This from Today’s Financial News:

Thinking of going on a cruise? It is a perfect opportunity to buy tickets at the best prices in decades.  Thinking of investing in a cruise company? Think again. Even with share prices of some lines trading just above ten-year lows, cruise companies are still not as cheap as they will be.

During a day when advancing stocks outnumber decliners by a margin of more than 5 to 1, shares of the nation’s largest cruise operators are barely moving or are deep in negative territory. Royal Caribbean (NYSE:RCL), the hardest hit of them all, is down by double-digit proportions, thanks to a rough analyst downgrade.

Barclays Capital cut the company’s price target from $20 to just $1, saying chances are high it will run into serious liquidity issues as demand for cruises plummet. Shares of the $2 billion company dropped from yesterday’s closing price of $10.40 to an intra-day low of $8.75. Expect even more action when the company announces its latest quarterly results tomorrow.

Consensus estimates show the company should announce per share earnings of $0.08. But Barclays thinks the figure will swing to a loss, a sizeable loss, of $0.10 per share. If anything close to that happens, look for a much larger drop.

A boom-or-bust industry

When consumers lose their jobs, stop spending and start hoarding, it does not take an MBA to figure out cruise demand will drop. Unfortunately, too many investors have underestimated the drop.

Ironically, this issue is very similar to the railroad industry piece I wrote yesterday. Investors are looking at one small chunk of the company’s cost and revenue streams, when they should be looking at much more.

Too many folks cite lower fuel prices for a reason shares should remain steady or even rise. But fuel costs are such a small portion of the company’s business model, they are almost not worth looking at. Besides that, when we look at fuel prices per passenger, the industry is paying just as much , if not more, than last year.

For example, it still takes 3,000 gallons of fuel to get from point A to point B. If there are just 1,000 passengers onboard and fuel prices are just $2 per gallon, the company is still paying $6 per person. But if there are 2,000 people onboard and the company pays $3 per gallon, the per-head cost is just $2 per person.

But like I mention, investors should not even concern themselves with fuel prices. What they need to realize is, just like the railroad industry, the cruise industry has little ability to adjust its short-term operations to meet demand.

The economy has imploded over the last six months and demand has plummeted, but companies like Royal Caribbean can do very little to adjust their “supply” of cruises. Most of their trips are scheduled at least a year in advance and cannot be adjusted. They must wait until next year to lower their production.

That is why we are hearing the news that Royal Caribbean is pulling one of its cruise ships from Alaska, not this year, but in 2010. The cruise season does not start along Alaska’s southeast coast for another 15 months, but that is as fast as the company can react to a changing market. Unfortunately, by the time it fully adjusts its capacity, the market could have staged a turnaround.

Horrible timing

Between 2004 and 2007, North America’s cruise industry has grown from $16.9 billion in revenues to over $22.8. It was an average annual growth rate of over 10%. During those years, cruise lines added all the capacity they could find. Now that the economy has stopped in its tracks and is jogging backwards, the capacity is costing operators dearly.

Royal Caribbean has nearly $2.5 billion in liabilities due over the next twelve months. Unfortunately, it has just $1.05 billion in liquid assets to pay those bills. If the company does not find some cash flow soon, there could be some very stormy seas ahead for the company and its investors.

There is a saying in the industry that says cruise ships are filled with either “the newlywed or the nearly dead.” Risk your money in companies like Royal Caribbean and you certainly will not feel like you are on a honeymoon.

Source: Do the cruise lines need to be “bailed” out?

This from Taipan Daily

At market extremes (where fortunes are most often won and lost), the wild outliers get closer to reality. Such is the case with the “mega-mall ghost town” scenario.

In the past two weeks, the financial press has been chock-a-block with headlines like “Commercial Property Loses Shelter” and “Struggling Retailers Press Struggling Landlords on Rent.”

“U.S. retailers are expected to begin a wave of post-holiday bankruptcy filings,” the Wall Street Journal writes, “altering the landscape at malls and on main streets across the country.”

One mall store manager – who requested his name not be mentioned – told the WSJ he expects more returns than sales on some days. “We’ll have $5,000 in sales and $7,000 in returns,” he said.

It should be no real surprise, then, to hear that the Consumer Confidence Index just hit an all-time low of 29.4.

As the Trader’s Narrative blog points out, “That’s lower than the 2002 bear market bottom. Lower than the confidence level in 1991. Lower than the early 1980s. Even slightly lower than darkest days of the 1970s bear market.”

And finally, at risk of beating the point into the ground with a flathead shovel, take a look at this Financial Times chart.

That chart only goes back to 1993. If you were to extend it many decades further, you would find that the latest number for U.S. retail sales was the worst in sixty years.

What to Do?

Some say these numbers are so bad they can only get better. I’m not sure I agree. While certain areas of the market are set for a strong bounceback in the coming months, the U.S. consumer’s wallet probably isn’t one of them.

The dire state of the American retail landscape highlights the importance of being selective, on both the investing and trading side, as we head into the post-apocalyptic landscape of 2009 and beyond.

A key task will be sorting out two kinds of stocks: those that are truly once-in-a-lifetime cheap… and those whose consumer-linked business models are “permanently impaired.”

On the trading side, one go-to idea is shorting RTH:AMEX, the Retail Holders ETF.

This is a trade that could make some money, but I can’t help but think there are better ways to play it.

I’m not crazy about being short Wal-Mart (NYSE:WMT), for one – the single-largest component of the RTH index. True, WMT recently gapped down big on lower-than-expected sales… but the Beast from Bentonville has a price to earnings ratio of less than 15, and is more likely to prove a long-term winner than loser in the great retail shakeout.

Another point in Wal-Mart’s favor: they sell stuff that people need to buy. U.S. consumers aren’t about to stop ponying up for toothpaste and diapers and socks, no matter how gloomy the big picture gets.

