Category Archives: Economy

Albertson’s Reveal Supermarket Meltdown as Global Deep-Discounters Promise Price Wars in US Markets

Aldi’s $5 billion bet at a brutal time.

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Aldi Market on Biscayne Boulevard In Miami Florida.

Today, Albertson’s explained in an amended S-4 filing for a debt exchange offering just how tough things have gotten for traditional supermarket chains.

As is so often the case, there is a private equity angle to it. Albertson’s was acquired in a 2005 LBO by a group of PE firms led by Cerberus. In January 2015, it acquired Safeway to eliminate some competition. It then wanted to sell its shares to the public. But in October 2015, as brick-and-mortar retail began to melt down, it scrapped its IPO.

The filing’s most revealing data are same-store sales on a quarterly basis through Q4, 2016, comparing year-over-year sales growth at stores that have been open in the current and prior year. I added the red line to show the trend since Q3 2015:

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The S-4 supplied some reasons for the decline:

Our identical store sales decrease in fiscal 2016 was driven by a decrease of 1.9% in customer traffic partially offset by an increase of 1.5% in average ticket size. During fiscal 2016 our identical store sales were negatively impacted by food price deflation in certain categories, including meat, eggs and dairy, together with pressure to maintain competitive pricing in response.

The two key factors boil down to competition, precisely what the Safeway acquisition was supposed to have eliminated:

  • A “1.9% decline in customer traffic.”
  • “Pressure to maintain competitive pricing in response.”

In other words, starting in Q1 2016, competition pushed previously strong same-store sales growth off the cliff.

Given a series of acquisitions by Albertson’s over the years, total sales rose. The following are sales for the 12-month periods:

  • Through Feb. 2015: $27.2 billion
  • Through Feb. 2016: $58.7 billion (includes Safeway)
  • Through Feb. 2017:  $59.7 billion (includes 29 Haggen Stores and 76 A&P stores)

At the end of 2013, the company had 1,075 stores. It then acquired, divested, opened, and closed numerous stores. By the end of 2015, it had 2,271 stores. And by the end of 2016, it had 2,324 stores.

So in 2016, the net store count increased 2.3% but revenues inched up only 1.7%. Hence the decline in same store sales.

During those three 12-month periods respectively, the company had losses before income taxes of: $1.38 billion, $541 million, and $463.6 billion.

And it had total debt of a breath-taking $12.3 billion as of February 25, 2017, up from $3.7 billion in 2013 before the acquisition of Safeway and the other chains.

It’s not going to get better anytime soon.

On Sunday, Aldi announced it would invest $3.4 billion to expand its base in the US to 2,500 stores by 2022. The privately held discount-grocery chain headquartered in Germany already has over 1,600 stores in the US. It also owns Trader Joe’s, which has an additional 464 grocery stores. In February, Aldi had announced that it would add 400 stores by the end of 2018 and spend $1.6 billion to “remodel and expand” 1,300 of its stores by 2020.

This would bring its newly announced investment in the US to $5 billion. The expansion will make Aldi the third-largest grocery chain operator in the US behind Wal-Mart and Kroger, the company said. And it’s going to compete on price.

“As we continue to expand and grow, our purchasing power continues to increase and allows us to bring products at better prices for consumers,” Scott Patton, Aldi’s head of corporate buying, told Reuters.

Another German grocery store chain, deep-discounter Lidl with 10,000 stores in 27 European countries has plans to open as many as 600 stores in the US, it revealed in May. Its first store will open on June 15. It expects to have 100 stores along the East Coast a year from now. It said it would undercut competitors by up to 50%.

This threat by arch-competitor Lidl stimulated Aldi’s thinking; CEO Jason Hart Hart said in a statement that Aldi’s prices also would be about 50% below those of traditional grocery stores.

Aldi has always focused on in-house brands to obtain the deepest price cuts. The company’s shares aren’t publicly traded, and quarterly earnings reports don’t cause any kind of ruckus.

