Consumer Confidence is Hopeful at Best

In my report, Consumer Stocks Face Dangerous Stopper, I wrote, “I am expecting the Conference Board's measure to mark improvement, so be at ease.” Today, the Conference Board reported its Consumer Confidence Index gained nine points in September on its way to an index mark of 70.3. The consumer mood tracked the rise in stocks through the month (SPDR S&P 500 (NYSE: SPY) up 3.7%), and probably likewise benefited from reassurance by the European Central Bank (ECB) and expectations for a dovish Federal Reserve action which later followed.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Consumer Confidence

Because the cutoff date for the survey was September 13, it only benefited ever so slightly from the Federal Open Market Committee (FOMC) monetary policy announcement and quantitative easing declaration. Still, it obviously benefited from the buildup of expectations for it through the month. Along with stocks, I believe it also has Mario Draghi and his creative and aggressive action, which I believe has effectively mitigated the European debt crisis (note, the economic crisis goes on), to thank. Of course, the mood of consumers is going to be less closely tied to the direct actions of the ECB at close proximity to those actions, and more responsive to the effects of those actions. It will more immediately be driven by the gains of capital markets and stocks, given the widespread ownership of them through retirement savings accounts.

“The whim of hope is represented here without a trace of tangible prosperity to anchor to.”

However, the consumer confidence gain, while hinged on the rise of forward looking equities and not on the employment situation or the pace of GDP, is superficial. The same superficiality applies for stock valuations in my opinion. You can see the consumer superficiality in the details of the report itself and in anecdotal data about the economy and corporate outlook. The Expectations Index, a measure of forward looking feelings for consumers, gained by 12.6 points on its way to a mark of 83.7. The whim of hope is represented here without a trace of tangible prosperity to anchor to.

The Present Situation Index, which better reflects how things really are today among Americans, also gained, but by only 3.7 points to a still unimpressive level of 50.2. And when you look more deeply into where specific surveyed issues ranked and what little the “improvement” actually means, you understand how hopeful this index really is today.

Surveyed Issue	Level	Change
Business Good	15.5%	+0.2%
Business Bad	33.3%	-1.0%
Jobs Plentiful	8.3%	+1.1%
Jobs Hard to Get	39.9%	-0.7%
Business to Improve	18.2%	+1.5%
Business to Worsen	13.8%	-3.8%
Expect More Jobs	18.5%	+2.7%
Expect Less Jobs	18.5%	-5.2%

In my view, consumers are less relevant respondents with regard to forward looking information. I think this is evident in the relatively lower overall response rate to the last four rows of the survey topics depicted above here. Also, they are nearly evenly divided on forward looking issues, and certainly less opinionated with regard to the outlook, which may simply reflect uncertainty. Uncertainty, in and of itself, is bad for equities, and probably to some lesser degree, also bad for consumer spending. Looking at the jobs and business questions for the present time, sentiment improved, but remains at absolutely poor levels.

Another report also issued today showed real consumer spending softening. The weekly chain store sales data reported by the International Council of Shopping Centers (ICSC) showed a week-to-week sales gain of just 0.6% in the period ending September 22nd, and that followed the prior week decline of 2.5%. Now these data may be holiday impacted, but the year-to-year change was also relatively unimpressive at +2.9% (last week it was +2.1%). The rate of growth barely edges inflation, with the latest Consumer Price Index showing price rise of 1.9% year-to-year in August, excluding food and energy price change. Redbook reported year-to-year chain store sales today up just 2.0%.

Anecdotal evidence among a significant number of companies shows a tighter competitive environment, as consumers selectively choose within perhaps saturated retail capacity. In tight economic conditions, if shopping activity loses robustness, then there will be less pie to share among competitors. For this reason, companies like J.C. Penney (NYSE: JCP) and Sears (Nasdaq: SHLD) are finding difficult times and resolving to profound change in operating strategy. For this reason, shoppers are gravitating towards lower cost value store options, driving market share gains for the likes of Wal-Mart (NYSE: WMT), eBay (Nasdaq: EBAY), Amazon.com (Nasdaq: AMZN) and Dollar Tree (Nasdaq: DLTR).

So, despite this latest consumer confidence swing, I suggest investors look toward more tangible evidence of consumer spending, like that seen in the chain store sales data. This Friday, an even better measure of the consumer mood will be reported. Look toward the Personal Income & Outlays data, and what it says about real consumer spending, excluding the impact of price change, for a better guide into the state of mind of American consumers.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Fed Statement, Economic Projections and Bernanke's Press Conference

Release Date: September 13, 2012

For immediate release

Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.

