November retail sales fall short
Submitted by
CalculatedRisk on Tue, 12/13/2005 - 10:24am (21 comments)
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I hope these two posts make the retail outlook clear.
Yup - clear as mud.
Thanks CR
Although there are some signs of a slowdown in RE inflation, there are no clear signs yet of a drop in credit growth and hence liquidity. The YTD and YoY numbers on ABS/MBS, Securities credit, Repos, CDS, etc are still in eye popping range.
Personally, I am starting to lean towards upside surprises in asset inflation in 2006. I think it would be prudent to keep an eye out for the next inflating asset class. With Helicopter Ben getting to the plate I doubt the liquidity spigot will be tightened to really tip over credit market growth.
malabar I'm increasingly thinking the same way... not that I agree with massive debt growth as a 'good thing'... but I am getting very tired of fighting the tape.
Regardless the only constant is change... someday this will correct and the longer it goes on now the more it will suck then.
it amazes me that 'investors' continue to slop up securities at these pathetic interest rates given the erosion of its value due to explosive credit growth. yes i understand there are less attractive investments abroad but why should the decision be to eat a half rotten versus fully rotten apple?
Do you know if the NRF and the gov't measure retail sales differently?
I've been fighting the tape for 4 or more years, and I am beyond tired.
That said, the crash 'should have' happened 2 years ago when restrictions were placed on Freddy Mac and Fannie Mae. Then the unexpected happened, the funds flowed in through unregulated sources. BushCo fought a war and cut taxes, something very unusual and just to make things interesting the Fed cut rates so that money became a 'commody' to be 'sold' in the form of cheap loans. Instead of private or public entities with limited resources in the game, now soverign goverments with unlimited resources are in the game. Add the anti regulation political climate and predictions are very uncertain.
The question is how much longer will the unexpected happen or has the basic paradymn of money and capitalism changed so that the old 'truth' is not operational.
It will be interesting times. If I had minimum equity in my home, most of my funds in IRA/401Ks(protected by bankrauptcy laws from being taken) and a risky nature, I'd load up on debt and toys, knowing that I'd get to keep most of the toys and likly get to buy a better and newer home with debt after bankrauptcy.
As to reading the current tea leaves, I do not think we will know until the real reports are made in 2006.
Too many people have POVs in the estimates. For example, executives will talk down estimates so that they will appear genuises when sales are normal and they have their hands out for bonues.
The NRF is a lobby group telling how wonderful their members are.
On the face of it, sales of 'real stuff', would have been very impacted if gasoline prices had remained high. OTOH, the credit card companies will be hit hard if winter heating costs go up very much.
Look for store profits and credit card losses not sales.
Another metaphor it is like reading the entrails to devine the future while they are still wiggling.
dryfly, I understand where you are coming from....debt growth is not a good thing over the long haul for us as a society, but, as an investor it is important not to be emotional.
Despite, 13 consecutive Fed funds raises, there is no slowdown, in fact we see continued acceleration of credit growth.
It seems as RE inflation slows, we get increased inflation in energy and other commodities. Risk premiums out on the risk spectrum remain compressed. Emerging market debt and equities have had a banner year - Sao Paulo and Bombay stock indexes have nearly doubled. We have the dollar, gold and copper trading higher.
I believe that as long as credit growth continues to accelerate, this liquidity has to find a home in some asset class. Of course at some point liquidity has to stall and then shrink, but I don't see any evidence yet.
"I hope these two posts make the retail outlook clear."
Damn Man what I wouldn't give to have you for an economcs teacher.
I learn more from this blog than who knows how many hours spent in my eco. classes and books.
Most impotantly - read data with Socratic doubt.
Thank you
malabar
That liquidity has to find a home, indeed. One of the interesting things to come out of having soverign nations in the mix playing with the reserve currency and no alternative for the reserve currency yet(or for that matter the primary importer of stuff); is that above some level, cash is trash unless it is invested in something almost anything with a nominal yield will do.
Another interesting twist might be the growing unrest in China... stuff Elaine S has been talking about for months/years is starting to surface above the main stream media wet blanket.
