Did you know that the number of retail store closings in 2017 has already tripled the number from all of 2016? Last year, a total of 2,056 store locations were closed down, but this year more than 6,700 stores have been shut down so far. That absolutely shatters the all-time record for store closings in a single year, and yet nobody seems that concerned about it. In 2008, an all-time record 6,163 retail stores were shuttered, and we have already surpassed that mark by a very wide margin. We are facing an unprecedented retail apocalypse, and as you will see below, the number of retail store closings is actually supposed to be much higher next year.
Whenever the mainstream media reports on the retail apocalypse, they always try to put a positive spin on the story by blaming the growth of Amazon and other online retailers. And without a doubt that has had an impact, but at this point online shopping still accounts for less than 10 percent of total U.S. retail sales.
Look, Amazon didn’t just show up to the party. They have been around for many, many years and while it is true that they are growing, they still only account for a very small sliver of the overall retail pie.
So those that would like to explain away this retail apocalypse need to come up with a better explanation.
As I noted in the headline, there are 20 different major retail chains that have closed at least 50 stores so far this year. The following numbers originally come from Fox Business…
1. Abercrombie & Fitch: 60 stores 2. Aerosoles: 88 stores 3. American Apparel: 110 stores 4. BCBG: 118 stores 5. Bebe: 168 stores 6. The Children’s Place: hundreds of stores to be closed by 2020 7. CVS: 70 stores 8. Guess: 60 stores 9. Gymboree: 350 stores 10. HHgregg: 220 stores 11. J.Crew: 50 stores 12. JC Penney: 138 stores 13. The Limited: 250 stores 14. Macy’s: 68 stores 15. Michael Kors: 125 stores 16. Payless: 800 stores 17. RadioShack: more than 1,000 stores 18. Rue21: up to 400 stores 19. Sears/Kmart: more than 300 stores 20. Wet Seal: 171 stores
If the U.S. economy was really doing well, then why are all of these major retailers closing down locations?
Of course the truth is that the economy is not doing well. The U.S. economy has not grown by at least 3 percent in a single year since the middle of the Bush administration, and it isn’t going to happen this year either. Overall, the U.S. economy has grown by an average of just 1.33 percent over the last 10 years, and meanwhile U.S. stock prices are up about 250 percent since the end of the last recession. The stock market has become completely and utterly disconnected from economic reality, and yet many Americans still believe that it is an accurate barometer for the health of the economy.
I used to do a Black Friday article every year, but I have ended that tradition. Yes, there were still a few scuffles this year, but at this point the much bigger story is how poorly the retailers are doing.
And some analysts are already predicting that as many as 9,000 stores could be shut down in the United States in 2018.
Are we just going to keep blaming Amazon every time another retail chain goes belly up?
What we should really be focusing on is the fact that the “retail bubble” is starting to burst. In the aftermath of the last financial crisis, retailers went on an unprecedented debt binge, and now a lot of that debt is starting to go bad.
In fact, in a previous article I discussed the fact that “the amount of high-yield retail debt that will mature next year is approximately 19 times larger than the amount that matured this year”. This is going to have very serious implications on Wall Street, but very few people are really talking about this.
Most stores try to stay open through Christmas, but once the holiday season is over we will see another huge wave of store closings.
And as individual stores close down, this will put a lot of financial pressure on malls and shopping centers. Not too long ago, one report projected that up to 25 percent of all shopping malls in the entire nation could close down by 2022, but I tend to think that number is too optimistic.
The retail industry in the United States is dying, and the biggest reason for that is not Amazon.
Rather, the real reason why the retail industry is in so much trouble is because of the steady decline of the middle class. The gap between the ultra-wealthy and the rest of us is greater than ever, and we can clearly see the impact of this in the retail world.
Retailers that serve the very wealthy are generally doing well, and those that serve the other end of the food chain (such as dollar stores and Wal-Mart) are also doing okay.
But virtually all of the retailers that depend on middle class shoppers are really struggling, and this is going to continue for the foreseeable future.
Most American families are either living paycheck to paycheck or are close to that level, and these days U.S. consumers simply do not have much discretionary income to play around with. More hard working Americans are going to fall out of the middle class with each passing month, and that is extremely bad news for a retail industry that is literally falling apart right in front of our eyes.
If the economy is doing just fine, then why is homelessness at levels not seen “since the Great Depression” in major cities all over the country? If the U.S. economy was actually in good shape, we would expect that the number of people that are homeless would be going down or at least stabilizing. Instead, we have a growing national crisis on our hands. In fact, within the past two years “at least 10 cities or municipal regions in California, Oregon and Washington” have declared a state of emergency because the number of homeless is growing so rapidly.
Things are particularly bad in southern California, and this year the Midnight Mission will literally be feeding a small army of people that have nowhere to sleep at night…
Thanksgiving meals will be served to thousands of homeless and near-homeless individuals today on Skid Row and in Pasadena and Canoga Park amid calls for donations and volunteers for the rest of the year.
The Midnight Mission will serve Thanksgiving brunch to nearly 2,500 homeless and near-homeless men, women and children, according to Georgia Berkovich, its director of public affairs.
Overall, the Midnight Mission serves more than a million meals a year, and Berkovich says that homelessness hasn’t been this bad in southern California “since the Great Depression”…
Berkovich said the group has been serving nearly 1 million meals a year each year since 2013.
“We haven’t seen numbers like this since the Great Depression,” she said.
And of course the official numbers confirm what Berkovich is claiming. According to an article published earlier this year, the number of homeless people living in Los Angeles County has never been higher…
The number of homeless people in Los Angeles has jumped to a new record, as city officials grapple with a humanitarian crisis of proportions remarkable for a modern American metropolis.
Municipal leaders said that a recent count over several nights found 55,188 homeless people living in a survey region comprising most of Los Angeles County, up more than 25% from last year.