Also published today:

• Statement Regarding Transactions in Agency Mortgage-Backed Securities and Treasury Securities
• Economic Projections Materials
• Transcript of Prepared Remarks of Chairman Bernanke

Article should interest investors in SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD), BGC Partners (Nasdaq: BGCP), Bank of New York Mellon (NYSE: BK), BlackRock (NYSE: BLK), CIT Group (NYSE: CIT), Calamos Asset Management (Nasdaq: CLMS), CME Group (NYSE: CME), Cohn & Steers (NYSE: CNS), Cowen Group (Nasdaq: COWN), Diamond Hill Investment (Nasdaq: DHIL), Dollar Financial (Nasdaq: DLLR), Duff & Phelps (Nasdaq: DUF), Encore Capital (Nasdaq: ECPG), Edelman Financial (Nasdaq: EF), Equifax (NYSE: EFX), Epoch (Nasdaq: EPHC), Evercore Partners (NYSE: EVR), EXCorp. (Nasdaq: EZPW), FBR Capital Markets (Nasdaq: FBCM), First Cash Financial (Nasdaq: FCFS), Federated Investors (NYSE: FII), First Marblehead (NYSE: FMD), Fidelity National Financial (NYSE: FNF), Financial Engines (Nasdaq: FNGN), FXCM (Nasdaq: FXCM), Gamco Investors (NYSE: GBL), GAIN Capital (Nasdaq: GCAP), Green Dot (Nasdaq: GDOT), GFI Group (Nasdaq: GFIG), Greenhill (NYSE: GHL), Gleacher (Nasdaq: GLCH), Goldman Sachs (NYSE: GS), Interactive Brokers (Nasdaq: IBKR), INTL FCStone (Nasdaq: INTL), Intersections (Nasdaq: INTX), Investment Technology (NYSE: ITG), Invesco (NYSE: IVZ), Jefferies (NYSE: JEF), JMP Group (NYSE: JMP), Janus Capital (NYSE: JNS), KBW (NYSE: KBW), Knight Capital (NYSE: KCG), Lazard (NYSE: LAZ), Legg Mason (NYSE: LM), LPL Investment (Nasdaq: LPLA), Ladenburg Thalmann (AMEX: LTS), Mastercard (NYSE: MA), Moody’s (NYSE: MCO), MF Global (NYSE: MF), Moneygram (NYSE: MGI), MarketAxess (Nasdaq: MKTX), Marlin Business Services (Nasdaq: MRLN), Morgan Stanley (NYSE: MS), MSCI (Nasdaq: MSCI), MGIC Investment (NYSE: MTG), NewStar Financial (Nasdaq: NEWS), National Financial Partners (NYSE: NFP), Nelnet (NYSE: NNI), Northern Trust (Nasdaq: NTRS), NetSpend (Nasdaq: NTSP), Ocwen Financial (NYSE: OCN), Oppenheimer (NYSE: OPY), optionsXpress (Nasdaq: OXPS), PICO (Nasdaq: PICO), Piper Jaffray (NYSE: PJC), PMI Group (NYSE: PMI), Penson Worldwide (Nasdaq: PNSN), Portfolio Recovery (Nasdaq: PRAA), Raymond James (NYSE: RJF), SEI Investments (Nasdaq: SEIC), Stifel Financial (NYSE: SF), Safeguard Scientifics (NYSE: SFE), State Street (NYSE: STT), SWS (NYSE: SWS), T. Rowe Price (Nasdaq: TROW), Visa (NYSE: V) and Virtus Investment Partners (Nasdaq: VRTS).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

The Fed Better Not Let Us Down

If the Federal Reserve were to fail to act, I expect we would see a good deal of the stock market gains made since June unravel before our eyes. The Fed must act today, because expectations are so deeply built into valuations that such a failure could be a catalyst for a crash, and a crash in itself can cause a recession. Of course, the Fed is not called to support stocks, but it is in its interests to protect employment and guard against inflation. In order to protect employment, not just aid it, the Fed must support the economy and economic certainty, which is currently in question.

I’ve noted my view that what the Fed has to offer is analogous to a child’s floatie for the management of an economic storm. Nonetheless, the market has high hopes today for Federal Reserve action. So even as I view the Federal Reserve only peripherally effective at this point, and mostly just supportive; and even as I argue that central banks are working their way toward putting the world in a place vulnerable to external shock damaging to global fiat currency (favoring gold), I say today, the Fed better not fail us.

Since early June, when real hopes in the Fed began to build, the SPDR S&P 500 Index ETF (NYSE: SPY) has gained 13%. Stocks, as seen by action in the SPY and in the moves of European shares (seen in the iShares S&P Europe 350 Index (NYSE: IEV)), got an extra lift when Mario Draghi issued his famous statement at the end of July. I labeled then a mess of his own making because of the time it is taking for ECB follow through to actually occur.

Earlier this week, the German court action to ratify Germany’s approval of the European Stability Mechanism (ESM) finally gave credence to Draghi’s conviction. Today, the Federal Reserve has an opportunity to solidify hope, and to support the life of stocks and the very relative economic relationship between the market and the economy. The chart of cyclical stocks like Caterpillar (NYSE: CAT) offer insight into how far we might fall, if not further, if the Fed lets the market down today. The same goes for the cyclical financials like Citigroup (NYSE: C) and Bank of America (NYSE: BAC).

