Thursday, May 27, 2010

Retailers' Outlook in the Second Half

Earnings report cards of retailers so far this year have been upbeat. In the last quarter, about two-thirds of the nation's retailers' earnings topped analysts' expectations, with profits up 26% on average from a year earlier, according to Thomson Reuters.

Their stocks reflected that. Retail stocks have been one of the best performers since the bottom of the financial-meltdown-induced bear market. Many retail stocks had a streak of new 52 week highs until recently, for instance, Steve Madden (SHOO), Aeropostale (ARO), Kohl's (KSS), Autozone (AZO), Macy's (M), Officemax (OMX) to name a few. [Click on the diagram below to enlarge it]



Can this be sustainable? Wall Street analysts seem to think not. They forecast retail-profit growth will slow to 17% in the second and third quarters this year and to 11% in the fourth quarter, according to Thomson Reuters.

Companies are very cautious too. Macy's, Kohl's, Staples that have just reported spectacular earnings offer cautious outlook of the full year.

Some of the concerns cited by analysts and companies include:
1. Tougher comparison --- 2008 and early 2009 were easy beat. Consumer confidence and sales were at historically depressed level. Excess inventory cost a bunch. Companies rushed to slash inventory by giving up profit margins altogether.

2. Expected increase in inventory rebuild and other expenses---As the economy and demand recover, companies have started to rebuild inventory and spending on marketing, technology and capital expenditure. Profits can no longer come from cost cutting as they did in the last few quarters

3. Price hikes in raw materials--- As global economy recovers, so is the price of raw materials. Some retailers like Abercrombie and Fitch (ANF) is already citing rising cotton price eating into the profit margin.

Leveraged ETF List

ProShares UltraShort S&P 500 Fund (SDS) Top 100

ProShares Ultra S&P 500 Fund (SSO) Top 100

ProShares UltraShort 20+ Year Treasury Bond ETF (TBT) Top 100

ProShares Ultra QQQ Fund (QLD) Top 100

ProShares UltraShort QQQ Fund (QID) Top 100

ProShares UltraShort Financials Fund (SKF) Top 100

ProShares UltraShort Real Estate Fund (SRS) Top 100

ProShares Ultra Financials Fund (UYG) Top 100

ProShares UltraShort Dow 30 Fund (DXD) Top 100

ProShares Ultra Real Estate Fund (URE) Top 100

ProShares UltraShort Russell 2000 Fund (TWM) Top 100

ProShares Ultra Oil & Gas Fund (DIG) Top 100

ProShares Ultra Dow 30 Fund (DDM) Top 100

ProShares Ultra Basic Materials Fund (UYM) Top 100

Barclays S&P 500 2X Long 2009 ETN+ (BXUC)

Barclays S&P 500 2X Short 2009 ETN+ (BXDC)

Direxion BRIC Bear 2X ETF (BRIS)

Direxion BRIC Bull 2X ETF (BRIL)

Direxion India Bear 2X ETF (INDZ)

Direxion India Bull 2X ETF (INDL)

Market Vectors Double Long Euro ETN (URR)

Market Vectors Double Short Euro ETN (DRR)

PowerShares DB Agriculture Double Long ETN (DAG)

PowerShares DB Agriculture Double Short ETN (AGA)

PowerShares DB Base Metals Double Long ETN (BDD)

PowerShares DB Base Metals Double Short ETN (BOM)

PowerShares DB Commodity Double Long ETN (DYY)

PowerShares DB Commodity Double Short ETN (DEE)

PowerShares DB Crude Oil Double Short ETN (DTO)

PowerShares DB Gold Double Long ETN (DGP)

PowerShares DB Gold Double Short ETN (DZZ)

ProShares Ultra 20+ Year Treasury ETF (UBT)

ProShares Ultra 7-10 Year Treasury ETF (UST)

ProShares Ultra Consumer Goods Fund (UGE)

ProShares Ultra Consumer Services Fund (UCC)

ProShares Ultra DJ-AIG Commodity ETF (UCD)

ProShares Ultra DJ-AIG Crude Oil ETF (UCO)

ProShares Ultra Euro ETF (ULE)

ProShares Ultra FTSE/Xinhua China 25 Index Fund (XPP)

ProShares Ultra Gold ETF (UGL)

