Mr. Sensitive

July 8, 2011

FSX Friday Update

Filed under: Uncategorized — lbej @ 16:58

Despite an ugly employment report and the end of QE2, stock prices are proving to be resilient (S&P +0.3%)—did you expect something different?  The jobs report is meaningless.  The U.S. numbers have to get a lot worse and show signs of imperiling growth in the developing regions of the global economy before it will matter for the multinational firms whose stocks drive the major market averages.  As for QE2, even assuming that the Fed is taking its aggressive, extraordinary bid out of the bond market, it still leaves in place significant buying through open market operations to keep short-term rates at zero.  Let’s not mistake the end of QE2 for the end of monetary accommodation.  Short-term rates will stay at zero and the Fed will opportunistically lubricate the financial markets for the foreseeable future.  If anything, the end of QE2 could produce a near-term pop in stock prices, as the expectation of a softening in bond prices should drive money flows into stocks and commodities.  I think QE2 helps stocks in the intermediate-term as well, at least the geographically diversified large-cap stocks that dominate the Dow and the S&P 500.  If moderate-to-high inflation does take hold—and the Fed intends it to—stocks should continue to benefit from the movement of money out of fixed income investments.  In the long-term, however, asset-price increases have to stoke real economic activity or stagflation will result, and a cursory review of the 1970s proves that won’t be good for stocks or bonds.  But for the next few months, at least, the end of QE2 is not a negative for stocks.  Any investment managers who suggest otherwise are being disingenuous, probably trying to lower investor expectations so that the profusion of inactivity that is about to unfold doesn’t appear as dubious at the end of the quarter as it absolutely should appear.  The summer 2011 playbook is simple: bonds are out because of legitimate concerns about the end of QE2 and stocks will be favored over commodity and currency trades because political meddling is a more pressing x-factor for the latter two asset classes.  Enjoy your summer.

The Family Stock Index beat the broader market this week, coming tantalizingly close to the 1300 threshold before settling up 1.1% to 1282.33.  The breadth metrics were strong, as well, with advancers beating decliners 17 to 7 and 8 stocks rising between two and five percent—gains that are healthy, but not heady.  Furthermore, only one of those seven decliners fell more than 1.1%.  It all adds up to an FSX rally that was even more robust than it appeared.

Advancers

  • Zondro (ZQK) +5.1%.  Zondro needs a patron.  I generally back the cats and Jenny and Reagan are both unabashed Wilson partisans.  The Empress famously hates all animals, so there’s no hope there.  Ah, but now there’s Brinkley.  And Brinkley thinks that Zondro is the coolest.  Nothing makes Brinkley laugh like watching Zondro do…nothing.  If Zondro can maintain this bond between boy and dog, he could be creating a Randy situation for himself.  Not by my side—my long-lost friend can’t be replaced—but alongside my son.  The market seems to view such a scenario as a win-win, with Brink posting a strong week as well (BCO +2.4%).
  • LULU +4.0%.  Do you know what infuriates me about that furry heap more than anything else?  It’s her lack of entrance etiquette.  When I open the front door for Marisa, she slinks in and gives me what I construe as an appreciative, if wary, gaze.  You know, sort of, “Hey, thanks for letting me in, unless you were letting me in to feed me to the dogs.”  Lulu doesn’t even look at me when I let her in, just dart-waddles past and heads upstairs.  But she does acknowledge me, oh yes indeed.  Specifically, she acknowledges that it took too long for me to open the door for her with a shrill, upbraiding rewr on her way up to the food bowls.  She does this every time.  Stupid fat cat.
  • Reagan (REGN) +3.3%.  It’s hard to make the case for REGN, from a valuation standpoint.  Her revenue for the last 12 months was $468 million, which you might think is a good number, except when you consider that it cost her $593 million to generate that revenue.  That’s a loss of $125 million in the last twelve months, and, this not being 1999, selling dollar bills for 79 cents would not ordinarily be considered a business model worthy of a $6 billion market cap.  And yet, Reagan is what business school professors call a loss leader.  Specifically, she keeps us all from losing the year-to-date FSX performance lead to Lulu.  After this week, Reagan is at +81.7% and the Fat One is in second place at +75.8%.  Is that worth $125 million?  Why not?  If I’m spending money I don’t have, I would definitely spend it on thwarting Lulu.
  • Mr. Lee (MSTR LEE) +3.0%.  You know, I think I’m actually tired of writing about myself.  Don’t worry, though, I’m sure I’ll get over it by next Friday.
  • Justin (WOLF) +2.7%.  This could be an extension of Justin’s life-concrete rally, but I wonder if the extra basis points weren’t added as a consequence of his Dukes of Ewemok script idea.  Is it a problem that Dukes of Ewemok makes me think of two be-vested Ewoks riding around Hazzard County in the General Lee?
  • Dustin (DST) +2.3%.  Dustin extends his market-beating rally into a fourth week.  Could he have discovered the secret to preserving parental credibility and domestic order during the interminable summer vacation months?  Does he know of something useful to do with an unreasonably energetic kid?  Personally, I don’t believe it’s humanly possible, but the speculation alone was enough to push DST higher.

Decliners

  • Marisa (MOLX) -0.8%.  Do you think Marisa hates Lulu?  Of course she does.  Not only is Lulu a show-off, but it’s her fault that Jenny freaks out and shoos Marisa out of the room every time one of the dogs is nearby.  Lulu is the one trying to pick a fight with the dogs, and she’s the one that slashed up Wilson’s eye a few years back, evidently scarring Jenny more severely than the dog himself.  Marisa clearly wants no part of a fight with either dog, but Jenny doesn’t care.  It’s no wonder, then, that Marisa sneaks up on Lulu every so often and beats the tar out of her.  Someone ought to.
  • Mario T.Y. (SUP -0.9%) and Nicole L. (COL -1.1%).  I have been given to understand that planning a wedding can be stressful.  I don’t recall that I had anything to do with planning mine, so perhaps that’s one youthful decision I got right.
  • Zero (FRZ) -4.0%.  How does Zero figure in Justin’s Dukes of Ewemok treatment?  The studio will want to have an established movie star like Zero attached to the project, so Justin’s got to keep him on board.  But I can’t imagine Zero wants to be typecast as affable man-candy for the rest of his career, so the part will need to be darker, more nuanced.  Perhaps a duplicitous courtier playing the scions of the House of Ewemok against one another?  He could be called Count Zero.  Unless that name’s already taken, in which case Justin should kill him off in the first five minutes of the movie.
Name Ticker 7/8/2011 Change
Brinkley BCO $31.25 +0.73
Charlotte ICE $128.40 +1.42
Dustin DST $54.85 +1.23
Icarus FLOW $3.57 +0.03
Jenny LEN $18.85 +0.09
Justin WOLF $3.23 +0.09
Katie CATY $16.64 -0.02
Lee MSTR $164.72 -1.69
Lee LEE $0.91 +0.06
Lisa LSI $7.27 +0.02
Lucas LEI $2.82 +0.03
Lulu LULU $120.25 +4.63
Marcus MCS $10.19 -0.01
Mario T.E. PBY $11.56 +0.27
Mario T.Y. SUP $22.26 -0.21
Marisa MOLX $26.42 -0.21
Nicole B. NI $20.60 +0.01
Nicole L. COL $61.87 -0.70
Reagan REGN $59.64 +1.89
Ruby RBY $3.43 +0.06
Wilson WILC $7.08 +0.02
Winston HWD $17.08 +0.66
Zero FRZ $2.65 -0.11
Zondro ZQK $5.12 +0.25
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