Bricks and Mortar We Like

Is the consumer dead, or are there different values driving household spending?

This earnings season has been the official death knell for mall-based retailers; while some big-box stores are hanging on, the question remains -is the consumer kaput? As it turns out, people are just spending differently for a variety of reasons.

I think we have all the clothes and electronic gadgets we need for now. Meanwhile, having survived the harshest part of the recession, people are focused on their domicile. If you are lucky enough to still have your house after the financial meltdown, then it’s indeed home sweet home.

Wednesday, we were reminded that people also want a new home; and for some, it means skipping on shoes even if they’re the inexpensive kind sold at DSW. For others; even renters, it’s all about making the place look nicer.

Ironically, Best Buy (BBY) reported earnings that sang its shares; it did so well in appliances that it lifted the shares of Whirlpool (WHR).

Deliberate Consumer

Consumers are also accessing credit once again. In the first quarter, America’s outstanding credit debt climbed 1.1% to $12.25 trillion, the biggest move since the start of the Great Recession. Of the $136 billion, the additional $120 billion was in the form of mortgages, but that number could have been even greater if lenders were prepared to make riskier loans.

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Pre-crisis, the upper tier of borrowers with FICO scores of 760 were only 24% of mortgage recipients; and now, they’re 58%. While the caution among banks is understandable, there is a limit to how many mortgages can be authorized. In fact; overall, mortgage originations continue to drift lower (see chart).

Auto loans seem to be peaking as well, but the good news is that fewer sub-prime loans have declined in three consecutive quarters.

There is a chance housing could sizzle this summer as long as the Fed doesn’t fumble the ball. Consumer confidence gets better and banks begin to lend.

Okay, I know those aren’t the lowest hurdles, but it’s not insurmountable since it’s all within purvey of what’s supposed to happen anyway.

As for other parts of the economy, I think it’s going to be touch and go.

Moreover, people are still loathing - loading up on credit card spending.

Market Rally

For the first time I can remember, there were more new highs on the NASDAQ than the NYSE, which signals the return of fast money.

If the NASDAQ is to provide leadership for a broader market moving higher, the index must close above 4960 to reverse a pattern of lower highs. The Dow needs to close above 18,100.