Darned if I know precisely what the European Central Bank (ECB) did on Thursday. I am quite sure that many investors feel the same way -- intimate aspects of QE programs are incredibly hard to decode. In fact, I don't understand the market's response (positive) to an announcement everyone allegedly saw coming.
All I suppose one needs to remember here is that actual QE, not the verbal promise implemented a while back, means less risk to sales and earnings for eurozone-centric companies. It also likely implies fewer dire earnings outlooks for U.S. multinationals (excluding the strong dollar thing) that operate in the EU and perhaps China, where the ECB's actions stand to ignite risk-taking on the part of investors (which also happen to be consumers). Therefore, as we have been trained to do since 2009, extraordinary stimulus measures means a greenlight on buying stocks despite job cuts from American Express (AXP) and eBay (EBAY).
Can't wait to see how European stocks, which are on a nice run, react when further ugly reads on deflation and growth in the region appear soon. The helping hand of the ECB has at least made it possible for volatility in equities marketsto die down, setting the stage for strength in stocks short term. By short term, I reference up to the point when the first Fed meeting of the year is concluded, and we get a more in-depth snapshot into the timing of interest rate increases alongside the super accommodative ECB.
Source: Yahoo Finance
I am incredibly concerned with the one-year, three-year and five-year outlooks for mall reits such as Simon Property Group (SPG), Vornado (VNO), Macerich (MAC) and others. There is a serious amount of mass store closures occurring right now across the United States, ranging from Macy's (M) to J.C. Penney (JCP) to Staples (SPLS) and Office Depot (OD). Eventually, there will be hundreds of Dollar Tree (DLTR) and Family Dollar (FDO) divestures. I also believe Toys R' Us will be out of business within the next five years. More Sears/Kmart (SHLD) vacancies are on the way, too (think around 200 in 2015 on top of about 235 in 2014). Bottom line is that we remain over-stored in the U.S. in the age of on-demand shopping -- which will be made worse by Apple Watch (AAPL) -- and population shifts from rural communities to urban areas.
Amid this fundamental overhaul, property owners will no longer be able to collect the steady stream of rent income the market has priced into their valuations. Properties could sit idle on the market for years, because frankly, we have not yet developed new models for vacated malls, stores and so forth. There are so many Planet Fitness gyms that could be opened in an old Office Max or Best Buy (BBY). A Starbucks (SBUX) isn't going to open in a former J.C. Penney, unless Howard Schultz is looking for a satellite campus in Bopunk, Arkansas. I think over time you will see malls reclaimed by the community for housing or an Amazon (AMZN) step in and buy the cheap real estate to build data centers.
Note REITS are highly leveraged, and the fundamental weakening in their operations as time goes on could reverberate through the debt markets (and stock markets too).
Source: Yahoo Finance
The company had damn near a perfect holiday season. Food sales were robust. The initial rollout of on-demand ordering is going well. But I remain concerned with the U.S. traffic counts and lack of transaction value growth in Asia. I believe Starbucks shares are valued for all things working great, and that is not necessarily the case.
If you want exposure to the exciting Starbucks story: put a short on Dunkin Donuts (DNKN), which has had mixed to disappointing sales and earnings in recent quarters. Two of the factors weighing on Dunkin Donuts: price competition from McDonald's (MCD) on the low end, and entry by Starbucks into breakfast and lunch sandwiches.