Sunday, September 15, 2013

On Retail Sales, Income Disparity, Big Banks and More

U.S. retail sales (reported by the Commerce Department) last week increased by a lower than expected 0.2% in August. Also, the Thomson Reuters/University of Michigan consumer confidence index dropped to 76.8 from 82.1, the lowest in 5 months.

The New York Times reported that income disparity in the U.S. during 2012 was at its highest level in over 100 years, with over 50% of U.S. personal income concentrated within the top 10% of earners, according to economists Emmanuel Saez and Thomas Piketty. They also found that from 2009 to 2012, while average U.S family incomes increased 6%, the top 1% incomes grew by 31.4%, but the bottom 99% incomes grew by only 0.4%.

In China, factory output increased by 10.4% from last year (9.9% was expected).

In addition, high profile investor/trader Stanley Druckenmiller commented in a Bloomberg interview that: “I believe the [equity] market is topping” and “I probably have the smallest positions I’ve had” and “right now, I am lost. I don’t play when I am lost. I know in the future I won’t be lost.”

Finally, as the fifth anniversary of the Lehman Brothers collapse approaches, Richard Fisher, Federal Reserve Bank of Dallas CEO and Harvey Rosenblum, executive vice president and senior policy adviser wrote, “We have learned that the largest financial institutions are a dagger pointed at the heart of our economy. A recent New York Times editorial noted that, regarding the controversies surrounding JPMorgan Chase, “the underlying problem is not only this or that violation, but the fact that the sheer size and scope and complexity of the banking behemoths defy controls, encouraging speculation and bad behavior….We would add undermining free-market capitalism and nearly bankrupting the United States. But we would note that it is unfair to single out JPMorgan Chase. Several other megabanks nearly brought down our economic and financial system five years ago and might easily do it again.”

  • Regarding the U.S. economy – With consumers facing higher payroll taxes, limited job opportunities and muted income growth, the decline in consumer confidence is disappointing but not surprising.
  • Regarding income disparity - improvements from these extreme levels may occur at a slow pace, which could lead to increased social friction.
  • Regarding China – the better than expected factory output suggest that global economic trends may be improving.
  • Regarding Druckenmiller’s comments – with conflicting economic data and uncertainty about economic policy, it is likely that other investors share his short-term caution as well.
  • Regarding Fisher’s comments – with megabanks now larger than before the financial crisis, it seems that Dodd-Frank is a poor piece of legislation and that leading politicians and regulators have limited capacity and/or interest in addressing the broad set of financial sector issues that remain.

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