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Morning Commentary

Brick & Mortar's Last Stand

By Charles Payne, CEO & Principal Analyst
9/15/2017 9:30 AM
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The ultimate contrarian play could be happening at this very moment. I’m talking about a short squeeze of all the bets on the imminent demise of brick-and-mortar retailers. In addition to traditional shorting, each day has seen more creative ways to play the death of malls.

In July, ProShares filed a prospectus for three additional ways to cash in on the mass shift to online shopping.

When it comes to shorting XRT, it seems like a no-brainer, considering the top weighted holdings that include broken names such as Groupon (GRPN), Sears (SHLD), and GNC (GNC).  Currently, 15% of the float of brick-and-mortar retailers is short, but the XRT index is up 1.8% this week and knocking on the door as a major breakout point.


It’s not just smaller brick-and-mortar names as more than 11% of S&P Consumer Staples are shorted; we have seen shares in powerhouses such as Walmart (WMT) and Costco (COST) wilt since the Amazon/Whole Foods deal.

I think the shorts are somewhat premature, and I see retail in general move higher, including most mall-based brick-and-mortar names.

Today, we’ll get the latest on consumer sentiment and retail sales for further guidance.

Up from the ground come a-bubblin’ crude

Don’t look now, but crude oil is percolating again. There have been so many head-fakes on both sides of the oil trade, although most experts are more comfortable calling for “3”, even “2” handle per barrel pricing.  On the upside, I suspect more mavens could become bullish with a close in West Texas Intermediate (WTI) above $51.00. 

There have been so many failed rallies that it’s easy to be skeptical. However, I continue to see crude above $55 by the end of the year, so it better get moving soon.

Today’s Session

Market is looking to open flat to slightly lower this morning.  The Retail Sales report out this week missed the consensus, but there is the undetermined impact from recent hurricanes.  Industrial Production was also negative and missed Wall Street consensus.

On the other end, the Fed Empire report came in better than expected.

Details on those reports in the afternoon note.

In years past, the malls prospered because they were innovative solutions to the mass movement to the suburbs. Since then they have become white elephants precisely because of their failure to continue to innovate. Today you can shop online without even getting your ass out of bed, while anyone over 60 better bring his motorized walker to make it around the average Walmart without running out of steam. Nevertheless, shopping still has primitive appeal to the hunters & gatherers among us, but massive malls turn that into a challenging stress test for marathon walkers. Today's malls need massive redesign including moving sidewalks that can comfortably take shoppers around every department they might want to check out in the store -- and from store to store and back to their cars without flaking out. Bring in some redesigners from Disneyland, whatever it takes. Bigger and bigger is not the answer. Somebody better bring us "the Mall of the Future" very soon or the malls will go the way of Hindenburg. Sad and tragic, but their failure to innovate is at the heart of their problem.

Dennis Howard mbaforlife@gmail.com on 9/19/2017 9:20:58 AM

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