• Markets
• Economy
• Federal Reserve
• Housing
• Energy
• Digital Media

« October 2006 | Main | December 2006 »

Blog Spotlight: Mish's Global Economic Trend Analysis

Another edition of our new series:  Blog Spotlight.

We put together a short list of excellent but somewhat overlooked blog that deserves a greater audience. Expect to see a post from a different featured blogger here every Tuesday and Thursday evening, around 7pm.

Second up in our Blogger Spotlight:  Michael Shedlock and Mish's Global Economic Trend Analysis. Mike is one of the editors of The Survival Report, covering stocks and the economy. He also writes for the Daily Reckoning, and co-edits Whiskey & Gunpowder. He also runs stock boards on the Motley Fool, Silicon Investor, and TheMarketTraders. He is an avid photographer, when not writing about stocks or the economy, with over 80 magazine and book covers to his credit.

A Mortgage Broker's Synopsis

The following post is an email from Michael J. Dorff, a mortgage broker with Trans World Financial about the state of affairs in Orange County California. Monday evening I will have an update from Mike Morgan to share:

Continue reading "Blog Spotlight: Mish's Global Economic Trend Analysis"

Thursday, November 30, 2006 | 07:00 PM | Permalink | Comments (9) | TrackBack (0)
add to de.li.cious | digg this! | add to technorati | email this post

Retailers' Massive Discounting

One of the issues we have been discussing has been how widely and deeply Retailers will be discounting, and what it means to the overall economy.

The most recent review of price cutting is that they are both deep and broad. Our quick survey of both brick and mortar coupons and online savings codes shows that discounting is ramping up dramatically.  This will likely pressure for Q4 profit margins.

Attached are 2 PDFs we scraped together (from various shopping fiends we know); These represent almost 40 major retailers discounting for the first post Black Friday weekend's sales events.

Download Gap, Banana Republic, Old Navy.pdf

Download 6 Store, 30 online coupons.pdf

As you can see, the price cutting is quite dramatic

Retailers are nervous, judging by the considerable price cutting thats going on:

~~~

UPDATE:  November 30, 2006 4:25pm

Google Checkout has gotten into the Holiday discounting spirit!

>
A sampler of various Store Sample coupons (not including Google):

Thursday, November 30, 2006 | 03:30 PM | Permalink | Comments (20) | TrackBack (0)
add to de.li.cious | digg this! | add to technorati | email this post

Blaming Soft Retail on all the Wrong Things

The latest retail sales data is out, and its rather mixed:

-Gap fell 2 percent. They expect pressure on profit margins to continue into December.

-Abercrombie & Fitch sales fell 3 percent in the month;

-American Eagle Outfitters (Charts) posted good numbers -- plus 14% -- but was below expectations for a 14.8% gains;

Pier 1 Imports saw sales tumble 15.3%, despite aggressive discounting / advertising;

Ann Taylor blamed warm weather for sales falling 4.3%, especially "sweaters, outerwear and cold weather accessories."

Wal-Mart, JC Penney and Costco Wholesale all missed estimates. Those stocks are down 1.1%, 2.9%, and 1.9%, respectively. Bebe Stores was even worse, falling 9% after it fell short of estimates.

- Sources: Warm weather chills holiday sales,
Shoppers Await Better Bargains

Meanwhile, all manner of silly blame casting is going on as to who or what is responsible for the problematic retail sales. With over half of the reporting companies missing expectations, it is rather silly to blame all of this on Wal-Mart.

In most years, Retailers blame Snow in the Winter in the Northern climes; this year, they are blaming the weak sales on warm weather. Apparently, it is never managements fault, nor does anyone blame the tiring consumer or a weakening housing / Mortgage App slow down, it is the weather - REGARDLESS OF WHAT THE WEATHER IS.

Considering what the most recent retail sales data looks like, it is no surprise that the sector is flailing about looking for something -- or someone -- to blame:

~~~

If you want a clue as to what is really going on, try this compare and contrast:

