On Tuesday, new Federal Reserve Chairman Janet Yellen went before Congress and confidently declared that "the economic recovery gained greater traction in the second half of last year" and that "substantial progress has been made in restoring the economy to health". This resulted in glowing headlines throughout the mainstream media such as this one from USA Today: "Yellen: Economy is improving at moderate pace". Sadly, tens of millions of Americans are going to believe what the mainstream media is telling them. But it isn't the truth. As you will see below, there are all sorts of signs that the economy is taking a turn for the worse.
"It looks like this year’s economic horse will pull up lame," warns Bloomberg's Richard Yamarone, adding that the Bloomberg Orange Book Sentiment Index – a proxy for the overall state of economic affairs in the U.S. – has been running below 50 for 49 consecutive weeks, which implies a stagnant growth rate in GDP in the 2-to-2.5% range. The driving theme behind this subpar, sluggish recovery, Yamarone points out, is the lack of desirable growth in real disposable personal incomes, which grew at just 0.6% during the 12 months ending in November.
After Seven Lean Years, Part 2: US Commercial Real Estate: The Present Position And Future ProspectsSubmitted by Tyler Durden on 01/20/2014 16:32 -0400
The first installment of our series on U.S. real estate by correspondent Mark G. focused on residential real estate. In Part 2, Mark explains why the commercial real estate (CRE) market is set to implode. The fundamentals of demographics, stagnant household income and an overbuilt retail sector eroded by eCommerce support only one conclusion: commercial real estate in the U.S. will implode as retail sales and profits weaken.
If ever a chart provided unequivocal proof the economic recovery storyline is a fraud, the one below is the smoking gun.
One can debate whether QE has benefitted Main Street or Wall Street until one is blue in the face, even though five years later, the answer is perfectly clear to all but the staunchest Keynesians and monetarists (and if it isn't, just pay attention to the 3:30 pm S&P ramp every day). One thing, however, that is undisputed is what the market itself says about where the QE money ends up when it is being spent by its recipients. And that story is so simple even a Keynesian would get it. Stated briefly, luxury retailers such as Tiffany, Coach and LVMH are now up 500% since the Lehman lows, and about 30% above the prior cycle highs. On the other hand, regular retailers such as Macy's, Kohl's and JC Penney are barely up 100% from the crisis lows, and still more than 30% below the last bubble highs.
But this year was supposed to be different... Early-year prospects for a revival in consumer spending quickly faded in the wake of the lagged impact of the $148 billion tax hike that began the year. As Bloomberg's Joe Brusuelas notes in the following brief interview, combined with a slower pace of hiring and sluggish wage growth, the result will probably be another in a string of disappointing holiday shopping seasons. It is increasingly doubtful that consumers have the wherewithal to meet the ambitious National Retail Federation forecast for a 3.9% increase in holiday spending to $602.1 billion. Brusuelas believes a 2 to 2.5% increases appears closer to the mark given the economic and policy challenges in place this year.
Across the entire curve, credit spreads on JCPenney are exploding. The curve is inverted with the market indicating an almost 50% chance of default within the next 2 years (specifically in 2014 as opposed to pre-2013 Xmas). The stock price is collapsing further (though we suspect a gaggle of analysts calls to catch the accelerating knife - just as we saw last time). At $6.30, this is the lowest stock price since March 1981, on the back of yet another downgrade (this time with a $1 target) by none other than the same Mary-Ross Gilbert who proclaimed the most recent quarter a success and suggested buying the debt in just August.
Planned job cuts in the third quarter rose 25% from a year ago. With September jobs cuts up 19% from last year, it represented the fourth month in a row in which job cuts were higher than the same month last year. Despite the current trend, employers are on pace to cut roughly the same number of jobs that were cut last year. We already have declining real wages. Small businesses are geting wiped out by taxes, regulations, and Obamacare. These mega-corporations are firing thousands. Retail and restaurant sales are plunging. Consumers are scared straight and are reducing credit card debt. Government spending in states and localities is declining because they are required to balance their budgets. The Boomers are old, with no savings. They can no longer live in a delusionary credit bubble. Sounds like a reason to buy stocks.
