It’s time to sit back, relax and enjoy a little joe …
Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.
Okay, let’s get right to it this week …
The F-word here, is ‘focus‘.
— Jan Koum
Credits and Debits
Credit: I see officials in the People’s Socialist Paradise of Venezuela are now threatening to expropriate bakeries which fail to abide by new government regulations aimed at stopping bread shortages. After all, everybody knows that when it comes to running a panadaria, nobody can do it better than a paper-pushing Caracas bureaucrat. Frankly, it makes you wonder why they didn’t think of that earlier.
Credit: Of course, the rocket scientists that make up Venezuela’s socialist government have absolutely no idea that those annoying bread lines and flour shortages are entirely the result of their own meddling regulations and price controls that interfere with the free market. Forward!
Debit: Speaking of socialist, um, paradises … San Francisco is facing a $848 million budget shortfall — despite a 3.2% unemployment rate and the typical home selling for more than $1 million. The reason: increases in government retirees’ gold-plated pension payments and other city employee payroll costs. Obviously, this wouldn’t be an issue if “the rich” paid their “fair share.”
Debit: In case you missed it, last week the Fed raised interest rates another 25 basis points. However, by hiking rates in a struggling economy, the Fed is actually playing a dangerous game of “chicken” — essentially pretending all is well. If the Fed is wrong, then the more they try to convince markets otherwise, the more they risk triggering a financial crisis.
Credit: Meanwhile, in an article at TheAntiMedia.org, Carey Wedler highlights one potential sign of a struggling economy: the “retail apocalypse” that’s officially falling upon America. Er … just in case you’ve been living under a rock for the past five years and hadn’t noticed.
Debit: To be sure, the implosion of the retail sector — at least when it comes to folding brick-and-mortar businesses — is accelerating, as evidenced by the 3500 retail outlets that are officially scheduled to close within the next few months. No — that’s not a typo.
Debit: Those shuttered stores are the continuation of a frightening trend that’s only going to get worse too. In fact, the US Census Bureau reports that US department store revenue today is 36% lower than it was in 2001. Yikes.
Credit: Of course, as you might expect, Internet sales are now more than three times that of department stores — which is why there are those who fault the retail sales slump solely on a change in consumers’ buying habits. In other words, what’s really occurring is not a retail apocalypse, but a retail revolution.
Credit: Legendary trader Art Cashin notes that retail revolutions are neither rare nor permanent. Although Sears is flatlining today, 50 years ago it was so popular that 1 out of every 200 (!) US employees worked there. It’s the same story with Blockbuster: as recently as 2004, the video chain had 8000 stores — now they have 50. Those who say WalMart — or Amazon — is invincible should remember that.
Credit: Even so, longtime retail analyst Howard Davidowitz isn’t buying the retail revolution argument. He passionately proclaims that stores are closing because customers no longer have, ahem … if you’ll pardon his French: “the fucking money.” Period. End of story. That’s true for most people living on Main Street. Unfortunately, the Fed only worries about Wall Street.
By the Numbers
The home selling season is heating up. To make yours stand out from a crowded field, many experts recommend staging it:
96% Percentage of homebuyers who report that they were at least partially affected by home staging.
81% Percentage of homebuyers who say staged properties are easier to visualize compared to those that are not staged.
34% Percentage of realtors who say they stage all of their homes.
3 Number of times faster that staged homes sell over a non-staged homes.
5% Maximum increase in price the typical homebuyer is willing to pay for a staged home.
$675 The median cost to stage a home.
Sources: Tallahassee Democrat; NAR
The Question of the Week
[poll id="156"]
Last Week’s Poll Results
Excluding credit card debt, how many loans are you currently making payments on?
- 0 (44%)
- 1 (30%)
- 2 (15%)
- 3 (8%)
- 4 or more (3%)
More than 1200 Len Penzo dot Com readers responded to last week’s question and, I’m happy to say, more than 2 in 5 report that they don’t have any open home, auto, student or other loans to tie them down. On the other side of the ledger, 11% have at least three loans on their books. I currently have two: a $640 mortgage payment and a $500 car loan, which will be retired early next year. In both cases, I have enough saved up to pay off both loans immediately, but I don’t because the interest rates are so low that it makes more sense to use my money for other purposes and keep those loans on the books.
Other Useless News
Here are the top 5 articles viewed by my 14,836 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- 16 Reasons Why Whirlpool Tubs are for Suckers
- 8 Ways to Stay Motivated When Nothing Is Going Right
- Saving Money Is Easy for Those Who Know This Simple Trick
- True Story: My Spouse Skipped Town and Left Me Penniless!
- 7 Signs That Tell Smart Stock Market Investors It’s Time to Sell
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(The Best of) Letters, I Get Letters
Every week I feature the most interesting question or comment — assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach out to me at: Len@LenPenzo.com
For some reason, Louie felt an overwhelming need to deposit this question in the Len Penzo dot Com mailbox:
Hey, Len! How many calories are there in a booger?
