Sunday, December 21, 2008
The Miracle on 34th Street... Age of the Empty Suit... $10,000,000 Bill?
The Miracle on 34th Street
You have to love family movie night. Tonight we watched the John Hughes version of Miracle on 34th Street. In the not too distant past, I distinctly remember going into the colossal department stores as a kid. Sitting on Santa Claus' lap. Getting a picture with Santa. And taking a ride down the slide back to mom and dad. Big Cleveland Department stores like May Company, Hallie's, and The Bing Company stood as icons of a thriving 1970's era retail. Big train displays, Winter Wonderland villages, and even a few elves.
One scene from the movie which really caught my eye was the flood of people coming in these stores to visit Santa Claus. Cole's had the best Santa Claus, and everybody else was jealous. We went out to see the real Santa Claus the other night. This required a track to Great Northern Mall on the west side of Cleveland. All that I could think of was a 40 minute drive, and another hour wait to see Santa. However, much to my chagrin, we were met with a 10 minute wait. And this guy is supposed to be the best Santa in Cleveland. According to the photographers, business was down approximately 30% from last year. That would suggest that 30% less people found themselves in the mall thus far during Christmas and Hanukkah shopping.
According to the Wall Street Journal, retail vacancies of strip malls surged to 8.4% in the third quarter. The report went on to say that vacancies increased in 76 of the U.S.'s top retail markets. Not to be outdone, these recognizable names are circling the wagons and closing stores inside the United States. Others are simply filing bankruptcy. Some of the names of troubled retailers include: Shoe Pavilion, Steve & Barry's, Gordman's, Radio Shack, JoAnn Fabric, Boscov's, Bennigan's, Winn Dixie, Office Max, Comp USA, Pier 1, Sharper Image, Starbucks, The Disney Store, Wilson's Leather, Talbots, Ann Taylor, Bombay Co. and more. This could well explain the added pressure on REITs that was seen last week. No wonder Mr. Wolstein dumped the vast majority of DDR. He got out went he getting was good!
Ironically, SPG and VNO surged last week. This suggests one of three scenarios:
1. A covering rally...meaning the stocks will be very ripe to short once again.
2. Momentum trade from TARP discussion that commercial real estate and consumer real estate could be the next beneficiaries on free monies.
3. A bottom was set, and now is the time to buy.
For my money, I find scenario number one to be the most logical explanation. Although, I am becoming increasingly suspicious of a TARP play here. Especially with Obama's high level appointment of a Housing Secretary Shaun Donovan. Donovan is known as a crusader against low-income foreclosure and housing management. Obama will need a point man on this issue as once source not only mentioned the next "reset of ARMs and Alt-A loans. "At present, one in 10 U.S. homeowners is either delinquent on mortgage payments or in foreclosure, With more than 259,000 homes receiving a foreclosure-related notice last month, the Federal Reserve has predicted that the nation's 2008 foreclosure figure will reach 2.25 million." (1)
The Age of the Empty Suit
The empty suit is a new reference to those who have lost all of their material wealth on Wall Street. In this case, many of those who lost it all were affiliates of Bernie Madoff...scoundrel extraordinaire! For many of us, we hear of the financial tragedies as they unravel... wince... hope that our financial futures are not effected... and think that we are a little bit luckier if not smarter than the next guy. After all, it is human nature. Wall Street Journal writer Peggy Noonan brings up the point "That’s the big thing at the heart of the great collapse, a strong sense of absence. Who was in charge? Who was in authority? The biggest swindle in all financial history if the figure of $50 billion is to be believed, and nobody knew about it, supposedly, but the swindler himself. The government didn’t notice, just as it didn’t notice the prevalence of bad debts that would bring down America’s great investment banks." (2) The government if not Wall Street's pimp, has at the bare minimum become an accessory to the crime of negligence. Banks, investment houses, and now multi-billion dollar Ponzi schemes is exactly what Wall Street does not need. For those who have put faith in the system, they are finding out that the world can be an ugly place. Who can you trust? And I am the type of guy who will put faith in the average American.
Our forefathers might easily allude to Nathaial Hawthorne's Grey Champion as guide, protector, and champion of the persecuted. However, most believe that heroes are in limited supply.
Where have you gone, Joe DiMaggio
A nation turns its lonely eyes to you (Woo, woo, woo)
What's that you say, Mrs. Robinson
Joltin' Joe has left and gone away
(Hey, hey, hey...hey, hey, hey)
We are an optimistic people. We have and will continue to thrive on optimism and innovation. While the roads will be rocky for the next few years, I do believe this country will stand the test of time. We should experience “the current crisis” as “a gigantic wake-up call.” We’ve been living beyond our means, both governmentally and personally. “We have to be willing to face up to our problems. But we have a capacity to roll up our sleeves and get down to work together.” Americans tend to rally in crisis situations.
The other side of the coin leads us back to the bunker mentality. If you live in Zimbabwe, you would be best served to transact all business in silver, gold or other commodities. This week the government of Zimbabwe created a $10,000,000 note. Don't think for a second that you are rich. This note has the buying power of a new Zimbabwe dollar...deleveraging the old dollar...and creating the new...with 168 equaling one U.S. dollar. This is served as a reminder to all readers that:
1. The world needs the United States (as of now) in spite of our financial breakdown, we are still the most stable economy in the world. Even though the printing presses are overheating, countries are still flocking to the security of U.S. bonds. More importantly, bonds that are at a minimal yield.
2. If the United States does not grow the economy... or reduce spending, we could face a inflation...deflation scenario.
Kind of scary if you think about it.
Curtain Call for BAC as by 12/25s expired worthless...
AU 1/30s will look for an exit point...
GE 3/20s Some hope... looking for an exit point as well
CNK, RYL, MLHR, WYNN, FXI, BBW, MDC, MCRI