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Are We Headed For A New Low?

We are at the November lows, the hope now is that a final capitulation in second half earnings will create a new low that may be the bottom we need.

I have noted before that analysts—and some companies—have back-end loaded their earnings; in other words, many are anticipating a notable "recovery" in financials and retail earnings later in 2009.

But analysts (and most traders) have been giving up on this thesis in the past couple weeks, and that is why the market is drifting lower.

Here's an example: retail stocks. They are traditionally early-cycle plays, so if this looked like a "normal" recession, traders and analysts would already be pounding the table to argue that retailers will be recovering in the second half of the year.

But they're not; there are no big table-pounders in retail. Why not?

Because there is a concern that this may be different.

1) Companies are providing very poor or no commentary on sales growth, even into the second half of the year; this is leading to concerns that valuations are still too high or at least not compelling for retailers.

2) It's not clear if there is a secular change in consumption going on. Put simply, it's not clear whether buyers will be changing their buying habits for years, rather than months.

So, for example, if I buy three sweaters a year, do I really need three sweaters? Could I get along with two? Yes, probably.

Modern consumer culture largely sells wants, not needs. If that changes, than earnings assumptions need to change. We don't know the answer yet, and unfortunately that murkiness--bears say--is what will deny the bulls the satisfaction of having an immediate bottom.

Why is everyone in such a bad mood?

While concerns that weakness is spreading to Eastern Europe (on worries they will have trouble repaying the debt it owes to western European banks) are the concern of the day, traders have been noting that we are living in a contradiction.

We are trying to encourage people to spend, when it is excessive spending that has got us into this mess.

Charles Biderman at TrimTabs notes that individual wages and salaries (as measured by tax receipts) has decline by 10 percent since December 1.

With that kind of decline in wages, consumers will have problems covering EXISTING debt, let alone take on NEW debt.

What consumer need are more jobs and more income, not more debt.

    • Gold Hits 7-Month High on Economic Worries

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