An excellent article from former Director of OMB David Stockman. Check out David Stockman’s Contra Corner.
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May 27, 2015
Prior to today’s open MarketWatch provided a reminder that the lemmings are still rampaging in the casino. With respect to Tiffany’s (TIF) pre-market earnings announcement, it telegraphed the reason why TIF soared by 12% or about $1.5 billion during the course of the trading day:
Tiffany & Co.’s stock climbed 3.5% in premarket trade Wednesday, after the luxury jewelry retailer reported better-than-expected fiscal first-quarter profit and sales, and provided an upbeat earnings outlook for the year.
Well, not exactly. Worldwide sales fell by 5% from $1.01 billion in the April quarter last year to $962 million during the current the quarter. Same store sales dropped even more—-by 7%.
Likewise, net income of $105 million represented a 17% plunge from last year’s $126 million. Not surprisingly, however, this was greeted as rip-roaring good news because the street “consensus” had marked down expected earnings to just $91 million or by 27% from last year’s QI level.
As for the “upbeat” earnings guidance, it amounted to this:
For the full fiscal year, Tiffany said it expects “minimal growth” in earnings per share from the $4.20 earned in fiscal 2014….
Apparently, flat is the new “upbeat”, but even then TIF didn’t actually earn $4.20 in the year ending in January. That’s the ex-items fiction that they use in the casino. TIF actually earned $3.73 per share last year.
So at today’s close of $94.50 the company was actually trading at 25X a net income number that management itself attested will be dead in the water this year; and which is at serious risk of shortfall because TIF is starting 2015 deep in the hole based on these crummy Q1 results.
Actually, upon today’s announcement Tiffany’s LTM net income computes out to $463 million. That happens to be the exact same number as the $464 million it posted for the LTM period ending way back in September 2013.
In short, TIF’s earnings have been dead in the water for several years now, but that’s not the half of it. Tiffany is the very embodiment of a piggyback rider on the worldwide financial bubble fueled by the central banks.
Its earnings have already stalled out due to the crackdown on luxuries in China, but that’s just the tip of the diamond. The real crackdown will come when the third great financial bubble of this century finally bursts and the top 5% ratchet back sharply on their luxury jewelry purchases as they did in 2000-2001 and 2008-2009.
At that point sales will plummet by double digits and TIF will be lucky to earn $2 per share. So the lemmings had a profitable day in the casino. Yes they did—–chasing a stock sitting at the very apex of the global luxury bubble to a valuation that would amount to 50X what the company might actually bring to the bottom line in the post-bubble world ahead.
But don’t say the lemmings are totally undiscriminating. Stampeding in the opposite direction, they marked down the stock of Shake Shack (SHAK) today by fully14%. This happened upon the news that its $50 million per unit hot dog and hamburger stands might not be suitable as “Chicken Shacks”.
But in taking down SHAK’s market cap from $3.0 to $2.7 billion, its not as if the casino experienced an outbreak of old-fashioned price discovery. The stock closed for the day trading at a round 1,333X its $2 million of earnings recorded for the year just ended.
More importantly, the broad market made another chop upward on extremely thin volume and completely phony news about Greece. Accordingly, with each passing session the casino is getting more dangerous, but the lemmings have no clue and the narrative gets ever more specious.
So today the NASDAQ made a new all-time high, and the S&P 500 returned to its nose bleed valuation of 21X reported earnings. That is, earnings that are already down 6% from the September LTM level, and which have a long way yet to plunge as the global deflation/recession gathers force.
Needless to say, the Fed’s liquidity saturated casino is not on the level, not in the slightest. Today you had to be gulping down nearly toxic doses of Kool-Aid to believe that Tiffany’s earnings bore any resemblance whatsoever to “upbeat”.
But, then, still another market rip was just a further reminder that the casino remains crowded with rampaging lemmings, and that the dip buyers will keep hitting the “offer” until Wall Street’s fast money gamblers have nothing left to sell.
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Not much to add, except that this sort of nonsense is now a daily occurrence. It’s endemic to nearly every asset class and, needless to say, the stock “market” as a whole. It wouldn’t be so dangerous except for the fact that it will unwind some day — leaving those who come to trust these machinations twisting in the wind.