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"Macro Time's" Math: Why It's Easy To See Why "They" Won't Cut Rates...

My inbox is getting berated with uninformed macro wanna be pundits telling me that today's stock market swan dive is the European Central Bankers fault.

Of course, in this business, bad team's point fingers when they are losing - so this emotional response is not a surprise. What is a surprise is that people refuse to respect the math. See the two 10 year charts below that overlay Europe's reality - stagflation.

There is a reason why Paul Volcker raised rates in a stagflationary environment. It's the only way out!
KM

Sales/Comps: Breaking Point

Just for a minute, let’s stop worrying about ‘back-to-school’ and fashion trends. The bigger question is square footage growth and productivity in a consumer downturn.

The gap between sales growth and comp growth for US retail has widened by 4 points in 14 months ending August. What does that mean? Either a) new store productivity is knocking the cover off the ball, or b) square footage growth remains unchanged despite ominous signs that square footage growth is too high. I think we can all agree that it’s the latter.

We’re at a critical juncture. Looking at the past two recessions (90/91, and ’01) as well as 4 other notable consumer slowdowns (’94-’95, ’97, ’03, ’06), we’ve never seen this gap widen consecutively by more than 15 months. Something’s gotta give. Either a) the consumer needs to pick up, b) square footage growth needs to slow, or c) productivity continues to erode.

I’m hoping for option ‘B’. But as we say here at Research Edge, ‘Hope’ is a lousy investment process.

Sales growth less comp growth is heading the wrong way.

Eye On Putin Power: Hunting For Chickens?

That other VP of ours, Cheney, is in Georgia today...


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The UK Swan Diving Olympic Training Center

As we push towards the 2012 Summer Olympics in London, it appears that the Brits are getting an early start to their training. This chart of British housing prices formed a perfect pike, and is now in free fall...

This morning's UK home price report came in at -12.7% year over year. Since this was an August report, this is relatively current compared to most of the US housing data that we've been issued.

The UK housing bubble popping may very well be louder than the one in the USA. That's very hard to imagine. But facts are what they are, and the race to the bottom of this cesspool of consumer leverage is heating up.

It is global this time, indeed.
KM

The Russian Bear Hunter Chart: Crashing...

Alongside their stock market, the Russian Ruble is crashing. The Ruble is in the midst of having its worst down day vs. the US$ since they introduced the new FX basket in 2005 (see chart). As Tim Russert would have said, "this is BIG" folks. Pay attention to this global risk factor.

The Ruble was down -7.5% in August, so the follow through here in September, is as alarming as that tiger hunting photo of Putin that we flashed you in this past weekend's postings.

The US Dollar is winning; Global Currency markets are losing, big time.
KM

K – Implication for the Restaurant Industry

In looking at the Kellogg presentation from the Lehman back-to-school conference, there were two interesting slides as it relates to the restaurant industry.

The first one looks at attributes of in-home vs. out-of-home consumption of meals. Of course the slide is bullish for K and bearish for the restaurant industry.

The second one looks at market share for in-home vs. out-of-home consumption. The ability of the restaurant industry to capture additional market share in the U.S. will be dependent on the affordability factor. But the international market opportunity for the restaurant industry is very different. I’m often asked - Do you see international growth as a material growth vehicle for the casual dining industry?
  • The answer from this chart is clearly yes! But it will take time….
Food spending mix in-home versus out-of-home
In-Home consumption

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