Good News for Consumers: Holiday Sales Barely Rise; Worst Shopping Season Since 2008

I am always suspicious of early holiday season reports of glowing sales around Thanksgiving and especially Black Friday. Then, right after Christmas I always wonder if retailers lowball estimates so they can beat-the-street on same-store-sales reports.

That said, because of the souring economy I am not surprised by reports of Lackluster Holiday Sales.

The 2012 holiday season may have been the worst for retailers since the financial crisis, with sales growth far below expectations, forcing many to offer massive post-Christmas discounts in hopes of shedding excess inventory.

While chains like Wal-Mart Stores Inc and Gap Inc are thought to have done well, analysts expect much less from the likes of Barnes & Noble Inc and J. C. Penney Co.

The latest sign of trouble came from MasterCard Advisors Spending Pulse, which reported holiday-related sales rose 0.7 percent from October 28 through December 24, compared with a 2 percent increase last year.

The estimates are still preliminary and focus on sales, not profits. A handful of retailers will post sales data next week, but most, including heavyweights like Wal-Mart, will not report results at the register until they release financial results in mid-February.

Analysts and industry groups already expected sales to grow at a slower pace than in 2011 and 2010. The National Retail Federation predicted 4.l percent sales growth, versus a 5.6 percent increase a year earlier.

But growth of less than 1 percent is weaker than even some of the most pessimistic forecasts.

INVENTORY CRUSH

One concern for retailers is that weak sales will mean an excess of inventory that will force some to slash prices.

Among other brands, Barnes & Noble offered 50 percent discounts in stores via email promotions on Wednesday, while Ann Inc had half-off at its Loft stores, and Bloomingdale's promoted discounts of up to 75 percent in some cases.

"Retailers are no longer chasing sales, they are chasing inventory management. That means the discounts that they would have liked to be at 50-60 (percent) off have climbed to 75 to even 80 (percent) off," said Marshall Cohen, chief industry analyst at The NPD Group.

Erica Ayala, 31, a mother of four who lives in New York's Harlem neighborhood, waited until the day after Christmas to shop for that very reason, saving more than $150 on kids' clothes alone at Gap's Old Navy chain.

"You can't go wrong with that," she said.

Live Well Within Your Means

You can never go wrong by living well within your means.

And with the unemployment rate massively understating the true state of affairs, "within your means" is a lot lower than the predicted 4.1% growth right after Thanksgiving.

Indeed, I suspect sales growth would have been negative if everyone shopped in a common-sense manner, ignoring the Fiscal Cliff Jackasses who wanted everyone to spend more and blamed Congress for the poor holiday sales.

My comment on Saturday still stands...

As far as I am concerned, people spending less for Christmas is a side "benefit" of the fiscal cliff. The Government needs to tighten its budget and consumers do as well.

Consumers cutting back spending is a good thing. In the next set of retail reports, we will get a better idea how much consumers really cut back.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Merry Christmas from Mish and Darlene Love

Darlene Love - Christmas (Baby Please Come Home) - Live on David Letterman - 2012



Link if video does not play: Darlene Love on Letterman 2012

I have watched Darlene Love nearly every year at Christmas for what seems like 20 years (a quick check shows I was off by a single year). This is Love's 19th consecutive appearance.

Love sings the exact same song every year. I missed Love's live performance this year, but a very close friend "Liz" emailed a link to the video shown above.

There are changes every year in Love's performance on Letterman. The highlight for me is a sax solo in the middle of the song. Typically a sax player bursts out behind a paper wall, but this year the sax player is in a glass bubble.

I love the saxophone and keyboards over guitars and drums.

Darlene Love was lead singer for the Crystals in a roundabout way as explained on Wikipedia.

The Crystals number 1 hit was "He's a Rebel" (click on link to see an excellent video and hear an excellent sax performance!).

He's a Rebel, written by Gene Pitney, was supposed to be released as a Darlene Love single but was instead released under the Crystals name although Love was not technically in the group.

I heard Darlene Love explain this on Letterman one year. From memory, Love's version goes like this: Phil Spector (the producer for the Crystals, Ronettes, etc.) promised Love that He's a Rebel as well as follow-up singles would be released under her name, but Spector reneged on that promise and instead released all of Love's hits under the Crystals name.

In 1964 the "British Invasion" began (Beatles, Herman's Hermits, Rolling Stones, Dave Clark Five, etc.). The "British Invasion" coupled with the "Surf Sound" (Beach Boys), and the "Motown Sound" (Supremes, Temptations, etc.), marked the end of the line for the traditional girl groups from the early 60's. Darlene Love never got the recognition she deserved.  

