Is a ‘Cliff’ Deal in Reach? And What Happened to Retail?!
U.S. markets were up overnight on optimism that a "fiscal cliff" deal might be possible. Politico ran a story saying the "contours" of a deal were in sight: $1.2 trillion increase in taxes, entitlement cuts of no less than $400 billion, other spending cuts of $1.2 trillion, including "war savings."
Meantime, Europe is quietly in rally mode; both Germany and France are near their highs for the year; Germany is near a five-year high, in fact.
Seventy-six percent (76 percent!) missed estimates, according to RetailMetrics. Huh? Normally, about 40 percent MISS estimates, while 60 percent BEAT estimates.
How much is Hurricane Sandy a factor in the misses? Estimates were coming down for weeks in an effort to account for Sandy. Same-store sales growth came down from 4.2 percent to 3.5 percent in the last few weeks (excluding drug stores), according to RetailMetrics. The actual number: 1.6 percent. (See: Scenes From Hurricane Sandy)
That is a big miss. Sandy was very difficult to gauge from an analytical perspective (how many stores were closed, how many cut back spending), what the impact of the U.S. presidential election was on shopping. So there was a lot of noise and it was easy to get wrong.
Macy's Chairman and CEO Terry Lundgren summed it up: It had a good Black Friday weekend —the best in their history — but it was not able to overcome the weak start to the month.
Nordstrom opts out of monthly sales: Nordstrom has become the latest company to announce it will not report monthly same-store sales, beginning in 2013. Less than 20 percent of retailers now report monthly comparable sales.
What is it with China? The whole world was up overnight. Everyone. Except China. Down another 0.5 percent. Down four straight days. Another 3.5-year low.
There are several problems: 1) investors had been waiting for aggressive stimulus measures now that the new leadership is in place ... but nothing has happened; 2) banks may be subject to more stringent capital reserve requirements to bring them in accord with international standards; and 3) there seems to be complaints about "share glut"; meaning there is too much stock for sale. This last issue is a symptom, not a cause: Mainland investors — the ones who buy those Shanghai shares — have simply lost interest in playing the market.
1) Peter Boockvar at Miller Tabak making a great point today about the, uh, pointlessness of much of the fiscal cliff debate. We are way too focused on the tax hike portion. If the Bush-era tax cuts on the top 2 percent expired completely, and the top rate goes from 35 percent to 39.6 percent, about $80 billion would be raised, out of a government budget of $3.56 trillion. That hike would be enough to fund the government for EIGHT DAYS. The point is that with Medicare/Medicaid taking up roughly 25 percent of that $3.5 trillion, we are way too focused on a single issue.
2) Special dividend mania. There are many lists being passed around on trading desks about special dividend candidates. The primary criteria for most of the list seem to be a very high cash balance as a percentage of market cap (7 percent or above is a common target); some also mention high insider ownership and a current policy of paying dividends. It would be good as well if the stock had performed well. (Read More: Do Special Dividends Boost Stock Price?)
I mentioned yesterday that Williams Sonoma, Home Depot, and PetSmart were floating around as candidates. Also on some lists: O'Reilly Automotive, Nordstrom (8 percent), Legg Mason (26 percent), Raytheon.