Great Depression Online Archive Issue:

Overshooting the Mark

Great Depression Online
Long Beach, CA
November 14, 2008

Inside This Issue You Will Discover…

*** Retailers Go Bust
*** Spitting in the Taxpayer’s Face
*** Overshooting the Mark
*** And More

Retailers Go Bust

The title of the next chapter in the story of the great economic unraveling could be ‘Retailers Go Bust.’

“Circuit City, the electronics retailer, whose red and white signs are a familiar part of shopping malls across America, filed for bankruptcy protection yesterday,” reported Jonathan Birchall for The Financial Times on Tuesday.

“With more than 700 stores and 40,000 employees, Circuit City is the largest US retailer to fall victim to the credit crisis.  Credit card spending, which accounts for three-quarters of its business, was hit especially hard.

~~~~~~Special Announcement~~~~~~

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~~~~~~~~~~~~~~~~~~~~~~~~~

“The Chapter 11 bankruptcy filing follows the liquidation of Linens ‘n’ Things, a home-furnishings retail chain, and of Mervyns and Boscov's, regional department store chains, as well as of a number of smaller specialty retailers.

“Colin McGranahan, retail analyst at Bernstein Research, said in a note to clients that ‘longer term, while already the dominant player in the space, Best Buy stands to benefit from greater economies of scale, driven by increased market share and enhanced buying power.’”

Still, Best Buy wasn’t too convinced by McGranahan’s optimism and, on Wednesday, as reported by AP, “…dramatically cut its fiscal 2009 earnings outlook and said it was being hammered by the worst retail environment the 42-year-old company has yet to endure.”

Apparently McGranahan failed to notice that increased market share isn’t worth a darn when the market’s shrunken up like a sun dried prune.

Starbucks’ profits were also ground up by the coffee grinder…dropping 97 percent during its fiscal fourth quarter.

“Too bad we went into retail,” management must be saying.  “We should have gone into financial services.  Those guys get all the breaks.”

Spitting in the Taxpayer’s Face

For example, the $85 billion dollar taxpayer bailout of AIG is now a $150 billion dollar taxpayer bailout.  And to spit in the taxpayer’s face while celebrating their latest heist, AIG took several days of ‘essential’ R&R in Phoenix.

“American International Group Inc. on Tuesday defended itself against a media report of a sales meeting held at a luxury resort in Phoenix last week,” reported AP, “saying the event was an ‘essential training meeting.’

“ABC News reported details of the event late Monday, the same day the U.S. government announced a restructuring of a bailout plan for the insurer, boosting aid to the company to around $150 billion — even after the company said months ago it would stop ‘all nonessential conferences, meetings and activities that do not clearly maximize value and service given the current conditions.’”

The key weasel words, as you can see, are ‘essential’ and ‘nonessential’. 

Where as, “‘It is essential for AIG to conduct seminars of this kind to keep independent financial planners abreast of investment products and services including those offered by AIG,’ AIG Chief Executive Edward Liddy said in a statement.”

Where as Liddy also said, “This conference was approved because it provides the kind of communication we must conduct with the people who sell our products if we are to be successful and repay the U.S. taxpayer.”

Where as that last statement oozed of the essential insincerity and nonessential slime of a professional bamboozler.

Overshooting the Mark

We’ll conclude today with a brief review of the post election stock market action.

On Election Day, if you recollect, the DOW rallied 301.39 points on the audacity of hope…closing at 9,625.28.

Since then the market’s been down 5 out of 7 trading days.  In fact, even with yesterday’s massive 552.59 point rally, the DOW has logged a loss of 8.2% since its election day high.

Moving forward be extremely weary of media experts calling a market bottom with each cyclical rally.  We don’t pretend to be able to predict the future.  But we do acknowledge the fundamental fact that we’re in a bear market.  And in this context, the market should trend along making lower highs and lower lows with each rally and subsequent selloff.

So while stocks may appear cheap…until future earnings – or lack thereof – are fully appreciated, the bear market will continue.  Moreover, market participants have a historical precedent for overshooting the mark…both on the upside, and the downside.  In this respect, and while it may seem crazy to consider, the DOW could very well fall to the mid-5,000s before the next secular bull market commences.

Stay patient.  And enjoy the weekend.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Susan Shadburn of Elliot Wave International contacted us this week with some exciting news: EWI’s “Top 100 Safest U.S. Banks Report” has been revised and update to include two new key articles – featuring 10 pages of must-read tips on choosing a safe bank and protecting your money.  This free special report will show you: how to choose a safe bank, five incredibly risky banking conditions, how even the FDIC can’t really guarantee your money, tips on international safe banking, the top 100 safest U.S. banks, and more.  The earlier version of this report was a big hit with our readers.  Claim your free copy here: Top 100 Safest U.S. Banks Report.

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