It's The End Of The World As We Know It

|
Includes: BA, BBBY, CWS, LMT, LULU, M
by: George Acs

Summary

Populism will soon have to give way to reality as a new Administration takes office.

The FOMC has made itself less relevant and more prone to political attack as interest rates face upward pressures.

The elusive 20,000 level for the DJIA may simply be a stopping point if the upcoming earnings season provides positive guidance and rhetoric is matched by actions.

...And I feel fine.

Whoever thought that we would live to see the day that the president-elect would be running a parallel foreign policy?

Whoever thought we would live to see the day that Republicans were cozying up to the Russian government while the Democrats were sounding the siren?

Then again, did anyone really believe that Great Britain would split from the European Union?

Maybe it really is the end of the world as we know it.

The one good thing is that as best as we can project, life in a post-apocalyptic world will probably be characterized by lower tax rates.

That can only add to the feeling fine sensation and I certainly look forward to the little considered benefits of an apocalypse.

While the world may not be ending, 2016 is coming to an end and after a very palpable post-election rally, it's not very clear where we go next.

I certainly don't know where I go next.

In less than a month populism meets reality and the direction may become more clear. At the moment, the only thing that really is clear is that populism is a world wide phenomenon, which means that lots of world-wide enemies are being identified to account for all of the ills any particular society may be experiencing.

Based upon the rise of populism around the world, you might be justified in believing that there are plenty of ills, but maybe not enough enemies to blame, so we may have to share.

I don't know too much about Poland, but I imagine that if the public relations campaign is run properly, you could easily get their populace to place the blame for all of their ills on Mexicans, too.

Closer to home, we will soon probably learn of plans to build a wall around the Rockettes, at least those who would prefer not to perform as part of the inaugural festivities.

With an entirely new playbook in the White House and perhaps in Congress, as well, it remains to be seen if the FOMC can remain reasonably apolitical when faced by a barrage of Presidential Tweets aimed at its actions or inactions.

But with 2017 right around the corner it may appear that if some of that populism does morph into reality, the upcoming role of the FOMC may be to take a back seat to natural market forces.

Rather than being ahead of the curve, the FOMC may just sit back and watch interest rates climb on their own, as was the case in the post-election period and that worked out just fine, too.

With thoughts of nation wide infrastructure projects to help "Make America Great Again" together with a low unemployment rate, let the bidding begin for the workers necessary to make it happen.

The paucity of workers, though, might help to figuratively and literally delay the building of the wall that was one of the early populist positions.

Of course, I would imagine that a President Trump would have some choice words for the bankers that end up making more money in a rising interest rate environment, at least as long as the Trump family has no direct banking interests.

Having once owned a airline, it may be understandable why President-Elect Trump has taken on Boeing (NYSE:BA) and even Lockheed Martin (NYSE:LMT). You can be certain, however, that he won't take on the hotel and hospitality industry.

Imagine how he might castigate the FOMC for making those projects, and perhaps personal family building projects, as well, more expensive by presiding over a rising interest rate environment.

However, maybe having some skin in the game can be a good thing when it comes to public policy. Maybe even an incentive plan, such as a portion of any money saved on the building of the next generation stealth jet fighter.

I, for one, am anxious to get 2017 underway and to see bluster given a chance to come to life.

I don't know how much of those populist ideas will find life, but with earnings season beginning the week before inauguration, we may finally be getting some of the earnings guidance to really breathe life into markets.

If that's going to be the case, the elusive 20,000 on the DJIA is just a stopping point.

History books will credit whoever is in office when it finally does happen, regardless of who really deserves the accolade. Economies rarely turn on a dime, but the ingredients that go into the process of change are typically forgotten once the final product is unveiled.

It's generally easier to share the blame than to share the credit, but if the credit is shared, there can be no better sign that the end of the world has come.

I hope that the new administration is put into a position of taking whatever credit there is for a soaring stock market in 2017, regardless of whether they share that credit.

A soaring stock market and a soaring economy would preclude the need for continuing populist rhetoric, but if those don't happen the next round of populism will really be something to behold.

I'll be watching from a distance.

As usual, and now for one last time, the week's potential stock selections are classified as being in the Traditional, Double Dip Dividend, Momentum or "PEE" categories.

Could anything have been more pathetic than retail last week?

If your answer was, "Yes, Materials," then you'll understand my pain last week, even as I look back fondly on 2016.

