Tuesday, January 21, 2014

Today's links

1---The Retail Death Rattle, Jim Quinn, The Burning Platform


If ever a chart provided unequivocal proof the economic recovery storyline is a fraud, the one below is the smoking gun. November and December retail sales account for 20% to 40% of annual retail sales for most retailers. The number of visits to retail stores has plummeted by 50% since 2010. Please note this was during a supposed economic recovery. Also note consumer spending accounts for 70% of GDP. Also note credit card debt outstanding is 7% lower than its level in 2010 and 16% below its peak in 2008. Retailers like J.C. Penney, Best Buy, Sears, Radio Shack and Barnes & Noble continue to report appalling sales and profit results, along with listings of store closings. Even the heavyweights like Wal-Mart and Target continue to report negative comp store sales. How can the government and mainstream media be reporting an economic recovery when the industry that accounts for 70% of GDP is in free fall? The answer is that 99% of America has not had an economic recovery. Only Bernanke’s 1% owner class have benefited from his QE/ZIRP induced stock market levitation.





The entire economic recovery storyline is a sham built upon easy money funneled by the Fed to the Too Big To Trust Wall Street banks so they can use their HFT supercomputers to drive the stock market higher, buy up the millions of homes they foreclosed upon to artificially drive up home prices, and generate profits through rigging commodity, currency, and bond markets, while reducing loan loss reserves because they are free to value their toxic assets at anything they please – compliments of the spineless nerds at the FASB. GDP has been artificially propped up by the Federal government through the magic of EBT cards, SSDI for the depressed and downtrodden, never ending extensions of unemployment benefits, billions in student loans to University of Phoenix prodigies, and subprime auto loans to deadbeats from the Government Motors financing arm – Ally Financial (85% owned by you the taxpayer). The country is being kept afloat on an ocean of debt and delusional belief in the power of central bankers to steer this ship through a sea of icebergs just below the surface.


The absolute collapse in retail visitor counts is the warning siren that this country is about to collide with the reality Americans have run out of time, money, jobs, and illusions....


The impact of this retail death spiral will be vast and far reaching. A few factoids will help you understand the coming calamity:


  • There are approximately 109,500 shopping centers in the United States ranging in size from the small convenience centers to the large super-regional malls.
  • There are in excess of 1 million retail establishments in the United States occupying 15 billion square feet of space and generating over $4.4 trillion of annual sales. This includes 8,700 department stores, 160,000 clothing & accessory stores, and 8,600 game stores.
  • U.S. shopping-center retail sales total more than $2.26 trillion, accounting for over half of all retail sales.
  • The U.S. shopping-center industry directly employed over 12 million people in 2010 and indirectly generated another 5.6 million jobs in support industries. Collectively, the industry accounted for 12.7% of total U.S. employment.
  • Total retail employment in 2012 totaled 14.9 million, lower than the 15.1 million employed in 2002.
  • For every 100 individuals directly employed at a U.S. regional shopping center, an additional 20 to 30 jobs are supported in the community due to multiplier effects.


The collapse in foot traffic to the 109,500 shopping centers that crisscross our suburban sprawl paradise of plenty is irreversible. No amount of marketing propaganda, 50% off sales, or hot new iGadgets is going to spur a dramatic turnaround. Quarter after quarter there will be more announcements of store closings. Macys just announced the closing of 5 stores and firing of 2,500 retail workers. JC Penney just announced the closing of 33 stores and firing of 2,000 retail workers. Announcements are imminent from Sears, Radio Shack and a slew of other retailers who are beginning to see the writing on the wall. The vacancy rate will be rising in strip malls, power malls and regional malls, with the largest growing sector being ghost malls. Before long it will appear that SPACE AVAILABLE is the fastest growing retailer in America...


With real median household income 8% lower than it was in 2008, the collapse in retail traffic is a rational reaction by the impoverished 99%. Americans are using their credit cards to pay their real estate taxes, income taxes, and monthly utilities, since their income is lower, and their living expenses rise relentlessly, thanks to Bernanke and his Fed created inflation.


The media mouthpieces for the establishment gloss over the fact average gasoline prices in 2013 were the second highest in history.....


The percentage of those over 55 in the workforce has risen dramatically to an all-time high, as the Me Generation never saved for retirement or saw their retirement savings obliterated in the Wall Street created 2008 financial implosion.



To understand the absolute idiocy of retail CEOs across the land one must parse the employment data back to 2000. In the year 2000 the working age population of the U.S. was 213 million and 136.9 million of them were working, a record level of 64.4% of the population. There were 70 million working age Americans not in the labor force. Fourteen years later the number of working age Americans is 247 million and only 144.6 million are working. The working age population has risen by 16% and the number of employed has risen by only 5.6%. That’s quite a success story. Of course, even though median household income is 7.5% lower than it was in 2000, the government expects you to believe that 22 million Americans voluntarily left the labor force because they no longer needed a job.


