Marketing Menus and Yelp Ratings.

A number of articles recently proclaimed the economic benefit of restaurant reviews. Not unusually, many of them cited identical assertions that could be traced back to the original press release.

Being something of a sceptic regarding both the reporting of academic papers and the power of anonymous recommendation, I emailed one of the authors at Berkeley to try to understand if what was reported was what he had claimed. He pointed me to this article by way of a good summary.

My logic is that better restaurants will be fuller because they are better restaurants and that any ratings they garner will follow that and not vice versa. I also believe that people are more likely to pay attention to the views of trusted friends or proven professional reviewers than crowd-sourced averages and, having consulted an old professor of mine, I remain unconvinced that the study has proven any real causality. We both agreed that to do so would require a longitudinal study of the relation between a restaurant's success and its changing ratings over time.

That said, the study is not the problem, my real concern is not with the study but with the dissemination of the headline and how innumerate marketers will translate that into promotion mode. It will lead to the gaming of ratings rather than the improvement of the rated and all because of a claim that people far smarter than they never made. Evidence-based marketing has a long way to go. Understanding the evidence is a good place to start.

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Moody's Warns Of Potential US Debt Downgrade

The market is higher this morning, likely bouncing back from yesterday's little drubbing.  But there hasn't been a lot in the way of market moving corporate news or economic data.

The dollar index is lower after Moody's warned that it could downgrade the US debt rating if Congress doesn't pass some measures that "lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term".  I just hope Congress heeds their warning.  We all know what a disaster it was last year when the debt ceiling expired with no action.

High end retail stocks like COH, RL, and TIF are lower today after Britain's Burberry cut its profit expectations.

Asian markets were mostly lower overnight. China's Commerce Minister reiterated his skepticism on meeting the 2012 target of 10% growth.

In Europe, attention is turning to the German court which is expected to rule on the constitutionality of the European Stability Mechanism on Wednesday.  German Finance Minister Wolfgang Schaeuble said that Germany remains opposed to Euro bonds and reiterated that shared liability or a printing press won't solve the crisis. 

Commodities are mostly higher.  Oil prices are up to $97 and gold prices are higher near $1738.  Silver prices are also up again, as are copper.

The 10-year yield is hovering around 1.69%.  And the VIX is slightly lower to 15.83 after a huge reversal yesterday.  In my opening post yesterday I noted that the VIX was lower and approaching August's lows, but it soon began to reverse higher and by the end of the day had rocketed 16% off of its lows.  We will see if there is any follow through to come, as the VIX remains below its 50-day average.

Trading comment: Yesterday's selloff was not accompanied by the rise in volume that would mark the sort of distribution that should worry investors.  As of now it appears to be a price dislocation.  As always, it is the follow through of the market that is meaningful.  If we don't see any further downside this week, traders will chalk the selloff up as a one-day wonder.  But we have some big announcements this week with the German ruling on the ESM Wednesday and the FOMC meeting Thursday.  So I think that we are likely to see some bigger moves in the market one way or another.  Tech really took it on the chin yesterday, led by AAPL which will announce the iPhone5 this week.  Some wonder whether it will be a buy the rumor-sell the news type of even.

KAM Advisors has long positions in AAPL and COH

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Monday Morning Musings

The markets are slightly lower in early trading after a lackluster overnight session abroad.

Asian markets were mixed after a bevy of economic data was released in China.  Imports and exports both came in below expectations.  Industrial production was also lower than expected coming in at 8.9% yr/yr.  CPI was in line at 2.0% vs. a year ago.  The light data point to a continued slowdown  in economic growth, and lend themselves to the notion that the PBOC will keep its foot on the stimulus pedal.

Material stocks continue to lead after China's stimulus plans announced last week.  Tech stocks are lagging so far today after leading the action last week. 

European markets are fairly quiet, with financials continuining to rally after the ECB's announcement last week for Outright Monetary Transactions (OMT).  Italian Q2 GDP was revised lower to show a contraction of -2.6%.  France also lowered its forecast for GDP to 0.8% from prior expectations for 1.2%.  Spain's 10-year yield is hitting its lowest levels since April, near 5.64%.

There isn't a lot in the way of economic data or corporate news this morning in the U.S.  Investors are eagerly awaiting this Thursday's FOMC meeting, but I still think that the Fed will merely reiterate its recent statements and not announce any new QE initiatives at this point.  Oil and gas prices are up lately, and more QE at this point would likely just drive commodity prices higher.

The dollar is higher today, and commodities are flattish.  Oil prices are steady near $96.33 while gold prices are down a little to $1734.

