The Monetary Base During the Great Depression and Today

A must read piece by Jesse from Jesses Cafe Americain;

The Monetary Base During the Great Depression and Today

Cotenancy Clauses Alive and Well

Ann Taylor is backdooring its way out of all sorts of leases - along with dozens of other major players.

Ann Taylor Closing 72 Stores; Opening 30
Women's apparel retailer, Ann Taylor Stores Corporation, recently reported its fourth quarter results, which included better-than-expected sales and gross margin results.

During 2009, Ann Taylor opened 14 new stores, but closed 42 stores. Additionally, the company converted 11 Ann Taylor stores into Loft stores; which all together created a 3% reduction for the retailer in 2009. Currently, Ann Taylor operates 907 stores comprised of 291 Ann Taylor stores, 506 Loft stores, 92 Ann Taylor Factory stores and 18 Loft Outlet stores.

Ann Taylor expects to close another 72 stores this year, which would complete its previously announced restructuring program set to include the three-year closure of 174 stores. Of the 2010 closures planned, 14 will shutter in the first half of the year, while the remaining 58 will shutter in the last half of the year. Aside from these closures, Ann Taylor is planning to open 20 Loft Outlet and 10 Loft stores during 2010. In total, the company expects store square footage to be down about 3% for the year.

The average Ann Taylor store is 5,312 square feet; the average Ann Taylor LOFT store is 5,882 square feet; and the average outlet store is 6,667 square feet.

Debt Overload

Americans need to take notice of where their tax dollars are being spent and why - namely on the interest on the federal and state debts. More than two decades ago, the Reagan administration determined that "not one red cent" of federal income tax revenue was allotted to federal spending. Instead, more than 100% of it was used to address the interest on the national debt. In an era where the debt and its interest payments are almost exponentially larger it is no longer possible for the borrowed funds to be paid back.

U.S. & UK Move Closer to Losing Rating, Moody's Says

March 15 (Bloomberg) -- The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.

The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.

Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.

“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”

The pound fell against the dollar and the euro for the first time in three days, depreciating 0.8 percent to $1.5090, while the dollar index snapped a four-day drop, adding 0.3 percent to 90.075.

The U.S. government will spend about 7 percent of its revenue servicing debt in 2010 and almost 11 percent in 2013, according to the baseline scenario of moderate economic recovery, fiscal adjustments in line with government plans and a gradual increase in interest rates, Moody’s said.

Under its adverse scenario, which assumes 0.5 percent lower growth each year, less fiscal adjustment and a stronger interest-rate shock, the U.S. will be paying about 15 percent of revenue in interest payments, more than the 14 percent limit that would lead to a downgrade to AA, Moody’s said.

U.K. Debt Service

The U.K. is likely to spend 7 percent of revenue servicing debt this year and 9 percent in 2013, rising to almost 12 percent under the adverse scenario, Moody’s said.

Financing costs above 10 percent put countries outside of the AAA category into a so-called debt reversibility band, the size of which depends on the ability and willingness of nations to reduce their debt burden by raising taxes or reducing spending. The U.S. has a 4 percentage-point band, while the U.K. has a 3 percentage-point band.

“Those economies have been caught in a crisis while they are highly leveraged,” Cailleteau said, referring to the level of private and public debt as a percentage of gross domestic product. “They have to make the required adjustment to stabilize markets without choking off growth.”

The U.S. would be the “most affected” under the adverse scenario, as the only country that would face a downgrade, Cailleteau said. The company’s baseline scenario assumes that all current AAA sovereigns will keep their ratings over the next three years, he said.

‘Warning Shot’

“On balance, we believe that the ratings of all large Aaa governments remain well positioned, although their ‘distance-to- downgrade’ has in all cases substantially diminished,” Moody’s said in the report.

None of the current Aaa rated countries are likely to lose their ratings, said Peter Chatwell, a fixed-income strategist at Credit Agricole CIB in London.

“This report is a warning shot to governments, setting out the line that they can’t cross with their budgets,” he said.

While the U.S. is likely to benefit from economic growth more than other AAA nations, weak public consumption is likely to weigh on GDP this year, the ratings company said.

