Fallout from a black Christmas

My friend forwarded me an article about the horrific holiday season.  Here it is in its entirety:

NEW YORK (AP) – The fallout from the horrific holiday season for retailers has begun, with the operator of an online toy seller filing for bankruptcy protection and more stores are expected to do the same – meaning more empty storefronts and fewer brands on store shelves. A rash of store closings, which some experts predict will be the most in 35 years, is likely to come across areas from electronics to apparel, shrinking the industry and leading to fewer niche players and suppliers.

The most dramatic pullback in consumer spending in decades could transform the retail landscape, as thousands of stores and whole malls close down. And analysts expect prolonged woes in the industry as the dramatic changes in shopping behavior could linger for another two or three years amid worries about the deteriorating economy and rising layoffs.

“You are going to see a substantial retrenchment in the retail industry,” said Rick Chesley, partner in the global bankruptcy and restructuring group at international law firm Paul Hastings. “The downturn has been catastrophic.”

A number of stores couldn’t even make it to Christmas. Circuit City Stores Inc. (CC) filed for bankruptcy protection last month. It plans to keep operating, but toy seller KB Toys, which filed for bankruptcy earlier this month, is liquidating its stores and will shut down.

The survival prospects for many more stores are dimming as more sales data comes in about the crucial holiday shopping season, which can account for up to 40 percent of a retailer’s annual profit.

Holiday sales fell from 2 percent to 4 percent compared to a year ago, according to SpendingPulse, a division of MasterCard Advisors. Excluding gas and car sales, they dropped between 5.5 percent and 8 percent from Nov. 1 through Dec. 24, as key categories from luxury to electronics posted double-digit sales declines. Sales of electronics and appliances fell almost 27 percent, for example.

ShopperTrak RCT Corp. which tracks retail sales and customer traffic at more than 50,000 outlets, said Monday that it now expects foot traffic to be down 16 percent and sales to decline 2.3 percent for the November and December period.

The retail casualties, which were first among home furnishing stores and then many apparel stores over the past year or so, are expected to cut across all sectors as shoppers have slashed their spending on nonessentials, from TVs to jewelry.

About 160,000 stores will have closed this year and 200,000 more could shutter next year, said Burt P. Flickinger III, managing director of consulting firm Strategic Resource Group. That would be the industry’s biggest contraction in 35 years. In March and April of next year, Flickinger expects 2,000 to 3,000 malls to shutter.

AlixPartners LLP, a turnaround consulting firm, predicts that 25.8 percent of 182 major retailers it tracks are either facing major financial distress or will face a significant risk of filing for bankruptcy in either next year or 2010 – the highest level in the 10 years that the firm has been compiling the figures. That compares with the 4 percent to 7 percent that it predicted would face financial woes in the previous two years.

Among the most vulnerable are retailers that have debt coming due soon and had relied on solid holiday sales to generate cash, said Matthew Katz, managing director in the firm’s retail performance improvement practice. But he said he’s also watching merchants whose debt is not due until later in 2009 or 2010, but are paying big interest payments as they struggle with high debt loads and shrinking revenues.

Some of the retailers that analysts say they are watching carefully are struggling regional department store Bon-Ton Stores Inc. (BONT), of York, Pa., and apparel retailer Goody’s Family Clothing Inc., which filed for bankruptcy protection in June but emerged from Chapter 11 in October. Officials from Bon-Ton and Goody’s did not immediately return calls seeking comment.

This week Parent Co., the operator of etoys.com, filed for Chapter 11 bankruptcy protection and said it will consider selling some or all of its operations. Chris Byrne, a New York-based toy consultant, said that etoys.com couldn’t compete with the aggressive tactics embraced by Toys R Us and Wal-Mart Stores Inc. (WMT), the nation’s top two toy sellers.

Retailers who do file for bankruptcy are also under more pressure now than in the past because of 2005 changes to the code that cut down the amount of time they have to file a complete reorganization plan, said Ken Simon, managing partner at Loughlin Meghji + Co., a restructuring advisory firm.

Another big problem for them, Simon said, will be securing additional financing to keep operating because of the tight credit markets.

The dire problems facing retailers also spell bigger problems for suppliers, which have already been seeing merchants cut or cancel orders.

Allan Ellinger, senior managing partner at New York-based MMG, an investment banking and strategic advisory practice, foresees a shakeout in the apparel industry and said those who survive are going to have a hard time meeting the financial needs of stores.

