Three reports were unanimous that sales gained, but to different degrees: Market research firm Retail Metrics Inc. said sales rose 1.1% last month, Thomson Reuters tallied a rise of 0.6% and a tally by International Council of Shopping Centers (ICSC) and Goldman Sachs Group Inc. (NYSE: GS) showed a 0.1% increase.

“Let the retail recovery begin,” said Michael Niemira, chief economist at ICSC. “This is the start of a better performance and better fundamentals.”

Retailers such as Target Corp. (NYSE: TGT), Aeropostale (NYSE: ARO) and Kohl’s Corp. (NYSE: KSS) raised their guidance for the current quarter ending October 31. But the encouragement was reserved as it pertains to the fiscal holiday quarter that starts next month for most retailers. Fundamentals key to consumer confidence – particularly unemployment, which rose to 9.8% last month – are still serious concerns.

“While our outlook for the third quarter has improved, we remain cautious in our expectations for fourth quarter results in both of our business segments,” said Gregg Steinhafel, Target’s chairman, president and chief executive officer.

Of course, retailers didn’t have to do much to beat last year’s September, which was relatively poor.

“You want to be careful how much you’re reading into the improved numbers,” Michael McNamara, vice president for research and analysis at SpendingPulse, an information service by MasterCard Advisors that estimates sales for all forms of payment, including cash, checks and credit cards in an interview with The New York Times.

For instance, jewelry sales increased 1.2% last month, McNamara said, “but that is still about 5% lower than we were in September 2007 and about 10% lower than the sector was in September 2006.”

“In some respects the sector has turned the clock back to 2005 sales,” he said.

While the bleeding at retailers may not have stopped, it has likely slowed as leading indicators such as the financial markets and consumer sentiment show improvement. The Standard & Poor’s 500 Index has risen more than 55% since its March lows, while the Reuters/University of Michigan Index of Consumer Sentiment was up to 73.5, its highest level since the start of 2008.

Among the biggest retail gainers on the stock market today (Thursday) from the news were American Eagle Outfitters (NYSE: AEO), which gained 8.88% to close at $18.14 and Abercrombie & Fitch Co. (NYSE: ANF), up 5.51% to close at $34.46.

Source: Will Rise In September Retail Sales Carry into Holidays?

In a report to be released this week, the Obama administration will boost its 10-year projection for the federal budget deficit to about $9 trillion – an increase of roughly $2 trillion, or 29%, from its prior projection, Fox News reported over the weekend, citing a source from the Office of Management and Budget (OMB).

The new cumulative deficit projection – for 2010-2019 – replaces the administration’s previous estimate of $7.108 trillion. Changes in budget projections – whether they result in a surplus or a deficit – are often refined as economic conditions change. This new projection was necessary because the recession has gone on for so long, causing federal tax receipts to plunge – and because the economic rebound will be prolonged and weak, resulting in lower forecasts for future federal revenue.

Although most of the news media focuses on the Obama administration’s $787 stimulus measure, the fact is that the federal government was pushing forward with nearly $12 trillion in rebound-related financing commitments, Money Morning reported this spring.

The administration earlier this year predicted that unemployment would peak at about 9% without the financial-jump-starting initiatives and 8% with them. But U.S. joblessness zoomed skyward anyway, and stood at 9.4% last month, although many economists now say that a double-digit unemployment rate – one of 10% or more – is easily possible.

The nation’s debt now stands at $11.7 trillion. In the scheme of things, that’s more important than talking about the deficit, which only looks at a one-year slice of bookkeeping and ignores previous debt that is still outstanding.

Back in June, the non-partisan Congressional Budget Office (CBO) predicted that the federal deficit would reach $1.825 trillion this year. The CBO and the Obama administration will tomorrow (Tuesday) separately release new budget-deficit predictions. Last Wednesday, a senior White House official, speaking on the condition of anonymity, told The Associated Press that the administration estimate would reach $1.58 trillion – or triple last year’s deficit.

The report for the budget year that ends Sept. 30 also will predict Washington to spend $3.653 trillion this year, although revenue will reach only $2.074 trillion, the unnamed senior official told The AP.

