Friday, December 12, 2008

Retail sales just jumped off a cliff.

But you wouldn't know it reading today's reports. For some reason the financial media is only reporting changes from last month rather than what really counts for an investor -- changes from last year. You have to pick up the actual reports to find year-over-year changes. If you read any business article today, you'd read that sales are only down 1.8% and that electronics purchases are up almost 1%. This doesn't tell you anything. Those are numbers comparing this month to last.

But the fact that sales would be down this month over last when this month is the Christmas shopping season and last month was not should clue you in that something is very, very wrong. Indeed, if we look at retail sales and exclude gasoline, we find that sales around actually down almost 8% from last year. We'll ignore the population growth we've had and only point out that we've also had a year of high inflation as well. If you adjust those numbers for inflation, you get what is called the real sales numbers (as opposed to nominal sales numbers) off more than 10%.

Now. As an investor, you would need to see sales higher this year than last just to tread water because of the enormous discounts going on in most outlets. Sales staying flat would lose you money because margins are so much smaller this year. Instead, we have real sales down more than 10% even on the enormous discounts and plummeting margins.

It is going to be a really, really awful earnings season for retailers and nobody sees it coming because they're looking at the numbers the wrong way. Retail stocks have been up big over the last few weeks. I still hold my position in SCC.

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