Tuesday, December 14, 2010

Inflation And The Retail Sales Fantasy...

Once again this morning the markets were greeted by the bubblehead's in the media victoriously announcing that November's retail sales were better than expected and October's were revised higher.

And once again, we have to look behind the Government wizard's curtain to see the golden truth about what is really going on with the numbers.  If you dissect the numbers today, you'll find the biggest boost came from gasoline sales.  Within a certain range of tolerance, I consider gasoline to be of inelastic demand, which means people will consume at least a constant amount until the price goes over a certain price level, of which we are not there yet.  We know the price of gasoline rose in November, which means that a big portion of the retail sales increase from October to November was from gasoline inflation.

The first chart below shows the dollar level of monthly retail sales as tracked by the Fed.  The second chart below show the CRB Index, which is an index that consists of a basket of diversified commodities.  As you can see from comparing the two charts, the level of retail sales is HIGHLY correlated with the level of prices in the system (click on the charts to enlarge):

My point is that most of the gleefully reported retail sales increase in November was derived from price increases - retail sales includes food and Walmart is a big componenent as it sells food and gas but does not break out gas sales on a monthly basis.  Specifically, in November, gasoline prices were the primary stimulant for the better sales reported. 

Make no mistake, there's no question that the Black Friday weekend sales were much better than expected. However, I have been of the view that the extreme discounting, especially at places like Macy's, essentially "pulled forward" a substantial amount of future retail sales, as polls indicated that shoppers took advantage of pricing deals to purchase both discretionary holiday items PLUS necessities.

If you think I'm off base, you can read about Best Buy's earnings report for its quarter ending Nov 30, which was released, ironically, just before the retail sales report.  Best Buy stock is down 15% right now because its sales came in well below expectations and the company reduced its full-year forecast for sales and profits.  Even more stunning, its U.S. same-store-sales fell 5% in the quarter.  In retail that kind of number is an unequivocal disaster.  Here's a summary:  Best Buy Link

The moral of the story is that the economy is much weaker than the highly manipulated Government reported numbers would have you believe.  With true unemployment continuing to increase and price inflation starting to rear its ugly head, we can expect a further deterioration in the condition of the real economy.

The good news is that gold and silver are still inexpensive relative to the dollar-price levels to which they are headed.


  1. So I have a question: are precious metals sales included in retail sales? Where else would they be reported and if the treasury sold a boatload of silver eagles in November, then between quantity and price that would be huge.

  2. excellent analysis, thanks

  3. Hal are you referring to the Mint sales of silver eagles?

    I doubt pm coins are included in the retail sales number.

  4. Marc Hazout may be a "nice guy" but will he be shown the door?

  5. Distinct possibility. Lot of buyers in there today at .14. That's a good sign. If Hazout is booted, maybe Fung will take over the reigns and take this Company where it can go.

  6. Dave: I am thinking specifically about silver eagles due to extreme volume increase and as well the price increase in November but the entire Retail PM space. If any of the dealers were publically held they would be reporting significant sales increases.

    You mentioned gasoline and PM is a drop in the bucket but looking at that incrementally --why not?

    Same thing if China is spending its dollars ion Gold and Silver out to NY just to unload it--which would help the trade deficit and perhaps even retail sales (not that anyone in govt would fudge stats to make them look better).

  7. SDRG

    You gotta know when to hold em and when fold em.

  8. Of all the great silver plays out there ...why pick a pig?

  9. Dave,

    I heard on Fox News last night that retail sales were up 0.8% last month. Later it was reported that inflation was up 0.8%. So that means that if you believe the government's inflation numbers that 1) you are an idiot, and 2) that in real terms retail sales were flat.

    But if you believe instead that the real inflation rate is 2, 3 or 4 times the government supplied BS, then retail sales were significantly DOWN when measured in terms of widgets sold.

    The word "cluster" comes immediately to mind when thinking about this economy and the government's attempts to "help" it.


  10. Anonymous, there's a nice chart on www.jsmineset.com posted last night that shows retail sales expressed in terms of gold. It hammers home your point.

  11. I second the questions about SDRG as a top recommendation for a small-cap silver play. Per the website, management does not seem particularly impressive based on their bios and experience with core mining functions seems lacking.

    This stock is down 35% from your buy rec at 20 cents.
    If you still have convinctions to hold/add to this position, could you please lay out the case?

  12. Wait a second. I never recommended it as a "top" play. And I have always urged everyone to do their own due diligence. I have begged people to call the CEO on their own. He will always either pick up when you call or return your message.

    I spent close an hour on the phone with Marc today. My view is still the same. This stock either goes to zero or it could go to $5. I have added on this latest set-back.

    SDRG is not my top play nor is it my only play. I liked the risk/reward at .20 and I LOVE it at .14.

    But remember, when you are dealing with a penny stock, it's a penny stock for a reason. The NUMERO UNO characteristic of a penny stock is that it is HIGH RISK/HIGH RETURN. Everyone fucking buys these things thinking only of "HIGH RETURN." "HIGH RISK" means if enough mistakes are made or the concept/business model is flawed, the stock goes to zero.

    SDRG is no different.

    I'm tired of fielding inquiry on this stock. If you want the best possible source of information, call the Company. 416-223-8500. Ask for Marc Hazout and tell the receptionist that you are a shareholder with some questions.

  13. Dave,
    Thanks for the response. SDRG was one of two stocks you recommended (along with ECU) in response to a recent query by a poster. Nobody (on this blog at least) expects you to take responsibility for losses on a penny stock speculative play.
    My point, which I feel still hasn't been addressed satisfactorily, is that SDRG seems like a curious choice. If it is a 20:1 longshot with 50:50 odds of going bust, fine, then so be it (that seems to be your rationale now). Is that all this company has going for it?
    My read: management bios: weak
    mines in china: negative, extra risk, unreliable data, did I mention the mines are in China?

    Is this a better opportunity than, say, Sandstorm Resources or LBSR? I don't know. Not convinced. Willing to buy a few shares as spec based on the general quality of your insights, but not convinced. I'm not a geologist so I do rely on others with more background as well as common sense in trying to narrow down my mining favorites.

  14. Go review the information on the website about the Dadi and Laopondao properties and then call Marc and ask him about them.

    Shengda operates a property called Bairendaba, which is one of the largest zinc/silver mines in China. Bairendaba is adjacent to the Dadi property and I have been told that Shengda believes Dadi could be as large or larger than Bairendaba. Then there's Laopondao...then SDRG also controls a few other undeveloped properies in the Erbahuo mining district.