Possible Recession? Difficult Period?? Gawrsh!!!

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Well well well. And it didn't cause the market to tank, either - even after a massive day yesterday. Earlier in the day, we had Best Buy (BBY) numbers out, cheering the markets up. (See below.)

Let me refer to Gary Balter of Credit Suisse (ex-DLJ and who 28 years ago placed first in Canada in the Chartered Accountancy exams, thereby receiving the Governors General Gold Medal... just thought you'd like to know...) who I have in my very short list of must-read US analysts.

He wrote way back on March 10th in a piece entitled "The Current Crisis From A
Retail Analyst's Perspective" that

"We are in a recession. The jobs data pretty much confirmed that although we will have to wait for all the experts and officials to tell us that after the fact. There is a big difference between this recession and the mild one from 2001. In that recession... Mortgage Equity Withdrawals (MEW’s) effectively offset the declining growth in wages and other income to keep consumer spending at surprising strong levels. We do not have that luxury today.

"If that was the only problem we would be able to see the light. However, we have two other serious issues. The second major problem is liquidity. We have a credit crunch that, as we discuss below, in our opinion, is not as bad as it appears but is currently drying up important access to credit for both consumers and corporations.

"Third, consumers are facing inflationary pressures, which in our opinion, is the biggest threat of all." (I can't get the link to the actual piece, unfortunately - for some reason the CS system makes it really hard)

Pretty pithy, but obviously he wasn't alone in seeing a recession pretty much confirmed from his bottom up work. More interestingly, he notes in "The New Credit Crunch" 2 weeks later that "the bottom line of the lower availability of credit will be fewer shipments/tighter credit to higher levered or smaller less credit worthy retailers and market share gains by the large well financed players." More specifically, he explains that:

"... it is the vendors in most situations not the banks that cause retailers to declare Chapter 11. They are the ones that are cutting back credit, whether at a Linens N' Things, a Circuit City, or potentially a Borders. It was this reason that the Borders management said that they felt compelled to raise what looks like expensive financing. Expect to see it in other segments of retailing as vendors are also look at challenging credit conditions and need to conserve their exposure."

And who are the Winners and who are the Losers, so we (sitting thousands and thousands of miles away) can get a grip of implications from their results and guidance and NOT draw over-simple and inaccurate conclusions about the overall health the whole space and the beleaguered US consumer as a whole?

• WINNERS: Bed Bath & Beyond, Best Buy (see above!), Dick's, PetSmart, Staples, Barnes & Noble
• LOSERS: Borders, Circuit City, A.C. Moore (& Linen's N' Things, Sports Authority, Petco)

Of the names above, we just had BBY... its evil doppelgänger Circuit City CC is due to report next Weds 9th (along with Bed Bath & Beyond BBBY)... will the market get sold down if CC looks shoddy and guides low?

(If you want to take these as a long term retail stock long/short list, you could do worse, but that's not why I'm writing here!)