Friday, December 31, 2010

Howard Davidowitz on the Consumer and Real Estate

Great analysis here from Howard Davidowitz who is one of the leading retail analysts on Wall St.

Howard brilliantly explains why we saw such a bump up in retail despite the continuing deterioration of the economy and consumer.  Essentially Howard concludes that 70% of the consumers in this nation are dead as they remain jobless and on food stamps.

However, he explains that the other 30% of the consumers basically drive consumer spending overall, and they began spending once again this year after the capital markets recovered.

Nonetheless, Howard remains extremely bearish on retail and real estate adding that the key driver for retail sales was the huge rally in the markets which we all know is unsustainable. 

Make sure you check out the last few minutes of the interview where he explains how the Fed is basically bankrupt if interest rates rise by 1%.

In summary:  Howard still sees no economic recovery and remains pessimistic on the consumer moving forward.  It's hard to think why anyone could come to a different conclusion when 70% of this nation is either unemployed, broke, or on food stamps.

Howard points to Wal Mart's poor performance versus other retailers as proof that the average consumer is suffering.

He also discusses the rising threat that online retailers like Amazon pose to brick and mortar retail stores.  Stores will be forced to shrink and consolidate as online sales continue to soar.   Davidowitz then brilliantly describes how this will have a catastrophic effect on the values of commercial real estate.

Great stuff below:


The markets are quiet but the US dollar is once again selling off hard today.  It's been a rough few days for bucky:

Quick Take:

This is something to take notice of as we head into the new year.  Volume is light today so I don't read into it too much.  Nonetheless, gold, crude, and silver are all surging on the drop.

The Bottom Line

I want to wish everyone a Happy New Year!  Be safe if you decide to go out and play!

Thursday, December 30, 2010

THTB 2011 Predictions

I finished up my predictions for 2011 during today's Wall St snoozefest.  As always, these are just my opinions and they shouldn't be used as investment advice. 

Here we go:

1.  The US dollar will strengthen in the first half of the year thanks to the European debt crisis.  This trend will then reverse midyear and the USD will close down 10% from 2010 levels by the end of the year.

2.  Treasuries will trade in a large range early in the year before selling off later on as the Fed turns off QE2 and/or the the bond vigilantes finally get their way.  The 10 year bond will end the year at 4.5%.

3.  Gold will trade violently between $1000-$2000 as it reacts to inflationary and deflationary panics based on various central banking decisions that are made around the world in 2011.  Gold will end the year at $1700 due to increasing demand as fears around fiat currencies continue to rise.

4.  China will encounter severe inflationary issues and will raise rates substantially in order to avoid social unrest and political turmoil.  I think these efforts will fail and I wouldn't be surprised to see another " Tiananmen Square" type event by the end of the year.

5.  Two of the PIIGS will default and leave the Euro in an attempt to get their arms around their solvency issues.  Just so we're clear here:  A debt restructuring/haircut will be counted as a default.

6.  Stocks:  Volatility will rule the day. Equities will rise early in the year as a result of a massive European capital flight to safety.  This will also help the treasury market.   The S&P will then sell off hard as bond yields begin rising and the markets slowly realizes that the "economic recovery" was the recovery that never came.  The S&P will close down 20% from today's levels by the end of 2011.

7.  Oil and other commodities will see violent volatility as inflation/currency fears battle huge drop offs in demand as the economy slows down dramatically.  This will trigger a giant tug of war on price.  Oil will trade in a range of $50-150 dollars during the year and will end the year at $70.

8.  1-2 states will default and will need restructure their debts.

9.  President Obama's approval rating will fall below 30% as the economy fails to  recover and continues it's downward spiral.

10.  One TBTF institution will need to be bailed out for a second time.  If Congress refuses to approve the bailout then 1 TBTF bank will fail(unlikely scenario).

11.  Housing prices will steadily continue dropping throughout the year and will end up down 20% down from today's levels.  I will end my last prediction with an important graph.

One only needs to look at the chart below to see where home prices are eventually heading.  In case you are blind or can't read let me help you:  Home prices will eventually head back to their 2000 pre bubble levels.  This may take several years but all bubbles revert to the mean.  Just look at where tulip prices are today versus the 1630's!

Anyone involved in housing needs to eat a huge piece of "Reality Pie" and realize that prices are never coming back.  Rates are going to rise and things are only going to get worse.

The Fed has basically thrown everything but the kitchen sink at housing for 3 years and it has done NOTHING to stop the price declines.  Take this chart and hold it as a reminder in your back pocket and make sure you look at it if you ever have any urge to buy a house. 

