Astounding Retail Sales Justify Fed Taper

Retail sales were reported for the month of November Thursday and they were astounding. It reflects a very strong start to the holiday shopping season, and shows all around better consumer spending activity. It also offers the Fed all the more reason to begin tapering back asset purchases, but it justifies it as well, so it should make Fed action easier to swallow. Let’s take a closer look at this stellar economic report. Visit our blog for more like this.

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.

Retail Sales

Upward Revision to October

The prior month’s sales data was revised higher, and the revisions extended across the board. This is not always good news, because it could lead to a slower growth rate for the reported month, since the base that growth is calculated upon is raised. However, that was not the case Thursday, as the prior month’s upward revision joined the current month’s positive surprise in uplifting hope.

	Revised Oct. Change	Initial October Data
Retail Sales M/M Change	+0.6%	+0.4%
Retail Sales Less Autos	+0.5%	+0.2%
Retail Sales Less Autos & Gas	+0.6%	+0.3%

As you can see, previously reported headline retail sales were increased two-tenths to +0.6% for October. When we exclude automobile and gasoline sales, growth shows up even better, improved by three-tenths of a percentage point. So this is good news about the pre-holiday period. It’s even more impressive if we recall the federal fiscal chaos that enveloped the headlines in early October as the government shut down and the debt ceiling debate threatened to derail the American economy. Those key factors did have a detrimental impact upon reported consumer sentiment trends through the month. Yet, as Thursday’s data shows, real spending came through okay.

November’s Good News

	November Change	Economists’ Consensus
Retail Sales M/M Change	+0.7%	+0.6%
Retail Sales Less Autos	+0.4%	+0.3%
Retail Sales Less Autos & Gas	+0.6%	+0.2%

Despite the upward revisions to October’s data, growth exceeded economists’ expectations across the board in November. The numbers were more than just better than expectations; they were strong in absolute terms as well. November retail sales growth of 0.7% beat the economists’ very positive outlook, but when excluding strong auto sales and gasoline, they blew away the economists’ consensus and remained robust in absolute terms at +0.6%.

I caught a so-called expert criticize the report on financial television Thursday. He expressed his view that retail sales are strong, but retailers’ individual earnings have been poor. He vaguely suggested that this was because of necessary discounting and reflected a generally poor retail environment. While I agree that the retail store capacity of the United States has typically been oversaturated over the last decade, I cannot find much fault with the latest retail sales report. And it is well-established now that American consumers are deal seekers.

I do believe that the earlier discounting of retailers may have helped pull forward a larger portion of seasonal sales than usual though. Opening on Thanksgiving like Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) did and the beginning of discounting even earlier than that, along with ongoing daily deals from the likes of Best Buy (NYSE: BBY) and others, have certainly helped frontload seasonal sales. I think you can see that in the year-to-year comparisons. Sales were 4.7% greater in this year’s November versus last year, and they were up 4.1% for the September through November period.

Looking at the retail segments, autos were especially strong, with those sales up 1.8% in November and 10.9% against the prior year period. The strong November was already noted by Ford (NYSE: F) shares though because of the monthly motor vehicle sales data reported earlier this month, so auto stocks hardly reacted to the news Thursday.

Gasoline stations posted a 1.1% decline in sales for the month and a 3.3% drop from the prior year period. This activity is always dictated by the volatile price of the commodity. We can see that the auto and gasoline sales trends offset one another, and so the headline comparisons nearly matched the change in the adjusted figure that excludes these two important retail segments.

Online sales are of great interest to us, given their growing importance and the rising prominence of players in the market like Amazon.com (Nasdaq: AMZN). The sales of “nonstore retailers,” which also include exclusive catalog sellers but are mostly driven by online retailers these days, increased 2.2% in November and were up 9.4% against the prior year. The faster pace of growth reflects the still increasing importance of Internet retailers and their steady market share gains. That trend is driven by the ease of online shopping and the often better pricing of goods online.

Another positive sign for consumer spending was evident in the 1.3% higher sales of food services and drinking places in November, and 5.2% year-to-year increase. The outsized gain in sales for this segment is important, as we believe it offers evidence of casual dining gains. Eating at Darden Restaurants’ (NYSE: DRI) Olive Garden is relatively inexpensive, but it’s probably still more expensive than eating in. Eating at McDonalds (NYSE: MCD) is another story, thanks to its expanding dollar menu. I think the growth in this segment more likely reflects a return of consumer spending following improving labor trends.

Real estate enthusiasts will be happy to note the 1.8% month-to-month and 5.3% year-to-year sales growth in building materials stores. Add to that the 1.2% and 9.7% sales growth at furniture and home furnishings stores and we have real reason to celebrate. Not only are home sales increasing, but people are actually furnishing and repairing them.

