'No way to value equities' - Jeff Macke talks with Alpha Trader
This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking with Jeff Macke about retail amid the pandemic panic. Prior to the chat with Macke, Task and Alpher mull the speed with which markets have plunged through any number of bazookas fired by the Fed (Editor's note: Roughly 48 hours after the recording of this podcast, the Fed announced an even larger bazooka - unlimited QE, the purchase of corporate paper, and a dusting off of the financial crisis' TALF facility - markets continue lower). Goldman Sachs on Friday predicted a 24% annualized contraction in Q2 GDP, and then St. Louis Fed President Jim Bullard over the weekend said he thought GDP might contact 50%, with the unemployment rate rising to 30%. The best advice might be to try and not pick a bottom, with Task and Alpher noting the financial crisis low didn't come for several months after the Lehman collapse, any number of Fed interventions, and the passage of TARP. Very slowly putting money to work might be the way to go. "There is no way to value equities on future cash flows in this situation," says Jeff Macke. "It's not even possible to pretend. We don't have enough information." Run away from anyone telling you they can figure things out, says Macke, and run doubly fast from any company management saying they can offer reasonable guidance. If you want to see who is on top of things right now, check and see who has updated their app, suggests Macke. Business isn't usual for anyone, but it'll give you an idea of which players are still fulfilling orders, still getting at least some facsimile of their business done. He notes a place like The Gap (GPS), which already had plenty of work to do in its online business - that's going to be really hard to do when there's a "goose egg" on the top line. As for possible changed consumer behavior, Macke reminds that more than half the stuff sold on Amazon (AMZN) doesn't come from Amazon. Should the current situation continue a lot longer, the product you order off of Amazon may or may not show up, and you may not know anything about whoever sold it. This could be an advantage for Target (TGT) and Walmart (WMT) with their well-developed supply chains, and ability to stand behind what they sell.