“Whether it’s $1.6 trillion or $1.8 trillion, it’s pretty bad,” said Robert Bixby, executive director of the bipartisan fiscal watchdog The Concord Coalition, told Fox News. “I hope no one tries to spin that as good news.”

Total U.S. debt has soared to $11.7 trillion (the budget deficit is the “shortfall” in the annual deficit, while the debt is cumulative), having balloned to that level as a result of the multiple annual deficits that have become the norm, it seems.

Market Matters

Just who is the world’s great economic superpower these days?  At times, it seems, “as China goes, so go the world equity markets.”  Early in the week, the Shanghai Composite Index (SSE) suffered its largest percentage decline since late 2008, with the index plunging more than 20% for the month on concerns about the sustainability of China’s recovery.

The global markets watched as the Japan, Europe, and the U.S. indexes followed the SSE downward.  By mid-week, however, all eyes were back on the domestic market as another sell-off in China was overshadowed by signs of growing U.S. economic strength and reports of enhanced energy demand.

The global bailout plans moved into a new stage as the Swiss government relinquished its control over banking giant UBS AG (NYSE: UBS) by selling off its investment for a $1.13 billion profit, or a 30% annualized return.  While the U.S. government has yet to reap similar benefits, several major banks have paid off their Troubled Asset Relief Program (TARP) loans and the CEO for one of the poster children for financial distress, American International Group Inc. (NYSE: AIG), announced that his firm should be able to pay back the government and may even be able to “do something for shareholders as well.”

While many auto dealers complained about the rebate process on the “Cash for Clunkers” program, General Motors Corp. (NYSE:GRM) stepped forward and will begin providing advances to participants who continue to wait for the government to move through its traditional red-tape.

The healthcare debate (and political infighting) raged on (complete with widespread town hall civil disobedience).  Rumors that the government would remove its public-health-plan option sent related health-care stocks soaring early in the week, though the jury remains out as to how this will really play after U.S. President Barack Obama guaranteed approval of an overhaul and then bashed congressional Republicans for their efforts in blocking any plan whatsoever.

On the earnings front, the housing sector received mixed signals as Home Depot Inc. (NYSE: HD) bested expectations, while rival Lowe Companies Inc. (NYSE: LOW) fell short and reduced its outlook. Cost-cutting was widespread among retailers as The TJX Cos. Inc. (NYSE: TJX), The Gap Inc. (NYSE: GPS), and even Target Corp. (NYSE: TGT) benefited from increased margins, though sales remained lackluster at best.

Hewlett-Packard Co. (NYSE: HPQ) struggled in its PC and printer-business segments, though management expects a healthy rebound in its fiscal fourth quarter.

Fixed income benefited from some early “flight-to-quality” trades and a report that showed strong foreign demand for U.S. Treasuries in June (despite ongoing rumors to the contrary).  Stocks fell sharply in sympathy with the China sell-off, though buyers reemerged in a big way on positive signs from the earnings and economic reports.

Likewise, oil prices shook off some early week negativity and surged to 2009 highs, as a surprising plunge in inventory levels revealed growing demand – perhaps to coincide with the beginning of a global economic rebound?  On that note, U.S. Federal Reserve Chairman Ben S. Bernanke’s comments about the prospects for recovery (though slow at first) were extremely well-received as investors seemed to all but forget about following Shanghai and the U.S. markets assumed the leadership role once again.  The major domestic indexes shrugged off the weak start and pushed to new highs for the year.

Market/ Index	Year Close (2008)	Qtr Close (06/30/09)	Previous Week (08/14/09)	Current Week (08/21/09)	YTD Change
Dow Jones Industrial	8,776.39	8,447.00	9,321.40	9,505.96	+8.31%
NASDAQ	1,577.03	1,835.04	1,985.52	2,020.90	+28.15%
S&P 500	903.25	919.32	1,004.09	1,026.13	+13.60%
Russell 2000	499.45	508.28	563.90	581.51	+16.43%
Global Dow	1526.21	1,629.31	1,803.83	1,819.50	+19.22%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	2.24%	3.52%	3.56%	3.56%	+132 bps

Economically Speaking

In addition to the Home Depot and Lowe’s earnings reports, housing news was prevalent during the week and the results were somewhat confusing.  The National Association of Home Builders reported that its Housing Market Index climbed for the second month in a row and reached its highest level in over a year.  Likewise, applications for mortgages increased for the third straight month on declining interest rates.

