Thursday, August 27, 2009

The Consumer is Dead

Hello All

Before I start I wanted to let everyone know that I will be in and out throughout Labor Day. I am on vacation so it might get quiet around here at times.

Just a quick video tonight. Davidowitz is one of the best retail analysts out there. He sees what I see: Consumer destruction! For whatever reason, the market continues to ignore it.

The reality folks is the economy sucks versus a year ago. Stocks are "recovering" by slashing costs and firing workers.

The reality is from a revenue standpoint retail sales are down nearly 10% versus last year. Recovery? Where?

Without year on year top line growth, the economy will continue to struggle. I see no catalyst that will reignite the consumer. Jobs, earnings, and savings are all dropping.

Trying to live in a "bubble world" thinking that things are turning around is a good way to get crushed investing in the stock market over the long term. There will be intermittent bear rallies as we work through the worst collapse since The Great Depression.

However, one fact remains:

There is simply no way that this economy can recover in only 12 months as the consumer deleverages and repairs its balance sheet. The consumer is now faced with paying off unprecedented levels of debt.

It will take years for these wounds to heal. Wall St isn't ready to accept this as they try and speculate themselves into a recovery.

The market is starting to remind me of the time right before the tech bubble burst. It's filled with blind speculation based on ZERO fundamentals. Stocks are rising at an unsustainable pace. Bubblemania is back!

Let's all remember: Without the government stimulus this economy would be a mess. Eventually, the punchbowl MUST get yanked as the government is forced reign in spending. The speculators will once again be left holding the bag when the fundamentals return as they always do.

I am amazed at how investors continue to return to this casino after getting faceplanted with a 50% loss TWICE on the S&P in the last 10 years. Some people never learn. Perhaps we are addicted to bubbles?

The market is betting on a recovery. I see nothing of the sort. We will see who is right a few months from now:


getyourselfconnected said...

Enjoy the time off, I know I did!

I agree, I feel the same right now that I did in March 2000 and in the summer of 2007. I look around and say "Have you all gone mad?" but everyone yells back "No idiot, its different this time!". I will try to keep on writing something of interest, but until after Labor day i think things will be pretty thin. I think of the line from "The Outlaw Josey Wales" spoken by the indian Lone Watie:
"Endeavor to Persevere"

Get ready for the NFL season as well, Ben's foot seems fine so I think the Steelers are good to go.

Jeff said...



Yeah. I remember as recently as last summer post bear stearns bounce how bullish everyone got. I thoughyt the bulls were crazy then and I think they are even crazier this go around.

Its time for another bull beatdown. This market won't bottom until everyone hates it. I saw no capitulation type selling in march. This bear still has some growl left!

Crazy times

Anonymous said...

"I am amazed at how investors continue to return to this casino after getting faceplanted with a 50% loss TWICE on the S&P in the last 10 years. Some people never learn."

Maybe so, but lets remember the reverse - like in late march when you said this bull market rally might be done - howd that one work out?

My point is, the power of the govt to manipulate is immensely powerful. You have been underestimating it time and time again. Not saying its "right" but it is what it is - and those who recognized it - man did they profit!

My guess is it will be a year before any real retraction of govt tentacles. Til then, its a matter of how high we go. In hindsight, we are nowhere as bad as that 666 s&p we saw last march - but how much truly higher we are between 666 and the 1,000(whatever) we are at now - that is the real unknown...

getyourselfconnected said...

I did cover some "what is keeping things going" questions in tonights post.

Peter said...

Have a great vacation Jeff. Great video clip.

I decided to watch a little tout TV this afternoon and Kudlow had two insane bulls on. One guy had 6% GDP growth. I have to assume that these clowns actually believe what they are saying. Talking about looking at history (you know those last half dozen normal recessions).

Has anyone noticed what other people are buying at stores? I notice that when I go to Costco every basket is filled with necessities and that is pretty much it. No more seeing every person buying all the other crap Costco sells.

getyourselfconnected said...

make of this what you will, but one firm sees leading indicators at 26 year highs!!??:

Jeff said...