The 10-year yield is up a little to 1.67%.  And the VIX is down -1.5% all the way down to 14.15 and getting close to its yearly lows seen in August.

Trading comments: The markets put in a very nice week last week.  Breadth in the market improved with over 300 new highs seen on the NYSE.  Moreover, more growth stocks are starting to lead the market vs. the defensive type of stocks we had seen leading previously.  It looks like dips will continue to be bought by portfolio managers until something comes along and really rattles the market and shakes the newly minted bulls' confidence.  We have seen bullish sentiment indicators rising lately.  If more of the indicators begin to hit extreme bullish levels, that could leave the market more vulnerable to a pullback.  But right now it still feels like folks are looking for spots to put money to work in stocks.

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China Pumps Up The Stimulus

Markets are mixed in early trading after gains in overseas markets.  Markets soared yesterday after ECB President Draghi announced his new bond buying program, the Outright Monetary Transactions (OMT).  Asian markets soared overnight with Hong Kong up by 3.1% and Shanghai spiking 3.7%, its best single day in three years.

As speculated China announced some big stimulus plans yesterday and today.  Yesterday Beijing said that 18 cities in China would get subway systems.  Today the govt. laid out plans to build more than 1250 miles of road (more roads to nowhere).  Materials stocks shot higher on the news.  Copper prices are also spiking to 4-month highs (JJC) and stocks like FCX, JOY, and CLF are all rallying stongly today.

In economic news, the big bad payrolls report once again disappointed investors, but the damage in the market has been contained.  I said yesterday that the strong ADP report does not have a great history of predicting how strong the govt. payrolls report will come in.  Lo and behold today's jobs report showed just 96k jobs created in August vs. 130k consensus estimates.  On the plus side, the unemployment rate fell to 8.1% from 8.3%, but I presume that this is more from a continued decline in the labor force.

In corporate news, Intel (INTC) stock is lower after the company lowered revenue guidance due to weak demand.  On the flip side, retails stocks LULU and ULTA are both spiking higher today after reporting strong earnings and guidance.

In Europe, optimism is present today as peripheral bond yields continue to come down.  Spanish yields have fallen back to 5.64% and Italian yields are down to 5.08% on 10-year debt.

In the US, our 10-year yield is falling today on the weak jobs report, back down to 1.62%.

The VIX is also another 5.7% lower today back down to the 14.70 level.

Trading comment: The action in the market has been solid.  Yesterday's breakout held into the close with the market finishing right near its highs of the day.  Also, more growth stocks are starting to breakout and lead the market.  This is a change from the last couple of months when defensive stocks were leading the market.  If you look at utility stocks as an example you can see that the bloom has really come off the rose in that sector.  Today materials stocks are leading the rally by a wide margin.  And despite Intel, other tech stocks have been rallying nicely.  AAPL and GOOG are both at new highs.

KAM Advisors has long positions in AAPL, GOOG, ULTA

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Draghi Lives Up To His "Whatever It Takes" Comment

Markets are sharply higher in early trading on the heels of some good economic data combined with comments out of the ECB that support Mario Draghi's recent statement that he will do "whatever it takes" to save the euro.

The ECB will commit to buying unlimited amounts of sterilized bonds, acting strictly within its mandate and focusing on bonds with maturities of less than three years.  Countries will still need to first make a formal request for aid first.  But global markets are pleased with this commitment, and markets from Asian to Europe are rallying.

The ECB held its benchmark rate at 0.75%, the Bank of England stayed at 0.5%, but in a surprise move Sweden's central bank cut their key interest rate by 25 basis points to 1.25%.  Separately, the Eurozone Q2 GDP report showed a contraction of -0.2%.  It remains unclear what the eurozone will be able to do to spur growth in the region in the face of much belt tightening and austerity measures.

In the US, the August ISM services index rose to 53.7 from 52.6 last month.  Also, the ADP employment report showed that private payrolls rose by 201k in August, well above expectations for 143k.  In addition last months figures were revised higher from 163k to 173k.  This comes ahead of tomorrow's govt. payrolls report, but the ADP report has not always been a good forecaster of that report.  Current consensus estimates for tomorrow's figures are for 130,000 new jobs.

The euro was lower in early trading after the ECB announcement but has since moved back into positive territory vs. the dollar.  Commodities are higher with gold trading up to $1710 and oil prices higher near $97.15.  Silver prices are also higher as well as copper prices.

The 10-year yield is getting a nice boost to 1.68%.  And the VIX is getting crushed, down -9.5% almost back to the 16.0 level.  Recall that a month ago the VIX got down to 13.45.

