The stock market is overbought and is losing momentum (this is not a test)

In summary, the current excitement about

the market reminds us of the

extreme bullishness exhibited near the

tops in early 2000 and late 2007.

The outcome is likely to be the same.

Comstock Partners
February 3, 2011
The stock market is at a highly vulnerable point, both fundamentally and technically. Fundamentally, the current rate of economic growth is unsustainable and the valuation of the S and P 500 is significantly above its long-term average. Technically, the market is overbought and is losing momentum. We cite the following points.

• Consumer spending has been outpacing the ability to spend. Spending has exceeded income in five of the last six months. During this time nominal spending has increased 2.8%, compared to only 1.9% in personal income. In order to accomplish this, households took their savings rate down to 5.3% of income from 6.3% six months earlier. As we have pointed out numerous times, household debt is still near record levels and consumers still have a long way to go in deleveraging their balance sheets.
• Housing remains a major weak spot with a rising pipeline of coming foreclosures, excess inventories and falling prices. In addition rising bond rates are causing mortgage rates to climb. (UPDATE: 30 year mortgage rate jumped to 5.05% this past week from 4.81% prior week)
• States and local governments are slashing budgets through a combination of raising taxes and cutting spending. This, obviously, is a major drag on the overall economy.
• Private jobs have increased at an average of 112,000 a month over the past year, but about half of that has been in low-paying health care, social services and temporary employment. (UPDATE: on 2/4/11, BLS reported a net +36,000 jobs in January)
• QE2 is scheduled to end in five months. Just as the anticipation of QE2 in August led to a substantial rise in the market, the anticipation of its ending may well have the opposite effect, combined with the other factors we mention.
• With commodity prices soaring and consumers unable or unwilling to accept price increases, a large number of corporations will undergo major cost increases that will squeeze profit margins, a factor not calculated into current earnings forecasts. (UPDATE: Kraft Foods states revenue growth will be from higher prices versus higher volume)
• Europe's sovereign debt problems have not been solved and the crisis will continue to fester. Any real solution will not be friendly to economic growth.
• The crisis in Tunisia and Egypt are not random exogenous events. Soaring food prices, high unemployment and wealth disparities are as much a factor as repressive governments. People tend to tolerate dictatorships more when they aren't hungry.
• China is a bubble waiting to burst. Think back to the late 80's when everyone was as optimistic about Japan as they are about China today.
• At today's closing price the S and P 500 is selling at 19.2 times cyclically smoothed reported earnings, compared to a historical average of about 15. (UPDATE: the S and P 500 is up another 34 points/2.7% as of the close on 2/11/11)
• In addition to the above fundamentals the market is technically vulnerable. It has climbed about 95% over the last 23 months and 30% since the July low. Sentiment has become heavily bullish while the market is losing momentum as fewer stocks are moving higher on each successive top. Volume for advancing stocks is dropping while volume for declining stocks is rising. The number of new daily highs is also dropping as is the percentage of stocks making new 50-day highs.

In sum, the current excitement about the market reminds us of the extreme bullishness exhibited near the tops in early 2000 and late 2007. The outcome is likely to be the same. Add'l Posts/Articles by Comstock Partners

Consumers face more financial troubles as economy sheds more jobs than it creates (Consumer Reports)

In the past 30 days, 6.7% of those surveyed

have lost their job, but only 5.2%

have started a new job.

(their survey is not seasonally adjusted)

YONKERS, N.Y., Feb. 9, 2011 /PRNewswire-USNewswire/ -- Consumers have a guarded outlook of the coming months as stress levels rise, employment remains flat and financial difficulties increase according to the Consumer Reports Index for February.

The Consumer Reports Trouble Tracker Index has again climbed for the third straight month (58.7), revealing increasing financial difficulty for consumers. The Trouble Tracker index, which tracks the depth and breadth of financial difficulties among households, has climbed up from 54.2 last month and from 53.4 one year ago.

The gains in retail activity coupled with increased financial difficulty may lead to a credit crunch for some consumers, especially as missing payments on major bills (9.7%) or missing a mortgage payment (3.2%) are up when compared to a year ago. Also, compared to last month, the number of consumers facing negative changes to their credit card terms (e.g., interest rates, penalty fees, credit limit) was up.

The Consumer Reports Employment Index shows no sign of improvement as it remained unchanged from the prior month at 49.2 and on par with a year prior (49.0). In the past 30 days, 6.7% of those surveyed have lost their job, but only 5.2% have started a new job.

"February's Employment Index is indicative of an economy shedding more jobs than it is creating and this kept sentiment in negative territory, despite other measures that have shown gains," said Ed Farrell, a director of the Consumer Reports National Research Center. "While the share of those starting a new job was up nominally from January, growth is insufficient to seriously address the expanding pool of unemployed or fresh job seekers."

The compounding of these various negative factors may be reason for the rise in the Consumer Reports Stress Index, which measure of the stress consumers feel in their everyday lives versus a year ago. Despite a significant drop in January, in February the index is up to 59.3 from 55.4 the prior month and is on par with one year ago (59.9).

Despite the negative factors, some green shoots remain particularly when it comes to retail. The retail outlook is improving as the Consumer Reports Past 30-Day Retail Index is up to 11.6 from last year (10.9). Similar signs of improvement are revealed in the Consumer Reports Next 30-Day Retail Index, which rose to 8.3, from 6.9 a year ago. Major home electronics and personal electronics are helping to fuel the retail gains for both indexes. Complete Press Release

Mark Haines and Erin "the princess" Burnett did not have their

glass 1/2 full this morning. No pom-poms on set.

Unlike the U.S. Government, Consumer Reports does not

seasonally adjust out the reality we all face daily.

A Lousy New Year for Workers (unless of course you do not live in U.S.)

America's leaders will continue to talk

of the American Dream, which still exists

for the members of the working class--

but only when they’re asleep.

Institue for Policy Studies
By Saul Landau
January 10, 2011

General Motors executives could claim today that what's good for their company is good for the country if they were talking about China.

