Must See: Howard Davidowitz Destroys The Recovery Illusion, Debunks The Consumer Renaissance

Tyler Durden's picture

Today's must see TV comes from the following interview of Pimm Fox on the consumer and the economy with retail expert Howard Davidowitz, who in 10 minutes provides more quality content and logical thought than we have seen from CNBC guests in probably all of 2010 (except of course for that one time when Erin Burnett kicked out Mike Pento, but that's a different story). Where does one start? Probably at the end: "I am not surprised by the strength of retail sales, because i knew that 30% of consumers are responsible for retail sales, and these 30% did much better because of the performance of capital markets. I don't think it is indicative of anything going forward. I don't think the economy is going to get any better. If you look at our fiscal and monetary policy, we went two trillion in the hole last year. Two trillion... to produce this... and unemployment went up to 9.8%! We've spent two trillion we're printing money we're going bananas. Our balance sheet, we've got $2.6 trillion on there, and what;s on there government securities, and MBS." And here is the kicker for the world's biggest hedge fund, which at least one person besides Zero Hedge appears to get: "If interest rates go up a point Bernanke's bankrupt. Everything he's bought is underwater. All the MBS are underwater, the whole country is underwater." Does anyone see the issue now with why rising interest rates, aside from predicting a "recovery", may also, courtesy of its now $2 billion DV01, "predict" the insolvency of the Federal Reserve?

Some other observations on the retail "renaissance":

  • Walmart is 10% of US retail sales, has 150 million customers, and its stock it is down 6 consecutive quarters;
  • Sears is the largest department store in America: "their stock is terrible"
  • Best Buy had a huge earnings miss
  • Toys'R'Us loss increased last quarter
  • A&P filed bankruptcy
  • Loehmann's filed bankruptcy
  • Charming Shoppes is going to close 100 stores
  • TJMaxx just liquidated AJ Right

And in addition to dissecting the collapse of Sears, Davidowitz observes what should be a loud glaring alarm signal for the likes of Ackman and all those who are betting on the resurgence of the US mall storefront and the likes of General Growth: the bulk of store traffic is moving online (where incidentally the only jobs created are those of packagers and QC line people either in China or in soe warehouse in TX, CA or FL). To wit:

Online sales have to lead you to question the whole retail selling strategy. We have 21 square feet of selling space for every man woman and child in this country. We already have double of what we need. With the explosion of online sales, what happens to all these retail malls and shopping centers which are marginals? Huge changes are going to be taking place as people continue shopping online.... In the end what do you do with the retail space...This is going to be a huge question for retail in the next ten years, that's why Walmart is starting to build smaller stores, that's why Walmart is building more overseas than they are building here. It's going to be the biggest retail change that we've ever seen."

The biggest losers: commercial real estate landlords. Read REITs:

Landlords better start figuring it out pretty quick because they already have occupancy problems, rent problems and everything else right now. I don't think the CRE problems are fixed by any means. That's why we are going to close hundreds of community banks going forward, we are going to close hundreds more. Those CRE debts are coming due and they will not be able to be rolled over. We've got lots of problems still coming up in the banking system, and the problems in the real estate issue is here for a long time.

In other news, Kool Aid to be served in aisle 5 of the next door Sears box from now until permanent closing time.

Full must watch video after the jump (we are looking for an embeddable version).

h/t etrader

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Widowmaker's picture

2 trillion+ pieces of cake.

Paul Bogdanich's picture

This interview is being actively censored by Bloomberg.  First the link no longer works.  If you search the Bloomberg site they list his past interviews and say some results have been ommitted.  If you search for the date and find the interview it abruptly terminates before he describes the assets bought by the Fed and says if interest rates go up a point we're bankrupt. 

Guy Fawkes Mulder's picture

Meh, I watched it today at this time and I saw the part you mention, un-omitted.

There is hardly a better form of censorship than the self-censorship, ignorance, and apathy of a population of complicit, dependent drones.

Also... he said the Fed would be bankrupt if IR's went up. Not anyone else (coincidentally, everyone else is already bankrupt, Ponzi style). The Fed would be bankrupt.

But that is of course nonsense, because the Fed never need have pre-existing funds to loan out or trade out funds. As Chris Martenson puts it "When you and I write a check, there has to be money in the account we draw from. When the Federal Reserve writes a check, there does not have to be." Adapt that a little and you get: "When a hedge fund buys a bunch of bubblegum wrappers at top-tick prices and loses billions in market value on the trade, it runs the risk of going under water into bankruptcy. When the Federal Reserve buys a bunch of bubblegum wrappers at top-tick prices and loses billions in market value on the trade, it has no less power to do business as usual than before."

