Sunday, May 17, 2009

The Spiral Effect

I am sometimes accused of not listening or being absent minded. This is according to my friends and loved ones. They may say something to me and five minutes later, I will say something that clearly shows I did not hear them even though I was alert and even answered them back as though I heard them.

We all do it, but I know I do it, a lot. It was about 6 years ago that I analyzed why I do this and when. And I have reasoned that people that do this are not necessarily A.D.D., but instead A.E.D. Instead of Attention Deficit Disorder, for me it is Attention Excessive Disorder. I tend to see something or hear something and focus on that one thing and analyze as I continue to watch and observe, totally focused on the event in my sight. It may be two people arguing, a person walking a dog, or a person shopping.

This weekend, I found myself focusing on shoppers, and what they were shopping for and what was in their cart. I went to an electronics store and a clothing store for something I needed. I hate shopping and usually know exactly what I am looking for, grab it, and cash out. But I ended up spending hours shopping. Not just at these stores but other stores in the strip mall.

What I found was consistent and repeatable at every store except the book store. Any displays marked clearance or had big sales, there were many shoppers carefully going through it. Displays with no signs stood vacant.

What was in the shopping cards were small tickets items, necessities, and sale items. There was one exception and that was entertainment items. Movies, books, CD's. This is why the book store was different. There are plenty of clearance racks, but shoppers tended to purchase and shop for whatever books they were needing/wanting. Same with the other stores, movies, CD's, small TV's, video games, even video game hand-helds and consoles were selling. People will continue to spend money on entertainment.

OK, enough of this beating around the bush. My point is, the appetite for the retail buyer is no longer retail. It is wholesale. Shoppers are expecting to find bargains and since stores are offering merchandise at 50% or less, shoppers are expecting it now. Retail has gone out of style. And this will not turn around anytime soon. Retail shops are going to have to play cut throat and try to make sales anyway they can and that means going lower than the next shop. And shoppers will expect even lower prices. When price cutting stops, shoppers will stop buying except for necessities and entertainment.

This is not good for the economy.

The other thing I observed this weekend are neighbors helping neighbors. While more than 85% of workers are employed, many are helping their neighbors, family and friends financially to try to help them avoid losing their homes or just paying bills. This is putting more strain on the financially strong households by saving more of their money to help others rather than spending. This is also becoming a spiral effect that will result in lower retail sales and even more job losses.

This is not good for the economy.

We have to get out of this cycle. I don't have the answers. But the bottom line is unemployment and until the government focuses on unemployment stops focusing on housing prices and bank losses, the economy will continue to get worse. We are wasting trillions of dollars in areas that will not result in more jobs. It will take years for the government to figure it out the way they are handling the current crisis. Its a shame but it is true.


The fear has re-entered the market. I can feel it, you can feel it. But why is the VIX staying so low? I think the answer to that is, bulls seem to accept that we are going to have a "correction" so they are OK with the fall we are entering. Bears seem to be expecting it so they, of course, are fine.

The VIX will go up when the current retreat goes lower than bulls are expecting. That could happen when/if we go down below 875. I think bulls are expecting support at this level and going lower could result in a panic sell situation causing the market to run down to 820 with very little resistance.

But, since the VIX is still low, you still have to exercise caution. The market could reverse here and cause a short squeeze. I remain mostly short with plenty of cash on the side and waiting for the market to dip below 875 and the VIX to go above 36 to really jump on it. I will exit if the market advances above 900. But do your own DD and don't get over extended.

1 comment:

  1. Beamer Dog, I agree with your analysis about BAC, although market has been reacting the opposite with all the financial stocks when they announces more shares offering to raise cash. Instead of going down, they go up. Look at MS, STT..