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Tearing up the T-Shirt

Though athletic apparel sales have been picking up on the margin in recent weeks, it’s interesting to see how T-shirt sales (12% of total) have been so poor. I’m cool with that as long as the aggregate sales number is headed higher. But it is interesting to see which brands are winning and losing. Biggest losers? Gildan, Adidas, Puma and Nike. Only branded winners – Under Armour and Hanesbrands. Private label is the biggest winner of all.

Very Notable VFC/COLM Share Trend

The North Face is perhaps the most consistent grower in the outdoor arena, having gained share in all but one month out of the past 4 years. Brand management has been solid, and VFC has grown without sacrificing the integrity of the brand – thus far. TNF’s evil twin has been Columbia Sportswear, as COLM more often than not lost share as TNF raced forward. As such, it’s tough to ignore the change in market share trajectories between the two over the past several months. Part of TNF’s pause has been its shift to a retail model, which is not reflected in the charts below. I’m not a fan of a brand getting to a point where growth needs to come from owned retail. As for COLM, how could the trend below be bad, particularly given that the improved share position is not coming from reduced price points?

Eye On Boomer Cash...

Time flies, but who could forget Tom Cruise belting into the phone to Cuba Gooding, “show me the money!” in 1996’s ‘Jerry McGuire’. Cruise was playing sports agent back then, but looking forward at the baby boom generation’s impact on this country’s numbers, the market message remains the same.

“Baby boomers” are people born post WWII until 1964. My parents fit that bill. I’m what they call “Gen-X” (born between 1), and I was a born out of the super spike that countries from Canada to Australia experienced alongside that seen here in the USA.

In the USA, 76 million kids were born during the baby boom. That’s a lot of kids. Now they aren’t kids, but they do have a lot of money (provided they aren’t invested Bear Stearns, Lehman, Merrill, etc…).

Importantly, this demographic phenomena isn’t just local – it’s global. Per Wikipedia, “the UK baby boomers held 80% of the UK’s wealth” in 2004. That said, in times of economic duress, as we sit on the 96% position that we proactively allocated to cash, we want to refocus our time and energy on the big picture secular trends that we can invest in. This is definitely one of them.

All the while, do not underestimate or forget that we Gen-X’ers have lived through one of the biggest meltups in US stock market history. So rather than run out and listen to one of the many CNBC entertainers suggesting that every down day could be “the bottom”, sit back, and be patient. Context is always critical. From 1, we saw some of the most powerful bull market manias that we may ever see. As a result, “Millennials” (those born 1) were born on the equivalent of a US economic 3rd base. Do they get that?

What I do get, are the numbers. McKinsey was kind enough to issued their math on this subject in the September 2008 issue of ‘The McKinsey Quarterly’. Rather than repeat the obvious, I’ll let that math speak for itself in the table below, and we’ll look forward to speaking with our clients about the asset specific investment implications as we look towards 2015.
KM

(Source: McKinsey Global Institute analysis)

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Eye On Free Markets: Ayn Rand Institute...

In the Op-ed section of the ‘Ayn Rand Center for Individual Rights’ this week, there was a solid article written by Amit Ghate titled "In defense of Speculators and Short Sellers" (http://www.aynrand.org/site/News2 JServSessionIdr001=2nqb69i7v1.app14b&page=NewsArticle&id=21553&news_iv_ctrl=1021).

You don't have to be a stock market guru to understand the simplicity of the US Government's compromised position here. Banning short selling is simply un-American. This reality is finally finding its way into a much broader forum of public discussion. This is a very good thing for what we need to get back – free market capitalism.

Having not understood what he was doing when he was talked into doing it by the self interested powers that be of ‘Investment Banking Inc’, there is no way that Chris Cox at the SEC is proactively prepared for the tsunami of rational thought and pushback that he is about to endure. It will hopefully cost him his job.

In order to save you some time, here are the 3 most impactful excerpts from Ghate’s discussion:
KM
  • “let’s ask what the critics consider a “correct” price? Clearly it’s not the price which obtains when all market participants are free to engage in trade based on their best judgment, because this is precisely the free-market price--a price which they so vociferously condemn. But if “too low” and “too high” aren’t judged relative to the free market, what is the standard? Stripped of euphemism: their wishes.”
  • “attempting to set prices by wishing doesn’t--and can’t--work, not for Lenin, Stalin or Brezhnev; or for Paulson, Bernanke and Bush. If prices are to reflect reality, they must be the result of an objective process of discovery and judgment performed by interested actors.”
  • “Speculators and short-sellers don’t create facts, they seek to identify and respond to them; and in the process they help adjust prices to economic conditions and establish smooth and liquid markets. As a result--instead of being scapegoated and banished--they should be respected and welcomed for the productive role they play in our markets.”

CAKE – POTENTIALLY EASING SOME OF THE PAIN!

Over the past 12-months CAKE has taken significant steps to reshape the company and focus on utilizing capital more efficiently for shareholders. Unfortunately, due to commodity pressures and the fact that CAKE is a California-centric company, the macro issues are overwhelming any initiatives the company is taking to improve its business.

While, milk and dairy products represent only 5% of CAKE’s COGS, the trend toward easing commodity costs will help market psychology. Over the past month, milk has been headed south and the latest numbers from the government suggest that further declines are likely. While this will not provide any solace to CAKE shareholders this quarter (CAKE has contracted a majority of its cream cheese costs for the balance of 2008), the commentary coming out of the quarter will be more positive than negative for this key commodity.

BEGGING FOR RELIEF

With the market’s tepid response to the bailout bill passed this afternoon in Congress, we’ve had our “Eyes” on the 30 Day Fed Fund Futures. We have no doubt that the government will continue to use whatever measures necessary to create liquidity and, by default, attempt to support the stock market. The next tool of intervention is likely to be another cut in rates. Since the passage of the bailout bill, the October Fed Fund Futures contract is trading 98.44. The market is thus pricing in a 100% likelihood that the Fed will cut by 50 bps on Oct.29th and a 24% change of a 75 bps cut.

Daryl Jones
Managing Director
30 Day Fed Funds Futures

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