And now for a break from the euro and today’s “They will bail out Greece/They won’t bail out Greece” rumor fest.
Real news on the U.S. economy and it’s very good news indeed.
Inventories at U.S. wholesalers dropped in December, according to data released this morning by the Commerce Department. (Guess somebody made it in through the snow down there.)
Fell unexpectedly. Economists were expecting that inventories would climb in December.
And fell big. A 0.8% decrease in inventories after inventories unexpectedly climbed in November by 1.6%. That November increase was the largest since July 2004. And raised doubts about the sustainability and strength of the U.S. economic recovery.
So why are these inventory numbers so important and such positive news?
In the early stages of a strong economic recovery companies should be having trouble keeping inventory on shelves and in warehouses. Demand should be picking up so fast that it surprises companies that have hunkered down for the recession. With recession-thinned staffs and reduced hours at many plants, suppliers should be having difficulty at this stage of a recovery in filling orders.
The decline in inventories in December looks like exactly the kind of drawdown in inventories that the economy should be seeing right now.
The November increase in inventories, on the other hand, raised the question of whether companies that had sold down their initial stock of goods on hand and then reordered weren’t seeing demand pick up as much as they had projected. That increased the odds that sales might not be accelerating very quickly and that in December the inventory numbers would start to show a pile up of unsold goods.
That’s precisely the fear that the consensus among economists reflected: The median forecast among 31 economist surveyed by Bloomberg, called for a 0.5% increase in inventories in December.
Inventory levels are now just 1.12 months of sales. That’s the lowest level since a record low of 1.11 in June 2008.
The U.S. economy grew at a 5.7% annual rate in the fourth quarter of 2009. The inventory numbers from wholesalers increase the chances that U.S. economic growth for 2010 will come in ahead of the 2.7% that’s the consensus forecast right now.
Of course, since there’s no silver lining without a cloud, stronger than expected economic growth will set the financial markets fretting again about when the Federal Reserve will start to raise interest rates.
EdMcGon…
I don’t understand why your yield won’t be 17% just because it’s dropped a wee bit. I do Etrade and AOD is listed as having a yield of 17.69%…what’s up with that?? I’m also reading on the AOD website now.
bsdgv,
The 17% dividend yield is based on a 12 cent monthly dividend (what it has paid lately, their next dividend ex-date is 2/18). Multiply that by 12 and divide it by a share price of $8.16 (current price as of now), and you get 17.6%.
georic…
Thanks a bunch for sharing with me! If you’ve only lost 3% since January, you’re doing something right! I’m glued here for the most part but since I started 3 or 4 months ago, my percentage (loss) is higher than yours. I’m sure you have a much sharper grasp on investing!!
I initially bought AOD at $8.58 back on 2/4. It’s dropped some since then, so my yield won’t be 17%, but it’ll still be worth holding.
STL, yours is a difficult question.
My perception of things is that the future is especially difficult to foresee: politicians are prepared to say anything which, they hope, will entice consumers to resume consuming; statistics are biased if not outright twisted (Greece) and I would read Chinese numbers with a grain of salt. Professionals are said to have sold the euro short to the tune of 7.8 billions$, which means that the next few days will be rough.
I am right now 40% cash, 60% invested in companies with a future. Trying to buy some more if/when the price goes down (next few days?) , reading Jim’s posts regularly and reviewing my positions everyday. I have lost 3% from Jan 1st.
When did you get into AOD??
EdMcGon:
> AOD (a nice little dividend fund with a 17% yield).
Where did you get this number from? Thanks.
STL,
I don’t have a target for that. Frankly, if it maintains that dividend, and the share price, I will just sit and hold indefinitely (assuming nothing bad happens with it’s holdings).
EdMcGon…
Did you set a target price for AOD?? That’s THE largest dividend yield I’ve ever seen!
STL,
One other thing: Every stock is different. “Buy and hold” for 12-18 months doesn’t work for every stock. If you buy a stock and it hits your sell price next week, do you continue to hold it, or wait 12-18 months? Vice versa, if you buy a stock and it immediately drops 10%, do you wait 12-18 months?
There is no definitive answer. I could tell you what to do in most cases, but there will be exceptions.
STL,
My strategy at the moment is mostly in inverse ETF’s (VXX, DRV, DPK, SIJ, and EPV) and commodities (GLD, PALL, and UCO). Here’s my thinking: The inverse ETF’s will carry me through the uncertainty of the whole PIGS mess. In the meantime, Bernanke and Obama will be pouring money into the economy, which should give us a nice little dose of “stagflation” sometime this year, which should increase the commodities nicely. PALL is actually a nice play for when the economy does turn around, thanks to palladium’s usage in the auto industry.
My only other positions are BRF (which you knew) and AOD (a nice little dividend fund with a 17% yield).
I’ll try and keep you updated.
I’ve been here just reading and learning from the posts and articles, etc. Amazing how little I do know and understand about how foreign countries come into play and the interactions that remind me of a pin-ball machine!
