Friday, October 14, 2011

Don't Believe The Hype

The monthly retail sales report was released to great media hype, as the "preliminary estimated" retail sales number for September was calculated to be up 1.1% from August and exceeded the Wall Street Einstein consensus estimate. 

HOWEVER, and remember, with me "however" always surfaces when I pull up the actual data and take a closer look at it than does that babbling bald moron on CNBC.  Here's the report if you would like to peruse the numbers yourself:  LINK  Now for "however:"  First, please note that the reported headline number is a "seasonally" adjusted estimate using some fancy computer model, per the footnote to the report.  I would love to see how the model calculates these "adjustments" so we can see if they are even reasonable.  But this is a big problem with all Government economic reports.   

Let's look at a few of the notable data points that the brainless wonders on television are self-flagellating over.  Everyone is gushing about retail and auto sales.  But if you look at the second table on the above link, you'll note that by far the largest jump in sales came from the gas pump.  Has anyone noticed that despite a big drop in the price of oil, the price of gasoline seems to keep crawling higher?  I would suggest that a large component of retail sales for September came primarily from gasoline sales.  Is that good for the economy?  To be sure, it looks like auto sales jumped a bit, and that was confirmed by the recent monthly auto sales report for September which was released at the beginning of October.

"However,"  it appears to me that the increase in auto sales, especially at GM and Chrysler, are being fueled by the big increase in subprime auto loans:  LINK  Wait a minute - didn't we get into the trouble that hit in 2008 because of subprime lending?  We know that GMAC, the finance arm of GM, went bust and was taken over by the Obama Government.  It was recently reincarnated with Taxpayer money (now called "Ally") and once again jumped heavily into subprime auto lending - this time backed by YOUR money.  This is exactly why auto sales at GM and Chrysler appear to be strong.  I might also note that, per the good due diligence of, most of these auto sales end up in being shelved at dealers.  Please note that an auto manufacturer books a sale once the car is loaded on a train/truck and leaves the factory lot.  The dealer then pays for its purchase using "warehouse or floor" financing provided by...GMAC (You).  This is not an attribute of real, organic economic growth.

Now for the final fork-insertion into the hyped retail sales report, which we now know is likely overstated by "seasonal adjustments" and inflation and is skewed toward gasoline sales.  Shortly after the retail sales report, the Michigan Consumer Confidence Index was released and was substantially lower than the Einstein consensus estimate.  In fact:   "Confidence among U.S. consumers unexpectedly dropped in October as Americans’ outlooks for the economy and their finances slumped to the lowest level since 1980."  LINK 

Hmmm, that's not good.  The only remark I have to say about this is that this report further reinforces my view that the Government is overstating its retail sales estimates.  After all, does it seem likely that people are out spending an increasing amount of money that they don't have if their attitude and outlook on the economy is the lowest that it's been since 1980?  The golden truth of the matter is that the Government is stuffing GM and Chrysler auto dealers with inventory using Taxpayer money to finance the stuffing (the Government subsidizes leases and backstops Ally's subprime loans), making auto sales look better than they really are.  Moreover, it looks like most of the increase in retail sales, ex-autos, came from gasoline sales.

So for any of you who poisoned your mind by reading the calculated risk blog or watched CNBC/Bloomberg, please re-read the facts as I just presented them.  Then "here's what I wantcha all to do for me:"   celebrate the truth and Don't Believe The Hype:


  1. do you ever slow down?

    You did forget the West Coast ports are seeing less activity this year--no peak summer early fall season. Fewer imports, lean inventories, thus even if consumer wanted to and could spend there will be an upper limit due to inventory constraints. Except autos of course> In US they will mfg and drop at dealers to help sales and absorb overhead for cost accounting purposes.

