All On Red

David Stockman reports on the continuing over-investment in retail brick-and-mortar – despite shrinking consumer spend while large retailers are disguising their shrinking businesses with debt-financed share buybacks.

But the fact is, debt financed retail leases are so cheap that new capacity never stops coming. At the same time, some of the nation’s largest retailers, faced by withering competition from what amounts to Fed subsidized supply expansion, have been loading-up their balance sheets with the very same kind of cheap debt in order to buy back stock at rates which far exceed their faltering net income—–a development which is reckless in the extreme in light of their imperiled business circumstances….

…In fact, during the 10 years between 2005 and 2014, these four retailers spent $34 billion on stock buybacks and dividends, but, alas, their cumulative net income during the period was only $13 billion. So they pumped 2.6X more into the casino than they earned.

In the meantime, this morning’s Empire State Fed report collapsed to a reading last seen in April 2009. Recession is here, given the lag in these sentiment measures that are delayed by denial. Doubtless we can now expect another wave of corporate share buying. FUBAR.

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