luni, 14 noiembrie 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Country by Country Per Capita Retail Space Comparison; Lowe's Takes 44% Earnings Hit on Store Closings; JC Penny Reports 3rd Quarter Loss; Retail Store Closing Roundup

Posted: 14 Nov 2011 06:16 PM PST

Lowe's reported a 44% decline in store profits today and blamed store closings. What are other retailers doing?

First consider Store Closings Slam Lowe's Profit
Lowe's Cos.' fiscal-third-quarter earnings fell 44% as store-closing charges masked the home-improvement retailer's slightly improved same-store sales.

Ricky Damron, Lowe's store-operations executive, told analysts during a conference call that same-store sales mostly improved as customers along the U.S. East Coast bought roofing products, dehumidifiers and cleaning supplies to prepare for and clean up flooding damage in the region. Large discretionary products, however, remained pressured.

"Our performance is not at the level we expect relative to the market," said President and Chief Executive Robert Niblock. He said the company is making changes to reduce the size of its organization ...
Reduce Size of Organization

The key phrase in the above article is easy to spot "reduce the size of its organization". Will other stores do the same?

JC Penny 3rd Quarter Loss

Please consider the decline in profits came on the heels of an outright 3rd Quarter Loss at JC Penny.
J.C. Penney Co., the retail chain led by the former head of Apple's retail operations, reported a third-quarter loss, citing costs from an early-retirement plan amid weaker spending.

The net loss of $143 million (67 cents per share) compares with profit of $44 million (19 cents) a year earlier, J.C. Penney said Monday in a statement. The 109-year-old department-store chain forecast fourth-quarter profit that trailed some analysts' estimates.

Sales of basic items were weaker as shoppers defer some purchases, Chairman Myron Ullman said during an analyst call. J.C. Penney, led by Ron Johnson, who took over as CEO on Nov. 1, is shedding smaller business lines and hiring former Apple executives to help revive sales. Johnson said Monday he wants to transform the chain, without providing details.
Innovation to Lead the Way?

Inquiring minds are mocking the idea New J.C. Penney CEO Counts On Innovation
J.C. Penney Co.'s new chief executive, Ronald Johnson, said Monday that he is out to "re-imagine" the department store, using current operations as his starting point.

In his first public comments since becoming Penney's CEO on Nov. 1, Mr. Johnson said he plans to foster an environment in which employees "think differently and work creatively" to turn the chain, which reported a loss for the fiscal third quarter, into a major innovative force.

"I get more excited every day about the potential of J.C. Penney," the former retail chief of Apple Inc. told analysts on a conference call.
Will innovation help JC Penny? How? Why?

Certainly innovation is a major force at Apple. However, is innovation going to help the average brick-and-mortar store that competes against Target and WalMart on some items and Amazon on others?

If anything, that set of silly statements by CEO Johnson should cause investors to dump the stock. JC Penny is not a technology company. It needs to stock products at competitive prices that consumers want.

Retail Store Closings Roundup

Inquiring minds are also investigating the 2011 Retail Store Closings Roundup
Even though the number of retail store openings by major U.S. retail industry chains is expected to far outnumber the number of store closings in the 2011 calendar year, both large and small retail chains will still be struggling to hold onto their domestic retail presence, keep stores open, and grow sales and turn a profit. The number of U.S. retail industry store closings planned for 2011 will not be insignificant, particularly in an economy that is still plagued by high unemployment.

Many experts believe that the number of retail establishments per capita in the United States was excessive even before the economy recessed. According to the 2007 Economic Census, there were 1,122,703 retail establishments in the United States and a total of 14.2 billion square feet of retail space.
Per Capita Retail Space Comparison

  • US 46.6 square feet
  • India 2.0 square feet
  • Mexico 1.5 square feet
  • UK 23.0 square feet
  • Canada 13.0 square feet
  • Australia 6.5 square feet

It seems to me stores have a major problem here. The problem is increasing competition for customers who have no job and/or retirees with little need for anything but food and shelter. 

Store Closings

  • 405 Blockbuster
  • 633 Borders
  • 200 GameStop
  • 189 Gap
  • 160 f.y.e.
  • 117 Anchor Blue
  • 117 Foot Locker
  • 100 Talbot's
  • 71 A.J. Wright
  • 69 Metropark
  • 63 Friendly's
  • 60 Rite Aid
  • 52 Destination Maternity
  • 50 Abercrombie & Fitch
  • 50 Hot Topic
  • 45 Big Lots
  • 45 Family Dollar
  • 43 Select Comfort
  • 43 Sonic Drive-In
  • 35 Denny's

That is a partial list. The report did say there are far more store openings than closings. However, they are all competing for the same customers.

No Driver for Jobs

I keep stating, housing is not coming back in a major way nor is commercial real estate. So what is the driver for jobs?

