Thursday, August 27, 2009

Howard Davidowitz Returns to Yahoo Tech Ticker

Howard Davidowitz appears to be the only retail analyst joining us outside of the Matrix. Aside from just being a hoot to listen to (if I had a radio show, I'd have Howard on weekly!), we happen to be in agreement on many long term theories. We last checked in with Howard in mid February on Yahoo Tech Ticker when the world was ending. [Feb 17, 2009: Yahoo Tech Ticker - Howard Davidowitz: "Worst is Yet to Come" & "Americans' Standard of Living Permanently Changed"] But all it took was a few accounting changes by FASB, a stress test by the government, a few trillion dollars thrown at the economy, and the pledge to backstop any major bank in America - and a few decades of excess all were fixed. It's like magic folks. Wait, or is it like an illusion. One of the two.

Some other earlier pieces on Howard
  1. [Aug 14, 2008: Howard Davidowitz - the Only Realistic Retail Analyst in America?]
  2. [Mar 30, 2008: Howard Davidowitz on US Consumer]
As you can tell simply from those headlines above there is a reason Howard is not working for a mainstream Sunshine Band Wall Street firm ("the water's great! Come on in!") :) While I think this country's citizens are in for a rude awakening [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] and at some point in the future will have to face the music once the government loses the ability to create money from the heavens while building an even larger Matrix, I think Howard might have a more dour outlook than I. ;)

Let's hear his latest (I'm not sure what is he is doing espousing on banks in the third piece, but then again I'm no bank analyst and I opine on them as well)

(1) "In the Tank Forever" U.S. Consumers, Retailers in a Death Spiral

Retail maven Howard Davidowitz paid another visit to Tech Ticker this week. And despite signs of improvement in consumer confidence and retail stocks rising, Davidowitz is steadfast in his belief the consumer is dead.

Rather than summarize, let me just highlight some of his best one-liners:

On retail:
  • "The retail business is terrible... It's almost all negative."
  • "We're going to close hundreds of thousands of stores."

On the consumer:

  • "They’re still over leveraged, they're losing jobs, their credit has been cut back."

On America:

  • "We are in the tank forever. As a country we are out of control, we're in a death spiral."

On the stock market:

  • "We're in terrible shape. That's what the fundamentals tell me. I can't explain the stock market."

But it's not all gloom and doom, believe it or not. Davidowitz, who runs a retail consulting firm Davidowitz and Associates, thinks certain discount retailers, grocers, drug store chains and a select few department stores can survive and prosper in the future.

Most notably he likes the "extreme discounters" like Family Dollar, Dollar Tree (which was up almost 5% Tuesday after the company raised its outlook) and 99 Cents Only Stores. And, in the department store sector, he says, Kohl's will "be the only winner" because of their cost controls. (Davidowitz has no positions in stocks mentioned.)


(2) Obama's Spending Spree, Budget Numbers "Have all Gone Mad"

When retail expert and all-around economy watcher Howard Davidowitz appeared on Tech Ticker in February declaring the worst was yet to come for the U.S. economy and that Americans' standard of living has changed permanently, our comment boards lit up.

But surely with the latest rally off the March lows, bearish Davidowitz is more bullish, right? Not a chance. Look at your financial history books.

Two of the biggest rallies of more than 40 percent occurred during the Great Depression, says Davidowitz of Davidowitz & Associates,a retail consulting and investment banking firm. "People were sucked in and ultimately were destroyed," he says. It's a warning to today's investors, who are hoping to extend the rally.

Don't get Davidowitz started on the economy or fundamentals. "Barack Obama's numbers have all gone mad," Davidowitz says. The Obama administration recently announced the U.S. budget deficit will be $9 trillion during the next decade; $2 trillion higher than the original forecast.

And, the proposed price tag for health-care reform? "Minimum $3 trillion," Davidowitz says. "One trillion? Are you kidding?"

Stimulus binges? Roller coaster equity performance over years? Stubborn consumers holding out for sales as deflationary pressures loom over the recovery? Sounds like the U.S. economy is turning Japanese, Davidowitz says.


(3) "Banks Still in the Crapper": Expect Loan Losses to Mount

Since the government gave banks relief on mark-to-market accounting and the "stress tests" helped engineer a big round of capital-raising last spring, the financial sector has been on a tear.

Now a major debate is occurring over whether the sector remains attractively valued or is living on borrowed time.

On the optimistic side of the ledger, famed hedge fund manager John Paulson is upping his stake in Citigroup, The NY Post reports. Last month, an SEC filing revealed Paulson's fund taking big stakes in Bank of America, Goldman Sachs, JPMorgan, Capital One Financial and other financials.

On the other hand, regulators loosened restrictions on private equity firms' ability to buy failed banks, a nod to the drain on the FDIC's insurance fund given the failures of the past year - and more expected to come.

Count Howard Davidowitz of Davidowitz & Associates among the skeptics, which shouldn't surprise anyone who's seen his often grim (albeit entertaining) appearances on Tech Ticker.

"I think the banks have major problems to come," Davidowitz says. "The banks still have tons of toxic assets. [Plus] the shape of the consumer comes right back to the banks with all this credit card debt, student loans, auto loans [going bad] - all of this goes to the banks."

In addition to what he sees as a dire outlook for consumers, commercial real estate "is a catastrophe" and will add to the banks' woes, Davidowitz says.

Although REITs like Vornado and Simon Property Group have been able to get financing, many property owners are unable to renegotiate terms with their lenders to account for the new economic realities. As a result, many are under water and Davidowitz expects more commercial real estate owners to just walk away from properties, just as residential homeowners have done.

"Jingle mail" is already happening in the commercial real estate sector, with developers like New York's Harry Macklowe and California's Hines and Sterling already having returned properties to their lenders.

Davidowitz expect more of this, which means more losses for the banks, who've already been the beneficiaries of unprecedented government bailouts. "Did [regulators] do something for the banks? No question about it," Davidowitz says. "My question: when you spend $13 trillion, what did we get? Banks are still in the crapper. I have a problem with that."

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