NEW$ & VIEW$ (15 AUGUST 2013)

Storm cloud  Wal-Mart U.S. same-store sales slip 0.3 percent

Wal-Mart Stores Inc posted disappointing quarterly U.S. sales on Thursday as shoppers pinched by higher payroll taxes and gas prices made fewer trips to its stores.

In addition to missing analyst estimates, Wal-Mart also showed a jump in inventory levels in Q2 and warned on emerging markets.

Storm cloud  Macy’s Shoppers Remain Cautious

Second-quarter transactions, which the company considers a proxy for traffic, declined 1.6%, a development that Chief Financial Officer Karen Hoguet said was a concern. Customers remain stretched and may have decided to spend their money on other goods, she said on a conference call with analysts.

Macy’s CEO Terry Lundgren blamed disappointing sales on “consumers’ continuing uncertainty about spending on discretionary items in the current economic environment.” Like other retailers, it said it had to discount to clear merchandise after a cool spring hurt summer merchandise sales. Inventory growing faster than sales also was a cause for concern.

Same-store sales slipped 0.8%.

Pointing up  Many large retailers posted tepid sales recently and complained of a generally cautious consumer. Yet, retail sales data were pretty good in the last 3 months, contrary to the trend displayed by consumer spending in the national accounts as this chart from Pictet shows. Hmmm…Driving blind indeed!


Fingers crossed Consumers Step Up Borrowing

After years of struggling to shed debt, Americans are finally gaining enough confidence in their finances to step up borrowing for autos, homes and other goods—a shift that could boost the economic recovery.

Auto lending increased by $20 billion in the second quarter from the previous quarter, the largest gain in seven years, Federal Reserve Bank of New York figures showed Wednesday. Americans also increased their credit-card balances, reversing a first-quarter decline, and took out more mortgages.

At the same time, total consumer debt declined by $78 billion last quarter to $11.15 trillion, putting it 12% lower than its peak in the fall of 2008 during the recession and at its lowest level since 2006.

Most of the adjustment was due to a decline in the amount of debt tied to outstanding home loans, likely due to lenders’ write-offs from foreclosures and recent gains in home prices that helped owners sell.

One exception is student debt. The amount of education loans outstanding has increased every quarter since the New York Fed began tracking the figure in 2003. They now account for almost 9% of all consumer debt, up from 3% a decade ago.

Debt Load

The New York Fed data also showed that Americans are doing a better job keeping up with their bills.

Only 5.7% of all consumer debt is 90 days or more late, the lowest level since 2008. The delinquency rate fell in every category measured last quarter, including mortgages and credit cards. (…)

The 90-day delinquency rate nearly tripled from the start of the recession to the first quarter of 2010, when it peaked at 8.7%. (…)

Lenders now appear to be loosening their standards. The total number of credit-card accounts, which fell sharply in the recession’s wake, posted the strongest gain in two years last quarter. (…)

But Macy’s said yesterday

that new banking regulations implemented after the financial crisis is making it harder for Macy’s to sign up new credit-card customers, which also contributed to weaker sales.

More Car Loans Than Mortgages in U.S.

There are now more auto loans than mortgages in the U.S., but most of them are going to older Americans, according to new data from the Federal Reserve Bank of New York.

(…) Americans were holding 84 million auto loans in the second quarter of 2013, compared with 80.6 million mortgages, the New York Fed’s Household Debt and Credit Report showed. (…)

Most auto loans go to older borrowers, with the greatest share going to people aged 30 to 49. That trend predated the recession, but the recovery has come faster for older Americans. The only group originating more loans than before the recession are people over 50, likely a result of aging Baby Boomers.

But 18 to 29 year olds haven’t seen much of a recovery. (…) People aged 18 to 29 are taking out 24% fewer loans than they did prior to the recession, compared to about 10% fewer loans for 30 to 49 year olds. (…)

Auto  The reality is that many young people are trying to avoid having to buy a car while the growing number of older folks are traveling less. (Chart from The Liscio Report)


Producer Price Index: No Change in Headline Inflation, Core Rises 0.1%

(…) the July Producer Price Index (PPI) for finished goods shows no change month-over-month, seasonally adjusted. Core PPI rose 0.1% (which the BLS rounded up from 0.05%).

Year-over-year Headline PPI is at 2.12% (rounded to 2.1% by the BLS), down from last month’s 2.5%, which was the highest since March 2012. In contrast, Core PPI at 1.20% is at its lowest YoY since June 2010.

Click to View


(Ed Yardini)

image(Scotia Capital)

(Ed Yardini)


With Exports At 4-Year Low, Is Japan Missing Boat to China? New figures released by Japan’s government-affiliated trade promotion body show that not only is trade with China falling, officials expect the downturn to be prolonged.

