By Moshe Silver
The SEC has two Twitter feeds that all investors should follow. One is a news feed under @SEC_News, with over 196,000 followers. The other, which the private investor should check daily, is its investor education feed @SEC_Investor_Ed. This Twitter feed has only around 38,000 followers – far fewer than the number of individuals who make their own investment decisions on a regular basis. While the Commission admittedly has had a dim record in recent years, they are pretty much all that stands between the retail investor and the deep blue sea. If you don’t follow the news and investor education feeds, then you don’t know what the SEC thinks is important day by day.
This week the Commission put out a bulletin aimed at older individuals and their families. As with many of the Commission’s bulletins, their headline advice is, “The key to avoiding investment scams on the Internet is to be an educated investor.” But the fact is that older Americans are becoming increasingly turned on to the social media favored by their children and grandchildren, most of whom also have no clue about how to handle their finances. Your cute 16 year-old granddaughter may be able to teach you to be a whiz with Twitter and Facebook, but don’t look to her for which stocks to buy.
And, as with any new communication technology, the scamsters and fraudsters are out in their legions, looking for an easy mark. Financial fraud is the fastest growing form of elder abuse – largely because, according to the AARP, people over 50 have quaint old-fashioned notions and generally expect honesty in the marketplace. Once defrauded, older folks may be slower to realize – and are quite often hesitant to take action. This makes it increasingly important for family members to pay close attention to their older relatives’ financial dealings.
The bulletin lists five areas of concern, which really apply to everyone.
1 – Look out for “Red Flags” – these include offers that look “too good to be true, which generally means almost anything that makes you jump for your checkbook because it looks so much better than anything else that’s out there. Other causes for caution include anything using the word “guarantee” (illegal in most investment contexts), offers of high returns on investments outside the US (“learn why the world’s most sophisticated investors have invested in the Albanian bauxite industry…”) and anyone who tells you that you have to invest “right now!”
2 – Be wary of unsolicited offers – generally, investors look for professional advice, while fraudsters look for victims. The Commission recommends particular caution any time you see a post on your social media wall, a tweet either mentioning you by name or direct messaged to you, or any other unsolicited communication about money or investments.
3 – Look out for “affinity fraud” – Any investment pitch that you receive because you are part of a group, club or association may be affinity fraud. If you don’t know the person or entity that is sending the message, you probably shouldn’t even open it – and should definitely not respond until you have checked it out thoroughly. Even if you know the person making the offer, cautions the Commission, make sure you check out the investment completely. The biggest losers in the Bernie Madoff fraud were institutions who invested with him based on advice from some of the world’s leading financial professionals. The bad news is that even your best friends can unwittingly draw you into a fraud. The really bad news is that even smart people can be duped.
4 – Be thoughtful about privacy and security settings – Ask your granddaughter to give you a thorough tutorial on privacy features, and don’t post any information that you want to keep confidential. It is a literal fact that, once you post something on the Internet – regardless of security features you may employ – it is no longer confidential. All kinds of people have nearly instant access to your emails, tweets, and Facebook postings – and most of them are not the NSA.
5 – Ask questions and check out the answers – “Be skeptical,” says the Bulletin. “Investigate the investment thoroughly and check the truth of every statement.”
Caveat Emptor (We get to say that a lot…)
The SEC lists a few of the most common types of investment fraud. In the good old days, these were routinely perpetrated by telephone and the mail. In the brave new world of social media, you can lose your money much faster – and with online banking, you can do it all from the comfort of home.
We list a few headline categories here and urge you to read the full release for yourself.
“Pump-and-dump” scams, fraudulent “research opinions,” “hot stock” spam blasts, and online stock offerings. Congress has not made matters any more transparent by permitting general solicitation of private placements – you may be hard pressed to tell the difference between a legitimate advertisement under the JOBS Act and a fraud.
The Commission urges investors to be aware of various legitimate financial services professional designations. While most investment professionals require some form of licensing, there are titles floating around that look quite legitimate, but that have no regulatory oversight associate with them. One pointer we can add: if you are contacted by an individual wishing to discuss investments, you can look them up on the FINRA website (www.finra.org) by entering their name in the BrokerCheck® database.
Remember: It takes a fair amount of preparation to properly Caveat. But it takes only the click of a mouse to Emptor.
