Economy: Retail Sales - Reality Check From The Consumer Front

(Drivebycuriosity) - Finally! The US consumers are responding to the falling gas prices. This morning we learned that US retail sales grew 0.2% in January. The December growth rate was revised to plus 0.2% as well. Ex-gasoline the retail sales advanced 0.4% (revenues at gasoline stations fell by 3.1% in the month thanks to the dropping gas prices). Retail and Food service sales ex-gasoline increased by 4.5% from January 2015 (calculate). The January numbers are encouraging because the US North East - including New York City - was covered by a severe snow storm for a whole weekend in January.

I had expected this improvement (driveby).  I had frequently explained that falling gas prices will encourage the consumers to spend more money for other goods & services (here here  here ). The average gas price at US pumps is now about 15% down year-to-date and gas costs around 30% less since last October. It seems that the positive impulse from falling oil prices on the financial markets (futures for Crude & Brent Crude) is working through the system and begins to foster the economy.

Consumers are also benefitting from a solid labor market. Last year the US economy created 2.67 million new jobs and the growth rate of the hourly wages accelerated to plus 0.5% in January. Wages climbed 2.5% in the recent 12 months.

I believe that the US retail sales will gain more speed in the coming months. Gas prices are now about 25% below last year at the same time and weekly jobless claims fell to 268,000,  a sign that the labor market is solid in spite of all the gloom & doom on the financial markets.

Today´s numbers are a reality check: They show that cheap oil is indeed fostering the economy. They also show that the US is far away from a recession.

Stock Market: Earnings Season Is Still Disproving The Doom & Gloom

(Drivebycuriosity) - It`s earnings season, but nobody seems to care. "More than three-quarters of companies that have reported so far have exceeded analysts’ profit estimates", wrote Bloomberg this morning (bloomberg). In the recent years about 60% to 70% of company reports had beaten the profit expectations of the analysts, so it looks like that this earning season might reach a new record.

But the company earnings are widely ignored, instead the financial markets - stocks & bonds - are ruled by hysteria about falling oil prices and an alleged China hard-landing. Especially the stocks of the bank stocks are getting dumped these days. "A gauge of financial shares on the S&P 500 has slumped more than 17 percent just this year, to its lowest level since 2013" reported Bloomberg (bloomberg). The bears claim that the oil collapse will damage the bank loans and will bring the financial companies into trouble.

How did the banks do after 18 months of falling oil prices? All the big banks could disprove the gloomy allegations so far: JP Morgan, Citigroup,  Bank of America, Morgan Stanley, Goldman Sachs, Wells Fargo & PNC Financial, Bank of New York Mellon, Capital One.  They all beat the analysts`earnings expectations. JP Morgan declared that its fourth-quarter profits rose 9 percent from a year earlier, helped by a strong performance in its consumer banking division and lower legal expenses (finance.yahoo).  The banks managed the impacts of the steep drop in prices for oil and other commodities on their loan portfolios better than feared, helped by a solid consumer business.  Other financial companies also surprised positively: American Express beat expectations for earnings & revenue, the competitors MasterCard, Visa and the insurance holding companie Travelers delivered  earnings beats as well.

Internet stocks are big losers this year as well.  The market ignores that the Internet sector delivered strong numbers: Alphabet (the holding for Google) earned $8.67 vs analyst expectations of $8.09. Revenues rose $21.32 billion vs analyst expectations of $20.77 billion (and up 18% year-over-year). Facebook also crushed expectations for earning & revenue and reported its first profit above $1 billion. The online payment service PayPal, Yelp & LinkedIn beat profit & revenu expecations as well. Twitter earned more than expected and Amazon’s profit more than doubled to $482 million in the fourth quarter and rose per share to $1,00 from 45 cents, but missed the expectations ($1,56).

