Friday, August 14, 2009

Bookkeeping: Selling Half Wyndham Worldwide (WYN) - Consumer Still in Trouble

A lot of consumer related names have been skyrocketing on the (in my opinion) misguided belief that this is a normal recession and will be a normal recovery. Obviously this was not a normal recession and while it is yet to be determined, I won't budge from my stance this won't be a normal recovery. I posted my stance on how this recovery will be limp, due to so many secular and cyclical job losses here [Dec 15, 2008: The Economic "Recovery"] Nothing has changed except for an avalanche of government money thrown at the problem to hide the damage underneath.

The same reasons I thought this recession would be much much much worse than the pundits are the same reasons the "recovery" will be mute. So many Americans are slowly losing their standard of living as wages are pressured and inflation in things they NEED (healthcare, energy, food) rise. (ignore anything the government says about inflation, they have so many exceptions and substitutions the report is completely inept) Many used the house ATM to hide this fact - even from themselves - for half a decade. Now that is not an option; while the government is trying to step in to provide the government ATM as the replacement, there will be no real recovery until the Fed pumps enough money into the system to reinflate the entire housing market and we can go back to our ill ways again. Helicopter Ben is trying his best. But the damage has been very widespread in the classes of society that much of Wall Street apparently has no association with. (otherwise they would see the very obvious damage among those in the sub 6 figure set)

Today we have the Michigan consumer sentiment and it was far worse than expectation. It's one report - big deal.
  • Confidence among U.S. consumers unexpectedly fell in August for a second consecutive month as concern over jobs and wages grew.
  • The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2, the lowest level since March, from 66 in July. The measure reached a three-decade low of 55.3 in November. Economists forecast the confidence index would rise to 69
  • The worst employment slump in seven decades has caused salaries to stagnate, rocking even Americans who still have jobs.
  • A measure of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars and homes, dropped to 64.9 from 70.5.
But there is little green shootery in the real economy - people without work or underemployed could care less that ABC company beat an analyst guestimate - doesn't put food on their table. This is part of the disassociation we talked about would happen between Wall Street and Main Street. [April 3, 2009: The Current (and Coming) Disassociation Between Wall Street and Main Street]

So please forgive me as we go down a bifurcated path - I'll be talking all crazy; saying things that sound like complete nonsense, doom - gloom (with a little boom) as I focus on the "reality" out there. Not the "2nd derivative improvements that if you squint and pray really hard, you can make a bull case out of it" songs of joy. Although I'll point those out to you because that's all the market focuses on. Everything I say will be refuted by the punditry as "backwards looking" and "missing the silver linings". The market will rally during these periods; many of the greatest runs in the stock market came during the Great Depression.

That didn't mean the economy was in any state of health. This denial is ok; I sounded like a fool in 2007 when I began the blog as I posted such "nonsense" and the market "refuted me" by "price action" in the opposite direction (the efficient market knows best!). The S&P raced to all time highs in October 2007. Gosh, I looked silly - thankfully my audience was a mere tiny fraction of what it is today, so I only looked like a "clown" to those few. A few readers stuck around to see most of these claims come to fruition.

Much of what I say in the coming months will be dismissed (again!) by the "oh so very efficient markets" who "price things better than any 1 human". Most of the punditry and investment managers flailing their arms in dramatic fashion - calling bottoms, speaking of
economic recoveries, tasting the sweet essence of mustard seeds - completely missed it 2 years ago.

Those thoughts in April pretty much came to pass exactly - but what has happened since? Company after company axed millions of workers; workers benefits have been slashed, wages have stagnated, and all we've accomplished in the interim is handout a ton of future generations money to today's people to compensate them for the fact that this economy cannot create jobs. A flood of money has gone into the banks, and some of that has filtered into asset valuations creating a "feeling of confidence" as the market rises. So everything is good again, apparently.

Trouble on Main Street doesn't mean stocks can't go up - because if you cut enough humans you can make profits and sing happy songs. In a perfect world we'd have no workers - they only slow down profits. Yesterday we had a very poor retail number, in a country where "shopping" is 70% of the economy.
  • A report yesterday indicated that consumers remain reluctant to spend without such incentives (Cash for Clunkers). Sales at retailers fell 0.1 percent in July, the first drop in three months, the Commerce Department said. Purchases excluding automobiles dropped 0.6 percent, the worst performance since March.
The market fell for 4 minutes before reversing and forgetting about it - after all who needs facts. It seems to have reached the point where actual data is a farce. Wall Street forgets about Main Street from time to time and then suddenly some data point hits and they smack themselves on the forehead - oh yeah "those people" sort of matter. Combine this with the fact the social safety net in the US is below the "socialists" in Europe; and Americans need to save even more than their European counterparts just to be even when it comes to retirement, healthcare, college funds and the like. They have not been doing that - again relying on asset inflation and cheap money from government. This is not a cyclical change we are going through; it is secular. Wall Street continues to live in some mythology that it will just go back to how it was. As always reality does not matter until it does... and most likely it will be a lesson forgotten by Monday (or perhaps even this afternoon) but this is going to be a problem we are stuck with for many years ahead.

We'll have rallies over and over on the same thesis: we're going back to the good ole days and Americans will act stupid (with government prodding them). I don't think so - unlike the government, I believe American people cannot act like a doofus forever. They have bill collectors to deal with and don't have a printing press in the garage to constantly bail them out. Without good jobs (excluding government) people are losing their standard of living versus where they were 5, 10 years ago. We are hollowing out our middle class slowly but surely. I believe that a lot of the rage you are seeing at these townhall meetings towards our political elite has only a bit to do with healthcare and a lot more to do with not being heard and the actions of a small group of people in the country acting as if this is a feudal system. I expect it to be worse next year when the "recovery" is found to be lacking.

With that said - the market drinks Kool Aid so we have a few consumer related names to profit of this constant belief of great times by those in the polished shoe set; but we stick to the cheap valuations and places that "poorer by the year" Americans can still visit. Super 8 and Ramada Inn are still in reach for most! We've had a nice run with Wyndham Worldwide (WYN) and I continue to love the valuation but as with many stocks its run to a spot nowhere near any support so I want to lock in some of this profit; I am going to take a bit more than half off here around $15.30 and try to get it back a lower. Preferably in the $13s. We are going down to just under a 1% allocation.

[Jul 29, 2009: Wyndham Worldwide Solid: RevPAR Far Above Industry]
[May 1, 2009: Bookkeeping - Creating New Position in Wyndham Worldwide]
[May 1, 2009: A Stroll Through the Hotel Space]

Long Wyndham Worldwide in fund; no personal position

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