If the California economy is truly doing well, then why is this happening?
We see the same thing happening when we look at the east coast. Just check out these numbers from New York City…
In recent years the number of homeless people has grown. Whereas rents increased by 18% between 2005 and 2015, incomes rose by 5%. When Rudy Giuliani entered City Hall in 1994, 24,000 people lived in shelters. About 31,000 lived in them when Mike Bloomberg became mayor in 2002. When Bill de Blasio entered City Hall in 2014, 51,500 did. The number of homeless people now in shelters is around 63,000.
For New York, this is the highest that the homeless population has been since the Great Depression, and city leaders are trying to come up with a solution.
Housing prices are soaring here thanks to the tech industry, but the boom comes with a consequence: A surge in homelessness marked by 400 unauthorized tent camps in parks, under bridges, on freeway medians and along busy sidewalks. The liberal city is trying to figure out what to do.
Are you noticing a theme?
Homelessness is at epidemic levels all over the U.S., and this crisis is getting worse with each passing day. Some communities are trying to care for their growing homeless populations, but others are simply trying to force them to go somewhere else. They are doing this by essentially making it illegal to be homeless. In some cities it is now a crime to engage in “public camping”, to “block a walkway” or to create any sort of “temporary structure for human habitation”. These laws specifically target the homeless, and they are very cruel.
Many of us tend to picture the homeless as mostly lazy older men that don’t want to work and that instead want to drink or do drugs all day.
But the truth is that women and children make up a significant percentage of the homeless. In fact, the number of homeless children in our country has increased by about 60 percent since the end of the last recession.
And there are thousands upon thousands of military veterans that are homeless. For example, a 34-year-old man named Johnny that served in the Marine Corps recently used his last 20 dollars to buy fuel for a woman that had run out of gas and was stranded along I-95 in Miami…
Pulled over on the side of I-95, McClure, 27, was approached by a homeless man named Johnny. She was apprehensive at first, but Johnny told her to get back into her car and to lock the doors while he walked to get her help. He went to a nearby gas station, used his last $20 fill a can and brought it back to fill up her car.
Grateful, but without a dollar to repay him, McClure promised she would come back with something.
In the weeks since, she’s returned to the spot along I-95 where Johnny stays with cash, snacks and Wawa gift cards. Each time she’s stopped by with her boyfriend, Mark D’Amico, they’ve learned a bit more about Johnny’s story, and become humbled by his gratitude.
Deciding that they wanted to do even more for Johnny, they started a GoFundMe page for him and have since raised approximately $250,000.
So it looks like there is going to be a happy ending to Johnny’s story, but the truth is that more people are falling into homelessness with each passing day.
A record number of store closures — 6,735 — have already been announced this year. That’s more than triple the tally for 2016, according to Fung Global Retail and Technology, a retail think tank.
And there have been 620 bankruptcies in the sector so far this year, according to BankruptcyData.com, up 31% from the same period last year. Prominent names such as Toys R Us, Gymboree, Payless Shoes and RadioShack have all filed this year, and Sears Holdings (SHLD), which owns both the iconic Sears and Kmart chains, has warned there is “substantial doubt” it can remain in business.
Sadly, analysts are projecting that the number of store closings could be as high as 9,000 next year.
Yes, there are some areas of the country that are doing well right now, but there are many others that are not.
Let us always remember to have compassion on those that are struggling, because someday we may be the ones that end up needing some help.
Is the retail apocalypse in the United States about to go to a whole new level? That is a frightening thing to consider, because the truth is that things are already quite bad. We have already shattered the all-time record for store closings in a single year and we still have the rest of November and December to go. Unfortunately, it truly does appear that things will get even worse in 2018, because a tremendous amount of high-yield retail debt is coming due next year. In fact, Bloomberg is reporting that the amount of high-yield retail debt that will mature next year is approximately 19 times larger than the amount that matured this year…
Just $100 million of high-yield retail borrowings were set to mature this year, but that will increase to $1.9 billion in 2018, according to Fitch Ratings Inc. And from 2019 to 2025, it will balloon to an annual average of almost $5 billion. The amount of retail debt considered risky is also rising. Over the past year, high-yield bonds outstanding gained 20 percent, to $35 billion, and the industry’s leveraged loans are up 15 percent, to $152 billion, according to Bloomberg data.
Even worse, this will hit as a record $1 trillion in high-yield debt for all industries comes due over the next five years, according to Moody’s.
Can you say “debt bomb”?
For those of you that are not familiar with these concepts, high-yield debt is considered to be the riskiest form of debt. Retailers all over the nation went on a tremendous debt binge for years, and many of those loans never should have been made. Now that debt is going to start to come due, and many of these retailers simply will not be able to pay.
So how does that concern the rest of us?
Well, just like with the subprime mortgage meltdown, the “spillover” could potentially be enormous. Here is more from Bloomberg…
The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary.
I have written extensively about Sears and other troubled retailers that definitely appear to be headed for zero. But one major retailer that is flying below the radar a little bit that you should keep an eye on is Target. For over a year, conservatives have been boycotting the retailer, and this boycott is really starting to take a toll…
Target has been desperately grasping at ideas to recover lost business, including remodeling existing stores and opening smaller stores, lowering prices, hiring more holiday staff and introducing a new home line from Chip and Joanna Gaines. But Target stock remains relatively stagnant, opening at 61.50 today—certainly nowhere near the mid-80s of April 2016, when the AFA boycott began.
And we must also keep in mind that we do not actually deserve the debt-fueled standard of living that we are currently enjoying. We are consuming far more wealth than we are producing, and the only way we are able to do that is by going into unprecedented amounts of debt. The following comes from Egon von Greyerz…
Total US debt in 1913 was $39 billion. Today it is $70 trillion, up 1,800X. But that only tells part of the story. There were virtually no unfunded liabilities in 1913. Today they are $130 trillion. So adding the $70 trillion debt to the unfunded liabilities gives a total liability of $200 trillion.
