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U.S. Retail Sector Now at Worst Level Since Summer 2009
Profit Confidential ^ | July 11th, 2012 | Michael Lombardi

Posted on 07/21/2012 10:06:58 AM PDT by Son House

The retail sector reports that sales for June, for stores open at least one year, gained an anemic 0.1%, the slowest rise since August 2009.

This was the third month in a row of significant weakness in the retail sector!

When compared to the 6.7% rise in sales in the same period last year for the retail sector, this 0.1% rise in retail sales from last month reveals how weak consumer spending in this supposed economic recovery is. Remember, dear reader: 70% of gross domestic product (GDP) is composed of consumer spending.

The retail sector uses this measure—stores open at least one year—because stores that are shutting down and new store openings tend to skew the data, so taking stores that are open for at least a year provides a more accurate reading of the retail sector and consumer spending patterns.

At least 15 of the 20 big U.S. retailers within the retail sector missed their sales estimates for the month of June, highlighting the weakness in consumer spending.

Some of the retail sector companies reporting weak results include Target Corporation (NYSE/TGT), Walgreen Co. (NYSE/WAG), and Costco Wholesale Corporation (NASDAQ/COST).

Clothing discount stores and low-end retailers within the retail sector, such as Ross Stores, Inc. (NASDAQ/ROST), experienced stronger growth in their sales numbers, as consumer spending hampered by low real discretionary income meant that people sought more bargains. (Source: New York Times, July 5, 2012.)

The management at Family Dollar Stores, Inc. (NYSE/FDO) noted that more and more of its customers were living paycheck to paycheck. This is why the low-end retailers are performing better within the retail sector and why consumer spending will have a very difficult time growing as we move into the second half of 2012.

Of course, if consumer spending is non-existent, this will not only affect the retail sector, but also the economy in general. For the second quarter of 2012, 94 companies within the S&P 500 have provided downside earnings preannouncements, while only 26 companies have provided upside surprises. (Source: The Wall Street Journal, July 2, 2012.)

According to Thomson Reuters, which tracks the number of upside to downside surprises, this was the worst showing since 2001!

As I’ve been warning in recent issues of Profit Confidential, the area these negative preannouncements are centered on is weaker revenue growth.

Consumer spending patterns and the retail sector are telling us that corporate revenue growth will continue to be weaker, putting into the question the economic recovery and turning the conversation to a possible recession here in the U.S.

Be careful with that stock market. The talk in some circles is about how cheap it is selling at. But if more and more companies, including those in the retail sector, come in with weaker earnings, the stock market will look expensive very quickly.

Michael’s Personal Notes:

Only a week after the City of Stockton, California, declared bankruptcy, the small ski resort town of Mammoth Lakes, California, filed for bankruptcy.

The city’s largest creditor, Mammoth Lakes Land Acquisition, won a court judgment for $43.0 million, which meant the city needed to come up with the money immediately. The city of Mammoth Lakes could not pay due to its expanding budget deficit and so bankruptcy was the only alternative left.

Mammoth Lakes Land Acquisition offered the City of Mammoth Lakes a 30-year repayment option at $2.7 million per year, but the budget deficit at Mammoth Lakes is so impossible to close that the city felt it had no option but to finally leave it to the courts to decide how to fix the budget deficit.

More cities in California are becoming desperate, as their budget deficits threaten to lead them down the same path as Stockton and Mammoth Lakes.

Obviously, the biggest revenue generator for Californian municipalities consists of taxes from homeowners. Since the housing market disintegrated in 2008, these tax revenues have been cut dramatically, worsening the budget deficits.

Now California’s Fontana, Ontario, and San Bernardino County have jointly decided on a new approach to the housing market in hopes of closing out their budget deficits. This new approach simply highlights the desperation on the part of municipalities to increase tax revenue and so close out their budget deficits.

