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No. of Recommendations: 11
http://www.planbeconomics.com/2011/12/08/chinas-investment-b...

for those who don't know Pivot Capital, they are a macro fund and published an absolutely epic note on China back in '09. The timing of the call was a bit early compared to their great call on PIGS (they placed 2 big bets against China and PIGS in 2010), although Shanghai market just hit a new low today, and all the issues discussed in the original report were spot on.

there is also a great cnbc interview with Chanos last Friday.

i just find myself incredibly bearish right now. Ticking time bombs in Europe and China. US market is no longer dirt cheap with earning revision and economic surprise both rolling over.

i have run another liquidation sale last week and i haven't been this heavy in cash in a long time, with 50% of my remaining holdings in special situations with hopefully no relation to overall market. My effective market exposure is probably the lowest ever.

if we still get a Santa Rally next month, i may just clean out every "general" except a couple of financials as gut shot draws.

maybe i am the contrarian indicator this time. still with hussman, grantham, Darda all singing the same tunes, and no obvious bargains outside financials, i am out.

love to hear what everybody else is doing.
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No. of Recommendations: 1
canucks,

I am also at my lowest level (63%) invested in many years, and except for Berkshire and Buffett's 'All in bet on America', my longs are heavily concentrated in things like Walmart and Fairfax which will have no trouble if we head into a recession or if Europe blows up. Hussman makes a convincing case that there will be no solution in Europe and that we are full steam ahead into a recession. Combine that with high market prices, and it becomes hard to justify being heavily exposed.

My gut feeling is I should keep reducing my exposure. How high is yours?

dtm
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No. of Recommendations: 1
Mostly cash (~70%) and mostly sitting on the sidelines trying to figure out if this is a field hockey game, or Cowboys versus Aliens. I sold most stuff in June and the only things I've bought of any size were some CSCO and GSK and some BAC TARP warrants. (And the TARP warrants are a dink gambling position.)

As some point things either seem to be working out, or we get a solid market flush and I'll start buying.
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No. of Recommendations: 0
I bought a small amount of SH, the short S&P ETF, last week. Wondering if I should buy more or if there is another way to easily play the downside.
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No. of Recommendations: 0
i am about 40% in cash. half of my 60% equity exposure is in "work-outs" -- liquidation/take-over, etc. so effectively i have 30% in market sensitive securities. admittedly much of the remaining "generals" have high beta, but i figured i am getting paid enough on the valuation front.

i don't really have a exposure target in mind. i will change my mind on a whim if the market sells off.

i gave up on BRK. i lost a bit of money on the stock this year. i suppose it is fine since it was per plan -- source of cash when i have other ideas. but it is still a bit disappointing as it proved less defensive, and i disagreed with the last few big acquisitions/stock buys.
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No. of Recommendations: 17
love to hear what everybody else is doing.

I am fully invested.

The following are some excerpts of a commentary I posted on our site on 12/9/11.

Traditional portfolio investing has typically, if not always, included diversification and fixed income allocation. This was evident in our portfolios from 1997 through 2010. During the crash of 2000 – 2002, fixed income allocations were one of the reasons why our portfolios did not lose money during this period.

Bond yields today are unusually low. I think that fixed income investors are entering an era of disappointing and unsatisfactory investment returns. Many of the bonds are backed by Governments that are leveraged and have excessive debt. While these nations try to correct their debt issues, interest rates could remain low. If my thesis is correct, then bonds are probably selling at inflated prices. Remember if a bond goes down in value, the yield goes up.

The 10 year US Treasury is currently yielding approximately 2%. The current headline Consumer Price Index is around 3.5%.

In the past this low interest rate conundrum was cured via inflation. Inflation is bad for bond holders. In the post war 1940’s 10-year treasuries yielded 2.5%. When interest rates started to rise, bondholders suffered capital losses. Bond investor’s returns were less than the level of inflation. What you had was inflation greater than interest rates, and followed by a depreciation of the bond, because interest rates were rising.

This is the primary reason that our portfolios are concentrated with higher quality blue chip companies, with pristine balance sheets, and a dividend yield that is appreciably greater than the 10 year treasury.

The following is a table of some of our holdings, compared with the 10 year treasury:

 Description      Current Price   Yield

10 Year US Treasury 100 1.97%

Conoco Phillips 71.80 3.68%

Exelon 43.45 4.83%

Merck 35.82 4.69%

Microsoft 25.79 3.10%

Pfizer 20.55 3.89%

Public Service Group 31.64 4.33%

Wal-Mart 58.25 2.51%

Exxon 81.27 2.31%

Utilities ETF (XLU) 34.90 3.87%


Our portfolios have an average expected dividend yield of 2.5%.

Our top 10 holdings in order are:

NATIONAL WESTN LIFE INS CO CL A NWLI
MICROSOFT CORP COM MSFT
WAL-MART STORES COM WMT
PFIZER INC COM PFE
EXELON CORPORATION COM EXC
EXXON MOBIL CORPORATION COM XOM
JP MORGAN CHASE & CO COM JPM
CONOCOPHILLIPS CORP COM COP
MERCK & CO INC. COM MRK
PUBLIC SVC ENTERPRISE GROUP COM

I am patient, and plan on sticking it out. Fear, Fear, everywhere. Yet, I do not think valuations are reflective of current conditions. I have been looking at Rail Time Indicators, and business seems okay throughout the land (USA). I also look at Barron's Market Laboratory - Indicators "pulse of the economy." Year over Year change looks quite decent for most if not all areas. The new indicators are always marked with a triangle for easy to read data.

I have never been as long as I am now.

Maybe I am wrong. Most of my powder is spent. (including todays purchases).
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No. of Recommendations: 0
BGM, thanks for the detailed reply.
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No. of Recommendations: 3
Fully invested. I'm only investing new money and then rotating holdings further down the valuation curve. Not doing a lot lately.

I own a few familiar mega caps (PEP, WMT, XOM, MSFT, GOOG) and the balance mostly in financials (insurance, brokerage, and banking / lending) and a retailer (mostly in their bonds). That is probably 85-90% of my portfolio or so.

We'll see how it all shakes out, I'm sure it will be an interesting couple of years. :)

Ben
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No. of Recommendations: 2
BRK. i lost a bit of money on the stock this year. i suppose it is fine since it was per plan -- source of cash when i have other ideas. but it is still a bit disappointing as it proved less defensive, and i disagreed with the last few big acquisitions/stock buys.


Yeah, BRK is no longer a contrarian play, and I agree that it is getting harder and harder to follow the logic of buying railroads and lubricants, newspapers and solar energy plants. I think Buffett is a wonderful investor, but if he is limited to transactions of over a few billion, he is just too restricted to do well in most markets. He must be jealous of Cummings and Steinberg, who just bought most of National Beef for $700 million, their biggest purchase ever. Buying $200-300 mn of earnings at that price will move the needle for Leucadia, but Buffett has to buy IBM at 12 times earnings instead. Fortunately, many large cap blue chips are attractively priced too, but that won't always be true.

Plus, I don't much like Buffett's comments about utilities being a bad way to get rich, but a good way to stay rich. That's fine for Buffett, but not for me, for whom it is premature to worry about how to stay rich!

So I am pessimistic about the long term growth rate, but that said, I have over 30% of my portfolio in Berkshire (was over 40%), and I hate to sell it when it's so deeply undervalued. I sell a little when it goes up, and then opportunistically buy it back when it falls far enough below my sell price. Berkshire is turning me into a trader!

Regards, DTM
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No. of Recommendations: 6
Not sure any are 'obvious' bargains except maybe one, I figure a 25-50% on non-obvious bargains works just as good:
LYB [would def be hurt in a Euro implosion, of course]
BEAM
VSAT
GSK
TUP
MSFT/INTC

I'd say leveraged loans are the most obvious bargains I've been seeing.

Unless all you need is a 5% return, than 5% munis in highly-rated states would qualify.

GS is down 42% this year and is certainly in wayyyyy better shape, B/s-wise than 2008-09. Been cut in half in two years.
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No. of Recommendations: 5
60% invested, but this where I've been for most of the year

-abt 25% in Canada - Enghouse, Paladin, Constellation, MTY Food group, Softchoice, Descartes.
-Stalwarts - JNJ, MSFT, GOOG, Berk
-Some odd names - CVG, consulting companies (acn,vrtu,ctsh,gib)
-Underweight retail (I have but 6%) but have started to buy some names, esp. apparel guys. This has been a really tough area this year IMO.
-seriously underweight AM. GBL is only name of consequence, with lesser in BEN.

I own a bunch of farm team stocks but only 4% of my entire portfolios. I've spent more time than usual lately with stalwarts and find K, ITW, and PEP interesting but not enough yet to pull the trigger. Anyone else with an interesting stalwart name? I find the area indifferent right now.
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No. of Recommendations: 1
60% invested

35% REIT prefferred's (avg yield 8.25%) not suited for most money mgr's due to liquidity, Thanks to wonderful REIT Board


25% stocks mostly hedged with covered calls protecting against 10-15% price drop - msft low Xom Cisco crdn atpg (hmm) spls hpq

5% qqqq put

This has worked well this year and just barely above 10%
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No. of Recommendations: 6
seems like many people have bets in stalwarts/blue chips, which is consistent with GMO's preaching that blue chips is the best house on a tough neighborhood.

i have given up on stalwarts -- partially because trading restrictions at work makes it almost impossible to get in/out of these stocks. philosophically i have also shifted to focus more on earning growth/acceleration than just P/E at the lowest in x years. for better or worse, i find it very hard to have conviction on earning trajectory for stalwarts given the complexity of the business. i also suffer some battle fatigue looking at tech stalwarts getting cheaper and cheaper year in year out. i wasn't involved with HPQ, but i thought the stock was interesting at 11x, cheap at 9x after Hurd left, ridiculous at 7x when Apotheker missed the first Q, stupid cheap at 6x when they bought Autonomy. i never thought it could get to 5x, which in hindsight was a great buying opportunity. so if it can happen to HPQ, why can't it happen to other stalwarts in other industries?

lastly, the multinational/stalwarts all benefited from weak US $ over the years. take IBM, ex currency, they barely grow toplines. what if all the doomsday scenarios play out next year and US $ strengthens, what kind of earning growth will MCD/KOs of the world report? Probably not worth 18x.
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No. of Recommendations: 3
Obvious bargain - HPQ?

