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alstry (36.32)

When is Enough...ENOUGH!!!!!!!!!!!!!!!!!!!!!!

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October 20, 2008 – Comments (12)

In the previous blog it was Mervyns and Linens n Things shuttering all of their stores now this from the WSJ:

Circuit City Stores Inc. is considering a plan to close at least 150 stores and cut thousands of jobs, as an alternative to filing for bankruptcy-court protection, said people familiar with the company.

Millions of additional retail square footage going dark as the parade of retailers shutting down gets longer and longer.  It is clear we have too many retailers in America for current demand....the real question is how many do we need and high high will vacancies reach in the process?

My guess is that we will see similar behavior in the restaurant industry.....the problem is that retail and restaurants employ millions and millions of people......high commercial vacancies and high umeployment.......the entrepreneur who fugures out a solution will be rich.

12 Comments – Post Your Own

#1) On October 20, 2008 at 3:48 AM, DemonDoug (32.31) wrote:

they should have merged with blockbuster... oh wait isn't blockbuster also about to go bk?  I agree that restaurants are going to go under - at least a lot of chains are.  I think local shops that can be more nimble, cut prices with the cost of commodities (meaning food) coming down, will be able to weather the storm and prosper.  As far as who has the "solution" when it comes to retail, fortunately or unfortunately you've got 2 winners as i see it, WMT and COST; TGT might be able to do okay with the "cheap chic" type of deal, and I think you'll see stores like Ross and TJ Maxx doing better, both are not overloaded with debt.  I also see pawn shops, second hand stores, and army surplus stores doing well.

One of the things I have to credit you with Al is sort of turning my mind towards debt.  It has lead me to look at the debt position of every company I do DD on.  Deflation, inflation, or no inflation, I think we can agree that any company with a large debt position right now is in serious trouble.  My only worry is that the debt levels that are reported on yahoo finance are not giving true levels of debt, because of other things that are off-balance sheet or just not reported (for example all the JV's that SPF has that again you pointed out).

I still see energy, infrastructure as longer term winners, and I'm starting to come around to certain tech companies - AAPL, GOOG, and MSFT have combined debt, when you add them up, let me calculate (that plus that, carry the one, subtract this, cut the 9 to an 8, carry that over) as exactly zero.  Plus I'm still in favor of companies that make real products - MMM, MO, PM, PG, CL, JNJ, DD - as opposed to more service based enterprises.

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#2) On October 20, 2008 at 4:23 AM, debtRichQuick (< 20) wrote:

I can't figure out what AAPL has taken such a beating for. I'm thinking it fills the gap @ $135 before breaking new lows, if it is to break new lows. Every time I walk buy one of their stores I wonder if people are aware their 401Ks are down 25 to 30%.  The Iphone is a powerful tool that has got plenty of room to morph into an even more powerful device. Seriously though, their stores are always packed. I bought an itouch and ipod just to see what all the buzz was about. Now I'm looking at switching from many years of PC usage and getting a Mac Book Pro. Apple makes solid products!

 

Alstry, I'm looking forward to this week and hearing what these HB CEOs are going to say now that every last bit of demand was just wiped out, and land is even harder to sell.

 With respect to the retail sector dying. Sad but expected. I'm hoping that the slowdown will bring back some of the quality in products we have lacked for the last 4-5 years. Everything is so cheap it's irritating. I see tons of products in the stores and a thought I have all to often is "what the heck?? who on earth designed this unpractical soon to be piece of trash". I would like to see practical well made products return to the market place. 

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#3) On October 20, 2008 at 5:59 AM, alstry (36.32) wrote:

Wow, Demon and debtRich back to back on off hours...clearly the median IQ level shot way up.  FWIW, I think we are at the beginning of this culling process...and Demon you are right...in the  long run the strong will prosper....the problem is we just don't know what kind of race we are running right now.

