Powell's Playbook Gut Punches Retailers! - Your Money for August 25th, 2023

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It was quite the week on Wall Street as investors waited for comments and insights from Federal Reserve members with the piece de resistance from Jay Powell on Friday. In between we had a horror show of earnings or lack thereof from retailers across the spectrum of products. It didn’t matter if you were Macy’s Nike, Nordstrom’s or Dicks Sporting goods, the results clearly showed uncontrolled lawlessness in the US is robbing businesses of hundreds of billions of dollars of sales through organized shoplifting. It may only be a matter of time before store owners arm themselves or turn to armed security guards and sadly this is not unique to the US. Earlier this summer we witnessed a distraught Boss employee trying to stop a shoplifter in the Bay. In speaking to other employees, the current policy is to do nothing. Do not engage, follow or record the crime in progress. Better to lose a $200 shirt than to have an employee harmed by the shoplifter.
However, what most people do not realize, is those losses must be made up by raising the prices of goods sold and paid for by us. In our opinion, this is just one more factor adding to inflation, but something the judicial system could easily put a stop to through arrests and jail time. To put it in perspective, Target estimates it will lose $500 million in profits from shrinkage. And if you are thinking that does not affect me, if you own retail stocks and chances are you do through your mutual fund or ETF holdings, it is hitting you in the pocketbook. Dicks Sporting Goods saw its price plunge from $147 last week to $111 today. Another name closer to home would be Foot Locker with a store in the Mayfair mall. Stock dropped 25% on disappointing sales and inventory shrinkage this week.
Meanwhile the uber rich hedge fund managers, economists and bankers spent the week in Jackson Hole listening to various prognostications on economic growth and inflation. We pity that harried air traffic controller shuttling all of the jets flying in and out of their air space this week. As a lark we found a website that tracks celebrity flights and the amount of CO2 burned moving the rich and famous around the world. Celebrity Private Jet Leaderboard August 2023 - CelebrityPrivateJetTracker.com We were not surprised to see former President Trump at the top of the list and we found it amusing that while a lot of movers and shakers were busy in Jackson Hole, on the political front, the first Republican Primary took place in Wisconsin this week where undoubtedly hotels and limousines were working at a frenzied pace even without the presence of the former President. The race is officially on and if you think Taylor Swift will add billions in spending to the economy for the next 18 months, the political machines for the 2024 elections will also keep prices up for travel, hotel and convention centers. We think that might be just one more reason why Jay Powell sees no reason to change their economic policies until 2025.
Last but not least, as we close out the month of August investors will need to digest inflation and jobs data both of which could support the hawkish stance of bank officials especially since the price of oil has edged up over $10 from early July. On the earnings front, expect more retailers to report including Dollar General, Best Buy and Lululemon. On the TSX you might want to keep an eye on our bank stocks as they report next week too. In addition we will get Canada’s latest GDP data on Friday.
Happy trading and Stay Safe.

Steve Bokor and the Ocean Wealth Team.

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Steve Bokor

Steve Bokor

Portfolio Manager