FMX | Connect – www.fmxconnect.com - (Reported 5/18/2010)

Excerpts from MARKET MUSINGS & DATA DECIPHERING

WHAT HAPPENS IN VEGAS ...

One can only take anecdotes so far, but this email from Vince (one of our readers) really resonated. Again, from the mold of Benjamin Roth and more evidence that we are indeed in the throes of a modern-day depression:

“… Just returned from a road trip to Las Vegas from Salt Lake City. A few observations:

Weekend hotel rooms in Vegas were easy to come by. Checked the web sites of 10 good hotels and rooms were available in all 10.

Passed a huge Walmart distribution center outside of St. George, Utah. The building was surrounded by hundreds of empty tractor trailers. Obviously, unused for some time. I’ve passed this center many times over the years and have never seen anything like it.

Just north of Vegas, off Route 15, there was a mega parking lot, fenced with razor wire, containing literally tens of thousands of cars. The lot stretched on for several miles. The cars appeared to be new. No signs, so no idea what’s going on there but I wonder where are that new Detroit production is ending up?

Very close to the car park is another huge parking area filled with earth moving and other construction equipment. Again, stretching for a mile or more. Here there is a sign indicating the date for the next auction. Apparently, all of that stuff is for sale. Talk about overcapacity.

We are still in serious, deep doldrums.”

Wish I had this before my recent debates with James Paulsen and Brian Belski!

PUTTING THE NAHB HOUSING MARKET INDEX INTO PERSPECTIVE

It was indeed encouraging to see the U.S. home builders less pessimistic in May, but at 22 on the National Association of Home Builders (NAHB) housing market index, come on, it is still an awfully depressed level. The worst this metric ever got in the 1990-91 recession was 20, and in 2001-02, it never got lower than 46 — just to put a 22 print into context.

The one fly in the ointment was that even as the home builders raised their sales expectations to 28 from 25 in April, in the same month we saw households trim their home buying plans (to 150 from 154 in April and 156 in March, according to the University of Michigan consumer sentiment survey).

BIG FISCAL RESTRAINT COMING

We had thought that 2011 was going to be a watershed year with the end of the Bush tax cuts and the onset of the Obama tax hikes draining at least two percentage points from GDP growth next year. But based on what a slate of cash-strapped State governments are about to do to close their huge fiscal gaps, we may not have to wait that long. According to the USA Today, Arizona is on the precipice of hiking its sales rate from 5.6% to 6.6%; Kansas is set to raise its sales tax a full point too on July 1, to 6.3%; Alabama, the same move and a half dozen states as well.

IS THE MANUFACTURING CYCLE PEAKING IN THE U.S.?

We shall see, but for the first time in a year, a significant chink showed up in the armour of one of these industrial diffusion indices in the U.S. The Fed’s Empire State manufacturing survey dropped in May, to 19.1 from that ripping 31.9 reading in April — to stand at the lowest level in four months (and the steepest monthly slide since December 2009).

While the stock market did bounce back to finish roughly flat yesterday, cyclical giants like Alcoa (-2.1%) and CAT (-1.7%) closed in the red column. Defensives such as Kraft, P&G and WMT rose as the complexion of this market continues to change and shift its pro-growth image.

THE NOT-SO-RESILIENT CONSUMER

It’s bad enough that Walmart guided lower, but what it had to say about spending trends had the frugality label all over it. Traffic was soft. Spending on discretionary items faltered. Food prices are deflating. The only segment that was solid was the pharma category. Electronics and entertainment sales were below expectations, as were apparel sales.

THE HOUSE THAT ROARED
The newswires were all over the fact that U.S. housing starts soared 5.8% in April, to an annualized rate of 672,000 units. But stop the presses. What didn’t make the headlines was that this spurt was a one-off response to the last second sales splurge ahead of the homebuyers tax credit expiry.

Building permits, which have the tendency of leading housing starts, actually plunged 11.5%, to an annualized rate of 606,000 units (with singles down 10.7% and multi-unit permits sinking 14.7%). For what it’s worth, this was the largest decline in permits since December 2008. Single-family permits are down to a six-month low and the declines are broadly based on a regional basis. In other words, this was a weak report despite the headline.

DEFLATION ARRIVES EARLY

U.S. producer prices fell 0.1% in April. Just wait until the full brunt of the U.S. dollar strength and falloff in commodity prices hits the data. The year-over-year trend slowed to 5.5% in April from the nearby peak of 6.0% in March.

David A. Rosenberg
Chief Economist & Strategist Economic Commentary
drosenberg@gluskinsheff.com
+ 1 416 681 8919

Source: Market Musings & Data Deciphering

http://www.fmxconnect.com/

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