Monday, December 29, 2008

Yawn! Retail News Continues to Worsen

Good Afternoon Folks!

Just a quick entry tonight. Today was a quiet day in the markets as bad news from the Middle East and retail sales took its toll on stocks. The DOW rallied toward the end of the day to close down about .3% while the NASDAQ closed down 1.3% for the session.

The REITS took a pounding today as the retail story continues to worsen:

"Dec. 29 (Bloomberg) -- U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years.

Retailers may close 73,000 stores in the first half of 2009, according to the International Council of Shopping Centers. Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations.

More than a dozen retailers, including Circuit City Stores Inc., Linens ‘n Things Inc., Sharper Image Corp. and Steve & Barry’s LLC, have sought bankruptcy protection this year as the credit squeeze and recession drained sales. Investors will start seeing a wide variety of chains seeking bankruptcy protection in February when they file financial reports, said Burt Flickinger.

“You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out,” Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York, said today in a Bloomberg Radio interview. “There are a number that are real causes for concern.

Sales at stores open at least a year probably dropped as much as 2 percent in November and December, the ICSC said last week, more than the previously projected 1 percent decline. That would be the largest drop since at least 1969, when the New York-based trade group started tracking data. Gap Inc. and Macy’s Inc. are among retailers that will report December results on Jan. 8."

My Take:

Pretty bleak isn't it? The prediction of 73,000 store closings was a shocker to me. I also didn't realize that total retail sales for existing stores was twice as bad as expected with sales dropping 2% versus the 1% that was expected. That's a huge miss.

This is pretty pathetic considering that many stores were practically giving things away at 60-70% discounts.

SRS had a nice day today rising about 10%. Congrats to the longs out there!

Treasury Auctions

There appears to be no end in sight for the demand of treasuries:

"WASHINGTON (AP) -- The interest rate on six-month U.S. Treasury bills dropped to its lowest level on record at the weekly Treasury auction, the government said Monday.The Treasury Department said it auctioned $27 billion in six-month bills at a yield of 0.25 percent, an all-time low. That's down from a rate of 0.285 percent last week.

Treasury rates have fallen to historic lows as the worst financial crisis in 70 years has triggered a rush by investors to the safety of government securities. Higher demand for such securities pushes their yield, or interest rate, down.

The lower rates make it cheaper for the government to borrow money, just as the federal deficit is set to balloon due to the rising cost of aid to banks, increased spending on unemployment insurance and lower tax revenues.

The department also auctioned $26 billion in three-month bills at a yield of 0.05 percent, up slightly from last week's 0.04 percent. That matches the rate from two weeks ago and is the highest since three-month bills averaged 0.15 percent on Nov. 24."

Quick Take:

The treasury bubble continues to blow up. I spoke to a banker over the weekend and the story is simple here folks. There is capital out there, but the big private equity boys that hold it have no desire to put it to work right now because this crisis isn't anywhere close to being over.

Assets are still too overvalued in the eyes of the distressed debt buyers. Keep an eye on these auctions because there will be a point in which this treasury bubble will burst. I

What could cause it? A bond market dislocation would do the trick. So would a dumping of treasuries by the major buyers of our treasuries like China or Russia as they continue to worry about our economy and the ability for us to pay back our debts.

I my eyes, an emerging risk to treasuries are hard assets like homes and commodities that have been flattened by price deflation.

Home prices still need to drop more, but the early "bubble" markets are starting to get appealing. Perhaps the smart money will decide that owning homes at .30 on the dollar is a more appealing option than owning paper treasury IOU's that our government can't afford to payback.

The treasury market will burst just like every other bubble. Its a matter of when not if.

Bottom Line:

I am still short FAZ, BEARX, and SRS(at $85 ouch!). I see no reason to cover. The holiday trading is light so you can't read too much into the moves this week. I believe things should stay fairly flat unless the Middle East spirals out of control.

In fact, at the lows of the session today I bought some QID $60 Jan PUTS to hedge out my shorts. They will most likely be gone by tomorrow. They are already green, and I do not hesitate to take profits in this volatile market. Tech seems a little overdone here in the very short term IMO. I am hoping to exit on an early bounce before the consumer confidence number comes out tomorrow at 10 AM.

Keep an eye on oil. (DXO) which is 2x long oil will be a great trade in the near future. It was up 14% today. The problem is the price action was really piss poor in reaction to the Middle East saga until a few minutes before the close. Oil pulled back after the news and was actually almost back to even at one point. I didn't like that at all. I think oil still goes lower for a little while due to demand destruction. Longer term, oil will be a nice long play. If DXO dips back to $2 I plan on jumping in.

Stay Tuned!

4 comments:

John Maynes said...

I am still waiting for GMAC. They have to come up with something. What choice do they have?

Jeff said...

Good question John

Pimco is putting the screws to them from what I hear. They have turned down just about every deal that GMAC has put together.

This will end painfully if they can't get this structured. It appears the Treasury is supportive so I assume this deal will get done.

I am sure the bondholders are holding out for the best deal possible.

John Maynes said...

Now we have an answer: Treasury to Buy $5 Billion GMAC Stake, Expand GM Loan.

Jeff said...

J

Not surprised and it makes sense.

If you bailout the autos customers have to be able to lend.

Its sickening but reality.