11.20.09

November 20, 2009.

THIS BLACK FRIDAY WILL BE MORE IMPORTANT THAN MOST! 

          The day after the Thanksgiving holiday in the U.S., known as Black Friday, traditionally marks the beginning of the holiday shopping season in the U.S. It’s said to be the biggest day of the year for retail sales but it isn’t. As far as actual sales go, that honor usually goes to the day before Christmas. But Black Friday is the busiest day for store ‘traffic’. Retailers open early, sometimes several hours early. Prices are slashed on popular items. Crowds line up early, sometimes camped out all night to be among the first in line to get at the bargains.

          Over the last 20 years it has come to mean the day when many retailers see their profits move into the black for the year, after struggling in the red through the summer.

          Black Friday is important as one of the earliest indications of how the overall holiday shopping season is going to turn out. And with consumers now accounting for 70% of the nation’s economy, this holiday shopping season will be particularly important. It will go a long way toward either confirming that the economy is recovering nicely from the recession, or will support concerns that the recovery in the third quarter was only temporary, and a slide back into recession is possible.

          Meanwhile, trying to obtain guidance from the economic reports for October and the first half of November has not been very fruitful, given the mixed picture they paint. On the consumer spending side of the picture, retail sales rose 1.4% in October, but with auto sales removed, rose only 0.2%. And they were not signing up for new homes as evidenced by the 10.6% plunge in new home starts in October and 4% decline in permits for future starts. So the mixed picture has markets nervous and looking to Black Friday for guidance.

          I suspect though that the elephant in the retail sector, Wal-Mart, has skewed how the results will come out. Wal-Mart announced a week ago that it was pulling its Black Friday big-ticket item pricing ahead by a week (creating a Black Week?). And from the number of flyers in my mailbox from its big-box competitors a few days later announcing “Black Friday NOW”, its competitors had no choice but to follow the leader. It’s hard to say what spreading a portion of the sales over the prior week might do to the Black Friday indicator that traders and investors are waiting to see.

          It’s very interesting, and informative, that the same thing happened in 2003, and probably for the same reason; massive excess liquidity flooded into the financial system in an economic stimulus effort. Looking back at 2003, in 2002, the prior year, Washington had launched what was then a record super-sized economic stimulus package in an effort to pull the economy out of the 2001 recession, a recession that had been exacerbated by the 9/11 terrorist attacks.

          In late 2002 and early 2003 the stock market had serious concerns about whether those stimulus efforts were going to work, since the economy seemed to still be in trouble. So exactly as it did this year, in 2003 the stock market declined in what is typically its favorable season, to a low in early March. Also exactly identical to this year, the market then launched off that early March low in 2003 into an impressive rally that continued through the summer, typically the market’s unfavorable season.

       It will be interesting to see if the similarities continue, since once November, 2003 arrived, the beginning of the market’s next favorable season, the stock market rally actually accelerated, and didn’t end until March of the following year.

          With the coming week being a short one, and a lot riding on the week-end retail sales, we remain 100% in CASH.

          Happy Thanksgiving

Till next time

The MTA Staff