Ralph Whitworth and Baupost both bought very large stakes recently, Seth bought 21m shares.

Interestingly, the rumor is that Baupost is taking in money again, after returning capital to investors earlier this year. Seth did the same thing in mid-2008 as I recall. [raised funds in anticipation of buying opps]
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No. of Recommendations: 2
I was 95% invested going into last week and dropped to 50% by the end of the week where I stand now. I did the same thing earlier in the year...99% to 50% to 95% to 50%.

Berkshire is my largest holding at 35%.
The other 15% is in

WMT
KO
COP
XOM
WFC
KFT
SBUX
ADP
NKE
JNJ
PFE
CMG
BWLD
CTRP
ESIO
HTHT
CAM
SPN
KIRK
BABY
MOVED
ATPG
GRMN
RSYS

I'm sure there is a lot that you folks don't like and I'm all ears if you want to comment. I've been trading pretty actively again this year after staying close to 100% long since 2008. Up or down, I don't care. I'm happy to buy or sell. I think Europe and Japan is plenty of reason to error on the side of caution for the next few years.

Appreciate everyone sharing their thoughts upstream.
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No. of Recommendations: 0
Missed 2

MIDD
MDTH
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No. of Recommendations: 4
Berkshire is my largest holding at 35%.
The other 15% is in

WMT
KO
COP
XOM
WFC
KFT
SBUX
ADP
NKE
JNJ
PFE
CMG
BWLD
CTRP
ESIO
HTHT
CAM
SPN
KIRK
BABY
MOVED
ATPG
GRMN
RSYS



Berkshire is my largest position, Walmart is my 3rd largest (after Fairfax), and obviously we Berkshireans and Fairfagians own many of these indirectly, particularly KO, WFC, KFT, WMT and JNJ.

I'm not very familiar with many of the others, except for a couple of shorts or short candidates.

CMG trades at an outrageous multiple of 50 times earnings, and I have recently opened a small short position. In its defence, the price has been outrageous for years, and it just keeps growing like gangbusters, never catching up to its valuation but justifying the confidence of its early investors.

BWLD is a similar story, also very successful, and if it gets much higher I might be tempted to short it, too. I don't see how investors can expect to win with these investments, since even if everything goes right for many years, that optimistic scenario is already priced in. Obviously I have been wrong about BWLD and CMG so far, but they seem like funny things to have in the mix with a long list of blue chips.

GRMN I came within a whisker of shorting a few years ago, when it was 3 times higher. I don't see how they can hang on to their profit margins when GPS capability is being built into basically every cellphone you might want to buy, and obviously carmakers don't need to get Garmin to build it in, if they can get it more cheaply from someone else. I wouldn't buy the stock at 10 times earnings, and at 25 times earnings, they are tempting my short habit as well.

I like the prospects for oil and gas, but as someone who has been burned by a small NG company, I don't see why I had to make life difficult for myself, when you can buy Exxon at 10 times earnings or BP at 6 times. The same might be said for ATPG.

Regards, DTM
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No. of Recommendations: 0
ATPG is starring in 'Weekend at Bernie's III.'
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No. of Recommendations: 7
If Gundlach had my fave quote of the year, this has my fave pic of the year:

http://blogs.reuters.com/photographers-blog/2011/12/12/china...
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No. of Recommendations: 3
earning revision and economic surprise both rolling over.


within a week, we had profit warnings from a slew of semi's (including INTC), consumers (DRI & BBY), chemicals (Dupont), and mining equipment (JOY). These are not exactly your micro-caps of the world. i read somewhere that profit raise/warning is running at the worst level since '07. Momentum names are getting killed left and right with some charts looking terrible. For whatever reason, VIX is going down (are people taking off protection?). New low list is expanding rapidly again with index nowhere near Oct low.

MDC/CoL, are we close to "run for the hill" on S&P?
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No. of Recommendations: 2
MDC/CoL, are we close to "run for the hill" on S&P?

The S&P chart is a total clusterf*ck. I'd hesitate to venture any interpretation.

That said, I am a huge fan of intermarket analysis. Look at the charts of gold, TLT, and the dollar (UUP) the last few days. That is screaming deflation at 120 decibels, but the S&P at 1200+ still seems to be wearing earplugs. My own opinion is the stock market is the stupidest of all the markets and usually lags what the others are saying. That happened in the last bear market so it could be happening again. Should be interesting to watch earnings estimate revisions the next 6-12 months. Of course, one can't wait to sell until lower estimates are guided to and published. The stocks will have already long reacted to that. What I wonder because I see it everywhere even from professionals is how many times does someone have to get burned with "it looks cheap on trailing earnings" not realizing that will almost always be the case at an earnings peak just before earnings fall off a cliff.
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No. of Recommendations: 0
go, just to be clear that last sentence was NOT directed at you at all. I'm thinking of some bloggers I read who have literally been pounding the table like Kruschev how cheap stocks are based on trailing earnings. Funny thing is the same guy made the same argument in Sep/Oct 07 and apparently learned nothing.
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No. of Recommendations: 1
INTC - flooding in Thailand iirc,

BBY - dead man walking see: RIM

JOY - China slowdon.


Not sure how applicable the above are to the SPX as a whole, granted, they are bigger firms.

read somewhere that profit raise/warning is running at the worst level since '07

I have not seen that, and would be surprised given that the beats/misses for last Q were near record highs. But I'm sure it's possible.

Hedgies have been dropping exposure for several weeks now going into year-end.


Long INTC,
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No. of Recommendations: 0
Couple of funds I like to track, CTAs and managed futures, most trend followers, but all systematic funds. Three have either folded or condensed funds so I no longer follow them

1. New York-based, AUM ~$910M YTD -5.7%
2. MN-based, AUM ~$89M YTD -1.8%
3. Toronto-based, AUM ~$30M YTD -4.5%
4. Helsinki-based, AUM ~$980M YTD -12.0%
5. Paris-based, AUM ~$131M YTD -9.4%
5. Stockholm-based, AUM ~$2,800M YTD -1.6%
6. Switzerland-based, AUM ~$48M YTD +4.4% (more commod and global macro)

The rather shocking thing within these numbers was the drawdown over the summer and autumn of some of the bigger guys above, in excess of 20% for two or three. Almost all are 2/20. So not much 20 this year.
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No. of Recommendations: 0
Thanks DTM,

I always enjoy your posts and appreciate the feedback.

I sold sooooo much (for me) CMG on its two rises it makes me sick. I only have 20 of 1100 shares remaining and if I see $400.10 I will lock in my first 10 bagger.

Same thing on BWLD. Used to buy and sell it but haven't bought in a long while...Just sales recently. Token position.

GRMN. I love the way they run the company. I agree with the way they have used their FCF and am happy to be an owner even if the prospects are not terribly clear. They do regular and special dividends. They buy shares back at pretty good prices. They make decent acquisitions. They are growing high margin areas while low margin areas erode. But like most of my old hidden gems stocks they are small positions and I've tended to let my winners run even if I do scale them back on the run. GRMN is one that I actually added to in 2011 and I'm thinking of lightening if it runs a little higher.

Lots of my others are David Nierenberg stocks where my results are MUCH more mixed. The math is positive until you factor in opportunity costs. I'd have been much better off in other areas and I think I've learned a great deal for the future.

Thanks again for the comments. I've learned a lot from your (and many here) posts through the years.

Have a good holiday and thanks again
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No. of Recommendations: 4
add ORCL to that list of companies warning. this is one extremely well run company that has not missed in a LONG time. And Redhat, with perhaps one of the best offerings in a super hot area missed bookings. Salesforce.com also missed bookings. When some of the industry's best companies start missing, something is wrong in tech land.

also lost in FDX's strong price reaction last week was the weak volume. everybody was focused on the strong pricing and earning beat, which is great for FDX, but what does -3% express/international volume say about the global economy? i have no idea how to reconcile this super weak volume (since '09) with the suddenly improving US macro numbers.

NKE announced a beat, but inventory is up 35% vs. sales up 18% and order up 13%? how long can that keep going?

i am now 90% certain next year's $108 EPS for S&P is too high.
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No. of Recommendations: 0
i am now 90% certain next year's $108 EPS for S&P is too high.

I'm down at $101 so yeah, probably.
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No. of Recommendations: 0
Big pharma in Europe had a torrid day yesterday after Astra Zeneca warned of a double whammy to its pipeline in cancer and depression.

http://www.euronews.net/business-newswires/1286405-astrazene...

