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Retail Mirrors Global Picture


Both are taking a beating.


The message of the market reflects a combination of concerns and emotions, including anger and fear.

But I think confusion and lack of confidence continue to be the determining factor in these late-session slides, which have gone from manic to mind-boggling. It feels like it's back to the drawing board with respect to the bailout. In fact, I'm thinking we may hear about Bailout II…This Time It's For Real: If they ever make it into a movie we could get Sylvester Stallone to play Hank Paulson. I rarely understand what either guy is saying so it would be perfect casting.

After using all conventional and non-conventional weapons the Federal Reserve, Treasury and other powers in the mix will have to break out the mother of all rescue plans: Dismantle the whole shebang and distribute all the money around the country.

Hey, let's start this thing from scratch. Why not? At the rate things are going, I believe even those with a modicum of success will be expected to toss their gains into the pot for others less fortunate, as if fortune only comes from dumb luck or the lucky gene pool.

Let's cut to the chase and divvy this whole enchilada up and see what happens. The folks in charge of the rescue are working in that direction anyway. As it stands now $700 billion is certainly not going to be enough to do all the things these guys and gals want to do. Out of the box, many wondered if $700 billion could cover the purchase of illiquid assets, and now a large chunk of the dough is going to bolster banks.

I suspect the Federal Reserve is going to reach into its bag of tricks and that may include an interest rate cut of a full percentage point. That coupled with lower LIBOR rates could be the linchpin the market needs, although we have a chicken and egg conundrum. Can the market rebound while confidence is off the radar? Can confidence rebound when the market is dropping 8% a day? I think Ben Bernanke talked about this kind of "adverse" feedback loop yesterday and said the way to break it was to attack it on multiple levels.

Pumping in cash, propping up the housing market, and doing other creative things that equate to corporate welfare, public welfare and desperation shots after the game clock has already passed zero. At this point the do or die approach to the rescue is really backfiring. Moreover, it seems the more the powers-that-be try, the less confident the market becomes.

In addition to what is, in my opinion, dismantling the nation and punishing the successful, look for forces to make their move and attempt to put global governance over America's financial system. I feel one doesn't have to read too much between the lines of Gordon Brown's comments yesterday to see the next move.

The more the folks on Capitol Hill look like chickens with their heads cut off the more vulnerable Main Street will be to ideas that strip away our independence. We've had the economic version of Pax Romana for a long time save for a couple of bumps in the road. If we implode now we will regret it down the road no matter how tough things get for the next year or so. I've always said the greatest threat to America is self-loathing and we are at heights never seen before.

Times are tough and hard working people are getting destroyed. There doesn't seem to any relief in sight. The recession is real and was underscored through the latest Beige Book report from the Fed and the latest wave of retail sales. The Beige Book not only echoed all the stuff we've already endured but in some cases it actually showed things became worse.

  • Prices are down but still high
  • Tight credit (producers and retailers)
  • Foreclosures increasing even in hard hit areas like Arizona and Nevada

See how 12 cities around the US are doing in light of the country's recent economic troubles.

Retail's Move Down

The retail sector has fallen off the proverbial cliff and continues to look vulnerable with stalwarts such as Wal-Mart (WMT) even beginning to breakdown. I think some of this is madness with respect to the fact the worst holiday season in the last 20 years may already be factored into the market. Technically, the Retail Index (RLX) is nearing a double bottom but it's hard to imagine that it will hold.

At this point it's hard to figure out what that magic number will be but with everyone bracing for absolute disaster, in my opinion there's no doubt when folks look at their 401Ks there will be little appetite to go shopping. There's little doubt anyone worried about losing their job will be eager to mix it up at the mall.

The macro global picture says the same thing retail sales are saying: It's tough out there. But, one has to wonder if market reactions aren't overdone. I think they are but I'll add the (somewhat cowardly) caveat that it could still get worse. The Baltic Dry Index is down 86% from the May low.

The wild swings are commonplace but they don't get any easier to digest, even when it's a 100 point up session on the S&P 500. This year is crowding out the record books and there is a chance that at some point all the key lists, at least with respect to single day declines, will all be from 2008.

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