What We’re Looking For To Go Splat! Part 1

We have started picking new companies for forensic
analysis, along with the ongoing study of the Pan-European Debt Crisis.
Below you will find a sneak peak of what we have unearthed but first,
the obligatory romp through recent news…

Bankrupt Consumers LOVE iPads: WSJ

• Consumers are filing for Chapter 7 bankruptcy more than ever,
  choosing to liquidate their assets and be free of their debtors over
  signing debt repayment plans as encouraged under Chapter 13 bankruptcy
• Personal bankruptcies reached 1.41 million last year, up nearly a
  third from 2008 (but the recession is over, don’t worry – this
  particular stat is a non-issue in a jobless, V shaped recovery)
• Regulations that sought to keep consumers from liquidating at the
  expense of keeping some debt are not working, as the consumer is clearly
  rejecting the opportunity cost of having any debt

Consumers Deleverage: Reuters

• Consumer credit unexpectedly took a sharp turn lower, and revolving
  credit fell at a 13% annual rate
• Consumers are throwing away credit cards, yet retail sales data
  continues to rise, watch pending homes data on Monday for further
  development.

Those companies that serve and rely on these very same consumers’
ability to spend are quite sensitive to the macro environment. Notice, I
said the companies, not necessarily the companies’ securities – at
least not yet. So, what does the macro/fundamental outlook look like?
Let’s glance at personal consumption over the 12 years or so…

Notice that the only real recovery is in the
volatile energy sector, and that is not discretionary! Automobiles,
clothing, furnishing, etc. are looking yucky!

This is an interesting development, for unemployment (real
unemployment that is) is still rampant. The federal government is
effectively funding and financing deficit state unemployment rolls (see
below for more detail). With record bankruptcies, deleveraging
consumers, and rampant unemployment combined with drastic drops in
consumer expenditures, guess what retail stocks are doing??? Yep, you
guessed it.

According to
retail stocks, the consumer is BOOMING! Credit issues are non-existent!
They aren’t drowning in debt (that is both the vendors and the
consumers), and employment is maxed out at an all time high. Hey, we
can’t even spell Bankruptcy, and consumers are releveraging versus
deleveraging since the banks are giving out all of those ultra low rate
credit cards like candy! After all, if there is anything that the banks
want to do now it is increase there credit card exposure at the same
time they are allowing these Ipad-aholics to max out home equity lines
in order to buy more worthless
stuff consumer retail products!

 Are
the Effects of Unemployment About To Shoot Through the Roof? I
wrote this piece late last year, and thus far it appears to be on point.

…The Bureau of Labor Statistics reported
the total number of unemployed at 15.6 million and the unemployment rate
at 10% in Dec 2010. With serious doubts being raised about the reported
figures of the insured unemployed that forms a substantial portion of
total unemployed (nearly 69% in Dec 2010, based on reported figures),
the total unemployment figures reported by the government is most
likely severely understated.

The grave unemployment situation not only
undermines the economic health and recovery hopes, but is also acting
as a major source of financial strain on the Fed’s books.

The increased pressure on the Fed books
can be largely explained when we look into UI programs that are
currently being administered by the government. There are two major UI
programs – Regular state programs and Emergency Unemployment
Compensation (EUC). While the former has to be funded through tax
collection by the state (with any deficit financed by the Fed
through loans), the latter is 100% funded by the Fed. EUC is a
Federal, temporary extension of unemployment compensation for unemployed
individuals who have already collected all regular state benefits for
which they were eligible. The program was started in June 2008 and was
due to expire in December, 2009. The claims under the program have risen
at a phenomenal rate and now accounts for nearly 50% of the total
insured unemployed claims. Thus, the Fed has been financing the
extension of UI benefits of those which are no longer covered under the
regular state programs. As per the last reported figures as of Dec 19,
2009, while the claims under the regular state programs have come down due
to the expiration of claims, the same was more than offset by
the massive jump in insured unemployed under the federal EUC program. The
claims under the regular state programs were down 4.3% (y-o-y) while
the claims under EUC were up nearly 200% which led to a nearly 51%
increase in total insured unemployed. Insured unemployed are
not able to get jobs and with claims expiring under the regular state
programs, they are increasingly applying to the Federal’s EUC program
for extended benefits.

Looking at the initial job claims under
the regular state programs, while the markets rejoiced the decline in
seasonally adjusted figure, the non-seasonally adjusted figures (which
are the actual claims) continue to inch up. For the week ended Jan 02,
2010, the initial jobless claims (NSA) increased 88,000 (w-o-w) to reach
645,571. Looking at the two year trend of the seasonal adjustment does
call into question the validity and accuracy of the adjustments, no?

With the total number of insured
unemployed (under the state and federal programs combined) continuing to
increase as well as no respite coming from the initial jobless claims
(looking at the real figures which are not seasonally adjusted), the
unemployment situation is far from improving. Further, with serious
questions being raised about the validity of the reported number of
insured unemployed, the gravity of the situation is definitely
underrated. The Fed is pumping in enormous sums of money to underpin the
problem – an amount that may rival the TARP. However, with claims
expiring under the regular UI state programs and the temporary aid
provided by EUC expected to taper in the coming months, unemployment is
going to increasingly weigh on aggregate demand and further delay the
economic recovery.

