prev

RETAIL SALES - FOOD SERVICES & DRINKING PLACES

Conclusion:  Retail sales came in strong today.  However, it is important to note that, on an absolute basis, the number is below where it was three years ago.  Sales growth for the Food Services & Drinking Places sector is more anemic than it is for total Retail Sales.


On the back of the strong retail sales numbers, I want to continue with my theme from Monday's Early Look titled, “The Pursuit of True Wisdom.”

 

As it related to the consumer spending it’s an appropriate time to reflect upon (1) What has transpired? (2) Where are we headed? and (3) What is left undone?

 

First some details.  Retail sales jumped 0.8% in November in total, on top of an upwardly revised 1.7% gain in October.  Clearly, the consumers have clearly picked up the pace of their spending (on the heels of increased optimism as the market heads higher); sales less autos growth was even steeper in November at 1.2%, up from 0.4% last month.  Is the potential for pent-up demand real?

 

Sales in November were strong (up for the 4th consecutive month) in nearly all categories outside of housing-related segments.  Top-line sales growth have risen at least 0.8% in each of the last four months and averaged 1%.

 

Growth in November was led by gas stations (+4%), department stores, apparel stores (+2.7%), sporting goods and hobby stores (+2.3%), and nonstore retailers (+2.1%).   On the declining side Motor Vehicle& Parts (-0.8%), furniture stores (-0.5%), electronics and appliance stores (-0.6%), and building supply (-0.01%).  Restaurants were another noteworthy laggard, up only 0.1%.

 

What has transpired?

  1. Income is improving
  2. The consumer has deleveraged but will continue to do so at a slower pace
  3. Debt payments have declined dramatically
  4. Stock market gains are also lifting the spending of higher-income households
  5. Pent-up demand is being released

Where are we headed?

  1. Year-over-year growth is likely to slow because comparisons get much more difficult.
  2. House prices are falling again, contributing to consumers' continuing need to rebuild their balance sheets
  3. Rental income is up, likely as a function of the soft housing market
  4. Consumers are doing little borrowing
  5. In this environment, spending will continue but it is unlikely recent growth is sustainable

What is left undone?

  1. Additional support will come next year in the form of reduced taxes and increased unemployment insurance benefits if the tax compromise passes
  2. Unemployment is high, and job gains have not been consistent enough or sufficient to put any downward pressure on the unemployment rate

The strong November growth, combined with upward revisions to the prior two months, shows sales growing at a 13% annualized pace over the last four months.  However, some perspective is in order. Even following this period of outsize growth, sales remain slightly below the November 2007 peak.  In essence, sales are at the same level they were three years ago.

 

The first chart below shows Retail Sales for the Food Service and Drinking Places sector.  While the sector performed with relative resilience during the recession, it will be interesting to see whether this level can be maintained when comps become materially more difficult in February. 

 

The second chart illustrates total Retail Sales.  While November 2009 was the first month of year-over-year sales growth following the recession, growth was only 1.8%; it grew to 5.5% in December and topped 8.5% and 8.7% in March and April, respectively.

 

RETAIL SALES - FOOD SERVICES & DRINKING PLACES - retail sales food services nov

 

RETAIL SALES - FOOD SERVICES & DRINKING PLACES - retail sales nov

 

Howard Penney

Managing Director


Fed Fighting: Bernanke Obfuscates

POSITION: Long US Dollar (UUP), Short short-term Bonds (SHY)

 

Here’s The Ber-nank’s key statement:

 

The Fed “continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period."

 

Here’s reality in the most important part of the US equity market being infused with unprecedented Big Government Intervention: 

  1.        Financials (XLF) – November 1st-5th  = UP +7.1%
  2.        Financials (XLF) – November 5th-23rd = DOWN -7.5%
  3.        Financials (XLF) – November 30th-December 14th = UP +8.8 

All the while, commodity inflation is putting on massive moves to the upside and there are very few things trading with more volatility than the price of volatility itself.