Why not instead, then, cast a bearish eye on a company like Amazon.com Inc. (Nasdaq:AMZ), which still supports a price-to-earnings multiple of 34 and sells “discretionary” type items (books, CDs, videos, etc.) that people don’t really need?

Sacred Growth Cows

Shorting is a bit like value investing in reverse. As a value investor, you want to find companies that are cheap relative to assets, cash flow and long-term prospects for growth.

As a short seller, you want to hunt down companies with the opposite profile… valuations that are inflated, prospects that are over-hyped, and multiples that don’t make sense.

Zach and I jokingly refer to these crash-and-burn candidates as “sacred growth cows.” When investors fall in love with a concept stock or a great growth story, they often find it hard to let go of their rosy outlook… even when market action suggests strongly that they do so.

I asked Zach if he had any “sacred growth cows” on his radar screen for Death Cross Trader. As usual, he was happy to share a few names off the top of his mental rolodex. Here’s a sample of what he came back with.

1) Blue Nile Inc. (Nasdaq:NILE). Blue Nile is “an online retailer of diamonds and jewelry” with a roughly $300MM market cap.

The idea of buying your sweetie a piece of bling via the World Wide Web never made much sense to me. Per Zach, the NILE business model makes even less sense in this harsh climate.

“The stock still trades in the 20 to 24 times earnings range,” Zach notes, “because investors believe the rich will still buy diamonds.”

Leaving aside whether that’s true, Zach points out that it isn’t even relevant to NILE’s true business model. “These guys actually cater to the Joe Sixpacks of the world… the guys looking to spend $5,000 or less on an engagement ring. Ticket prices are falling and lower sales figures are coming in, yet NILE is still priced like a growth stock.”

2) Under Armor Inc. (NYSE:UA). Under Armor is a wannabe Nike, selling “branded performance products for men, women and youth.” It currently sports an approximate $1 billion market cap.

“Under Armor’s growth areas,” Zach notes, “are supposedly in running shoes, basketball gear, and other categories that could all be seriously hampered by consumer spending cutbacks. Under Armor made its name in football gear, but football season is now over. The company should have seen its best quarter in Q408, but they’re reporting weakness instead.”

Another big problem for Under Armor is the bruising nature of the competition. As times get tougher, the real Nike – sporting a P/E of less than 13 and a market cap of $23 billion – could put the big hurt on its tiny rival.

“It’s pretty scary to see analysts ratchet down earnings expectations by 20% overnight,” Zach says. It might not be the last time for UA.

3) Mystery Coffee Producer.

Zach didn’t want me to reveal the third name because he is working it up for a Death Cross Trader short.

This high flyer, soon to crash and burn, has a market cap of $840MM and an eye-watering P/E of 39 times earnings… pretty hard to justify in a consumer armageddon environment. The company makes its beans (bad pun intended) in the “specialty coffee industry,” selling more than 100 varieties of “whole bean and ground coffee selections.”

I don’t know about you, but it seems intuitive to me that with consumers retrenching, fancy-dancy coffee could well be one of the first items to go.

“To get a roadmap of how I expect this one to trade,” Zach says, “simply pull up a weekly chart of Starbucks (Nasdaq:SBUX). Consumers are fickle, and these hoity-toity coffee guys are a fad.”

“Fad stocks are fun to be long in bull markets… and they’re even more fun to be SHORT in bear markets when they drop like rocks.”

Source: A Heaping Helping of Retail Fail

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

More from The Daily Reckoning:

The U.S. government borrows money from taxpayers… gives it to Wall Street so they can lend it back to the taxpayers at a profit. Wall Street borrows ‘our money’ from the Fed at, say, 1%… then they lend it back to us at, say, 6% or 7%. That way, Wall Street makes money and we can still borrow what we need.

Nice system huh?

And take that Hank Paulson…please! Now, there’s a big city guy we admire. He made a fortune running Goldman, right up until he was tapped to run the U.S. Treasury. He knows all about those CDOs, SIVs, MBDs, – heck, he probably knows every letter in the entire alphabet. And he’s used them too – putting together those fancy sub-prime investments and such.

Well, that’s why he was the perfect guy to be the honcho at the Treasury Department. He knows all about that toxic investments that are causing so much trouble – after all, his firm created them.

Of course, if you ask him, he’ll deny it. He’ll say it was just some rogue investment engineers down in the basement who did all the bad stuff. He was attending important meetings and saving nature; how was he supposed to know what they were up to? Yes…he was the CEO. But c’mon…no chief exec can keep up with all that alphabet stuff, can they?

But that’s the kind of guy you want running the economy, right? Keeps his eye on the big picture…not distracted by the details…

And then there’s his replacement, Tim Geithner. We know he’s the man for the job. Why? Because he’s got experience. He’s been on the case for years. As head of the Fed in New York, he was right there while all those investment scientists were conducting their experiments…he was practically right in the room – keeping a watchful eye open – when they ran those fancy linear regression models…mixed in some subprime mortgage debt…and then tossed in a whole ton of fizzy derivatives. Nobody really knew what happened next. The windows blew out and a cloud of smoke rose so high in the air you could see it from New Jersey. But heck, it wasn’t his fault the stuff blew up!

And since these guys know so much about how we got ourselves into this crisis, they are clearly the ones to help us get out… Makes sense, right?

Sure, they’re going to give money to their old friends back on Wall Street…and do everything in their power to prevent the cost of living from going down…

…and of course they’ll be encouraging people to borrow and spend… then people can spend more money they don’t have on more things they don’t need. And then they’ll be deeper in debt than ever before.

…But that must be just the way this money thing works. We shouldn’t be so thick about it…

Source: Welcome to the Recession…Already in Progress