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Consumer Stocks Imploding as Common Sense and Simple Mathematics Start to Take Hold

Submitted by Reggie Middleton on 07/20/2010 01:09 -0400

A BoomBustBlog reader sent me this in the mail last night and I
thought I would share it with the community. I feel it is also worth
taking a refresh of the consumer sector research that we released a few
months ago…

Reggie:

I took a screen shot of my play money
account and the shorts from the four part series on why the consumer
isn’t coming back. Consumer retail has been nailed since May and from
the 4 stocks you picked, here are two I chose to follow.

This is an example of exactly what we were talking about in our
subscription documents regarding the ridiculous run up in consumer
discretionary shares when taken in context of the American consumer
and the stress born from the Pan-European Sovereign Debt Crisis (click the link
for our detailed analysis). You can find the earlier articles in this
consumer mini-series as follows:

What
We’re Looking For To Go Splat! Part 1: macro arguments against the
spike in retail stocks
What
We’re Looking For To Go Splat! Part 2: A list of 147 retail stocks
with attributes that causes on to question their gain in prices, with a
shortlist of companies who may very well go “splat”!
Is
the Consumer Really Back? Well, It Depends On If You Believe What the
Government Tells You or Whether You’re An Indendent Thinker – The
American Recovery and the North American Economic Outlook.
The
American Recovery and the North American Economic Outlook

Those looking to subscribe should click here. Next up, Reggie
Middleton takes a Big Byte out of Apple!

- advertisements -

Tue, 07/20/2010 - 17:24 | 479746 baldski

Reggie: Can Mish Shedlock lay off his Anti-Union rants for a change. Everyday he's bashing some union or other. Did some union not give him a job? or maybe one of his relatives?

Does Mish know where the 40 hour week came from? Pensions? Health care? Overtime? Unions! Or does he want to be one of the oligarchs corrupting the democratic process with money. Does he want to be an earl or duke? or maybe just Mish the V or the VI? Does he want some serfs on his plantation mowing the lawn or planting the cotton? He wants to get rid of all unions and the minimum wage to go to $1.50. I guess then ole Mish Shylock would be happy!!!!!

Wed, 07/21/2010 - 03:50 | 480452 i.knoknot

and you are asking Reggie... to censor Mish... why?

calling names... sigh. you guys have no idea how it detracts from your possibly valid points.

generally the unions, (esp. public sector, with their taxpayer guaranteed "better than the average person's pension"), are not sharing in the overall reduction in economic circumstance. for this reason, many believe they suck - in both senses of the word. it's pretty hard to argue that perspective right now.

tnx reggie - another good read.

Tue, 07/20/2010 - 12:46 | 478950 Blues Traveler

Like I said yesterday, my cpa set me up with a girlfriend of hers: blond with gianromous fake boobs, a leased hummer wearing a rolex who is recieving unemployment....life style is the last to go. When a person loses their perceived quality of life, that is when despair sets in and behavior such as buying positional goods.

Tue, 07/20/2010 - 15:44 | 479390 Chicago bear

When the middle class falls to the lower class, then there is revolt! Savage's book title is telling: Trickle Up Poverty. People will deny that their status is falling for awhile, charge card to their comfort, default on debt, and revolt against the only politicians left - probably whomever the Dems let win (the velvet glove method) this Nov and TBD Mr. President in 2012. What a wonderful image.

Tue, 07/20/2010 - 15:36 | 479368 i.knoknot

+++ bt

considering human nature...

i would gander that consumerism goes *up* right before the 'buffet' is taken away.

short-sighted, but quite predictable.

Tue, 07/20/2010 - 11:58 | 478848 Diamond Jim

Is the gov't using credit or just plain printing $$$$

Tue, 07/20/2010 - 11:57 | 478846 the grateful un...

you need to wonder when the iphone fad will collapse, and some who think the iphone is as necessary to this generation as the model T was to our grandparents. the model T changed the way people work. it created a mobile workforce, something Greenspan lauds in comments. what does the iphone do? if you could figure out how the iphone helps the economy you could make some good investment decisions.

Tue, 07/20/2010 - 14:48 | 479214 RichardP

If you could figure out how the iphone helps the economy you could make some good investment decisions.

