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Retail Wednesday – Is America Shopping?

Retail Sales.

They make up 60% of our GDP and December's Retail Sales were down 0.7% in December from the previous month, rather than up 3-4% as expected for the holidays.   Anything positive this month would be an improvement but the trend has not been our friend recently.  Excluding Autos, the trends are far worse as people still bought new cars last year, something the auto industry wisely locks in as 26% of all cars (50M) in the US are leased – so you HAVE to get a new car every 3 years or so.

14.6M cars were sold in 2020 and that's pretty much the amount of lease turnover for a year.  Auto Sales overall were down 15.5% from 2019 and even leasing was down at 26% from 30%, so that dropped about 15% too.  The key takeaway from the last Retail Sales Report is that it was clear that Consumer Spending decelerated at the end of the fourth quarter, partly because of expiring benefits, weakening confidence in the short-term outlook, and restrictions on certain activities due to worsening coronavirus trends.

  • Motor vehicle sales increased 1.9% m/m after declining 1.5% in November
  • Gasoline station sales were up 6.6% after declining 1.6% in November
  • Electronics and appliance store sales dropped 4.9% m/m following an 8.3% decline in November
  • Nonstore retailer sales fell 5.8% after declining 1.6% in November
  • Food services and drinking places sales declined 4.5% after declining 3.6% in November

We'll see what we get in the 8:30 Report but, to give you and idea of how insane the market is these days, this is what the Retail Sales ETF (XRT) looks like DESPITE these FACTS:

Up almost 100% from previous years – AMAZING!  That's the extent to which the market has left reality behind.  The index didn't change, the profits are down SIGNIFICANTLY but traders (I can't call them investors) are paying DOUBLE for the same stocks DURING the pandemic.  EVEN if we fully recover and EVEN if everyone goes back to work (still 10M less jobs) and even if things look promising – HOW do we justify a 100% increase in the price of stocks in the Retail Sector?  

8:30 Update:  Forget Retail Sales, PPI popped 1.3% – that's a crazy jump in inflation but, on the bright side, that was driven by a 5.3% jump in Retail Sales, led by a 14.7% increase in electronics and appliances and a 4% jump in Gasoline Sales.  Overall, this sounds pretty good but there's a danger here that it's so good that it takes the Fed off the table – as they can't afford to let inflation get out of control.  This market is up more on stimulus than actual activity.  Of course it was just pointed out to me that a lot of people got checks in early January – so we have to take that into account on these numbers.  

We'll find out tomorrow if Oil (/CL) benefitted from the same burst of consumer spending but, keeping in mind that you don't have to drive to shop, I'd say tomorrow's report will not be supportive of $60.  Nonetheless, /CL is over $61 this morning and we will once again Double Down with tight stops above, looking once again to improve our average cost per contract.  As I pointed out yesterday in our Live Member Chat Room at 12:25, there's no point in adding more shorts if you don't take a profit so we took 0.25 and ran yesterday and we'll do the same today if $60.75 looks too bouncy.

We're very confident in our oil shorts and we just pressed our SCO longs yesterday as we simply don't see the justification for this 20% run from $50 at the start of the year and from $40 for the 2nd half of 2020.  Sometimes you just have to bet on reality…

We'll see how the market reacts to strong retail numbers and we have Fed Minutes at 2pm and those tea leaves should give us enough spin not to have a big sell-off today.  Tomorrow we'll see if Housing Starts or the Philly Fed benefitted from those stimulus checks as well and Friday we get Existing Home Sales and On-Line Sales so plenty of data to guide us into what's already the last week of February coming up.

 


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  1. Are you still in your cl short phil?


  2. Good morning!

    /CL/Rayne – Yes, another DD at $61 and now the stop (on the DD) is $60.75 but hopefully $60.50 if all goes well.


  3. Because of the in and out action, you have to ignore the average price but you can tell from the P&L the break-even is about $60.25 now.  If I can get 1/2 out at $60.50, then the basis is around $60 on what's left and I'm thrilled with that.

    Still, you can't let what you wish for get in the way of what's real so, if we're over $60.75, I take the 0.25 (on the new 4) and be very happy with the small win.  


  4. It's the fat of the candles we pay attention to (this is a 1 min chart), not the spikes.  Don't care if there's a 1-min spike over $60.75 but a close above it (on the 1 min) means pull the trigger unless the next candle is below.  

    Looks likely to fall further though so next stop will be $60.50, then $60.25…


  5. Holy crap!

    Now the stop is $60.25 but I'll take 6 (of 8) off if that breaks and I'll be back to my normal 2 short.  We may get $60 at this rate!


