Monday, May 23, 2011

Retailers Getting Whacked

The market seems appears to be moving from a period of greed to a period of fear. World markets are pricing in re-newed problems in Europe, particularily in Greece, where Government bonds yields recently reached 17%. The market is also fretting about higher energy and material costs, combined with slower growth ahead. Finally, investors are pricing in the end of QE2 ( the US government's program of adding liquidity and capital to the economy - boosting asset prices) in June. Some of the first casualties of this downward repricing has been the retailers. Several retailers over the last month or so have been whacked -for the reasons above. Most of these retailers depend on discretionary spending to survive and prosper. Investors are clearly worried about the future of consumer spending and the economy.

Chart forGap Inc. (GPS)

I would expect the sell off in commodities and cyclicals to continue as the market grinds lower over the summer. This pull back in retailers will - at some point - present a buying opportunity. But it's early, so I'll wait for lower prices. My short list of retailers includes Rona, Big Lots and Best Buy.

Now is a good time to have cash.

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