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If The Economy Is Fine, Why Are So Many Hedge Funds, Energy Companies And Large Retailers Imploding?

Tyler Durden's picture




 

Submitted by Michael Snyder via The Economic Collapse blog,

If the U.S. economy really is in “great shape”, then why do all of the numbers keep telling us that we are in a recession?  The manufacturing numbers say that we are in a recession, the trade numbers say that we are in a recession, and as you will see below the retail numbers say that we are in a recession.  But just like in 2008, the Federal Reserve and our top politicians will continue to deny that a major economic downturn is happening for as long as they possibly can.  In this article, I want to look at more signs that a dramatic shift is happening in our economy right now.

First of all, let’s consider what is happening to hedge funds.  For many years, hedge funds had been doing extremely well, but now they are closing up shop at a pace that we haven’t seen since the last financial crisis.  The following is an excerpt from an article entitled “Hedge funds keep on imploding” that was posted on Wednesday…

BlackRock is winding down its Global Ascent Fund, a global macro hedge fund that once contained $4.6 billion in assets, according to Bloomberg’s Sabrina Willmer.

 

“We believe that redeeming the Global Ascent Fund was the right thing to do for our clients, given the headwinds that macro funds have faced,” a BlackRock spokeswoman told Business Insider.

 

The winding down of the Ascent fund is the second high-profile hedge fund closing in 24 hours. The Wall Street Journal reported Tuesday that Achievement Asset Management, a Chicago-based hedge fund, was closing.

And those are just two examples.  Quite a few other prominent hedge funds have shut down recently, and many are wondering if this is just the beginning of a major “bloodbath” on Wall Street.

Another troubling sign is the implosion of so many energy companies.  Just like in 2008, a major crash in the price of oil is hitting the energy sector really hard.  Just check out these stock price declines…

A number of smaller energy companies have already gone out of business, and several of the big players are teetering on the brink.  If the price of oil does not rebound significantly very soon, it is just a matter of time before the dominoes begin to fall.

We are also seeing tremendous turmoil in the retail industry.  The following comes from Investment Research Dynamics

The retail sales report for October was much worse than expected.  Not only that, but the Government’s original estimates for retail sales in August and September were revised lower.  A colleague of mine said he was chatting with his brother, who is a tax advisor, this past weekend who said he doesn’t understand how the Government can say the economy is growing (Hillary Clinton recently gave the economy an “A”) because his clients are lowering their estimated tax payments.  Businesses lower their estimated tax payments when their business activity slows down.

The holiday season is always the best time of the year for retailers, but in 2015 there is a lot of talk of gloom and doom.  Most large retailers will not start announcing mass store closings until January or February, but without a doubt many analysts are anticipating that once we get past the Christmas shopping season we will see stores shut down at a pace that we haven’t seen since at least 2009.  Here is more from the article that I just quoted above

Retail sales this holiday season are setting up to be a disaster.  Already most retailers are advertising “pre-Black Friday” sales events.

 

Remember when holiday shopping didn’t begin, period, until the day after Thanksgiving?  Now retailers are going to cannibalize each other with massive discounting before Thanksgiving.  Anybody notice over the weekend that BMW is now offering $6500 price rebates?   The collapsing economy is affecting everyone, across all income demographics.

 

Last week we saw the stocks of Macy’s, Nordstrom and Advance Auto Parts do cliff-dives after they announced their earnings.  I mentioned to a colleague that the Nordstrom’s report should be the most troubling for analysts.  Nordstrom in their investor conference call said that they began seeing an “unexplainable slowdown in sales in August in transactions across all formats, across all catagories and across all geographies that has yet to recover.”  

I think that a chart would be helpful to give you an idea of how bad things have already gotten.  Jim Quinn shared this in an article that he just posted, and it shows the change in retail sales once you remove the numbers for the auto industry.  As you can see, the numbers have never been this dreadful outside of a recession…

Retail Sales Ex-Autos

But stocks went up 247 points on Wednesday so everything must be great, right?

Wrong.

The stock market has never been a good barometer for the overall economy, and this is especially true these days.

In 2008, stocks didn’t crash until well after the U.S. economy as a whole started crashing, and the same thing is apparently happening this time around as well.