However, foreclosure rates remain on the rise and, according to the Mortgage Bankers Association, 13.2% of mortgages are delinquent or worse (in foreclosure); in fact, subprime mortgages are no longer the only area of concern as the unsettled labor picture has prompted homeowners with strong credit to fall behind on their prime mortgages as well.

Though housing starts fell in July, the decline was entirely attributable to apartment activity and construction of single-family homes actually rose for the fifth straight month.  Additionally, existing home sales in July surged by more than 7% as buyers took advantage of the misfortunes of others (in foreclosure), though prices continue to fall because of transactions related to these distressed properties.

In non-housing news, separate regional reports from the New York and Philadelphia Feds boosted the outlook for the domestic manufacturing sector and the overall economy.  Wholesale inflation remained benign as the producer price index (PPI) fell by a wider-than-expected 0.9% in July and prices have plummeted over the past 12 months by the largest percentage (6.8%) since records have been kept, dating back to 1947.

Be forewarned: Oil just hit a 2009-high.

U.S. Federal Reserve policymakers met for their annual conference and Fed Chair Bernanke shared a favorable assessment about the recovery process from “the most severe financial crisis since the Great Depression.”  Of course, Bernanke tempered some of his remarks and reiterated that, while the recession seems to be coming to an end, the rebound would likely be slow, with unemployment remaining a concern.

Bernanke also spoke of the need for financial regulatory reform in order to ensure the current financial debacle isn’t repeated.  The Fed also extended its Term Asset-Backed Securities Loan Facility (TALF) lending program in order to help stem the potential “challenges” that remain among commercial mortgage-backed securities.

Weekly Economic Calendar

Source: In the Race for a U.S. Economic Rebound, Growing Debt and Budget Deficits Remain the Biggest Possible Roadblock

It has been a tough week if you have anything to do with the world of retail. Just about every company that opened its books to the Street this week got punished for the act.

The list of “disappointing” reports is getting longer by the day.

Lowes (NYSE:LOW) kicked off the week with scary-low figures. Home Depot (NYSE:HD) beat the Street but still got punished after a slew of less-than-stellar economic reports.

Outside of the home-centric sector, shares of Liz Claiborne (NYSE:LIZ) plummeted on Monday after the Standard and Poor’s cut its rating on the unprofitable retailer to B, a two-notch downgrade. The company’s rating now stands five levels below investment grade.

High-end retailer Abercrombie & Fitch (NYSE:ANF) is also deep in negative territory for the week after succumbing to industry pressure and a downgrade from Susquehanna.

Obviously, the market believes a business model that focuses on trendy, expensive clothing is not a place to be during a deep, protracted recession.

And of course, there is Eddie Lampert and his Sears Holding (NYSE:SHLD). While the store may be the hideout of choice for any enslaved husband while his wife shops for new bed linens, fewer of us our purchasing the store’s products.

Shares of the company are down by double-digit proportions today after Sears announced it lost $94 million over the past three months. It is tough to make a profit when revenues are plunging by 10% (12.5 for comparable-store sales).

Essentials only investing

If consumers are not spending their money at the high-end stores or paying to fix up their house, where are they spending it? After all, there is no choice but to spend money on the essentials at the very least.

The key is understanding which retailers are stocked up on the essentials. Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) are the first to come to mind.

And guess what… shares of Target are up on the week and Wal-Mart is just slightly in negative territory.

One of the most appealing sectors of the retail market is the ultra-cheap (in price and quality) “dollar store” segment. As the market breaks out its magnifying glass in an attempt to find any signs of so-called green shoots, shares of company’s like Family Dollar (NYSE:FDO) and 99 Cents Only (NYSE:NDN) have dropped from their recent highs.

