Here's Your Sign

Stocks continue to ignore what the rest of the world is telling them. Yesterday’s auto sales report should have sent the Dow, which at one point during the day was trading off nearly 150 points, reeling further. Instead, GM of all companies led a rally to close up almost 35 points. The rationale? GM's 18% year-over-year sales drop could have been worse.

This morning, stocks are again trading higher in spite of the ADP report, with the financials leading the way on “speculation that banks have raised enough capital to weather credit-market losses,” according to Bloomberg. Given that there’s been no concrete information reported to substantiate that speculation, the rally is obviously of the “we want a rally, so let’s create a reason for one” sort. The only news from the financials is that Merrill Lynch’s quarterly loss estimate from subprime-related write-downs was revised higher.

The market seems loathe to break into the technical definition of a bear market, which happens about 60 points below where the Dow’s currently trading. It’s off 19.5% from October’s highs already; really, how significant is that half-point difference? We’re in a bear market, folks. And it's going to get worse. One money manager noted this morning, "The market will be dictated by the financials." In that case, brace yourselves.

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Another reason things will get bumpier is that the trickle-down from subprime defaults is now spreading into other debt sectors, including home equity lines of credit (HELOCs) and credit cards. Delinquent payments on the latter have reached the highest point in 2006, according to the American Bankers' Association, and HELOC delinquencies increased at their fastest pace since 1987. Given the heavy use of HELOCs in the most recent cycle as compared to the '80s, that's an ominous signal.

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The reason for the title of today's post - borrowed from comedian Bill Engvall - is three economic signs of the times I've recently run across, one of which I read about and two of which I observed.

Let me state emphatically that the one I read about is that brothels in Nevada, which allows legalized prostitution in certain counties, are offering gas cards to their customers. Apparently truckers comprise the bulk of their business, and with soaring fuel costs they're not leaving the highway to stop at the brothels. A few of the "ranches" also offered a two-for-one promotion for customers who brought in their tax rebate checks. Stimulus, indeed.

The second sign came from a clothing catalog I receive regularly, from a company called The Territory Ahead. I like their stuff, but it's a bit pricey for my tastes. I've never seen them offer deep discounts - the occasional "10% off a purchase of $100 or more" at Christmas, but that's about it. Their latest catalog offers a number of sizeable discounts, however, and not just on the stuff that you knew would wind up in the bargain bin due to its ugliness, or on out-of-season stuff. One particularly attractive short-sleeved shirt, originally priced at $45, is going for $19.99. Gotta compete with the Wal-Marts of the world, which are the only retailers doing well these days.

The final sign came from a visit to Chipotle. Higher food costs have not resulted in price increases at the popular fast-food chain, I'm happy to report. However, they have resulted in smaller portions. I noticed when they made my Burrito Bol they put in about two-thirds the rice they used to start with, and a scant few onions and peppers (for the fajita version). The chicken was skimped on as well. So inflation is with us, in the form of not only higher prices but reduced servings. Looking at my waistline, that may not be a bad thing - a little deflation there is in order.