ONLY 2,400 BIG BOX STORES TO CLOSE IN NEXT FEW YEARS

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Posted on 30th January 2013 by Administrator in Economy |Politics |Social Issues

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Nothing like a little reality on a Wednesday afternoon. Below is a list of the worst of the worst retailers in the U.S. Hysterically, there are multiple articles about JC Penney this morning and the surge in their stock price yesterday because their dumbass CEO has announced a major change in strategy. Drum roll please. He is going back to having fake sales. The idiots who call themselves financial analysts immediately expounded upon the brilliance of this move. After losing $1 billion of business in one year, this will surely turn the ship back on course.

So solly. The list below, along with the three other failed retailers – Gamestop, Office Max and Radio Shack will be closing thousands of stores in the near future. Just think of all the benefits this will provide. More ghost malls across America. It will do wonders for the Space Available sign manufacturers. Maybe some new retail concepts can gain a foothold – Soup Kitchens R Us, Used Body Parts Thrift Store, or a cafe catering to senior citizens with your choice of cat or dog food. 

It should really test the accounting fraud skills of mall owners, property developers, and our friendly Wall Street bankers as rental income dries up and loan payments on vacant malls become a little challenging. I’m sure Bernanke can convince the FASB to let the banks convert all commercial loans to balloon payment loans with a 50 year term. Therefore, all will be well. No need for cashflow or tenants. I should work for the government.

There should be some great going out of business sales. I’m looking forward to it.

Retailers That Will Close the Most Stores

by | January 29, 2013 at 1:24 PM | Economy, General, Shopping

(AP Photo/Dave Martin)

By Douglas A. McIntyre, Samuel Weigley, Alexander E.M. Hess and Michael B. Sauter, 24/7 Wall St.

It is the time of year again, when America’s largest retailers release those  critical holiday season figures and disclose their annual sales. A review of  these numbers tells us a great deal about how most of the companies will do in  the upcoming year. And while successful retailers in 2012 may add stores this  year, those that have performed very poorly may have to cut locations during  2013 to improve margins or reverse losses.

For many retailers, the sales situation is so bad that it is not a question  of whether they will cut stores, but when and how many. Most recently, Barnes & Noble Inc. (NYSE:  BKS) decided it had too many stores to maintain profits. Its CEO recently  said he plans to close as many as a third of the company’s locations.

Several of America’s largest retailers have been battered for years. Most  have been undermined by a combination of e-commerce competition, often from  Amazon.com Inc. (NASDAQ:  AMZN) and more successful retailers in the same areas. Borders and Circuit  City are two of the best examples of retailers that were destroyed by larger  bricks-and-mortar competition and consumers transitioning to online shopping.  These large, badly damaged retailers could not possibly keep their stores  open.

RELATED: The Most Hated Companies in America

24/7 Wall St. reviewed the weakest large U.S. retailers and picked those that  likely will not be profitable next year if they keep their current location  counts. 24/7 analyzed the retailers’ store counts, recent financial data, online presences, prospects against direct  competitors and precedents set by other large retailers that have downsized by  shuttering locations. We then forecast how many stores each retailer will have  to close this year to sharply increase its prospects financially, even if some  of those location closings do not occur for several years. These forecasts were  based on drops in same-store sales, drops in revenue, a review of direct  competitors, Internet sales and the size of cuts at retailers  in the same sector, if those were available.

5. Barnes & Noble
> Forecast store closings: 190 to  240, per company comments
> Number of U.S. stores: 689
>  One-year stock performance: 8.95%

The move by customers away from print books toward digital books has hurt  Barnes & Noble Inc. (NYSE:  BKS). Same-store sales during the nine-week holiday season fell by 8.2%  year-over-year. The bookseller has tried to offset the declines in physical book  sales with its Nook e-book reader device, but sales of that device fell 13%  compared to the previous year. The company already has begun cutting down  the number of its stores in the past several years. In a recent interview with  the Wall Street Journal, the head of the retail group at Barnes & Noble said  he expected the company to have just 450 to 500 retail stores in 10 years.

RELATED: The Best- and Worst-Run Cities in America

4. Office Depot
> Forecast store closings: 125 to 150
> Number of U.S. stores: 1,114
> One-year stock  performance: 50.7%

Office Depot Inc.’s (NYSE:  ODP) troubles date back to years of competition against OfficeMax Inc. (NYSE:  OMX) and Staples Inc. (NASDAQ:  SPLS), as well as big-box retailers like Walmart. All three stores were  dealt a blow from reduced business activity during the recession, as well as  increased popularity of online retailers such as Amazon. The company’s North  American division reported an operating loss of $21 million in the third quarter  of 2012. Office Depot plans to relocate or downsize as many as 500 locations and  close at least 20 stores. In the third quarter of 2012, the company closed four  stores in the United States, and same-store sales were down by 4%  year-over-year.