The Fed is the banking cartel's magic machine, and the cartel designed it. It will always be there to trade millions, billions, and thousands of billions of dollars of new money for bubblegum wrappers from the banking cartel.

TruthInSunshine's picture

He may be the only person who I agree with 85% or more of everything I've ever heard/read him say.

Whether that's a good or bad thing for me, I do not know.

I do know development and commercial real estate, and I've already bet substantially on a thesis nearly identical to his.

But for those paying attention to the details, we've already seen two of the largest mall developers in the country (Taubman and Simon Properties) literally use jingle mail to give the keys back to the banks on entire malls, strategically defaulting (non-recourse loans, too) rather than continue to pay the monthly or quarterly nut.

And then there's General Growth Properties, once a 60 dollar a share mall developer/operator, reduced to pennies, and fighting for its life with Bernanke's 'Maiden Lane' assistance.

Reese Bobby's picture

Um, GGP is trading at $15.70 per share with a $15 billion market cap.

Reese Bobby's picture

I am wrong.  Pro forma for restructuring old shares are $15.70 X .0983. Sorry.

gmrpeabody's picture

Real men aren't afraid to admit a mistake. Well done.

clymer's picture

Just start at 11:28. That's the moment where giddy/shocked emotion takes over the professional posture that was intended throughout the interview.


(queue: "two trillion")

Dr. Porkchop's picture

I want his face on a t-shirt!

"Two Trillion Dallahs!!"

I think I need to buy a gun's picture

this guy was on cnbc the day the bailouts were announced back in 08 and said that the bankers just wiped out the gold jewelry in tiffanys that day.

TuesdayBen's picture

I'm in CRE.  In late 2008, I read a Deutsche Bank analysis of CRE market, in which they called for an overall **40%** decline in US CRE values.  I found  a decline of that magnitude simply hard to believe.  40% decline leaves most CRE loans well underwater.  But it happened, and the mess continues to worsen, IMO. 

Rogerwilco's picture

I'm following some CRE locally with an eye to a possible investment, but mostly out of morbid curiosity. The rare deals are being closed at 40%-50% off the 2008 valuations. We have a vacant strip mall where the for-lease sign faded to illegible, the wood posts rotted and one day it finally blew over.

bank guy in Brussels's picture

Howard is great, with first-class style.

Re Atlantic & Pacific (A&P) -

Jim Sinclair of JS MineSet, has suggested that the bankrupt A & P will be merged into Stop & Shop, and the new company will now be the Stop & P.

udecker's picture


I dropped my cigarette peabody choking on an olive

Jendrzejczyk's picture

That was the only "dirty joke" my Grandmother ever told...thirty years ago.

Thanks for the memories.

Miss Expectations's picture

Don't forget Centro:

"which manages $18.6 billion of shopping centres in Australia, New Zealand and the US - put its assets up for sale two years after its acquisition spree in the US backfired as the world's largest economy contracted and debt costs soared."

Mentaliusanything's picture

Lost 98% of its Value - 17c /share

Blackstone will choke because of the lack of maintenance carried out in the last 2 years.

This company is walking dead (zombie)

Oh regional Indian's picture

Somethiign many folks, even those steeped to their gills in "alternative" world-views neglect to understand is that many of these "decisions" to put vast sums or money into enterprises that any fools with 15 minutes of study could see are rotten to the core, are nto made by fools.

In fact, they are made by highly intelligent people, who rode to their places of vast wealth on the same smarts.

or wait, is it really like that?

In reality, all these big moves are decided by the same small group of people through their willing minions. It's three card Monty on a global scale. All this shifting of money, often huge amounts of PE money covers things like:

1) Money Laundering

2) Tax evasion on a global scale

3) Returns of favours for losses previously inflicted

4) Propaganda for sheeple

5)....... fill in the blanks.


Reggie Middleton's picture

I've covered this topic left and right, since 2007 after warning that GGP was insolvent and bound to crash. I got into a tit for tat with the CFO who called my research "garbage". A year after that comment, they filed for bankruptcy. See the whole story and over 700 pages of analysis at "

Most recently, we went throught the true weaknesses in the entire retail business, not just from the real estate side. This is a note that a BoomBustBlog reader sent me over the summer…


I took a screen shot of my play money account and the shorts from the four part series on why the consumer isn’t coming back.  Consumer retail has been nailed since May and from the 4 stocks you picked, here are two I chose to follow.

