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TBL: I Still Like The Boot

I’m sticking with my 5/12 post on Timberland “The Bottom of the Boot” that outlines an inflection point in the business model. In this market it is never fun being positive on a name in advance of a quarter, but I think expectations are in check, there are cost levers to pull, and business trends at retail are less toxic than they have been for TBL in recent quarters.

I particularly like TBL’s positioning on the sales/inventory/margin triangulation below. Translation = TBL spent 5 quarters in the worst place imaginable – sales down, inventories up, and margins off meaningfully. Last quarter it popped its head into a part of the grid that signifies much better inventory/sales, which is usually a prompt for GM % to recover. The margin and inventory move estimated below is almost always a positive stock move. Tack on the SG&A saves from apparel outsourcing and retail store closures, and I like how this one is shaping up.

Separating the Wheat from the Chaff

The bullish data points that spurred the sudden (and short lived) spike in wheat futures in recent sessions seem much less compelling today as initial harvest projections from the world’s third largest producer start to emerge. After several years of bone dry weather Australian farmers are seemingly back on track with July rains helping forecasters project a yield of over 23 million metric tons for this season.

Andrew Barber
Director



Pilgrim Pride’s Comments Mirror Tyson’s

Just as Tyson said yesterday that consumers have not yet felt the effect of higher grain prices, Pilgrim Pride said today that consumers “have just begun to see higher prices for meat and poultry in their local grocery stores.” Meat prices in the grocery channel have not yet moved up as much as other items, such as dairy, produce and cereals.
  • Management stated that production cutbacks have not been enough to cover feed costs. That being said, CEO J. Clinton Rivers said “American consumers should brace themselves for sticker shock at the meat case over the next 12 months.”

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.51%

Increased Wheat Production In Australia Should Help Ease Prices

Bloomberg reported today that wheat from Australia, forecasted to be the world’s third largest wheat exporter this year (behind the U.S. and Canada) should return to the global market in 2008 after two years of drought. Managing Director of Malaysia's second-biggest miller Teh Wee Chye was quoted from a conference in Melbourne, “Australian wheat is important to us. We expect Australian wheat to come back into the global market in 2008. The current prospect of a huge crop in the northern hemisphere, as well as improved weather conditions in Australia, will lead to an overall improvement in the global wheat supply and result in lower and affordable wheat prices for both producers and consumers. This will bring food inflation to a more reasonable level.''
  • According to the article, wheat output in Australia is forecast to reach 23.7 million metric tons this harvest, up over 80% from last year’s drought-reduced crop of about 13 million tons.

Scary Long Term Chart: US Personal Savings Rate, 1970-2008

This is another one of the most impactful charts that we put together for our July 16th "Bankruptcy Cycle" conference call. US Personal Savings Rates overlaid with 10 year US Treasury yields.

There is only one way for this Savings Rate to go from here. The implications for the US consumer spending are daunting.

Ask Paul Volcker and Team Obama where they think interest rates are going next.
KM
Research Edge Chart

Corporate Leadership?

This "IBS session on Corporate Governance with Vikram Pandit '86, CEO of Citigroup" should be really interesting. Columbia has it promoted under "Capital Markets and Investment Leadership."

Hopefully someone asks Pandit about his tactical leadership approach in selling Citigroup shareholders his hedge fund, Old Lane, then imploding it.

Wall Street likes to pay people who "make money". It’s how you "make money" that counts.
KM
The Bandit On Leadership - see Columbia's website for details...

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