One of the things that is keeping stocks afloat for the moment is stock buybacks.  In recent years, big corporations have spent hundreds of billions of dollars buying back their own stocks.  The following comes from Wolf Richter

IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It’s staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

 

Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They’re all doing it.

Later in that same article, Richter explains that almost 60 percent of all publicly traded non-financial corporations have engaged in stock buybacks over the past five years…

Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.

Big corporations like to do this for a couple of reasons.  Number one, it pushes the price of the stock higher, and current investors appreciate that.  Number two, corporate executives are usually in favor of conducting stock buybacks because it increases the value of their stock options and their own stock holdings.

But now corporate profits are falling and it is becoming tougher for big corporations to borrow money.  So look for stock buybacks to start to decline significantly.

Even though it is taking a bit longer than many would have anticipated, the truth is that we are right on track for a massive financial collapse.

All of the indicators that I watch are flashing red, and even though things are moving slowly, they are definitely moving in the same direction that we saw in 2008.

But just like in 2008, there will be people that mock the warnings up until the day when it becomes completely and utterly apparent that the mockers were dead wrong.

 

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Thu, 11/19/2015 - 10:16 | 6812927 order66
order66's picture

Because they're using GAAP accounting?

Thu, 11/19/2015 - 10:25 | 6812949 VinceFostersGhost
VinceFostersGhost's picture

 

 

Why Are So Many Hedge Funds, Energy Companies And Large Retailers Imploding?

 

Because it's soooooooo fine?

 

Maybe I'll just tune into CNBC and find out. I'll let you guys know.

Thu, 11/19/2015 - 10:56 | 6813095 two hoots
two hoots's picture

 

Like a sports team only those that follow markets/finances care.  The rest are at work, doing something and mostly noticing the price of gas and groceries.  Christmas season will be a sign of how things really are as we can see if people are comfortable loading up on debt to buy stuff.  They still won’t care about “team market”, they only care about what comes and goes from their wallets.  Little in their everyday lives will change as something will fill necessary voids.

 

Thu, 11/19/2015 - 10:32 | 6812985 LawsofPhysics
LawsofPhysics's picture

In a word, FINANCIALIZATION!!!!!

Now, as a producer of quality food all I can say is fuck you, PAY ME!

When the supply lines for essential goods and services breaks, then shit gets real, not before.

same as it ever was...

Thu, 11/19/2015 - 10:41 | 6813028 WTFRLY
WTFRLY's picture

Bcoz, free markets, firms fail and stuff.

Thu, 11/19/2015 - 13:04 | 6813741 Whitmore
Whitmore's picture

For a while I had considered opening a high-end hipster bakery. It was going to be called "The Bread Line" for a little tongue-in-cheek humor. Now, it just seems too depressing.

Thu, 11/19/2015 - 13:04 | 6813742 Whitmore
Whitmore's picture

For a while I had considered opening a high-end hipster bakery. It was going to be called "The Bread Line" for a little tongue-in-cheek humor. Now, it just seems too depressing.

Thu, 11/19/2015 - 10:47 | 6813055 RockRiver
RockRiver's picture

Becuase they are on the wrong side of the market?

Thu, 11/19/2015 - 10:19 | 6812941 SheepDog-One
SheepDog-One's picture

We could have 1 corner store left in the country and Wall St would call it good.

Thu, 11/19/2015 - 10:23 | 6812951 Mark Mywords
Mark Mywords's picture

Since 2008, I've maintained that we could have millions of people on the street, homeless and begging for any scrap of food available, and all that would matter would be the prices of equity indices.

I'm amazed - stunned - that more people refuse to see the very fascism that surrounds them. Perhaps it's because we've yet to fully add the religious nuttery to our brand of fascism, but I do fear that is coming. Much sooner than later.

Thu, 11/19/2015 - 10:51 | 6813067 Omen IV
Omen IV's picture

Even lawyers are being let go - accelerating - as transaction turnover slows to a crawl - NYC is at an interesting inflexion point

big values / rents on apartments with jobs dependent on big corporations - only thing that saves this game as layoffs materialize is funding  living expenses from stock portfolios - lots of construction in process

white collar always believed that the blue collar deserved their fate since they were uneducated, stupid, religious, gun toting neanderthals but they would be exempt from the war on labor

 

it is coming to the end game - will they squeal like stuck pigs or merely bleat?

