From Eurointelligence today, THE CRISIS IS SPREADING TO PORTUGAL:
Investors are beginning to doubt whether the Greek rescue will be sufficient, according to the Financial Times, amid doubts that another package stands any political chance, given the uproar in Germany over the current package. The paper quotes Thomas Mayer of Deutsche Bank as saying: “I hope that I am wrong, but I fear that by the end of the year, they will find out that Greece needs a lot more money for 2011 and 2012, and that we will have serious problems getting another package through.”
These and similar fears were reflected on the financial markets yesterday, where Greek 10 year bond yields exceeded 8%, which makes a trigger of the EU/IMF package imminent.
In the meantime, the crisis is starting to spread to Portugal, the next weakest part of the eurozone’s house of cards. The finance minister, George Papaconstantinou, said yesterday that the formal request for aid might occur even before the end of negotiations with the EU/IMF delegation, which began yesterday, and is expect to take two weeks.
Portguese bond yields have been coming under additional pressure, with 10 year yields up to 4.77%, about 1.7pp high than Germany’s. El Pais picks on the IMF’s latest forecasts, in the Global Economic Outlook (more below) for Portugal, which show a strong downward revision for 2010 (to 0.3%). The report also mentioned that Portugal will miss the targets set out in its stability report. At the end of this year, the IMF calculated, Portugal will have a deficit-to-GDP ratio of 8.7%, while the deficit reduction will then proceed only at snail’s pace. In other words, the IMF believes that the stability programme of PM Jose Sokrates is a joke. (The Commission believes the same, and has recently asked Sokrates to make bigger efforts).
Media Conspiracies
Incidently, the Portguese business press, is full of stories this morning telling us that this contagion is not justified, citing anybody who defends up Portugal (Commerzbank for example, which says that contagion has no fundamental justification), while severely criticising those who say a negative word about their country. We observed the same phenomenon in the early stages of the Greek crisis, which was regarded initially as some foreign, or rather anglo-saxon plot against the country.
This is sounding like 1997-98, with rolling currency/debt crises. Then, the NATO countries were impregnable and imported deflation, helping to keep the boom alive. The same is happening now in the U. S., but then we were running governmental cash surpluses and had just won the Cold War and the Iraq War.
Yesterday in the markets, it appeared as if it were that era as well. The average stock per the Value Line Index peaked in 1997-8; a narrowing group of favored stocks led the averages higher into the 2000 ultimate peak. The same thing may be happening now; retailers were strong, drugs and financials weak. Gold rose along with the dollar and the long Treasury. This is getting interesting.
Meanwhile, the first stock I chose to re-enter the stock market with in spring 2009, McDonald's, traded horribly for months, basically tracking the long bond. Now, however, it looks like a star. It is by my count the only Dow Industrial at an all-time high. It beat earnings and sales expectations in reporting Q1 yesterday. It is neither cheap nor expensive, has enough skepticism to convert lots of non-holders to be stockholders, and appears to be gaining share in its market segment, which itself has been pressured the past 2 years and thus may see its own rebound.
The pattern is that MCD, DLTR, TJX and ROST are market leaders with strong but not overextended charts and rising earnings estimates. They are subject to bouts of profit-taking at any time, but every stockholder is happy and will tend either to dump high-flyers or underperformers during feared or ongoing market corrections rather than what for now are good actors reading from an upbeat script.
Bigger picture: What is different between the policies of the Greek government from that of the U. S.? And thus why does not the U. S. end up like Greece?
Thus we have the Scylla of the Japan scenario and the Charybdis of the Greek scenario. It's all about mise-en-scene.
This reality show bears watching.
Copyright (C) Long Lake LLC 2010
Showing posts with label discount retailers. Show all posts
Showing posts with label discount retailers. Show all posts
Thursday, April 22, 2010
Friday, March 5, 2010
Labor Force Dropouts and the Markets
A former economics research professor named Alfred Tella has an informative article out today in RealClear Markets titled What Is Unemployment Telling Us?
It is interesting to learn quantitatively that for an equivalent percentage loss of jobs, the rate of unemployment as measured by the BLS has been lower than expected in the last two downturns.
The author points out that one of the surprising aspects of this Great Recession's unemployment rate is that this is occurring even though people who receive all the forms of unemployment benefits are not considered dropouts from the labor force. One truly has to be a dropout to thus lower the denominator used to calculate the rate of unemployment.