At any rate, if and when you decide you’re going to move on something, would you mind sharing like Jim does with the rest of us??
Also, I haven’t learned the long and short of it including the “trail stop loss”, etc., so am I on the right track to buy and just hold for 12-18 months or sell when I think the time is right for me??? Are their folks on here doing this besides me??
amtrend,
Agreed. But the only way you will see those inventories go up is if producers have good reason to believe demand for their goods will go up, or if it does actually go up and catches them off-guard. Otherwise, producers will maintain thin inventories, as well as light production schedules.
Hey doom and gloom. How are we going to replenish our inventory? It’s called production…just what we need. Ya-hoo.
georic-China will bail out calif . An awful lot of imports from the east are distributed through calif to the American consumer. calif could help itself by lifting some of their foolish business constraints.
Hey STL! Long time no see!
Nah. The only thing I’m holding that Jim recommended is BRF. Right now, I’m waiting for the market’s uncertainty to pass. There are too many clouds looming over the economy at the moment.
EdMcGon…
Morning! Just curious if you invested in SPWRA or CTRP.
Thanks!
China’s Exports Jump 21%, Providing Yuan Ammunition
By Bloomberg News
“Feb. 10 (Bloomberg) — China’s exports jumped 21 percent in January from a year earlier, providing more ammunition to trading partners calling for a stronger yuan.
Imports climbed a record 85.5 percent and the trade surplus slipped to $14.17 billion, according to data released by the customs bureau on its Web site today. The jump in overseas shipments was the biggest since September 2008, two months after the nation halted the currency’s appreciation against the dollar. ”
http://www.bloomberg.com/apps/news?pid=20601068&sid=aLiICR3wxKGM
> When do you bail out California, by the way?
How do you bail out France?
Yes, California’s economy is as big as France’s.
I was surprised when the market was taking wholesale inventories drops as a positive a few months back. Inventories were dropping slower than sales, and were still very high as a percent of sales. If this is the 2nd lowest inventories:sales ratio then a huge whipsaw upwards could very well play out. Let’s see America buy, buy, buy (then save, save, save tomorrow).
And now for something completly different:
Tuesday, February 09, 2010
“China factor at work on metals markets
by Metals Place”
http://www.proactiveinvestors.com.au/companies/news/4806/china-factor-at-work-on-metals-markets–4806.html
georic,
Why would anyone bail out California? Let them go bankrupt.
This inventory suprise should spur some hiring, correct? Jim I remember an article from a little while back were you said that high unenployment was good for stocks, because companies had less empoyees to pay. Does that mean stocks could be going down in the immediate future? And asking a dumb question, but isn’t less unemployment good for stocks over the long term?
When do you bail out California, by the way?
These are also interesting not only because they were brought up over a year ago… (2009)
“The European Central Bank gave a thinly veiled warning to the German government on Friday (2009) not to violate the European Union’s “no bail-out” clause, which prevents members of the eurozone from supporting other members that are facing rising public debt.”
http://www.marketskeptics.com/2009/02/ecb-warns-germany-against-eu-bail-out.html
Interesting interview with European Central Bank (ECB) governing council member, Ewald Nowotny
Nowotny talks contagion, exit strategies and all things peripheral with FT Alpha
http://ftalphaville.ft.com/blog/2010/02/09/145056/nowotny-talks-contagion-exit-strategies-and-all-things-peripheral-with-ft-alpha/
http://www.bloomberg.com/apps/news?pid=20601087&sid=aCTYb4odHgOo&pos=2
beware that this may be a bounce on false hopes..
“German Finance Minister Wolfgang Schaeuble will brief lawmakers on possible steps tomorrow, Meister said. German government spokesman Ulrich Wilhelm said in a statement that reports that a decision had “virtually been taken” to offer Greek assistance were “unfounded.”
Officials are heading to Brussels as Greece braces for a wave of strikes tomorrow that will shut down schools, hospitals and flights to protest Prime Minister George Papandreou’s deficit-reduction plans. Air-traffic controllers and civil- aviation workers are effectively closing down Greek air space as part of the 24-hour work stoppage by ADEDY, the umbrella group representing about 600,000 civil servants. ”
No law exist in the EU for the EU itself to bail out any one state, however no law exists that would prevent a unilateral bailout can be set up and thus the German bailout “rumors” but nothing is set here yet.
I believe that we will have a bailout before next monday, then we can move onto other countries..
I’m glad I bought some GLD yesterday.
“China Becomes Oil ETF’s No. 4 Holder, Buys SPDR Gold (Update2) ”
http://www.bloomberg.com/apps/news?pid=20603037&sid=aZtsKyX2S6Ls
I said today in my first posting that I do think US is recovering.
Jim,
In other words, inventory levels are only a smidgen above the lowest point they ever reached? Call me “doom and gloom”, but I don’t see that as cause for optimism.