Yellen stays on course

Ben Walsh
Aug 22, 2014 21:23 UTC

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Janet Yellen gave a much-anticipated Jackson Hole speech on the job market today, and the stock market barely moved. That, says the NYT’s Binyamin Appelbaum, was exactly the the outcome the Fed chair wanted. She said the job market was improvingbut not quite improved enough. The true amount of slack in the labor market is uncertain, and therefore, interest rate policy cannot be prescriptive. The Fed, in other words, is still waiting to see when it will change its wait and see approach on interest rates. (Privately, Jon Hilsenrath and Pedro da Costa report, the Fed is strongly hinting it will raise rates in the summer of 2015.)

One item where Yellen was clear: she is not a fan of Congressional Republicans’ calls for the Fed to follow pre-set guidelines, like the Taylor rule, when it sets interest rates. “Monetary policy,” Yellen says, “ultimately must be conducted in a pragmatic manner that relies not on any particular indicator or model, but instead reflects an ongoing assessment of a wide range of information.” The NYT’s Binyamin Appelbaum said that portion of the “speech is a direct rebuttal to GOP/Taylor proposal for Fed  to announce a rule. She’s arguing life is far too complicated.”

Business Insider’s Myles Udland connects the speech’s intensely measured tone on monetary policy with its comparatively direct rebuttal of Congressional oversight of the Fed: “Yellen… remains focused on giving herself and the FOMC as much flexibility as possible with respect to when and where interest rates go, and part of this flexibility also likely depends on the Fed maintaining its current relationship with Congress: independent.”

Barry Eichengreen says “this yearning for an idealised past in which central bankers could focus on moving rates by a notch or two” is dangerous in the current context. Central bankers, he argues, should not eagerly raise rates just because they’re currently at zero. Nostalgia is not a sound basis on which to make monetary policy. —Ben Walsh

On to today’s links:

The Singularity
Why robots might not take your job: “both a toilet and a traffic cone look somewhat like a chair” - Joe Weisenthal

Must Read
The hedge funds who bailed out Mugabe - Bloomberg Businessweek

Data Points
HBO could earn around $100 million from subscribers who currently pay nothing -Peter Lauria

Politicking
“Sleep is not leadership! The optics of sleep are terrible” - John Herman

The App Economy
Push for Pizza is exactly what it sounds like - Brooklyn Magazine

The Fed
Light weekend reading: All of the Jackson Hole papers - Kansas City Fed

Wonks
The Keynesianism of the BP oil spill - Jim Tankersley

Oxpeckers
A long look at Bustle, a basically terrible website - Amanda Hess

A Dollar here, a Dollar there

Aug 21, 2014 22:06 UTC

Things are a little crazy in the dollar store M&A world. Back in June, Dollar General (from here, General) thought about trying to buy its rival, Family Dollar (from here, Family). For various reasons, this didn’t happen. Instead, Dollar General’s other rival, Dollar Tree (from here, Tree), submitted a bid to buy Family for $8.5 billion several days after the meetings with General. Family accepted this, even though General came back with a $9.7 billion cash offer.

“Aside from offering all cash and a bigger, 29 percent premium to Family’s undisturbed share price, General may be a better fit with Family as both companies offer goods at various prices whereas Tree sticks with items that actually sell for $1 or less,” writes Kevin Allison. And yet.

The official story is that Family’s board rejected General’s better offer because of antitrust concerns. But General isn’t too sure. In a letter dated yesterday, General says that the two companies chatted in June, General floated a tentative price, and Family seemed interested. According to the letter, “at no time during this meeting did [Family CEO Howard] Levine indicate that there was a process, that there was any urgency to act or that there were discussions with another potential buyer.” But just a few days later, Family started exclusive negotiations with Tree. According to the letter, this may have been because Levine wanted to continue to be CEO of the combined company — an offer than Tree left on the table but General did not.

