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I love this headline: Retail Sales Unexpectedly Drop in August.

Oh really? Not unexpected here.

Remember folks, facts mean nothing in this market. The thesis is, as gasoline drops and people get $15/week more in their pocket the entire economy comes back. If you doubted that, your stock portfolio took damage (hi, that's me). If you doubted it they laughed at you. If you shorted those stocks you were pummeled. Who cares about facts? We have a thesis and we plan to keep running up retail stocks in spite of common sense and facts.

So I can't tell you what retail stocks will do in the next day, week or month anymore because everything in this market is detached from reality. Perception is Reality. I keep repeating that. It does not matter if people have this wrong - they keep running up the stocks on perception. Housing stocks run up day after day, along with the whole housing complex on the "imminent rebound". Gas drops 50 cents and that solves all the consumer ills - retail stocks go up day after day. Does it make sense to me? None. But I've been punished laughing it off.

Anyhow, I just wanted to point out the "facts" - even the government reports are agreeing with the retail companies themselves who are seeing weakness across the board. But don't worry - we cannot let facts get in the way of a sector rotation. From AP article, my comments in italics.

  • Frugal shoppers cut back again in August, driving down sales at the nation's retailers for the second month in a row, further proof the economy is losing traction. (But gasoline prices dropped off a cliff - why is there not a rebound in the frugal shopper?) The Commerce Department reported Friday that retail sales dropped by 0.3 percent last month. Economists expected sales to rise by 0.3 percent.
  • Sales in July also turned out to be even weaker than previously thought, falling by 0.5 percent, the worst showing in five months. (Yes, but that is backwards looking data - and gasoline prices were high. In August they fell, so clearly the consumer will be back. Wait, we did not see that in August. Did I say August? I meant the consumer will be back in September - my hedge fund computer told me so. And if the data comes in weak in September, I'll point to the seasonally strong holiday season as a reason to run up these stocks on more hope)
  • Rising unemployment, strained household budgets and falling home prices -- which make homeowners feel less wealthy -- are making shoppers more cautious. (But gas prices went down - don't you understand our thesis? That offsets all those factors and the consumer is coming back!)
  • Stripping out auto sales, which were strong in August, sales at all other merchants fell by 0.7 percent, the worst showing since December. That figure also was sure to disappoint economists, who were calling for a smaller, 0.2 percent dip.
  • Sales fell at electronics and appliance stores, clothing shops, building and garden stores, and department stores. Gasoline sales also dipped as prices retreated. Sales at furniture and home furnishing stores were flat. Those losses swamped gains elsewhere, including auto dealers, sporting goods, books and music stores, grocery stores and health and beauty shops.
  • Last week, many stores reported weak sales for August. The few bright spots: Wal-Mart Stores Inc. (NYSE:WMT), the world's largest retailer, and Costco Wholesale Corp. (NASDAQ:COST), where shoppers focused on low prices. (I don't deal in facts like that - I deal in thesis - Sincerely, HAL9000)
  • Even the recent drop in gasoline prices, which reached a record high in mid-July of above $4 a gallon, didn't entice shoppers to splurge last month. Prices still remain high and costs for many other things are going up, taking a bite out of paychecks. (Would you please stop with that... clearly the extra $15/week is creating a boom elsewhere - why don't you get with the program??)

So again, folks - the rebate checks helped goose the consumer in the spring/early summer and made the economic data look a lot better than it was - that's what stealing from our grandkids will do. The fashionable thesis now is, as gasoline drops all our national ills are solved - who cares that true unemployment (plus underemployment) is mid teens and true inflation has been running 8-15% (pick your poison). Or that the consumer who has used the house for an ATM is now locked out. Or that credit card cards are cutting back limits so consumers are locked out. We don't use rigorous thinking here with our 87 MBAs and 102 CFAs at our hedge fund. We go with the simplest connections aka 2nd grade thinking.



Equation: Gas prices drop = rebound in consumer across the board. Buy consumer stocks. The consumer is back.



And if you show us facts to the contrary we say "that is backwards looking and if you look ahead 6 months you will see we are right."



So we'll see you in 6 months (February 09) when this is the worst Christmas season in many many years. Heck maybe every consumer stock will be up 100% from here on the "summer 2009 rebound" by then.



Again folks, this is why I simply cannot stomach this market right now. I lose money using facts - every week now, it seems. I am losing to people using thesis. Thesis based on hopes and dreams. So it's not a market for me at this time and why I continue to build cash. I only hope one day the people who are buying recklessly on nothing more than theories lose their shirts. Or else the casino has become a useless entity completely disassociated with using your brain, and simply chasing in pack behavior following hopes. That is what it appears to be to me.



Now aside from that, we have a Sunday night "government arranged marriage" in the financial sector to deal with (wait, we just did that last week - that's ok, this is a new Sunday!) so it's time to run up stocks in anticipation of this since the economy is on sound footing, facts no longer matter, and if we look ahead 6 months everything is hunky dory. Most importantly the government will solve everything.

Source: Retail Sales Report: Do Facts Mean Nothing?