Monthly Archives: November 2014

Daily Market Update – November 13, 2014 (Close)

The news coming in from retail is mixed, as far as investors are concerned.

They always look at the top line and the bottom line.

The top line represents revenues and the bottom line represents profits. Then they add into the mix forward guidance, which is far from an exact science, just as imaginative accounting removes the simple arithmetic behind profit and loss sheets from the realm of being an exact science.

The mixed news is that the trend is that the bottom lines are increased, but the top lines aren’t always so, although Wal-Mart reported this morning higher on both.

The consequence to that is that the bottom line represents sales and expenses, while the top line represents sales. One can be reflective of a company’s efficiencies, while the other can be much more reflective of what is going on in the economy, in addition to the particular popularity of a company at a moment in time.

So while seeing a general trend of increasing profits investors may be happy, especially if also guiding higher, but that may overlook the bigger picture.

On the other hand, if the revenue trend is flat or lower among a group of retailers, there has to be some concern that the consumer isn’t really participating, especially as employment statistics are suggesting that more and more people are at work and increasingly capable of spending their money.

Nothing propels an economy and creates confidence like consumer spending.

While we all love the very low interest rate environment that we have been in for so long, the one thing that we don’t think about too much is that the low interest rates are very much a by-product of the inability to consume. The pressure to drive prices higher by everyone seeking to satisfy personal demand for goods just isn’t there.

Somewhere is q happy medium that allows for some reasonable increase in interest rates as discretionary spending and business expansion is growing.

For the past few years and in particular the past year, there has been lots of concern about the Federal Reserve raising rates and the very idea of them going higher has placed a ceiling on the market’s climb higher, despite all of the advances that have been made.

Barely a year ago, the market was concerned at 10 year rates were approaching 3%. Then it got concerned at rates were beginning to climb to 2.5%. Just a few weeks ago the rate fell to 1.9% and had then taken a very strong bounce higher to its current  2.35%, having reached its bottom and begun its rise concurrent with the stock market in mid-October.

However, unless increasing employment will lead to increasing consumer demand for things big and small and not just European trips to take advantage of the strong dollar, the
re isn’t going to be anything to really drive those top lines and there is only so much that can be done by companies to increase their profits without those top line increases.

But those are all issues for another day, or at least until Target reports its earnings next week.

For now, it’s all about how to end up the week with some assignments, rollovers and call sales in preparation for the final week of the November cycle.

This morning looked like it will begin as yet another quiet day in a week that was expected to be that way. The day tutned out to have a little more character than the preceding 3 days, but was still fairly listless.

Who knows, maybe something will create a further spark, hopefully higher, but for now there’s nothing really in sight as the clock ticks to tomorrow’s close.

Daily Market Update – November 13, 2014 (8:30 AM)

The news coming in from retail is mixed, as far as investors are concerned.

They always look at the top line and the bottom line.

The top line represents revenues and the bottom line represents profits. Then they add into the mix forward guidance, which is far from an exact science, just as imaginative accounting removes the simple arithmetic behind profit and loss sheets from the realm of being an exact science.

The mixed news is that the trend is that the bottom lines are increased, but the top lines aren’t always so, although Wal-Mart reported this morning higher on both.

The consequence to that is that the bottom line represents sales and expenses, while the top line represents sales. One can be reflective of a company’s efficiencies, while the other can be much more reflective of what is going on int he economy, in addition to the particular popularity of a company at a moment in time.

So while seeing a general trend of increasing profits investors may be happy, especially if also guiding higher, but that may overlook the bigger picture.

On the other hand, if the revenue trend is flat or lower among a group of retailers, there has to be some concern that the consumer isn’t really participating, especially as employment statistics are suggesting that more and more people are at work and increasingly capable of spending their money.

Nothing propels an economy and creates confidence like consumer spending.

While we all love the very low interest rate environment that we have been in for so long, the one thing that we don’t think about too much is that the low interest rates are very much a by-product of the inability to consume. The pressure to drive prices higher by everyone seeking to satisfy personal demand for goods just isn’t there.

Somewhere is q happy medium that allows for some reasonable increase in interest rates as discretionary spending and business expansion is growing.

For the past few years and in particular the past year, there has been lots of concern about the Federal Reserve raising rates and the very idea of them going higher has placed a ceiling on the market’s climb higher, despite all of the advances that have been made.

Barely a year ago, the market was concerned at 10 year rates were approaching 3%. Then it got concerned at rates were beginning to climb to 2.5%. Just a few weeks ago the rate fell to 1.9% and had then taken a very strong bounce higher to its current  2.35%, having reached its bottom and begun its rise concurrent with the stock market in mid-October.

