Tepper Stirs the Pot

David Tepper's comments about not being long or short actually reflect the mood of most individual investors for the past few years, except he was more than 100% invested in the market. Apparently, he is down to 60% as several issues bother him, including:

Tepper complained about "coordinated compliancy" among central banks. He wants them to turn those machines back on and print. In fact, he threw down the gauntlet to the ECB, demanding that they lower rates next month. I think his concerns about deflation have some validity. However, I am no fan of money printing. In the end, it is a dangerous gambit, and is never undone without a degree of pain, which makes one wish, that the initial pain had been allowed to play out in the first place.

In addition, Tepper is worried about US economic growth, but needs to realize that any deviation from tapering would be a disaster, but he has a point; again, there are many assumptions about a stronger second half in 2014. We have also modeled for a stronger second half. Tepper has been right for a long time (in terms of being worried about economic growth), but individual investors should understand that this guy does not invest like Main Street. Keep in mind; Tepper adjusted his position six months ago, and when he gets 100% invested again, you will not know it until after the fact.

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Some of his observations were fair, and I have been asking for higher cash positions throughout the past year, although I understand that there are limits, and that it has been important to put money to work on dips. You have to be vigilant in the market and know what is moving the market. I was very impressed with news from the New York Fed and Philadelphia Fed (strong pricing power: see chart), and felt that the initial jobless claims cracking under 300,000 is a big deal.

Pharaohs Moving Money

Although Tepper did the public a favor, by telling them not to be long, he has been a very busy guy- buying and selling 17 new and old positions, while adding when exiting. He and the other masters of the universe have been quite busy, which belies the notion that there is an imminent stock market crash.

Moreover, I think these guys have too much power to move the market and sway public opinion. On that note, I like the way the market held up, especially those battered tech names that held up. Yesterday was the first session where NASDAQ has had more spunk than the blue chip indices on a down day, in a long time.

Retail Theory

After the close, two retailers, from opposite sides of the track, reported earnings results that substantially beat the consensus estimates. The death-defying rebound of JC Penny (JCP) is the most newsworthy, since it was not long ago that the short interest on that stock was 70%, and everyone said, "Stick a fork in it." On the other end of the retail spectrum is Nordstrom: Nordstrom's posted a strong quarter, and saw its shares pop up in the aftermarket.

These two retailer stocks are now set to soar, two days after Wal-Mart and Kohl's laid eggs.

JCP

This earnings report was so good, that the shorts are going to pull out all the stops- and they have to, because this looks like the perfect rebound. The company achieved revenue and earnings that beat consensus:

• Same-store sales +6.2%
• Online +25.7%
• Gross margin +230 basis points
• SGA cost are coming down
• FY guidance $2.0 billion cash on hand at end of the year

Management is feeling great, as they should. Myron Ullman has gotten a chance to clean up his legacy at the store, and thus far is living up to the hype afforded to his predecessor. Now the board is not looking for a new CEO, and the landlords are no longer nervous.

During the quarter, management opened 30 Sephora "store- within-stores", bringing the total to 476.

Thirty-four (34%) percent of the stock is short (it was 60%), so it remains to be seen how many investors will bite the bullet (squeeze), or double down. Technically, the stock does not have a lot of resistance between $10 and $14, but of course, it would take several more quarters, like the kind we have seen in the last six months, to determine in which direction the stock price is heading. In the meantime, some of the bloom came off the rose during the call when management said, 'this isn't a hockey stick', and hinted at pent-up demand helping the quarter.

JWN

The company beat on the top and bottom line with earnings coming in $0.04 above the street. While this is an up-scale retail "play," the company's discount business, including its outlet Rack, drove the quarter.

• Rack comp store +20%
• Haute.com +10.5%
• Reward loyalty members climbed to 3.9 million was responsible for 38% of sales
• Cash from operations $217 million from $161 million
• Accessories, women's shoes and cosmetics strongest

Management is making a bigger capital commitment

• 2009-2013 $2.2 billion
• 2014- 2018 $3.9 billion ($1.2 billion in technology)

Conclusion

I really do not think Wal-Mart is the right proxy for the US economy, as it is overly reliant on people receiving government transfers. People with jobs are spending money, and are not going to Wal-Mart, or to Whole Foods, but to somewhere in between. Department stores are in trouble, but they have been for two decades, and who knows, maybe they will end up as skateboard parks, but if they do not, I will not be surprised.

Housing Starts and Permits

There was some more optimistic news this morning in the form of housing new starts and permits for the month of April. Starts increased 13.2% in the month of April to 1.072 million, which was up from a slightly upwardly revised March figure of 947,000 (from 946,000), but came in well above consensus' expectation of 975,000 starts. We note that this is the first time that housing starts came in above the 1.0 million mark, since December 2013. Housing permits also increased in April to 1.08 million, compared to the upwardly revised reading of 1.0 million in March (from 990,000), and were nicely higher than consensus' expectation that permits would increase to 1.008 million. Existing housing supply figures will be released next week, but for the moment the spread between new and old supply seems to continue to diverge.