Thursday, August 6, 2009

On Economic Numbers and AIG's Rally

Retail sales were sluggish last month with discounters posting largely lower results. Wal-Mart no longer reports monthly sales figures but other discounters had sales declines for the month. Costco reported a 2% drop and Target posted a 6.5% decline. One of the worst performers was Abercrombie and Fitch with a 28% decline in same-store sales. I guess everyone is too busy trading in their clunkers for shiny new cars to load up on teen clothing. It will be interesting to see whether the resounding success of the cash for clunkers program cannibalizes sales from other retailers or if it is a boost as everyone decides it's time to max out their credit cards again and start spending.

In slightly more uplifting economic headlines, jobless claims dropped by 38,000 to 550,000 in the week ended August 1st. The four-week moving average also decline slightly to 55,250. Continuing claims, however, rose by 69,000 to 6.31 million in the weekend ended July 25th. While a number over 500,000 is still considered a very weak labor market, the trend of lower claims in the past few weeks is positive for the economy. Unfortunately unemployment benefits will begin to run out soon for those who were axed at the beginning of the recession and have failed to find work. The big daddy of employment reports released tomorrow should shed some light on whether the jobs pictures is really improving.

Meanwhile, what is going on with AIG's stock? The stock popped $8 yesterday and was up $6 at the open this morning, although it has given back some gains. Surely it can't be ripping on the news reported this morning that investment banks are set to reap a $1 billion bonanza on the breakup of the formerly formidable insurance conglomerate. But isn't it nice to hear that the NY Fed and US Treasury are set to throw even more money into the hands of investment banks that contributed mightily to the crisis that threw our economy into the lurch? Perhaps the stock is playing catch-up to all the other financials that have ripped in the past few months. Or maybe analysts believe that once the company is broken up and its various pieces are spun off, the government will reap gains and investors will stand to collect more than what the current market cap reflects. Or perhaps K10 is just turning into a perfect negative indicator, as I vowed to short the stock into the dust after it completed its reverse split. Fortunately, I was too lazy to actually execute a trade, thus saving myself a bunch of money. Being a perfect negative indicator can be just as useful as being right, so I'm not too upset about it. Nevertheless, AIG's earnings report will add to the drama of tomorrow's trading day. Let's hope its more exciting than today.


mrbogue said...

These AIG pops remind of a classic OTC Penny stock pump and dump.

Although i wouldn't put my money on it, I believe this stock is headed for oblivion. Rarely is there life after RS death (but then again, everyone thinks this way, so the mass shorts will probably squeeze this up, up, up!)

Mr Wrightwood said...

Is anyone else as not nervous as I am about tomorrow's payroll number? Wake me up when September comes.

mrbogue said...

Already liquidated most of my positions here so nothing short of $5 gallons of milk will phase me right about now.

I seriously thought I had covered at the top of the market, but amazingly it just keeps going up and up. Will a single employment report really
dent this rally? Not so sure.