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This shows the total retail sales per capita minus sales associated with food and energy. The results are adjusted for inflation. I have excluded food and beverage stores, food services and drinking places, and gasoline stations. The remainder is the "core" in my world. Once again, if it works for the Fed in order to see the big picture then it should work for us too. Right? The red line is a 4th order polynomial in an effort to get a sense of the potential trend.
The "experts" claim that we shouldn't read a lot into one bad month. I heard that on the TV yesterday and I just couldn't let it pass. If that's just one bad month, I'll eat a bug. Fortunately, any change in my bug eatin' diet won't affect the chart (since the chart specifically excludes bugs consumed as food, lol).
Anyone want to take a stab at why we got an emergency Fed rate cut? Anyone? Anyone want to take a stab at how quickly this downward change in trend can reverse now that the Fed has somewhat panicked? Anyone? Anyone want to take a stab at guessing if we are closer to the top or the bottom of this rollercoaster ride? Anyone? Bueller?
My gut says the poor retail sales were partly responsible, me, not so quickly, me, closer to the top, me, and my name isn't Bueller. But hey, that's just my gut talkin'. What does it know? (It knows it is still short-term deflationary and long-term stagflationary. It knows that, for what it is worth. It might even end up being right! Who knows!)
See Also:
Trend Line Disclaimer
Source Data:
U.S. Census Bureau: Monthly Retail Sales
St. Louis Fed: Population: Mid-Month
St. Louis Fed: Consumer Price Index For All Urban Consumers: All Items
24 comments:
First!
MAB,
A contrarian might have said "second" on the off chance that "first" was too obvious. ;)
There seems to be an abundance of contrarians these days. I might even argue that there is a herd of contrarians.
Here's one such theoretical contrarian theory, circa December 2007.
The market will do well because retail sales are doing poorly, the housing market is doing poorly, the banking system is doing poorly, energy prices are still high, and unemployment is almost sure to rise in the coming months. The contrarian play must therefore be that all of this is obvious to all and that money can be made betting on the opposite.
See what I mean?
Well, lets are re-short on the bounce then.
Charts for the Big Bounce bounce that's developing: (http://benbittrolff.blogspot.com/2008/01/charts-for-big-bounce.html)
TheFinancialNinja
Stag, NINJA,
There are two types of people. Those who classify people as one of two types and those who don't.
Me? I'm the third type. Sometimes, I don't even show up on film.
Ben,
I find it interesting that the last semi-significant bounce was the day of the 10-Year TIPS auction (January 10th). I got a significantly higher real yield than I expected (compared to the day before the auction or even the day after).
If it happens again during this 20-Year TIPS auction (which it seems to be doing) I'll start mumbling conspiracy theories under my breath. The reason it will be under my breath is that I'm not all that intent on finding out the truth.
The bounce in the 10-Year TIPS real yield helped me (since I was a buyer in the auction and therefore got a better rate). Similarly, any bounce in the 20-Year TIPS real yield will also help me (since I am a buyer in that auction tomorrow). This is the mother of all auctions to me though. I'm putting roughly 15% of my investable net worth in it.
To put it in perspective, each 0.1% change in that yield amounts to 2% by the time 20 years have gone by. So far (and assuming it holds), this has been a VERY good bounce for me.
Bounce! Bounce! Bounce!
Just one more day, that's all I ask. Here, let me "help" in the Wall Street tradition.
Blah blah blah oversold. Blah blah blah already priced in. Oil blah blah blah. Trade deficit blah blah blah. Blah blah blah even cheaper credit. There's never been a better time to blah blah blah. Liquidity blah blah blah! Stimulus blah blah blah!!!
MAB,
There are two types of people. Those who classify people as one of two types and those who don't.
I must be the latter because I think there are pi types of people.
And when I say pi, I really mean...
Pi
http://en.wikipedia.org/wiki/Pi
It is an irrational number...
Does it make any sense at all that I think there are pi types of people? Not really. However, consider this from the pi link:
In the following centuries, most significant development took place in India and China.
Yeah, pi types of people! It is my theory and I'm sticking to it!
Further, we are REALLY falling behind.
The Guinness-recognized record for remembered digits of π is 67,890 digits, held by Lu Chao, a 24-year-old graduate student from China.
Great advancements in the memorization of pi (presumably for advancements in the categorizing of people) are going on while we sleep.
"Anyone want to take a stab at why we got an emergency Fed rate cut?"
Think it was due to that "rouge" trader at Societe Generale digging a $7 billion hole like some other bloggers are contending?
kwark,
Seeing "rouge trader" in the headlines today is hilarious to me.
Rouge: any of various red cosmetics for coloring the cheeks or lips
That's just priceless. Who knew the Year of the Fire Pig would be so unkind to "rouge" traders, lol.
