Middle Class Retailers, Teens, Amazon and All-Carrot Diets

“As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all.  The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away…In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995…Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.”  Also, teen apparel retailers are dealing with the same problem as Facebook: “When 19-year-old Tsarina Merrin thinks of a typical shopper at some of the national chains (American Eagle, Abercrombie & Fitch, Aeropostale etc.), she doesn’t think of herself, her friends or even contemporaries.”  Reasons for this could be high teenage unemployment (“20.2 percent among 16-to 19-year-olds”), cheaper fashion trends, online shopping, shifting priorities among teens (e.g. an iPhone is more important than $150 jeans) etc.  Meanwhile, Amazon stock is definitely overvalued (P/E ~ 600), but this is what investors are paying for: “revenues are likely high enough to push Amazon past discounter Target on the list of the top U.S. retailers ranked by revenue,” “Amazon has about 20-million Prime customers and the base is growing at 20-30% per year.”  Finally, “like dieters vowing to trade cupcakes for carrots, a number of American shoppers are making a new pledge: cash only.”  While extremely anecdotal, this article probably captures one of the attitudes floating around the American shopper’s mind these days; however, I think we all know what happens to the all-carrot diet once we get to mid-February.

Motif Investing and ETFs: Offering Sophistication To The Little Guy

Michael Steinhardt, “Wall Street’s Greatest Trader” (“from 1967 to 1995 his pioneering hedge fund returned an average of 24.5% annually to its investors, even after Steinhardt took 20% of the profits”), is back and “positioning himself as an advocate for the little guy” with WisdomTree Investments, a firm which specializes in ETFs.  Steinhardt believes that “exchange-traded funds have similar disruptive potential (as hedge funds once did), with individual investors (and some savvy operators like him) reaping the benefits.”  “With $35 billion under management, WisdomTree has only a 2.1% share of the $1.7 trillion (assets) ETF market, but that’s up from less than 1% in 2010, and it has been steadily chipping away at BlackRock and State Street, which have a combined 61.9% market share.”  Meanwhile, rebalancing day for ETF firms like WisdomTree can make for easy money on Wall Street: “traders take note when big ETF managers like Good Harbor step into the market, moves that can affect prices.  At times, they may try to profit by jumping ahead of Good Harbor, potentially chipping away at returns for its investors.”  Also, check out Motif Investing, an online site “whose goal is to make it easier for small investors to do what more sophisticated investors have been doing — make investments based on themes or long-term trends.”  For example, investors can put their money in The Seven Deadly Sins, a motif of alcohol, tobacco, fast food etc. stocks; or No Glass Ceiling, a collection of companies headed by women.  Finally, “an unlikely alliance of investors, board members and advisers has formed in an effort to counter the disproportionate influence of activist hedge funds on corporate America.”

Emerging Markets: Debate Provides Opportunity

Reserve Bank of India Governor Raghuram Rajan said, last week, “International monetary cooperation has broken down” as the industrial countries take a strategy of “We’ll do what we have to do, the markets adjust and you (developing countries) can decide what you want to do.”  The Peterson Institute is scolding Rajan for finger-pointing and ignoring the fact that “no country adopts policies that are not in its own self interest.”  So there’s quite a lot of Us vs. Them going on in the financial blogging world in regards to the emerging markets crisis.  Ultimately, here’s what matters to investors: “a return to currencies whose value is set by market forces, rather than heavy-handed intervention, could actually be a boon to emerging markets.”  According to Rob Arnott, CEO of Research Affiliates, “emerging market stocks at current prices represent the best buying opportunity, anywhere, any time, in any asset class, since the mini-crash of 2011.”  Moreover, The Telegraph proposes that “value” investors should focus on Russia, Hungary, Turkey, Austria, Italy, Brazil, South Korea, the Czech Republic and China.  So now the question becomes “Why are they cheap?”

