C.M.O. 11.27.2009
Credit Market Overview
November 27, 2009
Today is “Black Friday”. In an economy where 70% of GDP is a result of consumer spending do you not think the people that name these things could have come up with a little better moniker? Why black? Black because this is the part of the year where retailers finally begin to turn a profit or “move into the black”? Black because the workers in the stores that open ridiculously early and close ridiculously late are in very dark moods by the time the whole thing is over? I am not marketing executive but I would think that if I was going to try to get someone to spend oodles of money I would describe the day on which I propose to do that with a color other than black. Even in New York City where it reigns’s supreme as the color du jour.
For me today is “Black Friday” because I have to start thinking about all the things I have to buy for all those people and figure out exactly who gets what and why. Talk about a dark mood!
It would appear I am not alone however as in an attempt to beat the crowds comScore, an internet sales researcher, said that the volume of online sales in the first 22 days of November beat the same period last year. That came to $8.21BN for a YoY gain of 2%. Additionally they expect the 2009 total to reach $28.8BN or 3% more than the 2008 total.
The National Retail Federation did a survey of its own and found that 46% of retailers were projecting online sales growth of 15% over last year. Amazon (AMZN), the Mac Daddy of online sellers, recently reported a 69% increase in 3Q09 profit and gave an optimistic outlook for 4Q09 based on a 17% increase in media sales and a 44% increase in the sale of electronic items.
FedEx (FDX) recently projected that it would ship more than 13MM packages on the busiest day of its year, December 14th. That compares to an average of 7.5MM packages a day and is 8% more than 12/14/2008. United Parcel Service (UPS) has not released any exact figures but did announce the hiring of about 50,000 temporary workers for the Holiday season.
One way around the decisions involved in gift giving is the ever popular Gift Card. While this might be a short step above sticking 20 bucks in an envelope it does keep the actual amount of the gift a secret, at least until you’re many miles away. Gift cards are also becoming way for retailers to reward shoppers as Neiman Marcus said it would give $50 gift cards to shoppers and Target (TGT) is handing out $10 cards to people that spend $100.
American Express (AXP) CEO, Kenneth Chenault, was one of the first to turn slightly brighter than black on consumer spending as back in late October he said, “While there is still reason to be cautious about high unemployment levels, we are seeing broad based improvements in credit quality, the trends in card member spending are encouraging and there are signs that the recession may be approaching and end”.
So as I write this it’s all becoming clear. I’ll just buy gift cards on Amazon and have FedEx deliver them. Guess this Friday isn’t so black after all.
The CDS/equity combo for FDX has, like many other names, seen both the price of default protection and its stock rise recently. In the case of FDX the CDS fell for most of the year until bottoming at 60bps on 9/25 and closing Wednesday at 73bps. The stock, like the world, bottomed in March and has risen fairly steadily since. As this is becoming a theme in the CDS/equity world the resolution of which asset class is “right” will probably work itself out at the macro level.
The CDS/equity combo looks very similar for UPS with a slight variation in the numbers and a high of $59.29 in the stock reached on 9/15 that has yet to be eclipsed although Wednesday’s close of $58.20 is not all that far away.
TGT’s CDS equity combo has been uninspiring since “late September” when everyone “really should be back at school” according to Rod Stewart.
AXP’s CDS/equity combo is looking pretty traditional with CDS very near its low for the year and not looking like it wants to edge higher and the stock continuing to make progress to the upside.
Neiman Marcus is in the hands of the P.E. mavens and AMZN has no CDS.
Enjoy the weekend.
Jim Delaney
