Courtesy of John Mauldin, Thoughts from the Frontline Weekly Newsletter
There’s a Slow Train Coming
A Negative 2% GDP in the Third Quarter?
Small Business Still Has Issues
Italy, Paris, Vancouver, and San Francisco
And a Forbes Cruise to Mexico
Sometimes I feel so low-down and disgusted
Can’t help but wonder what’s happenin’ to my companions,
Are they lost or are they found, have they counted the cost it’ll take to bring down
All their earthly principles they’re gonna have to abandon?
There’s a slow, slow train comin’ up around the bend.
- Bob Dylan
The question before the jury is a simple one, but the answer is complex. Is the US in a "V"-shaped recovery? Are we returning to the old normal? A great deal hinges on the answer, and this week we look at some of the evidence before us.
But first, a follow-up thought to last week’s letter. I wrote about why countries can reduce their private debt, reduce their public debt, or run a trade deficit, but not all three at the same time. If a country wants to see its government run a fiscal surplus (or small deficit) and at the same time its private citizens want to reduce their leverage (common desires throughout the developed world), it must run a trade surplus. That’s a simple accounting statement. If you did not read last week’s letter, you can get to it by going here.
That brings up the deepwater gusher in the Gulf. That it is an unmitigated disaster is an understatement. There is the possibility of the oil getting into the Gulf Stream and going around Florida and landing upon the Atlantic coast. We will be cleaning this up for years.
I am at the moment on a plane to Italy, but if memory serves me right, we run about a $300-billion-dollar trade deficit just in energy purchases. Our trade deficit has been coming down in most other categories but is fairly steady with respect to oil. And as noted above, if we want to get to a place where we are in control of our government deficit, we must reduce that trade deficit.
Kamalesh Rao, Director of Economic Research for MasterCard Advisors SpendingPulse, reported that following three months of steady, month-to-month growth averaging about 2%, total U.S. retail sales ex-auto stopped to catch its breath in April, falling by 2% since March on a seasonally adjusted basis. Taking out gasoline, the month-to-month number performed better, rising 0.3%, also on a seasonally adjusted basis, but not as strong as the 1.5% average of the previous quarter.
“Although there were pockets of strength, for example double digit growth in luxury sales and eCommerce, retail sales overall seemed to have lost some momentum in April. However, this is not untypical of a recovery, which will happen in fits and starts, rather than by taking a direct path,” noted Rao.
Year-over-year growth for total retail sales ex-auto also dipped slightly, cooling to 6.1% compared to the 6.9% growth of March. Added Rao, “This slight drop still puts retail growth at relatively healthy levels, especially when you compare it to the losses of last year.” Excluding gasoline the same trend holds: April saw retail sales ex-gasoline grow at a 3.6% year-over-year clip, down slightly from the 4.2% growth of March.
Retail Sales Statistics
Those stats reflect all retail sales, including cash, not just MasterCard transactions.
Ceridian-UCLA Pulse of Commerce Index™ Drops 0.3 Percent in April
With the release of April’s figures, the Ceridian-UCLA Pulse of Commerce Index™ (PCI) by UCLA Anderson School of Management is showing flat, overall performance during the first four months of 2010. The PCI in April fell 0.3 percent, suggesting the economic recovery may have stalled, although an uptick in consumer spending could continue to drive a slow but steady recovery.
Year-over-year growth of 6.5 percent in the PCI marks the fifth straight month of steady increase at “better than normal” levels. However, year-over-year growth of 10 to 15 percent in the PCI is required to drive down the unemployment rate.
While the economy continues to climb year-over-year, the PCI indicates that expectations in the market for a robust recovery may be too optimistic. The PCI closely tracks the Federal
I haven’t thought the 75%+ rally was particularly irrational over the course of the last 12 months. Surprised by the strength? Absolutely. But irrational, no. As of late, we’ve begun to see signs that the consumer is back, but the equity action implies that the consumer is not only back, but ready to break records. In late 2006 I wrote a letter that said:
“So here we sit with a relatively healthy economy, signs of inflation and record housing prices. Sounds pretty good, right? Not so fast. The markets could certainly move higher if housing doesn’t collapse, but we see very few scenarios in which that can happen. When the housing market slows consumers will spend less and businesses will begin to suffer. The US economy will then fall into a recession and European and Asian countries will quickly follow suit as the world’s greatest consumers wilt under the environment of low liquidity and higher debt….The credit driven housing bubble remains the greatest risk to the equity markets at this time.”