"What's good for General Motors is good for the country," Defense Secretary nominee--and former GM CEO--Charles Wilson famously told the Senate Armed Services Committee in 1953. These weren't his exact words, but they have resonated nonetheless.

Behind Wilson's apparent gaffe was an undeniable truth. GM did create millions of jobs, not only in the direct manufacture, shipping, and sale of automobiles, but in its peripheral stimulus for rubber, glass, and all the other components required to make a car.

This was reflective of the post-war era, when the United States was the world's manufacturing behemoth. Banks gave companies loans to produce goods domestically. Today, U.S. business and finance invests in exporting jobs instead of creating them.

General Motors executives can now claim that what's good for their company is good for the country--if the country referred to is China, where GM manufactures more vehicles than within U.S. borders. GM also earns more from foreign sales than it does from U.S. car sales, and it pays its workers less to do it. A skilled GE welder in Michigan in the 1980s earned $35 an hour. His equivalent would be in Mexico now, failing to earn that much in a day.

General Electric, the company that once hired Ronald Reagan to represent its "Americanism," has repeatedly slashed its American workforce. Tellingly, GE recently announced plans to hire more than 1,000 Brazilian workers and to invest $2 billion in its Chinese operations.

Plenty of American corporations that remain headquartered in the United States have found greener pastures for actual production and sales. U.S. workers simply became too costly, even as the corporations have steadily cut their wages and benefits since 1973.

When the credit bubble burst, our companies increasingly looked towards India, China, Brazil, and Indonesia, where economies were growing and wages remained "reasonable." There, they could produce and sell their goods more easily and slice their payrolls. That means bigger profits, with few benefits for the U.S. economy.

Stagnant wages are good news for corporate profits and the stock market. But without full employment, reliable credit, and a robust housing market, working people won't resume their consumer habits quite so easily.

In the years following World War II, companies expanded and hired more workers because employees actually bought stuff. The irony of 2011 is that the consumers in our consumer society don't have the money or credit to do what they've been conditioned to do. They struggle to make their mortgage and rent payments, while worrying about their pensions--and perhaps the future of Social Security as well.

Wall Street, however, has grown richer and richer. Investors and traders rang in the New Year expecting a market boom in 2011. Meanwhile, the tens of millions of unemployed, foreclosed upon, or already homeless went to sleep early--to escape the pessimism that has descended on the middle and lower middle classes in much of the country. The value of their homes--the basis of their future--has slipped. Their jobs--if they still have them--are insecure. And their grown kids have moved back in.

The new Congress will doubtlessly hand the wealthiest Americans more tax cuts while shrinking Social Security and Medicare benefits for the rest of us. America's leaders will continue to talk of the American Dream, which still exists for the members of the working class--but only when they’re asleep.

U.S. Confidence in Economy Declines in Early December (Gallup)

Consumers are no more optimistic about

the U.S. economy in early December 2010

than they were at this time a year ago.

(Don't share with Wall Street as they have a really good gig

going with their sugar daddy, Ben Bernanke)

Gallup
by Dennis Jacobs
Chief Economist
12/14/10

PRINCETON, NJ -- Economic confidence is deteriorating sharply at the worst possible time for the nation's retailers. Gallup's Economic Confidence Index averaged -31 over the first two weeks of December, fully offsetting November's improvement, and essentially matching the monthly readings of -29 in October and -33 in September.

Consumers are no more optimistic about the U.S. economy in early December 2010 than they were at this time a year ago.

The Economic Confidence Index consists of two sets of ratings: one involving U.S. consumers' perceptions of current economic conditions and the other involving their economic outlook. The December estimate is based on more than 5,000 interviews conducted during the two weeks ending Dec. 12, 2010.

Percentage Rating the Economy "Poor" Worsens
Across Income Groups

During the first two weeks of December, 45% of Americans rated current economic conditions "poor" -- wiping out the improvement to 41% in November, and essentially matching the 44% of October. Consumers' ratings of current economic conditions deteriorated about equally among upper-income consumers (those making $90,000 or more a year) as well as middle- and lower-income Americans (those making less than $90,000).

Americans of All Incomes Less Optimistic
About Economy's Direction

Right now, consumers' expectations for the economy are substantially worse across income groups than they were during November, with 61% now saying the economy is getting worse. During the first two weeks of December, 58% of upper-income Americans and 62% of middle- and lower-income consumers said economic conditions are "getting worse" -- a worsening from 53% and 57%, respectively, in November.

Americans' Economic Optimism
Fading in Early December

Gallup's Economic Confidence Index suggests that the sharp improvement in economic confidence seen in November may be dissipating at the worst possible time for the nation's retailers. The sour reactions of many to the Federal Reserve's efforts to pour money into the economy -- so-called quantitative easing -- may have negatively affected the economic outlook of some consumers and investors. That might also be the case with the financial difficulties in Europe. If so, the statement of the Federal Open Market Committee on Tuesday afternoon, and the reaction to it, could be more important than usual.

More likely, the government's early December report of a surprisingly high unemployment rate for November may have increased consumer worries not only about jobs but also the direction of the U.S. economy. This despite Gallup's tracking data suggesting this government report may be overstated -- at least as far as what is really taking place in the job market right now.

It also might be the case that some Americans who had hoped for increased political harmony after the midterm elections are disappointed about the current battle over the proposed extension of the Bush tax cuts and the extension of emergency unemployment insurance, particularly when so many Americans tend to support both efforts.

Regardless, consumer spending does not reflect an improving economy at this point. Add in the recent decline in economic confidence, and Christmas sales may not meet the increasing expectations that followed the success of Black Friday week.