USA: Manufacturing Growth Slows In January

EU: Central Europe Recovery Gains Steam As PMIs Hit Multi-Year Highs; Eurozone Deficit Shrinks To Almost Within EU Limit In Q3

China: Manufacturing At Six-Month Low Signals Growth Easing

MEX: Mexican-Origin Population Living In USA, By County

Emerging Market Central Bank Owls Try The Ol’ “Shock And Awe” Play

Raghuram Rajan raised the Reserve Bank of India’s repurchase rate to 8 percent from 7.75% on Tuesday.  Analysts had been expecting no change.  “Further tightening isn’t anticipated in the near term if consumer-price inflation slows from about 10 percent now to 8 percent by March 2015.”  And yes, good question, Mr. Rajan’s spirit animal is the owl.  Meanwhile, Turkey’s central bank “raised interest rates to 12% from 7.75% at the conclusion of an emergency meeting convened late Tuesday night Ankara time to address the pummeled lira…by going so much higher than expected, the central bank clearly was adopting a ‘shock and awe’ maneuver to drive out a market assault…the lira jumped 2.6% against the dollar in a matter of minutes.”  But that was yesterday.  This is today: “A surge in the Turkish lira following the country’s aggressive interest-rate increase has come apart this morning.”  Also, South Africa is getting in on the “raise rates to keep the money” game and so far the reaction is kind of meh so, yeah, emerging markets are still stuck between a rock and a hard place (i.e. a Fed tapering and a current account deficit).  Investors don’t seem to be taking this opportunity to buy the cheap, battered emerging markets — and here’s a few reasons why: 1) they’re a value trap and will get even cheaper, 2) outflows and technical pressure will continue working against them, 3) emerging markets were only floated by Fed easing, which is ending, 4) emerging markets as a single investment bloc is an obsolete concept, 5) the real emerging markets now are in peripheral Europe, or 6) it’s all too complicated and difficult to predict.  But big business doesn’t seem to agree: big multinational companies are putting their long-term bets on the developing world.

USA: Highlights From Obama’s State Of The Union Address

Here’s what I cherry picked from the address: President Obama “called on Congress to increase the federal minimum wage for all workers to $10.10…the Treasury to create a bond called MyRA that can be offered through employers as a ‘starter’ retirement account…cut red tape to help states build factories that use natural gas [and] propose new incentives for trucks that use alternative fuels like natural gas…end tax benefits for the oil industry and use revenues to invest in advanced vehicles that use cleaner fuels…expand the earned-income tax credit…launch more high-tech manufacturing hubs…partner with leading U.S. companies to help long-term unemployed…overhaul U.S. surveillance programs to restore public confidence.”  Also he’d really like it if people would sign up for Obamacare.

Asia: Chinese Homebuyers Thronging Sydney Make Mini-Bubble Frenzy

“A second-hand house in northwest suburban Eastwood sold for as much as A$1 million more than the expected price…95 percent of the more than 100 people at the auction were locally resident Chinese…Behind the growing demand for homes in Australia is a push by Chinese to leave the mainland in search of better education for their children, a clean environment and higher income…about 60 percent of high-net-worth Chinese — those with at least 10 million yuan ($1.7 million) — have left China or are considering it…Chinese demand for luxury properties is also fueled by Australia’s so-called significant investor visa…the visas offer temporary residency for foreigners investing more than A$5 million.  While residential real estate doesn’t qualify as an investment, the rules allow [visa] recipients to purchase homes.”

Global: Everybody Hates Hedge Funds Right Now

EU: The Real Problem With The Economy Is “The Human Being”

And other thoughts from some ivory tower in Europe…

Apple: Just Good Enough For Carl Icahn

Apple has a uniquely captivating presence in the investment world as one of those stocks people seem to care deeply about; but is the story getting stale?  “Analysts and investors went into [Monday’s] release hoping to see an upside surprise just like the Apple of old.  What they saw instead was the new Apple, or put another way, the old Microsoft.”  Then again, maybe Apple will just never be good enough: “no matter how well [Apple] does, a whole different school of stock market physics seems to apply…in a sense, the problem with Apple is that all the numbers have become so large, they can’t get any larger.”  The earnings release was just good enough, however, to convince Carl Icahn to buy $500mn shares and, of course, tweet something about a buyback program.  Also, while still very speculative, rumors are floating that Apple may be considering mobile payments as a new opportunity.  And this shouldn’t surprise anybody, but the age of the iPod is over.

