Bull and Baird Blog – January 5, 2017

Equities start the day lower as sentiment continues to cap the upside. II had their data out yesterday and it showed 60% bulls, ouch. AAII had their sentiment data out this morning and it continues to hover just shy of 50% bulls, ouch. So yea, it’s hard to go higher when everyone is wearing horns. Let’s switch gears for a second shall we? Last night we heard from two of your favorite mall destinations Kohl’s and Macys (Baird rates KSS neutral, no coverage on M). Now Kohl’s is a local favorite of mine, a good old fashioned department store founded in Wisconsin by Maxwell Kohl (was originally a supermarket!) and Macy’s is one of my favorite destinations in New York because, I don’t know, the windows I guess. Anyway, they both said business sucks and honestly does that surprise you at all? 

“Alexa, what were department stores?”

“Well Michael, they were a relic of another era where people ate in things called food courts and shopped in places like Spencer Gifts or The Limited but my company came along and made them obsolete. Would you like to hear Pentatonix again?”

(god no, please make it stop)  

Both stocks were down double digits overnight because retail continues to be hard… very hard. Look, these companies are going to struggle for a long time but they aren’t zeroes. America is WAY overserved by retail square footage (23.5 sq ft per person in the US, next closest is Canada at 16.4 eh) so the store closings will continue until this whole bricks and mortar retail finally makes sense. But… I mean… Sears is still here. Sears. Still open. Still selling stuff. The life cycle of these things is LOOOOONNNGGG so don’t think AMZN is going to be the only place to buy cologne and makeup next year. It’s easy to say “well everyone will just buy their stuff online” but these companies aren’t going down without a fight so don’t get ahead of yourself. Food courts… I mean how antiquated do those things look right now? Really terrible Chinese plus a Sbarro and an Orange Julius? That used to be a thing?

After the open we got a bit of sideways, a bit of lower, and then even more sideways. Weekly claims still look golden and ISM services came out at 57.2 so if you have “Recession 2017” in the office pool you are going to lose. Speaking of losing, bond bears have been struggling lately and their plight continued today. 2.37% on the 10yr, down from 2.60 in the middle of Dec, and if you think betting on retail going to 0 is hard imagine betting on a 4% 10yr (Byron Wien did, check this 2017 Surprises right here. I agree with 1, 3, 7, and 10). Ok let’s talk big brother! MAT gained 5.5% today because they showed off “Aristotle” at CES. Aristotle you say? Nope, not the guy you ignored in college philosophy, this thing, which apparently takes over parenting for you so you can spend more time watching NFLX or surfing on your iPad. Hey Mattel, can you invent something to take my kids to swim meets or soccer games or at least something to shut up that parent who thinks his kid is going play for Liverpool because he scored two goals at age 4? Thanks, love ya. Other winners included ALXN, NEM, O, DVH, and AMZN. Losers were, you guessed it, anything with 4 walls containing items for sale such as bedding, cosmetics, appliances, handbags, and fashion. M -13%, KSS -19%, JWN -7%, LB -7%, the list is long and distinguished. By lunch the market was off the lows but still down 0.1% to 2,267. Dow 20k? Maybe someday my friends… someday.

By the time the bell rang we managed to climb all the way back to unchanged. Some ups, some downs, and even more sideways. Feels like a summer market even though its -2 outside! I will say I’m fairly impressed with how well this thing is hanging in there, especially given where sentiment is, I mean it has every reason to sell off and punish those who came late to the party but it stubbornly refuses to do so. Tomorrow is the last jobs report of 2016. No matter what your view on the market or politics is you have to be impressed with the number of jobs we’ve added over the past 6 years. There hasn’t been a negative monthly payroll number since 2010! USA USA USA.

Final Score: Dow -21bps, S&P500 -8bps, Nasdaq +20bps, Rus2k -115bps.   

Volume was high. Our desk was better to buy. Buying in Financials and Retail. Selling in Energy and Staples. Shorting in Energy. News Highlights:

  • Succinct Summation of the Day’s Events: Still waiting for something new to happen, it’s like we’re eating the same dinner every night, no one is excited right now.
  • Wow, this article is HARSH on everyone who just started working out: “This time, you are determined. You have seen the photos of beach bodies. You have gazed with envy at the sexy slim people by the pool. You see the NFL players’ locker room interviews and feel jealousy that they can so casually wear a towel in the workplace. You have glanced more than once at the straining sleeves of Derek, in the office. Derek, with his stupid biceps. You want to be like him. You will fail.”
  • Financial Advisors… what would you tell a client paying 77% of the gross annual salary to rent because that’s what’s going on in San Fran! “Remember the old saw about not spending more than 30% of your salary on rent? Good luck with that. In 2017, that metric is achievable in only 14% of major metro areas, according to a report out Thursday from Attom Data Solutions. In fact, the median amount renters spend across the nation is 38.6%.”
  • Tony Isola wrote an awesome article titled “We can’t direct the wind, but we can adjust our sails”.  Lots of solid thoughts in here like: “We cannot control who is elected president. We can control not letting politics play any part in our investment decisions” and “We cannot control the fact that markets tend to lose 40-50% of their value periodically. We can control getting through this unpleasantness by understanding this, too, shall pass and the reason why we invest in stocks is they give us our best chance to protect our future purchasing power over the long term.”
  • OK, someone get Paul Purcell or Steve Booth on the horn, we seem to be operating outside our core competencies here (only cost me $100k in B school education to learn that phrase, what a steal!!)
  • I mean if you want an early birthday gift for me… this works. By the way, there’s only 15 hours of Game of Thrones left. Let that one sink in.

We’ll end tonight with one of the best videos I’ve seen in a long time. Watch the whole thing, take 2 minutes out of your busy life to note the differences between what people view as their “goal in life.” Really cool stuff if you listen thru the ages.

http://tinyurl.com/jz8uygb

Have a good night.