Much hangs in the balance as you can see. If the Fed lets us down today, you can expect a significant market downslide. I even believe a Fed miscue could drive a mini-crash given the level of expectations built into stocks, which otherwise seem to lack good reason for their rally since June.

In my estimation, it really only buys the market some time. If global economic conditions were to hold steady in the meantime, or only deteriorate slightly further, then perhaps yet another Fed action (and ECB action) might give the world a minute more to wait for it. However, it is my view that over the longer term, it will become increasingly evident that we are just at the start of a new recession. As the data continues to come in through that span, I think reality will sink in. And given that my geopolitical concerns appear to finally be proving tangibly relative, my conviction about global recession is increasing. At that point, the only lasting beneficiary of central bank actions will be gold and relative securities like the SPDR Gold Series Trust (NYSE: GLD), and other precious metals and agricultural commodities; also companies serving agriculture like Monsanto (NYSE: MON). Real estate and other hard assets should also see price increase, but on fiat currency decrease. Still, for now, the Fed better not let us down.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Jobs Report Favors Romney

Last evening, after President Obama gave his speech to the Democratic Party delegates in Charlotte, pundits speculated about how long a post party high might last, and what could kill it as quickly as today. The main suspect likely to assault the electorate mood was the monthly Employment Situation Report, which was just reported this morning at 8:30 AM EDT. In my view, the jobs report reflects a deteriorating economy and thereby favors Mitt Romney.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Jobs Report

Some will key on the two-tenths of a point improvement in the unemployment rate to 8.1%, from 8.3% last month, but such reports should be quickly overcome by the realization that labor participation, not job creation, played the key role there. Stock futures turned lower at the breaking of the news, but it may take some time for the real message of the report to be understood; the SPDR S&P 500 ETF (NYSE: SPY) is fractionally higher at the hour of publishing here, while the Dow Jones Industrial Average ETF (NYSE: DIA) is less enthused due to the details of the data discussed below. The NASDAQ also has the earnings warning of Intel (Nasdaq: INTC) to digest this morning, and so the PowerShares QQQ (Nasdaq: QQQ) is sinking. But what is holding up stocks generally today is the increased likelihood of Federal Reserve action later this month. What is gaining ground today is gold against the dollar, as the SPDR Gold Shares (NYSE: GLD) gains 1.6% into early trade.

Job creation, depicted by a 96,000 net increase in nonfarm payrolls, came in under July’s revised rate of 141K (from 163K) and the economists’ consensus for 125K. Within the overall figure, private nonfarm payrolls only rose by 103K, versus July’s revised figure of 162K (from 172K). Take note of the direction of the revisions as well as the disappointment produced by the figures for August.

Debunking the unemployment rate was not hard to do this morning, despite the details of the report showing the number of unemployed Americans was down by 250K in August, to 12.54 million. Rather, the Household Survey shows the civilian labor force dropped sharply by 368K in August, even as the population was estimated higher by 212K. The same survey showed the number of employed Americans was down by 119K. Clearly, a big chunk of that improvement in the unemployed (if not all of it) was due to the continued drop-off of the long-term unemployed out of the labor force, not because people got jobs. Otherwise, the number of employed Americans should have risen.

As we look deeper into the data, we see that the number of long-term unemployed Americans (27 weeks of joblessness or more) decreased by 152K in August. There is a huge segment of the American population that is simply being lost into limbo. Who knows where they go, perhaps to homelessness, to prison, hospitals of one sort or another, to other parts of the world, or into their parents’ basements to drift into deep depression. Maybe a few are starting small businesses, self-publishing books, or earning income off the books in one way or another, but it’s clear that the majority are not faring well enough.

Some are working part-time instead of full-time, as the number of part-timers for economic reasons (meaning they want more hours) decreased by 215K in August, to 8.03 million. The number of those who have chosen part-time work (some of these likely didn’t understand the survey question) rose by 130K. I say that because school just started, and I believe less young people are likely to seek part-time work when attending school, though some returning from long vacations may be seeking work. Perhaps in today’s economy, a greater number of young people are finding resources from home harder to come by, and must therefore work while earning their degree.

The number of Americans marginally attached to the labor force, meaning they did not aggressively seek work over the last four weeks, increased by 32K. Within this segment, the number of discouraged workers, or those people who believe there are no more jobs available for them any longer, decreased slightly by 8,000.

Under-Employment Rate
The calculation of the under-employment rate, which takes into account the number of Americans working part-time for economic reasons and the detached workforce, follows here. If we add back the excluded 2.561 million displaced workers to the labor market, and include the 8.031 million underemployed part-timers in the unemployed count, adjusted unemployment reaches ((12.544M + 2.561M + 8.031M) / (154.645M + 2.561M)) * 100 = 14.7%. Last month, the rate was ((12.794M + 2.529M + 8.246M) / (155.013M + 2.529M)) * 100 = 15.0%. Don’t be fooled by what looks like an improved rate of underemployment to go along with the gain in the unemployment rate, because this figure, like the other, leaves out the unexplained decrease in the civilian workforce. Where have those unaccounted for Americans gone? Please tell me if you know, because they are not in this tally.

