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Sports Apparel: End of Feb Callouts

Datapoints show that the month ended on a positive note, with Nike continuing to outperform meaningfully.


  • Recent trends continue to show improvement on the margin in dollar sales for each channel at the same time ASP has been drifting down
  • Sporting Goods retailers continue to buoy the industry, despite absolute sales growth slowing wk/wk
    • Very bullish for SSS in that space, which are released tomorrow
    • On the flip side, February was a very negative month for the Discount/Mass retailers channel (an incremental negative for TJX and ROST)
  • Outdoor Outerwear continues to showcase positive divergence vs. other categories, up 23% YTD y/y
    • As a percentage of the total sports apparel industry, it’s still well below normal levels, despite the wintry weather and record snowfall we’ve been seeing of late
  • NKE and VFC continue to outperform the industry
    • NKE, which is far and away the industry leader in Sports Apparel sales has been steadily gaining 300-400bp market share each week since December, and this week’s numbers are no different
    • VFC is another positive callout. While only 1/3 the share gain as Nike, it is equally as meaningful given the relative size of the brand and smaller market position. 
Sports Apparel: End of Feb Callouts - 1
Sports Apparel: End of Feb Callouts - 2
Sports Apparel: End of Feb Callouts - 3

R3: Adidas – Two-Legged Barstool


March 3, 2010


When you cut costs out of your business for three years it’s like cutting off 2 legs of a 4-leg barstool. You can balance for a little while, and may even have some luck being propped up by the dude next to you. But ultimately you’re gonna fall.





Adidas’ results today were lacking any and all inspiration for the company – but I’d caution that this is not a read through for the space. Aside from the revenue and EPS miss, we’re looking at Adidas once again cutting back on its disclosure on business segments to the Street. First they stopped reporting futures (once they got bad) back in Q4 08. Now we’re not getting specific brand detail, but rather channel detail (no more Adidas, Reebok vs. TMaG – now we get Wholesale, Retail, and Other). In addition, the company cut its dividend and issued uninspiring revenue guidance despite this being a World Cup year. Perhaps they’re sandbagging, but I suspect that they’re not. When you cut costs out of your business for three years it’s like cutting off 2 legs of a 4-leg barstool. You can balance for a little while, and may even have some luck being propped up by the dude next to you. But ultimately you’re gonna fall.


The SIGMA below for Adidas v. Puma v. Nike speaks volumes. It might be a bit confusing , but there are two major callouts for me.

  1. Look at the sheer variability in the line for Adidas vs. Nike. That means that Adidas’ inventories are much more volatile relative to sales, and the company’s margins are literally 3x more volatile than Nike’s.
  2. Check out the 4-quarter run for Adidas. They’ve done a fine job in cutting inventories, but after 4 quarters, they can’t cut inventories to the same magnitude, and in order to maintain such a favorable spread they need real organic consumer demand. Yes, they actually need to sell stuff.


The bottom line is that we’re looking at peak free cash flow margins, and the widest gap in FCF margin and EBIT margins in over 5 years. If you’re the kind of investor that actually cares about cash flow, you might want to stay away.


R3: Adidas – Two-Legged Barstool - ADI PUMA NIKE SIGMA




  • With both PVH and WRC trading essentially flat on the day, it appears that the WWD story suggesting PVH could be a buyer of Tommy Hilfiger is being shrugged off. Clearly a Hilfiger deal would put a wrinkle in the longstanding courtship between PVH and WRC, although this is Banker Bonanza time. Anything is possible, although in this case the market is clearly sending a signal on current odds. 
  • Staples management continues to be cautious on economic recovery, despite delivering its first positive comp in North America retail in 10 quarters and it’s first positive sales growth in 6 quarters for Business Delivery. With modest topline expectations in 2010, management is banking on expense leverage and operational improvements. For example, its European warehouse network is undergoing consolidation, down from 37 facilities to about half as many. 
  • Despite a general belief that winter weather and perpetual snowstorms are good for sales of seasonal sporting goods, Big Five noted that difficult comparisons in most of its markets made for tough sales results. As such, sales of apparel were down mid single digits in 4Q. Since the quarter ended however, same store sales have picked up notably, led by improved sales of core winter product. The weather aided sales are now tracking up mid single digit, after a flat performance in 4Q. Footwear and hard goods were standouts over the holiday period. 




