Doug Kass 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:
- How Friday had some possible positives.
- How Amazon is inducing retail woes.
Click here for information on RealMoney, where you can see all the blogs, including Doug Kass'--and reader comments--in real time.
- Strength in the Russell Index.
- Improving breadth.
- Improving Clinton odds by "538" and the London betting parlors.
- A great deal of pushback to my idea of a trading rally.
- Turnaround in large-cap biotech (Allergan (AGN) , Celgene (CELG) , Gilead Sciences (GILD) ) and speculative biotech (Intrexon (XON) , Sage Therapeutics (SAGE) )--which had appeared to have been breaking down this week.
- Lack of enthusiasm and general skepticism regarding the ability of today's rally to extend into next week.
- Continued stabilization in the junk bond market.
On Wednesday, Costco (COST) released its monthly sales, up 2%. While there are attempts to dress up a pig, the numbers were not good even though they were better than September.
For retailers, what counts is how sales are relative to budget/plan, and they are below budget almost everywhere.
Several points need to be made:
- Amazon is killing the industry. Amazon's (AMZN) retail sales in the U.S. are expanding at a $10 billion annual rate. The company's retail efforts are a public service. It makes little or no money on them and with Amazon Web Services it will never need to do so. It is now even hurting the auto parts industry. CEO Jeff Bezos is constructing 30 distribution centers in the U.S. At the peak of its growth, Walmart (WMT) added one such center every two years. Near term, the AMZN threat will only get worse. It is now the nation's leading apparel merchant. Few would ever have predicted this. There may be nothing it will not sell.
- The problem is not the American consumer. Things are reasonably fine. Yes, insurance and other prices are rising, but employment is good and wages are rising. In Las Vegas, as an example, it is clear we are at or near full employment. Consumption in the U.S. by foreigners, which counts in GDP, is awful. The U.S. dollar is strong. This is killing the luxury sector, especially in Miami and New York City. At the margin, this is impactful. On the other hand in NYC, while shopping at Christmas for luxury goods you may be able to hear English in the stores. In the last few years it has been difficult. It will also be less crowded, but for out-of-town guests, hotel prices may get back down to earth.
- The weather has been good, and that's awful for retail. September was the warmest in 35 years and October was probably close. In Chicago, at least until Nov. 15, temperatures will remain above 55 degrees. This is killing the apparel business and hurting other businesses as traffic for shopping is down. Fitbit's (FIT) warning on Thursday tells the tale. This also will affect natural gas and heating oil demand.
- Housing may be peaking. Sales of durables (as seen at Whirlpool (WHR) , PPG (PPG) and others) are probably peaking, as is the housing turnover that drives them. In Miami/Dade County, the epicenter of housing speculation, we are back to a three-year supply of condos at the current rate of sale. Some bad paper is undoubtedly out in the market and banks are tightening credit. As one banker told a friend of mine, "Money is cheap unless you need it."
If one looks at the weekly new high list of stocks, the consumer sector is suffering. There are few consumer stock 52-week highs and many at new lows. Much of this malaise is now beginning to be priced into the sector, where multiples are well below historic ranges.
The worst may be priced into the stocks. For example, Macy's (M) looks like it has bottomed and it is reasonably cheap. The company reports in less than two weeks.
The weather eventually will cool, though not before a lot of markdowns are taken, and the Christmas calendar is optimal. The fourth-quarter retailing comparisons are easy. Results for retailers will be out before the next Fed meeting and may impede any rate reduction. This, of course will make it tougher for the financial sector.
While the "Curse of the Billy Goat" has been lifted, the "Chinese Curse" remains: "May you live in interesting times."
-- Charlie Munger
"I believe that at best, Valeant's planned asset sales will yield demonstrably lower earnings power than the current consensus calls for. I think these sales will also lead to formidable asset-impairment charges. And, at worst, I think Valeant could fail ... and that its share price could fall to zero."
Jim "El Capitan" Cramer and I often (respectfully) disagree on many market subjects.
But, for some time, we have consistently been in total agreement on the dismal prospects for Valeant.
Monday morning, Jimmy re-emphasized his ursine view of VRX in a succinct analysis, "With The Election Coming, Valeant's Problem is Increasing."
Here is the full sequence of my posts and analysis since 2015:
- My Diagnosis of Valeant Pharmaceuticals
- Avoid Valeant (Redux)
- Papa and His Brand New Gig (at Valeant)
- A Non Valeant Effort