Retail Sales, Up or Down?

Tuesday showed the market’s inability to sustain a rally. The volume was stronger than we’ve seen over the past two sessions but not huge. What was interesting was the number of 52 week lows on the NYSE, 197, the highest since the 27th of October when they registered 218. The thing is that the market was considerably lower then. The little telltale signs that things aren’t what they seem on the surface.

We need to take a paragraph to report on the two articles that caught our eye the last two days. One was in the WSJ and the other on CNN, money.cnn.com. Both were about the real estate market slowing down a bit. CNN’s headline was “Outlook sours for real estate” and the WSJ’s article was “Housing Market Shows Further Signs of Cooling”. You can read both of them yourself but the articles are very much in line with our thinking over the past several months—real estate is turning over. We strongly believe that the real estate market going down will drive the stock market down. You know that there is a lot of talk in those articles about the slowing, not the turning, of real estate. Many are predicting continued gains in prices next year but just not as much as the last four years. Please, what do they really know?

Retail sales fell 0.1% in October after rising 0.3% in September. The headline was bullish, like the media wants to be. The headline in Wednesday’s WSJ reads “Minus Autos, Retail Sales Are Solid”. By extracting the auto and gasoline sales out, retail sales managed to increase 1.1%. Seems every time we have to report a bad number, we can take something out to make it look just right. It’s a Goldilocks situation.

The same holds true for the PPI announcement (and probably the CPI number on Wednesday). The PPI rose 0.7% last month after 1.9% in September and 0.6% in August for a three month additive total of 3.2%, but, not to worry, because the core PPI dropped 0.3% perfectly offsetting September’s rise of 0.3%. Goldilocks again.

One of the big news items was that Johnson and Johnson (JNJ) seems to have gotten it right this time in their buyout of Guidant (GDT). The news was that JNJ got a 15% cheaper price this time due to the drop in the price of GDT since their initial bid. I only point this out because the big market rally (sarcasm) didn’t take GDT up with it. Many stocks rallied strongly in 2003, like GDT, but since the beginning of 2004 we have mostly stagnant prices in many sectors.

In other news, AMZN will be inducted into the SP500 replacing AT&T which is being purchased by SBC Communications. The company jumped 5% on the news. The SP500 companies must have a market cap of $4 billion and post four straight quarters of positive earnings. The four straight quarters of positive earnings has kept AMZN out of the index in the past, very strong company (you guessed it, sarcasm). It’s these types of moves by the SP500 that tend to make being in an index fund based on that index a little questionable.

There were some interesting developments in the Retail sector. Monday evening Target Corp, TGT, based here in Minneapolis, said November sales would fall short of forecast and last week they said they expected slowing growth in the fourth quarter. TGT fell over 7% on the news in Tuesday’s trading. Other retailers followed suit as Best Buy, BBY, fell about 5% Tuesday as well. One of the catalysts for the sell off is the behemoth in retail, Walmart, WMT, who announced some positive forecasts for Holiday sales. So, WMT has run up since the middle of September when it was at 42 to near 50 Monday. Don’t forget it traded above 50 and it was 54 in January and over 60 in early 2004. Again, very bullish. (yes, sarcasm again)

Well, Wednesday we get the CPI and the contortion of numbers continues. The news will be muffled and the markets probably won’t pay any attention to it.

I apologize for the length of the Post this evening but there were just so many interesting things and I still didn’t get to report on all of them.

Dow Industrials: 10,686.44 -10.73 (NASDAQ COMP was down 14.21)
RYVNX: 19.63
TLT: 89.40
BGEIX: 12.68