Monday’s session was a classic one-day blunder. It was a bear trap that caught the ursine crowd not looking and snapped shut on them. That is not to say that a correction won’t or can’t occur. It is just not happening right now.
Google (GOOG) announced that it has come to an agreement to purchase Nest Labs. Nest manufactures internet accessed programmable home thermostat systems. While furnishing and setting up our new home in Nevada the past two weeks, we looked at Nest thermostats at Home Depot (HD) and Best Buy (BBY) for $249.00 each. Then while at Costco (COST), we picked up two Honeywell (HON) Wi-Fi thermostats for $100 each. Those units lacked battery backup. As it turns out, we put in a whole new alarm system with integrated Wi-Fi battery backed-up programmable thermostats, for $120 each (installed), making the Honeywell units superfluous and marked for return.
The point here is why would GOOG buy Nest? The Nest product is too expensive and not necessarily optimal. The answer is Apple (AAPL). The Nest team members are refugees from AAPL, GOOG’s mobile nemesis. Along with Nest comes another boatload of patents and talented engineers. This is precisely why you have to own both AAPL and GOOG.
Earnings from JP Morgan Chase (JPM) were fraught with all sorts of non-recurring items. Once you backed them out, JPM reported better than expected operating results. Wells Fargo (WFC) also reported better than expected results, which were straightforward compared to that of JPM. Bank of America (BAC) follows up with its earnings report today, which should for the most part mimic that of JPM and WFC.
Despite better than expected retail sales, on a macro basis, retailers on a selected micro basis continue to hint at weaker holiday sales and forward guidance. So what are we to believe? Neither and both. I believe that all is not dreary in consumer discretionary, as the consumer still has purchasing power. We will need to wait till the spring to get better entry points, once the winter weather has done its darn best to crimp sales in the near term. Hence, we now are underweight retail at LakeView Asset Management, LLC.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long AAPL, BAC and GOOG — although positions can change at any time.
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