Markets are tumbling today as the drunken walk home continues. I have to admit that I hardly feel sober in this walk amongst other investors as the market remains highly volatile and directionless albeit for brief periods. Like a drunk trying to find his way home the market appears to know exactly where it is heading for a brief period before staging a dramatic turnaround only to find convincing evidence to the contrary. This morning’s roundabout came thanks to consumer confidence data and stocks are down 1.25% on the news.
Earlier this morning we received quite a bit of mixed data on the retail front. Home Depot and Sears reported better than expected quarters while Target missed on sales and Nordstrom warned about a second half consumer slow-down. On the bright side, the weekly data was quite strong. ICSC reported 0.9% year over year gains and 2.3% week over week gains in sales. Redbook also reported strong consumer trends with a 1.9% year over year improvement.
Case Shiller housing data did little to add conviction to an already confused market. Prices were essentially flat in December and continue to find support as government stimulus bolsters prices. Regular readers are well aware of my opinions here. I think the government is simply suspending the laws of supply and demand and ultimately it is a battle they will lose. Prices need to decline further in order to meet the demand of the massive supply that continues to roil housing markets. We have spent a great deal of time discussing the dynamics of bubbles. This market is no different. If I had to place a wager on housing prices I would venture to say that we will still be discussing the “recession” in home prices in 2020. I wonder every day if 12 more months of enormous pain would have worked out better than 10 more years of Chinese water torture (i.e., the “workout” route we have chosen).
The confusion really struck the market when consumer confidence data disappointed to the downside. Analysts were looking for a continued rebound to the 55 level, but a dramatic disappointment of 46 is hitting the markets hard. Investors are now concerned that the already weak consumer is about to get even weaker. The Nordstrom comments justify such thinking.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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