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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • Reailty Ambrosia By: Charles Payne 0 comments
    Nov 25, 2009 11:06 AM | about stocks: WMT, M, TIF
    "How poor are they that have not patience!
    What wound did ever heal but by degrees?"

    "Othello"
    William Shakespeare

    Who knew that investors were willing to have this kind of patience? The stock market was grappling for something yesterday after a better than expected consumer confidence report couldn't spark a reversal fueled by disappointment in the revision of 3Q GDP. As it turns out, investors must have packed lunches because this is going to be a long and methodical recovery, and that's a best-case scenario. According to the Fed, unemployment will drift down to 8.2%, if we're lucky, by 2011. The revision was only a little better than their learned hunches offered up in June. Interestingly, the Fed doesn't see inflation as a problem at all despite giving it lip service, despite the run up in gold, and despite concerns voiced by key trading partners and our foreign bankers. Still, when the minutes of the November 3-4 FOMC minutes were released there was a sigh of relief and the market staged a pretty impressive rally.

    I think the Bard of Avon would have a field day on the psyche of

    current day investors. What's driving them to go against what would seem to be obvious danger? Why do they celebrate bad news, like companies losing boatloads of money, but recoil when companies post earnings results that are all-time record performance? The Fed gave the market a dose of reality, and investors drank it up in merriment. Go figure!



    Why So Much Resolve?

    This market rally has been characterized by periodic moments of pause as investors look for the next reason to be thankful. Yes, some are saying this rally is a turkey and has been from day one, but others say those green shoots are signs of hope that thankfully the worst is over. In other words, it's time to celebrate. Yesterday saw doubt creep into the picture, although the fact is that doubt is there even on days when the market posts strong rallies. This has been a battle of will, and yet there isn't some leader or group of influential mavens urging investors on, to fight the good fight. On the contrary, there are many noted bears who have cried since the start that this is bogus and we'll all be sorry. This is the kind of rally people are almost ashamed to admit they've participated in, but obviously there have been more buyers than sellers. One of the reasons in my mind is all the sellers were out by March and only fools and desperate men were around in March. Be that as it may, in this world a fool and his money may actually meet up again at some point.

    Why? Because the smart folks that missed all of the bountiful returns are jumping in when they get a chance, on those periodic pullbacks. So a clear pattern has emerged. Rallies followed by brief consolidation then swift, but also brief, pullbacks, then moves higher. So the market broke out convincingly through 10,000 on the Dow but seems to have met its match at 10,400. Investors are wondering, especially the smart ones, if another swift pullback is in the offing and whether they should keep their powder dry. Of course, trying to outthink this market has been a massive mistake. At some point the swift pullback will be longer, but also there could be a few times when there is simply a pause and the mavens miss yet another leg to the upside. Right now, market bias is to the upside and days when there should be large downside moves prove to be the perfect forum for that underlying resolve.

    Not sure where it comes from as there is no bona-fide leader pounding the table and it's still vogue to be a dissenter, and yet maybe this market represents individual determination the same kind we will all be celebrating tomorrow.



    Ringing the Registers in More Ways than One?

    By: Brian Sozzi, Research Analyst

    As the Macy's day parade floats prepare to descend on New York City, we felt it appropriate to pen a short note that aggregated pre-holiday themes and those apt to emerge as the season treks along. Most of the Black Friday stories have centered on another year of assumed consumer madness as soon as the clock hits 12:01 AM on Friday. Or, better still, once the clock strikes 12:01 AM on Thanksgiving as a raft of major retailers will open their doors in order to spread out the deal-seeking crowd flow. After all, nobody wants a repeat of last year's tragic debacle of a person getting trampled at a Wal-Mart location. This time around there has been a strong effort by retailers to reinforce security and rethink how consumers enter the stores in their search find the hottest deals. (Don't get us started on the practice at Sears of putting limited quantities of products on sale for Black Friday in the backroom; this is pure craziness for a retailer with the buying leverage of Sears. It's old school retailing at its finest, or lowest; draw in the consumer through mouth-watering deals only to up sell them once they find the deal item is no longer in stock, or was never in the store to start with.)

    Please visit www.wstreet.com to read the remainder of the piece.

