C.M.O. 4.14.2009
Credit Market Overview
April 14, 2009
April 14, 2009
The U.S. Census Bureau will release numbers at 8:30 this morning that will provide their opinion on how the consumer is fairing in these treacherous times. Given that SKS, M, JCP and TGT announced same store sales figures that were -23.6%, -9.2%, -7.2% and -6.3% respectively last Thursday one might expect the government’s number to be lower as well.
Since it is the Uncle Sam’s ball and as such he can call the game as he sees it, it should come as no wonder that the forecast for that economic statistic is a positive 0.3% move vs. last month’s negative -0.1% move. Also of interest is that the Retail Sales Less Auto’s component is forecast to be a flat 0.0% vs. a positive 0.7% last month. I am hard pressed to think that the seven-tenths of one percent reduction in that number is the result of people postponing possible purchases pending bankruptcies at GM and Chrysler but I’m also pretty sure that the government’s economists will come up with a clever answer for what ever reality comes to be.
The changes in sales for the names above do bring to light a shift worth noting; that being the reduction in monies spent at the higher end of the retail spectrum (SKS) and the increase at the lower end, COST +3.0%. This is confirmed by even higher sales at those stores selling even less expensive goods BJ +8.5% (excluding fuel) and FDO +6.4%. Taking this all to the realm of beating a dead horse to make one’s point, sales at NMG were down 29.9% and ANF saw a 34% decrease.
This story is playing out in a physical sense as well as Chicago’s Miracle Mile (actually 0.8 of a mile) has the highest number of vacancies since 1992 with Lord and Taylor, TLB, and WSM’s Pottery Barn all closing stores on that tony stretch of road recently.
In total 6.3% of Michigan Avenue’s retail space was vacant last year vs. 4.4& in 2007 and 1.0% in 2002. Bruce Kaplan, SVP at CB Richard Ellis, whose firm conducts an annual rent survey of the MM said “people come from around the Midwest to shop here so it’s a little bit insulated from the economy, but not that insulated.”
The dichotomy between the two ends of the spending spectrum does not seem sequestered to the States either. Bain & Co., a consulting company that monitors the high end of things has increased the forecast of the decrease they see in luxury goods sales from 10% last October to 20% more recently and they look at things on a global basis.
“The situation is now is a little worse than we thought it would be back in October.” Claudia D’Arpizio, a consultant in the company’s Milan office said recently. Before we start “shaking the cup” on the behalf of luxury goods makers realize that even at down 20% we’re still talking about $180BN worth of jewelry, watches and leather goods.
How does all of this filter through to the markets you ask? Let’s start at the high end and work our way down and have a look at the CDS/equity relationships to find out. CDS for SKS peaked on 2/25 at 2325 and the stock closed at its low a few days later $1.57 on 3/10. Since then, however, the stock has gained 82% closing at $2.86 last night while the CDS has narrowed to 1716 or 73% lower than its recent peak.
M has done even better with the stock up 96.5% ($12.93) from its 3/5 low of $6.58 which was also the day the CDS peaked at 838. The CDS has narrowed -35% in the same time span closing at 540 last night.
Given the increase in sales announced by COST last week one would have thought that it would have come in as best of breed but the numbers show a bit of a different story. The recent high in the CDS was 110 on 3/5 and it closed down 16% at 92 last night while the stock which bottomed on 3/9 at $38.44 has only risen 8% to $7.97 last night which is actually down from $48.91 on April 3rd.
If there is something to be read from between the lines here it might come from the anticipatory quality everyone associates with the stock market. If that truly is the case than the moves in the stock prices of the higher end stores might suggest that the spenders are not as worried about things as Roubini & Co. would have us believe we should be and are putting their money where their mouth is.
On the other hand, if the affluent are practicing a little retail therapy, as they are want to do at times, they might be doing their best impression of Marie Antoinette by ignoring imminent disaster. Who knows, maybe they buy those big bags so they can fit the whole cake inside.
Enjoy the week.
Jim Delaney
Since it is the Uncle Sam’s ball and as such he can call the game as he sees it, it should come as no wonder that the forecast for that economic statistic is a positive 0.3% move vs. last month’s negative -0.1% move. Also of interest is that the Retail Sales Less Auto’s component is forecast to be a flat 0.0% vs. a positive 0.7% last month. I am hard pressed to think that the seven-tenths of one percent reduction in that number is the result of people postponing possible purchases pending bankruptcies at GM and Chrysler but I’m also pretty sure that the government’s economists will come up with a clever answer for what ever reality comes to be.
The changes in sales for the names above do bring to light a shift worth noting; that being the reduction in monies spent at the higher end of the retail spectrum (SKS) and the increase at the lower end, COST +3.0%. This is confirmed by even higher sales at those stores selling even less expensive goods BJ +8.5% (excluding fuel) and FDO +6.4%. Taking this all to the realm of beating a dead horse to make one’s point, sales at NMG were down 29.9% and ANF saw a 34% decrease.
This story is playing out in a physical sense as well as Chicago’s Miracle Mile (actually 0.8 of a mile) has the highest number of vacancies since 1992 with Lord and Taylor, TLB, and WSM’s Pottery Barn all closing stores on that tony stretch of road recently.
In total 6.3% of Michigan Avenue’s retail space was vacant last year vs. 4.4& in 2007 and 1.0% in 2002. Bruce Kaplan, SVP at CB Richard Ellis, whose firm conducts an annual rent survey of the MM said “people come from around the Midwest to shop here so it’s a little bit insulated from the economy, but not that insulated.”
The dichotomy between the two ends of the spending spectrum does not seem sequestered to the States either. Bain & Co., a consulting company that monitors the high end of things has increased the forecast of the decrease they see in luxury goods sales from 10% last October to 20% more recently and they look at things on a global basis.
“The situation is now is a little worse than we thought it would be back in October.” Claudia D’Arpizio, a consultant in the company’s Milan office said recently. Before we start “shaking the cup” on the behalf of luxury goods makers realize that even at down 20% we’re still talking about $180BN worth of jewelry, watches and leather goods.
How does all of this filter through to the markets you ask? Let’s start at the high end and work our way down and have a look at the CDS/equity relationships to find out. CDS for SKS peaked on 2/25 at 2325 and the stock closed at its low a few days later $1.57 on 3/10. Since then, however, the stock has gained 82% closing at $2.86 last night while the CDS has narrowed to 1716 or 73% lower than its recent peak.
M has done even better with the stock up 96.5% ($12.93) from its 3/5 low of $6.58 which was also the day the CDS peaked at 838. The CDS has narrowed -35% in the same time span closing at 540 last night.
Given the increase in sales announced by COST last week one would have thought that it would have come in as best of breed but the numbers show a bit of a different story. The recent high in the CDS was 110 on 3/5 and it closed down 16% at 92 last night while the stock which bottomed on 3/9 at $38.44 has only risen 8% to $7.97 last night which is actually down from $48.91 on April 3rd.
If there is something to be read from between the lines here it might come from the anticipatory quality everyone associates with the stock market. If that truly is the case than the moves in the stock prices of the higher end stores might suggest that the spenders are not as worried about things as Roubini & Co. would have us believe we should be and are putting their money where their mouth is.
On the other hand, if the affluent are practicing a little retail therapy, as they are want to do at times, they might be doing their best impression of Marie Antoinette by ignoring imminent disaster. Who knows, maybe they buy those big bags so they can fit the whole cake inside.
Enjoy the week.
Jim Delaney
Labels: CDS, CEC Strategy, correlation, credit, cross asset, equity, Jim Delaney
posted by Jim Delaney at
4:09 AM
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