Retail Ruin
August 2, 2001
By, Barclay T. Leib (Sandspring Advisors)
We wish to apologize to those who check our website every day for new commentary. Postings have dwindled a bit in the summer months, but they
have done so not because we have been on vacation or business travel, but simply because we believe in quality as opposed to quantity. As markets
continue to meander in choppy sideways conditions, we have found little new insight to share with our readers.
Certain tech stocks look oversold, but we are somewhat amazed that people still listen to Wall Street analysts when they come touting the
semiconductor chip sector. How many times will all the little rats out there follow the Pied Piper down this road? With Gateway down to $10 a share and
Dell computer sales still under intense pressure, how can chip stocks possibly be a good investment at this time? The end-users of chips have to get
healthier first, and they are not. In our opinion, the rally of the last two days (led by the chip sector) is likely misplaced and a head-fake that will also be
short-lived.
Elsewhere, we still see financial stocks as a disaster waiting to happen. Providian's recent break lower has been just one new sign that our negative
view of this sector may be starting to unfold. Retail stocks and consumer-sensitive stocks are also likely vulnerable as the swelling unemployment ranks
finally take their toll. Anecdotally, in the Morristown region we now have 20,000 Lucent employees soon to be unemployed. My wife is a real-estate
broker and nothing is moving in this area. Houses that previously remained on the market for a number of days before being snapped up at the offering
price or above, now languish for months at substantially lowered offers.
Lower employment, lower real estate prices, and already dismal equity market conditions should eventually impinge the current consumer laissez-faire
willingness to whip out the ol' credit card at the shopping mall. Another anecdotal sign in our region is that while the parking lot at the Short Hills Mall
always used to be packed almost all of the time, now parking is increasingly available -- the Mall itself increasingly less patronized.
This leads us to the chart pattern of Bed, Bath & Beyond -- a well-managed success story in the retail space to be sure, with a steady growth over the
years in its EPS -- but a store that when times get tough, can just as easily get passed over. Instead of rushing out and buying those new bed linens or
toaster oven or teflon frying pan, consumers may start to just make do with their current bed linens, toaster over, and kitchen cookware. Just as we have
previously argued with that extra and uneeded lunch at Applebee's that can easily be foregone, so too can a visit to Bed, Bath & Beyond.
Chart produced using Advanced GET End-of-Day
Even if a short term bounce in beaten-up telecom, Internet, and chip stocks transpires, don't let that convince you that it is safe to jump back into the
market overall. The first bubbles have long since burst in these former wonders, but further significant bubbles are still to burst in the credit card,
consumer loan, real estate, financial and consumer retail sectors. |
