What Matters: Retailing #'s

Almost without a doubt, the biggest economic story is the one swirling about how pre-holiday shopping went Friday and how it will go for the balance of the weekend.  This being a consumer-driven economy, what happens at the cash registers this weekend will set the mood for all kinds of folks, but in particular, it will answer the question: "Are American Consumers really tightening the belt in reaction to higher energy prices, under-reported inflation, and the housing bust?"

It's too early to tell:  The real tallies won't come in until the Monday-Tuesday timeframe, so between not and then, we'll be looking at stories about how "Shoppers take advantage of Black Friday deals" as being indicative that something if going on, but just what it means won't be clear until the nation's biggest retailers go to shareholder confessionals next week and report either sales up compared with last year, or down, as the case may be.

This will present a 'newbie' to sorting out weasel-worded financial reports with a golden opportunity to cut through corporate PRBS.  One thing to look for will be retailers who begin their press releases with something like "Sales of xxx (- where xxx means one department within a store, or other) were up yyy percent this year."  What the under-performers will be trying to do is give the impression that everything is hunky-dory.  You job, as an UrbanSurvivor, is to seek out disclosure phrases like "overall, sales were up/down z percent" - those being the real nu7mbers you're after as an investor.  Who cares if electronics go up 20% if overall sales are down 10%, right?

Moreover, just as "Weather the most important driver for beer consumption in Brazil", so too, weather has a lot to do with holiday shopping in the USA.  One day of retail sales figures can be greatly moved just by the weather.  Again, the thing to zoom out on is the overall picture.

Don't forget Truth versus Inflation: an "increase in sales" doesn't really mean much, until it is compared to (or subtracted from) the prevailing rate of inflation.  In other words, from an economic stimulus standpoint, if inflation has been running 5% and sales are reported in some PRBS as "Sales Overall Up 5% compared with last year..." then a reasonable person (or even me) would conclude that there really hasn't been any increase to spur general prosperity.  It's just inflation working its way through the system.

More definitively, we will get new Consumer Debt figures from the Fed in a week or two, which are much more meaningful.  You may recall that the November report on Consumer Debt (which they insist for bankstery reasons on calling Consumer 'Credit') was up 1.8% on an annualized basis, which when you're in a 2-6% inflation setting is actually the best sign you could ask for that the economy is already in a recession, although classical economystics would hold otherwise.

It honestly boils down to this:  Be very very skeptical of the earliest reports that sales are up (or down) so much this year.  Remember weather is key, crank in your best estimate of inflation, and go from there.

Shocking Electric Bill

I like to use my electric bill as a good local benchmark for what inflation (the real stuff, not the corpgov / PRBS reported stuff).  My neighbor and I were both amused to receive word that our local electric co-op was raising rates 5.9%.   I don't like the number a bit, although it's not worth going to a 'public meeting' on such because, as any darned fool knows, such increases are already a 'done deal' and public meetings are just a chance for management to put on the PRBS 'we care' face while hiding the fact that 'inflation is really a lot higher than we're letting on" reality of it.

Bank Run Tip

A former senior commercial loan type in the banking business sends along this "confirmation" of how things are going in the US banking world:

"Just a note based on what I read. I just left my banking position (major money center banks as senior commercial loan officer) and the comment from one of your readers holds true. There is a procedure in place now to circumvent any type of 'run' on funds. Specific plans for limiting daily cash draws and total withdrawals within a specific time period. Read the small print on bank literature, their ability to do this is there.

 

Secondly, I was in commercial lending and there is no new policy position to limit corporate borrowing. However the credit folks are becoming the stone wall leaving the officers to deal with the customers as to why they don't quality when their financial situation is as good or better than during previous credit actions. My counterparts at other banks are experiencing like problems. Drying up the credit to businesses, unofficially. Not a good sign. Thanks for your good work."

Conservatives Out

In Australia, the conservative government which was closely tied policy-wise to the neocons in DC, have been handed their walking papers by voters.  This means that Australia will likely pull its troops out of Iraq at some point, and will maybe even join the rest of the planet and sign the Kyoto Accords.  Which leaves...oh, don't get me started.  It's a weekend, after all... 

On the other hand:  These results are based largely on exit polls and these being conservatives, we have to wonder about voting machines, eh?

Life in Africa's Weimar

If you're into economics, and haven't at least read a short summary of how utterly bad an economy can go, then you owe yourself a quick read here.  The 1920's experience in Germany was not only a marvelous example of inflation, but how economics can lead to a dictatorship.

