GNP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 10

[Colon™]

Hey, long time no see, how are you doing?

Are you talking from personal experience? According to the latest BLS employment survey average hourly earnings rose 4.1% year-on-year in Dec, (so have average weekly earnings) and the previous 2 months were similar. (hourly dropped off a little but weekly accelerated)
Granted, these data only shows earnings of non-supervisory employees, working in the private non-farm sector and this doesn’t consider layoffs, less working hours (hours were stagnant in manufacturing though) and less visible remuneration like stock options, perks etc, but even then growth doesn’t appear to have halted in the 4th quarter. (maybe next quarter?)

[Moritz]

zro growth in germany

Hallo,

es bricht momentan geradezu eine Panik in Deutschland wegen des prognostizierten Nullwachstums aus, die Finanzminister Europas überstürzen sich in Sorge ums ehemalige Muster-Land.

Bei mir tat sich aber eine Frage auf:

ist es nicht so, daß wenn die BR die Staatsausgaben rigoros zusammenschneidet um die Neuverschuldung zu reduzieren zwangsläufig so, daß das BIP sinkt, so dass das (immer noch vorhandene) Wachstum der Industrie von diesem Rückgang aufgehoben wird? -
weil ja, wenn ich bspweise normalerweise jedes Jahr 20000€ Schulden aufnehme, und das Geld ausgebe (auch wenn ich nie die Chance hätte, es zurückzuzahlen), dass in das BSP mehrfach positiv eingeht.

Vielleicht kann mir jemand antworten.

(i tried to translate:

Hello,

there is somehow a panic in Deutschland because of prognosticated zero growth; and the European Ministers of Finance are very sorrowful of this (especially the German Minister of Finance ).

But I've got a question: isn`t it true that:
if the Bundesregierung (german gov.) reduces the public expenditures to reduce the yearly debt increase, doesn`t lead that directly in an reduced GdP, so that the growth of the industry is removed by this decrease?

for example: if I was normally borrowing each year 20000€ (even if I never had the chance, to pay it back), and bought trash ... wouldn`t the GdP increase?

Perhaps someone can answer me.

[pchang]

Raises, what raises?

I am speaking from anecdotal evidence here in the San Francisco area.

[Colon™]

Pchang, I’m guessing that SF is less well off because it has a higher dependence on tourism and IT.

Moritz, borrowing to buy consumer goods (or trash if you like) will increase GDP as long there’s unused capacity to produce left, for instance by employing unemployed or activating idle factories. However, at a certain point you cannot add any further of these or it wouldn’t be economic to do so (the costs would be greater than the benefits) so you’ll need to invest to increase productivity. (training personnel, improving management, using new technology etc)
Thus stimulating consumption with debt could not be used as a strategy to stimulate long-term economic growth.

In fact there are good reasons to believe doing this is a bad idea even when there’s plenty of unused capacity. If you borrow to consume now you are in essence putting a claim on future consumption, because you are using funds that could have been used to make investments and increase long term economic growth. (which would have increased income and thus consumption)

There have been numerous of cases of countries that have gone bust because they borrowed broad to increase consumption at home. All fine and well until the point arrived they had to repay those debts and didn’t had the means to do so. Clearly, it would be particularily silly to use this money to buy goods you didn't need or want in the first place. (trash)

I hope I explained this clearly but feel free to ask further questions.

[Moritz]

So it was generally a mistake not to correct the prognosis for GDP early enough, also it was predictible that the Sparpolitik, the politics of austerity budget, would`ve this result...

(Damn, i must try to find the sheet with grammar rules for "if-clauses", and related)

[Roland]

Re: zro growth in germany

"ist es nicht so, daß wenn die BR die Staatsausgaben rigoros zusammenschneidet um die Neuverschuldung zu reduzieren zwangsläufig so, daß das BIP sinkt"

Unmittelbar wird nur die Staatsnachfrage reduziert. Wenn aber das "frei"werdende Kreditvolumen nicht vom privaten Sektor genutzt wird, reduziert sich die Gesamtnachfrage und damit in der Folge auch die Gesamtproduktion.

Hauptproblem ist derzeit der Bausektor. Kostet ca 0.5-1 Prozentpunkte Wachstum... Wiedervereinigungskater. Hier wäre ein wenig Stimulus aus dem Budget gefragt....

[Saras]

Labai gerai, pradekim visi savo kalbomis kalbeti. Gaila tik kad as cia vienas pats su savim kalbesiu kaip durnius.

[Roland]

I hope that is not just any gibberish, but econ gibberish ?

[Roland]

I'm really glad that even on Wallstreet some economists start getting a grip on reality. Hail the roach!

http://www.morganstanley.com/GEFdata/digests/20020118-fri.html#anchor0

[Roland]

Kmart in chapter 11 now.

Dan, what would you say went wrong, esp wrt the balance sheet ? Just a fast deterioration, or did they hide something ?

[DanS]

Ah KMart. Well, here's the deal. For the last couple of quarters, they have been sucking down cash like there was no tomorrow.

I expected a negative cash flow, as KM turned around its operations and put them in a more competitive cost position wrt the Walmarts of the bunch. By most anecdotal accounts, they were successful in getting their cost structure in order (roughly speaking).

But to complete the corner turn, they needed a good holiday season. This expectation was fairly reasonable, as can be seen with Walmart's and Target's strong revenue growth. When the economy is weak, people shift to lower cost goods.

However, expectation doesn't necessarily equate with reality, and the customers never showed up in KMart's stores. Revenue was flat--didn't even match inflation. That was the final nail in the coffin.

Why is this happening now and why was it so fast? It is happening now because this is the time period for retail bankruptcies--it's when many of the bills for Christmas come due. Faced with a long year ahead of them, they must have figured that it was time.

I have never heard of any potential impropriety in this situation. Going bankrupt isn't good, to be sure. But when the handwriting is on the wall, there is no shame in recognizing facts. Take a look at the balance sheet and you will see that the writing was there for any investor to make an informed decision...

http://investor.stockpoint.com/quote.asp?Mode=QTRBALANCE&Symbol=KM&Exchange=US

[DanS]

As an aside, to get an idea of the edge of the knife between a wildly successful turnaround story and the largest bankruptcy in US retail history, consider that 4 or 5% revenue growth (it looks like that is what they expected) would have equaled more than $500 million cash. This might have completed the turnaround.

Why did I get out when I did? I heard that KM was delaying payment on their trade debts and matched that with the flat revenue numbers.

[Roland]

So their margins were too low and their inventory management was off, resulting in cash bleed ?

"Going bankrupt isn't good, to be sure. But when the handwriting is on the wall, there is no shame in recognizing facts."

Quite on the contrary. Delaying bancruptcy is the worse of two evils (and at least here, a crime.... "Krida"... does that term exist in english, or in accounting gibberish?).

[DanS]

No, the cash bleed was because they were continuing to change their logistics and inventory management--which by most accounts was a fairly successful exercise. That wasn't what tipped them over. Rather, it was a lack of buying customers when they should have been buying.

Don't know what krida translates to, but it must be something like operating while insolvent. A specialty of Japanese banks, for instance.

[Colon™]

Dan, would you agree with the author of this article about Wal-Mart? (that they shouldn’t have tried to beat Wal-Mart in its own field)