companies that sell finished goods or services to consumers."
Conclusion
Several things stand out in this report. First, the trend of small towns that
depend on a college for part of their revenues still seem to be holding up. The
military base is also an important contributor to the stability of this small
city, as is the presence of sporting events, which bring in outside money.
Second, the leisure industry is still under pressure and is adjusting its business
model in order to survive this downturn.
Third, local businesses that provide good value and quality products and services
seem to be holding up, despite the overall difficulties in the economy.
What most people aren't saying, though, is that times are still harder than they
were, and that the "New Normal" is really another way of saying survival. When
drug stores are selling booze, you know times are way different than even the
biggest cynic would expect.
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In an unusual
move that may be a sign of the times Walgreens Company
(NYSE: WAG) is selling beer and wine at its drug stores.
Chart Courtesy of StockCharts.com
Walgreens is the largest U.S. pharmacy retailer with over
7000 stores and fiscal 2009 sales of $63 billion. And its
latest venture, is to say the least, unusual, as the company
is starting to sell beer and wine at its stores.
Sales are up, a rarity in this climate, but the company, in a November 3rd news
release tells investors that pharmacy sales are leading the charge. There is
no mention of liquor sales, their implementation or the company's expectations
for the new product line.
The emphasis on the company's web site is still on pharmacy products and wellness.
The stock has done well, having nearly doubled since the stock market bottomed
in March. A move above 40 would likely lead to higher prices.
We are intrigued by this development, and will be watching it closely. The real
question is why a company that focuses on health is adding liquor to its sales
offerings.
We are neither recommeding the sale or the purchase of WAG. 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 or short shares of WAG.
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Technical
Look at the Market |
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S & P 500 Is Still Struggling At 1100
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The S & P
500 has repeatedly failed to rally above 1100. And the
longer the index fails to rally above this key area,
the greater the impact on the market will be if and when
investors finally lose confidence.
On the flip side, if and when this resistance area is breached, we would expect
a short term move of some magnitude to develop.
Sector selection is important, but at some point, if the market continues to
get narrower, at some point it won't matter where you invest.
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
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