 

On the score of “price stability”, Bernanke has effectively become the world’s running joke. He doesn’t get real-time markets or how he affects them. That’s scary.

 

We’re Fed Fighting (Long UUP, Short SHY) because we think that Big Government Intervention perpetuates market volatility and shortens economic cycles. Why? That’s simple – people don’t trust government’s long-term resolve in the face of short-term politicking.

 

While the aforementioned language is meant to obfuscate fact from storytelling, we don’t think that either the US Dollar or US Treasury market is suffering any fools right now. They get it. Pull up some 6-week charts.

 

On “subdued inflation trends”, we’ll refer Bernanke to the inflation that’s on your screen.

KM

 

Fed Fighting: Bernanke Obfuscates - 1


RETAIL SALES

Conclusion:  Retail sales came in strong today.  However, it is important to note that, on an absolute basis, the number is below where it was three years ago.

 

On the back of the strong retail sales numbers, I want to continue with my theme from Monday's Early Look titled, “The Pursuit of True Wisdom.”

 

As it related to the consumer spending it’s an appropriate time to reflect upon (1) What has transpired? (2) Where are we headed? and (3) What is left undone?

 

First some details.  Retail sales jumped 0.8% in November in total, on top of an upwardly revised 1.7% gain in October.  Clearly, the consumers have clearly picked up the pace of their spending (on the heels of increased optimism as the market heads higher); sales less autos growth was even steeper in November at 1.2%, up from 0.4% last month.  Is the potential for pent-up demand real?

 

Sales in November were strong (up for the 4th consecutive month) in nearly all categories outside of housing-related segments.  Top-line sales growth have risen at least 0.8% in each of the last four months and averaged 1%.

 

Growth in November was led by gas stations (+4%), department stores, apparel stores (+2.7%), sporting goods and hobby stores (+2.3%), and nonstore retailers (+2.1%).   On the declining side Motor Vehicle& Parts (-0.8%), furniture stores (-0.5%), electronics and appliance stores (-0.6%), and building supply (-0.01%).  Restaurants were another noteworthy laggard, up only 0.1%.

 

What has transpired?

  1. Income is improving
  2. The consumer has deleveraged but will continue to do so at a slower pace
  3. Debt payments have declined dramatically
  4. Stock market gains are also lifting the spending of higher-income households
  5. Pent-up demand is being released

 

Where are we headed?

  1. Year-over-year growth is likely to slow because comparisons get much more difficult.
  2. House prices are falling again, contributing to consumers' continuing need to rebuild their balance sheets
  3. Rental income is up, likely as a function of the soft housing market
  4. Consumers are doing little borrowing
  5. In this environment, spending will continue but it is unlikely recent growth is sustainable

 

What is left undone?

  1. Additional support will come next year in the form of reduced taxes and increased unemployment insurance benefits if the tax compromise passes
  2. Unemployment is high, and job gains have not been consistent enough or sufficient to put any downward pressure on the unemployment rate

The strong November growth, combined with upward revisions to the prior two months, shows sales growing at a 13% annualized pace over the last four months.  However, some perspective is in order. Even following this period of outsize growth, sales remain slightly below the November 2007 peak.  In essence, sales are at the same level they were three years ago.

 

While November 2009 was the first month of year-over-year sales growth following the recession, growth was only 1.8%; it grew to 5.5% in December and topped 8.5% and 8.7% in March and April, respectively.

 

Howard Penney

Managing Director

 

RETAIL SALES - retail sales nov


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.49%

China by the Numbers

Conclusion: The latest round of Chinese economic data suggests inflation remains a headwind and that a reining in of credit expansion and additional interest rate hikes are in China’s intermediate future. Further, the data is supportive of our assertion that QE2 will incrementally slow global growth.

