Wednesday, December 15, 2010

Best Buy (NYSE:BBY) Bought Economic Reporting Kool Aid

The reporting by the financial or economic press has been largely dismal, especially in relationship to the so-called recovery, as they circled the wagons around Obama. Unfortunately for Best Buy (NYSE:BBY) they drank the media kool aid, believing there was some type of recovery going on, and so focused on brand-name high-end consumer items which people couldn't afford.

Best Buy Chief Executive Brian Dunn said noted, "The newer technologies, like 3D and IPTV (Internet Protocol TV), which we assort more broadly than anyone, have been slower to take hold."

It's easy to see a lot of people being fooled by the reporting that we're in an economic recovery, but a CEO of a giant retail chain like Best Buy should know better.

Anybody that believes Americans are all ready to open their wallets like they did in the past are delusional, as the Best Buy fiasco shows.

Anyone understanding business at all knows people are bargain hunting, and even though November retail sales were reported as better-than-expected by the U.S. Commerce Department, the vast majority of that will be found to come from bargain hunters and stores that met their needs and pocketbooks.

Reporting that consumers in the United States were buying more is misleading as well, as they are buying more of less expensive items, not necessarily spending more money.

When retailers report their earnings, we'll find out revenue was generated by sacrificing margins. It's as simple as that.

A small few may escape that outcome, but the vast majority of retailers will have lower earnings next quarterly report.

The fact of the misguided implementation of another round of quantitative easing should have been a warning to everyone that the economy is still in a recession. Even Warren Buffett has admitted to this.

If the economy is doing so well, why is the Federal Reserve ready to throw another $600 billion into it in an attempt to give it a boost? The answer is obvious: the economy is still in a recession, and that will continue on for some time.

The point for Best Buy and their management, is how could they have made such a bad decision. They should have known the general and mainstream financial media was going to paint the most positive picture they could, picking out any tidbit that makes it look like a recovery.

Best Buy closed Tuesday at $35.52, down $6.18, or 14.82 percent. Volume was almost 10 times the 3-month daily average.

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