Kroger, the largest supermarket chain in the US, booked a sales increase of 5% in 2016, but its net income fell 4.5%, and its shares, after a series of earnings disappointments, are down over 25% from the end of 2015, even as the rest of the stock market was booming.

Then there’s Wal-Mart Stores, the second largest grocery seller in the US. It’s experimenting with lower prices in 11 states and is hounding its vendors to undercut their competitors by 15%. According to analysts cited by Reuters, it’s willing to spend $6 billion on these efforts.

Target too has been plowing more aggressively into the grocery market. Online grocery sales are taking sales away from brick-and-mortar locations. Amazon is now more than just dabbling in it. Everybody wants into this $630-billion-a-year market.

Alas, over the past six years, sales at grocery stores are up a total of 14%, not adjusted for inflation, according to the retail trade report by the Commerce Department. Over the same period, the Consumer Price Index for food rose 14%, according to the Bureau of Labor Statistics. So in inflation-adjusted terms, over the past six years, “real” sales have been flat.

The price war will be a godsend for consumers, at least for a while. But what gives?

Shares of Whole Foods Market have fallen 42% since late 2013 as it grapples with the new environment. And there have been 18 bankruptcies among US grocery store chains since 2014, according to Reuters, including Marsh Supermarkets and Central Grocers in May and Fairway Group Holdings, parent of the “iconic” New York chain Fairway Market, a year ago.

This is the environment that over-indebted Albertson’s and its private-equity backers hadn’t planned on finding themselves in. Beyond PE firm Cerberus, the backers include real-estate investors Klaff Realty and Lubert-Adler, REIT Kimco Realty, and shopping center owner Schottenstein Stores.

To unload the company in an IPO on the unsuspecting public and conniving institutional investors managing the unsuspecting public’s money, the backers must have a buoyant and blind stock market because for equity investors, this must be one of the most toxic combinations: a brick-and-mortar supermarket chain in the age of online sales that was bought by a PE firm, loaded up with debt as it became a supermarket roll-up, in a stagnant market that is attracting the biggest deep-discounters from around the world.

By Wolf Richter | Wolf Street

Do Not Invest In Cryptos: Here’s why

Cryptocurrency has arrived like an armada of cockroaches that the bankers cannot control. The bankers can not touch them; they can not take them away from the rest of us. Why do you think Fedcoin is going to be a possible alternative? Because they can’t remove cryptos so they are going to join in and try to contaminate the good ones like Bitcoin. But that is not going to work. As soon as you get a gold backed cryptocurrency, start the countdown, it’s game over.

Bitcoin in particular is serving something as a proxy for currency in a very constructive manner. Once one of these turn into a gold backed crypto, the entire game changes. If Russia and China backed their currencies with gold, do you think that would have an effect on the USD? Hell yea. So when a gold backed crypto is launched or eight of them, one from every continent, do you think that is going to have an effect on the shabby cryptos? Yea, but it will be worse than that. This would have an effect on all paper and FOREX currencies because we are not in the infancy stage of cryptocurrency anymore. We’re in the adolescent stage and it becomes adult hour when gold backing is introduced. That’s when it will be game over for the criminal banksters.

Times have become very dangerous right now for the US dollar’s primary role among the currencies because all the wars have terminally compromised it’s integrity. The dollar isn’t supported by international oil and gas trade so much anymore as it is supported by aggressive military action with war crimes on a global scale and the people are sick of it. This is a very tenuous  situation for a global reserve currency.

Is Bitcoin Standing In For Gold?

https://s15-us2.ixquick.com/cgi-bin/serveimage?url=http%3A%2F%2Ft1.gstatic.com%2Fimages%3Fq%3Dtbn%3AANd9GcRMCd_GXEMKjkXEHr4gy73dZHkGe6R_iRHCqa2N-eAOmfl4129Gfg&sp=44a211d30ef62402d875b5e9aafa3f9e&anticache=277451Via Paul Craig Roberts and Dave Kranzler,

In a series of articles, we have proven to our satisfaction that the prices of gold and silver are manipulated by the bullion banks acting as agents for the Federal Reserve.