  2. Wonder when cnbc will have this guy on for an interview?

    Unmaking a Killing: Rooting out entitlement, parasitism, fraud, rapacious greed, and other guarantors of destruction

    This Marie Antoinette-style “let them eat cake” arrogance and disconnect has started to make unlikely allies out of working class conservatives and shaggy-haired progressives. This cartoonish ignorance and double-speak by an hyper-entitled class of multi-trillion dollar corporate welfare recipients is only further amplified by images of Wall Streeters pouring champagne on the heads of protesters from balconies and Republican primary contenders fawning over and defending Wall Street crimes against accountability.

    One hopes citizen voice and action only gain strength under these conditions. The most direct way to clean out rot in the system, of course, is to pursue criminal prosecutions. Those companies and individuals who profited from fraud are receivers of stolen property. Investigate, indict, prosecute, and turn state’s witness. Squeeze them. Freeze them-- their houses and other assets. Audit their Swiss bank accounts. This would send a strong message that financial terrorism will be no more acceptable than political terrorism.

  3. I can tell him what did not cause the rally thanks to retail sales:)

    Bill King on Normal Markets

    SPZ s rallied 13.75% from the pre-NYSE open low on October 4 to October 12 high. Normal markets do not rally almost 14% in 6 sessions. Normal buyers do not behave this way. Volume was lacking on the rally; there was little real buying. The compelling question is: Who forced SPZs higher and why?

  4. A Few Thoughts On The Occupy Wall Street Movement

    2012 Presidential Election

    Obama recently tried to embrace the OWS movement. I find this extremely hypocritical given his role in sustaining the very institutions the group is protesting against and his frequent trips to NY to raise some more Wall Street money for his re-election war chest.

    How about the Republican candidates? Most are dismissing the protestors even though the basic premise of the movement is a more fair and balanced (pun intended) system for all Americans. After vast injections of campaign finance money, the Repubs have come to believe that the banking industry is a much better constituent than mainstream Americans. At least the banks have money to finance their campaigns. They seem happy to ignore the circular argument that the government creates money to loan to the banks at 0% so that the banks can then loan that money back to the US government with interest and virtually guaranteed capital gains and then give some of those interest payments/capital gains back to the politicians in the form of lobbying/campaign finance funds to ensure more no-cost loans and bailouts. What a beautiful business model!

    Ron Paul, of course, gets the joke very well. But the media is working overtime to ignore Ron Paul at every turn lest the American public actually start to understand the logic of his positions. So as much as I’d love to see the guy win, I still think Ron Paul is a man ahead of his times. Rather than lead this movement from the front, I think it’s more likely that his philosophies will serve as the inspirational base for future leaders.

  5. We Will Add Another Digit to Gold Price Soon

    “Sometime in the next five or six years I really think you are going to add another digit to the gold price. $10,000, $12,000, it’s too easy to make the case. The case against (gold above $10,000) is that we go into a depression and I think there is no chance policymakers will let that happen.”

    When asked about China and their demand for gold, silver and other commodities, Leeb responded, “The Chinese don’t think in quarterly chunks. The shortest chunk the Chinese are willing to think in is five years. Usually they are thinking ten, fifteen, twenty years. You can go back to the 80’s when Deng was running the show he said, ‘Never let your enemies see your strength because then they will adapt to it.‘ It’s in China’s interest to make us believe that they are not doing that well.

    But when you actually look at what’s happening in China you get a different story. Yes you have a bubble in real estate, but by and large China’s biggest problem is inflation. Inflation is starting to come down and China is starting to loosen monetary policy and that’s a very big deal....

  6. Wait a minute- the govt is back-stopping all the
    Subprime out of Ally?

    Could you double check that can't be true!

  7. (Dave)

    It for sure backstops the debt underwritten on GM/Chrysler sales. It also guarantees the back-end residual value on the leases, so the lessor can offer the lessee an unrealistically high residual value in the lease, which creates a much lower monthly lease payment. That's why the monthly lease payments on U.S. autos looks so low.

    You can use google to do the reasearch.

