One of the more interesting issues facing investors is what I call the Bifurcation Quandry: It seems where ever you look, everything has become a duality:
• Retail? High end good, low end poor;
• Advertising? US slowing, Global booming;
• Income? Upper 10% great, most of the rest mediocre;
• Economies? Asia, Europe Strong, US much less so.
Even the ISM number yesterday was helped dramatically by those sectors that are exporters to Asia and European corporate customers.
In the U.S., those firms that have been relying on the consumer have been feeling the pressure. Consider the revenue, earnings and guidance we heard from the following:
• Best Buy: Wall Street took Best Buy to task for missing its first-quarter
earnings forecasts and lowered 2007 guidance. "There is very little to
be encouraged about in the quarter," wrote Bank of America analyst David Strasser in a research note.• Circuit City: Electronics retailer Circuit City, which earlier this year cut jobs and restructured in an effort to keep up with competitors, reported a $54.6 million quarterly loss Wednesday and withdrew its financial guidance for fiscal 2008.
• Starbucks: Starbucks Corp.’s chief financial officer on Thursday said meeting the high end of the
coffee shop chain’s 2007 earnings forecast will be "very challenging"
due to rising dairy costs and slowing sales growth in its U.S.
business, sending shares to a 20-month low.• Home Depot: Home Depot reported sales at
established stores fell 7.6 percent.• Target: expects same-store sales for June
to increase near the lower end of its planned range of 3% to 5%,
according to a prerecorded conference call.• Bed, Bath & Beyond: earlier this month offered what was reportedly
its first-ever warning that quarterly results might be lower than
projected.• Federal Express: FedEx earnings increased 7.4% due to increased traffic in the UK, China and India. However, the company said earnings might decline this quarter due to US economic weakness. FedEx validates the theme that the US economy is slowing while other countries’ economies remain firm.
Then there was the Durable Goods number, The WSJ reported:
"Orders for durable goods — big-ticket items meant to
last three years or more — fell a seasonally adjusted 2.8% in May
after a revised 1.1% increase in April, the Commerce Department said.
The May decline was led by a 22.7% drop in aircraft orders.But even excluding the volatile aircraft sector and
other parts of the transportation industry, orders were weak, falling
1% after gains of 2.5% in April and 1.6% in March. Orders for capital
goods excluding aircraft and defense, a closely watched barometer of
business investment, fell 3%, tempering the widely held notion that
business spending is accelerating."
Lastly, the Advertising outlook is weakening in US: “Advertising forecasters have downgraded prospects for the US, challenging expectations of a boost to the marketing industry from the presidential election race and the 2008 Beijing summer Olympics.
Advertising forecasters have downgraded prospects for the US, challenging expectations of a boost to the marketing industry from the presidential election race and the 2008 Beijing summer Olympics.
The US is the world’s biggest advertising market and the key profit territory for the world’s two largest marketing services groups – Omnicom of the US and UK-listed WPP.
Worldwide, the industry would normally expect a jump in expenditure during a period which includes the run up to the US presidential elections, the Euro 2008 football championships and the summer Olympics in China.
The current downgrades for the US contrast with upbeat assessments from Zenith and others of prospects for global advertising, especially internet marketing.
This explains why I have been in favor of any of the firms that are
major exporters — the big cap, multi-nationals not only have the weak
US dollar helping them, but they also have the robust Asian and
European demand as a wind at their backs.
>
UPDATE 3: July 8, 2007 8:02am
I see Marketwatch’s Rex Nutting has a good preview of this weeks retail related data:
Retail sales sputtered in June
Investors who’ve been worried about U.S. economic growth being too strong will get a reality check in the coming week from the retail sales figures for June.Retail sales are projected to fall 0.3% in June in nominal terms, with weaker spending on vehicles, gasoline, building materials and clothing, according to a survey of economists conducted by MarketWatch. See Economic Calendar.
Sales increased at a 16-month high of 1.4% in May, a figure that some economists expect to be revised down.
The June retail sales report on Friday is the highlight of relatively light week for economic data.
>
UPDATE 2: July 2, 2007 9:22am
Peter Bookvaar tells us:
Two weekly data points out this morning highlight a still
sluggish retail sales environment. The Int’l Council of Shopping Centers (ICSA)
lowered its June sales expectations to a 1.5-2% range from 2%. They said in its
release, "over the course of the fiscal month, the June sales pattern has
been slow, choppy and uncertain. Moreover, the breadth of that experience
seemingly is widening among retailers." Johnson Redbook today said sales
fell 1.1% month to date for the week ended June 30th and are up 1.6% month to
date y/o/y, a 2 year low if you take out the weather induced weakness in late
May, early April.