The bullion prices are manipulated down in order to protect the value of the US dollar from the extraordinary increase in supply resulting from the Federal Reserve’s quantitative easing (QE) and low interest rate policies.

The Federal Reserve is able to protect the dollar’s exchange value vis-a-via the other reserve currencies—yen, euro, and UK pound—by having those central banks also create money in profusion with QE policies of their own.

The impact of fiat money creation on bullion, however, must be controlled by price suppression. It is possible to suppress the prices of gold and silver, because bullion prices are established not in physical markets but in futures markets in which short-selling does not have to be covered and in which contracts are settled in cash, not in bullion.

Since gold and silver shorts can be naked, future contracts in gold and silver can be printed in profusion, just as the Federal Reserve prints fiat currency in profusion, and dumped into the futures market. In other words, as the bullion futures market is a paper market, it is possible to create enormous quantities of paper gold that can suddenly be dumped in order to drive down prices. Everytime gold starts to move up, enormous quantities of future contracts are suddenly dumped, and the gold price is driven down. The same for silver.

Rigging the bullion price prevents gold and silver from transmitting to the currency market the devaluation of the dollar that the Federal Reserve’s money creation is causing. It is the ability to rig the bullion price that protects the dollar’s value from being destroyed by the Federal Reserve’s printing press.

Recently, the price of a Bitcoin has skyrocketed, rising in a few weeks from $1,000 to $2,200. Two explanations suggest themselves.

One is that the Federal Reserve has decided to rid itself of a competing currency and is driving up the price with purchases while accumulating a large position, which then will be suddenly dumped in order to crash the market and scare away potential users from Bitcoins. Remember, the Fed can create all the money it wishes and, thereby, doesn’t have to worry about losses.

Another explanation is that people concerned about the fiat currencies but frustrated in their attempts to take refuge in bullion have recognized that the supply of Bitcoin is fixed and Bitcoin futures must be covered. It is strictly impossible for any central bank to increase the supply of Bitcoins. Thus Bitcoin is standing in for the suppressed function of gold and silver.

The problem with cryptocurrencies is that whereas Bitcoin cannot increase in supply, other cryptocurrencies can be created. In order to be trusted, each cryptocurrency would have to have a limited supply. However, an endless number of cryptocurrencies could be created that would greatly increase the supply of cryptocurrencies. If entrepreneurs don’t bring about this result, the Federal Reserve itself could organize it.

Therefore, cryptocurrency might be only a temporary refuge from fiat money creation. This would leave gold and silver, whose supply can only gradually be increased via mining, as the only refuge from wealth-destroying fiat money creation.

For as long as the Federal Reserve can protect the dollar by bullion price suppression and money creation by other reserve currency central banks, and as long as the Federal Reserve can keep the influx of new dollars out of the general economy, the Federal Reserve’s policy adds to the wealth of those who are already rich. This is because instead of driving up consumer prices, thus threatening the US dollar’s exchange value with a rising rate of inflation, the Fed’s largess has flowed into the prices of financial assets, such as stocks and bonds. Bond prices are high, because the Fed forced up the price by purchasing bonds. Stock prices are high, because the abundance of money bid prices higher than profits justify. As the US government measures inflation in ways designed to understate it, the consumer price index and producer price index do not send alarm systems into the markets.

Thus, we have a situation in which the Fed’s policy has done nothing for the American population, but has driven up the values of the financial portofilios of the rich. This is the explanation why the rich are becoming more rich while the rest of America becomes poorer.

The Fed has rigged the system for the rich, and the whores in the financial media and among the neoliberal economists have covered it up.

Carmageddon: All 3 Major Auto Markets Contract YoY For The First Time Since January 2009

For the first time since January 2009, sales of cars declined year-over-year in all three of the world’s largest auto markets of Western Europe (-6.8%), China (-1.8%) and the United States (-3.7%).  Combined, these three markets account for roughly 70% of the world’s auto sales (chart per Bloomberg).