  8. Yes that was a puzzling sales reort, not as good as touted. Have a great weekend Dave!

  9. Rogers even has some career advice for up and coming bond mavens:

    "I wouldn't advise anybody to buy bonds, I would advise you to
    sell bonds," he said. "If I were a bond portfolio manager, I would get
    another job."

  10. Dave, If you want an objective measure of retail sales I highly recommend you start tracking Gallup's monthly Consumer Spending Survey. I take it and adjust it for inflation and compare it to the previous year. It's been going down for most of the year in both nominal and real terms.

  11. (Dave)

    Thx for the link PW, I agree on the Gallup poll but I always forget to check the site.

    You have a good weekend too GYC. Saints should win this weekend.

    Jim Rogers is funny - he used to advise traders to learn how to drive a tractor!

    One other point on the Govt backstop of auto debt, Bruce Krasting - you can get a link to his blog on zerohedge, pointed out recently that Ford Motor bonds showed up on the Treasury balance sheet - what the hell are those bonds doing there?

  12. I think your whole strategy, and its execution, here are just awesome. Thanks for the share.

    Sample Leases

  13. Monetary reform inevitable...

    Martin A. Armstrong

  14. At the end you'll hear the disdain for gold..also good commentary on crude oil, banks,g20..

    Don Coxe
    Conference Call

  15. HOWARD DAVIDOWITZ: The Protests Are The Result Of 'Bought And Paid-For Politics, Criminals, And Morons'

    Read more:

  16. Alleged "Conservatives" Better Wake Up

    But there was one overwhelming theme: The people have been robbed, the Wall Street and DC people did it, and the people have had enough of the lies, broken promises and outright theft.
    So there you have it folks. The truth in pictures, from the ground.

  17. The whole thing is mad...

    Link if video does not play Nigel Farage: United States of Europe insane politics

    In the second interview Farage immediately corrects the interviewer on how many nations actually passed the EFSF and other Eurozone bailout agreements.

    Nigel Farage, we salute you.

  18. End Or Drastically Downsize the Fed

    Former Fed officials agree. For example, the former Vice President of Dallas Federal Reserve said that the failure of the government to provide more information about the bailout signals corruption. As ABC writes:

    Gerald O’Driscoll, a former vice president at the Federal Reserve Bank of Dallas and a senior fellow at the Cato Institute, a libertarian think tank, said he worried that the failure of the government to provide more information about its rescue spending could signal corruption.

    “Nontransparency in government programs is always associated with corruption in other countries, so I don’t see why it wouldn’t be here,” he said.

    In fact, many high-level economists have blasted the Fed for bungling virtually everything it does.

  19. Long Ties to Koch Brothers Key to Cain's Campaign

    Cain's campaign manager and a number of aides have worked for Americans for Prosperity, or AFP, the advocacy group founded with support from billionaire brothers Charles and David Koch, which lobbies for lower taxes and less government regulation and spending. Cain credits a businessman who served on an AFP advisory board with helping devise his "9-9-9" plan to rewrite the nation's tax code. And his years of speaking at AFP events have given the businessman and radio host a network of loyal grassroots fans.

    The once little-known businessman's political activities are getting fresh scrutiny these days since he soared to the top of some national polls.

    His links to the Koch brothers could undercut his outsider, non-political image among people who detest politics as usual and candidates connected with the party machine.

  20. (Dave)

    Thanks for the info/link. Cain is nothing but a clown - entertaining and nothing more. He's a neocon who has been very supportive of the Fed. He'll say anything to try and gain votes, even making statements that are in obvious contradiction to past statements he's made. The Kochs are dangerous. Anyone connected to them is a poison to democracy.

    I've concluded that Obama will be re-elected because the Republicans do not have anyone who is electable. Unfortunately, Ron Paul refuses to be a policitician and his message is unelectable. If he were at least a politician, he could sugar-coat his message with slogans and ideas that the hoi polloi can relate to.