As most know, when jobs return, the measured labor pool has tended to expand as people who dropped out of the labor force re-enter it, believing that jobs are again available.
The recent (or current if still ongoing) depression/Great Recession always struck me as far more severe than any downturn I can remember relative to baseline, though the 1973-5 recession was pretty awful given actual physical shortages of oil and various products.
Remember that this time, nominal retail sales dropped over 10%. Since they typically rose 7% yearly, we are looking at close to a 20% drop in actual sales vs. that which was predicted based on the prior trend. Worse, various measures of commerce and industrial production dropped 20%.
Snapbacks from prior depressions or severe recessions were generally stronger than the current one. Paradoxically, this slow recovery provides support to various markets in the short term, as traders and investors seek out yields above zero and trading profits.
Yet the financial stress lines are building. A relatively small straw in the wind is the continued losses in and shrinkage of the U. S. Postal Service.
The strategy of "privatizing" governmental functions such as Fannie Mae and the Post Office is being revealed as a sham. This trend was capitalism without capital.
As George Soros said recently, one way to make money in the markets is to join a bull market that is fated to go to excess, and of course not stay at the party to late. Based on the massive fraud in governmental finances and those of its allies in Big Finance, the big-picture fundamental case for gold remains.
As in the easy money period after the 2001 recession, I believe that the odds favor growth fueled by money-printing. The excess will not be in housing. Right now the growth, such as it is, is relatively balanced and thus the view here is that specialty discount/deep discount retail (TJX, ROST, DLTR) as mentioned here several times before remains in a cyclical bull market but is no longer "cheap". One thing people do when they drop out of the labor force is cut discretionary spending and spend more time seeking bargains, an effort that might not have been worthwhile when they were working or looking for work.
Copyright(C) Long Lake LLC 2010
It is interesting to learn quantitatively that for an equivalent percentage loss of jobs, the rate of unemployment as measured by the BLS has been lower than expected in the last two downturns.
The author points out that one of the surprising aspects of this Great Recession's unemployment rate is that this is occurring even though people who receive all the forms of unemployment benefits are not considered dropouts from the labor force. One truly has to be a dropout to thus lower the denominator used to calculate the rate of unemployment.
As most know, when jobs return, the measured labor pool has tended to expand as people who dropped out of the labor force re-enter it, believing that jobs are again available.
The recent (or current if still ongoing) depression/Great Recession always struck me as far more severe than any downturn I can remember relative to baseline, though the 1973-5 recession was pretty awful given actual physical shortages of oil and various products.
Remember that this time, nominal retail sales dropped over 10%. Since they typically rose 7% yearly, we are looking at close to a 20% drop in actual sales vs. that which was predicted based on the prior trend. Worse, various measures of commerce and industrial production dropped 20%.
Snapbacks from prior depressions or severe recessions were generally stronger than the current one. Paradoxically, this slow recovery provides support to various markets in the short term, as traders and investors seek out yields above zero and trading profits.
Yet the financial stress lines are building. A relatively small straw in the wind is the continued losses in and shrinkage of the U. S. Postal Service.
The strategy of "privatizing" governmental functions such as Fannie Mae and the Post Office is being revealed as a sham. This trend was capitalism without capital.
As George Soros said recently, one way to make money in the markets is to join a bull market that is fated to go to excess, and of course not stay at the party to late. Based on the massive fraud in governmental finances and those of its allies in Big Finance, the big-picture fundamental case for gold remains.
As in the easy money period after the 2001 recession, I believe that the odds favor growth fueled by money-printing. The excess will not be in housing. Right now the growth, such as it is, is relatively balanced and thus the view here is that specialty discount/deep discount retail (TJX, ROST, DLTR) as mentioned here several times before remains in a cyclical bull market but is no longer "cheap". One thing people do when they drop out of the labor force is cut discretionary spending and spend more time seeking bargains, an effort that might not have been worthwhile when they were working or looking for work.
Copyright(C) Long Lake LLC 2010
Wednesday, February 24, 2010
When Bad News Is Simply Bad
There is much discussion of whether the Conference Board's latest consumer confidence number, which plunged 10 points to 46 and reached the lowest level since Feb. 1983, is a contrarian "buy" indicator for stocks.
Well, unfortunately the Gallup self-reported elective spending measures and employee reports of hiring/not hiring at the employee's firm are near their lows of this cycle.
