Continuing Trend - Thrift

Ah yes, the return of thrift, nowadays only known to us through "back in my days" speeches from our elders and brushed aside in the wake of the "new paradigm". That is, until reality catches up to you and reversion to the mean finally awakens you to the fact that history actually has some precedence. In the wake of credit contraction and consumer awareness to managing a budget responsibly should take notice of The Return of Layaway:

You'd have to be TV-free to have missed Kmart's commercials over the past month touting the company's layaway program. Starting in October, the low-price retailer made a big push to get layaway noticed -- although Kmart has had layaway for 40 years. So why now?

As the economy's tailspin continues, Kmart figures customers will want a prudent way to pay. Layaway lets you select the stuff you want now (while it's in stock) and pay for it over time. By the time you take your purchase home, it's paid off, which means one less credit-card surprise come January.

In a recent PersonalShopper.com survey, almost half of the respondents said they're not looking forward to holiday shopping because they're afraid they can't give the gifts they want without maxing out their credit cards.

Layaway forces shopping discipline. Says Ludwig Bstieler, associate professor of marketing at the University of New Hampshire's Whittemore School of Business and Economics: "There is a segment of consumers who have a hard time paying their bills. In times like these, that group grows larger, and layaway offers them a way to purchase something without going beyond their means."

Tom Aiello, a spokesman for Kmart and Sears, agreed, but says that the cash-strapped aren't the only customers seeking other options. "There's this whole movement of frugalistas," he says. "It's suddenly hip to be frugal."

A comeback

This month, Sears brought back an expanded layaway program -- it covers most store items -- that the company had axed in 1989. The program is just a trial, though -- it will run only through Christmas for now, and it does not affect the company's fine-jewelry layaway program.

You can also do layaway online. Web sites set up layaway programs for merchandise they buy through partner e-tailers. Once you're paid the bill in full -- payments can be deducted from your checking account -- the item is shipped to you.

Because layaway programs are expensive to administer and represent only a small fraction of business for the stores that offer them, Bstieler says we shouldn't look for more to come. Unlike the days of the Great Depression, when all the major department stores had layaway programs, credit is still king and the demand for instant gratification is high.

Instant gratification will be a thing of the past at year end 09' and next year layaway will be much more popular. This will not save the retailers though, but is a welcome step to financial responsibility. Regarding the holiday shopping season:

U.S. Retail Sales Drop As Auto, Fuel Purchases Slump:

Dec. 12 (Bloomberg) -- U.S. retail sales fell in November for a record fifth consecutive month, led by slumps at auto dealers and service stations that overshadowed gains at electronic and department stores.

The 1.8 percent decrease was smaller than forecast and extended the longest string of declines since records began in 1992, the Commerce Department said today in Washington. Sales at service stations dropped by a record 15 percent as fuel costs plummeted.

...

Excluding autos, purchases dropped 1.6 percent, also less than anticipated.

Retailers are discounting heavily to lure consumers in, margins will be squeezed and more layoffs will come as a result. Fuel pump sales plummeting in the face of dramatically dropping fuel prices is never a good sign.

U.S. Consumer Sentiment Index Unexpectadly Improves:

Dec. 12 (Bloomberg) -- Confidence among U.S. consumers unexpectedly improved this month from the lowest level in 28 years, reflecting a record drop in gasoline prices that gave temporary relief to household budgets.

The Reuters/University of Michigan preliminary index of consumer sentiment rose to 59.1 from 55.3 in November. The reading exceeded every forecast in a Bloomberg survey of economists.

...

The U.S. lost the most jobs in 34 years in November and the unemployment rate rose to the highest level since 1993, the Labor Department reported last week. The 533,000 drop in jobs brought the cumulative losses this year to 1.91 million.

Difficult to Spend

In addition to job losses, Americans have to contend with declining home values and stricter lending standards, making it difficult for them to spend. U.S. household wealth fell in the third quarter by $2.81 trillion, the most on record, Federal Reserve figures showed yesterday.

This "unexpected" rise is temporary and job losses are going to soar. Sentiment is still dreadfully low by all historic means. The official unemployment rate is at 6.7%, but is more realistically in line with the U-6 number at 12.5%. Besides the obvious job cuts that will continue there are serious State Level Concerns & Fed Intervention coming. Finally,

U.S. Consumers Seen Facing "Liquidity Squeeze":

“The entire mortgage market hit a wall,” Whitney wrote, adding that home loans probably fell last quarter. There hasn’t been a drop since the second quarter of 1982, according to the Federal Reserve data cited in the chart. The Fed will release third-quarter figures later this month.

Whitney also projected that banks will reduce unused credit- card lines by 45 percent during the next 18 months. That works out to $2.13 trillion, based on the total credit lines available from all lenders insured by the Federal Deposit Insurance Corp. as of June 30, according to the report.

I respect the opinions of Meredith Whitney highly as she has been right on top of everything in this economic disaster, so take heed of her predictions. The days of abundant amenities for ordinary consumers have met their end. The days of savings and production have just started.

From an investors point of view, I look forward to a return to a production based economy with a large scale back in services. This means in the future screen for stocks of companies that build things, aka infrastructure. Regardless of a massive Obama infrastructure project, there are estimates of over $1 trillion in infrastructure repair needs. Look to the energy sector, more specifically clean energy, although I wouldn't discount oil and gas because these are mature cash rich companies the world will depend on for years to come. utilities and natural resource companies, these are business that provide us with things we need, not crap consumers can cut from their budgets in the blink of an eye and are the areas where additional production is needed and therefore jobs as well.

Don't look for opportunities immediately; these predictions are years in the making and the road will be tough. Instead comb the field for opportunities and wait to strike like a cobra after governments finally quit meddling and return to more free market principles, hopefully.