because the global economic engines are revving up.....
not according to puplava
financialsense.com
The Parking Lot
The consumer accounts for over two-thirds of the American economy. U.S. economic policy and analysis is entirely focused on keeping the American consumer hopped up on credit and buying things. If there isn’t enough cash to fund purchases, there is plenty of credit available to keep the credit bubble alive and well. It is simply a matter of choosing from a plethora of available options to help fund consumption. In American economic thinking, “consumption” is the be all and end all to everything. As long as we can keep the consumer loaded up with credit the economy continues to roll along, which is exactly what it has done since the bubble burst in the spring of 2000. Therefore, the consumer’s frame of mind and what he thinks is important to the way the economy functions. Thus, the jubilation last Friday when consumer sentiment figures rose and March retail sales rebounded. Consumers last month took advantage of heavy promotions to buy more new cars.
Rally Lacks Power
Declining Volume & Momentum
June 1, 2001 - April 14, 2003
Despite the fact that consumers went shopping last month, they are doing so on a very selective basis. They only buy when merchandise is heavily discounted or if credit is free. Zero percent loans are becoming more commonplace these days and the trend is catching on from cars to furniture. The new motto in retailing is “if you discount heavily and charge no interest they will come.”
Over the last two decades I have developed by own economic indicator. This indicator has enabled me to call recessions before they have become common knowledge. It is a simple indicator but one nonetheless that I have found helpful in judging the state of the American economy. I call it my parking lot indicator. It is very simple to apply and observe. I observe how easy and how readily availing parking spaces are at my favorite shopping centers. Over the last two weeks I have returned to the malls as a shopper. I guess I’m one of those statistics that the analysts and economists are ecstatic about over the last month. The Puplava household, like other families, has returned once again to the malls. This weekend we received a call from a furniture store where we had bought a few pieces for our home. We put half down on the order and now that the furniture had arrived, they wanted the other half. We arrived at the store mid-afternoon Saturday to pay our bills. The salespeople and manager were glad to see us since we were the only people in the store at the time. I’ve noticed at several furniture stores recently that the parking lots were widely open, thinly populated with cars and that traffic was thin inside of most stores.
That Saturday afternoon we were the only customers in the store when we arrived. In talking to the store manager and the only two sales people in the store they admitted that traffic and sales were much lower than where they wanted to be. When we ordered our furniture pieces, they were marked down 50 percent. I should have waited. This week the same furniture was discounted 50 percent but this weekend’s special included no sales tax. That’s a big item here in California where the sales tax is 7.75 percent.
Sunday it was back to the malls again fulfilling my patriotic duty to shop. I was looking for a special kind of briefcase. Last weekend I had gone to the local mall nearby. Both luggage shops had closed down. They didn’t have enough business to cover their expenses so they had pulled out of the mall. On Sunday, I went to the busiest and largest mall in all of San Diego. Every time I go to this mall it takes me 10-15 minutes to find a decent parking space. I prefer to park in covered parking especially when it gets warm. This Sunday I had absolutely no problem. In a three story parking structure I found the last one-third of the first floor completely vacant which surprised me. The last time anything like this happened was during the recession of 1991.
Inside most of the stores I frequented there were people busy looking and examining items on sale. However, a stroll through the promenade revealed very few shoppers carrying bags reflecting actual purchases. Everything was on sale in most of the stores I had visited with many of the department stores offering additional discounts if you signed up for a store credit card. I guess they figured if you could charge it you would buy it. It didn’t appear to me from what I observed that there were many people buying. Since last fall every store I can recall had been running continuous sales each week and each month. It now takes a spectacular discount, zero financing costs, no sales tax, no down payments, or no payments until somewhere way out in the future to get people to buy. I always wonder with no down payments, no interest, and delayed payments in the future what will happen when those payments start coming due.
To top out the weekend my wife and I went to see the “Pianist” late Sunday afternoon. Like everything else in San Diego the movie malls tend to be crowded and parking difficult. Our favorite cinema is one of the mega complexes with 18 theaters and stadium seating. It is a popular spot since stadium seating with large screens is the latest fashion in movie going here in America’s finest city as we call San Diego. It has been several months since we last went to the theaters. The last movie we went to was during the Christmas holidays. We left early because I expected to spend the usual 10-15 minutes driving around the parking lot in an effort to find a parking spot, but not this time around. The parking lot was full but there was space available. That was a first for me in the entire two years we have been going to this theater. Instead of 10-15 minutes driving around the parking lot I found a space available immediately upon entering. We had no problem getting into one of the local restaurants to have dinner. I was able to sit back and enjoy dinner without gulping by food in a rush to get to the theater in time. There were no lines thank goodness. However, I was shocked to find out that movie ticket prices had been raised from $9 at Christmas to $9.50. Last year at this time, I was paying $8.75. In one year’s time the cost of seeing a movie had risen close to 9 percent. I wonder what they will be by Christmas this year.
