The big banks and financial institutions have U.S. shaking our heads once again this morning as another big name, Barclays, appears set to chase off a significant segment of the entry level clients in their wealth management business. Of course those are going to be your least profitable clients, and of course there will be instances when you lose money but at the end of the day you have to shoulder that upfront cost to establish a relationship. These days it seems everyone has forgotten this and are trying to switch customers previously considered 'premium' to online sites and call centers to be serviced profitably. This will not do, and we suspect that this will be the next big shift in the financial sector resulting in many new players emerging to advise the middle to upper middle class. The article discussing Barclays revamping of their wealth management business can be found here.
Chart of the Day:
Today we got the revised numbers factoring in California and Nevada, the two states which have not been reporting numbers the past two weeks as they worked through the backlog created by implementing new systems. The numbers we not bad at all on the initial claims side, so now attention will turn to this debt ceiling issue in Congress and the few data points we have coming out before the next Fed meeting. It will be an interesting month to say the least.
We have economic news today and it is as follows:
- Initial Claims (8:30 a.m. ET): Est: 325k Actual: 305k
- Continuing Claims (8:30 a.m. ET): Est: 2775k Actual: 2823k
- GDP - 3rd Estimate (8:30 a.m. ET): Est: 2.6% Actual: 2.5%
- GDP Defl. - 3rd Estimate (8:30 a.m. ET): EST:0.8% Actual:0.6%
- Pending Home Sales (10:00 a.m. ET): EST: -2.3%
- Natural Gas Inventories (10:30 a.m. ET) EST: N/A
Asian markets finished higher today:
- All Ordinaries -- up 0.34%
- Shanghai Composite -- down 1.94%
- Nikkei 225 -- up 1.22%
- NZSE 50 -- up 0.02%
- Seoul Composite -- up 0.46%
In Europe, markets are lower this morning:
- CAC 40 -- down 0.24%
- DAX -- down 0.11%
- FTSE 100 -- down 0.02%
- OSE -- up 0.20%
It has been our belief in recent weeks that one who is long individual names in the retail space should rotate into sector ETFs in the retail industry in order to diversify away some of the risk of owning individual names and ride the general sector higher. Our thinking has been that many are now seeking out the risky names in order to potentially earn high returns when the easy returns are simply owning the entire sector and benefiting from the American consumer returning to stores as the economy picks up steam.
The logic here was to keep readers from buying names like JC Penney (JCP) which continues to fall to multi-year lows as confidence from all directions declines precipitously. Investor confidence has been under pressure for years and the recent events on the capital and business side have caused concern among suppliers according to reports. Yesterday the shares broke below $10/share, and although this could be a big winner if the ship can be righted, having exposure to this name, and this name only, in the retail sector is a high risk proposition.
Believe the unbelievable because today JCP is worse off than it was during the financial crisis. It is mind boggling, but true. Quite sad when one thinks of the history here too.
Source: Yahoo Finance
Although the market did get good news from Ascena (ASNA) in regards to their performance, other names continue to struggle and face rumors of poor performance themselves. After Ascena announced its good news, Wal-Mart (WMT) saw Bloomberg report through sources that they were cutting orders to suppliers because inventory levels were rising and the stock immediately dropped. The Dow Jones Industrial Average also dropped immediately and the company told CNBC that they are constantly managing inventory but that nothing was out of the ordinary in regards to their inventory levels. One knows the market is weak when rumors that are corrected still result in a stock being down nearly 1.50% on the "news", which was the case with Wal-Mart yesterday.
Readers should seriously look into owning a basket of these names to smooth out returns and insulate ones portfolio from one or two bad apples. It is the prudent move here.
We cannot say it enough, so we will say it again, we are bullish all things housing related. Yes there is an issue with new supply not being able to meet the pent-up demand, but long-term we think that the numbers will have a chance to average out and move the market into equilibrium. That is usually how markets correct themselves, and barring any issues with rates drastically rising overnight and pricing many new home buyers out of the market, we think that this is how this market will correct itself too.
It has been a good few months for readers who purchased BBBY shares near the bottom and we think that the next few could be good as well. Watch for the name to rally into the close of the year, especially if the housing market remains strong and mortgage rates low.
Source: Yahoo Finance
With that said, we want to direct readers to another one of the names we have been bullish on, Bed, Bath & Beyond (BBBY). It is a retailer, and it is a retailers we recommended near the lows. The sub-sector of retailers who sell to those needing supplies for their new homes is one segment of the market we are extremely bullish on still, even after the tremendous run. These are the only names in retail [outside of Coach (COH), Michael Kors (KORS), and Gap (GPS)] that we would want to own individually. With the turnaround having been orchestrated by management to turn this business around after numerous quarterly disappointments, we think it best to continue to ride the name higher. We would not be adding here, but we are holding for further gains.
Long-time favorite Starbucks (SBUX) continues to make moves to expand the business, this time trademarking the name "Fizzio" as they continue to explore the carbonated drink market. Starbucks has been a strong performer for readers delivering both on gains in the stock market and on the business side. The continued diversification of revenue streams and migration into new segments is proving a winning strategy and until management makes a misstep we have to remain bullish and optimistic on all of the irons the company currently has in the fire. This is now nearly a $77/share stock, but we are recommending that this position remain open (although those wanting to take some profits off of the table should feel more than free to do so).