Moshe Silver is a Hedgeye Managing Director and author of the Hedgeye e-book Fixing A Broken Wall Street
Takeaway: Our call remains that we expect Europe’s economy to gradually improve off low levels.
This note was originally published October 02, 2013 at 12:24 in Macro
European Central Bank (ECB) President Mario Draghi and the ECB’s governing council voted today to keep rates unchanged, although a cut was suggested by some members.
Last month’s dramatic pivot to a dovish monetary tone that interest rates should remain “at present OR lower levels for an extended period of time” was reiterated again today in remarks that monetary policy will remain accommodative for “as long as is necessary”. Draghi described an economy that is “weak, fragile, and uneven” and left the prospect of issuing another LTRO on the table. We expect that given the continued clog in the credit channel, a liquidity package could be released into year-end (see chart below).
Interestingly, and despite the dovish commentary, the EUR/USD rose following the announcement, which we think is reflective of the impact of Bernanke talking down U.S. growth prospects (and the USD), as well as the Eurozone economy showing improvement on the margin.
As central bankers struggle to guide expectations (hint Fed’s no-taper decision and the ECB’s and BOE’s forward guidance) we wouldn’t be surprised to see Draghi keep his cards tight on when he may issue liquidity measures or cut rates, and continue to drag his feet on any policy action until more data confirms his team’s outlook.
As it relates to the Eurozone, our call remains that we expect Europe’s economy to gradually improve off low levels (we’re UK and German equity bulls) and bullish on the EUR/USD, which is in a bullish breakout above its TRADE, TREND, and TAIL levels (see chart below).
Draghi highlights from the Press Conference:
- Somewhat weaker growth in the beginning of Q3, but still expects a gradual recovery
- The recovery is “weak, fragile, and uneven” and starting from very low levels
- Unemployment, especially youth, needs to be reduced from very high levels
- Credit dynamics remain subdued with flows “still weak, very weak”
- On broader developments of liquidity: ECB is ready to use all available instruments, including LTRO
- Inflation continues to be firmly anchored, on the very low side of the 2% target (at 1.1%), but the baseline scenario has been underpinned
- Progress is being made on political reforms: greatest pressure should come from the inside; don’t need to be pressed by markets
- On political instability (Italy and the rise of anti-Euro parties in Germany and Austria): while instability hampers hopes for a recovery, it doesn’t hurt the foundations of the Eurozone as it used to do a few years ago -- that suggests that the Eurozone and Euro is more stable
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Client Talking Points
A major call-out this morning is the Shanghai Composite which is down almost -2%. This weakness is being driven by the property sector which is under pressure based on local news reports that longer term regulations could be in place soon for controlling property in China. Being the price and market driven analysts we are, the move in Chinese equities this morning is certainly a red flag in our notebooks, but isn’t changing our more positive view on China.
More good news out of Europe today with European car sales ripping to a 2-year high. Add into the bullish economic mix a fantastic German confidence reading of 52.8 in October versus 49.6 last month This clearly bodes well for German #GrowthAccelerating and dovetails nicely with our Q4 Macro Theme #EuroBulls. Yes - we are long the German DAX.
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Top Long Ideas
In line with our #EuroBulls Q4 theme, we’re long the German DAX via the etf EWG. With European fundamentals showing improvement off low levels, we expect outperformance from Germany, and in turn for the region’s largest economy to pull the rest of the region higher. ECB policy remains highly accommodative and prepared to aid any of its sovereign members to preserve the Union. Inflation remains moderate and fundamentals are positive: confidence readings and PMIs are up since June, with factory orders trending higher and retail sales inflecting to push the trade balance higher. Finally, the unemployment rate has held steady at the low level of 6.9%, all of which signals to us that Germany’s economic climate is ramping up.
WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.
Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks. T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.
Three for the Road
QUOTE OF THE DAY
The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money. -Alexis de Tocqueville
STAT OF THE DAY
The period from March 2009 to March 2012 was one of the strongest three-year market rallies in history -- stronger, in fact, than the 1996-1999 bull market.
Takeaway: Footwear picks up –it’s all Nike. Sperry apparel launch. LVMH lux goods slow. M opens on Thanksgiving – binary event. New NKE Fuelband.