ProShares Ultra Health Care Fund (RXL)

ProShares Ultra Industrials Fund (UXI)

ProShares Ultra MidCap 400 Fund (MVV)

ProShares Ultra MSCI EAFE Index Fund (EFO)

ProShares Ultra MSCI Emerging Markets Index Fund (EET)

ProShares Ultra MSCI Japan Index Fund (EZJ)

ProShares Ultra Russell 1000 Growth Fund (UKF)

ProShares Ultra Russell 1000 Value Fund (UVG)

ProShares Ultra Russell 2000 Fund (UWM)

ProShares Ultra Russell 2000 Growth Fund (UKK)

ProShares Ultra Russell 2000 Value Fund (UVT)

ProShares Ultra Russell 3000 Index Fund (UWC)

ProShares Ultra Russell MidCap Growth Fund (UKW)

ProShares Ultra Russell MidCap Value Fund (UVU)

ProShares Ultra Semiconductors Fund (USD)

ProShares Ultra Silver ETF (AGQ)

ProShares Ultra Small Cap 600 Fund (SAA)

ProShares Ultra Technology Fund (ROM)

ProShares Ultra Telecommunications ETF (LTL)

ProShares Ultra Utilities Fund (UPW)

ProShares Ultra Yen ETF (YCL)

ProShares UltraShort 7-10 Year Treasury Bond ETF (PST)

ProShares UltraShort Basic Materials Fund (SMN)

ProShares UltraShort Consumer Goods Fund (SZK)

ProShares UltraShort Consumer Services Fund (SCC)

ProShares UltraShort DJ-AIG Commodity ETF (CMD)

ProShares UltraShort DJ-AIG Crude Oil ETF (SCO)

ProShares UltraShort Euro ETF (EUO)

ProShares UltraShort FTSE/Xinhua China 25 Fund (FXP)

ProShares UltraShort Gold ETF (GLL)

ProShares UltraShort Health Care Fund (RXD)

ProShares UltraShort Industrials Fund (SIJ)

ProShares UltraShort MidCap 400 Fund (MZZ)

ProShares UltraShort MSCI Brazil Index Fund (BZQ)

ProShares UltraShort MSCI EAFE Fund (EFU)

ProShares UltraShort MSCI Emerging Markets Fund (EEV)

ProShares UltraShort MSCI Europe Index Fund (EPV)

ProShares UltraShort MSCI Japan Fund (EWV)

ProShares UltraShort MSCI Mexico Investable Market Index Fund (SMK)

ProShares UltraShort MSCI Pacific ex-Japan Index Fund (JPX)

ProShares UltraShort Oil & Gas Fund (DUG)

ProShares UltraShort Russell 1000 Growth Fund (SFK)

ProShares UltraShort Russell 1000 Value Fund (SJF)

ProShares UltraShort Russell 2000 Growth Fund (SKK)

ProShares UltraShort Russell 2000 Value Fund (SJH)

ProShares UltraShort Russell 3000 Index Fund (TWQ)

ProShares UltraShort Russell MidCap Growth Fund (SDK)

ProShares UltraShort Russell MidCap Value Fund (SJL)

ProShares UltraShort Semiconductors Fund (SSG)

ProShares UltraShort Silver ETF (ZSL)

ProShares UltraShort Small Cap 600 Fund (SDD)

ProShares UltraShort Technology Fund (REW)

ProShares UltraShort Telecommunications ETF (TLL)

ProShares UltraShort Utilities Fund (SDP)

ProShares UltraShort Yen ETF (YCS)

Rydex 2X Russell 2000 ETF (RRY)

Rydex 2X S&P 500 ETF (RSU)

Rydex 2X S&P MidCap 400 ETF (RMM)

Rydex 2X S&P Select Sector Energy ETF (REA)

Rydex 2X S&P Select Sector Financial ETF (RFL)

Rydex 2X S&P Select Sector Health Care ETF (RHM)

Rydex 2X S&P Select Sector Technology ETF (RTG)

Rydex Inverse 2X Russell 2000 ETF (RRZ)

Rydex Inverse 2X S&P 500 ETF (RSW)

Rydex Inverse 2X S&P MidCap 400 ETF (RMS)

Rydex Inverse 2X S&P Select Sector Energy ETF (REC)