The details of the Establishment Survey show total private (not including public sector) jobs increased by a net 103K in August. That was significantly under ADP’s estimate for 201K, which helped support the stock market Thursday. It was likewise inconsistent with the decline in Challenger’s Monthly Job-Cuts data. What it did reflect, was something I’ve been warning about, a decrease in manufacturing employment. That segment of the economy dropped 15K jobs in August, and while jobs are not being shed by Boeing (NYSE: BA) as yet, layoffs are increasingly being considered at cyclicals like General Electric (NYSE: GE), Caterpillar (NYSE: CAT) and Cummins (NYSE: CMI). The entire goods-producing segment of the economy shed 16K jobs, with most of those coming in durable goods. There was even a 7,500 drop at motor vehicle and parts makers like Ford (NYSE: F), General Motors (NYSE: GM) and Magna International (NYSE: MGA).

Private sector service providers added a net of 119K jobs in August, according to the survey. The majority of those came in Leisure & Hospitality (+34K), Professional & Business Services (+28K) and in Healthcare & Social Assistance (+21.7K). Services declines were only found in Temporary Help (-4.9K), which marked a reversal of recent months and was bad news for Kelly Services (Nasdaq: KELYA) today.

The Retail Trade industry added 6.1K jobs in August, I expect due to increases at discounters like Wal-Mart (NYSE: WMT), Target (NYSE: TGT) and Costco (Nasdaq: COST), at the cost of underperformers like J.C. Penney (NYSE: JCP) and Sears (Nasdaq: SHLD). Information only added 3,000 jobs in August; so much for the impact of the Internet newcomers like Facebook (NYSE: FB) and Yelp (Nasdaq: YELP). The public sector shed 7,000 jobs in August, down from 21K in July and 18K in June.

On net, I think there’s no doubting that this report favors Mitt Romney, because when the workforce change is understood, it reflects a deteriorating economy. I expect these reports are going to get worse in the next two months ahead of the election. The Democrats will focus on the unemployment rate today, but I expect the Republicans will not have to explain that anomaly as the months progress and the economy deteriorates further.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

ISM Manufacturing Report Raises Alarm

The light-hearted in economic denial received a wakeup call this morning. As we return from the long holiday weekend, perhaps feeling good about our lives and maybe even the economy, the first economic report to reach the wire offers a slap in the face. ISM’s Manufacturing Index for the month of August, reported Tuesday morning, deteriorated even deeper into territory reflecting sector contraction. While ISM disagrees that it means economic recession, it cannot deny that the situation has deteriorated. As I surveyed the data, I see only signs for concern.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

ISM Manufacturing Report

ISM’s Manufacturing Report on Business for the month of August 2012 produced a headline index, the Purchasing Managers Index (PMI), of 49.6%. Readings below 50.0 reflect sector contraction, and this reading also marked deterioration from July’s 49.8 level. Economists, perhaps having had one too many pina coladas this past weekend, were looking for a reading of 50.0, or improvement. Stocks, which started the day lazily without direction, turned decidedly lower after the report. The SPDR S&P 500 ETF (NYSE: SPY) was down a half point just a few minutes after the release.

August marked the third consecutive month of economic contraction within the manufacturing sector, and this latest reading was the lowest since July 2009. The measure is therefore marking a tough trend. And the deeper we look into the details, the worse signs we find of an economic red tide.

The New Orders Index, a forwarding looking component, dropped significantly to 47.1, down 0.9 from a level of 48.0 in July. This signifies contraction at a faster pace than seen in July, and clearly reflects poorly on global demand for American made goods. The Backlog of Orders Index fell to a sickly 42.5, from 43.0 in July. So, new orders and order backlogs were deteriorated; this is obviously disconcerting. Customers’ Inventories fell a half point to 49.0, but that signifies customers holding less inventory then they should. It also shows a higher level of anxiety among customers of surveyed purchasing managers. Purchasing managers’ inventories are stacking up, with that index now reading 53.0, from 49.0. Given the trends in order backlogs, it’s difficult to see this as a positive.

Production fell 4.1 points, to 47.2, and signs are building that layoffs may be around the corner. This ended a streak of growth that crossed several years. With production lagging, you have to then wonder about employment. The Employment Index eased to 51.6, from 52.0, as the lagging indicator starts to see impact. Take note, as this was the lowest reading for the index since November of 2009. Global demand for American goods remains soft, as the Export Index reached 47.0, up 0.5 points from July, but still reflecting contraction. Imports fell 1.5 points, to 49.0.

There’s no denying any longer that the global disease founded in Europe is spreading to our shores. Eight of eighteen industries are reporting contraction now, as eight report growth and two were unchanged. Anecdotal evidence supports the case we’ve made as panel participants mostly expressed concern about global economies and noted decreased demand for goods.