Wal-Mart Trips as It Changes a Bit Too Fast

Tiffany Profit Increases 23%

There's your answer . . .

~~~

One more thing: The WSJ has a good interactive chart that allows you to track the performers of a dozen top retailers:

Its a public URL, No subscription required.

Sources:
Weak November Start Hurts Retailers
As Wal-Mart Presents Grim Forecast
WALL STREET JOURNAL ONLINE NEWS ROUNDUP
WSJ, November 30, 2006 9:18 a.m.
http://online.wsj.com/article/SB116482943779235988.html

Build Your Own Chart: A dozen major retailers
WSJ, November 30, 2006
http://online.wsj.com/public/resources/documents/info-retail06-061130.html

Warm weather chills holiday sales
Parija B. Kavilanz
CNNMoney.com, November 30 2006: 9:41 AM EST
http://money.cnn.com/2006/11/30/news/economy/
novretail_sales/index.htm?postversion=2006113009

Thursday, November 30, 2006 | 09:51 AM | Permalink | Comments (16) | TrackBack (0)
add to de.li.cious | digg this! | add to technorati | email this post

Oil!

Given yesterday's pop to $62 in Crude -- up from $53 when last month's Futures' contracts expired -- its worth taking another look at energy sector.

I am friendly with David Kotok, Chief Investment Officer of Cumberland Advisors. Like me, David remains Bullish on the Energy Sector, and has had some rather astute comments on Oil recently. Back in September, he wrote:

"Many folks are bailing out of oil.  Some forecasts now call for a price decline to under $30 per barrel.  One extreme forecast suggests the oil price could go as low as $15.   We do not agree.

The recent drop in the oil price from the high $70s to a few pennies under $60 per barrel is the result of the lessening of two risk premia.  1.  The hurricane season seems to be passing without incident.  2.  The Chavez/Ahmadinejad bluster is known and the market is assuming that we have seen the worst.   Some players are suggesting that the European initiative with Iran will succeed and lessen the tensions over Iranian development of nuclear enrichment facilities.

Oil risk premia are estimated by computing the cost of adding a barrel to inventory.  This helps explain the pricing of oil in the futures market.   When the risk premia declines as it is doing now the nearest term oil price declines the fastest.  That is what we have seen in the August/ September period.  Longer term futures prices are suggesting that the current decline is nearing an end.  Oil for delivery 18 months from now is trading near $68 per barrel."

David's view is that "energy prices are going higher and that our overweight ETF investment position should continue in this energy sector."   

He also recently criticized what he termed "the ethanol mess" and offered how it didn’t help the energy price -- but it did help create shortages in grains. He notes that some folks in this world are going to starve because of it.

Why does he want to stay overweighted Energy? These factors suggest higher oil prices:

• The dollar has declined about 10% (trade weighted) from where it was a year ago.   Oil is about the same price per barrel as it was a year ago.  Oil is priced in dollars.  Therefore, we in the US have had a price run up to near $80 and back to $60.  The rest of the world has had a smaller price run up and is now looking at an oil price 10% lower than it was a year ago. 

• The relative price is important because it allows us to estimate the stimulus that occurs from the oil price change in various parts of the globe.   In the rest of the world that stimulus has spurred demand.  Oil consumption is about 1 ½ million barrels a day (mbd) higher than it was about a year ago.   In the US the change has been nearly flat.  Our oil consumption is not the growth area.  Look to Asia to find it.

• Oil futures prices suggest a return to nearly the $70 level in 18 to 20 months.   McKinsey & Co. forecast continuing rise in world oil demand at about 2.2% a year until 2020.  We agree.   Oil could easily be $100 before then as world consumption rises between 1 ½ and 2 mbd each and every year.

• The unrest in Nigeria continues and may be worsening.  Press reports usually do not include this in the top of the list.  They should.  Nigeria is becoming an increasingly dangerous place for the folks who work in the oil industry. Investors need to keep an eye on this geography.

• Speaking of geography, the Middle East is deteriorating and the market has ignored it. In Iran, we see Russia supplying missile defense material to protect Iranian nuclear sites. We see the breakdown in Lebanon and the Syria-Hezbollah connection strengthen.  The Israel-Hamas battle continues unabated. Clearly we see a murderously intense civil war in Iraq. Soon we will witness the forthcoming pullout of the British.  What will that mean?  They are in the Basra region; that is where a lot of Iraqi oil exports originate. Basra is Shiite and close to Iran which is also Shiite. Instability in Basra is almost certain to rise when the Brits depart. Right now Iraq still exports about 1.6 mbd. As much as half of it is at risk if the civil war spreads and intensifies in Basra.   Also, only about 1600 of the 2300 oil wells in Iraq are working. The civil war prevents regular maintenance and precludes development. So every time a well loses functionality it goes offline.  We expect that to continue and intensify.

• All this leads to a strange alignment. In Iran, the Shiite center of power, there is an interest in the higher oil price. Iran has no love for the west and would spend the money on the mischief it spreads in the region and on domestic social spending so as to endear the Ahmadinejad regime to the populace. In Sunni Saudi Arabia, they wish to maintain the present oil price or see it a little higher. They do not want to kill the west but they would welcome the higher oil price if the source of the pressure was from other than OPEC cartel price maintenance. So we have both the Sunni power and Shiite power supporting their respective allies who are the combatants on one side of the Persian Gulf while enjoying the benefits of any higher oil price and attendant risk premium. This bodes ill for Basra and any other place where the civil war might spread.

By way of disclosure, Cumberland maintains an overweight position in energy, with the Vanguard energy ETF (VDE) as their first choice. VDE has 118 stocks, with the heaviest weighted components being ExxonMobil (XOM) Chevron (CVX) and ConocoPhillips (COP) Schlumberger (SLB) and Occidental Petroleum (OXY). 

Thanks, David.

>

Source:
Oil!
David Kotok
Cumberland Advisors.November 29, 2006
http://www.cumber.com/commentary.aspx?file=112906.asp&n=l_mc

Thursday, November 30, 2006 | 07:01 AM | Permalink | Comments (34) | TrackBack (0)
add to de.li.cious | digg this! | add to technorati | email this post

Blogger's Take: Holiday Retail Sales

Given all of the news on Retail sales -- Black Friday, Cyber Monday, same store sales --  I thought this might make for a good topic for Bloggers Take. So what are your thoughts on the holiday shopping season? Is it important? What are your expectations -- Good bad or different ?

A Tale of Two Retails

Is retail weak?  On the heels of lowered sales forecasts by Wal-Mart, that question has moved front and center.  The chart below shows the lead up to the holiday shopping season in the broad retail ETF (XRT; blue) and in Wal-Mart stock (WMT; red).  Because Wal-Mart comprises less than 2% of the XRT fund, this comparison gives us a nice of retail overall vs. Wal-Mart in particular.  For comparison, I've added Target (TGT; yellow) and equalized them in price as of 7/5/06 to show relative performance.

What we see is that retail has done well during the market rise since July, 2006. Target has been a particular winner.  Overall, it's hard to make a case for general retail weakness.  As we've approached the holiday period, however, the performance of Wal-Mart has trailed considerably.  This has made a fine pairs trade for a fundamental analyst able to sort out the stronger components of XRT, such as Target, from the Wal-Marts. 

Brett Steenbarger, Traderfeed