Rydex Inverse 2X S&P Select Sector Financial ETF (RFN)

Rydex Inverse 2X S&P Select Sector Health Care ETF (RHO)

Rydex Inverse 2X S&P Select Sector Technology ETF (RTW)

COMEX Silver Bear Plus ETF (HZD-TSX)

COMEX Silver Bull Plus ETF (HZU-TSX)

Horizons BetaPro COMEX Gold Bullion Bear Plus ETF (HBD-TSX)

Horizons BetaPro COMEX Gold Bullion Bull Plus ETF (HBU-TSX)

Horizons BetaPro NYMEX Crude Oil Bear Plus ETF (HOD-TSX)

Horizons BetaPro NYMEX Crude Oil Bull Plus ETF (HOU-TSX)

Horizons BetaPro NYMEX Natural Gas Bear Plus ETF (HND-TSX)

Horizons BetaPro NYMEX Natural Gas Bull Plus ETF (HNU-TSX)

Horizons BetaPro S&P/TSX 60 Bear ETF (HXD-TSX)

Horizons BetaPro S&P/TSX 60 Bull ETF (HXU-TSX)

Horizons BetaPro S&P/TSX Capped Energy Bear Plus ETF (HED-TSX)

Horizons BetaPro S&P/TSX Capped Energy Bull Plus ETF (HEU-TSX)

Horizons BetaPro S&P/TSX Capped Financials Bear Plus ETF (HFD-TSX)

Horizons BetaPro S&P/TSX Capped Financials Bull Plus ETF (HFU-TSX)

Horizons BetaPro S&P/TSX Global Gold Bear Plus ETF (HGD-TSX)

Horizons BetaPro S&P/TSX Global Gold Bull Plus ETF (HGU-TSX)

Horizons BetaPro S&P/TSX Global Mining Bear Plus ETF (HMD-TSX)

Horizons BetaPro S&P/TSX Global Mining Bull Plus ETF (HMU-TSX)

MSCI Emerging Markets Bear Plus ETF (HJD-TSX)

MSCI Emerging Markets Bull Plus ETF (HJU-TSX)

NASDAQ-100 Bear Plus ETF (HQD-TSX)

NASDAQ-100 Bull Plus ETF (HQU-TSX)

S&P 500 Bear Plus ETF (HSD-TSX)

S&P 500 Bull Plus ETF (HSU-TSX)

S&P Agribusiness North America Bear Plus ETF (HAD-TSX)

S&P Agribusiness North America Bull Plus ETF (HAU-TSX)

US 30 Year Bond Bear Plus ETF (HTD-TSX)

US 30 Year Bond Bull Plus ETF (HTU-TSX)

US Dollar Bear Plus ETF (HDD-TSX)

US Dollar Bull Plus ETF (HDU-TSX)

ETFS Leveraged Agriculture ETF (LAGR-LSE)

ETFS Leveraged All Commodities ETF (LALL-LSE)

ETFS Leveraged Aluminium ETF (LALU-LSE)

ETFS Leveraged Cocoa ETF (LCOC-LSE)

ETFS Leveraged Coffee ETF (LCFE-LSE)

ETFS Leveraged Copper ETF (LCOP-LSE)

ETFS Leveraged Corn ETF (LCOR-LSE)

ETFS Leveraged Cotton ETF (LCTO-LSE)

ETFS Leveraged Crude Oil ETF (LOIL-LSE)

ETFS Leveraged Energy ETF (LNRG-LSE)

ETFS Leveraged Ex-Energy ETF (LNEY-LSE)

ETFS Leveraged Gasoline ETF (LGAS-LSE)

ETFS Leveraged Gold ETF (LBUL-LSE)

ETFS Leveraged Grains ETF (LGRA-LSE)

ETFS Leveraged Heating Oil ETF (LHEA-LSE)

ETFS Leveraged Industrial Metals ETF (LIME-LSE)

ETFS Leveraged Lead ETF (LLEA-LSE)

ETFS Leveraged Lean Hogs ETF (LLHO-LSE)

ETFS Leveraged Live Cattle ETF (LLCT-LSE)

ETFS Leveraged Livestock ETF (LLST-LSE)

ETFS Leveraged Natural Gas ETF (LNGA-LSE)

