My Takeaways and Observations
Originally published April 25 at 4:37 p.m. EDT
I remain committed to the view that the price of oil will come back down and that energy stocks can be shorted.
The divergence between tech and cyclicals. How does it resolve itself?
Inflation on the ascent. Bond short? Working on it!
A Tom Collins with Tim Collins?
Thanks to Barron's Randy Forsyth!
- The Russell Index looks like machines/algos have targeted it -- in either direction! Weird action.
- The U.S. dollar declined.
- Crude fell by $1.03, to $42.70. Nat gas declined by 7 cents.
- Gold rallied by $9.10, to $1,239.
- Agricultural commodities continued their price rise: wheat +3.50, corn +8.25, soybeans +13.50.
- Lumber +4.50.
- Bonds were relatively quiet, with little change in the 10- and 30-year bond yields.
- Municipals were unchanged. Closed-end municipal bond funds were down on the day -- I would be out of the space as rates might now be moving higher ... finally. I am considering going long ProShares Short 20+ Year Treasury (TBF) - Get Proshares Short 20+ Year Treasury Report , non-levered iShares 20+ Year Treasury Bond ETF (TLT) - Get iShares 20+ Year Treasury Bond ETF Report short.
- High-yield bonds were lower.
- Blackstone/GSO Strategic Credit Fund (BGB) - Get Blackstone / GSO Strategic Credit Fund Report was flat.
- Banks sold off, but not materially so. I think this trend could continue. Gun to my head, Financial Select Sector SPDR ETF (XLF) - Get Financial Select Sector SPDR Fund Report short will work for a trade now.
- Life insurance got schmeissed -- the object of my disaffection. Lincoln National (LNC) - Get Lincoln National Corporation Report and MetLife (MET) - Get MetLife, Inc. Report down large fractions.
- Brokerages were weak. Morgan Stanley (MS) - Get Morgan Stanley Report down 20 cents and Goldman Sachs (GS) - Get Goldman Sachs Group, Inc. Report down $1.95.
- Autos sold off.
- Oil stocks suffered from the commodity's weakness. Schlumberger (SLB) - Get Schlumberger NV Report was off $1.75 and Exxon Mobil (XOM) - Get Exxon Mobil Corporation Report down 80 cents. (Good for me).
- Retail stocks were mixed.
- Media mixed. Comcast (CMCSA) - Get Comcast Corporation Class A Report was down a dime and Disney (DIS) - Get Walt Disney Company Report was up 75 cents.
- Biotech down. iShares Nasdaq Biotechnology ETF (IBB) - Get iShares Biotechnology ETF Report was down $2.40. Allergan (AGN) - Get Allergan plc Report turned lower and Valeant (VRX) was off more than 2%.
- My biotech basket seems like it is rolling over. A lot of people buying this group on the basis of it being oversold; I wouldn't, but that's just me.
- Consumer staples were lower, led by a downgrade of Kimberly-Clark (KMB) - Get Kimberly-Clark Corporation Report . Cyclicals are showing some tired action -- General Electric (GE) - Get General Electric Company Report , as an example.
- In miscellaneous stocks: Potash (POT) reversed lower from early strength, Twitter (TWTR) - Get Twitter, Inc. Report is still for twits and Radian Group (RDN) - Get Radian Group Inc. Report was stable. Oaktree Capital Group (OAK) - Get Oaktree Capital Group, LLC Class A Report , a fixture on my Best Ideas List, is holding well.
- Caterpillar (CAT) - Get Caterpillar Inc. Report was down $1.50 on a dumb upgrade (my view!) from Goldman Sachs. My fav large cap, DuPont (DD) - Get DuPont de Nemours, Inc. Report , is holding well after outsize gains this year.
- (T)FANG was mixed, with Netflix (NFLX) - Get Netflix, Inc. Report and Tesla (TSLA) - Get Tesla Inc Report -- my two shorts -- down $2.35 and $1.90, respectively.
- Apple (AAPL) - Get Apple Inc. Reportcontinues weak -- down 60 cents -- after multiple lower lows. I plan to stay short this "value trap" into tomorrow afternoon's earnings report.
- NOSH nothing.
- CRABBY nothing, either.
Here is some good stuff on RealMoneyPro:
Jim "El Capitan" Cramer (fresh off his Seder) on the Four Plagues. And Jim on the market's rotation.
Ed Ponsi "Scheme" on higher rates.
Tim Melvin, PE manager.
Daniel Dicker goes Mr. T on us.
Carolyn Boroden sees some resistance.
Position: Long SDS large, OAK, DD; short SPY, QQQ, IWM, CAT small, SBUX small, TSLA small, NFLX small, MS small, GS small, FXI, CMCSA small, DIS small, LNC, MET, SLB, XOM, AAPL
Starbucks Looks Lukewarm to Me
Originally published April 25 at 7:51 p.m. EDT
I'm maintaining my short of Starbucks (SBUX) - Get Starbucks Corporation Report after last week's slight earnings miss relative to consensus expectations -- and as you might recall, I put SBUX on my "Best Short Ideas" list on Jan. 29 at $60.60.
Here are my concerns and observations regarding the coffee giant's latest earnings:
- Slowing U.S. sales and comps. Comps in SBUX's Americas segment slowed quarter over quarter to 50 basis points below their two-year average. Looking ahead, large comps (+4%) will also challenge forward sales.
- Moderating food sales. The contribution that food makes to comps is moderating, down to 16% in the latest period from a previous 20%. Food's contribution to aggregate comps also fell to 2% from an earlier 3%.
- Earnings quality. The quality of Starbucks' earnings is less than meets the eye. The company repurchased about $1.6 billion of shares in its latest quarter, or more than triple the amount from a year ago. Without the buyback, SBUX would have earned just $0.38 per share, falling below Wall Street consensus.
- A weakening global economy. SBUX investors' greatest fear should be the possibility of moderating global economic growth (or even a recession). If either of those happen, demand elasticity for the coffee chain's premium-priced products will face pressure.
The bottom line: Slowing growth at a peak multiple seems to like a bitter combination for investors to swallow.
Position: Short SBUX
Starbucks, Allergan, General Electric and Twitter and Schlumberger is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells SBUX, AGN, GE, TWTR and SLB? Learn more now.
Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.