It just keeps getting worse and worse for Bill Ackman. A few weeks after the epic humiliation, not to mention even more epic losses, he suffered on his now defunct JCP long position (despite ample warnings by the likes of Zero Hedge who said long ago JCP is merely a melting icecube and fast-track Chapter 11/7 candidate) all those who predicted (such as Zero Hedge back in January) that an epic HLF short squeeze would result in the aftermath of Ackman's Herbalife short announcement leading to Ackman's ultimate capitulation, have been proven correct. Moments ago, in a letter to investors, Bill Ackman just announced that he has covered over 40% of his Herbalife short position, with his forced buy-in explaining the endless move higher in Herbalife stock in recent weeks. The explanation of being forced out of nearly half of his position is amusing: "we minimize the risk of so-called short squeezes or other technical attempts by market manipulators to force us to cover our position." So Ackman is forced out by his Prime Brokers so as not to be forced out by market manipulators? That's an interesting explanation for what is a far simple situation: booking your paper losses.
Structural declines in miles driven, middle and working-class income and rising competition from dollar stores may be leading to Peak Walmart. Walmart's model of superstores built on the edge of town with an inventory/distribution system based on high turnover may have reached the point of diminishing returns. Peak Walmart may also presage Peak Mall Shopping and Peak Retail in general. The poaching of competitors' customers appears to be replacing real growth, and perhaps the impending demise of JC Penney is simply the first of many such victims of the retail shark pool.
Don't Blame Free Market Capitalism ... We Haven't Had It for a While
So Many Lies, So Little Time: JCP Sells 84 Million Shares Via Goldman Sachs Hours After Telling CNBC It Won't Sell EquitySubmitted by Tyler Durden on 09/26/2013 17:08 -0400
Remember when one after another JCPenney executive lined up earlier today, mostly using that damage control TV outlet known as CNBC, to promise that JCP does not, repeat not, need emergency public equity funding? Guess what: they were lying. Just out from Bloomberg:
J. C. PENNEY ANNOUNCES PROPOSED PUBLIC OFFERING OF COMMON STOC
J. C. PENNEY COMMENCED PUBLIC OFFERING OF 84 MILLION SHARES
And the punchline:
- JC PENNEY TO OFFER SHARES VIA GOLDMAN SACHS
Yep: the same firm that just killed JCP two days ago, is now diluting the stock some more.
- This won't end well: Islamists call Cairo protest march as Egypt death toll mounts (Reuters)
- JPMorgan Said to Expect Multiple Fines for Whale Loss (BBG)
- Ex-bosses at JPMorgan unlikely to face charges in 'Whale' scandal (Reuters)
- China could target oil firms, telecoms, banks in price probes (Reuters)
- For once, it's not the weather's fault: U.K. Retail Sales Increase More Than Forecast on Heatwave (BBG)
- Japanese visits to shrine on war anniversary anger China (Reuters)
- India Fighting Worst Crisis Since ’91 Seeks to Buoy Rupee (BBG)
- Japan Signals Corporate Tax Cut a Long Shot as Deflation Eases (Reuters)
- Indonesia Tackles Graft in Energy Sector (Reuters)
- Merkel Touts Strength of German Economy (WSJ)
- and... British stuntman who parachuted into London Olympics opening ceremony as James Bond dies in fall (AP)
Impatient Ackman Sacks Interim JCP CEO Ullman, Approaches Ex-CEO Questrom As Chairman, Demands New CEO StatSubmitted by Tyler Durden on 08/08/2013 12:12 -0400
CNBC reports that Ackman, apparently disgusted with the performance of JCP stock, has just sacked the interim CEO, Mike Ullman, he appointed in April and has sent a letter to JCP that a new CEO should be in place in 30-45 days, and also that former CEO Questerom has agreed been approached to return as Chairman. That's all great but we have two questions:
- Shouldn't the next CEO of JCP be really the Chief Restructuring Officer, and as such be appointed by the ad hoc or official, committee of unsecured creditors (aka the post-petition equity)? After all everyone knows how this story ends. And in that regard, we are confident Alix Partners has quite a few retail Chief Restructuring Officers in its rolodex.
- Has Ackman sued Ullman? Considering the petulant hedge fund manager's recent M.O., this would be the logical move.
- Finally, if Ackman is so confident in the retailer, instead of diluting others perhaps he should just invest his entire net worth and prefund the company's cash burn for one more year. After all, what's the risk, right?
That said, providing shorts with a higher point from which to reshort JCP is always a welcome development.
If yesterday was the worst day in years for Bill Ackman following the surge in his proclaimed mega short HLF and the plunge in his beloved JC Penney, today may just redeem Pershing Square's P&L at least slightly following a company press release that denies the report published yesterday by the Post alleging CIT had cut its factoring ties with JCP vendors.