He estimated that apparel companies have slashed their 2009 spring inventory by 20 percent to 25 percent from a year ago, because they would rather be reacting to hot sellers than be stuck with too much merchandise.

“You have to go into deep survival mode,” Ellinger added.

I like that last line.  Companies are going into deep survival mode.  I warned of this “black Christmas” in “Have a Zombie Christmas” and “The Calm Before the Storm” and preparations for this fallout should already have begun.  The consequences from this horrific Christmas are coming and will manifest themselves in the form of more zombies.

California is number one!

I must’ve made a big mistake when I posted that California is becoming a zombie state.  After all, how can it be the zombie state when 8 out of the top 10 cities topped the Fortune list with Los Angeles coming in first!  Being a California resident, it makes me so proud that I’m posting the article in it’s entirety:

The Los Angeles area topped Fortune magazine’s list of the nation’s 10 worst real markets for 2009.

Los Angeles-area home values, which had a median price of $375,340 in 2008, are projected to drop by 24.9 percent in 2009 and drop an additional 5.1 percent in 2010, according to the magazine.

Riverside came in third on the list, with a median price of $256,540, with a projected drop of 23.3 percent in 2009 and a 4.8 drop in 2010.

Santa Ana-Anaheim was sixth on the list, with a median of $532,810 in 2008, with a projected drop of 22 percent in 2009 and 3.5 percent in 2010.

Overall, eight of Fortnue’s 10 worst markets are in California.

Rounding out the top 10 are Stockton (2), Miami-Miami Beach (4), Sacramento (5), Fresno (7), San Diego (8), Bakersfield (9) and Washington, D.C., (10).

Keep up the good work Californians.  The people and the government here are the best around.  Here’s a video from our very own Reseda, CA that reminds us that nothing’s gonna ever keep us down!

Dangerous virus responsible for creating zombies?

Michael Shedlock (Mish) wrote two great posts in his blog today.  Here is part 1 and here is part 2.  They talk about how certain strains of the fiscal insanity virus (FIV) are responsible for the mess we are in.  I will go further and say that they are responsible for the creation of zombies.  Here are some excerpts from this excellent piece:

Part 1:

FIV is more contagious and far more dangerous than the common flu virus now making its rounds. The primary symptom of FIV is irrational, often delusional fear of deflation. The virus has an uncanny ability to seek victims in positions of authority. Those afflicted with the virus start taking (or promoting) fiscally reckless actions guaranteed to damage the host country.

…

Genetic Markers

Scientists in 33 countries studying the disease have uncovered similar patterns in the DNA of every victim. To date, every person afflicted with FIV has been found to have one of two distinct Marker Chromosomes now identified as the K-Marker (Keynesian-Marker), or the M-Marker (Monetarist-Marker). No one with the recently discovered A-Marker (Austrian-Marker) has yet to contract FIV.

Scientists conclude that those with the A-Marker may be biologically immune to FIV.

DNA Samplings At Universities

Random DNA samplings of university professors are not encouraging. Scientists have discovered that 99% of all economic professors have either the K-Marker or the M-Marker.

Economic professors, while not in a position to direct policy, are highly contagious. Those with FIV have encouraged those in positions of power to do reckless things. The victim is always in denial about the disease.

More excerpts.  These are from part 2:

Most In Congress Infected With FIV

Most Congressional member are afflicted with FIV, as is Paulson and president Bush, otherwise the reckless $700 billion bailout package would never have passed. True to form, those in the highest positions of authority, notably Speaker of the House Nancy Pelosi and Finance Chairman Barney Frank, show the most severe symptoms. President elect Obama shows signs of being in the late stages of FIV already.
…

FIV Prevention

An ounce of prevention is worth a pound of cure. FIV is highly contagious. It is best to avoid contact with anyone showing signs of the disease. This is very difficult to do for those taking economic classes, working at any university, or working for the government in any fashion (especially Congress).

Fortunately, there is a preventative measure. Those in frequent contact with gold bullion or gold bars and those even thinking about buying gold seem to have superior resistance to FIV.

This preventative measure was discovered by noted Dr. Au Buygold who suggests “Buy two ounces and call me in the morning” if you start showing any unusual symptoms. Preventative measures may work if the symptoms are addressed soon enough.

