Consumers credit crunch changes retail picture more than Amazon

The state of the consumer can be summed up in two pieces of data that were released this week.

First, total US household debt was $12.84 trillion in the three months to June, up $552 billion from a year ago, according to the New York Federal Reserve Bank report published on Tuesday. Almost 5% of that sum or $600 billion of that debt is in default.

Secondly, the only retailers to have decent earnings this week were the off-price stores. TJ Maxx, which owns that brand along with Marshall’s and Home Goods, beat profit estimates and guided higher, while being one of the few retail chains to be opening new stores.

Target was the other bright spot for the retail sector as it also beat the Street’s revenue and profit forecasts by remodeling stores and ramping up 2-day delivery services.

The off-price retail sector is booming when you compare it to Macy’s, Nordstrom and other department stores, as consumers look to price versus brands. While Amazon’s pricing could be included in the sector, it has less to do with the department’s stores demise than the credit crunch.

A line in the Fed report sticks out to me, which said the growing number of credit cards balances maxed out “ticked up notably.” This is the canary for cash-strapped consumers, who earlier reports from the Fed said were making more credit card purchases for everyday staples like gas and groceries.

Is this a matter of convenience or is the credit card used as a bridge to pick up milk on the Wednesday before payday?

Not sure if an answer to that can be derived, but it points in an ominous direction when you take into account that real wages have been flat on an inflation basis for over a decade at the very least.

 

Advertisements

Silicon Valley’s censorship bumping up against 1st Amendment

Silicon Valley’s huge content aggregators have no Constitutional constraints to uphold the first amendment.  Unlike the early TV broadcasters, which were using the public airways, these companies are using pipes owned by themselves or other private firms.

Alphabet’s Google and YouTube as well as Twitter, Facebook, Go Daddy and Reddit can censor the content of any poster or customer for any reason they can cite.

Now given the tech sector’s left-leaning political attitudes, this power to control what appears on their platform has to be bumping up against free speech in the broadest sense.

Of course in any business, if there is a segment of the industry not being served, then there is room for a competitor to come in. However, with the size and capital of these firms cited above, profits are at a premium for any start-ups or smaller competitors.

Perhaps the pendulum is swinging too far left, due to the fact that some Democrats say Hillary Clinton’s presidential defeat can be laid at the right’s “fake news” presence on the web. I think that’s foolish in the sense that there was plenty of real news the campaign had to navigate and obvious couldn’t in the end.

I just think that for all its libertarian beginnings, the web has moved too far left for its own good. And since the trillions of dollars that have been made in the San Francisco Bay area over the years this was probably enviable.

That said, I think we need a test case on the order of “public airways” as communication moves to the digital platforms and not leave it to the individual companies to shape public opinion through what they allow or not allow to be viewed on their services.

Used auto sales are getting the hook

Here’s one job that’s sure to be hiring, but you will not see it on the Bureau of Labor Statistics employment data for August.

It’s the Repo Man.

All those subprime auto loans for eight years, 0 percent down and no credit check, were not all that secure, but then again the car makers sold the vehicle and put the risk on someone’s’ books.

Much like the housing crisis, the finance companies making these risky loans securitized the loans and sold the bonds to investors, which are creating some cracks in the $1.2 trillion market for auto financing.

Investors starving for yield are grabbing these securities with two fists. In 2009, $2.5 billion of new subprime auto bonds were sold. In 2016, $26 billion exchanged hands, according to a Wells Fargo report.

However, the glut of vehicles arriving on the back of tow trucks onto lots has accelerated leading to a 4.1% price decline on used cars in August.

Also with so many cheaper cars on the lot that are only one or two years old, new car sales are hurting. July’s sales numbers were stunning when compares to the record number of 17.5 million cars sold in 2016.

General Motors reported a 15.4% sales decline in July compared to the same period a year ago, selling 226,107 cars and trucks. Ford Motor said sales slid 7.4% last month to 199,318 vehicles. Fiat Chrysler posted a 10% decline in July, selling 161,477 vehicles.

“So, what i can I do to put you in this beauty?”

“Not much obviously. Give me that one-page loan form, I’ll sign it and pick up the car tomorrow. Maybe I’ll be back in six months to pick up a different model.”

Does sound like another recipe for disaster.

Bitcoin $2K rise is fast on “fire & fury”

On Wednesday Aug. 9th bitcoin was trading at around the $3,280 level, rising more than a $1,000 over the last two weeks.

So when President Trump “unleashed” his “fire and fury” warning to North Korea, his remark set up a fast and furious rise of another $1,000 spike to trade at $4,244 Monday morning in New York.

Strong Asian buying over the weekend with Japan taking in almost half of all bitcoin traded over the last two days and South Korea having a stronger than usual presence in the market, according to sales data.

The cryptocurrency has now risen 400-fold in 2017, and is up about 40 percent in August. Bitcoin’s market value is now around $70 billion with roughly 16.5 million of the estimated $21 million coins to be created.

There are hints that US investors are moving in with more vigor as well. US buyers were second-largest block on the coin exchanges over the weekend. Diversification out of securities with the pending gloom of Congress returning after Labor Day potentially derailing the Trump market rally is also a reason.

Yesterday’s IPOs could be tomorrow’s take out rewards

This year’s tech IPOs have had a spectacularly awful performance. Snapchat and Blue Apron just can’t get out of their own way.

Snap is down 60% from its 52 week high in early March a day after the first trade. Blue Apron is off 55% from its early July highs.

Snap has the distinction of being downgraded by Morgan Stanley, which underwrote the offering.

Both these stocks but especially Snap are suffering from the Twitter effect. The micro-blogging site came up with metrics other than revenue to show their early growth. The engagement numbers of monthly users and now daily users show how people use the service, but if you can’t bank engagement, Wall Street will let you know it’s not ok.

So Twitter is down 77% from its all-time high Nov. 2015, which may be the level Snap and Blue Apron do not wish to attain.

So how far do these stocks have to go before they get a buy-out offer from the Silicon Valley heavyweights? I’m sure Amazon may be looking at Blue Apron, while Google could see Snap as a relaunch of its failed Google+.

The template for this is Yahoo’s purchase of Tumblr or Facebook buying Instagram and basically making it the Snap for the masses.

So it’s the falling knife on these stocks, but there could be a big reward down the road.