3. J.C. Penney
> Forecast store closings: 300 to 350
> Number of U.S. stores: 1,100
> One-year stock performance: -53.6%

J.C. Penney has gone through a rough stretch recently. In the most recent  quarter, same-store sales fell by 26.1% compared to the year-ago period. Even  Internet sales, which are increasing significantly across the retail sector,  have taken a turn for the worst, falling 37.3% in the third quarter, compared to  the prior year. J.C. Penney sales have taken a turn for the worst since former Apple Inc. (NASDAQ:  AAPL) retail chief Ron Johnson took the helm at the company. Johnson’s plan,  among others, has been to wean customers off of heavy discounting and simply  give customers low prices. However, retail strategists and analysts have argued  that Johnson’s plans have created confusion among customers and has been a  further setback to any potential turnaround.

RELATED: States with the Best and Worst School Systems

2. Sears Holding Corp.
> Forecast store closings: Kmart  175 to 225, Sears 100 to 125
> Number of U.S. stores: 2,118
> One-year stock performance: 8.8%

Both Sears and Kmart have been going down the tubes for a long-time, steadily  losing their middle-income shoppers to retailers such as Wal-Mart Stores Inc.  (NYSE:  WMT) and Target Corp. (NYSE:  TGT). Sears Holdings Corp.’s (NASDAQ:  SHLD) same-store sales have declined for six years. In the most recent year,  same-store sales at the namesake franchise fell by 1.6% and at Kmart by 3.7%,  compared to the year-ago period. The company is already in the process of  downsizing its brick-and-mortar presence. In 2012, Sears announced it was  shutting 172 stores. CEO Lou D’Ambrosio is leaving the company in February, to  be replaced by chairman and hedge-fund manager Edward Lampert. Lampert has  minimal operating experience in retail management.

1. Best Buy
> Forecast store closings: 200 to 250
> Number of U.S. stores:1,056
> One-year stock performance: -36.8%

The holiday season was rough for Best Buy Co. Inc. (NYSE:  BBY). Same-store sales declined by 1.4% year-over-year, with international  stores posting a 6.4% decline while U.S. same-store sales were flat.  Companywide, the electronics retailer reported that holiday revenue had declined  to $12.8 billion from $12.9 billion the year before. In the most recent  completed quarter, during which same-store sales declined 4.3%, the company  reported a loss of $0.04 per share. Best Buy has been plagued by customers “showrooming” — looking at products in the store and then purchasing them online — in recent years. Speculation persists  that former chairman and founder Richard Schulze may buy out the company.

To see the full list, visit 24/7 Wall St.

CHINESE LOAN COLLECTION 101

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Posted on 29th September 2011 by Administrator in Economy |Politics |Social Issues

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The Chinese “miracle” has been financed with loans that will never be paid back. It seems when you don’t pay back loans in China, you DISAPPEAR. These Chinese need to learn from America. When you don’t pay back your loans in America, we loan you more. These heathens need to become civilized like us.

Chinese Business Owners Disappearing as “Underground Loans” Come Due

By Justin Rohrlich    September 29, 2011 11:24 AM
As China tries to put the brakes on inflation, a tightening credit market has many businesses turning to what Reuters describes as the country’s “vast and growing informal lending market.”

But, with annual interest rates as high as 200%, “many business owners who were believed to be having trouble paying back loans to underground banks have disappeared,” according to Yu Ran of China Daily.

One of the “disappeared,” Wenzhou eyeglass factory owner Hu Fulin, suddenly vanished on September 21.

“We’ve confirmed that Hu has disappeared, and we’re still not sure whether the rumors saying he left more than 2 billion yuan in debts behind are true,” a government official told Yu. “But current information has proved that he borrowed about 130 million yuan from private lenders.”

Hu’s suppliers in Wenzhou, which the People’s Daily calls “the cradle of China’s private economy,” are in “a panic” and “gathered in his factory demanding payments.” And angry employees protested to demand the two months’ salary they are owed, as well.

But, like the 28 other debtors who have fled in the face of unpayable loans, Hu is now nowhere to be found.

Quoting a Wenzhou People’s Bank report from July, the Epoch Times says “around 90 percent of families and 60 percent of businesses are involved in the private lending market.”

Perhaps unsurprisingly, much of the money circulating underground has been injected into the system by corrupt government officials.