The discounting is a mistake. Today’s unexpected surge in first-time jobless claims (a jump of 15,000 claims) proves tens of thousands of American consumers are still at risk of losing their jobs. That means they won’t be shelling out their reserves any time soon.

Instead, they will continue their spendthrift shopping.

While there are sectors much more likely to hand you sizeable profits in the near future, no portfolio is healthy unless it is properly diversified.

If you need exposure to the nation’s retail market, look at the big guys like Wal-Mart and Target or the small discount retailers where a buck will buy you just about anything… but a share of the company.

Finally, if you have been playing this sector or have your eye on any big movers, your fellow readers would love to hear about it. Drop us a line and let us know your thoughts.

Source: Dangerous Retail: The Sector That Refuses to Recover

After the Commerce Department reported last week that retail sales fell 0.1% in July from June, and 8.3% year-over-year, retailers will stay in the limelight this week as several high-profile companies report second-quarter earnings. Target Corp. (NYSE: TGT), Limited Brands Inc. (NYSE: LTD), and Gap Stores (NYSE: GPS) are among the big-name retailers set to report.

Meanwhile, the Hewlett-Packard Co’s (NYSE: HPQ) report will provide a further glimpse into the world of technology, and The Home Depot Co.’s (NYSE: HD) results will confirm or counter claims that the recent housing rebound is for real.  On that note, the upcoming economic releases include July housing starts and existing home sales, while the wholesale inflation gauge may show that price pressures are not yet creeping into the producers’ side of the equation either.

Market Matters

While many more bearish analysts continue to proclaim “gloom and doom” and a drop back to the March-lows in equities, at least one noted naysayer may have shifted to the other team.  Hedge fund manager John Paulson purchased over $165 million shares of Bank of America Corp. (NYSE: BAC) to become the banking giant’s fourth largest shareholder.  Paulson was among the select few who predicted the subprime debacle, so his allocation into financials may be interpreted as a nice vote of confidence from an unexpected source.

Meanwhile, the U.S. Federal Reserve made a few bold moves to promote its case for recovery as well.  Following the policy meeting, Federal Reserve Chairman Ben S. Bernanke announced his intent to cease the program of buying up to $300 billion of Treasuries in October, as a major economic lifeline may have served its purpose well.  Additionally, banks have scaled back borrowing from the Fed’s emergency short-term lending facility, a sign that the frozen credit markets have thawed considerably.

Finally, the Car Allowance Rebate System (CARS), popularly known as “Cash for Clunkers,” was expanded, allowing car buyers to receive vouchers for future purchases as automakers report dwindling inventories.

Retailers took center stage in the earnings game as Wal-Mart Stores Inc. (NYSE: WMT) and Kohl’s Corp. (KSS) beat expectations, but still offered cautious projections for the months ahead (including the upcoming holiday season).  Macy’s Inc. (NYSE: M) posted a declining profit, but gave an optimistic outlook, as it benefits from cost-cutting measures.  Liz Claiborne Inc. (NYSE: LIZ), on the other hand, reported a wider loss and new streamlining plans and J.C. Penney Co. (NYSE: JCP) issued some pessimistic comments about the state of the consumer.

Seemingly recession-proof McDonalds Corp. (NYSE: MCD) announced strong July same-store sales as its coffee drinks competed effectively with the “big boys.”  On the transactional front, China continued its expansion into the global commodities markets as China National Petroleum Corp. and CNOOC Ltd. (NYSE ADR: CEO) have eyes on the Argentinean unit of Repsol YPF SA’s (NYSE: REP) to the tune of $17 billion. Microsoft Corp. (NYSE: MSFT) and Nokia Corp. (NYSE ADR: NOK) are teaming up to take on PDA leader Research in Motion Ltd. (Nasdaq: RIMM) in an alliance that brings the popular software together with a solid cellular player.

Fixed income investors got a boost from a successful 30-year bond auction, as $75 billion in new Treasury securities were well-received during the week.  The Treasury also announced a plan to issue more TIPS (inflation-adjusted bonds), a move aimed at alleviating concerns in China (the largest foreign holder of U.S. debt) that the government would allow a surge in inflation as it tries to finance the stimulus plans.

