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.

Housing Market in Recovery

What a week! It has been chock-full of housing data, with homebuilder sentiment, mortgage activity, existing home sales and housing starts all reaching the wire. Judging by the movement of housing stocks, we could confidently say the message conveyed was generally positive. The SPDR S&P Homebuilders (NYSE: XHB) gained 1.8% Wednesday after the two most key reports were published.

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.

Housing Market Recovery

Looking at one of those, we discussed the Housing Starts data in detail in a report published on Wednesday. The government report offered mildly positive news for the housing industry, with Starts up 2.3% in August, but that growth was short of economists’ expectations. Also, looking forward, permits authorized for future housing starts declined by 1% in August, but met the economists’ consensus and were still 24.5% above the prior year level of activity. The shares of builders gained on the news and on the other data released Wednesday.

Homebuilder	Wednesday’s Change
Ryland Group (NYSE: RYL)	+5.7%
M.D.C. Holdings (NYSE: MDC)	+2.4%
NVR (NYSE: NVR)	+1.1%
Hovnanian (NYSE: HOV)	+1.6%
Lennar (NYSE: LEN)	+1.9%
Beazer (NYSE: BZH)	+6.2%
Meritage (NYSE: MTH)	+2.5%

Existing Home Sales data were the real catalyst for stocks Wednesday, driving even the SPDR S&P 500 (NYSE: SPY) higher, before it gave back ground in the last several minutes of trading. Sales of existing homes jumped 7.8% in August to their best pace in two years and well ahead of economists’ expectations. Growth was indiscriminate, reaching higher by nearly equal degree across the geographical markets of the Northeast, Midwest, South and West. The report signaled that the health of the real estate market had improved substantially. The median price of a home nationally was up 9.5% against the prior year, and marked solid month-to-month increase as well. Inventory was down, as was the percentage of distressed sales to the total. The news was so enthusing that it lifted stocks across the real estate sector, including mortgage lenders, title insurance providers, mortgage insurance providers and peripheral suppliers of construction materials.

Company	Wednesday’s Change
Bank of America (NYSE: BAC)	+0.7%
Citigroup (NYSE: C)	+0.7%
PNC Financial (NYSE: PNC)	+0.7%
SunTrust Banks (NYSE: STI)	+1.2%
PHH Corp. (NYSE: PHH)	+2.6%
MGIC Investment (NYSE: MTG)	+1.9%
Radian Group (NYSE: RDN)	+6.4%
Home Depot (NYSE: HD)	+1.0%
Lowes (NYSE: LOW)	+1.4%
USG (NYSE: USG)	+1.7%

The latest Weekly Applications Survey was published by the Mortgage Bankers Association (MBA) Wednesday morning as well. It showed mortgage activity held about steady in the week ending September 14. The real good news was found in its measurement of mortgage rates, which mostly declined in the period. The Existing Home Sales Report had shown a slight increase in average contracted mortgage rates in August. However, the latest quantitative easing program by the Federal Reserve is expected by most to lower rates even further.

It would be a little premature to expect to find any impact from the Fed announcement or mortgage backed securities purchases in this week’s data, but coming weeks could be affected. Still, rates on 15-year fixed rate mortgages reached a historic low in the latest period, dropping to 3.03%, and the average rate for FHA sponsored 30-year fixed rate mortgages held at its historical low of 3.5%.

On Tuesday, the National Association of Home Builders (NAHB) reported its Housing Market Index (HMI). The HMI is a measure of homebuilder sentiment, and has been deeply underwater for quite some time now. A mark under 50.0 for the HMI signifies that more builders view the state of homebuilding negatively than positively.

For the fifth straight month, the HMI improved, this time by three points to a mark of 40. It does not seem like good news, considering the index remains 10 points short of breakeven, but consider that it has not been this high since June of 2006. The best of the good news is that sentiment is improving across measured factors. The component index measuring current sales conditions improved four points to 42; the component measuring expectations for the next six months improved by eight points to 51; and finally, the component measuring the traffic of prospective buyers increased by a point to 31. Regionally speaking, the Midwest and West led with five point gains to 40 and 43, respectively. The South recorded a four point gain to 36, and the Northeast took back two points to 30.

