Citigroup Troubles, Retail Woes Roil Market

Wall Street has been shrugging off bad economic news for a while now, but Wednesday felt like the good old days of last September and October, when the Panic of 2008 was in sell! now! mode. The Dow dropped more than 300 points briefly, ending down 248.42 points, or nearly 3 percent. The S&P 500 and Nasdaq lost even more by the end of the day, in terms of percentage: 3.35 percent and 3.67 percent, respectively. What spooked the markets? News about Citigroup, for one thing–gee, the bailout didn’t seem to help Citi all that much, it turns out. Citigroup’s shares plunged Wednesday, down about 22 percent, and word is that there will be an emergency meeting of the board of directors Thursday, perhaps to discuss–argue?–weep?–about the fate of the financial giant. It’s fairly certain that, whatever happens at the meeting, “giant” might not be apt for Citi going forward, as it dismantles itself. At times like this, former Treasury Secretary George Shultz’s quote is worth remembering: “If they are too big to fail, make them smaller.” He was talking about Fannie Mae and Freddie Mac, but the wisdom seems to apply to other parts of the financial world. U.S. retail sales have been dropping month-by-month for some time now, but now retail sales numbers are in for the whole of 2008, and they’re unprecedented. Sales were down 0.1 percent in 2008, compared with 2007, according to the U.S. Department of Commerce. In the four decades that Commerce has been tracking consumer spending, the total has never declined year-on-year. The Commerce Department also reported that December marked the sixth straight decline in consumer spending, down 2.7 percent from November, though if automobiles and gasoline are excluded, the decline was 1.5 percent. Moreover, some of the decline is attributable to declining prices, which probably fell in December (the government will release inflation–or deflation–numbers on Friday). Compared with December 2007, retail sales were down 9.8 percent, or 6.7 percent excluding autos. “Our view is that consumer spending will be weak for the remainder of 2009 at least,” Joshua Shapiro, chief U.S. economist for New York-based forecasting firm Maria Fiorini Ramirez Inc., told CPN, noting that retailers will have to adjust to a new consumer reality. “A long-term adjustment in the economy has started. Spending will be down compared to recent years, and savings will rise. It has to be that way because the credit excess was unsustainable.” The post-holiday season has historically been a time when retailers went under, and the tradition continues this year, though some retailers didn’t wait for Christmas to be over this time around. On Wednesday, Gottschalks Inc., a chain of 58 department stores mainly in the West, filed for bankruptcy. It’s shooting for reorganization. Apparel retailer Goody’s L.L.C., on the other hand, will use bankruptcy to liquidate its remaining 282 stores, most of which are in the Southeast. Holly Golightly might have been crazy about Tiffany’s, but these days jewelry buyers are less enthusiastic about the brand. Unlike in the days of Breakfast at Tiffany’s, when there was but a single location, the company now boasts more than 150 stores around the world, all of which experienced a serious sales contraction during the holiday season–down a total of 21 percent from the holiday season in 2007–thus making Tiffany’s a particularly visible example of the suffering among carriage-trade retailers.