Commentators Are Wrong; It's More The 10-Year Rate Than Inversion. Also, I Like Dick's

by: David H. Lerner

Inverted yield curve not as important as the long-end rate.

We are not out of the woods yet; please build cash.

I like Dick's earnings and all the other successful retailers, but buy my eRetailers.

There was a lot of insider buying this week so far; shockingly a big bunch was in the oil patch. Not sure what it means yet.

Talking rates, only because I have to

The inverted yield curve can be explained away as a consequence of pressure on the long-end. The historically low 10-year and also the 30-year are what I think the algos and humans are really focused on since that is where the inversion is coming from. Normally, it's rising rates on the lower-end from Fed tightening that presages a recession. Right now, the pressure is coming from overseas. Because of negative rates over there, our bonds are downright sexy over here. This does have a possible real-world effect, though, we haven't seen any evidence yet. The lower the long-end rates go, the lower the incentive for bank lending. But it is really about the delta. So if you see the 30-year fall under 2% and the 10-year under 1.5%, the market will react negatively. If the level stays above, the market will drift higher even though the difference between 1.56% and 1.49% is immaterial. Right now, the 10-year is rising, so the market is rising right, too. The linkage is so tight right now that it seems as if we go up 5 S&P points for each basis point rise in rates. I believe that if you'll see inversion as the rates go up, it won't affect the market as much as the overall rate going down.

I believe the little bump in rates today is over the Jackson Hole meeting when all the Fed heads will be in one place. That is a great opportunity for someone to say something about how rates are great just where they are. That would buoy rates since the markets are a discounting mechanism; the higher the rates are rising now in anticipation, the bigger chance the rates will fall in the aftermath. I really wish we can ignore interest rates. This tick-by-tick vigil is really boring. Let's talk stocks...

Please use these up days to trim positions

Speaking of tedious, I am going to once again ask traders and speculators (NOT LONG-TERM INVESTORS) to trim off some shares, sell 3-5% of each stock you are holding, and perhaps 5% to 7% of stocks you have been holding for a while that are underwater. I don't think we are at all out of the woods yet. We have the September 1 tariff deadline, and China just reiterated that it will retaliate. We also have the September Fed meeting that may or may not have rates lowered. Even if they are lowered perhaps, they won't be lowered enough. Or perhaps Powell says he's done. Also, of course, I think there is a good chance a 10-year interest rate breaks 1.4% and may even go as low as 1%. Even if there are no further moves to the downside, loyal readers know that I advocate a strong discipline of cash management. Yet, I would not be surprised if we reach new highs. Here's why.

I like Dick's (DKS), also Lowe's (LOW), Target (TGT), Walmart (WMT), Home Depot (HD), Amazon (AMZN)

This week has been a continual beauty pageant of the excellent performance of retailers, even Nordstrom (JWN) performed better than expected. Tariffs are not concerning successful retailers. If the economy was faltering or the consumer's desire to consume has begun to wane, even these names would disappoint. Dick's had a very good report this morning; even its physical store had good traffic. Comparable sales were up 3.2% as opposed to the expected 1%. Do I want to recommend retailers? I like Home Depot and Amazon and so does everyone else. While I like Dick's and all these other retailers, I don't think I can add value by telling you to buy them now.

I will stick with my "New eRetailers" list. From that list, I like Stitch Fix (SFIX), Revolve Group (RVLV), RealReal (REAL), Chewy (CHWY), and I want to surface Farfetch (FTCH). I think FTCH has been unfairly punished because it made an acquisition. It is still growing quite nicely. This is a tiny company market cap and revenue wise. I think that if you are adventurous and you like the concept of AI, social media and tech-powered retailers initiate some positions in these names. Just don't over-weight in them. I am not a big believer in this rally right now, I think we remain choppy, and I want you to be generating cash, not taking big positions. So, if you want to buy these or any other names, you should sell current positions to make room for new ones; just make sure to trim some off to remain in cash.

I want to come to the defense of Splunk (SPLK). I think the earnings report was very good; perhaps, it is getting punished for paying such a high price for an acquisition, but getting cut 10% is an overreaction. Buy some SPLK. While I am at it, I think New Relic (NEWR) has been punished way too hard as well. You should be putting both these names on your shopping list.

