NEW$ TO U(SE)

Although retailers have continued to display dismal year-over-year same-store-sales growth rates , week-over-week reports provided some hopes that things were not getting worst.

Source: The International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index

I am not sure sales will hold in March:

ChangeWave’s February survey results point to yet another leg down in U.S. consumer spending going forward. Consumer sentiment has also taken a big hit, as 2-in-3 respondents said they now believe the overall direction of the U.S. economy is going to worsen during the next 90 days.
The ChangeWave survey of 2,701 U.S. consumers was conducted Feb. 2-9.

Grim Spending Outlook
While our January consumer survey contained intriguing signs of a leveling off in the rate of spending decline, the February results show a reversal and represent the worst spending outlook ever recorded in a ChangeWave survey.
Sixty-one percent of U.S. respondents said they’ll spend less money during the next 90 days — four points worse than our early January survey.

Just 12% said they’ll spend more money — one point worse than previously.

A key concern for the immediate economic outlook is that Americans decide to substantially and quickly increase their savings.

(…)For the sixth consecutive survey since July, saving more money (up one point to 42%) has risen as a key concern and is now one of the top reasons why consumers said they are spending less. Reducing debt (down one point to 35%) also remains a top reason.(…)

Where Is Spending Slowing Most?
New record lows for a ChangeWave survey have been recorded in consumer electronics spending and restaurant spending. Durable goods for the home have also taken a big hit. Interestingly, for the second survey in a row, we’ve picked up stabilization in household repairs/improvements spending. One explanation for this may be that some consumers made home improvements their New Year’s resolution.

It seems Costco and Wal-Mart sales are slowing, which, if confirmed, would mean that the slowdown is spreading to discounters which have performed relatively better so far. The chart below reads from left to right as from high-end retailers to discounters.

Retail Store Trends
Our latest survey results show the United States has hit the point in the recessionary cycle where even the mightiest of retailers are being brought to their knees.
Case in point: Costco (COST), which has already experienced a significant drop in its growth rate in recent months. Nonetheless, the plunge during the past month (-5) appears particularly unnerving, and is the biggest downward move we’ve seen so far for Costco.
Wal-Mart (WMT) has performed admirably during most of this same time period, but it too appears to be hitting a wall going forward. Only 13% of consumers said they’ll spend more at Wal-Mart, while 11% said less, which is a four-point plunge since January.

Not surprisingly, the greatest weakness going forward is among traditional retailers — led by Macy’s (M) (-13) and Sears (SHLD) (-13).Target (TGT) (-10) has also taken a huge hit in recent weeks, falling three points.
Home Entertainment Shopping
On the home entertainment front, even as Circuit City (CCTYQ) (down four points to 3%) sells off its remaining inventory, Best Buy (BBY)(unchanged with 38%) continues to show few signs of any windfall from the shutdown of its rival. Its market share remains significantly below that of a year ago (-7).
Apple (AAPL) (down two points to 9%) and Target (down two points to 6%) have also experienced declines since January in the home entertainment market.
Amazon.com (AMZN) (25%), however, continues to hold its own, up one point from previously.
Tough Times
Our February survey results show an overall spending environment that remains fiercely negative, as the tiny signs of stabilization we saw last month proved short-lived.
Economically speaking, the honeymoon period for the new U.S. administration appears to be over. Not only are further spending declines in store for the next 90 days, but consumer confidence and expectations for the future have worsened considerably.
After 13 months of recession, U.S. consumer spending is still trending downward.

Farmers were probably the only people little harmed by the current recession. Not for long.

Barron’s: "The President’s Budget," we read on page 48, "phases out direct payments over three years to farmers with sales revenue of more than $500,000."

The discussion goes on to explain, "Presently, direct payments are made to even large producers regardless of crop prices, losses, or whether the land is still under production."

From Barron’s

Tax credit for homebuyers.

IT MAY NOT SOUND LIKE MUCH MONEY — this column doesn’t talk trillions, or even mere billions — but if you or your child bought a home for the first time since April 1, 2008, or plan to do so before December 1 of this year, Uncle Sam is offering some real help.