The day before the market bottom in March 2009 I said government intervention would likely generate an equity rally. But I did not come close to predicting that we were on the precipice of a 75% 12 month move. Not even close. On the other hand, I have never thought the move was particularly irrational and didn’t fight the tape through 2009.
I was very constructive on the market heading into 2010 and maintained that stimulus, strong earnings and an accommodative Fed would result in higher stock prices in H1. I point this out not because I am trying to toot my own horn or gloss over my many imperfections (many can be emphasized), but overall I have been able to not only foresee the macro mechanics driving the market, but have also done a fine job translating that into…
U.S. retailers’ March sales rose by their highest percentage in more than a decade, another sign that U.S. shoppers are back spending beyond what they need.
Total March sales rose 9.1%, the highest since data began to be compiled in 2000, with 92% of reported numbers topping Wall Street expectations, according to Thomson Reuters. International Council of Shopping Centers reported sales rose 9%, their highest since March 1999.
With the benefit of Easter falling this year on April 4, and thus being included as part of retailers’ March reporting month, instead of April 12 last year, they also said combining retailers’ March and April results would be a better gauge of shoppers’ spending power.
From high-end retailers Saks Inc. (SKS) and Nordstrom Inc.(JWN) to discounters Costco Wholesale Corp. (COST) and Target Corp. (TGT), same-store sales gains of more than 10% were seen across the board.
Better weather and an earlier Easter enticed Americans to shell out for spring clothes in March, the fourth straight month of gains for retail sales. Target, Macy’s, Gap and the parent of Victoria’s Secret all beat Wall Street expectations.
The improvement was broad, spanning discounters, mass merchants, specialty stores and luxury retailers. The gains offer strong evidence that people are feeling more confident in the economic recovery and are more willing to spend.
Retailers had several factors on their side. The earlier holiday combined with comparisons to notoriously weak sales in March 2009 had analysts expecting solid improvements. But it’s also clear that shoppers’ mindset is changing.
"There was a lot of talk about the frugality of the American consumer and that the recession taught people to save more," said Sherif Mityas, a partner in the retail practice at management consultant A.T. Kearney. "But U.S. consumers have short-term memories."
Before anyone gets excited about same store sales, please ponder the effect store closings had on comparisons.
More signs of economic stability this morning, though signs of real sustainable growth remain in doubt. Existing home sales were in-line with expectations at 5M. This was flat compared to last month and in-line with the overall trend of the last year. Demand for existing homes remains surprisingly tepid despite the soon expiring tax credit for new buyers. Supply in the housing market continues to build and increased to 8.6 months vs January’s reading of 7.8. While the stability is a good sign, the increasing supply is a negative. The sustainability of the housing recovery is in very real jeopardy.
In related news, KB Homes reported a larger than expected loss, but said they are seeing some stability in the housing market. Overall, however, it remains too early to call this a recovery:
“The operating environment for the homebuilding industry is better today than last year at this time,” said Jeffrey Mezger, president and chief executive officer. “Encouraging data in recent months suggest that a number of housing markets may be stabilizing or starting to rebound, though we do not yet see, in many respects, a sustained nationwide recovery. While the pace is likely to be uneven in the months ahead, we currently expect housing market conditions to follow a generally positive trajectory throughout this year and into 2011.”
Retail sales were again strong this morning according to Rebook and ICSC. Part of this is due to seasonal strength and the early Easter pulling sales up a week early, but the consumer has definitely been more eager to spend some money in recent months. Whether or not this is a good thing remains debatable, but the market seems to like it for now as stocks remain buoyant following the news.
In this morning’s Breakfast With Dave newsletter, analyst David Rosenberg talks last week’s retail sales report.
Don’t believe everything that you read, says Rosie. According to "raw data," retail sales actually FELL1.6% month-over-month in February, and you can’t just blame seasonality for this.
Breakfast With Dave: “It’s always best to look at what consumers do rather than what they think or say. They’re spending — that’s the main thing”. That goes down as the glib remark of the weekend — front page of the Investors Business Daily (Shoppers Perk Up, Lifting Retail Sales, By A Surprise 0.3%). Another pundit said pretty well the same thing in Barron’s and following the data on Friday there was an economist on CNBC who said that you never win by betting against the U.S. consumer.
