Wednesday, February 24, 2010

When Bad News Is Simply Bad

There is much discussion of whether the Conference Board's latest consumer confidence number, which plunged 10 points to 46 and reached the lowest level since Feb. 1983, is a contrarian "buy" indicator for stocks.

Well, unfortunately the Gallup self-reported elective spending measures and employee reports of hiring/not hiring at the employee's firm are near their lows of this cycle.

Supporting a not-so-optimistic view is that Dollar Tree surged to an all-time high, up over 10% today, on an upbeat earnings report and current-quarter forecast, and TJX similar moved up strongly to what was probably an all-time closing high and just pennies from an all-time high.

Meanwhile, while Saks had a decreasing loss and is optimistic on the second half of this year, its stock is down about two-thirds from its late-2007 price.

Oil is back to $80/barrel and is thus a headwind for a strapped consumer.

ECRI's weekly leading index has stalled and even declined.

Sometimes bad news is bad news. If the recession ended mid-year last year, the consumer confidence numbers should not be plunging. February 1983 was approximately the endpoint of that recession and in fact the Dow Jones averages went nowhere for 17months afterward.

For what little it is worth, I have price targets for DLTR and TJX that are far enough above current share prices that I am not selling. Discount retail is on a roll and can thrive at least until there is a sustained boom. We should be so lucky.

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