Stock Stuff That's On My Mind Today

1) J. Crew (JCG) delivered a lousy quarter yesterday, the result of a weaker economy and what the company characterized as disruptions to the company's direct sales systems.

But what really worries me is the fact that inventories were up 25% year-over-year. According to the transcript from Seeking Alpha, management said the following regarding inventories:

"The end-of-quarter inventories also included approximately $15 million in inventory above our anticipated end-of-quarter levels. This resulted from the issues related to the direct systems upgrade, as well as the softness in our store business. The gross margin impact associated with clearing this additional inventory will extend into the third quarter."

I'm putting JCG on my potential short list - I want to do some research into historical seasonal inventory patterns. Management cut guidance significantly already but this issue is worth looking into. For now I'm still bullish on Guess? (GES) though I admit that the strengthening dollar could be a problem.

2) Speaking of which, the U.S. dollar is down about 7% against the Euro and 8% against the pound this quarter, indicating that what used to be a massive tailwind for U.S. multinationals is slowing turning into a headwind, as the value of that overseas business shrinks just a little bit versus last quarter.

But let's look at a less-followed F/X relationship, the U.S. dollar against the Polish Zloty since the second quarter ended:

















If you're wondering why Polish liquore conglomerate Central European Distribution Corp. (CEDC) is down, forget about Russia's invasion of Georgia. This is why. CEDC was a major beneficiary of the strong Zloty in the past since it reports in U.S. dollars, but a strengthening dollar could cause them big problems.

3) One of my personal investing rules is to never invest in pharmaceutical and biotech companies, and the mess at Amlyin is why. Drug stocks simply expose one's portfolio to way too much black swan event risk for me to handle.

You never know which drug will be approved or denied, or who the FDA could go after next, or what will just make people up and die. My personal investing focus is on mid-cap stocks, and they provide me with all the volatility I need.