  6. Goalllllllllllllllllllllllllllllllllll!!!!!

    WOW!  That was unexpected.  Now it's a hard stop on 4 but $60 doesn't even look like it's holding…


  7. What a timely comment.  First one in years.  Thanks Phil!


  8. First time in years I've been timely?  


  9. $59.75 it is.  Back to 2 short.

    What a way to start the day!



  10. Ha no Phil.  My first comment in years.  You are timely all the time ;)


  11. cool


  12. What a difference an hour makes in oil!

    That's why I don't need to mess around with MoMo stocks – I get my thrills on the Futures market!


  13. Was on the NewWire:

    *DJ Saudi Arabia Set to Reverse Recent Unilateral Oil-Output Cut — Saudi Advisers
    (Dow Jones 02/17 09:08:42)


      (MORE TO FOLLOW) Dow Jones Newswires

    That's exactly what we were talking about in that webinar – oil started falling off the table right when that came out.

    I wasn't watching it because I had my Fundamental trade already in but it's nice to know WHY my play finally paid off.


  14. That's the thing about Fundamental Trading – it's about picking a position that's too high or too low and then making a patient bet.  EVENTUALLY, something happens (like the above rumor) that changes what you've already determined is irrational sentiment and the price corrects (per the 5% Rule) and we take the money and run.    Not complicated – just requires PATIENCE…


  15. Phil / GOLD  @ 20.75.  any thoughts on the 23/27  spread? 


  16. It’s All Rigged




  17. 6 takeaways from Joe Biden’s CNN town hall




  18. Trump Casino Implodes (Literally) — Marking the End of an Era in Atlantic City



  19. Phil/CAT

    Any thing to look in this after hearing about the infrastructure bill to be looked at by Mr. Biden?

    regards


  20. Good morning from a frozen Austin. Back on the grid today after two days with no power. A natural gas fireplace was what kept us from being frozen indoors and a gas powered combustion engine car that helped charge my phone.


  21. Phil WBA

     

    Any thoughts on a new BCS for WBA?  I have some naked 2022  35 calls that was thinking of cashing and opening a new spread.   TIA


  22. The U.S. Economy Is Leaving Midsize Companies Behind


  23. Texas blackouts fuel false claims about renewable energy


  24. UK inflation rises as price of food and furniture increases


  25. jij123 lucky for you you did not have a tesla!!!! Perfect for Germany when you are on the Autobahn 9 hour Stau, if you stuck by 10 ° C, you hope you have a diesel in front of you with a spare seat.


  26. This °C is minus!


  27. GOLD/Jeddah – I'm not one for aggressive spreads usually.  There's about $10Tn worth of gold in the World (6.5Bn ounces) at $1,800 and there's 21M BitCoin at $50,000, which is $1Tn and, to some extent, I think some money flows out of gold to Bitcoin so this is a critical juncture as 10% of the money can flow out of gold to double Bitcoin if it holds over $50,000 and makes people want to diversify and, don't forget, $1,800 is still 50% over the worst-case gold extraction costs so miners are flooding the market with new supply while they can.  BitCoin miners can't do that.  

    So, for me, I take advantage of a downturn to sell puts at a strike I know I'd love to own GOLD for, like 2023 $18 puts for $3 as that's net $15, where I'm very happy being a long-term investor.  Then there's no hurry so I keep an eye on the 2023 $18 ($5.55)/25 ($3.25) bull call spread at net $2 25 and it can only get cheaper (or we can shift to the $15/23 spread if GOLD goes lower and, as long as we pay less than $3 for 2x – it's  net $1.50 for a $7 spread so no way to lose if you pick an amount you'd be thrilled to DD on if we drop back to $15.

    CAT/Pat – We love CAT when it's low but it's nowhere near low.

    At $200, CAT is a $110Bn company making $4Bn so 27.5x earnings.  Revenues are $45Bn and sure, a major infrastructure bill should help but does CAT have any equipment sitting around to take advantage of it or are they already at capacity?  It's just a bit too pricey for me here – despite the upside potential.

    Frozen/Jij – Good job surviving!  That must really suck when you're not prepared for it.

    WBA/Jeff – As a new spread, I'd go with:

    • Sell 5 WBA 2023 $42.50 puts for $7.40 ($3,700)
    • Buy 10 WBA 2023 $40 calls for $13 ($13,000)
    • Sell 10 WBA 2023 $52.50 calls for $7 ($7,000) 

    That's net $2,300 on the $12,500 spread so there's $10,200 (443%) upside potential if WBA can make it to $52.50 in two years.  Downside risk is owning 500 shares at net $47.10 – still $2 off the current price.


