Sunday, October 03, 2010

3 October 2010 mmm Where Did I Put My Chrystal Ball


3 October 2010 mmm Where Did I Put My Chrystal Ball

I should have a hangover right now as we, (Devin and I) had our annual Oktoberfest Party last night. It is becoming quite the event. There were just this side of seventy people who enjoyed brauts and kraut to the back round sound of a live oompah band. We had a selection of nine wines to choose from “Chateau Cronin”. The most popular white wine was the 2008 Francis Coppola / Niebaum-Coppola Riesling Sofia and its debut release was described as having an alluring personality, showing off full, ripe fruit flavors that are contrasted by a vibrant acidity. The 2008 vintage offers an intoxicating perfume of pears, minerals, and apricots along with luscious flavors of white peaches, green apples, and a hint of pineapple. The hit red wine of the night, well it was a tie with honors going to the 2005 Waterstone Cabernet Sauvignon with its Bordeaux-like presence, this wine is deep, rich, and lingering. Firm, integrated tannins frame the Concentrated, dark fruit (currant, black cherry, wild berry, plum.) Toasty oak and an earthy edge add to the wine’s great complexity. (From a tasting note whose origins I honestly can’t recall), and the 2007 Brazin Zinfandel Old Vine with its deep and inky color, and big, bold aromas of spice and mocha on the nose and flavors of plum and chocolate, rich tannins and vanilla mocha in your mouth always make this a popular choice at our parties. (It’s under 20 bucks too which we like.) But I digress. Well actually I didn’t digress because I started talking about the party. Now I am digressing about digressing.

While all the pre party events were happening yesterday, I had the chance to run through this weeks Barron’s. Great issue by the way. While there was atone of cautious optimism through many of the articles, most said that reading the next three months seems difficult or out right impossible.

Half of Michael Santoli’s article was directed towards a possible bearish view of Gold. His reporting revolves around the histrocial 10 year trend of the metal which has gone up by a factor of 600%. However he and many are underestimating the impact of the developing nations of the world. First that development brings an industrial demand for the metal in electronic devices and in certain types of manufacturing. More important even the laborers and farmers in these nations are seeing spoonfuls of prosperity heading their way and they all want to bring home some bling. Farmers in parts of Asia and Brazil right now are having bumper crop seasons because of fairly favorable weather and the fact that recent shortages (via fires in Russia), and this November we should see some very strong demands on gold from the jewelry sector. (My wife duly noted most women’s disillusionment with platinum as a jewelry staple will put more demand on gold.) So I will agree to disagree with Michael and say we will see 1500 before we see a like adjustment downwards.

Also in this weeks issue there were some specific stock articles like World Wrestling, Snap-on Tools (Some good data points in the article for emerging market economic growth), HP, Take Two and United Technologies.

Johanna Benet had a wet blanket article explaining the obvious. She spent almost a full page telling us that third quarter earnings were not going to be as robust as second quarter and that more than half of the S & P earnings improvements were due to cost cutting and not top line growth. This is already known and in my opinion already priced into this market.

Most of the general economic articles are all saying the same thing. Friday will dictate who this market is going to do this month. As you probably know, The Labor department reports a one week delayed employment number. Yes this is important because it is a week late. (Labor wanted an accurate number and due to the layoff of about 80,000 census workers the numbers would have been squishy last week. Some say the numbers are squishy all the time.) Our guess is that figure is also priced into the market so any surprises positive or negative will have to be outside that box of 78,000 or so census takers.) So what else will the week bring us?

Monday we will see the factory orders report and from several of the Articles in this week’s Barron’s (As well as couple of WSJ articles) the warehouse shelves might be getting a bit crowded. Inventories seem to be up which might imply factory orders have or will slow. On the other hand we had some fairly impressive auto sales figures recently which might suggest a strong durable sector reporting. The consensus guess is a drop of 3 tenths of one percent. I am thinking we will have a drop of .5%

Pending home sales (contracts signed but not closed) reports Monday and it probably will not be a happy story.

