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Your Week In Brief

May 28, 2020, 5:49 AM

Gregory Bergman
Editor-in-chief, CapitalWatch

While it's true that I often meander into topics only loosely related to finance, this is still technically a market-driven enterprise, and I am happy to report that, as illustrated in the chart at the bottom, the Bergman Buy Index is up over 39% since we started picking back in late February, and over 45% from our April 3 lows.

Chart: 35 Short- to Mid-Term Picks Since Feb 28.

Beginning Sum: 100k in Hypothetical Capital --- Current Capital $139,293.94

(For more information and a detailed breakdown of the stock portfolio with buy and sell prices, email [email protected])

Even if you had never bought stocks and yet were somehow prescient enough to begin your equities portfolio with buying the S&P Index at the epic lows of March 23, if you followed my advice you would be up significantly more than the 31% offered by S&P. That is better than most hedge funds and I do not even charge a yacht in commission per trade. (And if you bought the S&P when we started the index on February 28 before the coronavirus hit Wall Street, you would have just broken even as of today.)

To avoid patting myself on the back and cherry-picking good stocks to showcase as I have done previously, we will be including the chart with every other weekly article, come what may. (Our long-term stocks are stock to hold for over 18 months and are not calculated in this chart.)

And now, hair, history, and a little mindful meandering.

Fantastic Uncle Sam's

If I ever get into the barbershop business, that is going to be the name of my shop. Sorry, Shelly Luther, I'm pursuing a trademark for that one. But I have one for you: How about The Redneck Rosa Parks' Hair & Nail Salon? While I sympathize with Shelly, the Texas salon owner who rejected a judge's order to keep her business closed, an American hero, she is not.

The unrest continued this week, when protestors launched "Operation Haircut," offering unmasked impromptu trims to unwise and willing comrades on the lawn of the Michigan State Capitol as a show of their distaste for shelter-in-place orders (better a protestor wield a virus-ridden comb than an automatic weapon, not that one negates the other, unfortunately). While protesting by cutting hair seems silly, it is worth noting just how important a role hair has played in American--and world--history.

The Bums Won, Lebowski

A half-century ago, Americans found themselves on the side of a political divide, and like today, battle lines were being drawn along hairlines. The longhairs were against the war in Vietnam, and the shorthairs (or "jocks") were, if not for it, at most, ambivalent.

And then, Vietnam was over, and it wasn't long before everyone besides Banacek had long hair and sideburns the length and breadth of a landing strip in Danang. Then came the 80s and all hair-hell broke loose, sending even my Vietnam veteran and Army Colonel grandfather into a follicular frenzy, culminating in a 1983 perm which, like some of his more hush-hush military operations, he now denies. But for this there is evidence; a much-perused Polaroid he would take a flamethrower to if he could.

So, here we are again, but in reverse. Marijuana is legal, and a buzz cut could land you in jail. It took 50 years, but the hippies won (if only). Today, hair is once again at the center of American political life. But this time the American people are not facing a simple binary choice like to be in favor or against a war. This time, nobody is for the virus, and everyone is scared—scared of losing their livelihood and scared of losing their lives.

We wore a hair shirt for Vietnam, and justifiably so. This time, let us wear masks instead.  And let us listen to one another, and treat this mess with the kind of nuanced deliberation it requires. Because when it comes to reopening this country, there is no simple solution.

Remember the wisdom of our Founding Fathers, whose white wigs rendered each man's hair (white property-owning man's, that is) irrelevant. (The powdered white wigs dated back to the mid-17th Century when King Louis XIII of France first donned one to cover his bald spot, soon becoming synonymous with royalty and wealth.)

In fact, history and hair are as intertwined as a tightly woven "goddess braid." To wit, the first braids go back to the Himba people of Namibia, according to Alysa Pace of Bomane Salon. The mohawk, named after the eponymous Native American tribe, was found on a 2000-year-old male body near Dublin in 2003; he styled it with plant oil and pine resin. Also, contrary to popular belief, blondes do not have more fun. At least not the Germanic tribesman and tribeswomen whose blonde hair was often chopped off—along with their heads—and worn by Roman soldiers. Hair has a long history of denoting tribal affiliation, marital and social status, wealth, power, and religion.

And that's why we should bring back the bowler hat.

We Need to Move than a Hair Forward to Survive

While hair or headgear homogeneity is not a prerequisite for a healthy democracy, the uniformity of a sea of fedoras depicted in a mid-20th century photo conjures a feeling of some lost and much-needed cohesiveness. It was a time when different political parties debated without demonizing one another; a time when massive bi-partisan investment in education, science, and infrastructure paid dividends from which America still reaps benefits.