You don’t really expect me to bite on that one, do you?
I’m Len Penzo and I approved this message.
Photo Credit: brendan-
In my youth my town had a vibrant shopping district and going “to town” was a social event. Many diverse locally owned retail establishments employed many people and provided anything we needed other than grocery stores located outside of the square. All of those stores eventually closed and now the square is a mere shadow of its’ once thriving self. Many business have left my state of Illinois due to high sales taxes an poor business environment. In my town many former business owners specifically said they closed due to higher sales taxes…..city taxes on top of state taxes, so what does the mayor propose? Higher sales taxes! Of course he has to find revenue somewhere to pay the salaries and pensions of the current and former employees. So then more establishments will close and he’ll propose higher sales taxes again……and on and on it goes.
Maybe I’m being overly-nostalgic, Kathy, but I miss the days when malls were thriving and social gathering places. When I was a kid it was a real treat knowing that we were headed to the mall!
Too many politicians seem to think the only solution to declining revenue is higher taxes. God forbid they consider reducing government payrolls and pension promises, or cutting unnecessary or unwanted services. There is a term for that: cognitive dissonance.
I haven’t been to a mall in the last few years, The last time I was in the one by my home it had a lot of closed stores and there weren’t a lot of people shopping there. Whenever I drive by it I never see a lot of cars.
Have a great weekend Len!
Sara
Judging by the parking lots, many — but not all — of the malls where I live are suffering from a lack of shoppers too, Sara.
I read an article that the baby boomers are spending less on retail and more on dining. The point being made was that there is no slump in overall spending. It was just shifting from buying consumer goods that you would get at places like Sears to restaurants and bars. I think that makes a lot of sense based on what I see.
Here in SoCal, the restaurants I go to are definitely booming all the time — not just on Friday nights and weekends. So there may be some truth to that, Oscar. On the other hand, I wonder how much of that is bolstered by government assistance. After all, in theory those welfare checks allow people to free up their remaining income for non-discretionary purchases like eating out. I could be wrong, but I believe that if government assistance payouts were significantly reduced, the restaurant industry would be one of the biggest victims.
Didn’t you say you live in S. California? How is it that your mortgage is $640?
I do. At the time I bought my home in 1997, my mortgage payment was around $1400 per month at an interest rate of a little more than 7%. Over the years I refinanced multiple times as interest rates continued to drop until reaching my current mortgage interest rate of 3.25%. The trick was not taking any cash out on any of the refinancings — that resulted in a lower house payment each time I refinanced (I think I did it five times).
Most people during the refinance boom did the opposite: they refinanced to use their home as a piggy bank — freeing up the equity in their home without lowering their house payments to any appreciable degree.
Len, the problem is the US moved from a country that used to build real things that consumers used/needed to one that is based off the FIRE industries. FIRE stands for “finance, insurance, and real estate”. It is all smoke and mirrors that depends on leverage and financial products that benefit a very small slice of society.
Yes, Paul, I am aware of FIRE sector and the financialization of the US economy. It’s no coincidence that this sector began making up an increasing chunk of the US economy after Nixon decoupled the dollar from gold.
I just did a quick search and found this article that says the FIRE sector now comprises 20% of US GDP — which is double what it was in 1947.
Great comment!
Retail is on its deathbed, half of all millennials are living at home (interesting that so many of your poll responders say kids shouldn’t be out of the house until they are older than 26), and retires cost of living adjustments aren’t keeping up with inflation. Compounding it all is the lack of manufacturing here in the US. Somethings got to give.
Oh, something is going to give, Scott. The big question is: “When?”
Actually, Id like to take the contrarian view and say there is nothing wrong with this picture.
According to the linked articles (which is why I always come to your site …. I always learn something I didn’t know before), from 2001 to now: Internet revenues 10B –> 45B$. Dept Store revenues: 20B –> 14B$. That is definitely a lot more money being spent and not as bleak a picture …. (of course, I don’t think the accounting is done correctly ….. internet sales probably include every category while dept store revenue is probably very specific category)
I don’t think this is a question of people not having money. I think this is a question of how people want to spend their money.
Who has time to go the mall, go to walmart and not find everything, find half open boxes, spend time / gas, spend time in the aisles figuring out which is the better purchase and/or talking with not-always-knowledgeable sales reps ….? Isn’t it easier to read reviews online, order the same things online, get 5% cashback and wait for them to come home ….?
I don’t disagree with you, Kyron. In fact, I too ran the numbers in the article and came to the same conclusion — retail expenditures have continued rising, although I suspect some of that has been artificially juiced — which is why I gave the revolution-not-apocalypse claim a Credit.