Wal-Mart Stores, Inc. (NYSE/WMT) is the world’s largest retailer. With 1,300 jumbo stores and 300,000 employees, Wal-Mart is often referred to as a leading indicator of lower-end retail growth. If sales at Wal-Mart stores open one year or more are increasing, it is an indication that consumers at the lower end of retail are spending. Similarly, if sales at Wal-Mart stores open one year or more are declining, it is an indication that the lower-end retail consumer is pulling back on spending…an ominous sign for the economy.

The retail sector continues to be a difficult place in which to make money and requires careful attention and monitoring. There are trades to be made, but you need to be selective.

Discount stores are faring well, but what has been impressive has been the performance of the upper end luxury retailers and some of the niche players in the retail sector. You can buy Wal-Mart Stores, Inc. (NYSE/WMT), up 17.56% over the past 52 weeks, or Target Corporation (NYSE/TGT), up 16.30% over the past 52 weeks, but there are much better returns in the retail sector.

It’s not a dark secret that the world’s rich are getting richer and have the money to spend in the retail sector.

But if you don’t have the $2.4 million to buy the “Bugatti Veyron Super Sports” edition (assuming you can get one) that can get you to 60 miles per hour in an inspiring 2.5 seconds and with a top-end speed of 267 miles per hour, there are alternatives.

You can buy a top-end “Porsche” for under $200,000 or “Ferrari California” for $192,000.

Or you can buy the poor man’s supercar, the “Corvette,” for $60,000, from General Motors Company (NYSE/GM). The Chinese certainly seem to love GM cars, as I discussed in General Motors: China’s Top Foreign Automaker.

The reality is that, despite the economic renewal and continued growth global growth concerns, there is still a lot of money out there for the rich to pamper themselves.

Luxury jeweler Tiffany & Co. (NYSE/TIF) beat earnings per share (EPS) estimates in three straight quarters, but reported a small miss in the recent fiscal fourth quarter. However, take a look at the Q4 worldwide sales growth of 18% year-over-year to $3.6 billion, which is astounding in my view. The key comparable store sales surged 13% year-over-year, which is impressive.

In the upscale retail sector area, another key performer is popular accessories retailer Coach, Inc. (NYSE/COH)—expected to see sales growth of 15.40% and 12.80% in fiscal 2012 and fiscal 2013, respectively. The stock rallied 48.62% over the past 52 weeks.

You also have up-and-coming high-end clothing retailer Michael Kors Holdings Limited (NYSE/KORS), which is estimated to report sales growth of 29.90% in fiscal 2013. The stock debuted on December 15, 2011, but has already nearly doubled in price in four months. Based on the operating results, this could be a special stock going forward.

Michael Kors posted a 68% year-over-year jump in its fiscal third-quarter revenues to $373.6 million versus $222.5 million in the year-earlier fiscal third quarter. The jump is amazing given the uncertainties in the retail sector. Moreover, the key comparable same-store sales surged a superlative 38% in the quarter, which is simply astounding in the retail sector.

The key to investing in the retail sector is to search for companies that offer some sort of niche or product that is different from its competitors’.

The luxury retail sector stocks are a niche that has a growing target market with the newfound riches in the BRIC countries (Brazil, Russia, India, and China). These stocks tend to have strong global brand awareness and are sought after by the new rich and old money.

While most other economists tell us otherwise, I’ve been writing this year about how the numbers so far do not point to a U.S. economic recovery, but rather to a continued economic slowdown, with the threat of recession.

I’ve been focused on the average damaged consumer, who has lost value in his/her home and has been restrained by no income growth…if he/she is lucky enough to have a job. With over 47 million Americans on food stamps, I’m at a loss as to understanding how consumer spending can grow with this backdrop.

 Interestingly enough, a major new study by the Federal Reserve Bank of Chicago has come to the same conclusion. The study points to a survey about the habits of consumer spending over the next two years, and the results are not encouraging for U.S. economic recovery.

 The study points to the fact that 2008-09 saw the worst year-over-year decline in consumer spending in the U.S. since—that is 65 years ago. Worse, all subcomponents of consumer spending declined, including durable goods like cars, furniture and other items a consumer purchases for many years, and even food.