In 1913 US debt to GDP was 150%. Today, including unfunded liabilities, the figure becomes almost 1,000%. This is the burden that ordinary Americans are responsible for, a burden that will break the US people and the US economy as well as the dollar.
The only possible way that the game can go on is to continue to grow our debt much faster than the overall economy is growing.
Of course that is completely unsustainable, and when this debt bubble finally bursts everything is going to collapse.
We don’t know exactly when the next great financial crisis is coming, but we do know that conditions are absolutely perfect for one to erupt. According to John Hussman, it wouldn’t be a surprise at all to see stock prices fall more than 60 percent from current levels…
At the root of Hussman’s pessimistic market view are stock valuations that look historically stretched by a handful of measures. According to his preferred valuation metric — the ratio of non-financial market cap to corporate gross value-added (Market Cap/GVA) — stocks are more expensive than they were in 1929 and 2000, periods that immediately preceded major market selloffs.
“US equity market valuations at the most offensive levels in history,” he wrote in his November monthly note. “We expect that more extreme valuations will only be met by more severe losses.”
Those losses won’t just include the 63% plunge referenced above — it’ll also be accompanied by a longer 10 to 12 year period over which the S&P 500 will fall, says Hussman.
A financial system that is based on a pyramid of debt will never be sustainable. As I discuss in my new book entitled “Living A Life That Really Matters”, the design of our current debt-based system is fundamentally flawed, and it needs to be rebuilt from the ground up.
The borrower is the servant of the lender, and our current system is designed to create as much debt as possible. When it inevitably fails, we need to be ready to offer an alternative, because patching together our current system and trying to re-inflate the bubble is not a real solution.
If the U.S. economy is doing just fine, why have we already shattered the all-time record for retail store closings in a single year? Whenever I write about our “retail apocalypse”, many try to counter my arguments by pointing out the growing dominance of Amazon. And I certainly can’t deny that online shopping is on the rise, but it still accounts for less than 10 percent of total U.S. retail sales. No, something bigger is happening in our economy, and it isn’t receiving nearly enough attention from the mainstream media.
Back in 2008, a plummeting economy absolutely devastated retailers and it resulted in an all-time record of 6,163 retail stores being closed that year.
So far in 2017, over 6,700 stores have been shut down and we still have nearly two months to go! The following comes from CNN…
More store closings have been announced in 2017 than any other year on record.
Since January 1, retailers have announced plans to shutter more than 6,700 stores in the U.S., according to Fung Global Retail & Technology, a retail think tank.
That beats the previous all-time high of 6,163 store closings, which hit in 2008 amid the financial meltdown, according to Credit Suisse (CS).
Just within the last week, we have learned that Sears is closing down another 60 stores, and Walgreens announced that it intends to close approximately 600 locations.
Housing prices are soaring here thanks to the tech industry, but the boom comes with a consequence: A surge in homelessness marked by 400 unauthorized tent camps in parks, under bridges, on freeway medians and along busy sidewalks. The liberal city is trying to figure out what to do.
But I thought that the Seattle economy was doing so well.
San Diego now scrubs its sidewalks with bleach to counter a deadly hepatitis A outbreak. In Anaheim, 400 people sleep along a bike path in the shadow of Angel Stadium. Organizers in Portland lit incense at an outdoor food festival to cover up the stench of urine in a parking lot where vendors set up shop.
Not even during the worst parts of the last recession did things ever get this bad for the U.S. retail industry. As you will see in this article, more than 300 retailers have already filed for bankruptcy in 2017, and it is being projected that a staggering 8,640 stores will close in America by the end of this calendar year. That would shatter the old record by more than 20 percent. Sadly, our ongoing retail apocalypse appears to only be in the early chapters. One report recently estimated that up to 25 percent of all shopping malls in the country could shut down by 2022 due to the current woes of the retail industry. And if the new financial crisis that is already hitting Europe starts spreading over here, the numbers that I just shared with you could ultimately turn out to be a whole lot worse.
I knew that a lot of retailers were filing for bankruptcy, but I had no idea that the grand total for this year was already in the hundreds. According to CNN, the number of retail bankruptcies is now up 31 percent compared to the same time period last year…
Bankruptcies continue to pile up in the retail industry.
More than 300 retailers have filed for bankruptcy so far this year, according to data from BankruptcyData.com. That’s up 31% from the same time last year. Most of those filings were for small companies — the proverbial Mom & Pop store with a single location. But there are also plenty of household names on the list.
Yes, the growth of online retailers such as Amazon is fueling some of this, but the Internet has been around for several decades now.
So why are retail store closings and retail bankruptcies surging so dramatically all of a sudden?
Just a few days ago, another major victim of the retail apocalypse made headlines all over the nation when it filed for bankruptcy. At one time Gymboree was absolutely thriving, but now it is in a desperate fight to survive…
Children’s clothing chain Gymboree has filed for bankruptcy protection, aiming to slash its debts and close hundreds of stores amid crushing pressure on retailers.
Gymboree said it plans to remain in business but will close 375 to 450 of its 1,281 stores in filing for a Chapter 11 bankruptcy reorganization. Gymboree employs more than 11,000 people, including 10,500 hourly workers.
This hemorrhaging of retail jobs comes on the heels of last week’s mass layoffs at Hudson Bay Company, where employees from Saks Fifth Avenue and Lord & Taylor were among the 2,000 people laid off. The news of HBC layoffs came on the same day that Ascena, the parent company of brands like Ann Taylor, Lane Bryant, and Dress Barn, told investors it will be closing up to 650 stores (although it did not specify which brands will be affected just yet). Only two weeks ago, affordable luxury brand Michael Kors announced it too would close 125 stores to combat brand overexposure and plummeting sales.
