Retail Wednesday – Target Misses the Mark

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Find The Target | 3D Animated Clipart for PowerPoint - PresenterMedia.comBad news for Retail.

Target (TGT) missed earnings by about 25% despite a 12.7% increase in Revenues, due mainly to inflated prices, NOT more actual item sales.  They are also warning Q4 is likely to disappoint as well and that’s sending the stock down 15% this morning and it’s taking the entire Retail Sector (XRT) down 2.5%, despite WalMart (WMT) having great numbers last night.  

WMT had a 17.4% increase in sales and that was enough to give them an earnings beat and this is just math as many TGT customers traded down to WMT and WMT customers haven’t quite been driven to the Dollar Store yet (because there are still plenty of jobs) but there aren’t the same number of above TGT customers (COST customers?) who have been driven to TGT yet – there are simply more people at the bottom of the pyramid for WMT to capture.  

Consumer Spending Power is eroding quickly as Household Debt jumped the most in 15 years, led by a 15% increase in Credit Card balances since last year.  Total debt jumped by $351Bn for the July-to-September period, the largest nominal quarterly increase since 2007, bringing the collective household IOU in the U.S. to a fresh record $16.5Tn. That’s an increase of 2.2% from the previous quarter and 8.3% from a year ago.  The increase follows a $310Bn jump in the second quarter and represents a $1.27 TRILLION annual increase.

Earlier this month, Bloomberg reported the average interest rate for credit cards is the highest it’s been in 25 years. At 18% and rising, this figure has been expanding since the Fed began raising interest rates, and it’s expected to continue to go up with new hikes expected in November and the next year.

The only reason we’re not in a full-blown Recession is jobs but an erosion in the Jobs Market (which the Fed is pushing for) coupled with more debt and higher interest rates on that debt is a recipe for disaster – yet another reason we should be going to CASH!!! in our portfolios:

This does not bode well, does it?  

Retail Sales actually came in way over expectations, at 1.3% for October vs 0.6% expected so the Consumers are certainly not dead yet and TGT is probably just going through an adjustment period and the stock is probably a good buy down here – but it’s not really the time to be taking big chances, is it?  

Home Depot Inc. said that comparable sales rose 4.3% in its third quarter as big-ticket transactions and as consumers choose to renovate their homes instead of moving because of rising interest rates.  Lowe’s just gave a similar report

Another reason we were leaning towards cashing in our portfolios into the end of the year was the War is still on.  Yesterday the market dropped sharply as it was thought Russia accidentally bombed Poland – a NATO ally (they did not, it was a Russian-made missile fired by Ukraine Air Defense against Russian Missiles being fired by Russia at Ukraine). Fortunately, it did not trigger World War III (yet) but it shows what a hair trigger this market “rally” rests on.

Import (-0.2%) and Export (-0.3%) Prices fell in October and that’s good news and we’re waiting on Industrial Production and Capacity Utilization numbers at 9:15.  

Meanwhile, ex-President Trump has announced he will attempt to lose the popular vote for a record-breaking 3rd consecutive time in 2024.  Alf Landon (R) holds the current record for worst ass-kicking in a Presidential Election when he was beaten by Roosevelt in 1936 with 60.8% of the votes (and 98.5% of the Electoral Votes).  Good luck to Mr. Trump, I sincerely hope he is the GOP candidate in the next election! 

  

 

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good morning. Here is the link to today’s webinar
https://attendee.gotowebinar.com/register/4933875238365982989

FYI no Trump image visible here .. large white space under your post “Good luck to Mr. Trump … ” but no pic.

Good Morning.

Phil – in yesterdays butterfly portfolio review, for UL (Unilever) you said: ” Now it’s time to cover so let’s sell 15 of the 2025 $60 calls for $2.60 ($3,900) and 10 of the May $50 calls for $2.10 ($2,100).” Our longs are 2024s – did you mean the 2024 $60s, or are we also rolling the longs to 2025s?

Strangely, even with PM, short 2025s against long 2024s are being treated as naked short calls for me.

