Here are Jim Cramer's top thoughts on some of the biggest stories of the week.
Jim Cramer: It's a Horse Race Between Amazon and Walmart
We know who is getting crushed. We only need to check the scoreboard. We see the stock of LBrands (LB) down almost 10% as, once again, it has had to slash the estimates. The numbers here are a casualty of the slowly dying mall: Victoria's Secret is in 1,100 of them, Bath & Body Works 1,600. CEO Leslie Wexner's remarkable, but you need to be an alchemist to make gold in the mall these days, and we know there are no successful alchemists.
LBrands joins Dick's Sporting Goods (DKS) , Macy's (M) and Coach (COH) in the loss column. Dick's and Macy's have said they need to be very promotional to stay maintain share and the P word, as we call it, is the kiss of death for profits. Coach lowered the boom on gross margins which made those of us who applaud the purchase of Kate Spade chill in our boots.
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But we heard from Target (TGT) and its strategy of growing both online and offline's paying off, with the former putting up gold standard 32% growth and the latter excelling in apparel, electronics and new store formats including much needed college-based stores. What could be better than to outfit your kid's room from a nearby Target rather than Amazon where you might not even have the correct address and you certainly can't figure out what works best in the dorm room. That's why Target's stock rallied yesterday although everything's softer today.
Now, today along comes the one company that, I think, Amazon really needs to worry about: Walmart (WMT) . What makes Walmart so special? First, it has committed to online in a big way, leveraging its 4,100 store base to make it easy for the 100 million people who shop there each week to pick up goods. You could also look at that store base as 4,100 distribution centers with easy delivery for food, blunting the footprint of Amazon which will only have a tenth of the stores that Walmart has when the Whole Foods deal closes.
More important, the commitment to online comes replete with one of the greatest e-commerce minds, Marc Lore, CEO of Jet.com, who is simply identified as the leader of e-commerce. I love that Jet.com can be so integrated already that it's part of the family.
Speaking of family, that's Walmart's ace in the hole. Amazon has endlessly been able to access the capital markets for all the money it needs, even though it doesn't consistently show profits. Walmart CEO Doug McMillon has a similar luxury, the Walton family, which wants to win the same way it did when Walmart rolled over all of the smaller stores in so many markets across the country with its scale and with its low prices, courtesy of its buying clout.
And there, too lies the real Achilles heel of Amazon: the clout Walmart has over the suppliers. Amazon's the biggest customer of pretty much every single consumer products company in the country. They all have web sites, too, many of them hosted by Amazon Web Services.
So many suppliers make a pilgrimage to Bentonville Arkansas to beg for more space and more favorable terms for their wares. If I am a chief technologist of any supplier I am going to greenlight shifting away from Amazon Web Services to the ultra-competitive Microsoft Azure or Google Web Services. That way my CEO can go to Walmart's headquarter and say "we know the score. We aren't trading with the enemy."
Yep, it's one thing to fear Amazon. It's another thing for Amazon to fear you. I think Walmart's got that possibility. Of course Amazon's clever. It has Alexa steering you toward their products. It has Prime, although Walmart has free two-day deliver-no membership fee as McMillon calls out in today's comments. And it's got great prices like Walmart.
Let just call it like it is: a legitimate two horse race with others bringing up the rear but at least their now at the track.More From Jim Cramer
Jim Cramer: Chaos in Washington Doesn't Matter Much to Business
Why in heck is this market not cascading down?
You have the president disbanding the business-leader groups he put together with so much fanfare. You have CEOs openly castigating the president and then being told they are infants who take jobs away from the U.S. You have pure chaos in Washington with some of the president's most important people unable to hide their contempt for statements he made that they feel compromise the office itself because of bigotry.
And then you have the absolute definition of confusion -- the disbanding of the two Trump business councils in what looks to be a move that was one step ahead of the CEO posse's departure.
So why did the market not plummet?
The answer? The market is not and has never been a referendum about Washington. Sure, there are presidents that are more pro-stock market than others. I guess we have one of them. President Trump truly believes the market is a referendum on his actions. I have always thought it's not worth disputing. Nevertheless, it's important to remember that the stock market did pretty well under President Obama, too. He just never claimed ownership.
But let's step away from politics because while I do believe the market would be lower had Hillary Clinton been elected because of the surfeit of regulations I believe she would have promulgated, the stock market is about the growth of sales and profits of companies, actual individual companies, and how those two should be valued. When you consider that equation, you know that, as important as these councils and private industry cooperation with the president might seem, it just hasn't mattered all that much.
