Retailing Is Bad And About To Get Worse

Americans are filing for bankruptcy at the fastest rate in several years. In January 2017, 55,421 individuals filed bankruptcy. That’s a 5.4% increase over January 2016. In December 2016, 4.5% more individual bankruptcies were filed than in December 2015. It’s the first time in 7 years that personal bankruptcies have risen in successive months on a year over year basis.

Also notable, in 2016 the number of U.S. Corporate bankruptcies jumped by 26% over 2015. U.S. Corporations have issued $9.5 trillion in bonds. That’s 61% more than they borrowed in the eight years leading up to the 2008 de facto financial system collapse (aka “the great financial crisis”).

The Financial Times reported that over 1 million U.S. consumers – prime and subprime – were behind on their car loans and that the overall delinquency rate had reached its highest level since 2009. The FT also stated that “lending to consumers with weak credit scores has been one of the fastest growing parts of the [banking] industry.” It’s starting to smell like early 2008 out there.

This is information and data that you will not hear on any of the “Bubblevision” financial “news” programs or read in the mainstream financial media. It’s also information that is not being factored at all by stock prices.

Americans are bulging from the eyeballs with mortgage, auto, credit card and student loan debt. The amount of outstanding auto debt hits a new record every month. Of the $1.2 trillion in auto loans outstanding, over 30% is considered subprime. In fact, I would bet good money that the number is closer to 40%, as the same type of non-documentation loans that infected the mortgage market in mid-2000’s has invaded the auto loan market. It was recently disclosed that the 61+ day delinquency rate on General Motors’ securitized subprime loans has soared to levels not seen since 2009.

To put the amount of subprime auto debt in context, assume 35% of total auto debt outstanding is now below prime (subprime and “not rated”). This equates to $420 billion of below prime debt. The total amount of below prime mortgage debt during the mid-2000’s housing bubble was about $600 billion. In other words, the subprime auto debt problem could easily precipitate another financial markets catastrophe.

Although the retail sales report for January earlier this month purported to show a 4.9% year/year increase in retail for January, the majority of the “gain” came from the rising price of gasoline during the month (the gasoline sales category showed a 13.9% gain over January 2016, most of which can be explained by higher prices). In fact, the .4% “gain” from December 2016 to January 2017 reported for the overall retail sales number lagged the Government’s measure of inflation. Real, inflation-adjusted sales from December to January declined by 0.20%. (Note also that the retail sales report is derived largely from Census Bureau “guesstimates” due to the supposed unavailability of real-time data. This explains why typically previous reports are revised lower – I detail this in my weekly Short Seller’s Journal).

Debt-squeezed Americans are spending less on discretionary items, especially clothing. This is why Walmart has launched a new price-war agenda aimed at the grocery industry, big-box retailers and Amazon.com.    The retail spending “pie” is shrinking and Walmart intends to do fight hard to maintain the size of its piece.  For all the attention focused on Amazon, Walmart’s annual revenues are nearly 4-times larger than Amazon’s.   And make no mistake, Walmart has plenty of room to fight, as its operating margin is nearly double AMZN’s – and that’s before we adjust AMZN’s highly misleading accounting, which would reduce AMZN’s margins.

Despite the Dow hitting new all-time highs for a record number of days in a row, The S&P retail ETF, XRT, is currently 10.4% below its 52-week high.   It’s 15% below its all-time high, which it hit in mid-July 2015:

Target (TGT) is today’s poster-child for the retail sector, as its Q4 earnings missed expectations badly and it warned for 2017.  Its quarterly revenues dropped 4.3% year over year and its full-year 2016 earnings fell nearly 6% vs. 2015.   Operating earnings were crushed, down 42.2% in Q4 2016 vs. Q4 2015.  The stock is down over 11% right now (mid-morning trading on Tuesday).

I would also suggest that the revised GDP  for Q4, reported to be 1.9%, is derived from Government statisticians’ manipulation because most of the gain is attributed to consumer spending.  Tell that to holders of XRT and RTH.

