Juggling Dynamite

Big retail chains are announcing closures, downsizing and bankruptcy.  This will mean more layoffs.  For some recent updates see: Retail Detail: A Slew of Companies Filing for Chapter 11. Here is a direct video link.

Analysts are suggesting “no compelling fashion trend” is to blame??  How about mammoth over supply in retail following the credit bubble build-out, consumers with little savings, no appetite for more debt, an aging population that buys less, and poor income growth–both in workers, and in retirees who have less spending power thanks to zero-bound interest rates.

Imploding retail is a secular theme with staying power, as the bloated sector right-sizes to balance with available demand. Retail-centric REITs and developers are in for some tough times too.  As are the income-seeking people who have purchased their shares for ‘conservative’ cash flow…yikes.

Financial sector shares have historically traded in cyclical correlation with real economy sectors like minerals, mining and materials in North America. After all financial fees are not a driver of the real economy, but rather a tax that rides with it. This chart shows financials in blue (XFN) and the Canadian Resource Sector Index (lower purple) since 2003. In a remarkable divergence the past 2 years, QE and other gifts to banks have allowed financial shares to trade in a world of their own fixing, which has opened a remarkable crocodile jaw gap between the two indices shown below.

But no one gets it all their way forever, and recently disappointing earnings and negative shocks to the world economy have been knocking financial shares off their ‘permanently high plateau’ once more. As shown above, having recently broken their late 2012 QE-ever uptrend (see green line at top), the weight of the world is pushing on the financial sector to recouple with other leading sectors toward the 2009 bear market lows. A closer look at the weakness in the financial index (blue line) can be seen below.

Unfortunately as retail investors churn round and round the risk bush, nervous capital has been pulling out of sinking banks (XFN down 9% so far) and moving into deliriously priced REITs (XRE index in red) hoping for a smoother ride. What they are more likely to find however, is another train wreck in motion.

The new Greek finance minister has a PHD in mathematics.  He can follow the numbers, he knows they make no sense, and he means to put a stop to the madness. See: Greece’s finance minister is no extremist.

Here is a direct audio link to his recent interview with the BBC.

It is so much easier to rob countries when their representatives are innumerate…