Thoughts From Joe - January 18, 2013

Top Eight

1. Retail sales remained strong in December, despite weather challenges.  December retail activity was better than expected, rising 0.5 percent putting the rate at 4.6 percent for the year.  The holiday sales component, however was disappointing as part of the gain was attributable to higher gasoline prices.  Nonetheless, retail sales are hanging in quite nicely.  At 70 percent of GDP, this important component is definitely doing its part.
2. Fed Chairman argues for continued economic stimulus.  Ben Bernanke said the job market has yet to show substantive signs of improvement and that "we are still in a relatively fragile recovery."  Very true, however the link between the Fed's actions and possible future improvements seems tenuous.  Why would the Fed buying Treasuries and mortgages encourage the average business to hire more workers?  This doesn't make sense to me.
3. Dell is actively looking to go private in order to pursue long-term growth strategies.  Silver Lake Partners is leading a deal to take the $19 billion company private in order to help it pursue a makeover away from public scrutiny.  When you are a public company, your value is defined as the most recent trade in your stock.  Unfortunately, companies usually need to go private when difficult restructurings are on the horizon in order to prevent hostile actions.  These are some of the unintended consequences of today's mark-to-market accounting and "satisfaction now" attitude in our society
4. Housing starts jump to their fastest pace since June 2008.  December's 954,000 pace from the post-crisis phase of 500,000 but a far cry from prior peak at just over 2 million.  Household formation is also getting off the canvas as job growth has returned to our economy.  No need to worry about a bubble given these numbers, but today's stability in the housing sector seems to have some momentum.
5. Fitch is considering downgrading some AAA countries, including the United States.  The rating agency stated it "very likely" will cut the credit rating of the U.S. if Congress doesn't raise the national debt limit soon, fearing default.  If the government shows an inability to meet all of its obligations - including social security and military pay, they feel a downgrade is justified.  If they downgrade everyone else first and leave the U.S. as the highest rated liquid market available, does this matter?  I don't think so.
6. New car sales drop 8 percent in Europe as further evidence of economic slowdown emerges.  Car sales in the region have fallen to a 17 year low as the continent continues to face recession.  Regionally, this statistic is more striking:  down 23 percent in Spain, 33 percent in Greece and 43 percent in Portugal.
7. Governments must allow innovators to innovate.  For many years, innovation leaders have been warning that the pace of innovation is slowing.  The linked article from The Economist provides the opinion that governments need to get out of the way of innovators.  Today's obstacles are inhibiting innovation.  Amen.
8. The best-selling car in California?  A Prius!  Toyota's hybrid passed Honda's Civic in the largest U.S. auto market for the first time ever.  Nearly 61,000 Prius were sold in the state in 2012, a whopping 78 percent more than the previous year.  Is the plural "Prius" or "priae"?

Key Indices

Source: Bloomberg

Looking Ahead

• Next week brings more data on housing and factory output as well as the traditional press blackout period prior to the FOMC meeting the following week.
• Earnings releases next week include:
  • Monday: Advanced Micro Devices, IBM, Google, Intuitive Surgical
  • Tuesday: Abbott Labs, Stryker, Netflix, InvenSense, Apple, Symantec, Polycom
  • Wednesday: Cypress Semi, VeriSign, Microsoft, Juniper Networks
• Scheduled IPO activity includes an issuance by LipoScience next Thursday.