Denis Ouellet

Retailers' same-store sales fell for the 12th straight month (I, II, III, IV, V), but results at Target (TGT +1.4%), Kohl's (KSS +1.5%) and Gap (GPS +5%) topped analyst expectations. Weak spots included Abercrombie & Fitch (ANF -3.8%) and Family Dollar Stores (FDO -8.4%). Still, the decline was smaller than July's. SPDR S&P Retail ETF (XRT) is +0.5% to $31.36.

Your post is a bit misleading mixing same-store-sales numbers with total sales numbers. For an accurate and graphical illustration of SSS see www.news-to-use.com/20...

Retailers' same-store sales fell for the 12th straight month (I, II, III, IV, V), but results at Target (TGT +1.4%), Kohl's (KSS +1.5%) and Gap (GPS +5%) topped analyst expectations. Weak spots included Abercrombie & Fitch (ANF -3.8%) and Family Dollar Stores (FDO -8.4%). Still, the decline was smaller than July's. SPDR S&P Retail ETF (XRT) is +0.5% to $31.36.

For the record, personal income is -2.4% yoy as of July. For complete and accurate numbers see www.news-to-use.com/20... at www.news-to-use.com/


On Sep 03 10:16 AM ETFdesk.com wrote:

> Retailers look enourmously overvalued. Personal income is down 5%
> or so from this time last year and the only modicum of growth in
> spending has come on the heals of huge gov. incentive programs ie
> clunkers and the 1st time home buyers credit. They are enough to
> provide some slight up turns in housing figures and maybe positive
> print in Q3, beyond that it looks like the only thing that can only
> be done by that huge 70% chunk of GDP which is consumer spending.
> And that doesnt seem very plausible. If you need more reading on
> the subject see a number of great articles on deflationary environment
> ....
>
> Cut my pay ... please! ; www.etfdesk.com/headli...
>
> Unemployment: The Harder You Look, The Uglier It Appears From Naked
> Capitalism ; www.etfdesk.com/headli...
> First Time Home Buyer NAR Numbers : www.etfdesk.com/headli...

Meanwhile, out in the real economy ... Rail traffic is still down 17.9% from a year ago, and the Pragmatic Capitalist says any better-than-expected verdicts are due to overly pessimistic analysts.

I look at the weekly trends and they are looking up. Total weekly carloads and the 4-week moving average rose to their highest levels since March and, significantly, weekly intermodal traffic reached its highest level since January.
See my chart at www.news-to-use.com/20...

North American and European Bank Rankings

Ask anybody at Citigroup for the recipee!

Retail chain store sales rose 0.3% from a week ago, ICSC says, and rose 0.5% Y/Y.

The 4-week MA has flattened by mid-May but sales have picked up in the first 2 weeks of May after declining post Easter. April retail sales will be released Wednesday and they should be up ex-cars, ex-gasoline since chain store sales rose 1.2%.

Look at the chart at www.news-to-use.com/20...

Chain store sales rose 0.1% in the first week of May, Redbook says, and rose 0.3% Y/Y. Warm weather helped stores sell horticultural products, apparel and other seasonal items. (previously: ICSC retail sales)

The 4-week MA has flattened by mid-May but sales have picked up in the first 2 weeks of May after declining post Easter. April retail sales will be released Wednesday and they should be up ex-cars, ex-gasoline since chain store sales rose 1.2%.

Look at the chart at www.news-to-use.com/20...

The latest stress-test rumor: Wells Fargo (WFC) will need to raise money to short up its finances. Wells Fargo holds billions in mortgage, construction and credit-card loans, which stress tests consider particularly vulnerable. WFC +7.8% to $21.17.

The Financial Times had its own rumor this morning

"Citigroup and Bank of America are working on plans to raise more than $10bn each in fresh capital, even as they launch last-ditch attempts to convince the US government they do not need to bolster their balance sheets."

One of these two rumors is false. If WFC is asked to raise money because its stress test shows that the bank would not survive a deeper recession, then C and BAC would be asked to raise substantially more than $10B each under a similar scenario.

My bet is that the AP rumor will not bear out.

