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TGT: Clean Beat. Quick Read...

Quick look here.  Looks like a clean $0.09 beat, coming in at $0.69 vs. Street at $0.60.  Remember TGT raised expectations with April sales from $0.52.   Core retail performance key here, with gross margins flat (despite sizeable mix shift from consumables) and slight sg&a leverage on a negative 3.7% comp.  It may have taken TGT a bit longer to exhibit controls and discipline vs. WMT and others but the results are bearing fruit here.  Overall EBIT % was flat y/y in core retail. 

 

Credit looked to be in line with expectations, but a huge drag y/y and the key reason why EPS are still down y/y.  Things don't appear to be getting worse which is key. 

 

Call at 10:30 here.  This is a big beat for a big company.  Makes me wonder (again) why the board needs to be shaken up...

 

Eric Levine

Research Edge


Smelling Rats

"I hope it was floor guys who smelled a rat in the financials and not some guy trading on inside info."
-Andrew Barber, Research Edge Macro Senior Desk Analyst
 
Do you smell a rat?
 
For me, it's always allergy season in Washington, so today we'll spare the politically compromised the inhale and put the closest thing you'll get to a You Tube of Wall Street rats in motion right in front of their eyes - an intraday price chart of Bank of America (BAC) yesterday with a volume overlay into the close.
 
While President Obama was prancing around the Whitehouse lawn with Pelosi yesterday afternoon proclaiming that "the sun is out" and that things are headed "in the right direction"... you can bet your Madoff that in the dark alleys of moral compasses lost, that the unregulated rats were setting up to trade the close on some Investment Banking Inc. inside information.
 
With her currency for sale again for the better part of the trading day, America's stocks were REFLATING higher. Then, just after 3PM EST, stocks started to drift in the face of an ole school smack down of BAC. Pictures don't lie folks; people do. Look at the accelerating volume into that BAC closing price, then follow the bouncing ball to an overnight issuance of 1.25 Billion (yes, that's beelion) shares of BAC stock! Trading into the close on non-public information anyone?
 
As we've learned over the course of the last 18 months, Wall Street leverage bankers and compromised government officials were paid handsomely to be willfully blind. Not being able to see risk because you are paid NOT to is one thing, but willfully deciding NOT to smell just makes this whole soap opera of US political rhetoric as sad as sad gets.
 
Now that every aspiring politician of corporate America can no longer use the Washington/Wall Street crutch of "oh, dear underlings, we have to fire you due to the most dangerous of circumstances since the Great Depression", what are the said leaders in this country to do? No seeing or smelling allowed!
 
Never mind seeing or smelling...  
 
Dear almighty President Obama,
 
Do you hear me now?
 
The New Reality remains. The world's markets are as real-time and interconnected as they have ever been. Technology and the speed of information transfer has never made playing this game so transparent. This morning, I can literally see inside information creep into Russian markets (trading up another +3%) from a wireless connection on a lake head in Canada, real time. It's called an Iranian missile being fired within range of Israel = oil prices up.
 
I like to tell my research team that using real-time prices and volumes as an anchor to their investment process provides them the opportunity to view inside information transfer, real time. If you don't think that's a critical part of understanding how this game works, open your eyes.
 
Whether its whomever they don't go after in trading ahead of BAC non-public information yesterday or the two SEC lawyers currently under investigation for insider trading here in the USA, it all comes out in the wash as the same thing - a global vote to sell the US Dollar. There is zero credibility in this behavior.
 
In a perverse way, this "Down, Buck, Down" move that wrote about in yesterday's missive remains positive for the US stock market in the immediate term. Let me repeat, this immediate term DOWN Dollar trade is what that duration is, REFLATIONARY today, tomorrow, and until the long term impact of Americans compromising the credibility of her currency runs its course.
 
In the long run, provided that our said leaders remain willfully blind and unable to smell, the US Dollar as we have all known it since Nixon abandoned the Gold Standard in 1971, will be dead.
 