Meanwhile, I see tax rebate checks could be on the way. That trader sure gets around!
Anyone who has seen the "Rouge Trader" movie already knows what to expect though!
Rouge Trader
http://www.dvdauthority.com/reviews.asp?reviewID=2091
StagMark,
Been missing you and your thoughts - nice analytic on retail!
energyecon,
I heard Bush on the radio talking about how the stimulus package was needed immediately to keep this economy strong.
Is sarcastic commentary really needed? At best, I'd just put quotes around the word strong and call it done, lol.
Have you seen the concept of fractal dimensions? 2.5 dimensions? I guess anything is possible with numbers.
sdtfs writes:
where is stagmark.
Ponzimonetizacorupticapitalsm | 01.27.08 - 9:50 pm | #
He still responds at his website:
http://illusionofprosperity.blog...y.blogspot.com/
check it out and say hi.
sdtfs | 01.27.08 - 9:58 pm | #
____________________________
Stag I too have missed you at CR. You should swing back again. This are looking good for your namesake. (Bad for the rest of general America)
David,
Don't give the government any ideas!
Fractal Reserve Banking
Good grief!
nade,
I'm very touched that you wish me to come back to CR. I just have a hard time getting motivated these days (as seen in my own blog's posting activity).
It was easy to heckle the bulls while the economy was seemingly doing well. It isn't nearly as easy these days. I think most people understand now that the economy isn't doing all that well.
As for my namesake, I'm not exactly milking the current environment for all it is worth these days, lol.
As a side note, a lot of people like to call me Stag Mark. You know what? I think that is what I should have called myself. I'm not convinced the inflation will come. I just suspect it. I'm also not convinced deflation will come (as it relates to the CPI). All I'm really betting on with my use of stagflation is that real (inflation adjusted) yields will fall on treasuries.
The inflation vs. deflation debate continues on. Roubini is calling for Stagdeflation. Maybe it won't be stagflation or stagdeflation, but simply stag. Maybe the Fed will walk the line between the two extremes.
Forget Stagflation. Stagdeflation Sounds Scarier: William Pesek
http://www.bloomberg.com/apps/news?pid=20601039&sid=a3VsZCSN4XgI&refer=home
Stag,
Bush's State of the Union address was really a bummer. Both parties cheering for helicopter drops and all sorts of government solutions. Seems like we keep treating the symptoms not the problem. At this point though, I'm not sure we have any other choice.
Between politicians and wall street its really starting to sound like the "Ministry of Truth."
Statements like: Our economy is strong. Its contained. House prices always goes up. Stocks for the long run. Buy and hold. Wages are up. Low unemployment. Inflation is under contol. Don't bet against the American consumer. Negative savings don't matter. Deficits don't matter. Yada yada yada.
All against a back drop of the Fed slashing interest rates and a fiscal stimulus plan.
We've created so much darn credit in relation to GDP. The credit bubble is just itching to deflate. I'm wondering if the Fed can stop it.
If houses are indeed 20% overvalued, its a 4 trillion dollar problem. Thats a lot of dollars against a $780 billion dollar Fed balance sheet. This could get real interesting if CPI remains at 4%. Or worse, keeps edging higher. Oil is still at $90+/barrel.
Household debt service levels are at historic highs. Clearly, the last re-flation made things worse for the majority, not better. Can people afford another re-flation? Higher debt is not a substitute for higher wages.
I'm not sure of the undelying wisdom, but it seems likely the Fed is once again going to try and force risk taking behavior on the economy. Arguably, most of the sponges are already saturated.
1. real estate
2. stocks
3. bonds
4. commodities
5. cash
Care to venture a guess where the new credit will go?
I can only image the motivation it requires to keep this up. I tried it once. Lasted 3 weeks! :)
It was a good run none the less. Enjoy retirement!
Cheers!
~nades
MAB and nades,
Plotting the individual motion of the deck chairs was amusing until we actually came in contact with the iceberg. Thank goodness the ship is unsinkable though. Whew!
[Cue Titanic Theme Song]
[Fade to Black]
Stag,
http://www.ustreas.gov/press/releases/hp778.htm
Looks like the Treasury is stagflationary too. Sounds like they are regular readers of your blog.
Highlights (or more aptly lowlights) from the above link:
*Budget deficit for FY 2008 is expected to rise to 325 - 400 billion.
*Federal expenditures up 9% yoy.
*Tax receipt growth has slowed < 5%
*Corporate tax receipts increasing only marginally.
*Non-withheld personal income taxes have declined.
*Corporate profits expected to decline.