In a lot of ways this reminds me of 2007. The stock market was still performing very well, but the real economy was starting to come apart at the seams.
And without a doubt, the real economy is really hurting right now. According to Business Insider, Moody’s is warning that 22 more major retailers may be forced to declare bankruptcy in the very near future…
Twenty-two retailers in Moody’s portfolio are in serious financial trouble that could lead to bankruptcy, according to a Moody’s note published on Wednesday. That’s 16% of the 148 companies in the financial firm’s retail group — eclipsing the level of seriously distressed retail companies that Moody’s reported during the Great Recession.
You can find the full list right here. If this many major retailers are “distressed” now, what are things going to look like once the financial markets start crashing?
As thousands of stores close down all across the United States, this is going to put an incredible amount of stress on shopping mall owners. In order to meet their financial obligations, those mall owners need tenants, but now the number of potential tenants is shrinking rapidly.
I have talked about dead malls before, but apparently what we have seen so far is nothing compared to what is coming. The following comes from CNN…
Store closings and even dead malls are nothing new, but things might be about to get a whole lot worse.
Between 20% and 25% of American malls will close within five years, according to a new report out this week from Credit Suisse. That kind of plunge would be unprecedented in the nation’s history.
I can’t even imagine what this country is going to look like if a quarter of our shopping malls shut down within the next five years. Already, there are some parts of the U.S. that look like a third world nation.
And what is this going to do to employment? Today, the retail industry employs millions upon millions of Americans, and those jobs could start disappearing very rapidly…
The retail sales associate is one of the most popular jobs in the country, with roughly 4.5 million Americans filling the occupation. In May, the US Bureau of Labor Statistics released data that found that 7.5 million retail jobs might be replaced by technology. The World Economic Forum predicts 30 to 50 percent of retail jobs will be gone once struggling companies like Gymboree fully hop on the digital train. MarketWatch found that over the last year, the department store space bled 29,900 jobs, while general merchandising stores cut 15,700 positions. At this rate, one Florida columnist put it soberingly, “Half of all US retail jobs could vanish. Just as ATMs replaced many bank tellers, automated check-out stations are supplanting retail clerks.”
At this moment, the number of working age Americans that do not have a job is hovering near a record high. So being able to at least get a job in the retail industry has been a real lifeline for many Americans, and now that lifeline may be in grave danger.
For those running our big corporations, losing these kinds of jobs is not a big deal. In fact, many corporate executives would be quite happy to replace all of their U.S. employees with technology or with foreign workers.
But if the middle class is going to survive, we need an economy that produces good paying jobs. Unfortunately, even poor paying retail jobs are starting to disappear now, and the future of the middle class is looking bleaker than it ever has before.
Did you know that the number of working age Americans that do not have a job right now is far higher than it was during the worst moments of the last recession? For example, in January 2009 92.6 million working age Americans did not have a job, but we just found out that in May the number of working age Americans without a job increased to just a shade under 102 million. We’ll go over those numbers in more detail in a moment, but first I want to talk a bit about the difference between perception and reality. According to the bureaucrats in the federal government, the “unemployment rate” in May was the lowest that we have seen in 16 years. At just “4.3 percent”, we are essentially at “full employment”, and so according to them anyone that really wants a job should be able to find one pretty easily.
Of course that is a load of nonsense. John Williams of shadowstats.com tracks what our economic numbers would look like if honest numbers were being used, and according to his calculations the unemployment rate is currently 22 percent.
So what accounts for the wide disparity between those numbers?
Well, the truth is that the official “unemployment rate” that the mainstream media endlessly hypes is so manipulated that it has essentially lost all meaning at this point.
In May, we were told that the U.S. economy added 138,000 jobs, but that is not even enough to keep up with population growth.
However, when you look deeper into the numbers some major red flags quickly emerge. You won’t hear it on the news, but in May the U.S. economy actually lost 367,000 full-time jobs. That is an absolutely nightmarish figure, and it confirms the fact that economic activity is starting to dramatically slow down.
But somehow the “unemployment rate” in May fell from “4.4 percent” to “4.3 percent”.
How in the world can they do that?
Well, for years the government has been taking large numbers of people from the basket known as “officially unemployed” and dumping them into another basket known as “not in the labor force”. Since those that are “not in the labor force” do not count toward the official unemployment rate, they can make things look better than they actually are by moving people into that category.
In May, the government added a staggering 608,000 Americans into the “not in the labor force” category. So now the number of working age Americans “not in the labor force” has reached a total of 94.98 million. When you add that total to the number of Americans that are “officially” unemployed (6.86 million), you get a grand total of 101.84 million.
In other words, when you round up to the nearest million you get a grand total of 102 million Americans that do not have a job right now.
If you go back to January 2009, there were 81.02 million Americans that were “not in the labor force” and 11.61 million Americans that were considered to be “officially unemployed”. And so that means that according to the federal government there were 92.63 million working age Americans that did not have a job at that point.
So if the number of working age Americans without a job has risen by 9.21 million since January 2009, are we really doing so much better than we were during the depths of the last recession?
Another way to look at this is by examining the civilian employment-population ratio. Just before the last recession, about 63 percent of the working age population had a job, but then during the recession that number fell to between 58 and 59 percent for quite a while. We have finally gotten back to the 60 percent mark, but we are still far, far below the level that we were at before the last recession struck.
And of course all of the above assumes that the numbers that the government is giving us accurately reflect reality, and that is highly questionable.
For example, according to one recent analysis the “business birth and death model” has accounted for 93 percent of all “new jobs” reported by the government since 2008…
As our friends at Morningside Hill calculate, a full 93% of the new jobs reported since 2008 – 6.3 million out of 6.7 million – and 40% of the jobs in 2016 alone were added through the business birth and death model – a highly controversial model which is not supported by the data. On the contrary, all data on establishment births and deaths point to an ongoing decrease in entrepreneurship.
