Wall Street Excretia

I (and others) have often highlighted the disconnect between Wall Street and Main Street. Yet no matter how much cold-water reality is thrown in the face of the so-called experts in the financial community, they just keep talking a delusional -- er, bullish -- game. My question is: is this deliberate deception or are these people lucky enough to get paid lots of money to ramble on incoherently? (If it's the latter, how do I get that job?)

Anyway, below is one example of the kind of WTF?-pablum that the "strategist" community is excreting as measured analysis these days:

"U.S. Will Avoid Recession as Consumers Keep Spending, Bear Says" (Bloomberg):

The U.S. will avoid a recession next year as a "stable" job market keeps Americans spending amid falling housing prices and higher fuel costs, said Bear Stearns Cos. Chief Investment Strategist Jonathan Golub.

"It is increasingly clear that the U.S. consumer did not roll-over during the holiday shopping season," Golub said. "We do not believe a consumer-led recession is in the cards."

Golub said he "wouldn't be surprised" if stores exceeded the National Retail Federation's prediction for the slowest holiday sales season in five years. Better-than-expected November retail sales and "solid" sales the day after Thanksgiving are signs that consumer spending won't plunge, Golub wrote in a note to investors.

Target Corp. led retailers lower in New York trading today after the second-largest U.S. discount chain said that December sales will miss its estimate by falling 1 percent or increasing 1 percent. It previously predicted a gain of as much as 5 percent.

Golub said department stores and warehouse clubs may outperform low-end retailers such as Target and Family Dollar Stores Inc. because a sluggish economy will hurt low-income consumers more.

Retailers in the Standard & Poor's 500 Index slipped 1.7 percent at 10:45 a.m. in New York for the second-steepest decline among 24 industries. Target lost $1.43 to $51.04. Family Dollar retreated the most since Dec. 6, falling $1.10, or 5.5 percent, to $18.92.

Employment growth and fewer job cuts than in previous economic slowdowns will help Americans maintain spending, the New York-based strategist said.

Payrolls grew faster than expected in November, the government reported earlier this month, while the jobless rate held at 4.7 percent for the third month in a row.

And now, for the cold, hard truth:

"Macy's, Dillard's Cut Prices to Save Holiday Season" (Bloomberg):

Dillard's Inc., Macy's Inc. and Home Depot Inc. slashed prices the day after Christmas as U.S. retailers attempted to avoid the worst holiday-shopping season since 2002.

Spending surges after the Thanksgiving holiday and last weekend weren't enough to boost holiday buying as consumers facing $3-a-gallon gasoline and declining home values limited gift purchases. The International Council of Shopping Centers lowered its November and December sales forecast yesterday.

"People should expect dramatic discounts, and in some cases, desperation discounts," Burt Flickinger, managing director at Strategic Resource Group, said yesterday in an interview on Bloomberg Radio.

Saks Inc. held a one-day, 70 percent-off sale yesterday on designer clothes. Dillard's is selling women's cashmere sweaters for 40 percent off. Polo Ralph Lauren Corp. was selling handbags at almost a 60 percent discount.

Macy's fell 22 cents to $25.73 at 9:37 a.m. in New York Stock Exchange composite trading, while Dillard's dropped 5 cents to $19.10. The 31-member Standard & Poor's 500 Retailing Index decreased 0.6 percent and has declined 11 percent since the beginning of November.

Retailers count on the last two months of the year for a fifth of their revenue.

Macy's was holding an "After-Christmas Sale," with markdowns of 50 percent to 75 percent throughout its stores. J.C. Penney Co. marked down women's boots, originally $60 to $110, to $29.99. Home Depot's Expo Design Center chain offered as much as 75 percent off prices throughout the store.

Retail Discounts

Macy's spokesman Jim Sluzewski declined to comment on holiday results, as did spokesmen for Saks Inc., Dillard's, Circuit City, Home Depot, J.C. Penney, Lowe's Cos. and Sears Holdings Corp., the largest U.S. department-store chain.

Target Corp., the second-largest U.S. discount chain, said Dec. 24 that sales at stores open at last a year may drop this month. The retailer, which cut prices to draw shoppers and match larger Wal-Mart Stores Inc.'s discounts, had predicted a gain of as much as 5 percent.

The industry's same-store sales rose 2.8 percent last week from a year earlier, the ICSC and UBS Securities LLC said yesterday in a joint statement. The results prompted the group to lower its forecast for November and December sales growth to "a tad below" the 2.5 percent it was predicting.

Target, Wal-Mart and most retailers will report same-store sales on Jan. 10.

