With apologies to Clement Clarke Moore

Twas the eve'n after Turkey Day and all through the mall,
There were creatures a-stirring, but not buying all.
The discounts were posted in the stores with care,
In hopes that the shoppers soon would be there.

The security teams were nestled all snug at their posts,
While visions of safety were bigger than most.
Shoppers in PJs, some with hot plates,
Had just settled in for a cold morning's wait.

When out in the parking lot there arose such a clatter,
Security sprang to attention to see what was the matter.
Away to stores I flew like a flash,
Held on to my credit cards, I'd only pay cash.

The fluorescent lights gleamed on the newly arrived stuff,
Gave a glimmer of hope to the retailers who'd had it so tough.
When what to my wondering eyes should appear,
But a whole slew of shoppers, with Christmas lists for those dear.
They clutched at the flyers, all glossy and slick,
And I knew in an instant that it was bargains that would stick.

More rapid than hordes, the shoppers they came,
Crowding home and electronics, gotta get that new game.
Now toasters, now iPods, now board games and toys,
Grab discounts, grab bargains, can't afford to be coy.
To Kohls and to Target, To Walmart and the mall,
Shop away, shop away, shop away all.

As dry leaves that before the wild hurricane fly,
Grew the lines at the checkouts with items to buy.
So up to the next floor, the hordes they plain flew,
They wanted those bargains, apparently more than did you.
And then in a twinkling, I heard from the clerks,
'Next in line please,' they were glad to have work.

As I talked with consumers, the people in line,
It was really apparent they weren't feeling too fine.
They were clutching their wallets, a glaze in their eyes,
'No credit left for me this year,' was often their cry.
Their choices were careful, each item a find,
Yet the retailers had obviously kept margins in mind.

Their steps they were quick, but eyes were quite bleery,
Still yawns they were stifled, due to caffeine with dairy.
Their bags didn't bulge, despite purchases paid,
A few less per family than they'd previously made.
Still some shopped for sport and had good fun,
Twas quite the excitement to watch where they'd run.

A quick look through stores when I should be in bed,
Soon gave me to know retailers might have a tough time ahead.
The customers they shopped where stuff was on sale,
But no discount equaled no purchase despite their avail.
And leaving the mall to hit the next store,
The consumers weren't confined to stores they adore.

The shoppers want value, not just cheap price.
And retailers win who know naughty from nice.
We're still not done with the shopping this season,
But retailers will win who use their good reason.

NBC Nightly News

Did a little work for my friend Brian Williams on Black Friday. Okay, I don't know Brian, but I'm sure we'd be friends if I did. Anyway, watch the results of 4 hours with a camera crew starting at 3:15am:

Visit msnbc.com for Breaking News, World News, and News about the Economy

Gotta go through it

So the American consumer bought way too much stuff with money that wasn't really theirs in the malls that have appeared everywhere across our landscape. And now the bill is due, consumers aren't spending, and those malls dotting the landscape aren't looking so pretty any more.

How ironic that General Growth Properties who bought way too many malls with money that wasn't really theirs is now having problems of the Chapter 11 variety. You have to give them credit (perhaps a bad word choice in light of the circumstances), but they had done everything possible to work out something with their bondholders to get through this without having to file.

So what happens now? Well, this isn't liquidation, it's just restructuring. General Growth will continue to operate their more than 200 malls... until they can sell some of them off. It's considered likely that Simon Properties will be able to pick up some of the properties at literally fire sale prices.

I'm fairly certain that more than a couple of the nation's malls need to go dark. In fact I talked about that for an hour in October with NPR. Here in the Seattle metropolitan area we have eight malls for 3.2 million people. Sounds like a lot of potential shoppers, but the malls are just too close together. We could easily cull three or more of those from the herd and improve the local gene pool.

So now it gets interesting. It's now not just the retailers but the property owners that are having issues. And the consumer isn't at a point they should be spending like drunken sailors again. Call me funny, but I'm not seeing how the current stimulus plans fix this. It's like that song we used to sing at camp where a refrain went something like: "can't go under it, can't go around it, gotta go through it."