Supporting a not-so-optimistic view is that Dollar Tree surged to an all-time high, up over 10% today, on an upbeat earnings report and current-quarter forecast, and TJX similar moved up strongly to what was probably an all-time closing high and just pennies from an all-time high.
Meanwhile, while Saks had a decreasing loss and is optimistic on the second half of this year, its stock is down about two-thirds from its late-2007 price.
Oil is back to $80/barrel and is thus a headwind for a strapped consumer.
ECRI's weekly leading index has stalled and even declined.
Sometimes bad news is bad news. If the recession ended mid-year last year, the consumer confidence numbers should not be plunging. February 1983 was approximately the endpoint of that recession and in fact the Dow Jones averages went nowhere for 17months afterward.
For what little it is worth, I have price targets for DLTR and TJX that are far enough above current share prices that I am not selling. Discount retail is on a roll and can thrive at least until there is a sustained boom. We should be so lucky.
Copyright (C) Long Lake LLC 2010
Well, unfortunately the Gallup self-reported elective spending measures and employee reports of hiring/not hiring at the employee's firm are near their lows of this cycle.
Supporting a not-so-optimistic view is that Dollar Tree surged to an all-time high, up over 10% today, on an upbeat earnings report and current-quarter forecast, and TJX similar moved up strongly to what was probably an all-time closing high and just pennies from an all-time high.
Meanwhile, while Saks had a decreasing loss and is optimistic on the second half of this year, its stock is down about two-thirds from its late-2007 price.
Oil is back to $80/barrel and is thus a headwind for a strapped consumer.
ECRI's weekly leading index has stalled and even declined.
Sometimes bad news is bad news. If the recession ended mid-year last year, the consumer confidence numbers should not be plunging. February 1983 was approximately the endpoint of that recession and in fact the Dow Jones averages went nowhere for 17months afterward.
For what little it is worth, I have price targets for DLTR and TJX that are far enough above current share prices that I am not selling. Discount retail is on a roll and can thrive at least until there is a sustained boom. We should be so lucky.
Copyright (C) Long Lake LLC 2010
Thursday, January 7, 2010
Chinese Being Taken Out?
The noted short-seller Jim Chanos is being profiled in the New York Times as bearish on China, in Contrarian Investor Predicts Economic Crash in China. The title actually says it all. Jim Rogers is quoted derisively against Mr. Chanos' thinking. This blog has reported throughout 2009 about empty office buildings, malls etc., in China and even one empty new city just waiting for people to occupy and work in it.
I am one of the people who does not think that China is necessarily such a giant. It may come to be that, but I have a suspicion--not a fixed belief--that it is an economic catspaw of the West and Big Finance. I don't trust a thing about its economic data except that it appears true that the mother of all credit booms has been going on there to rescue a bad situation.
At home, it appears incredible that much speculation centers around a strong employment number to be reported tomorrow. The arguments against that are numerous. First, the FOMC statement this week was, sadly, strong that the employment situation is likely to remain weak for quite some time. Second, the ADP number, which tracks the national number and covers more businesses than the Labor Dept.'s Establishment survey, was down 85,000 jobs for December. Third, the Gallup.com data on spending and jobs remains mired near its worst numbers of one year ago. Fourth, Discover was out yesterday with its December U. S. Spending Monitor, which showed the following:
The Discover U.S. Spending Monitor fell 3.3 points in December to 83.0 (based out of 100). The decline was primarily driven by a big decrease in post- holiday spending intentions from consumers. While the decrease in spending intentions was anticipated, consumers showed little improvement in economic confidence in December and they grew slightly more pessimistic about their finances. These contributing factors leave the Monitor's index standing at a nine-month low.
Overall, 57 percent of consumers rated the economy as poor, a 2-point improvement from November. Forty-eight percent of consumers felt economic conditions were getting worse, 1 point better than November. The number of consumers rating their finances as poor went up a point to 26 percent. Half of consumers now think their finances are getting worse.
Monitor-Low 43% Have Money Left Over After Paying Monthly Bills
While a lift in holiday sales was good news for retailers, a record number of consumers found little to cheer about when paying the monthly bills. Only 43 percent, a Monitor-low, expected to have money left over after paying the monthly bills. This is the second time in three months the Monitor has broken a new low in this category, breaking October's previous low of 44 percent.
