Month: September 2014

Who could have seen this coming? While facts are awkward things – especially in the face of populist policies – the data shows that retail trade employment growth since the start of the year is notably slower for ‘minimum-wage-hiking’ states than ‘non-minimum-wage-hiking’ states.

 

 

As ValueWalk’s Roger Thomas explains,

Seventeen states increased their minimum wages in 2014. Most of the changes happened early in the year.

 

…

 

It’s still quite early on evaluating how large the adverse employment effects will be, but it looks like the effects are starting to show up in the retail trade employment numbers. As a note on why retail trade, the effects would likely show up in retail trade before they show up in other industries because retail trade employs a large proportion of the minimum wage workers.

 

Here’s the early evidence.

The figure shows the growth in retail trade by state since the start of the calendar year according to whether or not a state imposed new higher minimum wage rates.

 

On the left hand side are states that left things as is, meaning these states did not impose any new minimum wage rates.

 

On the right had side are states that imposed new minimum wage rates.

 

The figure that matters here is the difference in the average employment growth rate. In states that left business as is, employment growth in the retail trade industry is up 0.72%.

 

In contrast, states that imposed higher minimum wage rates saw retail trade employment growth of only 0.43%.

 

Although it’s still too early to say the results are statistically valid, one could likely assume further analysis will find that some or most of the difference is due to higher minimum wage rates.

*  *  *
It seems Obamanomics has a problem… but when did factual reality ever stop policy-makers and politicians in the past?

via Zero Hedge http://ift.tt/1wq9VxL Tyler Durden

Who could have seen this coming? While facts are awkward things – especially in the face of populist policies – the data shows that retail trade employment growth since the start of the year is notably slower for ‘minimum-wage-hiking’ states than ‘non-minimum-wage-hiking’ states.

 

 

As ValueWalk’s Roger Thomas explains,

Seventeen states increased their minimum wages in 2014. Most of the changes happened early in the year.

 

…

 

It’s still quite early on evaluating how large the adverse employment effects will be, but it looks like the effects are starting to show up in the retail trade employment numbers. As a note on why retail trade, the effects would likely show up in retail trade before they show up in other industries because retail trade employs a large proportion of the minimum wage workers.

 

Here’s the early evidence.

The figure shows the growth in retail trade by state since the start of the calendar year according to whether or not a state imposed new higher minimum wage rates.

 

On the left hand side are states that left things as is, meaning these states did not impose any new minimum wage rates.

 

On the right had side are states that imposed new minimum wage rates.

 

The figure that matters here is the difference in the average employment growth rate. In states that left business as is, employment growth in the retail trade industry is up 0.72%.

 

In contrast, states that imposed higher minimum wage rates saw retail trade employment growth of only 0.43%.

 

Although it’s still too early to say the results are statistically valid, one could likely assume further analysis will find that some or most of the difference is due to higher minimum wage rates.

*  *  *
It seems Obamanomics has a problem… but when did factual reality ever stop policy-makers and politicians in the past?

via Zero Hedge http://ift.tt/1wq9VxL Tyler Durden

Wolf Richter   www.wolfstreet.com   http://ift.tt/Wz5XCn

The word “gloomier” inconveniently showed up in a Reuters headline that described how the CEOs of the Business Roundtable – one of the thermometers into the brains of corporate America – felt about sales, employment, and capital expenditures. Yet, “gloomier” or not, these CEOs run companies that have been spending near record amounts, not on productive uses such as capital expenditures or hiring more people to push revenues to the next level, but on buying back their own shares.

The Business Roundtable is an association of CEOs of the largest corporations in the US that account for “more than a third of the total value of the US stock market,” according to its website. On its agenda: lower corporate taxes (tax credits!), more immigration of cheap labor, and trade – the big trade agreements currently being negotiated in all secrecy [my take from late last year, though resistance has grown since…. Coming Soon: Corporate Tools To Hollow Out National Sovereignty].

Or, as it says so eloquently, “working to promote sound public policy and a thriving US economy.”

But the BRT results didn’t speak of a thriving US economy. “CEO plans for investment, hiring and sales over the next six months decreased, with employment plans declining the most,” the survey stated. It wasn’t pretty:

• The least bad was the sales index, which dropped 4.5 points to 116.4, with 20% of the CEOs expecting sales to stagnate and with 7% expecting sales declines.
• Capital expenditures looked worse. They would increase at only 39% of the companies, down from 44% in the prior quarter; they’d stagnate at 51% of the companies, up from 41% in Q2; and they’d get slashed at 10% of the companies, up from 8%. It dragged the cap-ex index down by 6.8 points to 79.1.
• And US employment? Only 34% expected to increase employment in the US, down sharply from 43% in Q2; but 20% would slash payrolls, up from 14% in Q2. And the sub-index plunged 15.7 points to 63.5.