Then, as you smugly think "Oh, that can't happen again..." go read up on recent economic events in Zimbabwe were there's $58-tillon in cash currently in circulation.  The gross domestic product of the country, figures the CIA, is about $25.6 billion (US) dollars. 

You're welcome to figure out math, but the really short answer is that when a government prints up $58 trillion against an economy producing $25.6 billion in goods, you've got runaway inflation.

Inflation Elsewhere

The thing to watch, especially if you have diversified some of your retirement to so-called global funds, is inflation in other countries. Wholesale inflation in India is now running 3.01% by local reports. And the latest headline number out of China is 4.5% for the year. 

Say, did I mention my electric power bill is going up 5.9%....oh....uh...yeah...

Eat This

Another data point in my cognitive dissonant world comes from the pages of the Atlanta Journal Constitution which headlines: "Food prices likely to keep climbing". They (properly) note that food price inflation is about 4.4% year-on-year rather than the corpgov 2% core rate, which they were too polite to call a political wet dream.

Truth Detectors

Oil sellers, not fooled by any of this have continued to hold prices near $100, and the price of gold moved smartly back over $800 at week's end.  Truth detectors.

Texas Sky Spies

Some of that UAV  technology that's been used by the military In Iraq/Afghanistan/ and we hear Iran, is coming home to roost in places like Houston.  Under the guise of 'homeland security' no doubt. 

But, now here's a question:  Will the FAA allow these little critters to fly at altitudes lower than legally permitted by 'human aboard' craft?  AND, if one is flying low over my ranch and I shoot it down (mistaking it for a vulture going after my chickens) would that make me a "t" word person?

----snip and save section ----

Coping: Food Around the Word

Thanks to a couple of sharp-eyed readers, I've tracked down two places where you can see the post "What People Eat Around the World".  Look for the relationship between packaged and processed foods and costs...  Also at Stan (& Holly) Deyo's site now.

Making Ends Meet

Another great reader idea:

George, Your readers might be interested in this free website that has some great financial planning information. The main website is www.crown.org.  It is a Christian financial (non-denominational) website to help people plan their finances and get out of debt. Although the website is based on Biblical principles, the information applies to anyone.

 

The premise of the website is how to live comfortably within your means, and how to reduce and eliminate your debt so you will be in a position to be financially stable and be able to increase your giving. There are budgets, calculators, and options to talk to online or in-person financial coaches (at no charge). One of the best features of this website is their "money map". It can also be accessed at www.crownmoneymap.org .

 

This gives detailed explanations to the seven steps to financial freedom. Every kid in high school should be exposed to this information. You would also be surprised at how many adults call in to their daily radio show in financial straits who have followed this money map and eventually gotten back on stable ground.

 

step one: emergency savings of $1000

step two: pay off credit cards, increase savings to 1 month of living expenses

step three: pay off all consumer debt, increase savings to 3 months of living expenses

step four: begin to save for major purchases (home, car, retirement, kids' education)

step five: buy affordable home and begin investing (prepay mortgage)

step six: pay off mortgage

step seven: retirement is funded, begin giving more generously

 

As you can imagine, this group counseled strongly against taking out adjustable, zero-down mortgages during the recent housing boom. Living beneath your means may come easy to you and I because we were raised that way, but not everyone has had that advantage.

---- end snip & save -----

Around the Ranch

A reader was kind enough to send in an economist joke making the rounds:

"A mathematician, an accountant and an economist apply for the same job. The interviewer calls in the mathematician and asks, "What do two plus two equal?" The mathematician replies "Four." The interviewer asks "Four, exactly?" The mathematician looks at the interviewer incredulously and says "Yes, four, exactly." Then the interviewer calls in the accountant and asks him the same question. The accountant says, "On average, four - give or take 10 percent, but on average, four." Then the interviewer calls in the economist and poses the same question: "What do two plus two equal?" The economist gets up, locks the door, closes the shade, sits down next to the interviewer and says, "What number did you have in mind?"

That's the kind of thing that goes through my head when I see previously noisy data sets from government agencies suddenly (since the first of this year) lose their "noise."  Seriously makes me wonder has statistical variation become extinct due to global warming, or something.  Couldn't be political now, could it?

Friday November 23, 2007

Same Trends, Acceleration Next?

So here we are at the front end of the emotional release period, largely financial in nature, wh