Friends, welcome to "In-Your-Face Friday." From Sunday night to oh, say, 2 a.m. Friday, all I heard about was that much of the same factors driving a suspect rally. Frankly, I have grown weary of listing these themes, and I will do my best to refrain from mentioning them this morning. I want to be a tad in your face today, because complacency is in the air, and that is a worry of mine that you should feel as well.
Where there is complacency, there are blinders to risk. Profitable positions are ridden like mechanized cattle at a Texas BBQ joint. The decision is finally made to buy a cyclical stock days after the smart money has made them pricier, valuation-wise. But please don't think this is some kind of attention-seeking bear call on my part. Across the board, selling in stocks has subsided -- meaning correlation -- and winners that deserve to win are winning. (Much to my dismay on Brinker's International (EAT)), which caused a #PenSnap).
In Your Face Friday means me using a megaphone, hopped up on caffeine, as I loudly proclaim there are new themes to investigate -- ones around which one could entertain a position.
Here are a few I have developed:
Low Gas Prices Don't Exist Anymore
I really do find it highly intriguing that notes detailing a company's second-quarter earnings have "lower gas prices" as an underlying positive supporting a bullish call on the stock. The zaniness is most acute in the consumer-discretionary reports. In my view, this idea of low gas as a consumer-spending tailwind is incrementally becoming rear view mirror stuff, given that gas prices are steadily rising from the early July low. In fact, is interesting in and of itself, as economic data surprises have been less disappointing and there is this certain developing upbeat tone regarding August employment figures.
I think strategists are incorrectly positioning clients in many second-quarter-winning companies that won on reduced gas prices, which benefited from transportation costs and traffic -- which, itself, was based on the sustainability of the gas price thesis. What makes this even more dangerous is the fact that food costs are coiled like a spring, waiting to increase amid the drought, and that consumer confidence could be dented in the back half of 2012 from building fiscal cliff fears.
By the way, price increases were the best component of the surprisingly favorable consumer-staple sector for second-quarter earnings. That offset sluggish volumes that resulted from 40% of revenue running through the streets of empty European stores.
Jackson Hole Could Be a Letdown
Expectations in the marketplace are that, as in years past, Federal Reserve Chairman Ben Bernanke will outline a clear-cut message on the central bank's intentions at Jackson Hole. That message would include an enactment time for a third round of quantitative easing and, quite possibly, a range of dollar figures for it. However, a disappointment factor is waiting in the weeds. The July employment report upside may cause Bernanke to stall until the August report, which is set for release Sept. 7. If the report beats consensus again, the Fed's meeting from Sept. 12 to Sept. 13 will become even tougher to handicap. Buying stocks into Jackson Hole could very well be ill-advised.
Off-Price Retailers Are Gods
Hey, TJX Cos. (TJX) and Ross Stores (ROST) have rocked it hardcore financially for over two years. Recently, both companies have been the only shows in retail raising earnings guidance with any consistency. The theme embedded in each company's valuation: Consumers want brands for less. That's all fine and dandy, but riding these names in the hopes of further explosive gains is becoming a long-in-the-tooth theme. Why not tweak the strategy and buy TJX on a dip and short Kohl's (KSS)? I think the latter is at risk of disappointing consensus for back-to-school and the holidays -- and, in light of this, has not dropped earnings guidance far enough.
JCP as a Turnaround Play
Listen, in good faith I cannot recommend J.C. Penney (JCP) if it nose dives in response to earnings. Should it shock the masses and gain ground, I still won't jump on board unless there is something fundamental on which to hang the hat -- for example, stabilization in the downward trajectory in same-store sales or cost savings helping to counteract significant gross margin pressure. Right now, J.C. Penney is the ultimate "wait for life and then chase" story. A bad holiday season is not in the stock price.