Monday, November 23, 2015

Christmas Shopping Before Dark

Over the weekend, I saw heavy retail traffic before 4 p.m., but it had faded away to almost nothing by 6 p.m. It was a similar pattern the weekend before. This is not consistent with a pattern of consumers forgetting to go shopping, something I had speculated a month ago based on the results of shopper surveys. It does suggest that shoppers are reluctant to spend much time on their Christmas shopping.

I read one retail analyst suggesting that the average mall visit this year consists of quick targeted visits to no more than three stores. I wonder how many shoppers have time to find out about the range of stores that are available in the malls they visit. If shoppers are moving too fast to take the time to look around, this has implications for retailers wanting to launch a new mall store. It might take some shoppers ten mall visits over a period of years just to notice that the new store is there. A store could open, try several approaches, then close after five years with most mall shoppers never finding out any of this was happening. This represents a new challenge for malls, especially given the increasing store turnover of the last six years. What will make shoppers want to stay in the mall long enough to see what’s there?

Friday, November 20, 2015

This Week in Bank Failures

China caught up with an illegal foreign-exchange and money-laundering network, described as an underground bank. The network is said to have cleared more than $64 billion in transactions. Official sources say at least 370 people have been arrested or charged, and thousands of accounts have been closed. This “bank” must represent a significant fraction of illicit capital outflows, so closing it should give China better control of its national money flows. The central bank has advised offshore banks to stop issuing bond repos for bonds in China, instruments it believes are mainly used to circumvent currency controls.

Bank of Cyprus has partly recovered from that country’s financial crisis but says it will need to see further improvements in its loan portfolio before it can start issuing bonds again. The loan portfolio hit bottom about a year ago and has started to improve.

Greece yesterday approved a bank recapitalization program. As a result some Greek bank stocks dropped in value and now trade at less than 1 percent of their pre-crisis peak values. The low stock value reflects the expectation that stockholder shares will be diluted or eliminated with the issuance of new shares.

A government investigation into the collapse of Scotland’s HBOS may result in a few more executives being barred from working in banking. Other regulators will take up that investigation in January.

London bank RBS is eliminating some bonuses that it believes drove sales representatives to sell inappropriate insurance-like services to customers that didn’t benefit from having them. Bank employees routinely mischaracterized the services in order to sell to more customers, a scandal that has embroiled the U.K. banking sector over the last five years. The sales staff will get a 5 percent raise to replace the bonus plan. RBS has also said it will stop using teaser rates on credit cards and consumer loans.

Wednesday, November 18, 2015

On Dark Days, Sweep the Floor

It was then-President George W. Bush who, on an occasion of great tragedy, famously told Americans to go to the mall. It was not the best choice of words, but the essential point holds true today. On a dark day, it is a happier approach to life to do the things you know you have to do in any case, than to sit around waiting, worrying, and pondering. This is a thought that bears repeating in the current period as we face news of man-made disasters and the work of mass murderers on a daily basis. We don’t want to be paralyzed by the rush of bad news. It is better to be doing something than nothing.
   It is a time that calls for action, but also for discretion. Some actions are better than others on days when you are more affected by the weight of the world. It is not the best time for strategic initiatives or political discourse, lest one’s actions be unduly influenced by the mood of the day. Pity the men who used the recent mass murders as an occasion to tweet that it was high time to “go do something” with their right to bear arms and their assault rifles. If they are not hauled into court as suspects in a new mass murder, at the very least the sensibilities in their comments will look less forgivable with the passage of time. 
   No, for those of us who are not within earshot of the explosions and not forced to evacuate our homes and workplaces, dark times call for us to approach our work with an emphasis on humility. We can’t know what the future will hold quite so clearly as we imagine we do on a normal day, but we still know that we are better off and the world is improved if we sweep the floor, clean the refrigerator, delete the unwanted email messages, exercise, return phone calls, get flu vaccinations where medically appropriate, and a thousand other chores and obligations as tedious as they are obvious. On a dark day, the reasons for some of these actions may not be so clear and the work may be more tiring than usual, but the doubt and fatigue do not diminish the value of tasks such as these. When tomorrow comes, we are better off for having done them today.