Tuesday we will have the ISM Non Manufacturing Survey (aka the service sector). Now we had a drop last Month which I think we called here? I can’t find the post, but I think we came close to calling that drop. The consensus is saying a slight gain from 51.5 to 52. (remember anything over 50 indicates and expanding economy.) After seeing the robust Chicago PMI Index last week, I am thinking we will see 53.5 in this index.

Wednesday we will have the ADP employment report. This is a squishy figure but can be a tell for Friday’s Labor Department report. I do not do enough homework on the ADP to take a guess. The good news is this report is clean from the census taker clouds that stink up the Labor report.

Thursday the BOE (Bank of England) report monetary policy. Don’t look for any changes they will leave their prime interest rate at .5%. Just as the ECB (European Central) Bank won’t mess with the dials and leave their rate at 1.%. And on Thursday we will see the initial jobless claims report. The consensus is a slight improvement to 450,000 from 453,000. I don’t think they are considering the 78,000 folk who are now done counting folk. Look for a flat OR (going out on a big limb here) a change of direction and see an increase in intial jobless claims of 458,000. The market will not like it. Put your stops in place. (This might seem a bit contradictory with what I said above regarding the census workers layoffs being priced into the market. I was referring to the Labor report on Friday which we will discuss next.)

The consensus for the Labor department report is 0. They oracle of knowledge is saying no jobs lost but no new jobs created. In essence a wash. Sorry, we wish we could be that optimistic. I am thinking a loss of 25,000 jobs and net unemployment rate of 9.8%. Now I would say that most of that sting is priced into the market. If we go above 9.8, hold on to your portfolios boys and girls and look for gold to breach 1350. The VIX will be jumping up to above 25 and VXX will go to 19.50 if that happens. The real bad news will be this report is all the talking heads will be talking about all week long!

What’s a Grecian Urn?

Yeah the Euro screwed up that joke. The answer used to be 14 drachmas a day. Just isn’t the same when you say 14 Euros a day? Anyway we have some earnings next week and especially the Alcoa number reporting after hours on Thursday. We only have a couple of people playing the Guess the number game on AA earnings. Here is yet another reminder. Give me your guess as to what you think the earnings (or loss) number for Alcoa will be and the first closest response will get one of the two Jim Cramer Books Getting Back To Even or Mad Maney, your choice. But just like the lotto, you got to play if you want to win.

Tuesday we have YUM Brands reporting. The consensus number is 72 cents a share. I like the stock and occasionally regret not getting into it in 08 and 09. If you got to FinViz and read all the reporting over the last three months, every post is good and they end in BUT, (Behold the Underlying Truth) the stock might have grown up to its potential. (The stock is at most analysts target at 46 a share.) I still thin there is room for a little positive surprise. Look for 74 cents a share.

MON Monsanto will report on Wednesday and I don’t follow the stock but everything I have gleaned about this report indicates there might be better plays in the market. The consensus shows a six cent loss. I won’t argue it but I am going to start looking at the bio plant modification industry.

COST should do well and easily beat the 95 cents a share estimates, Look for Costco to report 99 cents.

RPM, a company we had in the portfolio last year making a play at the Obama energy plan that was going to give homeowner’s credits for energy related home improvements like caulking your windows. (RPM is the parent company of DAK caulking products.) I still get alerts and its on one of my watch lists. Look for a beat of the 51 cents a share to let’s say 53 cents.

STZ Constellation Brands report Wednesday as well. The gymongous wine producer importer exporter should have no problem meeting the 49 cents a share estimate UNLESS they get whacked in the currency exchange wars. The deal in so many volatile currencies (AUS, NZ, Euro, US etc) it could make the earnings number a bit funky. I am like the beat to 52 cents a share.

Then on Thursday we have the official launch of the earnings season with Alcoa. My estimate is . . . . Tell you what I will email to myself and post the e-mail on Friday and we can see how I did.

From the "Conversations Outside The Oval Office" Gallery

"So Bobby, we can't tell the people the Saturn 5 Rocket program is for blowing the Ruskies to kingdom come.  So we tell them we are going to the moon at the end of the decade.  What you think little brother?"

Salve Lucrum


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