Only prices seemed to be rising, which is obviously not healthy when demand is declining. Some of the respondents indicated that the drought in the U.S. affected prices in August. Certainly, corn prices increased in August, but fuel prices did as well. Industrial metals continued to mostly decline in price, with nickel, copper, aluminum and steel lower. These are bad signs for the likes of Alcoa (NYSE: AA), BHP Billiton (NYSE: BHP), Rio Tinto (NYSE: RIO), Vale S.A. (Nasdaq: VALE) and Freeport McMoRan Copper & Gold (NYSE: FCX). Investors are not missing that point today either.

Company & Ticker	Midday Price Change
Alcoa (NYSE: AA)	-1.4%
BHP Billiton (NYSE: BHP)	-1.2%
Rio Tinto (NYSE: RIO)	-1.5%
Vale (Nasdaq: VALE)	-2.6%
Freeport-McMoRan (NYSE: FCX)	-1.6%

Industrials are down in concert, with the Dow Jones Industrial Average Index ETF (NYSE: DIA) off 0.8% and the Industrial Select Sector SPDR (NYSE: XLI) off 1.4% at the hour of scribbling here. Major manufacturers are split, depending on industry, with General Electric (NYSE: GE) down 0.7%, Caterpillar (NYSE: CAT) off 3.1% and Ford (NYSE: F) higher by 1.0%, as autos report monthly sales.

I advised on the sale of industrial stocks and basic materials shares two months ago. In the near-term, there may be some lift ahead of and into the September Federal Open Market Committee meeting. After that, I expect global deterioration will only accelerate, especially if geopolitical triggers are pulled as I also expect.

What we’ve recorded here is the worst of the last three months’ contraction in the overall PMI and the New Orders Index. It is therefore a bad sign for the economy, but because the manufacturing sector represents a small portion of the economy, historically, it has not been associated with recession at similar levels. Still, I think the writing is on the wall and deterioration is evident. In my view, layoffs will be the next news driver from the sector, though perhaps not as soon as Friday’s employment report. Construction would seem to be offering a stabilizing factor, but the latest data reported today for the month of July showed a 0.9% drop in construction spending. So, all the news is bad today for the economy, and stocks are pulled by that red tide.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

ICSC & Redbook Same-Store Sales Reported Soft

The weekly flow of same-store sales, as measured by the International Council of Shopping Centers (ICSC) and Redbook have offered really ugly insight into consumer spending of late. The importance of consumer spending in the United States cannot be understated. Unfortunately, it is slipping, as I pointed out in “Recession’s Key Ingredient Added” and “Glaring Recession Signal – Consumer Spending Stops”.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

This week’s data from the ICSC showed same-store sales inched higher by just 0.5% in the week ending August 25, 2012. That embarrassing growth came on a prior week decline of 1.5%. And this is during a period within which consumers are supposed to be shopping for back-to-school needs. If you go back over the weekly data through the past several months, you find a soft trend that in my estimation reflects a path toward recession.

On a year-over-year basis, the ICSC reported same-store sales growth of 3.4%, which marked improvement over the prior week’s 3.1% growth. While this rate is decent, in weeks past we’ve seen growth under the rate of inflation, which clearly implies economic contraction. Redbook reported the year-to-year rate at 1.5% this week, versus 1.9% last week. Each of those rates reflect a slower pace than inflation, and are inadequate to meet current mainstream economic projections (not mine obviously).

I don’t believe we have to look too far for anecdotal evidence of consumer softness either. Even high-end retailer, Tiffany (NYSE: TIF), cautioned on the outlook yesterday after reporting short of Wall Street expectations. Tiffany’s shares rose yesterday, get this, partly on a lesser same-store sales decline (-1%) than was expected by analysts (-4%).

Others like J.C. Penney (NYSE: JCP) are suffering because of poorly timed dramatic change at a time of economic question. The discounters are all the rage today; I even noted Mitt Romney and his wife bragging about buying some shirts at Costco (Nasdaq: COST), perhaps in an effort to fit the economic reality of most Americans. It is the best price sellers like Wal-Mart (NYSE: WMT), Amazon.com (Nasdaq: AMZN), eBay (Nasdaq: EBAY) and Dollar Tree (Nasdaq: DLTR) which are doing best today. That’s something I pointed out through several articles over recent months, including “5 Stocks to Own if Consumers Check Out”. It is because they sell things cheapest at a time when more Americans value price most.

The one-year chart of the Consumer Discretionary Select Sector SPDR (NYSE: XLY) does not reflect the environment I just highlighted. Thus, it illustrates an environment within which many stocks are likely vulnerable.


Charts by Yahoo Finance

The SPDR S&P Retail (NYSE: XRT) offers the same view.



