Financial Crisis - 2013 - ????

[Ryan Ruck]

Consumer Taps Out As Income Plunges By Most In 20 Years: Savings Rate Crashes To 2007 Levels

March 1, 2013

When the US income and spending figures for December came out, the punditry couldn't contain their exuberance following the massive surge in income which as we explained was merely a function of the pulled forward wages and bonuses in December due to fears of what the Fiscal Cliff and the expiration of the payroll tax cut would do to incomes in 2013 (nothing good), as well as a surge in stock dividends to avoid a dividend tax hike resulting in yet another boost in income. The spike in personal income without an offset in spending sent the savings rate to the highest in three years.

Today it's payback time as moments ago we learned that the US consumer gave back all the December gains and then much following news that while spending did nothing, and came in as expected at 0.2%, personal income imploded by 3.6% on estimates of a modest 2.4% drop. This was the biggest drop in personal income in 20 years just as the US consumer's confidence was soaring at least according to such manipulated aggregators as UMich. What this also led to was that not only is the stock market back to 2007 levels, but so is the personal saving rate, which crashed from 6.4% to 2.4%, the lowest since November 2007, and leaving Americans with the least purchasing power just as the full impact of a government that is flirting with austerity is starting to be felt. And just as bad was the material 4% pullback in real disposable personal income or adjusted for inflation.




"Consumers can’t spend what they don’t have, and they don’t much much,” summarized Bloomberg economist Rich Yamarone.

Just don't tell the TV talking heads on financial comedy TV for whom the only thing that matters is how high two algos can chase the hot potato known as the Dow Jones Industrial Average.

Income dropping, prices of things skyrocketing. What could go wrong?

[American Patriot]

Income dropping, prices of things skyrocketing. What could go wrong?

Fortunately, there's plenty of sheep out there for the wolves to eat....

[Ryan Ruck]

Well, the Obama economy strikes my company again.

This time we've actually had some layoffs at the field level.

Only one on my team and it was someone who pretty much everyone considered "dead weight".

Also, my manager is eliminating just about all overtime. I don't think this is a company-wide edict. This is effectively a pay cut for a number of people including myself who have relied on overtime for years as an augment to our pay. Oh well, nothing I can do about it except cut down on possible "unnecessary" expenses...

[Phil Fiord]

My company has been under an enforced no unapproved overtime policy since 2007. In our case we have seen an increase in business and had further cuts to hours, as in after attrition, hire maybe one for every two lost. It makes one like me who knows how to do most functions rather upset as simply knowing how to do it all does not mean I should do it all.

[American Patriot]

Sorry to hear this Ryan.

I've had a lot of trepidation about spending some of our money on this "house upgrade" but I figured it was time to do or not do....

I'll regret it badly if I lose my job here.... but I'll simply sell the house for a little less and as quickly as possible to get out of here

[Ryan Ruck]

20 Signs That The U.S. Economy Is Heading For Big Trouble In The Months Ahead

February 20, 2013

Is the U.S. economy about to experience a major downturn? Unfortunately, there are a whole bunch of signs that economic activity in the United States is really slowing down right now. Freight volumes and freight expenditures are way down, consumer confidence has declined sharply, major retail chains all over America are closing hundreds of stores, and the "sequester" threatens to give the American people their first significant opportunity to experience what "austerity" tastes like. Gas prices are going up rapidly, corporate insiders are dumping massive amounts of stock and there are high profile corporate bankruptcies in the news almost every single day now. In many ways, what we are going through right now feels very similar to 2008 before the crash happened. Back then the warning signs of economic trouble were very obvious, but our politicians and the mainstream media insisted that everything was just fine, and the stock market was very much detached from reality. When the stock market did finally catch up with reality, it happened very, very rapidly. Sadly, most people do not appear to have learned any lessons from the crisis of 2008. Americans continue to rack up staggering amounts of debt, and Wall Street is more reckless than ever. As a society, we seem to have concluded that 2008 was just a temporary malfunction rather than an indication that our entire system was fundamentally flawed. In the end, we will pay a great price for our overconfidence and our recklessness.

So what will the rest of 2013 bring?

Hopefully the economy will remain stable for as long as possible, but right now things do not look particularly promising.


The following are 20 signs that the U.S. economy is heading for big trouble in the months ahead...


#1 Freight shipment volumes have hit their lowest level in two years, and freight expenditures have gone negative for the first time since the last recession.


#2 The average price of a gallon of gasoline has risen by more than 50 cents over the past two months. This is making things tougher on our economy, because nearly every form of economic activity involves moving people or goods around.


#3 Reader's Digest, once one of the most popular magazines in the world, has filed for bankruptcy.


#4 Atlantic City's newest casino, Revel, has just filed for bankruptcy. It had been hoped that Revel would help lead a turnaround for Atlantic City.


#5 A state-appointed review board has determined that there is "no satisfactory plan" to solve Detroit's financial emergency, and many believe that bankruptcy is imminent. If Detroit does declare bankruptcy, it will be the largest municipal bankruptcy in U.S. history.


#6 David Gallagher, the CEO of Town Sports International, recently said that his company is struggling right now because consumers simply do not have as much disposable income anymore...

"As we moved into January membership trends were tracking to expectations in the first half of the month, but fell off track and did not meet our expectations in the second half of the month. We believe the driver of this was the rapid decline in consumer sentiment that has been reported and is connected to the reduction in net pay consumers earn given the changes in tax rates that went into effect in January."

#7 According to the Conference Board, consumer confidence in the U.S. has hit its lowest level in more than a year.

#8 Sales of the Apple iPhone have been slower than projected, and as a result Chinese manufacturing giant FoxConn has instituted a hiring freeze. The following is from a CNET report that was posted on Wednesday...

The Financial Times noted that it was the first time since a 2009 downturn that the company opted to halt hiring in all of its facilities across the country. The publication talked to multiple recruiters.