“The pattern of growth and the high rate of unemployment raise the question of how strong the recovery will be going forward,” Moody’s said. “The ability of the U.S. economy to grow more rapidly and, therefore, for government revenues to contribute to fiscal consolidation, will have to depend on a revival in the growth of consumption.”

U.S. Growth

The U.S. economy will grow 3 percent this year and in 2011 after contracting 2.4 percent in 2009, according to the median estimate of economist forecasts compiled by Bloomberg. Unemployment will average 9.6 percent this year, up from 5.8 percent in 2008, and will fall to 9 percent next year, based on the median estimate.

Sales at U.S. retailers unexpectedly climbed 0.3 percent in February, compared with a median forecast for a 0.2 percent contraction, the Commerce Department said on March 12.

“The emphasis of the market, and our own, will move increasingly away from public finance developments in 2010, towards medium-term consolidation plans and the credibility thereof,” Moody’s said.

Achieving the fiscal consolidation necessary to avert a downgrade will test “social cohesion” and may involve rewriting the “social contract” between governments and their people, Cailleteau said. “People have to decide what level of pain they are willing to accept to have a healthy economy.”

U.K. Prime Minister Gordon Brown has clashed with opposition leader David Cameron over the timing and speed of budget cuts as they prepare for an election that must be held by June 3.

‘Very Fragile’

The opposition Conservatives argue that the government should come to grips now with the budget deficit, while Brown’s Labour Party says it’s too soon to remove fiscal stimulus.

“Although the economy is now growing, recovery is still in its early stages and remains very fragile,” Brown told business leaders in London on March 10. “We’re not going to withdraw the stimulus until the recovery is assured.”

The U.K. economy, which emerged from its longest-ever recession last quarter, is forecast to expand by 1.2 percent this year after a 5 percent contraction in 2009, according to median economist estimates compiled by Bloomberg. Unemployment will average 8 percent this year and 7.9 percent next year, the estimates show.

“The question here is less when fiscal retrenchment ought to start, but rather how credible it is that sufficient retrenchment will take place,” Moody’s said.

Retail Dominoes Steadily Topple

The bleeding has not been stopped in the retail side of commercial real estate. With rising unemployment, skyrocketing food prices and the slow squeeze of consumer credit it only gets worse from here.

French Connection Slashes U.S. Stores in Shakeup

Men's Wearhouse Identifies 145 Stores for Probable Closure

By Sasha M Pardy
March 12, 2010

During 2009, Men's apparel retail chain, Men's Wearhouse, opened 6 new, but closed 41 stores. Due to geographic overlap caused by its 2006 acquisition of the AfterHours Formalwear chain, the company has identified 145 stores that it would likely close.

In a conference call with analysts on March 10th, George Zimmer, Chairman & CEO said, "what we have been experiencing since the acquisition over three years ago, is that customers would rather shop in a regular Men's Wearhouse store than a Men's Wearhouse and Tux store. So there are hundreds of these stores that are very close to each other, and there are about 145 stores that we have right now that we think should probably close when their leases expire or before. We have already closed 35 tuxedo rental stores in 2009. So it is reasonable to assume that we will be closing well over 100 tuxedo rental stores. However, this is going to strengthen our business as opposed to weaken it, because we have such a high rate of recapture. Most of those customers are just going to the nearest Men's Wearhouse store."

The combination Men's Wearhouse and Tux stores typically range between 1,000 and 4,000 square feet and are primarily located in regional malls and lifestyle centers.

American Eagle Shuttering 28 Martin + OSA Stores

By Sasha M Pardy
March 11, 2010

Pittsburgh, PA-based specialty apparel retailer, American Eagle Outfitters (NYSE:AEO), is shuttering its MARTIN + OSA banner, including its 28 stores and online business. The company expects to conclude the liquidation of the MARTIN + OSA stores, which are typically 6,500 to 7,500 square feet, by the end of this July.

In a statement, management said the concept performed better in fiscal 2009 than it did in 2008; however, MARTIN + OSA still generated an after-tax loss of $44 million in 2009, so the company deemed the brand as "not achieving performance levels that warrant further investment."