There is no driver for jobs. However, there is a driver for more store closings, increased competition, and falling prices.

Expect all three as deflation kicks in again with a vengeance.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Global Wheat Glut; Prices Drop, French Exports Plunge; Reflections on Agricultural Commodities; "No Food at Any Price" Revisited

Posted: 14 Nov 2011 10:27 AM PST

Wheat prices are down over 50% from 2008 high and 37% since early this year in a global glut of wheat.

Please consider Wheat Shippers Battle for Sales as Global Grain Glut Expands.
France may lose its place as the second-biggest wheat exporter after failing to win more than a dozen tenders in Egypt, the world's biggest buyer, as shipments from Russia, Ukraine and Kazakhstan overwhelm markets.

Egypt favored cheaper supply from the Black Sea region in the past 17 tenders and cargoes to northern Africa from France's Rouen, Europe's biggest grain-export hub, fell to a four-month low in the week ended Nov. 2, port data show. France's crop office expects a 23 percent drop in shipments in the 12 months ending in June, the most in at least a decade.

That's reversing last season's trend, when French cargoes jumped 16 percent to a record as Russia and Ukraine cut sales to ensure domestic supply. Prices that reached a three-year high in February are plunging after both countries eased restrictions. Output is also expanding elsewhere and the United Nations expects the biggest-ever global harvest. Wheat may drop another 20 percent in Paris by May, said Greg Grow, director of agribusiness at Archer Financial Services Inc. in Chicago.

"The world is awash with wheat and unless you can compete with the Black Sea you're stuck," said Tom Fritz, the Chicago- based co-founder of EFG Group LLC, a researcher and adviser to commodity traders. "The bias is for lower prices in an effort to clean up the glut."
Reflections on Agricultural Commodities

Wheat prices rose on account of crop failures in Australia, a global drought, and export restrictions in Russia. Wheat prices have now fallen on abundant supplies and lifting of export restrictions in Russia.

Here are charts of wheat and soybeans.

Wheat Monthly Chart



click on chart for sharper image

Soybean Monthly Chart



click on chart for sharper image

Is wheat a good short here? I really do not know. The news of a glut is out. The time to short wheat was before the news of a glut was out. Prices have fallen in half.

So what's holding up the price of soybeans? Once again, I don't know, but I doubt it lasts. I could be wrong.

So what's the point of this "I don't know post?"

My point is in regards to inflation.

Food Prices vs. Inflation 2003-2006

Inflation was rampant 2003-2006. One only has to look at housing and commercial real estate prices to see it. Housing prices exploded. The price of wheat went nowhere. The price of soybeans went nowhere in an interesting way.

Now we have a housing bust and there is no credit expansion. Yet "inflationistas" point at commodity prices as a sign of inflation.

I keep asking "where is the inflation?" I keep answering "China where credit expansion is 30% annually."

In the meantime, prices of grains move up and down with the weather more than anything else. When prices move up inflationistas scream at the top of their lungs. When prices drop, the inflationistas crawl under a rock.

The reality is much of these movements are noise.

Weather is not Inflation

Inflation and deflation are about the expansion of money and credit, not about weather, crop failures, export cutoffs or government rules and tariffs that drive up prices.

However, if you are a misguided soul who thinks rising prices are tantamount to inflation while ignoring prices movements to the downside of 40% in housing ($400,000 on a $1 million home, or more), then go ahead, stick to your belief.

Scream about prices and you will be right more often than wrong even if you miss the big picture or what is really important (credit expansion, asset prices, and jobs).

No Food at Any Price

Reflect on that for a moment, then reflect on the absurdity of Jim Rogers' July 2011 preposterous statement "No Food at Any Price"

I suggest there is a glut of wheat. Moreover, I think there could be a glut of corn were it not for inane ethanol policies in the US.

In contrast, Rogers thinks there will be no food at any price. The idea is patently absurd.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Bond Market Stares Down Technocrats as 10-Year Yields Climb in Italy and Spain; Technocratic Showdown in Greece with Troika Already?

Posted: 14 Nov 2011 07:55 AM PST

The technocratic governments in Italy and Greece are not off to a smooth start judging from the action in the bond market. A quick glance at the 10-Year note in Italy shows the yield is up 25 basis points to 6.70% and the Spanish 10-year note is up 24 basis points, soaring through the 6% mark to 6.09%.

Meanwhile, Greek 1-year bonds are trading at a mere 250%. Any bets on when they exceed 300%?

German Chancellor Angela Merkel says Europe faces toughest hour since Second World War. What Merkel says is irrelevant so let's instead focus on a few other snips from the Telegraph article.
Papademos succeeds George Papandreou, whose proposal to hold a referendum on the country's bailout terms prompted EU leaders to raise the threat of a Greek exit from the currency bloc.

