High Yield Debt Outperforms Prediction But Down From Here

High yield debt outperformed its prediction surging higher instead of going sideways. That was awesome and really helped to lift markets but unfortunately the predicted path is down from here.
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S&P 500 Measures Concentration of Wealth More than Economic Growth

Monopolies are sucking up everything in their vortex as the concentration of wealth continues. Examples of monopolies are Amazon, Google, Apple, and Facebook.

Amazon is destroying retail and it’s expanding into the food industry now. Amazon brings in automation technologies which will keep adding pressure on other low wage sectors. When Amazon announced the buyout of Whole Foods, we saw Amazon’s stock go up but everyone else in the grocery industry went down.

Amazon will layoff thousands of employees of Whole Foods and replace them with self-serve electronic cashiers. The move to layoff workers and automate has caused bubbles in higher education debt, automobile loans, consumer debt, and a new round of mortgage debt. Meanwhile, state and local governments remained strapped, and the ordinary services of everyday life are rapidly diminishing.

The trend of a few companies dominating everything at the expense of all others continues and it’s the driving force behind income inequality in the U.S.

As monopolies like Amazon continue to eliminate smaller businesses, wealth becomes more concentrated as it flows to corporate officers and shareholders.

The market cap of tech giants is already greater than the GDP of large U.S. cities. Google is bigger than Chicago and Amazon is bigger than Washington DC.

Facebook, Amazon, Apple, Microsoft and Google parent company Alphabet are the top five contributors to the S&P’s 500 gains this year. In other words, these monopolies are sucking investing dollars away from other companies thus the S&P 500 keeps rising even though the economy is slowing. In this scenario, the S&P 500 is more a gauge of the growing concentration of wealth than it is of the economy.

Fundamentals Driving the Crude Oil Price Chart

Oversupply is what is driving the crude oil price chart lower. In an article from Reuters (link above), it states that oil has hit a 6 month low on rising supply and slowing demand.

Crude Oil Price Chart

Last year I put the fair market value of oil in the mid to high 30’s. My logic last year holds true today. The oversupply of oil isn’t much better than when the price hit $26 a barrel back in February 2016.

Game Theory quantifies how it pays to cheat and it’s why OPEC production cuts always end up falling apart. We have Libya and Nigeria, who were exempt from production cuts, increasing output to take advantage and grab greater market-share.

We also have weak U.S. economic reports coming from retail sales, core inflation, and industrial production which suggests the economy is slowing and therefore oil demand will drop.

The Container Store Beats on Earnings and Revenue

May 23, 2017: The Container Store reports Q4 (Feb) EPS of $0.17 versus the $0.09 estimate. Revenues also beat rising 5.3% YoY to $221 million versus the $212.98 million estimate.

Melissa Reiff, Chief Executive Officer, said, “We are very pleased to have completed fiscal 2016 with strong fourth quarter performance that exceeded our expectations across all financial metrics. Our Custom Closets business continues to positively contribute to comparable store sales and we’ve seen sales trends improve in our other product categories driven by new and more targeted marketing campaigns, as well as merchandising improvements.

In fiscal 2016 we implemented our SG&A savings and efficiency program, which drove a substantial improvement in profitability with a full year operating income increase of 67% compared to fiscal 2015 and a three-fold increase in earnings per share to $0.31.

As we begin fiscal 2017, we remain committed to consistently driving top and bottom line performance that we believe The Container Store is capable of delivering. We have initiatives in progress to drive sales productivity improvements, including a complete re-design of our flagship store in Dallas, which we believe will provide us insight for the development of new store formats and the evolution of our existing stores’ layout and customer experience. In addition, today we are announcing a four-part plan to optimize our consolidated business and drive improved sales and profitability.”

February 12, 2017: Insider buying was detected in The Container Store last week. The Container Store is in oversold territory after reporting an earnings and revenue miss on February 7, 2017. The company reported Q3 EPS of $0.11 versus the $0.13 estimate. Revenue also missed coming in at $216.4 million versus the $224 million estimate. The company said, “Our custom closets business, specifically elfa(R) and TCS Closets(R), drove incremental sales and profit; however, holiday department sales were disappointing during the quarter and, as we expected, our annual elfa(R) sale was impacted by fewer selling days combined with Christmas and New Year’s Eve holidays falling on weekends. We’re nearing completion of our new long-term strategic plan that outlines our goals and priorities and our roadmap to achieving them. We look forward to sharing its central elements by June. Fundamental to this plan is leveraging our key differentiators and implementing new strategies to achieve top-line sales growth and maximizing the productivity of our stores by aligning our marketing, merchandising, in-store and online experience with the evolving expectations of today’s consumer.”