ETFS Leveraged Nickel ETF (LNIK-LSE)

ETFS Leveraged Petroleum ETF (LPET-LSE)

ETFS Leveraged Platinum ETF (LPLA-LSE)

ETFS Leveraged Precious Metals ETF (LPMT-LSE)

ETFS Leveraged Silver ETF (LSIL-LSE)

ETFS Leveraged Softs ETF (LSFT-LSE)

ETFS Leveraged Soybean Oil ETF (LSYO-LSE)

ETFS Leveraged Soybeans ETF (LSOB-LSE)

ETFS Leveraged Sugar ETF (LSUG-LSE)

ETFS Leveraged Tin ETF (LTIM-LSE)

ETFS Leveraged Wheat ETF (LWEA-LSE)

ETFS Leveraged Zinc ETF (LZIC-LSE)

ETFX DAX 2X Long ETF (DEL2-LSE)

ETFX DAX 2X Long ETF (Sterling) (DL2P-LSE)

ETFX DAX 2X Short ETF (DES2-LSE)

ETFX DAX 2X Short ETF (Sterling) (DS2P-LSE)

ETFX Dow Jones EURO STOXX 50 Double Short ETF (SEU2-LSE)

ETFX Dow Jones EURO STOXX 50 Double Short ETF (Sterling) (SE2P-LSE)

ETFX Dow Jones EURO STOXX 50 Leveraged ETF (LEU2-LSE)

ETFX Dow Jones EURO STOXX 50 Leveraged ETF (Sterling) (LE2P-LSE)

ETFX FTSE 100 Leveraged ETF (LUK2-LSE)

ETFX FTSE 100 Super Short Strategy ETF (SUK2-LSE)





ETFs within all subcategories:



Direxion Financial Bear 3X - Triple-Leveraged ETF (FAZ) Top 100

Direxion Financial Bull 3X - Triple-Leveraged ETF (FAS) Top 100

Direxion Small Cap Bear 3X - Triple-Leveraged ETF (TZA) Top 100

Direxion Small Cap Bull 3X - Triple-Leveraged ETF (TNA) Top 100

Direxion Large Cap Bull 3X - Triple-Leveraged ETF (BGU) Top 100

Direxion Large Cap Bear 3X - Triple-Leveraged ETF (BGZ) Top 100

Barclays S&P 500 3X Long 2009 ETN+ (BXUB)

Barclays S&P 500 3X Short 2009 ETN+ (BXDD)

Direxion 10-Year Treasury Bear 3X - Triple-Leveraged ETF (TYO)

Direxion 10-Year Treasury Bull 3X - Triple-Leveraged ETF (TYD)

Direxion 2-Year Treasury Bear 3X - Triple-Leveraged ETF (TWOZ)

Direxion 2-Year Treasury Bull 3X - Triple-Leveraged ETF (TWOL)

Direxion 30-Year Treasury Bear 3X - Triple-Leveraged ETF (TMV)

Direxion 30-Year Treasury Bull 3X - Triple-Leveraged ETF (TMF)

Direxion China Bear 3X - Triple-Leveraged ETF (CZI)

Direxion China Bull 3X - Triple-Leveraged ETF (CZM)

Direxion Developed Markets Bear 3X - Triple-Leveraged ETF (DPK)

Direxion Developed Markets Bull 3X - Triple-Leveraged ETF (DZK)

Direxion Emerging Markets Bear 3X - Triple-Leveraged ETF (EDZ)

Direxion Emerging Markets Bull 3X - Triple-Leveraged ETF (EDC)

Direxion Energy Bear 3X - Triple-Leveraged ETF (ERY)

Direxion Energy Bull 3X - Triple-Leveraged ETF (ERX)

Direxion Latin America Bear 3X - Triple-Leveraged ETF (LHB)

Direxion Latin America Bull 3X - Triple-Leveraged ETF (LBJ)

Direxion Mid-Cap Bear 3X - Triple-Leveraged ETF (MWN)

Direxion Mid-Cap Bull 3X - Triple-Leveraged ETF (MWJ)

Direxion Real Estate Bear 3X - Triple-Leveraged ETF (DRV)

Direxion Real Estate Bull 3X - Triple-Leveraged ETF (DRN)

