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Tuesday,
April 28, 2009
(Cont'd from
above)...
Jim (cont'd):
Now, consider the
headline from
Fortune Brands (FO),
the company that
makes everything
from kitchen sinks…
not to mention
tools, storage
products, golf
balls, and an
alcoholic beverage…
a curious ad mixture
of products that
sounds something
like out of mad libs
rather than a
publicly traded
company… Fortune
Brands, here is the
headlines… expects
first quarter to be
most difficult of
year, cuts quarterly
dividend to .19
cents from .44
cents… and what
happens… Wall Street
defies gravity
again… Fortune
Brands zooms up
$1.42... Bristol
Myers gets crushed
falling .89 cents…
on a $20 basis, that
hurts… are you in
disbelief… worried
that you forgot to
take you Lythium and
you are seeing
things.
Did you expect the
opposite… I know I
would have when I
started out trading
stocks… and if you
did, you have come
to the right locker
room… certainly
better smelling than
the NBA’s… where
this coach can
diagram exactly what
is happening for
you… because I have
seen these plays
many times before… I
wish that I had had
this piece, what I
am about to tell
you, when I first
started… it would
have saved my
thousands of
dollars… right now
we are seeing a
dramatic turn in
this economy…
consumer confidence
is soaring according
to today’s
confidence report
findings… today the
Richmond Fed joined
the Dallas Fed’s
bulletin from
yesterday with
reports that show an
increase, a real
increase in the
activity in the
district… I read all
of these federal
reserve district
reports, they are
very valuable… with
prices rising and
business just plain
old getting better…
see it is no longer
anecdotal… we are
seeing actual
improvement in
business activity
across the board.
Now, I know… I know
that most of you do
not want to believe
it… many of you do
not feel it… you
probably want to
ignore what I am
saying because you
are feeling poor…
but things are
getting better in
this country… and
when they do you
cannot own the stock
of Bristol Myers, no
matter how well it
is doing… and boy is
it doing well… and
you have to hold
your nose and buy
the stock of Fortune
Brands… no matter
how big the dividend
is slashed… no
matter how bleak the
past has been… at
the moment these
things just are not
important… the macro
economic picture,
the fact that the
economy is getting
better trumps an
eviscerated dividend
at Fortune Brands…
or a fabulous
quarter from Bristol
Myers.
I have continually
highlighted this
bizarro world to
you… a bizarro world
where me like em
ugly, me put arms on
Venus Di Milo… and I
have done so because
it is so difficult
right now with the
misleading headlines
on Fortune Brands…
seeming horrible…
and the headlines on
Bristol Myers being
so fabulous… it is
almost impossible
for you not to be
faked out… not to be
fooled into
believing that we
are all nuts on Wall
Street and that you
cannot play with us…
that you cannot make
money… we do not
want you to be
confused by these
headlines in
Cramerica… because
these headlines lie…
you can stop
worrying… the market
is not crazy… it is
the news coverage
that is insane,
because it only
talks about the
companies… and does
not try to help you
with the stock… we
try to help you with
both on this show.
Do you want to know
what I think… I
think that
Bristol-Myers
(BMY*)
is fine… it is what
we expected… but if
you go to the fine
print of the Fortune
Brands quarter it is
actually a little
better than we
thought… know you
are probably
thinking big deal…
the earnings
projections have
been slashed more
times than in
Jason’s last
cinematic epic… you
probably think that
it is all
manufactured… I say
no… I say so what,
it does not matter…
the big buyers of
stocks do not care
that the estimates
are being crushed…
they do not care
that they were
already dramatically
lowered ahead of the
report… they are
just thrilled to
find that at this
point in the
economic cycle with
this downturn, that
Fortune Brands is
not falling off a
cliff… and that it
has seen
stabilization… which
it says
unequivocally is the
case.
It looks like people
are getting off of
their cheap linoleum
floor… where they
were drinking by the
way no name cheap
bourbon… and they
are now bellying up
to the bar and
ordering some Jim
Beam… while they
replace their
faucets, and play a
good game of golf…
what you need to
know is that at the
big turns in the
economy… like we are
having right now…
right now… a rising
tide, this does not
make sense to most
people…. but a
rising tide doesn’t
lift all boats… it
does not… it only
lifts the boats that
have been crushed by
the terrible
economy… and it
sinks the boats that
have been cruising
along just fine,
because their
earnings were not
hurt by the weakness
in the economy in
the first place…
which is why Bristol
Myers could drop .89
cents, drop about 5%
on a day like today.
You have got to
understand this ship
because if you
don’t, if you wait
for all of the news
to be good… if you
wait, for example,
for Fortune Brands
to raise its
dividends back… or
to tell you that
earnings estimates
for 2010 are way too
low… I promise you
this, you will be
buying Fortune
Brands at $58... not
$38... meanwhile you
can sit in Bristol
Myers and pick up
that 6% yield… there
is nothing wrong
with that… but you
will not get much
capital appreciation
at all… that is what
happens when things
get better in this
country… it is what
always happens when
things get better in
this country… and it
is what will happen
next time when
things get better in
this country after a
downturn.
