Wednesday, December 28, 2011

Sears, Kmart to close 100-120 stores

Kmart, Sears make cuts, close stores
(CNN) - Sears Holdings on Tuesday reported a sharp drop in holiday sales compared to a year ago, and said the results will force it to close 100 to 120 Sears and Kmart stores.
The company said the stores to be closed have yet to be identified.
Sears Holdings said sales at stores opened at least a year ago, a closely watched retail measure known as same-store sales, tumbled 5.2 percent in the eight weeks ending on Christmas Day. That came from a 4.4 percent drop in sales at Kmart stores and a 6 percent slide in sales at domestic Sears stores.


"Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce on-going expenses," said Lou D'Ambrosio, CEO of the company.
Shares of Sears Holdings rose 75 cents, or 1.6 percent, in pre-market trading following the announcement.
The Sears and Kmart sales results were in contrast to the broader industry. The National Retail Federation forecast before the start of the year that holiday sales would be up 2.3 percent this year, a target that was helped by record Black Friday sales following Thanksgiving. Final sales figures are not yet available.
Sears Holdings signaled that additional store closings may lay ahead for poor performing stores.

Tuesday, December 27, 2011

Draghi’s Real Goal in the Eurozone


Imagine if your banker offered to lend you a $150,000 to make up for the money that you’d lost on your home since the housing bubble burst in 2006. And, let’s say, he agreed to lend you this money for 3 years at rock-bottom rates of 1 percent provided that you post the contents of your garage  (ie. rusty bikes, a bent basketball hoop, an old dollhouse, and rodent-infested luggage) as collateral on the loan.
Would that seem like a good deal to you?
On Wednesday, the European Central Bank (ECB) made this very same offer to over a hundred underwater banks in Europe, awarding them $640 billion (489 euros) in dirt-cheap 3-year loans in exchange for all manner of dodgy collateral for which there is currently no market. Now you, dear reader, know that when you try to sell something on Craig’s List and there’s very little interest; you have to drop the price in order to attract a buyer. That’s just how supply-demand dynamics work in a free market, right?
Au contraire. In fact, this rule never applies to bankers. When the junk assets on a bank’s balance sheet begin to fall in value, the banks just ring-up their big brother at the ECB or the Fed and demand a bailout, er, I mean, “swap liquidity for collateral that is temporarily impaired.” But the truth is, the garbage that the banks have accumulated–particularly the sovereign bonds from Italy, Spain, Greece, etc–is not merely “impaired”. These bonds will never regain their original value because the loans were made at the peak of a bubble.  So, there’s as much chance that Greek bonds will bounce back in three years as there is that that tacky $650,000 McMansion you bought in Encinito in 2005 will claw its way back to par.
That’s not going to happen.
So, the $640 billion that the ECB forked out on Tuesday, is basically a whopping-big gift to the banksters that will probably never be repaid. And if you have any doubt about this, then just take look at the Fed’s balance sheet which has exploded to nearly $3 trillion. You’ll notice that the $1.45 trillion in mortgage-backed securities (MBS) that Bernanke bought from the banks two years ago has not gone down at all, mainly because no one in their right-mind would buy these turkeys. And, if the Fed were to put their stash of MBS up for auction; the sale would further depress the assets on the banks balance sheets triggering another financial crisis. (In fact, this actually happened about a year ago when the government experimented with bonds from the AIG fund. Not only did the auction fail, but it also sent the equities markets into a nosedive) So, just as the Fed will eventually have to account for the losses on their pile of MBS,  so too will EU banks have to writedown the losses their sovereign bonds. That will push many of the banks into bankruptcy, which will undoubtedly trigger another round of loans. When financial institutions are insolvent, their only choice is to extend and pretend. Obviously, the ECB sees its job as helping with this fakery.
This is a familiar pattern with central banks. They create the easy money and loose regulatory environment where bubbles emerge, and then they provide “limitless” liquidity so their friends don’t lose money on the inflated value of their assets. That’s what Tuesday’s  $640 billion boondoggle was really all about, propping up toxic bonds that are worth a mere fraction of their original value.
