Monday, January 9, 2017

Retail stores vs Online Shopping

Another holiday shopping season has passed, and though the rapid growth of online spending has been a well-told story for a number of years now, it’s worth highlighting the latest developments and what they mean for investors.

Internet sales rose an estimated 15 percent, to 19 percent, from a year earlier, while those at traditional stores fell 10 percent as the number of shopper visits plunged 15 percent. The appeal of online shopping is only getting stronger as people who came of age using computers and smartphones become a bigger factor in consumer spending.

At its core, the ease of comparison shopping online puts downward pressure on retail prices, especially prices of big-ticket items such as appliances and consumer electronics where service is a minor part of the transaction. That helps explain why inflation remains stubbornly below the Federal Reserve’s desired levels. Gone are the days when a store could entice consumers with several low-cost offerings and be assured that they would also buy other items at full list price on that same trip. E-commerce is exploding because consumers want it, not necessarily because retailers find it desirable or profitable. In many cases, they don’t and stockholders are punishing conventional retailers for sales declines. Almost any good can be purchased online, and often with free shipping and no sales tax.

The S&P 500 Consumer Discretionary Index fell 0.11 percent in December, versus a 1.82 percent gain for the market overall. That doesn’t mean the future for retailing is online. E-tailers and traditional brick-and-mortar retailers can lose – and lose big – in e-commerce. Retailing is a very competitive, low-profit margin business, and the ease of entry for online sales guarantees that it, too, has similar characteristics.

As for shopping malls, it’s undeniable that consumers like to try out products in person and enjoy the social aspect of a trip to the shopping center with friends. Plus, it’s easier to return unwanted merchandise at a physical store rather than having to repackage undesired goods and arrange for pick-up. Stock prices of mall properties have risen twice as much as the S&P 500 since the beginning of 2009, thanks in part to historically low interest rates.

Yet there’s no denying that physical spaces are hurting, too. This year through September, some 14 major U.S. retailers from Macy’s to Men’s Wearhouse each closed 100 or more stores. Adding insult to injury, Macy’s this week said it plans to cut 6,200 jobs in early 2017, or about 4 percent of its workforce, after holiday sales came in at the low end of its forecast. The Bloomberg REIT Regional Mall Index dropped 0.31 percent in December.

When major retail locations disappear, smaller stores suffer, especially in major malls where jewelers, shoe stores, gift shops and bookstores depend on the big chains to generate traffic. Also, much of what the little guys sell is highly susceptible to online sales. Consider greeting cards that can be ordered and customized with ease online.The loss of a major anchor may rapidly lead to the demise of an entire shopping mall as small stores fold. That will call into question the real estate values in that mall’s service area, and indeed, the economic vitality of the neighborhood, including employment, commercial and even residential construction.

As noted earlier, online sales are highly deflationary. They cut out many middlemen. Bricks-and-mortar facilities are largely unnecessary. Head counts and employee costs are reduced as many retail employees and their benefits costs are replaced by fewer, lower-cost, on-demand workers. Small sellers can operate out of their kitchens without office and commuting costs.

The way to think about these trends is to remember the California Gold Rush. Back then, it wasn’t the prospectors who got rich, but rather it was the purveyors of picks and shovels. Today’s equivalent include United Parcel Service Inc., and FedEx Corp. – the companies that delivery the bulk of merchandise to homes and offices. The S&P 500 is up 119 percent since the end of 2008 while FedEx has gained 134 percent and UPS 78 percent.

Thursday, January 5, 2017

Everybody wants to devalue their currency

We are going to have massive fiscal stimulus because voters are mad as hell, that's why Trump got elected. Its going to take a couple of years, its going to have to go thru Congress. I think the markets have jumped the gun's on this.

Other topics covered:
Japan stimulus, Japan's budgets, Limits of monetary policies, Helicopter money in USA,  No inflation in the foreseeable future, China growth slowing with the official rate being overstated to save face.