*"falling U.S. Dollar and elevated commodity costs may keep alive concerns about inflationary pressures"
Not a rosy outlook. The Treasury report does state that demand is high for its debt.
It so IRONICLE (pseudo Bushism) given our "strong" economy that our powerful and benevolent free markets recognize the wisdom in giving money to the government so that the government can then spend the money for us and thereby increase the value of our assets and national wealth.
More Inconceivableness! (another pseudo Bushism).
Stag,
I hate to be a pest, but I'm having a bad day pondering the insanity. Consider:
Americans are flocking to buy short term treasuries yielding just over 2%. Inflation is running at 4+ percent.
In response, the government taxes us on the interest we receive from the treasuries. Next, the government uses the money raised through the sale of the treasuries to give us our money back via a stimulus package.
In response to this, the Fed decides to devalue all of the money being used in the above transactions in hopes of stimulating even more transactions.
ABSURD! Can anyone explain the logic here? Anyone? Anyone? Bueller, Ben Stein, Anyone?
What if we try this. I dig a hole I don't even need. I then pay you to fill the hole that I dug that I didn't need. And if you tell two friends to do the same and they tell two friends and they tell two friends, etc. we can all be wealthy.
MAB,
It is instinct to flee first and ask questions later. If you are on the 50th floor of a burning building and you are nearing the ignition point, the window starts looking pretty good. The short-term relief offered is something I'd pick if given the choice.
In theory (and assuming I am right to be a long-term stagflationist), by the time people flock to long-term TIPS in order to lock in a decent real yield, there won't be any real yield left. How can they possibly flock there though when the professionals all start off assuming you'll earn at least 8% on your money in a 3% inflationary environment (as seen in almost every retirement planner). TIPS will not even come remotely close to that return. Those that "need" a better return can't consider a 1.7% real yield (on TIPS) as anything but laughable.
I've already been through this scenario once. In 2004, I "panicked" from the stock market and found myself in cash. I accepted this because I had rather decent gains and could afford some short-term known pain (real yields negative) over short-term unknown pain (a falling stock market). I was thinking I could just ride out the coming storm and await buying opportunities. It took a full day to realize that this might not be a short-term storm and that I might need better shelter. I picked gold and silver (from 2004 to 2006). Let's just say sitting 100% in short-term cash didn't allow me to sleep that night as well as I thought it would, lol.
I think people are finding themselves where I was in 2004. They can't go long-term on treasuries because they don't want to lock in a potentially low long-term real rate. They don't like where the stock market might be headed. Real yields stink in the short-term, but if it is only short-term they'll do better than most. However, this is not 2004. There are fewer options. It is much harder to flee to gold and silver these days than it was in 2004 (since both metals have more than doubled in price). Now's probably not the best time to be buying real estate either. The government has reduced the cap on "safe" I-Bonds to just $5k (each in paper and electronic), so that's not much of an option for many.
It took me nearly 3 1/2 years to embrace the 20-Year TIP auction. I would have done it sooner had I owned a crystal ball that could have seen how much less I-Bonds the government would allow me to buy. I don't think people have that much time this go around.
And lastly, it is very hard to shake the notion that tame inflation and/or high real yields might not be permanent. Many things point to deflation these days (especially in the short-term). It took several years for me to pick sides long-term in the inflation vs. deflation debate. Until recently, I was firmly planted between the two camps. Now I'm somewhat deflationary in the next few years and even more stagflationary in the following umpteen years.
What if we try this. I dig a hole I don't even need. I then pay you to fill the hole that I dug that I didn't need. And if you tell two friends to do the same and they tell two friends and they tell two friends, etc. we can all be wealthy.
I think you are making this far too difficult on us. Neither of us should be digging the hole and/or filling it. We've got automation and outsourcing for that! Further, using financial innovation we ought to be able to do absolutely nothing at all. I suggest we put a tarp over the area where there could be a hole and form a company with the potential to dig holes and fill them at some point in the future. Our business would grow as new mining equipment is created. We wouldn't actually need to buy the mining equipment though. Let the financial analysts determine how far we could potentially dig and point out that since we haven't actually bought mining equipment (yet) we are able to keep our ongoing costs extremely low. Leverage baby!
Stag,
I hope all is well and that you are enjoying your golden years.
With regard to retail sales, I thought I would update you on my recent and planned future discretionary spending: LESS, MUCH LESS.
WHY? More savings are required to offset negative real interest rates as well as increasing fixed monthly costs. Food, gas, utilities, property insurance, property taxes and health care have all increased significantly for me in the past year.
As for investing, I am on hold. I have no interest in proping up over valued stocks, bonds and real estate. My current and future capital will be available if, and only if, I deem that valuations are reasonable. I will not be swayed by the fed. Chasing short term asset price movements based on fickle fed policies is a fools errand. A zero sum game at best. All risk and no return.
