Retail Sales Remain Upbeat

Good day… And a Tremendous Thursday to you! It’s also Valentine’s Day! So, to the special ladies in my life… My beautiful bride, my darling daughter, and lovely granddaughter: Happy Valentine’s Day!

I sure hope you’re not heading to the gas station right now to pick up a gas station Valentine’s Day card because you forgot! HA! Anyway… Have a great Valentine’s Day!

OK… Retail sales in January came in stronger than expected at +0.3%! WOW! How did that happen, the BHI has never been THAT wrong! But wait! My beautiful bride asked me yesterday why I thought the BHI had indicated slow retail sales… I said, “Because I didn’t see the shopping bags”. She laughed and said… “I know, I bought stuff online and the deliveries came during the day while you were at work” Ahhh, I see said the blind man as he spit into the wind… It’s all coming back to me now!

But wait! Instead of being dollar positive as a stronger than expected retail sales number should have been… It wasn’t! In fact it really wasn’t anything, except yen (JPY) negative. I would try to explain that one, but I don’t have the time, space or energy to do that! HA!

Anyway… Chris Gaffney sent me something last night that helps explain the stronger than expected retail sales number. Here’s the skinny…

“Consumers have continued spending, with the advanced retail sales in January surprising the markets with an increase of 0.3% versus expectations of a drop of 0.3%. But evidence is mounting that the plastic fueled spending spree won’t last. In December, an average of 7.6% of credit card loans were either at least 60 days delinquent or had gone into default, up from 6.4% a year earlier. This trend is alarming, and with further weakening of the U.S. economy, consumer credit could become the next ‘big story’ to hit the markets.”

So… If it’s not Mortgage Equity Withdrawals or MEW’s… It’s credit card time… Uh-Oh, what will consumers use next? Maybe we’ll see an increase in organ donations! Hey! That would be a wonderful thing right? But selling a kidney so you can buy a large flat screen TV is kinda weird don’t you think?

Oh, but don’t worry! The mortgage guys on the radio use to run adds saying, “Want a boat? Put it on the house!” ” Want a new car? Put it on the house!” They don’t run those ads any longer. I wonder why? Never mind… What I’m getting at here, is that we shouldn’t worry about our next means for spending… The tax rebate checks are in the mail!

Yes… That’s right! Treasury Secretary Paulson said yesterday… “No recession ahead, tax rebates are coming”. OK, I almost lost my cookies on that one! I wonder how those $600 checks are going to help the 1,000 people that just lost their job at Morgan Stanley mortgage operations yesterday? Hmmmm… I know I’m a cynic… But somebody has to look past these rose colored glasses Paulson and Bernanke are wearing these days!

OK, enough of that! Let’s look at Japan for a minute. Yesterday I told you that Japan had inflation. Well, now they have economic growth to go with the inflation! Japan’s GDP grew more than estimated in the fourth quarter by 3.7%! Now will this be enough to get the Bank of Japan (BOJ) off their duffs to raise rates? I still doubt it… These guys at the BOJ are not exactly “wild and crazy Japanese”! Remember that old Steve Martin and Dan Akroyd skit about the “wild and crazy guys”? Hahaha!

Here’s something I told one of my audiences last week… The saying used to be, that when the United States sneezes, the rest of the world catches a cold. Well, the United States is sneezing its head off right now; we’ll have to see how it affects the rest of the world. You see, things aren’t what they were 10 years ago… The European Union was created for times like this, and with 80% of their trade done among themselves, they have done a good job protecting/shielding their economy from the U.S. recession.

In Asia, there’s no Union… But there is trade among each other, and strong domestic demand in Asia, even in Japan. Yes, the U.S. recession will cause the rest of the world to slowdown… But come to a stop? I don’t think so.

What that means for Europe and Asia is that their currencies should enjoy the benefits of not getting caught up in a recession… Europe’s positive interest rate differentials should remain in place… And Asia’s growth should be able to withstand a slowdown.

So, the euro (EUR) range traded all day between 1.4530 and 1.4585… But in the overnight markets, the single unit has pushed through 1.46 again. I would certainly like to see the euro push deep into the 1.46 handle and remain above 1.46 for a day or two… Otherwise, if it pops up here and falls back like it has done a couple of times already, it gives me the sense that it has lost its “staying power”. So, let’s watch it today and tomorrow to see what happens, eh?