National Debt: A Chinese Stress Test

The gist of the comment was on the growing national debt and its significance for each American. The Chinese part was written with tongue-in-cheek given that China has been the primary buyer of US Treasuries for quite some time.
The title was Seeking Alpha's and not one I would have personally chosen (My post title in news-to-use.com was somewhat marktwainish: "My Poor Fellow Americans")
Thanks for reading me and for your comment


On Apr 26 04:26 PM ArtfulDodger wrote:

> Mr. Denis Ouellet:
>
> How is it that you figure most of the debt in 2019 will be to the
> Chinese?
>
> At this time, the Chinese have about $700b in treasuries and another
> $300b invested in the US.
>
> The US national debt is something on the order of $11.2t. (zfacts.com/p/461.html)
>
>
> How is their current paltry percentage going to grow to a majority?
>
>
> Perhaps you should have used a subjunctive.

The recovery's coming sooner than anyone - even the president - expects, Investor's Business Daily says. "Virtually all the data now out show either a bottoming or slight upturn in activity. As the year goes on, that will gather steam."

This IBD editorial, bold and upbeat in its forecast, is unfortunately pretty shallow on facts.

Wells Fargo and Goldman Sachs reported better than expected earnings this week but not “record earnings” as IBD writes. GS reported $3.39/sh in Q109. It earned $7.00 in Q4. JP Morgan, one of the better banks in the current crisis, earned $0.40/sh in Q109, considerably less than the $1.37/sh it earned in Q107.

On the economic front, “less bad” data can be seen positively but it remains “bad”, especially when the numbers are so depressed like they currently are.

Saying that industrial output fell “largely because businesses late last year panicked” is a flagrant distortion of the reality. We could have a production bounce to restore low inventories, but not before sales start to show some improvements and credit gets flowing more freely.

Consumer prices declined yoy in March and it is true that lower oil prices were a major factor. But even core CPI would barely have risen m/m if not for an 11% tax-related rise in tobacco prices. From February to March, food, housing and apparel prices declined on a seasonally adjusted basis.

While there will certainly be a recovery sometime down the road, and probably a “bounce back” soon, it is far from certain that “as the year goes on, that will gather steam”.

The housing market, where it all started, remains very weak. Foreclosure activity is picking up again which will likely continue to pressure prices.

Employment is admittedly “less bad” but the sheer number of newly weekly unemployed is scary.

Consumer spending has held up better than many expected in 2009, after a miserable Q408. But real wages are dropping yoy, at a time when consumers are over-leveraged and credit is very constrained. Where will the money come from? Certainly not from the Stimulus Package which adds about $10 per week to the pay check! The respite from falling gasoline prices is significant but will be fading away during the year.

The IRS reports that individual refunds were up 15% to $210 billion through April 3, 2009. Many taxpayers filed for refunds early this year, but this will peter out soon. In addition, comparisons with 2008 will soon get tougher as personal disposable income was boosted by $91 billion in May and June of 2008 from President Bush’s stimulus plan.

In all, we all hope for the best and I have been writing about how a cheap market can get a lift from “less bad” news (www.news-to-use.com/20...) However, to say that we are out of the woods and that by summer the recovery will be clear and sustainable is a stretch that facts currently do not support.

news-to-use.com

Goldman Sachs (GS) mulls a multibillion-dollar share offering as part of an effort to repay its $10B TARP loan. Execs privately say GS doesn't need new capital to repay the government (it holds an impressive $111B in cash and equivalents), but a successful offering would signal its financial health.

When you have $111 billion in cash, do you need to “signal your financial health”? To me, selling equity at book value while diluting shareholders by 20% when you have that cash on hand is a signal that you expect worst things to come.

Wharton's Jeremy Siegel revisits his controversial dispute of S&P 500's earnings measurements. After dismantling a "flawed" response from S&P's David Blitzer, Siegel concludes, again, that "the true valuation of the market is no where near as dismal as the aggregate earnings reported by S&P suggest... the market is cheap by historical standards."

Professor Siegel is right. See my post S&P 500 INDEX PE AT TROUGHS: A DETAILED 80 YEARS ANALYSIS at www.news-to-use.com/20...

