Market Talk

Don’t worry, inflation may be a bit painful now, but it will pass…kind of like a kidney stone.

From USA Today, the head of Wal-Mart expects more pain for consumers:

U.S. consumers face “serious” inflation in the months ahead for clothing, food and other products, the head of Wal-Mart’s U.S. operations warned Wednesday.

Still, inflation is “going to be serious,” Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY’s editorial board. “We’re seeing cost increases starting to come through at a pretty rapid rate.”

Along with steep increases in raw material costs, John Long, a retail strategist at Kurt Salmon, says labor costs in China and fuel costs for transportation are weighing heavily on retailers. He predicts prices will start increasing at all retailers in June.

“Every single retailer has and is paying more for the items they sell, and retailers will be passing some of these costs along,” Long says. “Except for fuel costs, U.S. consumers haven’t seen much in the way of inflation for almost a decade, so a broad-based increase in prices will be unprecedented in recent memory.”

Long mentions June, which is incidentally right around the time the Fed’s bond-buying program ends. That’ll be a peachy combination for the consumer and the stock market, won’t it?

Ain’t no cure for the summertime blues…

Action in a couple retail stocks today could be offering some worthwhile insight into how this 4Q earnings period plays out.

Consider Williams-Sonoma and Whole Foods. WSM raised its 4Q earnings outlook this morning, citing strong holiday sales. Shares, however, are down 4%, and Newswires’ Caitlin Nish reports one analyst noting WSM didn’t raise estimates “as much as investors had almost become accustomed to,” or in other words, high expectations weren’t met.

Indeed, WSM sees 4Q EPS at 96c-98c vs prior 88c-93c view, but the Street was already at low end of the new view. And analysts also see some slowdown in sales trends vs prior the prior quarter. So, we have a stock selling off — even after the company says it’ll post at least in-line, if not upside 4Q results — because expectations ran too high. Continue reading…

A winter storm slams the east coast and leaves retailers scrambling to recover sales. But in a surprising development, natural gas prices drop as traders focus on warmer weather expected later this week. Meanwhile, the Treasury market prepares for its final auctions of the year. Brian Baskin, Deborah Lynn Blumberg and I discuss it all more on today’s edition of The Markets Hub.

Unless you’re selling snow shovels or blowers, the winter storm that blanketed the northeast hasn’t been too friendly to retailers.

Blizzard conditions have dropped more than a foot of snow in some areas on the east coast, which have wrecked havoc on air traffic, train service and left driving conditions extremely dicey. All those conditions don’t bode well for retailers who count on heavy foot traffic for significant sales on the day after Christmas. Dow Jones’ Corrie Driebusch reports:

Snowstorms hitting midwest and east coast dampen retailers’ Christmas spirits, says NPD Group. With Christmas on Saturday and Sunday lost to blizzards, retailers scrambling to recover sales. This year the day after Christmas — generally one of the biggest days of the year for shopping — “was poised to be one of the top six days of retail,” firm says. Now it warns this is likely no longer the case. Retailers may be able to recover, but it’ll take two to three weeks longer. New Years next weekend set to distract customers from shopping, too, which will deal yet another blow to retailers.

But it’s not all bad for retailers. The winter storm has given a pop to sales at home-improvement chains. Dow Jones’ Max Murphy reports Home Depot (HD) says it “saw strong demand for snow shovels, snow blowers and ice melt along the East Coast — from North Carolina to Maine.”

Home Depot shares were recently up 0.3% at $35.18.

The Black Friday hoopla has died down, and now it’s just the waiting until the holidays are over and we find out how the retailers fared. But here’s a hint, from Newswires’ Karen Talley:

US consumers may be a little spent from their holiday shopping after greeting the season in November by strongly spending. December intentions are down from last year, a Consumer Reports survey shows. “The consumer may not be confident enough to continue spending through the holiday season,” spokesman Ed Farrell says. “It may require deep discounting from retailers to get consumers back to the store in the final weeks of the month.”

Somehow I imagine retailers will do whatever it takes to get people in the doors and out again loaded down with shopping bags, but the profit margins will take a big hit to make that happen. No matter, the holidays will be declared a success, the stock market will rise, they’ll call it the Santa Claus rally, and we’ll all march happily on on our way.

Bah, humbug.

The holiday season is off to a fairly good start as preliminary mall traffic and retail sales figures are up from a year ago. From WSJ:

Retailers extended the shopping blitz from a day to an entire week, offering “door buster” promotions in the days leading up to the Thanksgiving weekend. And deals for “Cyber Monday,” typically the first Monday after Thanksgiving, began showing up online earlier as well.

The string of promotions appeared to have succeeded in getting consumers to open their wallets. Roughly 212 million shoppers visited a store or website over the weekend, an increase of 8.7% from last year, according to the National Retail Federation.

The average shopper spent $365.34, up 6.4%, according to the federation, which surveyed 4,306 people on Thursday through Saturday and made projections for Sunday.