January 17, 2017: Morgan Stanley cuts the The Container Store to Underweight from Equal Weight and sets a price target of $5. Morgan Stanley does not expect the business to inflect over the next 12 months and the stock trades at an elevated multiple relative to other home furnishing retailers.

Originally established with one store in 1978, The Container Store has grown to be the leading specialty retailer of storage and organization products in the United States and the only national retailer solely devoted to the category. Our goal is to help provide order to an increasingly busy and chaotic world. We provide creative, multifunctional, customizable storage and organization solutions that help our customers save time, save space and improve the quality of their lives. We believe our commitment to the category, breadth of product assortment, passionate employees and focus on solutions-based selling create a long-lasting bond with our customers and foster devotion to The Container Store brand. As a result, we continue to expand our base of passionate, enthusiastic and loyal customers, which we believe will further drive our growth and profitability.

Buckingham Reiterates Wayfair With a Buy Rating

May 02, 2017: Buckingham reiterates Wayfair Inc with a Buy rating and set a price target of $57. Buckingham raised the price target to $57 from $47. Buckingham sees sees Wayfair as a takeover target for WMT as part of their new strategy to pursue expertise and talent in ecommerce as it looks to regain share lost to inline competitors.

April 20, 2017: Citron Research targets longs in Wayfair again, tweets: “Why is Wayfair the ONLY retailer who uses a manual process for accounting?” Citron notes earlier Andrew Left interview with TheStreet.com: https://www.thestreet.com/story/14093925/1/furniture-retailer-wayfair-another-madoff-andrew-left.html

December 16, 2016: Hearing takeover rumors circulating about Wayfair. The rumor is that Lowes is a possible buyer at a price of $55 per share.

November 30, 2016: Wayfair reports that direct retail sales rose 52% year over year during the Thanksgiving holiday weekend. Direct retail gross sales are defined as dollars of order intake. The period of sales tracking was the five-day peak shopping period of Thanksgiving Day through Cyber Monday. The growth rate of total company gross sales was 46 percent year over year during the same period. The company experienced its strongest sales day ever on Cyber Monday with peak order volume between 9 p.m. and 12 a.m. ET. Repeat customers accounted for 58 percent of holiday sales and Wayfair’s popular mobile app made it quick and convenient for shoppers to make purchases on the go.

Wayfair Inc. engages in the e-commerce business in the United States. It offers approximately seven million products for the home under various brands.

How the Retail Collapse Is Spreading Outward Through Bankruptcy

The retail collapse is spreading outward through the bankruptcy auction process. Retailers are attending bankruptcy auctions and are buying up assets at bargain prices. The problem is that they are buying assets by borrowing at low interest rates and going further into debt. As the US consumer spends less at retail stores because of rising interest rates, any retail company heavily in debt is exposing itself to a collapse as well.

Case in point, Stage Stores has recently acquired certain assets of Gordmans Stores through a bankruptcy auction. Under the terms of the transaction, the Stage subsidiary will acquire a minimum of 50 Gordmans store leases, with rights to assume leases for an additional seven stores and a distribution center; all of Gordmans’ inventory, furniture, fixtures, equipment and other assets at the 57 store locations; and the trademarks and other intellectual property of Gordmans.

Stage intends to fund the transaction and related investments from existing cash and availability under its credit facility. The transaction is expected to close during Stage’s first quarter of fiscal 2017, subject to the approval of the court administering the Gordmans bankruptcy and customary closing conditions.

Stage has a little over $13 million in cash, but a whopping $163.7 million in debt. What Stage should be doing is tightening its belt and paying down its debt now that the interest on that debt is rising. Instead, Stage was tempted by the bankruptcy of Gordmans to spend money acquiring assets to try and turn around its own business. It’s sort of like a desperate attempt to stem one’s own losses by acquiring assets that led to the demise of another company. If the assets for sale were that good, Gordmans wouldn’t have gone into bankruptcy in the first place but Stage is desperate and chasing yield and so they threw sound financial decisions to the wind IMO.