The actions taken by Foxconn fuel the concern over the perceived weakened demand for the iPhone 5 and slumping sentiment around Apple in general, with production activity a leading indicator of interest in the product.

#9 In 2012, global cell phone sales posted their first decline since the end of the last recession.

#10 We appear to be in the midst of a "retail apocalypse". It is being projected that Sears, J.C. Penney, Best Buy and RadioShack will also close hundreds of stores by the end of 2013.


#11 An internal memo authored by a Wal-Mart executive that was recently leaked to the press said that February sales were a "total disaster" and that the beginning of February was the "worst start to a month I have seen in my ~7 years with the company."


#12 If Congress does not do anything and "sequestration" goes into effect on March 1st, the Pentagon says that approximately 800,000 civilian employees will be facing mandatory furloughs.


#13 Barack Obama is admitting that the "sequester" could have a crippling impact on the U.S. economy. The following is from a recent CNBC article...

Obama cautioned that if the $85 billion in immediate cuts -- known as the sequester -- occur, the full range of government would feel the effects. Among those he listed: furloughed FBI agents, reductions in spending for communities to pay police and fire personnel and teachers, and decreased ability to respond to threats around the world.

He said the consequences would be felt across the economy.

"People will lose their jobs," he said. "The unemployment rate might tick up again."

#14 If the "sequester" is allowed to go into effect, the CBO is projecting that it will cause U.S. GDP growth to go down by at least 0.6 percent and that it will "reduce job growth by 750,000 jobs".

#15 According to a recent Gallup survey, 65 percent of all Americans believe that 2013 will be a year of "economic difficulty", and 50 percent of all Americans believe that the "best days" of America are now in the past.


#16 U.S. GDP actually contracted at an annual rate of 0.1 percent during the fourth quarter of 2012. This was the first GDP contraction that the official numbers have shown in more than three years.


#17 For the entire year of 2012, U.S. GDP growth was only about 1.5 percent. According to Art Cashin, every time GDP growth has fallen this low for an entire year, the U.S. economy has always ended up going into a recession.


#18 The global economy overall is really starting to slow down...

The world's richest countries saw their economies contract for the first time in almost four years during the final three months of 2012, the Organisation for Economic Co-operation and Development said.

The Paris-based thinktank said gross domestic product across its 34 member states fell by 0.2% – breaking a period of rising activity stretching back to a 2.3% slump in output in the first quarter of 2009.

All the major economies of the OECD – the US, Japan, Germany, France, Italy and the UK – have already reported falls in output at the end of 2012, with the thinktank noting that the steepest declines had been seen in the European Union, where GDP fell by 0.5%. Canada is the only member of the G7 currently on course to register an increase in national output.

#19 Corporate insiders are dumping enormous amounts of stock right now. Do they know something that we don't?

#20 Even some of the biggest names on Wall Street are warning that we are heading for an economic collapse. For example, Seth Klarman, one of the most respected investors on Wall Street, said in his year-end letter that the collapse of the U.S. financial system could happen at any time...

"Investing today may well be harder than it has been at any time in our three decades of existence," writes Seth Klarman in his year-end letter. The Fed's "relentless interventions and manipulations" have left few purchase targets for Baupost, he laments. "(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors."

[Ryan Ruck]

New Cars Increasingly Out of Reach for Many Americans

February 27, 2013

Looking to buy a new car, truck or crossover? You may find it more difficult to stretch the household budget than you expected, according to a new study that finds median-income families in only one major U.S. city actually can afford the typical new vehicle.

The typical new vehicle is now more expensive than ever, averaging $30,500 in 2012, according to TrueCar.com data, and heading up again as makers curb the incentives that helped make their products more affordable during the recession when they were desperate for sales.

According to the 2013 Car Affordability Study by Interest.com, only in Washington could the typical household swing the payments, the median income there running $86,680 a year. At the other extreme, Tampa, Fla., was at the bottom of the 25 large cities included in the study, with a median household income of $43,832.

The study looked at a variety of household expenses, such as food and housing, and when it comes to purchasing a new vehicle, it considered more than just the basic purchase price, down payment and monthly note, factoring in such essentials as taxes and insurance.

Bottom line? A buyer in the capital can purchase a car with a sticker price of $31,940, slightly more than the new vehicle average for the 2013 model year and about what it would cost for a mid-range Ford Fusion sedan or a stripped-down BMW X1 crossover. The buyer in Tampa? They'll just barely cover the cost of a basic Kia Rio, with $14,516 to spend.

"If you live in New York City or San Francisco, you're probably going to have to pay a lot for housing, but you don't have to pay a lot for a car," said Mike Sante, the managing editor of Interest.com, a financial decision-making website.

Affordability has been a matter of growing concern for the auto industry in recent years as prices have continued to move upward. Even the most basic of today's cars are generally loaded with features that were once found on high-line models a few decades back - if they were available at all - such as air conditioning, power windows, airbags and electronic stability control, as well as digital infotainment systems. They also have to meet ever tougher federal safety, emissions and mileage standards that have added thousands to the typical price tag.

"The average compact car of today has the features of a midsize model somebody might be trading in - but it may be just as expensive," said David Sargent, director of automotive operations for J.D. Power and Associates.

That is one reason why many buyers have been downsizing in recent years, said Bill Fay, general manager of Toyota, though he added that "there is still a lot of affordability in the marketplace."

Perhaps, but industry planners have come to recognize that they are targeting a much smaller segment of the American public than in decades past. That's one reason why most manufacturers are offering more downsized models.

They also are working with their dealers to offer certified pre-owned programs where buyers can stretch their budget by purchasing a two- or three-year-old vehicle that has gone through an extensive inspection and, if necessary, repairs and replacements. Such vehicles may cost slightly more than a conventional used model but usually include a like-new warranty.

