Happy Ben Bernanke 2.5 Day! Doesn't it feel as if Ben has a ton of unofficial holidays? Where is the love for George Washington? Oddly, very few outside of the financial web are celebrating these glorious, gift-giving occasions -- well, that is, until months later, when their 401k balances are fattened by the sausage the Federal Reserve is stuffing through the financial-system meat grinder. It's oh so sad.
Back in the day, according to a couple of relevant elders in my life, I had a habit of not being too social at family gatherings. It's hard to believe, right? Based on their eyewitness accounts, I would chill in the room and read a book or drill notes for class into my head, line by line.
While I broke this mysterious habit along the way, that feeling of isolation is the inspiration for today's column -- in which I delve into what has to be done in order to think more deeply about the market beyond Thursday's events. Every possible outcome of these festivities has been well-chronicled and has its own probability housed in an economist's multi-factor Excel spreadsheet. Moreover, you are wasting precious moments alive trying to uncover things from a Bernanke press conference that only he knows at this point.
So stop the heroics. On the one hand, you could stew on this particular event and absorb nothing in the process. But, on the other, you could arm yourself with new knowledge to fit alongside those detailed plans you've hopefully constructed weeks ago, or at least after the Jackson Hole, Wyo., Fed symposium. For instance, I myself have pieced together a morning directive that excludes the following references as reasons to buy or sell a stock: "QE"; "Quantitative Easing"; "Stimulus"; "Easing." Halfway down the paper it became abundantly clear that global "easing" is intertwined in the investing doctrine and, boy, that is a longer-term problem.
For example, how could an investor possibly construct a nifty model on Caterpillar (CAT) and state the stock is presently attractively valued if China fails to "ease?" Another place where "easing" comes into focus is on the topic of the U.S. consumer. Is it safe to buy a Nordstrom (JWN) at current levels if the Fed eases a little and the effects are minimal? In my view, an ingredient in Nordstrom's rocket run is that easing is supposed to drive the wealth effect, which disproportionately benefits the spending habits of the department store's core customer -- but not, say, Burberry's (BRBY) customer.
I have put a great deal of thought into the outlook for the consumer for the balance of 2012, and even if the Fed eases we are on a course toward a near-term moderation in consumer spending vs. the rates seen in July and August, with a likely re-acceleration for the holidays. (Of course, a variable to that is the election outcome and language and action regarding the coming fiscal cliff). I sense there is this wave building off in the ocean -- one that would dent sentiment -- comprised of decelerating job growth, rising food prices, weakening six-month expectations on consumer confidence and the use of savings to pay down debt incurred during must-spend periods.
Start thinking on the subject while the mere mortals attempt to handicap a single word in a Fed press release. The reality is that if the benefits of additional accommodation are diminishing, or if the Fed holds off to December to act, the market will switch gears and zero in on the outlook for the consumer and derivative stocks. As usual, I want you to be as prepared as humanly possible by staying 14 steps ahead of the crowd.
Taking No Prisoners this AM
● Lumber prices are enough off their August peak to make you go "hmm," alongside the massive advance in homebuilder stocks.
I've been rocking the mall tours recently, and here are a few non-robotic research-report observations:
● Department stores are showing too much inventory, especially in menswear to work and now women's wear.
● I'm less "wowed" by price increases on merchandise; clearly cotton cost savings are being reinvested to maintain prices.
● I spotted my first Tesla charging station in an A-rated mall parking garage (yes, I have a picture, and it's on my Twitter account).
● Macy's (M) is on a renovation boom. Outside of the New York City flagship overhaul, a C-rated mall-based Macy's around my way has been completely knocked down to reopen in the fall of 2013 with a more upper-end style. Macy's Roosevelt Field is now displaying higher-end luxury shop in shops (think Louis Vuitton) upon entry, and the Bloomingdale's down the hallway is also receiving tweaks. All in all, I do wonder about holiday sales disruptions if work is not completed, if these malls are any indication of activity in other locations nationwide.
● I continue to see why my top back-to-school pick, American Eagle (AEO), announced a special dividend. I had not expected that dividend, but the company did close a lagging division and is opening stores at a slower pace, and it's a nice way to endear a new CEO to shareholders. Beyond this, American Eagle's product assortment remains the best relative to its primary competitor base.