Posts

August 22, 2019

Global Market Comments
August 22, 2019
Fiat Lux

Featured Trade:


(WHAT THE NEXT RECESSION WILL LOOK LIKE),

(FB), (AAPL), (NFLX), (GOOGL), (KSS), (VIX), (MS), (GS),
(TESTIMONIAL)

December 14, 2018

Global Market Comments
December 14, 2018
Fiat Lux

Featured Trade:

(DECEMBER 12 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPX), (MU), (PYPL), (SPOT), (FXE), (FXY), (XLF), (MSFT), (AMZN), (TSLA), (XOM), 
(SIGN UP NOW FOR TEXT MESSAGING OF TRADE ALERTS)

September 24, 2018

Global Market Comments
September 24, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or IT’S FED WEEK),
(SPY), (XLI), (XLV), (XLP), (XLY), (HD), (LOW), (GS), (MS), (TLT),
(UUP), (FXE), (FCX), (EEM), (VIX), (VXX), (UPS), (TGT)
(TEN TIPS FOR SURVIVING A DAY OFF WITH ME)

Double Up or Bail on Your JC Penny Short?

The stock of the day last Friday was, no doubt, JC Penny (JCP), one of the most heavily shorted stocks in the market, which announced Q2, 2012 earnings. Despite a huge miss, the stock soared by 20% because the losses were not as bad as many expected. This leads to the question of whether traders should double up or bail on the existing short positions.

As the dispassionate analyst that I am, who only looks at numbers in the cold, harsh light of reality, the figures could not have been more disappointing. Q2 EPS showed a loss of $0.37/shares versus an expected loss of $0.25. Revenues came in at $3 billion compared to an estimate of $3.2 billion.

Worst of all, same store sales cratered by -21.7% YOY while traffic was off -12%. This is despite offering kids free haircuts. Gross margins shrank and Internet sales were off 30%. To top it all, the company announced that it would no longer provide future guidance. Moody?s immediately followed with a downgrade of the company?s debt from Ba1 to Ba3.

The new CEO, Ron Johnson, has no retail experience and says he needs 4 years for a turnaround. In the meantime, competitor Macys is making good money and selling at 11X earnings with the best CEO in business. Well established luxury brand Coach (COH) sells for a 14X multiple. If you fall in love with retail and absolutely have to be in this sector, there are far better fish to fry. Personally, I would rather lie down and take a long nap.

The hedgies still in this name are clearing gunning for a chapter 11. So a chance to sell again 20% higher than yesterday in the face of bad news has to be attractive. But with such a huge share of the company?s outstanding shares already sold short, the risk reward here is not great. I would have ridden the stock down from $40 to $20 and then said, ?Thank you very much?, rather than chase the last few dollars just to prove I?m right.

The company only has to get a little right to trigger a bigger short squeeze. Technicians were clearly focused on a potential multiyear double bottom on the charts. Besides, I was never one for sloppy seconds, and don?t need a haircut.

Looking for a better stock to sell short at the top of the recent range with dire fundamentals? I?d rather short Morgan Stanley on an up day.

 

 

 

 

JC Penny: Better Fish to Fry

 

Austerity Hits Wall Street

This year, your bonus is that you get to keep your job. That is the bad news that will be dished out to many disappointed staff during annual reviews at the major Wall Street firms this year.

We all know that volumes have been trading at subterranean levels which have created a real drought of commission incomes. New regulations imposed by Dodd-Frank and the Volker rule mean that banks have to become boring, no longer able to juice earnings with trading revenues. For boring, read less profitable, leading to smaller budgets for compensation. This is the price of preventing banks from committing suicide with your money in hand.

Industry compensation experts are seeing bonus cuts of up to 30%. Equity divisions are seeing the greatest cuts, followed by bond departments, and investment banking. Senior staff are being nudged toward early retirement to further reduce overhead. Only private wealth managers are seeing pay increases, thanks to their ability to charge rich fees for enhanced customer service and place high margin products, like local municipal bonds.

The scary thing is that shrinking payouts is a trend that could continue for years, unless a new bull market suddenly appears out of nowhere. When I first started working on Wall Street nearly 40 years ago, one out of three taxi drivers were brokers rendered jobless by deregulated commissions. Be careful next time you cross the street. You might get hit with some free investment advice.

 

 

 

Did You Say ?Buy? or ?Sell??