>
UPDATE: July 2, 2007 8:32am
I see Calcualted Risk has addressed a similar issue: The Q2 Consumer Slowdown
>
Sources:
Durable-Goods Orders Tumble 2.8%
JEFF BATER
WSJ, June 27, 2007 9:09 a.m.
http://online.wsj.com/article/SB118294550988749931.html
U.S. Economy: Spending Increases Less Than Forecast
Joe Richter
Bloomberg, June 29 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeYU5PDrQE_U&
Advertising outlook weakens in US
Carlos Grande
FT, July 2 2007 12:13
http://www.ft.com/cms/s/ea10505c-2889-11dc-af78-000b5df10621.html
And as per usual, none of the real data that comes out matters. Only the crap that comes out of the commerce department seems to matter. So let’s get those buys programs in high gear since there is virtually no volume it ‘s all the easier to push it up on hot air.
But here comes the NAR numbers to save us from ourselves as they continue to put out numbers that count cancellations as actual home purchases, and nevermind that the deviation of there numbers is something like +/- 10%.
It sure would be nice to be able to just make up numbers and put them out in an “official” capacity……seems that people believe anything if it is presented as “official”.
Ciao
MS
Timely and Tangentially related
Pending home sales were expected to rise 0.6% and the range of estimates were -2.1% to +2.1%
Actual number today? Outside the range of estimates, -3.5%
http://www.realtor.org/Research.nsf/files/PHS.pdf/$FILE/PHS.pdf
Biggest y/y drop is in the South, which as most of you know has the lion’s share of housing and population.
Half of the total personal spending gain (about 26 b) of the May increase was in gasoline in the PCE numbers last week.
With housing crimping MEW, and Gasoline hogging half of the gain in spending I continue to be amazed that consumption continues to remain unfazed. I do know something like 2/3 of all consumption occurs at the upper top of the income brackets, and that end of the economy is doing just fine, but still…
It’s sort of like construction employment, starts down by 40%, but employment nearly unchanged in that sector.
^^^ People are just so unaware of what is really happening out there. They are spoon fed these flawed reports and then sort of glance at them and then pay no further attention to them. It’s a travesty that people are not more financially aware because if they were then these “official” reports would have to change to reflect reality instead of someone else’s (current administration’s ) stead fast denial of the real economic picture. I never thought they could keep this charade up for this long…we’re going on over a year for this current cycle that began with the little trick on the GSCI with regards to wholsale gasoline prices that fell off a cliff…….two months before an election.
I would dearly love to see who bought all those bonds yesterday…..but I think most know already.
Ciao
MS
What can I say, my portfolio is at an all-time high. Despite the persistent bear sightings around here for the past 1.5 years, the markets are up very nicely.
Does nobody pay attention to the good news?
i think many have overlooked that global slump has a lag of few quarters. we saw that in 2001-02 as well.
decoupling is not gonna happen. 2008 global economy will slow down dramatically and hopefully w/ that global asset bubble will be burst as well.
eddie=manhattan guy=fred=nogo=head in sand
I guess one could pay attention to the good news if it were actually good news and not something, like the above example from MD, that skews the news into appearing good for one day of a PR exercise.
But that sells and reality does’nt…
How do you explain you’re “portfolio at an all time high”? You must have had some strategy or are you like the rest and are simply hanging on for the ride and pointing to the size of your wallet or “I told you so”.
Eddie…comments like yours are just asking to be flamed….try some insight or interpretation instead of “look at me”
Ciao
MS
Eddie,
It is good news/very bad news for me…
my portfolio is at its all time high too.
My income from my “real” job (Pest Control-State Licensed) is at a 5 year low.
What is clear to me at work
-Pretty much All of our lower to middle income clients have canceled our service
-our “rich” clients call us on schedule
-New housing construction/new subdivisions way down(-75%) (we pre-treat for termites)
Bullish on Stocks/Assets
Bearish on my job/income
Bearish on Central Banks (am I right MS?)
Happy 4th of July everyone!!!!
Mark-
I’ve noticed that the number of pest services cold calling in my neighborhood has sky rocketed over the last two months. Your post puts it into perspective.
Central Banks??? Which ones?……LOL
Ours and Japan’s are “helping” each other..
the rest will (and have) raised rates…
Pretty obvious what we have to do although how much of our own bonds will the gov’t buy to keep the yield down below 5 going forward? Seems that is what is happening now. Just speculating…
Good week (end) to all…..
Ciao
MS
Mark,
I am a computer programmer by trade. For years I’ve been paying attention to how all of the US’s good jobs are being moved to lower cost providers throughout the world. This is not a fad, but a reality. I decided that the only choice I had to insure myself financially was to be an owner of those companies that are lowering their costs through outsourcing.