So there you have it, four data points illustrating an improving real estate sector. It’s quite ironic that the real estate sector is improving just as the economy seems to be deteriorating, as traditionally, real estate has been a key catalyst of economic growth. It may just be that because of the structural changes of homeownership, with mortgage loans harder to qualify for, and given the still underemployment burdened economy, real estate doesn’t have the power to drive us higher by itself currently. Also, what has been a catalyst for growth of our economy more recently, the global marketplace, is currently dysfunctional and burdensome, at least in part. The usual intangibles, like geopolitical threats, are as scary as they ever were. Because of these issues, the vulnerability of our economy, and the cyclical nature of real estate, I remain concerned that this nascent housing strength could be quickly undermined.

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.

Huge Gains Possible for European Stocks

The debt crisis of Europe is effectively over, thanks to the latest efforts of Mario Draghi and the European Central Bank (ECB), and supported by the all clear given to the European Stability Mechanism (ESM). You can look toward the turn achieved by U.S. stocks in March 2009 for guidance into the huge capital gains possible for European markets now. Of course, some of those gains have already been taken since the bold statement of the ECB chief in late July. The iShares S&P Europe 350 (NYSE: IEV) has charged forward approximately 15% since the July 26 statement, and American banks with ties to global markets are up even more. Yet, European shares and relative securities could have much more to gain. Though, the dynamic risks of the day could also alter the path of Europe from that taken by American stocks post our financial crisis.

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.

In March of 2009, it seemed to most Americans, and especially stock market participants, that all was lost. Yet, in the depths of the financial crisis, and well before economic recovery began, stocks marked bottom. That fateful day, March 3, 2009, was the point of inflection. From that day through the end of 2009 the SDPR S&P 500 ETF (NYSE: SPY) gained roughly 63%.

Obviously, serious obstacles remain which might alter the recovery scenario for Europe. For instance, if war breaks out in the Middle East, involving Iran, Israel, other Middle Eastern nations and global powers, all bets are off. The Iran war factor is neither negligible nor insignificant.

Likewise, political disruption within struggling European nations could alter the path for European shares. For instance, the last elections in Greece reflected the frustration of the Greek people with harsh austerity and almost led to Greece’s withdrawal from the euro zone. The result of such an event could have driven similar change in other PIIGS nations, and taken the euro-zone down a completely different direction. Those risks remain.

Finally, economic deterioration within Europe could spark up concern again. For instance, if the rating agencies, Standard & Poor’s (NYSE: MHP) and Moody’s (NYSE: MCO), downgrade Germany’s sovereign debt rating, that would reignite concern. A warning has already been issued to Germany, and its economy has begun to show cracks.

Another group that should benefit substantially from gains made by Europe are the banks with substantial risk tied to the region and the system. This is why the shares of Citigroup (NYSE: C), Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) have participated in the latest three months of gains. The shares of Citigroup (C), for instance, are up 32% since July 26; the rest of the group is up similarly. It’s quite ironic that it was Citigroup which sparked the turnaround in American stocks in 2009, when it first reported good news. Other bankers, including Jamie Dimon of JPM, added to the change in tone and stocks never looked back.

In conclusion, I reiterate that while substantial opportunity exists for European and related securities, special dynamic risks could hamper the repeat of what American stocks accomplished in 2009. As always, you are advised to pay close attention to developments and risks, and welcomed to follow my feed which will likewise do 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.

Retail Sales Report for August Crimped by Gas Prices

In a day offering the first real test for stocks since the latest Federal Reserve quantitative easing program, with five economic reports on the slate, Retail Sales led the opposition. You would have thought that retail sales growth of 0.9% on the month, a Street beating figure (consensus at +0.8%), would be good news. However, as always, I’m here to put the report under the microscope and show you why it is not.

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.