If the US Dollar Index breaks down through my long term TREND line of $81.39, I think a currency crisis moves from being a tail risk to a probable one. Yes, that's a very bold statement. It's also one that Obama's big ears better have an ability to hear. God knows Geithner and the gang won't be passing their political gas his way for him to smell anytime soon. Rats don't fart in front of their boss.
 
My immediate term upside target for the SP500 is now a lower high at 931. I have an immediate term downside support level at a higher low of 878. Trade the market that's in front of you.
 
Best of luck out there today,
KM
 
 

LONG ETFS 

 

EWA - iShares Australia-EWA has a nice dividend yieldof 7.54% on the trailing 12-months. With interest rates at 3.00% (further room to stimulate) and a $26.5BN stimulus package in place, plus a commodity based economy with proximity to China's H1 reacceleration, there are a lot of ways to win being long Australia.

 

XLE - SPDR Energy- We bought Energy on 5/13 with the dollar up. We think it works higher if the Buck breaks down.  Bullish TRADE and TREND remain.

 

XLY - SPDR Consumer Discretionary-The TREND and TRADE are bullish for XLY.  The US economy is showing faint signs the steep plunge in economic activity that began last fall is starting to level off and things are better that toxic.  We've been saying since early January that housing will bottom in 2Q09 and that "free money" for the financial system will marginally improve the US economy in 2H09, allowing early cycle stocks to outperform.  The XLY is a great way to play the early cycle thesis.

 

CAF - Morgan Stanley China Fund- A close end fund providing exposure to the Shanghai A share market, we use CAF tactically to ride the wave of returning confidence among domestic Chinese investors fed by the stimulus package.  To date the Chinese have shown leadership and a proactive response to the global recession, and now their number one priority is to offset contracting external demand with domestic growth.

 

EWD - iShares Sweden-We bought Sweden on 5/11 with the etf down on the day and as a hedge against our Swiss short position. From a fundamental setup, we're bullish on Sweden. The country issued a large stimulus package to combat its economic downturn and the central bank has effectively used interest rate cuts to manage its economy. Sweden's sovereign debt holds a strong AAA rating despite Swedish banks being primary lenders to the Baltic states. We expect Sweden to benefit from export demand as global economies heat up.

 

XLK - SPDR Technology - Technology looks positive on a TREND and TREND basis. Fundamentally, the sector has shown signs of stabilization over the last eight weeks.   As the world demand environment becomes more predictable, M&A should pick up given cash rich balance sheets in this sector (and the game changing ORCL-JAVA deal). The other big potential catalyst is that Technology benefits from various stimulus packages throughout the globe - from China to USA. Technology will benefit from direct and indirect investments.

 

XLV - SPDR Healthcare-Healthcare looks positive from a TRADE and TREND duration. We've been on the sidelines for the last few months, but bought XLV on a down day on 5/11 to get long the safety trade. 
 
TIP- iShares TIPS -The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield on TTM basis of 5.89%.  We believe that future inflation expectations are currently mispriced and that TIPS are a compelling way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

 
GLD - SPDR GOLD -We bought more gold on 5/5. The inflation protection is what we're long here looking ahead 6-9 months. In the intermediate term, we like the safety trade too.  
 

SHORT ETFS
 
UUP - U.S. Dollar Index -We believe that the US Dollar is the leading indicator for the US stock market. In the immediate term, what is bad for the US Dollar should be good for the stock market. Longer term, the burgeoning U.S. government debt balance will be negative for the greenback. The Euro is up versus the USD at $1.3642. The USD is down versus the Yen at 95.9000 and down versus the Pound at $1.5507 as of 6am today.
 
EWW - iShares Mexico- We're short Mexico due in part to the repercussions of the media's manic Swine flu fear.  The country's dependence on export revenues is decidedly bearish due to volatility of crude prices and when considering that the country's main oil producer, PEMEX, has substantial debt to pay down and its production capacity has declined since 2004. Additionally, the potential geo-political risks associated with the burgeoning power of regional drug lords signals that the country's economy is under serious duress.
 
