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VIDEORetail Reports Show Consumer Sector Remains Dark
By
Kristin Graham Aug 19, 2010 12:00 pm
Contrary to some analysis, we aren't seeing a turn in retail or the return of confident, spending consumers. Here's why.
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“We’re seeing the turn in retail” and “all of this is good news, as it shows what looks like a return of confidence for spending consumers."
How in the world did he arrive at this conclusion?
Citing the Retail HOLDRs (RTH) exchange-traded fund showing signs of a rising price, he apparently found reason to be optimistic. Because the retail indexes never demonstrate irrationality (note sarcasm).
Just look at the swelling that occurred over the course of a few months of positive same-store sales growth from February through May. Pure momentum players might be able to momentarily profit from this, but it's risky betting because there isn't a fundamental in sight that indicates a strengthening consumer sector.
Cramer also sources his “signals of a newly confident consumer” from J.C. Penny’s (JCP), which reported just 0.9% comparable sales growth on top of a 9% comps decline in 2009 and lowered 2010 guidance, and Kohl’s (KSS), which posted a 4.6% rise in comps, but only after negative comps in both the second quarter of 2009 and the second quarter of 2008.
Ever heard of stabilization?
Aside from individually reported performance, let’s just take a step back and look at the grand scheme of things. Unemployment stands at 9.7%. Hiring likely won’t take off any time soon. A recent report revealed a record number of Americans receiving food stamps. Consumer sentiment may have inched up to 69.6 in August. But that’s only because it plummeted in July to 66.5 and is still far off from the historical average of 87. All of these points, combined with growing political instability -- specifically in regards to economic policy -- signals anything but a more confident consumer.
None of this worries Cramer, though. His posting at the end of July states, “The group, to me, seems compelling. And for once, the bit of relevant macro information, in the form of more unemployment handouts, makes the stocks [retail] better compared with last time, when they sold off on news that the benefits extension had been denied.”
This statement was as uninformed as Nancy Pelosi declaring that “unemployment checks are the fastest way to create jobs."
No individual unemployed for more than 26 weeks, struggling to pay for rent and food is going to race out to their nearest Bed Bath & Beyond (BBBY), Best Buy (BBY), or any other retailer for that matter upon receiving a desperately needed unemployment check. Someone needing extended benefits is in rough shape, and even when they do show up -- more likely at a Walmart (WMT) or Family Dollar (FDO) -- it’s for absolute essentials.
I believe Cramer’s take on the consumer sector is downright wrong. As much as reality continues to hurt, consumers are in a dark place. And there's literally no evidence of them emerging from that place any time soon.
Investors playing the retail sector -- I say "stop trading." And rationalize what’s behind headline numbers and media characters' recommendations before proceeding.
No positions in stocks mentioned.
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