February 18, 5:00 pm EST

We had a big earnings report from Walmart today.

Last summer we talked about the huge divergence in the performance of Amazon (the world’s biggest company by market cap) and Walmart (the world’s biggest company by revenue).

Let’s take another look …

As we discussed, the market was pricing Amazon like a runaway monopoly — killer of all industries, especially retail.  And the perception has been that Walmart was destined to become another rise and fall story of a dominant American retailer.

But there was a clear and new catalyst that entered. Trump had made it very clear that he was, not only looking to balance the playing fieldglobally, but also domestically.  And that meant, the tech giants were due for some regulatory headwinds.  Amazon has been in the crosshairs, and still is.

As such, as I said last summer, this chart below was becoming the proxy for the domestic “rebalancing” — where the foot is being lifted from the jugular of the old economy survivors.



With today’s big Q4 earnings report from Walmart, we now have this chart.  

As you can see, the jaws have closed, albeit mostly driven by the resurgence of Walmart.  This spread trade was good for about 25% since June.  Amazon was 4.3 times the size of Walmart.  Now its about 2.5 times as big.

And this convergence should continue to have legs, not just because of the pressure from Washington on Amazon, but also because of the competitive moves made by Walmart, that may be finally garnering some respect on Wall Street.

Walmart has been aggressively investing in online. They bought Jet.com in 2016, an American online retailer.  That same year they took a large stake in the number two online retailer in China, JD.com.  Walmart now owns 12% of JD.

JD.com already has a big share of ecommerce in China.  They are number two to Alibaba, but gaining ground due to some clear competitive advantages.  JD owns and controls its logistics infrastructure, and does quality control from the supplier to delivery.  And unlike Alibaba, JD sources product to its warehouses to fight the counterfeit goods risk – a big problem in China. JD has 500+ warehouses around the country, and they now source product and service customers from one of the 433 Walmart stores in China.

So Walmart is positioned well to take advantage of the growth in the middle class in China.  Amazon has yet to find its way in China.  It has about 1% market share.   Add to this, Google came in last year with a $550 million investment to help position JD to challenge Alibaba and Amazon on a global scale.

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October 29, 5:00 pm EST

Stocks continue to swing around today.  But I think we may have a bottom coming in. 

Remember, we looked at some key charts on Friday.  Among them, we had this chart of the Dow, where a touch of this big trendline from the 2016 lows would give us a 10% correction on the nose.


As you can see in the updated chart, we hit that level today, traded below it, but bounced back aggressively into the close.

So we now have an official correction in the Dow (down 10%) and we have an official bear market in the FANG stocks (down more than 20%).  These labels have significance because it the plays into market psychology and price behavior.

With this in mind, if you are a regular reader of my daily notes, you’ll know we’ve talked about the big disconnect between the performance of the tech giants, relative to the Dow for much of the year. The FANG stocks were UP as much as 50% at one point this year (equal weighted).  Meanwhile, the Dow has dramatically lagged all along the path of the post-correction recovery of earlier this year.

This was a market pricing the tech giants like monopolies that would destroy all industries, despite the clear threats that were coming from Trump and from Europe (i.e. promising to ramp up regulation on those that have gained advantages from the lack of regulation).

The great proxy for this trade, as we’ve been discussing for the better part of the past six months, has been Amazon versus Walmart.

Remember, we looked at this chart several times earlier this year …

This chart clearly represents the regulatory favor that has been given to the tech giants.  The regulatory favor has not only disrupted industries, it has nearly destroyed them, and created monopolies in the process.

But with regulation coming, I’ve expected the “jaws to close” on this chart, and for money to start moving back into value stocks and back into the industries that have been nearly destroyed by the tech giants.

We now have this … the jaws have closed. 

This violent repricing of the tech giants, and now bear market, is finally signaling the outlook for a more level playing field for businesses, more broad-based economic activity, and a more broad-based bull market for stocks.

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June 26, 5:00 pm EST

While the media continues to be stuck on the global jawboning about trade. We’ve been talking about the continued domestic “leveling of the playing field.”

We’ve seen the verbal and Twitter shots taken by Trump at the tech giants since he’s been in office.  And the threats have slowly been materializing as policy.

Late last year, we talked about the repeal of the Net Neutrality rule.  And now we have the Supreme Court ruling that subjects internet sales to state tax.

