DAILY REPORT (11/19/08)
What follows is an amazing list when you stop and think about it, and it is as clear an example of deflationary pressure, as you'll ever see:
Watch those store money cards and gift cards.. and credit slips! Stores that informed the Security Exchange of closing plans between October 2008 and January 2009:
Circuit City stores - bankrupt all stores
Ann Taylor - 117 stores nationwide are to be shuttered
Lane Bryant, Fashion Bug ,and Catherine's - to close 150 store nationwide
Eddie Bauer - to close stores 27 stores and more after January
Cache - will close all stores
Talbots - closing down all stores
J. Jill - closing all stores
GAP - closing 85 stores
Footlocker - closing 140 stores more to close after January
Wickes Furniture - closing down all stores
Levitz - closing down remaining stores
Bombay - closing remaining stores
Zales - closing down 82 stores and 105 after January.
Whitehall - closing all stores
Piercing Pagoda - closing all stores
Disney - closing 98 stores and will close more after January.
Home Depot - closing 15 stores 1 in NJ (New Brunswick)
Macys - to close 9 stores after January
Linens and Things - closing all stores
Movie Galley - closing all stores
Pacific Sunware - closing stores
Pep Boys - Closing 33 stores
Sprint/ Nextel - closing 133 stores
JC Penney - closing a number of stores after January
Ethan Allen - closing down 12 stores.
Wilson Leather - closing down all stores
Sharper Image - closing down all stores
K B Toys - closing 356 stores
Lowes - to close down some stores
Dillard's - to close some stores.
When you look at names like Talbots, Sharper Image, Wickes, Levitz, and Cache, you see companies that have been around for many years and yet they have to close. It is important to understand that the only reason you close down a decade's old business is because there is no hope for the future. Their future has been discounted to zero. What you see above is on the surface. What's even scarier is what runs under the surface and by that I mean the hundreds of thousands of individuals who will be out of a job, or have their income drastically reduced, because they service the stores mentioned above.
The debate is now raging as to whether or not you help the auto makers, and it seems as if the Bush administration is not so inclined to do so. Some experts feel the auto makers will not make it through next week without help. That will have an adverse affect on more than one million Americans and yet we can give more money to AIG, which does nothing for the economy. The Paulson/Bernanke testimony this morning was a joke as they avoided any and all questions regarding the decision-making process and who receives bailout money. To date they have spent well over US $2 trillion to help a very select few and yet haven't added one thing to the economy. Not one house or one job has been saved except some CEO's and shareholders who happen to be friends of Hank. A company should not receive one cent of government money unless the CEO and major shareholders agree to pledge all of their personal assets should they fail. I guarantee that if you did that, the list of entities looking for help would be extremely short.
Today they had William Poole, an ex-Federal Reserve President and he had the nerve to say that we don't have deflation and there will not be deflation in the US. This comes after the PPI fell a record 2.8% and the Home Builders Index fell to its lowest level ever. Anyone with half a brain would recognize that we are in a deflationary scenario and if that weren't the case, the Fed would not be expanding the monetary base in exponential fashion:
You can see in this chart found in the St. Louis Fed's website that the base is headed straight up and that wouldn't be happening unless we were caught in a deflationary spiral. The real problem is that the Fed fell so far behind the curve that they can print until hell freezes over and it will change nothing. The rationale behind everything the government is doing now is that they had to act in order to prevent a panic, but the truth is their actions are the very thing that will cause a real panic and collapse.
None of this is lost on the stock market and that is why the Dow has been declining for more than a year in spite of almost daily attempts to manipulate the market higher. The Fed together with the Treasury has tried to alter the primary bear market trend with little or no success. As I mentioned last night, no one has ever succeeded in doing that and these clowns will not be the first. Right now the Dow is at a truly crucial moment in time as it is trading closer and closer to the very critical 8,146
level. Currently we are in the third attempt to break down through this important level and today's trading has seen both a lower low as well as a lower high. What's more the technicals seem to be breaking down even more as RSI, MACD, and the histogram are all headed down, and the latter turned negative yesterday. The October closing low in the cash Dow was 8,176 and currently the cash Dow is at 8,215 with an 8,105 intraday low. There have been numerous attempts to "support" the market today and they have all been sold into indicating that sellers abound.
I have no doubt that the government will do everything possible to hold things together, but I am convinced they'll fail. (At 3:39 pm EST they rallied the market 100 points in three minutes on nothing.) As a result, I see the following scenario. This market will close below 8,145 in a day or two. Then we could see a small spike (+/- 250 points) followed by a fast move down to the 2002 closing lows at 7,286. Again we should see a decent rebound, maybe eight to twelve sessions, followed by a retest of the 7,287 area. Whether the retest will hold depends on whether or not sellers finally capitulate and buyers see this as a real opportunity. My best guess, and it is only a guess, is that we won't see any capitulation and the market will drive lower. Once we break the 7,286 support then all bets are off.
ebo@dtanalysis.com
Dow Theory Analysis SAC
November 19, 2008
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