Junior Mogambo Ranger (JMR) Terry L. sent a column by Robert Morley, who is described as “columnist”, with the headline “What Garage Sales Tell Us About Our Economy”.

Perhaps because the incident was so fresh in my mind, I thought that he was referring to the few precious heirloom articles from the back of my closet that I tried to sell at my neighbor’s garage sale, hoping that maybe I’d, you know, make a few lousy bucks that the wife and kids wouldn’t know about.

Apparently, people are appalled that I would have been living with such trash up to now, and they rudely laughed at the idea that anyone would actually buy any of my treasures, and then they got mad at me because my heirlooms were, so they said, “stinking up the joint”.

So, if you ask me, “What Garage Sales Tell Us About Our Economy” is that the people are rude and stupid to reject a genuine, collectible, original Thigh-Master exercise device just because it had some sticky stuff on it that smelled bad. And even though I explained that the rust and dirt were valuable “patina”, it was no dice, so I slunk home and threw the damn thing in the kid’s closet, and now I have to listen to her complain about it stinking up the joint. It is always something around here!

Fortunately, the article was NOT about that, and the subhead was, “As people struggle to put food on the table, a wave of second-hand goods is sweeping the nation.”

This turns out to mean that “Struggling with billowing debt and rising prices, faced with a rapidly deteriorating economy and job market, cash-strapped Americans are selling family heirlooms, prized possessions, scrap, and just about anything with value.”

And the way he knows this stuff is that “Internet garage sale sites are booming. According to the Associated Press, Craigslist, one of the more well-known online flea markets, has seen the number of for-sale listings soar 70 percent since last July. AuctionPal.com says its sales rose a blistering 66 percent from February to March.”

Furthermore, pawnshops are busy, and “People are pawning out like crazy”, says Nat Leonard, a pawnshop owner in Philadelphia. He went on, “People are cleaning out their houses of gold, silver, whatever, to get money just to fill their cars with gas,” which he must know first-hand because “Leonard’s sales volumes are up 20 percent over last year, with increasing numbers of first-time customers.”

Well, to be fair, this is always what happens at the beginning of a downturn, and around here towards the end of every month, as that is when I always run out of money to spend in trying to drown my sorrows in liquor. So I would be surprised if all this was NOT happening!

Naturally, I concluded that there was nothing new here for me, and so I was just about to get up and leave when he said something that stopped me in my tracks.

He said, “I’ve got business owners coming in to pawn things just to make their payrolls. I’ve never seen that before.” Never seen it before! This really IS interesting!

And what is the result of all of this sudden supply? Being as familiar as I am with the whole supply/demand thing because it is the only thing I think I actually kind of sorta understand, I think I can safely say that the demand for people’s old stuff has to be down, including a genuine collector’s item like a Thigh-Master, as the supply rises, making prices fall, as Mr. Morley attests when he writes, “Secondhand online merchandise is already selling for 25 to 35 percent below last year’s prices” according to Brian Riley, senior analyst at Tower Group.

From here the path gets ugly, as Mr. Morley explains that “There is coming a time when the consumer will be tapped out, and the debt-fueled consumption binge will end. When it does, consumer confidence will be replaced with fear and eventually panic. This panic will result in increased asset sales and reduced spending as workers attempt to pay off their debts (or save their homes). Evaporating confidence will cause consumers to rethink current and future spending plans. The economy, hit with a lack of demand, will slow, corporate earnings will fall, stock markets will plummet, and layoffs will become prevalent. As more people enter the unemployment line, the deflationary spiral will intensify.”

And it gets worse, as “If that happens, the resulting economic instability will lead to a vicious cycle of consumer spending cutbacks, a plummeting economy and soaring unemployment. Home prices, along with many other domestic-demand-driven assets, will be sucked into a deflationary spiral, likely stimulating a banking crisis as thousands of bad loans must be written off. Yet simultaneously, import prices will soar as the federal government continues to inflate and spend money in a vain attempt to stimulate the economy and keep paying promised Social Security and Medicare liabilities. The dollar will fall further as boatloads of rapidly depreciating greenbacks wash up on America’s shores as America’s foreign debt holders try to spend their U.S. dollars before they become worthless.”

There is probably more, but I can see by the look of horror on your face that you have heard enough today. We’ll take it up again tomorrow, or whenever I sober up after hearing this Awful, Awful News (AAN) myself. Brrr! The blood runs cold!