Direxion Semiconductor Bear 3X - Triple-Leveraged ETF (SOXS)

Direxion Semiconductor Bull 3X - Triple-Leveraged ETF (SOXL)

Direxion Technology Bear 3X - Triple-Leveraged ETF (TYP)

Direxion Technology Bull 3X - Triple-Leveraged ETF (TYH)

ProShares UltraPro Dow 30 ETF (UDOW)

ProShares UltraPro MidCap 400 ETF (UMDD)

ProShares UltraPro NASDAQ 100 ETF (TQQQ)

ProShares UltraPro Russell 2000 ETF (URTY)

ProShares UltraPro S&P 500 Index Fund (UPRO)

ProShares UltraPro Short Dow 30 ETF (SDOW)

ProShares UltraPro Short NASDAQ 100 ETF (SQQQ)

ProShares UltraPro Short Russell 2000 ETF (SRTY)

ProShares UltraPro Short S&P 500 Index Fund (SPXU)

ProShares UltraPro Short S&P MidCap 400 ETF (SMDD)

source: http://etf.stock-encyclopedia.com/category/leveraged-etfs.html

Wednesday, May 26, 2010

What investors buy when they are scared?


The last two years has been bloody and cruel to stock investors. S&P 500 has not even recovered the loss.
However, not all stocks shared the loss. Investors flocked to these stocks as consumers have been trading down from brand names to generic names, from departmental stores to thrift stores, from changing cars to sticking to old cars and fixing them up.

Thrift stores DLTR, FDO, NDN and auto parts companies AZO, ORLY and AAP are some of the names that benefit most from "trading down". Amidst a newfound fear of financial crisis in Europe, these names surged to new highs just recently as investors fled for safety.
[Click on diagrams to enlarge them]



Renewed Worries in Housing

Two pieces of housing data, Case-Shiller Home Price Indices and new home sales, came out this week. Some are worried that all the good news that came from the sales front did not translate into price improvement sequentially.

S&P/Case-Shiller1 Home Price Indices (C-S Index), released yesterday show that the U.S. National Home Price Index fell 3.2% in the first quarter of 2010, but remains above its year-earlier level. In March, 13 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were down although the two composites and 10 MSAs showed year-over-year gains.

“The housing market may be in better shape than this time last year; but, when you look at recent trends, there are signs of some renewed weakening in home prices,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. .................................................................................................
“While year-over-year results for the National Composite, 18 of the 20 MSAs and the two Composites improved, the most recent monthly data are not as encouraging. It is especially disappointing that the improvement we saw in sales and starts in March did not find its way to home prices. Now that the tax incentive ended on April 30th, we don’t expect to see a boost in relative demand.”
In a report released by Census Bureau , sales of new one-family houses in April 2010 were at a seasonally adjusted annual rate of 504,000. This is 14.8 percent above the revised March rate of 439,000 and is 47.8 percent above the April 2009 estimate of 341,000. The sales outstrips new homes for sales, bringing the months of supply to as low as 5 months (i.e. at the current rate of sales, it takes 5 months to deplete the inventory). However, the price trend is not nearly as encouraging as the sales. The median price of new home sales has been trending downward for months.


Tuesday, May 25, 2010

How Fearful is the Market?

As the sovereign-debt crisis in Europe develops, market participants are pricing larger scale systemic risks.

Libor and Libor-OIS spread
The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, widened to the most since July 16. The cost of borrowing in euros for three months climbed to 0.64 percent.Libor has more than doubled this year.

The Libor-OIS spread widened to 31.6 basis points from 28.4 basis points. The spread, which compares three-month dollar Libor and the overnight indexed swap rate, surged to 364 basis points, or 3.64 percentage points, after the collapse of Lehman Brothers Holdings Inc. in September 2008.
 
 
TED spread
Another gauge of fear, the TED spread, the gap between the three-month T-bill interest rate  and three-month Libor jumped to 36.9 basis points, also the highest since July. The TED spread -- -- spiked in October 2008 to more than 460 basis points. Adding to the sign of rising costs for companies to borrow funds is two-year swap spreads that just rose to 58 basis points, the highest since May 2009.
 
VIX
Volatility Index of S&P 500, VIX, now a popular barometer of fear factor, rose to 34.61 today. It reached a peak of 80 in October 2008.
 
