Markets Enjoy First Week As Retail Slumps!

Much of our national debate proceeds as if China and America were locked in a zero-sum game in which one's loss is precisely the other's gain.

When you are the parent of a growing child, the holiday season is one of excitement. Kids eagerly anticipate what treasures may be in store for them and create wish lists for their loving (gullable?) parents in order to provide ‘guidance’ about what kinds of things they might enjoy. Most children are pretty forgiving when it comes to what they actually receive. Maybe they wanted a game but got some clothes instead. No problem.

However, there are youngsters who don’t necessarily take it so well when they anxiously unwrap the hard to tear wrapping, and then grapple with those impossible covers, only to be bitterly disappointed with the well intentioned book. Heaven help you if you are the parent in this circumstance. Tears, crying, self pity, you name it, the academy awards don’t produce better shows. Fortunately, it only happens once in a while as most kids eventually accept that their parents are trying to do their best for them.

With families with more than one child, if one is happy with their gift and the other is not, sometimes you can contrast the unbridled joy with abject misery. Essentially, you have the essence of a zero sum game, if I win, you lose, or vice versa. Well, it certainly does apply in the financial markets as well, especially in the retail sector.

On Wall Street this week, investors continued the trend of feeling positive about equities as the equity markets enjoyed a nice gain. However, the one area which detracted from the week of good feeling was in retail as Macy’s and Kohl’s warned, as did plenty of other companies in the sector. When you look at the figures in retail, the results are ugly, uglier, and ugliest as comp store sales are trending -6% to -9% year over year. Not good.

Conversely, over in Amazonland, the voice controlled hardware of the Echo and Dot are all sold out, shipping over 5 million units. With voice activated televisions being previewed at this weeks Consumer Electronics Show here in Las Vegas, you have to make Mr. Bezos the leader in the artificial intelligence race. The reasons include the large installed customer base of Amazon Prime, the success of Alexa, Echo, and Dot, and the vast experience of using algorithms to increasingly figure out what customers want on each successive order, you know, if you like this, you might like that kind of suggestion. More relevant to the topic de jour is if the large retail chains are suffering, some entity must be benefiting, and that would be the behemoth in Redmond. It certainly fits the classic definition of a zero sum game, and increasingly looks to be playing out that way.

Elswhere, the December jobs report showed a gain of 156 thousand jobs, right in line with the 2% GDP growth we have become accustomed to under the outgoing O administration. Average hourly earnings finally rose (2.9%) as workers had a little bit more scratch in their pockets for the holidays, though the results from the retailers apparenly don’t indicate that. The CES show is agog over the various inroads being made in automous vehicles and how chip makers will potentially benefit (NXP, Nvidia, MobileEye).

Earnings season will start in earnest next week as Alcoa usually kicks off the parade, followed by the banks. Oil has been holding steady as has gold, both rising a tad, helped by a weaker dollar. In the political world, Mr. Trump keeps dinging the car manufacturers and rumors of potential appointments to the Federal Reserve Board suggest a banking executive with plenty of experience and a slant towards the gold standard.

I am sure Mrs. Yellen is taking note. Naturally, with the various problems all over the world (Syria, Iraq, ISIS, and now the terrible tragedy in Florida), Donald is tweeting about the poor ratings of his replacement on the Apprentice. Nice to see our fearless leaders priorities are straight. Still, even on his worst day, it is not hard to imagine he will be an improvement from the current occupant. You know, politics is also a zero sum game, just ask any partisan Democrat.

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.