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Black Friday – Dead?

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Did you hit the stores for “doorbuster” deals and a mad rush for great deals? If you did, you’re one of a smaller group every year as Black Friday and its even darker sibling on Thursday become a feature of Thanksgiving past.

The final data is not in, especially with “Cyber Monday” still in front of us. But this weekend was particularly weak and, if the past is any indication, a sign of a bleak holiday shopping season. But no one thinks this will hold as shopping patterns are changing. The forecast remains for a robust gain of 4.1% year over year.

The death of the Black Friday frenzy is a big story of the year if this pulls out.

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Crude and Junky

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As oil prices remain low, the benefit for US consumers is obvious. But for oil companies? In the short run, prices running at about the cost of production mean no profits for the year, but in the longer run there is a terrible problem ahead.

That’s because the start-up of so many fracking operations across the US came at a cost, and that cost was financed primarily through junk bonds – high yield securities that demand a hefty interest payment to keep the operation going.

Zero profit means more than hard times – it means default and, in all likelihood, a shut down of many wells. That might not only spike up the price of oil, it is big enough to trigger a huge financial problem.

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Holiday Shopping, 2014

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It’s just about shopping season! Last year, 19.2% of all retail sales were holiday sales – the stuff outside of food, gasoline, and other consumables that took place in the 28 days between Thanksgiving and Christmas.  That’s a total of $597B. This year, there’s one more day in that period and retailers hope for a decent increase.

Will this be a good holiday season that finally shakes off the blues that have plagued retail for the last six years? We’re about to find out.

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Crude Goin’ Down

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The sign out front reads $2.899 for a gallon of gasoline. Prices haven’t been this low for at least four years. What happened? Will the price stay this low?

The short answer is that a lot of things happened, some of them mysterious. And it can’t remain this low forever, but perhaps for a few months. It’s all about the market for oil and perhaps some pernicious politics that, as always, make oil prices a geopolitical game.

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Shadow Banking

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In the old days, if you needed money you went to a bank. They might loan you money for your home, your car, or your business based on an interest rate slightly higher than the net paid out for deposits. They made their money on the “spread” between the two, matching up assets they had with liabilities (like you) outstanding. It was a quiet, conservative life. It was boring.

Today, most loans wind up not being held by banks in anything like the traditional sense. Nearly all liabilities are packaged up and sold to a “shadow banking” system where people buy these “asset backed securities” and make money based on the float. It’s a more flexible system that allows nearly all risk to be offloaded onto investors – who bear it as a system. It’s good for the borrower, it’s good for the bank – but the risk is held by the investment world as a whole.

That “brittleness” is the bane of the modern financial world – and the future. How we learn to manage it is the future of finance and the difference between a world that is stable and reliable or capricious and impossible to understand.

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