Been a while since there was any major M&A activity among big pharma...
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No. of Recommendations: 1
well, add EMR to the list, a best-of-breed industrial.

they all have excuses, but when put together, this is a pretty dire outlook.
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No. of Recommendations: 4
they all have excuses, but when put together, this is a pretty dire outlook

you have more info that me, but is it really so? I mean, couldn't 2H this year be a tough compare (you know, six months forward and all that)? I keep hearing that people predict that 1H next year will be muted and it ought to pick up in 2H. Couldn't that be accurate, as much as these things are accurate?

And even if things are dire, couldn't it be priced that way? Isn't ORCL, for example, really dirt cheap at $25?
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No. of Recommendations: 3
Glass half-empty v Glass half-full:

Given the extreme nervousness in Europe, the meltdown in Japan, flooding in Thailand, and what looks like a slowdown coming/here in China, I think the economy is much stronger than you'd expect -- which is bullish.
[Is it really surprising big corps in Europe/Asia are spending less on Oracle database for a Q or 2?]

Also, valuations are cheap, reflecting the pessimistic dire outlook as noted by several here.

Also, we're leaving out the big guys that are still beating, like Nike for example. Up 4% today for a $45bn firm is pretty good imo.


EMR: 14x PE, 3.5% divy has gone from 30 to 40c in 3 years, insider buying past 6 months, $2B cash, incredibly well-run, large, blue-chip firm, down 20% LTM.

Feels like a buy to me. I also think some of these sell-offs have been exacerbated by year-end tax-loss selling for EMR, ORCL [down 20%], et al.

If you're making money and you can shelter those gains by selling these off until next month, why wouldn't you? If you're down overall ytd, you better damn sure not make shareholders pay cap gains.
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No. of Recommendations: 3
fwiw, an institutional view - if it matters, ML's short-term forecast was downright frim

Buy humiliation, sell hubris

Despite our short-term caution, we believe that equities on a 2-3 year view look
compelling. Investors enter 2012 in a fearful state, but we believe any sharp falls
in equities in 2012 should be bought. The ingredients for equity outperformance
over the medium-term are being put in place and 2012 could represent the
beginning of the end of the great bear market in equities. Companies are in
immaculate shape, US consumer deleveraging is already underway, public sector
deleveraging will accelerate dramatically in Europe, and political change is likely
in 2012 in many countries. Further, fixed income valuations may soon become
bubble-like versus equities (Chart 7), and extreme volatility and correlations are
destroying any public interest in equities. The secular hubris is in fixed income,
not equities.
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No. of Recommendations: 0
frim: (either a TYPO or one letter less than grim)
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No. of Recommendations: 2
i agree that it is not all grim out there. CTAS for example had a very nice quarter, which should be a good sign given what they do. one can also make a case that when momentum darlings are getting killed, then we are near the end.

i think it depends on your time frame. i see no problem with owning the likes of EMR/ORCL over multi-year period at this valuation.

but the lynchpin of US equity out-performing rest of world has been the strong corporate earnings. that pillar is now clearly cracking, regardless of one's view on whether the peak margin is sustainable.
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No. of Recommendations: 0
i agree that it is not all grim out there. CTAS for example had a very nice quarter, which should be a good sign given what they do. one can also make a case that when momentum darlings are getting killed, then we are near the end.


See's told me they were running one week behind on deliveries, which I took to mean they had too many orders vs inventory stock-up for Xmas. [as opposed to USPS issues.]
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No. of Recommendations: 3

they all have excuses, but when put together, this is a pretty dire outlook.


Credit where due - thanks to gocanucks keeping me honest, I put on a small short position on BBBY yesterday, read some quick reports and figured there was no way* they were going to beat the #s yesterday: either they'd hit them square, or miss, so basically huge risk/reward in my favor.

Down 6.3% currently. I may add here. Also a break of $56 is b-a-d so maybe I'll add there.












* Also fits with my overall thesis that AMZN, et al, eventually kill all the big box stores. BBBY trades for 2x what BBY trades at, for example. Seems like one of those is wrong...also I just ordered a toilet seat online which if you told me even 3-4 years ago I'd be doing not at BBBY [which is a half mile away!] I'd have said you were crazy.

This is of course a longer-term thesis [Dell, RIM, Borders, BBY have been dying for years & years] and BBBY might have a wonderful 2012...I'm just not willing to pay 16.5x trailing PE for it.

Also, short BBBY is a good hedge for my retail longs. At least that's the theory.
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No. of Recommendations: 0
lol. you beat me to it. i thought long and hard about the same trade. they are at absolute peak margin. in the end, i gave up since i just don't want to bet against such a best-of-breed retailer. their track record has been downright amazing.

agree 100% that these guys have huge risk from the likes of AMZN. their price is not sharp at all, and they turn stuff super slow. seems like an obvious target.

one concern is that housing may be showing some signs of life, and a cyclical rebound may help hide secular problems.
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No. of Recommendations: 0
agree 100% that these guys have huge risk from the likes of AMZN. their price is not sharp at all

why do you say this? I've been in the stores a bunch (not my favorite but I always go when called - I've been in these things 100s of times, and was just there yesterday) and the skus are different than what you see online (I've checked numerous times), the shopping experience is hit and miss with many things (excluding Harmon from all of this) and it is a destination store of sorts for things that you have to see to purchase. I don't see Amazon as a threat at all to them, and I certainly don't agree the pricing isn't sharp - given that they throw coupons up by the dozen and it lessens the pain. Plus, BBBY has somehow managed to transform itself into a wedding gift destination, something I thought was downright weird at the time but it seems to work wonderfully for them.

Course, could still be a short (where do they grow?) but...anyway, just my impression.
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No. of Recommendations: 2
I don't see Amazon as a threat at all to them, and I certainly don't agree the pricing isn't sharp - given that they throw coupons up by the dozen and it lessens the pain.

fwiw - n of 1 - the item I purchased was 40% more online at BBBY.

The odds I get in my car, drive a whole 3 minutes, park, walk around their store, find the right item, look for a coupon, wait in line....I mean, jeez. [I am also N = 1, however]

Plus, with free shipping at AMZN I can order a 3 pound or 6 or etc household item[s] and not worry about that either.

As you note growth is going to be the key issue for them - no more tailwinds from Linens N Things, et al, going under anymore in 2012. Comp sales for Q3 dropping from 7% to 4.1% is indicative of something, surely.
And you can only cut ad spend so much before you keep missing.
And they won't get a 270bp drop in tax expense every Q, presumably.

Hey, they are a well-run $14bn firm, with an economic recovery they might have a great 2012. And you know wayyy more about this space than I do.



















ps 'Not a threat at all?' :)
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No. of Recommendations: 1
Will sales tax be a game changer for amazon? I see it is happening in next year or two.
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No. of Recommendations: 0
The odds I get in my car, drive a whole 3 minutes, park, walk around their store, find the right item, look for a coupon, wait in line....I mean, jeez. [I am also N = 1, however]

all fair points - still, my guess is 80 to 85% of the people in that store are women, and the shopping experience can be an enjoyable pursuit in and of itself, especially if the store is located near something else (ours is right next to Ulta and Versonna Accessories (which by the way looks like a real winner to me if they can bring in the traffic - though owned by Cato, so it won't move the dial for a while).

I don't think this should be underestimated, and I agree clearly if you can find the identical SKU at Amazon it would be threat, but most of the stuff has a subtle difference. This isn't like BKS where the item is identical and you are sure of what you want. AMZN has done nary a dent to BBBY already, and I don't think they need worry about it overly much cause it would have happened already. That's just my thought, but as noted all this doesn't mean BBBY isn't a good short.

just giving you my shopper's impression, as I'm one of the few 'guys' I know who does enjoy the shopping experience in and of itself, but then again, I've always with a dual purpose so...

...course, I SUCKED in retail this year. Just sucked - double digits sucked...
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Well, as I mentioned, we are buying tea from Amazon, and I would not have thought that was conceivable a few years ago. So I think the big box stores are going to be under pressure. I think HD has some moat, because nobody is going to be ordering plywood and sacks of cement online.
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I see it is happening in next year or two.

really? Our state just did a sweetheart "we'll build a warehouse in your state and create jobs but only if promise not to tax us" deals...
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Well, as I mentioned, we are buying tea from Amazon, and I would not have thought that was conceivable a few years ago. So I think the big box stores are going to be under pressure.

just curious though - how many of the household items that you use each and every day do you buy through AMZN? Sure, you got a good deal on tea, but did that make you sit down, write out a list of everything you buy on a regular basis, and then check AMZN to see if you should be buying from them exclusively? How many people actually do this (I don't know)? I know I don't - prob should.

fwiw, I just checked my morn beverage choice and AMZN doesn't offer it...
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just to be fair and balanced, here is a summary of Richard Koo's latest piece. Koo is the strategist famous for his "balance sheet recession". interestingly, he is bullish right now.

* The two major risks that are consistently identified by investors as overhanging and paralyzing markets are a European credit crunch, and a hard landing of the Chinese economy.



* These two big risks are being reduced, according to Koo. It's not a perfect or even permanent solution in Europe, and China loosening won't save the world as in `09. But what these actions do is provide something that's the next best thing when facing potential catastrophes - buy time.



* In my mind, with investor sentiment so poor and pessimism rampant, financial markets are vulnerable to a melt-up due to these catastrophic risks being reduced - while catastrophe has been discounted.



* My sense is China has been waiting for Europe to build credible prevention of a credit crunch. The sequencing is right for Beijing to act, ie avoid implementing dramatic policies only to be undermined by a shock from Europe. China is paranoid about policy mistakes. Now Europe has provided Beijing more margin of safety.