Gallup will publish its final estimate of Christmas spending later this week. Link to complete Gallup Report

Gallup: Spending Up Slightly in November, Matching Year Ago

Self-reported spending by lower and

middle income consumers back in

"new normal" range

 

by Dennis Jacobe, Chief Economist

Gallup

Gallup complete report and add'l charts

12/9/10

 

 

Over the first 11 months of 2009, spending remained in a fairly tight range of $59 to $67 before hitting $72 last December. From March through July of this year, Americans' spending generally ran slightly higher than it did in 2009. Since then, however, spending has averaged slightly below its 2009 comparables and now just matches that of a year ago.

 

 

Lower- and Middle-Income Spending Back in the

"New Normal" Range

Lower- and middle-income Americans' self-reported spending averaged $56 per day during November, up from $51 in October and September's $48. Spending by this group -- those making less than $90,000 a year -- was running below the 2009-2010 "new normal" monthly spending range of $52 to $64 during September and October, but returned to that range in November. Still, their spending continues to trail 2009 comparables.

 

Upper-Income Spending Matches That of a Year Ago

Upper-income Americans' spending averaged $120 per day in November -- not much different than the $123 and $118 of the previous two months, or the $117 of a year ago. Spending among this group making $90,000 or more annually remains at the upper end of the 2009-2010 "new normal" monthly spending range of $107 to $121 per day.

 

Commentary

At this point, Gallup's self-reported spending measure suggests that the 2009-2010 "new normal" spending trend continues unabated. Consumers are holding back -- matching their anemic spending of 2009, which trails far behind their deep recessionary spending of late 2008. While spending during Thanksgiving week seems to have increased -- averaging $79 per day -- during the first week of December, it fell back once again, to a $66 average. Consumers will have to open their pocketbooks a lot this month to match or exceed December 2009's $72 spending average.

 

The recent surge in gas prices -- up 10 cents last week alone -- could increase spending. It is a key element of Gallup's overall spending measure. But a significant increase in spending will depend on a change in attitudes among lower-, middle-, and upper-income consumers.

 

In this regard, the continued good performance of the stock market, coupled with a possible extension of the Bush tax cuts, may get upper-income consumers spending during the last few weeks of 2010. These consumers have the disposable income to spend, and could add a lot of Christmas cheer if they decide to open their wallets for the last few weeks of the holiday season.

 

At the same time, Gallup's measurements suggest that the job situation could be better than the government recently portrayed it. In turn, this could bolster lower- and middle-income spending that tends to depend on jobs. The proposed continuation of extended unemployment payments could also help.

 

Grandpa: could be better than governmentr recently displayed however a potential counter to "could be" is the non-seasonally adjusted initial jobless claims released 12/9/10.Seasonally adjusted reported at 421,000 when non-seasonally adjusted (a.k.a real people in lines, cloocked in at 582,007. We shall see...

 

Whether all the efforts -- ranging from those of the Federal Reserve to those of the president and Congress -- will actually help retailers in the next few weeks is yet to be seen. Regardless, the increased optimism they create could by itself lead consumer spending to be better than expected late this holiday season.



PRINCETON, NJ -- Overall self-reported daily consumer spending in stores, restaurants, gas stations, and online averaged $66 per day in November -- up slightly from $63 in October and $59 in September, and essentially matching the $67 of November 2009.

MI Sentiment just plain ugly for retailers

Nearly twice as many consumers reported

that their finances had worsened rather

than improved during the past year

(CNBC's Interpretation of MI Sentiment- 

Stronger than expected...naturally, as CNBC has yet

to see data that can't be twisted into a positive)

Reuters/University of Michigan Surveys of Consumers
12/10/10

The economic news heard by consumers about jobs grew significantly more favorable in November. Unfortunately, the favorable job news only had a small impact on how consumers expected the overall unemploy-ment rate to change in the year ahead. The majority of consumers anticipated the jobless rate to remain stuck at its current high level throughout the year ahead.

Given these expectations, it should be no surprise that half of consumers expected the slow pace of economic growth to remain largely unchanged during the year ahead. Importantly, the balance of consumers twice as frequently ex-pected some additional improvement rather than a worsening pace of economic growth during the year ahead.

Personal Finances Remain Dismal

The personal finances of consumers remained quite bleak in November. Nearly twice as many consumers reported that their finances had worsened rather than improved during the past year, with one-in-three reporting declines in household income. There has been some small improvement since the cyclical low point. Income gains were reported twice as frequently this November compared with a year ago, although the frequency of in-come gains have remained unchanged for the past 4 months.

The larger problem was that just 25% of all house-holds expected their finances to improve during the year ahead, down from 29% last November. The majority of households expected no income increase during the year ahead in November, for the 23rd consecutive month, an all-time record. Households with incomes above $75,000 held the same dismal outlook for their finances, showing no improvement in their financial expectations for the year ahead. Holiday sales will be based, more than ever, on the availability of discounts as consumers continue to cope with their dismal financial circumstances.

Surveys of Consumers chief economist, Richard Curtin

It is clearly too early to declare the November uptick in consumer confidence a turning point. It marks the third time that the Sentiment Index has reached this level since the cyclical low was recorded two years ago. In each of the prior rebounds, the gains as well as subsequent losses were mostly based on changing prospects for the economy.

Unfortunately, there has been no improvement in consumers’ financial prospect in the past two years. While consumers clearly believe that the recovery has gained some traction, most still think that the eco-nomic gains will be too small to improve their own job and income position anytime soon.”Complete report and prior reports

Grandpa predicts a retail stock reality check in January given the launch to 52+ week highs on many of these stocks and what could prove to be a major wake up call on the retail ETF-XRT. But hey, I am just a grandpa however I did not just fall off the turnip truck...“

Consumer Confidence up however Home Prices are Falling, So Let's Go Shopping (Michael Pento)

CNBC and the market was giddy with a better than expected Consumer Confidence number that clocked in at 54.1. WOW! That must be uber good. Well...

Consumer Confidence readings during 82-83 recession were 58 to 88. During the 90-91 recession, consumer confidence readings came in between 58 to 100 and during the 2001 recession, readings were two times today's uber good number (85 to 118).