In essence, government bureaucrats pull a number out of the air and add jobs to the report based on an estimate of how many new businesses they think are being created in America in a particular month.
Is it possible that there is a chance that they are being overly optimistic when they make this estimate?
Most people have no idea that the “official numbers” that we get from the government are highly speculative, and there is always a temptation to make things look better than they actually are.
There is no way in the world that we are anywhere near “full employment”. I hear from people all over the country that say that it is exceedingly difficult to find good jobs where they live. And according to a brand new report that was just released, the number of job cuts in May 2017 was 71 percent higher than it was in May 2016.
We also know that over the past ten years the average rate of economic growth in the United States exactly matches the average rate of economic growth that the U.S. experienced during the 1930s.
I don’t see how anyone can possibly claim that the U.S. economy is doing well. Just prior to the last recession there were 26 million Americans on food stamps, and now we have 44 million. We are on pace to absolutely shatter the all-time record for store closings in a single year, and the number of homeless people living in Los Angeles County has risen by 23 percent over the past 12 months.
But once again, it is a battle of perception vs. reality. Their televisions are endlessly feeding them the message that everything is just fine, and most Americans seem to be buying it, at least for now…
One sector of the economy that is acting as if we were already in the middle of a horrible recession is the auto industry. We just got sales figures for the month of April, and every single major U.S. auto manufacturer missed their sales projections. And compared to one year ago, sales were way down across the entire industry. When you add this latest news to all of the other signals that the U.S. economy is slowly down substantially, a very disturbing picture begins to emerge. Either the U.S. economy is steamrolling toward a major slowdown, or this is one heck of a head fake.
One analyst that has been waiting for auto sales to start declining is Graham Summers. According to Summers, the boom in auto sales that we witnessed in previous years was largely fueled by subprime lending, and now that subprime auto loan bubble is starting to burst…
Auto-loan generation has gone absolutely vertical since 2009, rising an incredible 56% in seven years. Even more incredibly roughly 1/3 of this ~$450 billion in new loans are subprime AKA garbage.
In the simplest of terms, this is Subprime 2.0… the tip of the $199 TRILLION debt iceberg, just as subprime mortgages were for the Housing Bubble.
I’ve been watching this industry for months now, waiting for the signal that it’s ready to explode.
That signal just hit.
The signal that Summers is referring to is a persistent decline in U.S. auto sales. It would be easy to dismiss one bad month, but U.S. auto sales have been falling for a number of months now, and the sales figures for April were absolutely dismal. Just check out how much sales declined in April compared to one year ago for the biggest auto manufacturers…
General Motors: -5.8 percent
Ford: -7.1 percent
Fiat Chrysler: -7.0 percent
Toyota: -4.4 percent
Honda: -7.0 percent
For auto manufacturers, those are truly frightening numbers, and nobody is really projecting that they will get better any time soon.
Meanwhile, inventory days are still trending higher as OEMs continue to push product on to dealer lots even though sale through to end customers has seemingly stalled.
GM, one of the few OEMs to actually disclose dealer inventories in monthly sales releases, reported that April inventories increased to 100 days (935,758 vehicles) from 98 days at the end of March and just 71 days (681,402 vehicles) in April 2016.
So why is this happening?
Of course there are a lot of factors, but one of the main reasons for this crisis is the fact that U.S. consumers are already drowning in debt and are simply tapped out…
Now, a new survey from Northwestern Mutual helps to shed some light on why Americans are completely incapable of saving money.
First, roughly 50% of Americans have debt balances, excluding mortgages mind you, of over $25,000, with the average person owing over $37,000, versus a median personal income of just over $30,000.
Therefore, it’s not difficult to believe, as Northwestern Mutual points out, that 45% of Americans spend up to half of their monthly take home pay on debt service alone.…which, again, excludes mortgage debt.
When you are already up to your eyeballs in debt, it is hard just to make payments on that debt. So for many American families a new car is simply out of the question.
Synchrony Financial – GE’s spin-off that issues credit cards for Walmart and Amazon – disclosed on Friday that, despite assurances to the contrary just three months ago, net charge-off would rise to at least 5% this year. Its shares plunged 16% and are down 27% year-to-date.
Credit-card specialist Capital One disclosed in its Q1 earnings report last week that provisions for credit losses rose to $2 billion, with net charge-offs jumping 28% year-over-year to $1.5 billion.
If you didn’t understand all of that, what is essentially being said is that credit card companies are starting to have to set aside more money for bad credit card debts.
Previously I have reported that consumer bankruptcies and commercial bankruptcies are both rising at the fastest rate that we have seen since the last recession. This trend is starting to spook lenders, and so many of them are starting to pull back on various forms of lending. For example, Bloomberg is reporting that lending by regional U.S. banks was down significantly during the first quarter of 2017…
Total loans at the 15 largest U.S. regional banks declined by about $10 billion to $1.73 trillion in the first quarter, compared with the previous three-month period, the first such drop in four years, according to data compiled by Bloomberg. All but two of those banks missed analysts’ estimates for total loans, as a slump in commercial and industrial lending sapped growth.
This is how a credit crunch begins. When the flow of credit starts restricting, that slows down economic activity, and in turn that usually results in even more credit defaults. Of course that just causes lending to get even tighter, and pretty soon you have a spiral that is hard to stop.
Just about everywhere you look, there are early warning signs of a new economic downturn. And just like we saw prior to the great crash of 2008, those that are wise are getting prepared for what is coming ahead of time. Unfortunately, most people usually end up getting blindsided by economic downturns because they believe the mainstream media when they insist that everything is going to be just fine.
Thankfully, there are at least a few people that are telling the truth, and one of them is Marc Faber. Just a few days ago, he told CNBC that the U.S. economy is “terminally ill”…
“Dr. Doom” Marc Faber says the U.S. economy is “terminally ill,” and the current outlook doesn’t seem to be improving.