So far, though, Draghi’s Long-Term Refinancing Operation (LTRO) has been a spectacular flop. While interbank lending rates have dropped ever-so-slightly (3-month Euribor fell from 1.404 to 1.410 percent), the banks have not been using the loans to buy more sovereign bonds (which would push down bond yields for struggling sovereigns) or to increase their lending.   Instead, they’ve parked a good portion of the money in overnight deposits at the ECB. Here’s the scoop from the Wall Street Journal:
“Use of the European Central Bank’s overnight deposit facility reached a new record high for the year Thursday, suggesting recent measures by central banks and policy makers still aren’t enough to restore confidence in inter-bank lending markets.
Banks deposited €346.99 billion ($453.38 billion) in the overnight deposit facility, up from €264.97 billion a day earlier and a previous high for the year of €346.36 billion, reached earlier this month.
The high level reflects ongoing distrust in inter-bank lending markets, where banks prefer using the ECB facility as a safe haven for excess funds rather than lending them to other banks.
The high deposit level also suggests markets aren’t fully convinced that the ECB’s massive long-term loan allotment is enough to fortify the currency bloc’s banking sector. The central bank extended nearly half a trillion euros in long-term loans to euro-zone banks Wednesday, hoping to ease fears of a new credit crunch as banks struggle to borrow from markets.” (“ECB Overnight Deposits Reach New 2011 High”, Wall Street Journal)
Can you believe it? So, while most of the loans were used to roll over existing debt, $453.38 billion was stuck back in the vaults of the ECB for safekeeping.  In other words, the banks are just as distrustful of each other as they were before the lending facility was launched. And the same is true of the yields on Spanish and Italian debt which Draghi thought would drop after he pumped a half a trillion euros into the banking system. Here’s the story from Reuters:
“Spanish and Italian bond yields crept higher on Thursday and underperformed German debt as markets grew sceptical that banks would use funds borrowed from the European Central Bank to buy lower-rated government bonds.
Banks borrowed a huge 489 billion euros from the ECB at an unprecedented offer of three-year loans on Wednesday, which some had expected to be reinvested in Spanish and Italian debt and help ease borrowing costs.
But, those looking for an immediate boost to Italy and Spain were likely to be disappointed. Traders said the preference was to reinvest some of the funds into safe-haven paper rather than pick up the higher yields on offer from some of Europe’s more troubled states.
“What happened yesterday is not a silver bullet to the crisis… but it is too soon to see the impact yet,” said Niels From, strategist at Nordea in Copenhagen.” (“EURO GOVT-Spain, Italy yields rise; hope of ECB relief wanes”, Reuters)
Unbelievably, the benchmark Italian 10-year BTP rose above the 7 percent mark again on Friday morning signalling renewed stress in the bond market. So while Draghi’s program may have breathed new life into a few teetering banks, it has failed miserably of all its main objectives.
So why has Draghi handled the crisis the way he has?  Why did he sit on his hands for so long while interbank lending slowed,  overnight deposits climbed to new records,  sovereign bond yields skyrocketed, and all the gauges of market stress got so much worse?
The obvious answer to this question is that Draghi’s been using the crisis to pursue his own agenda.  He wants to push through his so called  ”fiscal compact” that enshrines harsh budget discipline and  labor-battering austerity measures into law so that national budgets will come under the control of financial elites (aka–ECB-designated “technocrats”) Naturally, nations aren’t going to surrender that kind of authority without a fight, so Draghi let the crisis get out-of-hand so there would be less resistance. Here’s how economist Dean Baker sums it up:
“The people who gave us the eurozone crisis are working around the clock to redefine it in order to profit politically. Their editorials – run as news stories in media outlets everywhere – claim that the euro crisis is a story of profligate governments being reined in by the bond market. This is what is known in economics as a “lie”.
The eurozone crisis is most definitely not a story of countries with out of control spending getting their comeuppance in the bond market…It is a story of countries victimized by the mismanagement of the ECB….People should recognize this process for what it is: class war. The wealthy are using their control of the ECB to dismantle welfare state protections that enjoy enormous public support”.
Draghi’s real goal is to implement the labor reforms and “adjustments” that big finance demands. He’s already succeeded in deposing two democratically elected leaders in Greece and Italy and replacing them with bank-friendly stooges that will carry out his diktats. Now, he’s on to bigger things, like slashing the social safety net, crushing the unions, and reducing the eurozone to third world poverty.