Higher inflation would increase the yields on TIPS and result in greater costs for the government.  Bond prices fell mid-week after the Fed announced its intent to end its Treasury purchase program, though the auction news was a welcome relief and a late-week flight-to-quality also ensued.

Investors focused on the lackluster consumer activity – illustrated by both earnings and economic releases – and worried that economic growth will be stunted as long as shoppers remain in hibernation.

Despite favorable reviews by the Fed, major equity indexes gave up slight ground during the week with the Standard & Poor’s 500 Index and Nasdaq Composite Index still flirting with 1,000 and 2,000 respectively.

Economically Speaking

No rest for the weary (especially when auditioning to keep a job).  Fed Chief Bernanke guided the latest Fed policy meeting that saw strong signs (and language) pointing to the recession nearing an end.  The Fed claimed the economy is “leveling out” and felt the Treasury purchase program could go away with no material detriment to the nation’s financial system.

The accompanying statement also indicated that the funds rate would remain just above zero for “an extended period” as many anticipate the recovery will be slow to take hold.  Noted economists apparently have Bernanke’s back as a recent survey revealed that most prefer he remain on as Fed Chair for another four-year term and President Barack Obama should reappoint him based on his strong performance in righting the ship during the worst economic downturn since the Great Depression

Treasury Secretary Timothy F. Geithner shared some tough talk as he objected to certain concerns that major financial companies have not learned their lessons and the recent profits are indications of pre-crisis-like risk-taking.

The economic data of the week offered mixed signals as retail sales surprisingly declined in July despite the popularity of the “clunker” program, though continuous claims for unemployment benefits fell to the lowest level since April.

The anticipated rebirth of the consumer may be on hold for now as the Reuters/U. of Michigan sentiment index fell again and individuals continue to worry about the state of the job market.

While the trade deficit increased in June, exports climbed for the second consecutive month and manufacturers experienced increased demand for products like semiconductors and telecommunication devises.  Likewise, industrial production rose in July as the “new and improved” domestic automakers attempt to get back on track.

On another favorable note, inflation remains a non-issue as the consumer price index (CPI) was unchanged from June and prices have fallen by 2.1% over the past year.  On the global stage, the French and German economies posted surprising growth in the second quarter and, though the broader Eurozone countries continue to contract, the recovery is already taking hold in that region of the world.

Weekly Economic Calendar

Source: Will This Week’s Earnings Reports Reflect a Recovery or a Relapse for the U.S. Economy?

But don’t expect that to last. A slump in consumer spending and soaring unemployment could both pose a significant threat to retailers going into the 2009 holiday season.

The U.S. unemployment rate hit 9.5% in June and could eclipse 10% by the end of the year, sending the economy into a “jobless recovery.”

In a speech to Congress on May 9, Federal Reserve Chairman Ben Bernanke cited a lack of consumer spending could serve as a constraint on hiring. This could create a paradoxical effect as employment obviously plays a key role in consumers’ spending habits.

Even for the employed, the lessons learned from the worst economic downturn since the Great Depression will resonate with consumers. That has already been evidenced by the U.S. savings rate, which has climbed above 4% for the first time in more than a decade.

In addition to taking money out of the hands of potential customers, soaring unemployment could lead to higher lending standards. As unemployment rises, so too will credit defaults and the cost of credit will increase accordingly.

In the past, consumers have counted on attractive financing promotions for the purchase of big-ticket items such as high-definition televisions and kitchen appliances. But that won’t be the case with tighter credit

“Consumers were also able to spend more because of the easy availability of credit, most notably through mortgage equity withdrawal and they responded by buying more items,” said Deloitte Strategic Advisor Richard Hyman.  “These conditions underpinned retail growth for the past 10 years but have now disappeared. However, it’s worse than that. They will clearly not return once the recession is over.”

Of course, tighter credit isn’t just a problem for consumers.

A Brick & Mortar Inventory Crunch for the Holidays?

