In the midst of such a marked economic downtown and weak consumer spending activity, it’s logical to expect more concessions and deeper bargains from companies. But not in this case…

Dead Wood

Having spoken to someone at the “contractor’s desk” a week earlier to place my order for some lumber, I spent a couple of hours at Lowe’s last weekend trying to buy some.

It wasn’t a small order and the employee had assured me that they would waive the delivery charge because of it. I was happy, since those little concessions can make a difference in where I shop – and I usually shop at Home Depot (NYSE: HD).

But with coupon in hand, I arrived at Lowe’s and wasn’t surprised to see how empty it was. I strolled over to the desk to find that the person I had spoken to wasn’t there that day. Regardless, she’d processed my order beforehand.

That’s when things started to go wrong…

It took about 30 minutes to get the help I needed to pick out and mix some paint, which I also needed. And when I headed back to the desk, the assistant said there was no note about the free lumber delivery.

I wasn’t happy since that was agreed upon and the charge only amounted to about 2% of the total order. Obviously, he didn’t believe me, so I asked him to throw in the delivery anyway. He said only his manager could approve that.

When the manager arrived, he said he’d knock $20 off the delivery charge. I laughed and informed him that we’re in a recession. It made no difference. Business must be going gangbusters at Lowe’s, since the store had no trouble letting me walk away without spending a dime towards what was a large order.

Home Again

Lowe’s didn’t want any money from me, but Home Depot did. In fact, I was able to buy all the same stuff and even used the store’s “bid” process to substantially lower my lumber cost. And a paint rep offered me a 20% discount on top of that, too. Sold! Plus, I felt glad to contribute my little bit to keep the wheels of commerce turning.

Next stop… Circuit City. But not for a couple of weeks. The electronics chain is going out of business, but apparently it’s in no hurry to discount its wares to vulture-like levels. Either there are lots of consumers willing to buy at higher prices, or… well, I don’t know the answer. What happened to the bargains that were supposed to be out there?

* * * * * * * * * *

If You Got The Credit, You Can Get The Money

Yesterday morning, I heard a floor trader complaining that nobody is lending money, which is why the market is tanking.

But two hours later, General Motors (NYSE: GM) said the thaw in credit markets is now visible and that funds are flowing. Every banker I talk to says there is money to lend. The only difference now is that you need good credit to play the game. Why that should be a surprise is anyone’s guess. I guess I now know the answer to the question I ask my accountant every year: “Why is everyone driving a new BMW?”

* * * * * * * * * *

Housing Still Overpriced

Turning to our old nemesis, the real estate market seems to be no different when it comes to disappointments.

Apparently, the only bargains out there are for houses that nobody wants. I just received an e-mail flyer for an auction in Miami. I know Miami pretty well and let’s just say that the city has its good areas and not-so-good areas.

I scanned the flyer and went online to see what the prices were like. Based on the opening bids alone, it was readily apparent that there was nothing good for sale on the bankruptcy steps. Sure, there was a lot for sale, but sellers are either saving the good stuff for their friends, or anything decent is still overpriced.

I admit none of this is scientific. But they’re everyday observations anyway.

* * * * * * * * * *

The Key To Knowing Which Financial Stocks To Speculate In

If you’re invested in the stock market, you know there’s a recession in stock prices in addition to the economic recession.

Even as President Obama took the oath of office yesterday, the market endured another assault on the banking sector – a situation that led to new lows, even though the general market hasn’t re-tested its recent lows.

Not a pleasant Inauguration Day – and not a good sign for the near-term. We saw some interesting dislocations last week, as the general market headed higher, while the financials sold off. It didn’t last.

At their peak, the financials accounted for almost 25% of the S&P 500’s valuation – and that was just over a year ago. Today, they make up less than 10%. Everybody wants to sell them. By the middle of next week, the major financials will have reported their quarterly earnings. Those left standing may actually be worth speculating in. The key? The ones that don’t need more money from the government. We’ll be watching.

Source: Will Someone Tell Lowe’s That We’re In A Recession?

The gold ‘point & figure’ chart I posted on Thursday looks entirely different after Friday’s rally…but we ain’t out of the woods yet…as the updated P&F graph below clearly shows.

click to enlarge

Thursday’s open interest changes in gold showed an increase of a very tiny 74 contracts. This brought gold’s open interest up to 313,798. In silver, o.i. fell 665 contracts, reducing open interest to a smallish 85,480 contracts.