~~~~

Barry’s question is timely because we cannot recall such an intense media focus on retail sales than we have seen this year. Our sense is that trying to play the holiday season retail sales game is for the vast majority of investors a mug’s game.  In short, the signal to noise ratio is far too low to generate any meaningful trade signals.  The number of crosscurrents present at this time of year is difficult for even the most experienced retail analysts to follow. For instance, think about how gift cards have changed the retail game over the last few years.  Gift card sales have taken on increasing importance for many retailers over the past few years.  Changing trends like this happen every year.  If you have you done your work on a stock or the sector, great, if not don’t get caught up in the frenzy surrounding what is supposed to be a joyous time of year.

Abnormal Returns

~~~

I expect a strong holiday shopping season.  I think that, post-election, consumers feel that something has changed, probably for the better. 

While they don't have a good grasp of what will be different, they have a renewed optimism in the future that will help drive holiday spending. 

Stocks are up and real estate prices have not fallen as dramatically as expected in most cities.  Add that to a strong Q4 for retail and what you have is a good economy with plenty of steam to carry it through early 2007.  That said, I think Wall Street tends to overvalue a strong holiday shopping season.  If you are contemplating an investment strategy for 2007, I would focus more on interest rates and GDP, and look to international opportunities.

Rob May, Businesspundit.com

~~~

The media as well as bulls on Silicon Investor both went gone gaga over the black Friday numbers reported by NRF while dismissing the numbers from Wal-Mart as "just one store". Well Wal-Mart is not just one store it is the bellweather store for the masses. But to top things off, the much touted sales data presented by the NRS was not really sales data at all but customer surveys that may bear little relationship to reality. This is just sloppy reporting by nearly everyone picking up the story, including Bloomberg.

What I fail to understand is how Bloomberg and other places can fall for this nonsense time and time again. This is the direct equivalent of the Charley Brown / Lucy football scene being played every Thanksgiving in real life.

