With India trading off another -1.9% overnight, taking the Sensex down to 11,162, I am going to be covering the India Fund (IFN) short position in my fund at some point in the next few days. I'll be re-shorting it on an up day.
(chart courtesy of stockcharts.com)
At 2701, the Chinese crash will be -62% from the "it's global this time" October 2007 peak.
The Olympics are in August, and I don't see the payoff of getting long this river card of geo-political risk factors until at least late July.
(chart courtesy of stockcharts.com)
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I have focused on this current mania of Fed Centricity as one of the major risk factors to the US stock market. We have the likes of Larry Kudlow and Vince Farrell on CNBC parroting whatever it takes to push the Federal Reserve to do something that helps prop up the US stock market. Three months ago it was give us shock and awe, cut, cut, cut . Today, it's the reverse, hike, hike, hike. Its manic, short term, and unsustainable behavior.
Government intervention is not the answer to our problems. This is America - the great bastion of capitalism, not a Keynesian social net.
De-leveraging and saving continues to be my investment strategy of choice, until all of this nonsense clears itself from our screens. The new range I am using for the S&P 500 is 1311-1340.
I continue to like LIZ - a lot. Not the brand. Not the competitive positioning. Not the industry. But the tools at this management team's disposal to create shareholder value over the next 18 months. I outline these in depth in my 5/13 posting, but the crux is that with accelerated cliff vesting of (underwater) options in 2009, and just about the biggest SG&A lever in the industry, I think that over the next 12 months we'll see either a) SG&A investments pay off (unlikely), b) management rescind the invested capital and print as margin (more likely), or c) LIZ do nothing and we see some major corporate action. All of these would probably be good for the stock.
But I'd be remiss to not at least acknowledge that the company has a base business in the interim. After all, when all is said and done, the company is still in the business of selling clothes. That's where I picked up an incrementally positive trend.
Even though LIZ is a portfolio of over 40 apparel brands, the core Liz Claiborne brand still accounts for about a third of cash flow. As such, it is not a shocker that the stock still trades in line with this business. I don't like to look at aggregate sales numbers, but rather what I call the price-adjusted sell-thru rate. What this refers to is the merchandise price change needed to push a given sell-thru rate through the channel. The chart below shows that LIZ has traded spot-on with this rate over the past year. That is - until March, when this ratio inflected positively, though the stock wants to do nothing but go down. The price action does not smell right to me.
For a company with $3 in EPS power, this price action does not make much sense to me. Again, I'm not saying that LIZ SHOULD print a $3 EPS number, but simply that it CAN, and the incentives are aligned for this to come to fruition.
Exhibit Source: NPD Fashionworld and Research Edge, LLC
I just posted a quickie on Under Armour after going through some yellow flags I'm seeing in promotional activity. I searched through our arsenal of tools to find a company that is showing opposite trends. How ironic that the best match is Hanesbrands (i.e. super high performance apparel brand versus sleepy maker of tighty whities).
Check out the chart below, which shows brand promotional media spending by product type (each product sums up print, TV, internet and outdoor).
The most startling takeaway is how grossly different the strategy is today as opposed to when HBI was under Sarah Lee. It's like night and day. Shotgun versus sniper rifle. The old strategy fired as much buckshot as it could muster and hoped it hit something. The new strategy is to focus on a smaller number of targets, but nail them even if they're a quarter mile away.
When I combine this analysis with 1) my HBI posting from a few days ago showing how effectively HBI is gaining share in core categories, and 2) the stock's brutal reaction to a short report issued last week, I'm warming up to the stock.
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