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Weekly Athletic Footwear Data -
Takeaway: Here's a shocker…athletic shoe sales last week were up nearly 7%, which marks a 1,000bp acceleration from the prior week -- and the run-rate from the past two months. The key driver was a double in the growth rate for the Nike Brand, and a colossal acceleration in Brand Jordan.
WWW - Sperry Top-Sider to Launch Apparel for Fall
- "The 78-year-old brand, best known for its boat shoes, has turned to LF USA to launch a men’s and women’s lifestyle collection for fall. The collection will be unveiled to retailers at an event in New York on Thursday."
- "Paul Raffin, president of LF USA...expects the line to be a $100 million business at wholesale."
- "The apparel will reflect that same pricing. Tops will retail for $70 to $100 and bottoms from $80 to $100. Outerwear will average $100 to $300, but certain pieces will sell for up to $600."
Takeaway: Like all things with WWW, they're lowballing on the $100mm goal. Every $100mm grows the Sperry business by about 20%.
M - Macy's stores to open on U.S. Thanksgiving for first time
- "[Macy's] said on Monday that most of its stores will open on the U.S. Thanksgiving Day holiday for the first time in its history, in a sign of how competitive the holiday season is shaping up."
- "Macy's will open the doors at most of its 800 namesake department stores, at 8 p.m. on Thursday, November 28. The company said the shift was voluntary for workers and that the move was 'consistent' with what many rivals are doing."
Takeaway: We didn't think that Black Friday could kick off any sooner. On one hand, we question how many people will shop on Thanksgiving. With the exception of the Fourth of July, it is the only major holiday that is literally celebrated by all -- regardless of race or religion. On the flip side, it is going to be tough for all competitors to follow suit -- especially on such short notice. This might give M a little leg up this holiday. On the flip side, the cost to open the store on Thanksgiving will be very high (it's overtime for anyone that punches in). They'd better.
NKE - Nike Unveils Nike+ FuelBand SE
- "Stefan Olander, Nike Inc.’s vice president of digital sport, unveiled the Nike+ FuelBand SE at a forum in TriBeCa here Tuesday, setting the new model apart from the original, which was released in early 2012."
- "One of the most significant new features addresses a gripe many had with the band’s first iteration: it wasn’t able to track specific activities. The first version of the band is unable to discern if a user is indoor cycling or going for a run."
- "The Nike+ FuelBand app will also see an update, including a Groups functionality that allows users to form groups with their friends and easily share fuel data."
Takeaway: These are major improvements to the Fuelband (spoken by a die-hard user). With the old Fuelband, if you wanted to go for a bike ride, you had to clip the bracelet onto your shoelaces, which is a major pain. It also had an accuracy rate of 50-60% for non-running activities -- which is simply ridiculous.
WMT - Wal-Mart Sets Sales Goal of $500B
- "Wal-Mart Stores...aims for sales of $500 billion by 2016 — without acquisitions. Mike Duke, the company’s president and chief executive officer, revealed the target at Wal-Mart’s annual meeting for the investment community on Tuesday."
- "...the retailer’s e-commerce activities, which were expected to generate revenues of $9 billion in the current fiscal year, but in May that was raised to $10 billion. Walmart.com is seen having sales of $13 billion in 2014…"
Takeaway: $13bn in dot.com sales is a big number, but relative to the size of WMT in aggregate, it actually puts the company at the bottom of the barrel as it relates to e-commerce as a percent of total.
JCP - Penney denies rumor of bankruptcy counsel hire as stock falls
- "A [JCP] spokeswoman denied a market rumor on Tuesday that the department store chain had hired bankruptcy counsel, as shares slid as much as 8.3 percent."
- "Penney spokeswoman Kristin Kays said there was 'no truth to the rumor,' origins of which were unclear."
Takeaway: All it takes is a flat-out false rumor to get this stock down 8%. Just goes to show how people shoot first and think second with JCP.
LVMH - LVMH Sales Rise 1.7% in Q3
- "The French luxury goods giant said third-quarter revenues rose 1.7 percent to 7.02 billion euros, or $9.3 billion, with selective retailing the only business unit logging a double-digit gain, up 12.8 percent."
- "Stripping out the impact of currency fluctuations and acquisitions, the third-quarter gain stood at 8 percent, LVMH said, noting that only the wines and spirits and watches and jewelry divisions saw growth accelerate from the first half."