In the meantime there was little fanfare given to the massive 8.3% collapse in durable goods. Yes, part of that collapse was aircraft, but orders for non-defense capital goods excluding aircraft decreased by 5.1%, after rising 3.2% in September. In addition the index of manufacturing activity slowed to 51.2 in October, from 52.9 in September and 54.5 in August. In the overall picture, consumer credit is declining, housing starts are plunging, manufacturing activity is slowing, auto inventories and home inventories are rising but the story headlines latch on to the biggest "non-event" around, Black Friday.

Mike Shedlock / Mish's Global Economic Trend Analysis

~~~

There is some divergent opinion as to how indebted the consumer actually is. Regardless of the reality here it seems to me that plenty of people will have no hesitaion to take on another $1500 in debt to ensure a "good" holiday season.

In that context the strength of this year's holiday does not mean much for future behavior. What is more of an indicator of future behavior is the availability of credit, which based on my mail, is still healthy.

Roger Nusbaum, Random Roger

~~~

Wednesday, November 29, 2006 | 07:00 PM | Permalink | Comments (12) | TrackBack (0)
add to de.li.cious | digg this! | add to technorati | email this post

Transports Warning

NOTE:  This Market Commentary alert was originally emailed to subscribers at Ritholtz Research & Analytics on Mon 11/29/2006 4:23 PM;

This is posted here not as investing advice, but rather as an example of an analytical call for potential subscribers. We expect to post future advisories in a similar manner -- after the call, but in the correct chronological location here in the blog.

>>>

Earlier this morning, we looked at the ATA tonnage index for October. Truck Tonnage dropped 1.8% in October. The index decreased 4.0% compared with a year earlier, making this the largest year-over-year decrease since February 2001. Year-to-date, the truck tonnage index was down 2.1 percent, compared with the same period in 2005.

David Rosenberg, Merrill Lynch's chief North American economist, called it "borderline recessionary."

What might this mean for the markets? To answer that question, we took a closer look at the DOW JONES Transportation Index (TRAN). From a Technical perspective, it is now nearing a very critical juncture -- and is likely to make a big directional move soon. (See our Technical Review of the Transports at the RR&A site).

While we have been fairly steadfast in saying its been too early to short equities, any technical break in the Trannies will be the first of our signals to place a bet against the equity markets.

Divergence:  According to classical Dow theory, when the Dow makes new highs, we look for the Transports to confirm them. To oversimplify, we want to see more than goods just being manufactured, we want to see them shipped to retailers and sold to the end consumer. That should be reflected in the Transportation Index.

And its not.

As you will see in our technical review, the Trannies have failed to eclipse significant resistance at the 5,000 level -- on three different occasions. Further, the  upwardly revised GDP should have been welcome news on the economy, including the Transports; Instead, the group sold off, and closed near the session lows.

Thereis a valid, secular uptrend line for the transports at ~4,400.  A violation of that level would be extremely negative, not only for the group, but also for the market as a whole. It would signal more than a mere slowdown on the horizon. Amd if we learn that additional inventories are building, it would suggest the truck, air and rail companies are delivering inventory draw downs, as opposed to customer driven demand for goods.

Either way (bull or bear) there are two significant TRAN levels to watch: 5,000 and 4,400.  The former suggests a continuation of the bull trend, while the latter would be a significant reversal -- and a time to begin placing index short bets.

My instinct tells me the soft landing crowd still has another rally left in them. Given all the liquidity thats circulating, this is certainly possible. But regardless, we are watching the Transports very closely for a technical signal. 

In the Transport research piece, we examine the index more closely and list the technical rankings of each index member (0 to 100 scaled, 100 - the best, 0 - the worst).

-Barry Ritholtz
November 29, 2006

Wednesday, November 29, 2006 | 04:23 PM | Permalink | Comments (0) | TrackBack (0)
add to de.li.cious | digg this! | add to technorati | email this post

Econ Blog Traffic

Holy snikes! I just saw this traffic comparo (via an L.A.Times article, mostly about Marginal Revolution) about econ blog traffic.

Apparently BP is on of the top econ traffic getters:

Economists who author blogs are drawing fans who see nothing dismal about the discipline.:

"This interest in the topic translates to blog traffic. Of the top 100 sites in the blogosphere, four or five are about economics, said Brian Gongol, a small-business owner who compiles blog ratings and is an econo-blogger himself. That alone is surprising.

