If you can’t beat em, join em.

Facebook $FB is now officially in a pissing match with Yahoo! after  recent news that Facebook bought 750 IBM patents to try and counteract Yahoo’s  $YHOO patent suit against Facebook…

http://techcrunch.com/2012/03/22/facebook-buys-750-ibm-patents-to-defend-against-yahoo/

Instead of fighting each other and creating lasting animosity between the companies, why don’t they merge?

Reasons why it’s a “win-win”:

1. They each have what the other needs/lacks in order to make one “all-in-one” platform for the internet consumer

2. They each have a common enemy – Google  $GOOG .They each have a common partner – Microsoft $MSFT

3. Yahoo! $YHOO would help Zynga $ZNGA tremendously and in turn, help Facebook $FB

4. The momentum created by a Facebook-Yahoo merger would dissipate any of the post-IPO fears and then create

   a situation where the merged result becomes a classic target of Microsoft  $MSFY in its war against Apple $AAPL  and Google  $GOOG

5. Social media gains momentum  to the point of being a benchmark sector that index funds must invest in and Facebook-Yahoo is the bellwether. (FA_HOO! YA-BOOK?)

6. Yahoo! management will likely step aside now that Zuckerberg has someone like Sheryl Sandberg as day-to-day boss-an adult at the kid’s table as it were . . .

Now quit reading this and get back to Farmville.

-Talented

Betty Draper: Locked and Loaded

Everything’s coming up AMMO!  Guns and ammo that is! And by looking at the recent performance of  gun and ammo stocks like $RGR and $SWHC, this is a trend that is on an upswing:

Sturm Ruger’s( $RGR) announcement that they are suspending new orders draws into a deeper “guns before butter” discussion for Joe SixPack consumer…

 

1. The biggest increase in demand for 2011-12 is for handguns

 

2. Background checks were up 14% for 2011

 

3. Volume from gun shows increased dramatically as a result of many new powerful firearms introuduced in 2011

 

4. Total unit production for 2011 was up 23%, yet demand has increased in 2012 to the point to suspend new orders…

 

5. Total background checks by the FBI for gun sales was over 15MM in 2011, almost doubling the previous record of 8.5 million in 2003

 

6. Smith and Wesson $SWHC  Model 635 Airweight, a .38 caliber revolver and Ruger $RGR LC9 9mm pistol are two of the more popular handguns in 2011 and they are both classic home defense firearms.

 This rise in gun sales is definitely evidence of  fear out there on behalf of the American consumer; and much of that relates to violence/theft increasing as a result of the poor economy… to riff on some economic theory (Geek alert!) One could assert that Americans are exhibiting a protectionist, “Guns PROTECTING Butter” type of mentality here.  There’s so much uncertainty out there: Massive unemployment, $4.00 gas, student loan debt, personal disposable income is waning. Seems like the cost of EVERYTHING from milk to eggs to beef and butter–it’s all MASSIVELY increased. We all feel it. Not a stretch in my opinion, to want to circle the wagons and protect what you have.  The devil you know  . . .

Although I hate bad news, I do want to give you all a subtle (and we ALL know how subtle TB can be . . .)  reminder that I have been the lone contrarian analyst out there vis a vis poor retail holiday sales throughout the months of November AND December. And unfortunately my predictions proved true: Retail Sales rose 0.1% in December. No, that wasn’t a type-o.How can that be when all we heard was positive headlines about intense consumer spending for Black Friday etc.?

Recall that holiday retail sales follow an hourglass pattern–and this year was no exception, with the peaks and lulls even greater: Huge bang on Thanksgiving night, fortified by online retail sales then a drop off for most of December, followed by a pop on the Saturday before Christmas.

HOWEVER: my contention was that most consumers blew their wad on Black Friday, and as uncertainties about payroll tax holidays loomed large, along with the average everyday American facing the grim possibility of having another $40 scooped out of their paycheck by the U.S. Govt., buyers remorse set in and consumers pulled back spending in December.

All this while Congress took the partisan battle right up to the deadline yet again–just like the debt ceiling debacle. This do nothing Congress sat on the sidelines until forced by a hard deadline, which in turn exacerbates an already fearful private sector on down to the consumer.

December same store sales play this out beautifully illustrating the bi furcated consumer and where they spent their holiday dollar,  (meaning high end luxury stocks like $JWN Nordstrom, $SKS Saks and $BRBY.L Burberry are thriving, and low end discounters are stealing market share from the Target’s $TGT and Kohl’s $KSS of the world), and the middle class–as is middle market retail–is vanishing  right before our very eyes, (ahem $SHLD.)  Bottom line–I was bearish all thru the holiday season, and continue that premise throughout 2012, until a new administration takes hold in the White House.

Meahwhile, there is a dirty little secret about  those killer Black Friday sales – and no retailer in their right mind would admit it, but: More sales mean more returns. That’s just a simple formula at retail. In fact, the NRF is reporting a record $462.8 B in returned goods this holiday selling season, an +4.25% vs. ly. Why?