Now is definately NOT the time to buy:

Wednesday, December 29, 2010

2011: The Year of Volatility

All I could do was laugh after seeing today's bond auction:

"NEW YORK (MarketWatch) - The Treasury Department sold $29 billion in 7-year notes /quotes/comstock/31*!ust7yr (UST7YR 2.72, -0.16, -5.55%) on Wednesday at a yield of 2.83%, the highest since April. Bidders offered to buy 2.86 times the amount of debt sold compared to an average of 2.96 times at the last four monthly sales. Indirect bidders, a group which includes foreign central banks, bought 64.2% of the sale, the highest allotment since June 2009 and well above the average of 49.9% of recent sales. Direct bidders, a class which includes domestic money managers, purchased 4.6%, down from 9.1%, on average. After the auction, the broader bond market extended gains, as traders expressed relief that the final auction of the year was completed. Yields on 10-year notes /quotes/comstock/31*!ust10y (UST10Y 3.36, -0.14, -3.87%) , which move inversely to prices, fell 9 basis points to 3.39%."

My Take:
Get used to this volatility folks!  2011 will be the year of volatility IMO.  My first thought after seeing today's spectacular bond auction was something must be brewing in the Eurozone.  The real buying strength of this auction were the indirects overseas that I highlighted above.
As I have said in recent weeks, the Eurozone will take center stage early in 2011.  Risk is relative and the perception is that the PIIGS will die before the US.  I agree and Ben is going to get a free pass to continue printing via QE in the short term as a result.
The Bottom Line
Busy tonight so I have to be brief.  All I can say is be prepared for a series of crises next year.  I expect to see wild swings in all asset classes.  There will be a series of inflationary and deflationary panics as the financial system tries to survive multiple threats as a result of their massive debtloads. 
On the inflation side, there will be plenty of fuel for speculation in things like commodities as the central banks continue printing.  This money printing will obviously be devastating for all currencies.

 The difficulty for traders and investors will be trying to figure out which country or large bank blows up first.  Investors in 2011 will act like a bunch of mental patients with ADHD as they try and profit on the wild volatility as these huge news events hits the wires.  The specs will also focus closely on how the central banks respond to them.
Currencies will trade violently as a result of these events as this global financial crisis plays out.  For example:  Currencies like the Euro will fall sharply on bad news out of the PIIGS and then rise when bad news around the debt issues here in the US hits.  You are going to have to be very nimble if you want to trade the markets next year.
On the flip side, I expect to see deflationary panics as well.  These panics will be created as start seeing  defaults.  If a country like Greece defaults and haircuts are forced to be taken then I think you will see the big money run scared and hide in safe havens.  This will be very deflationary for the markets. 
These deflationary panics will create large market sell offs and they will also likely temporarily strengthen the US dollar because the first few blowups will likely be overseas.
I will have more around this in my 2011 piece.  Keep an eye out for it.

 As for the market today all I can say is BORING!.  I think I fell asleep watching the tape this afternoon.

Tuesday, December 28, 2010

Bonds Nose Dive Following a 5 Year Bond Auction "Stinker"

This is going to leave a mark:

My Take:

This auction was flat out ugly.  40% of the allotment was sold at the highest yield, and the bid to cover was only 2.6 which is weak considering the fact that this was 5 year paper..  Bill Gross called this auction a "stinker".  I can think of some other words to use but I will contain myself.

 As you can see above, the bond market didn't like it either and pummeled bonds all afternoon following the results.

Stocks rose of course despite the negative news today which included more bad numbers in housing and consumer sentiment.  Would you expect anything else from the trading robots?  They think all of the news is bullish!   In fact, stocks have now risen 27 times in the last 30 trading sessions.   This recent rally has gotten beyond absurd at this point.

One of my more wild 2011 predictions is that the stock market will decouple from the bond and currency markets.  This decoupling will then expose the equity market as nothing more than a manipulated robot controlled fraud.  As this crisis unfolds it will eventually trigger a violent flash crash/sell off type event as investors start losing confidence in the stock markets ability to be used as safe investment mechanism.  I might be a year early on this one but I think it's going to happen. More on this list later.

The Bottom Line

I will be hit and miss here this week.  I am in the process of taking a well needed break.  Needless to say I think the news will get increasingly worse as we head into the new year as consumers see gas close in on $4 a gallon.  Oil was up once again today after the US dollar weakened following China's interest rate hike.

Gold and silver also rose on the dollar news.  One other thing to note:  Volume was extremely low today so I am not paying much attention to what stocks do the rest of the week.  In fact, I am starting to not even care how stocks do because the market refuses to reflect whats going on in the economy.

I cannot be long or short something that becomes more and more blatantly manipulated after each trading session.  How stocks could rise given the news today is beyond me.  I guess one could blame low trading volumes.  Nonetheless, I refuse to participate in something that continues to bury it's head in the sand hoping that this debt nightmare will just go away at some point.

It's not folks, and the longer they deny  this reality the more painful it's going to be on the way down.