Best Buy Warns and Other Stomach-Churning Headline News

Best Buy warned of a "rapid seismic" slowdown in consumer spending and lowered its profit forecast for the full year ending in February significantly, from $3.04 to $2.30 per share.  October sales plummeted 7.8% for the electronic retailer, indicating that consumers aren't racing out to buy new flat screen TVs in the face of rising unemployment, tightening credit, and declining home prices.  Frankly, a bit of prudence is called for by the American consumer in these uncertain times and I am somewhat relieved that consumers are actually behaving rationally.  Unfortunately, from the retailers' perspective, this new reality is tough to swallow, for it indicates that many face a particularly difficult year and some, like Circuit City, will throw in the towel.  The shifting retail scene has negative implications for commercial real estate as well, as mall operators will be forced to confront lease cancellations and empty space they cannot fill.  General Growth Properties, a mall owner, warned on Monday that it was near default on several loans that mature before the end of the month.  As vacancies rise and lease rates fall, the most heavily indebted REITs will face serious difficulty refinancing their debt.  Make no mistake, tough times lie ahead.

Meanwhile, the government continues its frantic efforts to prop up the US economy by offering money to just about everything that moves:

• The Wall Street Journal reports that AmEx is requesting $3.5 billion in money from the TARP.  Yesterday, the credit card company received approval to become a bank holding company.  Today we find out why.  
• The Democrats are working on legislation to use the TARP to bail out automakers.  Nancy Pelosi has apparently determined that they are too big to fail.  Unfortunately, it is nearly certain that without government funds, they will fail, and soon.    
• Fannie and Freddie's conservator, the FHFA, announced yesterday plans to modify mortgages for thousands of homeowners who are at least 90 days delinquent.  The plan is similar to the one currently utilized by the FDIC to help troubled Indymac borrowers, but it does not provide a reduction in principal for mortgages that are completely underwater.  As a consequence, the plan is being panned by mortgage market experts and the FDIC's Sheila Bair.