Consumers got retail fever with all of the Black Friday hype and promotions, and spent their wad that first weekend. When reality sets in and you’re sitting on the floor looking at all those receipts, buyer’s remorse sets in and BOOM! RETURNS. It will be interesting to see the ratio of returns redeemed for cash vs. merchandise.  This added to the fact that much of the holiday spending was being rung up on consumer credit cards – not the most encouraging of signs.

But, savvy retailers can always capitalize on an emerging  trend.  Macy*s, $M have broadened and LOCALIZED their footprints, they are able to “catch” that fringe consumer that also had to trade down from  Saks, $SKS,  Nordstrom $JWN, and the like. And, at the top of the consumer pyramid? The LUXURY consumer. Yep–it’s lonely at the top. Lux retailers like $LVMH,  Tiffany $TIF,  Burberry $BRBY $PPR, (GUCCI) , Hermes $RMS , and $AAPL (YES, I consider APPLE a luxury brand),are thriving due to the Global thirst for luxury goods, as Russia, India, and China get in on the act.

But what about rising consumer confidence? Well, digging in to last week’s numbers tells me that the picture is not all that rosy: employers are just FIRING at a slower rate, not creating the jobs that Americans so desperately need. And don’t forget the intense seasonality surrounding the unemployed this time of year. Many of those individuals just quit searching for employment and  hunker down with friends or family until the New Year. Watch January filings. My hunch is they increase substantially.

Lastly, be mindful when tracking the success or failure of the Holiday selling season, that one need look at November and December TOGETHER. Black Friday does not a season make. Consumer shopping behavior mirrors and hour-glass, with a big pop on Black Friday, then a lull historically for the next few weeks until “Super Saturday,” the last Saturday before Christmas. Look, I want the consumer AND the economy to come back swinging just like the next blonde, but I AM a realist, and I want you to have all the facts –even the ones “they” don’t want you to know. My prognosis? I anticipate a lukewarm holiday sales number–better than last year–but not by much.

-Talented

2. The most rapidly growing sector for both $ZNGA and Facebook  $FBOOK is the over 40 consumer.That bodes well since that demographic is a sector that spends (and works.)

3. The “virtual goods” market  was less than $10 million in 2005, and has grown to a market that will top $3 billion in 2011. $ZNGA is the largest provider of “virtual goods” and that market is expected to grow to $10 billion by 2015.

4. As $ZNGA expands, look for “branded virtual goods” to become more and more a part of their revenue. Fashion and athletic apparel retailers will be the most apparent advertisers/Sponsors of ZNGA as users “dress” their avatars. E.g. Dressing your Mafia Wars Don in a Versace Suit, or Bruno Magli Shoes. Or shodding your avatar in Jimmy Choo’s shoes, and Michael Kors $KORS apparel from head-to-toe. Imagine your virtual LeBron James in the latest custom Nike’s $NKE. The sponsorship possibilities are endless.

5. $ZNGA will be able to develop games that are digtially updated on the fly, like sports and military games. Imagine not needing a game CD or Xbox $MSFT and just logging on Facebook $FBOOK/Zynga $ZNGA for latest games that portray updated to the moment statistics. For sports games, that would be huge to say the least.

6. Never underestimate the loyalty of the gamer. Again, 260 million subscribers–with mediocre desk jobs–and no life. Boom. You are the king of all you survey.

“Zynga is likely to be priced between $8.50 and $12 and raise $900 million in its IPO who could come as soon as this Friday. ”

1. Zynga really is a forerunner of how gaming will be done in the future…

2. Their brilliance in hooking up with Facebook $FBOOK and Amazon $AMZN gave them the possiblility for handling exponential growth..

3. Zynga $ZYNG  has basically brought the concept of branded”virtual goods” and sponsorships  in less than five years to multi-billion dollar reality today.(Ok, so Farmville and Mafia Wars aren’t REALLY reality-but you get it. )

4. Although at first blush, $ZYNG  may look like a Seinfeld stock (a stock about nothing,)
I view it as another recession/ bi_furcated consumer market play. The faction of the consumer that is actively entrenched  in these  virtual games is trying to escape reality. They’re sitting in a cubicle in front of a computer all day. They don’t have the discretionary income to escape to a tropical locale, or even Disneyworld $DIS.  So, being the “Don” of your own mafia crew, or the queen of all you survey in CastleVille, YOU create your OWN reality. Your way.

Now, quit reading this and get back to work!

Today,McDonald’s Corp. ($MCD), reported impressive November same store sales results: +6.5% YOY in the U.S. I know I have barked for close to a year now on bi-furcation at retail: Joe Six-Pack Misery Index

But now this even spills over to the consumer as a whole; not just consumer soft-lines retail. Like the stellar performance of the Dollar Stores ($DLTR $DG), these recent sales numbers from $MCD further illustrate the consumer is trading down. Add $MCD to the Joe-Six Pack Misery Index. $MCD 1.Consumer Zero.
With 18% of Americans receiving some sort of government transfer payments, its not that hard to do the math. Add to that, sky-rocketing commodity costs for beef, corn, and virtually every other pantry staple, and it’s no wonder consumers are no longer “Eatin’ Good in the Neighborhood” ($DIN) and are breezing through the Golden Arches.

