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Top Kill Kills Rally By: Charles Payne

|Includes: BP, Tiffany & Co. (TIF)
The market has been full of sound and fury, but there are many questions as to what it's signifying. The last few sessions I've felt like I've been living inside a Maurits Cornelis Escher masterpiece. My son was telling me the other day about a super rollercoaster that sounds unbelievable, but I could have it beat in a minute if I could create a ride that mimics the gyrations of the stock market of late. Of course, many investors in the market now would happily pay just to get off this crazy ride.

It feels like classic manipulation, but what is the goal?

Right now, it feels like high frequency trading has completely taken over, and I wouldn't be surprised if we find out it's responsible for 80% to 90% of trading this week rather than 60%. I don't want to be one of those whining about high frequency trading, but I fondly remember when the market moved mostly from fundamental developments and the occasional bubbles. Of course, there is amazing pressure from euro weakness that continues to send big money to the sidelines or the comforting, though unsexy, arms of U.S. Treasuries. I'm not sure how they're going to pull it off, and I suspect it's going to cost U.S. taxpayers even more money, but the European crisis will be packaged and sent forward like those old time capsules. However, this one will have a nuclear detonator attached to the lock! It's a dizzying story to follow day by day. And then there's the BP story.

The so-called Top Kill approach sounded as hokey as that container that was going to redirect oil to a tanker on the surface of the Gulf. Maybe it was just a coincidence but as images of the procedure began hitting the airwaves the market began to slip. Like I wrote yesterday afternoon, there has to be an impact on the American psyche, we can point to BP but it feels like the nation is hopeless with respect to this situation. There have been so many failures; the phantom stock market swoon (somewhat of a moot point now that the Dow is much lower than it was the day something went wrong) and Times Square bomber are just additional issues that makes one wonder why the government would want more power and jurisdiction over our lives. When we really need the might of the government, it just doesn't seem like it can get its act together.

On that note, this Top Kill can take 48-hours to work, which just coincidentally is perfectly timed for the arrival of the President of the United States. It would make for great public relations if he is standing on the beach with the spill capped off. I would make one suggestion, don't wear a Mission Accomplished jacket, just in case.

Economic Data


The market expected GDP to cool from the 4Q rate in 1Q, but to actually see the moderation is something else entirely. This morning, GDP for 1Q was revised down to 3.0% from the 3.2% previously reported, and below the consensus forecast of 3.4%. With everything that has been occurring in the world since the end of the first quarter, and considering growth was cooling anyway, the market reaction this morning (slight pullback in the futures) may say it all.


The market also slipped on scuttlebutt China is reevaluating its euro investments/holdings, but China's state agency that governs foreign exchange debunked that rumor. The euro is higher today, lending to strength in U.S. equity futures. There also seems to be some kind of epiphany the selling is overdone. It's not conventional wisdom, which seems to be indifferent with respect to the stock market, but for those that watch the action for a living, selling has gone from overdue to overdone. Of course, one thing everyone cares about is employment and the overall economy, and the jury is still out on those issues. Things are getting better but that's not good enough, not by a long shot.

* Initial jobless claims: 460,000, down 16,000 and missing consensus.
* 1Q GDP: 3.0% from 3.2% previous release; consensus was 3.4%.
These numbers have taken some of the wind out of the initial enthusiasm we woke up to this morning. The meandering should continue. In a strange way, these numbers bode well for next week because the expectations need to drift lower. It has been rare when economic data has been able to exceed hopeful estimates.

Shiny Quarter, with but Modest Exceptions
By: Brian Sozzi, Equity Research Analyst

There was measurable uncertainty in the air in the lead up to Tiffany & Co.'s (NYSE:TIF) 1Q10 financial report. How would a company peddling high-end jewelry fare in the face of continued elevated unemployment in the U.S. and debt market craziness in the EU zone? Fortunately for Tiffany, its quarter concluded on April 30, four days after the U.S. equities markets began their march into correction territory and before you know what hit the fan out of the EU. As a result, Tiffany was able to tap into a few key external drivers post holidays, including (1) foreign tourist spending at U.S. flagships; (2) resumption of luxury goods consumption by the upper-income in the U.S.; (3) continued luxury goods spending by those in the U.K. (commercial property price fueled...); and (4) those in China trying to find a way to spend the money made in the property boom.

The Shiny
* Sales growth worldwide outpaced 1Q07 rate (+15.0%).
* Gross margin expansion two consecutive quarters, beating consensus (manufacturing efficiencies found, fits with our discussions with management on the topic).
* U.S. and A/P sales accelerated sequentially.
* U.S. branch store sales up 13.0%.
* Comps in Europe up 14.0% (down sequentially).
* A/P outlook for FY10 upgraded materially.
The Dull
* Worldwide sales growth outlook for FY10 maintained despite 1Q10 strength (management noted "modicum of caution" exercised).
* FY10 outlook maintained; it appears Tiffany downgraded its view of Europe, expecting high-single digit percentage sales growth compared to a mid-teens outlook previously. The company is opening one less store in the region relative to its previous plan, but a lower comp assumption may be in the cards.
* Minimal share repurchases in the quarter (though one has to believe company will get constructive given the stock's pullback to start 2Q10).
* Japan still a source of top line weakness (management managing the business to profitability).
Initial trades are slightly higher on Tiffany, as the market attempts to balance the shiny ($0.11 EPS beat excluding $0.02 of non-recurring items) with the dull (European outlook soft for second half of 2010). We believe that valuation continues to be attractive on Tiffany, owing to its strong liquidity position, demand trends in international growth markets, and an assortment that is including more people into the luxury umbrella. Moreover, as we noted in our preview piece, the company has but minimal direct exposure to debt ridden EU countries and barring a full-fledged contagion, should continue to enjoy strong sales growth in international growth markets and even in parts of Europe.
Final Note

For more than a month I've been asking subscribers and readers of the market commentary to raise cash to as much as 20% of their portfolio. We have also gone "no play" about 28% of the time for the last couple of months. I've tried to be cautious while helping new subscribers build portfolios along with older subscribers. Now is the time to put some of that 20% to work. I would still not go below 10%, but my thinking is that next Friday (with the jobs report), this market takes off like a rocket and I want all of you to be positioned. Risks are still extraordinary but these are the times to make bold moves (even if these times also try men's souls).

Disclosure: None