Target Testing In-House New Payment Card Strategy - Target has decided that its in-house payment cards are a priority, so it's trialing a program in Kansas City that offers customers who use the card "5 percent off on every item, every transaction, everyday," Target CFO Doug Scovanner told analysts in a Tuesday (Feb. 23) conference call discussing the chain's earnings. The card incentive is one of two payment trials Target is running, Scovanner said, adding that the tests "could shape the future of this business segment. In one test, we're exploring the idea of returning to issuing cards solely for use in our stores. In another, we're testing a totally different reward structure in two markets, offering guests who use our card in Kansas City, for example, 5 percent off on every item, every transaction, everyday." The results thus far? "Sharply higher penetration" and "sharply higher credit quality of the guests asking for cards, sharply higher pace of guests asking for the cards. The whole question in Kansas City is whether all of those benefits are sufficient to (justify) the incremental markdowns." There's nothing surprising in those results. We're talking about an installed base, so these are already customers you've won. They're already in the store, and they have chosen products based on the prices marked on the shelf. At this point, why not use the store card? Incentives like a one-time $50 store credit deliver a very short-term boost and then the numbers on those cards plummet.   <cbsnews.com>


Simon Objects to GGP's Bid for Extension - The clash of the real estate investment trust titans continues. Simon Property Group Inc. Tuesday filed documents in Manhattan bankruptcy court in support of the unsecured creditors’ committee’s objection to General Growth Properties Inc.’s request for an extension to its period of exclusivity to file a plan of reorganization. A hearing on the request is expected to be held in Manhattan today. An extension would be the second granted by the judge and would give GGP more time to file its own plan of reorganization and obtain the requisite votes from the various creditor classes. GGP filed for bankruptcy protection in April. Simon on Feb. 8 made a bid for GGP valued at $10 billion. GGP, which Simon said in court papers had rebuffed attempts at negotiation dating back to August, fired back with its own announcement on Feb. 24 that it and Brookfield Asset Management had agreed to a recapitalization of GGP that would split the troubled mall operator into two parts. Simon said in court documents that the GGP proposal with Brookfield is “markedly inferior” to its plan. One bone of contention is that Simon’s offer is “firm and fully financed,” whereas the GGP plan has a contingency requiring that up to $5.8 billion be raised on top of the $2.63 billion contributed by Brookfield, among other differences.  <wwd.com>


Wal-Mart to Pay $12M in Gender Suit Settlement - Wal-Mart Stores Inc. will pay close to $12 million to settle a lawsuit that accused it of systematically denying jobs to women at a Kentucky distribution center. The Equal Employment Opportunity Commission filed the class action suit in 2001 in U.S. District Court in London, Ky. The federal agency alleged that between 1998 and 2005, the retailer hired male applicants for entry-level jobs at its warehouse there while ignoring equally qualified female candidates. According to the EEOC, Wal-Mart officials told interviewees that such order-filling positions were not suitable for women, a violation of the 1964 Civil Rights Act. Wal-Mart signed off on an order settling the case on Monday. Under the settlement, the company will pay $11.7 million in back wages and compensatory damages. The retailer also agreed to place female class members in its first 50 available order-filler jobs, place a female class member in every second job for the subsequent 50 openings and then hire one class member for every third open position. The company will also put up $250,000 toward the cost of a claims administrator who will oversee the settlement.  <wwd.com>


Columbia Sportswear Launches m-Commerce Site - Columbia Sportswear Company said it launched Columbia.com/Mobile, a new mobile portal to Columbia.com designed to help consumers learn about Columbia's outdoor products, experience the brand, or shop -- using a mobile device. "The launch of Columbia's mobile portal is another way Columbia is bringing innovation to outdoor consumers," said Paul Zaengle, senior director, Ecommerce, Columbia Sportswear Company. "The use of mobile devices to access the Internet is growing dramatically and branded websites are the No. 1 way that consumers research products. We are thrilled to offer a rich, mobile experience for consumers to access our brand, whether they're shopping at one of our retail partner's stores, at our company-owned stores, at home or on the go." The mobile portal -- accessible at www.columbia.com/mobile -- is a small-screen version of the Columbia.com site that works on nearly all web-enabled phones and includes the following features:

  •  Store locator - find a store near you that carries Columbia
  • Product assortment - a wide assortment of Columbia product, searchable  and categorized for easy navigation
  • Product ratings & reviews - hear what the community has to say about Columbia products
  • Shopping - browse and buy Columbia product from anywhere, anytime



Footwear Etc. boosts sales by using site search data to personalize e-mails - Consumers today receive myriad marketing messages in their e-mail inboxes, which poses a challenge for e-retailers: how to stand out in the crowd. The key, marketing experts say, is relevance. Make an e-mail message as relevant to the individual consumer as possible and he is more likely to click through to the e-commerce site. In the quest for relevance, some merchants are trying innovative new techniques. A major area of innovation is tying e-mail to other systems, such as site search and order management, to make e-mails more personalized and valuable for the customer. For instance, many retailers send e-mails promoting popular products. But Footwear Etc. has found a way to select products that are almost certainly of interest to the individual consumer receiving the e-mail. The retailer’s site search vendor, SLI Systems Inc., created an automated system that populates e-mails with items that the individual consumer recently searched for as well as related items, such as shoes from the same brand or style. <internetretailer.com>


H&M Board Proposes 2:1 Stock Split - The board of Hennes & Mauritz AB will propose a two-for-one stock split at its annual general meeting on April 29, whereby each of its existing shares will be divided into two new shares in a move designed to make it more appealing to investors. Stock splits traditionally occur when a company’s share price has been steadily rising. Shares in H&M are up 41 percent since the beginning of the year on the Swedish stock exchange, and were up 0.3 percent at 440.20 Swedish krona, or $61.18 at current exchange rates, in morning trading. The move would increase the number of A-shares in the company from   97,200,000 to 194,400,000 A-shares, and the number of B-shares from 730,336,000 to 1,460,672,000, the company said in a statement. The board said that pending approval from the general meeting, the split would take effect between May 20 and June 18. <wwd.com>


Uniqlo's Feb. Comps Advance 1.8% - Fast Retailing Co. Ltd. said Tuesday that Uniqlo’s same-store sale rose 1.8 percent in February. The Japanese retailer said the successful launch of spring items buoyed sales growth. Uniqlo's same-store sales slid 7.2 percent in January on depleted stocks of popular fall and winter items. The monthly sales data excludes Uniqlo’s international operations. Uniqlo currently operates a network of 773 stores across Japan, plus an increasing number of international outlets in locations such as New York, London, Paris and Singapore.  <wwd.com>


EU and Vietnam to Enter Free Trade Talks - The European Union and Vietnam will launch bilateral talks for a free trade pact. The European Commission Directorate General for Trade said Tuesday the countries will initiate formal negotiations and establish a framework for the talks, a move that “reflects the deepening trade relations between the EU and Vietnam.” Bilateral trade between the EU and Vietnam was almost 12 billion euros, or $16.3 billion, in 2008, according to the European Commission. Trade between the EU and Vietnam increased 12 percent annually between 2004 and 2008. Vietnam is the EU’s fifth-largest trading partner. Vietnam was the first stop of new EU Trade Commissioner Karel De Gucht on a trip to Asia this week. Next he will visit Singapore and India. The EU previously said it also will be launching negotiations for a free trade agreement with Singapore. The Obama administration has identified Asia-Pacific as a high-priority area in its trade agenda and is set to begin formal negotiations to join the Trans-Pacific Partnership, which would include both Vietnam and Singapore, later this month. The U.S. has a free trade agreement with Singapore. <wwd.com>


Study: Tax Refund Spending Stays Practical - Taxpayers receiving refunds will focus on using the money to pay down debt or save, a National Retail Federation survey disclosed Tuesday. There will be a slight increase in those who plan to use the cash to make major purchases. But the public’s spending mood is likely to remain restrained after the government checks are spent, said Phil Rist, executive vice president of strategic initiatives at BIGresearch, which polled 8,560 consumers, Feb. 2 to 9, for NRF’s 2010 Tax Returns Consumer Intentions and Actions report. “We’re not back at the impulse buying stage yet,” Rist said. “People will still be approaching spending with practicality. That practicality is going to be with us for a while.” Among those polled about their tax refunds, 40 percent will save them; 29 percent will devote them to everyday expenses, and 44 percent will pay down debt. Last year, 48 percent looked to pay down debt with their refunds. In addition, 12.5 percent will treat themselves to a major purchase, up from 11 percent last year. Some people may plan multiple uses for the found money, like paying down debt and saving a part of it.  <wwd.com

Bewildered by The Present

“We’ve left our future largely in the hands of people whose single greatest characteristic is that they are bewildered by the present.”