The entire thing is fabulous and I urge you to go read it.  Again, here is part 1 and here is part 2.

Marriage should be defined as being between a man and a woman. Part II

I just read an awful news story in the LA Times about how Los Angeles County shelters brim with families.

The economic crisis and cold weather have created a larger than usual influx of families to shelters in Los Angeles County this year, according to shelter officials and other service providers.

On Wednesday, officials at the Union Rescue Mission, which runs the county’s cold-weather shelters, held an emergency meeting to figure out what to do when they run out of hotel vouchers for families, which could happen this month. The numbers, said Chief Executive Andy Bales, are sobering: The region’s winter shelters and the skid row mission have seen 86 families in the last three weeks.

By comparison, last year the agency took in 20 families at its emergency shelters over the entire cold weather season from Dec. 1 to March 15, with 15 to 20 more at its downtown mission. Two weeks ago, the mission downtown opened up its fifth floor to two-parent families and single fathers with children, something it has never had to do before. It may also convert its chapel to sleeping quarters.

“This is, as far as I am concerned, a disaster of Katrina-esque proportions,” said Tanya Tull, chief executive of the nonprofit Beyond Shelter. A variety of negative economic forces are contributing, she said, from job losses to an uptick in foreclosures.

Since I write about bad things in our society and constantly bring stuff like this up in conversations, I think sometimes people think I like this stuff.  I don’t.  I hate reading stuff like this.  This story is absolutely heart-wrenching.  But that makes me even more passionate about talking about it to people and writing in my blog.  The executive of the shelter who exclaimed that this is a disaster of Katrina-esque proportions is right!  Yet how many of us live our lives, watching Survivor at night, addicted to the latest MySpace or Facebook news without a clue to what is really going on outside of our bubble?  Just like living without a home, living in a bubble is no way to live a life!

I think so many of us, including me, wonder how does this happen?  How is it that people arrive to a state of homelessness?  In the cases mentioned in the article, the people didn’t fit into the drug addict or mentally disabled homeless stereotype.  Many of them were single moms:

Carmelita Robertson, for example, lived in a motel room for weeks with her 2-year-old daughter, Jaira. But after she ran out of vouchers, she wound up sharing a room with three other single mothers on the fourth floor of the Union Rescue Mission.

In an earlier blog, marriage should be between a man and a woman part i, I wrote the following:

I believe that the breakdown of the family is the root cause for many of the terrible problems that we see in society today.  If it’s not the root cause, it’s likely a contributing factor.  And even if it’s not the reason or a contributing reason to the cause of a particular problem, the breakdown of the family makes it more difficult for society to deal with these problems. 

This story of homelessness is the perfect example of a problem in society and what happens to families when children are not being raised in a traditional two parent family. 

In part I, I gave my opinion about why it is that government does have the right to define marriage.  I hadn’t written part II which I said would deal with why government should define marriage as between a man and a woman.  Well, this L.A. Times article does just as good of a job as any blog I could write.  If marriage wasn’t being debased, demeaned and imitated in society but instead was viewed as a sacred trust and obligation between a man and a woman for the creation of the family unit and the rearing of children, these social tragedies like homelessness would be far less prevalent!  As I was reading this article, I couldn’t help but wonder, “Where is the father?”  In  one case, the fact that he was sent to jail put the mother (apparently unmarried) and their kids out on the street!  And what about the other mother who couldn’t find a job?!  She moved all the way out to Virginia to try and stay with her mother!  Again, where is the father?  How can a single Mom properly raise children, especially in today’s economic upheaval?  Let’s be clear, my hat is off to them for trying their best but it’s not right.  The closing remarks of the article sum it up well:

Her son was born while she was homeless, she said, and she is glad he is too young to understand what is happening.

Children don’t deserve that.  They deserve a loving mother and father.  The fact that traditional marriage is being eroded in our society is a direct factor in problems like this.  It’s not right.  The breakdown of the family is just one more indicator that the zombies are coming.

California: The Zombie State

I live in California and try to keep up on the local news.  Interestingly enough, something that somehow has escaped me and seems to be out of the public spotlight is the news of the HUGE losses that calPERS has taken.  For those of you that don’t know, calPERS is California’s largest public pension fund.  The Sacramento Bee reports that Taxpayers eventually could pay as CalPERS loses billions.