I continue to believe that long term interest rates and inflation have bottomed. Hence, temporary and artificially low interest rates do not alter my long term expectations or my valuation metrics. I can and will remain on the sidelines longer than asset prices can remain over-valued.
Beyond valuations, I will need to see much better corporate and financial governance before I invest again. I see no way equities (and to a lesser extent bonds) can ever be a good long term investment while greedy bankers and corporate executives are repeatedly given outlandish pay packages - too often based on unsustainable or ficticious profits. The pie is only so big.
Full faith and trust - in myself. Well anchored in 2008.
MAB,
With negative interest rates and rising import prices being what they are, I finally decided to upgrade my TV. It is a lousy investment (less lousy relative to what others have paid in the past to embrace a big TV though, perhaps). I must be one of the last holdouts in all of America.
I continue to believe that long term interest rates and inflation have bottomed. Hence, temporary and artificially low interest rates do not alter my long term expectations or my valuation metrics. I can and will remain on the sidelines longer than asset prices can remain over-valued.
Inflation protected treasuries and nominal treasuries have been moving together generally. If inflation picks up steam, I expect a great divergence at some point. We saw some of that in 2007 when TIPS outperformed nominal treasuries slightly. If you truly believe that inflation has bottomed you might want to think about it as an investment idea. You can earn 1.98% over inflation on the 20 year TIPS. I doubt very much that the 20 year nominal treasury will end up earning 1.98% over inflation.
Let's also not forget that Warren Buffett gave the nod to TIPS a few years ago (at prices not all that far off of these), and he's pretty much the best value investor the world has ever seen.
People simply refuse to believe it. Inflation has been running at 4.3% over the past year. TIPS pay in addition to that 4.3%. You'd think money would still be flooding into them. It is just too wimpy apparently. If you believe in inflation, you must also be willing to buy hard assets at any price apparently. I think that behavior is confusing the inflation expectations picture that Bernanke likes to watch. Heaven help him if it is and he's merely being fooled (along with the nominal bond treasury holders) that inflation expectations are well anchored.
Marathon toilet paper is STILL $19.99 at my local Costco. I've got over 400 rolls in reserve, lol. The checker was so distrustful of me during my last trip there. Her first comment was, "What's all this?" In addition to toilet paper, I was also buying 12 sets of hand towels (2 hand towels, 2 wash cloths in each set) so I'd never have to buy any of those again. It probably didn't help my case that I had four 2-packs of aluminum foil too. I simply said I was stocking up (which to a non-hoarder would be a very confusing set of items). What I wanted to say was, "Have you been looking at our economy lately? Gold is telling me to hoard, and to hoard big time. So is Prego!"
Your torments call us like dogs in the night. And we do feed, and feed well. To stuff ourselves on other people's torments. And butter our plain bread with delicious pain. - Mr. Dark, Something Wicked This Way Comes, 1983
Might just as well be Mr. Bernanke, in this environment. There's only so much we can feed, regardless of how much money is dropped from helicopters.
Stag,
I must be one of the last holdouts in all of America.
My parents bought a killer plasma about six years ago. They paid thousands. I told my father he had a screw loose. He mumbled something about not buying green bananas at his age. I decided to wait for prices to drop. My patience paid off and I expect it will continue to do so.
If you truly believe that inflation has bottomed you might want to think about it as an investment idea. You can earn 1.98% over inflation on the 20 year TIPS
I'm very seriously considering tips. I'll likely use a tip fund in a 529 account. Seems a perfect fit as no taxes accrue.
I'm also going to actively bottom fish for real estate. If nothing else, its a great way to keep informed and get connected. If the bust is as bad as I expect, real estate should eventually fall way below trend. If not, I'll just pass.
As a starter, I'll be attending an auction for 40 or so condo's in my town. They used to be rentals until a Trump wanna-be decided to do a condo conversion at the top of the market. A complete train wreck. I don't expect to be successful, its still too early in the bust. But you never know. Plus, I have no qualms about making outrageously low offers in public.
As a long term saver, its frustrating to have negative real interest rates suddenly shoved down your throat. I got caught short term here. But that's not what is bugging me. If this does turn into a protracted 1970s style stagflation, I will take a serious beating.
MAB,
As a long term saver, its frustrating to have negative real interest rates suddenly shoved down your throat. I got caught short term here. But that's not what is bugging me. If this does turn into a protracted 1970s style stagflation, I will take a serious beating.
Serious beatings are relative. In theory, the goal during a bear market is to simply lose less than the next person.
As you await buying opportunities in real estate (as per your bottom fishing plan), I think it is safe to say you are losing less than the next person.
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