Headlines say so little about their subject and so much more about the folks writing them. The Wall Street Journal says, "Wal-Mart Misses Sales Forecast." But the Toronto Globe & Mail insisted that, "Wal-Mart Beats Expectations." Both are true, but the sentiments are polar opposites. One says Wal-Mart did poorly. One says Wal-Mart did well… and both are views of the same results.
The market seems to agree with the positive spin from Toronto, as Wal-Mart shares rose more than 2% today… a big one-day move for Wal-Mart.
What really happened? Wal-Mart same-store sales fell 1.2% in the second quarter. Overall, Wal-Mart sales fell prior to currency adjustments, but rose after them.
Wal-Mart's CFO, Tom Schoewe, says customers are running out of money at the end of the month. But they're being smart, using more cash than credit, buying more basics and less of what they don't really need. They're also trying to spend less by buying smaller package sizes.
This morning, Egan-Jones ratings agency upgraded Wal-Mart from "A" to "A+," calling it a "financial powerhouse." I've been saying things like that about Wal-Mart for a couple of years now. CEO Mike Duke says Wal-Mart could use its financial strength "to take advantages of opportunities that present themselves." Perhaps Wal-Mart is going to make an acquisition soon?
The folks at Budweiser agree that consumers are keeping their belts tight. Anheuser-Busch Inbev, the world's largest beer brewer, says customers are switching to cheaper brands like Busch and Natural. AB Inbev says, "the current story in the brewing sector" is "a tough trading environment," which is more than made up for through "robust pricing, falling input costs, and efficiency gains."
In other words, being the World Dominator of brewing is a great business, even during a global depression. Wal-Mart, too, says it continues to gain market share as the economy remains depressed.
I've been telling Extreme Value readers for more than a year that World Dominating brand name businesses should be your core portfolio during the economic downturn, and for several years to come. You can get access to Extreme Value by clicking here.
Sign of the top in sugar? With sugar prices up more than 80% this year, Anglo American is selling out. The global commodity giant is selling its 49.5% stake in Tongaat Hulett, the South African sugar producer, worth about $536 million at recent prices.
Anglo American has sold or spun off investments in aluminum, gold, steel, and paper & packaging to focus on its core mining businesses. What better time to sell your sugar investment than after an 80+% rise in prices? A good contrarian-style exit.
Some say housing is on the rebound. I don't know about that, but I do know homeowners are doing as poorly as ever. RealtyTrac, the online marketplace for foreclosure properties, reported this morning that foreclosure activity hit a new record in July.
Foreclosure filings, including notices of default, scheduled auctions, and bank repossessions, hit 360,149 last month, up 7% from June and 32% year to date. One in every 355 U.S. homes received a foreclosure notice in July.
The Sunbelt is still in horrible shape. California, Florida, Arizona, and Nevada make up nearly 57% of all U.S. foreclosures. Nevada is still no. 1, with one in every 56 homes receiving a foreclosure notice in July.
Billionaire John Paulson's hedge-fund firm, Paulson & Co, filed its most recent 13F (institutional managers who manage over $100 million are required to report their long positions in the U.S. markets each quarter) for the quarter ended June 30, and he's making a huge bet on financials…
Paulson gained fame in 2007 after he made over $3 billion shorting subprime securities. He then added to his financial short by selling shares of British banking giants Lloyds TSB Group, HBOS, Barclays, and Royal Bank of Scotland. All four plunged, and Paulson made even more.
Next he made a huge bet on inflation, piling almost $5 billion (around 16% of his fund) into gold and gold stocks (Paulson is the largest shareholder of the $34 billion SPDR Gold ETF).
Obviously not one for conservative position sizing, Paulson has now plowed into financial stocks. His firm bought 167 million shares of Bank of America, 7 million shares of JPMorgan, 2 million Goldman shares, 35 million shares of Regions Financial, 17 million shares of Capital One, and massive positions in six other financial firms. And he's probably already made billions on his new positions considering the market rally since March – Bank of America, his largest new position, is up around 40% from where he bought it.
You can view the complete SEC filing here.
Paulson isn't the only heavy hitter betting on financials… At the end of the second quarter, money managers as a whole had 18.5% of their long portfolios in the financial sector – the largest weighting of any sector. Technology is second at 16.8%. Then comes Health Care (12.9%), Energy (12%), and Industrials (10.3%). See the entire breakdown here.
Contrarians take note… The S&P 500 Financials Sector Index is up over 130% since bottoming in March, and the trade is getting mighty crowded.
Barney Frank is sponsoring a new bill, called TARP for Main Street, where the government would use $2 billion of TARP money that has been repaid by banks to keep apartment buildings in New York City from defaulting. Currently, 120 buildings in Manhattan – 84 of them apartments – are considered "troubled." Developers bought rent-control buildings in 2006 and 2007 in hopes of making a fortune by converting them to market-price units… Now, they're underwater.
While the government is pushing for this bailout, an actual Manhattan developer who is in default on one property, Larry Gluck, said things aren't as bad as they seem. He said local lenders are working with developers to make sure buildings don't go under (the "extreme greed" of the free market at work). But in an attitude most Americans are quickly developing, Gluck said he welcomes a bailout, because everyone else is getting them… "As long as there is a long list of people out there with their caps in hand, why should everyone else be getting a free run?" Gluck said. "If it staves off some bank foreclosures, it is good for real estate and good for tenants."
New high: Addax Petroleum (AXC.TO).
Apparently we've upset some Obama fans out there. Stick up for us (or don't) here: feedback@stansberryresearch.com.
"Right-wing neanderthal - I do not appreciate references to the President as Komrade Obama." – Paid-up subscriber Peter Rell
Ferris comment: I've never been called right wing before. Neanderthal many times. But never right wing.
"I am a subscriber to one of your newsletters. I think it is absolutely ridiculous to use terms like 'Obama saith' and 'Obama protecteth'. Don't forget that he is there because the people wanted him there, and he is trying to save this country from those who were destroying it out of extreme greed. If I knew this was the way S&A Digest was going to be written, I would not have subscribed to your news letter. Have a great day." – Anonymous
Ferris comment: If extreme greed is bad, how do you explain your participation in investment markets?
Regards,
Dan Ferris Medford, Oregon August 13, 2009