In a week where Chinese and U.S. tensions have increased volatility in equities globally, it is worth noting what we did back in that porkpie period, the Chinese did and continue to do in this century—and all without that odd hairstyle the queue (in which the front and sides are shaved, and the rest of the hair is gathered up and plaited into a long braid that hangs down the back—think The Last Emperor).

The hairstyle was synonymous with China from the 1600s until the early 20th century. For more about this week's financial (not follicle) Sino-American saga, check out our always incisive Mark Melnicoe ( Turns out Apple is to be listed by China as an "unreliable entity" on its own retaliatory blacklist. Yes, Apple. And so, we move even deeper into the absurd. 

Life, Liberty, and the Pursuit of Sideburns

At the Constitutional Convention, maybe those silly aforementioned wigs helped the colonists compromise, serving as a fashionable albeit odd visual reminder of their shared equality. Okay, that's a stretch. But whatever it was, somehow they were able to address the issues themselves, rather than reflexively associate an opponent's political philosophy with their individual moral worth. The language they used to describe their adversaries may have been harsh--and some of the compromises themselves repugnant (the Three-Fifths Compromise)--but creating an entirely new political system through debate proved possible. Compare that to us about to kill one another over the right to a haircut.

The fact that pro-staying home and anti-staying home camps formed so quickly along political party lines offers maybe the most depressive proof to date that the American political culture has been reduced to just tribalism for the sake of tribalism. One tribe is lead by a deranged narcissistic president (who must be defeated this November for purely non-partisan reasons) claiming to drink hydroxychloroquine, which his own FDA has strenuously warned against; and the other tribe has talking heads sensationalizing every new case and every new death, often without providing context. And based on the tribe to which one belongs, one doubles down on outright recklessness or unreasonable fear, both fueled by opposing tribal messengers. This kind of partisan pugilism won't work; we turn this into a culture war at our peril.

Parties should represent competing interests, not competing values—there is no way to compromise or work together in an environment in which you are inherently good and they are inherently bad, and "they" feel the same way. And work together we must in order to find a reasonable way to reopen society as smartly and safely as possible.

But America just can't do that anymore. It started when this country parted right down the middle over Vietnam and it has only gotten worse. In America today, we do not do compromise; we do not do nuance. In America, we just do, you know, hair.

And Now, Hair Stocks

Hair and beauty stocks to watch are Supercuts' parent company, Regis Corporation (NYSE: RGS) and Ulta Beauty (Nasdaq: ULTA). We are waiting for Regis to fall until we put out a buy signal, but as of this morning the Bergman Buy Index is buying ULTA. Down 30% from February highs, the company should see a boost in sales as salons reopen. More specifically, the recent demise of J.C. Penney (NYSE: JCP) will bode well for ULTA. Analyst Michael Lasser of UBS has pointed out that the company can significantly capitalize on J.C. Penney's closure of 250 stores and more stores hanging on by a budgetary thread.

Ulta can do this in two ways: 1) Ulta can swoop up some J.C. Penney former salon customers (yes, J.C. Penney does haircuts); and  2) Ulta can take more business away from beauty supply store competitor Sephora, which operates many stores out of now-defunct J.C. Penney locations. Lasser notes 80% of Sephora stores within a J.C. Penny's location face competition from Ulta Beauty within a 10-minute drive and 89% have an Ulta store within 15 minutes. Also, the relationship between J.C. Penny and the beauty store has turned ugly. Sephora wants out, but J.C. Penny's wants them in.

"JCPenney filed a temporary restraining order so Sephora could not prevent JCPenney from reopening Sephora inside JCPenney (SiJCP) locations," Penney spokesperson Brooke Buchanan said in a statement Monday.

Sephora and J.C. Penney have had a joint enterprise operating agreement since Feb. 1, 2009, according to the April 27 court filing. This development bodes well for Ulta, who has already been poaching customers from Sephora before this mess.

So, if you want to get just a trim or a perhaps a more severe-looking mohawk, might I recommend Ulta? You may not be able to bring your AR-15, but you can always pick that up after on the way to the "peaceful" protest.

Gregory Bergman
Editor-in-chief, CapitalWatch

(The opinions expressed in this article do not reflect the position of CapitalWatch or its journalists. The analyst has no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only and does not constitute financial, legal, or investment advice)

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