Last week’s news that the unemployment rate is soaring wasn’t met with surprise; but what is news is how many educated and employable people are jumping on the jobless bandwagon. As the Economix blog smartly reports, the number of college graduates with jobs fell 282,000 last month - but just 2,000 of them have looked for a job in the last four weeks. So why are 280,000 educated and unemployed moving from Midtown to Slowdown? It’s a hard fall from Wall Street to the workforce, and fired financiers are no different from the rest of us; its tough to find a job in Christmastime.
So what are all those idle bankers betting on this holiday season? Well, depends which bank fired them!
Citigroup - Abercrombie and Fitch (NYSE:ANF)
We all know the kind of guy that goes to work at Citigroup - he wore the polo shirt with the collar up and pretended he knew what he was talking about while tagging along with whoever he thought was the coolest guy in the room. Well, we’ve got a stock for this sycophant who still hasn’t gotten the recession memo - it’s been twelve months, dude! - Abercrombie and Fitch.
The company is known for its preppy (lame) clothing and aggressive (naked) marketing campaigns…and it’s recession proof! At least according to its CEO. ”We hear your concerns,” Michael Jeffries said last month, but “promotions are a short-term solution with dreadful long-term effects.” So Abercrombie won’t be offering any special deals this holiday season…and while competitors like American Eagle (NYSE:AEO) are fighting the slowdown by offering deals like “Buy one shirt, get the second 50% off!” Abercrombie’s going to keep charging $60 for a polo shirt. So just show Mom what you want…and she’ll walk down the mall and get you two shirts, instead of one, for 50% less at American Eagle ($30 for two polos after the mark down). I wonder who’s going to get more business this Christmas?
To be fair, AEO’s approach puts a hurt on its gross margins, which slid over 6 points in the thrid quarter to 41% of sales, while Abercrombie’s stayed relatively flat at 66% of sales. But can the higher gross really make up for all of the lost business? It’s hard to believe that Abercrombie’s brand is strong enough to beat economic realities…unless, of course, you’re concerned with style, not substance (a model that’s served Citigroup quite well over the years).
Merrill Lynch - McDonald’s (NYSE:MCD)
Just pure genius, the way Michael Lewis described Merrill’s place in Wall Street’s pecking order in his recent expose on the financial fiasco. Picture the playground pickup game, with the big kids (Goldman Sachs, Morgan Stanley) running the show…”Merrill Lynch was the little fat kid assigned the least pleasant roles, just happy to be a part of things.”
Well, what better stock for the fat kid than McDonald’s? It’s easier to eat cheap as the economy sours, and more people are turning down sit-down dinner for a Big Mac as the recession goes on. McDonald’s earnings have been strong all year, and Monday MCD announced overall same store sales increased almost 8% in the last month and 4.5% in the super-slow U.S. market. Of the 30 companies in the Dow Jones Industrial Average, only McDonald’s and Wal-Mart have higher stock prices than they did a year ago.
Analysts are worried about the negative effect of currency exchange on McDonald’s overall earnings, since so much of its business is in international markets. And if the economy turns around, MCD’s advantages might evaporate quickly. But when you’re the last pick on the playground and slow to the ball, you’ve got to take whatever you can get…and McDonald’s could be a nice, low-risk play for the old Bulls of Wall Street.
Goldman Sachs - Goldman Sachs (NYSE:GS)
What could be a better play for the arrogant king of the castle? Buying yourself is kind of a dirty trick…but it might actually make some sense for those forced into early retirement by one of the last bastions of Wall Street. Goldman’s not a pure-play investment bank anymore, and as a result risk (and reward) will be reduced, resulting in lower profits. But “lower profits” is a bit of a misnomer when it comes to Goldman, which was making money hand over fist on derivatives and other investments before the recent subprime write-offs and punishment of the market.
Goldman’s stock price is down almost 60% since June, and the WSJ reported last week that Goldman would post losses up to $5 a share when it reports earnings this month. But the Columbia Journalism Review picked up on something funky here - nowhere in the report was a Goldman source cited, and an accompanying graphic showed a loss of just under a dollar a share. So maybe the bleeding isn’t really that bad…or maybe Goldman is planting a seed to get bad news into its stock price early.
It’s this kind of savviness that Warren Buffet loves - and he believes in Goldman enough to invest $5 billion in the company in September. News that it was thinking of joining the internet banking business sent ripples through a skeptical market last week - but this shouldn’t impact Goldman’s core business, and in fact may strengthen it. It could be enough for an ‘09 rebound for GS stock, and the company’s former employees might get one last handout from their old cash cow.