Christine Lagarde: dangerous situation for world economy

US Cities Struggle to Control Sewer Overflows

Twice in recent summers, visitors to parts of Michigan's western coast were greeted by mounds of garbage strewn along miles of sandy beach: plastic bottles, eating utensils, food wrappers, even hypodermic syringes.
At least some of the rubbish had drifted across Lake Michigan from Milwaukee, a vivid reminder that many cities still flush nasty stuff into streams and lakes during heavy storms, fouling the waters with bacteria and viruses that can make people seriously ill.
Thousands of overflows from sewage systems that collect storm water and wastewater are believed to occur each year. Regulators and environmentalists want them stopped, and since the late 1990s the Environmental Protection Agency or state officials have reached legal agreements with more than 40 cities or counties — Atlanta, Los Angeles, Baltimore, St. Louis and Indianapolis among them — to improve wastewater systems that in some cases are a century old. Costs are reaching hundreds of millions or even billions of dollars.
But the price of progress is becoming too high for local governments, with the bad economy cutting into tax revenues and residents rebelling against higher water and sewer rates. Responding to pleas for leniency, the Obama administration is promising more flexibility as hard-pressed cities look for less conventional and cheaper ways to reduce overflows.


"The current economic times make the need for sensible and effective approaches even more pressing," said an October memo to EPA regional offices from Nancy Stoner, who runs the agency's water policy office, and Cynthia Giles, chief of enforcement. They said EPA staffers would work out details of the new policy.
It won't be easy, considering the costs and inflamed emotions involved.
Carol Rodwell and neighbors carted away 18 bags of garbage from a 400-foot stretch of Lake Michigan frontage near Ludington after last year's trash flotilla. She was shocked to learn that federal law lets cities discharge untreated sewage when their plants and storage facilities are flooded.
"It was maddening that they had permission to do this and we had to live with the consequences," Rodwell said.
Kevin Shafer, executive director of the Milwaukee sewage system, insisted it was only partly to blame, saying some of the rubbish probably came from trash cans or dumpsters swamped when the area got about 9 inches of rain in a single day.
Milwaukee has spent $4 billion since the 1980s improving its sewer system, Shafer said. It now has 521 million gallons of storage capacity in underground tunnels. Since the mid-1990s, less than 2 percent of the water entering the system each year has been released without treatment.
The ultimate goal is zero overflows, but officials don't expect to get there until about 2035 because it will require being able to handle the kind of flooding that previously happened rarely but is becoming more common.
"It gets a lot more expensive to get that last drop," Shafer said. "The way the economy is today, you have to balance that cost with all the other needs we have. You don't want to bankrupt a community."