* Expect China to cut the reserve-ratio requirement (RRR) for banks by year-end, or loan-to-deposit ratio (LDR), to create more liquidity in January. There's already news about slowing loan growth, and a lack of short-term financing due to deposit outflows. I think this provides enough impetus for Beijing to act. I also expect incentives for rural consumption, fiscal stimulus, infrastructure spending, tax cuts, and even an interest-rate cut. This will be driven by the slowdown in exports, and buy time from a hard landing.

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Mine is located next to Ulta as well!
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I get all my tea from Asia:
http://www.tenren.com/pearljasmine.html
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So is my state, CA. However, I see the inevitability of taxes coming to Amazon. So at somepoint that advantage will vanish (i.e., if you live where I am it is 9.5%), at that point can Amazon be competitve on items like Tea or Toilet Seat? I see they are still going to be competitive in certain areas but will cease to be a mortal thread to "retail as we know".

I am amazed how retail, given the tax $$$ and jobs it contributes to local economy, is not able to make the argument to the politico's you are losing more than gaining in jobs. But our politician's have never given any reason to hope they can make rational decisions.
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I don't think the sales tax would be a game changer since it would just put them on a more even level with other stores. Losing free shipping (I'm not a prime member but almost any order over $25 gets free shipping) would make things harder for Amazon. Then it would be a matter of how much shipping am I willing to pay to overcome the inconvenience of store shopping.

I've purchased several HDTVs and home theater systems over the last few years from Amazon and if I had to pay taxes AND shipping then maybe I wouldn't have done so.

Rich
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just curious though - how many of the household items that you use each and every day do you buy through AMZN? Sure, you got a good deal on tea, but did that make you sit down, write out a list of everything you buy on a regular basis, and then check AMZN to see if you should be buying from them exclusively? How many people actually do this (I don't know)? I know I don't - prob should.

Only grocery store stuff that seems inordinately expensive gets checked on Amazon.

But I thought about the big box stores. I haven't been in a BBBY or Pottery Barn in years. I go to WMT about once a month to get packaged food items, which are cheap there. I go to HD about twice a month to get stuff for various home projects. BBY doesn't have much I want and is kinda annoying to go to. COST gets about 4 visits a year or so, sometimes you need three jars of Tang. That's pretty much it. So I don't see how the big box stores aren't going to be under pressure, since we buy a lot of the gift buying and stuff for the home from Amazon.
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So is my state, CA. However, I see the inevitability of taxes coming to Amazon. So at somepoint that advantage will vanish (i.e., if you live where I am it is 9.5%), at that point can Amazon be competitve on items like Tea or Toilet Seat?

This isn't making sense: $27 vs $17 is before taxes. List prices, my friend.

Obvs, paying 6% on 17 is always LESS than on $27.

Plus savings on gas, oil, tires, et al. [Aggregate, not n=1 obvs]

Plus savings from not having Ulta next door! ;)
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Only grocery store stuff that seems inordinately expensive gets checked on Amazon.


One of the benefits having several friends 15 years younger than me [fellow gambling addicts/LV partiers] is that I now know there is a significant number of 20-somethings that order all their food from Amazon [or similar online].

They would no more go to WMT, SVU to buy food for an hour [round-trip] than they would sit down and write a 3-page letter to their HS friends.

I think there's the possibility of a big shift we may be underestimating.
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I think there's the possibility of a big shift we may be underestimating.

well...I know of one college of least that will pay for Amazon Prime for students...
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One of the benefits having several friends 15 years younger than me [fellow gambling addicts/LV partiers] is that I now know there is a significant number of 20-somethings that order all their food from Amazon [or similar online].

They would no more go to WMT, SVU to buy food for an hour [round-trip] than they would sit down and write a 3-page letter to their HS friends.

I think there's the possibility of a big shift we may be underestimating.


I'm a big believer in the utility of reading, studying, and thinking about demographics as it relates to investment decisions/financial markets.

In hindsight, it should be abundantly clear that the spending pattern decisions and investment decisions of Baby Boomers were key drivers over the past 25-30 years. Just one example amongst perhaps hundreds if not thousands would be the trajectory of home prices from say 1980-2006, and say the performance of a stock like Home Depot from 1980 to 2000.

Generation Y is massive (I think 100 million). They vastly outnumber my generation (Gen X). They will be the key drivers of the economy and domestic stock market the next 20-30 years. They still haven't hit their peak earning and family formation years. They will drive tomorrow's winners and losers. Many companies will likely not successfully adapt to their spending patterns and preferences.

I read an article on Walmart that basically more or less said NO Gen Ys shop at Walmart. Can they change their marketing strategy to make it "cool" to shop at Walmart, or will they get to a point where they bleed sales year after years as they don't replace their active customers.

There will be alot of great opportunities for people who can figure out or at the minimum observe and identify what Gen Y is doing. Many of today's "obvious winners" will be tomorrow's losers.
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One of the benefits having several friends 15 years younger than me [fellow gambling addicts/LV partiers] is that I now know there is a significant number of 20-somethings that order all their food from Amazon [or similar online].

Trying to relive your youth? :) Haha. Me too. I've got more friends and guys I hang with in their 20s than 30s or 40s (and I'm going on 38).
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I've got more friends and guys I hang with in their 20s than 30s or 40s (and I'm going on 38).

geez no!...most people that age are idiots (present company excluded)...


;)
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(geez no!...most people that age are idiots (present company excluded)...)

if you don't believe me, read this drivel:

http://finance.fortune.cnn.com/2011/12/13/ramit-sethi-financ...

I have a hard time expressing how idiotic this article was to me on so many levels, to the point where you have to realize that writer Mina Kimes is probably sub 30 herself and thus only familiar with Suze Orman and Oprah and nobody else in the history of finance and doubt she ever heard about or read Jane Bryant Quinn. I love how she uses words like 'hacks' and 'tweaks' to otherwise describe ideas that have existed for decades, but it is triumph of presentation over substance. However, if I read one more Kool-aid article in a financial rag by some wetnosed kid it is gonna make me puke....(gotta love the message: distrust anybody over 40! - hey, didn't they say that...50 years ago!)



Sethi's advice isn't terribly unusual: He wants young people to slash their debt, invest for retirement, and increase their earning power. It's his approach that makes him different. Unlike most people in the self-help business, Sethi eschews fuzzy affirmations in favor of specific directives. His tips are based on careful testing and paired with musings on the mysteries of human behavior. His technocratic style is similar to that of Tim Ferriss, author of the smash hit productivity guide The 4-Hour Workweek. Like Ferriss, Sethi specializes in coming up with simple tweaks -- or hacks, as productivity junkies call them -- that his readers can apply to their lives.

Sethi and Ferriss are good friends. "There are a handful of people who are very analytical and good at testing and have, almost as a side effect, built these personal brands," says Ferriss. "Ramit is one."
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by the way, just to make sure - apologies to any 20 and 30 and under 20 among us - just had this Fortune article on the brain, so...

(course, according to that Fortune piece, I ought to insult and demean anybody younger than 39 with colorful F words to connect - )
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I don't think the sales tax would be a game changer since it would just put them on a more even level with other stores.


How can having a 5-10% price advantage on most of your competitors NOT be a huge advantage, given that typical margins are smaller than that?

dtm
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if you don't believe me, read this drivel

Golly. You've been so generous with sharing your ideas over the years that lurkers like me have gotten an investing education for free. Thanks for that!

Thus it pains me to say that you are way off base with this reaction to a well-written, objective, funny piece. The tweaks and hacks she's talking about are Mr. Sethi's technical tips or 'systems', not the decades old ideas as you interpreted it. If you listen to one of her interviews or read some of her other work, you might form a different perspective of her.

Disclosure: I'm in Generation CP (Cow Pasture). This is the first I've heard of Mina Kimes.
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The tweaks and hacks she's talking about are Mr. Sethi's technical tips or 'systems', not the decades old ideas as you interpreted it.

Like heck they aren't! I mean, come on:

For example, one of the bedrocks of Sethi's advice is automation. Instead of just telling readers to cut back, he teaches them to create an "automatic money flow" system. It works like this: Your paycheck is deposited to your checking account, which is programmed to automatically deposit money in your Roth IRA and savings accounts. A couple of days later your credit card pays off all of your bills. Shortly after that, your checking account pays off your credit card in full. The system refreshes after each pay cycle.

So, pay bills, including investment accounts, from an automatic draft. Traditional advice repeated for endless years and years.

Ah, but call it a "automation" and "automatic money flow" 'system' and and use gizz-mo golly gee words like "system" and "refreshes". The fact that writer doesn't bother to puncture this pretensiouness gives you a pretty solid read on her own age.

Other lessons learned:

*earn money on the side
*negotiate
*interview by finding out what an employer wants


Heck, I've invented a new "technique" : use the Chase AARP card (and you can be a member at ANY age) and get 5% back for 6 months, and if you are married then get it again for another 6 months.

Presto, chango, I've developed an 'automatic money flow system'.
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People look for sub-culture identification tags to see who is "their people" and who isn't. Sethi is using a specific set that are recognized by Millenials. The message is old hat to us, but the people reading his stuff have never seen any of it before.
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Mina obviously isn't on Andy's list...and definitely not over 40 :)

http://www.divinecaroline.com/22323/34969-andy-rooney-forty
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well, a day later I'm a bit embarrassed by this rant- bottom line, whatever works for ya is ok with me. I guess I'm too sensitive and wonder at making rudeness a virtue, but this is not for me to say how a tired (only to me) but sound enough advice gets thru. And most important of all, I forgot the cardinal rule I should have remembered about all financial publications first mentioned in a profile on Morningstar's analysts a long, long time ago:

"We hire people not because they know how to invest but because they know how to write".