Tuesday, November 30, 2010
By: Michael Pento

Yes, we are all now fully aware that the consumer is back. Confidence is up and spending has increased. The Conference Board, a private research group, said its index of consumer confidence increased to 54.1 in November, from a revised 49.9 in October, which was first reported as 50.2.

But data released today from The S and P/ Case-Shiller Home Price Indices should dampen shoppers’ enthusiasm. The U.S. National Home Price Index fell 2% in the third quarter of 2010. On a national basis, home prices are 1.5% lower than their year ago levels and 15 out of the 20 cities measured were down over the last 12 months. On a monthly basis, 18 cities posted declines from August, compared to 15 month-on-month drops in August and just eight in the July report. Home prices are headed lower because of tight credit, high unemployment rates and a huge backlog of foreclosure properties.

On a separate note, the recent move higher in the dollar index reveals little about the true strength of our currency. The DXY is up .4% today mostly on Euro weakness. However, the price of gold surging $20 an ounce clearly illustrates the true direction of the dollar. Saying the dollar is gaining purchasing power today is akin to believing someone falling off a cliff at 90mph is actually flying, just because his buddy is dropping at 95mph and will therefore will hit the ground first.

Free money and a massive increase in government debt have managed to temporarily levitate the serotonin levels in consumers’ brains. But interest rates will soon soar either due to the free market or courtesy of the Fed. Then the party ends. If you don’t believe me ask the Greeks and the Irish how they became insolvent in a matter of a few days. It wasn’t because the amount of debt suddenly surged but because the interest payment on that debt suddenly skyrocketed.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

Recent spending trends as well as some consumer attitudes are not particularly encouraging (Gallup)

It will be most interesting to see if CNBC will apply a positive spin on the recent consumer spending data results from Gallup. Unfortunately, Gallup shares a similar CNBC cheerleader perspective on the recently released initial jobless claims.

Both focus on the seasonally adjusted figure versus noting a 55,000 increase in non-seasonally adjusted claims. One can pretend all they want with government adjusted figures, however the reality is 55,000 more people filed initial jobless claims and we as consumers do not seasonally adjust our checkbook balance.

PRINCETON, NJ -- Self-reported daily consumer spending in stores, restaurants, gas stations, and online averaged $66 per day in the week ending Nov. 21 -- not much different than the $69 of the same week in 2009 -- but below the $74 comparable of the same week in 2008.

Although the outlook for Black Friday weekend is better than it was a year ago, at first glance, recent spending trends as well as some consumer attitudes are not particularly encouraging for Black Friday and Christmas holiday sales:

• Nine in 10 consumers say they continue to watch their spending closely -- essentially unchanged from the 89% of the same week in 2009.
• Seventy percent say they are cutting back on their weekly spending -- consistent with the 69% of 2009.
• Nineteen percent of Americans worry that they spent too much money "yesterday" -- also the same as in 2009.

However, despite the year-over-year comparables in actual consumer spending, there are some positives in consumer spending attitudes this month:

• Half (51%) of Americans say they feel able right now to make a major purchase, such as a car, appliance, or furniture -- up from 46% in the same week of 2009.
• About 6 in 10 (58%) say they feel pretty good about the amount of money they have to spend these days -- up from 54% in 2009.
• Americans say they will spend an average of $714 on Christmas gifts this year -- up sharply from the $638 they estimated in November 2009.

Further, Gallup data also show the economic backdrop for consumer spending is improving:

• During the week ending Nov. 21, 41% of Americans rated current economic perceptions "poor," compared with 48% during the same week in 2009
• Gallup's U.S. unemployment rate, without seasonal adjustment, fell to 9.2% in mid-November
• Gallup's Job Creation Index stands at +12 for the same week, with 30% of employees reporting their companies are hiring and 18% saying they are letting people go -- much better than the +1 of 2009, when 24% of employers were hiring and 23% firing, and consistent with the most recent drop in unemployment claims to 407,000 -- the lowest level since July 2008. Gallop Report

Another Guess at Black Friday Retail Sales National Retail Federation

“As retailers look ahead to the first few weeks

of December, it will be important for them to

keep momentum going with savings

and incentives that holiday shoppers

simply can’t pass up.”

National Retail Federation

Washington, November 28, 2010 – With one of the biggest shopping days of the year under their belts, retailers have reason to smile. According to a National Retail Federation survey conducted over the weekend by BIGresearch, more shoppers visited stores and websites over Black Friday weekend – and spent more – than a year ago.

According to the survey, 212 million shoppers visited stores and websites over Black Friday weekend*, up from 195 million last year. People also spent more, with the average shopper this weekend spending $365.34, up from last year’s $343.31. Total spending reached an estimated $45.0 billion.

“While Black Friday weekend is not always an indicator of holiday season performance, retailers should be encouraged that a focus on value and discretionary gifts has shoppers in the spirit to spend,” said Matthew Shay, NRF President and CEO. “As retailers look ahead to the first few weeks of December, it will be important for them to keep momentum going with savings and incentives that holiday shoppers simply can’t pass up.”

If it seems like Black Friday gets earlier every year, that’s because it is. Many retailers opened their doors earlier than ever, and eager shoppers followed suit. According to the survey, the number of people who began their Black Friday shopping at midnight tripled this year from 3.3 percent last year to 9.5 percent in 2010. In fact, by 4 a.m. nearly one-fourth (24.0%) of Black Friday shoppers were already at the stores. Thanksgiving Day openings have also been a boon to the industry, as the number of people who shop on Thanksgiving – both online and in stores - has doubled over the past five years, from 10.3 million in 2005 to 22.3 million in 2010.


After a holiday season of blue jeans and coffeemakers, shoppers demonstrated that they were in the mood to purchase more discretionary gifts this year. The number of people who purchased jewelry over the weekend rose substantially, from 11.7 percent last year to 14.3 percent this year. Additionally, more people purchased gift cards, toys and books and electronic entertainment than a year ago.

