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Tuesday, February 27, 2024

Testy Tuesday Morning

Fed minutes at 2 pm.

That's it for my take on the markets!  

We need to be ready for anything at 2pm as the Fed will confirm or deny everyone's hopes and dreams regarding future direction but I don't see how "Wall Street's Bitch" would suddenly turn on its master and the traders are certainly acting like the minutes are already in the bag with a friendly Fed continuing to shower money on the speculators, insuring them that no investment, no matter how stupid, will ever go sour.

Earnings season officially kicks off tonight wil AA after the bell and later in the week we will hear from a a few other market movers but the big guns don't start firing until next week.  After AA we have COST, HST, INFY, MON and RT on Wednesday followed by MTB (in our $25KP), PEP and SLM on Thursday and that's it for this week.

On the economic front we have the minutes today followed by Wholesale Inventories (should be dropping to reflect strong consumer demand) and, of course, Crude Inventories – where we hope to get our first good build.  Thursday we get Import and Export Pricing, Jobless Claims, the Trade Balance and, if they can fudge the numbers fast enough, the Budget at 2pm.  Friday is a huge day with Retail Sales, PPI, Business Inventories and the Michigan Consumer Sentiment Report.

Expectations for retail sales are dangerously high (up half a point) so that's my critical concern.  I would care about the PPI showing non-core growth of about 6% annual due to much higher oil prices in September but no one else seems to worry about it so why should I?  As long as Uncle Ben keeps the money flowing, what's a few more bucks exchanged between you and your grocer?

Speaking of grocers – WFMI has been on a tear as the Nasdaq supermarket runs up ahead of 11/20 earnings, where they are expected to earn 10% less than they did last quarter (7/31) when a 10% beat drove the stock from $36 to $44.  At $53, they have filled about 1/2 the gap of November '06, when earnings were a horribly disappointing .29 per share and plunged the stock from $65 to $45.  This time, with earnings projected at a whopping .30 per share, the stock is heading the other direction entirely and makes a great example of the kind of sentiment change (as opposed to fundamentals change) that is driving the markets.  The p/e of 38 makes WFMI #1 with a bullet, pretty much double the p/e of anyone else in the sector except for Chile's little known DYS and WFMI's p/d completely dwarfs WINN (5.14), SVU (14.78) and KR (17.09).   

If you applied WFMI's p/e to $19.5Bn KR, KR (who's PEG is 30% better than WFMI) would be worth over $40Bn, just 5 times more than Whole Foods even though KR has 10 times the sales, 5 times the profits and 10 times more cash as they have beat earnings in each of the last 4 quarters, last quarter by 12%.  I'm not saying you should run out and buy KR (but you could sure do worse!) but it would be nice to see SOME semblance of reality in the value of Whole Foods!

Speaking of food, YUM had great numbers last night based on 14% growth in China, 4% growth in Europe and (oops) 1% growth in the US.  This could be a unique issue for them but let's keep an eye out for this pattern to become a trend.  We expected pretty much any International company to make money, that's why we started our Dow virtual portfolio, but let's see what happens when the more localized companies report.  According the WSJ, 108 US-listed companies now make 5% of their revenues in China with $6Bn in net income flowing in from the Far East.

Asian markets resumed their long march to new records as the Hang Seng took back 457 points the same way they lost 1.000 yesterday – after lunch!  India also finished the day with a huge gain, recovering 788 points to finish the day above 18,000 for the first time.  YHOO announced it will launch an Internet portal for HDTV, probably the smartest new thing they've done in years AND they are buying another 10% stake (giving them right about 50%) in China's largest e-commerce player, Alibaba, who are going to IPO in Hong Kong shortly.  That makes a play on the YHOO Jan $30s, currently $1.58, a good play!

Speaking of IPOs, China Shenhua Energy (one of our "Duh" stocks) gained 87% on its first day of trading on the Shanghai Stock Exchange.  In a related story, I'll be listing PSW on the Shanghai Stock Exchange as soon as possible!   What do you guys think of the name Phil's China Stocks?

Europe is having a good morning and our futures are looking bright so we are going to let go of our covers and see how it runs today, ready to go in with DIA Nov puts on a turn but not really expecting one unless we get some bad news from the Fed.

It's all about the minutes at 2pm and at 4pm CNBC will have a Republican debate that should be fun, then we get AA earnings so lot's to talk about tonight.  Today should be a day for having a little fun!

 

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