Middle-income consumers were the biggest contributors to the decline. Only 44 percent of them planned on having money left over, 15 points lower than in November. Lower-income consumers showed only a 1-point decline and upper-income consumers showed a 3-point decline.
Furthermore, 26 percent of those consumers who do have money left over said they would have less money left over than the previous month, a 12-month high.
Middle-Income Consumers See Little Change in the Economy, Grow More Concerned Over Finances
Fifty-six percent of middle-income consumers rated the economy as poor in December, unchanged from November. Lower and upper-income consumers rating the economy as poor actually dropped 2 and 3 points respectively.
Middle-income consumers also viewed their finances differently from lower and upper-income consumers. Forty-four percent felt their finances were getting worse, a 6-point increase from November.
On the other hand, bank stocks are on fire, the SPY looks to be in the early stages of a technical breakout from the rounded top it was tracing for the past 10 months, and selected deep discount retailers have found business absolutely booming. These include TJX, Ross Stores, and Family Dollar. Presumably Dollar Tree, which unlike the others did not report on recent sales this week, is participating in the growth in low-end retailing. TJX, ROST and DLTR are all at or just near record stock prices, all having set these records in 2009.
It is these sorts of stocks that are the soundest and most likely to resist the next downturn, in my opinion, with no guarantees. Record sales, earnings and stock price. And unfortunately good prospects.
What appears to be happening on the labor front is that there are fewer layoffs but those who are laid off are languishing a record period of time without being rehired. In the stock market and real economy, it is impossible for Government and the Fed to inject such massive amounts of funds into the real economy and not see some result. I suspect that all that has happened is that Federal deficits are matched by increased sales and profits in the private sector, and that if there were a unified societal budget, business stinks in the good old U. S. of A.
And should China collapse, that would have unpredictable effects at home.
Copyright (C) Long Lake LLC 2010
I am one of the people who does not think that China is necessarily such a giant. It may come to be that, but I have a suspicion--not a fixed belief--that it is an economic catspaw of the West and Big Finance. I don't trust a thing about its economic data except that it appears true that the mother of all credit booms has been going on there to rescue a bad situation.
At home, it appears incredible that much speculation centers around a strong employment number to be reported tomorrow. The arguments against that are numerous. First, the FOMC statement this week was, sadly, strong that the employment situation is likely to remain weak for quite some time. Second, the ADP number, which tracks the national number and covers more businesses than the Labor Dept.'s Establishment survey, was down 85,000 jobs for December. Third, the Gallup.com data on spending and jobs remains mired near its worst numbers of one year ago. Fourth, Discover was out yesterday with its December U. S. Spending Monitor, which showed the following:
The Discover U.S. Spending Monitor fell 3.3 points in December to 83.0 (based out of 100). The decline was primarily driven by a big decrease in post- holiday spending intentions from consumers. While the decrease in spending intentions was anticipated, consumers showed little improvement in economic confidence in December and they grew slightly more pessimistic about their finances. These contributing factors leave the Monitor's index standing at a nine-month low.
Overall, 57 percent of consumers rated the economy as poor, a 2-point improvement from November. Forty-eight percent of consumers felt economic conditions were getting worse, 1 point better than November. The number of consumers rating their finances as poor went up a point to 26 percent. Half of consumers now think their finances are getting worse.
Monitor-Low 43% Have Money Left Over After Paying Monthly Bills
While a lift in holiday sales was good news for retailers, a record number of consumers found little to cheer about when paying the monthly bills. Only 43 percent, a Monitor-low, expected to have money left over after paying the monthly bills. This is the second time in three months the Monitor has broken a new low in this category, breaking October's previous low of 44 percent.
Middle-income consumers were the biggest contributors to the decline. Only 44 percent of them planned on having money left over, 15 points lower than in November. Lower-income consumers showed only a 1-point decline and upper-income consumers showed a 3-point decline.
Furthermore, 26 percent of those consumers who do have money left over said they would have less money left over than the previous month, a 12-month high.
Middle-Income Consumers See Little Change in the Economy, Grow More Concerned Over Finances
Fifty-six percent of middle-income consumers rated the economy as poor in December, unchanged from November. Lower and upper-income consumers rating the economy as poor actually dropped 2 and 3 points respectively.
Middle-income consumers also viewed their finances differently from lower and upper-income consumers. Forty-four percent felt their finances were getting worse, a 6-point increase from November.
