Curried Wealth Building
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January 16, 2010
Issue 79  -  Don't Believe It
 
The stock market rally which has taken place over the last 9 or so months has many talking heads promoting the idea that we have avoided the collapse and that things are improving.  While on a strict, nominal basis, we may have improved a LITTLE, that is no reason to break out the noise makers and party hats.  In fact the underlying numbers and reports being released are just plain bad.
 
I'll start with a headline:

Sam's Club closing 10 stores, 1,500 jobs to be lost

Mon Jan 11, 2010 5:10pm EST
 
Now using your common sense, does it seem logical that one of the CHEAPEST stores around, would be closing locations if things were, or even had a CHANCE, of getting better?  Why would a discount chain, which by the way, has been one of the top performing retail sectors, close stores.  It is very expensive to close locations so they (WALMART, which owns Sam's, and is largest retailer in the world)  must see something that isn't so rosy on the horizon.  Maybe this has something to do with it:
 

Retail sales unexpectedly fall in December

WASHINGTON (Reuters) - Sales at U.S. retailers unexpectedly fell in December as consumer spent less on vehicles and an array of other goods during the holiday shopping month, data showed on Thursday, raising concerns about the durability of the economy's recovery.

The Commerce Department said total retail sales fell 0.3 percent last month, the first decline in three months, after rising by an upwardly revised 1.8 percent in November. Sales in November were previously reported to have increased 1.3 percent.

Analysts polled by Reuters had forecast retail sales gaining 0.5 percent last month.

Compared to December 2008, sales rose 5.4 percent, but fell 6.2 percent for the whole of 2009.

Motor vehicle purchases fell 0.8 percent, while sales at electronics and appliance stores dropped 2.6 percent.

The data, coming in the wake of a report last week showing a surprise drop in non-farm payrolls in December, could add to worries that the economic expansion that started in the third quarter of 2008 could falter once government stimulus ends.

Stubbornly high unemployment remains the weakest link in the recovery from the worst economic downturn since the 1930s. Job worries are expected to constrain consumer spending, which normally accounts for more than two-thirds of economic activity.

Excluding motor vehicles and parts, retail sales fell 0.2 percent in December, the biggest decline since July, after rising 1.9 percent the prior month. Economists had  expected a 0.3 percent increase. Core retail sales, which excludes autos, gasoline and building materials, fell 0.3 percent after rising 0.9 percent in November.

-END-

 
The key here is that retail sales fell 6.2% for all of 2009.  That doesn't seem like a lot but remember our economy is around 15 trillion dollar and to lose 6% from retail is a hefty hunk of change.  So with chains still closing stores can things be getting better? Not with stories like these:
 

U.S. 2009 foreclosures shatter record despite aid

NEW YORK (Reuters) - U.S. foreclosure actions shattered all records in 2009 and will do so again this year, with unemployment and wage cuts overcoming programs to remedy failing home loans, RealtyTrac said on Thursday.

A record 2.8 million properties with a mortgage got a foreclosure notice last year, jumping 21 percent from 2008 and 120 percent from 2007, the Irvine, California-based real estate data company found.

The loan failure rate -- and thus the fallout for home prices and the economy -- would have been even worse without foreclosure prevention programs and loan processing delays caused by sheer volume, the company said.

In many cases loan fixes don't stick, however, and so a new record of at least 3 million properties getting a filing is seen in 2010. Filings include notice of default, auction sale or bank repossession.

State, federal and private efforts to modify loan terms for at-risk borrowers either don't go far enough or are expanding too late to help many struggling homeowners on a permanent basis, many industry experts and economists agree.

"Until the lenders start to get into principal balance reduction you're going to continue to see high redefault rates," Rick Sharga, senior vice president at RealtyTrac, said in an interview.


US foreclosures rose 15% y/y in December according to RealtyTrac
The online marketplace releases a report showing filings totaled 350K in December; the figure was a 14% m/m increase. For 2009 as a whole, percentagewise by state, Nevada, Arizona, and Florida had the highest rates. By totals, California, Florida, and Arizona had the most.
* * * * *

So even with all the loan modifications and loan refis, the foreclosures are still screaming higher.  This is reason for optimism?  I don't see it.  Also notice that the first story predicts another record in 2010.  There is NO way the economy will pick up markedly this year without MASSIVE government spending.  Government spending doesn't add to the economy on a net basis, (because it is taken from the tax payers) but the government still counts the money as a gain.  Nice trick, huh?
 
So that rebound in the economy is probably going to stall.  Here's another nail in the "green shoots" coffin:
 
 Fitch:U.S. CMBS delinquencies up 42bps; peak not until 2012

Jan 11 - Rising defaults among all property types led to a 42 basis point (bp) increase in U.S. CMBS delinquencies to close out 2009 at 4.71%, according to the latest Loan Delinquency Index results from Fitch Ratings.

'Though delinquencies have increased approximately five times from a year ago, they may not peak until 2012', said Managing Director Mary MacNeill. 'An increased amount of loans are coming due over the next two years that will result in delinquencies possibly peaking at 12%.' Fitch's surveillance criteria reflect a forward looking view of performance.

Therefore, the current ratings on CMBS transactions recently reviewed by Fitch incorporate significantly higher delinquency rates.

Of the five main property types, each has seen an increase in delinquencies of over 195% since December 2008, ranging from multifamily with 196% increase, to hotel, with a 1,175%. increase.