At 10:00 AM EDT this morning, the Conference Board reported Consumer Confidence dropped like a rock, to 60.6, from 65.9 at last check. That should be no surprise to readers of my recent write-up, “Regarding the Consumer Sentiment Celebration – I’ll Pass”, but it’s waking some folks up to the truth today. Stocks are moving lower since the 10 AM release, with the SPDR S&P 500 (NYSE: SPY) indicating lower fractionally. Take heed fellow investors because if the consumer is checking out as I see it, a rude awakening is in store for the second half economy and the stock market.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Durables Orders Show Damaged Goods

Durable Goods Orders offer important insight into the demand for higher ticket items meant to last for multiple years. These purchases are reflective of economic realities, as they will receive great consideration because of the substantial amount of capital involved. The time from order to delivery could be extensive as well, and so purchasers need to be relatively certain of their business outlook.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Durable Goods Orders

As a result, econo-watchers benefit from following the report because of the sensitivity of such spending to economic conditions. Oftentimes, because of the high ticket price of these items, the change from month to month can fluctuate substantially and offer a noisy perspective into the economy. As a result, some dismiss the changes and even brush off the monthly datapoint as a volatile measure when it doesn’t fit their forecast. However, after reviewing the durable goods order data for July, it is clear that this one is not dismissible.

Business was strong on the top line, with new orders rising 4.2% overall in July, well ahead of economists’ expectations for a lesser 1.9% increase, based on Bloomberg’s survey. The result also marked the third consecutive month of increase, adding, for some, even more reason to cheer. However, when excluding transportation, new orders actually declined by 0.4%, which matched poorly against the expectation for a 0.4% increase. The difference was the result of the substantial 14.1% increase in orders for transportation equipment. Much of those gains were pinpointed to Boeing (BA), as non-defense orders for aircraft and parts increased by 54%. Again, I note that because of the high ticket price of these products, a few more or less month-to-month can make a big difference.

The important take away is that when excluding the aircraft orders, the business outlook was quite different. What’s also clear is that businesses are not investing significantly enough due to a feeling of uncertainty about what’s to come, but also due to a tangible easing of consumer spending. Illustrating this, new orders for capital goods excluding defense and transportation declined 3.4% in July, after dropping 2.7% in June. It means businesses are not spending, and that reflects poorly for the economy on the whole.

Looking even more deeply into the details of the data, we find that machinery orders were down 3.6% in July, following a 2.5% drop in June. This follows in the natural progression of deterioration in manufacturing, and may precede layoffs for the sector. Regional data and the national ISM manufacturing data have begun to show a changing mood regarding employment for the sector, which follows downgraded expectations and softening business. So for the big industrial players like General Electric (GE), Caterpillar (CAT) and others, the report may hold special significance. As far as the sector is concerned, the last year’s performance of the Industrial Select Sector SPDR (XLI) seems to reflect a vulnerable group.

Chart by Yahoo Finance

New orders for computers and related products increased by 3.7% in July after declining by 4.7% in June. That’s inconsistent with the latest results from Dell (DELL) and Hewlett-Packard (HPQ), and also with views that potential buyers are waiting on Microsoft’s (MSFT) Windows 8 release. Orders for communication equipment fell 4.0% in July after a 7.4% decrease in June. That’s consistent with the caution provided by Cisco Systems (CSCO) in its discussion post earnings this last month.

New orders for motor vehicles and parts rose by 12.8% in July, after a 0.7% decrease in June. That bodes well for Ford (F) and GM (GM), which considering my negative outlook for the big three Japanese automakers, Toyota (TM), Honda (HMC) and Nissan (NSANY.PK), offers all the more reason to consider a change in capital allocation within the sector.

In conclusion, the durable goods orders report, when excluding the volatile transportation results, reflects a market demanding less goods generally. Even before this report, purchasing managers have been indicating a changing mood reflecting more cautious spending patterns. This report offers important economic insight into the demand for durable goods but also for employment and spending generally, and for the economy on the whole. It implies that industrials should reflect the change in their reported operating results and guidance, and share performance. Finally, it supports my longstanding argument that the ills of Europe are in fact contaminating the vulnerable U.S. market as well as hampering the growth of the emerging world.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Regarding the Consumer Sentiment Celebration – I’ll Pass

Rejoice oh troubled masses of American investors, the consumer has been reported still living. Yes, the dead and depressed are walking and talking, and according to the headlines of the popular press, they are in a better mood for shopping too.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

The Thomson Reuters/University of Michigan Consumer Sentiment Index improved in mid-August to 73.6, from 72.3 in July (and 73.2 in June). This nascent revival broke a sorry streak of two consecutive months of deterioration for the data point. Apparently it was cause for celebration, as the SPDR S&P 500 (NYSE: SPY) pushed a bit further toward a 1.0% gain for the week. The celebration was more clearly seen in Friday’s 0.4% gain of the Consumer Discretionary Select Sector SPDR (NYSE: XLY) and the 0.7% rise of the SPDR S&P Retail (NYSE: XRT).

The measure of current economic conditions improved last month by 4.9 points, to 87.6. The latest stock market gains, as seen in the performance of the SPY, probably have something to do with that. The rise of the last couple months has continued a positive trend spanning the past year.