-Joshua Cooper Ramo


I’m in the midst of reading Cooper Ramo’s, “The Age of The Unthinkable.” I’m halfway done, but ready to add it to the required reading list for anyone looking for an alternative solution to the Glaring Groupthink we have been witnessing on Wall Street and in Washington. We need our own alternative to what they try fear-mongering us into believing is the “alternative.”


While the Olympics inspired us to live with passion and pride, the challenge at hand for Americans will be to keep that fire of entrepreneurial spirit in our bellies. CNBC’s live Olympic coverage has been replaced with the backward looking anchors who didn’t see much of the crashes or the recoveries coming to begin with.


“Being bewildered by the present” is a great way to summarize what you think you are seeing in today’s financial and political leadership. Despite the SP500 moving back to positive for the year-to-date yesterday, we are waking up to another horrendous weekly consumer confidence reading of minus -49 from the ABC/Washington Post report this morning.


Politicians and reactive market strategists alike wake up Selling Fear. When I listen to some of these people and do a quick You Tube study of what they were saying at the levered-up highs of 2007 and the Great Depressionista lows of early 2009, I don’t blame them. They should fear whatever it is that gives birth to their bewilderment. These people don’t have a proactive analytical process. They never did.


So let’s lock arms and stop complaining about this. Last night veteran journalist Charlie Reese asked Americans to forward a well documented report card on our Congress titled “545 People.” While complaining is becoming consensus, it was one of the better vents I have read in a while.


Let’s stop letting those with Perceived Wisdom tell us what to think. In the spirit of Cooper Ramo’s conclusion – in ‘The Age of the Unthinkable’, it’s time to think for ourselves.


Now whether you sold the hope associated with the SP500 making its YTD high on January 19th (1150) or bought the Fashionable Fears associated with the February 8th YTD closing low (1057), you get the point. Let’s keep using those opinions who are “bewildered by the present” to our advantage. That’s a capitalism I can believe in.


Since the first week of February Freakout Lows, here’s what’s bewildered the group-thinkers:

  1. SP500 closed up for the 3rd straight day yesterday, taking it to its highest-high since January 21st = +5.8% return since 2/8
  2. Russell 2000 closing at 648 last night made the rally in small caps since February 8th = +10.6% return
  3. Chinese stocks are up +5.6% since February 2nd
  4. Greece’s stock market is up +11.3% since its February 8th low
  5. Greece’s credit default swaps (CDS) have dropped -26% since February 4th (from 428 at the peak of fear to 315 today)
  6. VIX (Volatility Index) is down -28% since February 8th

Now, I could go on and on here, but you get the point. I am not waking up this morning trying to “go after” people. To the contrary, my wife and I are expecting our 2nd child in the coming days and I am simply trying to do my part in making this America a better place.


I, like a lot of people now, am realizing that I have my own brain. I am not the problem. To the contrary, albeit I am one very small part of 300 million, I am part of the solution.


That’s right. This is exactly Charlie Reese’s point. It’s the same point that rings in the ears of these nasty American Consumer confidence readings. And I didn’t need to go to Yale to figure out the math. Collectively, 300 million Americans are definitely smarter than the 545 people running this place.


It’s time we rid ourselves of those who are bewildered by the present that they created. It’s time for America to take this as a tremendous opportunity to evolve. It’s time I stop this rant and get on with my day.


Before I do that, I’ll leave you with another thought from one of 300 million people out there who is thinking:


“Einstein’s theory of relativity showed that Newton’s laws had to be modified for object moving at higher speed; the same might be said of our international system. The old laws of power, confronted with a faster-moving and more intricately ordered system, are now in need of modification.”


And remember, that bewildered look on Hank Paulson’s face isn’t Newton’s…


At 1122, the SP500 is overbought. Please don’t chase the group-thinkers and buy them up here. They’ll give you plenty of opportunity to buy them lower. I have immediate term support down at 1107.