“It’s certainly encouraging to see an increase in traffic and sales from the four-day holiday weekend, however, consumers still have concerns about the economy, jobs, and paying down debt,” said Phil Rist, EVP, BIGresearch. “It was the consumers’ search for deals and bargains that drove the weekend traffic rather than their confidence in the economy.”

While shoppers seemed focused on getting good deals, items of strong value seemed to win out over the absolute lowest prices. According to the survey, both department stores (52.0% this year vs. 49.4% last year) and clothing stores (24.4% vs. 22.9%) saw healthy increases in traffic, while the percentage of people who shopped at discounters declined 7.2 percent, from 43.2 percent last year to 40.3 percent this year. As retailers leverage their websites to offer Black Friday prices to shoppers who don’t want to fight crowds, the percentage of people who shopped online this weekend rose a healthy 15.2 percent, from 28.5 percent last year to 33.6 percent this year – a strong sign heading into Cyber Monday. NRF Report

Given Surging Cotton Prices, Once Size Fits All Becoming more Popular

One Size Fits All, Our solution to Full Size Prices

Nov. 16 (Bloomberg) -- Gap Inc., J.C. Penney Co. and other U.S. retailers may have to pay Chinese suppliers as much as 30 percent more for clothes as surging cotton prices boost costs.

“It’s a little terrifying to deal with cotton suppliers now,” said Vicky Wu, a sales manager at Suzhou Unitedtex Enterprise Ltd., a closely held, Jiangsu province-based clothes maker that counts Gap and J.C. Penney among its clients.

Cotton futures in China have surged more than 70 percent this year and were at a record earlier as the global economy emerged from recession, allowing people to spend more on clothes. Production of the fiber in China, the world’s biggest user and importer, is forecast to lag behind demand for a 12th year, cutting its stockpile to the smallest since 1995, according to the U.S. Department of Agriculture.

“American consumers better get used to rising prices on the shelves of Wal-Mart and other retailers,” said Jessica Lo, Shanghai-based managing director at China Market Research Group. “China’s manufacturers are getting squeezed not only by rising cotton costs but also soaring real estate and labor costs.”

John Ermatinger, Gap’s Asia president, declined to say whether it would raise prices. “We are going to be mindful of our competition,” he said in a Nov. 10 interview in Shanghai. “We are going to be mindful of our consumer. That’s how we’ll ultimately establish our prices.”

Shandong Zaozhuang Tianlong Knitting Co., which makes Polo Ralph Lauren Corp. T-shirts and track suits for Le Coq Sportif Holding SA, has raised prices as much as 70 percent from a year earlier, said sales manager Fred Hu. “If cotton keeps rising like this, we will need to lift prices by 30 percent by the Spring Festival next year or we lose money.” Complete Bloomberg Article

November Christmas Spending Estimate Outlook Exceeds 2009 however...

A Relatively High 34% Will Spend "Less"

on Gifts This Year

(probably has something to do with employment and

the no inflation increases in food, medical, tuition, fuel, clothing...)

By Lydia Saad
Gallup
11/15/10

PRINCETON, NJ -- Americans currently predict they will spend $714 on Christmas gifts this year -- well exceeding the $638 they forecast in November a year ago for the 2009 holiday season, but still trailing the pre-recessionary November forecasts recorded over most of the last decade.



The findings are from a Gallup poll conducted Nov. 4-7, 2010, in which respondents were asked to predict the total amount they will spend on Christmas gifts this year. The current forecast is nearly identical to Americans' October prediction of $715.

According to Gallup modeling, if the figure holds at this level through December, that would point to a roughly 2% year-over-year increase in holiday sales. Further, if consumers' spending estimate increases between November and December, as it typically does, actual retail sales could improve by closer to 4%, similar to the long-term average.

A Relatively High 34% Will Spend "Less" on Gifts This Year

Although the majority of Americans, 52%, say they will spend the same on gifts this year as in 2009, roughly a third of Americans, 34%, say they will spend less, compared with 12% saying they will spend more. That 22-percentage-point gap is nearly double the average 13-point difference between these figures over the past 20 years -- providing a note of caution to Americans' dollar spending forecast.

The current gap contrasts with a 39-point gap found in November 2008, amid the turmoil of the global economic collapse. However, in periods of relative economic prosperity, such as from 1995 through 2000, the figures were about even. Link to report with charts

All excited about October 2010 retail sales, thank God for Seasonal Adjustments

Unlike the Census Bureau and every other U.S. Government reporting agency, we consumers do not seasonally adjust our spending. If we can't afford the winter coat, we do not buy it, regardless of weather conditions nor what we did or did not purchase last month or last year.

CNBC and other self-proclaimed financial news venues are giddy about the October 2010 retail sales report beating expectations. The following is a recap of several line items from the Census Bureau report noting the difference between seasonally adjusted figures and not adjusted (a.k.a. what was really spent): Retail Report

• $373.103 billion total seasonally adjusted retail sales
• $363.390 billion total not adjusted retail sales ($9.7 billion that never hit the retailers' cash registers)
• $67.005 billion total seasonally adjusted motor vehicle and parts dealers
• $62.230 billion total not adjusted sales ($4.775 billion that never hit the dealers' accounts or parts stores)
• $30.872 billion total seasonally adjusted non-store retailers
• $29.551 billion total not adjusted sales ($1.321 billion never hitting the register)
• $51.083 billion total seasonally adjusted general merchandise store
• $49.860 billion total not adjusted sales ($1.223 billion that never hit the register)
• $8.647 billion total seasonally adjusted electronics and appliance stores
• $7.512 billion total not adjusted sales ($1.135 billion that never saw an i-pad)
• $24.451 billion total seasonally adjusted building material, garden equip. and supplies dealers
• $23.864 billion total not adjusted sales ($587 million that never hit Home Depot)
• $18.186 billion total seasonally adjusted clothing and clothing accessories
• $17.647 billion total not adjusted sales ($539 million that never hit Macy's and peers)

Granted, several line items were actually seasonally adjusted down from the "not adjusted figure" however on a net basis, $19+ billion never left the consumer's pocket.

