The Daily Dose: Someone Must Be Sheriff

 | Oct 30, 2013 | 10:30 AM EDT
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Sometimes I take a step and ponder if I am being too tough on a company or a macroeconomic report. A couple thoughts that usually fly around:

1.       Am I overanalyzing something negative?

2.       Am I being too positive on something minor?

3.       Does that executive deserve a free pass due to certain macro/sector considerations?

4.       Now that I know everything on his particular development, what else am I missing?

I have arrived at the conclusion that it's okay to be tough on the numbers and fellow humans, as long as the actionable advice for clients nets them huge profits and increases in life quality (we just bagged 7.5% on Toll Brothers (TOL) inside of two weeks, woot woot!). I found myself on Monday once again in the position of being sheriff. The first time was with the dreadful company known as Sears (SHLD). I firmly believe that before I turn 50-years-old Sears will no longer be in business. So, I took it to Sears on Tuesday, anywhere I could, sharing these facts:

•        Eddie Lampert spotted on the press release, and basically took the time to say Sears is unable to compete effectively in Canada.

•        Sears will be exiting stores in Canada, opening up prime real estate for Target.

•        Sears adjusted operating loss worsened year-over-year.

•        Sears same-store sales worsened at both divisions sequentially (Sears domestic third quarter 2013 -4.8% (-0.8% second quarter); Kmart -2.6% (-2.1% second quarter). Both segment results will be well shy of anything Target (TGT) and Wal-Mart (WMT) report shortly (and the dollar stores).

•        Sears says it's "managing its capital expenditures more efficiently". And that's the problem. Sears spent 0.9% of its annual 2012 revenue on capital expenditures; Macy's (M) spent 3.4%.

•        Sears' "Shop Your Way" reward program is eating the company from the inside out. In my view, it's driving lower quality sales today and opening the floodgate for even more margin-killing promotions in the future.

The second sheriff moment was on consumer confidence. Sure, any macro miss will be ignored as a result of the Bernanke Doctrine. But at some point soon even rampant liquidity will not prevent Mr. Market from pricing in the real economic conditions out there, such as:

Michigan Consumer Sentiment Expectations

•        Lowest since November 2011.

Conference Board Consumer Confidence

•        Fell to 71.5 from 84.7 in September.

Finally, episode number three was prior to my first segment on the new Al Jazeera network Tuesday evening. Despite the S&P 500 rocking near an all-time high (although the Shanghai Composite is at a 7-week low), I felt compelled to bring a touch of reality amidst the hype. Chew on these stats:

•   Dollar store stocks: Dollar General (DG) and Dollar Tree (DLTR) have outperformed the Dow and S&P 500 in the last three months. Poor getting poorer? The Nov. 1, 2013 SNAP program would suggest that to be the case.

  • Wal-Mart shares: have underperformed the Dow and S&P 500 in the last three months. Middle income getting poorer? It would seem that way as September retail sales were concentrated to bigger ticket items which tie in with the following:
  • American Express shares: stock has outperformed the Dow and S&P 500 in the last three months, but that spending by higher income earners is being unleashed on Whirlpool (WHR) appliances and other home items from Home Depot (HD) and Lowe's (LOW), and to a lesser extent autos (demand trend is slowing). On the contrary, shares of Tiffany (TIF) and Nordstrom (JWN) have underperformed the Dow and S&P 500 in the last three months. Bottom line: even higher income earnings are valuing each purchase deemed discretionary very carefully. Stock market gains, in my view, are not yet showing up in consumption:

•        46.5 million people are in poverty;

•        Median household income -8.3% since 2007 peak;

•        Incomes for those 35 years and younger declined slightly in 2012;

•        The poverty level is sitting at 15% for three years straight, and that hasn't been the case since 1965.

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