Walmart To Benefit From Housing Weakness

Housing doomsdayers received vindication late yesterday when it was reported that U.S. existing home sales had fallen by 27 percent in July. Home purchases dropped to an annual pace of 3.83 million, the lowest on record in 10 years of keeping this data. It was also far below the forecasts of economists, leading to fresh concerns about the sustainability of the economy. And these concerns are well-founded, as it's unlikely that the economy will return to any level of vibrancy without a housing recovery. Americans view their homes as a store of wealth -- until recently, they operated under the assumption that home values increased by at least enough to keep up with inflation, and usually more. So when the value of their home goes down, Americans "feel" poorer, because their net worth has fallen. As people continue to see decline in home values, regardless of whether or not they are actually pinched for cash, they will think of themselves as worse off. This has a powerful effect on aggregate demand in an economy. When individuals feel poorer, they will be reluctant to spend -- especially on anything extravagant. That means that consumer spending, which accounts for 70% of the economy, will likely remain severely depressed until a housing recovery instills confidence in the broader economy. Even those with the income to spend won't do so with values plummeting so low. That psychological net worth effect of seeing their assets decline in value will over take any wage increase or job gains, as new money will be funneled into savings and debt repayment until they see a sign that the broader economy is taking a turn. And for most Americans that sign is the price tag on their home. With housing likely to sputter for the foreseeable future, this offers a few interesting trading possibilities to play depressed consumer sentiment. With people hunting for any and all ways to spend less on the same amount of goods, Walmart

could thrive. Walmart ballooned in the spring and summer of 2008, when consumers were feeling the pinch of a spike in oil prices and were looking for other ways to save money. Consider that since December 7, 2007 (about when the recession started), Walmart is up 6.7%. The S&P 500, meanwhile, is down almost 30%. That's something for investors to consider as they look to profit from America's macroeconomic direction -- whatever it may be. Is WMT a Buy, Sell or Hold? Click