Fed's Quantitative Easing Part 2 has destroyed $4.6 trillion in household wealth, all to boost the stock portfolios of the top 10%. (Charles Hugh Smith)

By Charles Hugh Smith
Of Two Minds
11/10/10

The Fed's Quantitative Easing Part 2 has destroyed $4.6 trillion in household wealth, all to boost the stock portfolios of the top 10%.

The Federal Reserve's stated goals in launching QE2 were to trigger a "wealth effect" and boost inflation. The net result of their program is a massive destruction of household wealth. The basic idea is that goosing "risk assets," i.e. stocks, then consumers will feel wealthier and thus motivated to open their wallets and spend, spend, spend. This spending won't be based on any increase in income (household income fell in 2009 despite the massive run-up in stocks) but on the illusion of greater wealth created by a temporarily rising stock market.

(Median household income fell 0.7% to $49,777 in 2009, down 4.2% since 2007, when the recession started.)

The Fed must be aware that the top fifth of households collects 50.3% of all pre-tax income and the bottom two-fifths receive 12%, so the "wealth effect" is in essence another "trickle down" scheme in which the top earners buy more handbags manufactured in China and the bottom 80% of Americans are supposed to benefit by being hired to stock the shelves with Elite goods.

As I often report, only the top 10% of households own enough equities to feel wealthier; so the Fed's central faith is doubly a "trickle down" theory: only the top 10% can possibly experience a wealth effect.

But the destruction of purchasing power as the Fed destroys the dollar is felt by all households--especially the bottom 80%. The Boiling Frog: Effects of QE2 On The Bottom 80% of the U.S. Population.

As I noted in Are the Fed's Honchos Simpletons, Or Are They Just Taking Orders? (November 1, 2010), Quantitative Easing 2 makes no sense. Today I will quantify just how perverse and destructive the Fed's policies have been to U.S. households.

The latest snapshot of the household's balance sheet comes from the Fed Flow of Funds for the second quarter (June 30, 2010). If we measure what has happened to the U.S. dollar and the S&P 500 since July 1, then we can measure the effects on the household balance sheet.

Let's collect a few key numbers from the Balance Sheet of Households and Nonprofits. All numbers are as of June 20, 2010 (Q2 2010).

•  Real estate: $18.8 trillion, down from $24.9 trillion in 2006 (bubble top)
• Total financial assets: Q2 2010 $43.7 trillion, down from $50.6 trillion in 2007 (pre-recession)
• Deposits (cash): $7.55 trillion, down from $7.9 trillion
• Credit market instruments: (bonds etc.) $4.3 trillion, up from $4 trillion in 2007
• Corporate equities (stocks): $6.7 trillion, down from $9.6 trillion in 2007
• mutual fund shares: $4 trillion, down from $4.5 trillion in 2007

Liabilities (debts, mortgages, etc.):

• Total liabilities: $13.9 trillion, down from $14.4 trillion
• home mortgages: $10.15 trillion, down from $10.5 trillion
• Net worth: $53.5 trillion, down from $64.2 trillion, a decline of $10.7 trillion

So mortgage debt decreased by a trivial $.35 trillion, total liabilities decreased by a modest $.5 trillion, and net worth declined by a whopping $10 trillion. Most of the mortgage and debt declines result from write-downs of debt by lenders, not from households paying down debt.

In other words, after suffering a staggering 17% decline in net worth, households managed to write down or pay down a tiny 3.4% of their liabilities. Complete Post

132,173 bankruptcy filings in October, Don't worry, Republicans took the House and Fast Money is Excited About QE-2

132,173 Americans filed for bankruptcy

in October. This is truly a sad commentary

of what has and continues to occur

in this country.

November 2, 2010, Alexandria, Va.— U.S. consumer bankruptcy filings totaled 132,173 nationwide during October, a 1.4 percent increase over the 130,329 total consumer filings recorded in September, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC).

While the October consumer filings represented an increase from the previous month, they represented a 2.75 percent decrease from the October 2009 total of 135,913. Chapter 13 filings constituted 29.7 percent of all consumer cases in October, a slight decrease from September.

“As the issues of unemployment and economic stress weigh heavily on today’s elections, consumers continue to seek the financial shelter of bankruptcy,” said ABI Executive DirectorSamuel J. Gerdano. “We anticipate that there will be nearly 1.6 million consumer bankruptcy filings by year end.”

More consumers filed for bankruptcy during the first 10 months of the year than for the same period in 2009, according to the institute. About 1.3 million consumers sought court protection from their debts so far this year, compared with about 1.2 million through October in 2009.

It can only get better, Republicans

took over the House and

Bernanke announces QE-2

and CNBC is Giddy...sleep well America 

Layoff Announcements increase in October: “The problem is that consumer spending will not increase until more people have jobs."

So, right now, it is difficult to imagine

what exactly will provide the spark for

increased hiring and an accelerated recovery.

CHICAGO, November 3, 2010 – Downsizing activity remained flat in October, as employers announced job cuts totaling 37,986 during the month. That was 2.2 percent more than the 37,151 planned layoffs in September, according to the latest job-cuts report released Wednesday by global outplacement firm Challenger, Gray and Christmas, Inc.

October marks the sixth month in the last seven in which fewer than 40,000 job cuts were announced. It was the tenth consecutive month this year that saw fewer job cuts than the same period a year ago. Last month’s total was 32 percent lower than October 2009, when 55,679 job cuts were announced. Overall, the pace of job cutting is down 62 percent from a year ago, with employers announcing 449,258 job cuts year to date, compared to 1,192,587 over the same period in 2009.

