Wednesday, November 10, 2010

Things to Keep in Mind

Blog Note
I want to apologize to the readers. I am having some problems concentrating and being motivated due to a personal issue. Add to this the clock change now guarantees it to be dark when I go to work in the morning AND when I come home and you get a blogger more than a bit off his game. Just when I had a grand plan to get some work done. Thanks for your understanding.

Things to Keep in Mind
Today featured quite a few things we have discussed over the past few months so no reason to beat them to death. A few things to keep in mind going forward are presented below.

Margin Issues not Just for Old School Companies?
I am not sure how much I can read into one report, especially with the idea that Cisco (CSCO) may well be pulling a fast one by lowering guidance so much, but a billion dollar revenue shortfall is not a small matter. Market Ticker has some ideas on were the pressure is coming from:
Companies talking about input cost margin problems (remember the commodity ramps from late 2007 into 2008?) and forward guidance cuts.
Folks, you buy stock on tomorrow's earnings expectations. You've been buying 'em lately on the premise of multiple expansion driven by The Fed.
I said you would get destroyed doing this, and it might have started this evening.
If you remember this article, I said that it is my thesis that economic Depressions come not from credit collapses so much as they do from margin collapse. That is, the inability to make a profit due to input cost ramps while you are unable to pass through those costs to the consumer of your product or service.
This in turn forces you out of business, and you then lay off all your workers. They now have no money, and thus can't buy as much as they used to. That in turn tightens the spiral on others in business - they have the input costs but can't drop prices to what people with damaged incomes can afford.
Cisco seems to have been "blindsided" by public sector, cable company and consumer softness. How could they be? I've been charting this in durables for the last two months!
This bears watching if technology companies are seeing end user issues due to cost problems.

Retail is Aggressive
At both Home Depot and Lowes this weekend all the Christmas stuff was already up and looked like it had been for some time. It is not even Thanksgiving yet! As a kid I never even considered Christmas until after Thanksgiving, but now the holiday sale season lasts for months. Another data point, old warhorse Sears will be open on Thanksgiving for the first time ever to try and increase sales:
Sears to be open Thanksgiving for first time

Might as well I guess.

Year End POMO is Almost Every Day
The 2010 POMO schedule was released today and if you think Silver is a crowded trade, this thing is 10X worse!

That said, no reason at this point to doubt the magic effects of the FED bond buys. Some commentary better than mine:

Tim Knight
How to Get on POMO's Side
With today's announcement of over $100 billion POMO purchases in the coming weeks, I gave some thought as to how to try to get on the Right Side Of Ben, since I'm kind of sick of griping about POMO and would rather benefit from it.

Evil Speculator
Ben’s Middle Finger
Well, there you have it, folks – do I care about those POMO auctions? Not really – I’ve long given up on the notion of final justice for either Mr. Bernanke or the fat cat banksters he’s feeding cookies on a daily basis. But what I care about is downside risk and that’s pretty much eliminated if you can lever $105 Billion by a factor of 100 and throw it into the equity maelstrom.

Trader Mark
In the grand mass psychology experiment i.e. the herding of rats through a maze the conventional wisdom is you can no longer bet against the market on POMO days as the Fed lifts treasuries off the primary dealers hands in return for mad money and the primary dealers...well magical things happen to assets. If you take out the middle man (primary dealers) you are just left with the Fed and the magic of a market that jumps when commanded and asks how high. And now that the rats are trained to front run the primary dealers it has become self reinforcing.
There is so much money coming down the pike and if the next months schedule is reflective of the ensuing 7 months bears apparently will have 2 days a month to operate in a free market.

I think you get the idea. Now that the banks have returned to their perfect or near perfect trading day records it would take some kind of major event or shock to stop this animal from running until years end. None of this is trading advice, you have to be brave and/or crazy to be playing on this field but I wanted to cover it once again.

Have a good night.

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