Judge the Exterior Without Examining the Inner Workings

How could the biggest jump in department store sales in two years be interpreted as anything but good news before the holidays? There lies the beauty of surface analysis as known as economic spin. Words such as ‘strong’ and ‘huge’ provide a formidable facade which most of the public cannot refute. Our basic tendencies are to judge the exterior, i.e. first impressions, without bothering to examine the quality of the inner workings.

This basic human tendency makes for easy prey in the money game. Money always punishes flawed reasoning, intellectual laziness, mistakes, etc; and it will do it while shaking your hand and smiling.

The headline and detailed commentary make one critical omission; retail sales are measured in U.S. dollars. These are the same U.S. dollars the Fed is creating, some call it printing, to purchase $600 (more like $900) billion in Treasuries for QE2. It is this money creation, better known as QE to infinity here, that’s driving the price of gold up in all fiat currencies.

How could the biggest jump in department store sales in two years be interpreted as neutral to bearish news? The strong number doesn’t look so strong when retail sales are priced in constant currency terms. In other words, retail sales don’t look so impressive when the effects of currency devaluation are removed.

“Real” or constant currency retail sales remain in a deteriorating downtrend since 2001. The deterioration of within the downtrend is illustrated by declining momentum. The weakness in real retail sales has been confirmed by declining auto sales since 2005.

Gold-Adjusted Retail Sales (RSGLDR) and YOY Change:


Auto Sales (AS) and YOY Change:


Headline: Retail sales rise 0.8 percent in November

Retail sales rose for a fifth straight month in November, as the biggest jump in department store sales in two years gave the holiday shopping season a strong start.

Retail sales increased 0.8 percent last month, the Commerce Department said Tuesday. That came after a 1.7 percent gain in October, which was propelled by a huge increase in auto sales.

Source: finance.yahoo.com