NEW YORK (Real Money) -- Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- China, whose economy takes up the "riddle wrapped in an enigma" mantle once worn by the USSR
- The topsy-turvy state of the retail sector
- Why Netflix's stock split is may have a more than cosmetic affect.
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China: The World's Biggest Conundrum
Posted on June 19 at 1:51 p.m. EDT
What's the deal with China? What is really going on there?
This morning we learned the jarring news from Hershey (HSY) that chocolate sales are down because, and I quote, "Macroeconomic challenges and trends are affecting consumer shopping behavior resulting in continued softness within the China modern trade." Jeez, people are cutting back on chocolate?
Making matters worse, Hershey had just shelled out $394 million for an 80% interest in Shanghai Golden Monkey Food last September. In today's release, Hershey said it was "moderating" its full-year net sales expectations for the Shanghai Golden Monkey acquisition because of the Chinese slowdown.
This news is on top of a note this morning from the Wells Fargo research department that Macau gambling is coming in at a four-year low, with June numbers being as much as 20% down from the average for the first five months of the year - and those numbers were incredibly weak to begin with. That spells trouble again for MGM (MGM), Wynn (WYNN) Las Vegas Sands (LVS).
We know from Diageo (DEO) that its best liquor brands haven't been selling well in China. I covered that last night on Mad Money.
We also know that sales for expensive clothes and accessories such as watches are way down, quite a change from the old days.
What could be going on here? First, I think that the Communist Party is cutting down on conspicuous consumption. The big gambling junkets to Macau are clearly a thing of the past. You don't get that kind of a dropoff unless it's mandated.
But expensive jewelry, liquor and chocolates? Some of that could be the crackdown on government corruption. For example, if you want to bribe an official, what better way to do it than giving them a big case of Johnnie Walker Black or an expensive Richemont watch.
This, to me, all seems too government-led, and not consumer-led.
Now it is true that the Chinese stock market got hammered hard this week, with the major stock index having its biggest weekly drop since 2008. But Hershey flagged these trends from April and May when the index was still soaring. Same with all the other consumer product and gambling slowdowns.
I think the Chinese Communist Party's reforms are starting to really take hold, and that's what's really going on. Which leads me to a couple of other questions. Did Alibaba (BABA), for example, see this coming and pick a remarkably good time, in retrospect, to come public? Sure, the last quarter was a good one, but it was followed up with a charm offensive by management in this country to try to drum up more business for the company.
Could the spending malaise spread to other parts of the economy that the U.S. sells into?
Hard call. Apple (AAPL) is still doing incredibly well selling phones in China. Starbucks (SBUX) recently told us that business is, indeed, accelerating in China. Yum! (YUM), which has been battered because of issues at its Kentucky Fried Chicken division in China, has seen a gradual positive turn. Auto sales are alternately hot and then not, again a confusing set of data.
Plus, we are getting conflicting numbers about China trade. Many of the big commodity companies have seen orders slow in China for several years now. But the Baltic freight index recently has jumped about 40% and that's a terrific measure of trade into China. And Nordic American Tankers (NAT), an oil derivative on Chinese growth, has been hot as a rocket, rallying 40% this year.
Frankly, China is the biggest conundrum in the world right now. It's almost impossible to figure out. My take? The People's Republic is a developing, fluid story. In many ways, the next leg of growth -- or lack of it -- worldwide will need to come from a turn in this economy. After this week's news, call me nervous about a turn. We will need to stay tuned, but when chocolate sales turn down, I say you can't afford to be too bullish about this alleged juggernaut of an economy.
It's Getting Rougher Out There for Retail
Posted on June 25 at 2:38 p.m. EDT
Too many retailers. Too much OmniChannel. Too many discounters. Too much competition. That's how I felt when I went through the quarter today delivered by Bed Bath & Beyond (BBBY).
First, let me just say that I love Bed, Bath. I happen to live three minutes from the original store. When we are going to open the beach house for the summer, we go there first: towels, chairs, Keurig, trash cans, throw rugs. You name it. Across the street is Harman, where we get everything for the bathroom. Everything. Toothpaste, soap, cosmetics. My daughter and I just love the place. We come with coupons, we get deals. We always feel like we are getting terrific bargains. We even buy the candy there, right on that wall when you are getting there or leaving. And their small travel sizes? Ideal.
Here's the problem. I think if there were a Target (TGT) closer, the new Target, I could get everything there instead ofHarman or Bed, Bath. That's how much better Target's gotten under CEO Brian Cornell. (Target is part of TheStreet's Action Alerts PLUS portfolio.) And if I wanted to and had the time, I could get everything at Amazon (AMZN), just order away, I have Amazon Prime. Beach stuff? Why not go to West Elm? It's sensational. Or Wayfair (W) if you want some discounts, or its Joss & Main online catalog if you want more upscale. (Amazon is part of TheStreet's Growth Seeker portfolio.)