Great thoughts all!


1 year? I would be surprised if it lasted that long.


I got caught short in march but I don't trade a large % of my portfolio.

I have done really well in bonds with Pimco. Pttrx is up about 9% to date and its my largest holding besides cash.

Also done well shorting treasuries and going long silver and gold.

My shorts since 850 have hurt but its a small piece.


Anonymous said...

The real question is when does the street see the benefits of the intervention spending coming to an end, then will it be a bail out of the market all at once or wait-n-see and gradually change the portfolio allocation to underweighting equities. I think because of the market and the spinned headlines people are thinking everything is OK and are starting to stretch themselves again as much as the banks/ credit are willing to. I think we will face a correction and then unless some real changes are made then it will be a descent to the bottom while we cross paths with China on their way up. Are think some people are learning the lessons of the 20-30's but I would bet that will be a small percentage of the population as there was not enough pain experienced and we are still very much a materialistic society which will cause brief runnups in production until they run out of gas as well.

Anonymous said...

Jeff said...1 year? I would be surprised if it lasted that long.

Of course you would! Like I said, you have a tendency to underestimate - the last 6 months has shown you that.

Not saying its bad - just means your tendencies make you likely to sell early (which is better than selling late) and buy late (which is worse than buying earlier).

All of them are personal biases we all have. My point is, if you recognize them and then hedge accordingly, you might be able to do better.

Anonymous said...

"I have done really well in bonds with Pimco. Pttrx is up about 9% to date and its my largest holding besides cash."

Fair enough. My point is, think about how much better you could have been if you bought into the govt induced rally. Not saying its right, but talk about opportunity.

Anonymous said...

I am sure some investors are regretted for missing out on this big government-induced rally. Fortunately I caught a piece of the action from Lehman stocks. Otherwise I would be very pissed at myself.

One lesson learned here. No matter how bad the fundamentals, you just have to go with the flow. If the Fed pumps the market up with endless money supply, just ride along until everything crashes and burns.

Wondering if it is too late for the party train....

Jeff said...

"Not saying its bad - just means your tendencies make you likely to sell early (which is better than selling late) and buy late (which is worse than buying earlier)."


I see it the exact opposite. I find that I short too early versus buying late.

Macrowise its playing out like I expected.

Never saw this much of a bounce coming though.

I have a very diversified retirement portfolio whith various holdings so I caught the move .

Overall I am up from March which is all I care about.

Nonetheless you make some great points about realizing your weaknesses.

Jeff said...


I think its too late to the party but I have been wrong about this since 850-900 where I picked a few small short positions.

I also took a hit in March where I got caught short as well.

I would have tight stops on any longs.

CT-Hilltopper said...

Enjoy your vacation, Jeff!

Enjoy every second of it.

I agree with Get, not much will change during the short time that you're gone.

You know, I was just thinking about the whole time that Bear Stearns, Leahman Brothers, and Merrill Lynch went down...and to me, nothing has changed all that substantially.

The banks still have all of the bad assets on their books. The only difference between the banks now and the banks then is that now the banks are better able to fudge the value of their bad loans.

Jeff said...




Same old story with the banks.

All of the Fed's solutions like the PPIC have all failed. There is no way for them to get the banks out of this.

The only answer is failure but they refuse to allow it to happen.

Somedayu it will and the skeletons will be let out of the closet.

Tom said...

Hi Jeff
Charles Huge Smith has summed up the situation nicely over at "Of two minds". "claiming finanical fraud as legitimate delegitimizes capitalism, the U.S. Financial system and the U.S. as a nation.". It is his August 28th post.

jeff said...


Charles does a nice job.

Thanks for the heads up.

Minton Mckarkquey said...

F*** Gold - it's all about canned goods, Jeff!

It's a shame our wildfires here in Cali don't leave LA alone and work their way up to Sacramento and take down our state's government. It may be imagination, but the Governator looks like he's been drinking today.