The new Commitment of Traders report came out yesterday. This time there was noticeable improvement in both silver and gold. In silver, the boyz reduced their net short position by 3,240 contracts…they went long 210 contracts and covered 3,030 short contracts. The Non-Commericals and Nonreportables obviously did the opposite…dumping longs and increasing their short positions.

In gold, the story was similar. The boyz improved their short position substantially by going long 4,667 contracts and covering 3,252 shorts, for a net improvement of 7,919 contracts. The other two categories more or less did the opposite. This was the improvement Ted and I were expecting last week, but didn’t get. The link to the lastest COT is here.

In gold news, a story over at forbes.com says “The U.S. Mint said its gold and platinum numismatic coins will now be directly related to the average weekly London fix prices for the metals. The Mint said the pricing change was effective Jan. 12th.” Mail & Guardian (Johannesburg)…the headline read “Widespread job losses expected in S.A. mining…Production output, particularly for gold and platinum, will continue to decline.”

In the ‘other news’ category…the first five are Bloomberg stories…I see that G.E. (NYSE:GE) is going to toss between 7,500 and 11,000 workers over the next little while. Hertz (NYSE:HTZ) is about to send 4,000 of their employees into the unemployment lines. Bank of America (NYSE:BAC) got another $20 billion cash and $118 billion in new loan guarantees. Circuit City is now officially history after 60 years. And another hedge fund manager has disappeared…this one in Florida. Money is reported to be missing. Reuters (Washington) “U.S. December industrial production drops a bigger-than-expected 2%.” Reuters “California Governor Arnold Schwarzenegger said on Thursday the state ‘faces insolvency within weeks…California is in a state of emergency’.” Then yesterday, this story came out of the Los Angeles Times…”State Controller John Chiang announced today that his office would suspend tax refunds, welfare checks, student grants and other payments owed to Californians starting Feb. 1st, as a result of the state’s cash crisis. Chiang said he had no choice but to stop making some $3.7 billion in payments in the absence of action by the governor and lawmakers to close the state’s nearly $42-billion budget deficit. More than half of those payments are tax refunds.” Bloomberg (Moscow) “Russian ruble falls most in 10 years this week after five devaluations” And lastly, at bbc.co.uk, the headline reads “Zimbabwe rolls out Z$100 TRILLION dollar note”. [Buy gold!!! – Ed]

click to enlarge

Today’s first item is by Mike Hewitt over at dollardaze.org. The title of his essay is “The Fate of Paper Money”. It’s a very interesting and educational article about the fate of paper money over the last 1,000 years or so, and the link is here.

Today’s second story is another GATA release. A Federal Reserve Board document from 1961, contained in the archive of the board’s late longtime chairman, William McChesney Martin Jr., shows the Fed planning to intervene surreptitiously in the currency and gold markets to support the dollar and to conceal, obscure, and falsify U.S. government records so that the intervention would not be discovered. The document seems to outline everything that GATA has complained about for years. GATA consultant James Turk, founder of GoldMoney and editor of the Freemarket Gold & Money Report, analyzes the document in “The Fed’s Blueprint for Market Intervention”…and the link is here.

Our contemporary brand of socialism has one fatal flaw. It’s too expensive. When you try to shower benefits on so many recipients, you eventually must resort to subterfuge. Foremost among those tricks is money and credit expansion. Inevitably, you debase your currency. – James Cook

Today’s ‘blast from the past’ is from 1978. It was the group’s only great hit, and the band faded into total obscurity after that. But what a beat it has…and what a hit it was…and the link is here.

Well, you have to be completely naive not to see that the Dow was ’saved’ again yesterday…for the second day in a row. The banking index (KRX) came within an eyelash of hitting a new low as well. So…do we crash from here…or do we get an “Obama Bounce?” Who knows. I’ll be ready for anything when the markets reopen on Tuesday after Martin Luther King Day.

Because of the holiday, there will be no Casey’s Daily Resource Plus on Tuesday. I’ll see you on Wednesday…and enjoy the rest of your long weekend…if you’re fortunate enough to get one.