The municipalities want to take the mortgages within the housing market that are currently at less than the value of the home from the banks, have the courts decide what the value of the home currently is, force the banks to take the principal loss on the home, and resell a new mortgage to the current homeowner at the reduced price. (Source: The Wall Street Journal, July 5, 2012.)

This means, for example, taking a $300,000 mortgage, forcing the banks to take a $100,000 loss on it and allowing the homeowners to remain in the home with a new $200,000 mortgage, which would reflect current prices in the housing market.

The banks, of course, are not happy about this idea. Others proclaim that it will prevent further lending by the banks in the housing market and will depress housing prices further.

The housing market needs relief and reducing principal is certainly an excellent way of helping revitalize the housing market. However, arguments won’t matter in this case, because to be eligible, homeowners within the housing market must be current on their mortgage payments and they must hold mortgages that are not federally guaranteed.

Only 10% of all mortgages in the U.S. are not federally guaranteed within the housing market.

As this represents such a small portion of the housing market, debate is irrelevant. What’s worse is that those behind on their mortgage payments are the ones who need the principal relief within the housing market.

Regardless, this highlights the desperation among municipalities to increase their revenue bases to cover their budget deficits and also dispels the myth that the housing market is recovering.

Reducing principal in the housing market is one of the only ways to revitalize it, but this plan has such limited scope that it will have very little effect, especially as there is no obligation to accept such programs.

Where the Market Stands; Where it’s Headed:

Slowly, very slowly, the stock market moves lower. The bulls are calling for higher stock prices, because stocks are trading “cheaply” based on price-earnings multiples.

The bears like me are calling for lower stock prices because of a brewing global recession that will sharply reduce the earnings of American corporations.

The only thing left is for the Fed to announce a third round of quantitative easing (QE3). But at this point, I don’t know if the stock market’s reaction to such a move would be overly positive.

What He Said:

“Interest rates at a 40-year low: The Fed has made borrowing as easy as possible, resulting in a huge appetite for loans and mortgages. We are nearing a debt crisis.” Michael Lombardi in Profit Confidential, April 8, 2004. Michael first started warning about the negative repercussions of then Fed Chairman Greenspan’s low-interest-rate policy when the Fed first dropped interest rates to one percent in 2004.


TOPICS: Business/Economy; Front Page News; News/Current Events; Politics/Elections
KEYWORDS: economy; level; retail; sector
For the second quarter of 2012, 94 companies within the S&P 500 have provided downside earnings preannouncements, while only 26 companies have provided upside surprises. (Source: The Wall Street Journal, July 2, 2012.)

According to Thomson Reuters, which tracks the number of upside to downside surprises, this was the worst showing since 2001!
Republicans need to emphasize these results after 4 years of the Democrat's Economic plan now. If Democrats have any control including more than 40 seats in the Senate, we can expect these same Democrats will inhibit any legislation that would improve the private sector.
1 posted on 07/21/2012 10:07:12 AM PDT by Son House
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To: Son House

Thank Gawd we had the recovery summer of 2011 or it would REALLY be bad! /s


2 posted on 07/21/2012 10:11:42 AM PDT by EGPWS (Trust in God, question everyone else)
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To: Son House
Republicans need to emphasize these results after 4 years of the Democrat's Economic plan now . . .

Republicans also need to be careful not to make the economy look artificially robust prior to the election. I'm buying emergency supplies, including food and lead, but otherwise on strike as a consumer until we get rid of the communist in our White House.

3 posted on 07/21/2012 10:11:42 AM PDT by Pollster1 (Freedom is never more than one generation away from extinction. - Ronald Reagan)
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To: Son House

Obama needs a second term — after all, Rome wasn’t burned in a day.


4 posted on 07/21/2012 10:17:10 AM PDT by ClearCase_guy (Roger Taney? Not a bad Chief Justice. John Roberts? A really awful Chief Justice.)
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To: EGPWS

I thought 2009 was “the summer of recovery”


5 posted on 07/21/2012 10:20:14 AM PDT by BenLurkin (This is not a statement of fact. It is either opinion or satire; or both)
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To: Son House

There was another recent thread about 70s nostalgia which brought to mind the similarities between today’s ‘fashion’ and that of the decade that taste forgot.

