Chris Lau - Seeking Alpha

Tuesday, December 23, 2008

Prediction for Consumer Discretionary Performance in January 2009

Below is an introductory text taken from John Mauldin's Newsletter:
http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/default.aspx

Have you done your Christmas shopping yet? Research shows that more of us are putting it off in expectations of better prices. In other words deflationary expectations! The prices I have seen while out shopping the past few weeks are simply amazing. I have to admit to have made a few purchases for some items that I was not planning to buy just yet because prices were off by 60% or more. A few days ago a friend came in sporting a new black cashmere sweater top with jeweled embroidery and quite fancy. She said she got it at Saks. But the real story is that when she walked into Saks looking for a present for her kids they handed her a coupon with a 30% off any one item from whatever price it was already marked down. That top? At one point it was almost $500. She bought it for $75. I have to confess that made me worry about retail sales and future unemployment. I like low prices, but I like profitable companies and employment. I went and talked to a Saks salesperson a few weeks ago who had been there 25 years and asked if they had ever discounted like that before Christmas and he said never. It was Saturday in New York and the place looked busy. I asked why? And he said, "The store is empty during the week." And I bought a few sweaters at 60% off. Tiffani just got some presents from J Crew at over 60% off. Before Christmas! How many readers have seen the same sales? And yet shopping is down?

As a side note, this year most of the kids and in-laws are all going to get a Visa gift cards so they can take advantage of what I think are going to be even better sales after Christmas. It is not that Dad put off his shopping to the last minute (which I did) but the kids are really looking forward to finding their special items on sale. I wonder how many more are doing that?

[...]

John Mauldin, Editor
Outside the Box

US Housing

For November 2008

  • existing home sales declined a record 8.6 percent.
  • median home price fell 13.2 percent (annualized figure) to $181,300.
  • The pace of sales fell to a 4.49-million-unit annual rate.
Source: http://www.bnn.ca/news/5750.html

This does not mean that REITs and home builders are "sell" or a short sell in the medium term. The reason is that we do not know if these sales figures represent a housing slump bottom. The weakness in this sector is being exasperated by the difficulty in obtaining loans. LIBOR figures are suggesting that borrowing will become easier, but at a little at a time. Unfortunately, in the short-term, we are not there yet.
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