Posted: 13 Nov 2017 Michael Snyder THE ECONOMIC COLLAPSE BLOG
Is the retail apocalypse in the United States about to go to a whole new level? That is a frightening thing to consider, because the truth is that things are already quite bad. We have already shattered the all-time record for store closings in a single year and we still have the rest of November and December to go.
Unfortunately, it truly does appear that things will get even worse in 2018, because a tremendous amount of high-yield retail debt is coming due next year. In fact, Bloomberg is reporting that the amount of high-yield retail debt that will mature next year is approximately 19 times larger than the amount that matured this year…
Just $100 million of high-yield retail borrowings were set to mature this year, but that will increase to $1.9 billion in 2018, according to Fitch Ratings Inc. And from 2019 to 2025, it will balloon to an annual average of almost $5 billion. The amount of retail debt considered risky is also rising. Over the past year, high-yield bonds outstanding gained 20 percent, to $35 billion, and the industry’s leveraged loans are up 15 percent, to $152 billion, according to Bloomberg data.
Can you say “debt bomb”?
For those of you that are not familiar with these concepts, high-yield debt is considered to be the riskiest form of debt. Retailers all over the nation went on a tremendous debt binge for years, and many of those loans never should have been made. Now that debt is going to start to come due, and many of these retailers simply will not be able to pay.
So how does that concern the rest of us?
Well, just like with the subprime mortgage meltdown, the “spillover” could potentially be enormous. Here is more from Bloomberg…
The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary.
I have written extensively about Sears and other troubled retailers that definitely appear to be headed for zero. But one major retailer that is flying below the radar a little bit that you should keep an eye on is Target. For over a year, conservatives have been boycotting the retailer, and this boycott is really starting to take a toll…
Target has been desperately grasping at ideas to recover lost business, including remodeling existing stores and opening smaller stores, lowering prices, hiring more holiday staff and introducing a new home line from Chip and Joanna Gaines. But Target stock remains relatively stagnant, opening at 61.50 today—certainly nowhere near the mid-80s of April 2016, when the AFA boycott began.
In the past, retailers could always count on the middle class to bail them out, but the middle class is steadily shrinking these days. In fact, at this point one out of every five U.S. households has a net worth of zero or less.
And we must also keep in mind that we do not actually deserve the debt-fueled standard of living that we are currently enjoying. We are consuming far more wealth than we are producing, and the only way we are able to do that is by going into unprecedented amounts of debt. The following comes from Egon von Greyerz…
Total US debt in 1913 was $39 billion. Today it is $70 trillion, up 1,800X. But that only tells part of the story. There were virtually no unfunded liabilities in 1913. Today they are $130 trillion. So adding the $70 trillion debt to the unfunded liabilities gives a total liability of $200 trillion.
The only possible way that the game can go on is to continue to grow our debt much faster than the overall economy is growing.
Of course that is completely unsustainable, and when this debt bubble finally bursts everything is going to collapse.
We don’t know exactly when the next great financial crisis is coming, but we do know that conditions are absolutely perfect for one to erupt. According to John Hussman, it wouldn’t be a surprise at all to see stock prices fall more than 60 percent from current levels…
At the root of Hussman’s pessimistic market view are stock valuations that look historically stretched by a handful of measures. According to his preferred valuation metric — the ratio of non-financial market cap to corporate gross value-added (Market Cap/GVA) — stocks are more expensive than they were in 1929 and 2000, periods that immediately preceded major market selloffs.
A financial system that is based on a pyramid of debt will never be sustainable. As I discuss in my new book entitled “Living A Life That Really Matters”, the design of our current debt-based system is fundamentally flawed, and it needs to be rebuilt from the ground up.
The borrower is the servant of the lender, and our current system is designed to create as much debt as possible. When it inevitably fails, we need to be ready to offer an alternative, because patching together our current system and trying to re-inflate the bubble is not a real solution.
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Just in time for Black Friday shopping, American Family Association (AFA) has released its annual "Naughty or Nice" list of retailers who either embrace Christmas in their seasonal shopping campaigns or leave it out in the cold.
With the goal of keeping Christ in Christmas, AFA has reviewed the websites, media advertising and in-store signage of the top 100 national retailers in an effort to help consumers know which companies are Christmas-friendly and which are acting like "Scrooge."
"There are concerted efforts in our country to eliminate 'Christmas' because the word itself is a reminder of Jesus Christ," said AFA President Tim Wildmon. "Those who hate Christ want to eradicate anything that reminds Americans of Christianity. That is why it is important to remind companies to keep the word 'Christmas' alive. AFA wants to keep Christ in Christmas and Christmas in America."
AFA rates the retailers in four categories. AFA "5-Star" retailers promote and celebrate Christmas on an exceptional basis. These include: Belk, Hobby Lobby, Lowe's, Sears and Wal-Mart.
"Nice" retailers use the term "Christmas" on a regular basis and are considered "Christmas-friendly." The "Nice" list includes about 45 retailers, from Amazon.com to Zappos.com.
Thirteen retailers this year made the "Marginal" list, meaning these companies refer to Christmas infrequently or only in select advertising mediums.
The 11 retailers on the "Naughty" list may use "Christmas" sparingly in a single or unique product description, but as companies, do not recognize it. These include: Barnes & Noble, Family Dollar, Foot Locker, Limited Brands, Maurice's, Office Depot, Office Max, PetSmart, Staples, Supervalu and Victoria's Secret.
Last week, AFA announced a Christmas shopping boycott of the national pet retailer PetSmart for omitting any references to Christmas in its shopping promotions.
"PetSmart has ignored the pleas of its shoppers and AFA for years and doesn't deserve your business," Wildmon said. "As consumers, let's tell PetSmart that we won't be doing any Christmas shopping for Fido and Fluffy in its stores this year."
AFA reached out to PetSmart in 2007 and 2011 regarding its glaring omission of the word "Christmas"—with no response.
Soon after AFA sent the PetSmart Action Alert to its one million-plus friends and supporters last week, PetSmart sent a promotional email to its own consumer list, using the word "Christmas," but PetSmart's newfound "Christmas" spirit appears relegated to this one email and a small gift labeled "Merry Christmas" in a television commercial, with no indication of any real change on the part of the retailer.
In 2013, AFA encouraged a similar boycott of the Christmas-unfriendly Radio Shack, which saw dismal electronics sales and was forced to close 200 locations this year. In fact, many of Radio Shack's franchise owners joined AFA in urging the company to include "Christmas" in its marketing. This year, the shopping season at Radio Shack looks much different. The tech retailer began using "Christmas" well before the end of October. In fact, in a press release dated Oct. 22, Radio Shack promoted an "exclusive lineup of Christmas gifts."
In the past, AFA has called out Wal-Mart, Lowe's and Sears, urging them to use "Christmas" in their marketing efforts. Wal-Mart responded by stating, "We learned a valuable lesson. Next year, we will use Christmas early and often." Today, all three retailers are on AFA's "5-Star" list and have even set up Christmas shops inside their stores.