June Retail Sales Plunge: A “Polar Vortex” In June?

Investment Research Dynamics

The 2nd quarter suddenly doesn’t look very strong as retail sales, showing broad weakness, came in way below expectations  – Bloomberg News

Retail sales for June overall:  down .3% vs. expected +.3%;  retail sales less autos:  down .1% vs expected +.6%;  retail sales less autos and gas:  down .2% vs. expected +.6%.

By segment, the sales for June were particularly weak in autos, furniture, building materials, apparel, department stores and non-store retails.   The carnage is already being felt in some of the major mall retail chains like Gap Stores:   Gap to close stores, cut jobs.   But don’t hold your breath waiting for those Gap Stores jobs cuts to show up in the BLS employment report – they will inevitably be “double” seasonally adjusted out of the data.

But the retail sales report is even worse than it appears in the headlines for two reasons:  1)  if you look at the retail sales table from the report – LINK – you’ll note that gasoline sales actually increased .8% from May, attributable to price inflation, which means gasoline inflation had a large affect on the headline retail sales metric;  2)  the numbers in the report are before inflation is removed – this means that real decline in retail in June was even worse than the headline reports.

The wholesale inventory to sales ratio remains at a level last seen during the recession of 2008-2009, before the $3.6 trillion in money printing had a chance to reflate the stock and housing market bubbles:

With retail sales declining, the small dip in this graph also means that manufacturers are cutting back on production.  In fact, though largely unnoticed, Marketwatch ran an article in mid-June that analyzed why the manufacturing sector is in a “technical recession – LINK 

The economy is starting to edge off the cliff.  The average middle class consumer is getting squeezed from all angles and this is before most of them will have received their latest healthcare insurance premium invoice which will contain a doubt-digit percentage increase.  The housing market is starting to implode as well. The metro-Denver market is now seeing a literal avalanche of home listings in all price segments.  Even more telling is the fact that the mid-price segment is now seeing daily “price reduced” reports.  More on this later.

Black Friday in July?

For those of you who remain Amazon.com bulls, the ‘non-retail store” category references online retail sales.  Perhaps this is why AMZN is aggressively promoting its “Amazon Prime Day” which is “exclusive” to Prime members and supposedly will have deals that are better than “Black Friday.”

Amazon’s stock is moving higher in parabolic “step function” fashion.  This is the unmistakable mark of a short-squeeze.  In fact, the stock is moving inversely (perversely) to its net income, which has been declining almost quarterly since 2004.

AMZN is perhaps the greatest opportunity to make money shorting a stock since the internet stock bubble days.  My Amazon.CoN research report explains why AMZN is bleeding cash and why its reported “free cash flow” is highly misleading.  Although AMZN raised $9 billion in junk bond offerings over the last two years, it is bleeding cash.  It loses money on every Prime membership sale and has admitted as much in media presentations.

Later today I will be updating the Amazon.CoN report with an options strategy page that will show ways to short the stock without actually shorting the stock, if you are not comfortable shorting shares.  Of course, the best way to play this is to short the shares.  If you want to get a head start on this, you should purchase the report now and I will make the options update available to anyone who buys the report now or bought it in the past.

Once I fully update the report with the latest quarterly numbers and some new analysis which makes the true story even more bearish, I will be raising the price.