The Best of Kass

NEW YORK (TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among his posts this past week, Kass explained what Super Bowl ad spending means for stocks and reviewed the past week's economic indicators.

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Stock Market Super Bowl Indicator
Originally published on Saturday, Feb. 2 at 9:00 a.m. EST.
  • The heavier the Super Bowl advertising by a company, the more likely its stock will underperform.

On Sunday, one of the grand sporting events of the year will take place: the Super Bowl.

Starting with Super Bowl XXXIV in January 2000, I created the Stock Market Super Bowl Indicator. The indicator, as Alan Abelson noted in Barron's:
... is a contrary indicator, kind of like the cover of Time. Its critical components are the commercials carried on television coverage of the event and the identity of the companies doing the advertising. Its virtue is not as a forecaster for the market as a whole but for individual sectors of the market.

My indicator dictates that the more intense the Super Bowl TV advertising by a group of companies, particularly in a specific industry, the more likely the stocks of those companies will perform poorly in the year ahead.

Total ad spending has decreased by approximately $50 million compared to 2012, with auto manufacturers cutting their total ad spending in half, from $136.5 million in 2012 to an estimated $60.8 million in 2013. This could be a result of continuing concerns about a weak European market or a more cautious attitude with regard to domestic automobile sales relating to the fiscal drag of higher personal tax rates.

General Motors ( GM) via Chevrolet was the highest spender on advertising during the Super Bowl in 2012, and subsequently GM shares saw a dramatic decrease in their share price by July, down to around $20 from a February high of $27. GM shares recovered as the year progressed, closing out 2012 slightly above $28. The car manufacturing industry comes in second place for 2013, with nine brands buying ad time for an estimated total of $60.8 million.

The competition between food and autos runs even deeper when it comes to the halftime show sponsorship. Since Super Bowl XLII in 2008, Bridgestone has been the sponsor.

PepsiCo ( PEP) has taken over sponsorship duties, however, to promote the Beyonce spectacle this year. (No word on whether lip-synching will be included in this event, too.)

A total of 36 brands have purchased air time so far (as of Jan. 29) for the Super Bowl; Food & Beverage has the majority with 10. Anheuser-Busch InBev ( BUD) has the lion's share of the time, buying four and half minutes of air time; with a rumored average cost of $3.8 million per 30-seconds, the estimated cost of providing lots of time looking at Clydesdales and beer is estimated to be $34.2 million. In addition to the dramatic increase in advertising, the company had the Department of Justice block the takeover attempt of Grupo Modelo this week. Perhaps their beer is becoming skunked? Keep an eye on PepsiCo as well; they are on the ad list twice with soda and Doritos as well sponsoring the halftime show.

When my indicator was first released in 2000, dot-coms had spent the most, with the average cost of $2 million for 30-seconds. Of the six Internet companies that had time during the last Super Bowl, just two are returning this year.

In the technology space this year, two companies round out the industry: Samsung and BlackBerry ( BBRY, new ticker effective on Feb. 4) -- formerly Research In Motion ( RIMM, as if a change of name will solve everything). Samsung has not leaked any previews, but another Apple ( AAPL)-bashing ad promoting the company's Galaxy smartphones is likely. BlackBerry will be heavily promoting the BlackBerry 10.

Rounding out the list is the increase in entertainment industry spending. Three movie studios -- Universal, a subsidiary of Comcast ( CMCSA); Walt Disney ( DIS); and Paramount, a subsidiary of Viacom ( VIA) -- have spent an estimated $11.4 million to promote the upcoming summer blockbusters. This suggests studios are attempting to bring more people to the movies. Time Warner ( TWX) also bought ad space to promote The Walking Dead, a cult favorite about the zombie apocalypse. No word yet on whether the show is really a documentary on realtors in the housing market. ( Century 21 also bought ad time.)

Summary

We might conclude from the historic causality between the indicator and industry composition of Super Bowl advertising that headwinds could be facing both the food & beverage and auto manufacturing industries in 2013-2014.

Super Bowl XLVIII parties might include fewer snacks, some skunked brewskis, and some older-model cars in the driveway.

Expect some of your friends to brawl it out over who has the newest and greatest iPhone/Samsung Galaxy-Nebula-Universe/BB10. You can be well-positioned for the sideshow of who is eating the rotting Apple or sour Blackberry next year -- perhaps to the tune of Beyonce lip-synching during the halftime show.