(…) But even as emotions have calmed, Jetro officials say China’s suddenly weaker economy has led to continued reductions in exports. Lackluster private consumption in China contributed to a 47.7% drop in exports of digital cameras and other audio-visual equipment, the figures showed.

(…) Jetro predicts Japanese exports to China will stay keep declining, and deficits will widen further.

China’s slowdown and the ongoing diplomatic tensions have made more and more Japanese companies wary of investing in China. According to Jetro, Japan’s direct investment in China for January-June fell 31.1% from a year earlier to $4.9 billion.

This compares with a 55.4% increase to a record $10.3 billion for the Association of Southeast Asian Nations.

Pointing up The shift is likely to continue, as Japanese companies seek a safer political environment and lower labor and business costs, said Jetro Chairman Hiroyuki Ishige.

Chinese Banks Feel Strains After Long Credit Binge

China’s banking sector is showing some cracks, as years of rapid credit growth in the country has led to serious debt problems for local governments and companies and numerous white-elephant projects.

In a bid to beef up their capital base, the country’s four largest state-owned banks by assets—Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China Ltd. and Bank of China Ltd.—recently won board approval to issue up to a total of 270 billion yuan ($44.1 billion) in securities in the next two years. The figure is bigger than the total amount of issuance by the Big Four in the past two years.

A recent analysis by ChinaScope Financial, a research firm partly owned by Moody’s Corp., shows that China’s banks would have to raise between $50 billion and $100 billion through equity sales in the next two years to maintain their current capital-adequacy levels.


Assets in China’s banking sector jumped 126.5% to about $21 trillion as of the end of last year from four years earlier, making it the fastest-rising banking system among emerging economies, according to Fitch Ratings Inc. But it also is the most thinly capitalized among those economies, with the amount of equity representing only 6.5% of total assets in China’s banking system. By contrast, equity represents an average of 11.2% among 48 emerging economies.

Chinese regulators are taking note. In a rare interview with state broadcaster China Central Television on Aug. 2, Shang Fulin, chairman of the China Banking Regulatory Commission, acknowledged that important risks stem from loans to local governments and those created outside banks’ balance sheets.

FT Alphaville adds this:

Gavyn Davies looked at China’s fiscal space to address another financial crisis last week, and said it appeared the country’s government could cover bad debts equivalent to 20 per cent of GDP (similar to the amount that was “bad-banked” in 1999) by taking its public debt ratio to 100 per cent – not out of the ballpark terrible, compared to other countries. However, he points out that the rapid rise in debt ratios mean that this must be addressed quickly.


From The Short Side of Long:

  • AAII survey readings came in at 40% bulls and 27% bears. Bullish readings fell by 4% while bearish readings rose by 2%. The AAII bull ratio (4 week average) currently stands at 64%, which indicates very high optimism amongst the retail investment community.  For referencing, AAII bull ratio survey chart can been seen by clicking here, while AAII Cash Allocation survey chart can be seen by clicking clicking here.

Chart 1: Bearish sentiment is almost non existent these days…

Source: Short Side of Long

  • Investor Intelligence survey levels came in at 52% bulls and 19% bears. Bullish readings increased by 3%, while bearish readings fell by 1%. Bearish readings have now fallen to the lowest level since early 2011 as equity market was in the process of a major top and a 20% sell off. Furthermore, II bull ratio remains above 73% a serious “sell signal” territory that traders and investors alike should consider. For referencing, II bull ratio survey chart can been seen by clicking here.
  • NAAIM survey levels came in at 76% net long exposure, while the intensity fell to 130%. the recovery in sentiment by fund managers, seen in this survey, now lines up with the mood of the remain survey indicators. For referencing, recent NAAIM survey chart can been seen by clicking here.
  • Other sentiment surveys continue to rise towards extreme optimism. However, the movement  has been rather mute in recent weeks. Consensus Inc survey is still rising towards extreme territory, while Market Vane survey is on a cusp of it too. All in all, nothing new to report here.

Chart 2: Retail investment community continues to pile into stocks

Source: Short Side of Long

  • Last weeks ICI fund flows report showed “equity funds had estimated inflows of $714 million for the week, compared to estimated inflows of $4.20 billion in the previous week. Domestic equity funds had estimated outflows of $926 million, while estimated inflows to world equity funds were $1.64 billion.”The chart above shows that retail investment community continues to pile into stocks this late in the rally (S&P is up over 55% from October 11 lows). Rydex fund flows are also rising too. Recent data showed that leveraged funds (usually not featured here) showed 6 times more bullish inflows relative to bearish funds. That is the highest reading for the bull market since it began in March 09. For referencing, recent Rydex fund flow chart can be seen by clicking clicking here.

High five  You may want to read this before acting on the above: INVESTOR SENTIMENT SURVEYS: DON’T BE TOO SENTIMENTAL!


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