The rest of the technology sector also did well: The bellwethers Microsoft, Intel & IBM, Cisco (routers), the wireless technology specialist Qualcom and the storage manufacturer SanDisk beat earnings & revenue expectations and  Netflix reported a profit of 7 cents per share, more than triple of the analyst´s expectation (just 2 cents.) The cable & mobile provider Verizon joined the club of companies which beat earnings & revenue expectations. Apple reported slowing revenues and iPhone sales, but earnings rose to $3.28 (plus 7%) - 5 cents more than expected. The chip producer Texas Instruments also beat the profit expectations

The consumer companies sector showed that they belong to the winners of collapsing oil & other commodity prices because consumers worldwide have more money to spend and costs for materials are falling. McDonald's & Coca Cola beat earnings and revenue expectations, the same with Whole Foods, Walt Disney, Under Armour (sports fashion), Estée Lauder (cosmetics), Good Year Tire & Rubber  and the toymakers Hasbro & Mattel.  Other consumer companies did well too: Yum Brands (owner of KFC, Pizza Hut & Taco Bell), United Parcel Service (UPS), Procter & Gamble, Colgate-Palmolive, Starbucks, Time Warner, Polo Ralph Lauren (fashion), Whirlpool  (home appliances) the homebuilder D.R.Horton and the pharmacy firms Johnson & Johnson & Merck all earned more than expected.

The rest of the industrial sector also convinced. Profit & revenue at Boeing, the pill giant Pfizer, the biotech companies Biogen & Gilead Sciences all beat expectations. General Motors, Ford, Caterpillar (construction & mining machines),  the chemical giants DuPont & Dow Chemical, the defense & aerospace company General Dynamics & the conglomerates 3M and  General Electric all earned more than expected as well.

Even the battered commodities sector didn`t confirm the doom & gloom: The aluminum bellwether Alcoa delivered more profit than expected, even that the revenues dropped more than feared, thanks to the tumbling metal prices. Exxon Mobil`s profit dropped less than feared. Anadarko Petroleum and the oilfield-services-companies Schlumperger & Halliburton lost less than feared. U.S. Steel reported a loss of 23 cents a share, topping estimates for a loss of 85 cents a share (barrons).


                                                 The Clear Winners 

The earning season also showed the clear winner of the oil price collapse: The airlines: Delta Airlines boosted their earnings 51% from a year earlier, thanks to the falling costs of fuel (businessinsider). According to Business Insider the airline saved $5.1 billion fuel costs last year, thanks to the oil price crash. American Airlines beat the earning expectations as well.

Many companies benefit from lower transport costs and from cheaper oil, steel, aluminum and other commodities which reduce their costs significantly. The pessimistic majority also underestimated how efficiency gains and technological progress enable companies to create rising earnings even in a sluggish economy. Companies are learning organisms. They are managed by humans who are getting better and better over time by continuously improving themselves and their companies.

I think that the recent stock market slump is caused by the herding behavior of the hedge funds, who follow each other, and a gloomy sentiment rather by the economic fundamentals. Today´s stock market reminds of 2011when many traders panicked spooked by a gloomy sentiment. I believe today´s panic will soon be forgotten like the panic of 2011.  
  


 

US Election Year: America Needs Michael Bloomberg

(Drivebycuriosity) - The US primaries, the selection process to find the candidate for the US presidency, are heating up. In the moment Bernie Sanders (Democrats) and Donald Trump (Republicans) are the clear leaders in the polls. The socialist against the clown! None of them shows the qualities which are necessary to be the "leader of the free world". No wonder that the stock markets have been tanking this year so far.

There is talk that Michael Bloomberg might candidate, the former mayor of New York City and the founder, CEO, and owner of Bloomberg, the global financial data and media company that bears his name (wikipedia). I believe that Bloomberg would be the most suitable candidate. His successful track records both as politician and as businessman show that Bloomberg is able to steer the US through rough waters and to prepare the country for rising challenges (China, India, terrorism and more).

Bloomberg has convinced in his job as "manager" of New York City (2002-2013). He helped the metropolis to recover from 9/11 and managed NYC successful through the Super Storm Sandy crisis (a storm surge flooded parts of the city). Today New York City again is prosperous and one of the leading international metropolises  - partly thanks to Bloomberg´s policy. And as a businessman he built one the leading global powerhouses in the financial media.  Both careers show Bloomberg´s talents as political administrator and economic visionary & business manager.

