Global Market Commentary

May 19, 2016

Executive Summary

1.  Market summary.  The movement of the U.S. dollar will be the key determinant of the direction of U.S. stocks, gold, and oil — and a great deal about the direction of the U.S. currency and market depends on the coming U.S. election.  In our view, the election is primarily about pocketbook issues, and secondarily about political promises that have not been kept.  The U.S. job market has been languishing since the early 2000s.  Since then, a great deal of government money has been spent, and debt has been run up by spending on wars and environmental and social issues, while little attention has been given to the incentivizing of capital formation — which creates jobs and economic growth.  Politicians made promises, but they neglected the engine of the economy which actually generates new jobs.  Left-behind middle class voters feel that they have been misled by unfulfilled promises and taken advantage of by politicians whose real priorities don’t reflect their own.  Finally, they are refusing to vote for someone who pays lip service to their problems, and then takes no action.  Many are taking great pleasure in the skewering of political elites and the Washington, New York, and Hollywood mandarins.  On the economic front, U.S. GDP growth is rising and the consumer price index (CPI) is rising at the same time.  The combination of these two variables will lead to higher corporate profits and lower the price-to-earnings ratio of the U.S. market.  Within the U.S. we continue to favor oil, gold, and tech shares.  Oil and gold have performed well in 2016, and we expect more outperformance as the oncoming election creates modest emotional turmoil in the nation, and inflation and GDP create a desire for investors to protect themselves with hard assets, we suggest that you buy gold, oil, or currencies only when the inevitable dips in price occur.  We continue to view the Brazilian currency and bonds as attractive purchases for global investors on price declines.  We also recommend Russian rubles or Russian stocks for the bold.

2.  European truck manufacturers and American tech firms show that self-driving truck convoys are right around the corner.  Autonomous cars may be decades away from widespread adoption due to remaining technical, social, and regulatory factors, but autonomous trucking is ready for implementation.  Successful experiments with autonomous truck operations on highways have been conducted by a European research consortium, and by a U.S. firm headed by the architect of Alphabet’s [NASDAQ:  GOOG] autonomous car effort.  This technology will generate huge savings for anyone whose livelihood depends on shipping goods long distances — especially retailers and their customers.  It will also create disruption for trucking employment, as well as the ancillary businesses that are supported by trucking: fueling businesses, telematics, and hospitality, among others.  Look for additional incremental benefits to accrue especially to e-commerce firms, as well as mass retailers dependent on a just-in-time supply chain.

3.  Europe’s banks still pose risks for the Eurozone… and for the global financial system.  Europe’s banking system has seen small improvements, but lenders in the periphery, and particularly in Italy, remain saddled with extraordinarily high levels of bad debt.  With the Italian economy still sputtering, and six years of a “recovery” that has gone nowhere economically, populist movements on the right and the left are still finding a very receptive audience in the Italian people.  We reiterate that when the next crisis emerges, probably in the next one to four years, its epicenter may well be the European financial system.  And in the meantime, we are steering clear of Europe as an investment destination — and especially European banks.

4.  Disasters unfolding, one far and one near: Greece and Venezuela.  The Greek show is on again, and we predict another solution that solves nothing.  The day of reckoning is still some ways off.  On the other hand, the day of reckoning is much closer for another economic disaster: Venezuela, where shortages of food, medicine, and other basic necessities are threatening to tilt the nation into chaos.  We predicted this outcome when Hugo Chávez took power in Venezuela in 1999.  The lesson to be learned: look for sound and sober financial systems, and shun those run by fantasists, kleptocrats, and ideologues.  When the music stops and the dust settles, we’ll look for bargains.

5.  Amazon vs. the department stores — Wal-Mart and Kroger join  the free delivery fray.  Recent dismal earnings and stock performance by department stores underline what investors have long known: the future lies with online retail, where Amazon [NASDAQ:  AMZN] is already dominant through its Prime membership.  Wal-Mart [NYSE:  WMT] may be poised to give AMZN a run for their money as they double down on their own, less expensive two-day shipping option, ShippingPass, and grocer Kroger [NYSE:  KR] is also expanding its delivery options.  Let the battle for the hearts, minds, and wallets of millennial shoppers continue.  In the meantime, stay away from any retailers facing the grim necessity of sharply contracting their brick-and-mortar footprint to survive… especially when management maintains that such contraction is not the path forward.

