Tiffany, Wal-Mart and the Two Americas, Part II

By The Sizemore Letter

At the end of  August I wrote about the diverging fortunes of the “Two Americas” and used the relative performance of high-end jeweler Tiffany & Co (NYSE: $TIF) and the Everyman’s store Wal-Mart (NYSE:$WMT). (See Tiffany, Wal-Mart and the Two Americas).  While Tiffany had been enjoying massive sales and profits gains—and this despite rising costs for the company’s gold and diamond inputs—Wal-Mart had posted nine consecutive quarters of declining domestic sales.  Wal-Mart’s core demographic—middle and working-class Americans—were suffering, while the global wealthy were doing just fine.

While I was not bearish on Wal-Mart (after all, if any retailer can survive a rough economy it would be the colossus from Bentonville), I recommended that investors carve out room in their portfolios for an allocation to the luxury goods sector.  In addition to Tiffany, I offered Coach (NYSE: $COH) and LVMH Moet Hennessy Louis Vuitton ($LVMUY.PK) as suggestions.

Alas, investors would have been better off just buying Wal-Mart.  As you can see in Figure 1, Wal-Mart has been the best performing stock of the group.

Figure 1: WMT, TIF, COH and LVMUY

My, what a difference three months can make.  Wal-Mart finally broke its chain of declining quarters when it announced earnings earlier this month, and Tiffany issued a disappointing outlook on Tuesday that sent its shares down more than 11 percent intraday.  The entire luxury sector fell in sympathy on fears that the Eurozone crisis would sap demand for expensive baubles and trinkets.

So are investors right to be concerned?  Has Europe killed the bull market in bling?

If Tiffany’s earnings release is any indication, the answer is an emphatic “no.”

Sales were up 21 percent and earnings per share up a whopping 63 percent for the quarter ended October 31.  Sales in the Americas were up 17 percent, and—importantly—sales in Asia were up 44 percent on strong demand from China.  Even in Europe, the epicenter of the crisis, same-store sales were up a respectable 6 percent after adjusting for currency moves.

Patrick McGuiness, Tiffany’s CFO, said in the conference call that fourth-quarter sales were “meeting expectations” but that he was “certainly not implying that Tiffany will be completely insulated” from the economic shockwaves emanating from Europe.  Analysts had expected fourth quarter earnings of $1.63 per share, but McGuiness indicated that earnings would likely be 5 cents lower at $1.58.

It’s hard to look at these numbers and see justification for an 11 percent correction, but such is life in marketland.  Markets are forward looking, and when too much optimism is baked into the stock price disappointments like these happen.  On the flip side, when too much pessimism is baked into prices, even trivially good news can send a stock’s price soaring.  Consider Research in Motion’s (Nasdaq: $RIMM) announcement Tuesday that it would open its corporate networks to iPhones and Android phones; shares shot up by more than 8 percent  before backing off slightly.

The luxury sector is a long-term macro play on the rise of the nouveau riche in emerging markets—again, note the 44 percent rise in Tiffany Asian sales last quarter.  China alone already accounts for 10-20 percent of all global luxury sales (estimates vary by market study), and emerging market as a group account for nearly half.  These percentages will only increase with time, and European crisis or not this trend isn’t going to change.

That said, luxury stocks are volatile and investors should expect a roller coaster ride until there is some sort of definitive resolution in Europe and the system is stabilized.  A recession in Europe due to tighter credit is not the end of the world.  Recessions come and go, and life goes on (as do luxury sales).  The disorderly breakup of the Eurozone is a very different story, however.  As we saw in 2008, even the rich snap their wallets shut when market conditions get bad enough.

Cooler heads will prevail.  When confronted with the possibility of European disintegration, German chancellor Angela Merkel will drop her objections and allow the European Central Bank to provide whatever liquidity is needed to stabilize the Italian bond market.  But if her past actions are any guide, she will take it to the brink.  So in the meantime, expect the market to be choppy as investors try to handicap the odds of a deal.

My advice to investors in the weeks ahead is to buy on the dips.  Use the chaos in Europe as an opportunity to buy shares of profitable, conservatively-financed luxury names like Tiffany, Coach and LVMH on the cheap.  And don’t be surprised if Tiffany’s earnings next quarter end up beating estimates.

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ADP Data Shows Hiring Accelerated in November

Benefits and payroll processing firm Automatic Data Processing (ADP) released its private sector employment report for November today, which showed a sizeable gain in employment from October to November. ADP said the private sector added 206,000 jobs in November, on a seasonally adjusted basis.