Here is a link to additional performances of Darlene Love on Letterman.

Merry Christmas Everyone
Mish

What Millions Want For Christmas: A Job

If you have a job be thankful. Be especially thankful if you have a job you really like. Stories like the one following show what many people want for Christmas is a job, perhaps any job.

Bloomberg reports Delta Air Gets 22,000 Applications for 300 Attendant Jobs

Delta Air Lines Inc. (DAL), the world’s second-largest carrier, received 22,000 applications for about 300 flight attendant jobs in the first week after posting the positions outside the company.

The applications arrived at a rate of two per minute, Chief Executive Officer Richard Anderson told workers in a weekly recorded message. Applicants will be interviewed in January and those hired will begin flying in June, for the peak travel season.

“We’re hunting for foreign-language speakers as we continue to expand to all points around the globe,” Anderson said. “We are experiencing a phenomenal response to the job posting.”

Delta’s applicant rush reflects the demand for jobs amid a 7.9 percent U.S. unemployment rate and the interest in an industry where flight privileges are a prized employee benefit. The Atlanta-based carrier received 100,000 applications for 1,000 jobs when it last hired flight attendants in October 2010.

While Anderson put the number of positions in the latest round of hiring at about 300, Betsy Talton, a spokeswoman, said it could reach 400. As many as 30 percent will speak languages including Japanese, Hindi, Mandarin and Portuguese, she said.

Sobering Stats

The latest jobs reports shows there are over 12 million people unemployed, the average duration of unemployment is over 40 weeks, and over 40% of the unemployed have been unemployed for over 27 weeks.

Another 8 million people want full-time jobs but only have a part-time job. And finally, unemployment stats do not capture millions more who are so discouraged they stopped looking for jobs.

Best wishes to everyone who wants a job but does not have one. Hoping 2013 brings you a much happier year.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Yen Declines Following Shinzo Abe's Threat to Change Japanese Law; An Idle Threat?

A very serious question that investors face today regards whether Japan is or isn't serious about politicians taking over Japan's central bank.

Personally, I think the politicians are serious, as well as "seriously wrong".

If you think that I am wrong, please consider Yen Declines After Abe Says He May Change BOJ Law.

The yen declined versus its peers after incoming Japanese prime minister Shinzo Abe said he will consider changing the law on the central bank unless it boosts its inflation target to 2 percent next month.

Abe said on Japan’s Fuji Television yesterday that he will consider revising the law governing the Bank of Japan if it fails to increase its inflation target from 1 percent at its January meeting. He is poised to become prime minister after his Liberal Democratic Party’s coalition secured a majority in elections on Dec. 16.

Abe has called on the BOJ to pursue “unlimited easing” to help end deflation and revive growth. BOJ Governor Masaaki Shirakawa and his board last week refrained from doubling the central bank’s 1 percent inflation target, while expanding its asset-purchase program by 10 trillion yen ($118 billion) to 76 trillion yen.

Idle Threat?

I see no indication whatsoever this is an idle threat. The counter-argument in the form of a question is "what good did a 1% inflation target by the Bank of Japan do?"

The real question pertains not to the target but actual actions. After all, policy could be 20% instead of 2% but unless either the government or the central bank backs up the pronouncement with actions, talk is meaningless.

I happen to think Shinzo Abe is nuts enough on this go around, to do what he didn't do the first time he was prime minister.

Moreover, my general belief is that statements by politicians regarding what they will or will not do are likely to be most accurate at times their policies will do the most damage.

In this case, Shinzo Abe's threat, if carried out, would destroy Japan.

I take that threat very seriously.

You are free to disagree, but first consider ...

• Bank of Japan Holdings of Japanese Government Bonds Exceeds 100 Trillion Yen for First Time
 
• Kyle Bass on the End of the Debt Supercycle and a Coming Massive Devaluation of the Yen; Most Difficult Time to Invest; The Belief Bubble
  

Bear in mind that nothing moves in a straight line. The Yen has declined significantly, and a snapback rally may (or may not), happen at any time. Longer term, I see no reason to change my forecast of a declining Yen.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Bank of Japan Holdings of Japanese Government Bonds Exceeds 100 Trillion Yen for First Time

Bloomberg reports BOJ Holdings of JGBs Exceed 100 Trillion Yen for First Time

The Bank of Japan holdings of the government’s bonds exceeded 100 trillion yen ($1.2 trillion) for the first time, raising the risk that yields will jump on perceptions that it is financing public spending.

