Spinning Black Friday Retail Sales
A few things you can count on every year around this time:
- Sales data for Black Friday will be touted by biased interest groups. They are invariably have an upside bias;
- Headline writers will get it wrong
- Survey data will be taken as the equivalent of actual sales;
- Strong forecasts will be subsequently proven wrong;
Such is the current situation with the Black Friday sales data, with reports still trickling in from around the country.
Finding Holiday Uses for Stock Shares
Amusing CNBC.com piece about what you can buy with your near worthless stock shares. For example, a single share of Microsoft buys you a 10 pound Butterball turkey.
Christmas Spending Projection Drops to 8 Year Low
Gallup reports that:
"Americans' projected average Christmas spending this year, $616, is the lowest in Gallup's 10-year history of tracking this question in its current format, and provides further evidence of the heavy toll the current economic turmoil is taking on America's retailers."
Why Banks Have Become Schizophrenic
Its an understatement to say these are difficult times for banks. Between the mortgage collapse, the Treasury recapitalization, and the recession, they are trying to do business -- and that that involves some risk. But doing so without losing too much money involves doing less business.
They have become utterly schizophrenic. Whether its the TARP or the credit crisis or deleveraging or something else entirely, I cannot tell you. But damn, these guys have gotten weird.
Back in August, we noted that numerous banks and brokers were sending nastygrams to their HELOC clients telling them "Too Late!" Unused portions of equity lines were being withdrawn.
Our own Citibank HELOC, which was about half unused, was withdrawn 2 months ago. Yesterday, we received a letter offering us a new HELOC from Citi -- for the same amount that was withdrawn in August.
Our Visa via JPM/Chase went through the same process. A short while ago, I had a month of extensive business travel expenses. Before we even got the bill (which was paid off in full) came a sort-of-odd, borderline rude letter about our (high) credit use. It was "Thanks for the business, but please use credit responsibly, ya deadbeat."
It was a strange letter. Any review of the charges could see it wasn't frivolous, but were all business T&E. My solution was to switch to an Amex card, and not use the Visa for business expenses. That was September, and last week, we got a JPM letter -- We want your business! We are raising our credit limit on the Visa.
I understand the fear that firms have when they are lending these days. As the NYTimes writes this morning (Consumers Feel the Next Crisis: Credit Cards), another credit crisis is on the horizon. But you guys better get a more coordinated message. You are confusing and self contradictory -- and its easy to see how you could alienate some, less understanding clients.
NY Times Ubiq-cerpt:™
"First came the mortgage crisis. Now comes the credit card crisis.
After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.
The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.
Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001."
The mortgage collapse has changed my sense of what is a lot of money. $21 billion? That's chump change...
graphic courtesy of NYT
Morgan Stanley HELOCs: Don't Delay, Act Now! (August 06, 2008)
Consumers Feel the Next Crisis: Credit Cards
NYT, October 28, 2008
June: Greater Spending on Fuel Than Cars
Whenever we see a strange datapoint -- something that hasn't happened for decades, its worth noting. Recall in 2005, the US Savings rate first slipped to zero.
More recently, something else unusual happened. Consumers spent more purchasing fuel for the motnh then they did on vehicles: Drivers Spend More on Fuel Than Cars for First Time Since 1982:
"Consumers spent more on gasoline than vehicles and parts for the first time in 26 years in May and June, as U.S. pump prices headed for a record.
Gasoline accounted for about 4.4 percent of spending in June, compared with 3.9 percent for autos and motor parts, according to the U.S. Bureau of Economic Analysis. Both were at about 4 percent in May. The last time gasoline exceeded cars and parts as a percentage of spending was in January 1982...
Record prices at the pump are already affecting U.S. gasoline demand, which sank to a five-year low in the first seven months of the year, according to the American Petroleum Institute in Washington. The decline in demand has slashed sales of automobiles and cut consumer spending.
Auto sales fell to the lowest in 15 years in July and partly accounted for retail sales dropping for the first time in five months. Consumer spending makes up more than two-thirds of the U.S. economy."
This is yet another example as to why the focus on Core Inflation is so silly . . .
Chart via Jake at Econompic
Your mileage may vary . . .
U.S. Savings Rate = 0% (August 2005)
"The Underlevered American Household" (June 2006)
Drivers Spend More on Fuel Than Cars for First Time Since 1982
Bloomberg, Aug. 15 2008
Starbucks: $2 Special
I've been meaning to post something on this for a while, but today's "discount" finally did it for me.
As you may have heard, Starbucks has canned their DVDs and CDs. At a recent visit, I picked up Juno (which I have been meaning to see), and for Mrs. Big Picture I grabbed The Kite Runner -- for $7.95 each. They also had the new James Hunter CD (Official site, Amazon, NPR interview) and the latest John Mellencamp disc (Official site, Amazon) were also $8.
But the big thing that caught my eye was their $2 special. Bring your receipt in from any purchase in the am, and after 2pm any Grande Cold drink is just $2.
