Bad Year Ahead For Some Companies

Last year was a difficult year for businesses. Most of the news centered around the financial sector. Bankruptcies and bailouts for AIG, Bear Stearns, Lehman Brothers, and more underscored a hard year for financial services. However, banks and related institutions weren’t the only companies in dire straits in 2008.

High fuel prices (remember those), softening global demand, and consumer hardship brought a sea of troubles to other American companies. Airlines were especially hit. Aloha, ATA, Eos, Frontier, Silverjet, and Skybus Airlines all filed for bankruptcy protection. Other transport companies took a beating. JHT, Motorcoach, MPF, and Greatwide Logistics also went bankrupt. It seems when demand slows for products and services, companies that deliver them can be the first to suffer. For more details, check out a complete listing of 2008 bankruptcies.

Will this year be any different?

We’ve already witnessed three full weeks of market activity in 2009. Since the December 31^st close, the S&P 500 is down -7.9%. Could this be an omen for more frustration and failures? It’s probably too soon to tell. Even so, I don’t think it’s a very promising start to a good year. Obama agrees. Even before the outgoing President bade farewell, the incoming President was talking down the year. In his first internet-based address, Obama echoed his uneasiness about the financial situation:

“Our economy could fall $1 trillion short of its full capacity, which translates into more than $12,000 in lost income for a family of four. And we could lose a generation of potential…in short, if we do not act boldly and swiftly, a bad situation could become dramatically worse.”

Even though the new President is selling the next round of government-sponsored debt, there’s still a strong basis for his concern. We’re in a tough spot. This year we’ll see more bankruptcies hit the market. We’re already witnessing the signs through prominent cutbacks. According to Forbes.com, some well-known brands are shuttering stores.

Last year, Starbucks announced plans to close 600 stores. Since many consumers aren’t shelling out five bucks for a Venti Latte anymore, those neighborhood caffeine stands have slowed down. But Starbucks isn’t alone. One of our shorts last year, Zales (ZLC), is also hurting. It seems their high-priced goods aren’t moving fast enough to pay for their high-priced rent. Pacific Sunwear (PSUN), Sears Holdings (SHLD), Charming Shoppes (CHRS), and Sprint Nextel (S) are all struggling in malls across America. All of these companies are closing stores. In some cases, these businesses won’t make it through the year. It’s hard to say when this situation might end. For now, we expect a tough year.