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Playing ‘Chicken’ with Wal-Mart’s Earnings

By Rick Ackerman Posted on August 18, 2010, 6:09 am EDT Last Updated August 18, 2010, 1:11 pm EDT

DaBoyz managed to squeeze a 100-point Dow rally out of punk Q2 earnings from Wal-Mart and Target, and the gain might have been closer to 200 points had traders not suffered an uncharacteristic anxiety attack in the final hour. Imagine what these bandits could get away with if there were actual good news to leverage. Trouble is, it’s unclear what would even qualify as good news these days.  A rebound in employment sufficient to put the economy back on track is almost beyond imagining, since it will take fully eight million new jobs and re-hires just to replace the positions that have been lost so far in the Great Recession. As for a surge in the retail sector, Americans have doubtless wised up to the fact that more consumption will never be the ‘A’ answer. Not that any of us is bursting with eagerness right now to binge on flat-screen TVs, quartz countertops and hot tubs. The news media remain behind the curve on this matter, since each and every anomalous uptick in retail sales – i.e., the mediocre, 3.6% gain in profits announced yesterday by Wal-Mart — is greeted as fresh evidence that the economy is somehow hanging in there.

For better or worse, it is in the aisles where America's economic destiny appears most likely to be decided

As any sentient adult will have long since surmised, it is not the economy that is hanging in there, but the stock market. The Dow is trading above 10,000, so how bad could things be, right? Or so the thinking goes. We suspect that this argument is losing its hold on the nation, and that when Brian Williams or Katie Couric mentions that stocks jumped 1% on a given day, most viewers greet the item with a shrug. And those who truly understand the markets just shake their heads, wondering how anyone could be so naïve as to think the stock market is tied in some meaningful way to the economy’s ups and downs. Tied to institutional cash that has nowhere else to go — and to the machinations of half-intelligent machines — is more like it, and we shouldn’t be surprised that the machines themselves are not gifted by their programmers with the cynicism to see the downside of all this whoopin’-and-a-hollerin’ over a scrawny 3.6% increase in profits at Wal-Mart. For, how bad must things be when a bullish blip in the earning’s of the world’s largest discounter rates a 100-point rally in the Dow?  Then again, maybe the computers are so smart that 10,000 of them asked that same question and in mere milliseconds improvised the game of “chicken” that caused the Dow’s 75-point sell-off in the final hour. Laugh if you want, but that is exactly how the world’s stock markets are being traded these days.

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  • Chris T. August 19, 2010, 2:06 am

    A little late, but this post about WalMart is interesting:

    http://www.dailyfinance.com/story/walmart-raises-prices/19587730/

    They have been hicking their prices for a number of weeks now.
    Lets give the one side of the ongoing d/i debate a little more ammo.

    Cheers

    • Benjamin August 19, 2010, 4:40 am

      Yeah, that’s pretty much it, isn’t it? Prices up, traffic down = weak profits. But, iirc, when this “recession” began, Walmart was the one bragging about it’s continued growth. That was such a different time that it seems ages ago, so I might be imagining.

      Anyway, did you read the comments to the article?
      Seems that many think that they’re crumbling because they betrayed America (“and good ridance!”). Sigh… So close, but no cigar. This is perhaps going to take a good, long while…

    • redwilldanaher August 19, 2010, 5:23 pm

      Yes it seems like Walmart has started to implement some of the “techniques” that many of our wonderful lenders have been increasingly employing. Walmart knows that a fair percentage of revenue is the direct result of inelastic demand. With more people relying on Walmart as their supplier of choice this obviously puts Walmart in the driver’s seat. The credit card companies are the masters of this domain however, from what I’ve read. When they spot clients increasingly relying on credit they then hit them with a rate increase knowing that the client is in a tight spot and will likely not be able to close out or balance transfer the account. Sounds like a great long term strategy eh?

    • Chris T. August 19, 2010, 6:47 pm

      “Seems that many think that they’re crumbling because they betrayed America (“and good ridance!”). Sigh… So close, but no cigar. This is perhaps going to take a good, long while”

      And that is why, despite the pain it will bring all around, a real crisis is not all of a bad thing, as nothing else seems capable of waking the sheeple up to question the “”reality” they still believe.
      Not once really since 2007 has the general populace approached the current state of affairs the way people perceived it from say 1978-1980.
      Remember the crappy movie “Americathon” ? It fit the mood back then.

      People still seem to think all this is transitory, and that at some point, maybe not right away, but soon enough, we will be back to the “normal” which they internalized from 1985/19195-2006.

      The real crisis I mean is one hopefully capable of finally taking away the rose-tinted glasses, despite any attempts of the MSM to the contrary. But that it has not yet happend is a testament to the efficacy of this MSM and its masters.

      Even it all that came to pass, would it be helpful, capable of producing any real change?
      Who knows, but despite the pessimism one might read into all of the above, it is the optimistic approach to believe that this real crisis will have that outcome eventually. One can think of it like a tsunami doing its herculean task in the augian stable that houses our ruling elite.

  • Keith August 18, 2010, 11:55 pm

    [We’re all on board with the idea that the stock market’s psychotic performance bears no relationship whatsoever to the fundamental condition of the economy. Or do you believe otherwise?]

    That was my point exactly. You just said it better than I did is all. The economy is going down the crapper but the high powered money seems to be finding it’s way into stocks and bonds.

    [It’s okay for you to annoy us, though, since we do need an anvil to pound as the discussion proceeds.] If that’s the case I’ll try to stop by from time to time. It makes for an interesting discussion forum!

    Cheers.

