The War on Deflation is still far from won, despite the  stimulative efforts by the Federal Reserve (and what gargantuan efforts they were — the monetary base has more than DOUBLED since the onset of the crisis).  Consumer prices in all but basic staples and highly volatile commodities like gasoline continue to be extremely weak.  With consumers stubbornly refusing to open their wallets, retail stores simply have no pricing power or bargaining leverage.

Today, Wal-Mart announced that the company would be cutting the prices of 100 popular toys to below $10 this Christmas season.

The fourth quarter of 2009 should prove to be interesting.  Year-over-year, we might see some degree of improvement over 2008 — but this is only because 2008’s numbers were already so incredibly bad.

Still, we would expect much of the same: bigger than usual discounting this Christmas season in an attempt to persuade reluctant investors to fork over their money.  They’ll have to work for it this year.  Welcome to the “New Normal” holiday sale.

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy