C.M.O. 12.17.2009
Credit Market Overview
December 17, 2009
As we approach the Winter Solstice turn the clock back six months and imagine stands of trees on the hillsides of the upper Midwest, Northwestern United States and southern Canada gleaming in the warm sunshine. These are not any trees but the trees that will fill people’s homes as the season of winter begins and another year draws to a close.
Snap back to now, not only now but now in New York City. Yes the bankers at Goldman are collecting their Croesusian pay packages, and hopefully buying a few packages for a few other people to get this consumer driven economy going again, but the average Joe just ain’t feeling it yet.
So while looking at the windows along 5th Avenue you might be standing on the 40th parallel, the ongoing tussle between sellers and shoppers still feels a bit like a Mexican standoff. With the shoppers thinking they can hold off for the last minute markdowns that were needed to entice people to open their wallets last year and retailers waiting as long as possible before sending the sales temps into the aisles with red Sharpies in hand.
Each side looking for the other to blink is a bit like watching paint dry so there might be some other factors out there that can give us some clues. One of those could be watching the sales of those trees we talked about above. The ISI Group, a New York research firm, surveyed Christmas tree sellers the weekend after Thanksgiving and found sales up about 6% over last year and up another 3% the following weekend.
The owner of Christmas Tree Ranch Farms in Thousand Oaks, CA was optimistic saying, “It could be an excellent year”. Blue Heron Farm owner, Harriet Caporin, from Centerville, MD was a bit more ebullient saying, “We’re having a fantastic year”.
Lowe’s Cos. (LOW) said it was ordering the same number of live trees as last year but 10% fewer artificial trees as they expected that folks would want a more traditional Christmas. Bob Schaefer, GM of Noble Mountain Tree Farm in Salem OR, who counts Wal-Mart Stores (WMT) and Home Depot (HD) among his customers, described sales on the first weekend of December as, “huge pretty much across the board”.
The theory looks like it’s holding true as the Commerce Department said last Friday that Retail Sales rose 1.3% in November. Besides a rosier outlook this could also be a result of retailers introducing sales throughout November instead of banking on Black Friday. Both of Bill Ackman’s retailers, Kmart and Sears, part of his Sears Holding Corp, (SHLD) revved up the retail experience with “Better than Black Friday” and “Black Friday Now” promotions.
We won’t know exactly how things turned out until it’s all over but if it’s true that business begets business at least there is some early momentum to help things along.
LOW’s CDS levels hit a low of 45bps in early August, moved up to 74bps about a month later but have stayed tucked into that range since. The stock moved from its March low of $13.39 to a high of $23.85 around the same time the CDS were hitting their lows. Since then the stock has traded as low as $19.45 before making a new high for the year of $24.17 this past Monday.
WMT’s CDS hit their low around the same time as LOW but unlike the former they have not stayed range bound hitting 63bps on 11/30. The stock hit its high for the year on Jan 2nd, has rallied twice from lower levels since then without breaking the January level. The stock closed last night at $53.32 after reaching $54.96 on 11/25.
HD had seen its CDS move steadily lower from January to early August and hover around those lows since. The stock has been on a bit of a roller coaster but one that made higher highs and higher lows all year long moving from $18.00 on 3/6 to $29.02 on Tuesday; closing just pennies off that level last night.
SHLD’s CDS trade under the Sears Roebuck Acceptance Corp moniker and have acted more like those of LOW’s and HD than WMT this year. The stock has had a steadier move up, albeit not completely smooth and is close to its high for the year of $78.37, closing last night at $75.99.
Enjoy the week.
Jim Delaney
