Financial Review

Shoppers Reign

…Holiday shopping is strong. GM closing plants, firing workers. Microsoft passes Apple. Climate report released Friday tries to buy the bad news.

Financial Review by Sinclair Noe for 11-26-2018

DOW + 354 = 24,640
SPX + 40 = 2673
NAS + 142 = 7081
RUT + 17 = 1505
10 Y + .02 = 3.07%
OIL + 1.19 = 51.61
GOLD – .70 = 1222.60

Cyber Monday is expected to generate $7.8 billion in sales, up nearly 18% on last year, which would make it the biggest online shopping day in the US. That’s more than the $6.2 billion in online sales for Black Friday, up nearly 24% on last year. The total amount spent on Thanksgiving Day this year was a record breaking $3.7B … in digital sales alone. That’s roughly $45M per second. But it still pales in comparison to China’s $30.8 billion in spending on Alibaba Singles Day last month. Some stores started their Cyber Monday sales early. Macy’s has been offering “cyber week” deals until Wednesday. Amazon has been promoting “Cyber Monday Week”.


Total spending for Black Friday weekend is predicted to reach roughly $59 billion, according to estimates by GlobalData Retail. That represents an increase of 5.7% over 2017 sales during the same period — Thanksgiving Day to the following Sunday — and the best growth rate in the United States since the post-recession Black Friday boom in 2011. However, the sales explosion created some new problems for retailers. Sold-out goods proved to be a significant problem. Some deals, such as the Nintendo Switch and the Instant Pot, sold out before Thanksgiving Day was even over. According to Adobe, 3.26% of product pages saw out-of-stock messages on Thanksgiving, costing retailers an estimated $120 million in sales.  The out-of-stock messages continued, with retailers losing out on $177 million on Black Friday (2.85% out-of-stock) and $140 million over the weekend (2.18% out-of-stock). Retailers’ lack of preparation for early online sales also resulted in a number of technical difficulties. Walmart, Lowe’s, J.Crew, and more retailers dealt with technical difficulties on Wednesday, Thanksgiving Day, and Black Friday. Walmart’s technical issues affected an estimated 3.6 million shoppers and cost the retailer an estimated $9 million in lost sales.


General Motors will cut production of slow-selling models and they will fire about 15% of  its North American workforce in the face of a declining market for traditional gas-powered sedans, shifting more investment to electric and autonomous vehicles. The announcement is the biggest North America restructuring for the U.S. No. 1 carmaker since its bankruptcy a decade ago.  GM plans to halt production next year at three assembly plants: Lordstown, Ohio; Hamtramck, Michigan; and Oshawa, Ontario. It will also stop building several models now assembled at those plants, including the Chevrolet Cruze, the Cadillac CT6 and XTS, plus the Buick LaCrosse. The Cruze compact car and Volt hybrid will be discontinued in the U.S. market in 2019.


Plants in Baltimore, Maryland, and Warren, Michigan, assembling powertrain components will have no products assigned to them after 2019 and are at risk of closure. GM will also close two unidentified factories outside North America. Chief Executive Mary Barra did not link the cuts to tariff pressures but said trade costs are among the “headwinds” GM faces as it deals with broader technology change and market shifts. GM has said tariffs on imported steel, imposed earlier this year by the Trump administration, have cost it $1 billion. The UAW, or United Auto Workers, the biggest U.S. autoworker union, vowed to fight GM’s plans.


Sales of passenger cars have fallen from 50% of the U.S. market in 2012 to just 31% or so today. Sales of subcompact cars are down 23% this year, according to research site KBB, but sales of subcompact crossovers and SUVs are up 29%. Sales of midsize cars are down 17%, while sales of midsize crossover and SUVs are up 7%. Overall vehicle sales are up only 0.6% this year, with many forecasters saying car purchases are at or near a cyclical peak. So automakers need to kill slow-selling models to protect profit margins. GM shares gained 4.7%.



About 3 months ago, Apple became the first trillion-dollar company. About two months ago, Apple’s market capitalization topped $1.12 trillion. The past 2 months have been challenging and Apple’s market capitalization has dipped to about $810 billion. Meanwhile, Microsoft has managed to hold up better than other high-flying tech names after its first-quarter results showed that it continues to follow through on the vision of CEO Satya Nadella, who when he took over in 2014 said he wanted to focus on its subscription-based businesses and the cloud. And while the sales growth of its cloud-computing unit, Azure, grew at its slowest pace in at least two years, it was still up 76% annually, remaining the strongest rival to the dominant Amazon Web Services. Microsoft shares are down 8% from their September close. And Microsoft now has a market cap of around $814 billion – making it the most valuable corporation.


