Retail Sales July: They STINK

Sigh.....

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for July, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $342.3 billion, a decrease of 0.1 percent (±0.5%)* from the previous month and 8.3 percent (±0.7%) below July 2008. Total sales for the May through July 2009 period were down 9.0 percent (±0.5%) from the same period a year ago. The May to June 2009 percent change was revised from +0.6 percent (±0.5%) to +0.8 percent (±0.2%).

Let's look inside the numbers because they are far worse than anyone had expected, and in fact resulted in roughly 8 handles coming off the futures instantly on release.

The internals in the report should give everyone pause.  A few highlights:

• Electronics, the "high tech will save us" meme of Cramer and the rest of Tout TV: Down sequentially (8,156 .vs. 8,275), even though this is the start of "back to school" buying of laptops and similar.  It is also down from $9,554 last year, a monstrous decrease.
• Building materials, down as well, despite the so-called "better home starts", again sequentially, July from June.
• Gasoline, down despite the price of gasoline being flat to slightly up.  Uh, isn't this summer vacation driving season?  Ah, people aren't going out are they?
• Clothing is up a bit sequentially ($17,131 .vs. $17,027) but down huge from last year ($18,540)
• General merchandise stores, down sequentially and off about 4% from last year.
• Non-store retailers (e.g. online buying) up a bit, $24,058 .vs. $24,025) but down big from last year ($25,388)
• There was, however, one green shoot.  Bars (in "food and drinking places") were up both sequentially and year/over/year. 

So if the economy sucks you won't buy much, but you will go out and get drunk.  Sounds rational to me.

Investment strategy? 

Go long booze and bars, short everything else - including Tout TV.

Folks, I caught the shift onto credit cards for consumers in April of 2007 and warned about it.  Nobody wanted to listen in 2007 or 2008 and they're sure as hell ignoring it now.  The "green shoot" guys have been gushing all over themselves claiming that "the economy has bottomed" but they simply cannot answer the question that I have continually asked: where is the money going to come from?

Let's go back through the progression that I laid out and identified from the mathematics and earnings reports more than two years ago:

1. Consumer has been pulling out hundreds of billions of dollars a year to maintain their standard of living, running up credit cards and then refinancing their house to pay it off.  Rinse and repeat.
2. Housing ATM slams closed in 2007 when the floor falls out of Subprime and the liar loans start to explode.
3. The credit card build is detected in the spring of 2007; I identified it at that time and started yelling about it right here in these pages.
4. The media ignores this, and claims "there will be no recession" across the board.  This claim is not just made by Tout TV - Bernanke and the other "so-called" economists also ignore the data staring them in the face.
5. In 2008 the market collapses.  But consumer borrowing does not; in fact, consumer credit continues to increase all the way through the meltdown last fall!  This is madness but it is what Tout TV and the rest of the media have wrought - instead of cautioning in 2007, they incessantly try to pump consumption to keep "hope alive", despite the math all the way into the maw of the abyss.
6. In January 2009 consumer credit peaks.  The consumer finally hits the wall right after Christmas 2008, and is forced to start paying down and defaulting his debt.

But as of today we have only erased some 3% of consumer debt obligations. 

THREE PERCENT! 

This is simply nowhere near enough credit available for the consumer to be able to restart the borrow-and-spend cycle.  The housing ATM is still closed and will remain so for the foreseeable future.  Consumers now must earn what they spend, not borrow it.

This is not about how much money banks can lend, it is whether there is any borrowing capacity and desire among consumers.  The attempts by the media and government to stoke "animal spirits" among shoppers are doomed to fail because there are no jobs, there is no borrowing capacity, and there is no ability to pull forward demand - consumers officially hit the wall in JANUARY but nobody in the media will talk about it.

The argument that the S&P 500 or any other stock market is "reasonably priced" based on the 2003-2007 metrics of "reasonable", and that earnings will "greatly accelerate" (along with top line revenues) is ridiculous.  Everyone wants to claim "the market is cheap."  Nonsense.

We had an auto industry that was turning out 20 million units annually, it is now doing around 11 million, and this is with "Cash for Clunkers." That's approaching a fifty percent reduction.  So what you say?  All those people that used to make cars now are unemployed!  What are they going to spend - their good looks?

We have imports down some 30% and China is reporting exports down 25%.

The "employment report" was better only because half a million people gave up and exited the workforce last month alone.  That's "improvement" only in the world of government numbers, and that sort of "improvement" will continue in the coming months as well over 1 million people will exhaust their extended unemployment benefits over the next four months.

There is no spending power left in the consumer; he has hit the wall with his plastic and now is reduced to spending what he makes, which is a LOT LESS than he spent in 2007 and before.

Dick Bove has even come out and said "sell banks!" - he has finally come to my conclusion: Yes, the positive yield curve is nice, but credit costs are real and credit quality is still deteriorating.  Those losses are REAL.

The so-called "economists" are either all taking mescaline or are in someone's pocket and making calls that are knowingly false.  This data has been visible to all now for more than two years, yet it has been willfully and intentionally ignored.  Yet irrespective of what the media wants to think you cannot get people to spend who have no money, and the result looks like this at the local shopping mall:

The consumer is out of money!

Now add to this the increase in crude oil - which inevitably translates into gasoline.  Oil has doubled since the bottom on the calls for "green shoots" and similar nonsense, along with dollar depreciation.

That's a very pretty cup and handle; on a measured-move basis it projects to a price of around $110/bbl for oil.  Would you like your $4 gasoline back?  I hope so, because you just might get it. later this fall and into the winter, just in time for JP Morgan and others to sell their stockpiled heating oil (they've been leasing tankers full of the stuff - with government bailout money!) to Grandma and profit (again) from your misery.

Wake up folks.  The mathematical facts are what they are.  Dig inside the data releases from our government and other sources.

Do not just read headlines off CNBC and the "analysts" who are falling over themselves to "upgrade" stocks that depend on consumer spending when there is no spending power, or you will be misled and make a hideous mistake.

The economic storm is NOT over.