THE BASIS POINT

Consumers Not Putting Money Where Their Mouths Are

Today was a strange day for fundamentals. Consumers say they are more confident, but they spent less at chain stores, and home prices continued down (albeit in December). Sharp gas price increases may affect discretionary consumer spending going forward. And don’t forget Greece!

Stocks and rates were flat on the day’s news, which is laid out below…

Greece Default?
We’re now waiting to see whether the ‘voluntary’ losses private investors are taking on Greek bonds as part of the bailout will be defined as a default. If so, Credit Default Swaps (CDS) will have to be paid and tonight the WSJ and FT report that payouts on CDS could be $2.368b to $3.2b.

A few billion. No big deal, say market participants. True longer term. Could cause mortgage bonds and Treasuries to hold highs near-term, keeping rates near records.

In addition to WSJ/FT links above, here’s a plain English primer on Greek CDS.

Consumer Confidence (February 2012)
Consumer Confidence – a survey measuring predisposition to spend and a leading indicator of consumer spending – was 70.8 up sharply from 61.1 in January. People are more confident about the jobs market. We shall see on March 9 what BLS says.

Retail Sales
-ICSC/Goldman Store Sales, Week/Week -1.0%
-ICSC/Goldman Store Sales, Year/Year 2.7%

-Redbook Store Sales Year/Year +3.4%

Durable Goods Orders (January 2012)
-New Orders, Month/Month -4.0%
-New Orders, Year/Year 8.1%
-Ex-transportation, Month/Month -3.2%
-Ex-transportation, Year/Year 5.7%

Durables corrected downward offsetting the too optimistic buildup in wholesale. Consumer spending has not kept pace and this necessitates a slowing in wholesale. This will show up in the “I” component of GDP where GDP = C(onsumer Spending) + (G)overnment Spending) + I(nvestments) +(e(X)ports-i(M)ports)

Case-Shiller Home Price Index
-20-city, Seasonally Adjusted, Month/Month -0.5%. Previous was -0.7%
-20-city, Not Seasonally Adjusted, Month/Month -1.1%. Previous was -1.3%
-20-city, Not Seasonally Adjusted, Year/Year -4.0%
This chart & table tell the story

Housing Prices are falling. The supply of foreclosures was slowed by lawsuits over sloppy work on the part of note holders but will have the effect of drawing out the time it takes the housing market to recover.

by Dick Lepre & Julian Hebron