Value maximizers may want to go for the Iced Frappucino Double Chocolaty Chip Frappuccino Crème at $4.80 but it weighs in at 510 calories. Or, the Java Chip Frappuccino is 460 calories. I went for the Iced Caramel Macchiato, which cost less, but is practically dietetic at 230 calories.
I cannot recall Starbucks being this promotional since . . . well, ever.
Anyone else raising their promotions to move some product ?
Bank Lending Practices Tighten as Loan Demand Falls
While the Federal Reserve continues to pump money into the system at an unprecedented rate, less and less of it is finding its way to consumers and commercial borrowers. Instead, its being used to prop up speculators and financial firms.
The Federal Reserve's Loan Officer Opinion Survey on Bank Lending Practices notes the impact the credit crunch is having on lending: After several years of lapse standards, we have now swung to the other extreme. At the same time, credit demand is dropping.
Here are the two key takeaways from the quarterly survey: First, both domestic and foreign respondents "expect their banks to tighten credit standards on all major loan categories in the second half of this year, and smaller, though substantial, net fractions of respondents expected their banks to tighten standards in the first half of 2009." Gee, that's an awful lot of tightening.
The second issue: "Demand for loans from both businesses and households at domestic and foreign institutions reportedly weakened, on net, over the past three months."
This may be a bit of a chicken & egg problem: Which came first, the tightening of lending practices or the slowing demand? Or, is the demand destruction for credit merely an outgrowth of the global contraction? It is less than clear what came first.
Regardless, if a picture is worth a 1,000 words, consider these 4 charts, showing the % of Loan Officers tightening standards for:
The July 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices
FRB, July 2008
‘The US banking system is sound…’
Well, not really.
As William Engdahl notes at Global Research in Canada, "behind the reassuring statements from Paulson and others that the "worst is over" the reality of the credit collapse since August 2007 is a deepening economic contraction."
Now, I am not in the camp that believes this will surpass the Great Depression of the 1929-1938 period. But I will note that the increasing number US department retail store closures is a bit disconcerting. Considering that consumer spending is over 70% of the US GDP, this is particularly worrisome.
Note the scale of the following store closings across America in recent weeks:
Ann Taylor closing 117 stores nationwide
Bombay Company: to close all 384 U.S.-based Bombay Company stores. Cache, a women’s retailer is closing 20 to 23 stores this year
Disney Store owner has the right to close 98 stores.
Dillard's Inc. will close another six stores this year.
Eddie Bauer to close more stores after closing 27 stores in the first quarter
Ethan Allen Interiors: plans to close 12 of 300 stores to cut costs.
Foot Locker to close 140 stores
Gap Inc. closing 85 stores
Home Depot store closings 15 of them amid a slumping US economy and housing market. The move will affect 1,300 employees. It is the first time the world's largest home improvement store chain has ever closed a flagship store.
J. C. Penney, Lowe's and Office Depot are all scaling back
Lane Bryant, Fashion Bug, Catherines closing 150 stores nationwide
Levitz - the furniture retailer, announced it was going out of business and closing all 76 of its stores in December. The retailer dates back to 1910.
Macy's - 9 stores closed
Movie Gallery – video rental company plans to close 400 of 3,500 Movie Gallery and Hollywood Video stores in addition to the 520 locations the video rental chain closed last fall as part of bankruptcy.
Pacific Sunwear - 153 Demo stores closing
Pep Boys - 33 stores of auto parts supplier closing
Sprint Nextel - 125 retail locations to close with 4,000 employees following 5,000 layoffs last year
Talbots, J. Jill closing stores. Talbots will close all 78 of its kids and men's stores plus another 22 underperforming stores. The 22 stores will be a mix of Talbots women's and J. Jill
Wickes Furniture is going out of business and closing all of its stores. The 37-year-old retailer that targets middle-income customers, filed for bankruptcy protection last month.
Wilsons the Leather Experts – closing 158 stores
Zales, Piercing Pagoda plans to close 82 stores by July 31 followed by closing another 23 underperforming stores.
I know Linens & Things just went belly up, and Steve & Barrys recently filed for bankruptcy protection and sale.
Did we miss any others?
Use the comments, and I will add them to the master list . . . .
The Real State of the US Economy: Henry Paulson has lost the control over US finance
William F. Engdahl
GlobalResearch, August 2, 2008
No Recession? No Inflation? Don't Make Me Laugh!
The anticipated bear market bounce in Financials has led to the usual fools' chorus that the worst is behind us, the economy is on the mend, and a recession is avoided. If their song sounds familiar, it is because you heard the same tune with the home builders, and the same melody with the
For those with their head in the sand, here is a broad and varied look at where the economy is contracting. Note that this isn't a cherry picked list of negatives -- it is the crème de la crème of corporate America, ranging from consumer to finance to industrial to transports, and includes such stellar names as Apple, Toyota, American Express, UPS, Catepillar, Costco and JPMorgan. (There's not a slouch in the bunch!)
How's the economy doing? You tell me:
• Not just GM and Ford, but mighty Toyota warns of lower 2008 vehicle sales (MarketWatch)
Toyota (TM) lowered its forecast sales for the year due to an unexpectedly (?) steep decline in demand for new vehicles in the U.S. market. Toyota reported a drop in U.S. sales of 21.4% in June (Passenger cars -9.4%, trucks -38.8%). Shares of Toyota are down 25% over the past 12 months.
