How the 24-Hour Retail Cycle Skewed Labor Data

On almost all accounts, December’s Employment Situation Report was interpreted as good news. However, I see a problem that was only partially broached by the popular press last week. I think a seasonal and unique to 2011 factor supported the labor market last month. This, combined with other seasonal factors I’ve been pointing out throughout December, could be exaggerating job gains. If I’m right, given the short-term nature of this impact, we’ll see some counteracting data in early 2012. Compounding this contrary view of the economic situation, the recession overcoming Europe and the economic growth decay in China are not going to pass without impact to a vulnerable American economic state.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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How the 24-Hour Retail Cycle Skewed Labor Data

The Labor Department reported the unemployment rate fell two-tenths of a point to 8.5%, from 8.7%. December’s report also showed an addition of 200K nonfarm payrolls. Both data points represented improvement and both reached above the expectations of economists, who were reportedly looking for an 8.7% unemployment rate and the addition of 150K jobs, based on Bloomberg’s survey. So why did economists fall short?

I think evidence of this is readily available in the report itself. What caught my eye initially was the increase in the average workweek, which was lauded by many talking heads in the popular press. Average hours worked rose to 34.4 hours, up from 34.3, marking an unexpected increase against economists’ views.

We know the retail sector added another 28,000 jobs in December, but the reason behind it was simply attributed to the holiday shopping season. However, there were dynamic factors at play that reached beyond normal seasonal trend. Many stores stayed open 24 hours or otherwise extended their hours of operation through the holiday shopping period of 2011. It was a trend that was initiated by Target (NYSE: TGT) and Wal-Mart (NYSE: WMT) at the formal start of the shopping period, which this year even preceded Black Friday. Operating managers kept the lights on at select Macy’s (NYSE: M), Toys “R” Us and Old Navy, which is owned by The Gap (NYSE: GPS), among other stores. Clearly, doing so requires additions to the workforce count, which would boost December employment beyond the usual seasonal additions at retailers. However, those extraordinary additions would be quickly let loose post the holidays, and so do not present as strong an economic signal as perhaps some see in the December data.

A portion of the holiday’s temporary additions to the employed pool is also notable in the Transportation and Warehousing segment, where the courier and messenger industry contributed 42,000 of the segment’s 50K in workforce growth in December. UPS (NYSE: UPS) and FedEx (NYSE: FDX) each make public notice of the increase on seasonal demand. With this regular trend well understood by the market, it seems to be overlooking the dynamic change in the creative marketing and operation of the retail industry, which I believe also drove increased workforce counts.

What’s not accounted for in this argument is the 23,000 job increase in manufacturing. I suspect this growth is being driven by the increasing effort in domestic energy production, which is a secular trend and a real driver for ongoing employment. Likewise, the long-term growth in health care has been driven by secular demand on the aging demographics of America, and this would also support manufacturing. I see the mining increase driven by the rising prices of commodities, including gold, silver and rare earth metals. Again, manufacturing is indirectly aided.

Jobs have been created over the course of the year, which is reflective of the slowly improving economic environment. There’s no denying that. However, my concern is that new burden lies ahead, driven by deep recession in Europe and related slowing growth in the domestic economies of the emerging markets. Given that the late 2011/ early 2012 market has fed off what has been viewed as a healthy holiday shopping period, I worry about a different reality that could be reported by retailers for the quarter. That reality should reflect leaner profit margins and many earnings shortfalls on the stores’ deep discounting and long hours of operation, as desperate retailers sought any pull possible to lure market share. Thus, I suggest investors take the holiday-relative economic data for what it is, full of noise and distortion.

Article interests investors in: S&P Retail ETF (NYSE: XRT), Wal-Mart (NYSE: WMT), Pier 1 Imports (NYSE: PIR), Ethan Allen (NYSE: ETH), Hooker Furniture (Nasdaq: HOFT), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Apple (Nasdaq: AAPL), Best Buy (NYSE: BBY), The Limited (NYSE: LTD), Chicos (NYSE: CHS), Ann Taylor (NYSE: ANN), The Gap (NYSE: GPS), Macy’s (NYSE: M), JC Penney (NYSE: JCP), Nordstrom (NYSE: JWN), TJX Company (NYSE: TJX), Kohls (NYSE: KSS), Costco (Nasdaq: COST), Target (NYSE: TGT), Wet Seal (Nasdaq: WTSLA), Hot Topic (Nasdaq: HOTT), American Eagle Outfitters (NYSE: AEO), Aeropostale (NYSE: ARO), Abercrombie & Fitch (NYSE: ANF), Saks (NYSE: SAK), Tiffany (NYSE: TIF), Talbots (NYSE: TLB), Lumber Liquidators (NYSE: LL), Builders Firstsource (Nasdaq: BLDR), Fortune Brands (NYSE: FO), Leggett & Platt (NYSE: LEG), Tempur-Pedic International (NYSE: TPX), Acuity Brands (NYSE: AYI), La-Z-Boy (NYSE: LZB), Select Comfort (Nasdaq: SCSS), Sleepy’s (NYSE: ZZ), Furniture Brands (NYSE: FBN), Natuzzi (NYSE: NTZ), Sears (Nasdaq: SHLD), Dillard’s (NYSE: DDS), Bon-Ton (Nasdaq: BONT), Cost Plus (Nasdaq: CPWM), Baker’s Footwear (Nasdaq: BKRS.OB), Bebe Stores (Nasdaq: BEBE), The Buckle (NYSE: BKE), Cache (Nasdaq: CACH), Casual Male (Nasdaq: CMRG), Cato (Nasdaq: CATO), Christopher & Banks (NYSE: CBK), Citi Trends (Nasdaq: CTRN), Collective Brands (NYSE: PSS), Destination Maternity (Nasdaq: DEST), Dress Barn (Nasdaq: DBRN), DSW (NYSE: DSW), Finish Line (Nasdaq: FINL), Footlocker (NYSE: FL), Gymboree (Nasdaq: GYMB), Guess (NYSE: GES), J. Crew (NYSE: JCG), Jones New York (NYSE: JNY), Jos. A Banks (Nasdaq: JOSB), New York & Co. (NYSE: NWY), Men’s Wearhouse (NYSE: MW), Syms (Nasdaq: SYMS), The Children’s Place (Nasdaq: PLCE).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Mosaic Earnings Should Prove Interesting