That’s Carl Icahn’s theory, too. While all of this was going on (but before it was public), the activist investor announced he had a 9.4 percent stake in Family. Icahn started pushing for Family to sell itself before it came out that that was in fact what Family was trying to do. As a shareholder, though, Icahn would have preferred Family to take the larger offer from General. “At too many companies in America the hubris of the CEO, supported by a crony Board, costs shareholders billions of dollars,” he wrote in a blog post about the fiasco earlier this week. And it looks like he might be right about that. “Carl Icahn’s theory… is starting to look more credible,” writes Matt Levine.  — Shane Ferro

On to today’s links:

Must Read
“The payment of ransoms and abduction of foreigners must emerge from the shadows. It must be publicly debated” – David Rohde

Charts
America’s racial divide: Unemployment – NYT

Inflation
Junior bankers get a raise! – Dealbreaker

Crime And/Or Punishment
BofA settles another mortgage investigation, this time for $16.65 billion – Reuters
Most of the BofA settlement is tax deductible – David Dayen
Wall Street should be thrilled with the government’s billion-dollar settlements – Dean Starkmen

Descriptors
“The hedge fund structure, a fee schedule masquerading as an asset class” – Dan McCrum

Central Banking
A semi-regular reminder on the value of the Fed giving money to people – Foreign Policy

True
A six-figure salary still means you’re rich – Dylan Matthews

Strangely Honest
“The cost to defeat ISIL would be very high and would require a multi-year commitment” – Brian Fishman

Ugh
“Despite Ferguson’s relative poverty, fines and court fees comprise the second largest source of revenue for the city” – Alex Tabarrok

Standard incompetence

Ben Walsh
Aug 20, 2014 21:05 UTC

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Standard Chartered’s compliance department is apparently pretty bad at complying. In 2012, the bank was fined $340 million for hiding transactions with sanctioned Iran. As part of the settlement, Standard Chartered bank (SCB) was required to “remediate anti-money-laundering compliance problems,” Dealbook’s Ben Protess and Chad Bray report, and hire an outside monitor to judge whether the problems were in fact remediated.

They weren’t, and the bank will pay $300 million for “anti-money laundering failings in its United Arabs Emirates and Hong Kong businesses,” Reuters Michelle Price reports. The failures, laid out in a settlement with the New York Department of Financial Services, display an almost comical or willful ineptitude, depending on your perspective. SCB, the settlement says, “created a rulebook with procedures to aid it in detecting high-risk transactions.” But the rulebook was filled with errors that SCB didn’t know about, because it didn’t try to find out if the rulebook was adequate before or after it wrote it. This allowed transactions that should have been closely scrutinized to sail through unimpeded. To top it all off, SCB didn’t properly monitor its own transaction monitoring system. You can see why an independent monitor would be necessary.

As part of its settlement, the bank will also suspend clearing payments in dollars for certain clients, and take even more remedial measures. One of those is extending for two more years the term of Navigant, the independent monitor that caught the latest slip up.

Matt Levine wonders why, given how bad SCB seems to be at understanding and preventing money-laundering, the monitor should content itself with just reporting SCB’s problems: “If the monitor knows so much about anti-money-laundering procedures, shouldn’t it have just designed the procedures? Isn’t the goal to have less money laundering?”

The bank’s management isn’t taking the fall. CEO Peter Sands, Protess and Brayreport, says he has “no other plans” than to remain in his position. Earnings per shareare down, though, and the board is under pressure to make a change. If Sands is ousted, it wouldn’t be the first time a board used scandal as a pretext for a financially-motivated decision.  — Ben Walsh

On to today’s links:

Primary Sources
The full FOMC minutes - Federal Reserve

Generation Debt
“Young borrowers are actually among the least likely to experience a serious credit card default” - Richmond Fed

Correlation of the Day
The richer you are, the more likely you are to think trophies are only for winners - Alex Tabarrok
And another: Colorado has drastically reduced its teen pregnancy rate by giving teens access to long-term contraceptives - WaPo

Housing
Regional cost disparities are all about housing - Squarely Rooted

Patent Power
“Patent trolls are emerging as the world’s most nefarious rentier types” - Izabella Kaminska