The Housing and Economic Recovery Act of 2008, and the even more generous American Recovery and Reinvestment Act of 2009, provide tax breaks of about $7,500 for eligible first-time buyers. That could make the difference between owning and renting.

The term "first-time" home buyer is liberally defined. You may be eligible for the credit as long as you did not own a home as your primary residence at any time in the three-year period just preceding your purchase of the new home.

The home must be for your personal use (not to be rented out) as your main residence. A condominium, co-op apartment, trailer or houseboat qualify, as long as you live in it most of the time; a vacation home doesn’t make it.

For those who bought their home between April 1 and December 31, 2008, the benefit comes as a repayable $7,500 tax credit, which you will have to repay in 15 equal installments, in the form of additional tax payments each year beginning with your return for 2010. If at any time during the 15-year period it ceases to be your main home (if you sell it, use it for rental income, etc.) all remaining installments fall due with your return for that year.

You may get a better deal if you buy (or have bought) your first home within the first eleven months of 2009 — the credit can then be as much as $8,000, and you won’t have to repay it unless the home ceases to be your main residence within 36 months of the purchase date. In that case, you must repay the full credit with your return for the year of the change in use.

Another break for those who buy a home before December 1: You can claim the credit on your 2008 tax returns, so you won’t have to wait until next year to get the benefit.

The maximum credit is the lesser of (a) 10% of the purchase price of the home or (b) $7,500 ($8,000 for a purchase in 2009), reduced by 50% for married couples who file separately. The credit is phased out as your adjusted gross income rises. For a couple on a joint return, the phase-out starts at $150,000 and the credit completely disappears at the $170,000 level. For all others, the phase-out is effective for adjusted gross incomes between $75,000 and $95,000.

The credit for either year is "fully refundable." While it generally operates to reduce your tax liability or increase your refund, you will get it in cash even if you have no taxable income, or if the credit is more than the tax you owe.

A change in your use of the home from your primary residence to a rental or business property will also result in an acceleration of the installment payments, or, for a purchase in 2009, a change in use within 36 months of the purchase will require repayment of the entire credit with the tax return for the year of the change.

Certain exceptions soften the repayment requirements. If you sell at a profit to an unrelated person, your repayment will be limited to your gain on the sale; if the home is destroyed or condemned, and you buy a new main residence within two years, your repayments are not accelerated; and if the owner dies, any remaining installments are forgiven, although your surviving spouse must repay half of the remaining amount.

Readers involved in divorce proceedings should take into account that if the home is transferred to a spouse as part of the settlement, the new owner will be liable for any unpaid installments.

Will these breaks help the ailing economy? We’ll just have to wait and see how far these tax credits will go toward relieving the excess supply of unsold homes.

From Barron’s

BARACK OBAMA’S $3.6 TRILLION BUDGET is full of bad news for investors and affluent individuals.

As the budget document declares, the Obama administration inherited what it calls a “legacy of misplaced priorities,” chief among which is a three-decade trend of rising income inequality. In 2004, the budget says, the top 1% of families took home more than 22% of national income, up from 10% in 1980.

To change that distribution, the budget puts forth an array of proposals. These shouldn’t be taken as law, for writing the laws is the job of Congress. Many observers say they expect that the House Ways & Means Committee and the Senate Finance Committee, which deal with taxes, will make more changes in the president’s proposals than has been customary — and the dominant mood in those committees is to get still tougher on the rich.

Under the administration’s plan, the top two marginal rates on personal income, now 33% and 35%, would be raised to 36% and 39.6% in 2011.

Those taxpayers’ top rate on dividends and capital gains would increase from 15% to 20% (except for capital gains on the sale of stock in businesses with less than $50 million in sales, on which there would be no tax). The same taxpayers would also be required to take tax deductions as if their top tax rate were only 28% (although many such taxpayers are already affected by the loss of deductions under the Alternative Minimum Tax and would see no further penalty).

The administration says only families with more than $250,000 annual income would pay increased personal income taxes. Also, the estate tax, scheduled for abolition in 2010, would be continued at the current rate of 45% on taxable estates greater than $3.5 million.