USA: What Shopping Tells Us About The Middle-Class Recovery

Here’s a really interesting piece on how “stock performance among retailers that target different income classes has diverged a lot since the recession started.”  While luxury and budget retailers are prospering, middle income retailers are suffering.  Furthermore, Amazon is taking everyone to school when it comes to relative sales growth.

EU: Slump In Eurozone Money Supply Growth Highlights Deflation Risk

USA: The $956 Billion Farm Bill In One Chart

Drone Armies: Not Just for Star Wars Anymore; Black Friday Goes Cyber

With the Black Friday/Thanks(puchase-first-then)giving Weekend over and Cyber Monday now stretching into Cyber Week, I will do my best to make sense of some of the reports coming out.  One thing looks pretty clear: digital sales on mobile devices are taking over while traditional foot traffic at brick-and-mortar stores are falling off.  IBM Digital Analytics Benchmark: overall sales up 17.5% as of 6PM EST on Cyber Monday; nearly 30% of customers were using mobile devices.  Custora Pulse: online sales up nearly 19%.  ChannelAdvisor: sales on Amazon up 44.3% over last year, eBay up 32.1%.  Joel Anderson, CEO of Walmart.com: “There’s no way…that it won’t finish as our biggest Cyber Monday ever.”  55% of shoppers on Walmart.com were accessing the site from a mobile device.  Meanwhile, the numbers for brick-and-mortar retail stores from two different analytics companies are at odds.  ShopperTrak is reporting that sales for US retailers were up 2.3%, but they also say that sales on Black Friday fell 13.2% and foot traffic was down 11.4%.  Redbook Research reports same store weekly sales for the end of November (includes the Black days) up 4.9%, while Goldman Sachs’ International Council of Shopping Centers is more in-line with ShopperTrak at 2.5%.   The National Retail Federation, on the other hand, says that US retail sales dropped by 3% over the weekend and that the average shopper spent about 4% less than the same weekend last year.  It appears as if retailers are stretching Black Friday very thin and this may be causing all the noise with the numbers.  With some stores opening earlier on Thanksgiving Day and extending their doorbuster deals through the weekend, Black Friday and Cyber Monday are becoming more like Black Weekend and Cyber Week.  Also, consider the words “Black Friday” in a future world where Amazon’s drone army blocks out the sun as shoppers order up a brand new 98” TV on their iPhone.  Then again, creating buzz and putting his genius innovation on display might be more important to Jeff Bezos than octocopter delivery robots.  Finally, one last interesting thing to consider: as the baby boomer generation approaches old age, what do you think their millennial children will do with the likely inheritance boom?

Auto Sales Increase Around the World

Sales for Detroit’s Big 3 all increased in November: Chrysler sales jumped 16%, GM up 14% and Ford up 7%.  Pickup trucks continue to be the best selling vehicles for American automakers, with Ford’s F Series leading the way with about 34% more sold than GM’s Silverado and Sierra and 120% more than Chrysler’s Ram.  Research firm TrueCar.com says that average vehicle transaction price dropped a little in November for first time in 3 years.  Meanwhile, sales in China for Japanese automakers are making a comeback from the consumer backlash they faced a year ago.  On the other hand, South Korean automakers like Hyundai and Kia are struggling to keep up: they have a much smaller market share relative to Japanese automakers in China and they rely heavily on the US for sales.

 

Global: Container Firms Order New Ships to Gain Economies of Scale

The Baltic and International Maritime Council (Bimco) says fleet capacity for container shipping will grow by 5.9% in 2013.  The order books for new mega-shipping vessels for the top 21 shipping companies sit between 15-20% of their current fleet.  At the same time, plans to scrap the smaller, older vessels are at an all time high.  “The largest carriers continue to enjoy significant scale advantages, with Maersk and CMA CGM, the first and third largest carriers, continuing to outperform the rest of the industry.”