As the Xinhua news agency reported (via Shanghai Daily, via China.org.cn) yesterday, “Money from government officials has been found to be involved in many cases of illegal loans to business owners who are now fleeing the area after finding they are unable to pay back the money.”

“Those officials are now trying to get their money back while keeping a low profile to avoid too much attention,” one unnamed underground lender said.

An editorial in China Daily has some stern words for the businesspeople involved in the Chinese grey financial markets:

All profitable ventures entail some responsibilities which company officials, especially bosses, are obliged to fulfill. Some businesspeople in Wenzhou have not done so and thus harmed overall economic development, although the local supervision department considers them “individual cases” of failure.

Regardless, the Financial News reports that the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank — China’s four largest state-owned financial institutions — have “seen large outflows of deposits” during the first half of the month.

Withdrawals by cash-strapped businesses trying to pay down debt?

Nope.

According to china.org.cn, “Available data and anecdotal evidence indicate a considerable amount of these deposits is being used by private lenders to extend high-interest credit lines to investment and finance companies.”

CHINA’S HOUSE OF CARDS

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Posted on 20th June 2011 by Administrator in Economy |Politics |Social Issues

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The Chinese are so good at copying, they’ve taken Keynesian stimulus to new dimensions. Those vacant cities, unused superhighways and empty malls were all built with debt issued by the government controlled banks. Loans get repaid based upon the cash flow of the projects built. No cash flow – no repayment. No repayment = DEFAULT.

How about loan losses of $1 trillion? The governments of the world can try to hide the debt, shuffle the debt, disguise the debt, rename the debt and pretend the debt doesn’t exist. But in the end, someone takes the loss. The ponzi scheme is eventually revealed and the house of cards collapses.

China’s Bank Reckoning Approaches

A large part of China’s economic miracle was built on ill-considered lending and accounting sleight-of-hand.

By CARL E. WALTER
AND FRASER J.T. HOWIE

The first wave of problem loans originating from the 2009 economic stimulus is about to hit the banking system. If the reports citing anonymous officials are true, Beijing is considering assuming responsibility for some 2-3 trillion yuan ($300-450 billion) of these loans that were made to local government borrowing vehicles.

The scale of such a rescue is staggering–at about 7% of GDP it is bigger than the U.S. TARP program. It also comes out of the blue; the banks’ audited accounts still show that their nonperforming loans have fallen dramatically. Yet the bailout would nearly equal the total amount of bad loans spun off from the four major state banks during their restructuring in the early 2000s.

Ironically the proposed bailout also approximates the size of the original 4 trillion yuan stimulus of 2008. China survived that disease, but it’s now clear that the cure made it sicker.

walter

How did this happen? When the global financial crisis impacted China’s exports in 2008, Beijing ordered its banks to support a massive credit expansion to create jobs and stimulate growth. The banks eagerly went into action and in 2009 and 2010 made new loans amounting to a total of 20 trillion yuan ($3.1 trillion). Of these a significant amount went to local government borrowers. Estimates of how many of these loans would go bad range from 25% to 30%, which suggests a total figure of 8-9 trillion yuan.

The machinery to remove bad loans from the banking system is already in place. In 1999 Beijing created four asset management companies to acquire nonperforming loans. These “bad banks” were supposed to exist for only 10 years, during which the government expected them to complete the sale or disposal of their portfolios.

The results didn’t go according to plan. After a decade, the AMCs were able to achieve only about a 20% recovery rate across their entire portfolios, almost entirely loans to state enterprises. Since more than one-third of the bad loans were acquired at face value, the AMCs from the start were bankrupt; their modest recovery rate was far too little to repay the financing extended by the central bank and commercial banks.

Any write-off of these worthless “assets” would either have forced the Ministry of Finance to assume the AMCs’ debts or forced the banks, which hold AMC bonds, to take losses large enough to wipe out big chunks of their capital. So for political reasons nothing happened. In 2009, bank financing to the AMCs was rolled forward for another decade and the AMCs have survived.

If these vehicles are pressed into service to buy these local government loans, the scale of new financing required makes this shell game ever more precarious. The 2-3 trillion yuan in bad loans would require an equal amount of financing if banks are to avoid loan losses. But the major “commercial” banks don’t have spare capital; they have only just finished another round of fundraising to offset the stress put on their balance sheets by the lending binge. The China Development Bank, also an aggressive local lender, is in the midst of restructuring in search of its own successful IPO.

