By Rick Pendergraft

Dear Reader,

As far back as Labor Day, I have been warning that it was going to be a tough year for the retailers. Now we are seeing it play out to its fullest.

The warnings signs were simple - a tightening credit market, a slumping housing market, and a negative savings rate in this country. The logical conclusion to me was that it was going to be a tough holiday season for retailers. Where would consumers come up with money to spend?

December 21 gave us a very poor earnings report from Circuit City (CC) and a subsequent 28-percent plunge. Quite frankly, CC has been in trouble for years and this was just the icing on the cake. The stock has gone from 29 to below five in just over a year.

As I said, CCs performance doesnt surprise me. The one that surprised me was Target (TGT). Target warned a week ago that Decembers sales might not live up to meager expectations. I thought that discount retailers such as TGT and Wal-Mart (WMT) might fare all right, as consumers looked to save a little on their holiday shopping. But TGT apparently did not benefit from any such event.

The hurdle for retailers has been lowered to the point that my three-year old could clear it easily. But somehow, the retail sector manages to trip over the one-inch high hurdle.

Since mid-September, the S&P Retail Index (RLX) has lost almost 20 percent of its value.



Looking ahead to 2008, I dont expect the housing market to rebound until the fourth quarter, the credit market is probably changed forever (see the Newsworthy piece below), and U.S. citizens are not going to change their spending habits overnight. This leads me to believe that retailers will continue to struggle in the year ahead.

Have a safe and happy New Year.

Good luck and good trading,
Rick