While sales beat Wall Street on the headline, our survey of the report shows that to prove misleading. The first important point to make is that Retail Sales for the month before (July) were revised lower, to +0.6%, from +0.8% when reported initially. The effect of lowering your basis for comparison is to raise the percentage gain for the current period if the result comes close to being in line. Thus, unlike the percentage change superiority over the economists’ consensus, you bet your bottom dollar that the absolute forecast figure for the consensus is closer to the absolute real result for August.

The second point I want to make is that this data does not adjust for price changes, and so is influenced by price changes, including in volatile food and energy. Thus, when we take out the sales of autos and gasoline, we find that those sterilized retail sales only increased by 0.1%, against the revised higher July gain of 0.9%. Wall Street is not stupid, and so incorporated the monthly increase in gasoline prices to find an adjusted expectation for a 0.4% gain here. Obviously, that’s still too high and so the result is a disappointment on all counts.

Looking within this data, we see the catalyst is not autos. Ex-auto sales still increased 0.8% in August, off the unadjusted prior increase of 0.8% in July. So, you can contain your concern for Ford (NYSE: F) and General Motors (NYSE: GM) that might have been tied to this report. Those two stocks were up in the early going, probably because of market focus on this line detail.

However, gasoline station sales gained sharply on the higher price of gas in August. Those sales rose 5.5% against July, driving the top line of companies like The Pantry (Nasdaq: PTRY), but also of course Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX).

Retail trade sales, which is what most people think about when they hear this report cited, increased by 0.9% in August, against the 0.7% gain in July. However, we’ll need to once again focus on the specific types of sellers to really glean anything important for the stocks you own. General Merchandise Store sales declined by 0.3% in August, after a 0.1% increase in July. While this category would include Wal-Mart (NYSE: WMT), it also includes non-discount department stores like Sears (Nasdaq: SHLD), Macy’s (NYSE: M) and J.C. Penney (NYSE: JCP). Though department store sales, when broken out, rose 0.1% in August, against their 0.8% gain in July. I think that what this data is telling us is that the pie shrinking and so there will be winners and losers when these companies next report earnings.

Ahead of the new Apple (Nasdaq: AAPL) iPhone release, the sales of Electronics and Appliance Stores like Best Buy (NYSE: BBY) fell by 1.4% in August, versus their 1.0% gain in July. Obviously, things will change as we incorporate the new iPhone into forward sales.

Supporting the case for homebuilders and renovators, the sales of Building Material and Garden Equipment Supplies Dealers like Home Depot (NYSE: HD) increased by a solid 1.0% in August, following the 1.2% gain made in July.

Food and beverage sellers, including grocery stores, saw sales unchanged in August. Without incorporating any change in food prices in the month, this could be due to less eating out at casual dining establishments like those provided by Brinker International (NYSE: EAT) and Darden (NYSE: DRI) restaurants. With regard to grocery, Wal-Mart is gaining share from traditional markets like those provided by Supervalu (NYSE: SVU) and Kroger (NYSE: KR).

Clothing and accessories stores like Abercrombie & Fitch (NYSE: ANF) and The Gap (NYSE: GPS) may not have gotten a good enough lift from back-to-school shopping, given the segment’s sales declined 0.1% against July. Of course, this is also going to be a fashion and smaller pie story, with some stores gaining as others lose customers.

Non-store retailers, including some of America’s favorite destinations like eBay (Nasdaq: EBAY) and Amazon.com (Nasdaq: AMZN) saw no change in August sales, against a 1.9% increase in July. We might pin the July gain to the heat, keeping consumers in their air conditioned homes, shopping away on their laptop. August is a holiday period, but no change is unexpected here, given the heat and also back-to-school. Perhaps consumers don’t have time to wait for shipping, or be home to receive during the vacation period ahead of the start of school, but that’s just speculation. We’ll have to wait on September to know for sure.

All in all, August looks like a disappointment for retail sales in my estimation, save perhaps the auto industry and gasoline providers, and also the construction materials peddlers. It may be the higher price of gasoline that hurt the rest of the sector. As it looks like gasoline prices are only going higher from here, given geopolitical fires and capacity constraints, not much should change for the better. The consumer mood is deteriorating on a once again apparently weakening domestic economy. In conclusion, this report supports my case for the spread of recession to our shores not too long from now.

