retail falls

RETAIL FALLS


Okay, this might seem a bit disjointed since I’m posting these articles so far apart but I’m actually writing this the day after I made the comment about the new oil field in Dakota ( north, I believe ). As in, it won’t give us more oil but rather soften the decline in our supply. I’m always amazed at people’s ill founded euphoria over new oil finds. People that should know better if they studied the facts for, literally, only two minutes. Such as that alleged elephant field in the deep water off of Brazil three or four years ago. It was ONE exploration hole. Others were not sunk to confirm the size. All the hoopla was over projected results no were near founded in fact. And the thing was so deep it is doubtful it would have been profitable. Now, all eyes are cast on the Bakken formation in North Dakota and neighboring states. Ooooh, Ahhh!!! We are so excited, this will replace 20% of our imported oil. Oh My Friggin God! What a damn lie. Follow my simple fifth grade math where nothing more involved than addition and subtraction is involved. They say that in five years the field COULD be producing UP TO two million barrels a day. Let’s give them that. Let’s assume the best.

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Now, in the last five years we have lost twenty percent of our oil mostly due to import declines ( also due to some decline in Alaska and Gulf output, but we’ll ignore those to put the best possible spin on this ). Let’s assume Alaska doesn’t continue to decline but stays put. Let’s assume the Gulf restarts its additional drilling now stalled by fears of spills. Let’s assume all lower 48 oil production ( such as Oklahoma and Texas, etc. ) doesn’t decline at all. And let’s play nice and say that rather than see an additional 20% in import declines in the next five years we halve that and be really generous and just call it ten percent. If we are importing 12 million barrels a day now and that declines 10% we have lost at least 1.2 million barrels a day for a net gain of 800,000 barrels a day. If everything stays the same as it is now. If we have no decline in the Gulf or in Alaska or in the lower 48 or in our imports. They claim we will replace 20% ( 2.4 million ) but at the most optimistic it is one third that. But much more realistically we lose 20% in imports, if not more, and every other area continues to decline at its normal one or two percent a year minimum. So we still decline in total numbers. To speak nothing of the pollution the frac process involves.

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Am I the only one noticing that almost the entire retail sector consists of largely unnecessary services and products? I’m sure this is obvious to everyone. So, has anyone stopped and considered the bloodbath our economy still has in store for it as those unneeded sectors are bankrupted? Just the commercial real estate vacancy rate slowly creeping up could cause all kinds of pain as owners can’t pay for the loans. And what about obvious things like the airlines? Consolidation helped them weather the last two setbacks ( 9/11 aftermath and the 2008 oil price surge to $150 ). What are they going to do next? Oil prices will continue to go up ( both Peak Oil and inflation ), per flight vacancy rates are declining so there is little wiggle room to cancel too many more unnecessary flights. Flying will become more and more a luxury and more airlines will fold. Not necessarily merged, just done away with as surplus. Car rentals might not be hurt at first as more folks give up their own cars and just rent occasionally. Hotels and motels will obviously suffer. I’m sure more than a few places have room taxes in excess of the actual room charge. They are a very expensive luxury already. But travel industry decline is easy. Let’s move on to others.

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Eating out is obviously going to decline. That is about half of most peoples food budget and one of the first things to be cut. It is the only part of the budget with wiggle room ( and with a potential savings of up to ten percent of net spending ). The only section in the yellow pages longer than restaurants are lawyers. Thank goodness they will starve alongside the eateries. Less businesses keeping their doors open means fewer deep pockets to sue. If we aren’t allowed to hang all lawyers from light posts I hope at least they will lose their practices, their trophy wives leave them and another lawyer handles the divorce that burns their ass financially. Poetic justice. If you look at the basic costs of a restaurant you notice that food costs are only around a quarter of the menu retail price. Labor is another quarter and half goes to rent/financing/the CEO’s Hampton estate. Even though it costs them far less to buy their food they can’t pass the cost on to you. Too much overhead. Their margins are slim, so even if their food cost increase a total of 1% of their costs, or a minimum wage hike adds 2%, they are in trouble staying in business. The same goes for grocery stores. You look at a bag of Doritos, wonder why it costs three bucks when it contains barely a nickel each of corn, spices and oil. The grocery store doesn’t buy the Dorito’s. A vendor stocks the shelves and adds a big layer of cost. A lot of vendors stock a lot of a grocery store. The sky high costs do not translate into much profit. And there are far too many grocery stores. Many will fold.

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The entertainment industry is a huge percentage of the economy. Folks won’t stop entertaining themselves in a down turn, but they certainly will economize. The economic model of entertainment, just like every other sector in the economy ( to include Budweiser bought by the Belgium’s and soon the NYSE by the Germans ) run on razor thin profits that must have continual growth just to stay in business. If costs increase, you can’t raise your prices because everyone everywhere has so much competition ( you can raise your price but not enough ) than the only way to stay in business is to experience continued growth. But as we have seen the growth model is broken down. Oil declines mean energy decline which means no more growth. The model is over and done. It is Humpty Dumpty and not all of the kings men can put that bitch back together.

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So far we have seen mergers and only a few high profile bankruptcies. Before long, an exponential growth in failures will occur and will be one of the next dips in the economy ( and not a nice smooth dip but a lurching drop ). Unemployment is going to increase just from this alone. We have a huge overabundance of needless, worthless, unnecessary, next to unprofitable parts of the economy.

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