Strangelove in Retail...

Retail stocks have been amazing this year, in part due to the fact consumers appear to be willing to spend today and worry less about tomorrow.  A recent government report underscores this notion when it revealed only two areas increased in importance with respect to saving money: personal purchases and liquidity.

Few people say they’re saving for college, to own a home or even for retirement. On that note, spending last month climbed 0.4% while income only climbed 0.3% and savings eased to 4.2% from a 2012 high point of 4.3%. I really feel that between the massive exodus from the jobs market and stronger retail spending people are kind of living in the moment.  I think the line from the movie Dr. Strangelove says it best: Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb.

Another great factor for retail stocks is the expectations game. Today 90% of retailers posted same-store sales results that bested expectations. I often feel this is a disingenuous game on Wall Street where ordinary or even mediocrity can be portrayed as good to great news. A company loses a billion dollars but the Street thought the loss would be two billion -- great news and up goes the stock.  That said, this is how expectations benefited three names in different ways.

Gap Stores (GPS) was written off a long time ago but has finally gotten its act together and the stock is responding. Despite its problems there was even less hope for Bon-Ton with stores in the rust belt and cities like Detroit this department store stock was crashing to earth like the Peter Sellers character in Dr. Strangelove.  But, the company is coming back to life and the stock is roaring back to life up 269% since January 6, 2012.

The perfect storm has been people shopping even in the face of uncertainty that Wall Street modeled into its estimates anyway.  At some point this dynamic shifts to higher expectations and sunny assumptions about the economy. For now, however, consumers have learned to love the misery and shop until it all drops.

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