Dec 14, 2011

Intel and Best Buy Weakness

December 14, 2011
“The UK is as isolated as someone left on the dock in Southampton as the Titanic sailed away.”-Terry Smith of Tullett Prebon

Where’s the money? I watched part of the Senate inquiry into the MF Global collapse, and the Senators must have asked Jon Corzine and crew “where’s the money” at least 20 times. No one seems to know, although Corzine did admit to finding out about the missing funds October 30th.

The Fed met yesterday, with no change to their path or outlook. Markets seemed to be a bit disappointed as they reversed course after the announcement, falling from a 1% gain to about a 50bps loss. Markets in Asia were weak last night, reportedly on disappointment the Fed wouldn’t be providing more stimulus.

The US House of Representative passed a bill to extend the payroll-tax cut for one year, but both the President and Senate Democrats have threatened to block the bill and use the threat of another budget showdown to get some of the terms changed. The President doesn’t like a provision that forces him to make an up or down vote on the Keystone XL pipeline within 60 days (remember he tabled his decision until after the election). The President is stuck between two key contingencies: big labor and environmentalists, who are on opposite sides of the pipeline vote.

Richard Bernstein, formerly of Merrill Lynch and now the CEO of Richard Bernstein Advisors, wrote that shunning hedge funds are one of his five investment themes for 2012. He cited that hedge funds have been “inferior, more expensive products” than other assets, and provides the chart below for support.

Best Buy (BBY), the showroom for Amazon, fell 15% yesterday after reaffirming full year earnings and revenues but missing Q3 earnings. Comps for their Q3 rose 0.3%, which included a domestic increase of 0.9% and an international decline of 1.7%. Although the consensus was expecting a 1% decline, there had been rumors that comps might be better. Gross margins were weak on heavy discounting in the period, 80bps lower than the prior year. This is the 4th consecutive quarter of declining margins, and doesn’t bode well for the retail sector, which has been reporting strong holiday sales amidst heavy discounting. Mobile computing, mobile phones and appliances were strong while TV’s and gaming declined. Their e-commerce business was up 20%.

The Levy Economics Institute at Bard College just released a detailed report looking at lending, guarantees, government facilities, and Federal Reserve spending. The report concludes that as of last month, the total Fed bailout has been $29 trillion and counting. See the table below, courtesy of The Big Picture and the Federal Reserve.



Percent of total

Term Auction Facility



Central Bank Liquidity Swaps



Single Tranche Open Market Operation



Terms Securities Lending Facility and Term Options Program



Bear Stearns Bridge Loan



Maiden Lane I



Primary Dealer Credit Facility



Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility



Commercial Paper Funding Facility



Term Asset-Backed Securities Loan Facility



Agency Mortgage-Backed Security Purchase Program



AIG Revolving Credit Facility



AIG Securities Borrowing Facility



Maiden Lane II



Maiden Lane III









I have discussed the high correlation of stocks this year. The table below, from the Leuthold Group, shows that with the exception of the 1987 Market Crash, stock correlations are higher than at any point in the past 25 years. Steve’s information also shows that these correlations are at the highest levels since the 1930’s.

Intel (INTC) cut numbers on Monday, citing the impact of the floods in Thailand on PC availability. Just when it seemed no chip company would escape the quarter unscathed, Broadcom (BRCM) updated their guidance this morning to the high end of their prior guidance range. BRCM cited strong shipments and expense controls. Avon’s (AVP) Andrea Jung, the longest reigning female CEO in the S&P 500, has announced she will step down as the CEO next year, but will remain the Chairman. The stock is down 44% for the year, but is up 8% today.

I have mentioned in the past the benefits of the Euro structure to the Germans. The chart below seems to support that view and shows the different paths employment has trended in Germany, France, and the other countries in Europe since 2006.

I tend to focus on college football, so you’ll have to bear with my comments there for a few more weeks. Over the weekend Robert Griffin III of Baylor won the Heisman, with Andrew Luck of Stanford coming in 2nd, the same as last year. Believe it or not, UCLA actually found a replacement coach on its 5th try, hiring Jim Mora Jr., who has never coached in college. Who knows, maybe this will be their Pete Carroll moment? Finally, there was a great documentary on ESPN over the weekend which will be running periodically called The Marinovich Project. The trailer can be seen at

Have a great day


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