Posted by Larry Doyle on November 16th, 2009 11:24 AM |
“If you can keep your head when all about you are losing theirs…”
Retail sales rebounded strongly this month posing a 1.4% gain. Good news, right? In an attempt to provide a degree of sanity to what has become an extremely volatile report, let’s break this report down a little bit further.
Recall that our automotive sales have bounced around tremendously over the course of the last three months due to the Cash for Clunkers program. Auto sales soared in August given Uncle Sam’s handout. Once Uncle Sam shut that spigot off, auto sales dropped like a stone in September. In October, auto sales had a respectable bounce. All this said, there is no respected economist who doubts that the Cash for Clunkers program pulled demand forward. In the process, it has skewed the overall retail sales readings. What is the American consumer doing away from the auto sector? Let’s navigate. (more…)
Posted by Larry Doyle on October 14th, 2009 9:54 AM |
When the going gets tough…the tough American consumer goes shopping, right? Do the virtues of thrift and frugality truly stand a chance in America? Let’s review the recently released Retail Sales report and navigate this leg of our economic landscape.
The Wall Street Journal provides a snapshot of the surprisingly strong headline number, but dare I say the WSJ does not provide a full comprehensive review. That’s ok, though, because the equity market futures are driving higher on the headline so why should we dig deeper and spoil the fun? Well, I’d be neglecting my mission here at Sense on Cents. Let’s navigate.
The consumer pulled back sharply in September-but it was mostly due to the post-“clunkers” drop in auto sales. Otherwise, the numbers were surprisingly healthy for the most part. Overall retail sales in September dropped 1.5 percent after a 2.2 percent spike the month before. The September drop in sales was not as severe as the market forecast for a 2.1 percent fall. The decline was led by a 10.4 percent plunge in auto sales after a 7.8 percent boost in August. Excluding motor vehicles, retail sales advanced 0.5 percent, following a 1.0 percent jump in August. The consensus had expected a 0.3 percent rise for September.
In typical fashion, the focus on the current month’s outperformance is not properly measured in the context of the previous month’s downward revision. If The WSJ wanted to provide real integrity in its reporting, it would provide an equal weighting to the revision in conjunction with the actual report. In doing so, we witness that this month’s so called outperformance is almost uniformly balanced by last month’s downward revision. We witness a similar dynamic at work in Retail Sales excluding auto sales, as well.
By incorporating the revisions, retail sales over the last two months show a marginally positive trend, but hardly the ‘surprisingly healthy’ review provided by The WSJ and other market mavens.
Checking on the other volatile component, gasoline sales provided lift, gaining 1.1 percent in the latest month.
Is this an indication of increased consumer confidence and thus the willingness to travel more, or merely a function of increased prices for gas . . . or perhaps a combination of the two? To tout it as a pure positive is disingenuous.
Nonetheless, excluding motor vehicles and gasoline, retail sales rose 0.4 percent, following a 0.6 percent gain the previous month. Although core components were mixed, they were mostly positive and reflected sizeable gains. Apparently, the consumers that have jobs are a little more optimistic and are willing to spend.
Again, not a clear cut overwhelmingly positive trendline, despite what The WSJ may want to report. I still maintain we are, at best, a third of the way into our marathon towards a newly defined Uncle Sam economy. As such, it is still prudent to assess where we are in the grand scheme. To that end:
Overall retail sales on a year-ago basis in September improved marginally to down 5.7 percent, from down 5.8 percent in August. Excluding motor vehicles, the year-on-year rate increased to minus 4.9 percent in September from down 6.3 percent the previous month.
Enjoy the ride higher in equities, but don’t get overly caught up in the euphoria. Analysts may neglect to properly measure revisions, but we do it at our peril if we want to properly navigate the economic landscape.
Posted by Larry Doyle on March 30th, 2009 12:46 PM |
There is little doubt the American populace is getting increasingly frustrated with the pace and level of government bailouts. Are we about to literally “go over the line?”
Is the United States about to allow a Canadian company to incorporate itself here in the U.S. for the purpose of receiving a bailout? Is this the height of hypocrisy or what?
I refer to the fact that Oppenheimer Holdings, a Toronto based investment company involved in the travesty surrounding the sale of ARS (Auction Rate Securities) is looking to incorporate in Delaware in order to receive federal bailout funds. From Bloomberg’s If Oppenheimer Gets Handout, Blame Canada:
Oppenheimer “is exploring becoming a U.S. corporation and a U.S. bank holding company in order to help resolve the ARS problem for our clients,” the company said in its annual letter to shareholders released last week. (Toronto’s Oppenheimer & Co. isn’t related to OppenheimerFunds Inc., a unit of Massachusetts Mutual Life Insurance Co.)
The “ARS problem,” of course, is the nasty pickle Oppenheimer has gotten itself into with customers who hold $929.6 million in auction-rate securities, the ill-fated investments that flat-lined in February 2008. The auction-rate meltdown left investors at Oppenheimer and many of its Wall Street brethren unable to liquidate positions that had been marketed as, well, pretty darned liquid, to customers who often had no clue about the product’s risks.
