Wednesday, April 14, 2010

Retail sales surge

Retail sales have recovered quite nicely in the past year. As for the shape of the recovery, I think the bottom chart says it best: that's a V if I've ever seen one. No matter you slice and dice the retail sales numbers (e.g., ex-autos, or inflation-adjusted), the results are strong, and a whole lot better than the market expected just one year ago. However, sales still need to recover by another 10% or so before they catch back up to where they would have been absent the financial panic of 2008.

Skeptics will say that sales are up in large part thanks to stimulus spending, but I don't buy that. Stimulus spending, when viewed from a supply-side perspective, just takes money from one person's pocket and puts it in another's. It doesn't create new demand. Even some supply-siders will look at these numbers with some skepticism: How can demand have recovered so strongly without any meaningful growth in jobs?

I think that the recovery we see in these numbers is a function of monetary velocity. (See related posts here.) Consumers shut down their spending in late 2008 due to the huge panic and uncertainty surrounding what appeared to be a global financial crisis that would lead to massive bankruptcies and depression. The demand for money rose sharply as a result. Now that money is getting spent again; money that was stored up is once again flowing into the economy. It was a panic-driven recession, and once the panic subsided and people saw that they economy was going to survive largely intact, they ramped up their spending. This is an unusual recovery since this time a resurgence in demand is preceding a resurgence in jobs.

Once the rising money velocity story plays itself out (say, by early next year), we will probably see the pace of recovery slow back down. Growth from that point will be more a function of new investment and jobs creation than anything else. It might prove to be tough sledding, however, if tax rates rise as expected. But that's tomorrow's concern. For the moment it's just very nice to be getting back to some semblance of normality.


alstry said...


Much of retail sales comes from the 40,000,000 receiving food stamps and approaching 20,000,000 on unemployment...not to mention the over 20,000,000 working for government.

Seriously, how much longer do you think Washington and Wall Street can continue to borrow over 25% of GDP per year and keep this game going without taxing us everything we have?

alstry said...


One more question, do supply siders view savings as unlimited?

In other words, if you are taking from one, who is a saver, and giving to another who is a spender...can there be a point where the savings runs out?

Benjamin Cole said...

Die, recession, die, die, die.

The good news is that Asia is booming already, and looks to have a secular bull market ahead of it.

Alstry: The USA is not the world. Fret not too much!

Benjamin Cole said...

BTW, SG doesn't cover commercial real estate much, so I thought I would toss this recent positive news in, even if unbidden:

LOS ANGELES-"The velocity of transactions is similar to 2003 and 2004," says Kevin Shannon, a CBRE vice chairman, who spoke with’s Bob Howard about the investment climate, at Real Estate 2010. "There is a lack of product on the market."
According to Shannon, the market did turn in 3Q '09, and the formation of capital in the fourth quarter of 2009 and the first quarter of 2010 has been impressive. "There is far more capital than product, and I think that will lead into asset appreciation and fierce bidding wars..."

More capital than product! This is what I have been saying--a glut of capital on the sidelines.

In a best-case scenario, we may see the dam burst, and capital pouring into commercial real estate as buyers become afraid to "miss the boat."

I would like to paraphrase a certain ex-President, but in far more appropriate circumstance: "Bring 'em on."

John said...


If you think this is from food stamps you are beyond help.

Maybe Scott figured that out a long time ago.


You are right on. Cash in the bunker earning nothing is FINALLY starting to move in a meaningful way into risk assets of all flavors. There is NO future for anyone seeking a reasonable return on their money to sit in a 1% cd.

Intel's earnings rang ANOTHER bell. Again, anyone with anything resembling an open mind that has followed Scott's charts and commentary could have seen this coming months ago. And profited handsomely. Its still not too late IMO. Corrections happen and there will be another one. The bull market is still young (again, my opinion) and has long to run. There is still a LOT of cash that has totally, totally, missed this.

Benjamin Cole said...

I think you are right, there is a secular bull market ahead, esepecially in Asia.

BTW, at the risk of being overbearing, check out story on B1 of WSJ today. The biggest buyer of diamonds in the world? China.

China is still smaller than the EU or USA. But it is growing rapidly, and has those 1.5 billion people. I am also dubious about the way GDP is measured across countries...I think China's economy is much bigger than officially measured.

Benjamin Cole said...

BTW--China will overtake USA in 10 years.

By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) -- China will overtake the U.S. in terms of economic output within a decade, according to estimates released Thursday by Deutsche Bank, which said it had to accelerate its forecast of the mainland's leadership in the global economy in view of favorable growth dynamics in emerging markets.

Bill said...