I remember vividly a piece in Money Magazine once where the editor said that "as a result of the research they did in conjuction with this issue, many of the staffers began an emergency fund while paying down credit card debt"...
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you'd really add to a short BELOW $56? Wow.....obviously I don't get shorting, but I just finished looking at the EPS report and as usual they blew the doors off. I mean, geez, 1.5b on the BS, a huge buyback plan ongoing, stunning amounts of FCF (what, close to 900m?), a flat GM when everyone else was not, inventory up but less so than last quarter (and there is no reason to think there is a problem here given latest comps), all in a dismal retail environment for the most part. Course, saturation is the big bugaboo (the more they open 20 stores while saying 1300 is saturation makes you think they are there already), and maybe margins are peakish (no cracks yet), and I'm not long, but short? I am really surprised they don't do a dividend, but that has to be coming eventually. In fact, I wish they'd pay a dividend instead of that buyback plan (what, 400m sounds right, or 3%?)...

But again, I don't short, so...
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COST gets about 4 visits a year or so, sometimes you need three jars of Tang. That's pretty much it. So I don't see how the big box stores aren't going to be under pressure, since we buy a lot of the gift buying and stuff for the home from Amazon.

final post on this (I'm looking at SPLS and wondering what to do with it, so the AMZN compare is hitting hard) - I think it would have shown up on COST's results already and it hasn't. Hardly hasn't, and I think, opinion only, you've got to be careful to think your shopping trips are an indicator of what will happen when the numbers indicate something else (note to self).

We go to COST every 60 to 90 days or so and would go more if it was closer. For one, they have some nifty coupons every 5 weeks or so. For another, the produce department is both high quality and low price, and bakery is a knockout in terms of quality of goods. The households are priced very well, and candy/snacks are also very strongly priced and there are office items I only buy from them. In short, when we go, we generally walk the entire store, and we buy a lot. AMZN doesn't compete here, esp. if you buy bulk items, and AMZN doesn't have the treasure hunt aspect you get a COST. Lastly, returning stuff to COST is a snap.

Agree completely that BBY is toast, but Pottery Barn sure isn't (you need to feel the items). If you don't need to see or feel the items, if there is something identical to them, I think AMZN will kill you, but there is going to be a place for these folks. COST regularly puts up 5 to 8% comps each and every year - somebody is shopping there.

Oh, and the gas at COST is almost always the lowest priced (though not always the lowest cost if you can use your automatic money flow AARP card from Chase and get 5% back but that will only last three months). Course, I ought to admit that Chase is running a 5% off AMZN purchases on their Freedom card, but it has a cap if you are thinking of going completely insane with purchases there).

Now, what do I do with SPLS? 6.7x cash flow right now...
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that Chase is running a 5% off AMZN purchases on their Freedom card*

(*for Jan 2012 to Mar only)
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I like COST a lot and would own a bunch at the right price. But we can't pretend that there is no pressure from Amazon. The thing that might remove some of the pressure was if shipping got a lot more expensive and made it cheaper to go to bricks and mortar stores.
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Now, what do I do with SPLS? 6.7x cash flow right now.


I thought SPLS has a strong online presence itself. The only difference is they collect sales tax and AMZN doesn't. If you remove that then it should level playing field and SPLS should be able to compete. Having said that, what are your thoughts on durability of the margins if we ran into recession?
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-Having said that, what are your thoughts on durability of the margins if we ran into recession?


We were just in one, so....VL shows 3.3% net margin in 2009, 8.3% operating margin. OM and net ought to be about 10% and 4% this year.

you may or may not recall that SBV posted on this back in Nov...post 12190 specific to this
http://boards.fool.com/spls-value-trap-29672362.aspx?sort=us...

only thing different now to be honest is 1) SPLS came up on my rotation, 2) it is end of year and I am trying to do a Peter Lynch "figure out why next year will be better than this year" and 3) if I don't sell it, I'm going to have to justify it.

Right now, I'm leaning on keeping in it at the size i have it, but it sure looks like dead money (at least we get a nice dividend to wait for a happier tone)...

....to be frank, I think the possiblity that AMZN will be forced to charge sales tax is close to 0%, so...(again, just what I am assuming)...the perception that SPLS is toast, rightly or wrongly, is not going to go away.

Course, two comps above 3% could move it up 25% or more, but...is that enough to wait for?
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Yes. I remember that conversation very well. Currently I don't own SPLS and couldn't decided on buying either. I have plenty of cash in my IRA and come feb I will add sizable amount to it. So my dilemma is should I take a chance with dead money and collect dividend and wait or just stay on the sidelines and wait for the buying opportunity to emerge.

I waited too long and only nibbled LOW and CSCO.
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dtm,



I don't think the sales tax would be a game changer since it would just put them on a more even level with other stores.


How can having a 5-10% price advantage on most of your competitors NOT be a huge advantage, given that typical margins are smaller than that?

dtm



I guess it depends on what you are looking at.

For example I happened to be looking at washing machines and saw something at Amazon for $699 (good price). So if I had to pay sales tax assuming 6% (I believe that is Maryland's rate) that is only $42. On this item shipping was $185.00 (from a 3rd party). That IS a show stopper when I can pick up one locally myself or often get free shipping from a local store.

Not paying the sales tax is nice but online shopping isn't just about pricing but about convenience for many of us when pricing is roughly equal.

Just my view.
Rich
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No. of Recommendations: 15
well, a day later I'm a bit embarrassed...

Well, you *should* be embarassed...

You should be embarrassed because for many, many years you've been the magnet that has attracted some of the finest ideas and writing from some of the best minds in TMF nation -- HR, C9, Hacker, Col, canucks, Cameron, chip, MDC, BGM, DTM, and many others that I'm later going to regret not naming here.

Even though you probably do this partly for social interaction and partly for feedback, you should be embarrased for the generosity you've shown in sharing your ideas and for going out of your way to help others less knowledgeable. Not only with specific names, but also investment approach.

You should be embarrassed because you change your name so much.

You should be embarrassed because you are constantly trying to improve yourself, and not just your investing self. This has been a constant theme, also for many years.

What you've created here is an embarrasment of riches. And not just money riches.

The word "thanks" is hardly adequate. But thanks.

Ears

P.S., I still think you might be missing out on some fine writing. For example, if you have time, check these out.

http://features.blogs.fortune.cnn.com/2011/09/13/showdown-on...

http://finance.fortune.cnn.com/2011/06/06/bob-rodriguez-the-...

http://money.cnn.com/2010/08/18/news/companies/jnj_drug_reca...

http://www.realclearmarkets.com/topic/topic.php?id=4517

http://c-spanvideo.org/program/USFre

http://www.nationalreview.com/agenda/284825/daily-video-inte...
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Well, you *should* be embarassed...

wow, what a nice note, makes me...well...embarrassed....*
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.*I'll slip you that check later on as we agreed...
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- now am REALLY, REALLY embarrassed about my Mina Kimes specific comments. Unlike me, you actually did some research on her to look at other things she wrote. I just knocked her around based on one piece. I shudder to think if someone zero'd on one of my specific stinky stock recommendations...
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"We hire people not because they know how to invest but because they know how to write".

will let this drop, but if anything I took one bad note and compounded it 5x by d$mning anybody who writes in the financial field, something I have an especially keen awareness of the difficulty as I try to painfully try to put some words together to describe 2011...

...still don't like that 'automatic money flow' buzz-words, but...
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A 5% advantage is still a 5% advantage. If you are comparing Amazon with many of its competitors, buying on-line with Amazon will be 5% cheaper than buying on-line with Walmart, Target, Sears, Best Buy, etc. Shipping is on top of that.

Of course regular off-line shopping will maintain an advantage when shipping costs are very high, like for your washing machine, or where you really want to see or touch the merchandise, such as for fresh vegetables or for something non-standard like jewelry, or where convenient service and maintenance are important issues. That's a different question.

Regards,DTM
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I am patient, and plan on sticking it out. Fear, Fear, everywhere. Yet, I do not think valuations are reflective of current conditions. I have been looking at Rail Time Indicators, and business seems okay throughout the land (USA). I also look at Barron's Market Laboratory - Indicators "pulse of the economy." Year over Year change looks quite decent for most if not all areas. The new indicators are always marked with a triangle for easy to read data.

I have never been as long as I am now.


Here is a link to the just released Rail Time Indicators Report

http://www.aar.org/~/media/aar/railtimeindicators/2012-01-rt...
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I have also increased my US longs [and euro bank shorts]. The US looks pretty tasty. I really think we should do 10-12%, minimum, this year if exogenous shocks are avoided.
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Care to share any longs and shorts you are increasing or starting new?
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Other than the several names I already mentioned this week?
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I don't see Amazon as a threat at all to them, and I certainly don't agree the pricing isn't sharp - given that they throw coupons up by the dozen and it lessens the pain.

fwiw - n of 1 - the item I purchased was 40% more online at BBBY.

The odds I get in my car, drive a whole 3 minutes, park, walk around their store, find the right item, look for a coupon, wait in line....I mean, jeez. [I am also N = 1, however]

Plus, with free shipping at AMZN I can order a 3 pound or 6 or etc household item[s] and not worry about that either.

As you note growth is going to be the key issue for them - no more tailwinds from Linens N Things, et al, going under anymore in 2012. Comp sales for Q3 dropping from 7% to 4.1% is indicative of something, surely.
And you can only cut ad spend so much before you keep missing.
And they won't get a 270bp drop in tax expense every Q, presumably.