People’s Bank of China Drops RRR 50bps to 21%

The People’s Bank of China announced a 50 basis point reduction in the required reserve ratios for deposit taking financial institutions, effective 5th December 2011.  The new required reserve ratios will average 21.00% for large banks, and 19.00% for small banks.  The move potentially marks a shift in policy focus to growth by the Chinese authorities, and follows the news last week that the required reserve ratio would be reduced for selected rural cooperative banks by 50 basis points to 16.00%, and also coincides with coordinated policy action by some of the key central banks to support the Eurozone.

The People’s Bank of China last raised the reserve requirements by 50 basis points in June this year to an average 21.50% for large banks, and 19.50% for small banks.  The PBC also adjusted the reserve requirement rules in August, effectively resulting in tightening of about 100bps.  Meanwhile the People’s Bank of China last raised the benchmark interest rate 25bps to 6.56% in early July this year.  The Bank for International Settlements recently published a paper on ‘China’s Evolving Reserve Requirements’ which provides an interesting and detailed analysis of the People’s Bank of China’s use of the required reserve ratio as a tool for monetary policy.

Best Forex Signal Provider

By Johnny Smiths

Best Forex Signal Provider

Currency trading is becoming one of the most famous businesses these days and is helping a lot of people in making considerable amount of money. Those of us who have to use some of their own devices might have to face a lot of problems and this is where we need the help of Forex signal provider. These are the services that help us in locating the best signal tool which is perfectly suitable for us. These signal providers also help us in any type of problem that we may encounter in currency trading business. If you are going to start a currency sharing business then the first thing that you should do is to find yourself a good Forex signal provider. This is the first step in starting a good business. First of all, a question arises in one’s mind that what are Forex signals and why do we need them?

Forex signals

Forex signals are basically used for sending suggestions for making orders of a currency pairs. Different means can be used for making these order suggestions. The most commonly used means are SMS and emails. These are both paid and free signal services are available in markets and users are using both of them. Most of the people use the help of Forex signal providers because of the ease with which they make things get done. Now another question arises here that how do we get these Forex signal provider services and what can we get from them?

Features offered by Forex signal providers

There are just too many features that you can get from these foreign exchange online programs. The difficult thing is to find such a vendor that provides those services that are beneficial for your own particular business. Some vendors can support graph analysis for your signals. This is usually a very beneficial thing. Some of these services can also maintain a recent history of all of your transfers and the profit and loss record of your business. This helps you in looking deeply into your business and find where you can improve your business.

One to one interaction with service provider

A class of these providers also ensures one to one interaction between the provider and the user. This is one of the most commonly searched features. You should make sure that the service that you are using provides this facility. You can get a lot of help and assistance which can allow you to talk with your provider about a lot of other things like how can you improve your business and so on.

Trial period with lesser price

Some good Forex signal providers will give you the facility of using the trial version of their facilities at very low prices. By using those trial version services, you will come to know whether those services are suitable for you or not. In this way, you money will also remain safe and you will also check out whether such tools are meant for you or not.

About the Author

Johnny Smiths is an expert writer about Forex Signal Provider and Forex Software

The Rule of 3

The Rule of Three – rule-of-3

Every good and disciplined trader has a set of rules & guidelines they follow stringently in order to consistently profit from the market. A professional trader will not sway from or alter their rules to gain a few extra pips, as they know in the long run, disciplined trading is the only way they can become consistently profitable traders. Some of the rules & guidelines traders follow range from; only trading a specific Time Frame, to using fixed stop losses and take profits. There are 100’s of different rules a trader can follow which makes it impossible to list them all here. With each trader being unique and having different reasons for entering the market most traders set of rules will differ from their peers.

The rule of 3 is one of our rules that we follow with great discipline and helps us from making trading mistakes such as entering the market too early or over trading. This rule is only part of our trading plan however it has proven to be an integral part to our consistency.

The rule of 3 is a very simple rule to follow and requires the trader to never enter the market unless there are at least 3 reasons supporting a specific trade. The 3 reasons are very important in helping to enter higher probability trades.

1 – Trend: Is the trade inline with the current trend? If not and this trade will be a counter trend trade is there valid support or resistance in place?

2 – S&R: The trade should only be taken if the market is rejecting a specific support or resistance area.

3 – Chart Pattern/Price Action: The trade should only be taken if there is valid price action in place rejecting the specific support or resistance area already identified.