Chart at Yahoo Finance

Yet, it would appear the gains of both stocks and consumer sentiment are based on a weak foundation, supported by hope in the world’s central banks. The fresh consumer report showed consumer expectations about the future are much more pessimistic than the feeling about today. The Expectations Index decreased to a lowly mark of 64.5, from 65.6 in July, as investors look forward to a fiscal cliff, global economic demise and maybe a complex war in the Middle East. Meanwhile, in the U.S., gasoline prices are rising, unemployment is not improving, and business investment is limited by economic and political uncertainty, with regulatory uncertainty tied to that. So, if you’ll excuse me, I’ll save my champagne for another day.

Retailers’ shares also benefited from the week’s Retail Sales data, which showed July’s retail sales gained 0.8% and rose 0.9% when excluding autos and gasoline. Each data point far exceeded economists’ consensus expectations, but that was at least partly due to their following revised lower June figures. The XRT gained 2.3% on the week nonetheless. Still, the news didn’t help the nation’s most important retailer, Wal-Mart (NYSE: WMT), which reported results that didn’t justify its premium valuation to growth expectations. Individual data dictated the direction of many retailers during this reporting period for the industry.

Investors bought stocks generally Friday on the consumer report and data showing the Leading Economic Indicators Index (LEI) improved in July. Equities were also supported by Angela Merkel’s nod to European Central Bank (ECB) support of the euro and troubled area bonds. Joining the SPY higher, the SPDR Dow Jones Industrials (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) gained fractionally on the day Friday. Meanwhile, the dollar and gold held about steady, with the PowerShares DB US Dollar Index Bullish (NYSE: UUP) and the SPDR Gold Shares (NYSE: GLD) each inching forward. The price of crude rose Friday though, on Iranian President Ahmadinejad’s latest provocation. The iPath S&P GSCI Crude Oil TR Index ETN (NYSE: OIL) gained 1.2%.

In conclusion, while traders celebrate the headlines, I advise investors to take a pass on the party.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Fed FOMC Monetary Policy Release August 2012

What follows is the verbatim copy of the August 1, 2012 Federal Reserve Federal Open Market Committee (FOMC) Monetary Policy Statement.

FOMC Monetary Policy Release

For immediate release

Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant an exceptionally low level of the federal funds rate.

Article should interest investment company parties and interests including SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD), BGC Partners (Nasdaq: BGCP), Bank of New York Mellon (NYSE: BK), BlackRock (NYSE: BLK), CIT Group (NYSE: CIT), Calamos Asset Management (Nasdaq: CLMS), CME Group (NYSE: CME), Cohn & Steers (NYSE: CNS), Cowen Group (Nasdaq: COWN), Diamond Hill Investment (Nasdaq: DHIL), Dollar Financial (Nasdaq: DLLR), Duff & Phelps (Nasdaq: DUF), Encore Capital (Nasdaq: ECPG), Edelman Financial (Nasdaq: EF), Equifax (NYSE: EFX), Epoch (Nasdaq: EPHC), Evercore Partners (NYSE: EVR), EXCorp. (Nasdaq: EZPW), FBR Capital Markets (Nasdaq: FBCM), First Cash Financial (Nasdaq: FCFS), Federated Investors (NYSE: FII), First Marblehead (NYSE: FMD), Fidelity National Financial (NYSE: FNF), Financial Engines (Nasdaq: FNGN), FXCM (Nasdaq: FXCM), Gamco Investors (NYSE: GBL), GAIN Capital (Nasdaq: GCAP), Green Dot (Nasdaq: GDOT), GFI Group (Nasdaq: GFIG), Greenhill (NYSE: GHL), Gleacher (Nasdaq: GLCH), Goldman Sachs (NYSE: GS), Interactive Brokers (Nasdaq: IBKR), INTL FCStone (Nasdaq: INTL), Intersections (Nasdaq: INTX), Investment Technology (NYSE: ITG), Invesco (NYSE: IVZ), Jefferies (NYSE: JEF), JMP Group (NYSE: JMP), Janus Capital (NYSE: JNS), KBW (NYSE: KBW), Knight Capital (NYSE: KCG), Lazard (NYSE: LAZ), Legg Mason (NYSE: LM), LPL Investment (Nasdaq: LPLA), Ladenburg Thalmann (AMEX: LTS), Moody’s (NYSE: MCO), MF Global (NYSE: MF), Moneygram (NYSE: MGI), MarketAxess (Nasdaq: MKTX), Marlin Business Services (Nasdaq: MRLN), Morgan Stanley (NYSE: MS), MSCI (Nasdaq: MSCI), MGIC Investment (NYSE: MTG), NewStar Financial (Nasdaq: NEWS), National Financial Partners (NYSE: NFP), Nelnet (NYSE: NNI), Northern Trust (Nasdaq: NTRS), NetSpend (Nasdaq: NTSP), Ocwen Financial (NYSE: OCN), Oppenheimer (NYSE: OPY), optionsXpress (Nasdaq: OXPS), PICO (Nasdaq: PICO), Piper Jaffray (NYSE: PJC), PMI Group (NYSE: PMI), Penson Worldwide (Nasdaq: PNSN), Portfolio Recovery (Nasdaq: PRAA), Raymond James (NYSE: RJF), SEI Investments (Nasdaq: SEIC), Stifel Financial (NYSE: SF), Safeguard Scientifics (NYSE: SFE), State Street (NYSE: STT), SWS (NYSE: SWS), T. Rowe Price (Nasdaq: TROW) and Virtus Investment Partners (Nasdaq: VRTS).

