Memories of the Greenie Daze - including Best Buy
By Dr. Duru written for One-Twenty
February 27, 2007
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You knew it had to happen eventually. Greenspan (Greenie) could not just fade into retirement quietly. He just had to remind us of the good old daza (days) when he would proclaim some obtuse economic relationships, and the market would choose to over-react to its momentary interpretation of the spinning words of Greenspan. This morning, we got newsflashes from the media with the scary headlines "Greenspan warns of possible recession!" Newsflash! Newsflash! Ugh. Saying that a recession is possible at the end of a remarkable economic expansion is not news. Saying that a slowdown in profit growth typically signals the end of said expansion is not news. Of course a recession is always "possible." All good things must come to an end, and there is always a light at the end of the tunnel. We have not yet trumped the laws of the business cycle. What is news is that we got a reminder of just how comfortable the market has gotten with the idea that somehow everything will work out just fine. The market still thinks a few interest rate cuts will take us in for the final touches of the Goldilocks landing. So, you would think that a prediction of recession would get the buyers out there clamoring for stocks again. Nothing like a recession to get the Fed cutting rates, right? Is bad news just bad news now? Or will it be good news tomorrow? Who knows...
Anyway, from the news coverage I have seen and read, Greenspan's commentary said absolutely nothing new - nothing we have not heard before. But, as they say, the news only matters to the market when it matters. I think what got the market more upset than anything else was Greenspan's familiar warning that he thinks risks premiums are too low in the financial markets. Financial stocks continued to get hammered today. Ironically, it was Greenie's leadership that helped lull the markets into the risk stupor that it is currently in. Nothing like cheap, easy money to get folks thinking that no debt is too big and believing that creditworthiness is for suckers. If you want to read a well-thought out, plain English description of the credit risks sloshing around in the financial markets check out the latest from Jim Jubak: "Debt-market bomb could hurt us all." This article talks about the risk of recession from the scarcity of credit that occurs after risk aversion returns to the financial markets with brutal swiftness. In the meantime, you can continue as you were...and I sure hope Big Ben does not feel compelled to respond to these remarks. I know I would not bother.
Now that we have taken care of the obligatory Greenie section, let's talk about a company that had big news that generate almost no reaction at all from the market: Best Buy (BBY).
I have written about Best Buy several times in the past. I last wrote about the company two months ago as Circuit City provided the final pinprick to deflate the over-hype about how flat panels would save Christmas for retailers. Best Buy sold off along with Circuit City and the stock has been chopping up and down ever since. The stock has struggle mightily to overcome some tight overhead resistance from the declining 50 and 200 DMAs. Four trading days ago, on February 21, Best Buy provided a grand update on its massive expansion plans. By the end of fiscal 2008, Best Buy expects to have about 14% of its retail square footage sitting in China (11% in Canada). Best Buy has positioned its international expansion and denser configuration of U.S. stores as the engine of its future earnings growth. The market gave out a big yawn. Perhaps it has already heard all this before (but has it not already heard Greenspan too?). Perhaps the market sees costs ramping up as Best Buy tries to invest in its future. Whatever caused the non-reaction has now led to three days of selling. Earnings are also another two weeks away. Perhaps some folks do not want to stick around for more disappointment.
Best Buy's stock has been a mess for almost the past two years. Just bouncing up and down in a wide trading range. The lower end of this range marks tops set previously by BBY in 2000, 2002, 2003, and 2004. If "Greenspan's recession" comes about, I suppose this trading range will finally fail. But for now, I am looking to for the next earnings report to take the stock back down to(ward) these levels and set the stage for obligatory buying as folks begin positioning for the next Christmas season...and the next thing even hotter than flat panels. The long-term chart makes it clear that BBY can go from hot to cold and back very quickly all the while just chopping around for years. And it looks like there is no reason to believe anything different awaits us.
Be careful out there!
