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Ralph (RL): Collars Up Boys!

Short the white T's (GIL) and long the pink collars (RL). Brian McGough wears pastels, and the shorts who are still in this stock are wearing red faces.

I'm taking my new squeeze target up to $76.99/share. Short interest here remains way too high.
KM
  • RL is going higher...
(chart courtesy of stockcharts.com)

Yield spreads: Paying up for liquidity

Citi placed $3 Billion worth of 5 year senior notes on Tuesday at 6.51%, nearly 80 basis points higher than the recent average spread-to-treasury level for a bank issuer with an equivalent rating.

JP Morgan is selling $1.6 Billion in perpetual securities today at a yield of 8.63%, the low end of pricing where the paper was being marketed by 12.5 basis points. The glass-half-full crowd are happy to see that the paper is getting placed.

Andrew Barber
Director
  • Liquidity tap, drip drip...
Chart by Research Edge LLC

What Do The Boys In Chicago Think About Jobs?

Jobless claims came in at an elevated 450,000 this week. Below we have attached a chart of Initial Claims over Treasury Futures.

This may be far too pedestrian an observation for some, but the boys in Chicago appear to have had their eyes firmly on the initial claims numbers since they started ticking up last month.

As the facts change, great traders do.
KM

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Obama's Populist CPI Balloon

This morning’s Consumer Price Index was actually a lot higher than I expected it to be, and it's bearish for stocks. As soon as Obama gets back from his Hawaiian vacation, the attached chart will be on his desk.

Main Street consumer confidence continues to tank, despite falling gas prices and rising stocks. Unemployment is their main concern, and inflation is a close second. The Democrats know this ring tone.

The headline CPI reading of +5.6% year over year may very well be a lagging economic indicator (it was the highest monthly report since January of 1991), but that doesn't mean that Obama won't use it to his advantage. Bernanke is “data dependent”, remember?

KM

YUM - THE CASH FLOW STORY IS CHANGING.

I have always wondered why the street is enamored with a company that can only grow EPS 10-12%, when they are reducing shares outstanding by 8% (company FY08 guidance). This raises so many red flags!

I recently ran my sustainability analysis on YUM, only to conclude that there is shift in how the company is going to allocate is cash flow over the coming years. Quietly, YUM’s has been allocating more cash toward capital spending - this increases the risk profile of YUM (relative to the past) and drives lower incremental returns for shareholders.

Here are some of the facts regarding YUM's uses of cash over the past 12-months:
Dividends paid declined by 3% (partly due to a lower share count).
Yum has burned thru $1.4 billion in cash (Cash from ops - Cap Ex. - Share repo - Dividends)
Interest expense increased 8% (due to higher debt levels to fund the cash burn)
Shares outstanding declined by 2% (despite spending $1.9B on buying back stock)
Capital spending has increased 13%

First, YUM’s capital spending needs are growing and that will come at the expense of the share repurchase program. Second, if interest expense in up 8% (due to higher debt levels to buy back stock) and the share count has only declined by 2%, how is that accretive to shareholders?

This dogs hunting day are over.

Charting the Chinese Yuan vs. USD and Euro

Chinese Industrial Production growth slowed again in July, moving down to +14.7% year over year growth versus +16% in June. The Chinese currency continues to be better for sale as of late, and this is a new path.

Given that consensus is that the Chinese slowdown is driven by the timing of the Olympics, the simple question to ask here is whether this new data point is an immediate "Trade" or a developing intermediate "Trend"?

Andrew Barber put together both short term and intermediate term charts of the Yuan versus the US Dollar and the Euro below.

KM

Early Look

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