As I have noted in many prior Real Money columns, the rapidly shifting narratives around the current stock market drive me batty. As I search for deep value in various asset classes, the stock market keeps on trucking, but with hiccups. Those hiccups are invariably caused by news flow, and there is no industry more subject to changing narratives than retail.
Owing to the seasonality of the business, most retailers use January-end fiscal years. So, when those companies report earnings, it is after most industrial and tech companies have reported and thus retail shares the spotlight with no other sector.
That spotlight has been intermittent at best in the current reporting period. Just think back over the past seven days. Walmart (WMT) : good, Home Depot (HD) : bad. Target (TGT) : very good. Macy's (M) and Kohl's (KSS) : very bad. So, what is it? Is the U.S. consumer strong or not? Well, it's not that simple. There should be no doubt, though, that in "Year 3" of the Trump Economy employment and wage growth metrics are running above historic norms. Also, America's love affair with leverage shows no sign of ending and consumer credit metrics are also near all-time highs.
When I followed the auto industry on the sell-side, we used to group auto purchasers' buying habits into "ability" and "willingness." There is no doubt that any measure of ability to purchase goods -- real disposable personal income is the best, but there are many others -- is flashing a green signal now. But then why were Macy's and Kohl's results so dreadful and why did Home Depot and BJ's Wholesale Club (BJ) cut guidance by such large amounts?
That's where willingness comes in. A quick check of the numbers shows that BlackBerry (BB) currently has a $2.9 billion market capitalization, while Apple's (AAPL) sits at $1.18 trillion -- with a "T." Wow! You don't have to be as old as I am to remember when Blackberry's predecessor, Research In Motion, had a market cap that dwarfed Apple's. The markets always (or should always) remind us that consumer tastes change.
So, on the retail front, I believe there is and will be no end to current trends. I am a huge fan of Carl Icahn, and I believe his decision to short mall-based commercial mortgage backed securities is one of the savviest trades of this generation. Macy's and Kohl's tell the story. The mall is dead. It's not coming back. No combination of Starbucks (SBUX) and Planet Fitness (PLNT) franchises is going to bring this morbid industry back to life.
That really struck me last night as I walked through NYC's Time Warner Center. The TWC is certainly a charmless, ugly shopping mall in the middle of a city that doesn't need them, and it was not particularly crowded on a Wednesday evening. But, with a few minutes to kill before a meeting, I walked into a random store. Amazon (AMZN) Books. I could not believe it. Amazon has done more to disrupt the U.S. retail industry than any company in history, and was the main factor in the demise of the U.S. bookstore. And now they are opening them? Totally nonsensical.
The acquisition of Whole Foods has not worked out as Amazon hoped, and, really, there is a finite supply of Birkenstock-wearing hipsters who are willing to overpay for low-quality food. Amazon is also opening smaller Amazon Go stores, that would compete with NYC's bodegas, and even opening Amazon-branded supermarkets on the West Coast, including one on Seattle's Capitol Hill.
Why? Jeff Bezos killed retail and now he wants to emulate it?
So, that's the Ichan-like visionary trade here. I don't even bother checking Kohl's and Macy's quotes because those stocks are, as Michael Corleone, said, dead to me. But by following in their footsteps, Amazon shares look very vulnerable here. That especially true considering that it's seeing increasingly strong challenges on the digital side from Walmart and Target. AMZN shares have lagged the overall market's buoyant performance, posting a 4.1% decline in the past three months vs. a 6% gain for the S&P 500. I believe there's much more to come.