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
- Global Wheat Glut; Prices Drop, French Exports Plunge; Reflections on Agricultural Commodities; "No Food at Any Price" Revisited
- Bond Market Stares Down Technocrats as 10-Year Yields Climb in Italy and Spain; Technocratic Showdown in Greece with Troika Already?
- 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 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.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.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.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.Per Capita Retail Space Comparison
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
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. 
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| 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.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. 
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| 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.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. 
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| 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.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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