The central bank held 104.9 trillion yen of the debt at the end of September, 11.1 percent of all government bonds, a quarterly central bank report showed today in Tokyo. The BOJ said it was the highest on record. Bond holdings by foreign investors rose to a record 9.1 percent.

The BOJ yesterday expanded its asset purchase program for the fifth time this year, with half of the 10 trillion-yen increase to be spent on JGBs. Incoming Prime Minister Shinzo Abe wants more central-bank action to defeat deflation and has pledged fiscal stimulus to stoke growth, even as he’s constrained by the world’s largest public debt.

If QE worked and fiscal stimulus worked, Japan would not have debt-to-GDP ratio of 230%. Japan's national debt now exceeds a quadrillion yen!

A quadrillion is a number with 15 zeros. 1,000,000,000,000,000. Can that ever be paid back? How?

US has been running budget deficits exceeding $1 trillion for four straight years. What the heck is that other than Keynesian stimulus?

It has failed. But economists like Paul Krugman want more of it (please see Mish on Capital Account: "Time for Krugman to Leave Ivory Tower for Real World").

Krugman will claim deficit spending prevented disaster. It did no such thing. All it did is pile up the debt that cannot possibly be paid back.

The average 7th grader likely understands that he cannot spend more money than he has for years on end. The average economist does not.

For more on Japan, please consider Kyle Bass on the End of the Debt Supercycle and a Coming Massive Devaluation of the Yen; Most Difficult Time to Invest; The Belief Bubble

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Boogeymen and Fake Reforms

Earlier today I received an email from Jonathan Ingram at the Illinois Policy Institute that I wish to share. The email is regarding the sorry state of Illinois Pensions.

Dear Mish

Illinois has a long history of fake reforms – legislative proposals that promise to solve the great policy challenges of the day when passed, but never actually accomplish these goals and often make problems worse.

In the mid-1990s, Illinois lawmakers were facing a serious problem: the unfunded liability of the state’s five public pension systems had reached $20 billion.

As a way to combat this growing problem, the state created a repayment schedule, often called the “pension ramp.”

The pension ramp, which was passed by the Republican-controlled General Assembly and signed into law by former Republican Gov. Jim Edgar, promised to reach 90% funding levels by 2045.

According to the repayment schedule, the five systems should be nearly 57% funded today. Instead, the systems are just 39% funded and the state’s pension debt has grown to $95 billion.



What happened?

You’ll often hear that the pension debt was caused by the state “skipping pension payments.” What you won’t hear is that taxpayers have actually paid $8 billion more than the original ramp projected.

How can the five pension systems be just 39% funded?

The systems simply weren’t able to get the kinds of returns they promised and the underlying actuarial assumptions didn’t reflect reality.

These are problems with the underlying structure of Illinois’ pension plans. The defined-benefit structure guarantees that a large share of the actual costs will be hidden and largely unknown until the systems come back to taxpayers asking for more money to make up for poor returns and mistaken assumptions.

This creates massive uncertainty for future budgets. For example, the state’s fiscal year 2014 pension contribution was originally projected to be $3.7 billion. The actual contribution for fiscal year 2014 will be $6.8 billion. That’s nearly twice what was predicted.

That’s why we need a government retirement system that is reliable for workers, but still affordable for taxpayers.

We must freeze all of the defined benefits workers have already earned and move to a defined-contribution plan for all future work, similar to the 401(k) plans available in the private sector and the 401(a) plans already offered to many state university workers.

Illinois has the worst-funded pension system in the nation. The only way to move toward those solutions is to get politicians out of the retirement business altogether and give employees real control over their retirement savings.

Jonathan Ingram
Director of Health Policy and Pension Reform

While Illinois burns, Moody’s threatens next downgrade

Ingram is of course preaching to the choir, and I don't object one bit. It's important for Illinois citizens to be informed about the pathetic state of Illinois finances.

Please consider another look at the sorry state of affairs in Illinois, by Ted Dabrowski at the Illinois Policy Institute: While Illinois burns, Moody’s threatens next downgrade.

It’s no secret that Illinois has the worst-funded state pension systems in the nation. That’s an accepted fact by those on both sides of the aisle. Unfortunately, that fact hasn’t motivated any action from the state’s politicians.

