Stop me if you've heard this before...a government agency apparently comes up short in meeting their responsibilities and the knee-jerk reaction is more money and more authority. The latest is the National Highway Traffic Safety Administration (NHTSA) currently headed by David Strickland, who is voicing a need for more authority. This call for more power comes as Congress is taking a closer look into the agency's role in the Toyota (TM) recall fiasco. Without a doubt new rules are coming for automakers, including making so-called black boxes to store crash data mandatory as well as braking systems that override the gas pedal. In the meantime, former NHTSA administrator Joan Claybrook testified the agency has been "viewed by the motor vehicle industry for years as a lapdog, not watchdog." If this sounds familiar it's because we heard these sorts of comments in the aftermath of Bernie Madoff and the stock market meltdown.

Claybrook decried the "revolving door" that sees officials leave the government to work for companies they previously regulated, often before the mandatory two year waiting period. It stands to reason it might be difficult getting a sweet gig in Detroit or Wall Street if too tough a regulator is assumed. It's interesting that NHTSA is coming under so much fire after a couple of years of major decreases in U.S. traffic deaths. On that note, a decline in traffic deaths was long overdue compared to successes in other countries. On this trend, industry observers rationalize Americans love affair with sports utility vehicles and big old pickup trucks made it harder to dent fatalities further. From 1979 to 2002, fellow English-speaking car-loving nations experienced massive declines in traffic fatalities.

Moreover, with respect to the current decline in traffic deaths, there is a correlation to the slump in the economy and fewer deaths. Still, deaths per 100 million vehicle miles traveled (VMT) have come down significantly over the last two years.

The NHTSA has a budget of $870.0 million and 650 full time employees while the FAA has an annual budget $16.0 billion and 47,000 employees. Traffic deaths are 99% of all transportation fatalities. So maybe they could use more funds and authority. Nonetheless, it would have been better if requests for more authority came before Toyota had to recall more than 8.5 million vehicles. There are fundamental problems with the relationship of government agencies and those industries they are regulating. The grass is greener and the bench is deeper for the industry, but complacency and typical bureaucracy stymie goals just as much.

The Market

When the market drifts higher in the last hour of trading on no news it grabs my attention. Overall, the session didn't look like much but stocks climbed off the canvas more than once and hinted a big upside move is near.

Economic Data

Retail Sales

Was the February retail sales numbers that unexpected in light of the chain-store sales data last week, ICSC/Goldman weekly data, and what we are hearing on the 4Q conference calls from major retailers? In our opinion the data is not unexpected, reflecting a few trends we have communicated frequently. They include:

* Modest return of the household wealth effect (recently released 4Q data on household net wealth declined from the 3Q pace, but still increased strongly year to year)
* Improved sales trends in hard hit housing areas such as California, Florida, and Arizona. We believe this is indicative of (1) those people who rode out the housing downturn now seeing prices having rebounded from the trough; (2) first-time homeowners filling out their homes with furniture and clothes, for example (more space as they trade up from renting); (3) individuals trading up in terms of housing size to get out from underwater mortgages and being able to buy more home given the decline in prices.
* Improved jobs situation for those in manufacturing and temporary work; more people working, more consumption that is not only resigned to everyday necessities.

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