The vast promotions retailers are extending to consumers didn’t start last week. They’ve been going on throughout much of November and consumers have gobbled them up. According to comScore, Americans have spent $11.6 billion shopping online since November 2, which represents a 13% rise from last year’s total.

So far so good. But FusionIQ CEO Barry Ritholtz says be careful not to draw vast conclusions from preliminary Black Friday sales. Not only do November and December account for about 20% of retailers’ annual profits, but the Dec. 15 to 25 period makes up about 40% of total holiday sales.

“Will consumers have the strength and the money to continue the momentum?” Ritholtz ponders. “One last note: Most retail forecasts tend to be way too optimistic. We will find out if this year is the forecasters hit their marks.”

That may be one of the reasons retail stocks are lagging today. EBay, Best Buy and Wal-Mart are all down, while Amazon is one of the few retailers doing well. Its stock was recently up 1.6% at $180.05 and earlier hit another fresh all-time high of $181.84.

Stock futures slightly higher premarket as bulls look to bounce back from a rough week. Markets mixed in Asia overnight, edging higher currently in Europe, with the euro recovering a bit from earlier
lows.

USD index up 0.5%, Treasurys taking an early beating, perhaps on word that Republican lawmakers are trying to persuade the Fed to halt QE2 plans. Busy week for data, this morning brings Oct retail sales, and NY Fed’s Nov Empire State manufacturing survey at 8:30am ET. Sept business inventories set for 10:00am.

Also a lot of retailers reporting quarterly results this week, including Lowe’s this morning; Wal-Mart, Home Depot and Abercrombie & Fitch tomorrow. S&P futures up 3.70; 10-yr note hit hard, yield at 2.83%.

I'll buy it, if you give me $100,000 first.

In all the hullabaloo over technical levels, headline-grabbing M&A deals (or purported deals) and supposedly missing central bankers, you may have missed these two small, but telling, bits of news out of the retail sector, both reported by Dow Jones’ retail reporter Karen Talley.

Let’s start over at JC Penney. The big department store operator is reporting canceling orders for the holiday season, according to a report from Morgan Stanley. “”Our store checks point to no notable pick-up in traffic trends at JCP despite new product launches (including a revamped Liz Claiborne line), and sources are telling us the retailer has started to cancel orders,” Morgan Stanley wrote.

It’s like they’re throwing in the towel already. Now, you can argue that it’s only one retailer, sure. But personally, I can’t recall ever hearing a bit of news like that before. It’s one thing to ratchet down orders, it’s one thing to slash prices to move merchandise. But to actually cancel orders you’ve already placed? That’s a bad sign.

Then there’s a weekend promotion from Banana Republic that caught our eye. The upscale clothing store is going to give away $100,000 to somebody at random just for walking through the door:

Banana Republic “modern professional” customer will win their annual salary (up to $100,000) during the Labor Day weekend just by visiting a store. The minimum win is $50,000, even if the customer doesn’t have a job. “In a tough economic climate, we wanted to celebrate Labor Day by doing something unique,” said Banana Republic president Jack Calhoun.

Yeah, that’s unique alright. When outfits like Banana Republic, which caters to that upscale consumer, are resorting to gimmicks like this, it is definitely a sign. That said, I’ll probably go one of their stores this weekend. Hey, you never know, and I could use the money.

That big “August Surprise” people were talking about turns out to be this: the economy is worse off than you thought it was.

- Potential candidates for Fed Board vacancies should be known to have anticipated the financial crisis in advance, have a pro-consumer stance and be willing to release AIG-related emails, Yves Smith says.

- In the next year or so, if we are to have a sustained recovery, I think we would be much better off with stingy banks, than with thrifty consumers,” Stephen Gandel writes.

- The notion that newspaper publishers should torch their print editions and just embrace the Web is “just plain nutty,” Newsosaur blogger Alan Mutter says. “It doesn’t take a certifiable Silicon Valley genius to see that no business can walk away from some 90% of its revenue base without imploding.”

- Jobless claims have been stuck at current levels for nearly four months, Economist’s Free Exchange blog notes. “The wait for the dip back to normal levels continues.”

- Google and retailers are teaming up to help customers find products.

- Consumer credit has contracted about 6% since the recession began, and banks’ lending standards are getting even tougher. “It will be interesting to see to what extent the tightening of standards for revolving credit impact overall lending,” writes Atlanta Fed’s Ellyn Terry.

- Latest AAII weekly poll shows surging bullish reading of 45.3%. “This has served as a fairly reliable contrarian indicator in the past as small investors tend to pile into stocks near the end of rallies,” Pragmatic Capitalist says.

- Is a housing bubble developing in China? Calculated Risk weighs in.

- Peter Boone and Simon Johnson say beware of the coming Greek debt bubble. Paul Krugman isn’t so sure.

- Sen. Chris Dodd will introduce his sweeping plan to overhaul financial regulations on Monday without any Republican support.