It is very
frustrating to most
home gamers to watch
Bristol Myers go
down on a great
quarter… and to have
Fortune Brands
rewarded by rallying
on this miserable
news of a dividend
cut… but you are not
looking at the right
metrics… Bristol
Myers has a one year
total return of just
-6%… that is much
better than the
averages… as for
Fortune Brands, they
should call it
Misfortune Brands…
it has got a one
year total return of
-42%… much worse
than the averages…
so we are switching
now… when I used to
run $500m for
wealthy individuals
at my old hedge
fund, I always
believed that you
had to have what was
known as a world
view… you had to
think about where
you think the
economy will be in 6
to 9 months in the
future, because
stocks predict that…
I have prided myself
in making those
forecasts… like my
housing bottom call,
so absurd a year
ago… this is the
bottoming call… this
is vital to this
kind of thinking
because it explains
perfectly the
Bristol Myers,
Fortune Brands
dichotomy… the big
money guys who move
stocks do not care
about the last
quarter… they only
care where these
companies will be
going forward… that
is why I think
Fortune Brands will
rally right into
that housing bottom
and then some.
It is also why I
believe that Bristol
Myers, unless taken
over, will mark time
at best and falter
right into bottom…
it is why I sold it
for AAPMCT… because
in 6 to 9 months,
the way I see it,
Fortune Brands will
be in much better
shape… and Bristol
Myers, a yawner…
about the same… I
know how wrong it
seems to you to
reward the sinners
and punish the
saints… but that is
just how Wall
Street… Wall Street
doesn’t buy the
sinks… it just
doesn’t… Wall Street
works in the
immortal words of
Clint in
“Unforgiven”… lets
just say that
deserves has got
nothing to do with
it.
The bottom line…
▼ ▼
▼ ▼
▼
 The Bottom Line!:
Yes, we lavish
praise on those who
have hit bottom… and
we ignore those who
have just
consistently done
the job… and it
makes sense… in this
game, when the
economy turns, we
value the most
improved players
more than we value
good numbers… and we
select the most
improved player
before it is even
improved at all…
because we care
about predictions…
not about
retrospective
analysis… which is
why the market seems
so counterintuitive
to anyone who is
used to a
traditional grading
system… or for that
matter, human
behavior… but when
you grade stocks
using the metrics
that matter… where
the companies will
be in 6 to 9 months
instead of fretting
about how they have
been doing… then it
will all come
together for you…
counterintuitive but
right... This
market’s looking for
what’s next, that’s
why I think you
should buy
Fortune Brands (FO)
and sell
Bristol-Myers Squibb Co.
(BMY*).
Only in a bizzaro
world would you be
able to understand
that Fortune Brands
could go up on bad
news and Bristol
Myers could go down…
just remember this,
at an economic turn
a rising tide does
not lift all boats…
only the boats that
benefit from an
economic recovery.
[verbatim recap]
▼ ▼
▼ ▼
▼
Jim went on after
this segment to take
questions from
callers, and
responded with his
comments...
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Q:
If the uptick rule
is so good to curb
excesses on the
short side. Should
there not also be a
downtick rule to
deter excesses on
the long side?
Jim:
I have always felt
that the excesses on
the long side should
be investigated…
because people are
colluding to be able
to move a stock up…
and then we should
investigate that…
but we do not need
to make it so that
we restrain the
upside… remember,
there is an
imperative in this
country to be able
to raise capital..
.there is no such
imperative to be
able to destroy
capital… the notion
that the short
sellers should be
able to sow fear,
and destroy stocks
is something that we
have already went
thru in 29 - 32...
we empirically
demonstrated that it
was a bad idea… we
repealed all of that
because of the
radical right wing
fools that ran the
SEC in the last
decade.
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Q:
Recently released
economic indicators
have resulted in
conflicting signals
in the direction of
the economy. Just
yesterday the Texas
Fed manufacturing
index showed
improvement. While
the Chicago Midwest
manufacturing index
declined. Today
Richmond showed
improvement, while
last week New York
and Philly still
declined. How much
do you rely on the
regional fed
surveys?
Jim:
Okay, that is a
great question… and
what I am looking
for, by the way,
just so you know…
not necessarily that
we are getting a
turn… I think that
it is absolutely
true that there are
some fed regions
that are not coming
around… the fact is,
that there are some
that are… and that
is the difference…
see we only need to
see a couple that
are that I think are
leading us… and if
you read thru the
fine lines of that
Richmond one today,
you will see some
real reversals… if
we see a couple of
reversals, there is
something to build
on… and that is what
I am going on.
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Q:
I am a short term
trader and I am a
little overweight in
US oil puts. I was
wondering if you
thought that the
swine flu outbreak
could act as a
catalyst that could
cause downward
technical breaks
from the $50
resistance level of
crude? Or if it was
more like a quick
scare situation
where the price is
likely to bounce
right back up after
all of the panic?
Jim:
I do not mean to
dissuade you from
thinking about
technical patterns
here… but I think
the issue is
fundamental demand
for oil which I find
to be holding up…
vs. supply which is
actually being
curtailed somewhat
in Mexico… and there
is new Venezuelan
news about possible
saber rattling about
drilling there… so
what I would tell
you is I am not
going to be
dissuaded by the
charts, by the
technicals or the
charts… demand is
fine oil… and I
think that it is
going to stay fine
thru the swine flue
issue.
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[verbatim
recap]
[end of segment]
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