Monday, September 29, 2014

Bought Lululemon (LULU)

I bought a small amount of Lululemon (LULU) within recent weeks at an average price around $40.  This is intended to be a short to medium term trade.

Support for the trade:

  • Stock is down 50% from recent historical highs
  • The scuffle with founder Chip Wilson has calmed after the deal with Advent International
  • Advent knows this business very well and their involvement is a positive signal
  • No debt, strong cash position
  • A profitable business with loyal customer base
  • I don't believe the core customer will migrate to cheaper alternatives--do you really want to show up at mommy&me yoga wearing the discount brand?
Potential catalysts:

  • M&A, inversion transaction?
  • Share buybacks
  • Continue to 'beat' quarterly analyst expectations
  • Positive signals from international expansion
  • Less appealing acquisition target from use of cash for buybacks and the U.S. crackdown on the tax inversion trade
  • Continued downward trend on comparable store sales
  • Poor execution in the direct to consumer channel
  • Poor results from international foray

Friday, September 26, 2014

Good news, bad news in U.S. jobs data

I looked at some Canadian labour force charts quite a while ago (here and here).

It is a pain to manually create charts in Excel so I thought I'd look at some U.S. charts using the amazingly awesome charting tool, FRED, at the St Louis Fed.

First up, the good news.  The underemployment rate (as measured by the "U-6") has come down markedly from its highs.  There seems to be some debate among economists (at least the kind on TV and radio) as to whether or not unemployment rates will ever go back to 'normal' levels.  In other words, is there a new NAIRU.  But for now, the trend seems to be for lower rates of unemployment and underemployment.  Supporting this idea, hours worked has recovered nicely from the lows.  Clearly, more people working and firms requiring more labour hours is a good thing.

Now the less good news.  While the quits rate has also improved from the lows, it's still below a 'normal' 2%-ish rate (although we'll have to wait and see if it continues to trend higher or flattens out here).  This may be hinting at continued friction or lack of choices for workers trying to move jobs, and improve their lot in life.  The big bad news is the size of the working population.  Post-Great Recession, a great percentage of the population seem to have stopped working--or at least stopped being counted.

Wednesday, September 24, 2014

Sold stocks

In line with my thoughts in a previous gold post, I've finished selling substantially all of my general stock market exposure.  For me, this was XIU, ACWI, VIG, and EEM.  This took place over several months and a good deal of it was reinvested into gold ETFs.  The remainder is in cash.  So far, this has been a terrible trade as stocks have continued to trend higher and gold has gone the other way.

I continue to hold most of my portfolio in single name stocks.

Monday, September 22, 2014

Gold, and the end of the world as we know it

From time to time I come across websites describing the imminent financial end of days, and how only those with gold (and presumably guns) will survive.  The basic idea goes like this: weak economies and decaying civilizations are being propped up by governments and central banks through manipulation of financial markets, unduly benefiting the elite in the process, and the price of gold must be artificially suppressed to mask any signal of the true (i.e. low) value of fiat currency and financial assets.  The day of reckoning is coming.

While this all seems a bit extreme, I do wonder what harm all the extraordinary monetary measures, deployed over the last several years, are causing.  Presumably there is a bubble forming somewhere. Add to that concern, the disproportionately lackluster response from the real economy reveals deep problems that will not be solved any time soon.

Tuesday, June 5, 2012

Making money on the internet

Brian Wieser on Bloomberg Surveillance on May 30th talks about the idea that in traditional TV and radio media, it's the publishers that have the informational advantage--they know what the ad spots are worth and the  advertisers do not.  On the internet, the situation is reversed.  The publisher doesn't know as much as the advertising buyer does about the user after they click away from the publisher's website.  In other words, it's not as simple as more time spent on Facebook equals more ad revenue.

