Random Thoughts On 31 October 2006

According to various news reports North Korea has agreed to engage in six-party talks. Personally, I think that is great. I much prefer dialog to the more forceful approach. That said, I expected oil to be down with a dramatic lessening of geopolitical tensions. According to Bloomberg.com WTI Cushing Spot price rose $0.37 to $58.73 for a gain of 0.63 percent.

Many pundits are talking about the slowing economy and how vehicle manufacturing last quarter help to prop up the GDP data. Even with a slowing economy and lessening geopolitical tensions, commodities appear to remain reasonably strong.

I listened yesterday to Blue Nile's (NILE) conference call. I wanted to get an impression as to whether the jewelry sales were strengthening or weakening. The conference call did not shed much light on that question. However, I got the strong impression that traditional brick and mortar jewelry stores are in trouble. With regard to pricing and likely service, Blue Nile is able to vastly undercut the competition. As their brand and reputation continue to grow, future customers will be even more comfortable in making online jewelry purchases. If I were a traditional brick and mortar jewelry company, I would be looking to capitalize on my existing reputation and market strength by starting an online presence as well. Given that I like Blue Nile's business model, am I a buyer? No, because I am more worried about the economy as a whole, especially discretionary income. If the economy does weaken, I expect all jewelry retail outlets to suffer. But longer term, I expect Blue Nile to continue to capture market share. I recommend reading SeekingAlpha's transcript of the Blue Nile conference call.

Doug Kass, general partner of Seabreeze Partners Management, Inc. and commentator for The Edge Column on Street Insight (subscription required—part of TheStreet.com family), wrote an excellent six-part article on why he is bearish. Because his information is copyrighted, I cannot provide you with a reprint. But he might articulate many of his points on Kudlow & Company on Friday evening. Also, the TheStreet.com often reprints substantive articles from Street Insight a few days after they are initially created. So you might want to keep your eyes peeled on the free site during the rest of the week.

Nothing much about this market has excited me. The next big event appears to be the election. I am not sure that it will be a substantive event. But many participants seem to think it will be.