Earlier this week, CalPERS warned that its investment losses – 19 percent since the fiscal year began July 1 – could force CalPERS to demand higher contributions from the state, municipalities and other public agencies that rely on the fund for pensions. The warning came in a CalPERS staff report.

And more from the same article:

The state declined to estimate how high its CalPERS bill might climb, but the city of Sacramento could see its costs jump by $8 million to $16 million a year, said City Treasurer Russ Fehr. The increase, if it occurs, would begin in July 2011.

“This is alarming,” he said, noting that the city is already struggling under a deficit. “This is one of the consequences of what’s going on in the world and how it rolls down to local governments.”

In addition to CalPERS losing billions, the second largest public pension fund also had HUGE losses:

The state’s other big pension fund, the California State Teachers’ Retirement System, is also experiencing substantial losses but isn’t yet making predictions about employer contribution rates.

Pension costs can sink a municipality’s budget. They led to a big scandal in San Diego earlier this year and helped force the city of Vallejo to file for bankruptcy.

What they don’t tell you is that these pensions flat out gambled with sacred, hard-earned government employees money!  And what did they gamble in?  Why, the most stable and sound investment there is — real estate!  Michael Shedlock at Global Economic Analysis writes that Calpers To Report Losses of 103% on its Residential Investments.  He quotes the Wall Street Journal article:

At the height of the property bubble, California’s giant pension fund, Calpers, made a fateful decision: It aggressively poured money into real estate. As a result, today it’s one of the biggest owners of undeveloped residential land in America.

And more:

Calpers in recent weeks said it expects to report paper losses of 103% on its residential investments in the fiscal year ended June 30. That’s because Calpers invested not only its own money, but billions of dollars of borrowed money that must be repaid even if the investment fails. In some deals, as much as 80% of the money invested by Calpers was borrowed.

I also read that not only did they “invest” in real estate at the very top of the bubble, they also “invested” heavily in commodities at the top of the commodities bubble!

California is hosed.  Now more and more money will be demanded from cities and municipalities because of the ineptitude of the state government in managing pensions.  In the meantime, California’s state budget is facing record breaking deficits which undoubtedly will cause the government to make severe cuts (meaning firing people) and to raise taxes.  Currently unemployment is over 8.5% and climbing fast!  Of course, this is happening at the same time that billions are being lost in the equity of Californians’ homes.  This is coming after millions of dollars were lost due to the actors strikes and millions more, maybe hundreds of millions more, that were lost due to the  recent wildfires that burned hundres of homes.  How are Californian’s going to deal with this?  Do you think that they are going to work hard, sacrifice and start being frugal?  Hardly.  Another riot, just like the one after the Lakers won the championship, will more likely be the “solution”.  The future isn’t bright for the zombie State…. uh… I mean Golden State.

In my view, it’s time to get out of California, at least out of the major cities, while you still can.  If there is one place that the zombies are coming, it’s California.

Joblessness: The Creation of Zombies

It seems you can’t read any news without reading more news of job losses.  Joblessness has hit a 26 year high:

The number of U.S. workers filing new claims for jobless benefits surged to a 26-year high last week, government data showed on Thursday, as employers tightened their belts to help weather what many fear will be a deep, long recession.

A separate report showed the U.S. trade deficit swelled unexpectedly in October as weak economies around the world imported less from the United States.

Analysts said the export pillar that had helped to support the fragile economy earlier in the year was now crumbling and many said the economy appeared headed for an even deeper contraction in the fourth quarter than they had thought.

“The last bastion of the U.S. economy has collapsed. The U.S. economy will contract by 4.5 percent in the current quarter. The ugly recession accompanies us into the next year,” said Harm Bandholz, an economist at UniCredit Markets & Investment Banking in New York.

Initial claims for state unemployment insurance benefits jumped by 58,000 to 573,000, the U.S. Labor Department said.

It was the biggest increase in claims in more than three years and the highest level since November 1982 when the U.S. economy suffered a recession after the Federal Reserve raised interest rates to combat the high inflation of the 1970s.

And the bad news continues in the article:

“We are experiencing the absolute worst of the economic downturn right now,” said T.J. Marta, fixed-income analyst at RBC Capital Markets in New York. “We’re in a period of complete freefall in terms of economic growth.”

The Labor Department said the number of Americans still on the jobless benefit rolls after claiming an initial week of aid jumped by 338,000 to a 26-year high of 4.43 million, the biggest increase in 34 years.

