Mish's Global Economic Trend Analysis

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Greece 10-Year Bond Yield Soars to 9% as Prime Minister's Gambit Explodes; Snap Elections Likely, and Opposition Syriza Would Win Posted: 16 Oct 2014 08:50 PM PDT In the last three days, yield on the Greek 10-year government bond soared from 6.6% to over 9% before settling at 8.917%. Prime Minister Antonis Samaras' Gambit Explodes Greek bonds yields had already been climbing with the rise of the radical left Syriza party in recent polls. Icing on the yield-cake was a seriously misguided election ploy by prime minister, Antonis Samaras that blew up in his face. Greece's beleaguered prime minister, Antonis Samaras, used a bold gambit last week to win a confidence vote and preserve a coalition government with sagging support: he promised lawmakers that the country would evict its bailout lenders by the end of the year. Yet Mr Samaras's plan to make a clean exit from an EU rescue programme and cut short a companion lifeline from the International Monetary Fund appears to be backfiring in dramatic fashion. Yields on Greece's long term bonds pushed above 9 per cent on Thursday to their highest level this year as investors doubted that the government had the ability to finance itself without help – let alone press ahead with economic reforms. Adding to the premier's woes, Syriza, the radical left opposition party, has increased its lead in opinion polls and threatens to come to power within a few months – an outcome even some members of Mr Samaras's centre-right New Democracy party now consider probable. The trigger would be February's presidential election, where the coalition will have to corral 25 extra votes to secure victory for its candidate. If it cannot, snap elections will be called in March. SYRIZA Widens Lead Over Samaras' New Democracy Recent polls shows SYRIZA Has Clear Lead Over New Democracy. A new GPO poll conducted for Mega TV gives SYRIZA a 6.5 percentage point lead over New Democracy. The survey, whose results were shown on the Anatropi program late on Monday, also places centrist To Potami in third place. According to the poll, SYRIZA gathers 26.7 percent, New Democracy 20.2, To Potami 6, Golden Dawn 5.7, the Communist Party 5.7, PASOK 4 percent, Independent Greeks 3 percent, LAOS 2.1, ANTARSYA 1.6. Other parties gained a combined 4.7 percent, while 18.2 percent of respondents said they have not decided yet. The poll also suggests that the majority of Greeks do not want the presidential election in February to lead to early national polls. The results showed that 55.7 percent are against early elections, while 40.3 percent are in favor. Snap Elections Likely Even though Greek voters do not want early elections, polls show that outcome is highly likely unless Antonis Samaras somehow hijacks the election or picks up a huge percentage of the undecided electorate. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

WalMart Margins Set to Plunge? Will Rest of Retail Follow? What About Jobs? Posted: 16 Oct 2014 08:21 AM PDT Retail sales reports on Wednesday have me thinking about the strength of the economy, commercial construction, jobs, and profit margins. Let's start with a look at retail sales. The Wall Street Journal reports U.S. Retail Sales Falter Amid Signs of Global Slowdown. Similarly, Bloomberg reports Weaker Retail Sales Signal Smaller Spending Boost. Retail sales dropped more than forecast in September on a broad pullback in spending that indicates American consumers provided less of a boost for the economy in the third quarter. The 0.3 percent decrease followed a 0.6 percent August gain that was the biggest in four months, Commerce Department figures showed today in Washington. Sales fell at auto dealers, furniture stores, building-supply outlets and clothing merchants. The median forecast in a Bloomberg survey of economists called for a 0.1 percent drop. "The fact that real wages and salaries haven't picked up that dramatically, it puts a ceiling on how much spending can accelerate," said Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut. "It seems like relatively widespread softness in spending. The pickup in consumption that we're all waiting for hasn't quite taken off yet." Slower Store Openings Reuters reports Wal-Mart to Slow Store Openings, Invest More in Ecommerce Wal-Mart Stores, the world's largest retailer, said on Wednesday it would open fewer stores in the U.S. in the next fiscal year and ramp up spending on e-commerce. The retailer will open 180-200 of its small format stores, called Neighborhood Markets, in the next fiscal year through January 2016, Greg Foran, head of the U.S. business, told a meeting of investors and analysts. That compares with its plan to open 270-300 of the small format stores in the current fiscal year. Foran said Wal-Mart would open 60-70 Supercenters, its large format store, in the next fiscal year, compared with a plan for 115 openings, including conversions, this year. Fewer Stores, Less Hiring Fewer stores means less construction and less hiring. The former is transitory, the latter more lasting. If this is the trend at Wal-Mart, can Target and other retailers be that far behind? If so, what does that say about trucking growth to stock the stores, and truckers eating at restaurants along the way? Of course, one also needs to consider the long-term growth aspects of trucking in general. With trucking in mind, please consider RoboTrucks from Mercedes-Benz to Hit US Highways Within 10 Years; Mish Supply Chain Proposal. Bleak Outlook for Sales and Profit Here's a story that really caught my eye: Wal-Mart offers bleaker outlook for sales and profit growth. Wal-Mart Stores Inc., facing a retail slump and a decline in traffic to big-box chains, cut its annual sales forecast and predicted slower profit growth over the next three years. Sales will rise 2% to 3% this fiscal year, the Bentonville, Ark., company said Wednesday at its annual meeting with analysts. Wal-Mart had previously projected growth of 3% to 5%, though it indicated in February that it expected to come in at the low end of that forecast. Chief Executive Doug McMillon is trying to reignite growth at a company hampered by shaky retail spending and slow shopper foot traffic. Wal-Mart's same-store sales — an industry benchmark of health — haven't risen in six quarters. To bounce back, the company is opening fewer big-box locations, focusing instead on smaller neighborhood stores and its e-commerce site. The 47-year-old executive, who took charge of the company in February, said he sees plenty of room for improvement when visiting Wal-Mart stores on surprise visits. McMillon said stores need to boost in-stock levels — a measure of the merchandise available on shelves for customers to buy. They also should address long checkout lines and improve staffing by increasing the number of worker hours. Margins Set to Plunge If CEO Doug McMillon is indeed concerned about stock levels and long checkout lines, then he has to commit to more inventory in spite of missed sales targets. More importantly, he will have to hire more employees if he wants to shrink checkout lines. The latter is good news for hiring, but horrid news for profit margins. Moreover, extra hiring news is balanced by a cutback in store growth. It is easy to spin the hiring news however one wants. However, stock market levels are more than a bit inflated vs. overall earnings and margin projections. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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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