Radu Haraga's  Instablog

Today FED issues a statement saying that the results it expected from the trillions it spent are disappointing. Or that is the statement behind.
A comment today from FED delicately said that the US economy seemed to improve “modestly”. Well folks we all read the famous Alan Greenspan book “The Age of Unreason” and we know what this means in the FED jargon - that the economy is performing below expectations.
Of course the Black Friday weak sales are contributing to this public disappointment. After all, all the money pumped into the economy mean that FED and its backers expected a much stronger movement upwards in the retail sales. And to think a bit of it, it is a bit of a shame for the FED, which has been throwing with trilllions to the US consumers. In a classical keynesian approach, the government pumped billions into the economy and hoped that they will see some more effects than the inflation. Yes, they saw a small (less than one thousandth of an inch) movement in the consumer confidence. And a marginal increase in the consumer spending. So where did all those trillions go?
Down to drain is the first tempting answer, but the answer is not this one. These are money and noone throws money down to drain (at least intentionally). My thoughts are that those money are not pumping up only the US economy, but some other economies. And my thoughts are also that some of the money (double digits percentages) contributed to the much needed (:))) re-capitalisation of some US companies. Aka the banks, the US car manufacturers and the other strong lobbyists.
But after all, spending money isn't all a government job, right? We should help the US economy somehow, shouldn't we?!


Disclosure: No positions in the stocks involved.

The recent news on the retail sales on the Black Friday, deemed by most analysts to be the most important indicator of the sector for the whole year, advanced by 0.5% versus last year (2008),according to ShopperTrak RCT Corp.  Should this be enough to lift the retail stocks?

Black Friday is the day before the US Thanksgiving, one of hte most important holidays in the US.  This day marks the beginning of the official Christmas holiday for retailers, since the sales really start to pick up and the competition is increasing among the retailers. Some analysts define the Black Friday as the day when the retailers' P&L statements go from red (losses) to black (profits).

Huge discounts to laptops and LCD TV's attracted the usual crowds of people tryting to get an early bargain. But what is different from the previous years is the fact that the discounts given this year are much higher than in the previous years.

Many analysts are looking at this with optimism. “We’ve seen a gradual retail sales increase over the last two weeks and with Black Friday’s performance, it looks like November will be a positive month for retailers, Bill Martin, a ShopperTrak co-founder, said in the statement. “The 1.6 percent increase we originally predicted for the holiday season remains intact.” But in my opinion, this optimism is a bit exagerated.

Why? According to my zacks.com research, retail stocks are 7.51% higher than in the previous year (weighted average). Compared to a 0.5% increase in sales, it means that there will be some disappointment going around which might make the sector share prices drop. It might look as simple mathematics indeed. And some might argue that the sales are only 0.5% higher, but in real terms the increase is larger due to the discounts. Yet, I could argue that even if the discount are on an average of 40% (hardly likely), the 0.5% growth in sales could become 1% - still a large difference from the 7.5% in prices. The retail (discounts and supermarkets) stores are highly dependent on the Christmas sales and the first signs are not looking good...

Disclosure - I ahve no exposure on retails companies stocks or bonds.

The recent news that Dubai suspended the repayment of its $59 billion debt sent shockwaves through the markets. Some shockwaves were expected, others came completely out of the blue.

In the first category there are the news of the spreads widening. In the second enter the appreciation of the yen, completely unexpected. Nobody was thinking that the panic will make the yen become what it was once – a safe haven for the investors. Yet, the yen continues to trade higher and higher.

The main resource of Dubai was the oil. And the government from Dubai has to repay somehow their debts. Even in the case of default, they must repay at least partially those bonds. It means that the Dubai sovereign funds and the Dubai asset owners must pump more oil to sell on the global market. The OPEC cartel will see again a disagreement on keeping up the prices. This time, the disagreements will not come out of the traditional markets such as Venezuela or Iran, but rather from Dubai, forced to increase its oil output in order to cash in more dollars for the service of debt.

In what currency is the oil sold today mostly? Yes, you are right in USD, which means that we might see in the incoming weeks a drop in the oil prices and an increase in the USD versus Euro. I am not 100% sure how soon this will come – maybe after the first settlement of the debts and after Dubai will publish its first agreements. But I could bet some money for beer on this...

Disclosure - I do not own any stocks or bonds related to the Dubai funds, neither oil related financial assets.