Hit the shops. David Jones needs you now

Trading at David Jones has taken a dramatic turn for the worse. It may seem impossible, but we’re in danger of talking our way into recession.

July consumer sentiment, as measured by the Westpac-Melbourne Institute Index, has fallen to its lowest level in over two years.

If that’s not bad enough, the index is at a level that means the proportion of pessimists outweigh the number of optimists.

What has gone wrong in Australia? What ever happened to the “she’ll be right, mate” attitude?

As if to prove the point, high end retailer David Jones (ASX: DJS) issued a major profit downgrade, warning that second half profits could fall as much as 12% and first half profits next year by a whopping 20%.

DJ’s Chief Executive Paul Zahra cited a dramatic, rapid and unprecedented deterioration in trading. Harsh words, indeed.

Who’s to blame?

Do we blame it on the carbon tax? Or on Spanish retailer Zara? Or the toxic, negative political climate? Or the belated effects of the GFC? Or the rush to online shopping?

I give a tick to all of the above, with the biggest tick reserved for the pathetic excuse we currently have for political leaders in this country. Enough said on politics.

It seems impossible that, amidst an unprecedented mining boom, and with unemployment running at under 5%, consumer sentiment could be as bad as it was back in the deep recession of the early 1990s.

Yet that’s the reality.

Life’s too short

We need to snap out of the pessimism. Life is too short. As a first step, I suggest you stop reading, listening and watching anything about the carbon tax, particularly when it involves politicians. I’ve already done it. To you, the actual monetary cost will be minimal. Some will even gain. End of story.

Sure, we have some challenges. Large mortgages leave many financially vulnerable to further interest rate rises. Blame it on high house prices. Rather than fret about property prices falling, we should welcome them…but that’s a story for a different day.

Interest rates to fall?

Until recently, Reserve Bank of Australia governor Glenn Stevens was hinting of interest rates rises. But no longer.

At one stage recently, futures markets were indicating an almost 50% chance of an interest rate cut in August. That’s next month, in case you’ve lost track of the days. What a turnaround.

The David Jones share price took its expected shellacking, down a whopping 16%. Ouch. A statement from rival Myer (ASX: MYR) saying their trading was in line with expectations didn’t help, the inference being the trading problems are specific to David Jones. It’s not a good look for DJs.

The S&P/ASX 200 index hovers around correction territory, down close to 10% since its April highs. Another 10% fall and we’d be looking at a full-blown stock market crash, taking pessimism to a new high, or low, depending whether your glass is half full or empty.

The China growth syndrome

Meanwhile, the Chinese juggernaut carries on, unperturbed by carbon taxes and political electioneering, their economy growing faster than expected in the second quarter.

Whilst the rest of us cry into our empty David Jones and Noni B (ASX: NBL) shopping bags, it’s a clear signal the mining boom still has legs.

As evidence, witness the $4.7 billion bid by the world’s biggest coal miner, Peabody Energy and steel maker Arcelor-Mittal for our Macarthur Coal (ASX: MCC) just days after the unveiling of our carbon tax. They clearly aren’t watching our news bulletins, lucky them.

Things can only get better

So, should you dump the retailers and load up on miners like BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals (ASX: FMG)?

Not so fast, Fools. Although I’m personally not a huge fan of the retailing sector, you wonder whether, in the face of the mining boom, continued low unemployment, and potentially falling interest rates, things could get any worse for our shopkeepers?

Investors generally have a knack for selling at the bottom of markets and buying at the top. Such behaviour is a sure-fire way to generate mediocre, at best, investing returns.

Resist. Prosper. Be optimistic. And above all, hit the shops. Your country, and particularly David Jones, needs you.

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