 

Friday, May 21, 2010

Can Aeropostale sustain the momentum?

It is not an overstatement that Aeropostale (ARO) has weathered one of the biggest economic crisis in a century unscathed. While retailer peers fumbled to cut cost, slash inventory, raise cash, deleverage and avoid bankruptcy, ARO was not only surviving but also growing. Yes, you read it right, "growing" !

Its major competitors, Abercrombie and Fitch (ANF), American Eagles (AES), Hot Topics (HOTT) paled before ARO's same store sales, a common metric to measure how a store opened longer than a year fares compared to a year ago. Until recently, ARO stunned analysts with its streak of positive same store sales growth, something that one would be hard pressed to find in the last 12 months.

April 2009                 20%
May 2009                  19%
June 2009                  12%
July 2009                   6%
August 2009              9%
September 2009       19%
October 2009            3%
November 2009        7%
December 2009         10%
January 2010             6%
February 2010           7%
March 2010              19%
April 2010                 -5%

What makes Aerospotale so good?
Not only was ARO able to maintain traffic to its stores, it was also able to grow its operating margin, attributable as much to pricing power as cost control . The operating margin was 16% in the first quarter, 2010 compared to 13% in prior year.
 
The management pointed to nimble business models with the right mix of product at the right price. The company integrates designing, sourcing, distribution and marketing all in house, enabling very efficient response to change of fashion trend and demand. However, many analysts pointed to "trading down" among teenagers from higher profile brands like Abercrombie and Fitch as the unemployment rate teetered at almost 10% for the overall population and 25% among teens. Some doubt the sustainability of this success as competitors Abercrombie and Fitch and American Eagles lower prices. Some bet against ARO as teenagers return to brand pursuing as the economy recovers and unemployment pressure subsides, citing potential loss of market share and more need for marketing expenses.
 
My takes
1. I do not foresee a sharp and quick recovery in the global economy especially with the European debt crisis overshadowing an emerging recovery. Therefore, I believe teenagers will continue to "trade down" at least until 2011.
 
2. With its expansion of store front, additions of key items, cross selling efforts (e.g accessories) and enhanced marketing initiatives, it may be able to retain a majority of its "trading down" customers even if the economy returns to good times.
 
3. I was a little concerned by a sudden break of its streak of positive same store sales growth in April. That was the first negative figure in the last 12 months. The management attributed that to an earlier Easter this year that pushed sales forward to March. I generally do not like "calendar" excuse but I think this management deserves benefits of doubt after showing such consistency in delivering spectacular results in a very hard time.
 
In short, I believe ARO, given its unusually attractive valuation (P/E less than 10 with 2010 earnings estimates compared to its peer's average at 15) and a management that seems to do everything right, can continue to offer favorable risk/reward in the next 12 months.

That said, I am a big believer in the notion that first-hand experience gives best stock selection. I am neither a teenager nor do I have teenager friends. Therefore, I count on you, shoppers, to offer me feedbacks on the sustainability of its appeal to teenagers and kids.
 
 
Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does NOT own any position of ARO in her personal account as of May 20, 2010

Friday, May 14, 2010

How does the Europe sovereign debt crisis affect the US? Part I

It seems that the market was not convinced that the sovereign debt crisis in Europe is over even after a $1 trillion backstop program for Euro Union (EU) and over $100 billion rescue package to Greece. The Dow had another triple-digit down day when there was no single sector that closed in green. The euro tumbled as far as $1.2358, its lowest level since the fall of 2008 as investors fled to safety such as gold, USD and yen. Since the beginning of 2010, the euro has lost about 13.5% of its value against the dollar.

Some argued that the EU problem is far from over while some argued that the $1 trillion program was more than enough to put an end to the panic. Some others argued that the spillover effect of the crisis on the US was exaggerated. After all, Germany was the only country that is among the top 5 trade partners in 2009 [Click on the following diagram to enlarge it.]



