Thursday, June 24, 2010

June 24, 2010 A Subtle Little Kick In The Crotch


June 24, 2010 A Subtle Little Kick In The Crotch

You had to really pay attention to hear what triggered the landslide today in the market. At face value when you read the Federal Open Market Committee minutes you might say nothing has changed. To make it really easy for you we will provide a side by side comparison. Not to worry I can cut and paste this as it is public domain content. It is one of the few things we actually get with our tax dollars. Open and notorious use of stuff they write and publish. Anyway, pay close attention or you will miss the subtle little shift in phraseology that caused all of our turmoil today.

April’s statement in June: “Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually.”

March’s statement in April: “Information received since the Federal Open Market Committee met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve.”

Another subtle example, pay attention boys and girls.

April’s statement in June: “Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.”

March’s statement in April: “Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.”

Did you see it? Did ya feel it. Very subtle, but the Fed went from, “You might have heard rumors about some crazy ass bird running around here possibly observing unusual particles coming from the general direction of above us.”, to, “We have found feathers on the ground supporting the theory that some big crazy ass bird has been alarming everyone about unidentified debris possible landing in the general vicinity of our town.”.
 As we’ll mentione later, the FOMC minutes combined with the Euro Contagion flu, had a nasty effect on the market today. More on that later.

Positive news from the April in June FOMC report: "Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls.”

Negative news from the April in June FOMC report: “Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months.”

If you want to know where I am copying and pasting from, it is the original report from the Fed, IF YOU DARE

On the cover of the WSJ today there was a teeny tiny article called Vital Signs. It was a summary of the CEO Economic Outlook Survey. You have to respect a survey from CEOs as they are very smart and insightful people don’t ya know. Anyway according to the SURVEY, their optimisms rose to 94.6% in the second quarter of 2010 from 88.9 in the first quarter. Most expect sales and demand to go up, but contrary to my feelings and opinion they expect expenditures on capital improvements to go down.

In an article that I can not call linkage, Kelly Evans of the Journal points out an interesting play for packaged-food companies that might be worth exploring. She explains that the lackluster retail sales figure are a tell for consumer spending. When that happens, the food industry sees a shift towards packaged food and comfort food. While the over retail sector is down 15% of late there are three plays that are known to be down less than the overall market and might do well if we see continued stress on the economy. They are GIS , General Mills, K Kellogg, and CAG ConAgra. All three are apparently healthy (do your homework) and show a decent upside. Even if you believe in a sold second half of 2010 then a shaky next couple of years, you might do the homework and slide into these or one of these very slowly on the dips over the next 12 months.

CAG has a nice 3.3% yield and some target prices with a 12-20% upside. Kellogg has a decent 2.8% yield and about a 12% upside on target prices. GIS is trading at a fair value of 37 and change and throws a 2.6% yield. This actually is linkage, it’s just that Kelly Evans came up with it and put it in the most read newspaper in the US. (That’s right the WSJ passed USA today in late 2009.)

Finally a headline and a story that make economic sense. It was reported today that gold futures gained as the dollar went down. That is a typical trading pattern, but one we have not seen for a while. Because of all the Euro concerns we have seen the dollar rise and gold rise. Today we saw gold and other commodities rise as the dollar regressed. Something finally resembling normality.

As to the “kick in the crotch” day in the market, the only thing we can point to is the sympathy pains for the Euro contagion flu and some uppity downdity earnings reports. The financials were hurting today over rumors that the final legislation is going to be uglier than expected. (Come on Barnie “Elmer” Franks, I was counting one you.)

New jobless claims came in lower than expected, but it was not enough to lift the market. It came in much lower than my negative guess of 470,000. It came in at 457,000. We would have needed a 400 to get anyone’s attention. I was also wrong on the durable goods order number. Sunday I told you it would be even and the best guess was a -.5%. It came in at a very low -1.1%. I will tear it apart tomorrow and see what the components look like. If you want to have a shot at it, here is The Durable Goods report.

And in further confessions, my guess of 43 cents a share profit for CAG ConAgra was off as they reported 39 cents a share. There were some unexpected corporate expenses and they missed a weeks revenue for some reason. More reading for tomorrow. I do not own it so I won’t be listening to the earning report.

With that I will get out my whip and give me forty lashes. Oh yeah, Happy Birthday to my buddy Butch. He turns 172 tomorrow. Don’t worry he says he reads the blog but I know better and his investment decisions prove it.

Salve Lucrum


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