Trader Talk

Beige Book More Interesting Than Usual?


This should be interesting.

The Beige Book, normally not a source of suspenseful reading, is out today. But there are real splits emerging over quantitative easing that might make it worthwhile to read the reports carefully. Chicago Federal Reserve President Charles Evans has come out in favor of keeping up the program of QE into 2013. But Dallas Fed President Richard Fisher has been hostile to the idea and wants a clear limit on the amount of assets it will be willing to buy.

The ‘Special Dividend Club’


1) Costco Wholesale's $7 special dividend has a lot of analyst talking about other cash rich companies that might be also join the "Special Dividend Club." Other names I have seen bandied around included Williams Sonoma, Home Depot, OfficeMax, and PetSmart.

2) Reports this morning that Getco has made a offer to merge with Knight Capital Group in a $539 million cash deal, which values Knight at $3.50 a share.

Can Knight survive as a standalone company? The biggest problem for Knight as a standalone company may be its board of directors. New board members were added during the restructuring that are likely motivated to sell. Matthew Nimetz, for example, was a former managing director at General Atlantic, which is a backer of Getco.

What other bidders might emerge? Not clear, but it is no accident that the two bidders that have been mentioned (Getco and Virtu Financial) are not publicly owned. As well-regarded as Knight is, there have been large losses and there remains significant regulatory and litigation risk, not something a publicly traded company might want to take on.

There are many conflicting interests here. There are large shareholders that are customers of the company. Other board members, like Fred Tomczyk, CEO of TD Ameritrade, are also customers. Those customers certainly want their interests protected. They may not want to sell to other vendors that would reduce the available pool of vendors.

3) Retail holding up well: Time to sell?

Express Scripts said it was "disappointed" with third-quarter results, though bottom line of $0.20 beat expectations, same store sales were down five percent. Regardless: Fourth-quarter guidance was strong at $0.62 to $0.68 a share, well above estimates of $0.57. They will make $1.40 a share this year, at $14, now trading at 10 times earnings, less expensive than competitors like Gap, which trades at 14 times forward earnings.

American Eagle Outfitters and Ann also had positive comments; Ann said business was strong across all channels.

Bottom line: Consumers continue to spend, inventories are in good shape, holiday promotions are the same as last year, cost of goods are lower than last year, the holiday season has two extra shopping days, and the shift to online continues. We get same-store sales tomorrow.

So will retail stocks rise? The news is good, but there are two problems: 1) first-quarter 2012 was very strong for retailers due to much warmer weather, so the comparables going into 2013 are going to be much tougher; and 2) there is very little short interest in retail right now. So the market response to good numbers may be muted.

—By CNBC's Bob Pisani

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