Phil,
Re solar (SPWR), are you concerned about the phasing out of federal tax credits scheduled for 2024 and the movement in certain states to reduce/eliminate solar subsidies (Hawaii and Nevada have cut back, and Calif and Fla are considering doing so)? Average residential installation costs run about $25K with annual savings about 1k (2/18/22 The Week article). The issue seems to be the resultant increased utility costs for non-solar customers due to lower use by solar owners. Supposedly, there is a proposal to levy a surcharge on solar customers of $40/month. Thanks for your thoughts.

My daughter’s Godfather works for a solar installer. The changes in place, at least here in CA, are to move solar production back to the utility level instead of the homeowners rooftop. There are benefits to both (more consistent production from utility scale, but more transmission costs), but I don’t think solar is slowing down. We’re likely to see growth in vertically mounted, bifacial panels entering the mix which, while they only produce during the day, their production curve is functionally inverted to that of traditionally mounted panels.

https://www.pv-magazine.com/2021/12/13/frances-first-vertical-bifacial-solar-power-plant/

The other massive development in solar is https://news.stanford.edu/2022/06/27/new-optical-device-help-solar-arrays-focus-light-even-clouds/

Each of these technologies are a little more expensive than traditional panels, but reduce the need for storage.

Add in tandem solar cells built with perovskite layers and you realize that the technological development is going to keep this stuff alive for a while. In each case, the panels get more expensive but a lot more productive. At the stage we’re at, we can afford more expensive panels as the labor is the driving factor in the cost.

https://www.energy.gov/eere/solar/perovskite-solar-cells

Had a nice thorough response to your message and it got canned by the system. My less thorough answer is:
Between perovskite, vertically mounted bifacial panels, and optics, I don’t think solar is anywhere near slowing down regardless of what happens with rates.

https://news.stanford.edu/2022/06/27/new-optical-device-help-solar-arrays-focus-light-even-clouds/
https://www.pv-magazine.com/2021/12/13/frances-first-vertical-bifacial-solar-power-plant/
https://www.energy.gov/eere/solar/perovskite-solar-cells

Phil / MU – significant announcement, given that it just took down q4 outlook at earnings

tho0ughts?

Micron Announces Further Actions to Address Market Conditions
Nov. 16, 2022 8:52 AM ET

BOISE, Idaho, Nov. 16, 2022 (GLOBE NEWSWIRE) — Micron Technology, In), today announced that in response to market conditions, the company is reducing DRAM and NAND wafer starts by approximately 20% versus fiscal fourth quarter 2022. These reductions will be made across all technology nodes where Micron has meaningful output. Micron is also working toward additional capex cuts. In calendar 2023, Micron now expects its year-on-year bit supply growth to be negative for DRAM, and in the single-digit percentage range for NAND.
Recently, the market outlook for calendar 2023 has weakened. In order to significantly improve total inventory in the supply chain, Micron believes that in calendar 2023, year-on-year DRAM bit supply will need to shrink and NAND bit supply growth will need to be significantly lower than previous estimates.
“Micron is taking bold and aggressive steps to reduce bit supply growth to limit the size of our inventory. We will continue to monitor industry conditions and make further adjustments as needed,” said Micron President and CEO Sanjay Mehrotra. “Despite the near-term cyclical challenges, we remain confident in the secular demand drivers for our markets, and in the long term, expect memory and storage revenue growth to outpace that of the rest of the semiconductor industry.” 

25K for a solar installation sounds very high to me. Just equipped my RV with solar, cost 2K.
One needs
to differ if you have a on grid or off grid solar system. With on grid you do
not even have the expense of batteries. Only if the installation cost 12K than
I can understand this.

Solar Installation: My in-laws spent about $40K in Vermont-I told them they were nuts to spend that type of money… They told me that I will be the beneficiary, and will be very happy that they did it… Which is very true…. But I agree, the breakeven is very much in the future with fossil fuels at these prices…. In Europe, assuming prices stay where they are, the breakeven will be that much sooner.

Just the other day I saw 450 watt solar panels offered for 180€ here you can do the home work, very much depends on your daily consumption, if you need to charge your Tesla every day it will cost a bit more 😉 

Phil / BABA – this seems like a major hurdle- I’m surprised this is not moving up more….. Are you still looking to cover at 130?