 
So we are up to nearly 5% of all loans being delinquent.  This is a HUGE drag on spending as people are more likely to divert extra discretionary spending to catching up their loans than to a new flat screen.  There was supposedly a drop in the unemployment rate in the latest month's figures.  This is mostly smoke and mirrors.  Here is a rather detailed explanation of the games being played by the government bean counters: (from urbansurvival.com)
 

....The first of these is called the CES Birth Death Model.  The theory behind this is that there are lots of jobs created that involve people going to work.  Since I'm a consultant by trade, for example, somehow my employment (however irregular) has to be estimated since I'm not a discouraged worker (except when a client doesn't understand something, but let's not go there).

Today the CES report estimates that 59,000 were estimated into being in December including 18,000 new jobs in trade, transportation, and utilities although that's not nearly as mysterious as 12,000 news jobs being created in the leisure and hospitality category, unless there's been a helluva boom in ski lodge operations because with so many unemployed there's a huge increase in snow boarding?  Sometimes I just don't understand...

More revealing (but I'm not sure what to make of it) is the note on the CES birth death model page that asserts the "2009 Total nonfarm over-the-month change, not seasonally adjusted (in thousands)" dropped 406-thousand jobs in December.

Aha!  This loops me back to the Employment Situation report which alleges that the civilian workforce in December dropped by 661,000...with no explanation of where they went!  Did they go back to Mexico?  Was there a partial Rapture I missed (that'd be understandable, I suppose...) or WTF? 

Assuming there really were as many people willing to work as there were in November: If these 661,000 disappeared people were to show up, that would have made the unemployment rate 10.4% and by golly, we can't have that now, can we? 

 
So the government "disappears" 661,000 people and that makes things look better?  Ocean front Nevada property anyone?  I've got some for sale, real cheap.  Here's a chart from contraryinvestor.com that shows something not seen in the U.S. going back to the 1940's:
 
 
 

 
 
This is the true measure of sales, which ultimately leads to profits, and this is down at a level not seen in 60 years, but things are getting better?  Probably not.  Wonder if the future is looking brighter for sales?  How would you know that?  Here's another contraryinvestor chart that is a pretty proxy, consumer plans to buy big ticket items: 
 
 
 
 
 
Wow, what can you say about that?  If people aren't planning to buy the large ticket items, how can the economy be getting better?  This is one of my reasons for predicting that the stock market will, at some point this year, start back down.  Earnings will be good at least for the next one or two quarters, but then we should start to see a drop.  You might be wondering how earnings can be good when sales are down and foreclosures are up?  There is a simple reason.  Companies have been cutting costs and employees.  This has been flowing through to the bottom line. Lower costs, equals higher profits.  So why won't the continue?  Because you can only cut so much.  There is only so much "dead wood".  Eventually you hit the bone and no more savings are possible, at least at a meaningful level.  Enough of that. 
 
I've warned before of the possibility that the government will someday confiscate or at the very least change the rules on "tax free" retirement accounts.  This is a little early warning shot across the bow:
 
"Officials in the Obama administration are moving quickly to develop the investment infrastructure behind the president’s proposal for mandatory automatic enrollment in individual retirement accounts, which could be supported by the creation of Treasury-issued retirement bonds

J. Mark Iwry, deputy assistant secretary for retirement and health policy at the Department of the Treasury, said that administration officials are exploring some “conservative” options for investing the assets of 78 million Americans that he estimates could be automatically en¬rolled in this “universal” workplace retirement system.

He said that officials have discussed the possibility of making a low-risk life-cycle or target date fund the default investment option for these auto-IRAs, which would be mandatory for employers if they don’t offer a retirement plan to their workers.

But there is also a chance that they could rely on a new form of bond — an “R bond” — as the basic building block for the auto-IRA, Mr. Iwry said in addressing reporters at the Treasury Department in Washington last week.

Administration officials are discussing the exact details of these R bonds, such as their interest rates, maturities and minimums, he noted. These bonds ideally would provide individuals with a source of secure, steady returns that would protect their initial investments."

Administration Explores R Bond For Retirement Accounts -
 
 
This is a plan to basically force you to buy government debt.  Why would they do that?  Eventually, the rest of the world will not be interested and we need to line up buyers.  Enter the taxpayer and their "captured" deferred savings plan.  Convert them to bonds and funding for the government beast continues.  They plan on ways to take your retirements while the REAL thieves continue to steal in broad daylight:
 
From Bill Moyers Journal:
"Thanks to taxpayers like you who generously bailed banking from the financial shipwreck it created for itself and for us, by the end of 2009 the industry's compensation pool reached nearly $200 billion. And despite windfall profits, the banks will claim almost $80 billion in tax deductions. And nearly $20 billion of those deductions will go to just three institutions ­ Morgan Stanley, JP Morgan Chase, and Goldman Sachs.
Ah, yes ­ Goldman Sachs, that paragon of profit and probity ­ which bet big on the housing bubble and when it popped ­ presto! ­ converted itself from an investment firm into a bank so it could get your bailout money. Now consider this: in 2008, Goldman Sachs paid an effective tax rate of just one percent. I'm not making that up ­ one percent! ­ while their CEO Lloyd Blankfein pulled down over $40 million. That's God's work, if you can get it. And, believe me, Wall Street bankers know how to get it..."
 
 
What a bunch a crooks.  Paying 1% in taxes, taking billions of dollars in hand outs, and then giving out gigantic "bonuses".  What can you say about that? Only in America, I guess. I believe people eventually get what's coming to them and these people will, someday, get theirs.  With all that doom and gloom, here's a little video to hopefully brighten up your day, have a great week!