Black Friday

Yesterday, when we described the unprecedented surge in gun sales in the aftermath of the Newtown massacre, we said that "what is most ironic, is that it is precisely the fear of forced, unilateral rejection, by either or all three branches of government, of the original constitution and its various amendments that has Americans scrambling into gun stores. And thus the closed loop nature of the problem: by threatening to take away America's guns, the government is only exacerbating a problem that is steeped in 200+ years of history and is engrained deep in American psychology." It took about 24 hours to demonstrate just how counterproductive government intervention always is: as of this moment, Bloomberg reports, Wal-Mart, the biggest retailer in the US and the world, has stores in at least five states where guns are now completely out of stock.

The markets, as most people reading this should now well know, no longer reflect in any way the true economic health of our country.  If one was to measure the financial “recovery” of this nation by the strength of global stocks alone, he would probably come to the conclusion that the collapse of 2008 was a mere hiccup in the overall success of the worldwide economic system.  However, electronically traded equities with little more to back their value than scraps of receipt paper and numbers on a screen have no bearing on what is going to happen to you, and to me, over the course of the coming year.  The stock market is a sideshow, a popcorn movie, a façade.  The real drama is going on behind the scenes and revealed in fundamentals that mainstream analysts no longer discuss...

Presented without commentary.

The world makes less sense every day. Little children are randomly slaughtered in their schoolrooms. Corrupt, bought off politicians pander to the lowest common denominator as their votes are only dependent upon who contributed the most to their election campaigns, which never end. Delusional, materialistic, egocentric, math challenged consumers (formerly known as citizens) live for today, enslave themselves in debt, vote themselves more entitlements, and care not for future generations. The alienation and isolation created by our sprawling, automobile dependent, technology obsessed, government controlled, debt financed society has spread like a cancerous tumor, slowly killing our country. The oligarchs will not give up without a fight. Their realization that the Brave New World method of controlling the masses has run its course has convinced them to shift their methods towards Orwell’s 1984 tactics.

Two critical developments give us clues that the days of Central Bank intervention holding the system together are coming to an end.

This objective one-stop-shop report concisely summarizes the important macro events over the past week.

• Turns out no free lunch after all: Greeks rage against pension calamity (Reuters)
• Athens banks told of debt buyback ‘duty’ (FT)
• U.N. Gives Palestinians 'State' Status (WSJ)
• Obama's Cliff Offer Spurned (WSJ)
• Republicans Reject Obama Budget as He Sells It to Public (Bloomberg)
• Macau Gangster Who Missed Boom to Be Freed After 14 Years (Bloomberg)
• China Economic Optimism Returns in Poll as Xi Beats Hu (Bloomberg)
• Spain May Escape European Bailout, Former ECB Board Member Says (Bloomberg)... but they won't
• After a bashing, BOJ weighs "big bang" war on deflation (Reuters)
• Recession Left Baby Bust as U.S. Births Lowest Since 1920 (Bloomberg)
• Japan unveils second Y880bn stimulus package (FT)

While the common wisdom, espoused by any and all commission-taking wealth manager looking to up his AUM, is that Black Friday sales (and the anecdotal evidence from self-referential store-owners and CEOs) can tell us about the trend in the economy or they offer some divine extrapolated insight into the year's final sales number. The truth; you can't handle the truth.  As BofAML's Michelle Meyer notes, there is no correlation between total holiday sales and Black Friday sales over the past seven years. In fact, we believe that not only are the early estimates of Black Friday sales insignificant, they can send misleading signals. More fundamentally, Black Friday sales can either signal a healthy consumer or a desperate one, depending on the state of the economy. The bottom line is that we advise fading the Black Friday sales reports, but paying attention to the aggregate holiday sales reports.

We remain in the throes of a secular era of disinflation. We also are in a long-term period of sub-par economic growth and below-average returns. This has become so well entrenched that U.S. pension plans now have more exposure to bonds than to stocks, as we highlighted two weeks ago. Look, this is not about being bearish, bullish or agnostic. It's about being realistic and understanding that in our role as market economists, it is necessary to provide our clients with information and analysis that will help them to navigate the portfolio through these stressful times. Our crystal ball says to stick with what works in an uncertain financial and economic climate — in other words, maintain a defensive and income-oriented investment strategy.

Reasons to be bullish.

The two day rally, wrapped around Thanksgiving, is hardly a surprise to UBS' Art Cashin. It’s an old pattern that he discussed on CNBC on Tuesday. What was a surprise to him was the magnitude of Friday’s move. "A bit unusual" he notes, adding that "the markets then began to buy into the Black Friday hype that filled TV screens. Mobs of people clutching all manner of electronic devices. That seemed to inspire interest and short covering in the recently depressed tech sector. That allowed the market, led by the techs to close the abbreviated session with a full flourish," but Cashin warns that this new week often starts with a rethink - as he advises a "solid skepticism about early reports... Other years, we learn that Black Friday success just cannibalized other sales. We’ll see what happens this year." Also, with over 400 microphone hunting legislators returning to Washington, the cone of silence on the fiscal cliff is probably just a memory.

• Goldman Turns Down Southern Europe Banks as Crisis Lingers (Bloomberg)
• Euro Ministers Take Third Swing at Clearing Greek Payment (Bloomberg)
• Chamber Sidestepped in Obama’s Talks on Avoiding Fiscal Cliff (Bloomberg)
• Republicans and Democrats Differ on Taxes as Fiscal Cliff Looms (Bloomberg)
• Republicans bargain hard over fiscal cliff (FT)
• Catalan Pro-Independence Parties Win Regional Vote (BBG)
• Shirakawa defends BoJ from attack (FT)
• Run-off looms in Italy’s centre-left vote (FT)
• BOJ rift surfaces over easing as political debate heats up (Reuters)
• Barnier seeks ‘political will’ on bank union (FT)
• New BOJ Members Sought More-Expansionary Wording (Bloomberg)
• Osborne May Extend U.K. Austerity to 2018, IFS Says (Bloomberg)