AHA!

As you might remember, I was confounded by the retail sales numbers last week. The number was higher than I expected, especially for apparel which was +2.8% from January.

Today the clouds parted and all became clear. Turns out the culprit was inflation. The apparel component in the consumer price index was up 1.3% for the month of February. I'm not 100% sure WHERE the prices were up, since it sure seems like apparel prices where I'm looking are falling... or at least discounted by huge amounts.

Scratching my head

There are times in this business that are rougher than others. Watching the market go up from the sidelines this week is one of those times. It feels like it would be great to jump in, but I'm not sure that the water is a comfortable temperature. I'd just dip a toe in to test the temperature, but I'm not sure that aren't piranhas waiting to nibble off an appendage or two.

Despite the "good" retail sales report this morning, I'm still very much of the belief that this crisis isn't over yet. I think I might have said that once or twice before. The retail sales numbers were better than expected. But if you looked deeply, a lot of the happiness came from retail sales of gasoline. Since the PRICE of gasoline was up over 5% during the month and sales were only up 3.4%, perhaps we should rein in some of that enthusiasm. I'll admit though that the 2.7% increase in clothing purchases has me a bit flummoxed, given how lackluster the same store sales were last week. For now, I'm going to consider it a bit of fluke, but watch it carefully.

One of the reasons that I'm pretty certain that we're not anywhere near out of the woods was the release of the Federal Reserve's measure of U.S. household wealth. During Q4 it only dropped $5.1 trillion. A trillion here, a trillion there... pretty soon we're talking real money. Is it any wonder that consumers are cutting back, saving more, and scared to death? Nah, I didn't think so either.

In other news, there's still a lot of short covering going on in the market. Tonight I did a survey of the short interest on the individual stocks within the S&P 500. (Have I mentioned lately how much I love my Bloomberg terminal? I do. Truly I do.) Anyway, doesn't matter if you take the average or the median of the number of days needed to cover the short positions, it comes out to about 2 days. Anyone want to be that the rally continues for another day or two before fizzling when reality sets in?

Loans loans everywhere and not a cent to spend

Before I even start, I want to be clear that I am not espousing a political opinion here. I hate politics. I'm not interested in them. But I do like investing (well, up until recently). And we all know I *LOVE* retail (well, up until recently). I want to go back to the good ole days of making and spending stupid amounts of money just as much as you do. But it would be disingenuous to suggest that it were possible to do so. I firmly believe that we are in the midst of a Great Adjustment not unlike that which our grandparents experienced... but different because we got here differently.

So, what I'm trying to figure out how we get out of this mire in which we're muddling. I'm all about common sense, or at least I'd like to be. The President just talked about 'new common sense rules of the road' (that's a direct quote from the President's speech... just a second ago), but then he's talking about increasing the lending again. He mentioned that it was only through borrowing that Americans could buy homes (okay), buy cars (can't we buy cheaper cars?) and attend college (a little help is fine, but those kids coming out of college with $110k in debt are in a world of hurt that will take YEARS to dig out from.)

Okay, the banks have shut off the faucet completely. For businesses. For consumers. For everyone. That's not good. We know what happens when there is no credit - there is no economy. I don't like that. You don't like that. Heck, no one in the world likes that. On the other hand, when there's too much credit, problems also ensue.

I am so very very concerned that all the talk is about getting lending moving again so that the consumer can bounce back. Our consumers have been consuming too much, have collected too much debt already, and they're going to be digging out for a long long time. I'm not saying I'm an expert, but I play one on TV. Every indicator I can find shows the U.S. consumer is tapped out, drowning in debt, swimming in stuff that they thought they needed but really didn't.

Let's think about this. Home mortgage default rates (delinquent loans as a percentage of total loans) are over 5%. Maybe that's because the long-term average percentage of Americans who own homes is 65%... and even with all the foreclosures we're still at roughly 67.5% owning homes. Too many people who couldn't afford a home were allowed to buy a home anyway, at least for a time.