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Source: All Sell and No Buy

Yesterday, Land of Leather, the sofa retailer, warned that sales had plunged by 32% in the 12 weeks to last Sunday compared to the same quarter in 2007. The chain is holding a 12-hour sale today, in the hope of building up some steam in the Bank Holiday weekend.

Now, the news that a sofa company is in trouble during a property sales slump doesn’t come as a surprise. Interestingly, kitchens group Howden Joinery is still doing well, with same-store sales up 5.9% year-on-year, though that may be down to desperate sellers attempting to update hard-to-shift properties.

But forget furniture. The really worrying thing is that we’ve all started cutting back on lattes…

Starbucks is no longer an affordable luxury for some people

Starbucks (NASDAQ:SBUX) has warned that UK sales are starting to turn down. Chief executive Howard Schultz, quoted in the Evening Standard, told analysts that he had seen “some early signs of softness in traffic in our UK stores… Starbucks coffee and premium coffee experience has, over time, been an affordable luxury. And at this time, it isn’t for some people.”

It looks like all those personal finance articles on budgeting – you know, the ones that point out that if you spend £2 each working day on coffee, that’s more than £40 a month – are taking their toll. And no wonder. £40 a month is just about enough to offset a decent chunk of your increased mortgage payments, if you’ve just come off a fixed rate.

Some analysts argue that the coffee industry is in some way immune to the slowdown. “When times are tough, people might stop buying designer shoes but they will still go to the shopping centre and buy a coffee,” said Jeffrey Young of market research group Allegra Strategy.

Why? Why will they still buy a coffee? There can be few things more easily substituted than a coffee from Starbucks, or Costa or wherever. For a start, you can drink coffee for pennies at home. Or you can do without it all together. People talk about the morning latte as being something almost indispensable these` days, but that’s just force of habit. It’s amazing what you can do without when your wallet makes you put your mind to it.

Coffee’s an obvious expendable item, but there are plenty of others. Fashion’s another victim. The last four weeks have been a “graveyard,” according to Bhs and Top Shop owner Sir Philip Green. As Evening Standard writer Gideon Spanier points out, those who are surviving best are the stores offering cheap and cheerful goods – Primark for example (owned by AB Foods) saw sales rise 25% in the 24 weeks to March 1st – and online retailers, such as ASOS, which recently reported sales up 80% year on year.

Even these might struggle in the coming months. As Anthony Hilton reports, the nation is “tightening its belt”. As he says, the recent hopes from bankers that they might be over the worst sound premature. But “ even if true… it looks increasingly likely that for the rest of the economy the troubles are only just beginning.”

Why markets are still too optimistic on the UK

What does this all mean? Well, as ever, I’d keep avoiding retailers and other consumer-facing stocks, even the ones that have already fallen substantially. Why? Because just as few people in the markets realised how quickly and devastatingly the property market would turn, most people are still just too optimistic on the UK economy at the moment.

It may not feel like that, with the government in turmoil and bad news headlines everywhere, but the market is still in ‘glass half-full’ mode. As the news on the economy continues to get worse, and more and more people realise this isn’t easily resolved, that attitude will gradually shift. But for just now, there are still too many ready to “buy on the dips” rather than “sell into the rallies.” So that means the most vulnerable stocks still have further to fall.

As for what you can buy in a downturn, we suggested some defensive stocks in a recent MoneyWeek cover story.

Yesterday the FTSE 100 closed unchanged on the day at 6,087.3. Housebuilders were hammered as downbeat broker comments, suggesting that Spring sales reservations have collapsed compared with last year, prompted further selling. Retailers were also under pressure on consumer spending fears. In contrast British Airways soared 7% in response to potential co-operation talks with US rivals.Euroland stock markets were closed to celebrate 1st May. Wall Street enjoyed a 1.7% rally following the previous day’s Fed rate cut, rising 190 points and breaching the 13000 barrier for the first time since early January. The broader S&P 500 also put on 1.7%, gaining almost 24 points to end the day at 1,409, while the tech-heavy Nasdaq fared even better, adding 2.8% to close at 2,481.

John Stepek

Deputy Editor, MoneyWeek

http://www.moneyweek.com/file/46443/things-are-getting-really-bad–latte-sales-are-down.html