This from Today’s Financial News:

It is tough for many investors to admit, but marketers rule Wall Street. On most days, it is not true fundamentals that rule the Dow. It is the change in the way we perceive a company’s valuation that makes a stock go up or do.

If marketers do their job, share price rises. If they fail, shareholders feel the pain.

Investors rarely weigh a company’s marketing talent in their decision-making process. It is a flaw that could cost them dearly. In many cases, a firm’s marketing team has more to do with moves in its valuation than do changes on its income statement.

A perfect example is Under Armour (NYSE:UA). The company has one of the best marketing strategies in all of business, but even the most talented salesman cannot sell something to a person with no money.

Blinded by the facts

Look around Wall Street. Best Buy (NYSE:BBY) told us yesterday it has witnessed a “seismic” shift in consumer spending. Macy’s (NYSE:M) posted a horrid third-quarter earnings report. And Linens ‘n Things is headed to the history books.

On the other hand, Goodwill Industries reports sales are up by 7%. Ultra-discount stores like 99 Cents Only (NYSE:NDN) and Family Dollar (NYSE:FDO) are seeing their share price soar. Wal-Mart (NYSE:WMT) is the only major retailer with even a semblance of good news.

The only places Americans are spending their money is at the cheapest store they can find.

So what in the world continues to make investors believe Under Armour and its expensive discretionary clothing lineup will maintain historic sales levels?

Let’s face it. The American economy is in a deep recession. The folks that were buying Under Armour’s over-priced and trendy gear are now the ones that have lost their jobs and cannot afford their homes.

The last time I recommended betting against the company, we raked in gains of over 70% in just five days. With share price above $21 today, it is time to do it again.

Here are some facts to prove my point:

-    U.S. retailers recorded their worst October ever, with overall same-store sales dropping by 0.9%.
-    Consumer confidence is at its lowest levels ever.
-    Under Armour continues to operate with negative cash flow.
-    Maverick Capital, which owned over 7% of Under Armour, just unloaded its entire position.
-    The number of shares short has grown to 36.5%.

With figures like those, it is hard to believe investors are willing to maintain the company’s price-to-earnings ratio of 23. It is foolish to think the company will maintain a sales pace anywhere close to levels it has enjoyed lately.

Even the company’s executives know a rough road is ahead. They just lowered their operating income estimates to a range of $97.5 million to $104.5 million. They previously announced expectations of $104.5 million to $105.5 million.

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With consumers basically locking their wallets and throwing away the key, even the new estimates are far too high. With consumer spending at the retail level dropping by nearly one percent, investors should not believe Under Armour will grow its sales by 24%.

Under Armour’s brand is one of the strongest in the industry, but a brand can only take you so far. Once a company matures and enters its slow-growth phase, fundamentals take over and investors take a dramatic hit.

Under Armour’s overly loyal investors have had a tough time realizing this time-tested fact. They will suffer as share price drops towards $15 after the next earnings release.

Unless you take a short position, steer clear of this falling star.

Source: Under Armour (NYSE:UA) Cannot Hide From A Recession

This from Taipan Daily:

“Widespread property foreclosures have led to bank failures, and further to much unemployment and a disastrous decline in manufacturing and agricultural production.” Sound a tad familiar?

No, it is not another of my dreary “ripped from today’s headlines” quotes. Rather, it is a contemporaneous description of the chain of events that lead to, and resulted from, the Panic of 1819.

And while the storyline may be some 189 years old, the circumstances are eerily familiar. Washington (the place, not the man – our first president had passed away 20 years earlier) had borrowed heavily to finance the War of 1812, severely depleting bank reserves.

Free Money and Real Estate Bubbles, 19th Century Style

To cope, Washington and Wall Street did what they have done so many times since: they simply changed the rules. This time around they suspended specie payments – a complete violation of depositors’ contractual rights.

With the onerous restriction of actually repaying debt with real coin lifted, most every ambitious soul with a pen and a checkbook rushed into the banking business. The sudden increase in the “money” supply encouraged the most insane sort of speculations (real estate being a particular favorite).

Soon, the whole deal was snowballing out of control. When the Second Bank of the United States finally tried to take away the punchbowl, this hollow economy collapsed in on itself… leading to the aforementioned 1819 crash.

A Haunting Refrain

As you can see, today’s dire warnings of market collapse and recession are not quite as unique as we might hope. Rather, they are simply the latest refrain in a long, long (long) ballad.

Cold comfort, perhaps, to know that our forefathers were just as inclined as we toward such feats of over-stimulation, overextension, and excess speculation. Still, there is some comfort to be found reading through our long tale of financial foolishness.

Over the past 210 years or so, we have “enjoyed” 17 recessions, lasting anywhere from a few months to more than two decades. While the worst, the “Long Depression” of 1873-1896, lasted some 23 years, the average duration has been a mere four and a half years.

Damned Modernism

Now don’t go reaching for the bourbon just yet. We’ve put all sorts of systems in place since those bad old days. Many of you like to curse the day in 1913 that saw the birth of the US Federal Reserve, and are wont to describe Fractional Reserve Banking as “the tool of the Devil” (or at least Joe Stalin).

Damned or not, these institutions do exist. One could even argue their arrival on the scene marks the beginning of our “Modern Economy.” If we were to restrict our list of recessions to said “modern” period only, the average breakdown is reduced to just under three years.

Now dial the clock forward again. If one were to begin counting with the day in 1971 that Richard Nixon finished off the remaining tatters of the gold standard, the average duration of recessions is reduced to a year and three quarters.

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Rounding Second and Halfway Home

The history may be a tad twisted, but my point here is straightforward enough. While there is certainly no guarantee that we could not invent a way to extend our little debacle another year or six, the odds are that we are already a third – if not halfway – through “the crisis of 2007-2009.”

Which brings us to what I like to call the “Window of Serenity.” Near-term, things do still look quite dreadful. And long-term, I have no doubt that we are embarked on the path of monetary ruin described so exquisitely by the Austrians.

But if you look in the middle, beginning some 18 months out, one can see where the ramp-up to the next major bubble ought to be taking place. The question is: how do you navigate the choppy waters between here and there?

How to Stay In the Game

Once again, I have to tell you that mere “trading stops” won’t work. If that’s the limit to your methodology, then perhaps you really ought to just sit things out until the next cycle is obviously underway.

But what if you are intrigued by the values that are out there (and I will grant that the survivors of this current trough are apt to double many times over come said ramp-up – especially in its earliest days)?

If that’s the case, then there is only one tactic I know of that will allow the safe accumulation of shares in current circumstances. And that is the careful matching of put option contracts on weak players to share purchases of strong players.

Buying Survivors

For example: Let’s say you wish to invest in a venerable old retailer like Macy’s (NYSE:M), currently trading under $10 for the first time since 1995.

Heck, they’ve been around in one form or another since 1924, and have weathered seven of the recessions on my list. That fact alone reassures you that they ought to still be here in another 18 months.

Now, I’m not saying you’re right or wrong with this trading theorem. But I can tell you how to survive Macy’s going to $5 while you find out.

A Cure For the Pain

Simply buy some put options on a real deadbeat low class player like, say, Kohls (NYSE:KSS). While Macy’s shares were getting cut in half over the past few weeks, select Kohl’s puts gained as much as 200%.

Your gains on Kohls’ pain become your safety line against losses on Macy’s shares. Heck, you could even use your profits to buy more shares.

These are admittedly hard times, friends. Fortunes are being lost daily. But situations like these, when everyone else has their head buried in the sand, are possibly the most potentially lucrative trading set ups you will ever see.

Source: How to Make 200% a Month Handicapping Recessions