Now recent news point to even deeper troubles for the state. Moody’s Investor Services has threatened to punish Illinois again with another credit downgrade by revising the state’s outlook to "negative" from "stable". The agency already gave Illinois the nation’s worst credit rating, an A2, in January 2012 – and things look to get worse.



What’s ironic is that as the situation worsened during the past year, Springfield’s lack of action became increasingly more obvious. Moody’s called out this fact, saying: “The state repeatedly failed to act on pension reform – during the regular session that ended May 31, during a one-day special session convened by the governor on Aug. 17, and again during the state's ‘veto sessions’ in November and December.”

A growing problem

A recent release by the Illinois Policy Institute shows the true extent of the crisis in Illinois. Politicians often talk about Illinois’ official funding shortfall, now equal to $96 billion. But when the state’s liabilities are measured under new accounting and transparency rules proposed by Moody’s, Illinois’ pension shortfall exceeds $209 billion.

The state also has $54 billion in unfunded liabilities for retiree health insurance and $15 billion in pension bonds that Gov. Pat Quinn and his immediate predecessor, former Gov. Rod Blagojevich, issued to avoid pension reform.

That debt now totals more than $275 billion — or $58,000 in debt for each and every household in Illinois.

Only 24% Funded

It’s becoming clear that the state’s pension systems are running out of time. Under new rules proposed by both Moody’s and the Governmental Accounting Standards Board, the five state pension systems have reached dangerously low levels of funding. Under Moody’s rules, the state’s overall funding levels are now just 24 percent. The Teachers’ Retirement System, or TRS, for downstate and suburban teachers is only 24-percent funded and among the worst-funded systems in the nation. One major stock market correction and that fund will be effectively insolvent.

Those findings only confirm what Dick Ingram, head of the TRS, said in February: Without reforms, TRS may be insolvent by 2029.

TRS Insolvency on the Way

Dick Ingram, head of the TRS (not to be confused with Jonathan Ingram at the Illinois Policy Institute) is an optimist.

Without reforms, TRS is highly likely to be insolvent far sooner than 2029. In fact, I think TRS is insolvent now.

Pension plan assumptions regarding expected rates-of-return are preposterous, most likely because they have to be. All it will take to wipe the entire plan out is another big decline in asset prices, and that is something I am confident is coming (time unknown).

If you wish to be better informed about the sorry state of affairs in Illinois and nationally, please sign up for Jonathan Ingram's Health Policy and Pension Newsletter email list

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Fiscal Cliff Jackasses Complain Shoppers Are Spooked

It was bound to happen. Analysts are bitching the fiscal cliff is holding back retail spending.

Please consider "Fiscal cliff" spooks shoppers in last lap of holiday race.

Fears about imminent tax hikes and cuts in government spending are taking a toll on U.S. shoppers and could deprive retailers of a strong finish to the 2012 holiday shopping season.

The acrimonious debate in Washington over how to avoid the so-called "fiscal cliff" has cast a pall over shopper sentiment as consumers head to malls on the last Saturday before Christmas - typically one of the busiest shopping days of the year.

About 17 percent of the 1,514 Americans who participated in a Reuters/Ipsos poll conducted December 17-20 said the impending "fiscal cliff" was making them spend less this season.

"We just try to stay on a budget. We're not going crazy," said Tom Chowinski, a market researcher at Nielsen, who was shopping with his wife for their four adult children on Saturday morning at a Wal-Mart store in Westbury, New York.

HO-HUM CHRISTMAS

"What could have been a merry Christmas is going to turn to a ho-hum Christmas, and we can thank our, you know, politicians for getting in the middle of it all," NPD analyst Marshal Cohen said. "This great unknown puts a big damper on the consumer feeling confident to go out and spend more."

More than 60 percent of U.S. consumers have already finished more than three-quarters of their holiday shopping, according to a Reuters/Ipsos poll released on Thursday. This means retailers will have to offer deeper discounts to force Americans to open their wallets in the last lap of the holiday race.

Ho-Hum This

As far as I am concerned, people spending less for Christmas is a side "benefit" of the fiscal cliff. The Government needs to tighten its budget and consumers do as well.

For those who do go on a last minute spending spree, who doesn't want lower prices (other than retailers and NPD analyst Marshal Cohen)?

Tough times will return (not that they ever left in the first place for millions of Americans), and the  last thing people need to do is overspend on junk that will be thrown out in a month or items dear Aunt Suzie will donate to the Salvation Army.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com