Lies, Damned Lies & Black Friday sales figures

black_friday (1)It’s that time of year again, so everyone get ready for the annual storm of Black Friday BS.

Stories about the success of Black Friday/Cyber Monday  are as inevitable as taxes and death but nowhere near as reliable. It goes like this: "Great Black Friday sales numbers mean a big shopping season. Insert somebody’s numbers to support this and then a quote or two from an analyst." Publish, forget, and hope no one notices that they are ALWAYS — even in good economic times — WRONG. In the past these stories have been an embarrassment. Now they are colluding with retailers to overcome the facts in the hopes that somehow shear massive denial will rescue us. (In a sign of how desperate retailers are Sears, The Gap and others are going to be open on Thanksgiving.)

This isn’t whistling past the graveyard, it’s renting a whole symphony orchestra. Here’s the facts from last year’s serenade of nonsense:

Although the actual sales figures would later show a whopping 0.5% increase in sales, here’s the AP’s early report on what should be called Bogus Saturday:

The nation’s shoppers took advantage of deals on toys and TVs with some renewed vigor in stores and online on Black Friday after a year of concentrating their spending on basic necessities. Though the first numbers won’t be available until Saturday, early reports indicated bigger crowds than last year, with people buying more and even throwing in some items for themselves.

“Though the first numbers won’t be available until Saturday”? That’s shorthand for “we’re making this up.”

Stores were encouraged that shoppers appeared to be a little freer with their spending. Best Buy, Sears Holdings Corp. and Mall of America, as well as mall operators Taubman Centers and Simon Property Group, offered signs people were buying more than last year.

“Offered signs”? Whiskey Tango Foxtrot?

An average of about 1,000 people were in line for midnight openings at Toys R Us stores, CEO Gerald Storch said. After setting aside 100 Zhu Zhu Pets hamsters for each location, Toys R Us came back with several shipments of the hot toy for several of its stores Friday.

And Mr. Storch is certainly an unbiased observer with no vested interest in the outcome of this story. Fortunately Mr. Storch’s “facts” were backed up by none other than Macy’s CEO Terry J. Lundgren. Lundgren said more than 5,000 people were at Macy’s Herald Square store in New York early Friday, slightly more than last year. (WHERE DO THESE NUMBERS COME FROM? Is there someone whose job it is to count the number of people in line? )

Having passed off the above as news, the AP then goes to a person-on-the-street for further uninformed opinion.

Dondrae May, a manager at a Best Buy in Framingham, Mass., said shoppers started lining up at 4 p.m. Thursday — 13 hours before opening. He said shoppers were filling their baskets with more items than a year ago, when they were shellshocked after the financial meltdown.

Everyone repeat after me: The plural of anecdote is NOT data. The plural of anecdote is NOT data. The plural of anecdote is NOT data. The plural of anecdote is NOT data. The plural of anecdote is NOT data….

At least Bloomberg had the decency to make it clear the adjective for the sales figure was alleged, not proven.

Retailers reported “strong” shopper traffic on Black Friday as discounts on televisions, toys and computers drew budget-conscious crowds across the U.S., the National Retail Federation said.

Although Bloomberg also cites a retail CEO (Best Buy) as saying sales are better, they don’t pass off his opinion as anything but that. (BTW, Storch & Dunn’s questionable numbers are also quoted in the Bloomberg story and in the Wall Street Journal. Some PR agency is earning its commission!)

That said, Bloomberg does pass along this piece of genius seemingly without pausing to ask where these statistics come from:

“There’s a little more traffic than last year across the board, maybe 10 percent,” Bill Taubman, chief operating officer of Taubman Centers Inc., a U.S. real estate investment trust with 24 malls, said in a telephone interview yesterday.

Thank G-d for the Wall Street Journal which had the common decency to run a story poking holes in all these predictions.

Black Friday’s predictive powers are limited. Although the day after Thanksgiving was the No. 1 shopping day in terms of sales last year, when economic turmoil made it a retail free-for-all, it typically is eclipsed by the last Saturday before Christmas. Similarly, "Cyber Monday," the Monday after Thanksgiving, hasn’t been the top day for online sales since the term was created five years ago.

The Dukes of Moral Hazard: The Dangers of Quantitative Easing

 

This brilliant and terrifying column was originally published at ProPublica and is republished here under a Creative Commons license. cc

by Jesse Eisinger
ProPublica, Nov. 10, 2010, 2:40 p.m.

sinking_shipAcross the world, there are booms. Chinese Internet companies are flourishing. Energy companies are finding new sources of power. Commercial real estate is coming back.