The fact is that what is bad for American workers is good for companies that sell products to the rest of the world. The only way to benefit from that is to be part of it.
Therefore, I buy stock in those companies.
Eddie, congrats on the portfolio.
It has been said that one doesn’t need to ask a trader how he is doing as his gait and swagger will tell all. If his chest is out, and he walks with a confident swagger, then one knows all is right.
Since we can’t “see” each other here, I’d like to submit that the constant bear-humping, the world is gonna end posts by the likes of some in this room tell me that they are not, and haven’t been walking with confident swaggers.
These bear-humping chicken littles are not profitable in this market, and probably haven’t been profitable in years. And that is assuming they even trade. My suspicions are that most of the bears here suffer from analysis paralysis and are incapable of taking on any risk, as they fear (as they have for years) that the next market crash will be tomorrow.
So when they bash you for “measuring wallets” it is clear that had they a fat wallet to measure, they clearly wouldn’t be so put off by such a comment.
Eddie, congrats on the portfolio.
It has been said that one doesn’t need to ask a trader how he is doing as his gait and swagger will tell all. If his chest is out, and he walks with a confident swagger, then one knows all is right.
Since we can’t “see” each other here, I’d like to submit that the constant bear-humping, the world is gonna end posts by the likes of some in this room tell me that they are not, and haven’t been walking with confident swaggers.
These bear-humping chicken littles are not profitable in this market, and probably haven’t been profitable in years. And that is assuming they even trade. My suspicions are that most of the bears here suffer from analysis paralysis and are incapable of taking on any risk, as they fear (as they have for years) that the next market crash will be tomorrow.
So when they bash you for “measuring wallets” it is clear that had they a fat wallet to measure, they clearly wouldn’t be so put off by such a comment.
Woodshedder, I don’t think you can presume what MS is invested in. For instance, I mostly view things MS’s way. But, I’m mostly long. That is, I find the bearish view to be “right” except that liquidity (dollar depreciation, M&A) is trumping all.
It’s off the topic of retail, but one sign of a strenthening economy is that the recent fare increases at the airlines “stuck”.
Continental put up exceptionally good numbers for June. Revenue per available seat mile and load factors were both stronger than expected.
“It seems where ever you look, everything has become a duality: • Retail? High end good, low end poor;”
It was the best of times, it was the worst of times….it is time to go long guillotine manufacturers?
S: In the aggregate, in supply chains with limited competition or bottlenecks, prices will always stick in the presence of enough nondiscretionary demand.
With air travel, gate capacity, gate “ownership”, and crowd logistics at the hubs capable of handling large planes are bottlenecks, and given US economy and social-geographic patterns (families spread out over the continent and internationally) there is enough demand for long-distance travel. Another factor is that now ticketing is almost fully computerized (i.e. under centralized airline control — bottleneck), and there is no more raffling off of seat contingents and last-minute blowout sales.
I’m not even going to delve into food, healthcare, and gas/energy/utilities. Let’s just say I need my staples and will continue to pony up.
Discretionary goods are largely imported from places that match consumers’ pocketbooks, and discretionary services are supposedly rife with “undocumented” low-cost labor — plausible when considering appearances. As long as there is “flexibility” on those fronts, less discretionary prices will continue to stick.
eddie & woodshedder-
this may come as a shock, but it is possible to be unimpressed with the current macro environment, while watching one’s trading account go up each day.
it’s also possible to do this without being crass.
some people value social equity, honesty in reporting, reduced wage gaps, and overall economic health more than paper profits.
it’s great that you guys are making money, but there are other things that are more important.
M3 writes: “it’s great that you guys are making money, but there are other things that are more important.”
I’ve listened to the conspiracy theories, the gov’t is manipulating data, the housing gloom and doom, but that takes the cake. Is that the new bear script? We’ve been on the wrong side of this market for so long that we’ll just change the game so that making money no longer maaters?
Homes vs. Offices
I mentioned the duality of this era the other day, and it carries right into today’s discussion — On the one hand, Pending Home Sales Index dropped 3.5% in May to a 6-year low:Pending sales of existing homes dropped to their lowest level in almost six…
a long standing problem here (and other sites) is that if you do not agree with someone’s position , be it long or short, you HAVE to be doing poorly.
We all know what the word assume spells…..please do not allow you’re interpretation of my comments to mean that I am “doing poorly” as you’re assumption of such is really what is doing poorly. This is my job…..I generate income to live on, I work at home for myself……can you perma-bulls make that claim??? If you can…then good for you. Worry about where YOUR money is……not mine and you will be more successful.
