Will There Be Anywhere Left to Shop in 2010?
Judging by the stock charts, the answer is no - not really. (I knew there had to be some solution to making Americans stop over spending!)
I wrote a piece in early November [Are Department Stores Signaling a Recession?] with the charts of Kohls (KSS), JcPenney (JCP), and Nordstrom (JWN), all in free fall. But compared to where they are now, these were great prices to get out at.
Where are we going to have left to shop? All these stocks are being priced as if on the way to $0 (but there is 1 winner left standing, seen at the bottom of this post)
*** High End Consumers, no place will be left for you...
*** Middle End Consumers, no place will be left for you...
*** Lower end? Not at Sears or Kmart
*** We can't even buy drugs...
*** or Home improvement products
*** Not even Office products?
*** But at least we can rely on women to shop for clothes right?? Not so much....
BUT - there is ALWAYS a bull market SOMEWHERE. With middle class being squeezed away by all time income inequality [Do the Bottom 80% of Americans Stand a Chance?]- smitten by job losses and inflation (I know, I know folks - the solution is cutting corporate tax rates - that always helps the middle class!), who can we rely on? Who will stand there ready to help?
There must be 1 retailer left standing which like a cockroach will survive after every other retailer goes out of business.... whose stock holding up great (what correction?) and is telling us they will be doing well in the economic tsunami... as they say stocks predict 6 months in advance, right?... so who will do well in the economy we will have in 6 months+, in this "pooring" of America scenario... where will all these formerly upward middle class and upper middle class with their knock off Gucci bags be shopping.... hmmmm...
5 comments:
Maybe you can reconcile this for me, but with all your negative views on where the economy is headed and how foreign markets are set to tumble...why are you nearly 100% long? Why are you leaving yourself so exposed despite all the negatives you continue to highlight? Thanks.
Good question. I am asking myself that :)
First, this is a long biased fund, so I am generally 70-100% long at all times. And usually 0-10% short. The rest will be cash. So thats my bias even if I think everything is going bad. Reason for that, is my "competition" (which I want my returns to be compared against) are long biased mutual funds.
So for example if in 3 years I do very well, I don't want people to say "yeh well but he was 80% short at so and so time and 50% short at that time etc" because then it won't be an apple to apple comparison.
My goal here is to have a very good track record vs the average mutual fund of similar ilk i.e. beat them at their own game - with superior stock picking and some occasional hedging.
With that said, as we entered the new year I was around 10% cash and 20% short. As the market faltered about a week ago (a week before last Friday) I began lightening up, and converting to long positions. The thesis is nothing goes straight down (or up). So far that thesis is not holding up. While the indexes are holding up (meaning down less than 10%) a lot of individual stocks are doing far worse.
So in the short run, I am positioned pretty badly for this specific market per how I was set up about 2 weeks ago. I do wish I had kept some more of the short exposure. But in the big picture I am forcing myself to devote the vast majority of fund holdings to the long side. As 99.9% of mutual funds are. I've answered this in the past, so perhaps I need to find that post and post it in one of the margins as a permanent entry - since its a good question.
Thanks for your question!
Yeah, I've seen your post in the past. Obviously you can't go 80% short and still call yourself a "mutual fund", I get that. But I guess my question is what are you seeing or expecting as a catalyst in the near-term...that made you want to go from your allotted minimum long position vis-a-vis cash/shorts 2 weeks ago...to being more LONG than you've been at any point in this fund's history? What's the catalyst that will stem this longer-term downtrend of lower-lows that you've pointed out several times now? If your move to 100% long was a short-term technical call, we've broken support at 1400 so why aren't you attempting to cut back on longs here?
I am waiting to see if we break August lows (we're about 10 pts away on S&P)
If we do (Intel might take us there) than I will move more in that direction. I don't update the positions in the margin daily (I do it weekly) but between yesterday and today, I have raised about 7% cash with some profit taking on some of the winners. I am now going to see whether that cash need to go to long positions or shorts.
We are making a series of lower highs but by nature we should retest a new lower high. We are nowhere near that level (which would be S&P 1460-1480). So my expectation (probability) is we'd make some test at it. So far, it has not happened.
In an overall sense, I go with probability. The higher probability is we don't crash and burn and there is at least a technical bounce even if its +4-6%. The first 2 weeks of 08 have been quite atypical with very little bouncing action. The lower probability is we crash. If over the years you go with the lower probability option you leave a lot on the table. With that said, eventually the lower probability option will happen (2002, 1987) and you will be wrong. And you will give up gains. But hopefully you make enough during the other 98% of the time so you are just giving back profits as opposed to losing principal. So in a big picture sense I would describe that as the overall strategy to move to a bullish stance - I am actually finding valuations compelling here. But we are in emotional selling stage - nothing to do with sense. If this were late 2001 and PE ratios were in the 40s in tech stocks, I would have a different view. Many of these retail and financial stocks are already down 50-65%. I suppose it could go to 80% but again that would be an outlier event, and over 10 years, if you are basing strategy on outlier events you will be correct twice and incorrect many times. So I don't have any specific event, but what drove the market yesterday? It was so washed out any inkling of good news such as IBM was enough to drive it up significantly. Since its impossible to predict what event will drive the markets or what surprises will come, again I am just going with the most probable outcome. But I will respect the technical picture and if we break August lows, I will be cutting back to a much larger cash position and buying some more short exposure.
If on 10 iterations, I can make money buying the dip on 9, and know I will take a hit (even if its serious) on the 10th, I am going with that view. Short of having a crystal ball.. :)
IMHO, this comment string is worthy of its own freestanding post.
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