August 2011 Archives - 3/10 - Money Morning - Only the News You Can Profit From
Target Corp. (NYSE: TGT) Has Dethroned Wal-Mart as the Discount King
For years retailers have tried to get an edge on Wal-Mart, and through added business segments, new discounts and a streamlined store focus, Target may have done just that.
Even with a tough outlook for U.S. retail spending, the company is expected to do well for the rest of the year.
Burt Flickinger, managing director of Strategic Resource Group, said Target's been delivering all the right moves a retail company should make when the economy falters.
"Target's strategic plan is much stronger than Wal-Mart," Flickinger said. "Wal-Mart is going the wrong way."
Target Corp.: Shoppers' Delight
To compensate for a stagnant economy, Target slowed store openings and gave added incentives through discounts. The efforts helped boost same-store sales 3.9% last quarter, the biggest boost since 2007.
It also opened a grocery section in most stores to become more of a one-stop shopping experience, like many Wal-Mart locations. The grocery business boosted profitability and only slimmed margins to 31.6% from 32%.
Target's focus on consumable items is part of a strategy to generate more same-store sales in a few geographic regions, compared to geographically diversified Wal-Mart. The business shift has paid off.
- Libya and the Oil Market: What You Should Expect
- Stocks Continue to Rally Even After Earthquake Hits Northeast
The Libyan Factor
Now that Moammar Gadhafi is about to be toppled from power in Tripoli, international oil majors are poised to stream back into Libya. Italian leader Eni S.p.A. (NYSE ADR: E) already rushed back field specialists Monday morning to assess damage even before the smoke (or the politics) cleared in the capital.
The great unknown is how long it will take to ramp up production to pre-crisis levels. Anecdotal evidence is pointing in all kinds of directions. Some European analysts have already concluded it could take one or two years at some of the primary fields, while others are saying the brunt of production could be back on line within a month.
This is going to be a field-by-field approach. More to the point, the condition of pipelines, gathering and processing facilities, terminals and port facilities will be just as important as the oil fields themselves. We know that some of these were heavily damaged. And that means full export volume is not something we can expect to see resume anytime in the near-term.
Could Goldman Sachs Group Inc. (NYSE: GS) CEO Lloyd Blankfein Do the First "Perp Walk" of the Financial Crisis?
This is a game changer even if we don't yet know where the fire is.
Blankfein has led the firm for six years and spent the past two dealing with allegations of conflicts of interest and fraud. A Senate report released in April said Goldman dumped subprime loan exposure onto unsuspecting clients during the mortgage meltdown and then in 2010 gave Congress misleading testimonials about the firm's actions.
So far, Blankfein has not been accused of any crime or crimes. That means, and I cannot stress this strongly enough, that he is innocent in the court of law – even if he is held slightly above pond scum in the court of public opinion for his and Goldman's role in causing the financial crisis.
The European Banking System is Finally on the Verge of Collapse
I hate to sound alarmist, but it looks as though the European banking system – and consequently the global banking system – is edging its way towards another epic collapse.
That means in just a few short months, stocks could be back at their 2009 lows while gold prices travel north of $2,500 an ounce.
This is the worst-case scenario that's been bandied about ever since Europe's debt problems first came to light.
How do we know that this is what's happening?
Because somebody is having trouble obtaining the money they need — and they just borrowed it from the lender of last resort.
The European Central Bank (ECB) last week lent $500 million dollars to an undisclosed Eurozone bank through a credit mechanism that had been dormant for the past 12 months, with the exception of one $70 million draw in February.
This comes as no surprise – the warning signs have always been there.
In fact, I warned Money Morning readers just a few weeks ago that the Eurozone could have its own American International Group Inc. (NYSE: AIG) – or worse, its own Lehman Bros. Holdings Inc. (PINK: LEHMQ) – lurking somewhere in the shadows.
Still, while this may not surprise you, it certainly surprised the heck out of the rose-colored glasses crowd that can't seem to understand the European sovereign debt crisis is finally about to wash up on our shores.
That's why stocks in the United States and around the world have taken such a brutal beating recently. Officially the story is about the renewed worries over Europe's debt crisis and U.S. data that suggests we're once again sliding into a recession.
But what's really happening is that global traders are moving quickly to liquidate holdings and raise cash while they can.
That's why so-called risk assets like stocks, corporate bonds, industrial metals, oil and higher-yielding junk instruments are tanking, as gold, the dollar and the yen are bucking up.
The U.S. Federal Reserve already is engaging in damage control. President of the Federal Reserve Bank of New York William Dudley has said the risks of a double-dip recession are "quite low," despite anemic growth. And it's been rumored that U.S. Federal Reserve Chairman Ben S. Bernanke will telegraph new monetary stimulus measures Friday during his speech in Jackson Hole, WY.
But really, who are they kidding?
This crisis has nothing to do with liquidity (which is how the central bankers are trying to fight it) and everything to do with solvency (which is how they should be fighting it).
Not only are the risks of a global recession mounting by the minute, but I believe the concentration of risks is approaching critical mass.
GDP Is a Lie – It’s Time for a New Measure of Economic Growth
Gross domestic product (GDP) is the most commonly used measure of economic growth. But GDP isn't just inaccurate and misleading – it's the contrivance of Keynesian economists seeking to push their own, big-government agenda.
That's right. GDP is a financial ruse – the biggest of the past half-century. And it's time to move past it to another, more accurate measure of economic growth.
Keynesian economist Simon Kuznets designed GDP at the height of the New Deal era. Kuznets first revealed the measure in a report to Congress in 1934. GDP takes into account consumption, investment and government expenditure to create a measure of economic growth.
