Tuesday, August 7, 2012

It's a Small world but I wouldn't want to have to paint it.


Eur/usd held up well last night after Merkel's govt backed the ECB's bond buying plan. Some positives were euro yields were flat to down, sp500 started strong but ended only up .2%, with Knight Capital getting a $400m rescue. However we saw, the late session sell of in US markets as Standard and Poors cut ratings on 15 Italian banks - which is following up from the 34 banks downgraded in February.

Given the run-up in equities and the AUD usually stalling around the 1.06 mark signalling a potential turning point in risk markets, we would want to be cautiously long towards the end of Aug and reevaluate risk positions for the seasonal selloffs in sept.

The market is continuing with the phase of buybacks (1tn+) and takeovers and consolidations are now still operating given the better valuations on improved earnings of most companies.  Remember we have rising earnings and falling revenues with 73% beating expectations on earnings, but 59% missing revenue projections (bloomberg).


LEI reported its profits with a turnaround from losses, yet got hit for 5% at market open -looks like a good accumulation/buying opportunity as the guide was cautious given the uncertainty in europe.
In Aussie retail we are still in trouble with the slowdown and structural changes in the global retail environment that I've mentioned it before, that the current high costs to operate and global pressure are making it harder and harder to survive. However, given that we've seen a selloff in Best Buys (BBY) met with takeover opportunites and the rumours in DJS a few weeks ago, the BBG private equity offer, you always have to keep an eye out to buy quality names on a panic shakedown.
A key to seeing how much selling can remain is when a company like HVN reports below expectations, but has been so heavily sold off, we are seeing minor selldowns to flat action in the price.
Gerry Harvey, co-founder and chairman of Harvey Norman , yesterday said the combination of a high Australian dollar, deflation and lower than expected sales had led the white goods and electronics retailer to announce that its full-year pre-tax earnings would be almost 40 percent down on the previous fiscal year. "The results are worse than we expected  there are more retailers than before going out of business in the last 18 months and the road ahead is not going to be nice," Mr Harvey


Whilst I wouldn't touch HVN with an ugly stick, the player with branding presence in the key retail space that despite their low margins has been a relevant equity player is JB-HIFI; a potential for a revenue boost when the new iphone 5's and samsung phones come to market, as well as their increasing online ordering capacity.