The Infatuation With Retail

The infatuation with the retail sector is a microcosm of what the stock market has become. An extremely short term oriented game with little concern for the bigger picture. While March comps should look spectacular when they come out tomorrow there is possibly no sector with a worse longer term outlook.

Comps are easy because we were deep in a recession this time last year. The weather was warm in March and Easter was early, which will assist comps further.There is an undeniable increase in consumer spending but it is largely due to massive government stimulus that will wear off and cyclical factors.

Taking a longer term view of the retail sector paints a much more dire view. Most retailers trade at twenty times 2011 estimates, which is the price high growth stocks should trade at. The American consumer is aging and has under saved for retirement. All the while taxes are headed higher, interest rates are higher and oil prices are higher. Not to mention the headwind retailers face from the Internet.

I believe it to be a virtual certainty that retail shares will be a horrendous long term investment. But right now all that matters is that the stocks have high short interest and that the momentum is in their favor. The long term is for people who don't like making money. Like me.

1 comment:

PJ said...

Until recently I thought the double dip recession I'm expecting would begin around July, but now on close perusal of data I think it will become apparent in activity data by May. It should begin to appear in retail sales data in April. We have seen a fillip in retail sales, but it is not supported by a broader range of consumption data, nor by income growth -- even with record transfer payments, the savings rate has had to decline to support current spending; but transfer payments and tax refunds will be declining in Q2, and the savings rate will probably resume its rise. I expect Q2 GDP to be between zero and -1%, Q3 GDP to be worse.

So this earnings period may be a great short opportunity in retail.