Although many critics assume that anything the government taxes more heavily will shrink, including investments, the administration responds that the new rates are no higher than those applied during the Clinton administration, and some are lower. Many investors would be happy to pay Clinton-era taxes if they had Clinton-era profits.

Taxes on business are a different story. Instead of general increases, the administration intends to make changes that apply to some companies but not others. Details weren’t provided in the budget document, but corporate tax changes were projected to provide $353.5 billion in new revenue during the next 10 years. Among the published provisions, the administration would limit or end the corporate tax deferral on profits earned in foreign countries. Oil and gas companies would lose some production incentives in the tax code, and the industry would be among those most hurt by elimination of the Last-In-First-Out method of accounting for profits on inventories. On Wall Street, hedge-fund managers who take a share of the profits would pay regular income-tax rates, rather than the lower capital-gains rate.

THE BIGGEST IMPACT ON BUSINESS would be saved for 2012, in separate measures that could provide the biggest legislative battles of the Obama administration. As briefly described in the budget document, businesses would start living under a cap-and-trade system intended to limit emissions of carbon dioxide and other greenhouse gases.

Under the system, the government would sell companies a limited quantity of permits to emit (raising federal revenue estimated at about $80 billion a year), and the companies could buy and sell the permits among themselves. The intent is to use the carbon-trading market to find the cheapest opportunities to reduce emissions. Companies that do reduce emissions could profit by selling unneeded permits, while companies that couldn’t avoid emissions would have to assume the additional expense of buying permits at market prices.

Cap-and-trade is expected to have the largest direct effect on electric utilities burning coal. Through them it would raise the energy bills of all Americans. The Obama administration says it would invest about 20% of the auction revenue in low-emission energy technologies. The rest would be rebated to families, communities, and businesses to ease the pain.

Some other changes proposed in the budget were not large, but sharply targeted. For example, the administration would end subsidies to banks and other private lenders for making student loans and have the Education Department make loans directly. It would increase military pay and benefits and increase the size of the Army, leaving less money for big-ticket items like Lockheed Martin ’s F-22 fighter jet and a new destroyer. It is providing large increases for securities and commodities regulatory agencies and the FBI’s white-collar crime units. And it would end direct payments to the biggest farmers.

Here it is. Always a must read. Here are excerpts:

• In poker terms, the Treasury and the Fed have gone ‘all in.’ Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects.

• Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.

• Amid this bad news, however, never forget that our country has faced far worse travails in the past. … America has had no shortage of challenges.

• We’re certain, for example, that the economy will be in shambles throughout 2009 — and, for that matter, probably well beyond — but that conclusion does not tell us whether the stock market will rise or fall.

More to come

by CalculatedRisk

From The Times: Lloyds counts cost of HBOS takeover and property slump as 500,000 customers slip into negative equity

HBOS, Britain’s biggest mortgage lender, revealed that 381,669 customers, about 16.8 per cent of its mortgage book, owed more than the value of their homes. At Lloyds TSB, 162,000 homeowners, 15 per cent of its mortgage book, were in the same position.
These figures compare with only 0.1 per cent of customers of each bank – a total of less than 4,000 households – being in negative equity at the end of 2007.
…
Michael Saunders, chief economist at Citigroup, said last month that the bank estimated homeowners with negative equity was up to about 1.2 million, from 100,000 a year ago, out of a total of between 11 million and 12 million mortgages. “There is no sign that the decline in house prices – and hence the surge in negative equity – is yet close to ending,” he said.
He said in December that about one owner in four could be in negative equity if prices fell by a total of 30 per cent by 2010, as many analysts expect.

From NYT: The world trading system, whose growth was deemed an inevitable part of globalization only a year ago, is now shrinking rapidly.

Falling Exports

Japan, a country built in large part on exports, reported this week that its exports in January were worth $47.2 billion, the lowest monthly total in more than four years and down 34 percent from the same month a year ago.

Even in the global recession of the 1970s, Japanese exports never dropped that fast.

Most major European countries have not reported on January trade as yet, and the United States figures will not be out until March 13. But the rapid fall in trade has been experienced in virtually every country that has reported figures for January, as is shown in the accompanying graphs.