"Closing MARTIN+OSA was a difficult decision, particularly in light of the progress that was made over the past year. Creating new brands is never an easy endeavor. The valuable lessons and experiences we gained will serve us well, as we continue to develop and launch new lifestyle brands," said Jim O'Donnell, chief executive officer. The company opened the first MARTIN + OSA stores, which carried sportswear and casual apparel for men and women age 25 to 40, in fall 2006.

American Eagle said it would turn its efforts and resources to its other brands -- American Eagle, aerie, and 77kids. It currently operates 939 American Eagle stores and 137 aerie stores. Its 77kids brand, a moderately-priced concept targeted at children ages 2 to 10, was launched online during 2008.

During 2009, American Eagle closed 16 net American Eagle stores, but also opened 21 new aerie stores. This year, American Eagle is planning to open 14 new, but close between 15 to 25 American Eagle stores; as well as open 20 new aerie stores and five stand-alone 77kids stores. The average new aerie store is 4,200 square feet, while the company has been opening new and remodeling existing AE stores to 7,000 square feet.

Zimbabwe Dollar Gaining on Sterling

Now this is comical...

More Unloved than Even Mugabe's Dollar

It says something about your currency when foreign exchange dealers are even prepared to swap it for the Zimbabwean dollar. Yet this was the pitiful fate of sterling yesterday as it suffered its biggest rout on the currency markets for more than a year.

Apart from the pastings received at the hands of the US dollar and the euro, sterling also fell by more than 1.7 per cent against Zimbabwe’s much-mocked paper, completing a decline of more than 7 per cent since the end of January.

Some economists are convinced that this could be the start of a sterling rout, with investors losing confidence in Britain’s resolve to tackle the gaping hole in its public finances.

The weakness of sterling over the past two years has been welcomed by Mervyn King, Governor of the Bank of England, as a boost for exporters. So investors believe the authorities will do nothing to shore up the currency.

One senior banker said yesterday his big worry was that if a bailout of Greece was agreed, all the hedge funds that have been shorting the euro could turn their attention to sterling.

Technical factors may have been in play, such as the Pru’s need to exchange sterling for dollars ahead of its $35.5 billion acquisition of AIG’s Asian business. But a bigger influence was undoubtedly the Sunday Times poll predicting a Labour election victory. Gordon Brown has been accused of many things. But the prospect of his re-election resulting in Robert Mugabe’s currency being preferred to sterling must surely be one of the most hurtful.

More Retail Meltdown

In The Coming Commercial Real Estate Crisis, the author highlights a failed mall in Minnesota which was sold for nearly 1/10th of its "book value." To rebuild this mall today, it would probably cost around $130 sf for a basic buildout. This raises a major red flag: the cost of existing commercial real estate assets is collapsing in most markets, yet the cost to build them has continued to rise since it cratered in 2008 and 2009. The inflation needed to overcome the staggering deflationary forces and force construction costs to rise in the worst real estate environment ever is nothing short of awesome and is not limited to COPPER, gypsum, cement and steel...it includes every good and service used by every man, woman and child on earth. When this inflation is unchained from the deflationary collapse it will be smothering.

As we have discussed at length, retail bankruptcies/closures contribute to a vicious, momentum building cycle which can empty a mall in 6-12 months. In 2008, national retailers were victimized most as we saw Circuit City, Linens and others go down. Q3-4 2009 and 2010 have been dominated by local and regional failures like Myer Emco in the D.C. region.

The article below discussed rental breaks for retailers which are seldom agreed upon with landlords. Any national or regional ownership group will flat out reject any loss in income and elect to hire an attorney to take it to the retailer for all they are worth.

Wise, local owners will from time to time give retailers a break to keep the cash flow steady and avoid legal fees, down time, tenant improvement dollars and commissions.

Retail Tenants Appeal For Rent Relief

Retail sales plunged 6.2% in 2009 from the previous year, the U.S. Commerce Department reports. That represents the greatest decline since the government began recording annual sales in 1992, and the figure eclipses the 0.5% drop in 2008.