What’s Happening Out There

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With the average household carrying $15,000 of debt on their credit cards and plunging retail store traffic (see below) it is becoming clear there is no economic recovery and whatever remains is being generated by expanded credit.

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The crunch is coming in grocery store closures.

Stater Brothers, the largest grocery store chain in Southern California  (37th largest in U.S.) with 167 stores, reports it made $10 million net profit on $968 million in sales in its most recent quarterly report.  That is a 1% profit margin or only about $60,000 per store per quarter, ($240,000/year).  That is profit of only about $657/day.  That means just this store chain in teetering and is just 1% away from insolvency or having to borrow to have a future.

Albertson’s is closing 26 stores in Southern California and elsewhere.   Safeway, owner of the Chicago-based Dominick’s store chain, couldn’t find a buyer for this chain of 72 stores and closed them, resulting in 6000 lost jobs.   Ralph’s chooses to announce store closings one by one, to blunt the negative effect.  Recent store closures have been announced in Castaic, CAGlendale, CASan Dimas, CA, and Long Beach, CA.

Who will be left standing in the grocery business?  Answer: the big box stores (Sam’s Club, Costco).

Meanwhile, there were $325 billion of home equity lines of credit issued in 2005 that are about to reset.  Then mortgage holders may have to come up with a balloon payment or just go into a default.  If the homes appreciated in value, some will be able to survive.  Watch for another round of home mortgage defaults.

The bankrupt federal government is searching for new sources of revenue and there are

targeting low-income workers and small restaurants.  First, if a restaurant adds automatic tips for waiters onto their bill, that is now going to be deemed as taxable income (payroll tax withholding) to the restaurant.  Second, direct sources inform me that restaurant waiters are required to report their tips on a monthly basis and the government takes 8% anyway because reporting is difficult to obtain.  But with so many meals being purchased with credit cards, when diners add a tip to their credit card slip that is now being tabulated in full.  So what waiters were pocketing that exceeded 8% is now going to be taxed, and that represents a pay cut for these low-income workers.  The average annual income for a high-end waiter, including tips, was $35,000 as of 2013.

Banks are out to steal your money.  A story has been relayed to me of a woman who was within days of dying who was driven to a bank parking lot and a bank employee came out to her car and had her sign papers transferring ownership of a $160,000 IRA to her son-in-law.  After her death that bank played stupid and referred the family to an office on the east coast.  No one answers that phone.  You just perpetually leave messages.  The bank employee who facilitated the transfer of the IRA account now says she is being pressured by her employer and cannot remember the details of what documents were signed that day in the parking lot.

In another instance, a man died and his house was sold, but there were no family heirs and his home was left to a friend.  The proceeds from the home sale were placed in a bank (Morgan Stanley) for safe keeping while the probate court searched to find if there were any remaining family members who might be heirs. Three years later the bank is still holding the money, creditors demanding payment on bills submitted to the estate are left empty-handed, as the court is playing footsy with this insolvent bank.  Bankers have friends in high places.  Who knows how many of these probate accounts banks hold in perpetuity while the court pretends to be searching for heirs.

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