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Should We Now Be Thinking About Relative Deflation?

Housing prices continue to slump, albeit at a declining rate. Crude oil is down nearly 20% in less than a month. Copper, gold, corn, wheat all at multi month lows. Why are we so worried about inflation when the discussion ought to be focused on deflation? As is the case with most government data points, inflation is also backward looking. Right now it looks like we could see a dramatic fall off in inflation gauges over the next few months. All of this could occur without further dramatic declines in commodity prices.

I am not necessarily talking about Japanese style deflation from the 1990s but a retraction of the recent elevated levels of inflation that we have recently been exposed to. Call this relative deflation. By the way, by historical measure the recent levels of inflation have been quite tame. What would be the secondary impacts of relative deflation?

1. Labor cost pressures would subside and employment would rise

2. Consumers would increase discretionary spending or dare I say savings

3. Lower commodity prices would spur economic expansion

4. Alleviation of pressure by FOMC Hawks to tighten monetary policy

5. We would begin to fill those vacant houses once again

Economic cycles come and go. Economic indicators have been cycling down for several quarters now. That will come to an end and we will begin a new economic cycle once again. Perhaps the falling prices in crude oil and commodities will be the stimulus for a new economic cycle.



Posted By Scott Rothbort at August 5, 2008

Three Must See Interviews

There are three interviews which I embedded onto the video page of The Finance Professor which are must views:

1. Gregg Greenberg of TheStreet.com interviewed Jamia Jasper of the American Israeli Shared Values Fund. The discussion focused on how the resignation of Ehud Olmert will impact Israeli stocks. They discussed Elbit Systems (ESLT) a stock which I own personally and for my LakeView Asset Management, LLC clients as well as Teva Pharmaceuticals (TEVA) which we also have exposure to via our holdings in the First Israel Fund (ISL). Early this summer I wrote an article for The Street.com on Investing in Israel .

2. Jim Rogers the venerable investor talked with my good friend Cody Willard on Fox Business’ Happy Hour as they discussed investing in China and commodities. His opinion which I share is that we are in the midst of a pullback in a very long bull market that is continuing.

3. I was interviewed this morning by Fox Business’ Alexis Glick on the topic on Wendy’s (WEN) and Subway. WEN is being acquired by Triarc (TRY).

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of ESLT and ISL--- although positions can change at any time.

 

 

 



Posted By Scott Rothbort at August 6, 2008

Urban Outfitters Set To Beat Analysts Estimates

Urban Outfitters (URBN) gave us a nice preview of their earnings which are scheduled to be released next week. For the quarter total sales rose 30% to $454.3 million. This is significantly greater than Wall Street analysts’ consensus of $431.1 million. The analyst community expects URBN to earn 28 cents for the quarter. While extrapolation is dangerous, in this case I think that the safe bet is for URBN to better those EPS estimates as well.

Total same store sales, a measure of relative store performance, rose 13% in URBN second quarter. By concept, same store sales rose 7% at Anthropologie, 10% at Free People and 19% at Urban Outfitters branded stores.

The company continues to grow rapidly. Currently URBN has 132 Urban Outfitters and 115 Anthropologie stores in the system. Another 45 stores are expected to be added in 2009. The company is beginning to expand into Europe making URBN a global brand. I recall from my days as a student at the University of Pennsylvania the first Urban Outfitters store nearby campus. The company has come a long way and has more room to grow.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of URBN --- although positions can change at any time.

 



Posted By Scott Rothbort at August 7, 2008

July McDonald’s Sales Are of Olympic Proportion

McDonald’s (MCD) reported total sales growth and same store comparable sales today which were McHuge. Here is how it breaks down:

 

Global MCD: Comp sales +8.0%; Systemwide sales in constant currency +9.5%

US: Comp sales +6.7%; Systemwide sales +7.6%

Europe: Comp sales +7.6%; Systemwide sales in constant currency +9.5%

Asia/Pac/MidEast: Comp sales +7.2%; Systemwide sales in constant currency +10.0%

 

 

There is no denying the fact that MCD is able to capitalize on: more traffic flow in the US as consumers trade down (in economics we call this the “Substitution Effect”); expanded hours around the globe; capturing share of the quick service coffee business as the McCafe concept continues to expand; and, growth in China / Russia.