From WSJ: January dividend payments among companies in the Standard & Poor’s 500-stock index fell 24% from a year ago.

"If you’re a dividend investor who holds stocks for years or decades, you’re going to feel this for a long time," says Howard Silverblatt, an analyst at S&P.; That’s because, while stock prices can rebound quickly, "companies are not going to increase [dividends] right away" when the economy finally improves.

Historically, dividend-paying stocks have been a refuge for nervous investors in a bad market. Even amid falling stock prices, at least holders could count on a reliable quarterly check in the mail.

That’s no longer the case. In fact, companies have been reducing their dividends so heavily that investors are taking flight: Instead of supporting the market, these stocks actually are leading prices down.

Dividend reductions are also upending the portfolios of countless investors — often retirees — who are particularly reliant on the quarterly checks to cover their living expenses.

(…) One factor that could drive further cuts: The market has grown less inclined to punish dividend reductions. For companies, the cuts are "not as painful as they were a year and a half ago," Mr. Silverblatt says.

In another paradox, shares of dividend-paying stocks have fallen since Nov. 21, while those that don’t pay dividends have risen, according to Strategas Research Partners, a New York research firm.

"In an environment where there is a massive flight to quality, you would expect companies that are offering yields to do better," says Nicholas Bohnsack of Strategas. "That has absolutely not been the case."

Mr. Bohnsack says the declines reflect fears of dividend cuts driven by need to protect cash flow or bolster the balance sheet. "It is almost the purest read on confidence that we have," he says.

Most surprising has been the performance of a group the S&P; calls the "dividend aristocrats," companies that have regularly increased their dividends for 25 years or more. As companies cut dividends, this group has steadily declined in size, and you would expect the surviving members to be holding up pretty well.

However, reflecting the new doubts about dividend-payers, even this group has been trailing the performance of the S&P; 500 since the middle of last month, Strategas found.

Analysts say investors looking for secure dividend payers should steer clear of the highest-yielding stocks. If the yield is over 10%, "the market is really expressing a lot of doubt in the company’s ability to maintain the dividend," says Josh Peters, who analyzes dividend-paying stocks for investment-research firm Morningstar Inc.

Some sectors, such as utilities and consumer staples, now offer particularly good hunting grounds for stable dividends, analysts and money managers say.

Utilities are appealing because their dividends remain relatively secure while the stock prices have declined substantially. "You get a lot more bang for the buck among utility stocks today than you could have a year ago," Mr. Peters says.

From FT: Weak growth data from India and Malaysia on Friday provided fresh evidence of the deepening impact of the global recession on developing Asia. The figures are likely to put pressure on authorities to take much more forceful fiscal and monetary interventionism to counter the downward spiral.

The 5.3 per cent growth from a year earlier in India and 0.1 per cent annual expansion in Malaysia’s economy in the fourth quarter of last year came as Japan’s manufacturing output suffered a record 10 per cent month-on-month drop in January. New job offers in Japan also plummeted 18 per cent to complete an abysmal set of recent figures from the world’s second-largest economy, including a record 45.7 per cent fall in exports in January.

The figures are further proof that Asia’s economy fell off a cliff in the closing months of 2008 and raise the likelihood that the bad news will continue to flow as the region’s export-dependent nations are forced to cut jobs and manufacturing capacity because of weak western consumer demand.

The collapse in Asian exports over the fourth quarter was “nothing short of breath-taking”, said Frederic Neumann, Asia chief economist at HSBC. “Economic models and experience suggest that financial turmoil tends to transmit far more gradually into the real economy than has occurred this time around. In fact, the severity and rapidity of the fall in output exceeds anything we have ever seen before.”

(…) Friday’s announcements from south-east Asia were equally grim. Malaysia’s economy grew at its weakest pace in eight years in the fourth quarter from a year earlier, while Thailand’s exports and industrial production fell at a record pace in January.

“It’s now a given that every government is going to spend until it drops, whether or not they have the money, like India,” said Sharmila Whelan, senior economist at CLSA, an Asia-focused brokerage. “We are looking for aggressive rate cuts everywhere.”