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Friday, 31 December 2010 14:55

Davidowitz On Overt Optimism In The Retail Space And Mall REITs, Stuff Which We Have Detailed Often In The Past

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Zerohedge has brought attention (in their own very colorful fashion) to a Pimm Fox interview of Howard Davidowitz, chairman of Davidowitz & Associates Inc. on Bloomberg. It is well worth the 12 minutes of your time. Here are some choice quotes form the interview as excerpted by ZH:

"I am not surprised by the strength of retail sales, because i knew that 30% of consumers are responsible for retail sales, and these 30% did much better because of the performance of capital markets. I don't think it is indicative of anything going forward. I don't think the economy is going to get any better. If you look at our fiscal and monetary policy, we went two trillion in the hole last year. Two trillion... to produce this... and unemployment went up to 9.8%! We've spent two trillion we're printing money we're going bananas. Our balance sheet, we've got $2.6 trillion on there, and what;s on there government securities, and MBS."

..."If interest rates go up a point Bernanke's bankrupt. Everything he's bought is underwater. All the MBS are underwater, the whole country is underwater."

The serial defaults that are coming from Europe anywhere between now and 2013 will indeed spike interest rates. Review my latest posts on the topic, or the Pan-European Sovereign Debt Crisis series for more info than you can digest in a week.

Online sales have to lead you to question the whole retail selling strategy. We have 21 square feet of selling space for every man woman and child in this country. We already have double of what we need. With the explosion of online sales, what happens to all these retail malls and shopping centers which are marginals? Huge changes are going to be taking place as people continue shopping online.... In the end what do you do with the retail space...This is going to be a huge question for retail in the next ten years, that's why Walmart is starting to build smaller stores, that's why Walmart is building more overseas than they are building here. It's going to be the biggest retail change that we've ever seen."

...

Landlords better start figuring it out pretty quick because they already have occupancy problems, rent problems and everything else right now. I don't think the CRE problems are fixed by any means. That's why we are going to close hundreds of community banks going forward, we are going to close hundreds more. Those CRE debts are coming due and they will not be able to be rolled over. We've got lots of problems still coming up in the banking system, and the problems in the real estate issue is here for a long time.

Other ZH excerpted observations:

Walmart is 10% of US retail sales, has 150 million customers, and its stock it is down 6 consecutive quarters;
Sears is the largest department store in America: "their stock is terrible"
Best Buy had a huge earnings miss
Toys'R'Us loss increased last quarter
A&P filed bankruptcy
Loehmann's filed bankruptcy
Charming Shoppes is going to close 100 stores
TJMaxx just liquidated AJ Right

I've covered this topic left and right, since 2007 after warning that GGP was insolvent and bound to crash. I got into a tit for tat with the CFO who called my research "garbage". A year after that comment, they filed for bankruptcy. See the whole story and over 700 pages of analysis at "GGP and the type of investigative analysis you will not get from your brokerage house"

Most recently, we went throught the true weaknesses in the entire retail business, not just from the real estate side. This is a note that a BoomBustBlog reader sent me over the summer…

Reggie:

I took a screen shot of my play money account and the shorts from the four part series on why the consumer isn’t coming back. Consumer retail has been nailed since May and from the 4 stocks you picked, here are two I chose to follow.

This is an example of exactly what we were talking about in our subscription documents regarding the ridiculous run up in consumer discretionary shares when taken in context of the American consumer and the stress born from the Pan-European Sovereign Debt Crisis (click the link for our detailed analysis). You can find the earlier articles in this consumer mini-series as follows:

What We’re Looking For To Go Splat! Part 1: macro arguments against the spike in retail stocks
What We’re Looking For To Go Splat! Part 2: A list of 147 retail stocks with attributes that causes on to question their gain in prices, with a shortlist of companies who may very well go “splat”!
Is the Consumer Really Back? Well, It Depends On If You Believe What the Government Tells You or Whether You’re An Indendent Thinker – The American Recovery and the North American Economic Outlook.
The American Recovery and the North American Economic Outlook

There are still a couple of mall REITs that have been levitating above water, but have but so much time left. I will be commenting on them in detail soon.

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