If you had to predict the future of what's going to happen in this country now that we have crossed 200,000 covid-related deaths, you just need to look at what we read and saw today. The market perfectly reflected the fantastic. But it totally obscured the terrible, sometimes in the exact same side of the coin. And the rebound in the market after weeks of losses doesn't change the potential outcome.
First, let's go over the winners and divine what they say. I want to start with the stars of retail because they can tell you more about the market and the economic perversion of it in a brutal microcosm.
Number one winner? Amazon (AMZN) . This morning a Sanford Bernstein analyst who had basically missed the run-up in this amazing company's stock went from hold to buy. I liked everything about this report, from the mea culpa up front, to the waiting for a double digit decline to upgrade to recognizing all the strength of the Prime flywheel and quick delivery. Was there anything revelatory in the report? I think actually, yes. It could have been written even if the pandemic were to end, something we know isn't going to happen any time soon. Why is this stock part of this tale of two cities? Because Amazon is a zero-sum company. Anything they win, any share they take, comes at the expense of brick and mortar. When you see Amazon's stock rip just think of creative destruction, the destruction of stores that lack convenience, involve interaction, are stunted by social distancing and ultimately fold.
Next winner? The stock of Ralph Lauren (RL) up a couple of bucks. Better sales? Robust earnings? How about a firing of 3700 people, or 15% of their workforce, as they shift to a more online strategy, too.
Then there's Lululemon (LULU) . Here's a company that makes expensive clothes not meant to go to work in..unless you are working in a home office. When we thought the pandemic was going the other way and there were case decreases not increases in the country, Lulu's stock was getting hammered. It's a perfect barometer of today's economy.
You want a hard core shift? Take a look at the stock of Facebook (FB) . It rallied because we are now getting a sense of how big this Facebook Shops could be. Oppenheimer boosted its price target from $270 to $300 because this amazing online support and empowerment of small businesses could bring in as much as $25 billion to $50 billion in revenue.
Now you might be able to argue that, with household net worth at the highest level ever, according to the Federal Reserve, there will be plenty of money around to shop at these online stores. However, the gains in wealth are from the stock market and I think that money stays in the market.
How about restaurants? Here we go again, Chipotle (CMG) stock is up another 13 points as it has a fantastic strategy for takeout and delivery that doesn't even include the indoor restaurant. They are making around the same amount they used to in the stores with Chipotlanes and they are getting rent breaks because they are solvent and therefore so needed.
Now, though, we have to go to the underbelly of the economy to find out the other side of the coin: Sizzler. I always loved Sizzler, great cheap steakhouse with a 62 year legacy. The corporate stores - not the franchises - filed for bankruptcy. Why? Listen to what the president of the company had to say: "Our current financial state is a direct consequence of the pandemic's economic impact due to long term indoor dining closures and landlords' refusal to provide necessary rent abatements." Sure it's just the corporate, not the franchises, but this company weathered 62 years of turmoil.
On Thursday Darden (DRI) reports. Unlike Sizzler, it's got a powerful balance sheet and it can handle anything that can be thrown at it. Sure, there are some restaurants that can compete right now. But you just wait until it gets cold and windy. Then Darden's Oliver Garden's going to crush it. So will Long Horn Steak house. A year from now we will all be eating at Olive Garden.
Once again, we are hearing about the remarkable shortage of homes that's pushing prices higher. Again, though, it is zero sum. The buyers are fleeing the city; the city's landlords just aren't ready for it. When you see the bank stocks trade down again, that's the landlord's credit. You can work at home so why not buy a spanking new Lennar (LEN) house with an office. You don't have to go anywhere, so Zoom (ZM) reigns supreme and the Zscaler (ZS) , Palo Alto (PANW) , CrowdStrike (CRWD) and Okta (OKTA) roar because it's real hard to protect the home workers from hacking. Still, it's the safest way to do business when 200,000 people have perished from the illness. But how about the other side of this zero sum: just look at this headline from this morning's Wall Street Journal "Bonds Related to Hotels, Office Face Pressure."
No wonder the bank stocks can't get out of their own way. They own a lot of that debt and can't get rid of it. So the market, once again, flocks to fin tech: the usual suspects, Square (SQ) and PayPal (PYPL) .
The offsets are extraordinary. They just aren't as visible. You can see Lennar's sales and Horton's (DHI) earnings. But how can you gauge the stress of a landlord? It's only the credit market that shows the hotel stress.
When we thought that the number of cases were on their way down both Adobe ADBE, linked to online commerce, and DocuSign (DOCU) , the virtual way to close on contracts, peaked. Both stocks got hammered on excellent quarters. Can they go back to their highs? I don't see why not. There were no flies on either report. The negatives were ginned up, but it was the sense that a vaccine was on the horizon while masks and social distancing were cutting back the disease. But cities and states are allowing restaurants and bars to open up, hence the spike. You can't drink a beer with a mask on.
People want a car to get around. They don't need a new car. They aren't driving around town. So they buy used, they buy at Carvana (CVNA) , the heavily shorted company that's doing incredibly well. Hence the 50 point gain.
Here's the rub. We are starting to see the disease rage back in the United Kingdom and Spain. We have 17 states that are spiking and getting worse. We have universities where it seems to be out of control. But the NFL? Perfect. The Big 12? Good enough to overturn the Big Ten's decision not to play. The NBA has no covid. Nor does the NHL. How bad can it be if the pro and college sports clubs are okay. Yet if we have a drink next to a sneezing Modelo chugger, we might get it.
Again the visible stories are almost all positive. The negative stories are almost all hidden at least when it comes to the stock market. Of course, the failing truly small and frail entities are truly related to the coronavirus. The large, the Targets (TGT) , up four today, thrive on it. The thrivers obscure the decliners not just from the market but from Washington where a stimulus compromise seems impossible to reach. No wonder. Other than the banks and some publicly traded retailers, you just can't tell the difference.