The Feds are pushing doctors to go paperless with Electronic Medical Records systems. The Feds will even help pay for the systems when doctors jump through the correct hoops over the next five years. Since doctors move from patient to patient, they access the EMR by carrying a laptop with them. An iPad-like device is going to take over this function. Cisco sees the potential and has recently announced plans to build such a device for such a purpose. If it is done right, it will be a big hit over the next five years. Not sure how that will translate into stock price for Cisco - but other (smaller?) companies are sure to follow Cisco's lead??

Tue, 07/20/2010 - 11:27 | 478786 mdwagner

How much do you think government borrowing is affecting business and consumer borrowing, other than the uncertainty caused by massive government debt? Is there really a lack of credit available because the government is using up most of it?

Tue, 07/20/2010 - 15:39 | 479379 Chicago bear

There is a lack of credit available because the government is using up the loan purchase market. Used to be that private buyers would buy loans from the front lenders. Now no one other than the gov't buys loans from local banks. So local banks just refer new business to guys who essentially translate government requirements into business requirements. If a potential borrower fits, then proceed to next step. if they do not fit, stop project, no loan gets created. Some potentially good loans that do not fit the government standards (i.e. entrepreneurial pursuits) go without funding. All the gov't standards look nice to the populice yet have no workability to entrepreneurs.

Tue, 07/20/2010 - 11:21 | 478776 DoctoRx

Agree re many comments. I have been in touch w the head man at Consumer Metrics. He stated that the current "Weighted Composite Index" readings under 93 did not happen many times even in 2008 (it dipped under 92 today). And the current 2010 slowdown curve is about to do a "death cross" and go below the 2008 slowdown curve, which was below the zero line but rising around this duration into the downturn. In other words, the current slowdown is about to have lasted longer in the downphase than the 2008 one.

Re JR, nice he mentioned GNP, which is really a more important measure of national well-being than GDP. Part of the many distortions the Govt has introduced was the move to GDP from GNP for public consumption.

Tue, 07/20/2010 - 09:30 | 478527 RockyRacoon

I suppose at some point the "consumer is 70% of the real economy" theme has got to be adjusted to some actual number. Anyone got the adjusted number at hand?

Tue, 07/20/2010 - 15:34 | 479360 i.knoknot

+++

ditto on that one. i've assumed that was a pre-2007 number. not sure how it would fare in a 50 year moving average.

right now, with MaObama at the helm and the effective consumer shutdown, i would gander 40-50% from the gut.

reversion to the mean? not to 70%, methinks

Tue, 07/20/2010 - 16:15 | 479546 RockyRacoon

Maybe it correlates to a 14,000 DOW as well.

Some revision may be in order!

Wed, 07/21/2010 - 03:53 | 480454 i.knoknot

sadly the implication is the gub'mint is picking up percentage points for the consumer's loss. scary.

Tue, 07/20/2010 - 13:28 | 479053 Steaming_Wookie_Doo

Remember when citizens were actually considered Producers first, Consumers second? Now a "Producer" is some twit working at GS, grinding down the remnants of your retirement portfolio.

Tue, 07/20/2010 - 15:36 | 479366 JuicedGamma

When I said similar things with regards to high frequency trading to a friend, he said I sounded like a hippie. I don't think he got that the profits in high freq are coming out of his 401k.

Tue, 07/20/2010 - 11:17 | 478765 seventree

That thought occurs everytime I see that number quoted, which seems to be accepted as gospel by mainstream writers, and contrarian-cranky fringe bloggers (you know who you are!) without hesitation. Not having a PhD or (or even a night school certificate) in economics, I figured it was just me.

Tue, 07/20/2010 - 09:57 | 478557 DaveyJones

the consumer is 70% of the real economy and 1% of the real government. I thought there was power in numbers

Tue, 07/20/2010 - 09:25 | 478520 palindrome

A "sleeper" site with what I feel to be the best gauge of consumer spending and hence, GDP. I check it religiously every day: http://consumermetricsinstitute.com/

Tue, 07/20/2010 - 12:14 | 478887 DaveyJones

it is a cool site, thanks too

Tue, 07/20/2010 - 10:59 | 478725 Lucky Guesst

Thanks, good site.

Tue, 07/20/2010 - 09:13 | 478500 dhfry@yahoo.com

The problem with XLY for example is heavy weightings in DIS, MCD, F, KO and etc whereas XRT is more chain store focused and perhaps better represents what we would think of as our little friend Chucky the Consumer you can't kill.