Trading comment: The other day I commented that I could easily see the markets breaking out in the near term before any sort of pullback.  That prediction is coming to fruition today as the S&P 500 breaks out to a new high for the year.  At current levels, the SPX is also at a 4 1/2 year high and back to levels we haven't seen since May 2008.  I still think a lot of this price action in the market comes from a combination of the world being awash in liquidity and looking for a home to invest with interest rates near 0%.  Also, I think a lot of portfolio managers continue to underperform their benchmarks and so they are forced to put money to work and scramble to keep up as the market continues to move higher and not offer a good pullback to allow them a better entry point.

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More Signs Of China Slowing

The markets are slightly higher in early trading despite across the board weakness in overseas markets.  The markets got a boost from a Bloomberg TV report that said the ECB is considering a bond purchase program that will be unlimited in size as long as bonds are sterilized.  But don't expect Germany to go along with this so easily.  Already Germany's Christian Democratic Party leader said that excessive ECB bond buying could prove inflationary.

Elsewhere in Europe, Germany's PMI Services index was in-line while France's came in light at 49.2 vs. 50.2 expected.  A number under 50 marks contraction. 

In Asian, markets were lower overnight after China's Services PMI fell to a 1-year low of 52.0.  China's Finance Minister indicated he is not optimistic about the current export situation.  Also, Australia's GDP came in light at 0.6% vs. 0.8% expected.  And Australia's services index fell to 42.4 from 46.5 previously.  So those are all signs that point to slowing global growth. 

In the US, productivity figures were revised higher for Q2 to 2.2% from 1.6% and unit labor costs were revised lower to 1.5% from 1.7%.  So those are datapoints that are moving in the right direction.

In corporate news, Facebook (FB) shares are higher after CEO Zuckerberg said he has no intention to sell any shares for at least 12 months.  Jeffries initiated the stock with a 'Buy' and a price target of $30.

The dollar is weaker today as the euro bounces, and commodities are mixed.  Oil prices are lower to $94.65 while gold prices are flattish near $1695.  Copper prices are higher today.

The 10-year yield is at 1.57% and can't stay above its 50-day average.  The VIX has been down as much as 5% and is currently lower by 3.5% to 17.35.

Trading comment: I will post a chart later that highlights the growing bullish sentiment among investors.  When sentiment usually reaches these bullish levels, it isn't long before another market correction surfaces.  I would not be surprised to see this type of action in the near future.  It could also be that since the market likes to keep the majority of investors off balance, we could see a breakout to new highs first that is short-lived and sets the market up for a correction from that point--  just to keep everyone on their toes.  But the NAAIM investor survey is back to very high levels, and the Citibank panic/euphoria model is back near excessive optimism levels.

KAM Advisors has long positions in FB

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Tuesday Tidings

Sorry this post is a little later than normal today.  I had to fulfill my parental duties and take my kids to school for their first day of the new year.  Markets are down in morning trade following weakness in overseas markets.

Asian markets were lower overnight after the HSBC PMI data for China over the weekend slumped to a 3-year low of 47.6.  China's stock index was lower overnight and fell to a 3 1/2 year low.  In Australia, the Reserve Bank held rates steady at 3.50% and reiterated its outlook for slowing China growth to weigh on natural resource prices.

In Europe, markets were also lower after PMI readings in Germany, France, and Italy came in below preliminary readings.  Also, Moody's cut its outlook on the EU region to 'negative' from 'stable', which brings into question how long countries like German, UK, France, and Netherlands can maintain their AAA ratings. 

Spanish bond yields were actually lower by 21 basis points earlier as speculation swirls that the ECB may be comfortable buying sovereign debt with maturities up to 3 years.  Global markets are all anxiously awaiting ECB's rate decision and comments on Thursday.

In the US, the August ISM index came in below estimates at 49.6 vs. July's reading of 49.8.

In corporate news, Netflix (NFLX) stocks is lower after Amazon (AMZN) announced a new instant video agreement with EPIX as Amazon takes aim at Netflix's core business.

The dollar has strengthened since the open this morning, and commodities are mixed.  Oil prices are lower, below $95.50, while gold prices remain higher near the $1700 level.  Silver continues to trade well also.

The 10-year yield has fallen back below its 50-day support and is currently near 1.59%.  And the VIX is 6% higher currently to the 18.50 level. 

Trading comment: The markets are struggling this morning to hang on to recent support levels.  It is still early, but the action in the SPX looks like it wants to pullback more.  We'll have to see how the market closes today and how volume levels come in.  I also think that markets could merely chop around until we hear from the ECB and then we could see a bigger move.  So we haven't really changed our recent asset allocations.  We are still underweight equities overall and fairly conservative in our portfolios.

KAM Advisors has long positions in AMZN

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