What a load of you-know-what.
Let’s more closely examine that retail sales report.
First, the raw data actually showed that sales fell 1.6% MoM in February. Now it would be meaningful if February was usually a weak month for sales compared to January so that it would make perfect sense for the seasonal adjustment factor to give the raw data an upward skew. But in fact, retail sales rise over half the time in February. And while, on average, the not seasonally adjusted retail sales data are down 0.4% in each February over the past decade, the reality is that this past February was four times as bad as the norm — not to mention tied for the third worst February since 1998. Really good result, eh?
Second, here we have the greatest stimulus experience in seven decades and retail sales are still down 5% from the pre-recession peak and on a per capital basis are down 8%. Sales are actually lower today than they were in January 2006 — four years ago — even though the population has risen 4.3% over this time. And on a per capita basis, retail sales are no…
Well, not for this market it seems as we make new highs on ever decreasing volumes. While I have been very skeptical of this rally, at some point you have to give in and go with the flow. As I said at the end of yesterday’s post, "We still have a bearish short-term stance but we will continue to watch our technicals and play the hand that’s dealt" and that’s what we did as our 9:42 Alert to members contained 2 bullish was to cover our short plays with the TNA Apr $52/53 bull call spread at .45, which finished the day at .60 (up 33%) and the DIA Apr $106 calls at $1.08, which finished the day at $1.40 (up 29%) so not bad for scrambling for covers!
That’s how we can hold our bearish positions as the tide moves against us. As our final upside resistance levels begin to break, it may be time to break up, and not just cover, our short positions. BUT, not until next week, when we’ll know, we’ll know that it’s true and not just some pumped up reaction to this week’s $150Bn Jobs Bill, which is really a $150Bn debt bill with 1/2 the money going to benefits extensions and $25Bn just to offset rising Medicaid costs that our states can no longer afford. That leaves $50Bn for actual jobs or enough to put 1M people back to work at $50,000 for one year if it is used with 100% efficiency.
We have 25M unemployed, discouraged and underemployed workers and that’s a lot bigger of a hole than a $150Bn band-aid is likely to fill. Still, we missed the last 250 points of the run-up and we’re committed to miss 50 more (10,700) but, come next week we’ll have to follow Mr. Cramer’s advice, as he said yesterday: "Don’t be so skeptical that you write off very big, very real trends,” Cramer said, “that I still think, even from these levels, could make you a lot of money." Let’s take a look at "these" levels then:
We’re still following the uptrending channel I drew on Tuesday’s S&P chart with the MACD line up 50% in 3 days of trading – a difficult trick to keep up. Aside from the Jobs Bill, we’re getting a nice boost this morning from a "leak" that the supremely doveish Janet Yellen will be Obama’s pick for…
The Commerce Department reported higher retail sales in January, the third increase in the last four months, as American consumers continue to open their wallets after one of the sharpest contractions in spending since the Great Depression.
Following an upwardly revised decline of 0.1 percent in December, overall sales adjusted for seasonal variations rose 0.5 percent in January and the gains were broad-based with a full nine of 13 categories posting increases.
After rising 0.1 percent in December, auto sales were unchanged last month and, excluding autos, overall sales were up 0.6 percent following a decline of 0.2 percent. Excluding both automobile sales and sales at gasoline stations, January saw an increase of 0.6 percent after a decline of 0.3 percent in December.
On a year-over-year basis, overall retail sales were up 4.7 percent and, excluding autos, sales rose 4.6 percent. As these figures are not adjusted for inflation and when considering the level of sales one year ago (see chart above), the recent data loses some of its luster, particularly when considering which components contributed most to the increase in sales over that time.
Sales of food and clothing, aided by government assistance to a degree never seen before, continued to rise at about the rate of inflation, but, with unemployment still quite high, incomes flat or falling, and consumer credit collapsing as it has over the last year, it’s hard to see how spending in the U.S. will rebound to anywhere near the levels seen during the middle of the last decade absent the hefty contributions from discretionary spending.
Moreover, as we move further into 2010, the year-over-year comparisons will become increasingly difficult since the worst of the spending slowdown occurred in late-2008 and early-2009.
