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Real Reason For Stock Selloff Is Not Retail Sales

The market sold off today ostensibly because of the lousy retail sales headline number, or at least so the media said. The headline seasonally adjusted number for retail sales was down 0.3%. While the consensus expectation was for a 0.2% decline, the bigger disappointment appeared to lie in retail sales ex auto, which came in at -0.2% versus a consensus expectation of +0.3%. Even with the miss, the market’s big selloff seems way out of proportion with that. Something else is going on– the end of the US oil and gas boom.

As for retail sales, the headline number is flat out wrong. It’s reported on a seasonally adjusted (SA) basis, and the SA factor has led to a misleading result this month. Looking at the not seasonally adjusted actual data, it’s clear that September was no worse than trend, and in fact on a year to year basis sales are accelerating. The year to year rate of increase is now at its highest point since July 2013. If traders think that this selloff is about retail sales, they are being misled in more ways than one.

Retail Sales Not Seasonally Adjusted- Click to enlarge

Retail Sales Not Seasonally Adjusted- Click to enlarge

I think its an issue of the collapsing price of energy and the wave of liquidation that is causing. It’s a simple matter of supply and demand. The energy boom, fed by cheap and abundant credit, has created so much excess supply and excess capacity in the face of weak worldwide demand that it has sown the seeds of its own destruction.

 

US Oil and Gas Production Capacity- Click to enlarge

US Oil and Gas Production Capacity- Click to enlarge

Energy development has been the engine of growth in the US economy that pushed its growth rate past that of its peers. The collapse of energy prices creates a ripple effect that spreads throughout world markets as large leveraged speculators are forced to liquidate any assets they can. That’s more likely the proximate cause of this selloff than any misconceptions about retail sales.

With energy development the lead sled dog of whatever real economic growth there’s been in the past 5 years, the pressure of the energy price collapse could spell the destruction of the interlocked world financial and economic systems. By the standard of making lower intermediate term highs and lower intermediate term lows, Japan and European markets have already been in bear markets for weeks. Buttressed by the fact of it being the Last Ponzi Game Standing the US has held out a little longer, but that won’t last.  The US will follow the rest of the world down.

Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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