FYI re: Your Mortality
Mortality spikes on payday: “It’s not the wages of sin that are death. It may be just the wages of wages” - John Carney

Wonks
Investigating the variation in how much it costs to raise a kid - Nick Bunker

For the Wages
“The fantasy of finding someone who is punctual, productive and willing to be paid a pittance is hard to let go” - WSJ
“If we were brave enough, we’d say our survey data indicate [a] quick wage uptick is ‘unlikely’” - Atlanta Fed

Legal Arcana
“…eventually that hope will turn into lawsuits, as hope does” - Matt Levine

The high cost of Ebola

Aug 19, 2014 22:17 UTC

West Africa’s Ebola crisis is not just about the death toll — it’s also an economic disaster in the making. The UN’s World Food Programme declared Guinea, Sierra Leone, and Liberia to be at the highest level of food emergencies last week. The Thomson Reuters Foundation reports that “hunger is spreading fast as farmers die leaving crops rotting in fields. Truckers scared of the highly infectious disease halt deliveries. Shops close and major airlines have shut down routes, isolating large swathes of the countries.” A million people live in the Mano River region, the epicenter of the disease.

The spread of the disease is also, in part, an economic issue. Steven Hoffman and Julia Belluz at Vox write that annual healthcare spending in West Africa comes out to less than $100 per person, compared to $8,000 per person in the U.S. Ebola is spread through body fluid contact, and is thus relatively easy to avoid with the right precautionary measures. However, “aid workers on the ground… report that they don’t have access to the basics to protect themselves and their patients,” say Hoffman and Belluz.

Ebola is also pushing out whatever capacity hospitals had for treating other ailments. In an interview with the Independent, Dr. Jimmy Whitworth, the head of population health at the UK-based health foundation the Wellcome Trust, says that patients aren’t getting the care they otherwise would for diseases like malaria as a result of the Ebola outbreak. This is partly out of the fear of Ebola and partly because hospitals are over capacity. “The whole general health system is collapsing,” he says.

At BuzzFeed last week, Jina Moore reported on a mob that descended on a clinic in West Point, a slum in Liberia’s capital city of Monrovia. Patients escaped and the place was looted. A police official told a reporter from Canada’s CP24 there are concerns the whole neighborhood will be infected.

While Ebola denial is part of the problem, Moore also reports that there are underlying class tensions and mistrust of government. The residents of the neighborhood were angry that the treatment center was put in their heavily congested area without any advanced notice. Further, she writes, rumors of a quarantine of West Point — and the food insecurity that will bring — is scarier to the people who live there than the virus itself. Moore quotes West Point resident Solomon Johnson: “If that happens, people will die. You stop them from going to the market? They won’t find food to eat.”

Meanwhile, fears of Ebola are even affecting those who don’t live anywhere near the outbreak. The New York Times reports this morning that a Liberian refugee, who has lived in Ghana for ten years, says she “has found it hard to find customers or even a bus ride to town since the outbreak in her home country.” — Shane Ferro

On to today’s links:

Wonks
“People want money” – Matthew Klein
“What backs the value of money?” – Cullen Roche

Sobering Reminders
The most dangerous drug in the U.S. is alcohol – Harold Pollack

Long Reads
The rise and fall of democracy in Russia – David Remnick

Sad Trombone
Paul Singer is tired of being the bad guy in this Argentina debt fight – Tim Fernholz

Sport
The golf business is not doing well – Business Insider
The decline of golf is going to be terrible for the insider trading business – Matt Levine

Charts
The decline of the American vacation – Evan Soltas

Putting stock in the market

Ben Walsh
Aug 18, 2014 21:11 UTC

Robert Shiller wants us to talk about stock prices. “We are in an unusual period, and that it’s time to ask some serious questions about it,” he says.  Specifically, Shiller wants to discuss just how far above normal they currently are:

The CAPE [cyclically adjusted price-earnings ] ratio, a stock-price measure I helped develop — is hovering at a worrisome level… It is above 25, a level that has been surpassed since 1881 in only three previous periods: the years clustered around 1929, 1999 and 2007. Major market drops followed those peaks.

