Recent market action has been consistent with the economic turmoil that we have been experiencing as it has been unable to hold onto early morning gains as the economy is still a mess because, ultimately, the consumer is struggling. To further explain this, October’s retail sales (directly tied to consumer spending) were the worst in 35 years according to GlobeSt.com. Wall Street’s uncertainty continues to show up on Main Street as October comparable-store sales declined 0.9% from a year earlier. If you exclude Wal-Mart, the figure skyrockets to a decline of 4.2%! Specifically, apparel stores were hit hard as they dropped 11%, with Abercrombie & Fitch posting a 20% reduction, followed by Gap (down 16%) and Chico’s FAS (down 13.4%). However, Cato posted a 4% increase and drug store comps rose 2.3%. Overall, all of this can’t bode well for the holidays in terms of retail sales.
On a side note, McDonald’s had 8%+ in same store sales. So, it looks like the public is actually getting poorer and focusing their dollars on value purchases. We should do the same with our investment capital, which is why I had previously mentioned MCD and WMT as solid long term buys.
As for today, the market nosedived to the red by 300 points and ended the day in the green by over 500 points. This has all of us scratching our heads, right? Today’s remarkable rally was a function of the market being well over stretched in selling. There was going to be the inevitable bounce back. Will it last? I think so for at least another day or two. As I have been preaching about, I recommend taking your gains when you get them. I bought some UYG today when the market was deeply in the red and came out with a quick 15-20% pop by the day’s end. I sold half the shares and waiting to see what happens tomorrow to see whether I can get some more gains and then close it out.
I am still nibbling at the large blue chips (the list I mentioned earlier) every time the market dips down. So, today, I bought shares in small lots across the board. I do think we are getting close to where we want to load up on these shares. However, not quite yet because when the government is meddling and handing out bailout money to everyone and anyone, we want to stay out due to the inherent volatility.
I really hope GM and the other auto manufacturers don’t get the bailout funds. Why? You might be saying that lots of jobs will be lost. I agree, but our government can’t be in the business of bailing out companies with broken business models. Let’s take Chrysler as an example. Chrysler still derives over 50% of its revenues from truck sales. Are you kidding me? The reason the US auto companies are having its lunch eaten by foreign competitors is because the competition was simply quicker in evolving their business models by producing gas efficient/hybrid vehicles and decreasing truck production. If the government bails out the auto companies, then unions will only get more pushy, current flawed business practices will continue, and management will feel that all is well. Bankruptcy is not a bad thing. It allows these companies to safely fix their business models while not getting pestered by the creditors.
I have been doing a lot of reading over the past few days. Here are the most interesting ones:
- Here is an article illustrating the issues when government tries to be an investor. Back in 1999, Gordon Brown (current PM of Britain) sold of a chunk of England’s gold reserves under the most unfavourable (for you Brits out there) circumstances. Now, a rather embarrassing question arose from the opposition benches in the House of Lords the other day.
- The current risk of deflation could lead Helicopter Ben (because he has a history of dumping US dollars into the market) to adopt an inflation target at the Fed. I, personally, am not in favor of this because it changes the focus of the Fed from that of growth to that of inflation. That’s not a proactive way of leading our economy to new highs. Here is the article.
- Will the REIT model cease to exist? Here is an article explaining why REITs will continue to trend downwards, and the reasons are directly correlated with the consumer being pained. If the consumer isn’t spending, the retailers aren’t selling.
-Moolah
