All bets are off.
A broad look at the political and economic consequences of the govt shutdown.
While the specter of the debt ceiling debate continues to haunt the halls of Washington D.C. it is the state of retail sales that investors should be potentially focusing on. While the latest retail sales figures from the Bureau of Economic Analysis are unavailable due to the government shutdown; we can look at other data sources to derive the trend and direction of consumer spending as we head into the beginning of the biggest shopping periods of the year - Halloween, Thanks Giving (Black Friday) and Christmas. The recent downturns in consumer confidence and spending are likely being exacerbated by the controversy in Washington; but it is clear that the consumer was already feeling the pressure of the surge in interest rates, higher energy and food costs and stagnant wages. As we have warned in the past - these divergences do not last forever and tend to end very badly.
Stock market now held up by its one and final prop, a jerry-rigged, haphazard device with destructive side effects.
- Dot Com part deux: Investors are showing increasing hunger for initial public offerings of unprofitable technology companies (WSJ)
- Poll Finds GOP Blamed More for Shutdown (WSJ)
- House, Senate Republicans Offer Competing Plans on Debt-Limit, Government Shutdown (WAPO)
- Obama, Republicans aim to end crisis after meeting, hurdles remain (Reuters)
- US Rethinks How to Release Sensitive Economic Data (WSJ)
- Chinese East Oil Fuels Fresh China-US Tensions (WSJ)
- ECB Agrees on Swap Line With PBOC as Trade Increases (BBG)
- China September Auto Sales Surge 21% on Japanese Rebound (BBG)
- JPMorgan Taps Taxpayer-Backed Banks for Basel Rules (BBG)
Argues that despite the growth the of the state in response to the crisis, what characterizes the current investment climate is the weakness of the state. This asssessment is not limited to the US, where the federal government remains partially closed.
Technically, the dollar is looking a bit better. Here is our assessment.
Just a month ago, we were exuberantly told that the 14.7% rise in August sales for GM (against an expectation of an 11% rise) was not just great news but was entirely sustainable. Some suggested that this was merely demand dragged forward as rates rose, dealers channels were stuffed, and the vinegar strokes of an exuberant Fed were occurring. Today we have our answer...
- *GM U.S. SEPT. VEHICLE SALES FALL 11%, EST. DOWN 4.2%
- Inventory up to 82 days from 64 days!! (Surge to 670,191 units from 628,644 prior)
We are sure that weather played a role; the calendar didn't help; government (Republicans) are probably at fault somehow; and it's a 'blip' but it seems like quite a miss for a "sustainable" new normal in auto sales.
Dispassionate overview of the key factors shaping the investment climate in the week ahead.
Not just “softness in the female business”
With interest rates rising and now clearly weighing on the housing recovery (and affordability, as we noted earlier), many look at the extreme jumps in auto sales being pumped out today and worry that higher rates will impact that credit-fueled orgasm of optimism. While house price appreciation and belief in its linear extrapolation seemed to have prompted an inordinate amount of fed-funded credit-based car sales in the last month, the fact is that rates won't 'directly' affect car-buyers, since as CNBC's Rick Santelli exclaims, auto-loan rates are massively high already with millions paying high double-digit rates and terms are now as long at 97 months!! Simply put, with incomes stagnating, should we see any marginal impact on ability-to-pay or credit-availability (which will be affected by higher rates weighing on funding abilities - see below), then as Santelli concludes, watch out for these little words... "Auto Sub-prime loans."
"In the spring, the risks to growth seemed to be fading. The economy was weathering the fiscal shock. Politicians decided to delay battles over the budget and the debt ceiling, passing a continuing resolution to fund the budget through September and postponing the debt ceiling drop-dead date to some time in the fall. Meanwhile, financial markets in Europe had settled down, the European economy showed signs of improvement, and commodity prices were stable. In their June directive the FOMC made it official: “The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall.” Unfortunately, we seem to be entering another of those periods of elevated risk. Three concerns are emerging."
- Bank of America
Early-year tax increases and higher gasoline prices have probably dented U.S. consumer expenditures and as Bloomberg's Joseph Brusuelas notes, tomorrow's report of July’s personal income and spending report may illustrate the weakness that poses a significant risk to the much-anticipated economic growth renaissance in the second half of the year.
A quiet week to send off August ahead of a deluge of key data next week and as the fateful Septembr 18 FOMC announcement approaches. Still, quite a few macro events to keep track of.
- Low Wages Work Against Jobs Optimism (WSJ)
- Tourre’s Junior Staff Defense Seen Leading to Trial Loss (BBG)
- Russia gives Snowden asylum, Obama-Putin summit in doubt (Reuters)
- Fortress to Blackstone Say Now Is Time to Sell on Surge (BBG)
- Brazil backs IMF aid for Greece and recalls representative (FT), previously Brazil refused to back new IMF aid for Greece, says billions at risk (Reuters)
- Google unveils latest challenger to iPhone (FT)
- Swaps Probe Finds Banks Manipulated Rate at Expense of Retirees (BBG)
- Academics square up in fight for Fed (FT)
- Potash Turmoil Threatens England’s First Mine in Forty Years (BBG)
- Dell Deal Close but Not Final (WSJ)