What would it take to reverse the slide? At this point, BRT becomes a lobbying group. “We believe Congress and the Administration must focus on policies that drive economic growth, including tax reform, immigration reform, trade expansion, and long-term fiscal stability,” BRT Chairman and AT&T CEO Randall Stephenson said in the statement, directed straight at Washington.

But what are these CEOs doing instead of hiring and training people and investing in capital expenditures, crucial and sorely missing ingredients in the economy?

Turns out, 740 corporations have authorized share buyback programs through August, the most for this period since 2008, just before the whole construct collapsed. And according to research cited by the Wall Street Journal, they spent $338 billion during the first half on buying back shares, the most since 2007.

As overall trading volume is getting more and more anemic, these buybacks make up an ever larger proportion of total trading.

IBM, the second most prolific buyback hero after Apple, spent $8.2 billion to buy back 45.2 million shares during the first quarter, or over 13% of IBM shares traded during that time. It had its reasons; it needed to prop up its stocks as it was wearing investors ragged with its declining revenues. And it worked. Share price during the quarter rose, despite the dark clouds hanging over IBM, by 2.5% while the S&P 500 rose a mere 1.3%.

The buyback program of Illinois Tool Works made up 18% of the volume of its shares in May and 15% in June. In late February and in March, Oplink Communications bought back enough shares to account for over 30% of the trading volume.

And it worked. According to an analysis by Barclays cited by the Wall Street Journal, companies that spent the most on buybacks outperformed the stock market by 20%.

And now we know who has been buying every tiny dip: companies! When their shares head south, “companies get more aggressive,” explained Chip Gibbs, head of the buyback business at Bank of America Merrill Lynch.

In this environment, buybacks have outsized impact on volume, and therefore on price. Companies are blowing real cash on manipulating their own shares. Sure, stockholders might be happy in the short run. But unlike investments in productive assets and in people, the effect of this corporate “relentless bid” fades as soon as the buybacks fade. They’re a vicious treadmill, gobbling up ever larger amounts of real cash as stock prices rise.

A very capital-intensive way of financially engineering EPS, which is what every analyst on Wall Street is genetically programed to look at. But only part of the buybacks end up reducing share count. The rest are used to hide the dilution from executive stock compensation plans and stock-based acquisitions. Buybacks are a way to pull a bag over investors’ heads.

In the end, they accomplish nothing for the company’s operations – nor for the real economy. And when the cheap cash runs out to do these buybacks, a vacuum opens up under those shares, and under the market in general. That’s one of the things that happened in 2008 after all the craziness had peaked.

Oh, and FactSet just released its report on buybacks for Q2: share repurchases plunged 23% from Q1 to $124 billion, the worst such decline since Q4 2011. But it was still a lot of cash, and down only 1.1% year-over-year.  Given the surge in past quarters, for the trailing 12 months, buybacks still rose 29% to $539.3 billion. Alas, free cash flow declined 0.5%, and the ratio of buybacks to free cash flow continued to rise, hitting 82%, the highest level since, well, Q3 2008. But this time, of course, it will be different.

At this confluence of excess and exuberance on one side and the spreading sub-surface carnage in smaller stocks on the other side, even venture capital begins to fret. Read… “Excessive Amounts of Capital” Doom Startup Bubble

via Zero Hedge http://ift.tt/1wq9TpD testosteronepit

It was over a year ago, when contrary to the propganda spewed on a daily basis by the Japanese government hell bent on destroying the domestic economy, now suffering its Keynesian death rattle, just to push stocks to highs which nobody except for a few thousand people will be able to monetize on, that the CEO of Sony explicitly warned that “the preconception is that a weaker Yen is good overall. Unfortunately for us, versus the USD, it goes the other way… we are actually at a disadvantage.” He wasn’t kidding and just under a year later, back in May, Sony shocked everyone when the electonics giant not only posted a massive net loss of $1.3 billion, far worse than previously expected, but also slashed its profit outlook by 70%.

Fast forward to today, when minutes ago the Yen hit another multi-year low against the dollar, which sure enough, is great for the nominal value of Japanese stocks, if horrible for the actual Japanese companies, the Japanese middle class, and pretty much everyone except for a few superrich people. Such as Sony. Because the (now former) electronic giant, which once upon a time was the target of an activist campaign by none other than Dan Loeb who mysteriouly saw value in the company, once again stunned everyone when it reported overnight that it expects its annual loss to swell to $2 billion, but, far worse, canceled the payment of its dividend for the first time ever after writing down the value of its troubled smartphone business.