Many of the retailers that we looked at are strapped for cash, cash
flow sparse and/or heavily indebted. We expect to see a roiling in the
fixed income markets, starting out of Europe any minute now.

The European Sovereign Debt Crisis, about to kick into full gear any minute now, will create so much competition, fear and loathing in the fixed income markets that those heavily indebted retail stocks flying high on Macro-Meth fumes will have to implode sooner or later. The Pan-European Sovereign Debt Crisis, to date: The Coming Pan-European Sovereign Debt Crisis – introduces the crisis and identified it as a pan-European problem, not a localized one. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? – illustrates the potential for the domino effect The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. – attempts to illustrate the highly interdependent weaknesses in Europe’s sovereign nations can effect even the perceived “stronger” nations. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious! The Beginning of the Endgame is Coming??? I Think It’s Confirmed, Greece Will Be the First Domino to Fall Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware! Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter? “Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire! Germany Finally Comes Out and Says, “We’re Not Touching Greece” – Well, Sort of… The Greece and the Greek Banks Get the Word “First” Etched on the Side of Their Domino As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis Once You Catch a Few EU Countries “Stretching the Truth”, Why Should You Trust the Rest? Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe Moody’s Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!! How BoomBustBlog Research Intersects with That of the IMF: Greece in the Spotlight Grecian News and its Relevance to My Analysis A Summary and Related Thoughts on the IMF’s “Strategies for Fiscal Consolidation in the Post-Crisis Euro-Gossip Debunked, Courtesy of Trichet and the IMF! Greek Soap Opera Update: Back to the Bailout That Was Never Needed? Many Institutions Believe Ireland To Be A Model of Austerity Implementation But the Facts Beg to Differ! As I Explicitly Forwarned, Greece Is Well On Its Way To Default, and Previously Published Numbers Were Waaaayyy Too Optimistic!

Latest Euro-related subscription content:   Ireland public finances projections (Global Macro, Trades & Strategy) Spain public finances projections_033010 (Global Macro, Trades & Strategy) UK Public Finances March 2010 (Global Macro, Trades & Strategy) Italy public finances projection (Global Macro, Trades & Strategy) Greece Public Finances Projections (Global Macro, Trades & Strategy) Banks exposed to Central and Eastern Europe (Commercial & Investment Banks) Greek Banking Fundamental Tear Shee (Commercial & Investment Banks) Italian Banking Macro-Fundamental Discussion Not (Commercial & Investment Banks) Spanish Banking Macro Discussion Note (Commercial & Investment Banks)

Comments

[Edmon Plume]

You're in Grand Junkyard?  :D

That's easy - it's Obama's new stimulus plan for rural areas.  Tank the economy, dump jobs, threaten to regulate the private sector into oblivion, and voila!  Everyone runs for the hills, thereby providing recovery for small town America!

[Rogerwilco]

Yeah, but we prefer to call it Malfunction Junction. We moved here by choice and thankfully are financially secure at this point in time. Other than charity work we are mostly disconnected from the community and it's problems, so my comments are from the perspective of someone with no skin in the game.

We haven't seen a great influx of refugees from the big cities. If anything, people associated with the drilling industries are leaving to chase work in other places.

[Monday1929]

Please forgive the ZH sarcasm, I am catching it myself. This final burst of optimism is just what to expect before the REAL Crash. It is a hold-over from the past 30 years of delusional optimism. Who wants to accept that we are about to have a New, and worse, Great Depression? I don't.

Or, it is the begining of a new Golden Age for America.

[Takingbets]

I can see CO as a state not effected too much by this recession because when I was helping my SIL get settlements for all the credit card debt he defaulted on, every company I dealt with was located in your state.

[Gimp]

We could get rid of 25% of the local, state and federal workers tomorrow and not notice any difference. Of course this is political suicide so it will never happen until they reach absolute zero tax revenue.

[Mad Max]

I would notice a difference - I would notice an improvement in services and a reduction in my taxes!

[sodbuster]

No- Your taxes would stay the same, most likely they would go up. There is absolutely no correlation between being efficient and the amount of money they can piss away. These criminals in congress could take 100% of your wages, and it wouldn't be enough.

[Whats that smell]

You sure got that right brother!

[overmedicatedun...]

soon we will see major layoffs of State Gov workers: teachers beware, the tax payer is broke  your gravy train is about to hit  a

wall...then wall st cnbc can spin: look at taxes it frees up for stimulus..puke

[Edmon Plume]

Unfortunately it looks like the only job "growth" is in the public sector.  They are trending up, not down.  It is a nice thought, though.

[Ripped Chunk]

Edmon Plume,  Where are you getting your data from???

You are mis-informed.  States, counties and municipalities are cutting across the board pretty much everywhere right now.

[hungrydweller]

Not at the state and municpal level.

[overmedicatedun...]

was at a meeting with Maryland congressman head of state finance committee- he said tax revenue fell off a cliff (not one of his expert finance guys predicted the size of the drop)

States can only balance the budget by layoffs

or salary cuts -only uncertainty is when? after November looks like it.  Cali and NY could fail before the elections - then look out.

[Psquared]

I agree with this timetable. The SHTF late this year or early 2011 - certainly by 12/21/12 when the AHTE. (*asteroid hits the earth) :-)

[Psquared]

I agree with this timetable. The SHTF late this year or early 2011 - certainly by 12/21/12 when the AHTE. (*asteroid hits the earth) :-)