I am meetings this morning, but I needed to get a quick follow up to yesterday’s Retail data.
It was mixed, with a negative bias lurking beneath the headlines. A quick review of who reported better sales and who stunk up the joint very quickly reveals a pattern:
Wal-Mart (WMT), Costco (COST) and BJs (BJ) all reported better than expected retail sales for June. Disappointing retail sales were the soft goods, (i.e, clothing), and nearly all of the Department stores.
As we noted yesterday, Wal-Mart reported same store sales gains of 2.4% vs. its 1% to 2% forecast. They stated that home goods and apparel sales were weak but grocery sales surged.
There are two reasons for this. We discussed the FOOD INFLATION factor extensively yesterday. The second element is "retail slumming." Middle class families are now shopping downscale, looking to save some cash. Whole Food (WFMI) shoppers are going to Krogers, who’s former clients are going to Target (TGT), whose former customers are now in BJs and CostCo’s, whose former clients are going to Wal-Mart.
This is not a sign of strength.
See below for explicit details:
Bloomberg: “The number 1 problem is that traffic is down, that created a bigger problem for department stores, said Richard Hastings, a retail analyst at Smyth-Bernard Sands…”
CNBC: Howard Davidowitz (http://davidowitzassociates.com/), a retail consultant appeared, just before the NYSE close, and said retailers are in an “absolute collapse.”
Reuters: Rising energy, food costs test Fed core inflation focus “Swiftly rising food and energy costs are challenging the Federal Reserve’s practice of focusing heavily on core prices in setting monetary policy, but the central bank shows little sign of changing its thinking… ‘It must be obvious to the citizenry of this country that there’s… inflation,’ said Steve Axilrod, a former staff director for monetary and financial policy at the Fed [for Volcker]. ‘One … definition of inflation is when the (average shopper) notices it in the grocery store.’”
More later . . .
Fascinating and instructive conversation with a few of our traders/clients this afternoon, including a hedge fund momentum gunner who asked me "if this rally really mattered."
The answer is simply if it goes against you, it matters to your bottom line and/or your clients net for the year. If you were long going into this you made money, you showed a better P&L, your assets under management grew, your clients are happy. If you were short, you got your nuts squeezed, and that’s that.
More importantly, the S&P cleared key resistance, the spread triple top so many technicians have been talking about is now toast (See chart at bottom). If this breakout holds holds the next couple of days, that will inform of us about the technical strength right here, and if it fails, that will also be quite instructive. Indeed, this is shaping up to be quite an important rally.
So to answer the original question, yes, this rally matters.
"This is a bullshit rally" he said.
I asked him Why? Specifically, I ask:
"Do you disagree with this because you were positioned improperly, or because you cannot find a rational basis for today’s move? Do either of those things matter?"
No answer. He then asks me, "What did you think of today’s Retail data?"
Sigh. . . I said it was weak, that most retailers were doing only fair, that in addition to anyone home-related (i.e., Home Depot (HD) and Sears (SHLD)), we saw the Department stores doing poorly, Macy’s (M) and JCPenney (JCP). We already heard Target (TGT) was at the low end of their range.
Here comes the money shot: "And Wal-Mart" he asked?
Mediocre. They don’t break out food (as they do energy), but we can draw some assumptions from their breakdown between Wal-mart and Sam’s Price Club (see our earlier post), as well as what BJs said. As we learned today, Food sales at Wal-Mart, Sam’s, Cost-Co (COST) and BJ’s Warehouse (BJ) were robust.
Here’s the key line from BJ’s report:
"Sales of food increased by 6% and sales of general merchandise increased by
So to answer all of his queries: yes, today’s rally mattered. Yes, the retail sales data was weak. Yes, it was essentially a celebration of higher food prices.
However, if you are looking for a rational basis for the day to day movements of markets, if you seek to find a degree of serenity by understanding why markets do what they do short term (A/K/A noise), well then you are going to drive yourself insane.
Mrs. Big Picture is smart enough to know that when she wants to go
shopping, she best not call it that if she wants me to come along. So
the clever lass has taken to calling sport shopping "Economic Research."
I do this sort of "research" every week.
That’s why I laughed on Tuesday night, when Noah Blackstein busted my chops for shopping at Sears (I’ve been a Land’s End client for years). While I was there, I looked at appliances, lawn mowers, plasmas, and Levis. On a Saturday afternoon, tumbleweeds rolled by — the store was totally empty.
I have the same routine every time I visit a store: I look at the merchandise, see how well the store is stocked, merchandised, organized, cleaned, etc. Typical Peter Lynch stuff. I lurk around, watching other customers interact with store employees. I often buy something, if only to return it and see how the process is. (A pair of Levis went back to Sears 3X — they were defective and split in the wash).
Over the past month, I have been to the following stores:
Home Depot (HD)
Best Buy (BBY)
Circuit City (CC)
Ralph Lauren Polo (RL)
Smith & Wollensky (SWRG)
Saks Fifth Avenue (SKS)
Pottery Barn (WSM)
Williams Sonoma (WSM)
Lord & Taylor
Barneys (formerly BNNY)
That doesn’t count all the small mom and pop stores and restaurants.
Over that period, I purchased items at Home Depot and Lowes (all sorts of stuff), Fortunoffs, Target, Polo, Century 21 (my Ted Baker ties come from there as well as Saks and Ebay), Lord & Taylor, Amazon (books and DVDs/CDs), and an auto dealer (I used Swapalease.com to replace the wifes RX8). Oh, and I got a new keyboard at Apple.
I avoid Wal-Mart (WMT) in NY, as the stores are these horrific garish fluorescent nightmares. In California, where they seem to be open til midnight or even 24 hours, I have made emergency/lost luggage purchases at the only slightly less ugly versions. I cannot recall the last time I was in a K-Mart (SHLD), but many years ago they wrere the only big box retailer in the Hamptons/Riverhead.
Sandy in comments asks: Aside from Sears, how does everything else look?
When we practise to blog! (With all due apologies to Sir Walter Scott).
This very cool java app is a relational toy from Touchgraph. They use Google’s network of connectivity between websites to display what sites you are connected to:
I get different responses depending upon whether I use the top level URL (http://bigpicture.typepad.com/) or the sub-levels (Real Estate, Economy, etc.)
This is the bigpicture.typepad.com/comments. Note the middle left side purple are DRM/digital media related links, while the bottom center green all Housing related. Economics gets kinda buried in the center pile.
(FYI: I seem to make it crash every 3rd request, but I run a dozen apps at once . . .)
Years ago, I looked at a very cool software company that did something very similar to this. Gotta dig that up . . .