Thu, 11/19/2015 - 12:23 | 6813570 SixIsNinE
SixIsNinE's picture

must watch :  the new doc giving evidence to the poisonous fluoride dumping into many aspects of our lives :   https://www.youtube.com/watch?v=GqstwfKGzPI

 

Never underestimate the DUMBing effect of this poison as it has been added to our drinking supplies since the 1940s.  Grand Rapids Michigan 1945 first large scale experiment dumping this crap in our water.   Then you get your Prozac & other SSRI fluoro poisons.  Wonder why they don't care, don't think?  Here you go. 

DEA & LEO's have only yourselves to blame for this fiasco tragedy  -  I will help you out of this mess but you have to WANT to be free .... 

SICK

I watched a formerly brilliant man die of alzheimers (died 2013) - he grew up in Grand Rapids ... not a stretch to think this epidemic of alzheimers/dementia and related illnesses are a result of this intentional toxic poisoning

apathy ?   tell and send this documentary to people you care about and send in an op ed to your local rag with the link

Thu, 11/19/2015 - 12:42 | 6813649 Puchica
Puchica's picture

Too much Netflix, Facebook, and Tittygram will do that to you.

Thu, 11/19/2015 - 10:41 | 6813030 duo
duo's picture

my neighborhood has a WalMart on every corner (literally a mile apart)

Thu, 11/19/2015 - 10:21 | 6812946 Rainman
Rainman's picture

Hopium is one helluva drug !

Thu, 11/19/2015 - 10:33 | 6812989 GRDguy
GRDguy's picture

Yep, and JPM / GS / and others lyin' and stealin' OPM is highly addictive, too.

Thu, 11/19/2015 - 10:57 | 6812950 stant
stant's picture

Kramer is on cnbc soundng the alarm on obocare. The big guys are Gona leave the exchanges, losing thier ass.

Thu, 11/19/2015 - 10:23 | 6812952 aliki
aliki's picture

at least we have free healthcare ... umm, oops

UnitedHealth Raises Doubts About Its Participation in Affordable Care Act ... Insurer cuts earnings outlook, citing losses from health-exchange products - WSJ
http://www.wsj.com/articles/unitedhealth-cuts-guidance-evaluating-its-in...

Thu, 11/19/2015 - 10:23 | 6812953 Spungo
Spungo's picture

Cheaper gasoline means arson has never been more affordable.

Thu, 11/19/2015 - 10:23 | 6812956 Lorca's Novena
Lorca's Novena's picture

The economy is fine because taxes are higher, insurance rates, fees, fes, fees, etc,,, (according to .gov strategy)

Thu, 11/19/2015 - 10:35 | 6812999 GRDguy
GRDguy's picture

Good point, as folks have to pay more taxes on their "higher stock prices."

Thu, 11/19/2015 - 10:23 | 6812957 Ban KKiller
Ban KKiller's picture

Can't we build a "Potemkin" village or two? 

Not buying any products today, sorry. Am taking date to lunch though. BAM! RECOVERY! 

Thu, 11/19/2015 - 10:24 | 6812961 MFL8240
MFL8240's picture

The better question is if the economy is fine why are we stuck at zero interest rates and considering Negative rates?  The whole sham about a rate hike is a lie!

Thu, 11/19/2015 - 10:29 | 6812976 LawsofPhysics
LawsofPhysics's picture

Easy, the financial terrorists from 1987, 2001, 2008, etc. have never been brought to justice!!!

Now, can I intereest you in a financial "product" of mass destruction?

Thu, 11/19/2015 - 10:51 | 6813076 GRDguy
GRDguy's picture

Absolutely. Consider Michael and Lowell Milken.

http://www.nytimes.com/1990/04/26/opinion/michael-milken-s-guilt.html

Recently on ZH, their "Milken Iinstitute" was able to present THREE former Secs of Treasury. All felons, in my opinion.

http://www.zerohedge.com/news/2015-09-06/we-made-it-wider-hank-paulson-b...

This was on my mind because they gave a teacher a $25,000 award locally.  Felons tryin' to buy respectibility.

http://www.azcentral.com/story/news/local/mesa/2015/11/16/mesa-red-mount...