Unfortunately, this isn’t happening in the real world, which is still crippled by sagging economies, but in the investing one.

If there’s a doggy stock, a dodgy loan or a slice of a complex credit security made to a questionable borrower — hedge funds want it now. Companies with junk bond ratings are flooding the markets with new issuance. If private equity firms bring a money-losing company saddled with debt to market, investors are eager to snap it up.

Thank the Federal Reserve. The central bank has embarked on its program of “quantitative easing,” a second round of experimental monetary policy in which the Fed buys up assets — like longer term government bonds — to bring down interest rates, which is supposed to spur lending and borrowing, thus reigniting the economy.

Nobody knows whether it will work to bring down the intractable rate of unemployment. But it has already worked in one significant way: the speculative juices of the markets are flowing.

What’s going on? As a Fed official explained it in a recent speech, one supposed benefit of the Fed policy is that it will add to “household wealth by keeping asset prices higher than they otherwise would be.”

So it’s levitation-by-decree. When the Fed moves, financial assets receive the opposite of collateral damage: universal blessing, deserved or not. Lower rates may or may not help more people find work. But there’s no doubt that the central bank has already helped the Henry Kravises and Lloyd Blankfeins of the world.

The Russell 2000 stock index, which is made up of smaller companies, has risen about 21 percent since September, when investors started to anticipate that the Fed would intervene in an aggressive fashion. A tiny Chinese Internet stock, China MediaExpress Holdings, is up more than 250 percent since mid-September. The private investors that own Harrah’s, the money-losing casino company, are bringing it public, and investors are going to gamble on it despite a crushing debt load.

Then there are something called B notes, bonds backed by commercial real estate loans. B-note holders are on the hook for the early losses if the loans go bad. They are as hot a commodity as everything else. Never mind that there’s a huge oversupply of commercial real estate in this country. Or that Wall Street just went through a disastrous episode for complex structured financial products of exactly this sort.

Without knowing a thing about finance, here’s how to tell it won’t work out well. Wall Street is the great master of the euphemism. The Street doesn’t call them junk bonds; they are “high yield.” Here, something isn’t just Triple A. It’s “Super Senior Triple A.” So when the best investment bankers can do is to dress something up with a lowly “B,” you know it’s trash.

Leverage, meanwhile, has made a glorious return. Interactive Brokers, a discount brokerage firm, has been running an advertising campaign that displays money spewing from printing presses. The firm will lend (for certain special customers)$566,000 for every $100,000. Ah, borrowing heavily for the purposes of trading in volatile markets. Maybe some Bear Stearns or Lehman Brothers bankers can explain the wisdom of this.

All of this is Finance 101. The cheaper money is to borrow, the more it makes sense to take a bigger risk with it.

But that doesn’t make it more palatable. It feels like an ominous replay of recent Federal Reserve emergency actions, which led to bigger and bigger bubbles. The Fed brokered the rescue of Long-Term Capital Management, bailing out the investment banks that had lent to the collapsing hedge fund. The Fed pumped money into the economy to save us from the Y2K computer bug. The Fed tried to rescue the economy from the bursting of the Nasdaq bubble, helping to create the housing bubble.

It’s like the exhausted “Saw” movie franchise; this isn’t just a sequel. It’s more like the third iteration of the second reboot — harder core, baser and for serious liquidity heads only.

Is this the price society has to pay for a better economy? Do we care if some hedge funders get rich as long as unemployment goes down, fewer people get thrown out of their homes and household debts are less crushing?

That would be a worthwhile tradeoff. But it’s far from clear that the Fed can get any real traction with its policies.

Over the past year, I’ve been investigating some of the more egregious conduct that occurred in the bubble years. In this column, I’ll be monitoring the financial markets to hold companies, executives and government officials accountable for their actions.

A main focus will be the spectacle of returning speculation. It’s commonplace to lament Wall Street’s lack of a historical memory. But there is something different at work. Professional investors have learned the lessons of the financial markets’ serial bubbles and learned them well.

The lesson is: When the next one comes, I’m going to get mine. I’ll just get out early this time.

