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Lululemon Athletica Inc. Message Board

  • techstrategy techstrategy Apr 6, 2012 8:58 AM Flag

    Shorts, it is going to start getting fun in May...

    Today's NFP print is just the beginning. The first quarter ALWAYS has a huge seasonal adjustment WITHOUT the warm weather effect. If we stay unseasonably warm heading into summer, we'll have high gas prices, lower mileage (air conditioning) and increased home utilities (AC) rather than the natural gas and heating oil offset.

    Historically, seasonal employment adjustment goes negative from June to October (thus the sell in May and go away). Gas prices will continue to take their toll... QE may drive more speculation, but underlying fundamantels for consumption degrade. In summary, it provides an opportunity to sell to speculators. Do it while you can...

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    • If you see it that way, low growth cyclical stocks would be sells but high secular growers would be buys. The focus tends to shift from purely economic plsys to ones that can grow even in such environments.

      I am sure you dont see it that way but secular growers with high PEs will do relatively better. It actuslly makes even CMG a buy.

      However, i dont really see the data as negative, just a blip, meaning markets goes up the way it has been. Nasdaq 4000 this year easily. The meltup has not really started yet

      • 1 Reply to paul_speculator
      • Paul:

        That's what makes a market. I absolutely see it that way. Large financial players have been playing the same "melt up" game as the past, assuming it would work. I always say all good strategy is context dependent. They, like Bernanke himself, have not recognized that our current context is wildly different.

        Consumption IS constrained. Consumers have been using savings to maintain consumption, but it is increasingly unsustainable every day. When the US Gov't actually implements the tax hikes (that will disproportionately hit LULUs relatively wealthier consumer base) and implement spending cuts (which will hurt the aggregate consumption and demand). Further, QE only serves to increase demand for physical assets and commodities, further increasing the relative price and driving down effective real disposable income.

        I do respect your thoughtful perspective and congratulate you on your melt up call back in November. My read is that Lone Pine and a few others saw an opportunity for a massive capitulation squeeze. My hypothesis is that LP and its hedge fund cohort has continued to accumulate while long only funds have distributed. Once it starts to get toppy, they reverse and make a killing on the downside as well. We'll see how it plays out for the rest of 2012...

        If LULU was at a multiple of 30-35, I think your secular grower thesis might hold. But, it isn't.

        The rationale that stocks will do well because bonds will lose so much value due to inflation is just flawed. Bond investors can shorten maturities to reduce interest rate exposure (the Fed is the only buyer of long bonds anyway). They can also focus on minimal credit risk.

        The Wall Street community is trying to persuade retail investors to buy in at these inflated prices (the market multiple is no longer cheap after this run by historical standards, yet margins and earnings are rolling over). Plus, if the inflation argument is right, mutliples WILL compress -- using the low growth, higher inflation 70's as a proxy, market multiples could drop to 8-10 which is a BIG haircut from here and much larger than a short duration bond will lose... Inflation should hit high multiple stocks much harder as real cash flows are much further into the future...

        In short, the risk of loss in shorter duration bonds with solid credit profile pales in comparison to the risk of holding most stocks at these levels and particularly high multiple stocks in what will prove to be an increasingly stretched discretionary spending environment.

        And, given that cap gains could very well go up next year, I suspect wise people will choose to start realizing the insane gains on bubble valuations like this one...

        Good luck.

 
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