Sunday, November 15, 2015

Squeezing In Shopping

It’s been an obviously busy weekend at retail wherever I’ve gone, with Christmas shoppers and people buying groceries in advance of Thanksgiving, which is 11 days away. What I saw doesn’t give the impression of consumers forgetting to shop, but of trying to squeeze shopping into a packed schedule.

Friday, November 13, 2015

This Week in Bank Failures


  • Ten traders who worked at Deutsche Bank and Barclays, for a conspiracy to manipulate the Euribor base rate. An additional trader, apparently at a different employer, is expected to be charged next week.
  • Three men who are believed to have stolen and traded in customer data from JPMorgan Chase, The Wall Street Journal, and others.

Fighting extradition: David Drumm, former head of Anglo Irish Bank who provided rosy financial reports and engaged in under-the-table transactions while the bank was collapsing. Arrested in the United States, he is asking to be released on bail while he contests extradition to Ireland.

Wednesday, November 11, 2015

Inventory Buildup at Retail as U.S. Consumers Forget to Go Shopping

Reports of a buildup of inventory at U.S. retail raise the prospect of a heavily discounted Christmas shopping season like 2007. Retailers were planning on a boost in consumer spending this year that hadn’t yet materialized in the third quarter. There are conflicting reports about what has happened in the first half of the fourth quarter. In one survey, for example, consumers indicate that they plan to spend more this holiday season than the last. Falling motor fuel prices also ought to translate to easier consumer spending. Retail reports so far show a reduced level of activity compared to last year’s holiday shopping, though, suggesting that consumers may simply be forgetting to shop.

If boosts in employment and consumer confidence are not immediately translating into consumer spending, it could be a reflection of time pressure. An increase in working hours means consumers have less time to go shopping, even if they have the money to spend. This effect is particularly pronounced among shoppers who try to coordinate their schedules so that they can go shopping together. The savings trend also probably shows that consumers are still thinking about getting out of debt, even if that is a slow process.

What we’re likely to see is steeper discounts in December to try to move out more seasonal merchandise. The 2007 discounts, however, didn’t work to boost revenue at retail. Retailers that can save some of the inventory overhang into next year will do better than those that must sell everything regardless of the loss they end up taking.

It’s rare that the combination of reduced fuel costs, a boost in income, and high consumer confidence doesn’t lead to an increase in spending. Most economists looking at this picture seem to want to say that consumer sentiment must not be quite as strong as the latest surveys suggest, but that explanation will fall apart soon if it’s not confirmed by new surveys. For now, it’s one of those what’s-going-on situations that occur all too often in economics, and we’ll continue to watch the new data releases and try to figure it out.

Friday, November 6, 2015

This Week in Bank Failures

The Fed sounded the alarm on energy extraction loans in a report this week, a joint release with the FDIC and O.C.C. Often oil and gas projects are too heavily bank-financed with too little collateral. Banks are likely to suffer billions of dollars in losses on such loans unless oil and gas prices recover to the levels of 2013 by next year. On a more positive note, the Fed report found that most banks are taking on more realistic underwriting guidelines for energy extraction loans, so the loan losses from oil and gas will not be as large as they might have been a year or two ago.

Arrested: In Belize, the Mexican marketing chief for Allen Stanford’s Ponzi scheme. He is expected to be extradited to Mexico.

Cost-cutting: Standard Chartered Bank will cut 15,000 jobs within the next three years after posting a larger-than-expected loss. It plans to raise $5 billion in a stock issue, up from a $4 billion plan previously reported. Standard Chartered has struggled to get back on its feet as it distances itself from its past money-laundering activities.

Thursday, November 5, 2015

Meat Moves in the News

I’ve been parsing the Kraft Heinz factory closing announcement and trying to see how much of it is influenced by U.S. consumers’ newfound distaste for meat. The job cuts are larger than what was announced previously, but not by much. The factory realignment disproportionately affects Oscar Meyer, the food conglomerate’s unabashed not-even-food brand of processed meat, but it is still only a small adjustment. Consumers could easily cut back on Oscar Meyer and continue to eat meat in more reputable forms.

