主题：04/14/2009 Market View -- 宁子

Retail Sales Disappoint by a Long Shot.

March gets people thinking of spring and renewal, and when the March results come in April and right around Easter the sense is even stronger. Thus the anticipation of a positive turn in retail sales given the January surge to almost 2%.

It was all premature retail expectation. March sales fell 1.1% versus the 0.3% gain expected. That doesn't jibe with the recent same store sales results but when most of those are weighted by WMT and WMT has a bad March, sales suffer. Recall that WMT March sales significantly missed expectations. There you go.

What was overlooked is that February's -0.1% reading was revised higher to +0.3%. After six months of plunging sales two back to back positive months is not bad even if March tumbled. And from what we are seeing, March could very well be revised higher. Typically what happens is that revisions rule. In other words, revisions are simply more accurate data versus the early results that are half data, half assumptions and speculation about what happened.

So we could see some upside revisions next month but from -1.1% those would be some hellacious revisions to get to positive. The March declines were broad with all areas but the staples in food and beverage (+0.5%) and health/personal care (+0.4%) posting losses. Again, it would require some hefty revisions to turn this pig's ear into the silk purse or even naugahyde for that matter.

That leaves speculation as to whether the 2-month increase was just a blip in an otherwise ugly downtrend. Of course, until the Tuesday data it was just a one-month blip to the upside with January riding Lone Ranger. The February revision made it 2 for 2. Thus even with the March downside the picture improved. Can you imagine what would be said if February was not revised to positive? Bomb shelter time.

The end result is the same from our perspective: before Obama even announced his massive spending called stimulus plan the dive lower in economic numbers was slowing and in several cases is reversing. They are not slamming on the brakes and accelerating out of 180 degree turns, just showing indications of slowing the losses and turning the ship. That means there will be the monthly ups and downs in the data that ALWAYS accompany turns. The knifepoint turn that never looks back is rare, and quite frankly, with the 'stimulus' package and massive social and governmental restructuring that has nothing to do with economic recovery, there won't be much stimulus for the economy.

No knifepoint turn in the economy ahead as slow times are set.

Thus there won't be any knifepoint turn and the data will be up and down in a slow, slow recovery similar to post-Great Depression and the 1970's. We have opted to go the route of big government and Keynesian 'dig the ditch, fill the ditch, that is stimulus' spending as our way out, and history proves this prolongs recoveries as funds are diverted from the entrepreneurs and capitalists that make the economy work to the government bureaucracy that wastes money and constructs roadblocks to recovery.

Indeed it was quite ironic today when the President was speaking and alluded to history showing that if government does nothing then recoveries take longer, e.g. Japan (though he did not point out Japan). The necessary second half of that statement that he left out, however, is that government has to do the RIGHT THING. Just as history shows that if nothing is done recoveries take longer, it also shows that the massive spending, tax increasing, and government growth the President envisions lengthens recovery periods by 3x what they would have been.

Think of it this way: the fire department gets a fire alarm and is at the building, ready to act in 2 minutes. Great response. Problem is, its response is to build a firehouse right next to the burning building in order to douse this fire and to prevent future fires like this in this area. It might work, but it will take weeks if not months and this current fire will be a total loss to the owner before that happens. The right response to get this fire out now and then use incentives to get the owner and other owners in the area to upgrade their facilities to make them less susceptible to fires. Our government wants to go the route of building a firehouse instead of, at much less cost via our tax dollars, putting out the fire now and stimulating owners to upgrade their buildings to prevent fires in addition to raising property values, increasing business, etc. There we go again, down the path of big government spending to solve problems the government simply does not have the expertise to solve and solve efficiently.

PPI shows producer prices going nowhere . . . for now.

The overall PPI fell 1.2% versus a 0.2% gain in February. Core PPI was flat as expected. That puts year/year overall at -3.5% and year/year core at +3.8%.

The news gives the inflation soothsayers more respite in the face of inflation to come. Indeed there is no inflation right now. Right now. The problem is 2 to 3 years down the road.

Why then? Because when the Fed pumps this much free money into the economy it has a great stimulus effect. It takes some time to get going (about 6 months per rate cut) but when rates are this low and money supply growth is this high for any length of time the stimulus is very strong. It does have to have the right climate as seen in the 2000-2002 recession, but when it takes hold it is powerful as seen in the housing bubble. Monetary policy did not get us out of that prior recession; well-timed supply side incentives to invest in the US did that. What monetary policy did was make available cheap money for that supply side stimulus to use once the recovery got going. The Fed simply failed to cut off the spigot and voila, the housing bubble (with assists from the Clinton and Bush administrations as well as the devils in denial in the Congress, e.g. Dodd, Frank and Schumer).

We are likely to see quite a market jump thanks to this Fed policy and indeed some of the goose higher on this run is because the Fed became even more aggressive with its direct purchase of US Treasuries for the first time in the Fed's history. There will likely be more upside as that is the historical response to this kind of monetary flooding.

Inflation is the toll to be paid.

The problem is the price you pay later. With the Fed in the easy money mode again and the Administration in the easy spending mode again, the inflation expectations are quite high. Gold is off its high, but it had a heck of a run and needed to retrench. It will get back on track as inflation fears increase over the coming months and the financial markets anticipate this ahead of time. You cannot have 0% interest rates for banks and more deficit spending than the aggregate of all prior presidencies and come out on the other side free and clear of baggage. The baggage for this kind of spending and government growth is inflation. Saw it in the 1970's when the government exploded in size thanks to massive amounts of regulation, and the same will occur here.