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Trading  | November 24, 2017

It has been an odd year for retail: with an estimated 6,000 store closures, and 65,000 fewer retail jobs than at the start of the year, many have said shorting retail, and especially malls, is the next “big short” trade. Indeed, one look at the performance of the mall heavy CMBX 6 BBB- tranche confirms that the bottom has fallen out of the legacy “bricks and mortar” space.

And yet, despite what should be a furious race to the bottom for market share by all still solvent non-Amazon retailers, this has not happened in what appears to be a strange manifestation of rational pricing. In fact, according to Market Track, last year the discounts were 6% deeper than this year across 17 categories in Black Friday circulars, the WSJ reports, and notes that only three of 10 major retailers the firm measured had better prices this year.

This was obvious to potential buyers like Delaney Dauchy, 15, who was shopping with her mother at a mall in Thousand Oaks, Calif., and told the WSJ that the deals aren’t as good this year. She recalled a seven-for-$28 deal on underwear at Victoria’s Secret last year; this year, she said it was five-for-$28. The Dauchys said there were smaller crowds than past years and Black Friday deals have been going on all week. “I’m not sure it seems extra special,” Anne Dauchy, 47, said.

To be sure, there are still deals to be had: on Friday, retailers dangled the usual promotions, many of which were identical to last year, including 30% off at Coach and 50% off at the Gap. By Thanksgiving Day, shoppers were already taking advantage of the bargains. Kevin Krause, 27, was first in line waiting outside the Kohl’s store in Medford, Ore., Thanksgiving afternoon. The store opened its doors at 5 p.m., but by 3:15 there was already a line forming.

However, as the WSJ confirmed, lines at many other locations were far shorter – if present at all – compared to prior years, such as this Best Buy at the Fair Lakes Shopping Center in Fairfax Country, VA, where there was virtually no excitement opened this years, especially when compared to 2011.

Then (in 2011)…

… and now.

A similar comparison with Macy’s, which the WSJ compares between 2011 and now. The difference is self-explanatory.

Naturally, in light of the smaller bargains, the lack of shopper euphoria is understandable: yet what is surprising is why there aren’t bigger bargains? After all, neither the industry, nor the economy has turned on a dime. Speculating on the reason, the WSJ writes that “even as this year has proved one of the most challenging for retailers, analysts are predicting robust holiday sales, underpinned by rising wages, low unemployment and strong consumer confidence.”

What rising wages? Aside from various “soft” surveys, and management expectations, wage growth remains abysmal, and real wage growth has been negative for three months!

What the WSJ probably means is that between near record low personal savings and a surge in credit card usage, Americans are spending like there’s no tomorrow… they are just not spending their own money.

Anyway, the always optimistic National Retail Federation expects sales to increase as much as 4%, to $682 billion in November and December, compared with the same period a year ago, which would make it the strongest season since 2014. The delusion about US households’ spending power continued: “I’d be fully expecting people to be thinking about spending more, not be holding back as much as in the past,” said Andrew Duguay, a senior economist at Prevedere, a predictive analytics company.

Spending more of what?  Here is America’s savings rate: unfortunately people don’t have “more” to spend… 

And yet, maybe the NRF is on to something. In an interview with the WSJ earlier this week, Neiman Marcus Group CEO Karen Katz attributed a jump in the luxury retailer’s gross margin in the latest quarter to stronger full-priced sales. “We’ve gotten our inventory in perfect alignment with our sales,” Katz said.

That could change in the days leading up to Christmas. Shoppers have been trained to wait for deals—a practice made easier by online price comparisons. If they hold off on making purchases, retailers will likely slash prices more than planned as the season progresses.

To be sure, the lack of deals now may mean even greater discounts in the coming months:

In a Long Island, N.Y., Wal-Mart Thursday evening, Andre Valadas said it had been hard to snag one of the discounted Sharp TVs being sold at the store or at a Best Buy across the parking lot, but glanced at his phone often to text with friends nearby looking for a similar deal.


The 34-year-old software engineer expects prices to fall further. “I hope that if they don’t have deals right now they will have a them in a few weeks closer to Christmas,” Mr. Valadas said.


Retailers still have to contend with headwinds that include a shift in consumer spending away from apparel and accessories and toward dining, travel and entertainment, as well as the explosive growth in online sales.

The above is bad news for bricks and mortar retailers, who may have gotten a brief reprieve only to lose even more customers to online alternatives like Amazon.

And speaking of, Adobe Systems said online sales on Thanksgiving increased 17% as of 5 p.m. to $1.52 billion. It also expects online sales to increase 14% to $107.4 billion during the November-December period, compared with the previous year. Amazon said Thanksgiving was one of its biggest mobile shopping days, as orders placed through its app increased 50% over last year. Best selling items included Keurig coffee makers and its Echo speaker devices.

Indeed, no matter what happens to traditional retail, Amazon is likely to be winner. The online retailer, whose stock hit another all time high, is expecting a big Black Friday as more shoppers choose to skip the stores.

“If you go back to the creation of Black Friday, it was this amazing opportunity for customers to get great deals,” said Dorion Carroll, vice president of mobile shopping at Amazon, in an interview earlier this week. “So they would flock to the stores and all of that would be great, until it wasn’t. It got too crowded.”

In fact, it may come as a surprise to some, that Black Friday is no longer the busiest shopping day of the year. It ranks No. 3, behind the Saturday before Christmas and Cyber Monday, according to the consulting firm Customer Growth Partners.

Several dozen people still gathered in line early Friday morning to be the first inside a Target store in Houston when it opened at 6 a.m., though some said the crowds were notably smaller than years past. Once inside, shoppers like Freddy Cespedes, 42, owner of a small security company, found the best advertised stuff was already picked over the night before.

“I was expecting a lot more people,” said the Black Friday novice though he acknowledged he, like many people nowadays, primarily shops online.

A revolutionary initiative is helping average Americans find quick and lasting stock market success.

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