You can contact Jesse Eisinger at jesse@propublica.org

Today’s non-news: Millionaires optimistic while the rest of us worry about paying the mortgage

First from the Wall Street Journal:

Millionaire Optimism Hits 3-Year High

Now, the Washington Post:

Most Americans worry about ability to pay mortgage or rent, poll finds

Well now. I feel much better informed.

palm slap

Increase in foreclosure rate could mean banks knew they were seizing properties they didn’t actually own

In the 3rd quarter of this year banks repossessed a total of 288,345 properties – by far the largest quarterly total since the meltdown began. The 4th quarter of this year is likely to have the fewest repossessions of the meltdown because of “the decision by several of the largest lenders to halt filings after it was discovered that paperwork for many loans is missing or incorrect.” The increase is a sharp spike in the total number of repossessions. The 4th quarter numbers were a 7% increase over the previous quarter and a 22% increase over the same period of 2009. According to RealtyTrac: “A record total of 102,134 bank repossessions were reported in September, the first time bank repossessions have surpassed the 100,000 mark in a single month.

So, did the banks know what was coming and try to get as many properties safely in to their possession as they could before the hammer came down? If this is not the case then why the increase?

Now I am not a real estate lawyer – to put it mildly – so I don’t know the answer to the following: Is it legal for banks to foreclose if they know that they cannot substantiate ownership? My guess is no. I hope the 50 state attorneys general now looking into this hunt around for any signs of foreknowledge by the banks. If the banks were doing something they knew to be illegal – as opposed to just making more mistakes – then it raises the question of whether or not there was a conspiracy to commit fraud. Were any of this to be true it would worsen the already dubious condition of many banks’ balance sheets.

What makes this even more interesting that it was just yesterday that analysts were cooing over the better-than-expected earnings J.P. Morgan. This was one of the reasons the press gave for explaining the very odd fact that the Dow closed at or over 11,000 for a fourth straight day. It is worth noting that the Dow has risen more than 1,300 points since July 2, presumably on the basis of all the good economic news of late. Could someone please remind what that news was? Anyone? Bueller?

As long-time readers know I view the stock market as much more of a leading psychological indicator than an economic one. I am still hoping for evidence that will convince me otherwise.

THEN AGAIN IT COULD JUST BE A COINCIDENCE: Bill McBride, who writes Calculated Risk, says: The banks are still catching up on the earlier foreclosure moratoriums – and extended periods for trial modifications.  This surge in repossessions was expected and I think unrelated to “foreclosure-gate”

 

A guide for the perplexed to the economic mess

The problem with the economy is clear, but it’s been obfuscated out of most people’s minds. So, to put it simply: Financial institutions loaned out a huge amount of money against assets that are now worth far less and whose value is still falling. Somehow, someway, the difference between these two numbers has to reconciled. Simply put, money loaned (X) – current value of assets (Y) = amount of debt to be accounted for (Z). Solve the equation and you know exactly how solvent our economy is.

This week we have found out that Y equals even less of X than previously thought – and the previously thought numbers were already pretty bad. That is because banks screwed up the paperwork so badly they are having major problems proving they do indeed have a legal right to the homes they gave mortgages on. Short form: The banks effectively gave that money away. So the debit side of their ledgers just got a whole lot redder and Z just got a whole lot larger.

Bank_Failure_700_Billion Now Z was bad before this latest fiasco was discovered. How bad? Bad enough the banks and the government have gone out of their way to make to figure out what Z is worth. My theory is they believe – perhaps reasonably – disclosing Z will cause the world’s economy to go into freefall. Unfortunately Z is not going away. So because these groups cannot change the value of X and the value of Y keeps getting smaller, they have resorted to fiddling with the – and the =.

First, the government tried to purchase mortgage debt(X) from the banks. The problem with this is that selling X would mean declaring its value, i.e. providing a real number for Y. This would mean admitting what everyone knows – that a number of banks have debts well in excess of their assets.

Because this didn’t work, the government tried to alter the equation’s minus sign by giving banks enough funds to be able to withstand solving for Y. Under this plan we get X + $100s of billion – Y = Z. Given how hesitant banks were to take toxic asset relief payments (or whatever they’re calling it now) it is reasonable to conclude that Y = way more than hundreds of billions.

But wait, you say! Many of these financial institutions have already repaid the bailout money! Yes, that is true. However keep in mind, they repaid it with money borrowed from the government. This is robbing Peter to pay Paul as imagined by M.C. Escher. Those staircases are never going to meet up but it allows both the banks and the government to say that they do while hoping that no one reads the fine print.

So being unable to either 1) increase X enough to do any good or 2) stop the actual value of Y from declining, the government tried letting financial institutions play lets pretend with the book value of Y. Recent changes in accounting rules let institutions can the value of a property at what they think it would go for in an “orderly” sale, as opposed to a forced or distressed one. Or, to quote the head of the central bank of Wonderland: “When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”

What all those measures did was to allow the economy to continue to operate because we all pretended the problem would somehow go away. This is an attempt to put off the day of reconciliation until some time in the far distant future when someone will have figured out a solution that won’t hurt. However, this is impossible. The solution will hurt, and it will hurt a lot.