Source: And Then There’s This…Monday, January 19th, 2009

This from Today’s Financial News:

They are falling like dominoes these days. Without help from Uncle Sam, many of the nation’s top businesses do not stand a chance. They are taking investors with them.

When Circuit City ( filed Chapter 11 bankruptcy in November, investors believed there was an opportunity to restructure. They thought if they could find temporary protection from their creditors, holiday sales just might bring their company back from the brink of total collapse.

It didn’t happen.

Holiday sales across the board turned out to be as dismal as expected and today, Circuit City is paying the price. It is liquidating its assets and disappearing for good.

A short circuit blows the fuse

After negotiations between two potential buyers, creditors and what was once the second-largest specialty electronics retailer in the country failed, 30,000 employees are left without a job and four liquidation companies are charged with unloading the company’s inventory and assets spread throughout the 567 stores that remain open. The company already announced closures of nearly 160 of its outlets.

The New Year is just over two weeks old and the list of companies that will not see the year through is growing longer by the day. Earlier this week,  and Gottschalk’s entered bankruptcy protection.

Who is next is anybody’s guess.

I would keep a close eye on Bon-Ton Stores (NASDAQ:BNT). Since its headquarters is about four miles from my front door, I will let you share my front-row seat. Another company to watch is Borders (NYSE:BGP). Its debt load is starting to shake the company’s foundation. A lot of analysts are wondering how long it can take the stress.

What does this all mean? How are investors to react?

In the short-term, not a whole lot. You would have had to been living in an underground bunker to have not seen these headlines coming. The long-term outlook is where the big money will be made.

Over the last five years, “Big Box” retailers have been popping up one after the other, sometimes within a few miles of one another. In my home town, for instance, a new Best Buy (NYSE:BBY) was literally built right behind a Circuit City store, which was right beside an older family-owned electronics shop.

What this mean (or exemplifies, really) is the fundamental rules of economics and business are still at work, no matter how hard Washington tries to eradicate them. The strongest will pounce on the weaklings and dominate the marketplace.

Mother Economy will take care of business

A bubbly economy may have allowed the weak to thrive for a few years, but when things got tough, their lack of strength became obvious and now they are dropping one after the other.

For the companies that survive, today’s news is fantastic. Imagine what power Best Buy will have with one of its major competitors out of its way. Sure, the next few quarters are going to reek of decaying corpses as Circuit City’s inventory floods the market, but after that, I would love to see the competitor that can knock Best Buy off of its leadership perch. There is nobody in sight.

No matter how hard we try to force the rules of economics in our favor, Mother Economy always wins. She told us months ago things were getting too big. Instead of forcing consolidation ourselves, we waited until the economy did it the natural and most painful way. Now we are paying the price.

The situation will get better and the pendulum will swing in the opposite direction. They always do. When it happens, the survivors of this retail death march will be sitting atop a big pile of profits. Make sure you are one of them.

Source: Mother Economy wins: Another one bites the dust

This from Smart Profits Report:

‘Tis the season to… well, spend. And in a credit-oriented nation, Americans again proved that they do that better than the rest. The National Retail Federation (NRF) says 172 million consumers hit the malls or logged on to buy goods over the extended Thanksgiving weekend – a 17% jump from the same period in 2007. And ShopperTrak says “Black Friday” sales rose 3% to $10.6 billion over “B.F. 2007,” with the average consumer spending $372 – up 7.2% from a year ago.

Granted, a 3% sales rise isn’t spectacular, but it’s not terrible for a nation with a pathetic savings rate, a 3.7% year-over-year inflation rate in October, and 1.2 million job losses. I’m sure America’s battered banks are wondering exactly where these guys are getting their money from – and whether they can pay it back.

Retailers are doing their best to help – and potentially at their own expense…

The Retail Sector’s Vicious Cycle

Many still predict a rough time for retailers, with the NRF predicting a measly 2.2% rise in holiday shopping sales – the lowest since 2002. Retailers are compelled to offer eye-popping deals to cash-strapped consumers, but they can’t sustain the bargains forever, for risk of eroding their profit margins too much.

That could result in flat sales and profit growth, with some analysts suggesting that it could also lead to more bankruptcies, following electronics giant Circuit City, Linens n’ Things, and The Sharper Image. In turn, that could drive unemployment even higher.

