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What are McDonald's and Wal-Mart Telling Us?

by: Trader Mark October 10, 2008 | about stocks: MCD / WMT    
Trader Mark

Trader Mark

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I am very intriqued by our top 2 choices for the "Pooring of America" trend - Walmart (WMT) and McDonalds (MCD) - what exactly are the charts above telling us?  If we are to enter a long drawn-out recession, which I have believed,  these seem to be screaming buys here. The only question is credit - how does a lack of credit potentially hurt both. They are not expanding a ton, in the U.S. at least - perhaps with Wal-mart it's financing of inventory, but I cannot wrap my mind around this behavior.

It is, however, another part of the bottoming process when the places people are hanging out as safety get destroyed - we saw that at market bottoms in January and March 2008 as well. In fact McDonalds is all the way back to January 08 lows.

My possibilities are

  1. Mutual fund redemptions - these are huge holdings of hundreds upon hundreds of the largest type of "large cap" mutual funds - as retail investors panic and redeem from mutual funds - the funds have to sell to raise cash
  2. Some sort of credit issue
  3. 'End of Days' in the US economy as people cannot even afford the bottom of the proverbial food chain (worst case)
  4. Their weakness is a precursor for a roaring economy in 6-9 months (i.e. as everything recovers, people will begin to shop back upscale) *cough* - it's doubtful but I'm putting it out there (best case aka the Dennis Kneale aka permabull reason)

Disclosure: No position, but thinking this might be "the" opportunity for these two

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This article has 9 comments:

  •  
    Oct 10 02:39 PM
    MCD in USA is still expensive compared to HK where $3 will buy you a big mack, fries & coke and we are pegged to the US$.

    Apart from point 4, I agree with you other points. Another point to consider is fundamentals to stock price, are they still too high? How much debt due they hold?

    A discount clothing chain filed for bankruptcy in HK today fallout from the credit crisis. Got a loan call from its banks after institutional investors pullout and stock price went into free fall. 400 staff left in the cold and shops owing rent in HK, impact to PRC shops still unknow.
    Reply
  •  
    Oct 10 02:47 PM
    The ugly one is that it is a forecast: own nothing cause it will cost less later. But look at oil, we know that peak oil has past and we are on the down slope, yet they are selling it like no way. Some where the commodities and foreign currency must become the investments. Unless of course the whole world is going to hell.
    Reply
  •  
    Oct 10 02:56 PM
    Yes , the whole world is going to hell , especiaaly bad in the Euro area + US . I just read where Germany , one of the stronger Euro countries , is making ties with Russia , as they don't want to go down with the rest of Europe , ie UK , Italy . Spain , Ireland etc
    Reply
  •  
    Oct 10 03:04 PM
    Credit issue? Who buys Big Macs on Credit?
    Reply
  •  
    Oct 10 06:35 PM
    I think you hit the nail on the head with mutual fund redemptions.
    Reply
  •  
    Oct 11 02:13 AM
    Those charts are telling me that the Jan $40 puts I bought on WMT about a month ago are money in the bank.
    Reply
  •  
    Oct 11 12:31 PM
    Talking about mutual and hedge fund redemptions, I think that explains the jump in the dollar as well. Logic would suggest that a melt-down of the U.S. stock market, and the unprecedented inflating of the dollar would send investers fleeing the carnage. But, these large funds have a large part of their investments in foreign companies. With so many people demanding their money - what's left of it - out of these funds, the funds have had to sell their foreign stocks. Then, they have to convert the foreign currencies into dollars so they can meet the demands of their customers. With so much demand for converting foreign currencies to dollars, there has been a spike in the dollar.

    At least, mutual and hedge fund redemptions is the only way I can logically explain why the dollar, with its recent fundamentals is rising, at least short term, and not plunging like the drop in the stock market. . . . And it applies just as well to explain the drop in WMT and MCD.
    Reply
  •  
    Oct 12 03:41 AM
    How about hedge funds liquidating to meet CDS payoffs which are looming?
    Reply
  •  
    Oct 13 12:14 PM
    McDonalds purchases beef from Australia and New Zealand and Wal*Mart with the star in the name puts 70% China items in the stores in America....jus now is the US dollar gonna stay strong when all them dollars get stuck in a foreign bank and the American people have to get the second largest employer (Uncle Sam) to sell we the people debt to get those dollars back.
    Made in America.........pricel...
    like ....
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    People....think about tat dollar.........Washing... did.
    Reply
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