Don't blame the teachers though, because the good ones are certainly underpaid

Thu, 11/19/2015 - 10:30 | 6812978 Don'tDoToo
Don'tDoToo's picture

Because Hedge Funds, Energy Companies And Large Retailes pay top dollar to the puppets who tell the sheeple that all is quiet on the western front.

Thu, 11/19/2015 - 10:39 | 6813012 TrumpXVI
TrumpXVI's picture

This whole mess could be fixed pretty easily.....shit, I could fix it.

All anyone needs to do is get government (taxpayer supported) loans for 25 brand new .22 rimfire ammunition plants (about one for every other state in the nation), and.......FIXED!

Thu, 11/19/2015 - 10:52 | 6813080 redc1c4
redc1c4's picture

"...then why do all of the numbers keep telling us that we are in a recession?"

because we never got out of the last one?

or was this one of them there rhetorical type questions?

Thu, 11/19/2015 - 11:02 | 6813126 rejected
rejected's picture

Not to worry. Those ACA premium taxes soon due will jump that GDP to the moon.

Thu, 11/19/2015 - 11:15 | 6813213 A_Gobshite
A_Gobshite's picture

I just figured it was like a woman when she says "I's FINE!"

Thu, 11/19/2015 - 11:16 | 6813217 I Write Code
I Write Code's picture

The hedge funds are crashing because they are all leveraged frauds, depending on ZIRP.

The energy companies have been hit by fracking and the Saudi price cut.

Retail sales are down because incomes are down, and the classic retailers are of course suffering from online sales, though you'd think that would net out in the government stats.  Incomes are down because of outsourcing to China, and the flood of immigrants, legal and illegal, to the US.

So they all push in the same direction, but they are not signs of the same thing, but independent trends.

Thu, 11/19/2015 - 12:37 | 6813631 herkomilchen
herkomilchen's picture

Well put on hedge funds and energy companies.

Retail sales are down because productivity and employment are down.  These are down due to massive malinvestment, higher taxes, expanded regulatory burdens, and larger cronyist rent-extraction.

Meanwhile, consumer debt has not been expanding at a pace large enough to compensate in the mind of the consumer for all of the above (i.e. money supply inflation at the consumer level is not large enough to cover up the obvious losses of income).  That's why people are buying less stuff.

Thu, 11/19/2015 - 11:18 | 6813235 Truth Eater
Truth Eater's picture

What do you get when central banks give their banks $2trillion every year and let them "invest" in stocks?

 

In the old days, the stock market would lead the economy by 6 months with mark-to-market rules and real price discovery.  Today, there is a total disconnect between financial markets and reality.  Picture a batter hitting home runs every pitch but the umpire calling strikes.  Eventually that batter will connect with the umpire's head.  Reality will eventually hurt more than the fantasy world.

Thu, 11/19/2015 - 11:22 | 6813256 Niall Of The Ni...
Niall Of The Nine Hostages's picture

The world economy is in perfect shape as far as the 30,000 people who run the world are concerned.

The oil dumping that has ruined working-class Americans' best chance for turning their lives around in a generation hasn't affected them to any great degree, except that it costs less to outbid nouveau-riche Russians for real estate convenient to the City.

They're always the last to notice the stink when they foul the whole nest.

Thu, 11/19/2015 - 11:46 | 6813267 . . . _ _ _ . . .
. . . _ _ _ . . .'s picture

Artificial inflation of stock value through buy-backs.

Markets are FIAT now, too.

FIAT backed by FIAT (FIAT2,) what could go (exponentially) wrong?

Thu, 11/19/2015 - 11:26 | 6813281 Swamidon
Swamidon's picture

Much talk and tempest about stock buybacks but never ask the question of exactly "whose" stock is being bought back.  Looks like just another way for Fat Cats to "cash out" without appearing too.

Thu, 11/19/2015 - 12:24 | 6813580 herkomilchen
herkomilchen's picture

That makes no sense.  The shares are bought on the open market.  Everyone has the same opportunity to sell shares back to the corporations on the open market.