Already, a major online trend is providing some clues…

When High Traffic Meets Falling Sales

The good news: Online traffic on “Cyber Monday” (the Monday following Thanksgiving, which traditionally kicks off the online shopping season) climbed by 10% over the same day in 2007, according to Pricegrabber.com. Other firms have also reported heavy activity, with Target (NYSE: TGT) expecting its web traffic to jump 40% this season.

The bad news: Online research firm comScore says web sales are down 4% so far this season and will remain the same as last year throughout the November-December compared at $29.2 billion. That’s prime evidence that deep discounts could squash profit margins. But essentially, retailers have little choice.

But what choices do investors have?

“It’s Wal-Mart Time”

A few weeks ago, my colleague Marc Lichtenfeld gave you three companies that could be set to buck the gloomy retail trend this season.

One of them was sector bellwether Wal-Mart (NYSE: WMT), whose CEO Lee Scott proudly proclaims, “It’s Wal-Mart time. This is the kind of environment that Sam Walton built this company for.”

He’s right. As consumers go all-out to dig up value, Wal-Mart is among those discount-oriented firms set up to not only weather this season’s storm, but to profit from it. Check out Marc’s article for more details, plus his thoughts on Kohl’s (NYSE:KSS) and Dollar Tree (Nasdaq: DLTR).

I’m going to throw another one into the mix – The TJX Companies (NYSE: TJX) – a company I actually highlighted here a year ago…

The Outlook For TJX

At the time, the stock traded around $28.50 and bounced to $32 by early February 2008, followed by a 52-week high of $37.52 in August.

Since then, however, shares have sunk back to the $20 area, as a combination of high oil prices at the time stifled consumer spending, while the U.S. dollar (the company also operates overseas, including Britain and Ireland), economy and stock market slumped.

Despite this, though, the firm reported a 4% and 3% sales rise in August and September respectively, compared with August-September 2007. That’s a testament to its business model – the company offers fashionable, quality goods (some of which it buys from other higher-end retailers’ excess inventory) at attractive prices.

However, total third quarter profit came in at $235.8 million ($0.54 per share), compared with $249.5 million ($0.54 per share) in Q3 2007 – a 5.5% drop, due to the negative economic climate and an exchange rate hit. Over the first nine months of 2008, though, TJX earned $629.9 million ($1.42 per share) over the $470.6 million ($1.00 per share) from January-September 2007.

TJX pegs fourth quarter EPS between $0.58 and $0.62 – lower than the $0.67 in Q4 2007 and the $0.72 estimates, but $2.07 to $2.11 per share in fiscal 2009, compared with $1.68 for this year.

Also, the company’s T.J. Maxx and Marshall’s stores could be prominent destinations for bargain-hunting shoppers this season. The fact that The Gap (NYSE:GPS) posted better than expected third quarter results could bode well for TJX. Other positive factors include the U.S. dollar strengthening a little and Card Activation Technologies settling its litigation against TJX.

Ultimately, fourth-quarter retail earnings will tell the full story of this holiday period

And while the overall gloom shrouding the retail sector could drag successful, bargain-oriented companies down with the pack in the short-term, provided their business models lure in discount-hungry consumers this season, they could end up having the final word.

Source: Tune Out The Retail Doomsayers… These Firms Could Bust This Season’s Trend

On November 19, bonds and stocks backed by commercial real estate loans plummeted on investors’ fears the struggling U.S. economy might lead to a wave of defaults.

Big real estate companies suffered big losses: shares of Simon Property Group, the top U.S. mall operator, declined 13%; Boston Properties Inc., owner of skyscrapers and office buildings in key U.S. markets, fell 12.1%.

General Growth Properties Inc., which owns more than 200 mall properties throughout the United States, is teetering on the brink of annihilation. If the flailing company can’t come up with the $958 million of its debt that is now due, and the $3.07 billion due next year, it will have to file for bankruptcy protection.

“Ghost malls” may become a common sight around the country, with major mall developers and big-name retail chains like Linens ‘n Things and Circuit City going broke and others, such as Starbucks, closing hundreds of stores nationwide. Small businesses are even worse off as shoppers tighten their belts.

