News that Moves: Dec.Retail Sales & Goldentree Redemptions

RCM Comment: The news that is moving the markets this morning is clearly the Retail Sales number. All was quiet on the western front until this story broke. However, remember the reaction to the news is more important than the news and the end of trading today will be more important than the open. Certainly a terrible retail number is no surprise, so a lower market at the close will be business as usual. A reversal and close well off the lows would be something worth noting.
ECONX December Retail Sales Down Sharply
December retail sales declined 2.7% from the previous month and were down 3.1%, excluding autos. Both numbers were considerably worse than the consensus estimates, which called for declines of 1.2% and 1.4%, respectively. Separately, the November numbers were revised lower to show a 2.1% decline in retail sales (prior 1.8%) and a 2.5% decline (prior 1.6%), excluding autos. Gasoline station sales were down 15.9% versus November and had a big impact on the overall reading for December. Still, it was abundantly clear that spending was weak in most other areas... Excluding both auto and gasoline station sales, retail sales were down 1.5% from November... The December details aren't encouraging. Month-to-month declines were registered in every category, with the exception of health and personal care stores (+0.4%) and miscellaneous store retailers (+0.5%). In the 3-month period ending in December, total retail sales were down 6.8% from the 3-month period ending in September and were down 7.7% from the same 3-month period a year ago... This report will factor negatively for the PCE component of Q4 GDP... For the here and now, though, it reinforces the point that consumers have clamped down on spending in the face of rising unemployment and falling asset values. There is no sugar-coating this weak data point for the economy.

RCM Comment: The hedge fund story continues to unfold and get stranger. This story suggests that the individual investor will receive illiquid, complex debt instruments as redemption payments. What is the individual supposed to do with those assets when there is no market and no expertise to sell them? This action seems like it will create more havoc in an already untenable situation. Bottom line, $350 billion left the hedge fund arena last year and more redemptions can be expected at the end of the 1st quarter. We expect this to negatively effect the market and periodically create extreme volatility.
Fund to repay investors in securities not cash - FT
FT reports GoldenTree Asset Management, a credit hedge fund, is offering in­vestors who want to withdraw money securities instead of cash, triggering protests from those who in many cases lack means to dispose of such instruments. Hedge funds such as GoldenTree warn investors in offering documents that they have the right to pay investors back "in kind" not cash. However, such payments in kind have been highly unusual until the current credit crisis, which has led hedge funds to place a variety of restrictions on investors trying to pull out their money. GoldenTree, which specialises in investing in complex debt ins­truments, had about $10 bln under management last year. But losses and redemptions could leave it with half as much if investors made good on withdrawal requests, said a person with direct knowledge of the matter.