While the typical new vehicle will likely nudge up this year, Interest.com editor Sante stressed that car costs are one of the most controllable parts of a household's budget. "You're better off driving something more affordable and saving or investing the difference."

If the typical new car costs $30,550, with an average monthly payment of $550, the five cities most able to meet - or come close - are:

1) Washington

Average Household Income: $86,680
Affordable Purchase Price: $31,940
Maximum monthly payment: $628

2) San Francisco

Average Household Income: $71,975
Affordable Purchase Price: $26,786
Maximum monthly payment: $537

3) Boston

Average Household Income: $69.455
Affordable Purchase Price: $26,025
Maximum monthly payment: $507

4) Baltimore

Average Household Income: $65,463
Affordable Purchase Price: $24,079
Maximum monthly payment: $468

5) Minneapolis

Average Household Income: $63,352
Affordable Purchase Price: $24,042
Maximum monthly payment: $470

At the other end of the scale, those five cities least able to handle a car payment are:

21) Phoenix

Average Household Income: $50,058
Affordable Purchase Price: $17,243
Maximum monthly payment: $348

22) San Antonio

Average Household Income: $48,699
Affordable Purchase Price: $17,137
Maximum monthly payment: $334

23) Detroit

Average Household Income: $48,968
Affordable Purchase Price: $17,093
Maximum monthly payment: $332

24) Miami

Average Household Income: $45,407
Affordable Purchase Price: $15,188
Maximum monthly payment: $295

25) Tampa

Average Household Income: $43,832
Affordable Purchase Price: $14,516
Maximum monthly payment: $282

Also probably doesn't help all the mandated equipment manufacturers are being forced to add which adds to the cost of the car.

[Ryan Ruck]

U.S. Durable-Goods Orders Fall 5.2% In January

February 27, 2013

Bookings for big-ticket U.S. goods slumped in January because of weaker demand for aircraft, but orders were generally strong elsewhere in the economy and suggested that business investment is picking up.

Orders for durable goods sank 5.2% last month, the Commerce Department said Wednesday, largely in line with Wall Street expectations.

Orders for Boeing Co. jets soared in December but were virtually nil in January, reflecting the volatile nature of the aircraft business. Commercial aircraft orders plunged 34% while motor-vehicle bookings were flat.

Bookings for defense aircraft tumbled an even steeper 64%, indicating the military may have placed fewer orders in anticipation of automatic federal spending cuts set to take effect on March 1.

Yet orders for durable goods minus transportation rose 1.9% — the biggest increase in more than a year — and advanced for the fifth straight month.

That’s the longest string of gains in seven years, signaling that manufacturers continue to benefit from a slowly mending global economy, higher sales to American consumers and a pickup in business investment in the U.S.

“This was a really strong report as it indicates that businesses felt confident enough to order a ton of big ticket items in January,” said Joel Naroff of Naroff Economic Advisors.

In Wednesday trades, U.S. stocks moved modestly higher.

Durable goods are products designed to last at least three years. Orders for these items are a critical component of U.S. growth since rising sales of autos, computers, furniture and similar items signal an improving economy.

The increase in orders outside of transportation stemmed largely from a 13.5% surge in bookings for machinery. Companies usually buy more machinery when they invest and expand in anticipation of higher orders.

Yet orders fell 5.3% for computers and electronic products.

Orders for core capital goods, a key barometer of private-sector business investment, jumped 6.3% to mark the largest rise in more than two years.

Economists say investment may have clicked into a higher gear in January because of the end of the “fiscal cliff” budget battle in Washington. Many businesses, worried the political stalemate might threaten the economy, may have delayed some spending until after the dispute was resolved.

It’s unclear, though, if businesses will continue to invest at such a rapid clip. Core capital goods have increased by a sizzling 32% annual pace over the past three months, a number that can’t be sustained. The looming federal spending cuts required by the so-called sequester could also throw a wrench into business-investment plans.

Shipments of core capital goods, a category used to calculate quarterly economic growth, dipped 1.0% in January. These shipments tend to fall in the first month of a quarter and rise thereafter, however.

As a result, most economists are sticking with their forecast for about 2% U.S. growth in the first quarter.

Overall shipments fell 1.2%.

Orders for December, meanwhile, were cut to a 3.7% increase from a prior reading of a 4.3% gain. Overall bookings in December were inflated by airline orders. Boeing received orders for almost 190 jets in the last month of 2012 vs. less than a handful in January.

[Ryan Ruck]

Nouriel Roubini: Brace for Market Correction Later This Year

March 8, 2013

Tax increases on wealthy Americans and reduced government spending will have a severe impact on economic growth in the United States this year, wiping out the positive effects of a revival in the housing market and cheaper energy, Nouriel Roubini told CNBC on Friday.

His comments come as investors eye the release of non farm payrolls data in the U.S for further clues on the health of the economy.

Speaking at the 2013 Ambrosetti Workshop, Roubini - the co-founder and chairman of Roubini Global Economics dubbed Dr Doom for his pessimistic forecasts - warned that despite some positive indicators for growth, a number of key issues would hold it back.

"These taxes, taxes for the rich are going to significantly reduce disposable income and retail sales have been a disaster. And there are already signals of consumption growth slowing down as well as the sequester and the fiscal drag this year will be 1.5 percent of GDP (gross domestic product) for an economy that was barely growing last year," he said.

The sequester refers to a series of spending cuts and tax increases which began to take effect last Friday aimed at reducing the budget deficit.

Despite encouraging signs of a renewed housing market, a revolution in shale gas which could result in cheaper energy and the effects of quantitative easing QE), U.S.growth would be "1.5 percent at best this year," Roubini said.

"Even without U.S politics [there would be a drag]. We've stolen growth from the future and now there needs to be payback for the mistakes made in the past.[The U.S.] needs to start some austerity," Roubini said.