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And while auto OEMs spent the first part of 2017 ignoring the growing signs of trouble facing their industry, some are finally starting to admit that all is not well in auto land.  As we noted a couple of days ago (see “How Is This Not A Recession? Ford To Slash 10% Of Global Workforce“), Ford just announced plans to cut about 10% of its global workforce.  Meanwhile Nissan Motor is forecasting a surprise drop in profit this year and Toyota Motor expects an 18% decline as well. 

  • Off-lease supply: This has already more than doubled since 2012 and is set to rise another 25% over the next 2 years.
  • Extended credit terms: Auto loans are at record lengths and lease assumptions (residuals, money factor) are at record levels of accommodation.
  • Rising rates: Starting from record low levels in auto loans.
  • Overdependency on auto ABS: The outstanding balance of auto securitizations has surpassed last cycle’s peak.
  • Record high deep subprime participation: 32% of subprime auto ABS deals were deep subprime (weighted average FICO < 550) in 2016 vs. 5% in 2010.
  • Record high units of new car inventory: 2016YE unit inventory levels were near 10% higher than 2015YE, and are continuing to trend higher in 2017.
  • OEM price competition: Car manufacturers have capacitized to a 19mm or 20mm SAAR. At this point in the cycle we start seeing more money ‘on the hood’ to move the metal. As new car prices fall, used prices look relatively more expensive, which necessitates a decline in used prices to equilibrate the supply/demand imbalance.
  • Increased ADAS penetration: We expect auto firms to achieve nearly 100% active safety penetration by 2020, creating an unprecedented safety gap between new and used vehicles, accelerating obsolescence of the used stock. Rising insurance premiums on older cars could accelerate this shift.
  • Trouble in the car rental market: Due to a number of secular shifts, including how consumers access transportation options (e.g. ride sharing), car rental firms are facing stagnant growth, weak pricing and over-fleeted conditions. As these cars hit the auction, the impact on prices could be significant.

And here are the stats…

Off-lease volumes have already doubled since 2012 and are only expected to get worse…meanwhile, lending standards have gradually gotten worse and worse…

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But lenders are starting to get worried and are tightening lending standards for the first time since the great recession.  (Note: Shows net percentage of respondents reporting tightening standards on consumer loans for new and used autos. Negative numbers indicate loosening standards.)

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Meanwhile, none of the warnings about a flood of used car volumes about to hit the market has impacted new car volumes being pumped out by the OEMs and pushed on to dealer lots.

All of which results in this fairly brutal outlook for used car prices and, by extension, the auto market generally.

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Source: ZeroHedge

 

US Could Run Out of Money in October or November

It is called the “X date,” which is the day the federal government runs so low on funds that the Treasury cannot pay all its bills. Over the past several years, squabbling in Congress has brought the government close to this point before.

According to a study published March 2 by a major think tank, the X date will occur sometime at the start of the fourth quarter:

The Bipartisan Policy Center today updated its debt limit projections, which now show that absent congressional action, the Treasury Department will no longer be able to pay all of its bills in full and on time at some point in October or November this year. This is the updated range for what BPC calls the debt limit “X Date.”

On March 16, the amount of the federal debt limit goes to $20 trillion, which is when the current suspension of the debt ceiling expires. The Treasury has a set of “extraordinary measures,” by which it can buy itself a few months, that kick in then. These are:

 (1) suspending sales of State and Local Government Series Treasury securities; (2) determining that a “debt issuance suspension period” exists, which permits the redemption of existing, and the suspension of new, investments of the Civil Service Retirement and Disability Fund and the Postal Service Retirees Health Benefit Fund; (3) suspending reinvestment of the Government Securities Investment Fund and (4) suspending reinvestment of the Exchange Stabilization Fund. These measures are described in more detail below.

