Michael Shulman

If This Is a Recovery...

A narrow answer to the question of retail sales is the confusion among investors -- and of course, blow dried media pundits -- about retail sales and consumer spending. Government statistics on consumer spending include spending health care -- typically exempt from state taxes. Health care spending, doing very simple math, 17% of the economy or 17 into 65, the percent of the economy that is consumer spending and you can see health care spending is at least 25% of consumer spending. And expenditures are rising monthly due to medical cost inflation. You can do the math and see why retail sales are much worse off than consumer spending. And retail sales drive many kinds of employment, drive rents on retail space and so on, shipping, manufacturing and so on. Bottom line: the fall of retail sales is much worse than consumer spending in general and, in my opinion, not recover to previous levels, holding down employment, especially at the lower end go the job market. Recent surveys by ChangeWave (changewave.com) show consumer spending is flattening out. That being said, do not short the retailers, the Street continues to love them, if you want to short traditional retail, go long Amazon as I recently wrote in my service, ChangeWave Shorts (also ChangeWave.com.

Still Missing the Last Green Shoot: Jobs

Why would you suggest the other green shoots are real? All the optimism and talk of "green shoots" revolves around the new buzzword on Wall Street -- the second derivative. Optimism based on the rate of decline slowing is based on a false premise.

More importantly, I urge yo to read publicly available data and take a look at mortgages, when they were let, when they reset and the slope of their defaults. Simple math says peak mortgage resets occur in July of 2011; the same math then puts peak defaults 305 months later; peak foreclosures 3-5 months after that; and peak additions of foreclosed homes to housing inventory 3-5 months after that. Translation - no stability in home prices and therefore consumer confidence until late 2012/2013. An exaggeration? The Fed's own data shows 95% of homeowner equity was wiped out in the past 2.5 years.

The Anti-Stock Rhetoric Is Overblown

John:

C'mon, John, you are one of the smartest men I have met in our business with little ego and a true concern for clients. You are talking markets, and markets alone -- what about economic fundamentals? They are weak to bad to terrible,l depending on your industry and where you live, and they are getting worse. Bulls continue to emphasize the "second derivative" -- the rate of decline is slowing -- is that a reason to think things are getting better? And your historical analyses did not include one simple fact -- markets always regress to the mean of corporate earnings, and they are going down and even though the market may not stay there, the market has to do this, based on HISTORICAL comparisons, so that means an S+P 600 or much worse.

Let's argue this over drinks at the Money Show in Las Vegas, if possible.

Michael Shulman