Tweet me!Those companies that serve and rely on these very same consumers' ability to spend are quite sensitive to the macro environment. Notice, I said the companies, not necessarily the companies' securities - at least not yet. So, what does the macro/fundamental outlook look like? Let's glance at personal consumption over the 12 years or so...
[caption id="attachment_1389" align="alignnone" width="655" caption="Notice that the only real recovery is in the volatile energy sector, and that is not discretionary! Automobiles, clothing, furnishing, etc. are looking yucky!"]
Notice that the only real recovery is in the volatile energy sector, and that is not discretionary! Automobiles, clothing, furnishing, etc. are looking yucky!Notice that the only real recovery is in the volatile energy sector, and that is not discretionary! Automobiles, clothing, furnishing, etc. are looking yucky![/caption]
This is an interesting development, for unemployment (real unemployment that is) is still rampant. The federal government is effectively funding and financing deficit state unemployment rolls (see below for more detail). With record bankruptcies, deleveraging consumers, and rampant unemployment combined with drastic drops in consumer expenditures, guess what retail stocks are doing??? Yep, you guessed it.
According to retail stocks, the consumer is BOOMING! Credit issues are non-existent! They aren't drowning in debt (that is both the vendors and the consumers), and employment is maxed out at an all time high. Hey, we can't even spell Bankruptcy, and consumers are releveraging versus deleveraging since the banks are giving out all of those ultra low rate credit cards like candy! After all, if there is anything that the banks want to do now it is increase there credit card exposure at the same time they are allowing these Ipad-aholics to max out home equity lines in order to buy more worthless stuff!According to retail stocks, the consumer is BOOMING! Credit issues are non-existent! They aren't drowning in debt (that is both the vendors and the consumers), and employment is maxed out at an all time high. Hey, we can't even spell Bankruptcy, and consumers are releveraging versus deleveraging since the banks are giving out all of those ultra low rate credit cards like candy! After all, if there is anything that the banks want to do now it is increase there credit card exposure at the same time they are allowing these Ipad-aholics to max out home equity lines in order to buy more worthless stuff! According to retail stocks, the consumer is BOOMING! Credit issues are non-existent! They aren't drowning in debt (that is both the vendors and the consumers), and employment is maxed out at an all time high. Hey, we can't even spell Bankruptcy, and consumers are releveraging versus deleveraging since the banks are giving out all of those ultra low rate credit cards like candy! After all, if there is anything that the banks want to do now it is increase there credit card exposure at the same time they are allowing these Ipad-aholics to max out home equity lines in order to buy more worthless stuff consumer retail products!Are the Effects of Unemployment About To Shoot Through the Roof? I wrote this piece late last year, and thus far it appears to be on point.
…The Bureau of Labor Statistics reported the total number of unemployed at 15.6 million and the unemployment rate at 10% in Dec 2010. With serious doubts being raised about the reported figures of the insured unemployed that forms a substantial portion of total unemployed (nearly 69% in Dec 2010, based on reported figures), the total unemployment figures reported by the government is most likely severely understated.
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The grave unemployment situation not only undermines the economic health and recovery hopes, but is also acting as a major source of financial strain on the Fed’s books.
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The increased pressure on the Fed books can be largely explained when we look into UI programs that are currently being administered by the government. There are two major UI programs – Regular state programs and Emergency Unemployment Compensation (EUC). While the former has to be funded through tax collection by the state (with any deficit financed by the Fed through loans), the latter is 100% funded by the Fed. EUC is a Federal, temporary extension of unemployment compensation for unemployed individuals who have already collected all regular state benefits for which they were eligible. The program was started in June 2008 and was due to expire in December, 2009. The claims under the program have risen at a phenomenal rate and now accounts for nearly 50% of the total insured unemployed claims. Thus, the Fed has been financing the extension of UI benefits of those which are no longer covered under the regular state programs. As per the last reported figures as of Dec 19, 2009, while the claims under the regular state programs have come down due to the expiration of claims, the same was more than offset by the massive jump in insured unemployed under the federal EUC program. The claims under the regular state programs were down 4.3% (y-o-y) while the claims under EUC were up nearly 200% which led to a nearly 51% increase in total insured unemployed. Insured unemployed are not able to get jobs and with claims expiring under the regular state programs, they are increasingly applying to the Federal’s EUC program for extended benefits.
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Looking at the initial job claims under the regular state programs, while the markets rejoiced the decline in seasonally adjusted figure, the non-seasonally adjusted figures (which are the actual claims) continue to inch up. For the week ended Jan 02, 2010, the initial jobless claims (NSA) increased 88,000 (w-o-w) to reach 645,571. Looking at the two year trend of the seasonal adjustment does call into question the validity and accuracy of the adjustments, no?
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With the total number of insured unemployed (under the state and federal programs combined) continuing to increase as well as no respite coming from the initial jobless claims (looking at the real figures which are not seasonally adjusted), the unemployment situation is far from improving. Further, with serious questions being raised about the validity of the reported number of insured unemployed, the gravity of the situation is definitely underrated. The Fed is pumping in enormous sums of money to underpin the problem – an amount that may rival the TARP. However, with claims expiring under the regular UI state programs and the temporary aid provided by EUC expected to taper in the coming months, unemployment is going to increasingly weigh on aggregate demand and further delay the economic recovery.
Many of the retailers that we looked at are strapped for cash, cash flow sparse and/or heavily indebted. We expect to see a roiling in the fixed income markets, starting out of Europe any minute now.
Spain public finances projections_033010Part 2 of this post will deal with specific companies...