Yuan hits all-time high


SHANGHAI | Mon Dec 26, 2011 7:46am EST
(Reuters) - The yuan closed up against the dollar on Monday after hitting an all-time high in intraday trading, guided by a stronger mid-point by the People's Bank of China, and looks set for an over-4-percent appreciation for 2011, traders said.
The yuan is expected to remain stable or rise slightly in the last week of the year to close 2011 near 6.30 versus the dollar, in line with market expectations.
The currency is likely to continue to appreciate next year as China continues to post big trade surpluses despite a slowdown in exports and amid pressure from the United States to let the yuan rise to balance bilateral trade, traders said.
But the yuan's appreciation is likely to slow to around 3 percent in 2012, with much of the rise seen in the second half of next year as China may keep the yuan relatively stable in the first half to assess the impact of the euro zone crisis, they said.
"The PBOC has recently set a slew of strong mid-points and pumped dollars into the market via state banks, giving the market a clear signal that the government won't let the yuan depreciate," said a trader at a major Chinese bank in Shanghai.
"But the central bank appears not in a hurry to let the yuan appreciate amid global economic uncertainties resulting from the euro zone debt crisis. So the yuan is likely to move largely sideways in coming months."
Spot yuan closed at 6.3198 against the dollar, up from Friday's close of 6.3364, after hitting an all-time high of 6.3160. Its previous peak was 6.3294 hit on December 16.
The PBOC set the dollar/yuan mid-point at 6.3167 on Monday, stronger than Friday's 6.3209 and near the record-high fixing of 6.3165 on November 4.
FIGHTING SPECULATORS
The yuan has appreciated 4.27 percent so far this year, with most of the gain being recorded in the first 10 months of the year as China tries to rebalance trade and use the currency to help fight high inflation.
While the government has recently halted yuan appreciation amid slowing exports, it also seems to be wary of a weaker yuan that may lead to capital outflows.
Some overseas investors appear to have been shorting the yuan in recent months amid signs that China's growth is slowing under the double weight of a global slowdown and the country's monetary tightening policy in place since October last year.
The PBOC, in addition to using strong mid-points to signal government intentions to keep the yuan stable, has also acted to inject dollars into the market via state-owned banks whenever there are signs that the yuan is set to weaken sharply.
The yuan has thus been effectively kept in a range of 6.3 to 6.4 against the dollar since early November -- a trend traders say they believe to continue well into 2012.
In contrast, offshore benchmark one-year non-deliverable forwards (NDFs) have largely been forecasting a yuan depreciation in a year's time since late September, reversing a general trend of predicting an appreciation since the yuan's revaluation in July 2005.
One-year NDFs fell slightly to 6.3790 on Monday against 6.3810 at the close on Friday, implying that the yuan will depreciate 0.97 percent in 12 months from Modnay's PBOC mid-point, compared with a 1.01 percent fall implied on Friday.

Brazilian economy overtakes UK's, says CEBR

Brazil has overtaken the UK as the world's sixth largest economy, an economic research group has said.
The Centre for Economics and Business Research (CEBR) said its latest World Economic League Table showed Asian countries moving up and European countries falling back.
The CEBR also predicted that the UK economy would overtake France by 2016.
It also said the eurozone economy would shrink 0.6% in 2012 "if the euro problem is solved", or 2% if it is not.
CEBR chief executive Douglas McWilliams told BBC Radio 4's Today programme that Brazil overtaking the UK was part of a growing trend.
"I think it's part of the big economic change, where not only are we seeing a shift from the west to the east, but we're also seeing that countries that produce vital commodities - food and energy and things like that - are doing very well and they're gradually climbing up the economic league table," he said.


A report based on International Monetary Fund data published earlier this year also said the Brazilian economy would overtake the UK in 2011.
Brazil has a population of about 200 million, more than three times the population of the UK.
Brazil's economy grew by 7.5% last year, but the government has cut its growth forecast for 2011 to 3.5% after the economy ground to a halt in the third quarter, with analysts blaming the country's high interest rates and the worsening situation in the eurozone.
And although Brazil currently sells more to China than it imports, Brazilian manufacturers have complained that their industries are being affected by cheap mass-produced goods from the Asian giant.
The CEBR also said that Russia moved up one spot in its league table to ninth in 2011, and predicted that it would rise to fourth spot by 2020.
It predicted that India, the world's 10th biggest economy in 2011, would become the fifth largest by 2020.
And it said European countries would drop down the table, with Germany falling from fourth in 2011 to seventh in 2020, the UK from seventh to eighth, and France from fifth to ninth.

CEBR World Economic League Table

Rank 2011 2020 (forecast)
1
US
US
2
China
China
3
Japan
Japan
4
Germany
Russia
5
France
India
6
Brazil
Brazil
7
UK
Germany
8
Italy
UK
9
Russia
France
10
India
Italy

A CHRISTMAS MESSAGE FROM THE 1%

The following is both thought provoking and revolting at the same time. It demonstrates the contempt that the 1% has for the rest of us….
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Capitalists “are not the scourge that they are too often made out to be” and the wealthy aren’t “a monolithic, selfish and unfeeling lot,” Cooperman wrote. They make products that “fill store shelves at Christmas…”
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