Fingers crossed that Bloomberg will candidate and that the Americans will vote for him.

Economy: There Is No Such Thing As An Oilmageddon

(Drivebycuriosity) - It`s the season of the scaremongers. The economists of the Citigroup claim that collapsing oil prices will draw the world into a "death spiral" (bloomberg). According to them the losses of the oil producer countries will reduce the global demand for goods & services and cause a worldwide depression, they call this gloomy scenario the "Oilmageddon". Ridiculous!

1. In the years 2007/08 we experienced exactly the opposite movement. Then the oil price spiraled from $53 to $147. If an oil collapse is bad for the global economy, then an oil price spike must be good? Did the sudden oil price rise boost the global economy in 2008? Did the oil producer countries, who made gigantic gains, buy more goods from the US & Europe ? Did the banks, who finance oil production & exploration prosper and make huge profits? Nope. Instead the global economy crashed. A study by Prof. James Hamilton (University of California, San Diego) shows that this oil price shock turned the economic slowdown into a severe recession (econbrowser).: "The oil price increase over 2007:H2-2008:H1 should be regarded as a key development that turned the slowdown in growth into a recession" (archives). Other researchers came to the same results: In 2003, the average suburban household spent $1,422 a year on gasoline, which rose to $3,196 in 2008 (oilprice). "Rising household energy prices constrained household budgets and increased mortgage delinquency rates" (oilprice).


2. The year 1986 had a similar oil collapse like today. Then a sudden oil flood - created by Saudi Arabia - caused the oil price to collapse from $30 to $10 (minus 70%  morganstanley).  Did this oil collapse lead to an "Oilmageddon"? Did the banks make high losses and crash? Nope. The US economy grew in the years 1986 & 1987 each 3.5% (annual GDP growth) and accelerated to 4.2% in 1988 (worldbank). In the period 1985 through 2000 cheap commodities in combination with falling interest rates and a technological revolution (Internet) induced a period of prosperity (with the exception of 1992 as the first Iraq war caused an oil price spike which caused a mild and short-lived recession), the longest boom in U.S. history (factcheck).

History shows the oil price hikes are bad for the global economy (like the oil shocks of the 1970s), oil price crashes are good. Period.

3. The number of oil consumers, who benefit from cheaper oil, is much bigger than the number of producers. There are 7 billion consumers on the world. Producer countries like Venezuela, Nigeria, Ecuador & Algeria aren´t really important for the global economy. The US is a net importer of oil and benefits more than it suffers. Europe, China, Japan, India & the majority of the rest of the world don´t have much oil, if any.

4. The banks managed the impacts of the steep drop of prices for oil and other commodities on their loan portfolios better than feared so far, helped by a solid consumer business. Recently the US banks reported their financial results from Q4 2015. All big US banks - JP Morgan, Citigroup,  Bank of America, Morgan Stanley, Goldman Sachs, Wells Fargo & PNC Financial, Bank of New York Mellon, Capital On - beat the analysts`earnings expectations. JP Morgan declared that its fourth-quarter profits rose 9 percent from a year earlier, helped by a strong performance in its consumer banking division and lower legal expenses (finance.yahoo). 

 Why should we believe the Citigroup and her economists? In 2008 the bank had to be saved because these people had no clue about the economic environment. The talk about an "Oilmageddon" is just fear mongering and quite nonsense. 

Contemporary Art: Fear Of Waves @ Gallery Canada, New York

(Drivebycuriosity) - Do you like to swim, the beauty of the ocean, the lure of lakes and other water places. Then you might enjoy a show at art gallery Canada on New York`s trendy Lower East Side (333 Broome Street canadanewyork). The art dealer exhibits works by Katherine Bradford. The show is called "Fear Of Waves" (through February 14, 2016).