IFN -The India Fund-We have had a consistently negative bias on Indian equities since we launched the firm early last year. Despite recent election results likely proving to be a positive catalyst, long-term we believe the growth story of "Chindia" is dead. We contest that the Indian population, grappling with rampant poverty, a class divide, and poor health and education services, will not be able to sustain internal consumption levels sufficient to meet targeted growth level. Other negative trends we've followed include: the reversal of foreign investment, the decrease in equity issuance, and a massive national deficit.
 

LQD  - iShares Corporate Bonds-Corporate bonds have had a huge move off their 2008 lows and we expect with the eventual rising of interest rates in the back half of 2009 that bonds will give some of that move back. Moody's estimates US corporate bond default rates to climb to 15.1% in 2009, up from a previous 2009 estimate of 10.4%.

 

EWL - iShares Switzerland - We believe the country offers a good opportunity to get in on the short side of Western Europe, and in particular European financials.  Switzerland has nearly run out of room to cut its interest rate and due to the country's reliance on the financial sector is in a favorable trading range. Increasingly Swiss banks are being forced by governments to reveal their customers, thereby reducing the incentive of Switzerland as a tax-free haven.

 


LVS: STILL SOME IPO HURDLES TO CLEAR

As discussed in our 5/15 note, "LVS: A QUICK LOOK AT MACAU IPO", we concluded that an IPO was a good idea in principle but timing may not be imminent.  Assembling the appropriate Board of Directors may be the most important impediment to a timely listing.  The following are some pertinent Hang Seng regulations for issuers:

 

  • Every board of directors of a listed issuer must include at least three independent non-executive directors
  • At least one of the independent non-executive directors must have appropriate professional qualifications or accounting or related financial management expertise.
  • Every listed issuer shall appoint two authorized representatives who shall act at all times as the listed issuer's principal channel of communication with the Exchange. At least one must be a director (the other being the issuer's secretary).
  • The authorized representatives must be the principal channel of communication between the Exchange and the listed issuer and to supply the Exchange with details in writing of how he can be contacted including home and office telephone numbers and, where available, facsimile numbers.
  • If/when they leave HK, suitable alternates must be appointed, available and known to the Exchange and to supply the Exchange with details in writing of how such alternates may be contacted including their home and office telephone numbers and, where available, facsimile numbers

 

If they choose the Macau PO route, LVS will be forced to maintain a BOD that may be a bit more independent than what Chairman Sheldon Adelson is accustomed to.  Furthermore, at least one director must be permanently situated in Hong Kong.  As one of my Macau consultants put it to me this morning, "LVS is going to need to recruit some real heavyweights to make this work."  The Hong Kong business elite tend to stick together.  While based in Macau, Stanley Ho can certainly be considered one of the elite.  Is it a coincidence that Sheldon has been "making nice" with Ho as of late?

 

The bottom line is that an IPO is a very viable option for LVS but Sheldon needs to play his cards right.  This could take some time.


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Research Edge 2, Gartman 0

 

I know, I know, this guy McCullough and his colleagues at Research Edge are very cocky.  They talk about being right, but they aren't running real money.  We've heard it all and, in fact, some of the criticisms are fair, but the fact of the matter is we endeavor to generate money making ideas for our clients and we have done that.  Since inception we have been right 87.4% of the time on our short calls and 83.2%  on our long calls.

 

Some of those ideas were short term and some of those ideas were in illiquid names, but, by golly, that is out of 472 positions!  Our whole business model is to try and deliver high probability ideas to our clients and the facts suggest we have delivered, despite our many faults. And we do have many faults.  In fact, I'll call our CEO out on one his faults, when he gets in at 515am every morning, he's grumpy.  That's a fault.