The new Greek leader, a former central banker who oversaw his country's entry to the eurozone in 2002, must win a Wednesday confidence vote in his cabinet before meeting eurozone finance ministers in Brussels on Thursday, state television reported, where he will be expected to outline next year's draft budget before putting it to parliament.

Opinion polls show Papademos has the support of three in four Greeks. But he was facing his first protest in front of parliament on Monday afternoon from left-wing demonstrators who accuse the new government of working in the interests of bankers.

Inspectors from the "troika", the International Monetary Fund, ECB and European Union, start arriving in Athens on Monday, piling pressure on Greece to qualify for a second bailout worth €130bn and an €8bn tranche from the earlier bailout, needed to finance bond payments due at the end of the year, according to Reuters data.

In addition, the leader of Greece's main conservative group Antonis Samaras said on Monday his New Democracy party would not vote for any new austerity measures and said the mix of policies demanded by international lenders should be changed.

"We will not vote for any new measures," Samaras told a meeting of his own MPs.

He added that he would not sign any letter pledging a commitment to austerity measures, as has been demanded by EU Economic and Monetary Affairs Commissioner Olli Rehn, and that a verbal pledge should be sufficient.

Rehn has said the EU and IMF will not release the tranche without written assurances from all Greek parties that they will back the measures.
No New Measures, Nothing In Writing

It will be interesting to see how long Samaras sticks to his pledge of "no new measures" while refusing to give anything more than a verbal agreement to measures already in play.

Who can but the bond market could possibly doubt the words of Greek politicians? After all, everyone knows that politicians everywhere always keep their word. Putting things in writing cannot possibly make a difference.

Sheer Stupidity of it All

Notice the sheer stupidity of it all. The Troika may potentially throw another 130 billion euros at Greece on top of over a hundred billion already spent, in an attempt to prevent a default (that has already happened) that may have resulted in a loss to the banks of perhaps 50 billion Euros had banks simply taken their losses a year ago.

Supposedly Greece was bailed out to prevent contagion. However, throwing money around helped speed up contagion. Portugal and Spain will be next.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Economic Idiocy or Self-Serving Bullsheet from Deutsche Bank Chief Economist and UK Business Secretary? General Rule Helps Sort This Out

Posted: 14 Nov 2011 12:47 AM PST

Sometimes it is extremely difficult to tell the difference between economic idiocy and self-serving bullsheet. I am a big fan of Occam's Razor which says the simplest explanation, the one with the fewest assumptions, is likely to be best.

However, which explanation is simpler - stupidity or self-serving propaganda?

While pondering that question, let's take a look at how the question arose. It comes from a statement made by the Chief economist at Deutsche Bank in an article written by Ambrose Evans-Pritchard for the Telegraph.

Please consider Pressure on the ECB grows as Mario Monti rides to rescue
"The ECB must make it clear that it will not allow Italy's bond yields to rise above 5pc, however much it costs," said Thomas Mayer, chief economist at Deutsche Bank.

He described the current policy of half-hearted bond purchases as "a recipe for failure", signaling to markets that the ECB is not willing to see the job through with overwhelming force.

Britain's Vince Cable, echoed the calls for bolder action, blaming the ECB's passive stand for the dramatic escalation of the crisis last week that pushed Italy's €1.8 trillion to brink of meltdown and spread contagion to France.

"The central bank has to have unlimited powers to intervene to support economies, and indeed banks, to prevent collapse," he told the BBC.
Idiocy or Self-Serving Bullsheet?

Are these people really dumb enough to believe central banks can impose their will on the markets?

I have to ask because former ECB president Jean-Claude Trichet empahtically said "We say no to default". He also said no to soft-default. Well guess what? Greek debt was restructured and the ECB is holding a ton of it.

Eventually the markets impose their will. It may be by destruction of the currency, something that both Vince Cable and Thomas Mayer fail to consider (or simply ignore) or the markets may impose their will with interest rates as has happened with Greece and Portugal.

To be sure, it is theoretically possible (at least for a while) for the ECB to print enough money to drive rates in Italy to zero. However, such action would be in violation of the Maastricht Treat, it would put German taxpayers at risk, and it would eventually make the Euro worthless if done long enough.

I do not know what if any stake in the matter Vince Cable has, so it is easy enough to think he is a complete economic idiot.

The situation is more complex with Thomas Mayer. He may be talking his book, scared to death what happens if debt held by Deutsche Bank blows up. Perhaps he would be fired if that happened.

Nonetheless, a general Mish rule says "when stupidity is one of the choices, give it the benefit of the doubt".

There may be a combination of factors at play here (and probably is), but to pick a single answer "economic idiocy" rates to be the best choice.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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