The real question for MCD right now is how they will make adjustments to the dollar value menu. Due to the rise in beef prices these menu items have become less profitable and possibly loss leaders. There is no doubt in my mind that MCD will carefully design an alternative marketing and product strategy.

Finally, MCD has built four restaurants on the Beijing Olympic site: one in the Olympic Village to serve athletes, one at the main press center to serve the huge media population and two for the spectators in the main activity area, the Olympic Green. This will not only help August sales but will also help to bolster post Olympic sales once the athletes return home.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of MCD --- although positions can change at any time.



Posted By Scott Rothbort at August 8, 2008

UBS Rating Change on Darden - Deceptive, Confusing and Poor

Yesterday UBS analyst David Palmer downgraded Darden Restaurants (DRI) to “Neutral” from “Buy”. In order to rationalize that downgrade the analyst moved their price target down $1 from $39 to $38. Yet DRI remains his top pick in the casual dining segment. The stock moved from $34.97 to $33.01 on the “downgrade”. If the analyst expects the stock to move to $39 or nearly 9% from the closing price before the rating change why change the rating at all? To me, an anticipated 9% move to a price target is a rather bullish sign and a signal to buy not just hold a stock. This is another example of deceptive, confusing and poor research ratings. I don't necessarily put blame on the individual analyst in this case but this is an indictment of the entire research system.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of DRI --- although positions can change at any time.

 



Posted By Scott Rothbort at August 20, 2008

Crude Oil: With Demand Destruction Accomplished, Do We Now Need To Worry About Supply Destruction?

The talk the last few weeks has been of demand destruction for crude oil. OK we got some of that and it took crude oil down over 20% in a very short period of time. Now we could be in for the worst kind of destruction - that of supply. Is anyone out there concerned about the Russia - Georgia situation? What happens if the conflict escalates and oil supplies are cut off or if pipelines are damaged or destroyed? The long and short speculators can have fun with the markets all they want but if the supply from Russia or OPEC or Venezuela or Nigeria is cut or manipulated or destroyed then the crude rally will be even bigger the next time around. The bottom line is don’t be so quick to assume that a crude oil “bubble” has popped or that we even had a “bubble” at all.



Posted By Scott Rothbort at August 21, 2008

Will John McCain's Vice Presidential Selection Help the Markets?

The McCain Veep choice is going to get plenty of attention the next few days. The selection is also a possible market mover in the future.

I think that we could see a woman. Kay Bailey Hutchison is a possibility but McCain does not need Texas he already has it. Yet don’t rule her out. I think that Carly Fiorina formerly of Hewlett-Packard (HPQ) or Meg Whitman of Ebay (EBAY) fame both have a shot but it is more likely that their lack of political experience leaves them as possible cabinet appointments should the GOP win.  Wall Street would like that, especially in techland.

Minnesota is a state that the GOP would like to take along with its 10 electoral votes. That makes Tim Pawlenty a possibility. Charlie Christ, governor of Florida is a rumored selection but it already appears that McCain will win Florida so that might be a waste. However, a possible long shot could be with Lincoln or Mario Diaz-Balart. Both are Hispanic and young. That is a “two-for” for McCain. However, Lincoln was born in Cuba thus Mario who was born in the US would be the more optimal choice. I think that the juicy take is in Pennsylvania where Tom Ridge could deliver the state. The talking heads on television seem to think that the pro-life Mitt Romney will be picked to appease the religious right.

One thing that is certain is that McCain won’t upset the Hillary supporters with his pick. I think he has a nice opportunity to get a post-convention bounce with the right pick. A woman or Hispanic would do just the trick.

As for the market reaction, I believe that the S&P 500 (SPX) has already lost about 100 index points just on Obama’s clinching of the Democratic nomination back in late May. A GOP rise in the polls could help support the SPX and a GOP victory in November will put a big bid into stocks. A strategic vice presidential running mate could make the difference to the markets.



Posted By Scott Rothbort at August 27, 2008

Scott Rothbort

About Me :

SCOTT ROTHBORT

THE FINANCE PROFESSOR

 

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational website TheFinanceProfessor.com and a frequent contributor the TheStreet.com where he also writes a weekly article as The Finance Professor

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com.

 


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