Barclays revised its GDP forecast for the U.S. lower on Friday to incorporate the effect of the spending cuts. It now sees 1.5 percent growth in the second quarter of 2012 from a previous forecast of 2 percent. For the third and fourth quarter of 2013 it revised its forecast from 2.5 percent growth to 2 percent.

Roubini agreed that while equity markets were a positive, investors should brace for a shock in the latter half of the year as revenue begins to disappoint.

"It's positive because of the direct wealth effect and a signal that things might be improving but of course sometimes the stock market gives the wrong signal and I think the markets will be surprised by how much the U.S. will slow down even compared to last year and the second half of the year. The U.S. stock market could correct somehow," he said.

Jim O'Neill, the chairman of Goldman Sachs Asset Management, disagreed with Roubini's gloom over the U.S. economic recovery and his view of the equity markets.

"If we get further follow-through (on the U.S. non-farm payrolls on Friday) I can see people starting to get really excited about the cyclical momentum of the U.S. economy," he said.

"As chaotic as Washington seems, the way they're tightening fiscal policy is better than in Europe…Slowly but surely, the U.S. fiscal picture is improving. Here in Europe and the U.K., they're focusing too much on austerity," he said.

O'Neill, who is also attending the Ambrosetti Forum in Italy, said that the momentum in the U.S. equity market was solid.

"We have come a long way. I'm generally in the bullish camp so nothing happens in a straight line, the momentum behind the U.S. numbers is good. It's pretty interesting despite the so-called fiscal drag," O'Neill said. "Valuation wise, the U.S. market is nothing like as attractive as it was but the momentum from the numbers is there so what's going to cause it to top?"

Roubini also warned that the power of QE was now "becoming ineffective."

"The net wealth of the household has increased in the last quarter and it boosts confidence but it has less effect on the real economy. If you take away QE too fast there could be a significant back up in long rates and that would kill the recovery," he said.

Thursday saw the Dow reach new record highs after stocks finished higher for the third day in a row, up by 33.25 points to 14,329.49 largely on the back of an expected boost from nonfarm payrolls data later Friday.

Recent sessions have also seen the dollar continue to rise against other key currencies – it reached a 3-1/2 year high against the yen earlier Friday – as positive sentiment on the U.S. economy continues. Roubini added that its upward trajectory could still have some momentum left as other global currencies,sterling, the euro weaken in comparison and it's seen as a safety trade.

"As other countries continue aggressive QE and suffer from broader economic weakness (that implies) that the dollar can have some upside risk in a situation where the other currencies whether it's the yen, the British pound or the euro may be weakening," he added.

[Ryan Ruck]

Headwind to Housing Recovery? Foreclosures Flare-Up Again

March 14, 2013

Banks are repossessing fewer homes, in fact the fewest since March of 2007, but in some states that may be about to change, according to a new report from RealtyTrac, an online foreclosure data and sale firm.

Bank repossessions, the final stage of the foreclosure process are down 29 percent from a year ago, but foreclosure starts, which are the first stage of the process, jumped 10 percent in February from the previous month. This after falling for three consecutive months.

"At a high level the U.S. foreclosure inferno has been effectively contained and should be reduced to a slow burn in the next two years," said Daren Blomquist, vice president at RealtyTrac. "But dangerous foreclosure flare-ups are still popping up in states where foreclosures have been delayed by a lengthy court process or by new legislation making it more difficult to foreclose outside of the court system. Foreclosure starts have been steadily building in those states over the last several months and likely will end up as bank repossessions or short sales later this year."

In hard hit Nevada, where a new state law criminalizing faulty foreclosures went into effect last year, foreclosures basically ground to a halt. In February, however, they hit a 17-month high, up 334 percent from a year ago, according to RealtyTrac, which means banks will inevitably repossess thousands more properties in the near future.

This as home builders in Las Vegas are ramping up construction, due to historically low supplies of homes for sale. That supply is about to change.

The jump in new foreclosures is not just in the formerly hardest hit states either. Foreclosure starts jumped 319 percent in Maryland from a year ago, 172 percent in Washington, 139 percent in New York, and 70 percent in New Jersey. All of these states have large backlogs of delinquent mortgages due to new state laws governing foreclosures and/or the fact that they require a judge in the process.

"The strongest correlation we see is that states with the biggest jumps in foreclosure starts are states with some of the most pro-active foreclosure prevention legislation over the past few years. We believe that resulted in a short-term drop in foreclosure activity but is now resulting in a backlash of delayed foreclosures," says Blomquist.

In California, foreclosures slowed dramatically last year due to a new law designed to protect homeowners, the California Homeowner Bill of Rights, and due to the $25 billion National Mortgage Settlement with mortgage servicers over so-called "robo-signing" foreclosure paperwork fraud. In February, new foreclosure starts jumped 41 percent, the first gain since July of 2012.

While the percentage jump is large, in a twist, some argue the foreclosure delays still persist and are hurting the recovery.

"While policy makers state that the purpose of government intervention is to help homeowners by delaying foreclosures, instead they have created an artificial shortage in bank-owned inventory (REO). The combination of the decline in REO inventory and lack of motivated sellers has left the California real estate market with an acute lack of inventory, which is putting upward pressure on prices," say analysts at ForeclosureRadar.

While price gains help recovery, if they happen too fast, they price would-be buyers and investors out of the market, which slows sales again. Price recovery has many believing that housing is suddenly not just back on its feet again, but surging ahead—much of the price recovery is based on lack of inventory of homes for sale, which in turn is due to foreclosure delays, which as we now see, can turn very quickly.

[Ryan Ruck]

US Restaurant Spending "Pretty Ugly" In February

March 20, 2013

February marks the first three-months of consecutive declines in restaurant sales in almost three years as Bloomberg reports consumers caught in "an emotional moment" spooked by higher payroll taxes, surging healthcare premia, and spiking energy costs. "February was pretty ugly" for many chains after January delivered an initial blow."