Chart at Yahoo Finance

The retail sales data on Thursday hardly lifted stocks, which were on the decline of late due to rising concern about Fed tapering and next week’s meeting of the U.S. central bank. Still, the slide in the SPDR S&P 500 (NYSE: SPY) did stall on the day, and that might have been because of the especially positive retail sales result. It is yet another data point offering evidence that the Fed might be justified in tapering back asset purchases now, and that the economy can stand on its own even so.

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.

Super Jobs Report Blows Away Fed Fear

November Unemploy- ment 7.0% from 7.3%, Nonfarm Payrolls +203K

The November Employment Situation Report showed sharp improvement in the labor situation. Unemployment improved by far more than the economist community forecast, as did the nonfarm payroll figure. Private nonfarm payrolls, which should be the driver of job growth in America, led the way with an increase of 196K net new jobs created. Visit the blog for more like this.

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

	Prior Mos.	Prior Revised	Consensus	Actual
Unemployment Rate	7.3%		7.2%	7.0%
Nonfarm Payrolls	204K	200K	180K	203K
Private Payrolls	212K	214K	173K	196K
Ave Hourly Earnings	+0.1%	+0.1%	+0.2%	+0.2%
Ave Workweek	34.4 hours		34.5	34.5

The news was received well by the market. It was a blowout report, meaning that it was so good on the surface that it reassured the investment community that a Fed taper might even be appropriate. Investors are concerned that a premature Fed tapering of asset purchases might stifle a still needy economy. But this data seems to say the economy is standing strongly on its own two feet, and so there is reduced fear of a premature action.

Security	December 6 AM Change
SPDR S&P 500 (NYSE: SPY)	+0.9%
SPDR Dow Jones (NYSE: DIA)	+0.9%
PowerShares QQQ (Nasdaq: QQQ)	+0.8%
SPDR Gold Shares (NYSE: GLD)	+0.6%
iShares Silver Trust (NYSE: SLV)	+1.2%
PowerShares DB US Dollar Bullish (NYSE: UUP)	+0.1%
Bank of America (NYSE: BAC)	+1.1%
Ford (NYSE: F)	+0.2%
Apple (Nasdaq: AAPL)	-0.4%
Google (Nasdaq: GOOG)	+0.9%
Wal-Mart (NYSE: WMT)	+0.5%
Amazon.com (Nasdaq: AMZN)	+0.7%
Darden Restaurants (NYSE: DRI)	+1.1%
Health Care Select Sector SPDR (NYSE: XLV)	+0.9%
MetLife (NYSE: MET)	+2.1%
SPDR S&P Homebuilders (NYSE: XHB)	+1.2%

As you can see in the table above, stocks are broadly higher Friday morning, save Apple (AAPL) curiously enough. The table here offers a good representation of much of the market in my view, including areas where better labor data would show up more strongly. This is exaggerated in the insurance firms like MetLife (MET), because their assets include other financial securities (it’s like a derivative). The consumer sensitive stocks are well-represented here, with the two major retailers online and on the street in Amazon.com and Wal-Mart included. Darden Restaurants’ casual dining locations are a step up from the McDonald’s (NYSE: MCD) of the world, and benefit when the economy improves.

It’s interesting that gold and silver are higher along with the rest of the market and the dollar. What we have is one of those days when betas align and the tide takes all ships with it. It happens when news is good or bad enough to affect all capital flows into investment assets.

The market could use more economic data like this. Blowout figures that ease investor concern about the Fed taper allow the Fed to appropriately hedge against inflation without hindering economic growth. I started this article with the words telling how good the report was “on the surface,” and unfortunately that accurately implies that below the surface, they remain imperfect. The U-6 figure improved nicely this past month to 13.2%, and you can bet that news is helping to ease investor concern about the missing unemployed. You’ll recall that the U-6 figure reclassifies part-timers and the marginally attached to the labor force, considering them like unemployed; it is the underemployment rate. However, it still misses important changes in the labor force, when people disappear from the radar because they are now collecting disability checks; or if they are unemployed and undocumented; or operating in the black market. Still, the improvement in the U-6 from 13.8% to 13.2% is enough to clear away investor concern about this issue.

No matter what, the investment community is likely to eventually take Fed tapering badly, at least initially. Still, the more support we can get from the economic data, the more confident we can be in our outlook. Risk acceptance follows along with continued investment in equities. If the data keeps coming in strongly, the reaction of the market when Fed tapering finally starts will be shorter lived than if Fed tapering started before such supports were in place. In other words, we'll be able to stand on our own two feet and the stock trend will continue higher.