A recent Newsweek article quipped that it would “take some kind of sorcery to keep the current mix of store closings, skeletal inventories, hard-to-find sales staff and anxious consumers from turning the yuletide shopping season of 2008 into a seriously cranky Christmas. Even Santas have been getting pink-slipped.”

None of what’s happening surprises Andy Miller, a consummate real estate entrepreneur and friend of Doug Casey’s, who presented his outlook on the commercial real estate market in the September edition of The Casey Report.

Miller on Retail Shopping Centers:
“Retail  are the most exposed product type. For example, we have a grocery-anchored shopping center in Phoenix that’s about 94% occupied. We’ve been trying to sell it for the last nine months. We’ve had it under contract probably four times. Each time, it’s fallen through because the buyers were unable to find a lender. The lack of liquidity is particularly acute in the commercial markets.

“Most commercial mortgages that were written over the last 10 years for most product types, except apartments, were done by conduits, and they were done by asset-backed finance securitizations, CDOs, etc. The overwhelming number of those conduits are now either out of the market or shut down. There’s going to be a tremendous upheaval in the commercial market relative to the fact that there’s almost no conduit money available anymore.”

Miller on Office Space:
“The office market, of course, is eroding. While I expect the central business districts around the 20 top cities in the country to probably be relatively stable in terms of office occupancy, I think the suburban markets are going to get creamed.”

Miller on Warehouses:
“Warehouses are bad. They’re very flat. Users are consolidating; they’re not expanding.”

Miller on Hotels:
“I’d also be wary of hotels. The hotel business is proliferating right now, in a way that I’ve never seen. There are so many new hotels being built right now nationally that there’s no way, even in good times, that I think they could sustain occupancy. A lot of these hotels now have created new flags and they’re putting them in multiple locations in most big cities. So there’s been a tremendous proliferation of hotels and, with high air fares and high gas costs, there’s no question that that’s going to be a bad place to be.”

Miller on the Real Estate Bubble:
“There is no historical comparison to the situation today. Not even the Great Depression was like this. I believe we’ve just lived through the greatest expansion of capital in the history of planet Earth, in the history of mankind.

“And this happened really all over about 12 or 13 years, this gigantic, dynamic expansion of money. There is no precedent for this. One truth about cycles is that the downward part of the cycle is usually quicker and more painful than the upward swing. We didn’t get into this thing overnight. It took many years, and we are not going to get out of it overnight. It’s going to take many years to unwind.”

Waiting for the other shoe to drop is an uncomfortable position to be in. Thankfully, there are a number of lifelines we as investors can grab on to, to avoid getting sucked into the whirlpool of declining asset values and a declining dollar… and we should take every chance we get to use them.

How well you do in the unfolding crisis will depend on how well informed you are. “Making the trend your friend” is now more critical than ever to financially survive the onslaught of tidal waves rocking the U.S. economy. The Casey Report diligently analyzes major economic trends and provides actionable advice on how to profit from the  “market riptides” – with the goal of preserving and multiplying your assets while others capsize in the stormy seas. Learn more here.

Olivier Garret, Casey Research

Source: Commercial Real Estate – the Next Show to Drop

• Detroit-based finance company GMAC has filed to become a bank, a shot at getting a slice of the $700 billion Troubled Asset Relief Program bailout. Private equity firm Cerberus Capital Management LP owns 51% of GMAC. General Motors Corp. (GM) owns the other 49%, Reuters reported.

• Initial jobless claims climbed to 542,000 in the week ended Nov. 15, close to a 26-year high. “The economic contraction appears to be worsening,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, told Bloomberg. “The stock markets are plunging, people are retrenching and manufacturing activity is virtually falling off a cliff. The increase in layoffs can only worsen the economic downturn.”

• Ricardo Salinas Pliego, a Mexican media and retail mogul, indicated that he may seek a controlling stake in Circuit City Stores Inc. (CCTYQ), Reuters reported. Pliego already has a 28.1% stake in the company, which filed for Chapter 11 bankruptcy protect last week.

• After seven months of negotiations, Banco do Brasil SA, Brazil’s largest government-owned bank, is buying majority control of Banco Nossa Caixa SA for $2.25 billion, “Nossa Caixa has got plenty of liquidity, a decent branch network and judicial deposits of Sao Paulo state which is useful. It’s a good fit and it’s a good asset,” Pedro Fonseca, an analyst at London’s Keefe, Bruyette & Woods Ltd., told Bloomberg.

