I had two fears going into this week.
Our worst fear has been realized, the Treasury Budget for July was a mind-blowing $102.8Bn deficit (see my extensive commentary last night) and today we get Retail Sales. Now we know July retail sales are going to suck, the stimulus checks are over and oil started the month at $145 a barrel, which kept most consumers parked in the garage and running around the house turning off the lights early in the month. Last July oil was $75 a barrel so $145 means it cost 200M drivers an extra $20 a week just to fill up their tanks so that's $8Bn ripped out of consumers hands by the energy crooks right there that couldn't be spent on IPods and Levis. Add food inflation to that and the consuming public was probably about $15Bn shy and in no mood to head to the mall as they stayed home and tried to figure out how to make their mortgage payment before they join the 2.5M families who have lost their homes since last July. While those families may be living at the mall now, they certainly can't afford to shop there!
So how do you think the Retail numbers are going to look? Ironically, $15Bn is EXACTLY the amount of money the FDIC did spend last month to cover deposits at failed financial institustions. 235,000 families lost their homes last month and giving every single one of them $50,000 to catch up on their mortgage would have cost $11.75Bn but the government would rather continue to allow the families to fail while supporting the banks who put the screws to the next 235,000 families in August who will lose their homes, forcing more banks to fail, causing the FDIC to write yet another blank check that helps no one and does nothing to solve the problem.
Congress is coming back soon and I urge readers to send a reminder to your local representative that we offered them a solution to this mess in April and it's been a long, unproductive summer so far conducting business as usual. Perhaps now we can run the numbers and look back and see which solution is really cheaper for America. At the time, the foreclosure rate was 7,500 homes a day, that number has accellerated to 8,300 homes per day and NOT doing something about this may cost us another $500Bn in bail-outs, which will help some the banks survive but do nothing for yet another 5M families that will face foreclosure in the next two years.
As dire as this may seem the key, from an investing standpoint, is that there is nothing new here. We know there is a mortgage crisis, we know retail sales were awful in July, we know we are slaving under the worst Administration that have ever been give free reign to plunder a nation for the benefit of their contributors – this is not news, and this is now what we look at in our investing decisions. We need to look forward and, as you can see from my April housing solution that can be triggered at any time and oil has already come down and the dollar is getting stronger – despite the tremendous fiscal irresponsibility of this administration because that too, can be reversed rather quickly.
So our investing premise remains unchanged. We like Technology, we like the beaten-down financials (the ones we think will survive), and we like our long-term blue chips as spreads to sell calls against because we view the economy as down but not out. We are expecting oil to bounce from $110 to $130, we are expecting the dollar to pull back to 74 – these things will not bother us and we will consider it very bullish if they don't go that far. Let the media panic the sheep in and out of stocks but nothing has changed for us since we started bottom fishing back in July at 11,200. We'll keep an eye on the Big Chart, which I will update tomorrow and we will make our short-term profits while adding to our long-term positions. As I said last night, even if we are right, this is not an easy path – but we choose the one that feels right and we can walk without fear.
The Asian markets were full of fear this morning, with markets in the region hitting 17-month lows on news of Japan's 2.4% annualized negative GDP. Again, this is backward looking data for a quarter when oil rose from a ridiculous $100 per barrel on April 1st to a beyond-all-rational-explanation $140 a barrel on June 30th. In 45 days since then, we are back to $113 so the average for this quarter can quickly go below last quarter if we hold the low $110s through September. I've said since April and I will continue to say it is ALL about the POO and we will get lots of bad numbers for Q2 as oil was a catastrophe of biblical proportions but it's time to look forward, not back.
There is a chicken and egg game being played by "economists" on TV who think that oil coming down is the sign of a global slowdown but we know that ridiculously inflated oil prices CAUSED the global slowdown – oil is the disease, not a symptom but our friends in the MSM (who get paid by Big Oil) are doing their best to cloud the issue with the official Fox/MSM tag-line being (and I'm sorry if this makes you laugh so hard your drink comes out your nose) "high oil prices are a sign of a robust economy."
Europe is also off about 1.5% as Russia followed the very strict definition of "cease-fire" by rolling their troops deep into Georgia and seizing the city of Gori without firing a shot (maybe we should ask them to help out in Iraq). Unfortunately, the Ossetian troops that accompanied the Russians did not sign a cease fire with anybody and apparently pillaged and plundered the city. "The Russians came first, then just behind were the Ossetians who shot at anyone they saw," said Zurab Mouravi, who said he witnessed at least three neighbors killed Wednesday morning in Garedzhvari. "The Ossetians walk into homes, take any valuables they want, and then burn the rest," said another villager, who only identified hismelf as Givi.
On the bright side, this should be good for our GLD calls and our USO calls but let's keep on our toes with the Crude Inventory Report coming at 10:35. Retail sales did come in, as expected, down 0.1% but were up 0.4% ex auto and anyone who thought auto sales were going to be a bright spot should immediately stop investing and give the money directly to a charity that may be able to help you one day… Import Prices were also up 1.7% and June was revised up to a shocking 2.9% while "economists" only expected a 1% increase. Really people, when are we going to get some new economists? We import $40Bn worth of oil per month, oil went up 20% in June, what do you think that will do to Import Prices???
Also good news for America, we gave as good as we got as the price of agricultural exports rose 6.7% in the month so take that starving people of the world! To sum up: Massive deficit – We already knew Bush was President, Financial Catastrophe – Sill not officially worse than his Dad's S&L Crisis, Poor retail sales – Duh, Global economy – Sucks more than ours. Yep, everything is right on track I think!
BBY will start selling IPhones next month and that should help to keep AAPL up today but the stock seems to always find a way to self destruct on an options expiration week so be careful. There was a fire today in Apple's HQ and we can expect there to be a rumor that it was caused by Steve Jobs spontaneously combusting or some such nonsense… GOOG CEO, Eric Schmidt is on the mid-day Mad Money segment today so let's watch that stock very carefully today. Just remember – have fun out there, it's going to be a crazy day!