Link
If the Chinese gov't actually has to worry about their peoples standard of living then some of those foreign flows might not be as over flowing.
Won't happen overnight but will be one more thing to watch.
Meanwhile its off to the Mall...
When I visited CR this morning I was surprised, to say the least, to read that retail sales were booming. My thoughts were that the very, very, last bit of REFI was being spent, 'cause where else is the money coming from? It's not from boffo wage increases.
And now this! Less encouraging retail news, but ... with a "surge in auto purchases" taking place ?!?!
My head hurts.
Talk about your conflicting reports.
Thx to CR for giving us both sides of the picture.
By any chance were those NRF numbers based on a survey of what 1,000 people SAID they'd spent, as opposed to actual sales numbers?
Otherwise, my head hurts too.
vader, I saw a graph recently that showed the purchasing power of our dollar. It is hideous - down some 95% since 1913 when the Fed was created. Bernanke I believe will follow that lineage and we can be certain at the first signs of trouble in GDP growth or a crisis in banking or to help his political masters win the next election will crank up that well used press another notch. They believe they have found the ultimate elixir - more paper money for any ailment.
yes, if there is a revolution and cheap chinese exports screw up that will be an economic nuclear strike for the world. but it wont happen, because these protests are not against the central governemnt. the chinese government is strong as long as there is economic growth.
other thing that can slowly kill this bubble is oil and commodity prices rising, so that CBs cant stop raising rates.
third thing is an international credit event, that can destroy liquidity.
but I cant see any of them happening except the commodities stroy which is way too slow.
or may it just happen that the world economy will just grow into the increased liquidity and the US settles at a structurally higher indebtedness rate after this transition period?
how does US indebtedness (state, personal, corporate) levels compare with european or japanese ones?
by the way, after the FED hike, 3m rates are still below 4%. why is this? because of cheap money from europe and japan?
I've seen the 5% of 1913 or figures close to it over at prubear.
Oddly enough my dad was born in 1913, and tells me about his childhood using those dollars.
I'll take the 95% inflation.
Money may no longer be a store of value, but a store of political favors.
One thing that is counter trend is the existance of economic blogs. 5 years ago, economic blogs were almost none existance, now there is a bunch of them. Many of them are questioning the current theories. Some of them are exhibiting change in the attitudes of economists. Change is the enemy of the status quo and as alternate theories leak out into the economic world others will question and the popular view of things will change. At come point the political sphere will change.
After all we got here because economists bucked the status quo thinking were translated into political action by ambitious politicians.
From the prubear bear chat blog
With the passage of the consumer-unfriendly bankruptcy law and the cram-down rampant, the personal finances of those with limited means are getting more precarious. But even in this Scrooge-y world, there are pockets of sweetness and generosity. At least one group of kind-hearted folks in the finance industry is willing to give customers a break when things don't go their way: America's heart-of-gold mortgage lenders, who are behaving with curious benevolence toward suffering clients. Even as housing prices have risen and grown more unaffordable, and as bankruptcy filings have soared, foreclosure rates have fallen. According to the Mortgage Bankers Association, the foreclosure rate has fallen from 1.49 percent in the third quarter of 2002 to 1 percent in the second quarter of 2005.
It's not very surprising that the industry is cutting slack to borrowers in the region affected by the hurricanes. Government-sponsored lenders Fannie Mae and Freddie Mac have extended through Feb. 28 a moratorium on foreclosures in the Gulf Coast. Freddie Mac also told the companies that service the loans it makes "not to report hurricane-related delinquencies to credit agencies through February 28" and advised them "to forgo collecting penalties or late fees as mortgages are reinstated." Private-sector lender Wells Fargo last week said that through the end of February, it will "not assess late fees, file negative credit reports or place collection calls" to customers with hurricane-damaged homes.
But these moves aren't motivated entirely by the spirit of charity. Across the nationeven in the parts that remained dry last summerthe mortgage industry is working hard to avoid coming down too hard on overextended borrowers. It has nothing to do with the hurricanes and everything to do with a healthy corporate regard for self-interest, stock value, and public image.
