Guest Post by Dave Kranzler
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.
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal
-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)
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.
It’s because of Amazon. How fast is Amazon growing?
Amazon… Get ya some!!!
Really? Do you even look at earnings reports? I hope you are being sarcastic about getting some Amazon. That stock is 99.999% hype and MAYBE 0000.1% actually making money. While your buying Amazon, you may want to consider some Tesla as well. I hear they are just making money hand over fist….
Good god, the crack up cannot come soon enough. I can’t wait until this tide goes out, there will be so many not wearing pants it will be like hanging out on a nude beach in France….
Does anybody subscribe to this writer’s Short Seller’s Journal?
No
Number Of Distressed US Retailers Highest Since The Great Recession
by Tyler Durden
Feb 28, 2017 2:15 PM
2016 was a rough year for the so-called brick-and-mortar retailers with several mall-based apparel companies, including Aéropostale, Pacific Sun and American Apparel, being forced to seek chapter 11 bankruptcy protection. Meanwhile, The Sports Authority didn’t even bother with a reorg plan as creditors decided that a liquidation was the best way to maximize value for creditors.
But it’s not just the niche apparel retailers that are having a hard time competing for those scarce consumer dollars. Target plunged as much as 14% on the open this morning after announcing that steep price cuts would be required in 2017 to compete with the likes of Wal-Mart and the online retailing giant, Amazon (see “Target Plunges 12% After Missing Lowest EPS Estimate, Slashing Outlook”).
Unfortunately, at least according to Moody’s retail credit analyst Charlie O’Shea, the environment for retailers in the U.S. is likely to get worse before getting better. As Moody’s notes, the number of distressed U.S. retailers has more than tripled since the Great Recession of 2008-2009, and with $5 billion worth of debt maturities over the next 4 years, the situation is likely to get much worse.
Over the past six years the number of US retailers on the lowest and distressed tier of its rating spectrum has tripled, Moody’s Investors Service says in a new report. Not since the 2008-09 recession has the percentage been so high, and the rising tide coincides with an increasing number of such companies across all industries.
“Moody’s-rated US retailers rated Caa or Ca today make up just over 13% of our total rated retail portfolio, which is the highest level since the Great Recession, when this group comprised 16% of the portfolio,” said Moody’s Vice President Charlie O’Shea. “And the increase comes at the same time as the broader universe of Caa rated companies is likewise growing.”
Meanwhile, the latest round of retailing failures is just another example of the unintended consequences of the Fed’s “lower for longer” interest rate policy as private equity sponsors took advantage of cheap debt capital to snap up retailers with minimal equity exposure. As Moody’s accurately notes, once the retail meltdown starts, companies can either choose to give up volume to preserve margin or slash prices resulting in a ‘race to the bottom’…
This situation comes on the heels of a protracted period of low interest rates, when the availability of cheap money serves as a “dinner bell” for sponsors to feast on target companies, O’Shea says in “Distressed Retailers Are on the Rise; Who’s Next?” Each such cycle begets a new pool of B2 or B3 rated companies, which don’t have far to fall into the lowest rating tier. Among companies, Claire’s, J Crew, Tops and rue21 have all been hamstrung with weak credit metrics after taking on high levels of debt to fund acquisitions.
And while the number of low-rated retailers is growing, so are debt maturities, Moody’s says. The 19 Caa/Ca companies in the agency’s retail portfolio owe roughly $5 billion in debt through 2021, with about 40% of this due by the end of 2018 and a spike during 2019. While the credit markets remain open to companies up and down the rating spectrum, that could change abruptly if investor sentiment turns. Among other considerations, interest rates have begun to trend upward, while US speculative-grade companies have a record $1 trillion of debt coming due in the next five years, which could make refinancing much more difficult for distressed names.
Meanwhile, a larger pool of low-rated retailers also poses challenges for their stronger competitors. “As they struggle to survive, distressed retailers can take more desperate measures, including highly promotional pricing that can border on irrational,” O’Shea added. “This leaves stronger firms with the choice of either competing in a race to the bottom, or giving up sales in order to preserve margin.”
…clearly Target has chosen the “race to the bottom” approach…
The recession never ended. This end that was claimed was and still is a lie. The unemployment figures were falsely reported far before 2008, as they still are. Since the era of Reaganomics the US unemployment rate was at 10% during its best times. During the Clinton era the methodology for determining the unemployment rate was changed, since the true UE report was in reality not getting better. During the Reagan years the UE rate was determined by using the same method that was used back during the 1930’s, although it was falsely reported then as well. What prevented outright collapse was the fact that Reagan subsidized businesses that remained in US boarders so that they could keep wages up and doors open, even though they were competing against offshore US corporations with exceedingly low labor costs.
Back in those days the stimulus dollars spent were in the millions. By the time of baby Bush, the absolutely needed stimulus amounts were in the billions. Obama had borrowed one trillion dollars as he entered into office of president. By the time he left out the external US debt alone was 19 trillion. The internal and external debt was 100 trillion.
The going claim with Trump is that he has already lowered the US debt, but I have trouble believing that. Not that I disagree with Trump being president, but that the interest amount alone for a year equals half of the US gross national product. This debt load is totally unsustainable. I see all of these retail store closings. Bankruptcy claims are almost as high as they were in 2008. If one was to ask me, I say old Hoover might be about to come back to life again…
The click bait has gotten even better today.
Want to make it even scarier? Remember that in most states, individuals can walk away from a mortgage and the mortgagee sells the property for what they can get. – with no legal recourse to collect any shortage from m the mortgagors.
With an auto loan that is generally not the case. You owe the bank $60,000 for your Escalade, they repo the thing and sell it at auction for $20,000, and they’re coming after you to get the 40 grand they’re short.
Don’t worry Bannon will advise tRump to bail out Wall Street.
Kek. https://www.mises.ca/steve-bannon-on-bank-bailouts/
Wait till all the malls & strip centers start going bankrupt.
I was at the Mall today – very small number of people.
http://www.breitbart.com/big-government/2017/02/27/former-store-owner-sentenced-33-months-prison-2-8-million-food-stamp-fraud/?utm_source=facebook&utm_medium=social
The left and the Wall Street gangs colluded to make the first black president look successful ! Former President Obama being a narcissist was easily convinced how great things are and how wonderful he was presiding over it all . His entire life he was told what a great intelligent person he is and Washington elites and Wall Street & K Street continued to blow smoke up his ass add Hollywood half wits who make pretend for a living and a complacent media supporting every foolish appointment and order and poof 8 years pissed away never fixing anything and only adding to our national disgrace ! YES WE CAN and YES WE DID
Americans are tapped out. We never recovered from 2008.