Take a look at the chart below which is a great example of the rule of 3 in action. The 1st thing we have done is identify the current trend. It’s obvious to see at the time of this trade the market was in an uptrend. The 2nd thing we did was identify a specific area of support/resistance (marked with the blue line). Finally we wait for a price action/chart pattern signal rejecting this area. Once we have all 3 we are ready to enter the market.



As you can see using the rule of 3 on this trade worked out very well with the market continuing its bullish momentum. It’s important to take note that more ‘reasons’ supporting a trade makes for a higher probability trade, (however its equally as important to take note that it is impossible to know what the market is going to do next and a good money management plan should be in place before trading). For example; if we look at the chart above and focus on the 1st bounce of the Support level identified (marked with a red 2); many traders would have seen this ‘bounce’ and ‘jumped’ straight into the market with a long. The market did push higher initially; however as we can see it retraced testing and rejecting this area again. Many traders who would have entered on the 1st bounce would have been stopped out or would not have let the trade run to its full potential. As you can see entering using price action chart patterns as further confirmation allows for higher probability trading.

Including the Rule of 3 in your trading plan can greatly improve your consistency as a trader provided the rule is enforced with discipline. Many traders make the mistake of over trading. Using the rule of 3 is a great way to cut down on your losing trades by lowering your frequency of trading. When trading its important to remember we’re all looking for Quality not Quantity.

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Double-Digit Returns in a Flat Market

Double-Digit Returns in a Flat Market

by Marc Lichtenfeld, Investment U Senior Analyst
Wednesday, November 30, 2011: Issue #1654

Did someone flick the switch?

After several years of up and down economic data, suddenly it feels like the positive data is starting to stick.

According to payroll processor ADP (Nasdaq: ADP), 206,000 new private sector jobs were added in November. And October’s figure was revised upwards to 130,000 from 110,000.

Despite Washington’s desire to pad their own E*Trade accounts rather than do their job and establish some fiscal sanity, things appear to be slowly on the mend.

I know it’s not exactly 1998 when there was a chicken with stock options in every pot, but we’re seeing signs of an economic thaw.

Black Friday numbers were sensational. Americans spent $52.4 billion, up 16 percent from last year, as shoppers stampeded over each other to buy half-priced Xboxes and TVs. About the only negative number to come out of Black Friday was that same store pepper sprays were up 322 percent, beating analysts’ estimates.

The consumer frenzy continued on Cyber Monday as online retailers rang their virtual cash registers to the tune of over $1 billion, an increase of 33 percent from 2010 as of 10 PM Monday.

New Construction

And it’s not just retail that’s seeing an increase in activity. All over South Florida, one of the centers of the housing boom and bust, I’m starting to see new construction taking place.

Anecdotally, families have bought the foreclosed homes in my neighborhood. The tract of land next to my community is being cleared. Both hospitals nearby are undergoing expansions and a third hospital is being built 15 minutes away. And several new retail spaces are under construction, as well.

Across the country, new home sales are up 8.9 percent this year. October’s housing starts were equal to September’s, which had been the highest total all year. An even better sign is that new building permits in October were the highest they’ve been since 2008 and are particularly strong in the south, where unemployment in many states is above the national average.

But in October, 12 states saw meaningful decreases in unemployment. Alabama, Michigan and Minnesota each reported half a percentage point drop in joblessness. Even California – with its too high 11.7 percent unemployment rate – improved by two-tenths of a percent.

Keep Composure…

There’s always a reason to worry. The EU may blow apart, the wrong Presidential candidate may get elected, Kim Kardashian may never find true happiness…

But at Investment U, we recommend investing for the long term and not worrying about market gyrations, pundit opinions and the news. Let the market do what it does best, which is generate positive returns for investors.

Admittedly, not every period is a winner. But if you’re a patient investor who’s thinking in terms of decades rather than months, you’ll be fine.

…With a Sound Dividend Strategy

One of the strategies I advocate is investing in stocks that pay a growing dividend and reinvesting those dividends. Even if the market goes nowhere, that strategy can generate significant returns.

For example, over the past 10 years, the S&P 500 has gone absolutely nowhere. It’s been up big and down big, but after 10 years, it’s right back where it started.

But if you had invested $10,000 10 years ago in a stock with a five-percent yield that grew its dividend 10 percent per year, reinvested those dividends and the stock remained flat the entire time, you’d have $22,000 today for a compounded annual growth rate of eight percent.

