Morning Report: Retail sales rise

Vital Statistics:

  Last Change
S&P futures 4,460 -3.2
Oil (WTI) 72.27 -0.45
10 year government bond yield   1.37%
30 year fixed rate mortgage   3.07%

Stocks are flattish this morning on no real news. Bonds and MBS are down.

 

Initial Jobless Claims came in at 332k last week, which was above expectations. It is still a mystery why we are seeing such elevated numbers in the tightest job market I can remember.

 

Retail sales rose 0.7% in August, when the Street was looking for a 0.8% decline. Ex-vehicles and gasoline, they rose 2%, which was well above expectations. August and September are the back-to-school shopping months and this bodes well for the holiday shopping season at the end of the year.

The retail sales number is great news for those who were looking for an acceleration into the end of the year. Consumption is 70% of the US economy. Still, the labor market remains a headwind, especially if it lasts longer. Consumers may be willing to spend, but if the goods aren’t there to begin with then the sales won’t happen.

Consumer sentiment fell slightly in the preliminary reading from the University of Michigan.

 

Home sales fell in August, according to Redfin. Prices still increased 16%, however. “When it comes to home prices in this market, what goes up stays up,” said Redfin Chief Economist Daryl Fairweather. “That’s especially true in the Sun Belt; home prices are up more than 20% from last year in Austin and Phoenix. Even with these steep increases, homes in these areas are still relatively affordable, so these and other hot migration destinations are going to continue to attract homebuyers from the coasts. As workers change jobs en masse and enhanced unemployment benefits come to an end, we could see even more households relocate for affordability in the coming months.”

 

Chinese developer Evergrande is on the brink of default, with something like $300 billion in debt. We have known forever that China has a real estate bubble, similar to what the US went through in the 1920s and Japan went through in the 1980s. If this is indeed the end of the Great Chinese Real Estate Bull Market then the country is probably due for a Great Depression style event. IMO, this is a byproduct of decades of rapid growth. Eventually, more and more marginal projects get built and the debt crisis creates a collapse.

As far as the banking system goes, I don’t think that the US banking system has much exposure here. We can pretty much guarantee that any bailout for Chinese banks won’t extend to foreign banks, but I suspect this might be an overseas hedge fund event. I don’t see any sort of reverberation into the US markets, however I do think that this event will be bullish for US bonds. When financial markets hit credit-related stress, the first asset everyone wants is US Treasuries. We saw good demand in the 30 year auction earlier this month, and that could portend strong demand going forward.

 

32 Responses

  1. Yeah, total game changer.

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    • She was never a great thinker or pundit, IMO, even when I agreed with a lot of what she said in broad strokes. But at this point I’ve got to think her brain is broke, she’s had a stroke, or someone she loves very dearly is being held hostage and a video of this person being tortured is sent to her every time they want her to say something insane.

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      • This is great:

        https://www.politico.com/newsletters/west-wing-playbook/2021/09/16/the-jennifer-rubin-wh-symbiosis-494364

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        • The “conservative” jen rubin was just an act. The WaPo can’t hire a real conservative blogger – they can only hire fake ones.

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        • Apparently. But the conversion is so complete and so unexplained (and feels … not that organic) that it’s like she’s an actress taking on different roles.

          Wondering if she got a new boyfriend or something when Trump got the nomination. 😉

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        • All the Wilsonian Democrats from Jean Kirkpatrick on who became neocons were labeled such because they shared with conservative hawks the notion that American ideals could be spread by force. The failures of the adventures in the Middle East have moved some of them back into their Wilsonian roots – Wolfowitz was a great example of this. Rubin still thinks that spreading democracy by force is a good idea if done right, so does Kagan. But otherwise they all read as Democrats, if not left liberal ones.

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        • Rubin and Kristol strike me as having flipped quite extensively. They don’t even seem particularly critical of the Afghanistan withdrawal which I’d think neocons would be profoundly unhappy with but maybe not.

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    • Terry McCauliffe has about as much bipartisan appeal as Ted Cruz.

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      • Actually he probably has a little more because the woke wing of the Democrats doesn’t like him so he benefits a bit from that.

        Sort of like Biden did when he ran the basement campaign, but also like Biden that doesn’t mean he won’t actually accommodate them 100% if he wins, which is likely.