But Beijing has a second choice of techniques. Instead of using the AMCs the Ministry of Finance might establish special “co-managed accounts,” as was done in the restructuring of Agricultural Bank of China. The special account would acquire at face value the bad loans, using only the ministry’s IOU as payment. These IOUs are carried as “restructuring receivables” on bank balance sheets.

From the ministry’s viewpoint these are only contingent liabilities and so not part of China’s national budget; repayment comes from bank dividends rather than tax revenues. As such, they are likely approved only by the Standing Committee of the National People’s Congress. One can imagine the embarrassing questions about the national debt that would be asked if such arrangements were put before the full NPC.

China’s national debt narrowly defined is 20% of GDP, but if all obligations of the sovereign were added up it is closer to 80%. This is before this round of local government loan acquisition and before considering the other 70% of the stimulus loans made to state enterprises, which history has repeatedly shown are bad credits.

With few voices able to question its actions, it seems that Beijing will continue along the path of increasing systemic financial leverage. The weight of its inability to halt profligate spending by local governments and state enterprises will be put squarely on the backs of future generations.

The fact that China may have just wasted $400 billion should put an end to reflexive praise for Beijing’s great economic planners. If that money had been added to the National Social Security Fund China might be several steps further along the path of creating an economy driven by domestic consumption rather than infrastructure investment.

Perhaps Beijing’s willingness to assume a portion of local government debt shows the political will to act decisively. But it must be remembered that the central government approved these loans in 2008 and 2009 in the knowledge that many projects were of questionable quality. The experience of these two years shows that a large part of the Chinese economic miracle has been built on a foundation of ill-considered lending and accounting sleight-of-hand.

Messrs. Walter and Howie are coauthors of “Red Capitalism: The Fragile Financial Foundations of China’s Extraordinary Rise” (Wiley, 2010).

BOOMERS COULDN’T GET ENOUGH MEW SO THEY TURN TO REW

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Posted on 18th May 2011 by Administrator in Economy |Politics |Social Issues

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Another fascinating tale of Boomer mismanagement of their finances. To be fair, Gen X seems to have committed the same faux paux. Between 2000 and 2008 Americans sucked $3 trillion of mortgage “equity” out of their houses and spent it on cars, vacations, TVs, appliances, home theaters, plastic surgery, granite countertops, pools, more vacations, etc. They lived the lifestyle of the rich and famous. Fast forward to 2011 and there is no equity left in their houses. The housing ATM is out of order.

What is a good Boomer to do? You guessed it. Raid your 401k. The story below details the sad plight of the delusional American. They have an average 401k balance of $40,000 and 28% are borrowing against that balance. Click the link to the report to see the sordid details. Where is personal responsibility and preparing for the future in this story? Anyone who enters retirement with $40,000 of savings is in for a long hard slog. I hope they like the taste of dog food.

Is REW the new MEW? (Retirement Equity Withdrawal)

by CalculatedRisk on 5/18/2011 10:50:00 AM

Reader “Soylent Green is People” asks if Retirement Equity Withdrawal is replacing Mortgage Equity Withdrawal (MEW) for those in need?

Borrowing from retirement accounts has definitely increased. From CNBC two weeks ago: More Americans Raiding Retirement Funds Early

… 19 percent of Americans — including 17 percent of full-time workers — have been compelled to take money from their retirement savings in the last year to cover urgent financial needs, the Financial Security Index found.

And from a new study by Aon Hewitt: Leakage of Participants’ DC Assets: How Loans, Withdrawals, and Cashouts Are Eroding Retirement Income Note: “DC” is Defined Contribution – like a 401(k) plan.

As of year-end 2010, nearly 28% of active participants had a loan outstanding, which is a record high. Nearly 14% of participants initiated new loans during 2010, slightly higher than previous years. The average balance of the outstanding amount was $7,860, which represented 21% of these participants’ total plan assets.

Hmmm … $7,860 is 21% of total assets? That means the average total balance is less than $40,000 for participants who borrow from a DC plan.

Also – check out page 4 of the Aon Hewitt study. The 2nd graph shows that 32.8% of participants in the 40 to 49 age cohort have DC loans, and 29.0% in the 50 to 59 age cohort have loans. These people have next to nothing in their retirement plans and most will probably have to rely on Social Security if they ever retire.

Note: Politicians are trying to limit this borrowing, from Bloomberg: Senate Bill Would Limit Using 401(k)s as Rainy-Day Funds

My feeling is REW isn’t really the new MEW. The size is much smaller, and this borrowing is much more need related as opposed to buying bigger toys, or being used for home improvement. But as “Soylent Green is People” suggested in his email to me, this reliance on REW is “an indicator of financial peril”.