Nov 28, 2011

Black Friday Booms!

November 28, 2011

Today is Cyber-Monday, the day created by the marketing wonks on Madison Avenue when shoppers theoretically begin ordering online for the holiday season. The very real Black Friday, the traditional heavy retail discounting day that occurs the day after Thanksgiving, was robust this year. Although tough to measure, according to Channel Advisor online sales were up 20% on Friday and retail sales for the weekend were up 6.6% from a weak 2010. Black Friday was helped by heavy promotional pricing as well as an early opening as many retailers opened for the big weekend sales on Thursday evening. The National Retail Federation said consumers spent $52.4 billion over the four day weekend, up 16%. The overall effect on retailers is often muted as the heavy discounting takes a toll on margins.

Equity markets, fresh off their worst Thanksgiving week since 1932, are up strong this morning. The Dow is up over 250 points, the S&P 500 is up 33, and the Russell 2000 26 points. Crude and commodities are getting a bounce, and treasuries are trading down. The yield on the US 10-year has inched back above 2% to 2.05%.

It wouldn’t be a Monday without some discussion of Europe. Leaders in the Eurozone are reportedly discussing adopting spending and borrowing rules to ensure compliance and fiscal discipline. This would truly be a major step towards a centralized budget and virtual single monetary and governmental authority. My guess is that while great in concept, there will be significant resistance from many countries who fear German style monetary policy.

In spite of constant protestations that they aren’t giving away free money to banks, the data keeps contradicting the Fed’s statements. Bloomberg has obtained documents via the Freedom of Information Act that show global banks received over $13 billion in income during the crisis due to secret, below market loans from the Fed.

Speaking of commodities, the S&P GSCI Index is up 2.1% this year, while the MSCI All-Country World Index of equities is down 15% year to date. In spite of this strength, prices have softened since August as demand for aluminum, copper and iron ore (among others) has fallen by 20% and inventories keep rising. Much of the weakness in demand has been due to a pull-back in Chinese purchases. There are two schools of thought regarding the decline in demand from China. The first is that the economy there is slowing much faster than governmental reports suggest. The second and less accepted theory is that the government is forcing down inventories in the country in an effort to temporarily stem inflationary pressures.

The election is in full swing, a year before voting day. The Wall Street Journal is reporting that President Obama has made 56 trips this year to swing states so far this year, a Presidential record. The President, who dominated Wall Street during the 2008 election, has seemingly been abandoned by the Street during this cycle as he badly lags Mitt Romney in Street related fund-raising. I guess all that "fat-cat banker" and "soak-the-rich" rhetoric is finally catching up with him.

Normally I try not to be concerned with market speculation regarding upcoming Fed actions, other than to try and understand the expectations of the market. After last Wednesday’s revelation that the Fed routinely leaks information to select investors, I’m suddenly more apt to listen to well-placed rumors. Today bond dealers are anticipating another round of stimulus coming out of the Fed, this time focused in the mortgage-backed securities market instead of treasuries. Sixteen of the 21 primary US dealers say the Fed will begin buying MBS in the first quarter.

The NBA players and owners have finally agreed to settle their differences and start playing basketball. As I said a few weeks ago, now that paychecks are being missed, the impetus to settle should increase dramatically.

Thanksgiving weekend was great, punctuated by USC retaining its crown as the Kings of LA, beating UCLA 50-0. UCLA did try a bit of trickery by showing up in new uniforms. My guess is that they were hoping no one would recognize them.

Have a great day


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