    Color on Tiffany & Co. Earnings

    By: Brian Sozzi, Research Analyst

    Tiffany & Co. (NYSE:TIF) results are out, and all in all the figures imply that the global luxury consumer has returned, tepidly. Credit, we suppose, the increase in net wealth in the first two quarters of the year following the $12.0 trillion rout evidenced in 2008. That said, Tiffany's results also speak to a company that defended its brand during the depth of the market downturn last holiday season by not discounting its merchandise. The company's most important asset (intangible as it may be) is the Tiffany brand name, which is synonymous with luxury. What the company has done to remain relevant in the current day and age of conspicuous consumption is to increasingly engineer merchandise into "affordable price-points." In trips to the company's NY flagship locations on 5th Avenue and Wall Street a range of pendants and earnings, mostly silver, were indeed being showcased, some for less than $250. A review of the company's website unearths an array of gift-giving items priced to move this holiday season, helping Tiffany to gain share on the lower-end of the jewelry market (and introduce consumers shut out by the high prices of Tiffany merchandise, and then up-sell them as time goes on). This is especially important post the bankruptcy of independent jewelry chains earlier in the year. More thoughts to come on these topics in our final note.

    Adjusted EPS was $0.33 (consensus: $0.24) on net sales of $598.0 million (consensus: $575.0 million). We modeled for EPS of $0.27 and net sales of $575.0 million. The company's exposure to the weak dollar clearly aided its cause, especially in regions such as Europe, Japan, and Other Asia Pacific. Importantly, comps in the U.S. began to gain traction as Tiffany encountered easier comparisons and a better operating environment in the aggregate. November to date comps are tracking -5.0%, suggesting a return to positive comps in December and January is very probable.

    Elsewhere, gross margin managed to surpass consensus by 52 bps, but rising costs (silver, gold) led to another year over year contraction. The company's efforts to reduce operating expenses alleviated the gross margin pressure, though the rate was below a year ago.


    All in all, this is the type of quarter that should reassure the masses that Tiffany will demonstrate stronger comp and operating margin trends against easing year ago comparisons. But, importantly, it shows that the company continues to be one of the fundamentally stronger retailers in business, one that is poised to further gain profitable share globally as new product lines are introduced and smaller format stores come online.

    Economic Data

    Personal Income & Spending

    Overall, the report was positive relative to the recent stretch in slightly below consensus economic readings. However, in the grand scheme of things, it's obvious that the lingering impact of "cash for clunkers" impacted the results, leading PCE for October +0.7%. Service sector incomes also benefited from government programs (think, you buy an automobile then go to the local restaurant), rising $5.4 billion in the month. Goods producing and manufacturing sector incomes declines by $3.3 billion and $3.6 billion, respectively. Personal income has been positive four consecutive months, though the rate of growth is sluggish. Personal savings as a percentage of disposable personal income was 4.4% as opposed to 4.6% in September; it's good to see this number hold as it will establish a stronger platform for consumer spending longer-term.




    Durable Goods Orders

    A bit of cold water was dumped on the personal income and spending report in light of the durable goods order release. The readings on headline and ex. transportation durable goods fell shy of consensus forecasts, well shy. Headline durable goods orders fell 0.6% compared to an expected increase of 0.6%. Excluding transportation, durable goods decline 1.3% against a 0.7% projected advance. With uncertainty on the direction of the economy ever present, and credit tight, businesses are in no hurry to invest their precious capital.



    Initial Claims

    Last week's jobless claims numbers were a sigh of relief, and could be fueling the market higher, falling to 466,000 from 501,000 the previous week. This is the first time that claims have gone below 500,000 since the first week of the year, and it's the lowest level of claims since the meltdown began in October. While still a relatively high number of claims, this is a good sign that employment is indeed making a slow recovery, and the 500,000 mark may have been a psychological barrier for the market. Continuing unemployment benefits also fell to 5.42 million from 5.61 million.

    Final Note


    We think market's upward bias this morning is a combo of initial claims dropping below 500K and personal income/spending being better than consensus. But, we sense that the claims report is holding more weight as the personal income and spending report had clear remnants of cash for clunkers.

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