However, unless increasing employment will lead to increasing consumer demand for things big and small and not just European trips to take advantage of the strong dollar, t
here isn’t going to be anything to really drive those top lines and there is only so much that can be done by companies to increase their profits without those top line increases.

But those are all issues for another day, or at least until Target reports its earnings next week.

For now, it’s all about how to end up the week with some assignments, rollovers and call sales in preparation for the final week of the November cycle.

This morning looks like it will begin as yet another quiet day in a week that was expected to be that way.

Who know, maybe something will create a spark, hopefully higher, but for now there’s nothing really in sight as the clock ticks to tomorrow’s clsoe.

Daily Market Update – November 12, 2014 (Close)

Today was Wednesday, generally the quietest day of the week, right in the middle of what was expected to be a quiet week.

With Singles Day and Veterans Day now over, the most interesting thing this week may turn out to be today’s planned space landing on a moving comet which went from “planned” to “successful landing.”

How that figures into anything is debatable, but at least it’s interesting and really the stuff of science fiction.

While that’s going on the market seemed as if it was prepared to open weaker than the past two days, but still not with very much conviction.

While there are still some earnings reports to go, for the most part that has now been removed as an overall market catalyst, although individual stocks can obviously still have their significant ups and downs, although the prevalent significant movement, when it occurs, has been lower.

Those whose every breath is fully invested in the market know very well that November and December tend to be good months, regardless of how the holiday retailing season stacks up. While patterns tend to break down as they become more widely recognized, especially when everyone talks about it, such as with the “January Effect,” the November – December effect isn’t one that’s too widely discussed and there’s still plenty of reason to believe that there’s hedge fund fuel to keep that pattern alive for another year.

One thing that could definitely help the overall market to move higher would be some good numbers coming from the retailers that are just now gearing up to report their earnings. More importantly, their forward guidance can really be the catalyst that seems to be missing right now.

Those good numbers and good forward prospects have to come from more than the higher end retailers, though. That segment of society has noticeably increased discretionary spending, but in the really big picture they represent a very small portion of what really matters. Even Macys isn’t entirely reflective of an improving retail picture if it reports good earnings. The improved results really have to be seen from the bottom up, including dollar stores, Wal-Mart, specialty retailers and big box stores throughout the spectrum.

I hope that turns out to be the case, as it also will get the albatross around our necks to be released. That is the fear of when interest rate increases will finally happen. A heating up economy, especially in those phases that necessitate an increase in interest rates tends to be good for everyone and would finally get us over the fear of those hikes, just as the eventual announcement of a taper finally got us over the anticipation of that announcement.

Macys, which did report its earnings before the market’s open fared very well, despite offering lowered guidance and lower revenues, but despite it rising about 5% it did nothing to nudge the market higher

For the next few days I doubt that I’ll be adding any new positions. With a couple of DOH Trades
set to expire this week,  I would like to see them either expire or will have a need to roll them over, hopefully into a marketplace that has more willing sellers than has recently been the case.

That lack of a willing market of sellers may continue to add to the difficulty of executing rollover trades at fair prices, but I expect that when hedge funds get back into the practice of hedging that will no longer be the case.

Today that reluctance to participate was still obvious as attempted rollovers in International Paper, Lorillard and T-Mobile went nowhere.

A convoluted trade to roll International Paper from a $50 strike to a $53 in the hope of seeing it assigned early in order to have the dividend taken tomorrow, was just too much risk even for the nice dividend.

The lesson, I think, is that if market participants are acting in an irrational fashion, it’s probably best not to try to meet them, even half way.

Daily Market Update – November 12, 2014 (8:00 AM)

It’s now Wednesday, generally the quietest day of the week, right in the middle of what was expected to be a quiet week.

With Singles Day and Veterans Day now over, the most interesting thing this week may turn out to be today’s planned space landing on a moving comet.

How that figures into anything is debatable, but at least it’s interesting and really the stuff of science fiction.

While that’s going on the market seems as if it prepared to open weaker than the past two days, but still not with very much conviction.

While there are still some earnings reports to go, for the most part that has now been removed as an overall market catalyst, although individual stocks can obviously still have their significant ups and downs, although the prevalent significant movement, when it occurs, has been lower.

Those whose every breath is fully invested in the market know very well that November and December tend to be good months, regardless of how the holiday retailing season stacks up. While patterns tend to break down as they become more widely recognized, especially when everyone talks about it, such as with the “January Effect,” the November – December effect isn’t one that’s too widely discussed and there’s still plenty of reason to believe that there’s hedge fund fuel to keep that pattern alive for another year.