I display here my favorites from the show, as usual are very subjective selection. On top of this post you can see  "Blue Swimmers" (2015, Acrylic on canvas, 60 x 48 in (152.4 x 121.92 cm). Above this paragraph follow "Blond's in the Sun, Lifeguard" (2015, Acrylic on canvas, 24 x 26 in (60.96 x 66.04 cm);  "Surfer" (2015, Acrylic on canvas, 72 x 55 in (182.88 x 139.7 cm);  "Surf Party" (Acrylic on canvas, 72 x 55 in (182.88 x 139.7 cm) & "Fear of Waves" (2015, Oil on canvas, 84 x 72 in (213.36 x 182.88 cm).

Above you can see "Floaters" (2015, Acrylic on canvas, 22 x 28 in (55.88 x 71.12 cm); "Swim Team Miami" (2015, Acrylic on canvas, 44 x 48 in (111.76 x 121.92 cm); "Pool Swimmers, Green" (2015, Acrylic on canvas, 72 x 55 in (182.88 x 139.7 cm) &  "Fathers" (2016, Acrylic on drop cloth, 70 x 96 in (177.8 x 243.84 cm).

Let the pictures speak for themselves. Enjoy!

Stock Market: A Defense Of The Bull Market

(Drivebycuriosity) - The bull market for stocks, that started in spring 2009, is under attack. The S&P 500, the gauge for the US stock market, dropped about 13% from its peak last year. If the barometer would fall 20% or more a new bear market would start by definition.

I believe that the recent selling panic is ill founded. The massive losses, especially for bank & Internet stocks, are caused by herding behavior. Hedge funds and other speculators typically buy and sell the same stocks, at the same time, and track each other's investment strategies. In the recent days traders - including the timid managers of huge funds and other portfolios - have been dumping anything which seemed risky, their sales caused others to sell too, which lead to a snowball effect of more and more selling. The result are the downward spiraling stock prices we are seeing now.

If we believe the media the selling is inspired by fears that the cooling Chinese economy and falling oil prices will cause a new global recession (bloomberg  businessinsider). These fears are overblown. China is managing its soft landing - economic growth rate between 6-7% - thanks to a rising service sector and climbing retail sales (plus 11% annually).

The oil price collapse is a boost for the global economy. Consumers worldwide have more money to spend & companies are benefitting from lower energy, material & transportation costs.  The year 1986 had a similar oil crash that lead to an epoch of cheap energy and a prosperous economy (driveby). The majority of the US bank beat the analyst`s profit expectations for Q4 2015.  They managed the impacts of the steep drop in prices for oil and other commodities on their loan portfolios better than feared, helped by a solid consumer business and JP Morgan reported that its fourth-quarter profits rose 9 percent from a year earlier, helped by a strong performance in its consumer banking division and lower legal expenses (here my post about the US earnings driveby).

The bull market is still founded by the economic fundamentals - bear attack or not.

Contemporary Art: Have Fun With Paul Pretzer @ Marc Strauss Gallery, New York

(Drivebycuriosity) - Contemporary art is a lot of fun. You can see that @ Marc Strauss Gallery on New York´s Lower East Side at the edge to Chinatown  (299 Grand Street marcstraus). The art dealer shows works by Paul Pretzer (through February 14, 2016). The Berlin-based artist had created these paintings during his three-month New York residency.

I display here my favorites from the show, as usual a very subjective selection. On top of this post you can see "Meow Arbiter" (2015,
Oil on Canvas
, 60 x 78 inches).

Above this paragraph follow "Ask Me Why You Deserve Hell" (2015, Oil on Canvas, 63 x 84 inches); "Für Dich"/"For You" (2015, Oil on Canvas, 63 x 78 inches) & "Grüne Apfel"/"Green Apples" (2015, Oil on Canvas, 59 x 59 inches).

Above "Herohorse" (2015, Oil on Canvas, 63 x 83 inches) and 2 more paintings. You can find more information about the artist here: pretzer

Let the images speak for themselves. Enjoy!