The Real Reason Stocks Are Falling So Quickly
Wednesday, January 16th, 2008
By Michael Lombardi, MBA for Profit Confidential
While it’s not so well known, 2007 marked the worst year for American retailers since 2002. The U.S. Commerce department reported Tuesday that retail sales fell 0.4% in December, while most retail analysts had been predicting retail sales growth for the traditionally busiest month for retail stores, and the stock market didn’t like that yesterday.
Back on September 26, 2007, my column in PROFIT CONFIDENTIAL, “Stock Market Action Clear Sign Consumer Spending Declining,” talked about how I believed drunken spending by U.S. consumers was coming to a halt. I also talked about retail stocks and said that I would not touch them with a 10- foot pole.
What tipped me off about the pending slowdown in consumer spending? Despite the facts that the personal savings rate of Americans was at a record low while debt to personal income was at a record high, I saw it in the charts. Any investor or analyst looking at the price charts of the most well-known U.S. retailers in the summer of 2007 would see this. The stock prices of most retailers started to head south in late September.
As a firm believer of the theory that stock prices lead the economy, I turned firmly bearish on retail stocks late in the summer of last year. The Dow Jones U.S. General Retail Index, an index comprising the largest U.S. retailers, is down 19% from early fall of last year to yesterday.
You will read on the Internet and in the newspapers today that stocks dived yesterday (Dow Jones Industrials down 277 points on Tuesday) because Citigroup and JP Morgan are posting losses greater than what Wall Street had predicted.
My dear reader, Citigroup and JP Morgan have literally made billions of dollars over the past few years. They are simply giving some of those billions back. What is really scaring the stock market, and what the popular media is not focusing on, is the withdrawal of spending by U.S. consumers.
About two-thirds of U.S. GDP (Gross Domestic Product) is comprised of consumer spending. That spending is coming to a screeching halt for many reasons (in particular, one cannot be in a jovial mood to spend when his/her home is declining in value). The reality of tighter consumer spending ahead, and the recession it will bring, is finally starting to hit investors.
Next Post: This Pick a Major Wealth CreatorPrevious Post: What Else Could Hit the Big Three?
Tags: Dow Jones Industrials, GDP, stock market, stock prices
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
