A random walk through recent economic, market and business headlines: September 1, 2015

“A man who carries a cat by the tail learns something he can learn in no other way.” – Mark Twain

Don’t call PETA. It’s just an old Wall Street expression. Nobody takes it literally. We’re referring to the “Dead Cat Bounce.”

Following last Monday’s market selloff, more than one analyst suggested the recovery at the end of the week might be a classic “Dead Cat Bounce.”

Caution: this explanation of this Wall Street expression may be disturbing to some readers, especially those who own stocks.

Nobody knows for sure who coined the phrase, but the concept is gruesome and graphic: if a cat jumps from the top of the New York Stock Exchange, the unfortunate feline won’t survive the fall. The cartoon above illustrates the end result. The hypothetical cat will bounce, at least a little bit anyway. The expression Dead Cat Bounce is commonly used to describe a reflex market rally after a big selloff.

Below: three charts.

The Crash of 1929

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The market lost 13% on Black Monday (October 28, 1929) and 12% more on Black Tuesday (the 29th). But the next day, October 30, the market bounced back up, regaining 12% and recovering all of Black Tuesday’s losses. A nice recovery, but we all know that cat was a goner. The market didn’t get back to 1929 prices until 1955.

The Crash of ‘87

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The market dropped 22.6% during the one-day selloff October 19, 1987. The ‘87 cat had nine lives: the crash lows were tested several times in the months following the selloff, but within eleven months the market had recovered.

And now…the Market “Event” of August 24, 2015

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The chart above illustrates the Dow’s performance for the last six months, followed by last week’s Late Unpleasantness. The August 24 drop broke one-day records as measured by the number of points (-1089), but not in percentages. At its lowest point, the Dow Industrial Average was down 6.7%.
Which begs the question: is last week’s cat still alive?
With the economy showing resilience, and the calendar moving toward times of seasonal strength, we’re guessing this cat has a few lives yet.

Comment: But hoping for softer landings.

Random stories that may not have been noticed during last week’s stock market excitement:

Treasury bills, notes and bonds “decoupled” from the stock market last week. It almost never happens this way. You know the drill: nervous investors sell stocks and move their money into safe havens such as U.S. Treasury instruments. Those safe instruments go up in value, while the stock market goes down. Flight to quality. Yields drop. But for some reason, that’s not what happened last week. Yields dropped below 2% briefly during the market collapse then, as Barron’s described it, yields “popped above that mark like a beach ball released after being held under the water”.
Traders believe bond prices dropped because the Chinese government – desperate to shore-up their own economy – sold a chunk of their U.S. Treasury bonds. The Chinese currently hold approximately $1.2 trillion of our debt.
Comment: Interestingly the Japanese have been aggressively buying up our bonds this year, and may now own more U.S. debt than the Chinese (source: U.S. Treasury).

Chipotle Mexican Grill announced plans to hire 4000 workers on one single day in September.
That day is next Wednesday. On September 9, Chipotle will embark on a one-day hiring spree and increase its work force by 7%. Chipotle is struggling to staff their restaurants, a problem common to all fast food chains. The pool of available workers is shrinking, while the number of chains is increasing. Chipotle decided to quit fooling around with staffing and knock it out in one big day.
Chipotle is said to be more selective than other chains, requiring candidates to demonstrate 13 traits, which include curiosity, ambition and honesty.
Chipotle employees start out earning more than $10 an hour, and can earn up to $53,000 a year as “apprentices”. Superstar store managers have the opportunity to earn $133,000 a year.
Comment: That’s a lot of guacamole!

SkyMall was given permission to dissolve by U.S. Bankruptcy Courts last week. Say it ain’t so! But fear not, fellow SkyMall devotees, this trip has not been cancelled: the remaining SkyMall assets have been purchased by C&A Marketing and SkyMall is now back in business. C&A has reduced the number of quirky products in the catalog (darn it), and hopes to offer travelers a more practical product line.
We visited the new SkyMall’s website and were encouraged to at least find at least one quirky product: a Fiat 500 computer mouse.

Fiat mouse: $49. Who doesn’t want one of these?

Comment: And they still sell the full-sized bronze yeti statue.

Bottled water demand increased 7% last year, according to industry watcher Beverage Marketing Crop. Water sales are expected to overtake soda sales by 2017.

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Coca-Cola and PepsiCo are likely to be hardest hit by the increase in water sales. Both companies sell water – Dasani and Aquafina, respectively – but the profits are higher in soda.
Water is already outselling a few big-name soft drink brands. For example Nestle SA waters (Pure Life, Poland Springs) exceed sales of Dr. Pepper.

Comment: For the record, we in the South don’t call it “soda” (or, even worse, “pop”). We call it Coke.

Watching the Tape is a compilation of news, observations and views written and edited by Bill Kibler, Senior VP, FinTrust Investment Advisors, bkibler@fintrustadvisors.com. Information is provided by sources believed to be reliable, but FinTrust is not responsible for accuracy. The information herein is not a recommendation to buy or sell any security. Past results are no indication of future performance.