In the meantime, the meat p.r. juggernaut continues with an embarrassing Money roundup of beef theft, six incidents in all representing more than $5,000 in stolen beef in the United States this year. A story like that is supposed to show that beef remains a hot commodity in spite of the cancer risk, but really only demonstrates that the meat industry, with its enormous advertising budget, continues to wield its influence over corporate media.

Another story worth following in this connection is the Chipotle restaurant closings following an E. coli outbreak tied to Chipotle. Several locations remain closed while the incident is investigated. It is important to note that the source of the bacteria is unknown, but E. coli is generally destroyed by cooking, so the problem is more likely to be related to deficiencies in cleaning the food containers used behind the counter than to any of the cooked meat served in the restaurants.

Wednesday, November 4, 2015

Back to the Drawing Board

A New York Times cover story suggests that China is the new Volkswagen. China, like Volkswagen, has for years been systematically understating the air pollution it generates, carbon emissions in particular, and not by a narrow margin, but by a factor of more than 2. In the case of China, it is a result of factories that failed to report their coal-burning activities. It turns out that less than half of the coal-burning factories in China were being counted. It is similar to the news we got from Volkswagen a few days ago, not about unreported cars, but cars whose emissions were not being accurately estimated.

The combined effect is dismaying. A world that appeared to be on its way to coming to grips with air pollution was, in fact, merely falsifying its records to make things look good while the situation continued to spiral out of control. Neither Volkswagen nor China is a minor detail in the atmosphere. Volkswagen, before its recent scandals, had vied to be the world’s largest manufacturer of fuel-burning cars. China burns more fossil fuels than any other country. If large parts of the carbon emissions and other pollutants are more than double what we had planned on, all the current climate plans are revealed to be bogus. The world has to go back to the drawing board – and the period of action in which we might potentially meet the currently stated goals is years shorter than we thought it was.

Monday, November 2, 2015

Step Toward Canceling Keystone XL Pipeline

The Canadian company behind Keystone XL has asked the U.S. State Department to suspend its review of the proposed pipeline. It’s a first step toward canceling the whole project, which fell victim to falling global oil prices and the high cost of extracting the low-quality crude oil available in Alberta’s oil sands. A major oil dig was canceled a week ago, and that move by Shell surely put a damper on the already dubious pipeline project.

The pending cancellation of the pipeline is a cautionary tale. Had the project gone forward five years ago, it still likely would have been canceled at this point, but at far greater expense — nearing completion instead of being still on the drawing board. It would have been a boondoggle, a massive public giveaway that accomplished nothing. Development of the oil sands can still go forward, but at a slower pace that makes financial sense and that works within the limits of the existing pipeline network.

Meat: Nervous Cancer Denials, Lifestyle Changes

A week after the WHO report linking red meat and processed meat to cancer, the news media is still full of nervous denials from the meat industry, and that makes me think the new guidance is putting downward pressure on meat consumption. One of the frequently repeated comments by meat industry representatives is that the WHO report is not telling people to stop eating meat entirely, and that’s accurate as far as it goes. More to the point, though, the new guidance strongly implies that the average affluent consumer in countries like the United States and Brazil would do well to reduce meat consumption by more than half. That kind of reduction is what the meat industry is afraid of, and it’s the lifestyle change they won’t be talking about when they talk to the press. If 10 percent of consumers reduce their meat consumption by half, which looks likely enough in the latest reports, that translates to a 5 percent reduction in demand for meat, a change large enough to close some of the marginal meat factories. For the meat industry, that is a bigger change than they face when a small number of consumers, such as those who have learned they are at risk for heart disease or diabetes, drop meat entirely.

An individual can make a 50 percent reduction in a narrow category of consumption without quite noticing the change. An example of this is seen in desktop computers, where many users who previously replaced equipment after 3 years are now waiting 6 years without consciously considering the length of the delay. Meat has little nutritional significance, so a consumer can cut back by quite a lot without feeling the effects. Some observers think the WHO report might mark a turning point, and that consumers may now collectively cut back meat consumption by as much as 4 percent a year over a period of years without any noticeable fuss or overt discussion along the way.