The National Climate Assessment, which is required to publish its findings every four years, released its latest 1,656-page report during the holiday doldrums on Black Friday. In the process, the administration effectively buried the scientists’ conclusions on how man-made climate change will devastate America’s public health, economy, infrastructure and coastlines, as well as cause hundreds of billions of dollars of damage to the planet over the next few decades. The Fourth National Climate Assessment, says “the impacts of climate change are intensifying across the country…how much they intensify will depend on actions taken to reduce global greenhouse gas emissions.” This study is a deeply researched account of the damaging effects of unchecked climate pollution on our water, agriculture, transportation, air quality, communities and health. Its findings were endorsed by NASA, the Department of Defense, and experts at 10 other federal agencies. It describes in precise detail how the warming planet will wreak hundreds of billions of dollars of damage in coming decades.


The report links heat waves, wildfires, hurricanes, flooding, droughts, crop failures, and damage to infrastructure that has already affected U.S. communities to climate change, and says that “to avoid substantial damages to the U.S. economy, environment, and human health and well-being over the coming decades,” people must take aggressive steps to mitigate climate effects and adapt to those that are already inevitable. A chapter focusing on the transportation sector noted that in 2016 it became the top contributor to U.S. greenhouse gas emissions. Crop yields from the U.S. Midwest, the “breadbasket of the world,” could fall to 1980 levels by 2050, the report estimates, and that the southeastern U.S. could develop its own fire season. It enumerates the infrastructure damage that has already occurred due to flooding in the southeast and East Coast, and wildfires in the West, for example.  The report draws stronger conclusions than three earlier National Climate Assessments, noting that these types of natural disasters have been increasing in the last 15 years, and that the chances of having more such events going forward are increasing. The latest version introduces new complexity in the political fight over regulations designed to fight climate change. He has directed the Environmental Protection Agency to sharply weaken the nation’s two major policies for curbing planet-warming pollution: one rule that would restrict greenhouse emissions from vehicle tailpipes, and another that would limit them from power plant smokestacks.


The rules are grounded in a 2009 legal finding, which has been upheld by federal courts, that planet-warming pollution harms human health and well-being, and therefore government policies are needed to reduce it. This will almost certainly result in some interesting court proceedings as government lawyers are put in the unenviable position of trying to defend political ideology over scientific evidence. The document’s dire claims, backed by 13 federal agencies, come frequently into conflict with the aims of the administration that released it. Where the Trump administration has sought to loosen restrictions on car emissions, the report warns that vehicles are contributing to unhealthy ozone levels that affect nearly a third of Americans. Whereas Trump washed his hands of the Paris Climate Accord and ensured that the United States will no longer meet the goals outlined in the Paris Agreement on climate change, the report says that ignoring Paris could accelerate the negative impact of climate change.


In its first chapter, the National Climate Assessment reports that heat-wave season has expanded by more than 40 days since the 1960s. In the bleakest scenario of unchecked climate change, Phoenix could have as many as 150 days per year above 100 degrees Fahrenheit by the end of the century. According to the report, human-caused climate change has heated and dried out the American Southwest, leading to deaths, enormous costs, and lingering health consequences. The report’s chapter on the coastal effects of climate change warns that sea-level rise alone could force tens of millions of people to move from their homes within the next century. Shoreline counties hold 49.4 million housing units, while homes and businesses worth at least $1.4 trillion sit within about 1/8th mile of the coast. Flooding from rising sea levels and storms is likely to destroy, or make unsuitable for use, billions of dollars of property by the middle of this century.


Geology—the most earthly of all sciences—has gone interplanetary. NASA scientists successfully landed a spacecraft on Mars today. The mission is called the Interior Exploration using Seismic Investigations, Geodesy and Heat Transport, which the acronym connoisseurs at NASA have shortened to InSight.  After a six-month journey to the red planet, the 800-pound InSight lander had to go from 12,300 mph to just 5 mph in six minutes flat after it penetrated the Martian atmosphere, deploy a supersonic parachute, fire its descent engines — and then land on three legs.  Observations have shown that Mars, like Earth, has three distinct layers: a thin rocky crust, a mantle, and a metal core. Beyond that, scientists are still in the dark about the planet’s inner workings. In the weeks ahead, a robotic arm will unpack some scientific instruments and place them gently on the ground. The tools will spend their entire lifetimes in these spots, pressing themselves into the surface to probe what’s going on deep below the surface.

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