Sunday, November 05, 2006

The Upcoming Election and Your Portfolio...

Historically there has been a great deal of buzz surrounding national elections in the US and the possible impacts on the street.

I've heard less talk about this issue this year. The general consensus is that a stalemate in Washington (one house controlled by each party) would start to curtail spending and possibly be a good outcome for stocks.

I think this is a remarkably simplistic view. In a single variable model, perhaps this could be true, but the stock market is a composite of thousands of individual stories that are likely to be unaffected by the election. I'd expect a little 2-3 day rally if Congress is split on Tuesday, but I'll fade that rally.

Other reasons to fade this current rally

- viewership of Kudlow & Co. on CNBC is up 124% y-over-y. A good sign that the little guy is back in the market (generally that is a sign of a top).

- Everyone is pounding the table on tech stocks, again. Different year same story.

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Again, it's just anecdotal, but I was in Lowe's again on Saturday. I bought two 31" bathroom vanity mirrors - originally - $88 each for $6.50. I don't mean to imply that the Watertown, NY store is indicative of the entire Lowe's chain but that's not a great sign.

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I hate to mention politics on the blog because it REALLY gets people fired up, but this story is not really political - it gets back to my point that Congress may not be able to be trusted with our $2.8 Trillion.

After successfully fighting corruption and misuse of funds by contractors in Iraq, the House Armed Services Committee (Isn't our Rep. McHugh on that Committee?) has inserted a clause that will shut the special auditors office in Iraq.

"Investigations led by a Republican lawyer named Stuart W. Bowen Jr. in Iraq have sent American occupation officials to jail on bribery and conspiracy charges, exposed disastrously poor construction work by well-connected companies like Halliburton and Parsons, and discovered that the military did not properly track hundreds of thousands of weapons it shipped to Iraqi security forces.

And tucked away in a huge military authorization bill that President Bush signed two weeks ago is what some of Mr. BowenÂ’s supporters believe is his reward for repeatedly embarrassing the administration: a pink slip."

Thursday, November 02, 2006

Hmmm, Gas falls from $3 to $2.22 and We're not blowing it all at Walmart?

The "decline" in gas prices from August to today was thought to be a source of excess cash for retailers, particularly big-box retailers like Walmart.

Walmart said today they are not going to hit their 2-4% growth targets instead posting gains of just 0.5%. "Wal-Mart saw a 0.3% increase at its namesake stores and a rise of 2% at its Sam's Club locations in October. The company said it expects flat U.S. same-store sales for November." My wife commented recently that it seems like Walmart is being run like Kodak circa 2001 - they're watching someone eat their lunch and seem befuddled by it. I agree that Walmart has past their crest and for all the talk of expansion in China/Mexico, etc., this ship has sailed.

I think the greatest problem with Walmart is their inability to think outside the box. They know only one way to drive sales - get bigger. Look at the number of supercenters serving Upstate NY. They are clearly trying to gain a larger share of every dollar spent, but at some point they exceed saturation and all the cash spent chasing growth is just going to further pinch margins.

It's been a good run Sam, but like Woolworth before you the decline of this monster of retail has begun (Pssst - if anyone has an in at Walmart I have an idea that just might spark new growth opportunities for the next 20 years).

Wednesday, November 01, 2006

GDP not so GRRRRReat!

The anemic GDP numbers from last week got some attention for coming in below 2% but when the real number crunchers went to work we got some staggering data.

On the cover page they announce that motor vehicle output accounted for 0.72% of the 1.6% GDP growth number. This immediately sent anyone with two brain synapses still firing to try and figure out how our auto industry contributed ANY growth given the disasters that GM, Ford and Chrysler are today.

The big three effectively had a fire sale on SUVs and light trucks this summer which led to a 5.5% decrease in wholesale prices which, due to mathematics of output/production, had the effect of boosting GDP by 3/4ths of a percent.

Without this number GDP might have been 0.9%. Look for Q4 GDP to better reflect the weakness in autos and Q4 might be an eye opening number.

Cramer Insanity Watch....

It won't be long until we'll be able to look back and laugh at the quaint antics of that lunatic on CNBC Jim Cramer. Unfortunately, his little show has the potential for costing people some serious coin. It is no different than Dr. Phil trying to diagnose someone in 10 minutes on his show. To offer stock advice one stock at a time with no time horizon or knowledge of the investors' risk tolerance is insane. But it gets ratings so here we are.

I've only occasionally seen the show, but I tried to sit through a whole episode last week. I wasn't successful. Anyway, during his show he decided to pound the table on Lowe's upcoming quarter. Yikes. Has he been in a Lowe's lately? I was in one tonight where a stack of light fixtures was marked down from $38.95 to $1.98. Granted they looked like a large drop of mud, but that's still a huge markdown.

Lowe's is the most closely tied retailer to the home equity boom that I can imagine. That boom is over and Lowe's has not seen a bottom (down about 2% since Cramer called the bottom).