Today, we’ll see the color of December’s trade deficit. The experts believe that the deficit will remain above $61 billion for December. With these data releases so delayed, it makes it difficult to recall what was going on in December besides stocking stuffing. So… I’ll switch over to the Pfennig archives, and look at oil prices in December… Hold on, I’ll be right back! OK… A quick search there tells me that in December, oil went from $88 to $95… So… That means the trade deficit for December should be pretty rotten, as we were dealing with rising oil prices.

Of course oil isn’t the only culprit in the trade deficit fiasco… But it’s probably the one that is more easily accountable.

Last week I talked about the “Euro Wannabes” of Hungary, Poland and the Czech Republic, and said that the pressure of joining the ERM (the precursor to a euro conversion) had hurt these three… But in reality, it has only the Hungarian forint. The Polish zloty, and Czech koruna have been stalwarts! Kudos to them!

Well… It’s just like “old times” in the currencies as I look at the screens… Euros, sterling (GBP), Canada (CAD), Aussie (AUD), Kiwi (NZD)… They are all up and looking strong this morning versus the dollar, while Japanese yen has slipped back to 108 and change. Swiss francs (CHF) haven’t lost ground, but they haven’t been able to join the other dogs as they run down the street chasing the dollar this morning.

More subprime mortgage losses have been recorded… UBS reported last night that they would take a $13.7 billion fourth quarter writedown. I heard a major publication, maybe the Wall Street Journal, say that mortgage losses from subprime would reach $400 billion. You may recall me telling you that three months ago! Yes… That’s right! I told you waaaaaayyyy back in November that the losses would reach $400 billion.

The problem, you see, is this… So far, there’s only been a little less than half of that $400 billion number acknowledged… Isn’t that scary? If I’m right… There could be another $200 billion or so, in losses still to be taken… Uh-Oh! No wonder the Fed cut rates 125 BPS last month, and will play catch up again in March with another 50 BPS cut. But the cow is out of the barn, folks.

So… Let’s recap yesterday… Retail sales rose 0.3% but were very suspect… President Bush signs a $168 billion Stimulus/Spending Package, which will do little to address the imminent issue of a financial system in crisis… Currencies rally overnight, except yen, which should tell us that the carry trade lives… And more subprime losses have been taken… We’ll see the trade deficit for December today, and… Drum roll please….

Call out the trumpeters, for Big Ben Bernanke! Yes, Big Ben Bernanke will speak to congress today – that is if they can take time out of their busy schedule getting Roger Clemens autographs to listen to the Fed Chairman. Geez Louise, I sure hope Ron Paul is able to get back to Washington D.C. from campaigning to grill Big Ben again.

Anyway, why would/should we listen to Big Ben? Hasn’t he led us down a path of destruction? I know he thinks this is the way to go… But we’ve been there! It’s not! Believe you me, I sure don’t want to revisit the ’70’s economic wise… Now, to see Chris Gaffney in his big bell-bottom pants out on the disco dance floor, now that would be a hoot! But, economic wise… No thanks on a revisit to the ’70’s.

Currencies today 2/14/08: A$ .9035, kiwi .7875, C$ 1.0015, euro 1.4615, sterling 1.9710, Swiss .9050, ISK 66.85, rand 7.6525, krone 5.4450, SEK 6.38, forint 178.84, zloty 2.4540, koruna 17.36, yen 108.15, baht 32, sing 1.4160, HKD 7.80, INR 39.65, China 7.19, pesos 10.74, BRL 1.7430, dollar index 76.28, Oil $93.75, Silver $17.46, and Gold… $914.10

That’s it for today… Just four more days on this round of cancer meds. At this time of the process I’ve lost all taste except for sweets and beer, of which I need to have neither, given my size! I can’t put anything that’s warm to hot, temperature wise, in my mouth… You would think that I would be losing weight and “looking good”! Always I tell you it is better to look good than it is to feel good my friend! But Noooooo! I have the ability to shed weight like the U.S. consumer can stop spending! But that’s another story… I receive a ton of emails from people asking me to keep them up to date with what’s going on with my health… So here you go! I go for a visit with my oncologist and blood doctor today… It’s about time for another scan. Not that I like going in for those things, but they do tell me if I’m clean or not!

My friend, Addison Wiggin, sent me a note yesterday, and said that the cover for the updated/ revised Demise of the Dollar book looks good… So it won’t be long now! I’ll stay on top of this one for sure and let you know when its available… So… Happy Valentine’s Day, I hope you get to share it with your sweetheart! Time to go to work! Have a Tremendous Thursday!

Chuck Butler
February 14, 2008

The Daily Reckoning