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Shippers Need Their Cash Too!

One of the great advantages that is emerging from our growing (exclusive) network of research contacts, are the daily insights. Below is a data point from one of our contacts in Asia on shipping, liquidity, cash, etc...
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Keith,
just spoke to a few friends of mine in the commodity contract shipping business in the south pacific/australia region.

most of them allow 90 days for payment for shipping services rendered
- and tomorrow's the day that a significant number of accounts on the "shippee" side are due. according to them, something like half of their clients have already said they won't have the cash to pay up on product that has already been shipped, and are thinking that bankruptcy is their only option.

guess they're sitting on inventory they bought 90 days ago - often on revolving credit lines - and can't recoup their costs thanks to a huge dip in both demand and prices.

they're actually calling tomorrow "black friday".

so heads up.
-Friend of the Research Edge Network

Schwarzenegger: "We'll Be Out Of Cash By February"

No, that's not good! That's "we" as in the Golden State of California...

If that's not the most bearish headline of the day, I don't know what is.

Cost of long term capital will continue to increase as access to cash continues to tighten.
Be careful out there,
KM


WRC: A Balloon Can’t Stay Underwater Forever

This was perhaps the earliest (and often most painful) call of my career. But you can only hold a balloon underwater for so long. WRC is finally being exposed for what it is. A massive over-earner.
A colleague shot me an email this morning saying “Warnaco finally pulled a Warnaco!” How true. I’m not going to waste your time or mine giving the run-down of what they said on the call, or what happened. The bottom line is that this has largely been a FX-induced margin story as the company printed too much FX benefit, and understated the impact to the Street. Check any of my past posts for the math. I won’t bore you with it now.

So what’s in the stock now? That a 10% margin is not sustainable after all without FX tailwind. 7% is closer to reality. But what happens if a new Obama Administration takes up rates in '09 and the dollar along with it? Then FX turns into a headwind, and there is no reason margins cannot go back to the low/mid single digit range. That’s when cash flow gets to a point where we need to start to look at debt covenants again.

There will come a time to buy this stock. But even with a 30% hit from yesterday – and 2/3 off its 1-year high, we’re not there yet.

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The Consumer Needs Prozac

Not a shocker that spending continues to decelerate across the board. What happens in Nov/Dec when unemployment is 1% higher vs. year-ago, and we comp a negative ’07 personal savings rate?

I didn’t see much in this morning’s sales numbers that change my prevailing view on the consumer. In fact, fundamentally I have to admit that the yy decline at many retailers is accelerating faster than even I’d have thought – and per my Oct 12 Consumer Spending Analysis, I think we’ll see a $170bn decline in consumer spending in 2009. A few points…

While we can hardly call what we’re seeing today a blanket positive stock reaction with 1 only in 5 retailers on my screen up for the day – it is interesting to note that the positive moves are largely in larger liquid names like JCP, KSS, M, JWN, COST that posted horrible numbers.

Let’s try to ex-out all the Oct noise for a minute. Every sector of retail that reported comps showed a sequential decline in trends on a 1, 2 and 3-year run rate by an average of 200-300bp. Sure, there is share shift within each segment and each company. Both the overriding trend is big.

What’s next? A massive question mark. November of last year was big across the board. When adjusting for calendar shifts and looking at Nov and Dec together, we’re still looking at 2% trend-line spending heading into holiday ’07. On the plus side, gas prices are lower than the year-ago period. But unfortunately, it does not come close to the magnitude needed to offset 1% higher unemployment, and the fact that during holiday ’07 the personal savings rate went below zero to help fuel spending that shouldn’t have happened. That’s not repeatable.

S&P500 Levels: Refreshed For 11:00AM

The quantitative setup for the US market has returned to negative, but the range is tighter and the next low is likely going to be higher. I mentioned this in the prior TED Spread post - here are our S&P500 levels associated with that immediate term "Trade" call:

Sell "Trade" = 967.86
Buy "Trade" = 862.72

This market is to be traded, aggressively, with an appropriate amount of powder saved for down days.
KM

The Light, In A Darkened Tunnel: The TED Spread

Amidst a major quantitative breakdown of multiple factors across my global macro model, one shining light of positivity remains - the dampening of global counterparty risk.

3 month LIBOR minus 3 month US Treasuries (TED Spread) has come down appreciably since the week of October the 13th (see chart). This is the PRIMARY reason that I think this current selloff in global equities will be met with higher lows than those freak-out ones that we saw last month.
KM

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