As predicted, BBBY continuing to get their butt kicked by AMZN, et al.

The Death of Big Box is here.
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The Death of Big Box is here.

What about WMT? They seem to be doing ok?
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Wal Mart offers slots of stuff not easily sold on line. Bananas, clothing you need to try on, refrigerators, etc. But BBY has little to offer beyond Amazon in most cases. Neither does Radio Shack , which suffers from chronic over pricing. However there are some people who like hands on so if Best Buy shrinks their stores they may survive.

Amazon service continues to improve. Their expansion of distribution means I now get a lot of things the day after the order., and don't have to waste time or gas. For oddball items they have a vastly better selection than regular stores and I love the customer reviews. For instance I have a dog that has developed a "hot spot" problem. Try finding a selection of no bite collars at your local stores (it turns out there is a superior one called Comfy Cone at Amazon.)
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Wal-mart is their own animal. They are not 'big box.' They are the best in the world at what they do.

The reason BBY, BBBY, et al are dying is precisely because they are trapped btw WMT and AMZN.
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The reason BBY, BBBY, et al are dying is precisely because they are trapped btw WMT and AMZN.

I know you are just baiting GM to return here, and it's a valiant effort. Alas, he has been indefinitely detained by authorities in Dothan for loitering outside of a Body Central at the Wiregrass Mall. To be fair, Beating the Street never explicitly warned that screaming scuttlebutt at backwoods deputies who strongly suspect you of pedophilia could be counterproductive.

The internet is a huge threat to Bed Bath, but you should be clear that your eulogy costs $10 and requires Tarot cards, not dark suits and a casket. Maybe they are dying, but you are diagnosing it from a hypothesis and a slight cough. This is the same patient who has grown EPS 10X from 1999 to 2012 and is running EBITDA margins 500-600 bp higher than the carefree pre-internet days. Maybe dropping from 7% comps to 3% comps or 41% GMs to 40% GMs is the tip of a deadly iceberg, but that's still just a story -- not a scoreboard.

Still, I like where you're going with this. I suggest a contest. Who can come up with a taunt so bedeviling that even the most meticulous protections can't steel GM from somehow learning of it and responding? Obviously I will recuse myself as it would be unfair to apply all the expertise I've accumulated using this as my primary dating strategy.
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i tend to think BBBY is in no man's land here, but i agree with HR that it is far from clear that the minor slowdown was caused by AMZN than from a slowdown of GMCR related stuff.

since HR brought up BODY, i think this is an interesting idea here.

pretty straight forward story. another commodity fast fashion retailer like CHIC/Wet Seal. was a growth/momo stock with 15% sqft growth and double digit SSS. after a couple of fashion misses and guidedowns, stock was cut 50% twice within 6 weeks, and fell from $30+ to $8 now.

i think fashion miss is pretty common and not fatal. company should have $3+/share by year end or 40% of mkt cap, and stock trades under 0.3x ev/sales, which is a bit excessive as they averaged 6% op margin in the past 7-8 years. once they stabilize SSS and get some markdown/lost gross margin back, i think it could earn $1+. if future growth is legit, then we could bank on some multiple expansion as well.

one could argue this concept should not exist in the first place (actually my first reaction when i saw the IPO), but i followed them after the IPO and made some nice profits riding the mo for a while. i just follow numbers. seems ripe for a mean reversion trade.

coz, it could easily go to $6 next month if they lower again. so...
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in case anyone got in BODY, i'd recommend taking the almost 40% gain in 3 weeks and run. stock could run more, but the next 2 quarters won't be pretty.

i love flaky retail stocks.
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http://www.slate.com/articles/business/small_business/2012/0...

Federer up 2-0, 5-1 in the 3rd set.

Ryan Howard just hit a grand slam to go up 8-5, and 2008 Brad Lidge is coming in to close.

Somebody gave Tal an open file AND an open rank.

Dan Harrington just 5-bet pf All-in.

Oh look - it's Don McLean [not the UCLA forward]!

'Bye, Bye, Miss BBBY and Best Buy,
drove my Chevy to the levee and not to the mall,
Amazon sending me Rice Krispies and pie,
this'll be the day big-box dies*.'






* Not actually sung by Don McLean. Or MacLean.

Obvs, bby bbby not dying this year...
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'Bye, Bye, Miss BBBY and Best Buy,
drove my Chevy to the levee and not to the mall,
Amazon sending me Rice Krispies and pie,
this'll be the day big-box dies*.'


I once thought that people would not, in any major way, switch from automobiles to computers to do their shopping.

http://boards.fool.com/i-think-the-bubble-will-burst-when-so...

Now that you can shop inexpensively for groceries online, I can see that I am now wrong. Online shopping, though, means cardboard shipping containers to open and dispose of. Shopping by automobile entails shopping bags to empty and dispose of and, if in a warehouse store like Sam's Club, no bags at all. I personally think it's a lot easier to take something out of a bag than to get it out of a cardboard box.

I would look to invest in anything related to cardboard or logistics.

jkm929
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There was an article in the Sunday Washington Post about Amazon's plans to provide same day delivery. They are dispersing their warehouses and, increasingly automating them and also are increasingly collecting sales taxes. Sales tax pressures may in part be driving these changes.

Amazon goes same day in the major markets and you can kiss all these B&M retailers goodbye. A lot of the cheesier online retailers may be hosed too. Think about it.
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Amazon has agreed, as per today's WSJ, to pay sales taxes in CA, NV, NJ, VA and several other states as part of physically locating there. Seems like they are getting 12-18mo tax breaks from the various Gov's as well. sharp.
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IN is kicking it in 2014 - CA next year.
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The Death of Big Box is here.


Einhorn finally gave up on BBY. [and Dell.]

Why so many sharp investors got sucked into dell, I will never know. I'd have more faith in GM at this point. [0.0001% but still]
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I know you are just baiting GM to return here, and it's a valiant effort.

1) It worked, didn't it?

Maybe dropping from 7% comps to 3% comps or 41% GMs to 40% GMs is the tip of a deadly iceberg, but that's still just a story -- not a scoreboard.

2) True, it's only down 10% today, maybe it will get another bounce like last time they disappointed, I don't know.

Nevertheless, for them to have decelerating sales and declining profits at a time when housing market is exploding upwards...seems like a bad moon on the rise. 3 straight Qs of lower margin, 15% increase in SGA.


Anyhoo, I don't have a casket on order yet, but I do have $10, a dark suit on, and tarot cards at the ready.

You gotta be careful though. Last night I played poker with those things and got a full house. 3 people died.
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fwiw, they did a 8.7% net margin! comps were up - Comps get harder, comps come down. I mean, if these comps were negative then I might believe, but they aren't. Plus, if it matters, World Market ran a loss last year in Q2, and there should have been some integration expenses that BBBY hasn't mentioned. I'm reading the call now, but this is an amazingly profitable retailer with no signs of distress. As far as the housing correlation is concerned, if you have an immediate link let me know, but BBBY seemed to be doing just fine during the downturn.

Feel free to short it - maybe that 800m in FCF will go negative in the next couple years :)

i'm reading the call now...
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oh, by the way, comps accelerated from Q1 - from 3.0% to 3.5%.

No, I don't think that means anything, but it was the sort of tripe that a guy on VIC was mentioning. I'm not sure what 3.5% comps actually translates to given how much each store sales is - on a yearly basis, they do about 9 to 10b in revenue. Take the lower end, and 3% comps equals 300m in sales. That's a sign of a dead business?

enough on this...
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both times I've said it looks like it's getting worse, I'm accused of having said 'it's a dead business,' even though I specifically said it wasn't going to be dead any time soon, much less in the next few months.

Just so we're clear:


PREDICTING WORSE THAN MARKET EXPECTs DOES NOT = ALREADY DEAD

:)

STOCK LIKELY GOING TO FALL AS RESULT DOES NOT = BANKRUPTCY IMMINENT

:)

It's the same response I heard after predicting poor results for Dell, ATPG, WaMu, RIM, and FNM/FRE for years:

I'm wrong, I don't understand the company, I can't read a fin'l statement, the stock is dirt cheap, don't worry about falling profits, and they're plenty big to survive and thrive.

You may well be right. Still. Most stocks go to zero. Most retailers go to zero. Pretty soon they won't be able to use their 'sales tax' excuse vis-a-vis AMZN.

Maybe this one will not only thrive but hit new highs. Anything is possible. Maybe I'm early and as we all know early = wrong in this biz. Maybe I'll end up buying it 40% lower like I did SPLS -- thanks for helping me out with that name, I appreciate it a lot.

That's what makes a market!
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sorry about that - too quick to post today and misread your note
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both times I've said it looks like it's getting worse, I'm accused of having said 'it's a dead business,' even though I specifically said it wasn't going to be dead any time soon, much less in the next few months.

Just so we're clear:


PREDICTING WORSE THAN MARKET EXPECTs DOES NOT = ALREADY DEAD

:)

STOCK LIKELY GOING TO FALL AS RESULT DOES NOT = BANKRUPTCY IMMINENT

You may well be right. Still. Most stocks go to zero. Most retailers go to zero. Pretty soon they won't be able to use their 'sales tax' excuse vis-a-vis AMZN.