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.

Europe is Finally Supported

Germany’s constitutional court ruled in favor of Germany’s participation in the permanent euro-zone bailout plan and fiscal accord for budget discipline. The European Stability Mechanism (ESM) thus ratified by the court, means Germany’s Chancellor and its President, its Parliament and Court are in accord behind the whole of Europe. Thus, finally, Europe seems to have its supports in place, the sort in which markets can believe in. This has European shares higher today and is also driving our own stocks higher as a result. The SPDR S&P 500 ETF (NYSE: SPY) gapped open higher on the news.

It also appears, at least at this point, that Germany will not stand in the way of the European Central Bank’s (ECB) plans to buy bonds of distressed euro area nations. Some even speculate that the ESM will join in that effort. I believe the ECB was able to gain German favor by promising to sterilize its money supply efforts, and thus keep longer term inflation concerns at bay. Interests inside Germany rightly demanded that any increases in the ESM face new approval from Parliament before the German president can sign off on such capital releases.

Stocks in Europe are celebrating today as a result:

European Indexes	European Index ETFs
EURO STOXX 50: +0.6%	iShares Europe (NYSE: IEV): +0.4%
Germany’s DAX: +0.7%	iShares Germany (NYSE: EWG): +1.0%
France’s CAC 40: +0.5%	iShares France (NYSE: EWQ): +0.7%
FTSE 100: +0.1%	iShares U.K. (NYSE: EWU): +0.3%
IBEX 35: +1.0%	iShares Spain (NYSE: EWP): +1.9%
FTSE MIB: +1.2%	iShares Italy (NYSE: EWI): +1.3%
Athens ASE: +5.3%	Global X FTSE Greece (NYSE: GREK): +6.0%

Finally, Europe seems to have solid supports in place to ease pressure on troubled area bonds. This may mark the end of the crisis phase for Europe, but not the conclusion of economic contraction. That said, stocks can now contemplate recovery, and so trading should trend higher, save for when economic data reaches the wire. The euro should likewise mark near-term bottom here, but I expect another factor will threaten Europe shortly, which I will detail in a near-term article. Stay tuned…

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 Offers a Floatie for an Economic Storm

The day’s huge employment situation report offered disconcerting information to the discerning, as a surface level improvement in the unemployment rate proved quite suspect after review of the detail (see my report: Jobs Report Favors Change). Equity futures immediately started to reconsider green territory established before the release of the data, but that didn’t last long. The market then headed decidedly higher, brushing off important economic deterioration in favor of something else.

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.

What is holding equities above water is hope. Specifically, it’s hope that the Federal Open Market Committee (FOMC) will issue a new phase of quantitative easing or some other creative form of policy (ala the ECB) at its announcement next week. Certainly, the bad news today for the economy increases the odds of Federal Reserve action, and the market is betting on that.

The SPDR S&P 500 ETF (NYSE: SPY) was up fractionally through midday Friday, after marking a 2% gain Thursday on the ECB announcement. Shares of cyclical industrials and financials are leading the way higher, with the Industrial Select Sector SPDR (NYSE: XLI) and the Financial Select Sector SPDR (NYSE: XLF) up 0.7% and 1.0%, respectively. Individual leaders included Caterpillar (NYSE: CAT) and Bank of America (NYSE: BAC), up 3.5% and 4.2%, respectively. But is the basis for rise capable of offering more than just hope? If not, it should not be long before the gains just detailed reverse.

Mortgage rates are at record lows, and yet lenders like BofA and J.P. Morgan Chase (NYSE: JPM) aren’t issuing loans at a blockbuster rate at all. In fact, Bank of America has been reining in its loan portfolio, due to the risk it carries. So, lower rates are not likely to help much more, as the key problem is qualifying potential home buyers for a mortgage after the damage done to their credit records through the financial crisis. On top of that, the burden of the current economic environment continues to weigh on all of us, especially the underemployed. And just try getting those who would like to move to take a loss on the real estate they already own. And while the new home market seems to be benefiting today, if you look at the production of large public builders like PulteGroup (NYSE: PHM) and Toll Brothers (NYSE: TOL), their gains have come within a slowly recovering and still vulnerable overall real estate market. Truth be told, gains have been significantly driven by the construction of multi-family projects geared for new rentals.