This is an example of exactly what we were talking about in our subscription documents regarding the ridiculous run up in consumer discretionary shares when taken in context of  the American consumer and the stress born from the Pan-European Sovereign Debt Crisis (click the link for our detailed analysis). You can find the earlier articles in this consumer mini-series as follows:

  1. What We’re Looking For To Go Splat! Part 1: macro arguments against the spike in retail stocks
  2. What We’re Looking For To Go Splat! Part 2: A list of 147 retail stocks with attributes that causes on to question their gain in prices, with a shortlist of companies who may very well go “splat”!
  3. Is the Consumer Really Back? Well, It Depends On If You Believe What the Government Tells You or Whether You’re An Indendent Thinker – The American Recovery and the North American Economic Outlook.

There are still a couple of mall REITs that have been levitating above water, but have but so much time left. I will be commenting on them in detail soon.

In addition, there was at least one other guy on CNBC who spit the truth, hence I must take exception to Tyler's comment...


Youri Carma's picture

Also Must See: Mirror, Mirror on the Wall, When is the Next AIG to Fall? | Marc Faber

Temporalist's picture

Anyone paying attention knew CRE was going down...pretended and extended but the bills are due and growing.

gmrpeabody's picture

Anyone paying attention also realizes the SDS will only be allowed as long as it continues down. Not if, but when it should explode to the upside, the SEC will shut her down. And a few other undesireable short funds about the same time.

How dare they speculate against the people!

AUD's picture

The Fed (all central banks really) has been insolvent for a long time, it's just that it has been in the peculiar position of being able to dictate the money markets, since the money markets have been more or less denominated in its own credit.

That said, they are not gods, they cannot really turn water into wine by wishing it to be so.

assumptionblindness's picture

It's sad that Howard still believes that the 'real world' really matters any anymore with respect to CRE and leveraged finance...pathetic loser.

TruthInSunshine's picture

It may not matter as much over the short term, as monetary policy has a way of ramping even the ugliest stocks, like REITs up, but you can be assured that quarter after quarter of declining foot traffic, and more importantly, sales per square foot (the holy grail of retail), will ultimately doom brick and mortar operations for exactly the reasons he states.

There will be a few that adapt and thrive, and services will always need a brick and mortar presence to conduct the business exchange, but I'd be pissing my pants if I sold a commoditized product available on Amazon or its many iterations.

puckles's picture

Services to consider for transformation:  homeless housing, massive massage parlors (to counter the stress), huge child care facilities, and adult services (all, of course, subsidized by the Feds).  They could probably offer cross employment!

Sean7k's picture

And citizen re-education centers...

Confused's picture

Isn't that another name for mortgage? :P 

lynnybee's picture

 " It's sad that Howard still believes that the 'real world' really matters any anymore with respect to CRE and leveraged finance...pathetic loser. "  .......... now, now .... be nice.   I adore HOWARD .......... he's everyone's favorite retail analyst !! HOWARD is in a class by himself, he's super cool & he is the man !!   ...... besides, he's super-fun to listen to !! 

VegasBob's picture

Howard's great.  He's one of the few mainstream analysts who sees through the smoke and mirrors and calls out Bernokio on all of his money-printing bullshit.

bobert's picture

If interest rates go up Bernanke is bankrupt?

What's the average duration of his portfolio?

Whats his cost basis for the same portfolio?

If you have no cost how can you loose money?

When the PD's have nothing more to sell who does

the Fed purchase from?

Can this go on indefinitely?

tahoebumsmith's picture

I love the way Howard always leaves his interviewers dumbfounded and bootlipping after he pummels them with a dose a reality, and he always does it with a big smile.

DeltaDawn's picture

Yes, that was the best part...the host's response.  The look on his face is as if Howard let loose a bunch of expletives!

theprofromdover's picture

Too right, he panicked and said 'Times up!' pronto before he got a spanking from upstairs.

sunny's picture

I just happened to stroll through one of the larger malls in one of the larger towns in our neck of the woods.  I didn't actually count but I'd guess that about 20% or 25% of the store fronts were boarded up with "space available" signs.  One helluva recovery.


TruthInSunshine's picture

I was in Phoenix recently, and got a chance to see the speculative office, industrial and commercial real estate built at a time when 68,000 residential building permits were being issued annually just for the Phoenix city limits (not including Glendale or the other sub-cities of Phoenix, which also were booming).