This is why I have so many problems finding a good doctor. Last time I went in, my guy took one look at me and said "The reason you and Refrigerator Perry are dying is precisely because you are trapped between genetics and Dunkin' Donuts." A couple months later he happened to walk by while I lost an arm wrestling match with a parking meter attendant and asked me if I wouldn't mind if he mentioned me in his acceptance speech at the mortality prescience awards. I quietly pointed out that my LDL acronym soup ratios were mildly better than they'd been the year before, and that my life insurance rates were pretty much the same as they'd been a few months ago at my checkup. But he immediately did some sort of AMA Heisman post and screamed that my intrade longevity contracts plummeted last week and that it didn't really matter because all people died eventually anyway, so get to praying.

I like the idea of arguing that a retailer currently showing no symptoms is a lot closer to death's door than people think. It's a hell of a lot more interesting than calling time on Radioshack. But saying the patient is dying is a lot different than saying the patient will soon get excited about an upcoming 10K race, only to be deflated with a disappointing finishing time that is no worse than previous times. And if dying is as dying does because "most retailers go to zero" then Whole Foods is dying, too. Get out the violins. But then it's impossible to know if an actual conversation is taking place. Best Buy is trading at less than 5X trailing earnings. The world thinks it is dying. It will be either be making substantially less in five years than it did last year, or the world will be wrong. Bed, Bath, not so much. So if you think it is likewise dying -- or more accurately, soon to be dying since it is plainly not dying in any meaningful sense at this very moment -- that is interesting. I want to have that conversation, if it is there to be had. But earnings reports like this with growing comps at near-peak all-time margins just doesn't look like the time to point scoreboard for that particular claim, no matter which way the stock is bouncing in response.
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And if dying is as dying does because "most retailers go to zero" then Whole Foods is dying, too. Get out the violins. But then it's impossible to know if an actual conversation is taking place. Best Buy is trading at less than 5X trailing earnings. The world thinks it is dying. It will be either be making substantially less in five years than it did last year, or the world will be wrong. Bed, Bath, not so much. So if you think it is likewise dying -- or more accurately, soon to be dying since it is plainly not dying in any meaningful sense at this very moment -- that is interesting. I want to have that conversation, if it is there to be had. But earnings reports like this with growing comps at near-peak all-time margins just doesn't look like the time to point scoreboard for that particular claim, no matter which way the stock is bouncing in response.

Interesting to me is this sort of contradiction...anyone who taken that MBA level finance course and has Damodaran's book sitting on their shelve knows the present value of the stock is the sum of those really long-term cash flows discounted at the appropriate rate...but really at the end of the day for 95-99% of businesse forecasting cash flows for Years 10 and beyond and really even say Year 5 and beyond really amounts to a wild @$$ guess. The future is unknowable and all that...and especially with consumer retailers you can have business firing on all cylinders for so long (CHS) and then out of the blue just go into a tailspin. Makes me wonder if at the end of the day all you really have is this quarter's result...an outlook over the next quarter or two and then a simple extrapolation that trend will continue indefinitely.
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I love this place. I really do.

Too effin funny.

Someone should make a movie.
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Well, to the extent any 'scoreboard' claims were made it was to get you out of hiding after Martian came out and you went back in.

Has anybody ever seen you two together? Would be an epic reveal like that movie you did with Stephen Rea.


I like the idea of arguing that a retailer currently showing no symptoms is a lot closer to death's door than people think.


I feel like I've mentioned a few symptoms a few times, and the response has been, 'those aren't even symptoms!'

So, I'd love to have this discussion as well, as you note it's a helluva lot more fun than calling time on The 'Shack or BBY or NOK.

Of course you are right in that the margin pressures and increased couponing could be merely temporary. BBBY could continue to take share, esp once Cost Plus is integrated. But if they maintain mid-teens margin levels, they will surely survive for quite some time and prove me wrong, perhaps spectacularly so.

They are net cash+, but are using that and more to fund their buyback program. I guess we'll see if Mgmt is as bad at timing that as 95% of Corp America, or it could be just a net-neutral as well.

It's always hard to find good, new short ideas and maybe I'm squinting to hard in this direction. It's hard to know ex-ante, much more obvious ex-post a la Nok, Rim, FB, and your timely warning about JCP.
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i thought the Q gave some ammunition to both bulls and bears. Bulls can point to the positive SSS, while bears can point to the second quarter of declining SSS Gross Profit $. As for the LT threats from online, i think it is inconclusive. i am kinda amused by how a few people on VIC congratulate each other on the shorts working out for bogus reasons, but i have learnt never questioning how one makes money.

i do agree with CoL that buying back shares at these margins are just nuts. at least the odds are so stacked against them.
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It's always hard to find good, new short ideas and maybe I'm squinting to hard in this direction. It's hard to know ex-ante, much more obvious ex-post a la Nok, Rim, FB, and your timely warning about JCP.

I don't think it's a terrible short at all. If I had to be long or short, I'd probably be short. Just because it isn't dying yet doesn't mean there's no cliff ahead. I'm kind of amazed it has shown the resilience it has. They have had the benefit of LIN's timely demise and perhaps some small K-Cup tailwind. Then again, I thought the internet would swallow Big Lots and Tuesday Morning long before Webvan repudiated my loyalty card. With Bed, Bath you get to short a peak margin, lowish growth retailer at a valuation that doesn't blatantly price in your put option on the existential risk of being Amazon'd. And unlike say, a WSM or Staples, they have no online business to speak of themselves. The rub at the moment is you're not selling at 16-20X earnings but 11-12X earnings (ex-cash), so there's a degree of margin compression already priced in. It doesn't really hurt that they're suddenly determined to be the Ascena Group of the housewarming industry. I don't think these are bad types of stories to litter into a short portfolio; I was short BKS forever with a similar motif (from which I almost super-humanly managed to avoid meaningful profits). But right now for Bed, Bath, the symptoms are still on the come. Internet, schminternet.
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With Bed, Bath you get to short a peak margin, lowish growth retailer at a valuation that doesn't blatantly price in your put option on the existential risk of being Amazon'd. And unlike say, a WSM or Staples, they have no online business to speak of themselves. The rub at the moment is you're not selling at 16-20X earnings but 11-12X earnings (ex-cash), so there's a degree of margin compression already priced in. It doesn't really hurt that they're suddenly determined to be the Ascena Group of the housewarming industry. I don't think these are bad types of stories to litter into a short portfolio; I was short BKS forever with a similar motif (from which I almost super-humanly managed to avoid meaningful profits). But right now for Bed, Bath, the symptoms are still on the come. Internet, schminternet.

I'm speculating here, but I think I am right on this. I think when evaluating the Internet as a threat, you really have to segment it by product type and which gender is doing the buying (and I think there is obviously a connection there).

A few personal examples. I just bought a new Western Digital external hard drive from Amazon. A month or two before that I bought a couple of video games from Amazon. Back in December 2011, I bought a 27" Dell monitor from Amazon and a refurbished 47" Vizio 3D TV from TigerDirect online. In contrast, my fiancee has bought pretty much all our housewares and home products from BBBY. When we got a new king-sized Tempur-Pedic, she went to the BBBY store to purchase 2 sets of the microfiber sheets. I can't even imagine what the gross margin on those were given the price. I think she would not be very inclined to buy those off the Internet.

I'm getting a bit off the beaten path here, but many years back after my divorce I got deep into studying what can loosely be called male-female dynamics....of which "Game" is one topic. Long story short, when you study it, and really observe it the male and female brains are very different. Just as one example, woment tend to base decisions very much on emotion and perceived status. That is why they'll consistently pay $300 for workout clothes from Lululemon despite most of super analytical logical stock guys thinking that is nuts.

In short, I think when you analyze retailing, you have to think carefully about how gender might impact buying dynamics.
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the existential risk of being Amazon'd.

You have no idea how much I love this phrase.
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I am amazed that BBBY has held up as well as it has. There is that famous story about Jeff Bezos sitting in his office at DE Shaw in the mid-1990's trying to figure out the best category to sell on the internet. He came up with a list and picked out books as the best one. Here is one clipped version:
http://www.success.com/articles/1231-from-the-archives-jeff-...

Well, bedding can't be all that far behind. Sheets are generally unbranded, the margins are huge, they lend themselves well to in-house branding (because people measure largely by thread count and fabric type), size is standardized and thus returns and SKU counts are very low, and they warehouse and ship like a dream. Other bedding isn't quite as great but has similar characteristics.

The gender story sounds good at first blush but my guess is that it would not hold up if you looked at the data closely.
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The gender story sounds good at first blush but my guess is that it would not hold up if you looked at the data closely.

I've got to think some highly paid marketing consultants have done this work...if not...that is a colossal failure. I just wouldn't have the first clue to where to start looking for detailed breakdown on shopping habits by product type and gender. On a related note, its been well known for a long time, that the "woman of the house" makes most of the buying decisions, and thus most advertising is directed towards women.
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I thought he picked diapers as the 'best' one, then only switched later to books.
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That is why they'll consistently pay $300 for workout clothes from Lululemon despite most of super analytical logical stock guys thinking that is nuts.


Yeah, right. I never see guys in expensive Under Armor clothing, some of which haven't been to a gym in years, nor wearing $150+ team jerseys (football, hockey,etc.) :)

I really don't think there is any reluctance by women to use the Internet. Maybe a decade ago but not anymore IMHO.

Rich
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IMHO, jerseys are different [and easily available for $70 or less] because that's not about 'fashion' or 'clothing,' it's about local pride/support/belonging to a larger group/crazed fandom.