While the researchers are quick to point out that more people may have eaten at home, which explains lower food consumption, I’m certain that some of that decline in food consumption can be explained by the dramatic rise in food stamp usage.

 The report goes on to note that after 2009 to today, the recovery in consumer spending has been uncharacteristically weak. While most recessions needed usually one year for consumer spending to return to previous highs, this one took three years!

 The researchers noted that the steep decline in income growth bears a large part of the blame (the balance borne by the drop in home prices). Not only was the fall in income growth the worst on record, but also incomes have still not recovered from pre-recession levels! (Also see: Personal Income Growth in America Now Only a Memory.) How can we expect consumer spending to increase against this economic backdrop?

 The economic numbers released to date, when analyzed by serious economists, point to the same forecasts I have been making: the U.S. will experience low growth in both personal income and consumer spending over the next two years.

 So while some are saying the U.S. economic recovery is in place, the Federal Reserve Bank of Chicago itself is telling a different story. Watch out for that rise in equities this year. It’s looking more and more like a bear trap.

 Michael’s Personal Notes:

 What the world’s largest retailer and the world’s largest food maker are telling us about the economy…

 Yesterday, Wal-Mart Stores, Inc. (NYSE/WMT) reported its quarterly earnings, missing Wall Street estimates because its price-cutting strategy reduced margins. Wal-Mart’s typical customer is the low-income shopper, who is not exhibiting much consumer confidence right now.

Wal-Mart is focused on reducing its costs, like pulling more greeters from the entrances. This is because the company does not see an ability to raise its prices in 2012, as consumer confidence struggles. With the unemployment rate high, job security uncertain, and food and energy costs rising, consumer confidence is nowhere to be found.

 The challenge becomes maintaining and/or lowering customer prices while Wal-Mart’s input costs rise as the cost of commodities rises. The company hopes that commodity prices will remain relatively stable in 2012. However, if central banks around the world continue to print, this may not be possible.

 Nestle SA (Pink Sheets/NSRGY) is also cautious on 2012 after missing profit margin estimates in 2011. The world’s largest food maker noted that economic uncertainties due to high unemployment rates resulted in waning consumer confidence. This is challenging the company’s ability to raise its prices to customers.

 It’s not just the leaders in these spaces that are struggling with the same issues, but the smaller companies as well.

 General Mills, Inc. (NYSE/GIS) cut its profit forecast for 2012 amid weak demand—weak consumer confidence—and rising commodity costs, which are squeezing profits. The Company cited weak demand across the board in the U.S. as a result of lower consumer confidence and demand. One of the reasons General Mills cited for soft demand was the high unemployment rate.

 The J.M. Smucker Company (NYSE/SJM) reduced its full-year 2012 profit forecast due to—wait for it—lower consumer confidence and demand. The company also noted that the increase in commodity prices and the inability to pass that on to consumers, who are struggling right now with a high unemployment rate, are squeezing its margins.

 The general theme above, dear reader, is one of weak consumer confidence, rising commodity costs, and inflation. Even Wal-Mart noted that consumers are worried about rising food costs and rising energy prices.

 The typical consumer is frugal, because the consumer is struggling. (Also see: Consumer Debt Growing Again; This Time Not by Choice.) These companies are telling us as much and their financial results are a reflection of falling consumer confidence and demand. Remember, 70% of U.S. GDP is consumer spending. While our politicians might tell us different, 2012 is shaping up to be a very weak year for the economy.

 Where the Market Stands; Where it’s Headed:

 On March 9, 2009, when the Dow Jones Industrial Average hit a 12-year low of 6,440, a bear market rally in stocks was born. The purpose of a bear market rally is to lure investors back into the stock market.

 Politicians are telling us that the economy is improving; statistics are telling us that the economy is improving. Investors are feeling good again (it took three years) and, presto, the Dow Jones Industrial Average is back at 13,000.