Mosaic (NYSE: MOS) will report earnings after the close of trading Wednesday, and the report portends to be interesting. Furthermore, the forward outlook is likely to be confused by a confluence of market factors contending against one another and the company.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Mosaic Study

When Mosaic reports its results at the close Wednesday, both its quarterly results and forward outlook may confound investors. The stock already took a hit on its announcement that it would cut its output by as much as 250,000 metric tons through the first quarter of 2012. That decline capped off a poor showing for 2011, with MOS shares handing shareholders a 34% loss in value, after adjustment for dividends. However, since the warning, the shares have recovered, closing Tuesday 4.3% higher. So it would appear that capital allocation and technical factors would like to support the shares if the fundamentals will hold up.

Mosaic President and CEO, Jim Prokopanko, stated within the company’s announcement that "Isolated phosphate market spot prices have become disconnected with the underlying agricultural fundamentals. As dealers and distributors focus on the macroeconomic uncertainty and delay purchases for the North American Spring Season, near term supply of phosphate barges on the Mississippi River has exceeded near-term demand. The current spot prices in this market do not reflect our outlook for the business, nor do we think they are sustainable. In response, we have decided to cut planned production by 250,000 tonnes over the next three months."

My concern is that the production cut was driven by pricing that has been short of the company’s forecasts. It’s clear to me that Mosaic has offered investors insight into the quarter it will report on Wednesday evening and/or the guidance it will provide for the forward quarter. If pricing has been short of forecasts, then Mosaic’s profit margins should also fall short and its earnings might miss the analysts’ consensus view as well. However, Mosaic did not offer new earnings guidance alongside this production warning, stating that its results would fall within its guidance range. That said, there remains risk the company might miss Wall Street’s expectation, unless they have been adjusted.

Company’s management seems to me to be engaged in a dangerous game, splitting hairs on a timeline, managing economic value it expects to create no matter, just at a later date. But in a competitive environment, this may be a game best not played. That issue is debatable, given the price parallel movement in the shares of Potash Corp. of Saskatchewan (NYSE: POT) around the Mosaic announcement. It seems the Mosaic team expects to garner the same sales it expected before announcing the production cut, but at prices it sees worthy.

It’s my view that the uncertainty introduced into the equation is not supportive of near-term stock price revival, though if management does come through and preserve and create economic value as it plans, it would later benefit. As a result of the uncertainty increase, and the technical and capital allocation factors that seem in opposition of the fundamental question, I would not enter into a new position heading into this earnings report despite my general favor of the agriculture sector.

This article should interest investors in agricultural plays Mosaic (NYSE: MOS), Monsanto (NYSE: MON), Potash Corp. of Saskatchewan (NYSE: POT), Intrepid Potash Inc. (NYSE: IPI), Deere (NYSE: DE), Caterpillar (NYSE: CAT) and others.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

The Coming Stock Apocalypse

Doomsday, Dec 21st 2012, may be almost a year away according to the Mayan calendar, but catastrophic downside for stock market indices is likely more imminent. Even in this Presidential election year, a return to March 2009 Bear Market lows is a definite possibility. Perhaps the only question is... when?

A Technical View

Against a backdrop of slowing growth and looming debt crises, both in the U.S. and abroad, stock valuations appear to be suspect:

• Based on current forecasts, U.S. debt will likely eclipse GDP in 2012 even as economic growth slows in the United States. Monetary and fiscal policies are unlikely to be supportive in the current environment;


• Bloomberg reports that over $200B in European debt will come due in the first quarter of 2012 and that the Euro Zone will likely enter recession;


• Morgan Stanley has recently revised growth forecasts in emerging markets downward from 6.1% to 5.7%. Even that growth prediction is contingent upon supportive policy decisions from the U.S. and Europe.