Before you know it, the tech giants (Facebook, Amazon, Netflix, Google …) may actually be held to a similar standard that their “old economy” competitors are held to.  They may have to pay for real estate (i.e. bandwidth). They may be liable for content on their site, regardless of who created it. And they may be scrutinized more heavily for anti-competitive practices.

That means, the costs may go UP for these companies.  And the cost may go UP for consumers.  But a more balanced and stable economy and society may come with it. 

So, the balance of power is shifting, just as people were becoming convinced that Amazon was taking over the world.  As we’ve discussed, if the market starts pricing OUT the prospects of Amazon becoming a monopoly, then the jaws may be closing on this chart …

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January 8, 4:00 pm EST

Heading into the end of last year, we talked about the regulatory scrutiny starting to emerge toward the big tech giants (Facebook, Apple, Amazon, Netflix, Google… Tesla, Uber, Airbnb…) – and the risk that the very hot run they’ve had “could be coming to an end.”

These companies have benefited from a formula of favor from the Obama administration, which included regulatory advantages and outright government funding (in the case of Tesla). That created a “winner takes all” environment where this group of startups and loss-laden ventures, some with questionable business models, were able to amass war chests of capital, sidestep enduring laws, and operate without the constraints of liabilities (including taxes, in some cases) that burdened its competitors.

With the screws now beginning to tighten, under a new administration, and with the tailwinds of economic stimulus heading into the new year, I thought 2018 may be the year of the bounce back in the industries that have been crushed by the internet giants.

Among the worst hit, and left for dead industry, has been retail.

Last year, retail stocks looked a lot like energy did in the middle of 2016. If you were an energy company and survived the crash in oil prices to see it double off of the bottom, you were looking at a massive rebound. Some of those stocks have gone up three-fold, five-fold, even ten-fold in the past 18 months.

Similarly, if you’re a big-brand bricks and mortar retailer, and you’ve survived the collapse in global demand–and a decade long stagnation in the global economy–to see prospects of a 4% growth economy on the horizon, there’s a clear asymmetry in the upside versus the downside in these stocks. These are stocks that can have magnificent comebacks.

Remember, back in November we talked about the comeback underway in Wal-Mart and the steps it has made to challenge Amazon (you can see that again, here). In support of that thesis, the earnings numbers that came in for retail for the third quarter were strong. And now we’re getting a glimpse of what the fourth quarter will look like, as several retailers this morning reported strong holiday sales, and upped guidance on the fourth quarter.

Just flipping through a number of charts on retail stocks, the bottom appears to be in on retail – with many bottoming out in the September-November period last year. Since then, to name a few, Ralph Lauren is up 26%, Michael Kors is up 36%, Under Armour is up 42% and Footlocker is up 64%. The survivors have been comebacks as they’ve weathered the storm and now are blending their physical presence with an online presence.

By the time you get a ETF designed to bet against the survival of bricks and mortar retail, the bottom is probably in. That ETF, the Decline Of The Retail Store (EMTY), launched on November 17 and has gone straight down since.

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November 23, 2017, 7:00 pm EST

BR caricatureYesterday we talked about the comeback underway in Wal-Mart and the steps it has made to challenge Amazon, and to challenge the idea that Amazon will crush everyone.

It’s beginning to look like the “decline of the retail store” may have bottomed too.

And it so happens that it may have bottomed precisely when a new ETF launched to capitalize on that story. ProShares launched it yesterday, and that is the name of it –ProShares Decline Of The Retail Store ETF. It gives you short exposure to bricks and mortar retailers.

It’s off to a bad start–down 3% in the first day of trading.

For retail, the week started with a big earnings beat for Advance Auto Parts (the stock was up as much as 20% on Tuesday). Then it was Wal-Mart. And today we had earnings beats in Foot Locker and Abercrombie and Fitch.

With this, while the Dow and S&P 500 were down on the day, the small-cap (Russell 2000) was up nicely. Here’s why …

As bad as retail has been, the energy sector remains the worst performing for the year–down 11% year-to-date as a sector and the only sector in the red. This, as oil has reversed from down 22% on the year, to up around 5%, with a very bullish outlook.

This sets up for a big year ahead for energy stocks. And if you believe the worst of the economic challenges are behind us, the survivors in retail could have quite a revival–especially if Amazon begins to see more regulatory scrutiny.

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