The rules do not buy much time. According to the provision, “These measures are limited and therefore can postpone only briefly the need for an increase in the statutory debt limit.” At that point, the federal government goes into default. The threat that it cannot pay its obligations, which include debt issued by the United States, becomes a reality. The Treasury’s comment on the event is that it could cause “catastrophic economic consequences.”

The Bipartisan Policy Center stated its reason for the October/November time frame:

One particular danger point is the large payments owed to government trust funds that typically fall on the first business day of the new fiscal year – October 2 in 2017.

Problems with the debt ceiling in the past have triggered events that could cost the government dearly. In June 2011, when it appeared the Treasury was close being out of money, Moody’s warned the government’s top-tier Aaa rating was at risk. In August of that year, S&P actually downgraded U.S. debt by one notch. Under circumstances that make U.S. debt even more risky, that increased risk makes it more likely the Treasury may have to pay higher rates for money. Those higher rates cause an increase in government spending, and that adds to pressure on the size of the deficit. Gridlock on the subject of the debt ceiling caused similar anxiety in 2013.

Congress has several months to address the question. But, in a period of great political turmoil and polarization about the president’s new budget, the threat of a debt problem is real.

By Douglas McIntyre | 24/7 Wall Street

They’re Pocketing Trillions From Government Black Budgets

USA.gov has allocated trillions of dollars in black budget spending on private corporations who get to keep the profits and assets for free while tax payers get stuck with all the liabilities.

Only way to stop it is if majority of us organize and push back at the local level.

… yet you are never going to get your liberty back. Like your fathers before you… you are the proverbial frog in the boiling pot. And the evisceration of your liberties, that your fathers enjoyed, and their fathers enjoyed, that have been, like the frog in the boiling pot, slowly stripped away from you, generation, by generation, are gone, forever.

If your only hope, is that Trump, like all the presidents before him, is the last chance at a reconciliation of rational politics, you have already lost. If your only hope, is that there will be a future frenzy of a war between neighbors, you have already lost.

You don’t even know what elections are anymore. Elections are nothing more than an instrument of hope, while the State, and its machine, grows around you. Just like it did for your father, and his father, and his father. And millions have become accustomed to their condition, just like their fathers, just like the frog in boiling water. I am old enough to have seen this. I have lived through it. I don’t enjoy the liberties of my father before me. My father did not enjoy the liberties of his father.

You know what this is? It’s self deluding entertainment on your part. It is hope that your government will see it… and shit its pants. It is an ignored warning. You are Pepe The Frog meme full of sound and fury, signifying nothing, happily and hopefully, bathing in your boiling pot. And that is where you will stay. And you will die there, with the only hope that your children will… do something. And your children will do the same, just like their fathers before them.

There is no “patriot” movement. There is no “III Percent” movement. There is no “liberty” movement. Sure, there may be “little pockets of paratroopers” scattered here and there, but they are not the “movement”, much less “on the move”.  Just… waiting. Just… waiting, for that which may never come, that you have convinced yourself will come. And you wait, and wait, and wait… all the while, the government marches on… on the move. Enslaving one mind at a time. Slowly creating the New Man, just like they created the New Man in you, and your fathers before you. Oh, you might not like it, but you accept it, bitching and moaning, making meme’s to “scare the shit” out of TP’sTB, just to fool yourselves, while millions are oblivious to it.

AntiFa is a distraction… as your government marches on… on the move. As it slithers like a snake, past you, and AntiFa. Just like democrats and republicans are a distraction, as they argue over how best to enslave you, marching on… on the move… building a NWO. And you think Trump is going to Drain The Swamp, and rid America of its NWO Utopia Agenda, marching on… on the move. Look! Over there! Trump fired Comey! Draining The Swamp! Marching on… moving on. But you are entertained. As the snake slithers on… on the move.

Cry hope! And let slip the dogs of liberty! In our children, and their children, and their children! Like us, and our fathers, and their fathers before them! Pass on the Torch of our Liberty to our children! And HOPE!

