Man, I was totally revved up and ready for the only reality show that cuts across network lines: "Survivor: Bernanke." Case of Red Bull within reach? Check. Full comprehension of the Fed statement minus any outside interference? Check. All Web browsers closed save for the one streaming "Survivor: Bernanke?" Check.
In the end, while it was neat to have the Fed Chairman only inches from my eyes on a live feed, the dog and pony show was comparable to RadioShack's (RSH) earnings this week: disappointing.
It wasn't a major letdown from the standpoint that the chairman and his friends around the table didn't give us any real new themes or buzzy terms to latch onto (market lurched higher each moment Bernanke discussed the Fed being prepared to act if necessary, no large surprise in a cheap-money-hungry market). Instead, I will approach analysis of "Survivor: Bernanke" as a disappointing airing as a result of unclear communication with financial markets. It seems as if the more the Fed tries to be anti-Greenspan, the more it struggles to hammer home its true feelings. Furthermore, confusing communication begins with the economic projections that Bernanke gives in an effort to be transparent.
Unwinding Fed Confusion
(Just follow along as I am sure you caught the Fed's economic projections yesterday.)
- Marked up GDP for 2012.
- Marked down GDP for 2013 and 2014, slightly.
- Marked down for 2012, 2013, and 2014; sizable improvement expected from 2012 to 2014.
Confusion factor: Bernanke sort of acknowledged that the markdown in growth for 2013 and 2014 off a marked-up base in 2012 is a determinant of the dreaded fiscal cliff. The Fed has said that it sees slower growth in 2013 and 2014, but a sharply falling unemployment rate. If businesses are reluctant to hire today amid fear about the fourth quarter, beginning of 2013, and their being in love with lean cost structures, what makes the Fed confident that unemployment is poised to retrench noticeably should a fiscal cliff dent growth? To completely walk through jargon land, there is upside risk to the unemployment projections due to fiscal cliff influenced growth, structural unemployment and people reentering the workforce (won't they have to as unemployment benefits run their course?). Higher than planned unemployment is why I remain upbeat on Dollar Tree (DLTR) and Dollar General (DG).
- Marked up inflation for 2012 (fits the hike in GDP outlook/oil spike).
- Marked up inflation for 2013 (despite a downgrade in growth).
- Fairly unchanged from January for 2014 inflation.
Confusion factor: The Fed is finding inflation to be stronger than prior estimates, but basically acknowledged less of a GDP growth rate in out years and falling unemployment? Moreover, the Fed was chill with baking in more core PCE inflation as if to say companies will be inclined to eat higher costs. Huh? Companies continue to pass along price increases to consumers. Feeling the confusion? I am. Own some gold? Might want to consider it if you are a non-believer in the fiscal cliff concept.
Overall, the big events to watch are in the rearview mirror (though initial claims have sure become a must watch), and the micro now returns to focus. The theme of "good, not good enough" on earnings amidst the circus yesterday was maintained and again that continues to be a source of worry. If the first quarter upside is not sparking stocks what will? Conversely, if the market is so negative on the positives, what is it seeing that the bulls aren't?
- Yes, still positive on GNC (GNC) following a very strong quarter and rare appreciation of such by the market. Valuation gap with Vitamin Shoppe (VSI) should narrow further.
- Yes, still positive on Apple (AAPL) for any number of reasons housed in its mega report.
- Yes, Coach (COH) post earnings interests me, ditto Aeropostale (ARO) into next week's industry same-store sales in the hopes of a guidance raise for the first quarter
- Caterpillar's (CAT) stock reaction running through my head: (1) U.S. good, but unsustainable (2) China and emerging markets less of a bullish tone reinforces previous comments from management and (3) slowing emerging markets, missing belief in the U.S. trends and another guide up is unlikely on fiscal year.
- Expect upside guidance from retailers same-store sales day, specifically in the specialty apparel arena.