There is a very interesting chart for the "Chart of the Day" today which we hope all readers will take a look at. That is part of the issue with today's economy, but a situation which is now rectifying itself in the aftermath of one of the hardest recessions in recent memory. It is funny how we must learn the hard lessons after the fact rather than before, but the data now proves that education provides a pillar of stability to ones finances and job security.
U.S. markets will open today after being closed yesterday in observance of Martin Luther King, Jr. Day. By chance the inauguration was yesterday as well. In case you missed the news over the extended holiday, Europe saw shares rise to two year highs and Japan's central bank is going to attack deflation and try to boost the economy. One can expect to see the yen fall relative almost all currencies as it has become clear exactly which road the Japanese are going down, and in all honesty it might very well lead to a currency war should the Bank of Japan get overly aggressive.
We have economic news due out today, and it is as follows (these are the consensus estimates):
Existing Home Sales (10:00 AM EST): 5.10 million
Asian markets finished mixed today:
All Ordinaries - up 0.01%
Shanghai Composite - down 0.56%
Nikkei 225 - down 0.35%
NZSE 50 - up 0.05%
Seoul Composite - up 0.49%
In Europe markets are lower this morning:
CAC 40 - down 0.73%
DAX - down 1.17%
FTSE 100 - down 0.64%
OSE - down 0.30%
Shares of Arena Pharmaceuticals (ARNA) fell $0.68 (6.51%) on Friday to close at $9.77/share on volume of 20.3 million shares after the company's Belviq was not among the drugs covered in the reports issued by the Committee for Medical Products for Human Use in Europe. It now looks like the earliest investors will get news from Europe will be next month and this will halt the momentum which had been building in the shares because even then Belviq is not guaranteed to be brought up.
Another biotech name which we have been following recently is Celgene (CELG) which took off after their comments at the JP Morgan conference and their outlook provided. The shares dashed through the $90s, hitting new highs along the way until it faced the $100/share level. The upwards momentum had faced resistance here, however during Friday's session the stock finally took out $100/share and closed above the benchmark as shares closed near the highs for the day. For those looking for this stock to show weakness and pullback, stop now because that move confirms that there is a lot of 'mo-mo' behind this one and the traditional trajectory is for this to now go higher before heading lower.
We were correct on Rite-Aid (RAD) for a brief period before the shares turned back up after their big run-up a few weeks back. The stock is still strong and investors are piling in, but our question is where is the growth going to come from moving forward? Both Walgreen's and CVS are at or near highs, so we are a bit confused as to what the market is telling us. It would seem that nothing has changed and Rite-Aid would appear to be the also ran in the industry, but with the recent price action in RAD's shares we are left to wonder if investors really think that RAD will steal market share from the two larger competitors as well as other players such as Wal-Mart (WMT) and national grocery/retail chains moving forward. We are always fans of deleveraging stories, but how the deleveraging continues (once it has started) moving forward is always the question. Due to our inability to answer whether the company is going to be able to continue their recent execution and their failure to do so in the past, we would wait for confirmation and even then still treat this as a speculative trade rather than a long-term investment.
Chart courtesy of Yahoo Finance.
On January 31st we get earnings from Whirlpool (WHR) which will give us a further glimpse into how the housing market is doing and the strength of the consumer. This is a name which we have covered here before, and is a stock which we have been bullish of since the $80/share area. We took our lumps as the shares sunk to lows below that recently but even as it fell to its recent lows we still stuck with it. We have had friends and readers ask us about this name recently as shares have approached $110/share and the fear of a top begins to settle in, but our thinking is that shares can get back to the $120-130/share range. The housing market bull is young and we have a ways to go in order to get back to normalized levels and even then most new buyer will be those starting families and the need for furniture and appliances will be above normal with all the pent-up demand from this segment. That is the way we see it at least.
Capital One Financial (COF) is an interesting story coming out of the financial crisis. The company underwent a transformation whereby they purchased a bank which gave them access to cheap capital and then purchased other assets from players looking to exit the US market such as ING (their online bank) and HSBC (their credit card portfolio). This had been a good story up until Friday when the company disappointed on their quarter and shares subsequently fell $4.60 (7.47%) to close at $56.99/share with volume spiking to 27.1 million shares. Even with the diversification over the past few years the company still derives a majority of its revenues from credit cards but must now worry about managing two separate businesses and keeping the operations running smoothly. The company stated that a dividend increase was planned for the year and that they will begin rebranding the U.S. assets they have not already brought under their umbrella yet (the ING unit purchased). One area where the company is failing is their customer service on the credit card portfolio they purchased from HSBC, and this we know from first-hand experience. Maybe they're hands are tied behind their backs with the contracts on those cards with retailers, etc but the only noticeable change is that one no longer talks to customer reps located in call centers in India but rather here in the U.S.
Chart of the Day
Chart courtesy of calculatedriskblog.com
Today we read that high school graduation rates are at their highest level since the late 1970s (see article here), to which we say bravo. However it is due to the tough economic conditions out there for those without high school degrees and even those with college degrees. The lesson learned from the most recent recession must be that education is a necessity and no longer optional as a basic high school degree is now a pre-requisite for many entry level jobs…but even those with just high school degrees are behind the times because for many managerial level jobs or for the ability to move up in an organization the pre-requisite is already a college degree. One could argue in many cases it is not about the education, simply what that piece of paper tells an employer about the character of a potential hire.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.