“The U.S. has run a deficit for [so long],” he said Tuesday on CNBC’s “Futures Now.” “The conditions today are more fragile than they were ever before, and unless somebody comes and introduces minus 5 percent interest rates, I think the economy is really not in such a great shape.”
“I’m actually amazed that people are so optimistic,” the editor and publisher of the “Gloom, Boom & Doom Report” added.
It isn’t going to take much to push us over the edge, and with our world becoming more unstable with each passing month, it appears that our day of reckoning is likely to come sooner rather than later.
Has the Federal Reserve gone completely insane? On Wednesday, the Fed raised interest rates for the second time in three months, and it signaled that more rate hikes are coming in the months ahead. When the Federal Reserve lowers interest rates, it becomes less expensive to borrow money and that tends to stimulate more economic activity. But when the Federal Reserve raises rates , that makes it more expensive to borrow money and that tends to slow down economic activity. So why in the world is the Fed raising rates when the U.S. economy is already showing signs of slowing down dramatically? The following are 12 reasons why the Federal Reserve may have just made the biggest economic mistake since the last financial crisis…
#1 Just hours before the Fed announced this rate hike, the Federal Reserve Bank of Atlanta’s projection for U.S. GDP growth in the first quarter fell to just 0.9 percent. If that projection turns out to be accurate, this will be the weakest quarter of economic growth during which rates were hiked in 37 years.
The Federal Reserve decision Wednesday to lift its benchmark short-term interest rate by a quarter percentage point is likely to have a domino effect across the economy as it gradually pushes up rates for everything from mortgages and credit card rates to small business loans.
Consumers with credit card debt, adjustable-rate mortgages and home equity lines of credit are the most likely to be affected by a rate hike, says Greg McBride, chief analyst at Bankrate.com. He says it’s the cumulative effect that’s important, especially since the Fed already raised rates in December 2015 and December 2016.
#3 Speaking of auto loans, the number of people that are defaulting on them had already been rising even before this rate hike by the Fed…
The number of Americans who have stopped paying their car loans appears to be increasing — a development that has the potential to send ripple effects through the US economy.
Losses on subprime auto loans have spiked in the last few months, according to Steven Ricchiuto, Mizuho’s chief US economist. They jumped to 9.1% in January, up from 7.9% in January 2016.
“Recoveries on subprime auto loans also fell to just 34.8%, the worst performance in over seven years,” he said in a note.
#7 U.S. consumers certainly aren’t thriving, and so an economic slowdown will hit many of them extremely hard. In fact, about half of all Americans could not even write a $500 check for an unexpected emergency expense if they had to do so right now.
#8 The bond market is already crashing. Most casual observers only watch stocks, but the truth is that a bond crash almost always comes before a stock market crash. Bonds have been falling like a rock since Donald Trump’s election victory, and we are not too far away from a full-blown crisis. If you follow my work on a regular basis you know this is a hot button issue for me, and if bonds continue to plummet I will be writing quite a bit about this in the weeks ahead.
#9 On top of everything else, we could soon be facing a new debt ceiling crisis. The suspension of the debt ceiling has ended, and Donald Trump could have a very hard time finding the votes that he needs to raise it. The following comes from Bloomberg…
In particular, the markets seem to be ignoring two vital numbers, which together could have profound consequences for global markets: 218 and $189 billion. In order to raise or suspend the debt ceiling (which will technically be reinstated on March 16), 218 votes are needed in the House of Representatives. The Treasury’s cash balance will need to last until this happens, or the U.S. will default.
The opening cash balance this month was $189 billion, and Treasury is burning an average of $2 billion per day – with the ability to issue new debt. Net redemptions of existing debt not held by the government are running north of $100 billion a month. Treasury Secretary Steven Mnuchin has acknowledged the coming deadline, encouraging Congress last week to raise the limit immediately.
If something is not done soon, the federal government could be out of cash around the beginning of the summer, and this could create a political crisis of unprecedented proportions.
#10 And even if the debt ceiling is raised, that does not mean that everything is okay. It is being reported that U.S. government revenues just experienced their largest decline since the last financial crisis.
#11 What do corporate insiders know that the rest of us do not? Stock purchases by corporate insiders are at the lowest level that we have seen in three decades…
It’s usually a good sign when the CEO of a major company is buying shares; s/he is an insider and knows what’s going on, so their confidence is a positive sign.
Well, according to public data filed with the Securities and Exchange Commission, insider buying is at its LOWEST level in THREE DECADES.
In other words, the people at the top of the corporate food chain who have privileged information about their businesses are NOT buying.
#12 A survey that was just released found that corporate executives are extremely concerned that Donald Trump’s policies could trigger a trade war…
As business leaders are nearly split over the effectiveness of Washington’s new leadership, they are in unison when it comes to fears over trade and immigration. Nearly all CFOs surveyed are concerned that the Trump administration’s policies could trigger a trade war between the United States and China.
A decline in global trade could deepen the economic downturns that are already going on all over the planet. For example, Brazil is already experiencing “its longest and deepest recession in recorded history“, and right next door people are literally starving in Venezuela.
After everything that you just read, would you say that the economy is “doing well”?
Of course not.
But after raising rates on Wednesday, that is precisely what Federal Reserve Chair Janet Yellen told the press…
“The simple message is — the economy is doing well.” Federal Reserve Chair Janet Yellen said at a news conference. “The unemployment rate has moved way down and many more people are feeling more optimistic about their labor prospects.”
Well, look, our policy is not set in stone. It is data- dependent and we’re — we’re not locked into any particular policy path. Our — you know, as you said, the data have not notably strengthened. I — there’s noise always in the data from quarter to quarter. But we haven’t changed our view of the outlook. We think we’re on the same path, not — we haven’t boosted the outlook, projected faster growth. We think we’re moving along the same course we’ve been on, but it is one that involves gradual tightening in the labor market.