The potential bankruptcy of commercial lender CIT Group Inc. (NYSE:CIT) could be a major tipping point for businesses that rely heavily on credit. Vendors for retail giants such as Wal-Mart Stores Inc. (NYSE:WMT) and Target Corp. (NYSE: TGT) rely on CIT for factoring – an old form of finance in which the lender pays the vendor for its accounts receivable. If the retailer fails to pay for the goods, the lender assumes the responsibility to pay the vendor.

“Right now our industry is preparing for the fall and winter season,” Kevin M. Burke, president and chief executive of the American Apparel and Footwear Association told The New York Times. “A lot of these orders are going to come to a grinding halt if there is no capital.”
A CIT bankruptcy would be a “double whammy” to stores whose suppliers have already cut the amount of merchandise they are making to better align inventory with the drop in consumer spending, said Burke. If those suppliers lose their sole source of capital, what little merchandise retailers originally ordered might never arrive.
The timing of CIT’s woes is “terrible,” Al Ferrara, a partner in retail and consumer products business of consulting firm BDO Seidman LLC said in a Reuters interview. “Retailers now are basically gearing up for the back-to-school and the fall season.”
An inventory crunch at brick & mortar retailers would give a competitive advantage to online retailers, which have more flexibility and already account for about a third of holiday retail sales.

For brick & mortar retail businesses, managing inventories during the holiday season is a delicate balancing act in which managers must walk a fine line between over- and under-ordering stock.

If retailers overstock, they will be forced to offer even steeper post-holiday discounts than they would like in a desperate bid to unload inventory. But if they don’t stock enough merchandise to meet demand they risk not only missing out on sales, but driving potential customers to online retailers, such as Amazon.com Inc. (Nasdaq: AMZN) whose warehouses are not restricted by the display racks and checkout counters found in brick & mortar stores.

This doesn’t mean brick & mortar retailers will sit idly by this holiday season as Amazon siphons off customers via the Internet. All of the nation’s biggest retail players have their own websites too, but the gap between Amazon and the No. 2 online retailer, Staples Inc. (Nasdaq:SPLS) is huge: Amazon generated $19.2 billion in online revenue in 2008, while Staples generated less than half of that in the same year: $7.7 billion.

While half of the top 10 online revenue generators came from traditional stores, notably absent were brick & mortar discount giants Wal-Mart and Target.

And even Best Buy Co. Inc. (NYSE: BBY), which displays in-store signage promoting an “expanded assortment” of products online for consumers who did not find what they were looking for in the store, came in at just No. 10 on the list.

Shopping for a Silver Lining

While a continued slump in consumer spending would benefit no one, certain retailers are better positioned than others, and could ultimately use adverse economic conditions to turn a profit.

For instance, the aforementioned Amazon.com, which is the world’s largest online retailer, could see a sizeable boost in its web traffic as consumers comb the Internet for bargains.

Companies that have a consumer-friendly economical brand, such as Wal-Mart, will also benefit.

Wal-Mart’s “Save Money, Live Better” slogan is already resonating with consumers, and The No. 1 retailer in the world has gone to great lengths to cement its reputation as the affordable choice for shoppers.

The company has set up a “Save Money, Live Better” website (complete with testimonials of what people are doing with the money they save by shopping at Wal-Mart) and a “Live Better Index,” which includes an interactive map of the United States to show how much money people have saved in each state by shopping at Wal-Mart.

The result of Wal-Mart’s efforts? Holiday sales grew 7% last year, according to the Advertising Research Foundation.

Similarly, same-store sales are consistently rising at discount houses such as Family Dollar Stores Inc. (NYSE: FDO), and Ross Stores Inc. (Nasdaq: ROST), the latter of which has the “Dress for Less” sloganright under its name at every store. On the flip side, stores like Macy’s Inc. (NYSE: M) and Saks Inc. (NYSE: SKS) have reported consistent declines in same-store sales over the past few quarters.

“Needs-driven spending will gravitate towards retailers able to tick the most important consumer boxes like price and convenience,” said Deloitte’s Hyman. “Although it will remain the engine of retail growth, wants-driven spending will slow and consumers will be much more choosy.”

