Apparently Lee Scott reads my blog

Women's Wear Daily is reporting the following:

The economy will turn around some day — but don’t expect conspicuous consumption to make a comeback.

So believes H. Lee Scott, chief executive officer of Wal-Mart Stores Inc., noting the dismal economy has caused a permanent and fundamental change in consumer behavior.

The fact that people still need to be told that this is the case is rather interesting to me. (If they'd only read my blog earlier...) This isn't something new, and it's going to get worse before it gets better.

Take your medicine like a good boy

Something occurs to me. Those who feel good about the economy's prognosis for the next year are constantly saying that "everyone" is bearish, making it the bottom for the market and a buying opportunity. Those who believe the sky is falling (yours truly included) hear nothing but talking heads opining about how this is the buying opportunity of their career. (If you want to know what I think about that comment, read this.)

There are folks who are certain that Bernanke has studied the Great Depression enough to know how to avoid it again. But knowing how to avoid the problems of the 1930's doesn't necessarily mean he knows how to avoid all the problems we're facing now. The consumer is on strike, and not by choice. And while I could be wrong, so far I haven't seen or heard anything that my buddy Ben can do to help the consumers feel flush and start buying again. Frankly, I don't think that would be the right answer anyway. We're lancing a boil on the butt of consumerism, folks. It's a painful procedure, but it's the only way for the economy to heal. The recuperation period needs to include recovery from the excessive spending of the recent past as well as resetting what the economy expects from the consumer. We're nowhere near done with that process yet.

Just call me Nurse Ratched.

What's a few hundred thousand between friends?

ADP revised their methodology for their much-watched employment report. It would be nice to say that the breathtakingly abysmal numbers were due to the new calculations, but it ain't so. Everywhere I look, companies are talking about cutting employees. In just the last 24 hours, we've heard about 13,500 job cuts at Alcoa, 2,400 job cuts at EMC, 1,230 from Marks & Spencer (gotta love the precision of those Brits), and I'm sure I'm missing some.

Bottom line, jobs are getting worse which is another nail in the coffin of consumer spending.

That explains that

Another blinding glimpse of the obvious was revealed yesterday, although I have to admit that it wasn't even on my radar screen as a possibility. I was both thrilled and a bit shocked that Costco was able to get a significant amount of Waterford crystal for the holidays. Costco has benefitted from the desperately bleak retail landscape for over a year now, as suppliers that hadn't considered them worthy of carrying their goods before suddenly saw them as a fabulous distribution mechanism. This has happened in previous recessions, so it wasn't too much of a shock.

But this time around, Costco's ability to get goods might have a bit more of a predictive value. The first sign of a crack at Crocs? Thousands of pairs of the popular yet distinctly unfashionable shoes showing up at Costco warehouses. Now, we hear about the bankruptcy of Waterford.

Geez, add to this a couple of financially-based suicides, and people might actually get the idea that the world-wide economy is a bit under the weather or something.

Hasta la vista, Baby

I'd be remiss if I didn't offer a hearty and heartfelt so long and farewell to 2008.

It's been a year where we've seen stupidity and incredible hubris revealed, resulting trials in the markets and financial companies, rather interesting and unexpected events unfolding themselves in local financial companies, and health challenges for some very dear friends of mine. Through it all, I've been blessed in ways I couldn't have possibly imagined. Even so, I'm ready for a continuation of the new that is underway.

Cheers everyone. Let's make some money in 2009, shall we?

One of the reasons why

A little over a year ago Credit Suisse put out an amazing graph that struck fear into my heart. It certainly had a lot to do with me looking more seriously at Wal-Mart as an investment (thank you, CS!) because of their focus on lower income consumers.

One look at this graph, combined with the knowledge that it is more and more difficult to get a mortgage (i.e. refinance some of these beasts), should make you rethink any rosy scenarios you might be harboring in your heart. Oh yes, and I hear that as many as 50% of the mortgages that reset in 2009 are already behind on their payments... at the teaser rates. Want to bet on a fabulous 2009? I'll take the other side of that bet!



It's not over until the fat lady sings, and she's not even starting to warm up yet.

That's why we invited you...

When I was a little girl, one of the songs my mother used to sing to me when I was being cranky went something like:

"Every party has a pooper, that's why we invited you, Party Pooper."

I'm finding that this is a role I'm taking on more and more lately. It's not that I enjoy being a wet blanket, really. I'm actually quite fun to be around, as long as we're not talking about the economy. So, what's set me off this time?

The International Council of Shopping Centers has recently released a report calling for 73,000 stores to close their doors during the first half of 2009. The first HALF. Six months. Not shocking to me or you, if you've been reading this blog.

In light of that, though, could someone please explain to me (using small words) how some of the portfolio managers on television can possibly be excited about the market going forward? 73,000 store closings is a little bit more than a pebble dropping in the ocean. If you truly think about everything and everyone that goes into running a single mom & pop type shop, you will quickly realize that we're talking about a lot of unemployed people and lost GDP.

There are roughly 600 good malls in America. Obviously not all of the possible stores closing are in malls, but humor me for a minute. Let's say the average mall has 200 stores, which is probably high. So in my example there are 120,000 mall stores in my world... and 73,000 are turning up their toes and dying. Hmmm. That's not ugly. ::cough::

I'm all about the Darwinian evolution of retail. I have absolutely no problem with bad retailers failing. The culling of the herd is a good thing. What I have a problem with is folks not realizing that those failings will have an impact on the economy. The thought that one guy floated today (had I been more awake I would have noted his name, but it was early out here and I was suffering from a caffeine deficit) was that it was already priced into the market because these were the lowest valuations he'd seen in his thirty year career.

Here I go again, but just because it's the lowest valuations that you've seen in your career doesn't mean that it's as low as they go. A sense of history is important. And a realization that the past 10 years (or more) have been extraordinary times and valuations in the market is also rather useful. With all that the consumer is still facing, I just don't understand how anyone can believe that we're in for any sort of a rebound to recently normal valuation levels. While the US market has traded at roughly 14x earnings in recent history, the longer term valuation level is closer to 10x. And when the pendulum swings, it always goes past center in the other direction.

I understand the theory that you buy stocks before the end of the recession. Retail in particular starts to rally 6 months before the end of the recession. But given the landscape, I just don't see how we are out of this recession in 2009, which means that keeping powder dry is still in order for private clients. We're going to play this rally for as long as it holds, but I don't expect that to be longer than March. Trades to go to majorly defensive positions are going to be teed up and ready to go.