The Day the Malls Went Silent

Posted On May 4, 2017 By Dave Gonigam

  • Fed whistles past the graveyard of American consumption
  • Stockman on how debt-choked consumers will set off a “retail apocalypse”
  • Production cut? What production cut? Oil touches 5-month low
  • An economic number so miserable, the mainstream can’t sugarcoat it
  • Pennsylvania’s socialist liquor scheme could finally bring Cuban rum to Americans
  • Clearing up confusion for newer readers

The Federal Reserve is in denial.

Yesterday the Fed wrapped up two days of meetings and issued its customary every-six-weeks policy statement. To no one’s surprise, the Fed left interest rates alone this time. Also to no one’s surprise, the Fed continued to signal the likelihood of an increase in six more weeks.

The only mystery was how the Fed would justify it in the face of the latest economic numbers — which, by and large, are weak. The Fed opted to declare the weak numbers are temporary.

The Fed seemed especially keen to squelch the notion that the mighty American consumer is withering under the load of accumulating debt — as suggested in numbers we shared here both Friday and Monday. “Household spending rose only modestly,” said the Fed statement, “but the fundamentals underpinning the continued growth of consumption remained solid.”

The mighty American consumer is “impaled on Peak Debt,” our own David Stockman begs to differ.

“Debt-encumbered American consumers are terminal. They are dropping, not shopping, because this entire so-called recovery has been wasted. That is, consumers can’t spend energetically, because there has been no significant deleveraging since the 2008 crisis.”

Indeed, American households are back in hock to the same extent they were just before the Panic of ’08…

Household debt, 1987-present

Let’s take each of those categories one by one…

  • For the first time since 2008, credit card debt recently surpassed the $1 trillion mark, according to the Fed’s own numbers. Among cardholders carrying a balance, the average balance is $9,600
  • The credit-reporting agency Experian recently said average mortgage debt nationwide is now $196,014 — up more than 6% since 2008
  • The number of Americans defaulting on their student loans leaped by 17% last year, according to the Consumer Federation of America. Default means no payment for the last nine months. At least 4.2 million borrowers are in that fix.

Oh, let’s not forget auto loans — an area where the major banks are seriously pulling in their horns.

Auto loan originations at Wells Fargo are down 29% from a year earlier… and WF is one of the biggest auto lenders. Similar numbers are showing up at other lenders, too.

Fewer loans are translating to fewer auto sales. Detroit’s Big Three reported their April sales numbers earlier this week, and they were dismal.

“The declines are mostly occurring in lending to riskier borrowers, in particular those with low credit scores, where lending had ramped up for years,” says this morning’s Wall Street Journal. The subprime auto bubble, which we spotted here in The 5 3½ years ago, is finally bursting.

Some lenders are even pulling back on higher-quality prime loans. “The auto business just isn’t as attractive right now,” Fifth Third Bancorp CEO Greg Carmichael tells the Journal. What’s more, banks are reporting higher losses on defaulted auto loans.

The tapping out of the American consumer couldn’t be happening at a worse time for U.S. retailers.

Some more numbers, courtesy of David Stockman: “Reported sales at general merchandise stores in February were no higher than they were 30 months earlier, in August 2014 — and we do mean ‘nominal’ sales. Since the CPI is up 2.8% during the last year alone, inflation-adjusted sales are actually already well into recession territory.

“More importantly, the plunge in department store sales — which comprise the anchor and driver of 70% of mall traffic — has not abated in the slightest. As of the most recent reading, the monthly sales rate was down 30% from the pre-crisis peak.

“Everywhere,” David goes on, “retailers are slashing prices, upping merchandising and promotion expenses and plowing money into renovation, upgrades and conversions to service and entertainment venues — owing to the massive collision of Amazon/e-commerce with the nation’s hopelessly overbuilt brick-and-mortar retail infrastructure.”

Ah, yes, the overbuilding: As David told us here on Monday, there’s about 50 square feet of retail space for every man, woman and child in America. That contrasts with about 10 square feet per capita in Europe.

