The Five Dumbest Things on Wall Street This Week

3. Where America Doesn't Shop

Say you're running a struggling retailer. Say your earnings fell off a cliff in the third quarter to a mere penny per share from $1.27 a year earlier (that's 99% if you're keeping score at home), and wildly short of analysts estimates of 50 cents a share. Now, say your stock tumbled on the news and is nearly 50% below its spring highs.

And say you "do not expect any significant near-term improvement in the overall retail environment," as Sears Holdings (SHLD Quote) declared on announcing the aforementioned dismal earnings.

What would you do? Close underperforming stores? Announce massive layoffs? Use your dwindling cash position to buy back shares and shore up the stock?

Not if you're Eddie Lampert!

Instead of doing any of those things, and with cost-cutting initiatives apparently unable to mask declining sales any longer, Lampert is leading Sears deeper into the retail morass. His solution to the company's struggle in the home-goods department appears to be trying to acquire another struggling home-goods retailer, Restoration Hardware (RSTO Quote).

In other words, Lampert is effectively doubling down on what looks like a losing hand.

This could be a fatal error if Credit Suisse analyst Gary Balter is right. "It should be clear to investors that if Sears continues to try to make it as a retailer, it will likely not happen," he writes.

Balter, a longtime Sears bull, pulls no punches in his assessment of the quarter, declaring "visits to the stores show very little evidence that Mr. Lampert has figured out the magic sauce that makes good retailers profitable and we doubt that we will see that in the near and medium term."

The analyst does, however, toss Lampert and crew a bone by noting "home-related goods are a large bulk of sales," meaning Sears is "exposed to the worst current trends."

True 'nuff.

Dumb-o-meter score: 85. Lampert is a hero in value-investing circles, hailed as "the next Warren Buffett." But Lampert has failed to unlock the presumed "hidden value" after the Sears-Kmart merger two and a half years ago. We doubt the Oracle of Omaha would have made a similar gaffe.