The economy is sinking further into a recession despite the propaganda coming from Wall Street, financial bubblevision “meat with mouths” and the mainstream media.  Real median household income continues to decline and the Fed/Government intervention in the stock market is helpless to prevent this fact from being reflected in many sub-sectors of the stock market “hiding” beneath the headline-grabbing Dow and S&P 500.

My Short Seller’s Journal presents analysis like this to subscribers every week.  There’s a big difference between what gets reported and what is really going on.  My journal looks “under the hood” of the headline economic reports in order detail what’s really going in in the economy.  Most of the analysis and assertions are backed up with actual data.  I also “de-construct” the game of “beat the earnings” which makes headlines and stocks pop, but also creates short-sell opportunities.  Each issue presents at least two short ideas, along with suggestions for using options and managing positions.  The retail sector has been fertile shorting ground and the housing market is next.  You can subscribe by clicking on this link:  Short Seller’s Journal – plus receive a discount link to my Mining Stock Journal.

8 thoughts on “Retailing Is Bad And About To Get Worse

  1. “Meat with mouths” ROFLMAO, is that intellectual property ?
    No matter, I plan on using that next time my idiot brother in law
    tells me everything is great and getting better. I think I will just call
    him “meat”.

  2. Of course the mainstream media’s take on the decision by J.C. Penney to close a lot of stores was blamed on the increase in online buying.
    Maybe the writer really believes that. But editors should have some responsibility to investigative journalism. However that requires work and, likely they would be chastised if not putting a rosy spin on a story [hey it’s attributable to online shopping].

    1. Online retail sales is about 8% of total retail sales and it’s varied around +/-8% for about the last 3 years thru the end of 2016. The narrative that online retail sales is hurting conventional retailers is total and utter bullshit

  3. Heard a guy on Fox Business say that Macy’s was a real estate play. As if re-purposing their real estate would happen and all would be wonderful.

    1. LOL – that’s the classic apology for a plethora of empty mall anchor space when big retails start collapsing. Macy’s has been called a “real estate play” since the 1990’s. What’s a huge mall anchor space worth? What do you put in there? Eventually they’ll be converted to homeless shelters and those are worth nothing other than “good will.”

    2. Like Kmart, Circuit City, and Sears are worth more because of their real estate value. LOL. Now I just see ghost malls and empty strip centers. If real estate were ever allowed to find its true market value then innovation and new ideas might take hold. Oh well that’s a pipe dream. See you in Detroit.

  4. This is a TRULY EXTRAORDINARY statement made by Rob Kirby in latest interview w/ Greg Hunter.

    Rob Kirby is NO DUMMY.

    He says that the March 15 drop-down date that David Stockman identified regarding the anticipated debt-ceiling standoff & govt shutdown (followed by market turmoil & possibly credit rating downgrade?) will be like no other ordinary political crisis in history.

    The reason for this given by Rob Kirby: The pedophilia human trafficking criminal racket EXPLOSIVE issue is coming to the fore underneath the surface. Many big Democrat AND Republican names, media names & names from Deep State Military Industrial Complex are under implication.

    Supposedly Greg Hunter said that even Katherine Austin Fitts made exact same claim to him in her last interview on his channel. I had absolutely no idea about this. I’m now going to go hunt down that Austin Fitts video.

    All of this may not amount to anything except hype. Jeff Sessions’ unwanted turbulence regarding “medical” marijuana issue doesn’t make me terribly comfortable with his approach so far. Although I believe the debt ceiling issue by itself is a giant time bomb, irrespective of any pedophilia criminality topic associated with it.

    Rob Kirby’s interview:

  5. Saw that Kirby interview too, and I agree that he is no chump. Something is going down, especially if reports of epic arrests on sex-traffic rings are true. Obvious both parties are desperate to take him out one way or the other. And yet…10-year Treasuries are 2.45 percent. Somebody get me out of this matrix! Where’s the red pill!?

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