When I was a but a grade school lad, I played a game called smear the queer at recess.  Essentially, whoever had the football was tackled by the rest of the participants.  Sometimes, if a runner was particularly disliked, the other kids would continue to pile on the runner with the ball, calling out, “Dog Pile.”  Wall Street is similar in such a predilection for jumping on, especially when companies are participating in an industry which is undergoing a difficult period.  If ever there were a segment in the middle of a changing landscape, it would be retail.  In case you haven’t been aware of the turmoil, it should be noted there have been multiple bankruptcy filings among the retail space, so much so that the number is predicted to exceed that during 2008/9 at the height of the Great Recession.  Consistent with this idea, Macy’s and JC Penny’s reported gruesome quarterly results, and naturally, everything in the surrounding terrain suffered accordingly.   

 

 

The largest contributor to the problems in retail is generally accepted to be the rapid and growing adoption of digital technologies to render physical store fronts less attractive to customers.  The consensus is now that people want an experience for their money.  The emergence of Amazon as dominant in digital goods but also other areas, like clothing, where it is now the second largest seller behind Wal-Mart, signifies a huge changing of the guard, especially in financial markets.  If you regard his opinion as expert, such an authority as Mark Cuban, owner of the Dallas Mavericks, remarked that the FANG companies (Facebook, Amazon, Netflix, and Google) probably should be valued even more highly than they already are.  He thinks their use of artificial intelligence and cloud based analytical tools for predictive behavior will help move consumer demand even quicker towards the leaders.  Time will tell, but my own thinking is different.  The Amazon’s of the world are looking to conquer bigger fish, think the grocery and transportation areas, as a way to help justify these massive valuations, in some cases 400 billion bucks or more.  Meanwhile, back on the playing field, the Target’s and Macy’s of the world have to work at using their assets more productively and integrate their digital strategies to give consumers plenty of reasons to get out of the house and stop clicking.  It is a tall order, as the use of digital tools only grows more pervasive by the day.  Still, the contrarian in me thinks the dog pile in retail is far overdone, though Mr. Schumpeter might profoundly disagree.  

 

 

Finally, with earnings reports winding down and summer imminent, the proverbial wisdom of sell in May and go away becomes accepted dogma.  Volumes get really thin, and volatility can pick up to the downside rather quickly, but big market swings have been few and far between (sans August of 2015) recently.  Anyway, attention remains fixed on the always entertaining but rarely stable El Presidente Trumpe.  Anyone who is familiar with the Donald and his long history knows the guy has always flown by the seat of his pants.  Every day is an adventure in rhetoric, and investors have essentially accepted the partisan hatred as status quo.  You can always count on the politicians to do nothing, unlike the dynamics of markets.  Mr. Schumpeter would no doubt remark some things never change.  Thanks for reading the blog this week and if you have any questions or comments, please email me atinformation@y-hc.com

 

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.