Sometimes it seems impossible to get a real line on how the economy is actually doing. There are so many distortions right now that you hesitate to declare that things are strong or weak, especially ahead of a crucial unemployment number on Friday.
Yet, every day people make investments and place bets based on data they observe and stocks they watch. It's not necessarily enlightening. Let me give you some examples.
Today, the stock of General Motors (GM) plummeted almost 10% after reporting earnings. Normally you would conclude that GM's doing poorly and, as GM goes, so goes the country. Hold up for one second, though. When I spoke to Mary Barra, the redoubtable CEO of the auto company, I got quite a different picture. Demand for her cars is pretty much insanely great and the dealers have about as small amount of inventory as they can get, far below any level they have seen.
Supply, though, that's the issue. There's a critical semiconductor shortage that we have talked about before and a recent important chip factory has been hit by a wave of COVID and its accentuating an aggravating an already difficult situation. I get it. I spoke to the head of a large foundry concern recently, and, even though they are working full out, the demand from autos and other industrial chips is well in excess of supply.
So, GM's stock is on the canvas, I think it represents real value here. Nevertheless as a sign of the economy, the stock is a total false tell.
Or, how about the housing market?
I can't recall when things were this strong. I am conscious that the stocks don't show that robust behavior. They are well off their highs. The stocks are wrong. The business is incredible and there's almost no supply -- the lowest in 20 years. That said, these sales don't tell you enough. First, mortgage rates are abnormally low, helping home buying affordability. The 10 year Treasury is at 1.2% and many of the mortgage brokers are backed up to the hilt to meet demand. Plus, people are still fleeing the cities for the suburbs and the country. How can you not? Variants are spreading like wildfire. As Dr. Scott Gottlieb, former head of Food and Drug Administration, tweeted this morning, the city I live in, New York City, is densely packed with lots of tourists and that people have to be careful. That's why the city is making establishments check for vaccination. As we know, the delta variant is running rampant and cities are the worst places to be. So the flight is more important than the natural demand.
You might want to look at the hottest stocks to make a judgment, but good luck. Take today, Robihood (HOOD) and Advance Micro Devices (AMD) are two smoking stocks, up gigantically, and yet I would tell you they are simply a function of the system breaking down as younger investors have seized control of both and just powered them to the moon. Nope, stocks that are soaring can be full of sound and fury signifying nothing other than they are meme stocks.
How about the retailers? That's another mixed signal. We highlighted WATCH last night, Walmart (WMT) , Amazon (AMZN) , Target (TGT) , Costco (COST) and Home Depot (HD) as a sign of short-term pessimism. Those are the stocks of companies that you buy when you think we are going into lockdown, not getting better, but getting worse.
How about reservations? Mixed picture. We have seen Transportation Security Administration numbers getting better. The cruise lines are telling us that there are far greater bookings than last year. We know that, for example, Royal Caribbean (RCL) told us today that its load factor is within the historical ranges and that customer deposits have increased $530 million from last quarter to $2.4 billion. But what kind of deals is Royal Caribbean making? And what happens if all of its provisions against delta break down? What is a person to think about it longer term, think about seeing through the valley of the COVID death and knowing what it will look like in the not too distant future?
How about those employment numbers?
How much are the figures worth when figuring out the economy? Not much, I fear. The earnings call from Lyft (LYFT) on Tuesday night talked about the serious distortions from the elevated unemployment benefits and the current driver shortage should be alleviated when they sunset.
I think I have found a way. In the last few days all of the major real estate trusts involving shopping have reported and I can tell you, unequivocally that those companies with a ton on the line, ones that have to make longer-term commitments, are simply going pedal to the metal in sign-ups. It's one of the best environments in history. Whether it be Kimco (KIM) for strip malls, or Tanger (SKT) for factory outlets, or shopping center kingpin Federal Realty (FRT) , which just reported this evening of shopping mall giant Simon Properties (SPG) , they are all doing sharply better than expected.
David Simon, the most outspoken of the group, said on his Monday earnings call "Now retail sales continue to increase." Total sales for June was equal to June of 2019 and 80% compared to last year. Occupancy is at 91.8% an increase of 100 basis points compared to the first quarter and an historically healthy level.
Kimco reported at the end of July that "anchor occupancy finished the quarter at 96.9% , up 70 basis points," which, the company noted, is the single largest quarterly gain in the 10 years that they have kept track of the figures. "The combination of record leasing and a five year low of new vacancies continue to drive the earlier than anticipated occupancy recovery for Kimco."
The company goes on to say "Off-price continues to be a leading source of demand but we're also seeing solid demand from furniture, home goods, pet supply, hobby, health and wellness, including discount fitness."
Tanger felt compelled in Tuesday's release to raise numbers rather dramatically saying "the results of Tanger's business operations exceeded expectations and drove higher variable rents and other revenues resulting in an increase in the company's 2021 full-year guidance."
Again, you don't bump your full year unless you are confident.
The most calming and reassuring words came from David Simon who said that even in the epicenter areas of the delta variant, Missouri and Florida, there has been no slowdown whatsoever. Simon even said he checked in with the people who run his Battlefield Mall in Springfield, Missouri and with his Florida malls.
"I personally think people are just going to deal with delta. I'm hopeful that people will get vaccinated. We're not going to mandate vaccines. We are going to encourage them. And I think we've got to keep being as safe as possible, going on with our lives. And when we need to mask up we're going to mask up," he said.
Finally, he says the consumers "have all just kind of dealt with it and are moving forward in that environment right now." Simon gave you a $1.40 distribution for the quarter which his 71.% greater sequentially and 15.4 higher year-over-year.
To me these numbers tell you two things: One, things aren't as bad as we think about the disease and the economy and, two, they are going to get better, maybe much better by this time next year. We know that because no one is signing five or six month leases. These are for the duration, and given the breadth and type of retailers we learn from in these reports, they most likely are not all wrong about it being healthy consumer environment that's getting stronger, not weaker, by the day, week month and year.
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