by Reb Akiva at Mystical Paths
The next stage of financial meltdown began 3 days earlier than I thought. Here's what's happening, three new financial disasters in parallel...
1. Disaster number 1 is easy to see and understand. Stores make 60% of their yearly PROFITS through the holiday sales season. The majority of stores, especially upscale stores, are having their worst holiday season in over 30 years. With the middle of December, these businesses have to decide how to stay alive. They'll turn to massive sales to clear out their inventory, and come January 2 will begin scaling back sales help and closing stores. The manufacturers who stock them will be reading the figures, understanding a drop in orders coming for 2009, and will cut production and staff.
The retail side of layoffs begins Monday and continues through mid-January.
(Note some stores are positioned to take advantage of this. Wal-Mart and Target sales are up, as are TJ Maxx and other similar 2nd market, downscale and budget store sales.)
2. As we come to the end of the year, the investment system begins to make sales and position adjustments, both for tax purposes and as people redeem funds for their own personal investment adjustments and tax purposes. Many funds are suddenly finding themselves with a basic run on the fund, people are clearing out.
And some funds haven't been totally honest, money is not readily available or necessary invested where thought, or worse losses have occurred that the fund hasn't been reporting!!!! (For if they did, people wouldn't keep investing.) Friday's $50 billion Madoff Hedge Fund case is still unclear, but the fund lost people's investments, lied in reporting it and used new investments to cover old redemptions. As the end of year pace of redemptions picked up, BOOM, the hollow balloon popped.
The people invested will be lucky to get 25% of their money back. While it's been advertised as an "only rich people's fund", the bad news is pension plans and an unusual number of JEWISH charities had their monies invested (one notable is Birthright, the fund that brings Jewish teens to Israel for a free heritage trip).
Even "good" hedge funds are in trouble, with another similar fund announcing "no more withdrawals" until March. So if you've got your money there, you can't get it out (to stop losses or to live on it!).
Again, we're talking Hedge Funds, with investments starting at $1 million or $5 million, but some of your pension or 401k mutual fund may be cross invested in such a hedge fund, so this is not a "rich only" problem.
As we come closer to the end of the year, the full scope of this problem will become more apparent. The funds in trouble are going to be forced to come out from under the covers.
3. Disaster number 3 has also been obvious for a while, but the impact has to be thought out. Car sales are down 30-50% (depending on the brand). Government loans can't help! Because, if you don't have a job or you're worried about the future, you're not buying a new car. Loaning the US company's may keep them from going bankrupt, but it won't increase car sales. So the equation is something like this (which no one is talking about):
No Loan = 30-50% layoffs, plant closings, dealership closings.
Loan = 20-30% layoffs, plant closings, dealership closings.
Either way, pain. Already foreign manufacturers, which have plants in the US (did you know that Honda exports cars from the US back to Japan?) are cutting workforce and factory production. They don't get US help.
A loan will help the US auto makers run smoothly for a while, but the ONLY way they can operate at current size is a FULL ECONOMIC RECOVERY before money runs out. And that's not happening. Which means, cutbacks. The only question is - how big.
This is really really bad - from a financial investing layoff monetary job perspective. Oh, did I mention the $50 billion Hedge Fund was set up and run into the ground by a Jewish guy? (Of course, Henry Ford hated Jews and his family has pretty much run Ford into the ground.)
Saturday, December 13, 2008
// 12/13/2008 //