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Social Security: Yes, we can all just get along... almost.


"Come Together... Right now!"


You know, you could make the case that the president has a sort of Forrest Gump type of genius. The kind of genius that works below the surface. Way below... "find it with a geological survey" depth... but, still, a knack for getting the best possible outcomes despite himself so often that at some point you just have to concede that something larger is at work.

Think about it... 6 months ago, if you had been making a market that a second tenure President Bush would: "a. Be able to use a (self-declared with limited evidence) mandate to get Social Security reform on the table AND b. Do it in a way that helped cure the rift between the blue and red states" what odds would you have put on him pulling it off?

I'm thinking about 50:1 to find a two-sided market for that exacta. At least.

Yet here we are; privatizing Social Security is at least "in-play" and my spiritual-if-not-in-body red state self agrees with left-leaning that it's a downright horrible idea!

We just don't agree exactly why.

The problem with using "stocks return 7% over the long-haul" as the logic for privatizing isn't that "Things might change" (though they might), "expenses will eat into that 7%" (though they will) or "people underperform averages" (though they do).

The problem is fat-tails of returns. Bad returns can happen. Even "patriots" can concede that (if we only allow that they happen "for a while"). Should those bad returns be happening at the same time "life" happens for retirees at that time, it would present a national "choice".

The choice would be between:

1. "Patiently explain to the large group of elderly voting blocs.... er... people that life is sometimes hard and they all understood the risk when we privatized back in aught-five... 'hey, maybe the market will come back before you really need that liver!'... "

2. "Bail everyone out at taxpayer expense then maybe throw a few CEO's in prison on 'ethics' charges largely having to do with unethically having bad performing stocks."

America will always choose #2. It doesn't matter how many times we say it's about "personal accountability" or any promises we make in advance that a bail out won't be an option. All it will take is one campaign year ad showing an elderly person choosing between food and meds b/c they lost the 10% they put in the market... *poof, bail-out.

Returns are never smooth and old people always vote. That combination of Truth more or less ends the privatizing debate, from where I'm sitting.

Retail Email:

"Thanks for the Retail Details spreadsheet. You are doing us all a great service. I've been predicting the following in retail based on trends in the broader economy:

1. A slowdown in sales at retailers who cater to lower and middle class consumers, because of:
a. Rising energy and health care costs,
b. Rising interest payments on ARMs and revolving credit.
c. Salaries not keeping up with inflation.
d. A slowdown in home equity borrowing.

2. A pronounced slowdown in sales at retailers who deal mainly in imports, due to:
a. Declining purchasing power of the dollar.
b. Tapped out consumers.
c. A conscious effort to gradually unwind the trade gap.

3. Durables sales doing worse than non-durables, because:
a. More middle and working class consumers who are barely making ends meet put off durable purchases.
b. Materials costs for durables have been rising faster than non-durables.

On the one hand, retail sales figures continue to be strong, so I may be completely wrong about the trends above. On the other hand, they rarely are adjusted for inflation and seasonal adjustments may be assuming that sales are still in an uptrend.

To what extent are you seeing the trends I've been predicting in the data you track?


Minyan Rodg"

Hey (HEY hey), Rodg! Thanks for the note, my friend.

It's hard to much disagree with what you're looking for with the minor quibble that it's pretty hard to find a retailer that doesn't rely primarily on imports, at one level or another. You may recall Wal-Marts (WMT) effort to advertise on the basis of buying American about 10 years ago. They pulled the ads fairly fast because a) they couldn't make the claim without taking some factual liberties b) customers buy on price anyway, no matter what they say.

You've laid out the basic macro headwinds facing the retailers. The issue, as always, is how to make money off it. The question to ask is, given these conditions, which companies have the strategies and management to get more than their share, whatever the share may be.

I'm not offering advice of any sort but I have offered that I'm long various specialty retailers right now (Abercrombie (ANF) Hot-Topic (HOTT) and Coldwater (CWTR), to name some names). These guys all deal in notoriously fickle markets and are endlessly prone to just flat-out missing entire trends. Even the good ones, which is what I think happened at Hot Topic last year.

Even if I were giving advice (and I'm not) I'd have a hard time making a "hold 'em forever" case for the names cuz... well, all the reasons you and I have listed. I just like 'em as we travel through March... good comps a comin' and the market will only vaguely note the cause of Easter coming early.

In terms of betting on the darkside based on this ugly long-term set-up, let's consider Whirlpool (WHR). I've got no position in the name at the moment but back in the day, when I ran a fund (way back in '04... when the country was deeply divided between the right and left...) I used to love them on the short side everytime I saw steel prices tick higher (not that you couldn't find other reasons... is there a industry on earth who gets smacked by more of the macro problems in the world than consumer appliances?).

But at 11x, as a short it's one of those that always seems to jam you with spikes like the one going on there today, just when you get comfy.

All of which is a long way of saying that I generally pay more attention to individual companies and their relative performance than the bigger trends, in retail.


Lew Platt, who preceded Carly Fiorina at Hewlett-Packard (HPQ... "the puts are currently dead... will update if the condition changes"), stepping up as the Chairman of Boeing (BA).... it really does seem like the same 10 guys in corporate America just keep rotating from job to job, huh?

Speaking of Kinder, Gentler, Uniters...

She seems in good spirits but if I were working at Martha Stewart Inc (MSO) and had choosen to take a smoke break when they took the picture for Martha's Christmas card I'd be doing some sucking up today in a big way...

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Positions in HPQ, HOTT, CWTR, ANF

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