Monday, March 22, 2010

All-Time Highs in Off-Price Retailers

Consistent with the themes of an impoverished nation and redistribution, today we saw new all-time highs in the price of McDonald's and several discount retailers, most notably Dollar Tree (DLTR), which surged over 5% on the news of an accelerated stock buy-back that will retire about 5% of its market cap with no offsetting stock issuance. TJX and Ross Stores also moved up to all-time highs. DLTR, which now trades around $60, would have to reach about $72 by summer simply to trade at its "value line" per the eponymous publication. From that price, it could easily be a strong long-term performer.

In other words, the "right" stocks may have a long way to run.

The stock market as a whole is, however, an entirely different kettle of fish.

Of some interest today is the decline in Treasury yields concomitant with the rise is stock prices. That has not happened much lately, and Treasuries rallied Friday morning when stocks opened down. In other words, the crisis feared and predicted by Bill Fleckenstein and many others, that of declining stock and Treasury bond prices, is not a happening thing.

The Chicago Fed National Activity Index was out today and showed some weakness in February, some of which might in fact legitimately be weather-related. This index also has an inflation predictor in it, perhaps related to the Phillips curve. In any case, every can see that all sorts of economic indicators look identical to multiple other post-recession charts, and sooner or later they all have given way to growth or outright boom conditions. Will past be prologue?
Probably, but from a market standpoint, methinks much of that is priced into all markets except perhaps gold.

In the meantime, I prefer Dollar Tree at under 15X predicted current year earnings to Tiffany's at 20X. And a vegetarian Big Mac.

Plus the long bond (TLT) for a trade.

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