Friday, April 11, 2008

New Day, New Rules

What's today? Friday? Just as good as any other day to make up some new rules for the market. I'll get to this in a minute, let's start with eye-popping horrible news across the board.

GE actually lost 6% last quarter. Part of the blame game falls on BSC's effect on its financial units, but in fairness, CEO Immelt simply said we could've done better. This is particularly horrible news because GE is so diversified that they're usually able to mix and match writeoffs and gains into a consistent 12-16% earnings boost. The stock is down 10% pre-market, and I think if we go near or under 30, might be time to take a look. GE is one of the few AAA companies left, and they are moving aggressively to dump financial assets to focus on industrial/turbine/appliance growth in emerging markets. This will eventually pay off, but you have to be a lot more patient than I am to wait on this plan.

Despite ridiculous optimism/short-covering in retail yesterday, let's review a few numbers:
BBB quarterly profit down 16%
Tween Brands cut earnings forecast by over 50%
Saks same store sales down 3%
American Eagle same store sales down 12%
Target same store sales flat
Stein Mart same store sales down 17%
Bebe same store sales down 7.6%
What's scary is that aside from Saks, all of the others are mid to low-price retailers. I did leave the successes of Walmart and Costco out because we've covered their obvious advantages in this environment already.

Getting back to the new rules. Bernanke is acting like a 4-year old who loses a game at his own birthday party. Let's play again, but this time whatever I say goes. Lehman brothers repackaged a bunch of bad debt into a garbage bag and threw it into the Fed's dumpster. They called that debt package "Freedom," as in freedom from ever having to be responsible for that debt again. In response, the Fed wheeled out shiny new treasury backed dollars in the form of $2.8 billion. What else will they take as collateral, used needles and dirty diapers? Still think the dollar is ever going up again?

In another shocker, GS actually recommended short-selling WaMu today. Great advice. Advice I gave you 5 months ago with the stock at $20, not $11. Where was this note last year when the stock was at $45? Nice work, genii. I guess you have to be an investment banker to think up these strategies.

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