Malcolm Knapp notes that "it's important to keep in mind that companies also are facing unusually tough comparable sales because of favorable weather in 2012," so the result is an industry that’s been "a lot softer so far this year."

It will hardly be a surprise to ZH readers but it appears that gas prices are key as Knapp notes, "that one-week spike was a killer; it destroyed sales in the first week of February," and has overall put "meaningful pressure on the discretionary purchasing power," of restaurants' (like Darden) customers.

"People are acting fearfully, or you could almost say rationally in a way,” because it’s not surprising they change their dining habits when they feel less confident as once again it's the middle class that appears under pressure. Casual dining is "definitely being squeezed" because "it's not food on-the-go and it's not high-end food for people trying to treat themselves."




Via Bloomberg,

Restaurants are reeling from their worst three months since 2010, as American diners spooked by higher payroll taxes cut back on eating out.

Sales at casual-dining establishments fell 5.4 percent last month, after declining 0.6 percent in January and 1.6 percent in December, according to the Knapp-Track Index of monthly restaurant sales. This was the first three months of consecutive declines in almost three years, with consumers caught in a “very emotional moment,” said Malcolm Knapp, a New York-based consultant who created the index and has monitored the industry since 1970.

“February was pretty ugly” for many chains -- and probably will be the worst month of the year -- after January delivered an “initial blow” while Americans grappled with increased payroll taxes and health-care premiums, rising gasoline prices and budget debates in Washington, Knapp said. “It’s important to keep in mind that companies also are facing unusually tough comparable sales because of favorable weather in 2012,” so the result is an industry that’s been “a lot softer so far this year.”

...

U.S. paychecks have shrunk this year after Congress and President Barack Obama let the tax that funds Social Security benefits revert to 6.2 percent from 4.2 percent. Meanwhile, the average price of a gallon of regular unleaded has risen about 12 percent since Dec. 31, to $3.69, including a one-week jump of 17 cents between Jan. 27 and Feb. 3, based on data from Heathrow, Florida-based AAA, the largest U.S. motoring organization.

“That one-week spike was a killer; it destroyed sales in the first week of February,” Knapp said.

All this has “put meaningful pressure on the discretionary purchasing power” of Darden’s customers, causing the company to pre-announce a decline in same-restaurant sales...

...

Consumers and industry contacts in surveys conducted this month by RBC Capital Markets said higher payroll taxes have been the biggest impediment to sales this year, hurting business for about 63 percent of companies, up from 36 percent last month. Meanwhile, 54 percent of Americans said they already cut back on dining out or intend to do so, the No. 1 reduced expense, followed by clothing and vacations.

“People are acting fearfully, or you could almost say rationally in a way,” because it’s not surprising they change their dining habits when they feel less confident, said Larry Miller, an analyst in Atlanta with RBC. The difference of five guests a day could move a restaurant’s traffic counts by 1 percentage point because the business is “very sensitive to marginal changes.”

...

Casual dining is “definitely being squeezed” because “it’s not food on-the-go and it’s not high-end food for people trying to treat themselves,” said Matthew Beesley...

“It seems to me Darden is caught between those two buckets of expenditures,” Beesley said. A sit-down meal away from home is “extremely discretionary,” while there’s also an excess of supply.

...

Although casual-dining sales took the biggest hit in February -- down 4.9 percent -- the weakness was broader, according to “channel checks” conducted by RBC. ...

The environment still is “very, very tough” for Yum! Brands, operator of Taco Bell and KFC, said Chief Executive Officer David Novak. The Louisville, Kentucky-based company is bracing for “a tentative consumer, a tentative economy,” which probably will lead to a difficult year, ...

...

In addition, Americans aren’t cutting back equally on where they eat out. Sales have varied based on the type of food offered, with steakhouses showing more strength, Miller and Knapp agreed.

This is interesting because a trend I've noticed in the last several years is that almost every night of the week, sit-down chain restaurants (e.g. Olive Garden, Outback, etc.) are busy. Not sure what the reason for this is except perhaps ignorance of people in cooking.

[Malsua]

Every time I look at cars, I get sticker shock. Every time I buy a car, I get a great deal. Buying the previous year's model that's still on the lot will save you a bundle.

[Ryan Ruck]

Cyprus Bail-Out: Savers Will Be Raided To Save Euro In Future Crises, Says Eurozone Chief

Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe's single currency by propping up failing banks, a senior eurozone official has announced.

March 26, 2013




The new policy will alarm hundreds of thousands of British expatriates who live and have transferred their savings, proceeds from house sales and other assets to eurozone bank accounts in countries such as France, Spain and Italy.

The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the eurozone, told the FT and Reuters that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.

"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'," he said.

"If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders."

Ditching a three-year-old policy of protecting senior bondholders and large depositors, over €100,000, in banks, Mr Dijsselbloem argued that the lack of market contagion surrounding Cyprus showed that private investors could now be hit to pay for bad banking debts.

"If we want to have a healthy, sound financial sector, the only way is to say, 'Look, there where you take on the risks, you must deal with them, and if you can't deal with them, then you shouldn't have taken them on,'" he said.

"The consequences may be that it's the end of story, and that is an approach that I think, now that we are out of the heat of the crisis, we should take."

The announcement is highly significant as it signals the mothballing of the euro's €700bn bailout fund, the European Stability Mechanism (ESM), which Spain and Ireland wants to be used to recapitalise their troubled banks.

"We should aim at a situation where we will never need to even consider direct recapitalisation," he said.

"If we have even more instruments in terms of bail-in and how far we can go on bail-in, the need for direct recap will become smaller and smaller."

The eurozone had been planning to roll out the ESM as a "big bazooka" in mid-2014 that could help save banks and prevent financial turmoil in countries such Spain or Italy, a development that has been delayed by German resistance.