Market Summary

U.S. Dollar and Stocks… and Politics

The movement of the U.S. dollar will be the key determinant of the direction of U.S. stocks, gold, and oil — and a great deal about the direction of the U.S. currency and market depends on the coming U.S. election.

In our view, the election is primarily about pocketbook issues, and secondarily about political promises that have not been kept.  After many questions from others about why Trump is so popular, and why we think his popularity has grown during the primary season, we outline two most powerful contributory factors below.  Interestingly, according to recent polls, most professional investors still think that the odds of Trump being elected are less than 25%.  If he is elected, some managers could be in for a shock.

First and most important is the fact that the U.S. job market has been languishing since the early 2000s, when the internet bubble burst and corrected what was then a highly overvalued stock market and a frothy economy.  A large recession ensued.  Since then, a great deal of government money has been spent, and debt has been run up by spending on wars and environmental and social issues, while little attention has been given to the incentivizing of capital formation — which creates jobs and economic growth.  Politicians made easy promises, but they neglected the engine of the economy which actually generates new jobs.

Over the last 15 years the effect on the middle class has seen:

  • A lowered standard of living;
  • A decline in retirement security;
  • Diminished status in society (the poor are more secure and the rich are getting richer, but middle-class economic status has decreased);
  • Deteriorating schools for their children; and
  • Escalating costs for higher education.


These left-behind voters feel that they have been misled by unfulfilled promises and taken advantage of by politicians whose real priorities don’t reflect their own.  Finally, they are refusing to vote for someone who pays lip service to their problems and then takes no action.  They want more jobs, better jobs, and better pay, and they believe that Trump is more likely to deliver the goods than any of the other Republican candidates.

Secondly, Trump is spontaneous — often crude, unkind, and impolitic, and gleefully politically incorrect.

A large part of the electorate holds a long-simmering resentment against the way political correctness has been used to further a quiet agenda of class stratification and social intimidation.

The critics of political correctness are growing in number.  They seem to feel that political correctness is a tool being used to stratify society — used by academics, students and recent graduates, well-heeled urbanites, the mandarins of mainstream media and pop culture, and other gatekeepers of social prestige and power.  

These critics see two classes being created: first, the “cool,” politically correct, cosmopolitan, socially conscious class, that is more caring; andsecond, a type of underclass that is decidedly neither cool nor socially conscious, and are thus somehow disqualified from having a place in American culture or politics, except as the punch-line of snide jokes on TV shows hosted by representatives of the New York/Washington/Hollywood elite.  (Cue eye-rolling: “Can you believe that anyone in 2016 still believes XYZ?”  A decade or two of watching the TV make fun of people like yourself can make folks a little angry.)

Regardless of the intent to encourage more tolerance and inclusion, the political correctness movement has morphed into a manipulative tool used to put “the ignorant” in their proper place where they are not valued or listened to, and have no influence on the culture.

Part and parcel of Trump’s embrace of unvarnished political incorrectness is this willingness to say forbidden things that other politicians are afraid to say directly.  In order to avoid saying the unsayable, politicians often beat around the bush or use code words (that is, “dog whistling”) to make their points — and consequently come across as phonies to audiences who know perfectly well what they are avoiding saying, and are tired of the subterfuge.  So although Trump often sounds like a boor, his transparency and willingness to speak his mind, and slay all the sacred cows of the politically correct elite, makes a significant part of the American working and middle classes feel that finally, someone is on their side and willing to speak the truth about their condition.  And maybe even willing to do something about it.

Hillary and the Donald Will Help Shape the Future of the U.S. Economy and Stock Market

We have not yet seen Trump’s detailed platform on the issues of foreign trade, economic growth, corporate and personal taxes, and other pocketbook items, but we are beginning to see the shape of Clinton’s proposals, which appear to be moving to the left because of the Bernie Sanders’ electoral successes with part of the Democratic Party base.

The U.S. Economic Backdrop

As we have been expecting, GDP growth is rising and the consumer price index (CPI) is rising at the same time.  The combination of these two variables will lead to higher corporate profits and lower the price-to-earnings ratio of the US market.  CPI is currently 1.1% for the last 12 months, and core CPI is at 2.2%.  This is above the Fed’s longstanding 2% inflation guideline.  We anticipate that CPI will continue to rise as the year progresses, and that we will see a CPI of over 3% in 2016.