Costco (COST) has every single one of the household goods we buy. It just happens to be a little farther down the road and is therefore inconvenient, but just to us, not the neighbors of Costco.
I can't figure out where J.C. Penney (JCP) figures in, but it will certainly try to be in the mix, mostly on price. Only Sears Holdings (SHLD) is shrinking, but not fast enough to help anyone other than short-sellers.
There's just too much competition out there. Which is why I say a 2.2% comparable store growth in this environment's pretty darned strong. Sure, it's not strong enough if your stock ran in anticipation of the company going private, but it's enough to satisfy some who aren't simply looking for a good retailer who gets it right when the stock's at the right price, which it obviously isn't yet.
Ever since Target and Wal-Mart (WMT) got new management while Nordstrom (JWN) stepped up its Web presence and Williams-Sonoma (WSM) decided it wasn't going to cede any ground to anyone, I have realized you have to be very careful in this group. It's just too crowded. Now, we often hear that the consumer isn't strong when we see weaker months in certain retailers. I no longer think that's the case. New household formations are running higher than they have in years owing to pent-up demand from the Great Recession. We are seeing 2 million households being formed vs. just 500,000 average for the seven years in the downturn. There are plenty of shoppers. Through the Internet, though, they have eviscerated everyone in the cohort. A complacent retailer is a dead retailer, and even a good one like Bed, Bath can be left behind.
Too many stores. Too much competition. Not enough shoppers. It's just a tough group and I think over time it is just going to get tougher as customers get more acquainted with mobile websites and lose loyalties that once were etched in stone.
Netflix Stock Split: Remember, It's Cosmetic
Posted on June 24 at 11:23 a.m. EDT
Broader ownership is key in a market where retail investors tend to own and institutions tend to rent stocks. That's why I don't sniff at a Netflix (NFLX) 7-for-1 split even as I know it creates no value.
Remember, a split is cosmetic. You want to know how little it means, take a 2-for-1 split analogue: a pencil. You break it in half and you have two pencils. But you don't have more pencil.
That said, let's think about who owns Netflix vs. whom management probably wants to own Netflix. Right now this is a heavy hedge fund name. The big hedge funds are either piling in and riding it high or they are blasting it out and shorting it. Either way, both cohorts are always in motion trading in and out of the stock and creating insane volatility.
Some of that is because Netflix is a tough stock to game. It doesn't trade on earnings, it trades on sign-ups, new content and emotions. Yes, it is true it has more viewers than all of the U.S. networks combined. And it is true that it has had some huge hits, including House of Cards, which is apparently the most popular television show in China, pretty amazing when you consider how quintessentially American it is.
Netflix, though, is a company with a product that is enjoyed by the masses, and management's 7-for-1 split allows users to buy more shares, which can entice them into the stock. A satisfied customer can be more of a satisfied shareholder with a dollar amount of a stock that makes it more likely to buy 100 shares than otherwise might be possible.
Now we can't be sure exactly what will happen to the stock because of this emotional component. We recently had a 7-for-1 split for Apple's (AAPL) stock, but it's not all that relevant as an analogue because Apple announced its split along with a blowout quarter. The stock was at $74.96 when the 7-for-1 split was announced and the stock jumped to $84.30 in the next five days, which is a 12.5% move. (Apple is part of TheStreet's Action Alerts PLUS portfolio.)
But, again, I think the move was far more related to earnings than a lower share price. How about the dates surrounding the actual split? On June 6, 2014, the day before the shares were split, the stock traded at $92.29. Ten days later, the stock was virtually unchanged. How about the day the split stock began trading, $92.70. Ten days later, the stock traded at $92.20 a 0.54% decline.
I think that shows the whole gaming of the actual split to be inconclusive.
Nevertheless, I do think the longer-term impact is a positive one. I know, anecdotally, that the shareholder base does become more retail, as I have been recommending Salesforce.com (CRM) and Visa (V) pretty much forever. The recommendations resonated until the stocks got into the $200s, and then volatility and higher price per share began to be a turnoff for retail investors. Then each engaged in a 4-for-1 split and I think these moves engendered a better, more stable shareholder base, eliminating a key freak-out factor.
So, the bottom line? You want to buy Netflix, buy it because the opportunity is so great, not because you can buy more shares with fewer dollars. It's cosmetic, but the cosmetics attract new buyers of the kind who are stable and less inclined to rent. That, over the long term, is a more entrenched shareholder base that can help liquidity and eliminate the stock-as-plaything of the ultra-rich hedge fund managers who would as soon take down Netflix as borrow it.