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    • IMO, the “uneducated rural right” don’t dislike the educated, they dislike the preening, officious, self-absorbed woke left.

      Guys like Taibbi will never get that much of Blue CheckMark Twitter, which gives the marching orders to the elite these days, are a bunch of snarky assholes that no one would want to sit next to on a plane.

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      • It also shows that Trump knew exactly who he was talking to when he said that “I love the poorly educated” and they knew exactly what he meant when he said it.

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      • It’s not even about being educated. It’s about being arrogant and vastly overestimating your own intelligence and treating everyone not in your clique with condescension.

        These people don’t seem that smart to me, typically, in fact they often come of as having very poor critical thinking skills. That anyone entertains the idea that there are people out there that resent the Blue Checkmark Twitterati because they are just *so* smart is ludicrous. They are not disliked because people think they are well-educated. More often it will be the opposite—the “uneducated rural right” regard these pampered, bubble-dwelling know-it-alls as morons with no experience in or understanding of the real world.

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        • certainly economically the left uses the most specious arguments out there.

          often wrong, but never in doubt.

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        • Growing up on a farm we saw the federal government as distant but obtrusive. It had nothing to do with our wells and septic tanks and did not pave our local roads or fix the power lines, but it told my dad how many hogs he could not raise. We only had six – it was a dairy farm – but my dad told the Ag agent he didn’t raise 100. The agent did not buy that, of course, but my dad was making a point, he tought. Also, my orthodox Jewish paternal granddad called the hogs “zebras”.

          Point being that rural views on government are different than urban ones. right before COVID at a dinner gathering when my lifelong friend Alex and I were accused by a physics prof of being way too conservative for the real world we very patiently explained that what would pass for progressive in a rural area would not look like his urban liberalism. We had both been farm boys and friends since 4th grade and we told him that rural “liberals” supported strong local schools, good roads, and stable electification, but remained suspicious of the federal government, and that seemed to be something urban liberals like him could no longer abide.

          Of course, urban leftists point out that farmers get huge federal bennies and it is true that farmers take price supports and the school lunch program for granted. I mean, I did then and I still do and cannot help myself about it.

          But I will never believe that there is a raw intelligence gap involved here. I do think there are information vacuums in places like the Ozarks and Appalachia. But for the most part the differences in attitude and perception are based on life experiences, I think.

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        • Mark:

          I do think there are information vacuums in places like the Ozarks and Appalachia.

          And I would add the upper east side, Hollywood, and the NYT news room.

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        • I do think there are information vacuums in places like the Ozarks and Appalachia.

          That’s a common refrain and I think it’s seriously misplaced. The Scots Irish are the last group all people are allowed to insult w/out repurcussions.

          Jim Webb wrote a book about them as well as a nice little introductory article in Parade Magazine back in the aughts.

          Because “sophisticated” America tends to avert its eyes from them, it is inclined to ignore or misunderstand this culture. The Scots-Irish tradition of disregarding formal education and mistrusting, even despis­ing, any form of aristocracy has given us the man the elites love to hate – the unreconstructed redneck. The Southern redneck is an easy target, with his intrinsic stubbornness, his capacity for violence and his curious social ways.

          http://www.jameswebb.com/articles/why-you-need-to-know-the-scots-irish

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        • I was thinking in terms of limited radio, tv, and web connections. There are big dry spots in some areas. Should have used the desert southwest as my example!

          Hadn’t connected the Scots-Irish angle.

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        • Agreed. My main point was that it’s crazy for any human being to honestly believe other people are jealous or resentful or dislike them for being so much smarter than said other people.

          In my experience, “you’re so much smarter and better than I am” is not a common source of actual resentment—as the people who dislike you are rarely going to think your anywhere near as smart as you think you are.

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  2. Great read. Scott, I think you will like this.

    https://wesleyyang.substack.com/p/undocumented-citizens-and-the-new

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    • jnc:

      Scott, I think you will like this.

      He makes exactly the correct point. And shows how far down the road we have already travelled.

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      • A lot of commenters complain about the density of the verbiage—and it would need a good editor if this stuff is going to be assembled into a book one day—but I kind of like it.

        Regarding how far down this road we’ve already gone—my take away from that piece is that, unless a miracle occurs, we’re doomed.

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  3. And they admit it:

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  4. Illuminating read on the left’s agenda with the Fed.

    Like

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