U.S. Stocks

Overall, the environment is mildly positive for U.S. stocks.  Within the U.S. we continue to favor oil, gold, and tech shares.  Oil and gold have performed well in 2016, and we expect more outperformance as the oncoming election creates modest emotional turmoil in the nation, and inflation and GDP create a desire for investors to protect themselves with hard assets.

Foreign Currencies

We continue to view the Brazilian currency and bonds as attractive purchases for global investors.  We also recommend Russian rubles or Russian stocks for the bold; only buy these currencies on dips in price.

 

“Road Trains” Are Ready:  Who Wins, and Who Loses?

Breathless news that driverless cars are poised to take over the roadways have so far left us skeptical — partly because we believe that the technological challenges to real-world implementation are higher than tech cheerleaders want to believe, and partly because we see that regulators, the insurance industry, and public opinion are likely to provide higher hurdles than commonly supposed.  Technological transformation has a way of confounding its early-adopting apostles by taking longer than they think — and then catching the skeptics flat-footed when it finally matures after a period of incubation outside the limelight.

April gave us an indication of an incremental movement towards autonomous vehicles — one that will be implemented well before you climb into a Google [NASDAQ:  GOOG] or Apple [NYSE:  AAPL] car for your morning commute.  Although it falls well short of the vision of enthusiastic futurists, it promises dramatic disruptions for many industries and workers, and benefits to many other industries and consumers.

Platoons on the Road in Europe

In April, a dozen trucks travelled autonomously in six convoys across much of northern Europe.  The successful trial was in response to a challenge set by the Dutch government, and involved participation by six major European truck manufacturers — Volvo [Stockholm:  VOLVB], Scania [Stockholm:  SCVB], Daimler [Frankfurt:  DAI], Iveco (a subsidiary of CNH Industrials [NYSE:  CNHI]), DAF (a subsidiary of PACCAR [NASDAQ:  PCAR]), and MAN [Frankfurt:  MAN].  The largely self-driving trucks travelled in convoys, or “road trains,” with a lead vehicle followed by other vehicles linked to it by Wi-Fi, and reacting instantly to the actions of the lead vehicle, permitting them to travel much more closely together and realize significant fuel efficiency gains.  They had drivers in them, but only as backup, not to manage the vehicles’ movement on the highway.

Self-Driving Trucks Convoy Across Northern Europe, Arriving At Rotterdam

Source:  European Truck Platooning

Such “platooning” is not new.  In fact, the Europeans have been working on it with less fanfare for years.  In 2009, European Commission grants funded a project dubbed “Safe Road Trains For the Environment,” or SARTRE for short.  Perhaps only European bureaucrats would find humor in naming a tech project after Jean-Paul Sartre, the 20th century’s premier grumpy Marxist philosophy professor and the author of one of the largest books you’re grateful you never read: Being and Nothingness.

The project brought together a consortium of seven European tech firms and university-associated research institutes (the only automotive company included was VOLVB, also one of the participants in the recent convoy challenge).  The effort successfully concluded in 2012 with tests of a platoon that consisted of a lead truck driven by a human, followed by another truck and three Volvo sedans all linked to it and controlled by the lead’s actions rather than by their drivers.  (The drivers of the SARTRE project, in keeping with its namesake, were thus free to stare out the window and reflect on the inevitability of their own death, which would now be far less likely to happen in a traffic accident.)

As the name of the project suggested, the main focus was on increasing fuel efficiency (read “carbon emissions”) and safety, and reducing road congestion: benefits that appeal to a public largely concerned with environmental issues and social welfare.

The same benefits were cited in this year’s challenge, but with a little bit more of an explicitly economic twist, noting in addition that the technology would help control infrastructure expenses by reducing the need for roadway expansion, and would help transport companies deal with a looming shortfall in trained drivers.  But the emphasis was still on making roads safer, cleaner, and more enjoyable for humans to travel on.

Another successful project has come from the architect of Alphabet’s [NASDAQ:  GOOG] autonomous car effort, Anthony Levandowski, whose startup firm, Otto, is planning to offer kits to retrofit trucks for autonomous highway operation.  He says current technology is sufficient to permit trucks to operate autonomously, with the challenges of highway travel setting a much lower bar than the operation of vehicles in urban traffic.  That implies, again, that the remaining hurdles are psychological and legal — and progress is already being made, with legislation enacted in California, Nevada, Michigan, and Florida, and in the works in other states as well.

