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Wednesday, January 30, 2008 3:01 AM


Wal-Mart Reduces Prices & Offers 0% Interest


CNN Money is reporting Wal-Mart chops prices in bid to lure shoppers.

Wal-Mart announced Tuesday that it will chop prices between 10 to 30% this week on groceries, electronics and other home-related products in an effort to keep its cash-strapped consumers excited about shopping.

While its rivals, including Target (TGT), have seen sales decelerate dramatically in recent weeks from a consumer spending slowdown, Wal-Mart (WMT) has been benefiting from more shoppers trading down to its discount stores.

"We all know economic times are tough so our plan is to help with added savings throughout the year, focusing especially on what people want, when they need it," said John Fleming, Wal-Mart's chief merchandising officer.

My Translation: We are reducing prices because we have to. There is little demand at current pricing.

"The extent to which Wal-Mart can use these extra discounts to drive [store] traffic and pick up market share is a good thing," he added.

Wal-Mart spokeswoman Melissa O'Brien told CNNMoney.com that this month's week-long additional price cuts are "the first of more to come."

"We will have more of these during the busier shopping periods of the year like Valentine's Day and Easter," O'Brien said.

My Translation: Get ready for price wars. This will not be good for profits at Target, at Wal-Mart, or anywhere else.

In addition to the extra discounts on "thousands of products," the retailer said it will offer no interest for 18 months on purchases of $250 or more with a Wal-Mart Credit Card.
Wal-Mart Stimulus Program To Fail

The problem with 'Wal-Mart stimulus' is tax rebates won't do much to lift consumer spending.
Consumers will spend more, but not that much more, and they will do it over a brief period. "Since the rebate checks to individuals likely won't be mailed out until May or June, the lift to consumer spending is probably going to be a shortlived third-quarter event," [Merrill Lynch chief economist] wrote.

In what has to qualify as one of the more absurd headlines for a press release in recent memory, Wal-Mart announced what it called its "Economic Stimulus Plan for U.S. Shoppers."

I can only hope that this is meant to be tongue-in-cheek but Wal-Mart actually said in its press release that "against a backdrop of continued talk of a credit squeeze, Wal-Mart is concentrating on savings on the items customers need to buy at this time of year - unbeatable prices for the big game."

So rest assured, consumers. You don't need to wait for your tax rebate check. Go splurge today on Pepsi 12-packs, Tostitos Scoops and Hillshire Farms Cocktail Smokies.
I am not sure what Wal-Mart is smoking, but you cannot spend your way out of a recession when you are broke. US consumers are broke, so broke they are walking away from their homes.

Mortgage Forgiveness Act Revisited

Flashback October 2, 2007
Mortgage Forgiveness Act - The Seen and Unseen

Here was my prophesy:
The winner in the debt forgiveness provision (if there is a winner) is the struggling homeowner. The unseen loser is the mortgage holder, the NAR and the NAHB. Prior to this legislation, a homeowner had to worry about tax liabilities of just handing over the keys and walking away. If debt was forgiven prior to bankruptcy, there was also a tax liability. Such considerations have been removed. At the margin, more people will be tempted than before to hand over the keys and walk away.

The debt forgiveness provision of this bill has the ability to cascade into all sorts of things mortgage holders would not want to see. Specifically, any housing relief measure that rewards bad behavior (not paying the mortgage or handing over the keys) is likely to fail miserably.

Congress will no doubt be back amending and re-amending this very bill in years to come on behalf of lobbyists who did not foresee the consequences of the bill as it was written today.
And so it was. A law supported by the NAR, the NAHB, and the president all thinking this would somehow be a boon to housing was anything but. Instead we see 60 Minutes Legitimizing Walking Away and The Business of Walking Away is now booming.

Attack On Big Mac

Investors hammer McDonald's stock after No. 1 fast-food chain reports slowing U.S. sales in December.
Don't assume that McDonald's is recession proof simply because it's a cheap place to eat. McDonald's (MCD) stock fell 7% in midday trading Monday after the No. 1 fast-food chain said slowing consumer spending was partly responsible for flat December same-store sales, a measure of sales at its U.S. restaurants open at least a year.

"There really is no safe harbor in retail right now," Flickinger warned, adding that McDonald's U.S. sales slowdown should be a bleaker sign that American consumers may be in even worse shape.

During a conference call with analysts to discuss its fourth-quarter results, CEO Jim Skinner addressed McDonald's past performance during a recession. Skinner also said McDonald's would be making a [menu] "slight shift" to more value-priced offerings in 2008. The company's value meal items currently account for up to 14% of total revenue.
Yahoo to Cut Jobs

CEO Jerry Yang says Yahoo faces 'headwinds' this year.
Search engine Yahoo announced it would lay off 1,000 employees by mid-February, even as it reported fourth quarter earnings Tuesday that beat expectations.

During the company's conference call with analysts, chief executive Jerry Yang warned that the company faces "headwinds" this year and confirmed the upcoming layoffs, which had been rumored for the past week. Yang said the company would make the job cuts as part of a "workforce realignment."

The stock plunged more than 10% after-hours on the news.
From bad to worse at Countrywide

Thing are heading From bad to worse as Countrywide posted a $422 million loss and revealed that a third of its subprime loans are delinquent.
Countrywide on Tuesday reported a loss of $422 million in the fourth quarter and revealed that an astounding one-third of its investment portfolio's sub-prime mortgage loans are delinquent.

The loss threw cold water on Countrywide chief operating officer Steve Sambol's confident assurances to investors in October that, "We view the third quarter of 2007 as an earnings trough, and anticipate that the company will be profitable in the fourth quarter and in 2008."

The home lending giant reserved $924 million for credit-related losses in the fourth quarter - over a dozen times more than what it set aside in the fourth quarter of last year.

Countrywide's eye-popping 33% delinquency rate on its sub-prime mortgage book also represents a decline from the third quarter, where "only" 29.6% of sub-prime paper was delinquent.

The figures obscure a central fact, however: Countrywide's portfolio of sub-prime loans consist of those that were not previously written down, or could not be sold or securitized. In other words, this portfolio is likely to get much, much worse.

Countrywide also said it shifted $7 billion of "prime non-agency" loans to the portfolio - out of the held-for-sale inventory - because it appears that there were no buyers likely to be found for this paper.
The economy is rapidly slowing on all fronts. Tech which nearly everyone claimed to be immune, is obviously not immune. Wal-Mart slashing prices again, and rising unemployment and delinquencies are going to further restrict bank lending.

There is simply no way to get inflation out of this mix. The Fed Fund rates is headed to 2% or lower and the 10-year treasury yield will likely make a new all time low yield. Those shorting treasuries with impunity, will have their heads handed to them.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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