Because Trump is our last Great Hope… as the snake slithers on past your hope, slithering on… on the slither.

Oh, there will be war. But not the kind you hoped for. This war will be called … by consent, or conquest. And you… your children, will be to busy surviving… rather than liberty’ing. As the snake slithers on… on the slither… winking at you… whispering… Liberty, Liberty, Liberty…

A Chinese Factory Slave Explains Why Manufacturing Jobs Are NEVER Coming Back To America

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While we all loved President Trump’s campaign pledge to bring jobs back to America, there are powerful economic forces at work that suggest the shift to cheap labor is pretty much irreversible. Yes, Trump has spoken with the leaders of some of America’s biggest companies and he’s been successful at getting those chief executives to commit to creating or keeping a few thousands jobs here and there, but when you consider that the competing foreign labor force primarily responsible for manufacturing America’s consumer goods numbers in the hundreds of millions of people, the notion that we’re somehow going to see explosive manufacturing growth over the next four or eight years is nothing more than a pipe dream.

But don’t take it from us. A Chinese factory worker explains exactly why we have absolutely no way to compete with the near slave-like conditions found in foreign factories:

Zeng walked CNBC through his decision to spend six weeks in a factory working 12 hours shifts Monday through Saturday, mostly during the night, and what he discovered along the way.

“They just gave me the address of the factory and I just went. I just showed up. When I was there I saw people holding luggage waiting in a long line, so I just stood in the line,” Zeng told CNBC in an interview.

“When it was my turn they asked for my ID, asked to see my hand and asked me to recite the English alphabet. I got in after that. It took less than 30 seconds. You don’t have to apply or have any skills.

“The first thing I can think of from a labor perspective is that the wages are unacceptable for American workers. So, in the factories, I was getting paid about 3100 yuan, or $450, per month. I don’t think American workers can accept those kind of wages based on living conditions and prices here,” Zeng said.

“Even if they relocate factories to the U.S. they’d replace workers with robots,” Zeng said. He said Pegatron already uses robots to apply cameras to iPhones, and to drop batteries into the devices. Robots, Zeng said, are more precise than human workers, and precision is particularly important for those two components.

If President Trump wants iPhones manufactured in the U.S., Apple will need to front the cost to pay the much higher wages required in the U.S., which means that consumers will have to be willing to pay more. Either that, or it will have to rely a lot more on machines, which won’t create jobs, and might end up taking them.

Source: Yahoo News

For those who are having trouble visualizing the cumulative effect of what Zeng describes, this chart pretty much sums it up and shows how much manufacturing jobs as a percentage of America’s total workforce have declined since the 1960’s:

http://i1.wp.com/shtfplan.com/wp-content/uploads/2017/05/manufacturing1.jpg?resize=550%2C293

At first glance you may be thinking that we have no where else to go but up.

The problem, of course, is that if you do try to shift jobs back to America, and even if you triple the wages from what factory workers are making in China, those taking a monthly paycheck and benefits from the government already make more money for doing nothing than they would assembling mobile phone components for 12 hours a day.

One recipient of welfare summed it up succinctly in the following shocking interview:

While workers out there are preaching morality at people like me living on welfare, can you really blame us?

I get to sit home… I get to go visit my friends all day… I even get to smoke weed…

Me and people that I know that are illegal immigrants that don’t contribute to society, we still gonna get paid.

Our check’s gonna come in the mail every month… and it’s gonna be on time… and we get subsidized housing… we even get presents delivered for our kids on Christmas… Why should I work?

Ya’ll get the benefit of saying “oh, look at me, I’m a better person,” but when ya’ll sit at home behind ya’lls I’m a better person… we the ones gettin’ paid!

So can you really blame us?

There’s always hope, we suppose, that the millennial generation, currently demanding free college and living in their parents’ basements, will rocket America into its next great manufacturing boom.

But we’re not going to hold our breaths.

Source: ZeroHedge