What matters is that sales and profits have been excellent this year, particularly for everything but select retailers and all the oil and gas business, and low interest rates and slowly rising inflation have combined to make those sales and profits worth more than most expected. Sure, the Fed did release minutes today that showed some on the board fear inflation heating up. Some don't, though. Either way, it's not a big calculus unless you are running a business that has labor costs jacked up by mandated minimum wages.
So let's get a couple things straight. First, I hate talking politics. My views should be of no interest to you. I do like talking stocks, though, and the chaos in Washington -- and it is chaos -- makes Washington even more irrelevant than it has been in ages.
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That's because even though there is chaos, it is Republican chaos, so it won't be anti-business. Remember, this time the chaos revolves around important civil-rights issues, issues fundamental to our nation. But not fundamental to our nation's business.
Hey, listen, last Wednesday the chaos revolved around North Korean ICBMs and the war of words between our nation and whatever you want to call North Korea. We got through the existential dilemma of launching a war that would most surely wipe out 10 million South Koreans.
Now we are getting through issues involving what the front page of the New York Daily News perceptively branded Sympathy for the Devils.
Problematic and suboptimal, to say the least.
Yes, there is no doubt that if we got tax reform, something the president's people are now promising by Thanksgiving, it would matter. Companies would have even bigger profits. But let's be candid here. Congress has yet to raise the debt ceiling. Congress wants another shot at repealing and replacing Obamacare. Congress people, compared to the rest of us working stiffs, is on vacation and takes a ton of vacation -- more than we are allowed for certain -- thereby assuring that not much can get done even if there were some sort of unanimity. Which there isn't.
So what do we do? We hold out that someday Congress might get it together to do something, but we don't need to think about it as long as they stay out of the way of American business.
And what is American business doing? Making money hand over fist, that's what it is doing.
How is that possible?
You need to understand that the business world is made up of cycles. There are all sorts of cycles. There's the housing cycle, the consumer spend cycle, the auto cycle, the tech spend cycle, the non-residential construction cycle, the truck build cycle, the oil and gas cycle, the mineral cycle, the aircraft cycle and I could go on and on.
But the one thing I would tell you is that if you throw darts at my cycle list, unless you hit the auto cycle, you are going to find that you are in a sweet spot of all of these.
Some have to do with demand. There's more demand for homes than there are homes. Think of everything that goes into a home. Housing is 10% of the gross domestic product, but because of all of the accouterments both outside and inside the home, plus all of the financial and legal ramifications of buying a home, it punches way above its weight.
Autos are real important, and they aren't growing. However, let's recognize they aren't peaking at a low level. They are peaking at a relatively high level.
Aerospace? There's insane demand. In fact, some would say it's a secular growth situation because of the middle-classification of the world. We have secular demand in lots of tech even as some regard it as a cycle. Remember, if it is a cycle then it means boom and bust. If it is secular, it means sustained boom. If you think growth in cellphones, the Internet of Things and artificial intelligence are secular, as I do, there are a ton of stocks you would be buying. The manufacturing council disbanding wouldn't mean anything to you. Nothing at all.
In fact, if the president hadn't dissipated his presidential power on these issues, he might have been able to force more CEOs to build businesses in the more expensive U.S. When you see the moral authority of the man be drained in a swamp of tweets and impromptu shouting matches, that means you can probably move your business offshore without all that much worry about the tweet or the phone call, for that matter. You can probably even raise earnings estimates off that erosion.
Anyway, you get my drift.
I know retail has been tough principally because of price transparency, which is what Amazon (AMZN) is really about. You can't fool the consumer anymore. I know there are too many autos. But they've had a terrific run.
Making up for that, though, is a weaker dollar, which makes it so we have less concern about something that's bedeviled us for years -- lower energy costs. Only 6% of the S&P is really benefiting from higher energy costs, which leaves 94% as winners.
So I am urging people to recognize that you need to look at businesses as a sum total of the prospects of their sales and earnings and then graft on what you would pay for those judging from the price of money -- interest rates and inflation. Beyond that, sure we can get geopolitical and we can get mired down in whatever is happening in Washington, but never forget the four walls of the spreadsheet are far more powerful than the four walls of the White House, even as fake-news outlets might say someone has called the place a dump, we just don't know who did.More From Jim Cramer
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.
Originally published Aug. 16 at 4:25 p.m. EST.
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:
- How important it is to keep cash on hand
- How there's no conviction about the downside
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