2---The Dodd Frank Fiasco, mark gongloff


...loan demand dead in the water, risk-taking curbed, higher capital requirements, the cruel words of President Barack Obama, Occupy Wall Street and Huffington Post hacks -- banks have continued to rake in the profits.


The Federal Reserve has helped, by keeping borrowing costs low and helping fuel rallies in stocks, bonds and other risky assets. And of course the banks continue to take some profit-making risks, because that is just what they do. JPMorgan, once thought to be the best-managed bank in the known universe, vomited up $6 billion in just a few months in 2012 betting on credit default swaps.

A new study by economists from the University of Washington and the University of Michigan found that the banks that took bailout money after the crisis took more risks with that money, often in ways that were perfectly acceptable to regulators.


"These banks appear safer according to regulatory ratios, but show a significant increase in volatility and default risk," the study's authors wrote.


Despite falling into disrepute, banks still have political power and a vast lobbying army. Behind the scenes, even as some of us declare victory and move on, banks are continuing to work new loopholes into the Dodd-Frank financial reform legislation and its most hated provision, the Volcker Rule.


3--SF Fed's Williams questions effectiveness of QE, economists view-


San Francisco Federal Reserve President John Williams questioned the role of asset purchases as part of the Federal Reserve toolkit. Victoria McGrane at the Wall Street Journal has the story here. Williams highlights the uncertain impacts of quantitative easing:
Mr. Williams, who has been supportive of the Fed’s three rounds of bond purchases, said the measures “have proven a potent but blunt tool, with uncertain effects on financial markets and the economy.” The Fed’s bond-buying program, also known as quantitative easing, or QE, aims to lower long-term interest rates in hopes that will spur borrowing, hiring and investment.
Surveying the body of research on such bond purchases, Mr. Williams found that studies consistently find that the purchases have a significant impact on long-term bond yields but it’s harder to tell if they’re doing much to help the overall economy.
“Estimating the effects of large-scale asset purchases on the economy – as opposed to financial markets – is inherently much harder to do and is subject to greater uncertainty,” he said.


4---How to Manipulate the Entire IPO Market With Just $250 Million , Testosterone Pit


5---Bay Area home sales plunge in December, LA Times


San Francisco Bay Area home sales tumbled to a six-year low in December, indicating a meager supply of houses on the market, according to a new report.


Buyers in the nine-county region purchased 6,714 new and resale houses and condos last month, the lowest December level since 2007 and 12.7% below December 2012, research firm DataQuick said Wednesday.


6---Banks embracing a housing-bubble favorite: interest-only loans, LA Times


Customers for interest-only loans are often self-employed and capable of making big down payments and maintaining fat bank accounts.


7---FHA: The incredible, shrinking mortgage resource, inman


Are credit scores on the downgrade at FHA as the agency turns off new buyers with FICO scores above 700?


Absolutely. -....


FHA is starting to reap what it sowed in the way of higher premiums and non-cancellability. The percentage of FICO credit scores coming in the door above 720 — these are prime home purchasers who are at relatively low risk of default but keep paying their premiums on time every month — declined from nearly 35 percent in the fourth quarter of fiscal 2010 to just 23.6 percent in the same quarter of fiscal 2013. During the same period, new borrowers with scores ranging from 640 to 679 soared to 40.5 percent from 26.6 percent.


 New-home purchase mortgage production is down at FHA as well. In the final quarter of fiscal 2013, home purchase financings dropped by 12 percent from the same period a year earlier. Market share for FHA is plunging. In the third quarter of fiscal 2013, the agency accounted for just 17.2 percent by dollar volume of all purchase mortgages. A year earlier, its share was 27.1 percent.


Factoring in refinances as well as home purchase loans, FHA’s overall market share has sunk to 12.2 percent. As recently as early 2011, it was just over 19 percent.


8--Chris Whalen on QM rules, DS News


Whalen says there are a lot of interesting dynamics in this market. “We are going to probably see a very strong market for non-conforming loans this year because there is still more than $200 billion in loans that have not been resolved sitting on the books of the banks.”......


Under the new QM rules, a borrower must have a FICO score of 740 or higher. In addition, debt-to-income ratio can be no higher than 43 percent. Whalen explained that although these rules disqualify a lot of borrowers, they give the lender assurances about possible lawsuits.


“If you write a Qualified Mortgage following these rules, then you have what is essentially a safe harbor against many types of litigation,” Whalen explained. “However, it’s still possible for a borrower to sue. There is arguably more litigation risk for lenders today than there has been in the past.”


Whalen says there is still a demand for non-QM loans—financing for borrowers with FICO scores down into the mid-600s but who can also pay 20 to 25 percent down. However, the problem is that most investors will not buy these loans.


“You can’t sell them to the government, which is 95 percent of the market today,” Whalen said. “It’s relatively easy to find investors for jumbos and high-quality borrowers, but for loans made to lower quality borrowers, there is no obvious investor. That’s why it’s not working so far. There is some demand, but it’s relatively small.”


9---Chinese economic growth slows, wsws




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