Roubini: "Dear investors, do enjoy this dead cat bounce and bear market sucker’s rally..." but, "don’t wait too long until you jump ship while the financial Titanic hits the next financial iceberg; you may get squeezed and crushed in the rush to the lifeboats."

Professor Roubini is long on words and short on facts in this very long epistle. Look at my post today for the facts that Roubini has conveniently ignored or minimized:
www.news-to-use.com/20...

Retail chain store sales increased 0.2% from a week ago, ICSC says, and declined 0.9% Y/Y. "Given this, ICSC Research expects same-store sales for March will be flat to down by one percent from the same month of the prior year."

This is important and good news since these are the first stats we get on March retail sales in the US. After a tough January, chain store sales picked up in February and have held up well in the last 2 weeks.

Look at my chart:

www.news-to-use.com/20...

S&P 500 Valuation Analysis: Near Bottom

Thanks for reading me and commenting. Very good points.
On points 1 and 2:
Over the years, the composition of the Index and the weighted sources of earnings have varied considerably. International earnings are certainly higher than 50 years ago and they may be more or less impacted by relative economic growth and exchange rates. It is fair to say that globalisation and floating exchange rates make earnings estimates more iffy. This is why earnings are the main risk factor here. I wrote on earnings March 2 (www.news-to-use.com/20...) where you will see that Financials are not expected to contribute much to S&P 500 EPS for a while. I put more weight on profit margin analysis to assess high-low ranges in forward earnings.
On your 3rd point, I think that investors do indeed get all the facts and a whole lot more which only serves to bury the facts, hence my blog "News to Use". I do not believe that markets will ever get more efficient given that human beings will always be human beings. What did we learned from the tech bubble, just a decade ago? Gustave Le Bon's "The Crowd" published in 1895 remains the authoritative book on equity markets. Le Bon believed that "by the mere fact that he forms part of an organised crowd, a man descends several rungs in the ladder of civilization. Isolated, he may be a cultivated individual; in a crowd he is a barbarian - that is, a creature acting by instinct. Le Bon thought that crowds were influenced by a process called contagion. Contagion refers to the process whereby irrational and violent feelings can spread through the members of a crowd.Le Bon states that crowds are primitive and irrational. Because the individual member's of the crowd become submerged within the mass present, they develop a sense of anonymity whilst they lose their sense of responsiblity. Within this context, primordial instincts come to the fore. Crowds are inherently susceptible to suggestion, and thus it is easy for the leader of a crowd to unlock what Le Bon called "ancestral savagery", and have the crowd act in violent ways."
Mar 09 10:49 AM RiskReturnOptimizer wrote:

> Excellent analysis. Few comments / questions:
>
> 1. Historically (in previous trough PE periods), companies in S&P
> 500 derived much less of their profits from outside of US. How can
> we best adjust the going forward earnings power of S&P 500 as
> economies outside of US (particularly Europe, Japan, UK, etc) are
> in much worse shape than US?
>
> 2. The trailing 10 year earnings of S&P 500 had (implicitly)
> the unrealistic financial leverage (40:1) in Wall Street and unsustainable
> consumer balance sheet leverage (historical high debt service burden).
> Going forward, what is the "right" assumption for these leverage
> factors ... this will be key in projecting future earnings for several
> of the models mentioned above.
>
> 3. In past severe bear markets ('70s, early '80s), information (such
> as your analysis) were not available to the general public (before
> the internet days) -- maybe some high net worth investors had access
> to them through expensive brokers. As more and more "mass market"
> investors as now getting all the facts and making their own decisions,
> it is possible that the markets are more efficient, and thus the
> smart money that is still in the market will not let stock prices
> drop to the "bottoms" being widely circulated. In other works, big
> money enters the market to prevent the "bottom" from ever being reached.

SSS #5: Nordstrom (JWN) -15.4% vs. -14.7%. BJ's Wholesale (BJ) +0.6% vs. +1.1%.

You got BJ's SSS total sales. Ex-Fuel is a fairer data since fuel prices are so volatile. Merchandise SSS are up 8.2%.