Legislation Covering Autonomous Trucks Making Progress In Many States

 

Source:  Center for Internet and Society

The Economic Effects

To us, though, the most significant implication of the project’s success is that automated trucking is, in fact, technologically ready for implementation.  The future of highways filled with autonomous cars may be a decade or more away, but the presence of autonomous truck convoys is likely much closer.  The hurdles for it are psychological, legal, and administrative, not technological.  (Although there will be further minor technological hurdles as it becomes more widespread — for example, smoothing the process by which vehicles schedule and negotiate their entry and exit from a convoy.)

Disruption Is Around the Corner

This means that a real disruption of the trucking industry could be imminent.

The labor expense of trucking is significant.  Today, shipping a trailer from Los Angeles to New York costs about $4500 — of which 75% is labor cost.  But there are more savings, since driverless trucks can travel 24 hours a day, while human drivers have to park their rigs after 11 hours on the road.  Driverless trucks could double the output of U.S. long-haul trucking at 25 percent of the cost.

Autonomous trucks travelling in convoys, as the European experiment demonstrated, will also realize substantial benefits in fuel costs.  The platoon formation alone can save 20% on fuel, and robot drivers are not paid by the mile and will have no incentive to drive faster and sacrifice fuel efficiency.  (Of course, his means that the platoons will be driving like your grandmother.  That’s probably a good thing, all told.)

From an economic perspective, accidents and their attendant costs will also be reduced.  Being a long-haul truck driver is dangerous; 835 truck drivers were killed on the job last year, more than any other occupation.  More people will die in truck-related accidents this year than have died in domestic airline crashes over the last 45 years.

All this means that the arrival of autonomous truck convoys will mean ahuge savings for businesses that ship goods, as well as for their customers.  It will mean cheaper retail goods for consumers, and better margins for retailers.

It will also mean disruption for American workers.  Consider the following map of the U.S., showing the most common occupation in each U.S. state, in 1984 and a generation later in 2014.  A nation of clerical workers has become a nation of truck drivers.  (E-commerce may have driven some of the rise of truck driving as an occupation, and the same shifts have led to the rise of four states where the number one occupation is software developers.)

 

Source:  Census Bureau

Truck driving is the most common job in 29 states, and with 1.6 million workers, the profession accounts for a full 1% of the U.S. workforce.

Not only will autonomous trucking put these people out of work, it will also radically reshape all of trucking’s economic ancillaries: gas stations, highway restaurants, motels, rest stops, and fleet fueling businesses (not to mention firms that deal in fleet telematics, which could reinvent themselves or be destroyed).

We simply note that this disruption is nothing new.  It has happened over and over in the waves of industrialization that have swept the developed world since the 19th century.  Now, as then, consumers will benefit from cheaper goods, and workers will slowly and painfully retrain or retire, and employment patterns will shift.  (This is all the more likely to occur now, since trucking is tough work, and the average age of drivers is 55 and rising — making the industry ripe for automation.)

Investment implications:  Autonomous cars may be decades away from widespread adoption due to remaining technical, social, and regulatory factors, but autonomous trucking is ready for implementation.  Successful experiments with autonomous truck operations on highways have been conducted by a European research consortium, and by a U.S. firm headed by the architect of Alphabet’s [NASDAQ:  GOOG] autonomous car effort.  This technology will generate huge savings for anyone whose livelihood depends on shipping goods long distances — especially retailers and their customers.  It will also create disruption for trucking employment, as well as the ancillary businesses that are supported by trucking: fueling businesses, telematics, and hospitality, among others.  Look for additional incremental benefits to accrue especially to e-commerce firms, as well as mass retailers dependent on a just-in-time supply chain.

 

European Banks Remain a Danger

In the past year, as European stocks have fallen from their post-QE high, European banks have underperformed even the poor performance of the broad European market.  In the past 12 months, the Euro Stoxx 50 is down about 18%, while the Euro Stoxx bank index has registered a decline about twice as deep: 37%.


Source:  Bloomberg

We have often noted that European banks remain a potential flash-point for a future redux of the global financial crisis.  They have taken some steps towards recapitalization — their core equity cushions rose from an average of 9% in 2009 to 12.5% in 2015.  Deutsche Bank [NYSE:  DB] and Credit Suisse [NYSE:  CS] have both curtailed their investment banking activities in the quest to become safer and more profitable, although it’s hurting in the near term.  Under new European bail-in regulations, holders of European bank debt are becoming aware of the real risks that face them — which became especially acute for DB in February over market fears surrounding its “CoCo” bonds, a type of debt designed to act as a crisis buffer.