Monday, June 4, 2012

More on the U.S. Consumer

Follow-up to Monday's post on the U.S. Consumer... Retail sales (RRSFS) have held up in period where:

  • Housing price (SPCS20RSA) decreases have stopped accelerating to the downside
  • Jobless claims (IC4WSA) have been coming down towards more "normal" levels
  • Oil price (DCOILWTICO) increases have decelerated and actually gone negative
  • Interest rates (GS10) have moved lower from already low levels

Note: everything in the chart expressed as Y/Y% change.

Friday, June 1, 2012

Solutions for Europe

First, my definition of the problem: the common currency without (truly) common fiscal, monetary, political, and cultural systems means everyone is effectively borrowing in a foreign currency.

Now, two suggested solutions:
  1. Form a true union like the U.S. (although, not necessarily that structure, but you know what I mean).
    This is the obvious answer that solves many of the issues that were pointed out even at the inception of the EU and Euro.  Unfortunately it's very unlikely to occur, as the EU members are unlikely to give up their sovereignty.
  2. Germany leaves the Euro.  This is the less obvious answer.  Germany, more than others, can bear the transitional pains of a currency shock (appreciation in their case) and banking losses on loans denominated in Euros.  The scenario of Greece leaving would be calamitous not only for Greece (currency depreciation in their case... assuming anyone would accept Drachmas), but also for a host of weaker-than-Germany nations that have lent to them.  

Update: so it turns out Ambrose Evans-Pritchard already thought of my "less obvious answer" like two years ago.  Goes to show you that anything and everything you can imagine is already on the internet.
This is the only break-up scenario that makes much sense. A German exit would allow Club Med to uphold contracts in euros and devalue with least havoc to internal debt markets. The German bloc would enjoy a windfall gain. The D-Mark II would be stronger. Borrowing costs would fall. The North-South gap in competitiveness could be bridged with less disruption for both sides.

Thursday, May 31, 2012

SocGen's Grice: Quality Income Index

More support for buying quality dividend paying stocks...

From BusinessInsider:

The gist of it is just like it sounds: investing in quality companies that pay out sustainable dividends tend to generate the highest returns over the long run.

Wednesday, May 30, 2012

Really??? Or: the internet is made of cats

From the WSJ Blog:
Facebook is more than a company bet. It is “an option on the World.”
The best question for FB is how to value it,” Needham writes. “Our point of view is that FB should be valued based on revenue potential from total minutes spent on FB times its powerful margin expansion engine.”
My humble take: the internet is made of cats, not friends. Also, dogs.

Tuesday, May 29, 2012

Buying VIG: Vanguard Dividend Appreciation ETF

In keeping with some past thoughts on dividend stocks I have been buying VIG.  If rates are destined to stay low for some time then I think there's going to be greater interest in searching for yield in quality dividend payers.  This is not an original idea, and expert interviews at some media outlets would give you the impression that everyone and their dog is in this trade, but retail investors still seem to be shunning stocks and buying bonds.  It is difficult to see how investors can meet their future liabilities (children's college, mortgage, retirement income, etc) in bond funds with negative real yields going out 10 years and cash paying near zero percent.

Monday, May 28, 2012

The U.S. Consumer

Is it safe to invest in the U.S. consumer?  Some investors must think so.  From Feb 23, 2012 to May 25, 2012, XLY has outperformed SPY by 4.23% (price returns)--that's for less than three months.  Over the same period, OIL was down 16.8%.  Lower gasoline costs and the housing situation no longer accelerating to the downside could explain why retail sales have been reasonably resilient considering everything that's going on with de-leveraging, high unemployment, and daily doom and gloom coming from global factors.

So what do you think, is it safe?

Sunday, May 27, 2012

Kotok on the Beveridge Curve

David Kotok at Cumberland Advisors writes about the Beveridge Curve on May 4, 2012 and graphs job vacancy vs the U6 from Dec'00-Feb'12.  He notes that the curve moves from the top left to the bottom right.  Conclusions: higher levels of unemployment is structural (and remember, gains have been due to lower participation), inflation and interest rates will stay low, and profits will stay high.