We all know about the problem with subprime loans, but no one is really talking about the next pig in the python: the Option Adjustable Rate Mortgage problem that is staring us in the face. These Option ARMS are even more toxic than the subprime mortgages, maybe that's why no one wants to talk about them.

I gave a talk last weekend on the economy entitled "Fairy Tales Retold: Today's Economy Explained." In the case of consumer credit, my point is that you can wait for Prince Charming all you want, but he's not going to pay off your debt... he can't afford to pay off his own! Okay, we're a little off the highs, but consumer credit (not including mortgages, just credit card-like stuff) is over 21% of personal income. Back in 1974 we were closer to 15%. Of course, we didn't all have fabulous designer handbags and great technological toys back then either.

I can't tell you how many folks I've had tell me that their home is their savings account. Great thought until home prices fall 20%. A better place for savings might be, wait for it, a savings account. But as a culture we apparently don't believe in those either, maybe because they don't give you the rush that the stock or housing markets do. They also don't turn your stomach like the stock or housing markets.



In the graph above I've shown the personal savings rate as a percentage of disposable income since 1959. The average over that time period is indicated by the gold line across the middle: 6.9%. It doesn't take a statistician to see that the average is only that high because of the early years in the graph. In fact, since the beginning of 2005, the average is only 0.8%. No, that's not a typo. Less than 1% of our disposable incomes are being saved. No wonder we're living on debt, we don't have anything in savings for emergencies. And up until last quarter, a sale at Macy's qualified as an emergency.

So when the tap got turned off by the banks and it looked like they were really serious this time, is it any wonder that retail sales took a nose dive down the rabbit hole?



That little graph there shows the year over year change in retail sales since 1992. That drop-off on the right side? Unprecedented. Ugly too.

So we have no savings in our homes or savings accounts. We have lots of credit card debt. We have lots of people defaulting on their mortgages and more to come. We're a consumer economy (70% of the economy is consumer driven), and we're not buying any more... because we can't.

I'm not saying we won't get out of this, because we will. But anyone who's believing it's going to be quick or easy? Not so much. I don't have the answer, but I'm pretty sure we can't leverage ourselves out of it this time.

Why don't they read the papers?

The market is shocked, shocked I tell you(!) by today's retail sales release. Brace yourselves, dear readers, but retail sales for the month of December were down 2.7%. If you're asking yourself how this could possibly be, you haven't been reading this blog long enough. Catch up please, we can't hold up the entire class just for you.

Did we not have chain store sales for the month of December released last Thursday? And were they not abysmal? Yes, yes we did and yes they were. I know, I didn't blog about it. I was too depressed. Anyway, here we are yet again with a big market sell off because of a number that a kindergartner with a little training could have predicted a week ago.

I suppose there's a little ray of sunshine in the numbers - if you took gasoline sales out of the equation, retail sales for the month of December were only down 1.4%. That's what happens when gas prices fall 15.9%... even if you sell more gasoline, it's almost impossible to make up that much of a price decline. Then think about all the clothing discounts we've seen at the mall over the past couple of months - it shouldn't be a surprise that the clothing sales dropped 2.5%. In fact, it's a bit of a miracle it wasn't worse. Deflation is here folks, as previously stated. You read it here, maybe even first.

Marketplace Radio

I had the opportunity to chat a bit with Jeremy Hobson of Marketplace Radio today about the amazing discounts that are in retail today... and the even greater discounts that are coming. You can listen to it here.

What I'm thinking today... video edition

Sometimes re-typing what you've already said just doesn't make any sense. In that spirit, I present to you my recent appearance on Bloomberg TV:

Lovely, shiny pyrite

The talking heads on TV are blathering about how retail sales over the weekend were up higher than expected and don't seem to understand why that number is a false tell. It's simple, really. Yes, people bought more than expected last week. But they were buying the stuff that was on sale, and folks, the discounts that were offered were amazing. Beyond that, and this is probably the most important point, many many people I talked to on Friday morning were doing all their shopping this weekend. Period. Done. Those who weren't going to be finished on Friday were going to wait for more sales. Not a good sign.

Look for all the glimmers of hope you can in the retail reports, folks, but just because it's shiny doesn't mean it's gold.