Mr Dijesselbloem's comments will alarm countries like Ireland and Spain that had been hoping to access the ESM in order to restructure banks without killing off their financial sector by inflicting huge losses on investors.

"I think the approach needs to be, let's deal with the banks within the banks first, before looking at public money or any other instrument coming from the public side," he said.

"Banks should basically be able to save themselves, or at least restructure or recapitalise themselves as far as possible."

In a note published on Monday following the Cyprus bailout deal, Barclays warned that "the decision to bail in senior bank debt and large depositors will likely have a price impact on equity and credit instruments of those euro area banks that are perceived as the weakest".

Mr Dijsselbloem acknowledged that "there is still nervousness" but claimed that any jitters on financial markets caused by the new approach would be a good thing because it would raise the cost of borrowing for unsound banks, an argument unlikely to win friend in Madrid or Rome.

"If I finance a bank and I know if the bank will get in trouble, I will be hit and I will lose money, I will put a price on that," he said.

"I think it is a sound economic principle. And having cheap money because the risk will be covered by the government, and I will always get my money back, is not leading to the right decisions in the financial sector."

Last night, the Dutch finance minister tried to row back from his comments by insisting that "Cyprus is a specific case".

"Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used," he said.

Cypriot President Nicos Anastasiades admitted the eurozone bailout deal he struck in Brussels on Monday was painful but said Cyprus could now make a fresh start after having come a "breath away" from collapse. He also said there would be a criminal investigation into the crisis.

Banks in Cyprus will remain closed until Thursday, the nation's central bank announced. It had said earlier that banks would reopen today after a week-long shutdown, except for Laiki and Bank of Cyprus.

[Ryan Ruck]

Britain's Credit Rating Downgraded From AAA To Aa1

The Government’s economic strategy has been dealt a serious blow after a leading credit ratings agency downgraded UK debt on its expectation that growth will "remain sluggish over the next few years"

February 22, 2013

Moody’s announced on Friday night that it had cut the Government’s bond rating one notch from ‘Aaa’ – the highest possible level – to ‘Aa1’.

The move is a significant setback for Chancellor George Osborne, who has faced criticism that his strategy for dealing with UK’s huge debt burden is failing to deliver.

Moody’s pointed to “continuing weakness in the UK’s medium-term growth outlook, with a period of sluggish growth which [it] now expects will extend into the second half of the decade”.

The credit ratings agency also noted that the Government's debt reduction programme faced significant "challenges" and that the UK's huge debts are unlikely to "reverse before 2016".

Moody’s said that despite considerable structural economic strengths, growth is expected to be sluggish due to a combination of weaker global economic activity and the drag on the UK economy “from the ongoing domestic public- and private-sector deleveraging process.”

However, Moody’s, which is the first ratings agency to lower the UK from the highest rating, said the outlook on UK debt is stable.

Mr Osborne responded to the downgrade by insisting he would not change course on the Government’s austerity programme.

He called Moody’s decision a “stark reminder of the debt problems facing our country – and the clearest possible warning to anyone who thinks we can run away from dealing with those problems”.

“Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it.”

“We will go on delivering the plan that has cut the deficit by a quarter, and given us record low interest rates and record numbersof jobs."

He also took comfort that Moody’s noted that “the UK’s creditworthiness remains extremely high” thanks in part to a “strong track record of fiscal consolidation”.

Mr Osborne added: “[Moody’s] also make it absolutely clear that they could downgrade the UK’s credit rating further in the event of ‘reduced political commitment to fiscal consolidation’.

“We are not going to run away from our problems, we are going to overcome them.”

In his Autumn Statement in December, Mr Osborne admitted public finances were taking longer to address than he had hoped, adding that he would be forced to extend austerity measures by at least another year.

All three major credit agencies last year put the UK on "negative outlook", meaning they could downgrade its rating if performance deteriorates.

[Ryan Ruck]

Abercrombie To Close Up To 50 US Stores

February 22, 2013

Abercrombie & Fitch said it would close 40 to 50 stores in the US this year as the youth fashion retailer’s shares tumbled following weak sales in the crucial Christmas quarter.

Like-for-like sales fell 1 per cent at Abercrombie & Fitch’s US stores in the three months to February 2, extending previous declines in an intensely competitive sector where its rivals include American Eagle, Aéropostale and Forever 21.

The Ohio-based retailer, known for its thumping in-store music and scantily clad male door staff, said direct sales to US consumers, which include its ecommerce unit, rose 5 per cent, although they remain a small part of its business.

In an attempt to offset slower US growth, Abercrombie, which operates namesake stores as well as surf-themed Hollister and Abercrombie Kids, has made a big push overseas and online.

But its international segment performed even more poorly than the domestic stores, with like-for-like sales down 14 per cent.

“The earnings report was just one big giant pool of negativity,” said Brian Sozzi, chief equities analyst at NBG Productions. “Sales did not meet expectations, particularly in its international segment, and the company offered cautious comments on its first-quarter outlook. This is just something the market did not want to hear.”

“Also the company is looking to take prices up. The reason why Abercrombie had done better in recent months was because they had become more competitive on prices, so this is a big concern,” he added.

Despite lower than expected sales, Abercrombie’s net profits of $157m were well ahead of $46m a year ago, beating expectations thanks to lower cotton costs and less drastic clearance discounts than it had offered in the previous year.

But its latest quarterly profits were overshadowed by Abercrombie’s earnings guidance for the current financial year. It said it expected earnings per share to increase by 15 to 19 per cent, less than Wall Street forecasts for a 21 per cent rise. The group’s shares slid 7.2 per cent to $45.54 by early afternoon in New York.

“Our profitability is not where it needs to be,” said Mike Jeffries, chief executive, on an earnings call with analysts, highlighting “a challenging US retail environment over the holiday period.”

The announcement that Abercrombie would close 40 to 50 of its 900-plus US stores – primarily by allowing leases to expire – comes as analysts say that US retailers have more stores than they need in a weak economy where ecommerce continues to grow.