Homeowners today are plainly stressed, especially those with less-than-pristine credit. According to the Mortgage Bankers Association, in the second quarter of 2005, the delinquency rate for residential mortgages was 4.34 percent. Some 1.83 percent of loans were classified as "seriously delinquent," meaning that payments were either 90 days past due or the loan was in the process of foreclosure. The delinquency rate for borrowers with adjustable-rate mortgages was 10.04 percent, and the delinquency rate for subprime fixed-rate borrowers was 9.06 percent. In order for the rate of home ownership to rise as it has, more marginal buyers have been drawn into the market. And they tend to fall behind on their payments rather quickly.
The delinquency rate for subprime borrowers would seem to set the stage for a huge rush of foreclosures. But the big lenders have plenty of (mostly short-term) reasons and incentives to avoid taking back the houses of their nonpaying customers. And they're doing everything they can to keep their customers in their homeseven
Some got cut off
More broadly, though, the hesitancy to foreclose says something about the evolution of the lending industry.
Today, when people fall behind on their debts, the industry views it as an opportunity for new business. Mortgage brokers and lenders continually encourage strapped borrowers to roll over their mortgage into a product that allows them to reduce payments but still "remain current." And there have never been more options availableteaser rates, interest-only loans, even so-called negative amortization rates, where borrowers don't even pay the full monthly interest.
All of which means the housing boom is being fueled by the willingness of lenders to let borrowers get behindand stay behindon their payments. Homeowners go deeper and deeper in debt and become less and less home "owners," but they get to keep the roof over their heads. It used to be that only gigantic banks and corporations like Citigroup and Chrysler were regarded as too big to fail. Today, the humble homeowner enjoys that status as well. Link
Bear Chat
Vader,
Thanks for the link to that article. The irony of the fact that the Prudent Bear linked to an article which outlined closer then any other publication the reasons for my bullish housing beliefs was not lost on me. Perhaps I am bullish for bearish reasons, if that is possible.
In order for this housing bubble to collapse, an interconnected sequence of events must occur, converge, and result in massive foreclosures, and there is a huge difference between delinquencies and foreclosures, as the article points out. All roads must lead to massive foreclosures. If any one of the required events (high interest rates, strangled liquidity, speculators dumping units, massive unemployment) can be averted, then the over leveraged homeowners with the I/O and O/A loans will not get wiped out at conversion time in sufficient numbers to cause a collapse. None of those events is currently imminent.
The fact of the matter is that the credit market for housing in this country has changed, that is obvious, and I believe it will never again be as it was.
There are clear demographic realities that will effect this market, but that is another matter altogether.
Thanks again for the information.
wow. can you do this chart w MIC removed -war/homeland/terror/ fed spending
http://photos1.blogger.com/hello/243/2888/640/GDPMEW.jpg
"The fact of the matter is that the credit market for housing in this country has changed, that is obvious, and I believe it will never again be as it was."
percisely. and now it seems as this change in the credit market has been fully realized in real estate pricing. now we move forward in this new credit environment and therefore repriced assets based on fundamentals.
jobs and income growth will be what pushes the next leg up if there is one.
The fact of the matter is that the credit market for housing in this country has changed, that is obvious, and I believe it will never again be as it was.
The fundamental laws of risk and returns haven't changed. History shows us that periods when speculation was rampant ignoring risks have generally been followed by burts and over-reaction in the other direction due to over conservativeness.
f any one of the required events (high interest rates, strangled liquidity, speculators dumping units, massive unemployment) can be averted, then the over leveraged homeowners with the I/O and O/A loans will not get wiped out at conversion time in sufficient numbers to cause a collapse.
I don't believe you all of these. Consider if housing prices merely remain static for 3 years. That alone could lead IO owners to find themselves falling further and further behind. Similarly, speculators do dump units immediatedly. I've seen buildings in my neighborhood that are half up for sale because of speculators. In many areas, real estate is driving new job growth and even static prices for 2-3 years would hit this job growth. No massive unemployment is needed.
If SoCall were to fall back to just the results of 1.5 years back, that would mean drops of 30% plus in some areas. What impact do you think that would have ?