Thursday, March 12, 2009

Scratching my head

There are times in this business that are rougher than others. Watching the market go up from the sidelines this week is one of those times. It feels like it would be great to jump in, but I'm not sure that the water is a comfortable temperature. I'd just dip a toe in to test the temperature, but I'm not sure that aren't piranhas waiting to nibble off an appendage or two.

Despite the "good" retail sales report this morning, I'm still very much of the belief that this crisis isn't over yet. I think I might have said that once or twice before. The retail sales numbers were better than expected. But if you looked deeply, a lot of the happiness came from retail sales of gasoline. Since the PRICE of gasoline was up over 5% during the month and sales were only up 3.4%, perhaps we should rein in some of that enthusiasm. I'll admit though that the 2.7% increase in clothing purchases has me a bit flummoxed, given how lackluster the same store sales were last week. For now, I'm going to consider it a bit of fluke, but watch it carefully.

One of the reasons that I'm pretty certain that we're not anywhere near out of the woods was the release of the Federal Reserve's measure of U.S. household wealth. During Q4 it only dropped $5.1 trillion. A trillion here, a trillion there... pretty soon we're talking real money. Is it any wonder that consumers are cutting back, saving more, and scared to death? Nah, I didn't think so either.

In other news, there's still a lot of short covering going on in the market. Tonight I did a survey of the short interest on the individual stocks within the S&P 500. (Have I mentioned lately how much I love my Bloomberg terminal? I do. Truly I do.) Anyway, doesn't matter if you take the average or the median of the number of days needed to cover the short positions, it comes out to about 2 days. Anyone want to be that the rally continues for another day or two before fizzling when reality sets in?


Cooldude said...


Thank you for sharing your thoughts on the retail numbers out yesterday (I was very curious)
I think economics is more about behaviour and less about numbers and so the most important question is what influences consumer behaviour in the long run?

I believe you have it right on retail consumption not being sustainable however policy can play a big role in determining the direction going forward.

a) Somehow if the Fed is able to engineer inflation

b) the administration is able to put the brakes on the housing market - they could do this with opening up immigration whereby any professional non citizen who has a work permit could speed up their citizenship procedure by buying a house - better still open up immigration to all qualified professionals who are willing to purchase a home.

c) Lower Corporate taxes to make the US the most friendly business haven especially for Biotech and Technology companies.

d) Encourage efficiency capital to invest with lower Capital taxes...

the list is probably longer, you probably could add to this... as you are a lot smarter than I am..

The Bloomberg terminal is such an important tool to have (albeit a little expensive) however they add so many enhancements that you can't do without it once you are hooked to it.


Cooldude said...

Just to add to this.... I don't believe either of the 4 scenarios I pointed out will happen... wishful thinking!!