However, together EU countries carry about 20% of the US foreign trade. Exports to EU countries were $221 billion and imports from those countries were $281 billion. As a result, the trade impact is not completely dismissable. Precipitous fall of Euro against US dollar may hurt American exporters. In additions, multinational companies who derive revenues from overseas will suffer from unfavorable translations of their overseas revenues into US dollar. Among American companies with large exposure to Europe are Exxon Mobil (XOM) 38%, General Electric (GE) 24%, Ford Motor (F) 21%, Johnson & Johnson (JNJ) 26% and Dow Chemical (DOW) 13%. This effect has not taken into consideration cross-country spillover effects. For example, if Chinese economy slows as demand from Europe weakens, Chinese demand for American goods may weaken too.

Thursday, May 13, 2010

Is the Job Market Getting Back on its Foot?

While the unemployment rate stays stubbornly close to 10% and is expected to do so, other job market indicators seem to be looking up.

Initial jobless claims,  a measurement of the number of jobless claims filed by individuals seeking to receive state jobless benefits,  in the week ending May 8, after adjusted for seasonal factors was 444,000, a decrease of 4,000 from the previous week's revised figure of 448,000. As weekly fluctuations can be volatile, 4-week moving average is often used . The 4-week moving average was 450,500, a decrease of 9,000 from the previous week's revised average of 459,500.


Events of extended mass layoff  and the number of separations (workers who are let go for more than 31 days from their jobs) in the first quarter 2010 declined sharply from the same quarter last year. There were 1,564 mass layoffs and 221,150 separations in the first quarter 2010 compared to 3,979 and 705,141 respectively a year ago.
 
What is more encouraging is that 42 percent of employers expected to recall at least some laid-off workers,
up from 25 percent a year earlier.
 
The adverse blow of economic conditions to the job market has also subsided. Among the seven categories of economic reasons for extended mass layoffs, business demand factors accounted for 41 percent of events and 38 percent of related separations during the first quarter of 2010,down from 54 percent of events and 48 percent of separations in the same period a year earlier. Separations related to business demand factors decreased over the year by 250,749, or 75 percent. Within the business demand category, the largest over-the-year decrease in separations was due to slack work/insufficient demand (-205,424).
 
So, are workers seeing lights at the end of tunnel yet?

Sunday, May 2, 2010

CLF plunged despite good earnings

The stock of Mining company, Cliffs Natural Resources (CLF) took a beating (of about 10% in the day following the earnings report) despite beating analysts' earnings estimates and offering very upbeat outlook on demand for its main product, iron ore and metallurgical coal.

Revenue in the first quarter rose to $727.7 million from $464.8 million a year ago while net earnings were $93.5 million, or 69 cents per share, compared with a loss of $7.4 million, or 7 cents per share, in the same quarter of 2009.

Iron ore pellet sales volume rose 116 percent to 4.4 million tons due to the boost to more demand as the North American steel industry has increased capacity utilization to between 70 percent and 75 percent in recent months. Iron ore price per ton rose 24 percent to $94.97

As a result of the recovery in steel industry, metallurgical coal sales volume rose to 662,000 tons from 494,000 tons, with average revenue per ton at $104.38, up from $95.34 a year earlier.

The management expected strong demand to continue in 2010 and it increased its sales volume estimate to about 27 million tons in North American iron ore, from 25 million tons.

In its North American coal business, Cliffs said it is maintaining its sales and production volume expectations of about 3.4 million tons in 2010

Very good report card. So, what gives?

 First, it has to be the broader market. The Dow had 2 triple digits down days in 3 days which was quite rare since the market rally started in February this year. The civil and potential criminal probe of Goldman Sachs together with sovereign debt fear in Europe spooked investors.

Second, what I would think is more relevant is new measures to crack down on real estates in China. If Chinese government is determined to slow down its economy, the biggest engine of global growth since the financial meltdown, the renewed recovery in demand for basic materials may die prematurely.

My takes

Chinese government is not as determined  to cool down on its economy as it appears. International Monetary Fund, IMF, is still expecting China to grow 10% in 2010 and 9.9% in 2011. In addition, global economy, especially the US is recovering, albeit at a moderate space, thus contributing to upcoming demand for basic materials. Steel industry, for example, has increased its utilization significantly from last year to 70-75% year to date. With the auto industry recovering quickly this year and housing market slowly stabilizing and strengthening, steel industry is expected to strengthen further, adding to the demand for iron ore and metallurgical coal.

CLF stands to take advantage of this recovery. Once the stock price finds its footing, it offers a good buy.

Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not own any position of CLF in her portfolio as of May 2, 2010