Note: Special thanks to our two analysts, Nick Pollari and Kelley Hopkins, for their assistance in the preparation of this report.

At the time of publication, Kass was long GM, PEP and DIS.


Kass Out
Originally published on Friday, Feb. 1 at 4:54 p.m. EST.
  • But first, a summary of this week's macroeconomic events.

The S&P 500 made a multiyear high this week, rising by 0.7%. I would caution that there were some developing divergences with transports, retail (and consumer discretionary), cyclicals and selected construction-related areas turning lower on the week. There was a lot of mixed data over the last few days.

Here is a summary of macroeconomic events this week:

Positives

  • While January payrolls were a touch light vs. consensus, the prior two months were revised upward by 127,000 and 335,000 for the full year 2012 in the annual benchmark revision. Average hourly earnings rose 2.1% year over year, matching the best since July 2011.
  • January ISM manufacturing rose almost 3 points to 53.1 and above estimates of 50.7. It's the highest since April, led by new orders, production, employment and inventories. Export orders and backlogs fell and prices paid rose.
  • University of Michigan final confidence for January at 73.8, better than expected, up from 72.9 in December but still well below 82.7 in November, as 2013 tax increases cause concern.
  • December durable goods orders jump 4.6% headline but a more modest 0.2% at the core (nondefense capital goods, excluding aircraft).
  • The S&P/Case-Shiller home price index rose 0.6% month over month and 5.5% y/y in November.
  • Wage pressures modest as seen in fourth-quarter Employment Cost Index, up 1.9% y/y.
  • Personal income jumps 2.6% m/m in December but juiced by year-end tax decisions. PCE price deflator rose 1.3% y/y, the lowest since July.
  • Fourth-quarter earnings continue to be good relative to expectations but company's play the Wall St game as first-quarter EPS estimates fall again on guidance.
  • HSBC China manufacturing and PMIs for Taiwan, Japan Brazil and EU all rose.
  • EU CPI moderates to 2% y/y, less than expectations of 2.2%.
  • EU economic confidence in December is best since June.

Negatives

  • Unemployment rate ticks up to 7.9% as household survey shows job add of just 17,000 as labor force rises by 143,000. Participation rate unchanged at 63.6%, just off lowest level since 1981.
  • Initial Jobless Claims bounce back to 368,000, which was 18,000 more than expected, and after seasonally distorted prints of 330,000 and 335,000 in the prior two weeks.
  • Pending home sales in December unexpectedly fall by 4.3% m/m vs. estimates of no change.
  • Conference Board consumer confidence falls to 58.6 from 66.7, lowest since Nov 2011.
  • U.S. fourth-quarter GDP contracts by 0.1% vs. estimate of 1.1% gain but due to big cut in defense spending and drag from inventories. Personal spending and investment both positively higher.
  • Gasoline prices, according to AAA, rose $0.14 on the week to $3.46 per gallon, the highest since Nov 7.
  • Implied inflation rate in the five-year TIPS rose a sharp 19 basis points on the week to 2.55%, the most since April 2011. CRB Index at highest since October.
  • Bankrate.com said average 30-year mortgage rate rises to 3.6%, the highest since August. Ten-year Treasury yield at highest since April. With FNMA 30-year coupon at highest since August, mortgage rates will continue higher by another 10 to 20 bps in coming weeks; all else equal.
  • MBA said refinancings fell 10.2% and are back below one-year average. Purchases down a more muted 1.8%.
  • German retail sales fall 1.7% in December m/m, more than the estimated decline of 0.1%.
  • For European exporters, euro rose to highest level since August as it bears brunt of currency wars due to shrinking of ECB balance sheet as nerves calm. Spanish IBEX down 5.7% on week. Spain's fourth-quarter GDP contracts for sixth straight quarter and retail sales fell 10.7% in December.
  • Italian consumer confidence falls to lowest on record since 1996.
  • Manufacturing PMIs fall in South Korea (likely due to falling yen), India, Indonesia and the U.K.
  • Japanese household spending and unemployment rates miss estimates.
  • From a contrarian standpoint, Bulls rose to 54.3 from 53.2 while Bears remained unchanged at 22.3. The spread is the highest since the first week of June 2011.

Thanks so much for reading my Diary and enjoy your weekend and the Super Bowl!

At the time of publication, Kass had a short position in the SPDR S&P 500 ETF

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.

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