The American Consumer

That stocks rallied after giving up early gains and hitting the flatline around 2:20 PM is encouraging. Volume was also a bit stronger than Monday. Call me crazy, but I think we may have some more upside coming. 

8,500 is essentially the mid-point of the Dow Industrials recent trading range. That’s 91 points from Tuesday’s close. Let’s see if it gets taken out today. 

*****It feels kind of weird, given the barrage of bad news we’ve had lately, there was a bit of positive news making the rounds. GE said 4th quarter earnings will hit the low end of the range the company the company gave during 3rd quarter earnings. 

I imagine most investors believed GE’s earnings were highly vulnerable to being lowered. After all, those forward estimates were made during the depths of financial meltdown. There were no guarantees that GEs customers would take delivery of orders. And GE Capital’s exposure to consumer debt is a wild card. 

It’s well known that GE has a tremendous ability to massage its quarterly numbers. But after 2Qs miss, there’s been a lot of apprehension. 

*****Ford came out and said it may not need government assistance to make it back to profitability. But just to be on the safe side, Ford asked for a $9 billion line of credit. 

I’m still shocked at the automakers ongoing stupidity. Flying to Washington in private jets, pinning a company’s success to the Hummer, being continually behind the curve in nearly every facet of product development, the list goes on and on. But at least the planes and the Hummer division are up for sale. 

It reminds me of a scene from Edwin Lefevre’s Reminiscences of a Stock Operator. At one point, the main character meets with a CEO of some big company as part of his due diligence. The CEO starts doing calculations on sheets of expensive stationary. After each formula, the CEO throws the paper away. Livermore decides to short the companies stock because it was being run inefficiently. 

Reminiscences of a Stock Operator is part of the investment canon. If you haven’t read it, it’s definitely worth the time. 

*****Despite American automakers shortsightedness, I’ve been reminded by at least one Daily Profit reader that current economic conditions have exposed their weakness and put them in crisis mode. GM reported sales were down 41% in November. Chrysler sales were down 47%. For comparisons sake, both Honda and Toyota saw U.S. sales drop 32% and 34%, respectively. Nissan sales were off 42%. 

Should GM and Chrysler have money set aside for unforeseen events? Absolutely. But like many Americans, they’ve been living paycheck to paycheck. 

*****There’s an old Wall Street saying – Never underestimate the American consumer. It’s a back-handed compliment, to be sure. But there’s some truth to it. The U.S. consumer is the buyer of last resort for the world. And past rumors of the American consumer’s demise have been greatly exaggerated. 

We saw this with retail sales last weekend. Despite the poor economy, retail sales actually grew over last year. Obviously there was more discounting going on, but nonetheless, we stepped up and bought stuff. 

St. Louis Fed president James Bullard admitted his surprise that retail sales were up. Bullard went on to say that he expects we’ll eventually see a V-shaped economic recovery. He believes that as soon as the credit markets open up, consumers will start spending again. 

I’d like to think that maybe we’d reel it in a little bit. But Bullard is probably right. 

*****There’s a new Special Report available for my Growth Report newsletter. You can learn about it HERE.