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Bed Bath & Beyond Inc. Message Board

  • phil_fgv phil_fgv Jan 14, 2009 10:10 AM Flag


    I was amused by the comment of a clown yesterday on this board, saying that "it's all priced in". There's no priced in for this stock or the rest of the market. In fact, Wall Street is way too optimistic -- as usual. I've been hearing that the housing recovery is just "6 months away" for the past 3 years. Now, talking-stooges on TV blabber on about a second-half recovery. I pity them.

    The truth is that the US economy and the consumer have been fueled by a 25-year credit bubble. Household debt began to deviate from household personal income in 1984. The former outpaced the later exponentially until 2 years ago when the trend began to inflect. The bottom line is that America is finished. This will take decades to mean-reverse. , In the meantime, America will implode from a manufacturing, banking and retail perspective.

    On the retail side, the problem with a leveraged consumer is the multiplier effect. Leveraged consumers mean more stores, more manufacturers (cars, electronic goods, furniture, clothes, etc), more credit card companies, etc get created during the boom than are actually sustainable.

    From a lay perspective, think of America as a big hedge fund with $1 trillion and 100 employees. Now, imagine that America gets leveraged 10 to one (courtesy of its bank), so it has $10 trillion of purchasing power now. The extra funds under management mean Hedge Fund America can buy more stocks and go into more markets, so more analysts, research assistants, portfolio managers, accountants and lawyers are needed. This takes unemployment at Hedge Fund America from 100 to 1,000, commensurate with the leverage ratio that it enjoys. One day, however, the bank lending to Hedge Fund America, gets into trouble and needs to unwind it's leverage, so America loses the line of credit and needs to go from 10:1 back to 1:1 (ie. Hedge Fund America must go back to living within its means).

    All of a sudden, you don't need 10 times more analysts, lawyers, accountants and portfolio managers, so there are abrupt, massive layoffs.

    That's what's happening to the US economy. When you have consumer (1.5:1) and bank (30:1 ranging to 50:1) leverage as high as it's been, the unemployment ramifications are devastating. And when you get a seismic, sudden unemployment shock akin to the one we're beginning to see, consumers go in shutdown mode. That means there will be a precipitous contraction in the pool of consumer-dollars chasing retailers, malls, auto manufacturers, credit card companies, new housing, etc.

    Trust me, you have only begun to see the damage to stocks.

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