The real fix can only come with time, and by fiscal change, if not genius to get us out of this mess. My perspective of Washington is that genius is in rare supply, while egos and division are running rampid. Besides, even if Washington had all the answers, our economy would remain burdened by the deterioration of Europe and its impact globally.

Earlier this week, ahead of the announcement that fired up stocks on Thursday, I suggested investors take advantage of the coming rally into the ECB and FOMC announcements. While I stand committed to that today, as stocks continue to make me look smart, I do not believe the rally will last long after the Fed’s announcement is published. That’s because its powder will have been used, or not, and the onslaught of economic data deterioration will continue thereafter. Neither will the bombardment of political criticism stop against the economy and its keepers. Meanwhile, the ECB’s plan still faces a German Constitutional Court threat. Questions will continue to mount regarding just how much impact the central banks can have, and eventually, the tone of conversation might turn to the potential new damage bank actions could have. So, while you have the Fed and ECB to thank for your retained gains today, I think they’ll find themselves thankless soon enough.

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.

Choose Giants Over Cowboys Stocks This Season

Even though the Dallas Cowboys defeated the New York Giants in last night’s season opener of the NFL, in today’s stock market, “giants” are the better option for investors over “cowboys”. Obviously, we’re not talking about the New York football Giants but certain kinds of stocks that are analogous to giants and cowboys.

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.

Giants Versus Cowboys

At the end of an economic cycle, large cap stocks (or giants) outperform small cap names, and value stocks outperform growth names (or cowboys). If we can agree that the economic cycle is aging, and that our Ibbotson data resource has history correct, then we can agree on the investment style for the day. It doesn’t matter if you are from New York or Dallas, but if you are from Philadelphia or Chicago, well that’s another story. You see, that would make you an eagle or a bear, ready to rise on Fed stimulus or as a contrarian market play.

Stocks that might be giants could include names like Johnson & Johnson (NYSE: JNJ), Procter & Gamble (NYSE: PG), Pfizer (NYSE: PFE), Verizon (NYSE: VZ), Coca-Cola (NYSE: KO) and Wal-Mart (NYSE: WMT). However, the trend holds for the group, better than it might for all individual ideas. Clearly, large cap cyclical stocks are not going to necessarily add value to the game plan. Therefore, we might want to keep players like Caterpillar (NYSE: CAT), Bank of America (NYSE: BAC) and Alcoa (NYSE: AA) off the roster. Also, industry specific issues might cause a bad idea to have a good day, like say Exxon Mobil (NYSE: XOM) might on an Iran scare; or a good idea to have a bad day, like Kraft Foods (NYSE: KFT) might on higher agricultural prices due to drought.

The trend might not hold on the downside for all the “cowboy” stocks either, but if we were to choose some all-star failures, we might include high-beta growth ideas trading at valuations hard to justify when growth gets reconsidered. A lot of the types of names we would put on the cowboy squad have already seen share decline, like for instance Netflix (Nasdaq: NFLX), Facebook (NYSE: FB), Chipotle Mexican Grill (NYSE: CMG), lululemon (Nasdaq: LULU) and priceline.com (Nasdaq: PCLN). The cowboys would definitely include small cap rookies, which are notorious for fumbling on rainy days, say for instance names like Vivus (Nasdaq: VVUS), First Solar (Nasdaq: FSLR) and Zynga (Nasdaq: ZNGA).

I hope you enjoyed the game, whether your team won or lost. The season is long, and will be full of trials and triumphs, but until the season changes, I think you’ll do better with the giants than the cowboys. This article was easy for me to write, being a Philadelphia Eagles fan, and having enjoyed great victories over the Giants while always loving to hate the Cowboys.

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.