 But, as I point out in my lead article today, the reason the stock market has doubled in the past three years has very little to do with an economic turnaround. It has everything to do with artificially low interest rates, critically high debt levels, and an unprecedented increase in the money supply. The simplest way to present this: money printing has fueled the market rally.

 To sustain a real bull market, the economy needs to grow. That’s plainly not happening and that’s why I believe all we are experiencing is a sucker’s rally in the stock market.

 What He Said:

 “A low savings rate was eventually blamed for the length of the Great Depression. Consumers just didn’t have enough money to spend their way of the Depression. With today’s savings rate being so low, a recession could have a profoundly negative effect on overextended consumers.” Michael Lombardi in PROFIT CONFIDENTIAL, March 26, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.

While most other economists tell us otherwise, I’ve been writing this year about how the numbers so far do not point to a U.S. economic recovery, but rather to a continued economic slowdown, with the threat of recession.

I’ve been focused on the average damaged consumer, who has lost value in his/her home and has been restrained by no income growth…if he/she is lucky enough to have a job. With over 47 million Americans on food stamps, I’m at a loss as to understanding how consumer spending can grow with this backdrop.

Interestingly enough, a major new study by the Federal Reserve Bank of Chicago has come to the same conclusion. The study points to a survey about the habits of consumer spending over the next two years, and the results are not encouraging for U.S. economic recovery.

The study points to the fact that 2008-09 saw the worst year-over-year decline in consumer spending in the U.S. since—that is 65 years ago. Worse, all subcomponents of consumer spending declined, including durable goods like cars, furniture and other items a consumer purchases for many years, and even food.

While the researchers are quick to point out that more people may have eaten at home, which explains lower food consumption, I’m certain that some of that decline in food consumption can be explained by the dramatic rise in food stamp usage.

 The report goes on to note that after 2009 to today, the recovery in consumer spending has been uncharacteristically weak. While most recessions needed usually one year for consumer spending to return to previous highs, this one took three years!

 The researchers noted that the steep decline in income growth bears a large part of the blame (the balance borne by the drop in home prices). Not only was the fall in income growth the worst on record, but also incomes have still not recovered from pre-recession levels! (Also see: Personal Income Growth in America Now Only a Memory.) How can we expect consumer spending to increase against this economic backdrop?

 The economic numbers released to date, when analyzed by serious economists, point to the same forecasts I have been making: the U.S. will experience low growth in both personal income and consumer spending over the next two years.

 So while some are saying the U.S. economic recovery is in place, the Federal Reserve Bank of Chicago itself is telling a different story. Watch out for that rise in equities this year. It’s looking more and more like a bear trap.

 Michael’s Personal Notes:

What the world’s largest retailer and the world’s largest food maker are telling us about the economy…

 Yesterday, Wal-Mart Stores, Inc. (NYSE/WMT) reported its quarterly earnings, missing Wall Street estimates because its price-cutting strategy reduced margins. Wal-Mart’s typical customer is the low-income shopper, who is not exhibiting much consumer confidence right now.

Wal-Mart is focused on reducing its costs, like pulling more greeters from the entrances. This is because the company does not see an ability to raise its prices in 2012, as consumer confidence struggles. With the unemployment rate high, job security uncertain, and food and energy costs rising, consumer confidence is nowhere to be found.

 The challenge becomes maintaining and/or lowering customer prices while Wal-Mart’s input costs rise as the cost of commodities rises. The company hopes that commodity prices will remain relatively stable in 2012. However, if central banks around the world continue to print, this may not be possible.

Nestle SA (Pink Sheets/NSRGY) is also cautious on 2012 after missing profit margin estimates in 2011. The world’s largest food maker noted that economic uncertainties due to high unemployment rates resulted in waning consumer confidence. This is challenging the company’s ability to raise its prices to customers.

 It’s not just the leaders in these spaces that are struggling with the same issues, but the smaller companies as well.

 General Mills, Inc. (NYSE/GIS) cut its profit forecast for 2012 amid weak demand—weak consumer confidence—and rising commodity costs, which are squeezing profits. The Company cited weak demand across the board in the U.S. as a result of lower consumer confidence and demand. One of the reasons General Mills cited for soft demand was the high unemployment rate.

