You Got A Fast Car?
Is it fast enough so we can fly away?
We’ve gotta make a decision, Great Ones. The one thing propping up the U.S. economic recovery just took a massive hit — no, not the Fed, the other thing driving the U.S. economy.
This morning, the Commerce Department said that U.S. retail sales for July dropped 1.1%. Ouch. That’s not what we’re “going back” to, but we’ll get there in a minute.
The drop in retail sales was much wider than the 0.3% drop economists expected. I’m not sure these “economists” know what they’re talking about. I mean, they forecast June retail sales to drop 0.4%, but they rose 0.7% instead. Go figure…
Anywho, the financial media is all abuzz about how falling auto sales drove July’s drop. After all, the semiconductor shortage is still forcing many automakers to idle production, severely limiting options for consumers.
“Even as demand remains strong, motor vehicle sales have continued to fall over the past few months as the semiconductor shortages have made it difficult for consumers to find vehicles they want regardless of the price,” said Sam Bullard, a senior economist at Wells Fargo.
True, Sam. True. However, if you look at July’s core retail sales — which remove auto sales, gas, building materials and food services — you’ll see a 1% drop in July retail sales.
Now, I don’t know about you, Great Ones, but if headline retail sales dropped 1.1% and core sales (minus autos) still dropped 1% … it’s clear that auto sales aren’t the scapegoat Wall Street wants.
You and I know full well what’s causing the decline in retail sales — don’t make me say it!
Meanwhile … remember back in early July how economists warned that consumer confidence and sales would fall because of inflation and rising COVID-19 cases?
That’s right. We’re going back right now…
In fact, Oppenheimer Chief Investment Strategist John Stoltzfus said: “Consumer concern about inflation as well as a rise in new cases of COVID-19 among vaccinated Americans could weigh on consumer sentiment in the coming months even as employment and incomes grow as the economy re-opens.”
Well … John was right about everything except inflation. Where are all those inflationary concerns now? Check the financial media for inflation stories and you get crickets. The truth is, Wall Street isn’t really worried about inflation … not like the financial media portrays it, anyway.
Why? Because this dip in retail sales isn’t about rising prices. The dip in consumer confidence isn’t about rising prices. I’m just gonna say it…
It’s COVID-19. It’s always been COVID-19.
It’s no coincidence that U.S. COVID-19 cases spiked during the same period we saw U.S. retail sales decline. The pandemic is far from over, and we’re still seeing new records for COVID-19 infections in the U.S. And we’re going to see more of this before it gets better.
Speaking of which, I stand by my quote from July 19:
So be good for goodness sake. Whoa! Somebody’s coming!
It’s The End Of The Dow
Ian King correctly called the 2008 crash … a move that sent his former hedge fund soaring 1,700% in just two years and lifted King’s name into the “world’s best investor” category.
But recently, King made an even bolder prediction: The End of the Dow. He reveals everything in this new, controversial video presentation (click here).
The Good: Shop Smart…
Shop Walmart (NYSE: WMT)? After this morning’s quarterly report, all I can say is: “Hail to the king of retail, baby.”
While the rest of the country apparently struggles with low retail sales, Walmart is killing it. Second-quarter earnings jumped 14% to $1.78 per share, as revenue rose 2.4% to $141 billion.
Both figures blew past Wall Street’s expectations of $1.57 per share on revenue of $137 billion.
But that’s not all — no sir! Walmart lifted its full-year guidance to between $6.20 and $6.35 per share — well above the consensus estimate for $6.00 per share.
Why’s Walmart doing so well when everyone else is struggling? Because Walmart stores consistently remained open despite the pandemic. This costs Walmart more in terms of wages and COVID-19 prep, but the company more than makes up those increased costs just by staying open.
I mean, we all know that if the end of the world comes, all that’ll be left are Walmarts and cockroaches. Oh … and Keith Richards.
The bottom line here is that if you are looking for a defensive play for whatever economic turmoil is in store down the road (see my commentary on U.S. retail sales, above), WMT stock should probably be a staple in your portfolio.
The Bad: From DIY To DOA
Bob the Builder! Can we fix it? Bob the Builder! Yes, we … can?
I don’t know how many bored remote workers turned into amateur contractors during the pandemic’s darkest days … but I’m willing to bet it was a lot.
For many, the prospect of spending months inside the same camel-colored walls with nothing but family (or house plants, or … cats? I don’t know your situation!) for company was simply too much to bear.
In a desperate attempt to maintain sanity, extroverts-turned-homebodies rushed to local improvement stores to get their DIY on.
But that time has passed…
Home Depot’s (NYSE: HD) quarterly earnings and revenue were rock solid, but HD stock fell nearly 5% this morning. Why? Because foot traffic fell off a cliff during the second quarter.
And, as we all know, fewer customers translates into lower sales … with U.S. same-store sales up a mere 3.4% compared to a 25% hike this time last year. Yikes.
But why the sudden slowdown in growth?
Sigh … he’s gonna say it again, isn’t he?
Well, on one hand, you have a real estate market that’s more bloated than me after a second helping of Thanksgiving dinner. For those lucky enough to even snag a house in this market, there’s not much money left over to … you know … do anything fun or creative with it.
And then there’s that damn delta variant.
I knew it. He said it. He said it again!
That’s right, Great Ones. COVID-19 still has much of the world firmly in its clutches. Supply-chain fiascos have run amok (Amok! Amok! Amok!) and people decided that a new coat of paint on the walls isn’t worth the risk of an ICU visit.
