So Whats Next? The "Wal-Marting" of America

Good evening everyone!

I am doing some consulting work so expect my posts to start hitting in the early evening. We saw quite a reversal today didn't we?

Expect on seeing these bear market rallies as the market continues to correct. There is no question that we still have a ways to go on the downside IMO. What cracks me up here is how the pigmen are trying to spin this volatility on bubblevision.

They are trying to say that the market is bouncing off the bottom as it completes its bottoming process. Hogwosh!

I guess they didn't see the Case-Shiller Index today did they:

"July 29 (Bloomberg) -- Home prices in 20 U.S. metropolitan areas fell at a faster pace in May, and consumer confidence stayed near the lowest level since 1992 this month, posing a threat to household spending.

The S&P/Case-Shiller home-price index dropped 15.8 percent from a year earlier, the biggest decline since records began seven years ago. The Conference Board's confidence index rose to 51.9, from 51 in June.

Home prices have fallen every month since January last year, eroding household wealth at a time when consumers are trying to cope with record fuel costs and the credit crunch. While both of today's figures were higher than economists' estimates, the reports still underscored forecasts for spending to slow in the second half as the stimulus from tax rebates wanes.

``It's definitely too early to break out the confetti,'' said Michael Feroli, an economist at JPMorgan Chase & Co in New York and a former researcher at the Federal Reserve. ``Household wealth is declining, and that should restrain consumer spending.''

Quick Take:

We hit another record in terms of price drops in May! This housing bubble will hold more records than Babe Ruth when its all said and done.

Hey Pigmen! Does this look like a bottoming process to you or an acceleration to the downside? Umm I think I choose choice B.

I have said many times on here that the market cannot turn around until prices in the housing market have stabilized. The Case-Shiller showed no signs of a housing bottom. Things are bad and getting much worse!

Welcome to Wal-Mart America!

I am starting to notice the "Wal-Marting" of America that I expected to see as we get hit with massive deflation.

I noticed this today. Palm came out with an upside surpise on their Centro sales:

"July 29 (Bloomberg) -- Palm Inc. rose the most in four years on the Nasdaq after saying its Centro e-mail phone sold 2 million units in less than a year, a sign the company is weathering competition from the BlackBerry and Apple Inc.'s iPhone.

Palm shipped the latest 1 million units in less than four months, accelerating sales after offering the phone through carriers such as Verizon Wireless in the U.S. The device is sold in more than 25 countries, Palm said today in a statement.

The $99 Centro is winning customers even amid competition from the $199 iPhone, which sold 1 million units in the first three days after its July 11 debut. While the Centro boosts sales, the device carries lower profit margins than Palm's pricier Treo model, aimed at business users. Palm has posted losses for four straight quarters.

``The Centro is inexpensive, it's easy to use and clearly it's appealing to younger users,'' said Lawrence Harris, an analyst at CL King & Associates in New York with a ``neutral'' rating for the stock. Still, Palm needs to boost sales of the Treo to improve its profitability, he said."

Final Take:

Who would have ever thought that an average product like the Centro would get so popular. 5 years ago everyone in the family would own an I-Phone as we pulled equity out of our houses and binged on "techie" gadgets.

Nowadays, a crippled consumer is creating opportunities for "washed up" companies like Palm to become successful by entering markets with cheaper versions of popular products.

This is exactly what Wal-Mart does when it enters a market. They look for opportunities in areas like generic drugs and food shopping and create "drop down" markets for the consumer who can't afford the real thing.

The fact that Centro sales are surging shows that this business model can also work in tech. People would love to have an I-Phone or a "Crackberry" phone. However, at $99 a pop, the Centro will do. Don't think Apple didn't see deflation coming when they cut the new I-Phone price in half from $400 to $199.

Apple's new phone would have been a disaster if they kept the price at $400 a piece. You are seeing this "drop down" mentality in consumer habits all over the place.

I recently discussed how going out to the movies is now all of the sudden back in "vogue". This has got to be a tough pill to swallow for the average American family.

You think a family of four is looking forward to going to the movies on a Friday night when they know the movie they are seeing will be on DVD in a few months?

Bottom Line:

Be careful investing in the markets right now. This is a traders market. We are not at the bottom, and no one is long term investing right now. The pigmen are buying on the dips and selling on any bounce.

This volatility could continue for the next couple days as we wait for the economic data at the end of the week.

As for the Wal-Marting of America, expect this to get worse.

By the end of this debacle "The Razor" might make a comeback and sell a million units!