 The J.M. Smucker Company (NYSE/SJM) reduced its full-year 2012 profit forecast due to—wait for it—lower consumer confidence and demand. The company also noted that the increase in commodity prices and the inability to pass that on to consumers, who are struggling right now with a high unemployment rate, are squeezing its margins.

 The general theme above, dear reader, is one of weak consumer confidence, rising commodity costs, and inflation. Even Wal-Mart noted that consumers are worried about rising food costs and rising energy prices.

 The typical consumer is frugal, because the consumer is struggling. (Also see: Consumer Debt Growing Again; This Time Not by Choice.) These companies are telling us as much and their financial results are a reflection of falling consumer confidence and demand. Remember, 70% of U.S. GDP is consumer spending. While our politicians might tell us different, 2012 is shaping up to be a very weak year for the economy.

 Where the Market Stands; Where it’s Headed:

 On March 9, 2009, when the Dow Jones Industrial Average hit a 12-year low of 6,440, a bear market rally in stocks was born. The purpose of a bear market rally is to lure investors back into the stock market.

 Politicians are telling us that the economy is improving; statistics are telling us that the economy is improving. Investors are feeling good again (it took three years) and, presto, the Dow Jones Industrial Average is back at 13,000.

 But, as I point out in my lead article today, the reason the stock market has doubled in the past three years has very little to do with an economic turnaround. It has everything to do with artificially low interest rates, critically high debt levels, and an unprecedented increase in the money supply. The simplest way to present this: money printing has fueled the market rally.

 To sustain a real bull market, the economy needs to grow. That’s plainly not happening and that’s why I believe all we are experiencing is a sucker’s rally in the stock market.

 What He Said:

 “A low savings rate was eventually blamed for the length of the Great Depression. Consumers just didn’t have enough money to spend their way of the Depression. With today’s savings rate being so low, a recession could have a profoundly negative effect on overextended consumers.” Michael Lombardi in PROFIT CONFIDENTIAL, March 26, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.

What the world’s largest retailer and the world’s largest food maker are telling us about the economy…

Yesterday, Wal-Mart Stores, Inc. (NYSE/WMT) reported its quarterly earnings, missing Wall Street estimates because its price-cutting strategy reduced margins. Wal-Mart’s typical customer is the low-income shopper, who is not exhibiting much consumer confidence right now.

 Wal-Mart is focused on reducing its costs, like pulling more greeters from the entrances. This is because the company does not see an ability to raise its prices in 2012, as consumer confidence struggles. With the unemployment rate high, job security uncertain, and food and energy costs rising, consumer confidence is nowhere to be found.

The challenge becomes maintaining and/or lowering customer prices while Wal-Mart’s input costs rise as the cost of commodities rises. The company hopes that commodity prices will remain relatively stable in 2012. However, if central banks around the world continue to print, this may not be possible.

 Nestle SA (Pink Sheets/NSRGY) is also cautious on 2012 after missing profit margin estimates in 2011. The world’s largest food maker noted that economic uncertainties due to high unemployment rates resulted in waning consumer confidence. This is challenging the company’s ability to raise its prices to customers.

It’s not just the leaders in these spaces that are struggling with the same issues, but the smaller companies as well.

 General Mills, Inc. (NYSE/GIS) cut its profit forecast for 2012 amid weak demand—weak consumer confidence—and rising commodity costs, which are squeezing profits. The Company cited weak demand across the board in the U.S. as a result of lower consumer confidence and demand. One of the reasons General Mills cited for soft demand was the high unemployment rate.

 The J.M. Smucker Company (NYSE/SJM) reduced its full-year 2012 profit forecast due to—wait for it—lower consumer confidence and demand. The company also noted that the increase in commodity prices and the inability to pass that on to consumers, who are struggling right now with a high unemployment rate, are squeezing its margins.

 The general theme above, dear reader, is one of weak consumer confidence, rising commodity costs, and inflation. Even Wal-Mart noted that consumers are worried about rising food costs and rising energy prices.

