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Bristol Myers Squibb (BMY): We Bought It In the Hedgeye Portfolio Yesterday

On its lows yesterday morning, my Partner, Tom Tobin, thought BMY was oversold relative to the impact of the news (see his portal posting on it this morning).

This is one of these "Large Marge" big cap pharma names that fits within the construct of our Healthcare Sector and Global Macro views, and buying things when they are on sale is what we do.

Intraday here, "DealReporter" was cited by FT mergerarket today citing "industry sources following the situation" that BMY could offer as much as $70/share for IMCL. This is not edge; this has been a price that has been thrown around for some time now.

What has not been thrown around is that I think Carl Icahn is as incentivized as he will ever be to get his IMCL trade booked. For the levered activists facing potential liquidity problems, this is a time to sell what you can, not what you should.

We like the Bristol/Imclone combo. The sooner this deal gets done, even if it's for $70/share, the better for BMY.
KM

Listen to Alibaba

In case you missed it, Alibaba.com, one of the world’s largest B2B marketplaces, issued a profit warning last night despite 158% profit growth in the quarter. The reason?

Per the CEO,

1) "The economic winter is making it difficult for some of our customers to conduct business and, as a result, we have seen a slowdown in the addition of Gold Supplier members (61% of revs), which may continue until next year.

2) “We see difficulties in four out of the 40 sectors we have: textile, metal, garment and construction services," said Mr Wei.

3) "It will be even worse in the second half."

I couldn’t have said it better myself. Margin expectations in apparel remain too high for the next 12 months.

Footwear Back-To-School Update

Clean inventories and higher price points more than offsetting flat unit sales for back-to-school. But mix shift will be the topic long after school begins. Still positive on FL and negative on SKX.
  • There’s no question that the athletic footwear industry is starting back-to-school in a better place this year versus last. As I noted on multiple occasions over the past few weeks, inventories are very clean, discounting is down, and margins are up for retailers across the board.
  • As a kicker we’re seeing a shift in mix towards higher-price point product, which is the part of this call that I think will sustain itself for at least the next 12 months.
  • Check out Exhibit #2, which shows the average price point by brand for back-to-school periods vs. non-bts for the past 2 years. Under Armour is the clear standout due to its trainer launch. But Puma, Adidas, Nike and Converse are all looking solid. Reebok can’t quite say the same. That’s because of its high reliance on classics, which are incrementally discounted in the market right now to clear out for fall.
BTS Starting Off Just Fine
This Will Be Driven More By Mix Shift Than YY Discounting Levels Over Next 12 Months

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Lock The Barn Doors! The Karachi Crunch Continues

After getting hammered for a 6 day -18% down move, Pakistan's government decided to play their Keynesian cards again and stop trading!

No, this is not the Jim Cramer "stop trading" call... this is an old fashioned socialist government intervention. This is the 2nd time in 2008 that Pakistan has opted to plug trading curbs into their free falling stock market. Free market capitalism allows people to fail. They don't get it.
  • Next support for the Karachi 100 Index is 9,013.
    KM
chart courtesy of stockcharts.com

European Money Supply Still Way Too Inflationary

Below, Andrew Barber, and I have attached a 10 year chart of European M3 Growth (money supply). The impetus for this note is that the Europeans reported a big +9.3% year over year growth in this critical inflation metric this morning. Yes, the growth rate has come down from it’s all time highs, but the point it is that its running way too high versus current stagnant regional economic growth.

The Euro itself, was introduced to the world markets as a currency in 1999, so this chart maps a critical duration that needs to be understood within the "its global this time" macro narrative.

Europe has never endured an protracted period of economic stagflation with all of the countries in Europe tied to the same currency horse.

Is there tail risk on this horse? You bet!

KM

Finally A Positive for the (E) in my 'RIPTE' model!

This is a one week data point, so let's not get all excited about it yet. That said, I am data dependent and this week's jobless claims # in the US finally brought the 4 wk moving average down, albeit by a hair.

Claims dropped by 10,000 this week to 425,000. This moves the 4 week moving average down by 6,000 to 440,000.

Both the "Trade" and "Trend" in unemployment stats remains negative. If I see 3 consecutive weeks of amelioration, that would move the short term "Trade" to the positive side of my models ledger. I still think US unemployment rates will see 6-7% levels by year end.

As the facts change, I do. Life's easier that way.
KM

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