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What we’re seeing right now is what former Fed Chairman Alan Greenspan once called “irrational exuberance,” which is another way of saying that investors are willing to pay nearly any price to get into the market right now. However, earnings are just not improving at the same rate that stock prices are rising, and there have also been a number of worrying dividend cuts, which I think is a negative sign.
One sector that looks particularly bad is the retail sector. For example, L Brands Inc (NYSE:LB) dropped nearly 16% yesterday after issuing a disappointing outlook for the year, which indicates to me that the stores in malls across the country are not doing well at all.
It seems there are just too many retailers and probably also too many food companies, such as Kellogg Company (NYSE:K), Procter & Gamble Co (NYSE:PG), Kraft Heinz Co (NASDAQ:KHC)…there are just too many products. That’s a situation that’s going to have to resolve itself eventually.
When it does, we’ll be ready with this bearish trade on General Mills, Inc. (NYSE:GIS).
Buy to open the GIS Apr 57.50 Puts (GIS170421P00057500) at $0.80 or lower.
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