 The typical consumer is frugal, because the consumer is struggling. (Also see: Consumer Debt Growing Again; This Time Not by Choice.) These companies are telling us as much and their financial results are a reflection of falling consumer confidence and demand. Remember, 70% of U.S. GDP is consumer spending. While our politicians might tell us different, 2012 is shaping up to be a very weak year for the economy.

Where the Market Stands; Where it’s Headed:

On March 9, 2009, when the Dow Jones Industrial Average hit a 12-year low of 6,440, a bear market rally in stocks was born. The purpose of a bear market rally is to lure investors back into the stock market.

Politicians are telling us that the economy is improving; statistics are telling us that the economy is improving. Investors are feeling good again (it took three years) and, presto, the Dow Jones Industrial Average is back at 13,000.

 But, as I point out in my lead article today, the reason the stock market has doubled in the past three years has very little to do with an economic turnaround. It has everything to do with artificially low interest rates, critically high debt levels, and an unprecedented increase in the money supply. The simplest way to present this: money printing has fueled the market rally.

 To sustain a real bull market, the economy needs to grow. That’s plainly not happening and that’s why I believe all we are experiencing is a sucker’s rally in the stock market.

 What He Said:

 “A low savings rate was eventually blamed for the length of the Great Depression. Consumers just didn’t have enough money to spend their way of the Depression. With today’s savings rate being so low, a recession could have a profoundly negative effect on overextended consumers.” Michael Lombardi in PROFIT CONFIDENTIAL, March 26, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.

Make no mistake; this is a market collapse in natural gas prices. The current price for natural gas is $2.72 per a million British thermal units (Btu). To give you an idea of where we’ve been in 2011, at the beginning of June, we saw prices approximate $5.00 per a million Btu. In almost seven months, natural gas prices have fallen close to 46%. This is what a market collapse looks like.

First, let’s take a quick look at why prices have fallen and then we’ll investigate what it means for your portfolio. We are in the middle of January and winter has barely touched the U.S. Of course, we will get some colder weather and snow, but the mild weather has hurt natural gas sales. This means that the inventory of natural gas in storage is being filled to the brim, and there’s only so much room to store the stuff. A market collapse occurs when there aren’t any buyers and there are more sellers. If your facilities are full, you don’t have room to buy any natural gas no matter how cheap it is. Not being able to work off inventory because of mild weather means you’re sitting with a full tank of gas.

The new shale developments are also hurting the market, because we’ve now added a lot of new supply of natural gas. The U.S. is now the world’s biggest producer of natural gas and many investors rushed into stocks hoping this new supply would push up corporate earnings. That would be true if there was a market to buy up all of this new supply, but there’s way too much gas floating around.

This is now being seen in the corporate earnings and pre-announcements by companies in this sector. It looks like we’re going to see bad corporate earnings for producers of natural gas. Firms like Cabot Oil & Gas Corporation (NYSE/COG, $66.47), Range Resources Corporation (NYSE/RRC, $54.30), Southwestern Energy Company (NYSE/SWN, $29.28), and QEP Resources, Inc. (NYSE/QEP, $27.50) all have been hit hard and have more to go. Over the next few quarters, we’re about to see corporate earnings affected by the natural gas market collapse and that isn’t about to change anytime soon.

Is there any good news because of this market collapse? Possibly; as people spend less money on heating their homes, they might take those savings and spend the money in other areas, such as on a holiday. Firms like Carnival Corporation (NYSE/CCL, $34.10) have been moving up in price lately, as some buyers are thinking the same thing.

Will it help their corporate earnings? It’s far too soon to say. In fact, considering where the economy is, I wouldn’t rush into any long-term buys of consumer discretionary stocks until we see the economy start moving up.

One company that has done well and might have better corporate earnings is Wal-Mart Stores, Inc. (NYSE/WMT, $59.21), as lower-income people who are saving money because of the natural gas market collapse might spend more in a Wal-Mart store. With the price near a 52 week high, I would wait for a pullback. With a dividend yield of 2.47%, it does look interesting; but never rush into any investment. Patience is a virtue when it comes to creating long-term wealth.