News that Moves: Retail Sales Reality Check, Financial Sector Supply Concerns, America's AAA Rating Risk, Foreclosure Fiasco Picks Up Pace

RCM Comment: I have explained why the housing numbers are suspect and Q1 EPS numbers being "better than expected" is a farce. Unfortunately for the Government, placing a positive spin on the Retail Sales numbers is a lot harder to do....

ECONX Disappointing Retail Sales Numbers Undermine Rebound Argument
Those glimmers of hope are fading. April retail sales fell 0.4%. This followed a decline of 1.3% in March. It is starting to look like the consumer spending gains in January and February were just rebounds off a very weak fourth quarter, supported by strong seasonal factors... It can certainly be argued that there is some stabilization occurring in consumer spending. The April decline in retail sales is not particularly large and suggests that the comprehensive personal consumption expenditures for the month will be near flat. Nevertheless, the markets have been looking to a rebound in consumer spending as a signal of overall economic recovery later this year. The two months in a row of declines in consumer spending don't support that argument quite yet. With unemployment continuing to rise and wage gains stagnating, the outlook for consumer spending remains poor.

RCM Comment: Meredith's thoughts go along with our stated belief that even the "good" banks will be raising capital. I'll say it again because it is reality and bears repeating: The 2 month rally in equity prices was manufactured by a slew of dubious "good" announcements leading to "green shoot" spin all for the purpose of helping the financial sector to raise much needed capital. My question: Who are the suckers buying these secondaries? The glut alone of new supply coming on the market should make it difficult for this sector to advance from current prices.

Meredith Whitney comments on CNBC; says 2010, 2011 earnings are going to be "so far below consensus" for the banks...Says she doesn't think this is the last time these banks raise money.

RCM Comment: Weakening US treasury bond prices, recent US$ decrepitude vs other world currencies and firming gold prices add some weight to the following story...

Former comptroller general of the US David Walker says America’s triple A rating is at risk - FT, David Walker writes "Long before the current financial crisis a little-noticed cloud darkened the horizon for the US government. It was ignored. But now that shadow, in the form of a warning from a top credit rating agency that the nation risked losing its triple A rating if it did not start putting its finances in order, is coming back to haunt us...

The facts show we're in even worse shape now, and there are signs that confidence in America's ability to control its finances is eroding... Prices have risen on credit default insurance on US government bonds...

Another warning sign has come from across the Pacific, where the Chinese premier and the head of the People's Bank of China have expressed concern about America's longer-term credit worthiness and the value of the dollar...

In my view, either one of two developments could be enough to cause us to lose our top rating. First, while comprehensive healthcare reform is needed, it must not further harm our nation's financial condition... Second, failure by the federal government to create a process that would enable tough spending, tax and budget control choices to be made after we turn the corner on the economy would send a signal that our political system is not up to the task of addressing the large, known and growing structural imbalances confronting us."

Foreclosure activity remains at record levels in April According to RealtyTrac U.S. Foreclosure Market report
RealtyTrac released its April 2009 U.S. Foreclosure Market Report, which shows foreclosure filings were reported on 342,038 U.S. properties during the month, an increase of less than 1% from the previous month and an increase of 32% from April 2008. The report also shows that one in every 374 U.S. housing units received a foreclosure filing in April, the highest monthly foreclosure rate ever posted since RealtyTrac began issuing its report in January 2005.

"Total foreclosure activity in April ended up slightly above the previous month, once again hitting a record-high level," said James Saccacio, chief executive officer of RealtyTrac. "Much of this activity is at the initial stages of foreclosure - the default and auction stages - while bank repossessions, or REOs, were down on a monthly and annual basis to their lowest level since March 2008. This suggests that many lenders and servicers are beginning foreclosure proceedings on delinquent loans that had been delayed by legislative and industry moratoria (This is something we at RCM have highlighted repeatedly). It's likely that we'll see a corresponding spike in REOs as these loans move through the foreclosure process over the next few months."