Takeaway: Booze and Timing drove sales -- not exactly a bullish statement on its' LV luxury goods business.
HBC - 424 Fifth: Hudson's Bay's New Sportswear Address
- "Hudson’s Bay Co. has big expectations for its new women’s private-label sportswear brand, 424 Fifth."
- "Named for Lord & Taylor’s Manhattan flagship address, the sportswear line is designed to rival brands such as Lauren Ralph Lauren, Calvin Klein, Michael Michael Kors and Vince Camuto on the better-price sportswear floor. The lifestyle collection will be carried in 49 Lord & Taylor stores in the U.S. and 92 Hudson’s Bay stores in Canada, as well as online. The line will be unveiled tonight at an event at The Glasshouses here."
Takeaway: A private label brand rivaling Ralph, Calvin and Kors? Sorry HBC, but I'll believe it when I see it.
SCC - Sears Canada’s head office braces for more layoffs under new CEO
"Head office employees at Sears Canada are bracing for more layoffs as the struggling retailer moves forward under its new turnaround specialist CEO…The scope of the pending cuts was not revealed, and no store-level employees will be affected, sources said."
Takeaway: Seriously…does this surprise anyone?
WTSL - The Wet Seal, Inc. Updates Third Quarter Comparable Store Sales and Earnings Per Share Guidance
- "[WTSL]...today announced that it is revising its financial guidance for the third quarter of fiscal 2013 ending November 2, 2013. The Company expects to report a comparable store sales increase in the low-single digits and net loss per diluted share in the range of $0.10 to $0.12, before non-cash asset impairments. This compares to prior guidance of a comparable store sales increase in the mid-single digits and net loss per diluted share in the range of $0.02 to $0.03, before non-cash asset impairments."
Takeaway: I can't believe this concept still exists. Just goes to show that retailers can hang on by a thread for far longer than anyone thinks.
On 10/15 we hosted an Expert Call with Richard Kuprewicz of pipeline safety consulting firm Accufacts, Inc to discuss transmission pipeline maintenance, safety, and regulation.
Below we list the key takeaways and quotes from the call, and you can listen to the replay HERE.
1. PHMSA is the main federal pipeline safety regulator; regulation is “minimal.” Maintenance activity and level of spend are not mandated / regulated.
2. “Lion’s share” of regulation is “reactive as opposed to proactive.”
3. Historically, PHMSA’s safety / incident reporting data “has not been very reliable.” The data “wouldn’t pass an audit test. You have to be careful not to over-use the PHMSA database, or over-rely on it.” Pipeline operators enter information into the PHMSA database on their own, “and if [the data] wrong, PHMSA can’t change it.”
4. Increase in pipeline failures in late 90’s was due to “serious break downs in the management process,” which could have been the result of an “over-focus on cost reduction” and /or “mergers and acquisitions that added chaos to the normal way that the pipelines were historically managed.”
5. “You think it’s just a pipeline and it’s fairly easy to operate. But the philosophy of how your operate the pipeline, the importance of safety culture, the importance of the management culture can be a wide spectrum.”
6. Some companies have embraced concept of “integrity management,” some have not. Wide discrepancy in how different companies maintain their systems (no specific companies referenced).
7. Cost reduction “is more common than I’d like to know about.” “It’s easy for management to send the signal that we want to cut costs at all expense. And meanwhile, the risk factors are going up exponentially, and you bet the company. I don’t say that lightly.”
8. A lot of effort behind eliminating “grandfathered” maximum allowable operating pressures (MAOP) on natural gas lines. PHMSA is heading in this direction.
9. Management of main lines is most important (not the “moving parts”), as that’s where the greatest risk is.
10. Some companies, with an over-focus on cost reduction, “have ordered very important records to be destroyed.”
11. With respect to pipeline age / maintenance, “New isn’t necessarily better than old … Just because it’s old doesn’t necessarily mean that it would be more expensive to maintain.”
12. The industry is going through a cycle where it’s losing a lot of its experience (retirees); M&A exacerbates this trend.
13. “Gold-plating” typically occurs after an expensive tragedy … Just “throw money at it” to make it seem that you’ve solved the problem. It is “an illusion of safety.” Gold-plating is not common today.
14. Properly maintained or reconditioned pipe can last, essentially, indefinitely.
15. Data management and understanding is crucial to pipeline integrity management and safety.
The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.
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