On the other hand, bank stocks are on fire, the SPY looks to be in the early stages of a technical breakout from the rounded top it was tracing for the past 10 months, and selected deep discount retailers have found business absolutely booming. These include TJX, Ross Stores, and Family Dollar. Presumably Dollar Tree, which unlike the others did not report on recent sales this week, is participating in the growth in low-end retailing. TJX, ROST and DLTR are all at or just near record stock prices, all having set these records in 2009.
It is these sorts of stocks that are the soundest and most likely to resist the next downturn, in my opinion, with no guarantees. Record sales, earnings and stock price. And unfortunately good prospects.
What appears to be happening on the labor front is that there are fewer layoffs but those who are laid off are languishing a record period of time without being rehired. In the stock market and real economy, it is impossible for Government and the Fed to inject such massive amounts of funds into the real economy and not see some result. I suspect that all that has happened is that Federal deficits are matched by increased sales and profits in the private sector, and that if there were a unified societal budget, business stinks in the good old U. S. of A.
And should China collapse, that would have unpredictable effects at home.
Copyright (C) Long Lake LLC 2010
Thursday, December 31, 2009
Might On-Line Pessimism Be a Good Contrary Indicator?
Calculated Risk is such a widely-read blog that when it polls its readers, there are so many votes that there will be statistical significance from the results. Of course, those who respond are self-selected.
CR is now near completion of a 2-question poll. 57% of respondents expect a double dip in 2010 and half as many expect anemic growth of less than 2%.
The great majority of respondents expect the unemployment rate to be at or above 10% at the end of next year.
Many people read blogs to get away from the buy and hold (but please trade your holdings) cheerleading of the mainstream media and thus are likely more skeptical than the average. Nonetheless, historic economic downturns followed by pro-cyclical Federal and monetary policy usually are followed by growth. This degree of pessimism is a bit surprising. The only double dip recession I am aware of was the 1981-2 downturn, but that is easily explained because Fed Chairman Volcker eased up on the monetary throttle in 1980 prematurely, in part to help fellow Democrat Jimmy Carter get re-elected, then tightened again after the election. Mr. Bernanke is not about to do the same, you can assume.
None of the above has a lot to do with stock prices, which may be incorporating much rosier assumptions.
I voted for 2-4% growth (subpar given the severity of the downturn and the Fed's easy money policy) and a 9-10% unemployment rate at yearend 2010. Risks abound, of course, including a surge in growth elsewhere than in the U. S., pushing oil prices way up and slowing growth here.
In any case, a weak economy will favor discount retailers and a double dip will knock out even more competition for Wal-Mart and Target. Preserving capital in a world where it is unclear whether the country's largest banks are truly even solvent is not easy. Noting that large pockets of skeptics on the economy exist makes it easier to project upside from risking money in common stocks of high-quality companies.
Copyright (C) Long Lake LLC 2009
CR is now near completion of a 2-question poll. 57% of respondents expect a double dip in 2010 and half as many expect anemic growth of less than 2%.
The great majority of respondents expect the unemployment rate to be at or above 10% at the end of next year.
Many people read blogs to get away from the buy and hold (but please trade your holdings) cheerleading of the mainstream media and thus are likely more skeptical than the average. Nonetheless, historic economic downturns followed by pro-cyclical Federal and monetary policy usually are followed by growth. This degree of pessimism is a bit surprising. The only double dip recession I am aware of was the 1981-2 downturn, but that is easily explained because Fed Chairman Volcker eased up on the monetary throttle in 1980 prematurely, in part to help fellow Democrat Jimmy Carter get re-elected, then tightened again after the election. Mr. Bernanke is not about to do the same, you can assume.
None of the above has a lot to do with stock prices, which may be incorporating much rosier assumptions.
I voted for 2-4% growth (subpar given the severity of the downturn and the Fed's easy money policy) and a 9-10% unemployment rate at yearend 2010. Risks abound, of course, including a surge in growth elsewhere than in the U. S., pushing oil prices way up and slowing growth here.
In any case, a weak economy will favor discount retailers and a double dip will knock out even more competition for Wal-Mart and Target. Preserving capital in a world where it is unclear whether the country's largest banks are truly even solvent is not easy. Noting that large pockets of skeptics on the economy exist makes it easier to project upside from risking money in common stocks of high-quality companies.
Copyright (C) Long Lake LLC 2009
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