With some major retail casualties last week and with just another week left to this holiday season, I think that the first direction that I want to take myself into for 2017 is to add to my retailer holdings.

For the final week of 2016, that means looking at Bed Bath and Beyond (NASDAQ:BBBY), Lululemon Athletica (NASDAQ:LULU), Macy's (NYSE:M) and Under Armour ((NYSE:UAA) or (NYSE:UA)).

If you follow Crossing Wall Street, you know that its founder, Eddy Elfenbein, is one of the most transparent stock pickers out there and one of the most credible.

He is a true buy and hold investor and his new ETF, AdvisorShares Focused Equity ETF (NYSEARCA:CWS) is based upon his annual buy list that has had a long term record of market out-performance.

While for many Bill Miller is the name that pops up when thinking long term out-performance, I think of Eddy. He is also a great Twitter follow because he is funny, self-effacing and shares relevant data and facts more readily than anyone I've ever seen, read or heard.

I believe that in an era where quantitative easing is no longer in effect and thereby no longer indiscriminately propping up most everything, true diligence will make the difference between one stock picker and the next.

You just don't get more diligent than Eddy Elfenbein.

This year's buy list has been released and Bed Bath and Beyond is no longer a part. Elfenbein describes it as one of the most frustrating stocks that he has owned and I continue to feel that pain.

But following this past week's washout of an earnings report, I'm taking another look, but unlike Elfenbein, for whom diligent stock picking validates a buy and hold strategy, I have only short term interest in adding those shares and no interest in doing my due diligence.

For me, all the due diligence that I needed was seeing that its shortfall in earnings was less than the 20% off they offer on any single item with their frequent coupon mailings to my home.

I do see some continued downside risk, perhaps to the $39 level, but I would be very happy to see Bed Bath and Beyond shares tread water for a while as I would seek to serially sell call options on those shares at the $40-$42 level.

Another washout for the week was Macy's. I was recently in one of their stores on the Eastern Shore of Maryland and was struck by how poorly maintained the exterior of the store had been, even as the interior was bright, clean and shiny and the personnel were friendly and eager to help.

While Eddy Elfenbein is transparent, I tend to be superficial, but somehow overcame that trait and overlooked the exterior.

Right now, from the outside looking in, there really doesn't seem to be much reason to think that 2017 will be any kinder to Macy's, as it has badly trailed the S&P 500 in 2016.

As with Bed Bath and Beyond, I think there is some reasonable support at its current price level and would also not mind seeing those shares stand in place for a while in exchange for option premiums and a generous dividend.

Under Armour now has two classes of stock. You can decide for yourself whether you want the shares with voting rights or the shares without those rights.

The latter, the Class C shares continue to trade at quite a discount to the voting shares, while both have badly trailed the S&P 500 in the past 6 months.

My concerns about this potential position is that it's not clear where support will come from, as voting rights shares are sitting at 2 year lows and there isn't anywhere near as much liquidity as I would like to see in the available options.

In exchange for those uncertainties is what could be an attractive option premium, although the bid-ask spread is understandably large with such small interest on behalf of buyers and sellers, making rollovers unnecessarily difficult and expensive.

Finally, it's not too much of a stretch to see why Lululemon may be attractive.

That is, as long as you overlook that bulge in its share price.

That spike creates some risk, but with those option premiums remaining elevated, the risk is a little easier to take.

That's particularly true when realizing that there is the kind of liquidity in the options market that is missing for Under Armour.

As a result, the prospects of being able to rollover positions in the event of an adverse price move doesn't concern me as much as it does with Under Armour.

It has been a long time since I've owned any shares, but I think in this instance I would start by selling put options and then taking it on a week by week basis.

For me, however, this is the final week to be putting these thoughts on virtual paper.

I am very, very grateful to the Seeking Alpha editors and to the cast of regular readers over these past few years.

Best wishes for a happy and health New Year to all and for the best in everything that matters in the years ahead.

Traditional Stocks: Bed Bath and Beyond, Macy's

Momentum Stocks: Lululemon Athletica, Under Armour

Double-Dip Dividend: none

Premiums Enhanced by Earnings: none

Remember, these are just guidelines for the coming week. The above selections may become actionable - most often coupling a share purchase with call option sales or the sale of covered put contracts - in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week, with reduction of trading risk.

Disclosure: I am/we are long BBBY,M.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may buy/add shares or sell puts in BBBY,LULU,M and UA

About this article:

Expand
Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here