 

Position: Long Chinese Yuan (CYB); Long the U.S. Dollar (UUP); Short U.S. Equities (SPY)

 

Chinese November inflation data came in hot [again] over the weekend. CPI accelerated to a 28-month high of +5.1% YoY and PPI also quickened substantially to +6% YoY – a +100bps sequential uptick. In line with our call since late-August, we’re seeing more confirmation of accelerating inflation globally as a result of the Fed’s weak-dollar policy (QE2) – a term we aptly named Quantitative Guessing.

 

China by the Numbers - 1

 

While economists continue to spend hours debating whether China’s “artificial devaluing” of the yuan is perpetuating inflation within its borders, the real truth that matters to market practitioners is that inflation is accelerating globally, across a spectrum of currency policies. Don’t take our word for it, however; pull up a chart of Brazilian or U.K. CPI, global bond yields, or the CRB Index, which just hit a new YTD high yesterday.

 

Turning back to China specifically, we are inclined to suspect further tightening may be on the horizon. China has been varied in its efforts to combat inflation and speculation YTD, including raising bank reserve requirements (as recently as 12/10) , restricting home loans, forcing banks to hold more FX, price controls, supply rationing and raising interest rates (10/19). Despite these measures, we feel China may be running out of room for further “cuteness” and that additional interest rate hikes are on the way in 1H11.

 

Looking at real 1-year deposit rates, we see that inflation is consuming Chinese savings at an accelerating rate. In November, Chinese savers effectively paid a 2.6% tax on their 1Y savings deposits - even with October’s 25bps rate hike factored in.

 

China by the Numbers - 2

 

Considering that inflation has been, on the margin, eroding China’s high household and corporate savings (a combined 42.2% of GDP), it’s no surprise to see that China continues to struggle to rein in property prices as those savers turn to real estate investment on the margin. National Property Prices (70 cities) continued to grow in November, climbing +0.3% MoM.  Although, on a YoY basis, growth in Chinese Property Prices continued to slow sequentially (+7.7% YoY in November vs. +8.6% in October).

 

China by the Numbers - 3

 

While the pace of YoY growth has been slowing lately, the persistent MoM gains of late continue to defy China’s efforts to dampen speculation in its real estate market. Further resiliency of property prices will likely necessitate incremental rate hikes or the implementation of the oft bandied about national property tax trial.

 

Further compounding China’s inflation woes is the rate at which new loans are accelerating, gaining 564B yuan in November vs. advancing 587.7B yuan in October. While the second-derivative slowdown is welcomed by Chinese officials, the rate of growth in November far exceeds the average monthly growth needed throughout November and December to achieve China’s official loan growth target of +7.5 trillion yuan ($1.1 trillion) for full-year 2010 (+308.9B yuan). As a result, new loans must not exceed 53.8B yuan in December in order for the target to be met – a low not seen since October ’06!

 

China by the Numbers - 4

 

All in all, we feel the confluence of inflation eroding savings (which causes Chinese savers to speculate with their assets on the margin) and robust loan demand will continue to put upward pressure on Chinese inflation data, absent any meaningful policy changes. The global commodity reflation brought on by Quantitative Guessing further supports our conclusion that further rate hikes may be on the horizon in China.

 

It’s important to keep in mind that China is not alone in its bout with inflation. As Bernanke and the Fed continue to pursue a weak-dollar policy via QG, there’s no reason to expect commodity prices to come down meaningfully in the near term, which will put upward pressure on both core and headline CPI readings globally (COGS inflation will likely get passed through to consumers).

 

An interesting anecdote there is that Kunming, the capital of China’s Yunan province, recently ordered five retailers including Wal-Mart to report and justify price increases two days before the changes.  Should price controls accelerate on the margin, look for retailers exposed to China to suffer margin compression in 1H11 as topline growth potentially slows (vis-à-vis slowing GDP growth).