One thing that could definitely help the overall market to move higher would be some good numbers coming from the retailers that are just now gearing up to report their earnings. More importantly, their forward guidance can really be the catalyst that seems to be missing right now.

Those good numbers and good forward prospects have to come from more than the higher end retailers, though. That segment of society has noticeably increased discretionary spending, but in the really big picture they represent a very small portion of what really matters. Even Macys isn’t entirely reflective of an improving retail picture if it reports good earnings. The improved results really have to be seen from the bottom up, including dollar stores, Wal-Mart, specialty retailers and big box stores throughout the spectrum.

I hope that turns out to be the case, as it also will get the albatross around our necks to be released. That is the fear of when interest rate increases will finally happen. A heating up economy, especially in those phases that necessitate an increase in interest rates tends to be good for everyone and would finally get us over the fear of those hikes, just as the eventual announcement of a taper finally got us over the anticipation of that announcement.

For the next few days I doubt that I’ll be adding any new positions. With a couple of DOH Trades set to expire this week,  I would like to see them either expire or will have a need to roll them over, hopefully into a marketplace that has more willing sellers than has recently been the case.

That lack of a willing market of sellers may continue to
add to the difficulty of executing rollover trades at fair prices, but I expect that when hedge funds get back into the practice of hedging that will no longer be the case.

Daily Market Update – November 11, 2014 (Close)

Yesterday, in what is otherwise a slow week, so much attention was placed on the Alibaba manufactured holiday called “Singles Day.”

It’s a day that single people are supposed to take the time and present a gift to themselves. Of course there are those who might believe that being single is gift enough, but nonetheless, it is a perfectly materialistic occasion that would have the leaders of the 1948 Revolution apoplectic.Having actually celebrated a 30th wedding anniversary yesterday, coinciding with Singles Day, somehow I didn’t receive anything for my troubles, so maybe I should have just following the crowd and gifted myself.

Today, in the United States, it is Veterans Day, where we honor those who gave the gift of freedom rather than honoring themselves with a gift.

I’m not quite certain why stock markets are open, as the bond markets and banks are closed.

But they are and on those few days a year that the credit markets are closed and stocks do trade, those are usually fairly slow trading days.

And so it was today.

The morning’s futures seemed to be on course to follow the same path as yesterday, as that day’s listless opening was the pattern throughout the day and served as today’s templet, as well.

The only thing of note yesterday was the marked reversal in energy prices in the late morning which eliminated the sizeable gains in the sector with moderate losses. Insofar as energy is a significant portion of the S&P 500 it again limited those gains. Since the slide in energy started sometime in July 2014, the DJIA and S&P 500 have performed identically, gaining 3.1%, with the S&P 500 being held back due to its heavier energy representation.

In the meantime, any benefit to be gained from lower energy prices won’t really become apparent until the next quarter’s earnings are reported.

For now, ever since Goldman Sachs’ call for $75 crude, the markets have been relatively stable and I think may have bottomed, although there are further calls going as low as $50.

As an unusually early start to winter begins to sweep across parts of the nation the excess supply over demand may shift a little bit, but at these prices there is also bound to be those seeking bargain pricing and speculating on an eventual rebound.

Ordinarily, the thinking would be that low energy prices would spur other businesses to ramp up their activity, seeing it as a perfect time to be able to increase their margins.

That would usually lead to incre
ased employment, increased spending and increased earnings.

But that doesn’t appear to be happening yet.

Maybe businesses are skeptical of low energy prices remaining low and continue to be cautious, but the reality is that the markets and the economy tend to do better when oil prices are increasing, as long as that increase is demand driven.

Maybe they just don’t see consumer demand increasing for discretionary items.

Now, we’re in the unusual position of having too much energy and not enough demand. Hopefully, whatever is saved in gas prices and heating prices will become part of an increase in discretionary spending.

We’ll find out later this week whether retailers have received any benefit at all from the increasing employment statistics over the past 3 months, but despite good numbers for the past year, there has continued to be a reluctance to spend.

Something is just qualitatively different about this recovery and the typical patterns just aren’t materializing or are just taking much longer to become evident.

Hopefully retail will bring some good news this week and energy pricing will moderate as consumer demand leads to greater overall economic activity.

With Macys and JC Penney reporting after today’s close maybe we’ll get something to bring some life into the market this week. With next week being the last week of the cycle it’s never too late to sell any options if the market can find a reason to move suddenly higher.