All talk of growing our way out of the recession is absurd. It is based on the belief that we can continue to increase the size of the economy as was done earlier in this decade. Let’s make one thing clear: The last decade’s worth of growth was funded by loans against assets that were never worth those loans in the first place. Trying to go back to that means continuing to believe in the fiction that it was ever sustainable in the first place.

The healthy economy of our future won’t resemble this in anyway. We will have to accept far more modest growth and lower our expectations about always having the newest stuff. We may have to pay our farm workers enough that those jobs, and others like them, because financially appealing to American citizens. That will mean paying a lot more for food and other things.The US has to become home to manufacturing again. This will mean enacting things – like tariffs – that a lot of powerful corporations don’t want. NAFTA and other free trade agreements are going to have to change drastically.

Of course, we don’t have to do these things. Regardless of what we do, though, the economic equation will be resolved and that debt will somehow be accounted for.

But hey, the Dow’s over 11K so no worries, right?

US has record number of millionaires, poor people, irony

Two news stories from the same day:

Millionaire Population Soars — Again

According to a new survey from Phoenix Marketing International’s Affluent Market Practice, the number of American households with investible assets of $1 million or more rose 8% in the 12 months ended in June. The survey says there now are 5.55 million U.S. households with investible assets of $1 million or more.

USA’s poverty rate reaches highest level in 51 years

A total of 43.6 million people lived in poverty last year, up from 39.8 million in 2008 — the third consecutive annual increase. Extended unemployment benefits lifted 3.3 million people out of poverty, compared with 900,000 in 2008.

Why I had to stop reading Michael Lewis’ The Big Short

I’m a fan of writer Michael Lewis. Liar’s Poker, Moneyball, Sandra Bullock Wins An Oscar, are all good books. As is The Big Short, his latest. I started reading it yesterday and by bedtime I was half-way through (it’s a short book and I’m a fast reader). When I got up this morning Mrs. CollateralDamage said I was making very unhappy noises in my sleep and I’ve felt on edge all day. I read some more of the book, realized I was getting increasingly agitated and finally put it down. This book is a non-fiction horror story, and one whose end we don’t yet know.

Daily Show gets it right again. The Big Short is about four people who guessed (and bet) right about mortgage-related ponzi scheme which has led to our current economic “downturn”. What is probably upsetting me about the book is that it confirms my most cynical beliefs about the world. Several of the people in the book repeatedly ask questions of bankers, bond raters, bond salesmen and anyone else they can find in hopes that someone can prove to them that all this buying and selling of sub-prime mortgage securities isn’t just a house of cards. They want to know because they are betting that it is and want to find out if they’ve just blown their money. That, my friends, is a motivated investigator. They are either told they don’t understand how this all works (which we quickly realize means the person who should understand doesn’t) or they are met with blank stares. They try to tell regulators, they try to tell other investors, they even try telling the investment bankers who created this train wreck what is about to happen. AND NO ONE WILL LISTEN. They are Cassandra’s writ huge – except that they make a crap load of money, whereas Cassie just had to suffer.

The other terrifying thing about Big Short, is that it confirms my greatest cynical fears: That most of the people in places of power are either corrupt or fools. Now you’d think that after eight years of George W. I would already have had these fears confirmed but there’s something about Lewis stories of smug, arrogant idiots/crooks gaming the system that scared the feces out of me. It doesn’t help that I really don’t see any reason for the economy to improve. The head of our bankrupt government wants to spend more money. His opposition thinks the best way to deal with the government’s being bankrupt is to keep in place a tax cut for the richest people in the nation. The banks are pretending they’re solvent. People keep saying it’s up to consumers to spend our way out of this mess but it’s overspending that got us into the mess in the first place.  And no one but no one is talking about what happened to all the debt created by the mortgage fiasco. Wall St. and the financial press seem to think that as long as the Dow is over 10K all is right in the world – EVEN THOUGH NONE OF THE PROBLEMS THAT GOT US INTO THIS HAVE BEEN ADDRESSED. Meanwhile no one who was responsible for any of this is going to jail and the nation continues to bleed money and people in two wars everyone knows we have no business fighting.

Sorry, Mr. Lewis, I can’t take anymore. I’m going to go read something much more soothing, like World War Z or John Dies At The End. As my old drinking buddy John Milton once told me, “Stare into the abyss long enough and it starts to stare back.” Well, at least St. Peter told me I was the nicest of the damned…