It is a vicious circle as manufacturers and retailers attempt to sell the cheapest threadbare tat. Customers, who still seek quality and can tell the difference, leave the rubbish on the shelves and sales fall. Advertising and magazine articles (possibly redundant) attempt to convince the public that plastic and polyester are hip and happening but to no avail (except the gullible and tacky). More flea-market product is stocked and the public ignores it again...etc.

I shook my head in frustration and wonderment recently as I attempted to find a simple white dress shirt that would survive a year or two of launderings. Most, including those at so-called upscale retailers, you could read a newspaper through and the details (buttons, sewing) were shamefully poor.

Yes we are borrowing billions of dollars from China but their low-rent street-market clothing is nothing to emulate.


6 posted on 07/21/2012 10:30:51 AM PDT by relictele
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To: Pollster1

And the fact most all the Democrats have gone along with the whole ‘hope and change’ plan is more evidence of their collective poor mental ability for crucial analysis of the economy.


7 posted on 07/21/2012 10:33:16 AM PDT by Son House (The Economic Boom Heard Around The World => TEA Party 2012)
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To: relictele

Yes, we may soon relate this time to the cycle in after Christmas sales, when what’s left gets sold at bargain prices because retail owners want to at least break even and not be left holding the inventory.


8 posted on 07/21/2012 10:37:03 AM PDT by Son House (The Economic Boom Heard Around The World => TEA Party 2012)
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To: relictele
And what are Democrats and their crack-pot economist trying to sell, raising taxes will create an economic expansion. Wrong. It's pretty simple logic, the more taxes on the private sector, the smaller the private sector.

Just ask a Democrat supporter, if I took 40% of your cash assets every quarter, would you be left with more options?
9 posted on 07/21/2012 10:41:01 AM PDT by Son House (The Economic Boom Heard Around The World => TEA Party 2012)
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To: Pollster1

Yes, wise move. Also look at the ways you can provide services, as many stores and shops may go out of business in the near future.


10 posted on 07/21/2012 10:41:53 AM PDT by Son House (The Economic Boom Heard Around The World => TEA Party 2012)
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To: Son House

As more people go Galt, the economy will only recover when a true free market capitalist Republic is restored. Cronyism and Marxism is destroying us from within. Why do any more than the minimum?

It is all the Obama effect. I also blame every Liberal, RINO, and Democrat.


11 posted on 07/21/2012 10:42:08 AM PDT by King_Corey (www.kingcorey.com -- OpenCarry.org)
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To: King_Corey
'recover'?

I don't know if it will ever recover. But, it has to get worse before it will get better. True reform would involve cutting federal and state jobs, gutting federal spending.

The past decades of high consumer spending and abuse of credit shouldn't be the norm. It will be interesting what a real recovery will look like.

12 posted on 07/21/2012 10:45:39 AM PDT by Theoria (Rush Limbaugh: Ron Paul sounds like an Islamic terrorist)
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To: Son House
No. Things are just fine, thank you. Our economy is burgeoning and bustling - eager to expand and exponentiate!

Why the three car dealers in my town with the 2/3 empty lots are just making room for all the zero gas, no electric, wind-powered magic cars that will be coming out of Detroit sometime soon before the election. The bankrupt tractor implement complex is just regrouping to get new product amassed so that the farmers here who grow apples, corn, etc. can plant anew for a better and brighter tomorrow (if they can figure out how to make water out of sewage). Unemployment? Hell, that ain't no problem. For those few who are signing up for unemployement, you've got a full 99 weeks, and even then when Obama is re-elected it will be extended indefinitely. Don't worry about those Chinese who buy their T-Bills direct from the US Treasury now instead of bidding at Fed Reserve auctions. They like the dollar. In fact, they like your home, your job, your car, and your servitude.......nope, no problem here.