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 Diabolical Deadline of the Rating Agencies

Panic artists drummed up fear as September ended and the government shut down. It closed, but the sun rose the next day and stocks stayed put. Then people like me started warning of the debt ceiling deadline, suggesting that it was the true point of no return. But one deadline is at least as potent as that drawn by the U.S. Treasury for October 17th, but more dangerous because of its stealth nature. It is very likely the reason why Congressional leaders convened last Thursday to work towards a short-term solution. It is the deadline vaguely drawn, gray and opaque, the one set down by the credit rating agencies.

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.

You see, with one fell swoop, Standard & Poor’s, of McGraw-Hill (Nasdaq: MHFI), or Moody’s (NYSE: MCO) or Fitch could easily shock the market. If two of the above were to downgrade the sovereign rating of the United States, the effect could be as bad as a default on payments to our creditors, if not worse. The impact would be global too and I expect quite apocalyptic. So I curiously wonder here if that biblical demon of old referred to as the Anti-Christ in the Book of Revelations might in fact be Standard & Poor’s and its fellow rating agencies. Unfortunately, such impossible word play seems to gain disturbing credence when we recall the fact that on March 6, 2009, the market index by the same name stopped at an intraday bottom value of precisely $666. It was the low point of the financial crisis, but was it also meaningful for “the one who has understanding?”

You’ll recall the uproar when S&P downgraded America’s credit rating last year; it was for the very reason I speak of here. Yet, there was no catastrophic impact to our nation’s borrowing capacity or to interest rates. Why is that? Because unless two or more rating agencies cut America’s AAA credit rating, all the mutual funds and other funds bound by charter to own triple-A credits would not have to sell their core holdings of U.S. treasuries; nor those of municipalities which would be overcome by the fall of the parent nation’s rating; nor those of the corporations which run out of the land of the free. Neither would our nation need to offer a more appealing yield to sell debt, and so raise all interest rates and cut the dollar at its knees. But if two rating agencies do act in concert this time around, then we may be done for.

I was not surprised Tuesday to hear Senator Reid warn that the rating agencies were very likely already at work on a plan of action. The Democratic Leader indicated that a downgrade could come as early as Tuesday evening. Indeed, Fitch later warned that it might cut our AAA rating. My friends, if this scenario is about to play out, we as a people should be taking it as seriously as we would nuclear missiles in the air. Actually, I believe we should be taking it even more seriously than we would that nightmarish plot. I would go so far as to call it treasonous to allow this situation to reach the midnight hour, and I would place those at fault into custody for such an inexcusable underestimation of risk. Ignorance is no excuse here; an appropriate anomaly might be a clumsy government representative accidentally hitting the red button. How would he pay for that mistake? Wouldn’t it be too late anyway? If we can stop the failure before it occurs, we should. The President must intervene in this case, and ensure the government does not ruin our nation.

The impact to our economy and to the global economy of an undermining of the reserve currency and of the risk-free rate, the basis of all security value, is worse than a nuke touching down. Interest rates would rise for everyone in America, and for all those people living across the world in nations holding U.S. debt and the dollar as their reserve currency. This covers every developed nation in the world and everyone else as well. Only those nations rich in alternative currencies like gold and silver would benefit from such a global disaster, because as the buying power of the dollar is destroyed, the value of those precious metals, mankind’s natural reserve currency, would rise. This is why today, as the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrials (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) fell, the SPDR Gold Trust (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV) gained ground.

The words read, “This calls for wisdom: let the one who has understanding calculate the number of the beast, for it is the number of a man, and his number is 666.” These times call for patience and tolerance from the leaders of this nation and also from the rating agencies. However, from the people, the times call for activity not passivity. I advise every person living in this nation and every global leader to contact those American Congressmen holding up the simple raising of the debt ceiling for the sake of other partisan interests; or better yet, to stand at their doorsteps so that they understand that the levity with which they are handling this matter is intolerable. I am not the only voice who believes the consequences of a failure here may be irreparable for America; nor am I alone in my view that it could also be devastating for civilization. But the time for chatter and debate has passed, and the time for action has come. If no resolution occurs immediately, the President must intervene for the sake of reason.

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.

Take Heed: Retail Sales Alarm Tied to Debt Ceiling

The International Council of Shopping Centers (ICSC) produces its Weekly Same-Store Sales data every Tuesday. This week, the data seems to offer indication that consumers are concerned about the government shutdown and debt ceiling uproar. For the economy, this is critical as we enter the busiest buying season of the year. Furthermore, other consumer relative data over the past couple months has shown about as well as yesterday’s fad, so perhaps investors in the retail sector should take heed as well.

