But, Barry Ritholtz, who carries a little more weight than me in the blogosphere agrees that everyone is missing the whole point about "inflation" and the "car sale" strength?
Note for price changes means that these are nominal -- not inflation adjusted -- numbers.
Hence, with Gasoline station sales up 23%, and non-store retailers (home oil delivery) up 10.6%, the surprise gains were all energy/inflation related.
I have to wonder about the boost in demand for cars, considering what we have heard from all the auto makers -- they almost across the board announced weaker sales. I don't know what the Commerce department is looking at, but I cannot figure how its a positive sign for the economy.
Take the Retail Sales EX Inflation (gasoline, food & beverage) and retail sales were DOWN. Excluding inflation, demand at all other retailers last month were unchanged to negative. Economically, speaking, how bullish is that?
I also cherry picked this entry from WSJ blog and only picked economists who were as indignant as me :) (and keep in mind if you throw 5 economists in a room, you will get 6 opinions!)
With the exception of a November result that was aided by an early Thanksgiving and early and aggressive pre-holiday discounting, retail sales have been on a weakening trend for several months. While the preliminary January result was better than generally expected, it was by no means any more than mediocre, particularly given that headline inflation in the month was probably roughly the same as the reported nominal increase in overall sales. –Joshua Shapiro, MFR, Inc.
Although headline retail sales were above expectations in January, the details are weaker: (i) there were small net downward revisions to November and December that should subtract 0.2% point from consumer spending, (ii) the strength in autos is flatly contradicted by the industry data, (iii) gasoline added 0.2% point to sales, which is price related (i.e. inflation) and, (iv) the gains were very narrow with department stores, electronics, eating and drinking, and furniture all down in the month. –Bear Stearns
The January retail sales data is not consistent with either same store chain sales or total vehicle sales during the sampling period. We are highly skeptical of … a 1.4% increase in clothing sales when major clothing department stores such as Nordstrom’s, Macy’s and teen retailers across the board recorded negative sales during the month. Perhaps the -1.1% decline in sales at department stores is a better indicator of the actual retail sales number once we get what will almost surely be a downward revision is the data next month. –Joseph Brusuelas, IDEAglobalWeakness continued to be concentrated in sales of household goods, with furniture sales posting their sixth consecutive monthly decline. Meanwhile, after a November jump, electronic sales have fallen by 3.2% in December and another 1.0% in January. In a sign that U.S. consumers may be becoming more cautious in their spending habits, sales at restaurants fell by 0.5%, the first decline in this series since August… There is no reason for optimism in this report. –Drew Matus, Lehman Brothers
With that said, one could argue it is bullish we are rallying on such news. When the market finds an excuse to rally that is never a bad thing. Unless of course we are having a repeat of early fall. Oh dear readers, many of you are new so let me refresh - I had post after post during that huge 8 week run from mid August to mid October asking "why are the equity markets rallying when the bond markets are collapsing?" Bond guys are always the smarter set. But the market marched upward week after week after week, on "the Fed is on our side so don't fight the Fed" thesis... before November 07 happened. And then January 08 happened. Are we in for a repeat? Bond market seems to think so (again)? Conditions are identical to August... a very bad decline in the market.... then in the heart of the decline *BOOM* surprise Fed cuts. "Bottom is in" talk. "Writedowns will take care of the problem" talk. Bailout by Federal government solutions (Bush was proposing the first of 97 iterations of mortgage bailouts) back then. Are we simply repeating ourselves? So soon? Will we never learn? Or are these dismal scientists just trying to scare you?!
- If you were looking at stocks alone, you’d be cautiously optimistic about the economy: they have remained above the intraday low they hit on Jan. 22, the day of the Fed’s surprise 0.75 percentage point rate cut, and even clawed out some gains lately, notably today.
- An entirely different picture comes from the corporate bond market which is in full fledged flight. Investment grade spreads have widened steadily during the new year, according to Bianco Research, with only a fleeting rally after the Fed’s rate cuts. A glance at the Europe crossover index (credits straddling the divide between high yield and investment grade) isn’t much more encouraging.
- Who’s right: stocks or credit? Bianco thinks it’s credit: “The hallmark of the current environment is the equity market lags the credit markets. However, it is the equity market that sets the tone for everything else. So, no matter how bad the credit market gets, as long as the equity markets are holding together, no problems are perceived…. Last July we saw the same thing; the equity market was doing well but the credit markets were not. So as far as most people were concerned, there was no problem. In August when equities caught up to credit and turned sharply lower, it was called a crisis.”
As I keep saying, we have zero direction - we are headed for another enormous week UP. If we breach 4% (3.4% so far this week on S&P) that would be 4 out of 5 past weeks we have either moved up or down by 4% on the indexes. Amazing volatility. And you can't hold a thesis for more than 5 days, because whatever you thought one week, gets completely reversed the next.
So as I've said, I'm biased - so I am only giving you the bad stuff (while I do read some of the "butterflies and unicorns" stuff to make sure I am up to speed on the raging bull case) - and I could be 100% wrong and the bottom is in, housing is returning this fall, inflation is benign, malls to be teaming with rebate check toting consumers, and the credit issues will soon be gone, and most important for all of us as investors, "all the bad news is priced into the market". I always leave every possibility open; but right now I just cannot position myself for what I feel is simply fantasy. I truly think we are so levered to our homes, that until home prices start to bounce, the greater economy won't be seeing great times again. This last economic "boom" was borne of credit; not actually making anything new or expanding into new innovate businesses (except for mortgage backed paper); we were just servicing our housing based economy, and recirculating an ever increasing amount of paper dollars. So to create the new boom we either need to find the next big thing (farming? coal? stock bubble 3.0? rebuilding our entire infrastructure?), or return to the last big thing (housing prices need to start rising and everyone needs to get back on the flip that house treadmill). Until then... or at least until 6 months before that turn happens, it is just hard to be a raging economic bull :)
But I have altered my way of thinking after some deep pondering of late - and I do believe this recession will be a regional one. Those of you in the heartland, in agrarian areas, and those of you in natural resource rich (energy, mining) states - all of this doomsday stuff are simply things you can laugh off while reading on the computer (and that goes for you too Alberta Canada which is BOOMING). Those economies based on housing, financial, service, and old Midwest industrial base? We're going to have a lot tougher time in the next 18 months. So this might be the first recession that stops at state lines. So I'll have to better explain myself going forward when I speak of recession. It's now going to be labeled "regional recession". Pick the right state and you have clear sailing!
