Build it!

And they will Come!

Massive overbuilding of Retail

Comes to an End!

19 retailers in Pa. closing more than 2,700 stores

This year is off to a difficult start for retailers, with a wave of closures from 2017 continuing into 2018. 

Toys R Us on Wednesday announced it would close up to 182 stores as part of its bankruptcy filing. 

Two weeks ago, Sam's club announced it would close 63 stores. 

These closures follow the trend that began in 2017 and set the record for the most store closings in a year, with about 7,000 retailers shutting their doors.

That’s almost a thousand more than the previous record of 6,163 in 2008 during the Great Recession.

The rise of online sales is continuing, but many online retailers are trying to find storefronts and showrooms. Similarly, traditional retailers are closing brick-and-mortar stores in favor of expanding their online business.

DYI:  How did all of this massive over building come about?  Simple the major culprit was refinancing primarily of real estate along with government refinancing/financing as interest rates began their epic slid starting from the peak September 1981 at 15.32% (measured by 10 year Treasuries)!  Then rates journeyed to their ultra low at 1.50% on July 2016 so far ending the interest rate slide of a lifetime.  This one two punch of colossal size debt creation at lower and lower carrying costs of ever declining rates propelled the economy as our citizens went on a consumption rampage.  This would have occurred whether or not manufacturing was outsourced to foreign lands.  Since it did this placed a supercharger on an economy running its RPM’s at red line.  Two thirds of this so called growth was not growth in the economy it was debt creation of biblical proportion!

Its all fun and games until someone gets hurt! 

This debt binge drove stocks, bonds, and real estate to higher and higher levels achieving the false premise that making money in these three assets as easy.  The first place for someone to get hurt was the high tech dot.bombs peaking in the year 2000.  Stocks lost their allure – for the average investor – bonds continued their bull market of a lifetime as the Feds pushed rates lower and lower.  Of course this pushed real estate into hyper drive – as conservative investors stayed with bonds but our more adventurous citizens went head first into real estate speculation.  We all know how that worked out ending the magnetism of real estate speculation at least for average John and Jane Doe.  All that is remains – from an average Joe’s perspective is bonds.  Of course the million dollar question is; have interest bottom out [July 2016] starting a multi-year bear market for bonds?

 

If rates have bottomed out moving ever higher over a multi-year period only interrupted by recessions then the cat is out of the bag as stocks, bonds, and real estate will be accurately view as difficult assets – though not impossible – to make money.  The economy will no longer have that extra zip as debt will either be worked off or defaulted.  Local and State governments who think their woes are bad now, to use the old expression “they haven’t seen nothing yet!”  As old style pension plans go bust right along with their financing needs as borrowing money becomes more and more expensive.  Expect immense and oversized involvement by the Federal Reserve (yes even bigger than today) and the Federal government as well.  As our citizens work off the drunken party of the last 36 years...One hell of a hangover.

There are two possible scenarios at least in the shorter term that I’m entertaining.  Both involve an economic deflationary recession/depression SMASH!  One:  Federal Reserve embarks upon stratospheric QE moving rates negative such as Europe [Especially Switzerland] or two:  Despite the Fed’s heavy hand tax receipts drop off so significantly rates move up as investors back away from Fed debt demanding higher yields to protect their backsides.

My best guess is for negative rates ending the bond buying bull market of a lifetime.  What I do know long term bonds – as measured by 10 year Treasuries – are now 68% above their long term mean of 4.57%.  Since the bottom at 1.50% (July 2016) until yesterday (1-29-16) at 2.70% that is an eighty percent increase!  There is a recession/depression lurking as the economy has been growing since March of 2009!  To say we are long in the tooth is an understatement.

The Great Wait Continues….Better Values are ahead!

DYI