Perhaps the biggest problem, though, is Italy.  Greece — which we will comment on briefly below — is well-known as a basket case; Italy is less so.  Yet the third-largest Eurozone economy contains bank risk aplenty.  Italian banks’ books hold a staggering proportion of bad debt — 18% non-performing loans (NPLs), amounting to some €360 billion, 20% of Italian GDP, and more than a third of all the NPLs in Europe.  Italy is hamstrung by EU regulations under which any state aid triggers automatic bail-in provisions, giving a haircut to holders of the bank’s debt — not just diversified financial institutions, but retail investors. 

 

These new regulations have prevented Italy from following the path taken by Spain — the setting up of a “bad bank” to clean up the balance sheets of other lenders.  Italy’s late and half-hearted solution — the creation of a rescue fund called Atlante, financed by healthier banks — runs the risk of drawing sound banks into the contagion of failing banks during a crisis.


The prospect of bail-ins in which a broad swath of Italian citizens would suffer losses, needless to say, does not sit well with Italian politicians.  (Our readers may remember our dictum that politicians, with few exceptions, will do anything to put off tough reform until after they’ve left office.)  The upstart Five Star Movement of comedian Beppe Grillo, the caustic populist calling for Italy to leave the Eurozone and restore the lira, may have fallen out of the English-language news, but has not fallen out of Italian politics.  At the moment Grillo’s party leads in national polls at 28%, and may win in Rome in next month’s municipal elections.  On the right, the leader of the Northern League says that the Euro is “a crime against humanity.”

Why the staying power of this disruptive political movement in Italy?  Simply, the dire straits of the Italian economy.  Southern Italy, historically an economic laggard, sports catastrophic levels of youth unemployment (65% in Calabria, for example).  According to OECD figures, Italy’s industrial production has declined to levels last seen in the 1980s, and now stands at the same level as it did at the bottom of Europe’s crisis.

 

Source:  Federal Reserve Bank of St Louis

A former chief economist at the Italian treasury said simply, “We’re going to be in big trouble if there’s another recession.”  Italy has had a non-recovery since the crisis, remains extremely vulnerable, and is too big to be dealt with like a Greece, or even a Spain.  EU regulatory dysfunction is worsening the problems… and mainstream politicians, at both the country and the EU level, are loath to address the structural issues involved.

Not only is this a further reason for us to dislike Europe; it is a further reason to believe that unless real reform is forthcoming — something we doubt — the European banking system could well be “patient zero” in the next global financial contagion.  

Investment implications:  Europe’s banking system has seen small improvements, but lenders in the periphery, and particularly in Italy, remain saddled with extraordinarily high levels of bad debt.  With the Italian economy still sputtering, and six years of a “recovery” that has gone nowhere economically, populist movements on the right and the left are still finding a very receptive audience in the Italian people.  We reiterate that when the next crisis emerges, probably in the next one to four years, its epicenter may well be the European financial system.  And in the meantime, we are steering clear of Europe as an investment destination — and especially European banks.

 

Greece and Venezuela

During last year’s brinksmanship over potential Greek default, when a deal was finally reached and Greece vanished from the world’s headlines, we noted to readers to be patient… that nothing had really been resolved, and that the issues of Greece’s unsustainable debt would surface again in the future.  On cue, they have, with reruns of last year’s wrangling among the various actors: intransigent Germans, unconvincing and foot-dragging Greeks, and the International Monetary Fund (IMF) desperately trying to introduce sober analysis of the economic and financial facts against the rosy and fantastic projections of European institutions seeking to paper over the dismal truth.

The IMF’s Christine Lagarde, Reasoning With the Unreasonable

Source:  Xinhua

Ambrose Evans-Pritchard summed up the reality well last week in The Telegraph: “Blame is pointless.  The critique of the [European monetary union] was always that it would be unworkable to corral Europe’s prickly, heterogeneous nation cultures into a tight… union, and so it has proved.”  Our observation is simple: Greece’s debts are unpayable, certainly unpayable by Greece.  One way or another, there will be default or haircuts, within or outside the Euro.  The politicians involved can be counted on to keep up the charade as long as they possibly can, which means to kick the can further down the road, until it hits a wall.  That wall is still some distance off.  We predict a further episode of “extend and pretend,” with congratulatory photo ops featuring beaming Greek and European officials announcing that the problems are “solved.”

