Get In on The Ground Floor For This Retail Meltdown

It was a great holiday season in the retail world – for Mr. Grinch!

As retailers begin to preannounce year-end results, we are learning that the assault on department stores and other traditional retailers from ecommerce, price sensitive consumers and a tepid economy continues to batter revenues and profits. Each holiday season it gets a little worse as retailers race to cut prices and downsize faster than consumers flee their venues for the comfort of shopping on-line. This past year, that trend continued.

Department store sales have dropped $7.2 billion from 2001 to $12.7 billion today according to BMO’s Jack Ablin (and that’s nominal so in inflation-adjusted terms the drop is much more severe). Troubled women’s apparel retailer Limited Stores announced last week that it is closing all 250 of its stores nationwide and will try to operate purely as an online company. According to RetailNext, a retail tracking company, sales at brick-and-mortar stores sunk by 10.3% in December compared to 0.4% in 2015. The National Retail Federation expects holiday sales excluding cars, gas and restaurants to rise 3.6% to $655.8 billion in 2016 with online sales surging 19% to roughly $98 billion and brick-and-mortar sales dropping by tens of billions of dollars.

With numbers like that, it’s no surprise that the nation’s largest retailers are announcing massive store closings and job cuts. And this store is experiencing one of the biggest meltdowns.

Here’s how to profit…


Your Pre-Inauguration Market Briefing

In his famous soliloquy, Hamlet ponders whether the Great Unknown is better than the familiar misery of life on earth. Eventually, with the help of a poisoned sword, he finds out.

Tomorrow we will find ourselves in a very similar position.

Donald Trump’s inauguration is a big day. We’re getting rid of a failed president, but we have big questions about the man replacing him. Mr. Trump’s track record is a blank slate and his policy statements are often contradictory and inconsistent. Though highly intelligent, he’s not a deep thinker; he’s instinctual, spontaneous. These may be good qualities for a businessman, but statecraft requires vision, patience and discipline. We have yet to see our President-elect exhibit these qualities.

Trump is pro-business and pro-tax cuts but he’s also pro-chaos, and markets don’t like chaos. Many of Mr. Trump’s policy statements, regardless of their merit, are destabilizing and would be better handled privately or diplomatically, not in the media.

For instance, in a recent pair of confounding interviews with London’s Sunday Times and Germany’s Bild, Trump called NATO obsolete, predicted that “more countries” would leave the EU (he is correct but this is not something an American president should say to the press), and threatened to impose a 35% import tax on BMW’s Mexico-made cars. Perhaps most alarmingly, in an interview with The Wall Street Journal, Mr. Trump departed from a long tradition of presidents refraining from commenting on the dollar – and if they do from talking it down – by saying the dollar is “too strong.” This resulted in the dollar falling 1.3%, which means it has given up half its post-election gains. Talking down the dollar is not what markets were expecting of the man who wants to make America great again.

Markets crave stability and they’re not getting it from the President-elect. So far he’s been somewhat constrained, but became more aggressive in his comments as inauguration day came closer. When he’s president there will be little to constrain him.

The bottom line is that Trump constitutes a monumental policy shift, not just away from Obama but from all previous presidents. On foreign policy he is saying some very disruptive things as he breaks not only from Obama’s disastrous policies but also from George W. Bush’s failed policies of nation building in the Middle East. He is challenging the status quo on trade which may prove to be enormously damaging to markets. And he may cut taxes as much as Reagan but would be doing so with the United States in a much weaker economic position than in the 1980s and little way to pay for it, resulting in much larger deficits that would freak out the bond market.

There is honestly no way to predict what this man is going to do, but I can tell you one thing for certain.

Here’s what I know we can expect as we move into these uncharted waters.


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