That measure of stock price valuation has, Shiller writes, moved all over the place, “yet it has consistently reverted to its historical mean” of just over 15. (If you prefer purely anecdotal signs of effervescence, those exist too. Actor Jared Leto has become aventure capitalist and NBA All Star Carmelo Anthony is becoming a tech investor.) Shiller tries, but can’t quite come up with a good, fundamental reason why the market should be so elevated.

In May, the NYT’s David Leonhardt pointed to a plausible, if unsettling basis for high valuations: “Despite the mediocre economy, corporate profits are fairly strong, because companies have the upper hand on workers today and wage growth is modest. Inequality, in other words, tends to be good for stocks.” His colleague Neil Irwin wrote in July that it’s not just stocks that are on a tear. Everything – real estate, bonds, etc. – is booming and/or bubbling. Accurate as that is, it is a description, not a justification.

Brad DeLong looks at whether you should really worry too much about the market being too high. Over a ten-year investment horizon, stocks are almost always a winner. DeLong charts cumulative returns on stocks and finds “the dominant feature is not mean reversion but rather exponential growth.”

Dean Baker tries to take a middle ground, arguing that stocks are still a “pretty good deal,” and will continue to be so “even if there is some decline in the profit share of income and also some reversion toward long-term trends in price to earnings ratios.” Baker’s conclusion is sort of comforting for the stock-owning: even if things get a little worse, they’ll be far from bad. — Ben Walsh

On to today’s links:

Financial Innovation
An update on Fantex, the company that let’s you buy equity in athletes (sort of) - Sujeet Indap

Good Internet
The outlaw Instagrammers of New York City - Adrian Chen

Theory
The theory behind the universal basic income - Ed Dolan

Investigations
Home renting scams proliferate on AirBnB competitor HomeAway - BuzzFeed

Food
Food insecurity is a huge problem among students — most of whom are too proud to admit it - Ned Resnikoff

Niche Markets
The biggest business in the Bridal Veil, Oregon - Katie Baker

Ugh
Skipping subway fare has become one of the most common reasons for incarceration in NYC - Daily News

Terrible
Facebook wants to label The Onion links as “satire” - The Guardian

Demographics
Ferguson and growing suburban poverty - Brookings

Reprogramming the robo-schedulers

Aug 15, 2014 20:37 UTC

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Flexible work hours aren’t always a good thing. Jodi Kantor made a splash with her New York Times story about Jannette Navaro, a Starbucks employee (er, “partner”) who has constant upheaval in her life thanks to her erratic work schedule. Starbucks is one of many companies that uses software to efficiently allocate employees around its stores. “This kind of work is ‘flexible’ only for the company. It means schedules and salaries vary to the point where it’s difficult for workers to make long-term plans,” writes Max Nisen. It can mean things like the “clopen,” when employees are scheduled to close the store late at night and open it again early the next morning.

Starbucks reacted quickly. Just hours after the story went live, the company announced it would be revising its policies. According to the Times, Starbucks executive Cliff Burrows emailed baristas across the country to tell them the company will curb “clopening,” allow employees who live more than an hour from their store to have the option to switch locations, and “scheduling software will be revised to allow more input from managers.” He also reiterated that schedules should be posted at least a week in advance.

There’s no guarantee that any of these changes will actually go into effect, though. Alexander Kaufman writes in the Huffington Post that, “the new policies may prove difficult to enforce, as it is up to store managers to implement the changes.”