 

Earlier this week, we introduced a new scorecard to measure ourselves and it was versus Dennis Gartman, aka Garty.  We think he is a good guy who finds interesting nuggets, but we are just not convinced he can beat us consistently.   

 

On May 17th in our Early Look note entitled ""Short Of" Garty?", we wrote:

 

"This does not mean, however, that I need to subscribe to the panting dog nodding that CNBC's Fast Money's producer must force his Traders" to look into the eye of the camera with when listening to the Gartman gospel. Someone has to hold the members of this circus act accountable. The American Financial system is being You Tubed by the world, daily, and it's just too embarrassing to know that The Client (China) thinks that this is what US investors do.

 

So Garty, let's slap the ole red, white and blue accountability pants on and take a walk down the path of a few positions that you are currently "short of", The Dow and Gold:

 

1. I have also been "bearish of" the Dow via the DIA etf, but covered my position on Wednesday's weakness

 

2. I am long Gold via the GLD etf, and remain "bullish of" it

 

Garty, like you, I'm in it to win it here and I want to see you keep winning man. If the Dow is down, at a bare minimum, just cover your short. As for being "short of" gold, well, I know that you know that I'm right on this, so... cheers to changing as the facts do."

 

In the last few days, Garty capitulated on both Gold and U.S. equities and while we salute him for being flexible as the facts have gone against him, the score remains: Research Edge 2, Gartman 0.

 

The puck drops again tomorrow at 930am.  Keep your head up Garty Fans. . .

 

Daryl G. Jones
Managing Director

 

Research Edge 2, Gartman 0 - hansonbros

 


ÜBER CONFIDENCE

 

German Investor confidence leaped forward yet we remain cautious on fundamentals there...

 

German investor confidence, as measured by the ZEW Center for European Economic Research to predict economic development six months ahead, soared to 31.3 in May from 13 in the previous month.  While forward-looking confidence has improved sequentially over the last seven months (see chart), ZEW's gauge of the current situation continues its plunge, falling to -92.8 from -91.6 in April.

 

In our last German post on 5/8 entitled "Exports: What Germans Do Best (..or Second Best)" we presented the country's mixed fundamental outlook. In the next two weeks we should have a better picture from April data; we continue to believe the country won't start to see positive GDP growth until early Q1 of next year, yet believe the export-led economy will have a larger upside than its Western European peers as global appetite for exports (specifically engineered industrial products) increases over the balance of this year and into 1H '10.

 

The German DAX is up 3% YTD and +34% since its March 9th low.  We'll get in on the long side of Germany again via the etf EWG at the right price. Stay tuned. Generally, we like to buy things when they are down, not up.

 

Positive confidence among domestic investors has turned decidedly bullish.

 

Matthew Hedrick

Analyst

 

ÜBER CONFIDENCE - germanychart


Squeezy Spawns: SP500 Levels Into The Close...

 

Squeezy never left the waters folks; he was spawning.

 

In the chart below we have outlined the short seller beware waters of TREND line support for a stock market that continues to sell off to higher lows. We have called the Consumer Discretionary segment of the S&P the Suckerpool Chart, and we have refrained from shorting anything in the Financials out of sheer respect for the momentum embedded in Squeezy's potential math. Now the only question that remains is can the SP500 make a higher YTD high?

 

That closing high price of 934 was established on January 6th. At that time, we didn't have 2 core components of our bullish Consumer MEGA Squeeze call on the tape for the Depressionistas to swallow: 1. housing deteriorating at a lesser rate and 2. unemployment accelerating at a slower pace.

 

Today, with plenty of shark jumping in the rear view mirror, the only thing I can tell you is that it won't pay to be a hero here and swim where Squeezy and his newborn remains. This remains a global stock market squeeze of generational proportions.

 

Will I be making sales on the way up? Sure. After all, I bought them lower with a proactive plan to do so.

 

Keith R. McCullough
Chief Executive Officer

 

Squeezy Spawns: SP500 Levels Into The Close...  - asharky


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