    • redwilldanaher August 19, 2010, 5:49 pm

      Hi Keith, as usual I’d characterize things differently from that way that you have here. Is it indeed “high powered money” or “manipulative money”? All of the “high powered” members of the manipulation cartel have it in their interest to try to mark the market up as high as they can possibly get away with to keep the ruse going? If this so-called rally were high powered then we would be able to point to strong volume all the way up and at this point, after this pause, we’d be witnessing what was skeptical money transforming into “better get in late than never” money and pushing the market into the next manic bullish phase. Instead the volume hasn’t been there and there are more bulls than bears, many of which are insanely extrapolating things based upon “what we should normally see” or “what happens in the typical” recovery. Does that make sense to you? IMO, this has a lot more to do with “PsyOps”, self-preservation through rampant manipulation, and nearly an entire industry of “professional money managers” that now illicit the same type of Pavlovian response that they’ve always successfully induced from their own marks, er um clients until possibly NOW. It may be possible that the boys have cried “bull” one too many times.

  • Steve August 18, 2010, 9:05 pm

    Thanks Rick

  • Keith August 18, 2010, 7:25 pm

    It hurts doesn’t it? Seeing the stock market up. Driving relentlessly higher despite all your fundamentals that says it must go lower.

    I for one… have been very bullish the last 6 months. IMO we will see new all time highs in the next 24 months.

    Yes, deflation. Yes, higher unemployment. Yes, dogs sleeping with cats. But the stock market will go higher.

    Cheers.

    • Rick August 18, 2010, 8:00 pm

      Well, looks like you’re the new “Pat P” now, Keith — and how we miss his sunny reports from god-forsaken Michigan. It’s okay for you to annoy us, though, since we do need an anvil to pound as the discussion proceeds. But please spare us the blather about how the economy is getting better. Concerning the stock market — no problem, since we’ve been correctly forecasting higher prices the whole time we’ve hated it to death. We’re all on board with the idea that the stock market’s psychotic performance bears no relationship whatsoever to the fundamental condition of the economy. Or do you believe otherwise?

    • Bradley August 18, 2010, 9:13 pm

      I do have to say that the “dogs sleeping with cats” part made me laugh. Thanks Keith!

  • Other Paul August 18, 2010, 5:01 pm

    The gravity of the US economic woes will be front and center in the US populace’s minds when the networks’ lead evening news stories are about nationwide runs on banks.

  • fallingman August 18, 2010, 4:26 pm

    “Tied to institutional cash that has nowhere else to go — and to the machinations of half-intelligent machines…”

    Precisely. Very well said.

  • Jim K August 18, 2010, 3:56 pm

    Credit Card stocks are down – I guess that means the Wal-Mart shoppers are becoming cash buyers, right?

  • gary leibowitz August 18, 2010, 3:22 pm

    I wouldn’t look at Wal-Mart for any answers to why we rallied; a technical one most likely. A relief rally after the large one day drop. The classic head and shoulder pattern still holds up well. The dismissal of the Hindenburg Omen represents a very pessimistic clouded view of the world. Imagine finding a technical indicator that can give you an average return on money of over 200 times and find out that the odds of this happening are 1 in 4. Placing Put Options against this indicator will on average result in a crash every fourth time.

  • Oliver August 18, 2010, 1:57 pm

    And besides that, I just read that the “good” numbers come from foreign markets only. In the US it´s down…

  • Oliver August 18, 2010, 1:48 pm

    If perma-discounters like Wal-Mart have rising revenues, beware and look twice. Did any non perma-discounters loose at the same time? Or other non-discounter markets in general?
    These are the days where some “good” news can be indicators for some really bad news to come.
    These are the days of watching for strange see-saw effects, locally and globally.
    Greece, for a big frown, is bordering on 70% unemployment in important areas. Nothing is over.

    • Robert August 18, 2010, 6:04 pm

      Walmart did not report rising US revenues- they reported 3.6% increased global profits and increased operating income… mainly from revenue increases in other countries:

      “Walmart U.S. comparable store sales for the second quarter 13-week period declined 1.8 percent.”

      In short- they reported improved effeciencies (ie- “We fired some more people, added some more automation, and took advantage of lower diesel fuel costs”)

      The US market is not under-pinning Walmart’s reported results, IMO

  • Benjamin August 18, 2010, 8:30 am

    It’s amazing, or perhaps even a bit unnerving, how you can read of this kind of news, do the head shake or shoulder shrug… But completely forget why, exactly.

    Score 3.6% for Walmart. Which is more important of those two things, though, the lowly 3.6 or the fact that we’re only talking about one company?

    I get the humorous/pathetic picture in mind that someone is standing at a wall, kind of framing with their hands the part they want you to look at. See? It’s not so bad if you look HERE! But at the same time, they’re hoping their hands are enough to cover the fact that basically the rest of the wall is either missing or in such disrepair that it might as well be.

    Of course, this doesn’t mean that people aren’t out spending. But consider that I was able to pick up about 10 lbs of perfectly good T-bone steaks at the store last Saturday for about 2.50/lb. That much most of the time would be around $70-80! It was a wonderful cook-out on Sunday. Beautiful weather, a couple friends, some family… Oh yeah, it was a treat. But I’m sure someone took a bath, at those prices.

    So I vote that our economy will be decided at the shelves and aisles, for the worse.

    And, um… what is that young man doing with a stuffed koala bear on his back? Strange. With the other kid on the far right appearing to shove something down his pants, I would say that the koala might intended to hide something down the back of the shirt! Not too much in their cart, either. Hmm. Yep. I think they’re stealing!


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