123

Seven Irrational Retail Valuations

I think I see your point of view, but I think that those economists are very, very wrong. I agree with Peter Schiff, for example, that there are serious, deep-rooted problems in the American economy, and that what we are seeing now are the early manifestations of these problems.

The economists think that all that needs to be done is to have credit flowing again. Well America and Americans are essentially broke - much of the spending that we've seen the last 3-4 years has been the result of massive asset (i.e. realty) price inflation. Americans then took out home equity lines of credit and spent that too. They took out money from credit card companies and spent that too.

OK so even if credit is not flowing now, and credit starts to flow, this will result in more of the same that got us into this mess. Any relief in the retailers will be short lived at best.

I guess that you are trying to say that these retailers are the exception to the overwhelming rule of struggling retailers, but WHY? How is Abercrombie's business, or Gap's business really all that different from, say, Talbots, or whatever? It's not, in my view. And just because their earnings have held up so far does not at all somehow guarantee that they will continue to hold up. Things could just get worse...and worse...and worse, and not you or any economist out there can tell me otherwise. Obviously I hope that doesn't happen because I live in this country and I want to have a good job and so on, but when it comes to investments or whatever that's something to consider.

No, I do not think there are really any safe paper assets at the moment. With the Fed and US government doing their darndest to dilute the value of the dollar, there is a real wipe out risk with any paper assets.

BTW I think there are some bonds that look halfway decent - for example Sears Holdings has bonds with a 24% or so YTM coming due I think 2011 or 2013. I mean there is a risk of bankruptcy but at least I suppose there you're getting cash instead of these phony buybacks that management does so their f*cking call options will go in the money.

But I haven't bought those bonds because I just don't have the money, also like I said there's a risk of bankruptcy there too and that debt is unsecured.

Seven Irrational Retail Valuations

"The market is unfairly punishing retailers"- Do you know how many retailers have gone bankrupt in the last year? This will continue and get worse.

You think there will be no growth-I think there will negative growth in earnings. I think we are now seeing the tip of the iceberg - we do not yet see the full effects of this recession in these retailers' earnings, but we will.

Basically my view is that your assumptions are misguided.

Also I think an 8-12% earnings yield (even a realistically stable one) is nothing to jump up and down about considering that inflation in the US is around 8-10% per year and maybe even higher in the future. You can thank Mr. Obama and the Fed for that.

Seven Irrational Retail Valuations

I think that you are wrong, dead wrong.

These companies ARE all fundamentally changed by this - and what we have going on is not a mere recession.

Don't imply that Mr. Market an idiot. Mr. Market burned a lot of people over the last 7 years.

The retailing business in the United States has fundamentally changed. Times will be tougher than in the past. People will not make credit-fueled purchases of $80 T-shirts made in China anymore. Throw the old P/E's out the window because they have no relevance anymore.