 

In turn, elevated inflation readings will continue to lead to further tightening globally, which will weigh on global growth in 2011. Keep the equation below in mind as you ponder the real effects of QE2 vs. what the Fed would have you believe:

 

QG = inflation [globally] = monetary policy tightening [globally] = slower growth [globally]

 

Darius Dale

Analyst


Berlusconi Wins, Berlusconi Wins

Round-up of today’s data: Berlusconi wins Confidence Vote; Bullish German ZEW survey; UK CPI accelerates; Spain’s Pain continues; Portugal bows to the client (China)

 

Position: Long Germany (EWG); Short Euro (FXE), Short Italy (EWI), Short Spain (EWP)

 

Viva Berlusconi!?

Italian Prime Minister Silvio Berlusconi won a no-confidence vote today, capturing the upper house easily, but winning by a slim majority of 314 votes to 311 in the lower house. As we noted in our post yesterday titled “Silvio’s Black Eye”, despite the victory, Berlusconi’s slim majority should only prolong Italy’s Crisis in Confidence and increase the risk that Italy struggles to finance and meet its debt obligations next year.

 

Position: Short Italy via the etf EWI. Current public debt projections mark Italy’s debt at ~120% of GDP. Next year, Italy is rolling up against a substantial €350 Billion in government debt maturities (principal + interest) and we’re of the opinion that the market will increasingly punish its fiscal imbalances alongside continued political uncertainty with Berlusconi at the helm. YTD we’ve seen a steady rise in the country’s risk premium via credit spreads and yields, and a more parabolic move alongside Ireland’s funding assistance over recent weeks.

 

Berlusconi Wins, Berlusconi Wins - me1

 

 

Bullish German Sentiment

 

The German ZEW economic sentiment survey showed confirmation of a positive outlook for the next 6 months in Germany, rising to 4.3 in December from 1.8 in November, with improvement over the last two months. The current situation index also gained, registering 82.6 in December versus 81.5 in the previous month.

 

Berlusconi Wins, Berlusconi Wins - meee2

 

Position: Long Germany via EWG. We continue to like Germany’s fundamentals that present a strong dichotomy from most of its European peers. Germany’s strong exporting and industrial complex continues to get orders, especially from China. Unemployment has trended lower this year, currently at 7.5%, and the DAX has powered forward at 17.8% YTD.

 

 

UK’s Inflationary Dilemma

 

UK headline CPI registered 3.3% in November versus the previous year, an acceleration from October’s rate of 3.2%.  With inflationary signals from November PPI (input and output) published in the last days, it came as no great surprise that headline CPI also rose. We think the UK’s inflationary issues are well documented; however the BOE still seems quite divided to make any policy changes. The dilemma remains that an additional bond purchasing program would encourage inflation, while increasing the main interest rate could threaten growth. The Bank’s consensus may well remain to do nothing for the next months.

 

Berlusconi Wins, Berlusconi Wins - me3

 

 

Spain’s Pain

 

Today we saw a similar trend in Spain’s bond auctions, namely the increased yield premium to entice investors, a trend also seen across auctions from Europe’s fiscally weaker countries.  Spain issued nearly €2 Billion of 12M bonds at 3.449% versus 2.363% on November 16th.  €523 Million of 18M bonds were also sold at 3.721% versus 2.664% in November.   We’ll have our eyes on Spain’s auction this Thursday with maturities in 2020 and 2025 to be issued.

 

 

Portugal at China’s Hand

 

Portuguese Finance Minister Fernando Teixeira dos Santos completed a two-day visit to Beijing  to meet with Chinese Finance Minister Xie Xuren, Chinese central bank Governor Zhou Xiaochuan, and officials of China’s state administration of external reserves to strengthen relations as Portugal hopes to get additional financial support from China.

 

Teixeira dos Santos said, “We took a big leap forward in terms of strengthening our relations at all levels, commercial and investment, and also in the area of financing,” however did not specify the amount of Portuguese treasury securities that Chinese institutions have already bought or will buy.

 

Take-away: Going to the Client (China) is an interesting move as Portugal attempts to get the media’s spotlight off its sovereign debt issues. Notwithstanding, we do not believe Portugal can escape the market forces that punish countries with excessive debt leverage and political instability.

 

Matthew Hedrick

Analyst


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

next