“It is unknown how the customer will respond to the economic situation,” said Oliver Chen, analyst at Citi Investment Research. “The impact of the payroll tax, elevated gas prices and continued macroeconomic uncertainty all led to weaker guidance.”

Sales in its direct-to-consumer business rose 52 per cent while total group sales increased 11 per cent to $1.5bn.

Its gross margin widened to 63.4 per cent from 59.5 per cent.

The company raised its quarterly dividend from 17.5 to 20 cents a share.

[Ryan Ruck]

Student-Loan Delinquencies Among the Young Soar

February 28, 2013

The number of young borrowers who have fallen behind on their student loan payments has soared over the past four years, the Federal Reserve Bank of New York said in a report released Thursday.

According to the report, 35% of people under 30 who have student loans were at least 90 days late on their payments at the end of last year, up from 26% in 2008 and 21% at the end of 2004.

The new figures, which exclude borrowers who are still in school or aren't yet required to make payments, show that young Americans are having a tougher time repaying college loans as debt loads increase and job prospects remain shaky.

Amplifying the burden: a growing number of young adults have become student borrowers. All told, 43% of 25-year-olds had student debt in the fourth quarter of 2012, up from about 33% in the fourth quarter of 2008.

Concerns about higher debt loads and rising delinquencies are leading government officials and families to focus more on the payoff from a college degree. Meanwhile, colleges and universities are facing increased pressure to limit tuition increases. Some are even freezing or cutting their charges.

The high delinquency rate is very worrisome, said Wilbert van der Klaauw, an economist with the New York Fed, noting that higher education has traditionally produced a sizable financial payoff. "We hope the returns to these educational investments are going to be there" as the labor market rebounds, he added.

The amount of U.S. student-loan debt increased 11% last year to $966 billion and is up 51% since 2008, according to the report. Student-loan debt climbed even as other types of borrowing fell.

While 40% of student-loan borrowers owe less than $10,000, a growing number have higher loan balances. Nearly 47% of borrowers owe between $10,000 and $50,000, up from 38% in the fourth quarter of 2005. The share of borrowers with balances of $100,000 or more has also jumped, to 3.7% from 1.7% during this period.

Student-loan borrowers of all ages are struggling to make their payments, according to the Fed report. Overall, the portion of borrowers who are 90 days or more past due climbed to 31% in 2012 from 24% in 2008. Delinquency rates were highest for borrowers under 30, with 35% of them 90 days or more past due last year, up from 21% in 2004.

The New York Fed's numbers exclude the roughly 44% of borrowers who don't have to make loan payments, typically because they are still in school or have been granted a loan deferral or forbearance. The share of all borrowers who are 90 days or more past due climbed to 18% in the fourth quarter from 10% at the end of 2004, according to the report.

The amount of other types of consumer debt held by borrowers ages 25 to 30 tumbled between 2005 and 2012 even as student loan balances have increased. The reduction in other types of debt was greatest for borrowers with $100,000 or more in student loan debt, a group that includes many borrowers with advanced degrees.

Borrowers who are behind on their student loan debts are far more likely to also be late on auto-loan, credit-card and mortgage payments, according to the report.

[Ryan Ruck]

Consumer Confidence in U.S. Decreases More Than Forecast

March 26, 2013

Confidence among U.S. consumers fell more than forecast in March as Washington’s budget battle soured Americans’ views of the economic outlook.

The Conference Board’s index declined to 59.7 from a revised three-month high of 68 in February, data from the New York-based private research group showed today. Economists surveyed by Bloomberg projected the March measure would fall to 67.5.

“This is really quite a big hit,” said Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors Inc. in White Plains, New York, who projected a reading of 63. “The longer confidence stays down and the further it falls, the more chance that it will be reflected in weaker spending.”

Concern mounted that sweeping cuts in planned government spending may hinder the expansion and limit recent progress in the labor market. At the same time, a rally in stocks and a housing rebound that’s helping shore up household balance sheets may help keep consumer purchases, which account for about 70 percent of the economy, from slumping.

Stocks held gains after the report, with the Standard & Poor’s 500 index climbing 0.6 percent to 1,560.51 at 10:34 a.m. in New York.

Economists’ Projections

Forecasts of 79 economists surveyed by Bloomberg ranged from 60 to 72. The measure averaged 53.7 in the recession that ended in June 2009.

Another report today showed home prices in 20 U.S. cities jumped in the 12 months to January by 8.1 percent, the biggest year-to-year gain since June 2006 and a sign the housing-market recovery is strengthening. The S&P/Case-Shiller index of property values climbed 1 percent from December.

The Commerce Department said sales of new homes in February capped the best back-to-back months in more than four years. Purchases of newly built homes fell 4.6 percent to a 411,000 annualized pace, following a 431,000 rate in the prior month.

The Conference Board’s gauge of consumer present conditions dropped to 57.9 in March from 61.4 in February. The measure of expectations for the next six months decreased to 60.9 from 72.4.

Those expecting business conditions to improve in the next six months declined to 14.4 percent in March, the smallest share since November 2011, from 18 percent the prior month.

“The recent sequester has created uncertainty regarding the economic outlook and as a result, consumers are less confident,” said Lynn Franco, director of economic indicators at the Conference Board, said in a statement.

Jobs Outlook

The share of consumers expecting more jobs to become available in the next six months slumped to 12.3 percent in March, the worst reading since October 2011, from 16.1 percent in February.

The share of respondents who expect an increase in their income in the next six months fell to 13.7 percent from 15.8 percent the prior month.

The number of respondents who said jobs are currently plentiful fell to 9.4 percent in March from 10.1 percent.

