Are we really Sheeple?
Gas and Food prices are up 20% and we are cheering a 5% WMT and COST same store sales rise. We are simply witnessing the Costco/WalMart effect. More and more consumers are concentrating their shopping behavior at those two stores because of cheap gas, clothes, and food.
Most other retailers, including Target, are now facing negative same store sales comps even though prices are rising. A very negative environment for all.
They tell us that jobless claims are down. Maybe because we already have a ton of jobless that no longer make the claim rolls. Today Continental said three thousand jobs are being reduced. Yesterday, it was United. Tomorrow who knows. The airline industry is shrinking to a fraction of its former size. The Auto industry is already there and shrinking more. The residential construction industry is a fraction of what it was just a couple years ago.
And we are supposed to cheer that WalMart's and Costco same store sales are up 5% when prices are up 20%? Target's are down a point under the same conditions? Maybe the distress is now migrating upstream?
And as far as most of the other retailers their sales are down 5%-10%......and that is AFTER heavy discounting to make their numbers. By this fall, our airline capacity will likley be down around 20%. 20% reduction in capacity drives down marginal availability likely to drive up prices 50% or more.
You think Uncle Ben is worried about inflation. You are damm right!!!!! Get ready for 10% mortgage rates in the not too distant future. If 10% is good enough for the largest banks in the world, what do you think they are going to have to charge you to make a profit?????
Are we thinking people yet??? Do you think banks borrow at 10% and loan to you at 6% for any length of time. Not in a capitistic society....oh, I forgot Barak is on deck.
Let's see how many business shut down this summer. Just watch as we get hearded into CNBS and the story never told:
Airlines Shutting Down
Auto Manufacturers Shutting Down
Restaurants Shutting Down
Retailers Shutting Down
Local Governments Laying Off
Residential Construction Laying Off
Pharma Companies Laying Off
New Commercial Projects evaporating
Yes, there are a few bright spots.......agriculture, export, commodities and military.
But compared to the cutbacks, it ain't no not even close. Then factor the rising costs against stagnant/falling wages.....pretty soon the vast majority of our industries will be contracting at a very rapid clip.
Remember the vast majority of America's wealth is seated in Real Estate, Corporate and Government Debt, and Equity Values. As the revenues in our industries continue to contract, expect a lot of distress in the above asset classes as defaults continue to rise.
Revenues can continue to fall only so far before defaults kick in. Remember as revenue falls, debt payments remain the same....or go higher if your rating is reduced. As revenue falls, debt consumes a greater and greater percentage leaving less and less to spend in the economy.
For many American individuals, business, and local governments that are very leveraged, revenues are falling very rapidly and debt is not....a very toxic combination if you are a sheeple. The problem is that when the problem becomes so pervasive, we are all sheeple.
Think of it like cancer. If is located in a small area of the body....it can be contained..........but if it has spread enough......well you know the rest even if it hasn't reached your brain................yet.