When Liberty’s the Target… (LVNTA,TGT)

When Liberty’s the Target… (LVNTA,TGT)

 

We’ve discussed the ‘winnowing’ process that occurs at market tops at various times over the last several years, explaining that in its final stages, a bull market will experience a drastic thinning of breadth, where only the biggest names, the market ‘stars’, as it were, garner all the attention and buying.

 

And that attention is sufficient to thrust the indexes straight upward in an asymptotic kaboom!, before, of course, the whole thing implodes and a general bear market ensues.

 

During those discussions, we also took the time to mention one stock in particular, Facebook Inc. (NYSE:FB), naming it the ‘poster child’ of the current bull market and the ultimate symbol of both the corporate and market reality in which we reside.

 

Facebook (which we’ve also dubbed ‘the world’s biggest time waster’) is an integral part of the statist security machinery that now profiles everyone with impunity and sells that information at a premium to both governments and retailers.

According to our measure of things, that winnowing process is now entering what might be termed an ‘intermediate’ stage, with stocks like Apple, Facebook and Google, et al. attracting as much attention for being the sexy blondes of the investment world as for growing their earnings.

 

We aver that it’s marketing and public relations, in the main, that accounts for the lion’s share of the market cap in stocks like Amazon and Facebook, etc.

 

The following chart of the largest U.S. listed stocks by market cap shows an overwhelming weighting for those iconic names (in red) that have become corporate earth-shakers – and love bunnies – over the last decade.

By the time the jig us up, we predict Facebook will have moved several notches higher in the pantheon, and Zark Muckerberg will be gracing the cover of Time, People, Money, Woman’s Day and National Geographic.

 

Sound crazy?

 

Don’t worry, Sports Illustrated will also find a way.

 

Facebook debuted with a market cap of roughly $10 billion in the weeks following its IPO in 2012.  Five years later, it’s been a five-bagger.

 

Unbelievable.

__________________________

 

But the above mentioned ‘winnowing’ isn’t only happening at the top end.  As the chart below illustrates, there has been a growing disconnect between the performance of the giants mentioned above and the small cap wannabes, as represented by the Russell 2000 Small Cap Index.

 

See here –

Year-to-date, the Russell 2000 has now gone negative, while the S&P 500 is up some eight percent.  What’s noteworthy here is that only twice in the last forty years has this occurred as we approached September.  On one of those occasions, in 1998, it presaged further, huge S&P 500 gains and continued small cap losses through the dot.com bubble peak two years later.

 

Now, we may or may not be two years from a final top, but what is certain is that a process is now underway that will take us there, and everything will depend upon the rate of the rise.  Should the acceleration be quick and steep, any hope of two more years of bullish action may be exaggerated.  Should it unfold slowly, however, it could take a lot longer.

 

So How Do We Play it?

 

The long and the short of it is we have to remain bullish the busty, cocktail-waitress stocks, and just follow the hype.  And it’s without any pride that we say that.

 

As we ascend to the ultimate peak, traditional indicators will play a diminishing role in the measure of a stock’s success.  Everything will revolve around the buildup and euphoria generated by the news media and the brokerage houses, both of whom stand to gain most from the final churn.

 

In the end, ‘detached’ will not properly describe the condition of stocks vis-à-vis their underlying value markers.  We’ll have passed that stage long before.  At that time, only the words ‘ethereal’ and ‘magical’ will apply.

Of course, my precious little winged nymph.  There’s always something to trade.  Come sit with batty Matty awhile, as he walks the paying proletariat through this week’s venture.

 

Retail Divergences

 

There are a lot of retail outlets today suffering from something called ‘Death by Amazon’, and to some degree, it’s a fair moniker.  Online sales are growing faster as a percentage of overall retail sales, but they still only stand at 8.5% of the whole.  Amazon’s share of the total revenue number is just 1.5%

 

Our goal this week is to trade the retail sector against itself, pitting what we feel is among the best online outfits against one of the worst bricks and mortar stores.  We also want to employ that same hype factor we alluded to above, following the money as much as we can to capitalize on the latest moves.

 

To that end, we’re turning to some hedge fund statistics (courtesy Goldman Sachs) to see who’s buying and selling what.

 

A look at the chart below shows us the most popular stocks in the hedge fund sphere according to the latest data –

The stock we’ve chosen is a newcomer to the list: Liberty Interactive Corp. (NASDAQ:LVNTA), owners of thirteen discrete video and digital online properties, including Zulily.com, Charter Communications, FTD, Liberty Broadband and Lending Tree, Inc.

 

In the latest reporting period, the hedgies loaded up big on this one.

 

And who did they pan?

 

Take a look –

Target Corp. (NYSE:TGT) remains among the most shorted stocks in the hedge fund sphere, and this likely accounts for the stock’s ongoing decline.

 

The chart below illustrates the two retailers performances year-to-date.  And it couldn’t be more stark –

More than that, we have every reason to believe it will continue.

 

So…

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Many happy returns,

 

Matt McAbby

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