Are people reading through the strength in Restoration Hardware's (RH) stock to the entire retail market? Are they taking up the stores because Ollie's Bargain Outlet (OLLI) blew the numbers away?
Or is this the denouement of the border tax, a recognition by the Speaker of the House, the self-styled Einstein, Paul Ryan, that he might be on the wrong side of this one because of how devastating it will be for all retailers, as the average major department store or discounters would be crushed by a tax on 90% of what they would bring in. There are hundreds of thousands of jobs on the line in retail that will most surely be lost against almost no gains, because there is no way the U.S. labor force can compete against Vietnam or Honduras on making clothing.
Here's why this matters. Because the read-throughs to RH and OLLI would be totally wrong. Restoration Hardware is rallying because it had a very tough year of transition and now the company is going to be run not for endless expansion but for return on investment. That's a big deal, as Gary Friedman, the CEO, had been gung-ho to manage for revenue growth and it turned out to be something that generated some really terrible numbers.
The changes, which can be heard on his conference call set to music, are palpably great but they have nothing to do with retail in general.
Ollies? Oh boy, it's strength is a read-through to the unraveling of retail, as it is a total bargain outlet and it is just buying closeouts and giving you a treasure hunt of merchandise to go for. If Ollie's is doing well you can buy Burlington Stores (BURL) , Ross (ROST) and TJX (TJX) , but that's about it.
So my thinking is that there is a move underfoot to go around the Speaker on the border tax and figure something out -- something that can get done, because I think that Gary Cohn, the chief economic adviser, and Steve Mnuchin, the Treasury Secretary, are creative guys who can carry the water and get something done in Washington.
So don't' extrapolate from RH and OLLI. But do accept the possibility that the stocks of these retailers are ramping because the border tax might be twisting slowly in the wind -- and that even Ryan can't screw up the tax debate by insisting on a border tax that will be fought tooth and nail by every retailer except Amazon (AMZN) .
