Even Wal-Mart

To further underline the point I made yesterday about the deteriorating fundamentals for major U.S. corporations, even Wal-Mart is now experiencing problems. That is quite ominous since consumer spending is the least cyclical component of the economy (especially if you exclude the sale of cars, which Wal-Mart doesn't sell).

And Wal-Mart can in fact be expected to be even less cyclical, as it is a low price chains, and during periods of economic distress, low price goods and chains appear relatively more attractive. For such goods and chains, the "substitution effect" of low prices being a higher priority for consumers will counteract the "income effect" of consumers having less money to buy goods for, meaning that they will suffer a lot less or not all or even benefit during slumps. That was why Wal-Mart was the best performing stock of all major companies last year.

But as this latest announcement illustrates, the income effect is now becoming so great that it overwhelms the substitution effect, at least for Wal-Mart.