Why should U.S. taxpayers bail out an investment company that improperly marketed securities? Why shouldn’t Oppenheimer, and every other investment manager or bank that improperly – if not fraudulently – marketed ARPS, be forced to make their own investors whole? (more…)
Posted by Larry Doyle on March 5th, 2009 9:45 AM |
In very short order, the FDIC (Federal Deposit Insurance Corporation) has seen its reserves plummet from $50 billion to $18.9 billion at the end of 2008. At that pace and with the expectation of more bank failures, could this bedrock of our national banking system go broke? Well, FDIC’s Bair Says Insurance Fund Could Be Insolvent This Year. Is Sheila Bair unnecessarily sounding warning signals? Am I running to the bank to withdraw my money? No and no.
Sheila Bair is proactively managing expectations for all concerned, those being politicians, regulators, bankers, and consumers. In fact, if she did not highlight the current state of the FDIC reserve fund and expectations for future declines, she would not be fulfilling her obligations. (more…)
Posted by Larry Doyle on March 3rd, 2009 2:48 PM |
There are a string of events in the market today that all highlight the need for entities to refinance debt and raise capital. Given the tightness of credit and the onerous terms being exacted within the bond market, many firms are massively capital constrained. These issues are global in nature. From our friends at Bloomberg, I offer the links to a number of these situations. In light of these types of situations, one does not need to be in a hurry to buy stocks. Additionally, given the demands for capital, I still maintain that rates are headed higher.
I will share with you some of the current problem situations getting serious attention:
Posted by Larry Doyle on February 28th, 2009 2:20 PM |
. . . You Better Shop Around.”
What does that wonderful song from Smokey Robinson and the Miracles have to do with our economy? I’ll tie that in a bit later.
More and more people are inquiring of me how and why banks are making credit tighter both in terms of availability and in terms of rates charged.
This tightening of credit is due to the “crowding out effect” from dramatically increased government borrowing along with the actuality and likelihood of increased defaults across all consumer and corporate loans. In the face of those defaults, banks will set aside more capital in reserve to cushion those losses.
What is a consumer to do? There are two tactics:
1. Everything’s Negotiable which I highlighted in a post dated December 23, 2008. Talk to your bankers and/or credit providers. Put your banks and other credit providers in competition. Where does one start and how does one easily comparison shop? I’m glad you asked because that leads me to point #2.
2. Shop around (thank you, Smokey)! Sense on Cents provides links via our Primers (in the right sidebar) for a look across the market to virtually every consumer credit need. Remember I have NO professional relationship with any of these entities. From borrowing needs to investing, with many stops in between, I hope these primers help you navigate the economic landscape going forward!!
And now, a trip down memory lane . . .
Posted by Larry Doyle on November 11th, 2008 2:30 PM |
I will admit that, given the current dynamics at work in the economy and the markets, I have become somewhat numbed as to the magnitude of some of the developments. Many of the highlights that I will offer from yesterday’s news would be enormous stories in and of themselves. Taken collectively, they do become overwhelming if we let them.
The markets are down 5-6% on the month. Given the stream of negative news, one might think that the market could be even lower. The fact that markets aren’t even lower is testament to the trillions of dollars that have been put to work by governments around the world.
Let’s review the major stories of November 10, 2008:
1. China implemented a $563bln economic stimulus plan primarily to further develop infrastructure in the country. That figure represents 1/5th of their total GDP. I was surprised to hear that, but it also indicates to me how much growth potential that country possesses. This package had an immediate impact on our equity markets this morning when our markets were up 3%. This package also supported commodities, especially copper which bounced about 5% on the day. Aside from infrastructure, China directed this stimulus package to an area that was badly damaged in a recent earthquake. Last but not least, China offered “tax deductions” on the purchase of certain hard assets. (Are you listening, Barack??)
This stimulus package though indicates to me that it is not likely that many of our domestic companies will likely be receiving capital injections from sovereign wealth funds. With oil at $60, oil producing countries (such as Dubai) may need to support the real estate developers and exporters in their own countries.
2. Fannie Mae reported a loss of $29bln (I’m not going to say earnings when companies lose money) which equates to $12.96 a share vs an expected loss of $1.40 a share. (How can Wall St. analysts maintain credibility when they miss a call by almost 1000%?).
It is amazing how Fannie can rack up losses like this when their own incentive bonuses are not on the line and when collectively Uncle Sam owns them. Aside from this loss, Fannie did announce that they expect losses to continue and to increase into 2009. This to me means they see foreclosures increasing over the next 6 months. More than likely Fannie will have a negative net worth by the end of 2008 requiring an increased capital injection by the U.S. taxpayer. Where does it end!!
Again, this model is broken. The American consumer who is able to get a mortgage is being subsidized at the expense of the taxpayers. Let the private market set the mortgage rates and if the housing market re-prices, so be it. Enough socialized housing finance. (more…)