The New York Times leads page one with a story on a “wave of bankruptcies” at retail chains, something it says is “expected to remake suburban malls and downtown shopping districts across the country.”
There’s not much here that hasn’t been written anywhere else, including in The Providence Journal two months ago. The Wall Street Journal, in a Wednesday story about the closings’ effect on retail real estate, noted that the supply of shop space will increase about 3.5 percent this year—not good timing.
The Times notes that eight “mostly midsize chains” have gone belly up since the fall and another, Linens ‘n Things, is on the brink. The paper says store closings this year will be at the highest level since 2004, in part because even healthy chains are paring poor performers.
The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable…
“You have the makings of a wave of significant bankruptcies,” said Al Koch, who helped bring Kmart out of bankruptcy in 2003 as the company’s interim chief financial officer and works at a corporate turnaround firm called AlixPartners.
“For years, no deal was too ugly to finance,” he said. “But now, nobody will throw money at these companies.”
Retail sales have been soft in recent months after years of solid growth, as this Barron’s chart shows. Yesterday, the Commerce Department reported that sales rose 0.2 percent last month. But after counting inflation the real number is actually negative. And without including gas purchases, sales were flat.
Last week, consumer confidence dropped to a twenty-six-year low—and, of course, people don’t spend as much when they’re not feeling good about their finances. In another measure of sales activity, Bloomberg says slow sales caused inventories to increase 0.6 percent in February.
A credit watch for Uncle Sam
Standard & Poor’s put the U.S. government on a sort of credit watch, saying it may have to downgrade the entire shebang if the federales have to bail out mortgage-backers Fannie Mae and Freddie Mac. The government has enabled the two to increase their housing exposure in recent months in a bid to prop up the housing market Weekend-at-Bernie’s style.
How could Fannie and Freddie get in so much trouble that they’d threaten the creditworthiness of the entire American enterprise? Here’s how, says the Financial Times:
In the second half of 2007, about 90 per cent of new mortgage funding was provided by GSEs. They have about $6,300bn of public debt and mortgage securities outstanding, more than the $5,100bn of outstanding US government debt.
What would it mean if the U.S.’s AAA ratings were downgraded? The papers don’t tell us, but the almost certain financial chaos and widespread economic impact that would ensue merit a look.
And the housing bust isn’t the only thing threatening our creditworthiness, the FT reports:
In January, Moody’s Investors Service, another credit rating agency, said the US could risk its triple-A rating within a decade unless soaring healthcare costs and social security spending was curbed.
The WSJ reports on A14 that Brazil’s state-run oil firm says it has struck some big-time black gold off the country’s coast. If the 33 billion-barrel unofficial estimate is correct (and the Journal questions the number), the paper says it would be the one of the biggest oil discoveries in decades, at a time when oil prices are at a record, and turn the country into an “important” petroleum exporter.
Brazil is fast becoming the talk of the oil world. It is a rare bright spot in terms of oil in the Western Hemisphere, too. With production declining in Mexico and Venezuela, the two traditional regional oil powers, the rise of Brazil as a major oil exporter would be good news for the U.S., which increasingly is relying on oil imports from the Middle East.
The Journal says getting the oil out of the ground will be difficult and expensive.
Peak oil in Russia
In other oil news, the WSJ and the FT both front news that Russian oil production fell for the first time in more than ten years, even as super-high petroleum prices make it more profitable than ever. Yesterday, oil hit a record $112.48 a barrel.
The FT reports that an executive of the Russian oil giant Lukoil tells it that the country’s oil production has peaked.
Mr Fedun compared Russia with the North Sea and Mexico, where oil production is declining dramatically, saying that in the oil-rich region of western Siberia, the mainstay of Russian output, “the period of intense oil production [growth] is over”.