People without jobs who have no hope for finding a new job have more of a tendency to become desperate.  So, how can YOU be spared from becoming a zombie?  First of all, educate yourself about what is really going on in the world.  Second, if you don’t already, do the best work that you can at your job.  Be a great employee.  The more valuable you are to your employer, the less likely you will be to get laid off.  Third, get out of debt and start saving.  Spend less.  As Mish would say, “The future is frugality”.  Prepare yourselves.

I want to make some predictions.  I do this in part because I get an attitude of arrogance and disbelief from many with whom I share my thoughts.  If people are going to mock, at least I will be able to one day say, “I told you so”.  I made some predictions earlier this year in “The Calm Before the Storm“ and “Hurry, Hurry, Sell Your Gold” and they were right on.  I predicted a “Black Christmas”.  I predicted the attitudes of Americans.  I predicted there would be a temporary drop in the price of gold and silver.  At the time I wrote about gold, it was close to $1000/oz.  Silver was somewhere around $17-$18/oz I believe.  Currently, gold is about $800/oz and silver is about $10/oz.  So my first prediction is a dramatic increase in the price of gold and silver.  I’m predicting that it will almost double by sometime in 2010.  To be specific, it will reach at least $1500 with the possibility of being dramatically higher by sometime in 2010.  Silver will at least double but possibly triple it’s value or more in that timeframe.  The DOW will drop under 8000 and maybe closer to 7000 by the end of 2009.  It’s possible it goes even lower.  Joblessness will continue to drop but even more dramatically.  We may see multiple consecutive months of 500,000+ job losses. 

In previous posts I have talked about hyper-inflation.  I never really spoke about a timeframe only that I believed serious inflation will occur.  This is much harder to predict because it rests entirely upon unpredictable governments.  However, I don’t think we see hyper-inflation in the very near term.  We are in such a period of deflation now, with banks unwilling to lend, that even though government spending has shot through the roof, it really hasn’t increased the availability of money and credit which is really what inflation is.  So I see serious inflation coming no sooner than the end of 2009 and maybe as far out as 3 – 5 years+.  However, unless something is done about our huge deficit, now approaching $12 Trillion, and our even greater unfunded liability, estimated by some at over $99 Trillion, there is no way to escape the inevitable destruction that will be caused when the US dollar is eroded in value due to the effects of inflation.

Get ready… NOW!  The zombies will come.

Have a zombie Christmas

I was picking a friend up from the airport and she told me a story about how her pregnat sister had been tackled and a package had been ripped out of her hands that was on sale!   Shouldn’t this be a shocking and outrageous story?  Unfortunately, this isn’t even close to the worst that has happened this holiday season.  Check out this article.

In the past four days, America’s retail stores and malls have seen several shootings and the trampling to death of a man caught in a stampede of overeager shoppers.

Most people have probably heard about the story of the man trampled because of greedy, selfish people.  People are becoming more and more zombified.  The article continues:

“People are out of jobs, and they still want to do something for their families for Christmas,” he said.

The pressures facing today’s consumers, he said, might contribute to an uptick in crime and violence at stores.

Lt. Kevin Smith, the commanding officer of the police department’s public information office in Nassau County, N.Y. — where the Wal-Mart temp was trampled to death Friday — said shoppers “are trying to compensate for their lack of income by making sure that they get in and get in first. … The stores are getting a larger volume of people over a short period of time.

If trampling a man isn’t bad enough, listen to what else happened:

“We do feel the economy is a trigger for someone taking an opportunity to commit a crime that they otherwise would not think about,” said Joseph LaRocca, the vice president of loss prevention at the federation.

The federation has also acknowledged the violent incidents that left a disturbing mark this year on the weekend of Black Friday, the kickoff to the holiday shopping season when retailers traditionally are in the black, or turn a profit.

In addition to the Friday morning stampede that led to the Wal-Mart worker’s death, there was a spate of shootings: Two men shot each other to death at a Toys “R” Us store in Palm Desert, Calif., Friday; a pregnant woman was injured in a shooting at an Atlanta mall Saturday and armed robbers killed one man at an Express store in a suburban Miami mall Monday.

To conclude, let me say that my friend commented that she was afraid that if people are acting this way over a Christmas shopping, what would they do if their families were starving?  BINGO!  The zombies are coming.