This situation with Stage is playing out over and over again. We are only three months into 2017 and already nine major retail brands have filed for bankruptcy: Gordmans, hhgregg, RadioShack, Gander Mountain, BCBG Max Azria, MC Sports, Eastern Outfitters, Wet Seal, and The Limited. At this rate, the industry is on pace to surpass the high of 18 major retail bankruptcies set in 2009 during the last recession.

Rumors are circulating that Payless and Bebe are both close to filing for bankruptcy too.

Folks this is how the retail collapse spreads outward. It wouldn’t surprise me to one day see Stage assets being sold off in a bankruptcy auction. BUYER BEWARE!

Insider Buying In Spark Energy

Spark Energy has had heavy insider buying over the last few weeks. The Director Maxwell W Keith III bought $273,564 worth of stock on November 23, 2016. Two days earlier, on November 21, 2016, Vice President and General Counsel Melman Gil bought $14,922 worth of stock.

Spark Energy operates as an independent retail energy services company in the US. It operates through two segments, Retail Natural Gas, and Retail Electricity. The company is involved in the retail distribution of natural gas and electricity to residential, commercial, and industrial customers. As of December 31, 2015, it operated in 66 utility service territories across 16 states and had approximately 328,000 residential customers and 19,000 commercial customers. Description from Finviz.

Spark Energy Stock Chart

Comments: Lots of resistance above the current price. There is 200-day moving average resistance at $26.86 and then 150-day moving average resistance at $28.25. The Twiggs Money Flow is below the 0% line which suggests weakness in the stock.

The stock trades at an excellent forward P/E ratio of 9.7 and has fantastic quarterly revenue growth of 73.2% YoY.

Disclosure: I do not have any position in SPKE.

Stocks With Bullish Money Flow 11-22-16

Stocks with a positive divergence between the money flow and price for November 22, 2016. Tickers: TAST, HWKN, RETL, WLH.

Carrols Restaurant Group Stock Chart

Comments: Nobody knows why this stock is moving higher. Don’t like chasing stocks without a clear catalyst. Not saying one isn’t there, just not one that I’ve found. Could have big news coming.

Hawkins Inc Stock Chart

Comments: Blast off! Excellent sales growth. Have no idea why it’s moving higher as no insider buying or institutional buying has been made public yet. Could have big news coming.

Direxion Daily Retail Bull 3X ETF Stock Chart

Comments: Large increase in open interest. Hopes a robust consumer can carry the holiday season are boosted by several encouraging retail earnings releases today from BURL, CHS, DLTR, SIG, MOV.

William Lyon Homes Stock Chart

Comments: Horizontal breakout. Excellent valuation: P/E 12.3, forward P/E 8.13. The new home sales market is a top performer for 2016.

Disclosure: I do not hold any positions in any stocks mentioned.

Terrifying US Pension Fund Charts

Pension funds in the US could be close to a collapse. There is an estimated $1.9 trillion shortfall in U.S. state and local pension funds because of low-interest rates and a sideways US stock market. Even stocks falling overseas is a problem for pension funds.

Credit Suisse published the chilling chart below on the funding gap at the largest 100 US pension funds.

Bloomberg writes

Pensions count on annual investment gains of more than 7 percent to cover much of the benefits that come due as workers retire. But public plans had a median increase of 1 percent for the year ended June 30, the smallest advance since 2009, when they lost 16.2 percent, according to the Wilshire Trust Universe Comparison Service.

Now it seems like there is a run on the Dallas Police and Fire Pension as employees try to claim benefits before the system becomes insolvent.

Pension funds are starting to drop hedge fund investments. Turn To 10 writes

Rhode Island plans to scale back its investments in hedge funds by more than $500 million over the next two years, and reallocate those funds to more traditional investments with lower fees.

Pension funds like Rhode Island are starting to be more defensive and are hunkering down. The problem though is that defensive US Treasury bonds mean way below 7 percent returns which means more shortfalls in funding are coming.

There’s no way pension funds can stay above water in an environment with low-interest rates and with equity markets at valuations that are sky high.

But wait, Democrats say everything is good, just look at consumer confidence that came out this week at 104.1.

consumer-confidence

There is massive offshoring of good paying US jobs, stagnant wages, soaring costs of health care and education, contraction in manufacturing, falling retail sales, and consumers pensions are dangerously close to collapse. Meanwhile, consumer confidence is hitting multi-year highs? Consumer confidence is starting to look like just another tool of public manipulation that’s out of touch with reality on the street.