This isn’t a new problem, of course, but scheduling software, with minimal human input, has definitely made it worse. A 2013 paper by María Enchautegui the Urban Institute takes a look at the effects of a nonstandard work schedule on low-income families and found (as detailed in Kantor’s story) that those who work erratic hours for low pay often have difficulties finding childcare, having time for family, and securing reliable transportation. The work then becomes self-perpetuating. Writes Nisen: “Navarro for instance, was a few credits short of a degree, but couldn’t commit to college classes because of her erratic schedule.” — Shane Ferro

On to today’s links:

Deals
Coke is diversifying its best in class portfolio of caffeinated sugar water products – Dealbook

Data Points
“Only 3.7% of all poor people are able-bodied, non-working black and Latino men” – Matt Bruenig

Good Ideas
Police should be required to videotape every interaction they have – Reihan Salam

Dear Future Regulators
If a company called “Chimera” promises “revolutionary technology to enable environmentally friendly oil-and-gas production,” it’s a fraud – SEC

Oxpeckers
Seriously, get rid of the comments section – Nicholas Jackson

Food and Banking
Raghuram Rajan lunches with the FT – FT

Post Text
Play the debt collector game! – Fusion
Read about the weird world of consumer debt collection – Jake Helpern

Demographics
We are Bacon and Kale States of America – Bloomberg Businessweek

Yep
“Most non-struggling companies don’t have to issue press releases stating that they are not struggling” – Sam Biddle

MORNING BID – Down in the Jackson Hole

Aug 15, 2014 12:43 UTC

The markets ease into a traditionally slow period with not much to look forward to other than the Federal Reserve’s Jackson Hole conference due next week, where the highlight, naturally, will be anything Janet Yellen says regarding the state of the labor markets. The chances of the Fed signaling a new shift when it comes to policy are slim – Yellen has proved to be a cautious speaker thus far, interested in furthering Ben Bernanke’s way of telegraphing as much as possible when it comes to policy alterations, and Yellen is more so, her “six months” comment from a few months ago notwithstanding. As Jonathan Spicer and Howard Schneider reported a few days ago, Yellen is much more interested in fighting an inflation war than dealing with a persistent deflationary/lousy economic environment to dominate the headlines, so the expectation should be for lower rates for longer, and not to expect a lot of surprises out of Wyoming next week.

Goldman Sachs economists not that Yellen had sounded a bit more positive on the labor market in July, but even still their belief when it comes to the slack that exists in the jobs market is still too great to bear much more than the end of quantitative easing/bond buying and perhaps a move to a couple of small rate increases around the middle of next year that, well, won’t hurt too much given the Fed’s policy rate still sits between 0 and 25 basis points. The forecasts from Reuters most recently put the first rate hike somewhere in the April to June range, which fluctuates depending on the strength of the economic figures.

The markets still haven’t entirely shed the notion that a more permissive Fed is a good thing, and so bad-is-good reactions still are more frequent than one might want. Still, Goldman notes that various labor force indicators still point to a jobs market operating far below capacity or the level of strength that the Fed wants. Some aspects have improved – job openings are rising, which points to desire for more employees, and payroll growth compared with potential labor force growth has been solid, but the hiring rate, quits rate, wage growth figures and participation rate still remain on the low side – so there’s just not the kind of job growth that will push everything else forward too. Morgan Stanley analysts recently noted that the University of Michigan’s final survey of consumers still finds ordinary folk not that enthused about spending in part because of labor-market weakness.

How the market positions headed into the last part of the year also depends on the Fed. Merrill Lynch data shows a net 78 percent of investors polled in one of their surveys expect higher rates in the next 12 months, the highest level since 2011, which is likely to affect positioning and result in more curve-flattening activity.

(This column will be on hiatus for a week next week)

Less repo, man

Ben Walsh
Aug 14, 2014 21:43 UTC

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Banks are cutting back on repurchase (repo) lending, an often overlooked but massive credit market, the WSJ’s Ryan Tracy reports. “Repos,” he writes, “function as short-term loans, which are backed by collateral. Borrowers agree to sell the [collateral] to another party for cash, with the promise to repurchase the bond at a slightly higher price some time in the future.” Broadstroke regulation aimed at reducing leverage has had some effect on repo borrowing. It made it more expensive, bankers say, and they’re doing less of it as a result. Goldman Sachs, for instance, cut $25 billion from its repo business in response to capital requirements.

