We got a few right today and Mr. Market liked it.

 

We said pending home sales would be up and it was way up.  This helped kick off the rally this morning (as well as the Greece austerity vote.).  We suggested KBH KB Homes would miss in a big way and it did.  FDO Family Dollar missed, we did not expect that they also talked down their next quarter earnings.  MON Monsato beat in a big way as we suggested and hiked the outlook for the next few quarters.  We were worried about GIS General Mills getting a squeeze on profits because of commodity costs.  Well they beat the quarter quite easily and they did by raising prices. 

 

So our negative calls on the market for the last three days is way off and we have a nice week shaping up.  Energy stocks have been doing well and we feel good about our decision to get back in oil, hope you joined us.  Oil inventories came out today and most (except distillates-diesel) were down.  Some are saying we could see $120 oil again by years end.  Just as a reminder WE ARE LONG XOM. 

 

Before we get into Managing By Variance, we have to say we were glad that President Obama finally came clean and told the US public that their lives will change dramatically if we do not extend the debt ceiling.  That was a great sign of leadership and long over due.  All the information I can glean is that Biden is doing a great job of bring the two crazy camps of blockheads together.  At the end of the day republicans will move on taxes and democrats will move on entitlement cuts.  The only thing the President did wrong today was throwing his children under the bus by claiming they do their homework days before the homework is due.  Are they gonna get crap when they show up tomorrow?  Thanks Dad.

Now here is how you might use this Manage by Variance strategy in managing your portfolio.  Don't worry we won't get all technical on you.  It is really quite simple.  You probably do it now. 

 

 

Today the market (S&P 500) was up .83%.  If you have a stock that was up more than 1% or was not up by .66% today, take a minute and find out why.  You might say, why that is only .17% aka 17 basis points different. 

  

Well if you manage by variance that 17 basis points is actually a 20% variance.  You should check to see why your stock had a positive or negative 20% or more variance from the broader market.  For example, if you were holding PNC (Which we were, Thank you Robert J.) and it went up 1.78% today when the overall market went up .83%, you outperformed the market by 114%.  Do some homework and know why. 

 

Today there was anticipation and then eventual confirmation that the credit card swipe fees being regulated were going to be capped as low as 12 cents down from the industry average of 44 cents.  Regulators came up with a 21 cent cap.  That made the entire sector very happy.

 

Now here is the bad news.  Some of the retail sector has been bumped because they knew there was a credit card swipe fee coming.  Figures as low as 10-15 cents were bantered about.  Take CMG, Chipolte Mexican Grille.  Their operating margin is about 15.1% on an average sale of $8.50.  The average store does $1.7 million a year. 42% of sales are executed through credit card purchases with 44 cent swipe fees NOT passed on to the customer.  With a margin of 15.1% and eliminate 23 cents in credit card expense, your margin goes to 17.8%  That is a 17.8% increase in they margin.  It will be interesting to see if the retail sector takes a hit tomorrow as the swipe fee cap was probably higher than many expected. 

 

The good news is you will now be able to measure the variance and go find out why.    

 

Salve Lucrum