Buybacks are a legit way to return excess cash to investors.  The problem is not the buyback.  The problem is the companies are not earning the cash they are returning.  They are borrowing it, assuming huge debt service obligations in the process.  Obligations that require nothing but steady earnings growth amidst a nothing but awesome economic environment for years to come.  This translates to significant default risk.

Investors didn't previously have to shoulder this enormous risk of catastrophic collapse in their share prices.  But today they ignore this risk, because it's invisible, in favor of focusing instead on the share price boost in the moment.  The seen vs. the unseen.

Thu, 11/19/2015 - 15:16 | 6814388 pebblewriter
pebblewriter's picture

Well said.  Reminds me of the financial engineering miracles wrought by Drexel et al.

Thu, 11/19/2015 - 11:38 | 6813321 pebblewriter
pebblewriter's picture

Hedge funds took big losses last quarter simply because most of them gave up hedging a long time ago as an unnecessary expense.

And, who can blame them? Shorting has been extraordinarily difficult, what with central banks directly and indirectly buying every dip and predatory HFT's blowing up traditionally bearish setups.

Thu, 11/19/2015 - 11:42 | 6813367 cyl84
cyl84's picture

Hedge funds go bust over bad bets and leverage.  It's as simple as that.

Energy is in oversupply.  Fixed cost projects need to produce to pay back the debt or capital.  It's as simple as that.

Retail is down because people are buying less crap.  That's really not a problem.  We cheer when people consume more when, in reality, do we need McMansions, a 4th TV, and other crap that ends up in the garage or offsite storage?

GNP/GDP is a poor measure of wealth.  It's a measure of "how much stuff is made" but the utility of that stuff is much more difficult to measure.  And its nuanced.  One number doesn't capture the state of the market or world.  All you folks need to get over that.  Frankly, the inaccuracy and imprecision of the government measures should give you greater pause than the in-depth speculation and analysis that goes on this board and other sites.

Thu, 11/19/2015 - 11:58 | 6813459 CHoward
CHoward's picture

When's the Fed's December meeting?  That's when we'll enter a recession OFFICIALLY and not one day before. 

Thu, 11/19/2015 - 12:00 | 6813468 Vlad the Inhaler
Vlad the Inhaler's picture

They should have BTFD.  Morons.

Thu, 11/19/2015 - 12:03 | 6813480 Zero-Hegemon
Zero-Hegemon's picture

Predicting the worst Black Friday ever, with some great ransacking footage from the Walmarts. Not making any predictions as to how many folks will get "door busted".

Enjoy, I'll be home eating popcorn.

Thu, 11/19/2015 - 12:15 | 6813532 Franktastic
Franktastic's picture

Or maybe...people are voting with their money, possibly against big G corruption or they are getting burnt out on materialism.

I know am sick n tired of both reasons...time to live a little and quit being a robot for the main frame.

Thu, 11/19/2015 - 12:18 | 6813560 Goldbugger
Goldbugger's picture

Because they can't use FASB 157 like the banks.

Thu, 11/19/2015 - 12:54 | 6813702 Dr_Snooz
Dr_Snooz's picture

The retailing apocalypse is about 15 years overdue, IMO. In the late '80s, the big-box retailers forced me to buy everything in ugly warehouses. In the '90s, every physical store stopped carrying anything in my size, forcing me to buy online. In the early 2000s, the clothing designers decided that torn, dirty clothes would be the only thing sold in stores. In the late 2000s, retailers decided that they would only sell things that fall apart within one year and CompUSA started rooting through my bags as I walked out.

The future of retailing looks like Wal-Mart: a bunch of dead-eyed zombies staring blankly from behind every register, dirty and disheveled stores, awful merchandise I don't want, and the systematic elimination of anything I find worth buying.

I only venture out to buy soap and TP now. Bye-bye retailers.

Thu, 11/19/2015 - 15:43 | 6814528 wizteknet
wizteknet's picture

Went to walmart because the app said it was in stock couldnt find it in stock, ordered it through the app next day pickup. Why shop anymore, just order it & pick it up, it was quicker then waiting for amazon non prime 2 week delivery. Didnt even have to wait in line.

Thu, 11/19/2015 - 16:30 | 6814802 malek
malek's picture

 For many years, hedge funds had been doing extremely well

So have you been living under a rock for the last 3 years?

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