Technical analysis also suggests that downside will resume early in 2012. Elliot Wave Theory identifies the current S&P 500 price pattern as the onset of intermediate Wave 3 down (see Figure 1 below). By definition, Wave 3 down includes the largest price move in a five-wave pattern. This would imply a downside target of roughly 950 or less for this wave movement alone.



From the chart in Figure 1, constructed at author's submission of article on January 1st, we can also observe the following:

• Key resistance for the S&P is at the October high of 1292 with key support at the December 20th low of 1242;


• The 50 day moving average remains below the 200 day moving average; note that this is the so-called “death-cross,” which some treat as the defining indicator for bear market conditions;


• Index closing prices are still hovering near the benchmark 200-day moving average;


• Daily Stochastics show that the S&P 500 is currently overbought as a result of the recent but muted “Santa Clause” rally;


• Current price formation is that of a rising bearish wedge.

Any further upside rally in early 2012 should be contained in both price and duration. If prices fall below 1242 without reaching fresh highs, wave 3 down has already begun. Instead, a definitive break above resistance at 1292 would suggest an alternate wave count and could ultimately lead prices as high as 1350 before wave 3 down begins.

Should the rally continue, this final upward move may also foster conditions for a second, confirming “Hindenburg Omen.” The first instance of the indicator was observed on December 19th 2011. A second observation within a month would provide very reliable foreboding.

In any case, Greek readers should consider taking trading profits from this recent rally to avoid the coming "stock-apocalypse."

Disclosure: I have no position currently, however, I intend to sell (short) S&P futures at 1275.50 or higher.

Article should interest investors in SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD), BGC Partners (Nasdaq: BGCP), Bank of New York Mellon (NYSE: BK), BlackRock (NYSE: BLK), CIT Group (NYSE: CIT), Calamos Asset Management (Nasdaq: CLMS), CME Group (NYSE: CME), Cohn & Steers (NYSE: CNS), Cowen Group (Nasdaq: COWN), Diamond Hill Investment (Nasdaq: DHIL), Dollar Financial (Nasdaq: DLLR), Duff & Phelps (Nasdaq: DUF), Encore Capital (Nasdaq: ECPG), Edelman Financial (Nasdaq: EF), Equifax (NYSE: EFX), Epoch (Nasdaq: EPHC), Evercore Partners (NYSE: EVR), EXCorp. (Nasdaq: EZPW), FBR Capital Markets (Nasdaq: FBCM), First Cash Financial (Nasdaq: FCFS), Federated Investors (NYSE: FII), First Marblehead (NYSE: FMD), Fidelity National Financial (NYSE: FNF), Financial Engines (Nasdaq: FNGN), FXCM (Nasdaq: FXCM), Gamco Investors (NYSE: GBL), GAIN Capital (Nasdaq: GCAP), Green Dot (Nasdaq: GDOT), GFI Group (Nasdaq: GFIG), Greenhill (NYSE: GHL), Gleacher (Nasdaq: GLCH), Goldman Sachs (NYSE: GS), Interactive Brokers (Nasdaq: IBKR), INTL FCStone (Nasdaq: INTL), Intersections (Nasdaq: INTX), Investment Technology (NYSE: ITG), Invesco (NYSE: IVZ), Jefferies (NYSE: JEF), JMP Group (NYSE: JMP), Janus Capital (NYSE: JNS), KBW (NYSE: KBW), Knight Capital (NYSE: KCG), Lazard (NYSE: LAZ), Legg Mason (NYSE: LM), LPL Investment (Nasdaq: LPLA), Ladenburg Thalmann (AMEX: LTS), Mastercard (NYSE: MA), Moody’s (NYSE: MCO), MF Global (NYSE: MF), Moneygram (NYSE: MGI), MarketAxess (Nasdaq: MKTX), Marlin Business Services (Nasdaq: MRLN), Morgan Stanley (NYSE: MS), MSCI (Nasdaq: MSCI), MGIC Investment (NYSE: MTG), NewStar Financial (Nasdaq: NEWS), National Financial Partners (NYSE: NFP), Nelnet (NYSE: NNI), Northern Trust (Nasdaq: NTRS), NetSpend (Nasdaq: NTSP), Ocwen Financial (NYSE: OCN), Oppenheimer (NYSE: OPY), optionsXpress (Nasdaq: OXPS), PICO (Nasdaq: PICO), Piper Jaffray (NYSE: PJC), PMI Group (NYSE: PMI), Penson Worldwide (Nasdaq: PNSN), Portfolio Recovery (Nasdaq: PRAA), Raymond James (NYSE: RJF), SEI Investments (Nasdaq: SEIC), Stifel Financial (NYSE: SF), Safeguard Scientifics (NYSE: SFE), State Street (NYSE: STT), SWS (NYSE: SWS), T. Rowe Price (Nasdaq: TROW), Visa (NYSE: V) and Virtus Investment Partners (Nasdaq: VRTS).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.