But the Keynesians employed some chicanery, or sleight-of-hand, to generate this statistic. A close look reveals the dirty little secret about GDP: It intentionally overplays the importance of government spending – and in doing so inflates the role that Washington plays in each of our lives.
And it's been doing this for 77 years …
The Biggest Lie of the 20th Century
Gross domestic product is supposed to be a measure of all the goods and services produced here at home.
But there's a discrepancy.
You see, private-sector output is measured by the price people are prepared to pay for it. But government output is fudged: It's measured by its cost.
That means GDP increases any time the government spends money. It doesn't matter if that money is actually put to productive use or not – GDP rises nonetheless.
The bureaucrat devising regulations that damage business? His salary increases GDP. The $300 million Alaskan "bridge to nowhere" of a few years back? That was $300 million added to GDP. The jet-fighter project that costs billions, and is plagued by huge overruns that lead to its cancellation? Those billions add to GDP.
Even public-spending "stimulus" programs, however foolish, are always effective according to the GDP definition, because their cost is simply added to output.
It's obvious why big-government Keynesians would like this calculation: It substantiates their claim that government spending stimulates economic growth.
In the real world, however, this makes no sense. Indeed, none of the examples above actually add to economic welfare.
Don't misunderstand – some government output is very valuable. We could not exist in a free society without a court system that protects our property rights and a national defense that protects our borders. In most other cases, however, if government output were truly cost effective, the private sector would've already taken the initiative (and probably done so at lower cost and greater impact).
So how can you get an accurate measure of economic growth?
Arithmetically, there's a simple solution: You take Line 1, "Gross Domestic Product," in the Bureau of Economic Analysis' GDP Table and subtract from it Line 21, "Government Consumption Expenditures andGrossInvestment. "
That gives you a net number, which we can call "gross private product," or GPP. It's a measure of all the output produced by the private sector. In general, it will underestimate national "welfare" unless government is really bad. But it will give you a much better idea of the output the market economy is producing.
Indeed, looking at GPP's past performance helps to explain some things that GDP doesn't.
Keynesians like to proclaim that World War II got America out of the Great Depression: Thus, if you make stimulus big enough, it will solve economic problems.
This is the biggest lie of the 20th century.
Consumer Flops Force Hewlett-Packard Strategy Shift
The most definitive proof yet that mobile devices are driving personal computers to extinction surfaced last week when Hewlett-Packard Co. (NYSE: HPQ) announced it was throwing in the towel.
Tired of selling low-margin PCs, and with its tablet and smartphone offerings failing to catch on, H-P unveiled a massive change in its strategy – abandoning its consumer efforts to focus on software and services for businesses.
Hewlett-Packard's strategy shift involves three major changes:
- The company plans to abandon mobile computing altogether. It will stop making its Touch Pad tablet, which debuted just two months ago, and the Pre smartphones it acquired when it purchased Palm Inc. last year for $1.2 billion. H-P said it may try to salvage the WebOS that runs its mobile devices, also acquired in the Palm deal, by licensing it to other vendors.
- H-P will sell or spin off its PC division, which accounts for about a third of the company's revenue but less than a quarter of its profits.
- H-P will buy Autonomy Corp. PLC (PINK ADR: AUTNY) for $11.7 billion. The U.K.-based company specializes in business software that can search data such as emails, music, video and social media posts.
Of course, while most analysts agreed with the reasoning behind H-P's decision, they were less than pleased with the suddenness of the move and the apparent confusion in the company's execution.
"What they're trying to do is change the oil in the car at 60 miles per hour," Needham analyst Richard Kugele told USA Today.
Investors expressed their displeasure by dumping H-P stock, and accelerating on Friday. HPQ lost almost a quarter of its value shortly after the announcements Thursday afternoon, falling to $23.60 from its Wednesday closing price of $31.39.
We Told You So: S&P Does an About-Face on its Call to "Sell Google"
Apparently it's not time to "Sell Google" after all.
When Standard & Poor's Equity Research downgraded the shares of Google Inc. (Nasdaq: GOOG) from "Buy" to "Sell" last week – and slashed its target price for Google shares from $700 to $500 – we were blunt in stating that the ratings agency had blown the call.
Looks like S&P must've heard us.
On Monday, just three days after downgrading Google, S&P did an almost-total about-face on its much-debated call – and upgraded Google shares from "Sell" to "Hold."
Frankly, these ratings firms seem determined to operate in a flawed manner – the S&P/"Sell Google" saga only underscores what we've been saying since 2007, when Money Morning warned readers that these firms failed to warn us about the subprime-mortgage disaster. (Don't forget, it was another unit of S&P that downgraded U.S. debt earlier this month. That downgrade, to be really credible, should have been announced several years ago, during the height of the global financial crisis.)
Gold Prices Hit Another Record – But Silver is the Play to Make
Gold prices had another record-breaking day yesterday (Monday), with gold for December delivery climbing 2.1% to close at another all-time high of $1,891.90 an ounce on the Comex.
But as impressive as gold's run has been, silver may be the better bet.
Silver prices rose 2.5% yesterday to settle at $43.47 an ounce.
Make no mistake: Gold prices are headed higher, but silver, since it took a spill earlier this year, actually has more upside at the moment.
This is no secret to "insiders."
The latest CFTC data for the week ended Aug. 16 revealed tactical investors increased their exposure to every precious metal with the exception of gold. Net fund length in Comex Gold fell by 3,500 lots. Speculative length in Comex Silver, on the other hand rose.
The fear is that gold prices, which have been on an absolute tear through the month of August, have gotten ahead of themselves. Gold is up 16% this month, which means its set for its best monthly gain since 1999.