“Job cuts are the lowest they have been in a decade, due in part to a slowly improving economy; if not the fact that many employers have basically cut their workforces to the bare minimum. Unfortunately, the lack of spending by consumers and businesses is stunting demand for new workers. The modest gains in business activity are currently being met by increasing hours of existing workers,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

“The problem is that consumer spending will not increase until more people have jobs. But businesses won’t begin expanding production or hiring until there is more demand for their products and services. Increased government spending, while economically justified, has become politically unfeasible. So, right now, it is difficult to imagine what exactly will provide the spark for increased hiring and an accelerated recovery. Something has to provide that spark, though, or the economy will be stuck in mud for the foreseeable future,” noted Challenger. Full Report

MI Sentiment for October 2010: Survey says.....

Index of Consumer Sentiment: 67.7 (down 4.1% versus October 2009)

Index of Consumer Expectations 61.9 (down 9.8% versus October 2009)

Current Conditions Index 76.6 (up 3.9% versus October 2009)

Surveys of Consumers
Thomson Reuters/Univeristy of Michigan
10//29/10

There has been no discernable change in the overall level of consumer confidence during the past four months. At its current level, the Sentiment Index is about 20 index-points below its all-time mean, ranking barely above the bottom decile of all monthly surveys.

Not only has the Sentiment recovery been slow and shallow, confidence has declined since the start of 2010 mainly due to a weaker outlook for economic growth during the years ahead. Consumers never anticipated that economic growth would be strong enough to quickly improve their job and income prospects, but they did think that they had already weathered the worst of the declines. Long term economic prospects are now less favorable than anytime since the recession lows in late 2008 and early 2009.

Rising Concerns about Long Term Economic Prospects

The majority of consumers reported that the economy had recently weakened, as consumers have increasingly reported hearing news of job losses over the past several months. Importantly, consumers were more likely to anticipate improvement in the year ahead rather than a renewed economic downturn. Nonetheless, nearly six-in-ten consumers thought that overall conditions in the national economy would still be unfavorable.

While positive economic growth was anticipated, it was expected to be so slow that consumers anticipated that the unem-ployment rate was more likely to rise than fall during the year ahead. Overall, just 17% expected a declining unemployment rate. A turnaround in this grim jobs outlook was not expected anytime soon. Indeed, when asked about growth prospects for the economy over the next five years, the largest proportion of consumers (59%) since the start of 2009 anticipated a renewed economic downturn sometime during the next five years.

Consumer Sentiment Index

The Sentiment Index was 67.7 in the October 2010 survey, slightly below the 68.2 in September, but below last year’s 70.6. The Current Conditions Index improved, while future expectations for the economy worsened.

A year-to-year decline of 9.8% was recorded in the Expectations Index, a component of the Index of Leading Eco-nomic Indicators. The decline in the Expectations Index compared with a year ago was due to less favorable prospects for both personal finances as well as for the overall economy.

Surveys of Consumers chief economist, Richard Curtin

"Confidence in government eco-nomic policies has fallen to the low-est level since the closing months of the Bush presidency, with just 11% of consumers holding favorable evaluations of Obama’s policies. Although mid-term elections primarily respond to local rather than national issues, residents of nearly all local areas expressed economic discontent. It would not be surprising for confidence to rebound after the election; it would be surprising if those gains proved to be more than temporary. If the lame duck Congress does not immediately pass an extension of the Bush tax cuts, not even deep discounts will secure modest gains in holiday sales."

Consumers Issue a Cautious Christmas Spending Forecast

Forecasts...excluding consumer input

10/5/10: The International Council of Shopping Centers forecast 

that holiday sales will increase by 3 to 3.5 percent

from a year ago, marking the biggest jump in four years

(sales in 2006 increased 4.4 percent).

  10/6/10: National Retail Federation (NRF) Forecasts Holiday Sales

Increase of 2.3 Percent

--Total Holiday Sales Expected to Reach $447 Billion—

Forecasts...including consumer input

10/25/10: PRINCETON, NJ -- Gallup's initial measure of Americans' 2010 Christmas spending intentions finds consumers planning to spend an average of $715 on gifts, roughly on par with the $740 recorded in October 2009.

The $25 decrease in Americans' holiday spending intentions between October 2009 and October 2010 (not a statistically significant change) contrasts with a $61 year-over-year reduction in intended spending found last October and a $108 reduction found a year prior.

The muted nature of this year's decline is reflected in consumers' own evaluations of their spending changes. According to the Oct. 7-10 poll, 27% of Americans intend to spend less on Christmas gifts this year than what they spent last Christmas -- higher than the 11% who now say they will spend more, but down from the 35% and 33% in 2008 and 2009 saying they would spend less. Prior to the recent recession, Americans were much more closely divided over whether their holiday spending would exceed or trail their spending of the prior year, while more said their spending would be "about the same."

Bottom Line

Americans' average prediction of the total amount they will spend on Christmas gifts this year is not highly encouraging for retailers, who may be hoping for a return to pre-recessionary buying habits. The good news, however, is that the $25 decline in this year's October forecast is far less than what Gallup found in each of the prior two years at this stage in the season and, according to Gallup modeling, would point to a fairly flat year in holiday retail sales if it holds at this level through December. According to the National Retail Federation, there was a steep 3.9% year-over-year decline in holiday spending in 2008. Compared with that, a repeat of the "flat" holiday sales seen in 2009 may be a tolerable, if unwelcome, outcome for retailers who have grown accustomed to the new, more budget-conscious consumer.

Gallup will update this measure in early November and again in early December. The December forecast has historically been a strong indicator of the direction of holiday retail sales, forecasting the extent to which sales will be higher or lower than the previous year. The October figure is not always predictive of the December forecast, however. In 2002, consumers' estimates of how much they would spend increased between October and December; in 2007 and 2008, their estimates decreased, while in 2009, they stayed about the same.

Message from the media has been that consumers are focused on reducing debt levels, and paying down existing balances. Do you believe in fairy Tales?

If you believe that and think positive thoughts,

your good vibes might save Tinkerbell,

because that story is a fairy tale.

By Chuck Jaffe
10/13/10
BOSTON (MarketWatch) — If the media doesn’t understand consumer delinquency numbers, there’s no reason to believe consumers get it. But what became patently obvious last week when the American Bankers Association released second-quarter data on the nation’s credit picture is that the “good credit behaviors” we keep hearing about of late are mostly hogwash.