As I asked another person (eddie) you must have a strategy as to why you are doing so great……I’ve yet to see any presentation other than a “woo-hoo” or “look how great I’M doing”.
Try a little harder to not appear to be so smug when pointing to a expanded market bloated on printed money and hot air from the commerce department. In reality (had you actually looked at ANY economic indicators) you’re tune would be different…it just happnes to go your way from time to time and now you all have become “geniuses”.
Ciao
MS
MS- feel free to come over to my blog and check out how I do. All trades are posted, and verified by Covestor.
I’m just pointing out that you bears all seem so angry about things. My “assumption” is that the anger is brought on by losses in the markets.
Again, you keep mentioning “a expanded market bloated on printed money and hot air from the commerce department.” That is all well and good, but it seems the market is either ignoring it or pricing it in. Either way, if you constantly bet against the market, you lose. You want to be right, and maybe you are, but you will never be right consistently betting against the market.
You mention me being “smug,” but then you can’t resist getting your own “smug” comment in, with your remark about “geniuses.” You are no better than me. And if in fact you have been on the wrong side of this market, then you are arguably worse.
WS-
It was not I who crowed about my portfolio…it was most certainly you and by bringing it up (your performance) as the very first thing you cover is ALL I need to know about you.. So do me, and the rest of the readers here a big favor and remove yourself from the box you have climbed up on and join the ranks of the people who have a shred of humility that IS NOT measured by money, or supposed performance.
I do not care what your performance is….but you seem to be fixated on mine. Here’s a great piece of advice you should realize: Worry about Your money and not mine.
It’s not about being better than one person but I guess it is to you.
Do not have a nice day
Ciao
MS
MS- lol. I am most certainly not worried about your money. I am, however, worried about “readers” when they start to say things like “there are more important things than making money.”
Last time I checked this blog was about the “capital markets.” If it is not about making money, then what is it about?
MS- I am a humble person; however, I am not a coward and am not afraid to call it as I see it. I find it ironic and silly that you can be “smug” and rude, yet it is not acceptable for me to do the same. How do you reconcile that irony?
Regardless, this is getting no where, as you want to make this blog not about making money, and I am about making money. I’ll save the warm fuzzies for my wife and kids. You folks who concentrate on the doom and gloom and then can’t even turn it into a profitable situation are laughable.
MS- lol. I am most certainly not worried about your money. I am, however, worried about “readers” when they start to say things like “there are more important things than making money.”
Last time I checked this blog was about the “capital markets.” If it is not about making money, then what is it about?
MS- I am a humble person; however, I am not a coward and am not afraid to call it as I see it. I find it ironic and silly that you can be “smug” and rude, yet it is not acceptable for me to do the same. How do you reconcile that irony?
Regardless, this is getting no where, as you want to make this blog not about making money, and I am about making money. I’ll save the warm fuzzies for my wife and kids. You folks who concentrate on the doom and gloom and then can’t even turn it into a profitable situation are laughable.
and once again….you fail to observe a point that comes from someone other than yourself.
Expected…..
have fun “making money”……as if that were the only thing in life. At least try to understand why-which is the reason for this blog. Anyone can just set it on cruise control and not understand….you’ve basically proved that point.
there are two sides to every story….try to remember that FACT.
Ciao
MS
MS- you have no idea how I trade or what I do. Honestly, if you would have visited my blog, you would see that what I do is far from being set on “cruise control.” Please, do not misconstrue that comment into me asking for you to visit my site. That is not my intent. What is my intent is that what I do is plain to see, in all its gory details, for anyone who is interested. I’d be curious to see your full disclosure.
Again, you seem to have a problem with making money. I guess then it is safe to say that your comments are not intended for those trying to be profitable. I think that disclaimer is helpful. Had I known that, I probably wouldn’t have responded to your comments.
And again, you fail to address how it is acceptable for you to be rude and smug, but not me.
Do you feel better now??…you seem to not realize that you only are required to submit a post ONCE
You continue to miss the point while making sure you slap your own back in the process.
I’ve not seen you address any of my( or any other’s as well) direct comments towards you.
This is not about performance…..obviously you think it is.
I have no problem making money……I just do not have the urge to make everyone else aware of it like you do.
That last statement is all I have to say to people like you.
Ciao
MS
Barry/Ginger, I get called an “asshole” and you leave that post yet you delete my own, which by the way was polite, with no cursing? Something smells about that. I even provided a legitimate email address and a blog.
Are you done crying?????^^^
“He called me an !@#$%^&*”
Simple solution…don’t act like one……
You profess to know all about me however when the tables are turned no one else knows what you do. Grow up…
Ciao
MS