Will Someone Tell Lowe’s That We’re In A Recession?
Wednesday, January 21, 2009
by Karim Rahemtulla, Investment Director, Smart Profits Report
Dear Smart Profits Report Reader,
America is mired in a deep recession - and the market’s problems are there for most people to see.
Almost everyone I know is thinking more carefully before spending these days and companies are desperate for the business.
Except Lowe’s (NYSE: LOW), it seems…
In the midst of such a marked economic downtown and weak consumer spending activity, it’s logical to expect more concessions and deeper bargains from companies. But not in this case…
Dead Wood
Having spoken to someone at the “contractor’s desk” a week earlier to place my order for some lumber, I spent a couple of hours at Lowe’s last weekend trying to buy some.
It wasn’t a small order and the employee had assured me that they would waive the delivery charge because of it. I was happy, since those little concessions can make a difference in where I shop - and I usually shop at Home Depot (NYSE: HD).
But with coupon in hand, I arrived at Lowe’s and wasn’t surprised to see how empty it was. I strolled over to the desk to find that the person I had spoken to wasn’t there that day. Regardless, she’d processed my order beforehand.
That’s when things started to go wrong…
It took about 30 minutes to get the help I needed to pick out and mix some paint, which I also needed. And when I headed back to the desk, the assistant said there was no note about the free lumber delivery.
I wasn’t happy since that was agreed upon and the charge only amounted to about 2% of the total order. Obviously, he didn’t believe me, so I asked him to throw in the delivery anyway. He said only his manager could approve that.
When the manager arrived, he said he’d knock $20 off the delivery charge. I laughed and informed him that we’re in a recession. It made no difference. Business must be going gangbusters at Lowe’s, since the store had no trouble letting me walk away without spending a dime towards what was a large order.
Home Again
Lowe’s didn’t want any money from me, but Home Depot did. In fact, I was able to buy all the same stuff and even used the store’s “bid” process to substantially lower my lumber cost. And a paint rep offered me a 20% discount on top of that, too. Sold! Plus, I felt glad to contribute my little bit to keep the wheels of commerce turning.
Next stop… Circuit City. But not for a couple of weeks. The electronics chain is going out of business, but apparently it’s in no hurry to discount its wares to vulture-like levels. Either there are lots of consumers willing to buy at higher prices, or… well, I don’t know the answer. What happened to the bargains that were supposed to be out there?
* * * * * * * * * *
If You Got The Credit, You Can Get The Money
Yesterday morning, I heard a floor trader complaining that nobody is lending money, which is why the market is tanking.
But two hours later, General Motors (NYSE: GM) said the thaw in credit markets is now visible and that funds are flowing. Every banker I talk to says there is money to lend. The only difference now is that you need good credit to play the game. Why that should be a surprise is anyone’s guess. I guess I now know the answer to the question I ask my accountant every year: “Why is everyone driving a new BMW?”
* * * * * * * * * *
Housing Still Overpriced
Turning to our old nemesis, the real estate market seems to be no different when it comes to disappointments.
Apparently, the only bargains out there are for houses that nobody wants. I just received an e-mail flyer for an auction in Miami. I know Miami pretty well and let’s just say that the city has its good areas and not-so-good areas.
I scanned the flyer and went online to see what the prices were like. Based on the opening bids alone, it was readily apparent that there was nothing good for sale on the bankruptcy steps. Sure, there was a lot for sale, but sellers are either saving the good stuff for their friends, or anything decent is still overpriced.
I admit none of this is scientific. But they’re everyday observations anyway.
* * * * * * * * * *
The Key To Knowing Which Financial Stocks To Speculate In
If you’re invested in the stock market, you know there’s a recession in stock prices in addition to the economic recession.
Even as President Obama took the oath of office on January 20, the market endured another assault on the banking sector - a situation that led to new lows, even though the general market hasn’t re-tested its recent lows.
Not a pleasant Inauguration Day - and not a good sign for the near-term. We saw some interesting dislocations before, as the general market headed higher while the financials sold off. But it didn’t last.
At their peak, the financials accounted for almost 25% of the S&P 500’s valuation - and that was just over a year ago. As of January 21, 2009, they made up less than 10%. Everybody wants to sell them. After the major financials have reported their quarterly earnings, we may see some worth in those left standing. The key? The ones that don’t need more money from the government. We’ll be watching.
Karim
P.S. Want to know what other stocks we’re watching at the moment - and more importantly, how to buy them with less risk? Simply join me and my team of professional traders at the Xcelerated Profits Report. Each month, we show you how to capitalize on the market’s trends and how to invest more safely than regular investors… yet still have the best chance of taking maximum returns by using the professional investment strategies that are essential to successful investing today. CLICK HERE for more details.
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