Speaking of walls, the wall seems to be coming into clear focus on the other side of the world, in Venezuela.  There, the final chapter of Hugo Chávez’ Bolivarian socialist revolution is unfolding exactly as we predicted it would when he took power in 1999 — with food and medicine in increasingly short supply as the government blames foreign powers for the disaster which has befallen their kleptocratic regime, and a state of emergency possibly presaging the arrival of real violence.  (The fact that Venezuela’s largest brewery can’t afford barley and had to shut down production may focus a few minds as a hot summer approaches.)  As usual, the common folk who supported Chávez and his successor, Nicolás Maduro, are the ones who have been hurt the most, and will be hurt more when the regime crumbles into chaos.  Meanwhile Chávez’ family and his political successors are now billionaires.  So much for Bolivarian socialism.

Investment implications:  The Greek show is on again, and we predict another solution that solves nothing.  The day of reckoning is still some ways off.  The day of reckoning is much closer for another economic disaster: Venezuela, where shortages of food, medicine, and other basic necessities are threatening to tilt the nation into chaos.  We predicted this outcome when Hugo Chávez took power in Venezuela in 1999.  The lesson to be learned: look for sound and sober financial systems, and shun those run by fantasists, kleptocrats, and ideologues.  When the music stops and the dust settles, we’ll look for bargains.

 

Retail’s Pain is Amazon’s Gain

A recent report from real estate analysis firm Green Street Advisors garnered attention when they noted that in order to regain pre-recession levels of per-square-foot productivity, department store giants would need to cull hundreds of mall locations.  The analysts noted what has long been obvious:  “Today, many of the brands have stores of their own, and shoppers can also find them online.”  In the first quarter, e-commerce sales expanded at an annualized 16% rate versus 4% for consumer discretionary spending as a whole.

Disappointing earnings and disappointing stock performance reinforce the message: brick-and-mortar retail may not be dead, but its future is one of contraction.  Wal-Mart [NYSE:  WMT] has at least shown boldness in rolling out its own iteration of Amazon Prime: ShippingPass, which offers free two-day delivery for $49 a year.  Too little, too late?  Perhaps, perhaps not — a third of U.S. households are Amazon Prime members, and they enjoy many benefits beyond free two-day shipping.  Other entrants into the rapid delivery space include HomeShop from grocery firm Kroger [NYSE:  KR], which will be competing with AMZN offerings such as Fresh and Now.  We would not count out the efforts of aggressive and well-managed retailers such as KR and WMT, and their efforts show that they are determined not to follow in the footsteps of the department stores, whose woes are concisely summarized in the chart below.  Online orders and rapid delivery are the future throughout retail, regardless of segment: this is the simple message.  Look for retailers who are making aggressive moves in this space.

We note, for example, that although AMZN retails overall dominance, with about 20% of total U.S. online sales vs. 10% for eBay [NASDAQ:  EBAY] and 3% for WMT, others are accelerating their number of digital visitors more rapidly.  Target [NYSE:  TGT], for example, over the past four quarters, has seen online visitors grow at an average annual rate of 38%, the best growth rate of the top 10 retailers’ sites.  TGT’s traffic is of course coming off a much smaller base, but such stats bear watching to track who is making efforts and gains.

Owners of the Purple Line Are Happier, According to Most Polls

Source:  Bloomberg

Clearly, the growth lies with Amazon [NASDAQ:  AMZN], and owners of AMZN are also owners of Amazon Web Services, which may ultimately be more significant than the company’s retail operations.  Given WMT’s track record of aggressive growth, however, we think they could be competitive in moving their business online — and in market research, more well-heeled and younger consumers are the most likely to express interest in ShippingPass.  Investors should consider AMZN shares on the inevitable market corrections.

Investment implications:  Recent dismal earnings and stock performance by department stores underline what investors have long known: the future lies with online retail, where Amazon [NASDAQ:  AMZN] is already dominant through its Prime membership.  Wal-Mart [NYSE:  WMT] may be poised to give AMZN a run for their money as they double down on their own, less expensive two-day shipping option, ShippingPass, and grocer Kroger [NYSE:  KR] is also expanding its delivery options.  Let the battle for the hearts, minds, and wallets of millennial shoppers continue.  In the meantime, stay away from any retailers facing the grim necessity of sharply contracting their brick-and-mortar footprint to survive… especially when management maintains that such contraction is not the path forward.

Thanks for reading; we welcome your calls and questions.

 

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