“We’re listening to our customers and delivering what they expect from McDonald’s by optimizing our menu, modernizing the customer experience and broadening accessibility to our Brand,” said McDonald’s Chief Executive Officer Jim Skinner. “McDonald’s steadfast focus on our customers and our operations under the Plan to Win is driving the sustained momentum of our global business.” In the U.S., the continued strength of McDonald’s breakfast daypart, everyday value, the addition of the seasonal Peppermint Mocha to the McCafé line-up, and the Chicken McNuggets promotion drove the 6.5% increase in November comparable sales.”

Hope they bring back those Mc Donald’s Christmas Gift Certificates . . .

Some stats to consider:

$MCD: Performance by segment was as follows:
U.S. up 6.5%
Europe up 6.5%
Asia/Pacific, Middle East and Africa up 8.1%

Conversely, the Luxury goods market is THRIVING, especially jewelry and watches. In November, luxury goods group Richemont posted its results for the six months to September 30, showing sales had increased by 29% to €4.21bn (£3.53bn) and that operating profit had increased to €1.08bn (£934m) compared with the same period the previous year.

The other fine jewelry brands owned by the group reported sales gains of 34% over the six months, with Cartier and Van Cleef & Arpels performing particularly well, while its  watchmaking sector had sales growth of 30%. When you consider that Richemont owns brands such as Jaeger-LeCoultre,Vacheron Constantin, it’s obvious that this growth isn’t being driven by volume sales.

Richemont isn’t the only Lux Stock killing it. French conglomerate LVMH, ($MC) which stables brands like Tag Heuer and De Beers, saw its watch and jewelry business increase  each quarter sequentially  for the first nine months of 2011, showing organic growth of 26%. Burberry ($BRBY) also reported a net profit of £117m for its six months ending September 30, and revenue of £830m. As class warfare comes to the forefront of the 2012 election, the candidate that comes up with solutions to bridge this gap between the haves and the have nots will prevail.

As you avid readers of Talented Blonde are aware, I have been extraordinarily bullish on the luxury goods space for at least the past two years. Why?

According to a new presentation by Stephen Kraus, Bob Shullman based on Ipsos Mendelsohn survey data from September and October 2011, 94% of affluents (defined as adults living in households with at least $100,000 in annual income) had purchased luxury in at least one of the 15 categories measured, and 70% intend to buy luxury in at least one category in the coming year. Even among those making less than $100K in annual household income (whose points of view we also measured for this presentation), the pull of luxury is widespread: 92% had made a luxury purchase, and 59% plan to do so in the coming year. Only 15% of Affluents and 8% of non-Affluents tell us they simply aren’t interested in luxury. http://luxurysociety.com/news/22427

The uber wealthy will still spend on the items that they want, but are on the sidelines when it comes to capital investment, due to the lousy economic conditions, uncertainty, lousy tax structure and  Government over-regulation.

Since 40% of the households in the U.S. are responsible for 60% of consumer spending,  how can one really gauge the sentiment of the uber wealthy? One could argue the sentiment of the hyper-rich is just as important as the sentiment of Joe SixPack in indicating a turnaround in global economic conditions. I believe fine wine is the best barometer, since it has served as a real-time indicator of global sentiment the past 3-5 years. The equivalent in this realm to the University of Michigan sentiment number is Chateau Lafite-Rothschild, the Big Daddy of Bordeaux — specifically the 1959, 1982 and 2000 vintages.

One tool accessible to individual investors and wine fund investors alike is the relatively new London International Vintners Exchange, which operates the Liv-Ex 100, an index created in 2001 that allows wine investors to track the prices of 100 of the most sought-after vintages.

Currently, the index is almost exclusively focused on Bordeaux, although it also tracks Champagne and a bit of Italian wine. Although the Liv-Ex universe is limited, given the number of regions that produce great wine today, investors who have focused on the index’s top wines have seen solid annual gains of around 16 percent. (By contrast, the S&P 500 was up a mere 5.5 percent in 2007).

Some details to consider:

• Fine Wine Auction markets are demonstrating double-digit growth
• Fine Wine is uncorrelated with stocks & bonds, thus offering a risk hedge
• Fine Wine is a luxury category appealing to less price sensitive consumers
• The supply of fine wine is somewhat fixed and depleting regularly
• New regional markets are emerging for fine wine consumption growth

The Liv-Ex Fine Wine Index calculates the leading 100 fine wines in the world at any time, and uses a number of factors, not only price, to gauge the overall fine wine environment. Wine investors are seeking bondlike security with stocklike returns,” says David Sokolin, author of Investing in Liquid Assets. “People invest in wine because they think it’s interesting.”

The funny thing is how wine was generally 2-3 months ahead of the Dow/S&P if you look at the past 5 years.

From the tippy-top of the housing market in 2006 to the Lehman/AIG debacle in 2008 to the Greek tragedy this summer/fall, it seems like fine wine prices are just slightly ahead of the equity markets.

They say that the stock market is 6-9 months ahead of the economy, so using that logic, one might pay more attention to wine as an important indicator. Here’s to finding a little Chateau Lafite in your stocking–or cellar. Cheers!

- Talented