Other measures of consumer confidence have been mixed. The Bloomberg Consumer Comfort monthly gauge of expectations improved to minus 4 in March from minus 7 in February, according to results of the Bloomberg Consumer Comfort Index. The weekly measure fell for the first time in seven weeks, to minus 33.9 from minus 31.6.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased in March to 71.8 from 77.6 the prior month, as Americans’ expectations deteriorated.

Payroll Tax

Darden Restaurants Inc. (DRI), whose brands include the Olive Garden and Red Lobster, is among companies seeing signs of a pickup in household spending after 2 percentage-point increase in the tax that funds Social Security. The levy means Americans earning $50,000 a year are taking home about $80 less a month.

“The consumers just weren’t prepared, despite all the conversation, for the payroll tax increase, and there was a pretty rapid spike up in gasoline prices,” Clarence Otis, chairman and chief executive officer of Darden, said on a March 22 earnings call. “But March indicates that consumers have adjusted.”

A pickup in the labor market may help sustain sentiment and spending. Employers hired a net 236,000 workers last month following gains of 119,000 in January, Labor Department figures show. That helped to push the unemployment rate down to 7.7 percent, its lowest level since December 2008.

Fuel prices are also stabilizing after rising since mid- December. The price of a gallon of regular unleaded gasoline was $3.67 on March 24, down from $3.79 at the end of February, according to AAA, the largest U.S. motoring group.

[Ryan Ruck]

So this is what a recovery looks like!

Didn't hear a peep about this on the news.

US Economy Expands At 0.4 Percent Rate

The U.S. economy grew at a slightly faster but still anemic rate at the end of last year. However, there is hope that growth accelerated in early 2013 despite higher taxes and cuts in government spending.

The economy grew at an annual rate of 0.4 percent in the October-December quarter, the Commerce Department said Thursday. That was slightly better than the previous estimate of 0.1 percent growth. The revision reflected stronger business investment and export sales.

Analysts think the economy is growing at a rate of around 2.5 percent in the current January-March quarter, which ends this week.

Steady hiring has kept consumers spending this year. And a rebound in company stockpiling, further gains in housing and more business spending also likely drove faster growth in the first quarter.

The 0.4 percent growth rate for the gross domestic product, the economy's total output of goods and services, was the weakest quarterly performance in almost two years and followed a much faster 3.1 percent increase in the third quarter. The fourth quarter was hurt by the sharpest fall in defense spending in 40 years.

For all of 2012, the economy grew 2.2 percent after a 1.8 percent increase in 2011 and a 2.4 percent advance in 2010. Since the recession ended in mid-2009, the economy has been expanding at sub-par rates as a string of problems from higher gas prices to Europe's debt crisis have acted as a drag on the U.S. economy.

Growth appears to be strengthening this year even after taxes increased on Jan. 1 and automatic government spending cuts totaling $85 billion started to take effect on March 1. The Congressional Budget Office has estimated that the combination of tax increases and spending cuts could trim economic growth this year by about 1.5 percentage points. The CBO is predicting just 1.5 percent growth for 2013.

But so far, the economy is showing signs of holding its own against the fiscal drag.

Employers have added an average of 200,000 jobs a month since November. That helped lower the unemployment rate in February to 7.7 percent, a four-year low.

Economists expect similar job gains in March, in part because a measure of unemployment benefit applications fell this month to a five-year low.

Sales of previously occupied homes rose in February to the highest level in nearly three years, while builders broke ground on more houses and apartments. Annual home prices jumped in January by the most since June 2006, according to a closely watched measure.

Stock prices have surged. On Wednesday, the Standard & Poor's 500 index was within two points of its all-time high.

All of that is making consumers feel wealthier, which could lead to more spending. Consumer spending drives 70 percent of economic activity.

The Federal Reserve still thinks the economy needs aggressive measures to bolster growth. Last week it stood by its plan to keep a key short-term interest rate near zero until unemployment drops below 6.5 percent. The Fed also left unchanged its plan to keep buying $85 billion in bonds until it sees a substantial improvement in the job market.

The slowdown in business inventories trimmed 1.5 percentage point from growth in the fourth quarter and the reductions in defense spending cut another 1.3 percentage point from growth.

Consumer spending was growing at a 1.8 percent rate in the fourth quarter, slightly better than the 1.6 percent increase in the third quarter but down from last month's estimate that consumer spending was growing by 2.1 percent.

That revision was offset by upward revisions in business investment spending on structures and equipment and by stronger sales of U.S. exports.

The government first estimated two months ago that the economy had contracted at an annual rate of 0.1 percent in the fourth quarter, a decline that was erased by the revisions.

The government will release its first look at first quarter growth on April 26.

And to think, those are the official numbers. Just imagine what the real ones look like!

[Ryan Ruck]

Holy shit!

People Not In Labor Force Soar By 663,000 To 90 Million, Labor Force Participation Rate At 1979 Levels

Things just keep getting worse for the American worker, and by implication US economy, where as we have shown many times before, it pays just as well to sit back and collect disability and various welfare and entitlement checks, than to work .The best manifestation of this: the number of people not in the labor force which in March soared by a massive 663,000 to a record 90 million Americans who are no longer even looking for work. This was the biggest monthly increase in people dropping out of the labor force since January 2012, when the BLS did its census recast of the labor numbers. And even worse, the labor force participation rate plunged from an already abysmal 63.5% to 63.3% - the lowest since 1979! But at least it helped with the now painfully grotesque propaganda that the US unemployment rate is "improving."

People not in labor force:




Labor participation rate:

Some back-of-the-napkin math...

Figure about 400 million people in the US. Figure maybe 100 million people who are elderly, children, or really disabled (admittedly I don't know what this actual number is but this seems like a reasonable estimate, if someone know what the real number without the inflated disability numbers is feel free to let me know). So if we now have 90 million out of the work force, that is nearly 1/3 of the work eligible population not working.

Unreal...

[American Patriot]

wow.

I can't add to this except to say... "The Sky is FALLING!" and soon.