Greenspan aside, economists are rarely well-known among the public. Ever heard of Ludwig von Mises?

The blogs aren't limited to economists at name-brand universities, either. Gongol estimates that four of the top 10 (including his) aren't even written by academics. He writes his in his Des Moines house, far from the centers of academia — when he's not too busy doing his "real" job selling water-treatment equipment.

Indeed, blogging doesn't seem to be the kind of activity that an economics textbook would endorse. A cost-benefit analysis might conclude that the economist pours time into a blog and gets little or no financial reward. Few blogs, for example, have ads to generate revenue. It would follow, then, that the most prominent economists would lose the most from blogging. But not all economists concur that time spent blogging is a waste."

Pretty cool!

>

Source:
Now online: slide-rule celebrities
Alana Semuels
L.A. Times, November 23, 2006
http://www.latimes.com/business/la-fi-econoblogs23nov23,0,4172561.story?

Wednesday, November 29, 2006 | 02:30 PM | Permalink | Comments (17) | TrackBack (1)
add to de.li.cious | digg this! | add to technorati | email this post

Restating Earnings

Amusing take via Scott Adams:

Source:  Dilbert.com

Wednesday, November 29, 2006 | 11:51 AM | Permalink | Comments (12) | TrackBack (0)
add to de.li.cious | digg this! | add to technorati | email this post

Technical Review – DOW JONES TRANSPORTATION INDEX

Dow Jones Transportation Index (TRAN) – Daily Chart (2003 – present)

>

After a marvelous three plus year run, the Dow Jones Transportation Index (TRAN) recently formed significant resistance in the form of a double top (black arrows & red line) at the 5,000 level. After holding support along its long term uptrend (green line) on five different occasions (noted by the blue numbers 1 thru 5) the transports bounced back towards 5,000 and appear this time to be failing just under the 5,000 level (brown circle and arrows).

The validity of a trend line depends on the more times it is tested and five times makes this trend line very valid.

With the Index rolling over here and possibly heading back for a retest of that up trend line we would watch the trading activity very carefully over the next few days/weeks. Early evidence suggests the highs for some time may be in place near the 5,000 level however, a trend line break would be needed for definitive confirmation. Ironically on a day where GDP numbers came in higher than expected, which should be perceived as good for the economy, therefore good for transportation stocks, the index moved lower not higher. When the transports fail to rally on seemingly good news we have to wonder, are the good and services now being shipped excess inventories ? Or are investors not rallying the transports because the assume inventories are building ? Either way it appears the transports by its lukewarm price action are pricing in a slowdown.

Within the sector, the rails and truckers appear to be in the worst technical shape.

>

See our technical rankings below >>>

>

Technical Rankings for DOW JONES Transportation Index (TRAN)

Wednesday, November 29, 2006 | 08:27 AM | Permalink | Comments (1) | TrackBack (0)
add to de.li.cious | digg this! | add to technorati | email this post

ATA tonnage index for October

Man, we have been on a mad Trade Association jag the past few days.

The latest (via the WSJ's Market Beat)  is the American Trucking Associations’ for-hire Truck Tonnage Index. Most of the goods moved across the country are hauled by Trucks: 10.7 billion tons of freight in 2005 (about ~70% by tonnage), with Motor carriers collecting $623 billion dollars -- 84.3% -- of all transport revenues.  To say Trucking is important may be a bit of an understatement.

Here's an excerpt from their release:

"The American Trucking Associations’ advanced seasonally adjusted for-hire Truck Tonnage Index dropped 1.8 percent in October after increasing 1.6 percent in September.   

On a seasonally adjusted basis, the tonnage index fell to 110.8 (2000=100) from 112.9 in September. The latest reduction put the index at its lowest level since the end of the 2006 first quarter. The index decreased 4.0 percent compared with a year earlier, marking the largest year-over-year decrease since February 2001. Year-to-date, the truck tonnage index was down 2.1 percent, compared with the same period in 2005. The not seasonally adjusted index increased 4.7 percent from September to 117.7."

Source: ATA

I do not follow this stat on a regular basis. For some context, let's go to a 3rd party for some context as to what the freight slowdown in October may mean:

Wednesday, November 29, 2006 | 07:00 AM | Permalink | Comments (25) | TrackBack (1)
add to de.li.cious | digg this! | add to technorati | email this post