More Earnings - Read Between The Lines

lowes earningsI'm writing today from Las Vegas, while I am attending the ICSC Recon conference, which is the largest International conference held for retail real estate in the world. In times past when I had attended, the volume of people had been anywhere from 60-70,000 people in attendance. However, due to the recent downturn in real estate, this year's "registered" visitors totaled in at about 24,000. It's one giant ghost town out here. What use to be several convention floors filled with people setting meetings, discussing deals and opportunities has become much less populated with many conversations filled with phrases like "We're not really doing anything, how about you guys?" The whole south building used to be filled with financial firms, buzzing with meetings and people all inquiring about how to do the next deal. This year, there is more barren, vacant space than there are booths. In fact, Starbucks, who use to be a big player in the conference, decided not to even show up. How quickly things can change in just one year.

As depressing it is out here in the real world, you would have never guessed that such things existed in our economy as a result from today's stock market. After having futures spend almost the whole weekend in red trading, stocks flew out of the gates in the green. Although there were a few "perceived" positive announcements that hit the headlines, nothing, in my opinion, justified a 200+ move in the markets. The really interesting part about the whole thing is how low the volume was despite the huge movement. Like I've said before, markets become very vulnerable to manipulation in such low volume amounts. Let's discuss a few of these perceived positive reports and I'll give my reason why I'm not cheering.

India's "Obama" was elected over the weekend which fueled a 17% gain in their markets. Due to the enormous hopes of "change" and "reform" of the new candidate (sound familiar?), the markets soared purely on speculation. Sure, our markets have very little dependence on India's market, however, such a move is bound to be influential. As the 17% move is impressive, India should learn from our mistakes. After our first Obama honeymoon, in which stocks were soaring as a we got closer to the election date, we quickly saw a rude awakening where markets reached new bottoms. So yes, hope can be very contagious and emotional, but sometimes reason and logic becomes compromised.

Lowe's posted "better than expected" earnings and gave a very favorable projection for next quarter's earnings. Even so, they still posted a 22% drop in earnings. However, we overlook that just as we do with everything else. Sure, they're business may improve in the near term, due to recent slash to mortgage rates and the huge inventory of REO, bank owned houses for sale at discounted prices. However, please keep in mind that there were several bottoms for real estate in the early 90's. I believe many people are pulling the trigger pre-maturely, due to impulse. When interest rates go back up, which they will, that is when we will really start to see prices fall.

Goldman Sachs gave Bank of America a "buy" rating today, which in turn provided a big boost for the stock. Come on! That is like Kobe Bryant saying that The Lakers will win the championship. They are just one of several financial institutions that offered a slew of shares to the public to raise capital. Quite honestly, I have always been concerned about taking GS ratings serious as they're main form of business is in cash and asset management. You don't think they have a conflict of interest problem? Goldman Sachs recommended a lot of stocks last year, which have died since the rating. Just recently, their buy ratings for commercial REITs have not worked out well for them. Obviously there are many that listen to what they say, as financials got quite a boost today.

Luckily for myself, I took a lot of profits on Friday, as I have been trying to take profits much quicker in this environment. Until, volume really kicks in, this market remains very vulnerable to manipulation. Such days like today do not upset me (it helps that I sold Friday) as I just think of it as yet another fire sale for some of my favorite shorts. Unfortunately, due to the conference, I was unable to take any positions today. After a day like today, I have to like shorts on financials, MGM, LVS, and some select retailers. If tomorrow proves to be another day of rallying (which I doubt), you can expect me to take some strong positions, even despite being at the conference.

These ping pong like trading days are very common at the point of change in a rally. In times past, we have seen these trading trends last a month or more before locking into a direction. I still feel a strong pull back is in our midst and that time is at the gates. Last week proved to be very good for me and I plan to have a similar week this week. American Express's new job cuts should bring some people back to earth. My Lending Club investment went through another round of payments today, which is still cash flowing 10.5%. It also could be a great alternative for consolidating debt, as cost of debt through them is significantly lower. Have a great evening, Happy Trading and we'll see you tomorrow.

PS - Tonight or Tomorrow I will be giving a podcast update (subscribe here) about some great information I have received from some of the banks at the conference, so stay tuned.


  1. Anonymous Says:

    I agree with your assessment on the markets ability to shrug off common sense.
    I am, once again, concerned w/ short ETF's as to the price action lately. I am in SRS and A sizeable position in FAZ today, about .70 higher than where it closed unfortunatley.
    Do you think FAZ and SRS are holds from these current prices going forward into July ?
    I mean FAZ is at 4.70 and SRS is 20.50. Do you see these as doubling or tripling or more from here in the near future ?
    Appreciate your posts and comment on this question.

  2. ___ Says:

    SPG just got a 5 year bond deal done at 7% Back in March it did at 10 year bond deal at 10.75%

    Expect to see some other REIT markets like VNO to follow suit

    Phase 2 in the Merrill/Goldman/Morgan/Citi/Deutsche plan to raise as much capital as possible during the short squeeze.

    Merrill has made over $100 million on this squeeze of the century.