In fact, let’s see how a few specific stocks performed over the past 10 years.

Insurance company Mercury General (NYSE: MCY) is a member of The Ultimate Income Letter’s Perpetual Income Portfolio. In 10 years, like the S&P, the stock has remained flat. In 2001, if you invested $10,000 and reinvested the dividends, it would be worth about $15,067 today. Not exactly a fortune, but way better than the return of the S&P 500, and considering the stock is right where it was 10 years ago, that’s not too bad. All of its return came from the dividends. Not to mention that today your original $10,000 would generate $834 per year in income for an 8.3-percent yield on your original cost.

Now, look what happens if we get just a little bit of growth. The stock price of today’s Investment U Plus pick grew an average of 5.5 percent per year over the past decade. Not exactly torrid growth, but considering the return of the S&P 500, that’s not bad. If you bought it 10 years ago, you’d enjoy a 4.4-percent yield at the time.

Today, your $10,000 original investment would be worth over $24,000 for a double-digit average annual return. Because of the power of compounding reinvested dividends, your original 368 shares would now be 570 shares generating $1,105 per year in dividends or an 11-percent yield on your original investment.

There will always be something to worry about. The bears will always have valid arguments about why the market is headed for a plunge. They’ll even be right some of those times. But if you’re investing in quality companies, particularly those that pay solid dividends and you’re able to reinvest those dividends, you almost always come out ahead over the long haul.

Good investing,

Marc Lichtenfeld

Article by Investment U

Proposed European Bailout Plan Comes Up Short

Proposed European Bailout Plan Comes Up Short

by Jason Jenkins, Investment U Research
Wednesday, November 30, 2011

The plan to increase the capacity of the Eurozone’s European Financial Stability Facility (EFSF) is in dire straits.

Several Eurozone officials have stated that the now €440 billion rescue fund may only be able to raise in additional funds about half of what Eurozone officials had expected due to the market conditions that have transpired over the past month.

Ace in the Hole

If you want to know what’s caused all the market volatility the last few months, look no further than the Eurozone. The markets have reacted favorably to any words of sensibility and logic coming from officials. And then the markets tank when those promises have not come to pass.

But their ace in the hole was the suggested policy to offer insurance on losses for investors buying troubled Eurozone bonds, which would have leveraged the €250 billion excess capacity of the rescue fund about five times what it is presently to more than €1 trillion.

Leveraging the EFSF’s dwindling resources was the highlight of the grand plan introduced last month at the Eurozone summit. The added capacity would create barriers to stop the Greek contagion from spreading to European banks and the other troubled states in the South. Most importantly, they didn’t want the crisis in Greece to hit the zone’s third-largest economy – Italy.

Borrowing Costs and Bond Yields

In the last few months, Italy has shown the world that it doesn’t need Greece’s help to implode. The massive increase in Italian – and to a good extent Spanish – borrowing costs has brought to light just how bad the problem is right now.

Everyone from U.S. Secretary of Treasury Tim Geithner to China have complained that Eurozone officials needed to stop dragging their feet before it’s too late…

And now, it may be too late.

The dramatic spike in borrowing costs for Italy since the last Eurozone summit is likely to force the EFSF to offer a better deal to potential investors. The sweeter deal you give, the lower number of bonds the insurance would cover.

EFSF Chief Klaus Regling said earlier this month that overcoming investor concerns with improved guarantees would mean the fund was likely to have only three to four times the firepower.

Other officials have said that the target Regling stated may not even be attainable. A more realistic goal may be somewhere in the neighborhood of two to three times the remaining buying capacity of the fund.

On top of this, there’s still a concern that there could be a possible French downgrade, which would dramatically sap the strength of the EFSF because the fund’s foundation is based on guarantees from AAA-rated countries.

What’s the take?

When you have crazy markets and uncertainty with the European Central Bank, there’s no certain way to tell how much EFSF bonds will be worth or what the fund will be able to insure.

The track record of the zone and its proposed policies make it hard to believe that investors will be flocking to these bonds. Things are so bad that they just gave Greece a 50-percent haircut on its debt. That’s not setting a good precedent with future investors. Uncertainty in Europe will translate into uncertainty in the markets for the time being.

Keep your sights set on the long term and those valuations that make sense. We’ve been talking about multi-nationals who have taken advantage of emerging market growth or investing in companies with strong dividends for added returns.

Good investing,

Jason Jenkins

Article by Investment U