Tue, 07/20/2010 - 09:01 | 478486 duo

Does not several million people not making mortgage payments free up cash for Skechers, iStuff, and flat screens?

Tue, 07/20/2010 - 08:30 | 478439 williambanzai7

Have you tried listening to this?

http://williambanzai7.blogspot.com/2010/07/music-for-economists.html

Tue, 07/20/2010 - 07:53 | 478399 Grand Supercycle

XAUUSD / XAUEUR / XAUAUD bearish warnings issued since July 1 continue . . .

http://stockmarket618.wordpress.com/about

Tue, 07/20/2010 - 12:49 | 478963 Blues Traveler

Grand, what is up with the new Avatar????

Tue, 07/20/2010 - 07:47 | 478396 Rick64

Maybe its my lack of academic economic training, or that heavy dollop of common sense.

These are the reasons you are head and shoulders above the rest.

Tue, 07/20/2010 - 08:47 | 478450 Iam_Silverman

Sometimes a lay persons view of the situation is the most accurate one. How many doctors ignore signs of serious disease in themselves, but could diagnose it in a patient with minimal testing?

The same goes for the average person on Main Street. We are not blinded by the charts, indexes and platitudes of others whose sole means of existence depends on a rapid market turnaround.

Tue, 07/20/2010 - 04:08 | 478340 Mish

I really went after these guys

Miller was critical of ZH, the WSJ, me and others while defending the ECRI

ECRI Weekly Leading Indicators at Negative 9.8; Has the ECRI Blown Yet Another Recession Call?

http://globaleconomicanalysis.blogspot.com/2010/07/ecri-weekly-leading-indicators-at.html

Mish

Tue, 07/20/2010 - 08:50 | 478455 Iam_Silverman

Wow - all of that formatting language makes your message seem hidden, or worse, lost.

Sorry, just an untrained mind that is easily distracted!

Tue, 07/20/2010 - 07:40 | 478395 Reggie Middleton

Maybe its my lack of academic economic training, or that heavy dollop of common sense, or maybe I'm ust plain stupid, but I don't think its possible for a double dip recession becuase we have yet to ORGANICALLY emerge from the previous recession! Technically, yes, GDP has grown but if one were to strip away federal government and CB demand and asset bids, it all looks extremely negative to me. In order for one to emerge from recession, at least to this lowly layperson, one needs increasing demand for goods and services and an availability of credit and capital to those who can (and are willing to) actually make use of it, among other things consistent with growth. All I have witnessed was the government being either directly or indirectly the only bid under risky assets, and the lender of last only resort.

Anyway, for those who don't follow Mish Shedlock, he is a very astuste commentator, and the article he linked to on his site is worth the read and should be discussed. He presents a compelling case. It appears that the ECRI index is just fine in showing we are coming out of a recession, but if it the index gives the perception we are going to double dip then it is a misintperpetation to read it light of a recession/recovery indicator.

In other words, BUY! BUY! BUY! James Cramer 2.0: the government bureacrat and academic edition!

Tue, 07/20/2010 - 13:54 | 479101 deadparrot

The phrase "double-dip," when used by the media, refers to the stock market, not the real economy.

Tue, 07/20/2010 - 11:07 | 478745 JR

GNP is deceptive—

Interesting, isn’t it, that GNP growth can result even if it profits only a few people, say a Buffett or a Gates or the owner of a giant, government-connected company, while the majority of the population stifles in debt with 22% unemployment (adjusted to pre- Clinton [1990] methodology by SGS) vast underemployment; college graduates without job opportunities because of outsourcing by the internationals; a manipulated market that benefits rich insiders; stripped down homeowners, savers, small businessmen and wage earners...

Yet, statistically it’s economic progress.

Add that to the Fed’s and BLS’ manipulated GNP, and it equals lowered living standards as Americans are lockstepped down the road to global empire. Unless, of course, they refuse to march...

Thanks for the signposts, Reggie.

Tue, 07/20/2010 - 09:14 | 478504 mikla

Tue, 07/20/2010 - 10:31 | 478630 LeBalance

Let's play that same logic game going back in time and see how far back the crisis was from which we did not emerge completely supported by Uncle Sugar and his merry Fedmen.

Consumer Stocks Imploding as Common Sense and Simple Mathematics Start to Take Hold

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