Monday, December 12, 2016

China vs USA trade not a level playing field

I think what Trump is interested is doing is level the playing field. He regards himself as the world's best negotiator, and I think what he's really doing is throwing the opening gambit out there on the chess board to see where we go from here. He's been rattling China's cage with the call with Taiwan. 

China has basically had tremendous growth on the last three decades largely on the back of US consumers. Now we got a lot of cheap goods from China but there has been far from a level playing field. 

I'm not saying we don't have some subsidies for our companies and so on, but China is notorious for subsidizing government owned companies and all kinds of actions.....

Monday, December 5, 2016

Donald Trump economic policies to create winners and losers in emerging markets

Donald Trump’s electoral triumph has stoked expectations for a fiscal stimulus that will propel U.S. economic growth and spread to the rest of the world. For emerging markets, though, his presidency ends a long party. For some of them, it's about time economic reality hit home. For others, the future looks a bit brighter.

Early in this economic recovery, investors leaped into emerging-market stocks and bonds as those economies and markets promised faster growth than in the developed world. There was plenty of money to do so as the Federal Reserve and other central banks flooded the world with liquidity.

In 2009 and 2010, those economies grew much faster than the U.S. As foreign direct investment surged, investors who'd bought into emerging-market stocks were rewarded with much higher returns than were available in the broader market:

That trend, which began to falter at the beginning of last year, is now being reversed. In the week ended Nov. 16, a record $6.6 billion flowed out of emerging-market debt, according to data from EPFT Global, halting 18 consecutive weeks of inflows. In the second full week of November, exchange-traded funds that buy emerging-market securities saw withdrawals around the world worth $1.4 billion. While the surging dollar would seem to help emerging markets by boosting their exports, that is more than offset by other negatives, such as rising interest rates that are sucking money out of those economies.

Trump’s America First protectionist plans may soon add to the pain. He has promised to abandon the tariff-cutting Trans Pacific Partnership trade agreement between the U.S. and most Asian nations. He may force changes in the North American Free Trade Agreement that will hurt America’s southern neighbor, Mexico. On the campaign trail, he branded China as a currency manipulator and talked of a 45 percent duty on Chinese imports. Even though he's toned down that rhetoric, investors are wary.

But not all emerging markets are equally vulnerable. Those that can weather a protectionist storm and higher interest rates are those with current-account surpluses, including the Philippines, South Korea, Malaysia, Taiwan, China and Poland. Their foreign-currency reserves provide the money to fund any outflows of hot money without provoking a collapse in their own currencies. China's reserves, for example, are down 22 percent from their mid-2014 peak.

The losers are those emerging markets without that crucial buffer -- Brazil, India, South Africa, Argentina, Egypt, Indonesia, Mexico and Turkey. They have current-account deficits, so are importing capital to fill the gaps and have to take stringent measures as foreign money flees. Their foreign-exchange reserves tend to be slim, about half the size of those of the first group in relation to gross domestic product.

In contrast to the healthier emerging market economies, the deficit countries have currencies that have been falling against the dollar for the past five or six years, spectacularly so in chaotic Argentina. Economic growth among the deficit economies has also been weak except for India, which may in time join the healthy group if Prime Minister Narendra Modi succeeds in curbing corruption, eliminating economy-distorting subsidies and reducing business-retarding regulations.

With inefficient economies, slow growth and more entrenched corruption, the deficit economies also have much higher inflation levels than the surplus economies. And, with inflation problems and pressure to support their currencies, all except India have seen central bank rate hikes in recent years, in contrast to rate declines in the healthier group.

All emerging-market leaders aim, of course, to spur economic growth and curtail foreign capital flight while controlling political and social unrest and avoiding the effects of increased global protectionism. The International Monetary Fund estimates that a surge in global protectionism could reduce global GDP by more than 1.5 percent over the next several years. That would make the job even harder and helps explain why emerging markets are out of favour. But investors would be wise to differentiate between those nations best able to weather the storm, and those whose participation in the good times was less justified.