WASHINGTON, February 28, 2013 – The market is still a little woozy this morning, perhaps shaking off a hangover stemming from yesterday’s latest bout of irrational exuberance. As of 10 a.m. EST, the Dow can’t decide whether it wants to be up five points or down five points. Other averages are doing about the same, although that’s likely to change during the day one way or the other with news on natural gas inventory coming out from the Feds at 10:30 a.m., which will affect oil and gas futures most likely. The rotten numbers coming out of Groupon (GRPN) and J.C. Penney (JCP) also likely will weigh today, at least somewhat.
Also in background, jobless claims allegedly fell 6% for the week ending February 23, although these “decreases” are always suspect, given that the previous week’s figures tend to get revised to enhance the current week’s figures which will then be revised to enhance next week’s figures, etc., ad infinitum. Another game Washington plays to confuse the public. It continues to work.
Commerce tells us it now estimates a fourth quarter 2012 gain of 0.1% in GDP (gross domestic product) as opposed to the -0.1% figure it estimated earlier. In other words, the figure is still lousy.
The Commerce Department inched up its estimated of Q4 GDP, to a 0.1% gain, vs. its initial view of minus 0.1%. The change was well short of analyst projections for a revision to 0.5% growth.
Back to stocks: Groupon reported after Wednesday’s close that it suffered a 27% loss in its most recent quarter, largely due to price-cutting geared toward retaining current business and attracting new business. We continue to question the long-term viability of this company’s business model. All in all, as in the dot.bomb era, some of these “hot” new businesses Wall Street currently prizes (or prized) are bound to fail, and Groupon is looking like one business model that will either need to be modified or suffer death by Chapter 11. Its enigmatic cat, pictured above, likely symbolizes this company’s identity problem.
J.C. Penney is a different case entirely. The retailer was once a boring but relatively reliable stock, generally making money or breaking even where Sears (SHLD) continued to collapse and fail, with both being primarily geared toward the middle of the road market. JCP’s new direction involves largely banning the constant “sales” that everyone knows are phony, while replacing them with “every day low prices” on increasingly fashionable merchandise.
At the same time, JCP began to drastically re-organize its physical stores to gather fashion brands X and Y into their own “boutique” areas, a flavor of the store-within-a-store concept, while ending the endless aisle clutter that’s been the decades-long custom of nearly all department stores. It’s designed to slow customer progress through the merchandise and prompt more impulse purchasing, but can be absolutely maddening for someone who’s trying to shop efficiently.
Sadly, although JCP’s new strategy looks brilliant on paper—and equally brilliant in the local JCP outlets we’ve visited recently—it’s failing to move the merchandise. American shoppers are apparently completely hooked on phony sales and coupons now, and are simply not believing the JCP’s every day low prices are competitive. It’s another example of America’s 21st Century Sclerosis—a mass unwillingness to significantly change behaviors or perceptions. JCP has hit this phenomenon squarely in its metaphorical face. Its stores look better, look cleaner, are easier to shop at, and do, in fact, offer highly competitive pricing on current, fashionable, medium-to-high end soft goods.
But no matter. Nobody goes there anymore, except maybe the Maven for Penney’s always-reliable underwear. Either American Sclerosis gets terminated in one or two quarters. Or fake-sale-itis wins yet another victory in the retail market space. At this point, we’d be betting on the latter.
How to play today’s action:
The Maven’s profit-taking tactics, while booking in nice percentage gains for 2013 thus far, are at least temporarily looking short-sighted, as the market continues its pattern of getting severely spanked for one or two days per week, then soaring to new heights after shaking off the punishment.
Over a two-day Congressional presentation, Fed Chair Ben Bernanke stoutly defended his ongoing QE policies, which are adding billions of dollars per week to Wall Street’s trading portfolios (while of still-dubious advantage to John Q. Public). I.e., the party’s still on. And, as the late Marty Zweig often said, “Don’t fight the tape, and don’t fight the Fed.” Both the tape and the Fed are currently telling us that taking profits and/or shorting markets or stocks are generally suicidal investing behaviors, and the market has certainly been behaving that way.
Indeed, the Maven’s already swell booked profits might have been even sweller if he’d sweated out the recent downturns and held his ground. That said, there is still something ominous lurking beneath the surface here, even if we can barely make out its form. If it’s not the next Federal crisis—the familiar debt-ceiling/continuing resolution game—it’ll be something else as yet unexpected.
Ergo, we continue to trim positions. We’re now up to about 40% cash in our portfolios and are pretty comfortable here for the moment. If things remain relatively stable, we fully intend to restock the larder with our favorite REITs and MLPs to at least catch the next wave of huge dividends. Meanwhile, we’re selectively adding to some utility holdings, including much-maligned First Energy (FE), which, after getting smacked severely upside the head on Tuesday, made an excellent comeback yesterday.
Other current faves in the utility space are American Water Works (AWK) which reported iffy earnings yesterday but remains poised for long term growth; and, if it would ever weaken just a bit, mountain west utility Black Hills Corp. (BKH).
Window dressing may be playing a big part in this week’s rally mode, so we’ll wait to see what happens tomorrow, March 1, when traders face a new month and a different kind of fiscal cliff. Moving forward, there’s only one thing that’s for certain. If something bad happens in the stock market, it will absolutely, positively, be Bush’s fault and the Republicans’ fault. We know this is true because we read it on the Internet.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
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