Slowing auto sales were blamed on the big 3's heavy lineup of SUVs and trucks. Now that the world's best automaker has declared a slowdown in the US, the cheerleaders are running out of excuses.
• JPMorgan CEO Jamie Dimon: (JPM) “Our expectation is for the economic environment to continue to be weak – and to likely get weaker – and for the capital markets to remain under stress…We remain conscious that since substantial risks still remain on our balance sheet, these factors will likely affect our business for the remainder of the year or longer.” (Bloomberg)
• What about Apple (AAPL) -- they continue to do well? They have been -- but even the iPod/iPhone maker is expecting a consumer slowdown: Thinner profit margins, more discounting, diminished profitability through the rest of 2008 and into the following year. (BusinessWeek)
• American Express (AXP): The credit card company said that even its most
creditworthy, long-standing customers felt the effects of the economic
slowdown that's currently sweeping the U.S. "With bad debt occurring even in the superprime card segment, AmEx's
earnings clearly show that the credit crisis is going upscale, which
does not bode well for the U.S. economy."
American Express is known for catering to wealthier customers, so some investors expected the company to withstand the economic slowdown relatively well. Amex noted that its richer clients were often given cards with bigger credit lines. Now that some of these customers are missing payments, the losses are bigger. (MarketWatch)
• State Budgets are under pressure, as deficits increase, and tax revenues falter. The stumbling U.S. economy is forcing states to slash spending and cut jobs in order to close a projected $40 billion shortfall in the current fiscal year. (WSJ)
• We have Oil Prices falling -- the knee jerk response was optimism -- but that misses the big picture. Its not difficult to explain, its merely cooling global demand courtesy of a US induced global slowdown.
• UPS: Earnings fell 18.3% per share -- and that was after UPS issued a profit warning (June 23) -- its second in two quarters. The company reduced its full-year outlook, and Chief Financial Officer Kurt Kuehn: "Slow U.S. economic activity and fuel-price increases hit us and our customers during the quarter" (Reuters) (How anyone possibly thought this was a good report is simply beyond me).
• Costco Warns on Profit As Inflation Clouds Outlook: COST was supposed to be one of the firms that was going to thrive on a recession. It warned that its fiscal Q4 and full year profits will be well below analysts' estimates. They blamed inflation, particularly energy costs. "Factors negatively affecting our fourth quarter earnings outlook arise largely from inflation, particularly as to energy costs," Costco Chief Financial Officer Richard Galanti said in a statement. (WSJ)
• Caterpillar: Despite good overseas earnings, Caterpillar (CAT) CEO Jim Owens cited "softening'' in Japan and Western Europe. The U.S. may find it hard "to avoid a recession." CAT sees further employment declines, no sign of housing recovery, and expects non-residential building to soften further. North America will be its weakest region. (Bloomberg)
• Beige Book: Describes the economy as having 'slowed.' In all districts, consumer spending was sluggish or is slowing. Manufacturing declines were seen in many districts. Residential real estate declined or were still weak. Due to economic weakness, bank loan growth was 'restrained.' (Federal Reserve)
• Mortgage Applications Reflect Housing Trouble: No surprise here: Mortgage apps dropped 6.2% with similar declines in both the refinancing and purchase activity components. The depressed state of the housing market, very tight credit conditions in the mortgage market, mortgage rates rising an average of 35 bps all weighed. The one bright spot: Refi activity since August of 2007 has been occurring among sub-prime borrowers (in conjunction with the FHA to restructure loans) (AP) • Pawn shops are booming: It doesn't get much better than this for pawnshop operators, who are thriving in this environment. Tight credit and record food and gas prices have made it tough for a lot of consumers to make ends meet. Cash strapped consumers with no access to credit are exchanging personal possessions as collateral for loans. Business is booming. (IBD) • Unemployment has finally bypassed the "magic" 400k number (not there's anything special about that line). At 406k, it matches a three-year high, suggesting that we are nowhere near any sort of stabilization for labor markets (Marketwatch)
• Mortgage Applications Reflect Housing Trouble: No surprise here: Mortgage apps dropped 6.2% with similar declines in both the refinancing and purchase activity components. The depressed state of the housing market, very tight credit conditions in the mortgage market, mortgage rates rising an average of 35 bps all weighed. The one bright spot: Refi activity since August of 2007 has been occurring among sub-prime borrowers (in conjunction with the FHA to restructure loans) (AP)
• Pawn shops are booming: It doesn't get much better than this for pawnshop operators, who are thriving in this environment. Tight credit and record food and gas prices have made it tough for a lot of consumers to make ends meet. Cash strapped consumers with no access to credit are exchanging personal possessions as collateral for loans. Business is booming. (IBD)
• Unemployment has finally bypassed the "magic" 400k number (not there's anything special about that line). At 406k, it matches a three-year high, suggesting that we are nowhere near any sort of stabilization for labor markets (Marketwatch)