Kass: Retail Is Now Veering Off Target

Trouble in the air for retailers. Also, global housing woes.
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The slow-motion drop in retail spending appears to be gaining speed after

Target

(TGT) - Get Report

said April same-store sales will be "much weaker" than its initial guidance, which came less than two weeks ago.

Additionally, the company now expects comparable same-store sales for the combined March/April period to be in a range of 3% to 4%, which is down from the March 8 guidance of 4% to 6%. Because Target reported a high +12% comp in March, this implies a negative mid-high single-digit comp decline in the current month.

It is important to note that Target, unlike

Wal-Mart

(WMT) - Get Report

, has been gaining market share, so its comps provide a relatively good barometer of retail spending health.

Many will contend that this is the retail pause that refreshes, a temporary slowdown. Some might even, like

General Motors'

(GM) - Get Report

Bob Lutz did yesterday, blame the subprime meltdown on slowing auto sales. Others -- especially of a Wall Street sell-side kind -- will rationalize the disappointment by citing unfavorable weather and, astonishingly, "the negative impact of an Easter shift," as

Citigroup's

retail analyst did on First Call last night.

Excuse me, but didn't Target forecast April comps with the knowledge that there was an Easter shift? And people wonder why I am so distrustful of Wall Street research.

I believe retail spending is about to "hit the fan" due to a number of factors: a tapped-out consumer; a levered balance sheet (both absolutely and to the price of homes); pressure on disposable income with inflation climbing; the absence of MEWS (mortgage equity withdrawals); lower home prices and activity; and a generally more restrictive environment for credit.

The worst is yet to come for the consumer, for retail spending, for the economy and for corporate profits.

The Real Estate Downturn Goes Global

Property and home prices in Spain -- like on both coasts of the U.S. -- have increased rapidly since the turn of the decade. However, fears of an end to the housing boom in Spain are sending Spanish stocks lower.

The IBEX 35 Index lost 2.2%, and Spanish property stocks, which have rallied dramatically over the past five years, were at the forefront of the drop. Following the imposition of stricter urban planning rules in Valencia, shares of big developer Astroc Mediterraneo SA dropped 12% following a 37% decline Monday. Other developers dropped, including Fomento de Construcciones & Contratas SA, Acciona SA and Grupo Inmocaral SA.

Concerns regarding Spanish banks' involvement in property lending also caused 3% to 4% drops in the shares of Banco Bilbao Vizcaya Argentaria SA, Banco Bilbao and Santander Central Hispano SA, as credit loss concerns permeated the trading activity.

The speculation in property development and bank stocks in Spain is symptomatic of the overenthusiasm in many emerging markets and could spell trouble ahead.

At time of publication, Kass and/or his funds were short WMT and RTH, although holdings can change at any time.

Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd. Until 1996, he was senior portfolio manager at Omega Advisors, a $4 billion investment partnership. Before that he was executive senior vice president and director of institutional equities of First Albany Corporation and JW Charles/CSG. He also was a General Partner of Glickenhaus & Co., and held various positions with Putnam Management and Kidder, Peabody. Kass received his bachelor's from Alfred University, and received a master's of business administration in finance from the University of Pennsylvania's Wharton School in 1972. He co-authored "Citibank: The Ralph Nader Report" with Nader and the Center for the Study of Responsive Law and currently serves as a guest host on CNBC's "Squawk Box."

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