Weekly Wrap – Cruise Lines, Clorox, Regulator Roulette on China Stock Scams

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 ▶Finally back, getting my brain back in gear... That ship above was our home for 24 days of the 30 days we were away. It’s the longest we ever have been and likely ever will be on a ship. More about that in a minute, but first...

▶One thing about being away for 30 days is that it helps you clear your head. During that time, I obviously kept up with the news, but I also watched zero TV, listened to zero podcasts and other than writing a few new reports, I just tried to do something I rarely do... chill. I totally disconnected the final few days while in Quebec and Montreal. Love Quebec. Love Montreal. Of course, the weather was fantastic and we got out literally just as the storms were hitting. Plus, unlike the other five countries we visited, it was fun to be someplace where the dollar still made you feel as though you were getting a deal. But otherwise, lots of time to think and lots to think about. Like... how after tuning out most of the noise nothing really changed in the markets or the stocks I track. Same lunacy. Just less stress since I wasn’t getting caught up in it. There’s a moral in there somewhere.

▶While the cat’s away.... Lookee here, the Nasdaq and SEC supposedly are cracking down on the China stock scams. I’ve been railing for months (actually over the years if you go back to the original China Hustle) of how the exchanges, in their quest for listing fees, enable these scams with their lax listing standards. Now, from the “better late than never department”: the Nasdaq has proposed new rules that would make it harder for Chinese companies to list in the U.S. Officials said “the move was prompted by looking at some of the extreme volatility and potential trading market manipulation that has been observed within our U.S. markets, especially with respect to smaller companies that are principally operating in China.” Ya think! Not to be outdone, the SEC has formed a cross-border task force that it said “will focus initially on investigating potential U.S. federal securities law violations related to foreign-based companies, including potential market manipulation, such as ‘pump-and-dump’ and ‘ramp-and-dump’ schemes.” It will also look more closely at “ gatekeepers, particularly auditors and underwriters, which help these companies access the U.S. capital markets.” Task force. Proposed. Yada. Yada.

▶Moving on, if you missed it... Clorox $CLX has hit the Red Flag Radar. If you’re a premium subscriber, you can read it here. Summary for those of you who aren’t: I had been keeping an eye on Clorox ever since ManagementTrack offered up some dicey comments on management from its interviews with former execs. Then my pal Steve Strazza over at All Star Charts – in a short screen he runs based on technicals – whittled it down to one company: Clorox. As if on cue, for no apparent reason, the stock popped higher the day after I published. Then again, I wouldn’t expect anything less in this kind of market. But it doesn’t change the story or the concerns, which I lay out in the write-up.

▶Randoms... I live in an area where, in a four-mile stretch, there was one CVS $CVS and two Rite Aids. Now that the Rite Aids are gone, the one CVS can’t keep up with the business. The lines stretch, even with four cashiers. I haven’t paid close attention to CVS, but while waiting in line I took a look at the numbers. As of last quarter, the increases were showing up in CVS’s revenue and same-store sales, but with a catch, as management noted – they’re offset by reimbursement pressures. The stock has popped higher but so has the market ... Nope, no inflation, except: My AppleTV bill just shot up by 30%. Not as bad as the 45% increase a few years ago, but where I come from 30% is not deflation. Then my son, waiting for a flight in the LAX international terminal, texted me this...
 

It’s an $18 sandwich at Pret a Manger. Sure it’s an airport but as best he recalls, last time he was there (and it wasn’t that long ago) it was $12. And if you look closely, you can see the prices appear to be changing so fast that they merely slapped on a label with the new price. Out of principle my son passed on Pret and went to Panda Express. Meanwhile, the woman who cuts my hair just raised her prices by 10%. Her explanation: Between the impact of tariffs on the products she buys and a rent increase, she had no choice. Nothing to see here folks, move along.

▶Finally, back to the trip but more importantly, the ship... With a capacity of just over 400 people, the Seabourn Sojourn was launched in 2010 – a year after Warren Titus died. You might not know who Warren Titus is, but I wrote about him in an essay headlined, “Please Stop Asking Me When I’m Going to Retire.” Titus is legendary in cruise circles for co-founding Seabourn in 1987... when he was 72. He stayed for 15 years – in the process, revolutionizing parts of the cruise industry, with Seabourn pioneering what was then viewed as the ultra-luxury market. During that time Seabourn was sold to Carnival $CCL, where it originally operated under Carnival’s Cunard subsidiary, before being shifted to operate under Carnival’s Holland America subsidiary.

Seabourn now seems to be on its last sea legs as Carnival appears to be piecemealing off its ships – or “consolidating the fleet,” as Carnival CEO Josh Weinstein puts it – as it raises cash to lower its debt. The Sojourn was recently sold for cash to Japan’s Mitsui O.S.K. Lines, which will take ownership next year. There, the Sojourn will join the former Seabourn Odyssey, which was sold to Mitsui this year. Weinstein says neither ship was for sale, but the deals were for cash and too good to pass up. And while he talks up the Seabourn brand, he made it clear he will entertain offers for its remaining ships including Sojourn/Odyssey’s sister, the Quest, which we took to Antarctica in 2017.

All of this has Seabourn loyalists grumbling, but Carnival is in business to make money and create value for shareholders, and it’s not doing a bad job of bailing itself out. As the below chart shows, while still well above pre-Covid levels, net debt is sliding.