We recall two years ago telling the story of a coffee-table book called Black Friday — a collection of striking photographs depicting malls already in a state of decay. On the cover is the husk of the Rolling Acres Mall in Akron, Ohio — which closed in 2008:

Deserted mall

Two years on, the story is reaching critical mass. It’s no longer a phenomenon in only “Rust Belt” cities like Akron. It’s going to happen nearly everywhere… and Wall Street still hasn’t caught on.

David believes the Street will get jolted by reality one week from today. While millions of investors stand to be blindsided, he says you have the chance to parlay the chaos into staggering gains of up to 29 times your initial investment.

Watch as David exposes “America’s Retail Apocalypse” when you follow this link.

Oil prices are plunging to their lowest levels since OPEC announced production cuts at the end of November.

At last check, a barrel of West Texas Intermediate has dropped another 3.5% today — only a dime above the $46 level.

The latest wave of selling started yesterday as the Energy Department released its weekly inventory numbers. The nationwide stockpile of crude fell much less than expected, while gasoline demand remains weak. (Again, a groaning consumer?)

Meanwhile, the major U.S. stock indexes are in the red, but not by much. They didn’t react much to the Fed statement yesterday… but gold did.

And the gold selling continued overnight. As we write, the bid is $1,228 — which makes for nearly a $40 drop since Monday. Once again, you can’t blame it on dollar strength; the dollar index is down half a percent, to 98.9 — on the low end of its trading range the last two weeks.

The notable economic number of the day was a monster disappointment.

Productivity — a rough measure of American workers’ hourly output — tumbled during the first quarter at the fastest pace in a year. The annualized drop was 0.6% — lower than the most pessimistic estimate among dozens of economists polled by Bloomberg.

The mainstream can’t put a happy face on this number, and Bloomberg doesn’t even try: “Weak productivity reflects lack of investment in new equipment along with lack of skills in the labor force. Weak productivity also holds down wages, and whether wages can recover from a weak March will be a major topic in tomorrow’s employment report for April.”

Not that the number will dissuade the Fed from its present rate-raising course. Again, the Fed is in denial.

This morning the trading in fed funds futures indicates a 74% probability of an increase at the next Fed meeting in June. And Jim Rickards says that’s on the mark. As a reminder, Jim believes only three things can dissuade the Fed from raising rates every three months until 2019…

  • A monthly job number below 75,000 (again, the next one’s due tomorrow)
  • A sharp decline in inflation (the drop in “core PCE” we mentioned on Monday doesn’t count)
  • A 5% or greater hiccup in the stock market.

The irony is staggering: The most socialistic state in the union — when it comes to booze, at least — might finally afford Americans access to Cuban rum again.

Despite the thaw in U.S.-Cuban relations under President Obama, most Cuban goods are still banned from import into America, including the country’s legendary rum. (Just because a 56-year embargo hasn’t toppled the Castro family yet doesn’t mean it can’t happen, y’know…)

Meanwhile, Pennsylvania sells liquor only through state-owned stores — a situation we mock from time to time here in The 5.

Now comes word that Pennsylvania’s Liquor Control Board has begun applying with the feds to import Cuban rum.

The federal wheels of bureaucracy turn slowly; it might take up to a year for an answer to come back. State Sen. Chuck McIlhinney, whose committee oversees the Liquor Control Board, is hopeful: “I don’t think that there’s a national security risk,” he tells The Associated Press. “It’s not like we’re sending computer technology or missiles or something.”

“Idiots!” begins today’s mailbag.

Oh, this ought to be good…

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The 5: We’d be happy to accommodate your request… except that none of our editors ever recommended that stock. Must be some other idiots…

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The 5 Min. Forecast

P.S. “Charlotte is hemorrhaging retail jobs, and the bleeding isn’t expected to let up anytime soon,” says a story posted today at The Charlotte Observer’s website.

As we said above, “America’s retail apocalypse” isn’t just a Rust Belt thing anymore. Prosperous Sun Belt cities are getting hit, too. And the biggest blow of all, says David Stockman, is set to arrive one week from today — Thursday, May 11.

Yes, market turmoil is sure to follow. Wall Street will be caught off guard. But David has formulated a strategy to transform that chaos into enormous gains even as Wall Street “pros” lose their shirts. Check out David’s presentation at this link.


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