13 posted on 07/21/2012 10:48:33 AM PDT by Gaffer
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To: ClearCase_guy

That is damn funny!


14 posted on 07/21/2012 10:50:33 AM PDT by Scott from the Left Coast
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To: King_Corey

Yep, similar thought here, if Democrats put any hold on real working economic legislation, Starve the Beast 2.0 will be implemented with vigor as the TEA Party, no emphasis on the leaders, but lots of participation.


15 posted on 07/21/2012 10:52:32 AM PDT by Son House (The Economic Boom Heard Around The World => TEA Party 2012)
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To: Theoria
I think we still have a lot to work with, though not as Obama and the Democrats did when he got elected, but we can't squander the time with the nonsense economics of the Democrats. We need to implement legislation that helps any and all private sector business immediately.
16 posted on 07/21/2012 10:59:21 AM PDT by Son House (The Economic Boom Heard Around The World => TEA Party 2012)
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To: Son House

The slow moving train wreck continues, picking up speed even.


17 posted on 07/21/2012 11:03:21 AM PDT by jpsb
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To: EGPWS

There was a recovery in 2011?

Why has this information been concealed up to now?

That was a somewhat extended “dead cat bounce”, propped up by various injections of “quantitative easement” funds primarily to big players, and not down on the street.

This is not, and has not, been a recession for a while now. It is Great Depression II, extended and prolonged by the very measures that were supposed to “solve” the lack of liquidity and stagnant growth. The difference between this situation and Jimmy Carter’s stagflation, is that the artificial suppression of interest rates had temporarily deferred price rise, but that cushion is now disappeared, with prices rising inexortably in both food and, yes, energy. Coal is being priced out of competition, due to restrictions on emissions (just like Obama promised), and only the fact that natural gas has become comparatively VERY cheap, has the price of generating electricity not yet gone through the roof. This regime has done just about everything they can, through selective enforcement of regulatory authority, to prevent the recovery and wide distribution of the new sources of petroleum available through the fracking process.

This has reflected negatively on consumer demand for hard goods, even those imported from China (which, strangely enough, is also impacting the Chinese economy), and on any rebound in the real estate market.

And now we have misplaced emphasis on stimulus, helping the buggy whip factories stay open, at the expense of the public treasury, without trying to adapt the buggy whip manufacturing facilities to high-tech environments that employ intelligent decision-making management and economic allocation of scarce resources.

Applying the expertise of Bain Capital or other similar venture capitalists to firms like Solyndra, Evergreen Solar and SpectraWatt, to make them truly “mean and lean” as well as simply “green”, was a course of action apparently not even considered by the current regime.


18 posted on 07/21/2012 11:12:15 AM PDT by alloysteel
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To: relictele

China actually makes high quality clothing, too (unlike the USA, any more) - but the big retailers just aren’t buying it. If you see cheaply made garments on any major store’s display racks, it is because of a deliberate decision by the retailer to target the lower end of the market at lower price points.


19 posted on 07/21/2012 7:50:20 PM PDT by Mr. Jeeves (CTRL-GALT-DELETE)
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To: Son House
Also look at the ways you can provide services, as many stores and shops may go out of business in the near future.

I could get a degree in gender studies. My guess is that few with that skill would survive a breakdown in society, and no preppers at all are building up that "asset", so I'd be the world's expert!

20 posted on 07/21/2012 8:15:38 PM PDT by Pollster1 (Freedom is never more than one generation away from extinction. - Ronald Reagan)
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To: Son House

I have not found a lot of bargains. Prices for food have shot up steadily, oil is cheaper today, but gas is not... We have been car shopping for a couple of months, the prices of base models are the same as our first house 20 years ago. We are now just looking for a used caddy... No CTSV for me :( .


21 posted on 07/23/2012 3:57:36 AM PDT by momincombatboots (Back to West by G-d Virginia. 2016 starts today! Walker, Issa, Rubio,)
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