First of all I’d like to say hello to visitors of this blog. My name is Salil, and I’ll be writing posts from time to time. By the way if “Salil Sessions” seems somewhat familiar it’s because it’s an acknowledgement towards Alan Sloan’s “Sloan Sessions”. I’m a fan of “Sloan Sessions” because he explains complicated situations simply and with what he feels are the best courses of action. Although I do not claim to have his expertise, I hope to emulate his style and add a light hearted feel towards the stock market. That being said, my posts are not going to be comedy pieces and I will always address the situation thoroughly.
Breakfast at Tiffany’s
Well, for those who haven’t seen it, Breakfast at Tiffany’s is an 1961 film (originally a novel by Truman Capote) about a call girl named Holly Golightly (Audrey Hepburn) who meets a failing writer/ gigolo Paul Varjak (George Pappard). Holly has dreams about one day becoming an aristocrat, going to the best parties, and well achieving any girls’ dreams. As any predictable romantic comedy unfolds the girl exchanges her diamonds at Tiffany’s and goes for her true love, and, what do you know? The diamond fell into the laps of Tiffany & Co investors after the company produced better than expected results for their 07 4th Quarter.
So what does this mean for non-investors? Analysts we’re eager to see how Tiffany & Co (TIF) would fare because it would show how the luxury market is doing. After several bad months on Wall Street, a heavily loss in the luxury market would be another huge concern. Although it is certain that average consumers have cut back on spending, if upper income consumers have done the same then there would be a very grim outlook on consumption – which is the majority of the economy.
After Tiffany & Co reports were released the stock went up 10% and there was a silver lining in the clouds. Perhaps the most interesting parts of the report are the specifics. Even though sales fell 4% in the U.S, they increased a staggering 21% internationally. Booming economies in the emerging markets has caused increase in sales in places like Brazil and China, and even though America’s decline in the past few months has certainly had a detrimental affect globally, it hasn’t stopped the emerging upper middle class internationally from buying some diamond rings.
Although there is a possibility that the eventual decline of the euro could affect demand of US companies like TIF, one has to understand that these countries have been rising at huge bounds for the past 10 yrs and they have reached a position they are not going to give back in a 6 month period. According to Mr. Belloni from Pictet (a Swiss investment bank), “They [luxury companies] are very cheap” and some are only 12 to 13 times forward earnings with high yields with huge cash deposits and very little debt. So how would someone in America play the luxury game? Actually it’s kind of hard. With the 3 biggest luxury conglomerates –LVMH, PPR, and Richemont – all traded only on international markets shy of Tiffany & Co. and Diageo (DEO) there aren’t very many big players on the streets of the NYSE. Instead, some feel the best move is to bet on the sector. Claymore Advisers and the magazine,the Rob Report recently launched an ETF called Claymore/ Rob Report Global Luxury (ROB) . Their holdings include BMW, Porshe LVMH, Christian Dior and various others). You can also look at the Bloomberg European Luxury Index and the Merrill Lynch Lifestyle Index.
Although there is a possibility that the eventual decline of the euro could affect demand of US companies like TIF, one has to understand that these countries have been rising at huge bounds for the past 10 yrs and they have reached a position they are not going to give back in a 6 month period. According to Mr. Belloni from Pictet (a Swiss investment bank), “They [luxury companies] are very cheap” and some are only 12 to 13 times forward earnings with high yields with huge cash deposits and very little debt. So how would someone in America play the luxury game? Actually it’s kind of hard. With the 3 biggest luxury conglomerates –LVMH, PPR, and Richemont – all traded only on international markets shy of Tiffany & Co. and Diageo (DEO) there aren’t very many big players on the streets of the NYSE. Instead, some feel the best move is to bet on the sector. Claymore Advisers and the magazine,the Rob Report recently launched an ETF called Claymore/ Rob Report Global Luxury (ROB) . Their holdings include BMW, Porshe LVMH, Christian Dior and various others). You can also look at the Bloomberg European Luxury Index and the Merrill Lynch Lifestyle Index.
Looking at the history of the luxury market in the past 6 months, there has definitely been a decline; however, with heavy amounts of cash and a growing international market this industry might just be a diamond in the rough.
If you have any comments or questions, I would love to hear them. Please let me know what you think of my articles so I can tweak them in the future. You can contact me at salilka@gmail.com . I’d like to thank you for checking out the Salil Session.
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