Wednesday, August 26, 2009

AP: Consumer Straining - Pens and Notebooks Put on Layaway (aka Just Another Green Shoot)

For gosh sakes, reading the AP news stories about so called "Main Street" is starting to read like a Zero Hedge rant. All I hear is negativity - hello reporters... stop talking to the "man on the Street" and start talking about the "man on WALL Street" and you'll see prosperity has ALREADY returned. Location, location, location reporters.

The "scoop" you are missing in your sea of negativity is, as more Americans lose their jobs it spikes corporate profits... and at the basis of any economic recovery are corporate profits. Really this entry could stop here but I'll continue. The mainstream US consumer is irrelevant to our new paradigm recovery - the stock market has spoken and I'm listening. (over the whistling past the graveyard)

If we MUST stare at Main Street and waste time thinking about it (I don't see why we would, see previous paragraphs) we are now viewing an acceleration of trends we've been noticing the past decade+ the wonderfully increasing bifurcated US economy. 2 America's? No, that's just a political slogan - more like 3. Segment A borrows from grandchildren to buy cars and houses, segment B has to put pens and notebooks on layaway. And both segments are filling the pockets of section C - our financial elite - via massive transfers of what little wealth they have not ceded to these same institutions the last bubble(s). An economy working for all of us, indeed; as long as "us" is clearly defined. Hold on, let me pull out my pundit talking points... a second please... yes here they are: "it's not different this time and the V shaped consumer led American economic recovery is right around the corner". Can we stop here? No?

Fine, via the Karl Denninger like Associated Press
  • To gauge consumers' strain, look no further than the rows and rows of plastic bags awaiting layaway payments at Kmart. They are filled with back-to-school basics -- not just T-shirts and jeans but notebooks, magic markers and pencils.
  • It is unheard of for layaway rooms to be so packed at back-to-school time and for the packages to include relatively cheap school supplies.
  • A record number of shoppers, shut off from credit and short on cash, are relying on Kmart's layaway program to pay for all of their kids' school needs, said Tom Aiello, a spokesman for Kmart's parent Sears Holdings Corp. Layaway allows shoppers to pay over time, interest- free, and pick up their merchandise when it's paid in full.
  • "It's a sight. In the past, we would see layaway start to pick up around Halloween" as people get a jump start for Christmas, , said David Travis, manager of a Kmart store in Conover, N.C.
Isn't it crazy to see Mr. Travis? A real spectacle - watching "those people" besieged by a decade+ of wage stagnation [Apr 30, 2009: First Quarter Labor Costs Rise Least on Record] or dropping wages as they move "downstream" from "productive" work they used to do in the private sector to the new paradigm "service economy" work while their government and Federal Reserve press for constant inflation to create 'prosperity'. [Apr 15, 2009: Federal Reserve Historian Allan Meltzer says Ben Bernanke Will Bring Us 1970s Type Inflation] Clearly if their cost of living were allowed to naturally drop it would be an awful thing; much better to apply the most regressive tax on them, so as to benefit the top tranche of society. And when "those people" (segment B) can't handle the strain, just borrow more money we do not have and hand it to them. Also hand money to segment A (see above) for cars, houses, appliances, et al so they don't ask questions - "free" shopping money seems to quiet that segment down.

This is what happens, Mr. Travis, when you wake up one day and look around at the erosion that has happened year after year, and realize what has been wrought over a decade or two. However, I am sated in knowing surely most of the folks in these layaway programs don't work in government (or associated pseudo government fields) or they wouldn't be in such a situation. Clearly government and associated are enjoying their time in segment A.
  •, which offers online layaway services for about 1,000 merchants, has seen its business double from the same time last year. Customers are setting aside even $25 calculators and $30 backpacks.
  • "It just tells you that consumers have no money -- even that $30 backpack is something they can't afford," said C. Britt Beemer, chairman of America's Research group.
Dear Mr. (or Mrs.) Beemer - they do have money. In fact I can hear it coming from D.C. as I speak... just listen closely. Did we already forget Bush's rebates - that was just over a year ago - they are coming fast and furious now, quarterly it seems, so please none of this doom and gloom about "not having money" - your government is here to fill that niche. [Jun 5, 2009: 1 in 6 Dollars of Income Now Via Government; Highest Since 1929]

Let's say your so called theory is somehow correct - it would still be of little consequence. See beginning of this piece: Main Street is irrelevant to the health of the US economy. Last quarter's earnings beat (dare I say smashed!) analyst expectations, and if you really want to understand how prosperity works you need to really begin studying the stock market or at minimum GDP statistics. It's only a shame so many workers did remain employed, or else we could of beat expectations even further! Can you imagine how much higher the markets would be?


Anyhow back to this inconsequential AP story:

What if a retailer doesn't offer layaway? [Sep 7, 2008: Newsweek - Get Ready for the Pain of Paying] Now I only have a small subset of readers from 2007 but I remember typing back then how bad things would get in the future as in almost every survey done the previous 10 years, I read how 70% of Americans live paycheck to paycheck no matter what their income strata. So just imagine a world with inflation always creeping (promoted by your Head Inflation Creator, Uncle Ben), wages flat and falling for many in the bottom half, and a lost house ATM for many in the middle class. Anyhow those are worries for 2008 - it's all better now (green shoots). Wages are coming back (errr...), jobs are coming back (ummm...), inflation has leveled (ooooh...) and the house ATM is right around the corner (uuurrgh).

Ok, ok the devil is in the details. Aside from the points above, the V-Shaped government transfer payment recovery is now here and that's all that matters. The nanny state has 'fixed it', and back to preparing for the NFL season. Watch for the 3rd quarter 3% GDP spike as proof that stealing trillions from the future to stuff into today's economy worked! [my gosh you can almost hear the trumpets blaring on CNBC that morning from here]
  • Stores have reported spikes in spending around common paydays, showing how stretched people are, and shoppers are even ditching more items at the checkout as they recalibrate what they really need.
  • The word "layaway" had more than double the interest among U.S. searchers in August 2009 than it had in August 2008, according to Google Insights for Search.
So now that back to school season is coming in as "better than expected" (ok not really) based on foot traffic via strategically placed CNBC reporters nationwide, we can look forward to the next green shoot.
  • Kmart's Travis predicts this Christmas will be a "record-setting" layaway season. (record setting means better than expected right? second derivative improvement? there must be some cliche I can use as a rationale to buy stock - just let me know which one.)
  • The worries about a weak Christmas come amid a back-to-school season that the National Retail Federation expects will see families cut 8 percent of spending from last year. (but expectation was 8.28% so I need to go buy stocks - right?)
  • Mark Vitner, a senior economist with Wells Fargo, estimates that total holiday sales will be down 3.5 percent, on top of a 2.5 percent drop a year ago. (hurry, someone go gather 9 economists and have them estimate 09 holiday sales will be down 3.58% so that this 3.5% drop will be better than expected, so we can rally in January 2010)
So indeed it appears (if you believe the hocus pocus aka data from this story) dark days for "those people" (segment B) are here. But there is always a bright side; as a traditionalist I am enjoying so many old school things coming back en vogue.
  • Layaway has its roots in the Great Depression.
  • It became passe in the past two decades with the rise of credit cards.
  • Sears Holdings brought back layaway to its namesake department stores last holiday season after a two-decade hiatus.
And to finish...
  • Michael Dart, a retail strategist for consulting firm Kurt Salmon Associates, says that for many Americans, their economic situation only worsened from last Christmas.
  • "Last holiday, shoppers were in shock" with worry from the financial meltdown. This year customers' problems are more concrete: job losses, reduced hours and reduced or unavailable credit. "This holiday, they're facing the reality."
Reality must be stopped Mr. Dart. And there is one way to stop it: "Cash for Christmas" checks from your friendly government class. I'm waiting.

[Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?]
[Sep 20, 2008: US News & World Report - The End of the Shopaholic Nation?]
[Dec 29, 2008: What Happens if America Returns to a Historical Savings Rate?]
[Jan 11, 2009: WSJ - America's Hard Hit Families Finally Start Saving, Aggravating Nation's Economic Woes]
[Feb 26, 2009: NYT - When Consumers Cut Back - An Object Lesson from Japan]
[May 10, 2009: NYT - Shift to Savings May be Downturn's Lasting Impact]

*nothing above has anything to do with the stock market. As a market participant all you must know is the Federal Reserve (i.e. the bank of the banks) is pushing money by the buckets into our top financial institutions, and some of this is now finding ways into the stock market as "trading gains" has replaced "loans" as an excellent way to stoke bank stocks. All facts about the "Main Street" economy are for anecdotal purposes only; mostly for purposes of confusing any viewer coming off 8 straight hours of CNBC.

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