Tuesday, August 4, 2009

Morning Update/ Market Thread 8/4

Good Morning,

Futures are down this morning with the /ES back beneath the 1,000 level, currently hanging around 995ish.

Goldman’s ICSC (suspect data) Same Stores Sales data showed a decrease in sales on a week over week basis of -.2% (prior +1.0%), and on a year over year basis fell .7%, which I believe to be completely disconnected from reality. Of course Econoday and the rest of the media have no choice but to go with it, it’s how they earn their living – welcome to Enron USA:
Overall sales for the week ending August 1 declined by 0.2 percent according to the International Council of Shopping Centers, Inc. (ICSC) and Goldman Sachs. On the year sales were down 0.7 percent. The decline was attributed to the later back to school state sales tax holiday dates which put downward pressure on the yearly comparison. However, sales should be lifted for the current week. According to ICSC, July retail sales will probably be weak due to several factors including sharp price markdowns on clearance items, more limited inventories to clear and cooler than normal temperature for the month.

Got it? It was cooler in July (where?) and thus we are making an excuse that is just completely out of left field and probably nobody will say anything about and, oh, just shop, shop, shop, and charge it, it’s the American way to be.

Of course the Redbook, which is somewhat more realistic, showed a 5.4% drop year over year. This is all Econoday could muster on that one, no excuses as evidently blaming consistent falls month after month on the weather is a little too obvious here and besides, Goldman’s analysts weren’t involved to tell the media what to think… “Redbook continues to show weak retail spending, down a year-on-year 5.4 percent for a 1.6 percent August 1 week-to-June drop.”

And we learn that personal income only dropped 3.4% on a year over year basis in June. The media is touting a .4% increase in consumer spending on a month over month basis, but they simply neglect to point out that it’s down 2.2% year over year. Lot’s of excuses flying around for this one. Of course falling income and increasing expenditures means that the savings rate fell substantially, coming back from 6.2% to 4.6%.
Personal income in June fell back heavily due mostly to an end to a specific fiscal stimulus program. Meanwhile, spending and inflation were up. Personal income fell a sharp 1.3 percent after jumping a revised 1.3 percent in May. The drop was worse than the consensus forecast for a 1.1 percent decrease. June's fall was primarily due to a 5.9 percent fall in transfer payments which had spiked 8.0 percent in May from one-time payments under the American Recovery and Reinvestment Act of 2009. In the latest month, the wages and salaries component dropped 0.4 percent after dipping 0.1 percent in May. Consumer spending jumped 0.4 percent after edging up 0.1 percent in May. However, June's gain was price related from higher gasoline prices.

The boost in consumer spending was led by a 1.7 percent surge in nondurables which includes gasoline. Durables slipped 0.2 percent while services edged up a meager 0.1 percent. Inflation was behind the latest rise in consumer spending as real PCEs slipped 0.1 percent in June, following no change the month before.

PCE inflation made a strong comeback on energy costs. The headline PCE price index spiked 0.5 percent, following a 0.1 percent uptick in May. Meanwhile, the core PCE price index firmed to a 0.2 percent increase in June after edging up 0.1 percent in May. The markets had expected a 0.2 percent rise in core inflation for the latest month.

Year on year, personal income growth decreased to minus 3.4 percent from minus 2.2 percent in May. Headline PCE inflation eased to down 0.4 percent from down 0.3 percent the prior month. Year-ago core PCE inflation eased--to 1.5 percent from 1.6 percent in May.

Today's report shows the consumer sector getting hit hard in the wallet as income fell and prices rose. However, all of the numbers were very close to market expectations and should be already baked into the mix.

Not to worry, it’s “baked into the mix.”

Pending Home Sales come out at 10 Eastern.

Technically we’re at a very important spot. The 999 level represents a 50% advance of 666, and that level is very close to a 38.2% retrace of the entire bear market. I’m sticking with my call that the economy is in much worse shape than reported, there are many, many shoes still being juggled, the markets are EXTREMELY OVERVALUED and they will eventually gravitate to reality.

Yesterday’s move up was probably enough to satisfy the large move called for by Friday’s small move in the McClelland.

Watch the XLF today. Yesterday it produced a gap up in the chart and a clear air hammer. It is going to gap down this morning, and if that holds will produce a shooting star.

I’ll be taking care of my father and running errands most of the day today, but will check in when I can.

Have a good day,