Monthly Archives: November 2011

Economic Surprise Index – Has Been Improving Since June

November 30, 2011

The economic surprise index represents how macroeconomic indicators are reported relative to Wall Street economist consensus estimates. There was a big move down in April and May as estimates on the economic outlook were too high. Just the reverse has taken place since the summer. Economic forecasters have been too gloomy on the economy from August – November. Economic indicators are continuing to beat at present.

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Thailand Industrial Production Drops Most in 10 Years on Flooding

November 28, 2011

thailand flood








  • Thailand’s October industrial production index was released last night and fell 35.8% from a year earlier.
  • Consensus estimates were for a 15% drop.
  • The Office of Industrial Economics, in Thailand, said that the drop was the largest since at least 2000.
  • The Bank of Thailand has signaled additional rate cuts but interest rates will only help so much with normalizing the economic environment.
  • GDP growth for Thailand has been cut meaningfully.
  • It will be very important to watch the supply chain impact on the Japanese auto industry, disk drive production, and overall technology.
  • The flooding in Thailand is a humanitarian disaster and will also have a material impact on production for firms which manufacture in the flooded regions. Hopefully the crisis will abate quickly but some estimates are emerging that the impact could be as large as the Japanese tsunami and nuclear disaster’s impact.



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Risk Off – Europe Fears Grow!

November 23, 2011














  • US markets close bang on the lows
  • DOW down 236
  • S&P 500 down 2.2%
  • Russell down 3.2%
  • S&P Financials down 2.9%
  • Homebuilders down 4.2%
  • VIX up 6% to 34
  • Brazil ETF down 4%

Happy Thanksgiving!!







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E-Trade Baby has a Rough Day in the Market

November 18, 2011

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Richemont Business Booms in Asia – Cartier and Piaget Growing in China

November 11, 2011



  • Richemont SA (CFR VX) is the second largest maker of luxury goods in the world.
  • The company owns a number of luxury brands including; Cartier, Piaget, IWC, Alfred Dunhill, Van Cleef, Montblanc, Chloe, and many others
  • Richemont reported that first half net income hit plan and boosted sales assumptions for the second half of the year.
  • First half sales growth was up 29% and in the month of October, sales are up 28% – so essentially no slowdown.
  • The Asia-Pacific region was up 48% and distribution expansion related to China is driving growth
  • Cartier and Piaget have been particularly strong brands (from a growth rate standpoint)
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Italian Rates Hit 7.25% – The Key For Tomorrow

November 9, 2011

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Republic Airways (RJET) Returns to Profitability – The Airlines Aren’t All Disappearing

November 8, 2011

Republic Airways is an airline holding company based in Indianapolis which owns a number of regional airlines, including; Chatauqua Air, Frontier, Lynx Aviation, Midwest Airlines, Republic Airlines, and Shuttle America. The company also operated fixed-fee flights operated under airline partners such as Delta Connection, United Express and US Air Express. Republic Airways operates in a number of cities which aren’t major airport hubs such as Columbus, Indianapolis, Philadelphia, Pittsburgh and St Louis.

  • Republic reported EPS of $0.40 (ex-special items) which was well ahead of consensus estimates of $0.24.
  • The current quarter marked a return to profitability after two quarters of losses.
  • The market was concerned with near-term liquidity just last month sending the share price to the $2s.
  • The return to profitability today has led to a 56% rally in the shares which now trade at $4.25.
  • Republic’s restructuring programs are making progress as operating margins improved while sale grew 8%.

Based on the current run-rate in earnings, the company will earn over $1 per share and could be set to rally back towards $8 (which is on the low end of many street price targets).

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Groupon Inc (GRPN) IPO Opens 50% Higher

November 4, 2011

Groupon was able to push through its IPO despite a more risk-averse market environment and recent concerns about the quality of the accounting. The IPO price of $20 was 11% above targets which were recently revised lower. The company sold shares at a valuation of $12.7B and today, on the first day of trading, the shares opened around $30 up 50%. Shares have quickly pulled back to $27, which is still up 35%. The deal was led by Morgan Stanley, Goldman Sachs, and CSFB. One important item of note is that Groupon only offered 4.7% of the outstanding shares to the public. Keeping the float extremely thin has been a strategy for recent technology IPOs in order to create scarcity value for the stock and a high valuation. Linked-In (LNKD) utilized the same strategy and saw the IPO price shoot from $45 to over $90 on the first-day. Linked-In is priced at $77 today. With such a low percentage of the shares trading a future risk will be additional issuance from the company which will provide insiders a chance to liquidate more of their holdings. Be careful extrapolating anything from today’s stock price for GRPN.







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Employment Report – October

November 4, 2011

Employment Report Details:

  • Unemployment rate stable at 9.0% (down from 9.1%)
  • Solid private sector job creation: 80k jobs in October
  •  September revised up from 137k to 191k
  • Government sector still contracting: 24k net job losses
  • Professional services, which are forward looking: +32k
  • Household Survey job creations: +277k (though this includes part time)
  • Growth in average hourly earnings: +1.8%
  • Employment-Population ratio: improved by one tenth to 58.4
  • Hours worked stable: 34.3 hours per week

No evidence we are in a recession

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It’s Getting Real with Whole Foods (WFM) – results are fine but the stock is still very expensive

November 2, 2011

Whole Foods is a tremendous retail concept and the company is a pioneer in terms of promoting a healthier lifestyle. Whole Foods is also able to do this profitably, much more so than other retailers. It was historically unheard of for a food retailer to achieve a 35% gross margin. Whole Foods earns high margins (for a food retailer) while also growing very fast. The investment community is fully aware of this though (many analysts, the ones that do their own shopping anyway, likely shop at Whole Foods) and the stock has been bid up to a valuation that leaves little room for imperfection.

The current quarter was operationally pretty good. Identical store sales grew by 8.4% which represents the strongest rate of 2-year ident growth post the financial crisis. Gross margins were healthy and increased excluding the LIFO-charge swing, and operating profit grew by over 16%. Whole Foods has paid back all its debt and grew pre-tax profit by 25% as a result. The tax rate was down on the quarter though which along with relatively high general administrative and pre-opening expenses makes the quarter imperfect. Along with the imperfections in the current quarter, Whole Foods also left next year EPS guidance unchanged at a range of: $2.21-$2.26. Priced at over 31x earnings perfection in the current quarter and a guide higher for next year’s earnings were needed to drive the stock higher. Whole Foods shares are down almost 6% in the after-market.

The sell-off in the aftermarket simply reflects some of the premium or luster coming off Whole Foods shares. There will be bidders down below at certain multiples. For perspective, at this time last year, Whole Foods guided to EPS of $1.66-$1.71. The company ultimately earned $1.93 and beat their own guidance by 13%. Perhaps this should be factored in to a certain extent when thinking about what they will actually earn in the next fiscal year relative to the guidance of $2.26.


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