For example, from last January, gasoline station sales rose 29 percent and this was due exclusively to higher prices since the average price at the pump was about 50 percent higher than a year ago. Other categories posting the biggest gains were sales at nonstore retailers that rose 12.4 percent and auto sales that were 6.7 percent higher than immediately after the virtual shutdown…
I had put out a post last night detailing how we ended up short at yesterday’s close and at 3:21, when I published it as I was checking the Asian markets (don’t ask, I keep strange hours) it looked like I had called it wrong as the Hang Seng went into lunch up over half a point and commodities were still hanging tough after yesterday’s ridiculous run up. In fact, at 12:07, in Member Chat, I just so happened to say: "Copper $3.13 – ridiculous… Very annoying movement, not very playable like this as it can all crash back down again very fast."
Fortunately, we let our levels be our guide and cashed out our long DIA day trades in my 1:41 Alert to Members as we hit our Dow 10,165 target from the morning post. We flipped bearish to the DIA $100 puts at .62, which should have a nice open this morning. We had an FCX short play with the $70 puts that I couldn’t bring myself to let go of, even after they broke over our $72.50 stop line and my 1:50 comment on that position was: "I’m in a 4x position at avg. $1.16, now .71 so not good but I think copper run was BS so I’m willing to stick it out but very happy just to get even now. I think a big squeeze was put on commodity bears today with no energy reports to point out the demand destruction. Copper up from $2.93 yesterday to $3.13 today after taking two weeks to fall that far on the way down – that is nonsense! If I were not full I would roll up or DD but, as I said, I’ll just be happy to get back out and, if not by tomorrow, I’ll sell some other sucker my puts and roll to March."
Needless to say, despite having a rolling plan to turn the trade into a spread, I was not a happy camper as things held up into the close and then, through lunch in Asia and into Europe’s open. My closing comment to Members at 3:44 had been: "I’m still generally suspicious that we’ve had such a strong day on very low volume (Dow 136M at 3:40) when there was a storm. An amazing coincidence if nothing else…. The fact that it was led by…
The Big Picture has picked up on what appears to be an interesting development over at the NBER’s site. It seems like they are hedging there bets on a possible double dip recession beginning in late 2010 or 2011.
As you may know, the NBER is the organization which is responsible for the monthly dating of recessions in the United States. Back in May 2008, when Pollyannas were denying the recession, I wrote this prediction:
The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. For more information, see the latest announcement on how the NBER’s Business Cycle Dating Committee chooses turning points in the Economy and its latest memo, dated 07/17/03.
There has been a lot of conflicting evidence in regards to this fake, stimulus-induced recovery we are now witnessing. NBER committee member Robert Gordon of Northwestern University made statements this past Spring suggesting he sees an early recovery dating (see Jobless claims may signal the end is near from April 2009). But Martin Feldstein, another NBER dating committee member, is holding out. He said last year:
[M]y reading of the evidence does not agree with that of those who claim that … a sustained cyclical recovery is likely to begin within the next few months. … But, although
Here’s the REAL DEAL NO BS Situation with Europe (Warning What Follows is EXTREMELY BAD).
The media is rife with misrepresentations and analysis of the EU. Here’s the real deal.
The ECB is tapped out. Having provided over €1 trillion in funding via LTRO 1 and LTRO 2, taking on over €700 billion in PIIGS debt putting its own solvency at risk, it simply cannot launch another LTRO scheme for th...
"It is no exaggeration to say that since the 1980s, much of the global financial sector has become criminalised, creating an industry culture that tolerates or even encourages systematic fraud. The behaviour that caused the mortgage bubble and financial crisis of 2008 was a natural outcome and continuation of this pattern, rather than some kind of economic accident...And yet none of this conduct has been punished in any significant way."
~ Charles Ferguson, Inside Job
"I know that my retirement will make no difference in its [my newspaper's] ca...
The S&P 500 got off to weak start and, after retracing a modest morning rally, spent most of the day in the shallow red with an intraday low of 0.63%. But in the last seven minutes of trading, the index recovered enough to a make a small gain of 0.14%. This is the fourth advance, the first was Monday's 1.60 surge, but the last three have ranged from 0.05% to 0.17% with today's close near the high of the miserly three-day series.
The index is now up 5.02% for 2012, which is 6.93% off the interim closing high.
From an intermediate perspective, the S&P 500 is 95.2% above the March 2009 closing low and 15.6% below the nominal all-time high of October 2007.
Below are two charts of the index, with and without the 50 and 200-day moving averages.