It’s not entirely surprising. In a nation that has a deficit problem, where average consumers have at least minor debt troubles, there are going to be a lot of delusions and misconceptions about how credit works.

Consider how three news organizations covered the American Bankers Association release on Oct. 5. According to the Associated Press, “Delinquency rates for three key consumer-loan categories improved in the second quarter,” which was surprising to anyone who read the Bloomberg Business News report which said that “U.S. consumer-loan delinquencies increased for the first time in a year…amid a slowdown in recovery from the worst economic crisis since the Great Depression.”

MarketWatch, meanwhile, noted that “In a positive sign for the economy, the number of consumers who were delinquent on their loans fell in seven of 11 loan categories.”

In other words, the economic data was pointing in every direction, signifying nothing. It certainly does not mean what economists, politicians and most in the media are saying it means.

Do you believe in fairy tales?

The message from the media has been that consumers are focused on reducing debt levels, and paying down existing balances. They are using credit cards less, building their savings and being prudent with their spending. The Federal Reserve’s G-19 Consumer Credit Report showed that, as of July, revolving consumer debt had been on the decline for 23 straight months, a period of nearly two years.

If you believe that and think positive thoughts, your good vibes might save Tinkerbell, because that story is a fairy tale.

“Look at the charge-off numbers for the banks and they are almost dollar-for-dollar the decline in consumer debt,” said Greg McBride, senior financial analyst for Bankrate.com. “So you are getting headlines about how much better off consumers are, and how they are paying down their debts, but that’s not what’s really happening.”

It’s an economic sleight of hand that should feel pretty familiar. It’s akin to statistics showing that unemployment is going down, when the numbers exclude the chronically unemployed who have been out of work for so long that they drop out of the active work force. They’re not working, but the overall statistics look better with them on the outside.

That’s how it is on consumer-debt numbers too. There are two main ways for things to get better: either consumers pays down their bills or banks write off the worst garbage on their books.

A recent study by CardHub.com looking at the G-19 report and comparing it to bank charge-off numbers found that revolving debt was off by $12 billion in the second quarter of 2010, but that banks actually charged off some $21.8 billion in bad debt. What that means is that consumers actually accumulated debt—nearly $10 billion more than the year before—and the only progress was caused by banks giving up on consumers who are too far gone to pay.

CardHub’s latest projection is that consumers will accumulate an additional $26.2 billion in credit card debt this year, relative to 2009.

Lenders aren’t just writing off their bad, old debts, they’re tightening up on making new ones. As a result, the few consumers who really have taken the tough economy to heart and who have made strides on debt reduction and credit-score improvement have been met with tougher credit terms.

Tighter limits

Many credit-card issuers, for example, are “walking up the balance,” which means they are reducing a customer’s credit limit as the consumer pays off outstanding debt.

Say someone has a credit card with a $10,000 limit and holds the average household credit debt of roughly $9,000 on that card. They pay off $2,000 of that debt; their balance has shrunk to $7,000, but the card issuer—wanting to reduce its potential liabilities—might cut that borrower’s available limit down to $7,500.

In this case, the borrower is doing the right thing, but they have little to show for it. When they started this debt-reduction effort, they were using 90% of their available limit; the reduced credit limit means they finish their pay-off using 93% of the reduced balance. That puts them closer to the edge and likely means the consumer’s credit score will not improve, in spite of the fact that they have less total debt. Link to the rest of the fairy tale

The Conference Board Consumer Confidence Index® Improves Slightly and the Futures Launch

Within the first 50 minutes of trading, the S and P Futures launch from 1039.50 to 1052.50. A 13 point move in the first 40 minutes of trading because the consumer confidence reading came in "better than expected"?  15 minutes after the open, the Chicago PMI came in less than expected and almost 10% less than the June reading and the lowest reading of 21010 but hey, the algorithmic Cheetos eating Red Bull drinking HFT gamers have once again successfully launched the market. Once again, the liftoff occurs on lighter volume but volume is so old school...

Conference Board

The Conference Board Consumer Confidence Index® which had declined in July, improved moderately in August. The Index now stands at 53.5 (1985=100), up from 51.0 in July. The Present Situation Index decreased to 24.9 from 26.4. The Expectations Index increased to 72.5 from 67.5 last month.

The Consumer Confidence Survey® is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. TNS is the world’s largest custom research company. The cutoff date for August’s preliminary results was August 24th.

Says Lynn Franco, Director of The Conference Board Consumer Research Center: “Consumer confidence posted a modest gain in August, the result of an improvement in consumers’ short-term outlook. Consumers’ assessment of current conditions, however, was less favorable as employment concerns continue to weigh heavily on consumers’ attitudes. Expectations about future business and labor market conditions have brightened somewhat, but overall, consumers remain apprehensive about the future. All in all, consumers are about as confident today as they were a year ago (Aug. 2009, 54.5).

Consumers’ appraisal of current conditions continued to weaken in August. Those claiming business conditions are “good” decreased to 8.7 percent from 8.8 percent. However, those stating business conditions are “bad” declined to 41.9 percent from 43.3 percent. Consumers’ assessment of the labor market deteriorated further. Those saying jobs are “hard to get” increased to 45.7 percent from 45.1 percent, while those claiming jobs are “plentiful” declined to 3.8 percent from 4.4 percent.

Consumers’ expectations improved moderately in August, but overall, they remain pessimistic. Those anticipating an improvement in business conditions over the next six months increased to 17.0 percent from 15.8 percent, while those anticipating conditions will worsen declined to 13.4 percent from 15.3 percent.

Consumers were also slightly less pessimistic about future employment prospects. Those expecting more jobs in the months ahead increased to 14.6 percent from 14.2 percent, while those anticipating fewer jobs decreased to 19.4 percent from 20.9 percent. The proportion of consumers expecting an increase in their incomes held steady at 10.6 percent.