Just like in 2008, the Federal Reserve really doesn’t understand the economic environment. At that time, Federal Reserve Chair Ben Bernanke assured everyone that there was not going to be a recession, but when he made that statement a recession was actually already underway.
And as I have said before, I wouldn’t be surprised in the least if it is ultimately announced that GDP growth for the first quarter of 2017 was negative.
Whether it happens now or a bit later, the truth is that the U.S. economy is heading for a new recession, and the Federal Reserve has just given us a major shove in that direction.
Is the Fed really so clueless about the true state of the economy, or could it be possible that they are raising rates just to hurt Donald Trump?
I don’t know the answer to that question, but clearly something very strange is going on…
The ninth largest economy in the entire world is currently experiencing “its longest and deepest recession in recorded history”, and in a country right next door people are being encouraged to label their trash so that the thousands upon thousands of desperately hungry people that are digging through trash bins on the streets can find discarded food more easily. Of course the two nations that I am talking about are Brazil and Venezuela. The Brazilian economy was once the seventh largest on the globe, but after shrinking for eight consecutive quarters it has now fallen to ninth place. And in Venezuela the economic collapse has gotten so bad that more than 70 percent of the population lost weight last year due to a severe lack of food. Most of us living in the northern hemisphere don’t think that anything like this could happen to us any time soon, but the truth is that trouble signs are already starting to erupt all around us. It is just a matter of time before the things currently happening in Brazil and Venezuela start happening here, but unfortunately most people are not heeding the warnings.
Just a few years ago, the Brazilian economy was absolutely roaring and it was being hailed as a model for the rest of the world to follow. But now Brazil’s GDP has been imploding for two years in a row, and this downturn is being described as “the worst recession in recorded history” for that South American nation…
Latin America’s largest economy Brazil has contracted by 3.6 percent in 2016, shrinking for the second year in a row; statistics agency IBGE said on Tuesday. It confirmed the country is facing its longest and deepest recession in recorded history.
Data shows gross domestic product (GDP) fell for the eighth straight quarter in the three months to December, down 0.9 percent from the previous quarter. The figure was worse than the 0.5 percent decline economists had forecast and left the country’s overall GDP down 3.6 percent for the full year following a 3.8 percent drop in 2015.
“In real terms, GDP is now nine percent below its pre-recession peak,” Neil Shearing, chief emerging markets economist at Capital Economics, told the Financial Times.
“This is comfortably the worst recession in recorded history,” he added.
It had been hoped that things in Brazil would be getting better by now, but instead they just keep getting worse.
The number of bankruptcy filings has soared to an all-time record high, and the official unemployment rate has more than doubled since the end of 2013. The following comes from Wolf Richter…
In a stunning deterioration, the unemployment rate in Brazil spiked to 12.6% in the rolling three-month period through January, a record in the new data series going back to 2012, according to Brazil’s statistical agency IBGE. Up from 11.8% in the three-month period through October. Up from an already terribly high 9.5% a year ago. And more than double the 6.2% in December 2013.
Meanwhile, hordes of hungry people are rummaging through garbage cans in Venezuela in order to find something to fill their aching stomachs.
Things have gotten so bad that one of President Maduro’s chief opponents has urged citizens to label which trash bags have food in them so that people that are searching through the garbage can find food scraps more easily…
Controversial Priest and opponent to President Nicolás Maduro’s administration Father Jose Palmar posted on social media this week about labeling discarded waste so those looking through it for food can do so more easily and “with dignity.”
Palmar called on Venezuelans to celebrate Lent by identifying bags where food has been discarded for those with no where else to turn. That way, they don’t have to dig through non-edible items to find it.
Thanks to chronically empty store shelves and severe food shortages, people in Venezuela are losing weight at an astounding pace. In the United States it would be a good thing if much of the population lost this much weight, but in Venezuela it definitely is not…
Three quarters of the country’s population lost an average of over 18 pounds over food shortages in 2016, according to a survey by Venezuelan universities and nonprofit groups. Last year, over 80 percent of foodstuffs disappeared from shelves and many had to get by with one meal a day, Foreign Policy reported.
Venezuela was once South America’s most powerful petrostate. But decades of government mismanagement sent the country into decline. Maduro’s predecessor Hugo Chavez choked the economy with heavy-handed regulations, price controls, and a campaign to nationalize major industries that chased out foreign investments.
Further north, very alarming signs are starting to pop up in Mexico.
It probably won’t happen next week or next month, but there are indications of emerging “liquidity problems” which could precipitate a major debt crisis at some point…
In Mexico foreign investors hold around $100 billion of the country’s local-currency government debt, the most for any emerging market economy. That’s almost 20 times what it was 20 years ago. They also hold billions of euros worth of corporate bonds, which are also showing signs of strain, prompting some Mexican business leaders to call for “new programs” to be implemented before the situation causes “a large-scale crisis” among Mexican companies.
The most ominous sign yet came last week when Bloomberg reported sources saying that the Bank of Mexico (or Banxico, as it is referred to) had sought a swap line from the Federal Reserve in case of “liquidity problems,” which immediately triggered furious denials from Banxico. “I can say clearly and unequivocally that we are not in the process of asking for any credit line from any authority,” said the central bank’s governor, Agustin Carstens, who has postponed by six months his departure from the bank, initially scheduled for May.
One of the biggest problems for nations such as Brazil, Venezuela and Mexico is the strength of the U.S. dollar. During the good times they went into tremendous amounts of debt, and much of that debt was denominated in U.S. dollars. So when the U.S. dollar becomes stronger, it takes more of their own local currencies to pay that debt back.
And if the Federal Reserve raises interest rates at their next meeting, that will strengthen the U.S. dollar even more and put even more pressure on emerging market economies.
Even one small interest rate increase by the Fedcould have a sweeping impact on U.S. and world economies, Komal Sri-Kumar told CNBC on Monday.