TIF - Tiffany & Co., Inc. – A surprise earnings miss and a reduced full-year profit and sales forecast from luxury jewelry retailer, Tiffany & Co., took some of the luster out of its shares today, with the stock trading down 8.5% at $56.55 as of 11:50 a.m. in New York. Options activity on Tiffany this morning suggests mixed sentiment on the st...
RealNetworks, Inc. (NASDAQ: RNWK) today announced that it has reached an agreement with the Washington State Attorney General over discontinued e-commerce practices. In accordance with the settlement agreement, RealNetworks has committed to:
Discontinuing the use of pre-checked boxes for purchases of RealNetworks subscription products; Spelling out more clearly the material terms of RealNetworks product offerings; Offering online cancellation of subscription offerings; Enhancing RealNetworks customer support guidelines regarding cancellation. Statement from Thomas Nielsen, President & CEO of RealNetworks:
"About two years ago, the Washington State Attorney General's Office contacted us regarding concerns they had with some of our e-commerce practices.
To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...
First we'll go to the technicals. Back in mid April I had opined a 'bear flag' formation was being created. [Apr 17, 2012: Potential Bear Flag Forming] But the market being the difficult beast it is, head faked everyone and rather than a break down from said flag it first went UP and nearly touched yearly highs. This caused everyone to think the bear flag had failed…. only to lead to a horrid May in the market. Generally a bear flag will resolve relatively quickly but the longer...
Despite the fact that U.S. equities are well-positioned and well-supported to go up, once again it is the headlines out of Europe—especially Greece—that are scaring off investors. Some are saying that it is now likely (and even desirable) that Greece will default on all its sovereign debt, withdraw from the euro, and severely devalue its domestic currency (Drachma?). This will allow them to operate a balanced budget while pumping cash into growth initiatives, rather than suffer the ravages of Germany-mandated austerity.
Some say, so what? Greece makes up only about 2% of the Eurozone’s overall economy. Nevertheless, you might say that t...
Markets died and then rallied to flat again as European leaders “prepared contingencies” for a possible Grexit
Markets died hard and fast earlier today as major indexes registered as much as 1.5% of losses after news that Euro zone officials were unofficially “preparing contingencies” for a Greek exit from the Euro. Unofficial statements were not enough to keep markets down however, as major indexes rallied back to flat levels by the end of the day.
So the world continues to wait on Europe, as the SPDR S&P 500 ETF (NYSEACA:SPY) gained .05%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:...
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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
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Here is this week's test version of the latest newsletter. We apologize for some formatting issues that need to be worked out. Please tell us what you think.
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
In this article, please revisit an article written two years ago titled, "The Calm Before the Storm." This article focused on the patent cliff that was looming in the pharmaceutical industry, that was later picked up by the New York Times and several other bloggers! Subsequent articles were written about big pharma company's revenue streams, and the pros and cons of of their later stage pipelines. Other articles have also attempted to identify smaller biotechs with the potential to reap big reward...
My last weekend update is dated from January 30 so after a long hiatus, here is an update of our virtual portfolio. Since the last update, we have closed the AA Money portfolio due to a lack of enthusiasm (and activity) and I have stopped tracking the FAS strangle as the low VIX makes it hard to get rewarded for the risk! But we have added a small $5KP virtual portfolio which does not use any margin.
FAS Money
We have had to recover from a big move up by FAS and a low VIX which keeps option prices low. But the portfolio has gaine about 10% since the last update.
Last update P&L - $5499.00
IWM Money
Not a lot of activity in this portfolio where the main focus is on the large IWM BCS. But the portfolio has grown over 20% since the last update.
Last update P&L - $1998.00
$5KP Portfolio
This is the virtual portfolio that replaced the AA Money portfolio. It does not use margin and we will keep holdings under $5K.
AAPL $50K P...
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Following an upwardly revised decline of 0.1 percent in December, overall sales adjusted for seasonal variations rose 0.5 percent in January and the gains were broad-based with a full nine of 13 categories posting increases.
Thank you China! 
Needless to say, despite having a rolling plan to turn the trade into a spread, I was not a happy camper as things held up into the close and then, through lunch in Asia and into Europe’s open. My closing comment to Members at 3:44 had been: "I’m still generally suspicious that we’ve had such a strong day on very low volume (Dow 136M at 3:40) when there was a storm. An amazing coincidence if nothing else…. The fact that it was led by…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(