Insider Corner

I haven't highlighted insider buying at all this week, so there is a backlog. One thing I want to note right off is the jump in the amount of buying that I am seeing. I am not sure if it's because this is insiders picking up names that have fallen or because optimism is rising, or perhaps it's both. The other thing I want to note is the sheer number in particular of insider buying in the oil patch. I find it strange that just as I have thrown in the towel on wanting to pay attention to the world of fracking and the Permian, all this buying is coming in. Frankly, I am not sure what to make of it. Once I say I am out, it is going to take some real data points to go back in. Still, it is big enough that I felt compelled to collect them all and highlight them to you (see below).

Waitr (WTRH): Joseph Stough (President) bought $66,000, and Tilman J. Fertitta (Director) bought $1,430,000.00

My take: Tilman Fertitta is a widely respected leader in the hospitality industry, and he is spending $1.4 million in Waitr. Waitr is in the same business as DoorDash (DOORD) and Uber Eats, just concentrated in the southeast. Just a few weeks ago, WTRH said that it has started a review of strategic alternatives to enhance shareholder value. At the same time, the earnings reports did not delight market participants and the stock fell into the one dollar range. Tilman is not the type to buy into a loser, so either this name will be merged into another, sold outright, or is poised for a turnaround. My vote is on a sale. This is a very risky binary-event type risk, but it's very cheap. Maybe just for good you buy 100 shares and make-believe you bought another pair of Nikes.

United Rentals (URI): Filippo Passerini (DIR) bought more than $220K.

Mohawk Industries (MHK): Filip Balcaen (DIR) bought almost $1.4 million.

My take on these two names: They are both related to new home sales. MHK is a huge floor covering business, and URI rents construction equipment. MHK is selling 86 points BELOW its 52-week high. If you believe as I do, that home sales are going to improve this year and next, then maybe co-investing with a director who spent $1.4 million of their own dollars is not a terrible idea. I don't know enough about MHK and other suppliers to housing to say if this is the right time, so do your own research; always do your own research. I just think this is notable. As far as URI, this company's business model makes a lot of sense to me. If you are an independent homebuilder for example, do you really want to buy or even lease a backhoe if you aren't using it seven days a week? Better to rent it when you need it. That said, is this the right time for you to buy the equity? Maybe. Think about it before you buy.

United Airlines (UAL): Edward Shapiro (DIR) bought more than $800K.

My take: I like the airlines, though Delta (DAL) and JetBlue (JBLU) are my choices.

Tesla (TSLA): Kathleen Wilson-Thompson (Director) bought almost $80k.

My take: This is interesting only because someone besides Musk buying shares is unusual. Maybe TSLA has bottomed out. I combined this with the rumor that VW is interested in buying an interest in the name that is intriguing.

My take on oil these oil names and insiders? I have no idea. Just shocking how many in the last several days came up.

Oasis Petroleum (OAS): Taylor Reid (COO) bought $124K, and Thomas B. Nusz (CEO) bought $82k.

Northern Oil & Gas (NOG): Robert Rowling (Major Shareholder) bought almost $1.6 million.

Matador Resources (NYSE:MTDR): Craig Adams (COO) bought $28K, and Timothy Parker bought $50k.

Cabot Oil & Gas (COG): Dan O. Dinges (Chairman, CEO) bought nearly $600K, and Rhys J. Best (Director) bought 122K.

Occidental Petroleum (OXY): Kenneth Dillon (Insider) bought almost $223K.

Concho Resources (CXO): Brenda R. Schroer (CFO) bought more than $100K.

My take on GE and GE related name BHGE

I think that no one is taking a gun to these executives' heads to buy GE (NYSE:GE). I think they are confirming their faith in Larry Culp's leadership. As far as BHGE, this stock also fell in sync with all the negative news of last week. Perhaps it means that BHGE is undervalued, and that these insiders are acting for the same reason as all the other names in the oil patch. Who knows. Not sure I am going to suggest buying BHGE, but it wouldn't surprise me if GE sells the rest of its holding in BHGE soon.

General Electric: Scott Strazik bought almost $280K, and Thomas Timko bought $88K.

Baker Hughes GE: John G. Rice (Director) bought $207K, and Lorenzo Simonelli (CEO) bought $309K.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.