wolfhounds (< 20)

Why the recession will last longer than most think - it's the consumer stupid

April 06, 2009 – Comments (2) | RELATED TICKERS: SHLD , C , CLI

If you're one to follow every movement of the market based on slivers of wishful evidence pounced upon by every fininacial guru on CNBC (and elsewhere), then skip this. If you live in the real world, hear and see what your neighbors are doing, go shopping for food, cars, or in deparment stores, then this make perk your ears up.

First, we all know the actual unemployment rateis substantially understated. It is about to exacerbated by about 700,000 unemployed who will start losing their extended benefits next month. A large number of these people are barely holding on to homes, aparments, and car loans. One of them is a neighbor of mine in this upper middle class community who barely managed to avoid losing everthing by finding a job that paid far less. She doesn't have any hopes of returning to her former career - those jobs on Wall St.  have vanished. How many other Americans are in a similar situation? My son son in law lost the day care business that was so successful the NY Times did afeature story on it. Today he manages a kitchen just to be able to contribute someting to the family income.

These type of stories are familiar around the country, and, as I have writtten previousy, will change this generation profoundly. Go to your local malls and look at the bankrupt stores. I did this weekend at the largest mall in rural Putnam County NY. A toy store owner from Yonkers wanted to branch out (he's got guts) and did so by negotiatinga one year leas, well under market, with part of the rent based on sales. Desperation everywhere. Oh yes, my trip wasn't to find the toy store. It was to replace my broken dishwasher at Sears. Sunday late morning, nice bright sunny day, perfect for shoppers. Only, there weren't any even with wonderful markdowns galore. Well, there was another couple. The saleman, apparently thinking we were just browsing, offered that in addtion to the markdown and rebate the store will pay the sales tax on the appliance and installation. Sale made.

My neighbors have become very talkative about where to find the best bargains on anything. These are people with money who still don't skimp on vacations - just the price they're willing to pay. You want a vacation in the Dominican Replublic, I got deal for you.

The point of this homily is where I think the market is going. Retail (except certain discounters), banking, real estate are booby traps. The rally in industrials is an illusion. Employment is not making a sustained comeback for sometime, and I'm surely not predicting when. Until then the consumer is not buying.