Politicians have spun the current crisis as greedy Wall Streeters running amok and now legislators are fighting each other over how to punish those evil traders and money managers. The thing is that they can't find any one particular person to be the cover boy/girl for this crime because the only (supposedly) real case they had has gone up in smoke. Late yesterday a jury in Brooklyn, New York found Ralph Cioffi and Matthew Tannin, former managers of an infamous Bear Stearns hedge fund that lost $1.6 billion of investor's dollars....not guilty. So, regular people like an office coordinator and a food and beverage director who came into the case thinking these were just two of the low life snakes that crushed America took less than an hour to deliver the verdict.
That's why one of the best pieces of wisdom ever on the market is not to fight the trends. In my book "Be Smart Act Fast Get Rich" I make the observation that Mr. Spock of "Star Trek" would lose all his money in the market in a second. So, with that in mind, is it a warped way of thinking to understand that black and white intellect could empty your pockets at warped speed? Yet that's the facts because emotions have become an even bigger determinant in day to day trading. Investors have to be well-schooled in their holdings or totally indifferent to make it through the wild gyrations.
All I can say is that the masses were dumping stocks in February and March and now they are saying anyone could have made money even though they missed an opportunity of a lifetime. But, of course, it would stand to reason that everyone would abandon a burning building. Yet now it seems clear that the market was going at fire sale prices as we headed into Spring. But let's not forget the origins of the term "fire sale" from ancient Rome when Crassus owned the Fire Brigade and would routinely show up when houses were on fire and make offers the owner couldn't refuse. "If you don't sell I'll let the house burn to nothing, if you want something then I'll make you an offer." Also part of the First Triumvirate of Rome with Caesar and Pompey by the time of his death, Crassus' wealth was so immense he is considered the ninth richest person to have ever lived with an inflation-adjusted net worth of $181.0 billion. Thus, government manipulation of Main Street isn't new, nor is the idea of a Plunge Protection Team.
If indeed such a team exists it's doing an admirable job, but volumes tell us the masses aren't taking the bait. Nonetheless, this week Alan Greenspan stated that the stock market rally is re-liquefying the U.S. economy. The maestro as he was fondly called back in the day noted that the wealth effect comes from realized capital gains. His hypothesis is that once industrial production increases to meet consumption (rather than inventories) the economic outlook is going to depend "to a very significant extent on what stock prices do." The Fed and White House make it clear that all of their actions are designed to "jump start" the economy at least in theory and as stated policy. While I have doubts about the main motivation, I'm sure they would love for the economy to rebound; after all they'd get the credit as would their nutty policies. I think that there could be such a thing as a Plunge Protection Team; after all that is what these people try to do...bring calm to the markets, right?
If the main motivation for the PTD is to counterbalance a weak housing market maybe soon the overworked traders in the basement of the Treasury building will get a break. Yesterday, Beazer Homes (NYSE:BZH) posted earnings result that blew away consensus, and then another report showed home prices edging ever so slightly higher for the second consecutive quarter. Prices were down year over year in 123 out of 153 metropolitan areas. The median price was down 11.0% to $177,900.
China Stirring the Pot
Economic news out of China overnight has helped equity futures trend higher all morning. Indeed, the new straw that stirs the economic drink is coming to the rescue again. I hope when President Obama gets over there he has the chutzpa to get them to lift the Yuan. I think that China understands the need to do this anyway because it needs to generate homegrown growth based off internal demand. I just hope that we get to benefit from that demand. There is no doubt China is clicking on all cylinders as their stimulus efforts and massive lending has been an instant success.
Costco Analyst Day Preview/Wal-Mart Earnings Preview
This afternoon I will be attending the Costco Wholesale (NASDAQ:COST) unveiling of its first NYC metro store. For an admitted nerd such as myself, this is exciting stuff (get to tour the new store with CEO, and retail legend, Jim Sinegal). I believe the new NYC store represents a sneak peek into the evolution of big box retailing..."in-filling" stores into metro markets. Although this in-filling strategy would be tough logistically (zoning and space considerations), if the likes of Costco, Target (NYSE:TGT), and Wal-Mart (NYSE:WMT) go into metro markets traditional grocers are going to be hit hard (their prices are inflated, especially in NYC). In conducting a quick price comparison, randomly, on nuts at the Penn Station Kmart (KMART not a low price leader anyway) and local Wal-Mart the same brand nuts were 50.0% higher in the city. The arrival of competition, such as Costco, will indeed drive those metro city prices down.
Expectations on Wal-Mart's 3Q earnings, set for release on November 12, are fairly low as management made the rounds at conferences throughout the quarter downplaying sales and margin trends. Moreover, the company's avoidance of monthly same-store sales releases has increased the level of unknown. The company has been a tightwad in the expense department, and with sales trending I think faster than some believe, I wouldn't be shocked to see earnings surpass consensus. However, guidance will be the sticking point, perhaps overshadowing that beat; the company has already lowered prices for holiday items and is poised to continue along traffic driving actions rather than gross margin maximization.
Written by Charles Payne, CEO and Principal Analyst of Wall Street Strategies (wstreet.com) providing independent stock market research to over 30,000 subscribers, in more than 60 countries. Mr. Payne is a regular contributor to the Fox Business and Fox News Networks. For more information about Mr. Payne, please refer to the company’s website www.wstreet.com.