Source: Retail Sector Faces Uphill Climb in 2009

Source: Investment News Briefs Friday, July 10, 2009

I am not the kind of guy that would ever get a tattoo. The company’s media advisor once told me I have a perfect face for radio. Why would I want to mess with that kind of success by spreading blue ink across my body?

But if I was going to succumb to an artist’s electric needles, there are just two phrases I could remotely envision having permanently ironed onto my skin.

#1: A man just can’t sit around.

#2: Government is not the solution to our problem. Government is the problem.

You would understand the message contained in the first phrase if you witnessed the engineering catastrophe in my garage over the weekend and the ensuing excuse I laid on to my bewildered wife.

The second is certainly the most topical phrase. While few folks have anything to do with Reaganomics tattooed on their body, it aptly describes my disdain for the current growth of the nanny-state attitude in Washington. If all our representatives saw that simple inaugural quote from1981 every time they buttoned their starched shirts, this nation would no doubt be a better place.

But government breeds government so you get what we have, regulations on top of regulations.

In this week’s episode of Hope and Change, Obama is hard at work to create more oversight of anything financial, from exotic derivatives to the credit cards we use at the pump. The president’s main goal? To ensure no business ever grows to a size deemed “too big to fail.”

It is an interesting, politically motivated notion, but the hypocrisy is mind blowing.

While Washington drives by the rear-view mirror and focuses on the banking sector, I am intrigued by what Capitol Hill might think of another of the world’s largest companies, Wal-Mart (NYSE:WMT).

Is Wally World too big to fail?

By current measures, especially anything politically driven, the answer is an astounding yes.

Walk into any Wal-Mart and you will see its everyday low prices are a necessary subsidy to almost every class of working Americans. Imagine the toll if we all suddenly had to transfer our business to, dare I say it, Target (NYSE:TGT).The short-term inflation spike would crash computers and throw the Fed into a flat-out tizzy.

And how about the suppliers?

We have all heard of the companies desperately reliant on Wal-Mart’s all-or-nothing demands. There are dozens of small firms that absolutely depend on a chunk of the Walton family’s $400 billion in annual revenues.

If Wal-Mart would suddenly close up shop, the supplier fallout would be horrific. Just Monday, Oil-Dry (NYSE:ODC) lost one of its largest customer (no word if it is Wal-Mart) and share price plunged by nearly 30%. The calamity would be many times worse if the world’s largest retailer pulled back its purchase orders.

Has Wal-Mart grown too big to fail? You bet it has.

Will Washington have the guts to stick to its word and dismantle “key” players in a similar situation?

All I have to say is you get what you vote for.

If Capitol Hill passes the kind of legislation making the rounds this week, there is no limit to the government’s power. We let them take over just about every other key sector. We might as well let them have Wal-Mart too.

Source: Can Obama and His Team Crush Wal-Mart?

• Crude oil yesterday (Wednesday) rose above $62 a barrel, a six-month high, after the U.S. government released a report that showed inventories fell below forecasts. “The big drops in both crude and gasoline are very bullish,” Nauman Barakat, senior vice president of energy at Macquarie Futures USA Inc., told Bloomberg. “If people were surprised by how fast crude oil moved from $50 to $60, they will be really shocked by how quickly the market will hit $70.”

• The courtship of General Motors Corp.’s (NYSE: GM) Opel unit is down to three potential suitors – Italy’s Fiat SpA (OTC ADR: FIATY), Canadian-Austrian car parts group Magna International Inc. (NYSE: MGA) and investment firm RHJ International, Reuters reported. GM has a June 1 deadline to restructure and raise capital if it wants to avoid a forced bankruptcy.

• Brazil is on the mend from its biggest economic drought and may grow as much as 4% in the second half of the year, Itau Unibanco Banco Multiplo SA’s (NYSE ADR: ITU) Chief Executive Officer Roberto Setubal said at a conference in New York. “Our economy is showing very strong signs of recovery,” Setubal said, Bloomberg reported.  “The pace of growth is already there, and I believe we will see a very strong second semester in Brazil.”