• Light, sweet crude for December delivery fell nearly 8%, or $4.07, to $49.50 a barrel in afternoon trading on the New York Mercantile Exchange, before settling at $49.65 a barrel.

• JPMorgan Chase & Co. (JPM) the largest U.S. bank, plans to fire about 10% of its investment banking staff, or about 3,000 employees, as the global economy slides into recession, Bloomberg News reported. JPMorgan also plans to freeze base salaries next year for most employees who earn more than $60,000 to $70,000, annually.

• The Dow Jones Industrial Average yesterday (Thursday) shed 445 points, or 5.6%, to close at 7,552.29 – its lowest level since March 12, 2003. Meanwhile, the Standard & Poor’s 500 index lost 54 points, or 6.7%, to close the day at 752.44 – its lowest level since 1997.

Source: Global Investing Roundups Friday, November 21st, 2008

• Hewlett-Packard Co. (HPQ), the world’s largest maker of personal computers, offered a preview of its fiscal fourth-quarter profits – reporting that it will beat market expectations and raise its fiscal 2009 outlook. “HP is gaining market share in an extremely strong competitive position. They’ve got share gains, combined with very aggressive cost reduction,” Shannon Cross of Cross Research told Reuters.

• Lars Olofsson, Executive Vice President of Nestle SA, has been named Chief Executive Officer of Carrefour S.A., the world’s second-largest retailer. He’ll join the company in at the Carrefour’s next shareholder meeting in January, MarketWatch reported.

• Belgium’s InBev NV officially completed its $52 billion, or $70 a share, acquisition of Anheuser-Busch Cos., Inc. (BUD), as it won its last regulatory approval from China. The combined company will be based in St. Louis and named Anheuser-Busch InBev, Dow Jones reported.

• The Home Depot, Inc. (HD) reported a 31% decline in earnings during its fiscal third quarter ended Nov. 2. Profit declined 31% as well, but the home retailer expected steeper loses in the face of the U.S. housing crisis, Reuters reported.

• Kuwait’s Gulf Bank – the country’s second-largest lender – said Monday that it had lost $1.4 billion (375 million dinars) as a result of trading in derivatives and other financial instruments for customers who subsequently defaulted. The bank also said its board had resigned. To allay investor fears, Gulf Bank announced a plan to double its capital base by issuing 1.25 billion new shares. Investors knew there were losses. But the amount was nearly double the original estimate of $750 million. Trading in Gulf Bank shares remains suspended for their fourth week, Forbes.com reported.

• Mexican retail and media tycoon Ricardo Salinas Pliego could be building a controlling stake in bankrupt electronics retailer Circuit City Stores Inc. (OTC: CCTYQ), Reuters reported. Salinas already owns 28% of the company, having accumulated stock in the open market before and after the retail chain went bankrupt.

• Wholesale prices experienced the biggest one-month drop in more than 60 years in October, The Associated Press reported. Wholesale prices dropped by a record 2.8% last month, as the cost of oil and other raw materials declined.

Source: Global Investing Roundups Wednesday, November 19th, 2008

This begs the question, why would Circuit City want to emerge from bankruptcy? Best Buy is entrenched as the leader in the consumer electronics segment. Wal-Mart, which now carries name brand HD televisions at lower prices than Circuit City, is taking market share. Consumer spending on ‘luxuries’, such as big screen televisions has collapsed with the tightening credit markets.

How about the customer experience? When I recently went into a Circuit City store on a Saturday afternoon looking for an Ethernet cable, finding a sales associate was impossible. When I finally did locate one, they had no idea where to find the cable I needed. On top of that, I was one of perhaps a dozen customers in the entire store.

The cause of this poor experience is probably due to Circuit City laying-off approximately 3,400 sales associates last year and replacing them with lower paid workers. From my standpoint, and I am sure many others who have been to Circuit City lately, it is terrible shopping there. This doesn’t bode well going into the holiday season when retailers look for a boost in sales numbers.

I think perhaps it is time for Circuit City to call it a day and just cease operations. To re-emerge from bankruptcy in what is likely to be a continued economic slowdown and still facing eroding market share seems like a recipe for failure. There’s nothing wrong with knowing when to say when.

Source: Knowing When to Say When