The US just released US Retail Sales details warn of an alarming problem. 2008 may have been a crisis brought on by US Residential Real Estate, but 2014-2015 is likely to see the next wave triggered by US Retail Commercial Real Estate. The Fed, Banks, Insurance companies, REITS and most importantly, the Shadow Banking sector are well aware of the exposure and are preparing accordingly.
What is it they know?
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Robotic Automatoin is sweeping retail stores and with it less people and less square footage is being required,
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Online Shopping is now mainstream and the excess square footage of brick & mortar retail are a cost disadvantage as competitive discounting becomes paramount in a world of shrinking disposable incomes,
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Shadow Banking financing which has silently morphed from 2008, now employs new instruments such as SFVs, CLOs, Rehypothecation and Collateral Transformations which have all the ear marks of 2008, with short duration funding problems. The troubling ABCP paper of 2008 has only been replaced with equally troubling Repo Collateral. There is a 'roll-over' problem on the horizon.
The Bigger Picture - Margin Squeeze on Fixed Costs
Jobs versus Sales - More than Hiring for Christmas Sales
This graphic is based on the just published US Retail Sales numbers and is indicative of an "overstored" America.
The chart above -- from Neil Dutta, head of U.S. economics at Renaissance Macro -- does an excellent job of illustrating that recent retail sales data just don't square with recent jobs data.
"Something has to give. There is a widening disconnect. Either retailers stick with it and stay confident on the expectations that sales will improve, or they will be forced to cut employment dramatically."
Then I read that Bill Ackrman is dumping all his Commercial Real Estate Holding: What Does Bill Ackman Know About The Future Of Commercial Real Estate? A man that knows JP Penney and the Malls!
But Its more than just a "Mall" Problem
The rate of increase of Total Aggregate Demand is slowing and impacting all types of retail.
It is a Real Disposable Income problem!
Video: Looming US Retail Implosion: An Urgent Re-Think Required
25 Minutes with 25 Slides
There is a looming US Retail implosion on the horizon and a complete re-think of the foundation of a 70% US Consumption Economy is urgently required. For thirty years analysts have predicted the demise of the US consumer. They were so consistently wrong that the mantra "Don't Bet Against the US Consumer" became a staple of investor wisdom, similar in reliability to "Don't Fight the Fed!" Both may have lived their useful like?
The US Consumer as the engine of global growth has powered global expansion and credit creation as a direct result of the growth in US deficits (See Macro Analytics on Triffin's Paradox ).
Now at 70% of the US economy, as compared to 50-55% for other developed economies, and less than 35% for emerging economies, the question is no longer a matter of is it sustainable but rather what will be the fallout now the inevitable has finally arrived?
It is clear the US consumer is tapped out a result of the US middle class being 'gutted' with job lose, low salaries, exploding healthcare & educations costs and pensions now an endangered species. However, our Monetary, Fiscal and Public Policies are only making matters worse.
Video: The Retial Cre Domino
28 Minutes with 27 Slides
The looming domino in the US Retail CRE (Commercial Real Estate) space due to the advancement of online and robotic technologies are both startling and alarming.
Examples of Exploding Retail Service Automation - Will reduce Employment and Square Footage
- Store Replacements: Redbox Model
- Instore Kiosks
- Applebee's "Waiter Terminator"
- Smoothies "Automated Dispensers"
- McDonalds's "Smart Restaurant"
- The "Brown Truck" Store
An 'Over-Stored' America
The Retail building boom in America has created yet another bubble - The Stealth Retail CRE Bubble.
Shadow Bank Financing
The Shadow Banking system has 'morphed' since the 2008 financial crisis. Gordon T Long in the video below explains why Commercial Real Estate financing is presently seriously exposed to a crisis in short term funding disruptions, in a similar fashion to Residential Real Estate prior to the 2008 crisis. He shows the new instruments that are now being used and why they will be the new acronyms of the next financial crisis.
The Bottom Line
A potential US Recession could bring the whole US Retail CRE "House of Cards" down. Historically, it should now be a strong consideration, and we have signs of that possibility.
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