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 ICSC Tuesday reported that the pace of weekly same-store sales at retailers’ stores open for at least a year were notably softer. While Redbook’s year-to-year measure typically runs higher than the ICSC view, it also indicated a slippage in sales growth this past week.

	Week Ended 10/5	Week Ended 9/28
ICSC Week-to-Week Change	-0.1%	+0.2%
ICSC Year-Over-Year Change	+1.8%	+2.1%
Redbook Year-to-Year Change	+3.3%	+3.8%

While weekly data can be influenced by weather and holidays, the year-to-year comparisons seem to vet that possibility and confirm slowing activity. What we do know is different about this week is the fact that the U.S. government is shutdown, and more importantly for consumer spending, the media is making sure Americans know about it. In fact, the truly dire consequences of a debt ceiling debacle have been described by the President, the media and everyone else who could benefit from the attention as potentially “catastrophic” and likely leading to a deep recession. That’s not the kind of discussion that inspires Americans to go out and spend money.

Meanwhile, and just as concerning, I recently noted one Tea Party Congressman’s misguided disregard for the October 17 deadline as he discussed an October-end Treasury auction on television Monday. In my expert view, even approaching the deadline could insight rating agency downgrade of America’s sovereign credit rating again, and that is highly troublesome to me. If two rating agencies were to downgrade our credit, it would be equivalent in its impact to the economy as a real default on our sovereign debt. Passing the deadline is unfathomable to just about everyone but the sector of Congress I describe as holding this issue hostage. It’s my view that the stock and bond markets will begin to truly reflect panic on or before October 17 if it appears the deadline will pass. Depreciating financial securities affect the pocket books of every American with a corporate pension plan, and thus, affect consumer sentiment and spending.

American consumers already have enough reason to worry, given a still fatigued U.S. economy with its lagging employment recovery. Though, until recently, investors have been unfazed by most crises. Still, the really serious issues do finally garner investor attention. For instance, Americans have gotten used to upheaval overseas, but when it seemed we might get involved in another war, stocks started lower. The same thing is happening as this unreasonable bargaining chip is placed on the roulette table. In fact, it’s Russian roulette that the U.S. Congress is playing, with the full faith in credit of the United States at stake. It’s not an issue up for gambling, and yet it is being put into play today.

Consumers and investors are being made aware of that fact, no matter which channel they choose to watch or website they determine to read. And now that the consumer seems to reflect worry, a recently hot group of stocks is also reflecting it. Consumer discretionary and retail store shares have been market leaders this year, as our table below illustrates. It may be time to take profits.

Security	Since September	Year-to-Date
SPDR S&P 500 (SPY)	-1.5%	+16.2%
Consumer Discretionary Select Sector SPDR (XLY)	-2.4%	+24.7%
SPDR S&P Retail (XRT)	-2.8%	+27.8%
Wal-Mart (WMT)	-1.4%	+6.8%
Amazon.com (AMZN)	-3.0%	+20.9%

Wal-Mart (WMT) stands out in this table, and not in a good way. It has lagged the performance of the other four securities, including its online rival, Amazon.com (AMZN), which is up sharply this year but down the most over the last week. Wal-Mart is America’s most important brick and mortar retailer, but it has struggled on a relative basis of late. That is in part due to a September report that inventory was piling up at the megastore chain. The inventory issue was described by an executive of the company, as relayed by a CNBC report I witnessed, as a part of doing business in retail. However, I posit that if Wal-Mart, the destination of America’s poor and new poor, is seeing slower sales, then there’s a broad-reaching problem.

Chart at Yahoo Finance

Amazon.com (AMZN) is down after this report by Barron’s, but its valuation has been questionable for some time. If consumers are cutting back even at discounters, then we really have a problem, and so might shareholders of even Amazon.com and Wal-Mart.

Chart at Yahoo Finance

There are profits to be taken in the consumer and retail sector, as evidenced by the gains in the XLY and XRT securities this year. Furthermore, the month of October often offers disappointment, and can be a transition period due to the end of fiscal year for many institutional investment funds around this time. With important profits at stake now in the retail and consumer discretionary stocks, and with signs of consumer sentiment falloff and spending issue, investors in the segment should likely take heed and sell the group.

Economists should also note the warning signs in this critical driver of the American economy. If I may conclude with one informal point: I believe that any economist not advising government representatives today of the dire risk in dealing in the debt ceiling issue is an irresponsible economist wasting his expertise. It is up to the experts to cure ignorance about economic issues. I’m doing my part here.

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.