I read an article in Time magazine last week about the Chinese real estate market and it suggested that there are many empty developments that could cause a collapse in their residential and commercial real estate markets, thus prompting a financial crisis with their banks. I realize Time is not known for thorough and sifting analysis, but would be interested in any comments about the Chinese real estate market.

Benjamin Cole said...

No doubt China misallocates some capital, especially as they do not practice free enterprise. I am sure some projects get built due to politcial influence.

Of course, the US just finished misallocating gobs of capital to housing and commercial real estate markets. We can hardly point fingers.

My gut tells me China will boom for another generation.

Also, the pace of technological innovation and worker productivity will also boom, in China and globally.

I think the greatest bull market in all history will take place in the Far East, in the next 20 years.

China makes money, and can handle some misallocation of resources. I wish China would migrate even more to free enterprise and democracy.

But economically, they are growing like topsy.

John said...


I would beware of extrapolating current trends very far into the future. Ten years is a long time and there are an awful lot of moving parts. I am certainly not betting anything against what you are saying. I am all for a growing global economy. Ten to twenty year projections are fine but I just tend to give more credence to the direction and take it a year or two at a time.

If the far east booms as you say, I would get a little BHP Billiton and sock it away. They produce the raw commodities that are the materials inputs for the 'stuff' those millions of new consumers are going to want. If you (or anyone else for that matter) has an idea about how to benefit from an asia boom, throw it out here.

Benjamin Cole said...


Man, oh man, you raise a tough question.

I suppose a China ETF is one stab. In general, I am leery of owning individual China stocks, due to very limited shareholder rights and a lack of transparency.

There is a Thai stock, that I have correseponded with, named Univanich, or UVAN, traded on the SET. They grow and process palm oil. Pay a dividend, and appear to be well-managed. You can buy and hold forever, Buffett-style. Collect your diviies. If oil booms again, UVAN does too. They make money regardless.

I am married to a Thai, so I now own Thai farmland. This is nice, and appreciating, but since it likely will never be sold...however, in time, the Thai land record system will evolve to the point that we can borrow against it to buy more land.

I like your rec. on BHP Billiton, though I am leery of any individual stocks.

One statement that maybe you agree with is this: It is better to be roughly right than exactly wrong. But that I mean it is better to be in the broad aset class that goes up, than to precisely select an exact stock that may not rise with the tide, due to management problems, or other unforeseen potholes.

My guess is that if you are in Far East equities, as a group, you will do well in the next 20 years. I know it is crazy to predict past tomorrow, but that is my sentiment.

John said...

I have not heard of UVAN but I will look into it.

I do agree on it being better to be 'roughly right than exactly wrong'. Many times I have had the investment thesis dead on but picked the wrong security (I am experiencing it now. I thought oil was going up so I bought Exxon because it looked cheaper. I should have gone with BP or Conoco. It still may work out though. My ideas on the banks took me to XLF, a broad based financial exchange traded fund. I wanted to be sure I got one that would move with the sector rather than risk being wrong on an individual stock. Precisely what you are talking about I believe. BHP is another example. They are in oil, gas, iron ore, copper, gold, and a HOST of other rare earth minerals that are necessary for the production of industrial and consumer goods. It is the shotgun approach to long term commodity investing. And they are a HUGE company. Based in Australia they feed the Asian manufacturing economies the raw materials necessary for their economic survival. You don't have to be a hero and pick the one or two commodities that run. It would be my top pick to conservatively play a long term asia boom.

One last thought. Emerging markets investing is a highly specialized field. You can get a BHP or a VALE and likely do quite well. But if you delve deeper, you can find yourself swimming with some pretty smart sharks (a metaphor I've used before). As you suggest, there will be some fabulous fortunes made is the coming years from what you call 'the asia boom'. But the road will be rough at times and the markets have an unbelievable ability to shake your confidence to the very core. If you believe in the coming asian bull markets, I strongly urge you to seek out a MANAGED emerging markets mutual fund (there are many good ones) and let the professionals do it for you. The price will be cheap compared to what you can lose from one mistake winging it on your own. You can buy it by the dollar's worth (like gasoline) and dollar cost average over time. Reinvest your dividends and pay the taxes as you go ( a ROTH IRA would be FABULOUS if you are young and qualify - I'm not, and don't) and keep good tax records. If asia booms as you suggest (like I said, I WON"T bet against it happening) it will very likely make you some serious wealth over ten years - IF you can endure the inevitable volatility that comes with the territory. Not many can or do. If you can, the rewards will probably be beyond your wildest dreams.

Benjamin Cole said...


Lots of good stuff from you to chew on.