As for UA, good point, but I've never seen guys wearing them that don't go to the gym [ymmv of course]. And shirts and pants are 25-39 at Amazon, not $260 at LULU.

http://www.amazon.com/HeatGear-Legging-Bottoms-Under-Armour/...
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Yeah, right. I never see guys in expensive Under Armor clothing, some of which haven't been to a gym in years, nor wearing $150+ team jerseys (football, hockey,etc.) :)

Generally speaking, women tend to spend a lot more on high-priced "status" items such as Coach and Louis Vuitton purses or certain shoes, whatever. The higher priced spending from men tends to be more gadget oriented, the newest TV or receiver

I really don't think there is any reluctance by women to use the Internet. Maybe a decade ago but not anymore IMHO.

You need to read closer. I didn't say anything about women not using the Internet. For many women, shopping is about the "experience" and the feelings that get triggered. Clicking a button a computer screen doesn't evoke the same experience or feeling as being in a store and touching and seeing an item.
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A real conversation between me and my wife early this year.

Me: "what was this $4000 charge on the credit card?"

Her: "oh, it is this new Chanel Bag. It's so cute, right? I got it at a big discount".

Me: "are you out of your mind? it is $4000!!!"

Her: "you don't understand. i got it through a sales person only event. The regular price is over $5000, and you never get discount on Chanel bags. It is a GREAT DEAL. So many of my (web) friends are jealous."

Me: "you do realize this stupid bag costs more than my whole wardrobe, right? and you will use it for 2 years tops."

Her: "It is the classic line. i will carry it for ever". (that "for ever" line has been used on about 4-5 other bags before).

eventually, she sold the bag to one of her web friends at a small profit. That "lucky" girl was supposedly overwhelmed with joy, and my wife's friends were chiding her for not keeping the "bargain".

I did get lucky in the sense that small profit got parlayed into a few A&F sweaters on 75% off sale (which i can barely fit in any more), doubling my winter wardrobe.
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Me: "you do realize this stupid bag costs more than my whole wardrobe, right? and you will use it for 2 years tops."

I got you beat! That would have paid for my wardrobe for the past 30 years (and I'm not kidding). Wearing my $2.00 Gildan t-shirt (nice orange) from CVS right now....

I did buy a pair of Rockport dress shoes a month or so ago. My wife wouldn't let me keep wearing my black sneakers from WMT to church anymore (though there is nothing wrong with those shoes as I've had them for 10+ years).

Course, I'll admit that I don't care about these things and clearly others do. My guess is she doesn't have a complete Star Trek DVD collection, complete with the Animated series too along w/all sorts of ST books that suck for the most part (though the latest NG 365 book is pretty spiffy) though I get those from the used book store.

Different things we value in life....if it matters, there is a point in your life when you start to realize that this stuff doesn't mean anything anymore. But it does help if you collect stuff, do so only in low dollar amounts.

Martian
Owner of 2 long pants
Onwner of appx 200 notebooks (at least) most purchased for 3c each at Target....
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I try to follow these 3 hard n' fast rules in life:

1) Never play cards with a guy named 'Doc' or 'Snake.'

2) Don't get into an arse-kicking contest with a porcupine.

3) If big momma ain't happy, ain't nobody happy.





One trick is to buy your SigOther who lusts for handbags a nice 800-1200 one for Christmas/birthday every other year. You will earn mega-points, it will likely slow down/stop her thoughts of purchasing a Chanel one, and she knows that if she complains about the one you got her, you likely won't buy her anymore. [Knowing her tastes/with the saleslady's help it's not that hard to find one she will like, esp if it's a gift.]

Obvs, if it's 'her' money, I wouldn't complain at all....
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Einhorn finally gave up on BBY. [and Dell.]

Why so many sharp investors got sucked into dell, I will never know. I'd have more faith in GM at this point. [0.0001% but still]


And not a moment too soon on BBY either, down another 15% today, 35% last 3 months.

Ouch.

Still $4bn to go though...
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The reason BBBY, et al are dying is precisely because they are trapped btw WMT and AMZN.


The internet is a huge threat to Bed Bath, but you should be clear that your eulogy costs $10 and requires Tarot cards, not dark suits and a casket. Maybe they are dying, but you are diagnosing it from a hypothesis and a slight cough. Maybe dropping from 7% comps to 3% comps or 41% GMs to 40% GMs is the tip of a deadly iceberg, but that's still just a story -- not a scoreboard.

So if you think it is likewise dying -- or more accurately, soon to be dying since it is plainly not dying in any meaningful sense at this very moment -- that is interesting. I want to have that conversation, if it is there to be had. But earnings reports like this with growing comps at near-peak all-time margins just doesn't look like the time to point scoreboard for that particular claim, no matter which way the stock is bouncing in response...

The rub at the moment is you're not selling at 16-20X earnings but 11-12X earnings (ex-cash), so there's a degree of margin compression already priced in. I don't think these are bad types of stories to litter into a short portfolio; I was short BKS forever with a similar motif (from which I almost super-humanly managed to avoid meaningful profits). But right now for Bed, Bath, the symptoms are still on the come. Internet, schminternet.
~Roark



Scoreboard: BBBY down 22% since OP 2 years ago, SPX up 50%.

Comps dropped from 3.4% to 0.4% for the first quarter.

I think the symptoms have arrived.


Repeating Just so we're clear:

PREDICTING WORSE THAN MARKET EXPECTs DOES NOT = ALREADY DEAD
:)
STOCK LIKELY GOING TO FALL AS RESULT DOES NOT = BANKRUPTCY IMMINENT [or in the next 3 years]
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I know you are just baiting GM to return here, and it's a valiant effort....

The internet is a huge threat to Bed Bath, but you should be clear that your eulogy costs $10 and requires Tarot cards, not dark suits and a casket. Maybe they are dying, but you are diagnosing it from a hypothesis and a slight cough. This is the same patient who has grown EPS 10X from 1999 to 2012 and is running EBITDA margins 500-600 bp higher than the carefree pre-internet days. Maybe dropping from 7% comps to 3% comps or 41% GMs to 40% GMs is the tip of a deadly iceberg, but that's still just a story -- not a scoreboard.

...So if you think it is likewise dying -- or more accurately, soon to be dying since it is plainly not dying in any meaningful sense at this very moment -- that is interesting....But earnings reports like this with growing comps at near-peak all-time margins just doesn't look like the time to point scoreboard for that particular claim, no matter which way the stock is bouncing in response.




SCOREBOARD! ;)

Comps in stores fell 2%. This year growth will be flat. Margins have fallen to their lowest level in over a decade. Since OP, BBBY is down 40% while the S+P is up 46%.

That's 8600 bps of Alpha in 3.5 years.

I'm mainly posting this to get HR out of his hole by Groundhog Day, although it's nice to be right about something regarded as 'tarot cards and a slight cough,' probably for the first [and last!] time.

The more interesting query is, where does it go from here? 16x FCF estimated, 2016 pe of 13x, but zero growth? CEO comp that's ranged btw $17m and $50m the past few years, ugly.

Come back to the five and dime, Howard Roark, Howard Roark!


Also, is there any truth to the rumor you're appearing at Wing Bowl with Dennis Rodman and that he co-wrote your annual letter?
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The internet is a huge threat to Bed Bath, but you should be clear that your eulogy costs $10 and requires Tarot cards, not dark suits and a casket. Maybe they are dying, but you are diagnosing it from a hypothesis and a slight cough. This is the same patient who has grown EPS 10X from 1999 to 2012 and is running EBITDA margins 500-600 bp higher than the carefree pre-internet days. Maybe dropping from 7% comps to 3% comps or 41% GMs to 40% GMs is the tip of a deadly iceberg, but that's still just a story -- not a scoreboard.

In ~5.5 years BBBY has fallen 72% while the S+P has doubled. It is trading at 1999 levels currently.

Rather than say 'Scoreboard!' again I am going to go ahead and declare Flawless Victory in my original assertion that BBBY was going to get smushed in the dreaded 'middle' for retailers.

Op Margin has been cut in half in 5 years to 7.9%. Leverage is up nicely. ROIC cut in half.


If one doesn't think they're dying, at 5x PE and 3% divy, you can get in pretty damn cheap! Anyone like them here?
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If one doesn't think they're dying, at 5x PE and 3% divy, you can get in pretty damn cheap! Anyone like them here?

Anyone? Anyone? Bueller?

Trending 10% up off its recent low. 5.4x PE, 7.8x FPE. Traded about 9.7 PE in 2016 but trend is down.

35% tax rate according to VL so $$ could drop to bottom line in 2018.

I suspect that they are road kill in 20 years but I hope to be out in < 3 months. What does GM say, I expect my buys to go up immediately!

Bought a micro-dink with some of my AMC winnings. ;-)

Will be out if I get a quick 7-9%

DMC rules. And thanks.
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Will be out if I get a quick 7-9%


10% in less than 24 hours. Thanks Naj

Sold.
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Last 2 years BBBY down 59%, SPY up 18%.

PE has been cut in half since OP. Lost money last year, 6.7x fwd PE next year.

EBIT margin from 16.5% to 3.5%.

The past 6 months it has these runups and the slow bleeds back down.


I wonder if this is the future for: KSS, JWN, et al.
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I wonder if this is the future for: KSS, JWN, et al.

I firmly believe the Nordstrom family will take JWN private if the stock gets cheap enough. Would probably take a bigger decline than what we've seen so far though to make it affordable enough for them to get backing.

best,
dan
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Dan, completely agree, there is some backstop there but could get cut in half first.

best,
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got cut in half again in 4 months before this recent two-week rally.

This is a ZERO.
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