The FT’s Michael Mackenzie and Tracy Alloway report that the number of “fails” – when the lent security is returned late – in the U.S. Treasury repo market has spiked recently. Worryingly, they write that “repo fails are rising when overall activity has been subdued.”

Eric Rosengren, the president of the Boston Fed, still worries about the impact the repo market could have on the safety of the financial system. On Tuesday, he said, “that potential for problems has not been fully addressed since the crisis.” Contrary to notions that the collateral involved in repo funding made banks safer in times of crisis, it had the opposite effect in 2008 because lenders didn’t actually want the collateral if the bank defaulted.

And because no broker-dealer is an island, “liquidity in the credit markets that support economic activity was severely impaired” during and after the crisis. The New York Fed’s William Dudley agreed that repo funding is a source of risk that has not been adequately addressed.

Analyzing Rosengren’s comments, Dealbook’s Peter Eavis notes that while there has been a drop off in repo funding since the crisis, “it is still by far the largest source of borrowing for broker-dealers. In 2013, repos and similar types of borrowings accounted for 52 percent of broker-dealer obligations… down from 59 percent in 2007.”

“Financial-stability worriers will think all of that is just peachy,” Matt Levine writes. Perhaps, as one theory goes, less leverage means more market volatility, “but, I mean, if you’re dampening volatility with short-term leverage, is that really what you want to do?” The financial crisis – preceded by years of high leverage and low market volatility – would suggest probably not. — Ben Walsh

On to today’s links:

Please Update Your Records
Don’t call the police “militarized.” The military is better than this. - Adam Weinstein

Crisis Retro
How one “sack of shit” mortgage-backed security came to define the financial crisis - Matthew Zeitlin

Meta
A curated list of the most sanitized and boring finance twitter accounts - WSJ

Study Says
Race plays a big factor in how Americans see immigrants - Scott Clement

Yikes
On the militarization of the police - Matt Apuzzo

Servicey
Young people should travel more - Squarely Rooted
You have a right to record the police - The Verge

Ugh
How efficiency scheduling technology screws over hourly workers - Jodi Kantor

Charts
How police forces around the country don’t resemble their communities - WaPo

Rough rides

Aug 13, 2014 21:49 UTC

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Uber has a message for its competitors: get off our lawn. The car service startup’s largest competitor, Lyft, launched in New York in July, after a battle with regulators over the legality of its operations in the city. Just three weeks later, Lyft has accused its competitor of playing dirty — it claims Uber employees requested and then canceled more than 5,000 rides to keep Lyft drivers tied up. “It’s the taxi app version of ding-dong ditch,” writes Erica Fink.

This isn’t the first time this has happened. In January, a smaller Uber competitor, Gett (run by Israeli start-up GetTaxi), reported a similar type of attack. In that instance, “since they had the drivers’ phone numbers as part of the ride transaction, [Uber employees] then texted the drivers, urging them to instead drive for Uber,” according to Cnet. Last week, Kevin Roose wrote about Uber’s new carpooling service announcement, which was conveniently unveiled a day before Lyft had planned to release a similar new feature. “By moving up its announcement to preempt Lyft’s, Uber had both stolen its competitor’s thunder in admirable dog-eat-dog fashion and introduced what it hopes will become the digital-age equivalent of the carpool,” says Roose.

The interesting thing about the latest Lyft/Uber fight, says Alison Griswold, is that Lyft is going public with it. “Lyft has been shopping around the story of Uber’s book-and-ditch attacks to journalists (including two at Slate) for several months but until recently had opted to keep the information off the record,” she writes. She also reports that “multiple drivers said Uber told them (falsely) that working for both companies violated New York City’s Taxi and Limousine Commission regulations and threatened to report them.” (Uber denies Lyft’s claims.)