It’s Consumer Spending I’m Worried About

Three consumer related economic data points reached the wire this morning, and one of them is especially concerning to me. Because of what is leading the market lower today, I believe they are playing a key role in the declines in the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) today (aka the market). Unfortunately, the popular press has not noticed, due to their preoccupation with one specific data point that served to divert their attention today.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Consumer Spending Matters

Getting right to the meat of the matter, its consumers I’m concerned about, and their spending patterns that trouble me. It’s the reason the consumer discretionary sector is leading the market lower today – the Consumer Discretionary Select Sector SPDR (NYSE: XLY) -0.7% and the shares of major consumer dependents, Amazon.com (Nasdaq: AMZN) -1.9% and Wal-Mart (NYSE: WMT) -0.2%, are down today.

At 8:30 AM EDT this morning, the government published the Personal Income & Outlays Report for the month of June. Personal spending was unchanged in June, despite price rise including and excluding food and energy, so without synthetic skew. Do you hear me? Consumers stopped their spending growth. Economists had forecast just a 0.1% increase for June, with the range of views extending from 0.0% to 0.3%, according to Bloomberg’s survey. So, the spending data came in at the low end of economists’ expectations. Those same economists are warning their in-house sector strategists about that information today, and eventually, your broker at Merrill Lynch (NYSE: BAC) will get the news to you with a change in their recommended stocks away from your old favorite consumer stocks like Apple (Nasdaq: AAPL) (I like Apple here) and into defensive ideas like Procter & Gamble (NYSE: PG) (but I like defensive names too). This data is a tangible measure of consumer spending, and one that everyone who matters watches. It’s the most important reason for stocks to sell off this morning.

The other bit of important news found in the report, as far as I’m concerned, is the Core PCE Price Index, the Fed’s favored inflation measure. It was forecast to rise 0.2% in the latest period, and it showed prices rose 0.2% excluding food and energy. The headline price measure, the PCE Price Index, also rose 0.1%, against expectations for the same. The most important information to gleam from here is that price change played an insignificant role in the spending patterns of consumers. So consumers really did stop spending – be afraid recession watchers, be very afraid.

Directly from the Report:
Real PCE -- PCE adjusted to remove price changes -- decreased 0.1 percent in June, in contrast to an increase of 0.1 percent in May. Purchases of durable goods increased less than 0.1 percent, in contrast to a decrease of 0.4 percent. Purchases of nondurable goods decreased 0.4 percent, in contrast to an increase of 0.2 percent. Purchases of services decreased less than 0.1 percent, in contrast to an increase of 0.1 percent.

And the news gets worse… Last month’s consumer outlays data was revised to reflect a decrease of 0.1% in consumer spending, which was a downgrade from the previously reported “no change” for May. So we have two months of consumer stall. Do you remember what I always tell you comes before recession? It’s the slowing and stopping of our behemoth of an economy, and that’s what is depicted here.

Now, the reason the market has not picked up on this important news yet is because of the day’s Consumer Confidence Index, which is an intangible measure of consumers versus the aforementioned tangible measure. The Conference Board’s Consumer Confidence Index release featured a headline that read, “…Consumer Confidence Increases After Four Consecutive Declines.” Unfortunately, that headline led fast writing reporters to focus on what seems important information. They are mistaken!

The Confidence Index rose in July, to 65.9, from a revised 62.7 in June. Economist had been looking for the index to fall to 61.5 in this latest check. Debunking this is relatively easy friends, as the Present Situation Index actually declined in July, while the Expectations Index leapt forward. The Director of Economic Indicators at the Conference Board, Lynn Franco, wisely stated, “… consumer confidence is not likely to gain any significant momentum in the coming months." She cautioned readers from the exact misunderstanding they digested anyway. If you examine the report, you find that the index sits at a historically depressed state, and really reflects a bad mood.

The third data point is relevant because it is tangible and because it is current. The International Council of Shopping Centers (ICSC) reported weekly same-store sales fell 1.7% in the week ending July 28. That was probably affected by weather, but the year-to-year sales pace, measured at +1.8% this week, continues to depict a pace of sales growth not exceeding inflation. The Core PCE Price Index increased 1.8% year-to-year in June. This means that my advice recently to be selective in your retail investment decisions continues to play true. Ideas like J.C. Penney (NYSE: JCP) and Sears (Nasdaq: SHLD) remain out of my favor, while I direct you to discounters like Dollar Tree (Nasdaq: DLTR), eBay (Nasdaq: EBAY) and Wal-Mart (NYSE: WMT).

This is just the latest in a series of recession signals found in regular economic data and corporate news over recent weeks. We are tracking them here, so simply continue to follow my feed through Wall Street Greek for my ongoing analysis of critical economic data points.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.