- why inflation is not a serious issue;
- obvious signs of a housing recovery; and
- how to buy McDonald's and Nike.
Inflation Is Just the Latest Bugbear
Posted at 11:21 a.m. EST, Thursday, Jan. 6 We are not going to get a spike in the dollar and a spike in inflation. A stronger dollar is inherently deflationary, especially one that is being driven by a perception that Congress has gotten religion and doesn't intend to let the budget deficit get as out of control as it has been. But this brings me to a bigger issue, one that I addressed with the always-excellent Alix Steel yesterday: There has NEVER EVER been a moment where there was something NOT wrong. There is always a wrinkle. There is always a negative. Right now it is commodity inflation. That's' the buzz. Look, commodity inflation is certainly not a good thing. But the cost of commodities even in cereal ( General Mills ( GIS) was upgraded yesterday because the analyst wanted to "embrace" inflation) is more oriented toward transport costs, not grains. It is true that Family Dollar ( FDO) cited freight costs as a reason for its disappointment yesterday, but the most salient reason is hardly inflationary: lower prices for everything, lower than they expected to get! And a wealthier consumer that is starting to shop at better places. As an aside, I think that the retail sales numbers are very distorted by the loss of a whole weekend that would normally be extremely important, because of the snowstorm. > > Bull or Bear? Vote in Our Poll As much as I think that we are becoming a more industrial country again, better at manufacturing and exporting than we have ever been, we are still mostly a service economy. The cost of labor has definitively not gone up, and I will be worried when we see rampant wage inflation. We aren't. We may have the most slack vs. sales since 1929! We also don't include the cost of housing in these indices, and the same yammerers about inflation tend to be the same people who believe your house is about to drop 25% in value.
Housing's Big Tell
Posted at 7:04 a.m. EST, Thursday, Jan. 6 It's not a question of when the housing recovery will occur, but how big it will be. That's how I have felt watching the stock market action since the year began. I use a couple of classic tells to forecast housing sales and values, and they are flashing bright green, really defying gravity in their obvious way of saying, "Housing's back in 2011." This despite the universal, "Housing's the same mess it has always been" rap, as well as the downbeat projections, mostly from the noisy folks at Zillow, many of which do not reflect the hard macro data kept by other entities. Look at these breakouts we have seen just this year: Whirlpool ( WHR), Lowe's ( LOW), Sherwin Williams ( SHW), Pier 1 ( PIR), Ethan Allen ( ETH), Masco ( MAS), Stanley Black & Decker ( SWK) and even Williams-Sonoma ( WSM) after that disappointing outlook. That's incredible. These stocks are screaming that sales for homes are going higher and that the value of homes is going higher, or you wouldn't be throwing good money after bad. I really want to call peoples' attention to this Ethan Allen run, especially because shorts are in disbelief about it. You don't go shopping at ETH unless you think your home's worth spending on. The stuff's too expensive, much of it now custom, and the sales are amazingly strong. That's good for the $300,000 home cohort. For the $200,000 home cohort, I look at Pier 1, and its sales are the best they have been since the housing boom -- before the bust -- began. Maybe better. Williams-Sonoma's run is harder to pin down, as it is a Tiffany ( TIF) kind of place. However, its catalogs are a little more downscale. I say the strength reflects good news for all except the lowest-price homeowners and buyers.
How to Buy McDonald's and Nike
Posted at 4:21 p.m. EST, Tuesday, Jan. 4 McDonald's ( MCD) and Nike ( NKE) fascinate me. Do you know that every time they have had swings of this kind, they have been screaming buys? Every time? Did you know that the rallies typically occurred on nothing but oversold snapbacks, where we only later discovered that things were better and they were buys? It's so tough to come in when these are down, they just look so terrible. As they always do. What to do? Obviously you would like to buy them and limit the risk at the same time. That's why I would be a buyer of the McDonald's March 70 calls at $5 and the Nike April 80 calls at $5.95. I think you buy the first tranche right here. And then, if these calls get cut in half, buy a second tranche. That way, you have very much limited the risk buy, you have a call on several months of McDonald's same-store sales, of which I believe one will break the spell just cast, and with Nike you have the next quarter, with presumably better guidance post lowered expectations. These two great growth stocks periodically stumble. That's what these kinds of strategies are about: capturing the rebound while cutting off the downside if the stumble turns out to be a real doozy. I doubt that it will, but I want only half on, taking the risk that we are near the bottom but leaving room for more downside. At the time of publication, Cramer had no positions in stocks mentioned.