At the WSJ, Douglas MacMillan writes of the battle that “this is more than two tech darlings duking it out. It’s a battle for a key role in the future of urban transportation.” Perhaps, but the battle certainly hasn’t been won by either company. While they spent the last couple of weeks in the trenches, GetTaxi was busy securing another $25 million in funding. — Shane Ferro

On to today’s links:

Servicey
A basic AOL subscription includes two free wills and an AARP membership – Fivethirtyeight
Snake-oil free personal budget advice from Helaine Olen and Harold Pollack – Dylan Matthews

Tech
Finally, someone has disrupted death – The Verge

Revolving Door
Treasury Dept unit tasked with overseeing sanctions is losing staff to banks’ compliance departments – Bloomberg

Mt Dox
Bitcoin real estate transaction of the day, Lake Tahoe edition – SF Gate

Regulators
The SEC is upset at journalists who break negative news about the SEC – CJR
Mary Jo White was supposed to turn around the S.E.C. She hasn’t - Jesse Eisinger

Legalese
Workers should have the right to know if they have a job – AJAM

Take This Job
More about American truckers’ terrible lifestyle and bad pay – BI

MORNING BID – Retail therapy

Aug 13, 2014 13:11 UTC

All that’s left for investors now when it comes to earnings season is the shouting, but if the rest of the retailers post results anything like Kate Spade did on Tuesday, the shouts will be screams of terror rather than anything that assuages investors over the state of the overall economy. Kate Spade’s executives went into some detail on its conference call as to the nature of its margins shortfall – which Belus Capital chief equity strategist and longtime retail analyst Brian Sozzi said are not likely to improve until the middle of 2015 – and the company then did itself no favors by declaring that it wouldn’t be discussing the margin issues any further on the call. (Craig Leavitt, the CEO, violated that rule to some degree, but basically, investors don’t like it when you tell them flat-out that you’re not going to talk about your problems, and when you’re a company with a forward price-to-earnings ratio of 77.5 and a price-to-book value of 119, that’s going to be particularly true.)

Other luxury retailers have noted their own problems with attracting customers at this time, including Michael Kors Holdings, which saw its own shares stumble of late after also warning of margin pressures due to expansion in Europe, but at least Kors has a forward P/E ratio around 19, which puts it in line with peers like Coach and Ralph Lauren.

After Macy’s, which reported this morning – and put some ugly numbers out there

Wal-Mart has trailed the S&P for the last several years.

Wal-Mart has trailed the S&P for the last several years.

- the next big retailers out of the gate are Kohl’s, Nordstrom and Wal-Mart, and of course they’re all over the map when it comes to big retailers; Nordstrom profiles a bit more like Coach and Kate Spade in terms of clientele, but they’re a big department store, so not really comparable at all. Nordstrom’s growth, though, is expected to come from the Nordstrom Rack outlet stores, with same-store sales estimates for the entire company at 3.3 percent, but a 1.2 percent decline expected in the full-line sales, according to Thomson Reuters data.

Either way, investors will be keeping an eye on margins at Nordstrom’s and Tiffany & Co (which reports later in the month). Nordstrom, in its last release, said it expected a 30 to 50-basis point decline in gross profits for fiscal 2014 (which ends early 2015), compared with 10 to 30-basis points prior to its May earnings release, and its earnings before interest and taxes fell to 7.9 percent in the May quarter 2014, from 8.7 percent a year earlier. While some companies this quarter talked of margin pressures as a result of rising prices, with retailers it seems more to be their inability to get away from hefty discounting to bring consumers into the stores.

Wal-Mart is a trickier case. Sozzi, for his part, believes the company could fall short of results if inventory growth continued to grow faster than net sales, and if they relied heavily on clearance zones to move inventory, that will hurt overall margins as well. The company forecast second-quarter profit below analysts’ expectations in May, and so investors are going to see if there’s any sign that its execution is changing now that it has appointed a new CEO and new head of online business. The company has seen margins slipping as well, as its pre-tax, pre-interest and depreciation margins dipped from the high 7s between 2011 and 2013 to 7.5 percent in 2014, and it’s trailing the S&P badly in the last several years.

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