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Macy’s deal reminds me of Sears

Dec 11, 2023

Good morning! 👋

We're largely through earnings season which means market action is almost exclusively dependent on whatever the Fed says next.

Here’s my playbook.

1 – Attn Mr. Chairman: here comes your rate cut test!

Case in point, the markets are in a cautious mood this morning ahead of the Fed’s last meeting of the year and something called “Super Thursday” at which time the ECB, the BoE and other central bankers are going to meet.

I’d love to believe that they’ll set policy but really what they’re going to be doing is more of the same… reacting to data that’s already in the rear-view mirror.

You and I both know that’s like playing catch with someone who isn’t there.

There are two distinct dynamics at work:

What the markets are telling you; and,

What central bankers want you to think.

Make no bones about it, the former is more important.

Why?

Simple.

Action beats reaction every time.

The markets are calling out central bankers and their damn the torpedoes approach to raising rates. Case in point, the CME’s FedWatch Tool reflects a 25bp (0.25%) point cut as early as next March. (Read)

I have a hard time believing that.

However, I have no problem believing that the world’s best companies will continue to put up spectacular numbers which is why savvy investors would be wise to focus on ‘em.

Case in point and much to the chagrin of the doom and gloom crowd, the blended S&P 500 YoY growth rate (Year over Year) is 8.1% according to FactSet.

Moreover, 99% of the S&P 500 has reported Q3 numbers, of which 82% have reported positive EPS surprises and 62% have reported positive revenue surprises.

Remember: The markets have a very defined upward bias over time which means that believing permabears at moments in time is exceptionally dangerous for your money. I can’t tell you the number of people who are getting a rude awakening now for having gone to the sidelines in search of safety earlier this year when missing opportunity is always the more expensive proposition. Sure, 5% in Treasuries sounds great but when you’re faced with the fact that NVDA has turned in 218.62% YTD… not so much.

2 – Why I’m watching the Macy’s deal closely

“This one came out of left field,” I told the super savvy Stuart Varney ahead of the opening bell earlier today. (Watch)

I’ll be watching very closely for three reasons:

Why are the buyers buying? They could be “pulling a Sears” in which case the new owners are after the company’s real estate. That’s not a great outcome to my way of thinking because it suggests that the once venerable chain will get stripped and picked apart.

The buyers could want to mount an online competitor, but I think that’s unlikely given how far behind Macy’s is. What could they have to gain when facing a Walmart or an Amazon??!!

Many consumers now want to buy directly so the idea of a department store in today’s day and age could be dead on arrival.

Shares are up in early going but I have a hard time rationalizing that as anything other than headline buzz. The investor in me would rather own the best and ignore the rest. The trader in me thinks that the better strategy is to short it or buy some putskies. Heck, even a pairs trade that’s simultaneously long a stronger player could work nicely, too.

3 – I may not have been aggressive enough with big tech

I got it wrong.

Turns out that I may have been waaaaaaaay too conservative with my big tech price projections.

If you’ve been reading my work for any length of time you know that’s hard to do. I raised my target on Microsoft to $500 a share a while back and people laughed in my face.

Now many analysts are falling all over themselves to line up even though they’re late to the party. For instance, the average MSFT price target is now $408 a share, up from an average price target just $286 in February of this year.

I think $475-$500 a share is more like it by the end of 2024 but am now starting to think about $700 a share in as little as 5 years.

Every $1 in AI spending means $2-$4 in follow on spending.

AI will add $3-5T to the global economy according to various studies; but I think that’s an order of magnitude low. Perhaps two.

MyPOV: Unbelievably, the vast majority of investors still don’t see this coming because they’re thinking in terms of tech itself and using valuation metrics that no longer apply. What they should be thinking about is “use cases” – meaning how AI will be used to create, build, and maintain value. There were less than 10 of ‘em a few years ago but now there’s over 50.

BTW, here’s a quick look at a dozen that’ll interest you. (Read)

4 – You’re not alone if you’ve been turned down for a car loan recently

The Federal Reserve Bank of New York’s Consumer Expectations Credit Access Survey shows that auto loan rejection rates have hit a record high, jumping from 5.2% in 2022 to 11% now. (Read)

Not that I’m surprised, mind you.

The average car payment is now $726 as of Q3 according to Experian, a 17% change from $617 in 2021. It’s proof positive that consumers are still strapped which is why owning the financiers – and specifically the best big banks - makes more sense. At least for a while longer imho.

5 – Check the fine print if you’re doing holiday shopping online

A new report from Narvar shows that the era of free returns for online purchases is probably going the way of the dodo. 40% of online retailers now charge for mail in returns (Read)

TJ Maxx, Zara, H&M and J.Crew among other retailers all now charge to have your schtuff returned.

The pressure to cut costs is ginormous, which is why I see these fees morphing into something even worse. For instance, buyers' clubs could get more aggressive, fees will undoubtedly climb and customer service… well, let’s just say that if you think it stinks now, these could be the good ‘ol days.

Doh!

MyPOV: Meanwhile, I’ll stick with just one retailer capable of rising above the fracas; it’s returned 40.72% since I brought it to the OBA Family’s attention on 8/26/21 versus the SPY which has turned in 6.72% over the same time frame, a 6X advantage.

If you’ve got this covered, awesome. If not and you’d like some help, you know where to find me. I’d love the chance to earn your trust, goodwill, and business.

Bottom Line

“The best measure of a man’s honesty isn’t his income tax return. It’s the zero adjust on his bathroom scale.”