Is Santa Claus Coming to Town This Year?

This morning, September retail sales

sharply better than expected, thanks in large part to extremely strong auto sales. This begs the question, is the economy really that bad? It does not look like it. September retail sales blew away estimates, coming in at 1.1%, versus estimates of 0.7%. Excluding autos, it came in at 0.6%, versus estimates of 0.3%. If you strip out autos and gas, it came in at 0.5%, versus estimates of 0.4%. We saw import prices rise higher, coming in at 0.3%, versus estimates of (0.4%, and up 13.4% year-over-year, but it does not appear we are falling off a cliff, at least with certain economic numbers. The other day, PIMCO's Neel Kashkari wrote about the

we are currently in, and it presented a picture that was not as bleak as some bears would like you to believe. Sure, there are still problems in Europe, the U.S. has massive debt problems, and China is slowing. We're even

too, albeit slower than anyone wants. That does not mean we are heading towards a depression, or even a recession, at least if you believe the government sales figures. Consumer confidence is extremely important in spending and sales, for obvious reasons. If people feel more confident, they are likely to spend more, but the reverse is not always true. October University of Michigan consumer sentiment just came out and this proved to a point. It came in at 57.2, versus estimates of 60.2, but that does not mean October retail sales have slowed. If a consumer is less confident, that does not mean they are likely to slow down spending. In August, the U.S. lost its AAA rating from S&P, nearly defaulted on its debt, and Washington almost caused a self-imposed destruction, yet the consumer kept spending in August. In September, equity markets plunged around the globe, yet retail sales were sharply higher than expected. Brian Sozzi, of Wall Street Strategies believes that consumers are getting better adjusted to price increases, which may suggest the consumer is more confident than they let on. In a

Sozzi wrote, "September retail sales send yet another signal that consumers are responding better than expected to price increases. As we enter the holiday shopping season with the release of

the Apple

iPhone 4S and the Amazon

Kindle Fire, retail sales look to be strong, but nothing spectacular. Given the strong demand we have seen for both devices, perhaps retail sales in the coming months will continue higher in the coming months. What is really impressive is the auto sales, which were sharply stronger than expected, but that does not appear to be reflected in the stock prices of Ford

, General Motors

or Toyota

, which have lagged in recent months. This is not the "all clear" sign by any sense of the phrase, but maybe that bearishness that was experienced in August and September, may have been overstated by it. Markets tend to overshoot on the downside, and the upside, and it appears we are on the upside, thanks in part to better than expected economic data. Santa Claus' sleigh might not be jammed pack with toys, but he is definitely coming to town.

Traders who believe that the U.S. economy is going slow and steady might want to consider the following trades:

Traders who believe that the current "hopium" is going to wear off soon may consider alternate positions: