Trickle-down effect hits retail stocks
High-end goods are selling because the wealthy feel safer now that their portfolios have rebounded. Midlevel retailers like Macy's and Target may be the next to benefit.
"Let me tell you about the very rich. They are different from you and me." I always thought F. Scott Fitzgerald was speaking about how the rich handled themselves in "The Rich Boy," which begins with that observation.
Now I know he was speaking about portfolios and their impact on shopping, notably at Tiffany (TIF), Whole Foods (WFMI), Coach (COH), Nordstrom (JWN) and Williams-Sonoma (WSM) -- places where higher costs get passed on and nobody blinks. These are all stores where inflation is taken in stride because prices -- albeit higher because of the cost of silver or cotton or food -- don't inhibit profits and in fact somehow seem to improve them.
We've been in a barbell economy for certain since the great bull market of 2009 reignited itself when the polls showed Republicans would take the House. All five of the merchants mentioned put up truly amazing numbers, and the common thread among them has to be stabilization of jobs and bonuses for the wealthy.
Stocks in the other part of the barbell, the Family Dollar (FDO) and Dollar General (DG) food-stamp cohort -- and there are more than 40 million people on food stamps in this country -- have been flying the whole time, with or without Congress.
Now I am wondering whether yesterday was the start of the next leg of retail, where it is sinking in to the thick analysts and the even thicker media, that the next level of consumers -- the not-so-rich but those with money in the market -- are now spending. Isn't that Macy's (M)? Target (TGT)? Isn't that the moderate-price segment?
I think we are getting what I would call a stock market trickle-down effect, in which the gains in the market are starting to bring back critical accounts, including the IRAs and the 401k's of baby boomers who are now spending, augmented by those who aren't paying off their mortgages.
It's difficult to tell how much is wealth effect and how much isn't, but one thing is certain: People are spending again despite the lack of job creation. I think it's a bizarre combination of the end of the "I am going to make the middle class poorer even though I say the opposite" rule of Obama-Pelosi, coupled with the "I'm going to make the stock market rally without buying ETFs" (the Japanese way!) move by Ben Bernanke that's causing these stocks to go higher right into the critical holiday season.
Whatever, it's working, and it's being led by those people who are different from you and me -- the ones whose wealthy frolicking Fitzgerald depicted so accurately in that tale and others from his short canon during the Roaring '20s.
At the time of publication, Cramer had no positions in the stocks mentioned.
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