Coal in the Stocking for Retailers

Retailers who were betting on strong holiday sales are not happy with the way 2007 is ending. Target (TGT) warned this week that same-store sales for December may actually decline from a year ago. Other reports show growth that is sluggish at best. There is some hope that shoppers who received gift cards will redeem them in the next few days, but if so it will likely be at steeply discounted sale prices.

Other signs of economic weakness continue to add up. Today's government reports on durable goods orders and employment were disappointing, and investors seem to be losing confidence in the Federal Reserve to engineer a "soft landing" and avoid recession. We should begin to see the real impact of the housing bust as 4Q corporate earnings are reported in the first half of January.

Meanwhile, crude oil prices were already jumping even before today's news of the assassination of former Pakistani prime minister Benazir Bhutto. Instability in the Middle East is obviously nothing new. What is new is the possibility that radicals could take advantage of Pakistan's political chaos to seize control of its nuclear weapons arsenal. Much will depend on how this situation develops. Even in the best case scenarios, the fear-factor will probably keep a floor under crude oil prices - and a cap on global economic growth.

Due to the New Year's Day holiday, our next update will be on Thursday, January 3rd. By then we will know how the markets opened in 2008. It will be interesting to watch. Happy New Year!