• Target Corp. (NYSE: TGT) and BJ’s Wholesale Club, Inc. (NYSE: BJ) reported better-than-expected earnings for the first quarter. Target did so by reining in expenses and inventory. BJ’s – which raised its first-quarter forecast earlier this year – cited higher-than-expected merchandise sales and margins, Reuters reported.

• President Barack Obama is expected to quickly sign a bill imposing sweeping new limits on the credit card industry passed by Congress yesterday (Wednesday), Reuters reported.  The House of Representatives voted 361-64 to approve the bill as adopted on Tuesday by the Senate, in a major win for the president and congressional Democrats.  The so-called “Consumer’s Bill of Rights” would strictly limit credit card issuers’ ability to raise interest rates on cardholders’ existing balances and to charge certain fees.

• California voters yesterday (Wednesday) struck down five measures backed by Republican Governor Arnold Schwarzenegger and the Democrat- led legislature that were intended to shore up the state’s finances. With the governor expecting California to have $21 billion less than it needs over the next 13 months, the most-populous U.S. state is on the verge of running out of cash for the second time this year after the ballot measure defeat added $6 billion to the budget deficit, Bloomberg reported.

• Wall Street securities brokers are not expected to rehire many of the workers let go during the global financial meltdown, a New York City fiscal monitor said in a gloomy report released yesterday (Wednesday). The Wall Street firms will replace only a small number of the lost jobs by 2013 even if the industry returns to profitability next year, the city’s Independent Budget Office said in the report, according to Reuters.

• A group of Indiana pension funds filed court papers late yesterday (Wednesday) objecting to a plan to auction Chrysler LLC’s assets and said a U.S. District Court judge should rule on the legality of the sale, Bloomberg reported.  The pension funds, which hold first lien debt of the automaker, asked U.S. Bankruptcy Judge Arthur Gonzalez in New York to block the sale, claiming the plan is illegal and infringes their rights.  The funds are also asked for appointment of a trustee to run Chrysler.

Source: Investment News Briefs  Thursday, May 21, 2009

Earnings Announcements: BKS, FL, GME

Monday

Earnings Announcement: LOW

Tuesday

Economic Reports: Building Permits, Housing Starts

Expectations are for both of these reports to show a modest improvement versus the previous month. With the deteriorating housing market, I don’t think these reports will meet expectations. Until the existing inventory is whittled down, these reports should show a drop in permits and starts. Of course, I have been wrong before, but I can’t imagine any builder wanting to add more inventory to the drastic oversupply right now.

Earnings Announcements: HD, HPQ

Wednesday

Economic Reports: FOMC Minutes

The market will scour these minutes for any indication of the Fed’s future course on interest rates. With inflation a growing concern, this becomes an even more important ‘heads up’ for possible moves.

Earnings Announcements: TGT, SKS, LTD

Thursday

Economic Calendar: Philadelphia Fed

This report will give some insight into the manufacturing sector in the tri-state area. Is it possible the report will show some good news? Perhaps. The report is expected to show a reading of -18, which is a marked improvement from last month’s reading of -24.4. The report is moving in the right direction, which means less contraction in the manufacturing sector.
Source: Housing Back In The News, More Retailers Report Earnings

So this next chart should come as no surprise to you.

This is a chart of Personal Consumption Expenditures dating back to 1959 which was taken from Merrill Lynch (after being pointed out to me by Barry Ritzholtz).

As you can see, we have never once seen personal spending drop as dramatically as it has over the past year. It’s no wonder yearly sales in the auto market have been nearly halved… Starbucks is no longer planning to be on every corner (and in every bathroom)… and Circuit City went bankrupt and liquidated.

THIS IS UNPRECEDENTED.

It also means that other companies which rely on amped up consumer spending are likely to continue seeing tougher days ahead.

Best Buy (NYSE:BBY) I’m looking at you. Because the truth is, anyone can buy what’s at Best Buy for much less money if they simply go to Amazon.com or even walk into their friendly, neighborhood Wal-mart.

Hell, even Target (TGT) is starting to show more spunk when it comes to consumer electronics.

While I’m not saying Best Buy is a goner, they’re going to continue having a tough time in the next two years. Making them a great long-term  short candidate.