Best of luck out there today and God Bless America,





FXC – CurrencyShares Canadian Dollar — Canada's currency was on sale on 2/25/10 and we are bullish on the Loonie's long term TAIL, at a price. Look for rate hikes in Canada in the coming 6-9 months.


XLF – SPDR Financials — With sentiment negative and a Piggy Banker Spread hitting a record wide spread on 2/23/10, we bought red.


XLK – SPDR Technology — Technology is underperforming the SP500 YTD; a down day on 2/22/10 prompted us to buy more. We expect to see some positive mean reversion for Technology as M&A picks up.


UUP – PowerShares US Dollar Index Fund — We bought the USD Fund on 1/4/10 as an explicit way to represent our Q1 2010 Macro Theme that we have labeled Buck Breakout (we were bearish on the USD in ’09).

CYB - WisdomTree Dreyfus Chinese Yuan — The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

TIP - iShares TIPS — The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are mispriced and that TIPS are a efficient way to own yield on an inflation protected basis.



IWM – iShares Russell 2000With the Russell 2000 finally overbought from an immediate term TRADE perspective on 3/1/10 and added to it on 3/2; we got the entry price that the risk manager makes a sale on strength.


GLD – SPDR Gold We re-shorted Gold on this dead cat bounce on 2/11/10. We remain bullish on a Buck Breakout and bearish on Gold for Q1 of 2010, as a result.


XLP – SPDR Consumer Staples Another capitulation squeeze is in full motion for the short sellers of everything "consumer". Shorting green as inflation starts to creep into the system again.


IEF – iShares 7-10 Year TreasuryOne of our Macro Themes for Q1 of 2010 is "Rate Run-up". Our bearish view on US Treasuries is implied.

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US STRATEGY - Don’t stop asking questions

“Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.”

-Albert Einstein


Yesterday, I was forwarded an article from a subscriber that made the statement “Politicians are the only people in the world who create problems and then campaign against them.”  The author of that article and Albert Einstein are right: “we can't solve problems by using the same kind of thinking we used when we created them.”  Therein lies a structural problem we need to deal with.  Washington has dug a very big hole and there is no real insight on how to deal with the issues, and now the politicians and Washington’s “groupthink” is begetting speculation that is potentially unhealthy. 


For the third day in a row the S&P 500 moved higher by 0.23%.  While volume was up 10% day-over-day, it was an uneventful day given the light MACRO calendar.  Some MACRO headwinds subsided as another round of austerity measures in Greece is making headlines.  Greek Prime Minister George Papandreou announced an additional $6.6 billion of deficit cuts as he tries to appease the balance of the EU. 


Additionally, the year-long M&A tailwind is gaining momentum, which is now includes takeover speculation rumors, coupled with an increase in shareholder activism dividends and share repurchase programs.  Auto sales also provided a positive tone to the market. 


The REFLATION trade popped up yesterday, as there were a number of positive developments in the Materials (XLB).  First, the dollar index declined following some early strength.  Today’s set up of the Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy Trade (80.27) and sell Trade (80.97). Second, the fertilizer group was underpinned by talk of a 15% export tax on potash in Russia.  Gold and steel stocks also outperformed.  The VIX declining 1.0% yesterday and today’s setup of the Hedgeye Risk Management models have levels for the volatility Index (VIX) at:  buy Trade (18.68) and sell Trade (21.88).  The VIX continues to be broken on all three durations – TRADE, TREND, and TAIL.


The two worst performing sectors yesterday were Consumer Discretionary (XLY) and Technology (XLK).  Yesterday, retail saw a four-day winning streak snapped with the S&P Retail Index declining 0.8%.  Helping to drag down the sector was SPLS which was down on a Q4 miss and conservative guidance. DPZ was a bright spot in the restaurant space on better-than-expected Q4 earnings and revenues, while DENN was up on the back of shareholder activism.


While we continue to be long technology, there was no follow thru following Monday’s performance.  The semi group was unable to build on Monday’s rally, as the SOX was flat on the day. We are also long the Financials (XLF), which only slightly outperformed yesterday.  After underperforming on Monday, the large-cap regional banking was stronger on the day with the BKX (0.7%). 


