When TGT reported April quarter earnings last month, its balance sheet showed a whopping $4.5 billion increase over the comparable period of the prior fiscal year (note: retailers typically end their fiscal years in January of the following calendar year, in order to get an accurate read on December holiday sales, which can make up the bulk of the year’s income).

TGT has 464 million shares, so that translates into extra merchandise on the balance sheet (at TGT’s cost) of a bit less than $10 a share. The stock lost about $60/share on this news. That’s $28 billion, 30% of its total market capitalization.

Overnight, the company announced, as I see it, that it has decided the best course of action is not to feed this extra into the market slowly but to rid itself of it as fast as possible. My guess is that management has realized that every retailer is in the same boat and, to mix metaphors, the first one out the door will end up recovering the most.

In rough-and-ready terms, TGT typically marks merchandise up by 30% – 50% over cost and achieves an operating profit (meaning after deducting the cost of running its stores) of 6% – 8% of sales revenue.

If TGT could sell the extra at normal margins, it would make $270 million. We know that isn’t going to happen. A good outcome, I think, would be if it can recover what it paid to manufacturers for the TVs, furniture and appliances. Let’s assume it can only achieve $2 billion in cash, suffering a $2.5 billion one-time loss. After-tax, that’s around $2.75 billion, or $6 a share, more or less.

As I’m writing this, TGT has recovered a bit to a loss of $12 a share, or $5.5 billion+, on this news.

To sum up, TGT’s severe misreading of its market will likely cost the company a one-time loss of $6 a share. Maybe there’s some reputational damage, both on the part of shareholders and customers, as well–although my guess is that, if so, the feeling doesn’t last very long. The stock has lost $72 a share on the news, $12 of that so far this morning.

My point?

The hallmarks of a bear market is that investors develop a kind of myopia. Their perspective shrinks to encompass only what’s happening in the here-and-now, and excludes, in particular, consideration of anything good that might happen in the future.

Ex the inventory mess, TGT is trading on 11x earnings. The fact that it continues to go down indicates that bears are still in control of trading on Wall Street.

I’ve updated my Keeping Score page–belatedly, and slightly less accurately than usual–for May 2022.

The second first: I logged into my Fidelity account using Chrome a few minutes ago. For the first time in a long while, the screen wasn’t frozen. My guess is that its system is no longer being overloaded with individual investors making morning trades. If so, I’d take it as a sign that the emotions that have been driving the market for the past half year or so are cooling down.

When MSFT reported surprisingly strong fiscal 3Q22 earnings in April, it also raised its guidance for 4Q. This morning MSFT essentially walked back that increase in expectations, lowering 4Q eps guidance by a little more than 1% and citing strength in the dollar as the reason. The new range is eps of $2.24 – $2.32, vs. an actual of $2.17 in 4Q21. Both high and low end are shifted down by $.03.

I find this a little weird. The chart is interesting, in that it illustrates the company’s expenses are more heavily in dollars than its revenues. But I don’t think the guidance is really about forex, since the dollar isn’t that much stronger today than it was six weeks ago.

I see the issue as this: The average analyst earnings estimate for the June quarter is $2.33/share. The high is $2.39, the low is $2.29. If we take the simple-minded view (usually a good idea) that actual earnings will fall in the middle of the range, the company thinks it will report $2.28/share for the quarter. As things stand now, that’s below the lowest analyst estimate. To avoid the impression that business is worse than any expert observer could have imagined, something that’s bound to damage the stock, MSFT has to shift guidance down to the point where $2.28 can be seen as ok rather than a disaster. Hence, the press release and SEC filing.

…and go away.” This is an old stock market adage, whose relevance is tied to the long ago rhythms of northern hemisphere industrial activity and vacation patterns. Many old plants, especially in Europe, shut down for the entire (very hot) month of August. And even today, at least pre-pandemic, June still witnesses the migration of the most senior portfolio managers to their summer homes. Junior staff would not be authorized to make strategic shifts in investment strategy in their absence …and would be loathe to disturb their bosses’ vacation.

So even though the slogan is in part an artifact of an earlier age, it retains some relevance.

I’ve mentioned this before, but I think it may have particular relevance for 2022.

A consensus seems to be forming that, in the US at least, the general impetus to sell–because everything was perceived to be overvalued–has pretty much exhausted itself. I’ve been thinking this for a month or so–adding the proviso that I’m always too early. But I see this ides popping up more and more in strategy pieces I’m reading. Part of the argument is that the US consumer appears to still be in good financial shape. Bank balances for average Americans are 2x-3x their pre-pandemic size, and problem credit card accounts are relatively small. Short-term interest rates, though potentially rising, are still negative in real terms. Yes, oil prices are back at 2014 levels–and even factoring in slightly better car mileage and inflation, gasoline is just above the all-time highs of close to a decade ago. All in all, not a boom, but not a bust, either.

If this is correct, our job is to separate potential winners from potential losers in our portfolios. Perhaps it’s latent Schadenfreude, but I’ve always found it easier to identify losers than winners. Absent brilliant winner ideas to replace stocks culled, there’s always the index fund as a destination for sale proceeds.

My guess is, and has been for some time, that we have the summer to figure this out, with a potential rebound not likely until the weather starts to cool.