Monday, April 30, 2012

The Bullish Bid

Last week's downgrade of Spanish debt to BBB+ and GDP being revised down, we are seeing price moving higher - psychologically a bullish indication.

Earnings in Expedia and Amazon came in better than expected, with Amazon rising 15% in 1 day.  This was a heavy hitter in my portfolio last week as I have a heavy tilt in this play.  Historically we see 2 days of strong moves in AMZN when the first day is a big beat - so I'll offload half my position into tonight's open if it's green.

Last week saw some nexon rumours of taking over EA lift all their gaming counterparts - with the ATVI release of diablo looming and it's upcoming earnings report, might see a strong number this quarter from this sectors.

Consumer discretionary and tech was strong last week, while financials and energy all lagged.

Coincidentally last week's profit warning in JBHI shows no indicators of a swift retail recovery in Australia.  I have been thinking about the structural difficulties of retail in Australia may make for an uneasy setting over the next decade.

From the demand side -
The days of packed out JBHI is no longer with us, I've been visiting various JB's around NSW the past few weeks and they are barely staffed and even less shoppers, and most of the sales are heavily discounting - which explains the drop-off in demand and the heavy competition of online sales are most definitely affecting everyone across the board, not just the grumpy whiney Harvey.  Digital sales in music and games are also impacting a strong former performer of JB - and I just don't see how a discounting retail bricks and mortar can take on the strong surge of online players from the US and the independent vendors for games through new online channels like steam.  It doesn't look good from a competitive perspective - nor does it look like there will be any headline contribution from increasing incomes or credit spending.

From the cost side -
Retail is still facing very high rents globally and labour costs are just unbelievably uncompetitive from a global perspective.  Unless you're getting super fad-like customer growth like frozen yoghurt in Sydney or decent margin, medium value like coffees in dense areas - There's little hope for sustained profits from the high cost structure of retail.