  28. Speaking of TSLA – taking a bit of a hit as people are posting that their cars don't start.

     

    OilPrice.com
    Texas Freeze Raises Cost Of Charging A Tesla To $900
    However, the extreme winter weather this week has sent Texas spot electricity prices soaring, as the wind turbines froze in the ice storms and …
    22 hours ago


  29. Oh, no Webinar today guys – it's a short week and I'm buried.


  30. TSLA taking a hit because the rest of the world will be producing electric cars soon, and hydrogen cars are actually going to be a thing. Having a pot-smoking, esoteric mars bound CEO is cool and everything, but eventually you gotta justify an $800B valuation with sales growth.


  31. TSLA/ Yodi / Phil, If Texas was full of Tesla's, pretty sure all the Texas Tesla owners would have shorted Tesla down to zero this week.

    But seriously, from a long term perspective we need to have contingency measures and infra in place before we dive all in to electric cars and electric power / heat. Otherwise it will be setting up our future generations for failures. Electricity distribution is not the most reliable one out there.


  32. rush limbaugh dead at 70…..


  33. …too bad he could not finish on the right side of history. Good Riddance.


  34. Alt Energy/Jij – I posted an article yesterday.  There's nothing wrong with alt-energy.  99% of Iceland's energy is renewable and about 1/3 is Geothermal.  Yes, it gets cold there and yes, it rains there – but they plan for it – so it's not an issue.  

    The only way we're going to have a real infrastructure for an alt-energy future in this country is to elect Democrats for the next 4 cycles – anything other than that and we'll probably die out with the planet….

    And poor Rush….

    It must be really hard dying when you know you've sold your soul…


  35. Rush isn't dead .. Tucker Carlson will talk him alive for the next few years :)




  36. Natural Gas Soars to $1,250 in Central U.S. on Supply Paralysis


  37. Total chief warns of renewable energy bubble




  38. Gold Drops a Fifth Day as Bond Yield Rally Delivers ‘Fatal Blow’


  39. Household Debt Climbs to Record in U.S. Amid Surge in Mortgages


  40. The World Will Pay More for Meat as Food Inflation Deepens


  41. Oil made a huge recovery as Saudis just said they want OPEC to cooperate to maintain cuts.  I think the morning thing was just to scare the other countries ahead of the meeting – remind them who swings the big derrick around here.  Doesn't change my stance as it had nothing to do with OPEC rumors anyway – that was just a nice bonus.  Back to $61 is time for 2 more shorts again.  My average is well over $60 now.  


  42. Fed Minutes – Back to Rally mode, of course.

    FOMC MINUTES RESTATE CHAIR POWELL'S COMMENTS ON JOBS, INFLATION; FOMC SAYS CURRENT POLICY 'WELL SUITED' TO SITUATION

    'EXPECTATIONS FOR THE PATH OF THE TARGET FEDERAL FUNDS RATE OVER THE NEXT SEVERAL YEARS, AS IMPLIED BY INTEREST RATE FUTURES AND BY THE DESK SURVEY OF PRIMARY DEALERS AND SURVEY OF MARKET PARTICIPANTS, WERE RELATIVELY LITTLE CHANGED FROM DECEMBER.'

    The U.S. economic projection prepared by the staff for the January FOMC meeting implied a considerably stronger outlook for activity in 2021 relative to the December forecast. Although incoming data had been weaker than expected

    "The Data doesn't support our outlook but we like our outlook – so we're not going to change it…."

    Image

    'Average hourly earnings for all employees rose 5.1 percent over the 12 months ending in December, a gain that was noticeably higher than the measure's year?earlier 12?month change'

    Pace of recovery in activity and employment moderated in recent months

    CURRENT CONDITIONS 'FAR FROM THE COMMITTEE'S LONGER-RUN GOALS'

    'PROGRESS ON VACCINATIONS HAD BEEN SLOWER THAN EXPECTED, AND THE NEAR-TERM TRAJECTORY OF THE PANDEMIC WORSENED, WEIGHING ON ECONOMIC ACTIVITY.'

    liquidity needs of small businesses remained high as businesses continued to operate at reduced capacity. Small business delinquency and default rates were little changed but remained elevated relative to the levels of recent years'

    BUYBUYBUY, right?

    Print Faster Federal Reserve GIF - PrintFaster FederalReserve FedReserve GIFs

    Fed Will Ignore "Temporary Inflation Factors", Stay Easy Until "Substantial Progress" In Economy

    Likely to Take Some Time' Before Conditions Met to Pare Back Bond Buying


  43. Wow, what a ride today.  Everything reset except the Nas, which took a bit of damage.

    Thank you Fed!