Cramer: Retail Faces Defining Week

 | Aug 16, 2013 | 6:23 AM EDT
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The biggest debate in retail will be solved next week. Right now, there's a definitive split out there.

The stock intelligentsia believes that the public is still spending, but only on the house, not the body. In other words, apparel's weak, much weaker, but home goods are strong. The debate gets settled next week when Home Depot (HD) and Lowe's (LOW) report.

I have to tell you that I am truly worried about retail here. Our country seems, overnight, to have become a nation of savers. The borrowings are way down and the money's not being spent at the mall. People seem to be hunkering down at precisely the moment they shouldn't be, when jobs are coming back.

There are two explanations. One is that Washington wrecked things with the taxes and the sequester and people are feeling it, especially when the tax of higher gasoline is upon us. Another is that they are still spending, but they are spending it on their homes now that homes are going up in value. Anyone who has been on a Home Depot call knows that home spending has been below average for years and years now. Maybe that's changing.

But if it isn't, look out below. That's why the risk-reward on retail's so daunting here. If Home Depot and Lowe's say good things, then we know they are spending, but not spending at traditional mall-based stores, so there may be no reason for traditional retailers to rally. But if they aren't spending on the home and that's cooled too, I have no doubt in my mind that all of retail takes a hit down to levels where the stocks represent better bargains than they do now.

Home Depot, at 20x earnings, could easily trade down to $70 if it doesn't have a pretty darned good quarter. So could Wal-Mart (WMT) if that happens.

This group, to me, is in trouble. It's ridden the refinance and housing boom for ages. Those are over. These stocks will not be bailed out by an improving Europe or Asia. They will only be hurt by Washington when the summer's over.

Puts anyone?

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