As we wake up today, Equity futures are trading mixed to fair value having pared back gains from yesterday with Greece having unveiled additional austerity measures.  On the calendar today we have:

MBA Mortgage Apps

February Challenger Job Cuts

February ADP Employment Change

Feb ISM Non-Manufacturing composite

Fed Beige Book


After the close last night the ABC consumer confidence number rose slightly to -49 from -50.  As we look at today’s set up the range for the S&P 500 is 25 points or 1% (1,107) downside and 1.0% (1,122) upside. 


Copper, is little changed in early trading, although there continues to be reduced concern about potential disruptions to supply in the wake of the earthquake in Chile.    The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (3.30) and Sell Trade (3.43).


Gold is trading near a six-week high and may get further support after Greece’s government passed new austerity measures and a weaker dollar.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,120) and Sell Trade (1,135).


Crude oil is trading quietly in the AM before the Energy department’s report that will likely show that crude inventories expanded for a fifth week in the U.S.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (78.09) and Sell Trade (80.77).


Howard Penney

Managing Director


US STRATEGY - Don’t stop asking questions - sp1


US STRATEGY - Don’t stop asking questions - usd2


US STRATEGY - Don’t stop asking questions - vix3


US STRATEGY - Don’t stop asking questions - oil4


US STRATEGY - Don’t stop asking questions - gold5


US STRATEGY - Don’t stop asking questions - copper6



Risk Management Time: SP500 Levels, Refreshed...

Today’s market move is probably driving the reactive price momentum chasers a little squirrely. Don’t let them distract you. This market is trading in a proactively predictable range.


Despite all of those who shorted the fear associated with a “Moody’s downgrade of Greece” (yes, that was a lagging indicator) last week clamoring for cover, the immediate term TRADE line of resistance that we gave you in this morning’s Early Look has held up pretty well today at 1122.


Importantly, what was the intermediate term TREND line of resistance in February has now become an important line of support down at 1103 (thick green line in the chart below). Use that as your buy/cover zone for any sales that you have been making into strength in the last 48 hours.


Keep your head up and on a swivel,



Keith R. McCullough
Chief Executive Officer


Risk Management Time: SP500 Levels, Refreshed...  - sptime


I understand the math behind Keith’s thoughts that Ben Bernanke (aka “He who sees no bubbles”) needs to raise interest rates and maybe he did what he needed to do to keep his job.   


Maybe the question for Ben is not whether he should raise rates, but rather, whether he can raise rates as he continues to behave as though he has a serious problem.  Maybe Ben is aware of another problem that is preventing him from raising rates (outside of political pandering).  The notion that his behavior is consistent with someone who has a serious problem suggests that going forward the “economic” character of the market could surprise to the down side.  If this is true, the FED will raise rates when Ben’s “problem” no longer exists, which plays into the belief that the market will rally in response to a rate increase.  Not raising rates may lead to a new set of problems, but we will cross that bridge when we come to it. 


Recent surprises in weaker home sales, new jobless claims and declining consumer confidence have not been of any consequence to the market.  Are we being set up?  The complacency surrounding the market reactions to those numbers should not be lost.  Will the market continue to shrug off disappointing news as the general outlook shifts, from one of ongoing economic growth, to one of slowing growth and the possibility of a renewed recession?


Consumers account for more than 70% of GDP, yet growth in personal consumption cannot be sustained without growth in inflation-adjusted income.  Short-term benefits can be gained through debt expansion, but consumer credit continues to contract, and disposable consumer income is not keeping up with inflation.  This is a long-term structural problem, and, until it is addressed, there can be no sustained economic recovery. 


The most recently revised GDP report revealed another structural problem as currents trends are not sustainable.  Private inventory growth accounted for 4%, or 67%, of the revised 5.9% annualized growth in 4Q GDP.  That was up from 3.6%, or 63.0%, of the 5.7% reported initially. 


Again, without end demand, the buildup in inventories could be more detrimental to GDP going forward than the benefit it provided during the fourth quarter. 


Keith’s criticism of Ben Bernanke is well grounded, as the data is now in Keith’s favor.  The only reason the FED chairman can ignore the facts is because he has a problem, and if he has a problem, we all have a problem…  


Howard Penney

Managing Director


PROBLEM BEHAVIOR - chained PCE vs Income


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