As I said last month, if Home Depot wants to maintain its 2020 growth frenzy, it needs to dump those flighty DIYers and start courting professional contractors once again. Otherwise, after a few more quarters of flatlining sales, HD stock could be DOA.
The Ugly: Roblocked
You Great Ones know that I’m as addicted — erm, as bullish as ever about video game stocks. But it’s from this personal interest that I know not all gaming stocks are played equally.
Roblox (NYSE: RBLX) is a name in the gaming community that continues to elude me.
Wall Street wants this stock to be the living embodiment of some supposed metaverse that we’ll all live in.
Which is fine, I guess … at least until you check out what kids are really doing in Roblox (which the censors will not let me share with you).
But Wall Street also has high hopes for a stock that’s mainly peddling catchy online games to children. (No, Tencent … not your spiritual opium!)
Roblox came onto the public markets hot with insane pandemic-propelled user growth. And while the ebbing Great Reopening and encroaching delta spread bode well for Roblox … the ever-increasing earnings expectations do not.
Revenue more than doubled in the second quarter, shooting up 127% to $454.1 million but falling way short of analysts’ estimates for $684.8 million. Per-share earnings weren’t much better, coming in at a loss of $0.25 — a world away from expectations for a profit of $0.12 per share.
But shhh… Forget about that double miss for a sec. It’s all gravy, Davey. CEO David Baszucki believes that Roblox’s “continued growth demonstrates the importance of our mission and the power of our platform.”
But apparently not Roblox’s power to deliver earnings. Hmm…
Looking ahead to the current quarter’s results, Roblox says it currently has its “highest levels of users and engagement to date,” which is probably true … but cleverly cuts out the elephant in the virtual room.
What’s Roblox’s biggest demographic? Kids and teenagers. (I will not conform to the awkward use of “tweens” here, and you can’t make me.) It’s immaterial at this point that the number of teenagers on the game’s platform is up 29% compared to last summer — half of the user base is still under 12!
And where’s little Jimmy getting his dough? Your purse or wallet. I don’t think so…
When your stock’s main headwind is its target audience going back to middle school … July’s engagement is bound to look fine, but you should expect things to get ugly real quick once school starts.
Kinda like how we predicted a few months back, once the bugs in Roblox’s metaverse might started to show.
This latest Hell in a Cell matchup is getting … weird.
Now Michael Burry’s taking on Cathie Wood’s ARK funds? Alrighty then, but I fully expect someone to be thrown into an announcers’ table…
Y’all know Michael Burry from back in that whole “housing crash” thing. He’s a big short — the Big Short, actually. The biggest of shorts — the shortest of bigs!
Anyway, here’s what Burry’s bothered about this time:
That’s a *chef’s kiss* summation of virtually every crash and hype dump since time immemorial. The same sentiment was true when Burry bet against the housing market in the mid-2000s. It’s a good quote, but Burry’s not in our Quote of the Week for stating the obvious…
So, what’s bothering Burry this time ‘round? Why, those fetishistic futurists over at ARK Innovation (NYSE: ARKK), of course! Yeah, and all their tech-loving followers, too! (I know y’all are out there — don’t crucify me, Great Ones.)
Michael Burry announced he’s bearish on Cathie Wood’s ARK fund, holding 2,355 put contracts on the tech-focused ETF since the second quarter.
For reference, ARK is one of Wood’s stable of “innovative investing” funds, and despite Wood’s online legion of dyed-in-the-wool fans, animosity is growing with ARK’s overvalued holdings. Burry’s just the loudest of the anti-Cathie bunch so far. He also has puts against Tesla, ARK’s longtime biggest bet.
For my money, Burry is right … to a degree. He maintains that stocks and the market are way overvalued, and he’s right. But Burry is particular here with his bearishness: With ARKK puts, he’s targeting the most hyped, overbought sector on the market … outside of housing.
Valiant in her avant-garde tech touting … Cathie Wood wasn’t having any of Burry’s B.S. She fires back (over Twitter, obviously):
Silly bears — you simply cannot fathom the depth of our innovative investing! You merely adopted the tech market … I was gestated in it, molded by it! — Cathie Wood, probably.
I’ve been hard on Wood here — are we still doing “phrasing?” — but she’s also correct.
She’s not right about Burry’s reasoning … but on the investment potential of space and leading-edge tech. These new sectors and rising trends are actually incredibly interesting and lucrative tech, and there’s a reason why we keep nudging you to check out the space sector for yourself.
But…
“Innovation” wasn’t Michael Burry’s point.
Wood went on to say that Burry doesn’t understand the fine nuances of an innovation-rich investing environment, which isn’t true. Burry gets the appeal of tech investing … and it’s because of that insane mass retail interest that Burry shorted ARK to begin with.
Burry just better hope he’s in tune with how these retail investors trade. While a price pullback in leading-edge tech stocks is still likely, those same stocks have fanatical investor bases ready to buy dips. They’ve proven pretty resilient in stocks like Apple (Nasdaq: AAPL) back in the day and Tesla (Nasdaq: TSLA) now.
Should tech hit the skids, these stocks will rebound so fast that Burry could be screwed — which is why he’s using puts this time around instead of just shorting stocks outright. Ain’t no Citadel fools here.
What do you think, Great Ones? Will Burry’s big anti-tech bet pay off? Are you a diehard ARK investor who don’t need no bearishness? Do you not give a flying care about what Wall Street talking heads have to say? (Look at you, the well-adjusted investor!)
Let me know in the inbox! Who knows? You just might find your rant-laden memo in this week’s edition of Reader Feedback.
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Until next time, stay Great!
Joseph Hargett
Editor, Great Stuff