As far as too much debt on and off the balance sheet....that is key right now in assessing viability.  PRACTICALLY every HB has too much debt and that is what the blogger F.K.A. FB misses in his analysis.  But becareful....even companies with little debt can be overvalued.....but at least valuation are becoming more reasonable in many cases.

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#4) On October 20, 2008 at 6:07 AM, alstry (36.32) wrote:

As a quick follow up, an important unknown right now will be job losses.....the fall off has actually been slower than I expected....but I never thought the marekt could make it this long either based on the deterioration in the credit markets and economy in general.

We are just beginning to see employment adjustments.  My estimation is that we are at the tip of iceberg.....depending on how far down it goes......will determine how hard ALL retailers are hit.....but that doesn't mitigate that the strong will be in the best position to prosper.

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#5) On October 20, 2008 at 6:36 AM, EnergyCzar79 (31.96) wrote:

Question: Since Paulson force-fed money to the banks and held a gun to their head to lend it out, doesn't it make sense that the banks would choose to lend it to the bluest of blue chip stocks first? That would mean a real pop in the DOW, short term at least, wouldn't it?

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#6) On October 20, 2008 at 7:22 AM, alstry (36.32) wrote:

EnergyC,

We could have a pop in the DOW....odds of that are roughly equivelent to flippping a coin.  But as far as that being attributable to the Paulson initiatives.....I think we could equally peg it to just about any causal factor.

We are just beginning the downward  spiral in the real economy...if the current policies remain in place...if will be long and ugly....but along the way we could see some amazing pops in the market......this lesson has been a very expensive one for me over the last  couple years.

Anticipating, defending, improvising, overcoming, and preparing will be key to successfully navigating upcoming actions.

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#7) On October 20, 2008 at 7:22 AM, alstry (36.32) wrote:

EnergyC,

We could have a pop in the DOW....odds of that are roughly equivelent to flippping a coin.  But as far as that being attributable to the Paulson initiatives.....I think we could equally peg it to just about any causal factor.

We are just beginning the downward  spiral in the real economy...if the current policies remain in place...if will be long and ugly....but along the way we could see some amazing pops in the market......this lesson has been a very expensive one for me over the last  couple years.

Anticipating, defending, improvising, overcoming, and preparing will be key to successfully navigating upcoming actions.

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#8) On October 20, 2008 at 9:18 AM, alstry (36.32) wrote:

8:49 a.m. Thain sees thousands of Merrill layoffs: reportThis is the big wild card.  Depending on how high unemployment gets.....my guess is that we could see 30% or higher rates by next summer.  I orginally thought it would be by the end of this year....but like usual...I seem to be early in my projection.

Why 30%???? Between the number of companies shutting down and those laying off 50% or more of the workforce...30% seems like a conservative figure especially if you factor the number of people what will be forced to reenter the workforce because of declining family incomes.

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#9) On October 20, 2008 at 10:27 AM, TMFDeej (99.24) wrote:

Hey at least we'll be able to pick up some cheap towels and sheets in the near future.  I hope that a CC store goes belly-up near me and they have a clearance sale on TVs.  ;)

Deej

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#10) On October 20, 2008 at 12:12 PM, alstry (36.32) wrote:

Deej.

Whether CC goes BK or not....you will be able to pick up some cheap TVs.

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#11) On October 20, 2008 at 4:15 PM, garyc27 (< 20) wrote:

So far everyone of the chains that you have mentioned have been in trouble for sometime.  I see no surprise in companies that are debt laden and poorly managed not being able to make through an economic downturn.  Circuit City tried to turn the business around while opening 50 new stores (what were they thinking?).  I won't be shocked when Chico's (another turn around retailer) start shuttering stores either.  For several years earnings were hurt by merchandise mis-steps and overly aggressive store expansion.  Other retailers in danger are Dillards and Sears / K-Mart.  Just my $.02

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#12) On October 20, 2008 at 4:54 PM, alstry (36.32) wrote:

Morgan,

I have no issues with any of your perspectives...can you imagine if you are right....how much additional retail square footage will go dark.

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