Shoppers' Health

Retailers did a poor job gauging the health of shoppers, said Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail-consulting firm.

"I thought Wal-Mart played it smart," Davidowitz said in a Bloomberg Television interview yesterday. "They took a price leadership position and established themselves."

Randy Robinson, a route driver for an alcohol distributor, said in an interview he was spending $500 less this Christmas, though he earned more money this year.

"I've got more money, but everything else is more expensive," said Robinson, 40, a resident of Douglasville, Georgia. "I'm just cutting back. I'm trying to stick to the budget. I hate being broke after Christmas."

Home prices in 20 U.S. metropolitan areas fell in October by the most in at least six years, the S&P/Case-Shiller home- price index showed yesterday. Declining values pose a risk to consumer spending by making it harder for owners to tap home equity for extra cash.

Fuel, Milk

Higher costs for fuel and milk have also caused shoppers to pull back. That led the Washington-based National Retail Federation to project that holiday sales in November and December may rise 4 percent, the slowest growth since 2002.

Sales rose 19 percent from Dec. 21 to Dec. 23 as U.S. shoppers took advantage of discounts and extended hours, Chicago-based ShopperTrak RCT Corp. said Dec. 24. The research firm maintained its forecast for a 3.6 percent gain during the final two months of 2007.

Comments

[unbiased observer]

It's sort of silly to take one subjective article with an obvious bent, compare it to another subjective article with an obvious bent and expect your readers to agree one is truth and the other is "excretia" purely based on a couple lame one-liners. What value you are adding here?

[Michael Panzner]

I've written nearly 400 posts since I started this blog, a great many of which have highlighted the continuing and often vast differences between what is actually happening on Main Street (and elsewhere) and what Wall Street says is happening. In my opinion, this is just one more example of a kind of pseudo-analysis that derives from conflicted interests, groupthink, wishful thinking, extrapolation bias, and herding behavior.

As far as I can tell, there is no evidence provided in the first article to back up the strategist's sanguine outlook, though I acknowledge that this could be the fault of the reporter. (I suppose a cynic might say that Bloomberg must have been trying to undermine the bullish case?)

In contrast, the second article includes news and data from retailers, trade groups, and retail industry researchers, along with anecdotal reports of widespread discounting. Perhaps I am naive, but that does not strike me as "clear evidence" that the U.S. consumer "did not roll-over during the holiday shopping season."

[David]

They should discount heavily, not just after holidays, but throughout the year. Most of the items in the mass-market stores are now low quality crap and well overpriced for what they are.

I've seen firsthand this season how hard it is to find a specific, quality item for consumer purchase. Boots, cookware, home furnishings are expensive at the high end and often overpriced (in value terms) at the middle-lower end.

I sometimes wonder if the most expensive part of selling manufactured items today is the shipping cost from China, Pakistan, and Vietnam.

[sherlock]

I read both of those articles when they came out. Juxtaposing them here shows up the morale-boosting in the 1st article. 'Herding' is exactly right. Us 'consumers' are sheep being steered to the pen for shearing. Problem is, there's too few frolicky lambs left to be fleeced at the mall cuz so many have been slaughtered in the mortgage scam.

[Snappy Tom]

A front-page article for the December 17 issue of Automotive News states that Bob Nardelli at Cerebus' attempt to get Chrysler repaired has now run out of money and they can't borrow any more. They are limited to the $10 billion they have on hand. Cerebus' five major banks have failed in two attempts to take $4 billion of loans off the books even though they were heavily discounted. The banks were the usual suspects: JP Morgan Chase, Citigroup, Morgan Stanley, Bear Stearns and Goldman Sachs.

A vote of no confidence in Cerebus and Chrysler is the assesment of the article's author Bradford Wernie.

Its more than that. Much more. I believe this is more proof that liquidity is not the issue but that solvency is.

[A. Zarkov]

Davidowitz also said that this year we have 5% more retailers than last year, so that 3% increase in sales is spread over more stores. He predicts a big shakeout in retailing next year as the reality of decreasing earnings takes it toll on the industry. Of course if the Fed continues to flood the country with more money, perhaps some of the retailers can forestall the inevitable with more borrowing. The Fed stopped publishing M3 saying that number is “obsolete.” I’m skeptical. Why not continue to publish M3 as it costs almost nothing to calculate it from the data they collect?

[Boom2Bust.com]

"Yet no matter how much cold-water reality is thrown in the face of the so-called experts in the financial community, they just keep talking a delusional -- er, bullish -- game."

Sounds like the good old days (2000-2001). Cheerleaders, take the field...