It was incredible to see brand new, first class (class A), completely empty buildings everywhere.

It wasn't just individual new buildings that were empty. Whole industrial and office parks in excess of a million square feet were 100 percent empty. Some had the names of Fortune 500 companies on or near the gate, in anticipation of occupancy at one time (and no doubt for marketing purposes), but they were completely empty, with not even a guard at the gatehouse.

It's one thing to read about it, and quite another to see it.

tahoebumsmith's picture

Here in Nor Cal I good show you malls with gold leafed signs and palm trees just sitting half done. And I'm not talking strip malls I'm talking the big kahunas, nothing spared. Endless strip malls completely empty other then the CVS or another anchor store. Automalls with empty dealerships and grass growing up from the parking lots. It is a total retail bust and guess what? They are building more???? Nobody seems to get it, they just think everything is going to miracously spike back to the 06 highs. Watching new housing tracts go in next to an existing 240 unit plan that only have 10 homes built is also quite amusing.

quintago's picture

you must be talking about Palladio in Folsom. Whole Foods is opening up soon, and that will drive a lot of activity.

I don't personally understand why people flock to a new whole foods each time like it's the second coming of Christ, but people do it. It's odd, they sell the same crap for a boatload, and people act as though they've never seen a Whole Foods before. 

TuesdayBen's picture

You remind me of Buckeye, AZ, a community west of Phoenix.  Three years ago, I was pitched participation in bank resi development loans there.  Passed of course.  So I googled Buckeye, and found this!:

decon's picture

Glad you had the wisdom to pass.  I was born and raised in Maricopa Co. AZ and have lived in Buckeye since 1992.  I have a small farm and so live in the agricultural part of town.  It's still a great place to live with little pollution, traffic or crowding and only 30 miles to downtown Phoenix but the development like your link showed were quickly on their way to ruining our bucolic lifestyle.  Now the beautiful agricultural areas are littered with the dead and rotting corpses of failed master planned communities.  Many people here still think things are going to turn around and land prices will skyrocket again but they're wrong.  I'll just be content growing alfalfa, dates, pecans and citrus!

DaveyJones's picture

fertile agricultural land, always had value, always will

GoinFawr's picture

"I'll just be content growing alfalfa, dates, pecans and citrus!"

Man the world sure could do with a lot more of the likes of you around these days...

Say I didn't have any FRN's handy; would you be willing to part with a portion of those tasty comestibles for the appropriate mass of silver or gold?

(Disclaimer: assuming that such an exchange was endorsed and certified by our ultimate supreme being leaders and masters of time, space and dimension; all the appropriate taxes were paid and hoops jumped through with dotted t's and crossed i's, of course.)

decon's picture


Thank you for the kind words.  I would certainly barter some of the fine produce for the fine metals.  By the way, they're the finest Medjool dates in the western hemisphere!

rlouis's picture

sort of like in China - brand new empty buildings [cities]

Alienated Serf's picture

between the colorado dam system silting up and rising fuel costs, phoenix has a few decades left.  it will be a ghost town and monument to delusion.  i look forward to the desert reclaiming that hellhole.

hangemhigh's picture

TO:  TruthInSunshine
on Thu, 12/30/2010 - 18:58

i'm very familiar with the phoenix market and know more than a little bit about the build out side of the cre biz.  the wretched excess and monumental over-reach that occurred was obvious to any one with any understanding of the history of the industry.  in the late 1980's, arizona was ground zero for another real estate depression that took out every locally owned lender in the state.  nobody remembered that when it counted, though.

not only is cre in deep trouble but the entire urban sprawl paradigm is suspect.  we have stranded untold trillions in an unsustainable model based on legacy transportation costs that can only escalate.

if you are in real estate, core and infill are the essential location concepts going forward.......

TruthInSunshine's picture


I am seeing more redevelopment projects in older, densely populated areas than ever before, with many such developments using 'brownfield' and other local, state and federal tax credits to re-develop even older retail properties (something not contemplated when these statutory tax programs were put in place).

These areas were 'unmentionables' back in the 2000 to 2006 period, as everyone was focused on the "the high per capita income outer suburbs."

In fact, I am seeing older, community malls being redeveloped into 'power center' retail sites, anchored by big box stores, and strip center on the ring road.

I will be out your way in May, for the ICSC Conference in LV. There were about 1/3 the attendees last year compared to the head count in 2007, but I still like attending anyways.