 Needless to say, Sony’s stock which doubled in 2013 for the completely wrong reasons, is now crashing.

And while guiding lower is a staple of virtually all companies in the New Normal, halting dividends can mean only one thing: the end of the road may finally be in sight.

From AP:

For the first time since going public in 1958, the Japanese electronics and entertainment conglomerate canceled dividend payments for the half- and full-year. “This is the very first time we ever eliminated a dividend,” said Sony’s president Kazuo Hirai. “For more than 50 years we always paid a dividend. The entire management takes this very seriously.“

 

The company plans to cut staff in its mobile communications business by about 15 percent, or roughly 1,000 people, Hirai said. Details of that plan are to be announced later.

But… Abenomics is an economy-boosting miracle. Oh wait, there we go again confusing the economy with a stock market priced in devalued currency terms.

Sony has been trying to reshape its business after years of red ink and has repeatedly promised turnarounds without delivering. It said the bigger loss for the current fiscal year stems from a lower valuation of its mobile phone business due to weaker than expected sales. The company is recording an “impairment charge” of 180 billion yen ($1.7 billion) in the July-September quarter.

 

The charge is purely an adjustment to the company’s balance sheet, involving no cash, but it reflects that the mobile business is far less valuable and will generate lower profits than previously thought.

 

The smartphone business has proven particularly tough for Sony. Apple and Samsung dominate at the top end while Chinese and other Asian manufacturers are hogging the market for cheaper phones that are most likely to appeal in fast-growing developing countries. Hirai said Sony had not managed to stay ahead of sea changes in the industry.

 

“The Chinese smartphone manufacturers have made great strides and are expanding outside their own market, and this has caused a shift in the pricing,” he said. “Meanwhile, Apple and other manufacturers are launching strong, innovative products. The changes are very rapid and dramatic.” Hirai said Sony expects a loss in its mobile business this year, but would return to profit by cutting costs and focusing on higher end devices. It is also positioning itself for future growth in smartphones and mobile technology.

 

“We have to be in the competitive landscape in the next stage and be ready for that evolution,” he said. Sony intends to leverage its vast archive of music and movies, network services and technology to compete.

But… we thought all it took to boost trade, sends exports soaring and raise your GDP, was to crush your currency, while obliviously keeping everything else unchanged and telling corporate CFOs to just hang tight and that any minute now EPS nirvane would be upon them.

It there really more to being competitive in today’s world than selling products at a low, low FX-adjusted price. Oh, forgot to mention: products which nobody wants regardless of the price?

Could it be that finally Japan is waking up to what we said in January of 2013, namely that just crushing your currency will do nothing for the underlying economy, and as Sony has shown, actually lead to ongoing corporate devastation and soon, widespread bankruptcies?

In a parallel note, Bloomberg reports something else we warned in January of 2013, namely that “business leaders in Western Japan warned central bank chief Haruhiko Kuroda that the yen’s slide to a six-year low is boosting costs of imported raw materials and fuel and may spell trouble for the economy.”

Companies in the industrial city of Osaka report that their profit margins are deteriorating as they can’t pass along the higher costs even as sales rise, Osaka Chamber of Commerce and Industry Chairman Shigetaka Sato told Kuroda at a gathering yesterday. Kansai Economic Federation Chairman Shosuke Mori said the rise in fuel costs warrants close monitoring.

 

“It is a source of concern, that given the recent rapid yen weakness, the negative aspects such as rising import costs will become more prominent,” said Sato, who is also chairman of Keihan Electric Railway Co.

 

The comments underscore the burden that the cheaper yen is putting on the world’s third-biggest economy even as it gives a tailwind to the Bank of Japan’s effort to spur inflation. Kuroda said the currency moves don’t pose a problem for Japan and that it’s natural for the dollar to rise against the yen as the U.S. economy improves.

Golfclap. Now we just wonder how long it will take Japan to figure out the last thing we said in January 2013, namely that Abenomics was never meant to boost the Japanese economy, and was entirely geared to boosting the global, and mostly the US stock market, courtesy of some $75 billion in fungible liquidity thanks to the BOJ every month. Of course, if and when Japan does figure out what was painfully obvious to anyone who is not an idiot, Abe may need something far stronger than diarrhea to escape the rightful vengeance that the people will demand upon his head and other parts of his body.

Sadly for Sony, it will probably be too late.

via Zero Hedge http://ift.tt/1ra7XBE Tyler Durden