“I think they are going to hike” on March 15, Sri-Kumar said on “Squawk Box,” echoing a theory shared by many analysts. “But that is going to prompt capital outflows from the euro zone, especially with the political risk. It is going to increase the capital outflow from China, and the U.S. economy will feel the impact.”
The global economy is more interconnected than ever before, and pain that starts in one region can rapidly spread to others.
The biggest debt bubble that the world has ever seen is starting to burst, and over the coming years we are going to see financial pain on a scale that would be unimaginable to most of us at this moment.
But even now there are those that would suggest that this colossal debt bubble can continue growing much faster than global GDP indefinitely, and this sort of exceedingly reckless optimism is leading many astray.
If you didn’t know better, you might be tempted to think that “Space Available” was the hottest new retail chain in the entire country. As you will see below, it is being projected that about a third of all shopping malls in the United States will soon close, and we just recently learned that the number of “distressed retailers” is the highest that it has been since the last recession. Honestly, I don’t know how anyone can possibly believe that the U.S. economy is in “good shape” after looking at the retail industry. In my recent article about the ongoing “retail apocalypse“, I discussed the fact that Sears, J.C. Penney and Macy’s have all announced that they are closing dozens of stores in 2017, and you can find a pretty comprehensive list of 19 U.S. retailers that are “on the brink of bankruptcy” right here. Needless to say, quite a bloodbath is going on out there right now.
But I didn’t realize how truly horrific things were for the retail industry until I came across an article about mall closings on Time Magazine’s website…
About one-third of malls in the U.S. will shut their doors in the coming years, retail analyst Jan Kniffen told CNBC Thursday. His prediction comes in the wake of Macy’s reporting its worst consecutive same-store sales decline since the financial crisis.
Macy’s and its fellow retailers in American malls are challenged by an oversupply of retail space as customers migrate toward online shopping, as well as fast fashion retailers like H&M and off-price stores such as T.J. Maxx. As a result, about 400 of the country’s 1,100 enclosed malls will fail in the upcoming years. Of those that remain, he predicts that about 250 will thrive and the rest will continue to struggle.
Can you imagine what this country is going to look like if that actually happens?
Shopping malls all over the United States are literally becoming “ghost towns”, and many that have already closed have stayed empty for years and years.
The process usually starts when a shopping mall starts losing anchor stores. That is why it is so alarming that Sears, J.C. Penney and Macy’s are planning to shut down so many locations in 2017. According to one recent report, 310 shopping malls in America are in imminent danger of losing an anchor store…
Dozens of malls have closed in the last 10 years, and many more are at risk of shutting down as retailers like Macy’s, JCPenney, and Sears — also known as anchor stores — shutter hundreds of stores to staunch the bleeding from falling sales.
The commercial-real-estate firm CoStar estimates that nearly a quarter of malls in the US, or roughly 310 of the nation’s 1,300 shopping malls, are at high risk of losing an anchor store.
Once the anchor stores start going, traffic falls off dramatically for the other stores and they start leaving too.
Four years ago in “The Beginning Of The End” I warned that empty storefronts would soon litter the national landscape, and now that is precisely what is happening.
Now that the Christmas season is over, some retailers that have been around for decades have suddenly decided that it is time to file for bankruptcy. Sadly, one of those retailers is HHGregg…
HHGregg Inc., the 61-year-old seller of appliances and electronics, is moving closer to Chapter 11 after announcing a store-closing plan, according to people with knowledge of the matter.
The filing may come as soon as next week, said the people, who asked not to be identified because the matter isn’t public. Bloomberg previously reported that HHGregg might file for bankruptcy in March if it couldn’t reach an out-of-court solution.
Another retailer that was once riding high but is now dealing with bankruptcy is BCBG…
BCBG, the California-based fashion retailer that had acquired fashion design firm Herve Leger in 1998, and that once had more than 570 boutiques globally, including 175 in the US, and whose cocktail dresses and handbags were shown off by celebrities, filed for bankruptcy on Wednesday.
It is buckling under $459 million of debt. It has 4,800 employees. Layoffs have already started. More layoffs and other cost cuts are planned, according to court documents, cited by Bloomberg. It started closing 120 of its stores in January. It wants to sell itself at a court-supervised auction. If that fails, it wants to negotiate a debt-for-equity swap with junior lenders owed $289 million.
If the U.S. economy was actually doing as well as the stock market says that it should be doing, all of these retail chains would not be closing stores and going bankrupt.
We live at a time when middle class consumers are tapped out. According to one recent survey, 57 percent of all Americans do not even have enough money in the bank to write a $500 check for an unexpected expense.
And people are falling out of the middle class at a staggering pace. The number of homeless people in New York City recently set a brand new record high, and city authorities plan to construct 90 new homeless shelters within the next five years.
On the west coast we are also seeing a dramatic rise in homelessness. The following comes from an article by Dan Lyman…
Citizen journalists have captured stunning images and video of homeless encampments that are spiraling out of control in the shadows of Disneyland and Anaheim Stadium in California.
The tent city has recently sprung up along the Santa Ana riverbed, near a busy convergence of three major California highways known as the “Orange Crush,” at the border of Anaheim and Santa Ana, the latter a “sanctuary city.”
Homeless activists estimate that as many as 1,000 people are camped in the region.
You can see some video footage of this homeless encampment on YouTube right here…
Incredibly, the Federal Reserve is almost certainly going to raise interest rates at their next meeting even though the U.S. economy is faltering so badly. That only makes sense if they are trying to make Donald Trump look as bad as possible.
Even though this giant bubble of false economic stability that we are currently enjoying has lasted far longer than it should have, the truth is that nothing has changed about the long-term economic outlook at all.
America is still heading for “economic Armageddon”, and the retail industry is a huge red flag that is warning us that our day of reckoning is approaching more rapidly than many had anticipated.