My observations from going shopping these past two weeks tell me that a consumer retrenchment in spending has begun. I have seen this at the major malls over the last few weeks. I have noticed it each week as I drive by the mall on my way home each day. However, there are exceptions to the case, which is entertainment. The movie theater parking lot was still full, although many attendees are forgoing eating out as frequently as they usually to do. I have also noticed that the electronic stores are still busy on weekends. People are still buying big screen TV’s, DVD players, and DVD’s. Most of this buying is coming from home refi’s and equity extraction, which my mortgage broker friend tells me is still strong. In good or bad times, people still want to be entertained. The fact that the parking lots aren’t as full at the malls, and that shoppers aren’t buying as readily lines up with stories I read concerning inventories. The government reported today that stocks at businesses climbed to their highest level since September of 2001. Inventories at retailers, manufacturers, and wholesalers rose 0.6 percent last month. More discounts and sales are on the way. This means profit margins are going to be squeezed, profits will come down, and the economy will slow down without another round of stimulus. The Bush administration is working on a $750 billion stimulus package. Congress may compromise and give the President half of that. They wouldn’t be talking stimulus of close to half a trillion if the economy was in great shape. That should alert you as to the future.
Meanwhile, back at the casino on Wall Street, stocks rose on better-than-expected earnings results from financial companies. Citigroup beat estimates. Actual earnings were down from $4.8 billion the year before to $4.1 billion. Last year’s earnings included the gain from the sale of Traveler’s Property Casualty Corp. stake. Citigroup’s consumer business contributed more than half of those earnings, rising 26 percent. Citi is making most of its money from consumer lending, mortgages, and credit cards. This is the next area of weakness in the economy in my opinion as more workers lose their jobs and become overburdened by too much debt. Financial companies that reported today include Citigroup, Bank America, and Fleet Boston. Fleet Boston’s earnings fell 23 percent as fees declined. IBM reported earnings after the market closed. Sales rose thanks to acquisitions. However, they failed to meet their profit numbers. Expectations were for $20 billion in sales and $0.80 in profits. Actual profits were $0.79, a penny less than expected.
This week is going to be interesting, and so are the next few weeks. This week is triple witching week and many technology companies are reporting earnings. You are going to have to be a forensic accountant to find the real numbers with what’s included, and what is excluded. In the case of Citigroup, their capital gains from last year were excluded in making comparisons to this quarter’s earnings. Last year when those capital gains were included, the shares of the stock rose even though the gains were one-time only. We count them when they make earnings look good and then exclude them when we make comparisons to the very same quarter a year later. Otherwise, profits would have been down by comparison. It is all part of the earnings game played each quarter whereby numbers are massaged, manipulated, and reinterpreted to make the numbers. This quarter we have seen pro forma earnings estimates slashed from 17 percent to today’s present 7-8 percent. What will be important for investors to observe is the quality of earnings, how they were achieved, and what companies say about the future.
Markets rose nonetheless on Citi’s better-than-expected earnings. Volume fell and was light with only 1.09 billion shares on the NYSE and only 1.4 billion on the Nasdaq. Advancing issues beat on gainers by a 8-7 margin. The VIX fell by 1.80 to 26.47 and the VXN dropped by .11 to 39.11. Both indicators speak volumes on complacency and are at levels where corrections begin. In addition, newsletter writers have once again turned bullish, another sign of a turning point.
Overseas Markets
European stocks advanced, paced by Deutsche Bank AG and HBOS Plc, amid optimism economic growth will rebound and as Citigroup Inc. reported profit that exceeded analysts' forecasts. The Dow Jones Stoxx 50 Index rose for a second day, adding 1.2 percent to 2300.76. The Stoxx 600 Index climbed 1 percent, with banks and insurers such as ING Groep NV and Axa SA contributing more than a third of the gain. Benchmark indexes climbed in 13 of the 17 Western European markets.
Japanese stocks fell 0.7 percent in U.S. trading, as measured by Bank of New York Co.'s Japan ADR index. The index, consisting of companies whose shares trade as American depositary receipts, declined 0.37 to 54.73. June futures on the Nikkei 225 Stock Average fell 50, or 0.6 percent, to 7840 on the Chicago Mercantile Exchange, as 957 contracts traded.
Copyright © 2003 Jim Puplava
April 14, 2003 |
