Works of [Ch]Art: Short Vacations

5 min readMay 16, 2016


A helping of market commentary served on a bed of charts.

May 15, 2016

By: Aaron Chan
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(Full disclosure: I hold short positions in MAR and RCL as of the publishing of this article)

Last week, Macy’s stock fell off a cliff after reporting a -28.6% decline in Q1 2016 adjusted EPS — its worst quarterly performance since 2014:

When asked to reconcile her company’s poor showing with the rosy economic picture painted by the likes of President Obama, Megan Hogue, Macy’s Chief Financial Officer, admitted:

We’re frankly scratching our heads. We see the same economic data you all see and it would point to a customer that would be spending more. I think that gets to what he and she are spending it on. Savings rates are high, which tells you that either they’re purposefully saving more or that there’s some of that savings that can be used for discretionary spending if they get motivated to do so. Some of it is spending in different categories; health, restaurants, travel. I’m not sure, but I would say that we too are somewhat puzzled by the data that we’re seeing on the consumer and the traffic we’re seeing in the stores and on the site.

Puzzlement and head-scratching come standard with the mainstream financial presses’ schizophrenic narrative. Search for the data and you’ll find retail sales growth, excluding food, has faded since 2010 highs and consumer credit growth has returned to pre-2008 levels:

Long-run data suggests the present consumer credit cycle is in its latter phases. Despite comprising 70% of GDP, juicing the consumer with credit injections has yielded diminishing real GDP growth:

Coupled with a personal savings rate hovering at 30-year lows, it’s no surprise why a middle-class stalwart like Macy’s is suffering:

Macy’s isn’t alone either — it drinks directly from the Fed’s frothy easy-money well. For a moment, let’s set aside an overstretched and increasingly impotent consumer. Consider an average vacation and everything it entails: roundtrip flights, accommodations, and food.

Delta Airlines, although trading at a premium to competitors, is forming a bearish descending triangle pattern on the weekly chart. The market looks poised to render a decision on Delta and it’ll likely be to the downside as the cost of air-travel becomes more prohibitive to consumers. Depending on where the U.S. dollar goes from here, further devaluation would hamper consumer purchasing power, making international travel less attractive. Finally, socio-political tensions and terrorism risk make a major tourist destination like Europe an unsavory proposition:

So you’ve landed and now you need a roof over your head. Marriott operates, franchises, and licenses nearly 759,33 rooms and 4,400 properties in 87 countries. The company owns brand names ranging from ultra-luxury Ritz Carlton and JW Marriott, to upscale/midrange properties like Courtyard Marriott and Fairfield Inn. As the middle-class consumer pulls-back discretionary spending, Marriott’s upscale and midrange properties should come under greater pressure. The stock appears the be operating within a downward channel as well with an important test ahead for the longer-term support:

A long day of traveling calls for a hearty meal so a night out to the decadent Cheesecake Factory is in order. At a plump 20.47 P/E, yet a slim 5.71% profit margin, this caloric and pricey restaurant chain could find itself between the consumers’ belt-tightening crosshairs:

Or maybe your whole family is scared of flying and an all-inclusive Royal Caribbean cruise sounds more viable. Cruises in the Caribbean Sea might remain attractive but with an ISIS-infested Libya just 200 miles across the Mediterranean Sea from Italy and Greece, along with the current migrant crisis in Europe, safe sailing isn’t a guarantee. Again, recall the head-and-shoulders pattern:

Things get even dicier in the context of the broader market. Take Nordstrom, for example. Observe the massive divergence between its stock price and the S&P 500 from 1999 to late-2000. While Nordstrom’s valuation halved, the broader index sailed to new highs, before collapsing during the recession:

Similar story in 2007:

And this is where we stand today:

To recap, the American consumer is near credit-cycle highs and the personal savings rate is at 30-year lows. Economic bellwethers are reflecting the consumer slowdown through weaker performance. More importantly, after years of the Fed pushing investors further out on the risk curve, retailer share prices are getting clobbered while the broader market hovers precariously near the brink. If the Fed were to raise rates, that would be tantamount to tightening the credit-spigot sustaining retailers and would likely result in another large sell-off. On the other hand, economic fundamentals suggest that the consumer is tapped-out and it’s a matter of time before the market loses patience with ineffective monetary policy and insufficient fiscal action.




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