Consumer Spending Is In The Toilet

Includes: AMZN, CPRI, TJX, UUP
by: Mycroft Friedrich

This morning, I took my clients 81% to cash, as retail sales are in the toilet. I had a 1% position in Michael Kors (KORS), which I bought at $44 after it fell from $100, but I overruled Friedrich on it, as Michael Kors sells its handbags at Macy's (NYSE:M), Nordstrom's (NYSE:JWN) and Kohl's (NYSE:KSS), and those companies had absolutely terrible reports (REALLY BAD!!!!). I was going to write you a few pages on what is happening in the retail environment, but Mish already beat me to it and did the heavy lifting for me, writing this amazing piece.

Even though I was forced out of Michael Kors this morning, I still have a 1% position in TJX Companies (NYSE:TJX) and will hold that, as it is the best-run retailer in the world on Main Street. As for Amazon (NASDAQ:AMZN), I would not put much faith in that company, as it sells everything basically at cost, and when you factor in shipping and overhead, it is actually losing money. There are also tons of online shopping websites going up that directly compete with the company, like this one, which was created by someone that you already know very well.

That website offers 50 million products from 46,000 merchants and costs me just $7.95 a month to run. I have no inventory, warehousing, employees, but am just a search engine that connects consumers to merchants, and I get a cut when someone buys something. The retail websites do all the heavy lifting and sell the products and ship them to the customer, so my only expense is advertising. When someone shows up on the partner sites, they can read reviews on products, and thus, there is a whole army of guys like me with some computer skills shooting at Amazon's business model, which will force the company to sell even more below cost. Of course, this is just a hobby for me, and I am done building my mall, as it is now automated and runs 24/7, 365 days a year. The world is being run by algorithms like the ones I work with, and if you told someone just 20 years ago that one guy in upstate New York with zero employees, zero distribution centers, and zero inventory can sell any of 50 million products from 46,000 merchants and have the whole thing automated and run by computers, they would think you were crazy. But facts are amazing things, and there are many out there like me that are seizing these opportunities towards automation.

So, with consumer spending being 70% of the economy, you have to wonder how the government's consumer confidence numbers are near all-time highs when retailers are showing that consumer spending is nowhere to be found, and even discount retailers that thrived in malls for decades are suddenly going out of business and declaring bankruptcy. So, it seems that the government may just be cooking the books and making everything sound great, when it obviously is not.

A few months ago, Janet Yellen made a speech saying that she did not see the USA ever going to negative interest rates, but this morning, it was announced that she thinks there is a good probability that negative interest rates could show up at our shores. The main reason why I owned the US dollar fund (NYSEARCA:UUP) for everyone is because as other countries around the world went to negative interest rates, investors and traders would sell their own currency and buy US dollars, as money flocks to where it gets the best interest. So, with USA never going to zero interest rates, I concluded that everyone would be buying the US dollar that was based on positive interest rates. Well, Janet Yellen just blew that investing thesis full of holes this morning, and we may just see negative interest rates someday in the USA. The Fed has run out of bullets, and thus, this is its last move.

The last thing you want to own in the coming environment are insurance companies and financials like banks - they simply will not be able to make money, as they will need to charge customers to have the bank hold their money, and will have to pay interest to customers who take out a mortgage. I never thought I would ever live to see this happen, as it is the craziest and stupidest thing in economic history since the Indians sold Manhattan for $26. The economy works because someone loans you money and you pay them interest, and when you deposit that money in a bank they pay you interest because they loan that money to someone else who pays them interest. Thus economies function properly. But now with negative interest rates, someone loans you money and they pay you interest to do so, and then you deposit money in the bank but have to pay the bank interest to hold your money, because when they loan that money out to someone else, the bank has to pay interest to the borrower.

The world's Central Bankers are acting like the President of San Marcos in this Woody Allen movie.

Thus, I had no choice but to go 3% more to cash, and am now 81% in cash. I wish I had better news to tell you, but we cannot control what is happening in the world or the stupidity and madness that we are seeing every day. Cash, at times, is the best investment you can make, as it does not go down when markets do. Janet only mentioned this as the Fed is worried about deflation and recession, and by someday having negative interest rates, they are trying to spur demand, which will cause inflation. But I think this is madness, as people are already maxed out on their borrowing power and have truckloads of credit card, student loan and mortgages on their backs already. By offering negative interest rates and people getting paid to borrow money, the Fed is basically throwing gasoline on a fire. It is just excessive risk and just pure madness, as you can see from Japan's example, whose economy is just spiraling down a rabbit hole.

With stocks being so overvalued on Wall Street relative to each company's actual Main Street results, we have a serious risk of implosion coming up as investors start seeing even the most profitable companies like Apple (NASDAQ:AAPL) and Gilead Sciences (NASDAQ:GILD) struggling to grow even having the greatest products around, simply because the world's economies are in a serious recession. But that fact is being masked by the Central Bankers of the world's manipulation. So I will close here and just say "CASH IS KING"!