Sparta Report

Quotes of the Day – Economic Trouble Ahead Edition?

Children’s clothing chain Gymboree has filed for bankruptcy protection, aiming to slash its debts and close hundreds of stores amid crushing pressure on retailers.

Gymboree said it plans to remain in business but will close 375 to 450 of its 1,281 stores in filing for a Chapter 11 bankruptcy reorganization. Gymboree employs more than 11,000 people, including 10,500 hourly workers.

The bankruptcy was widely expected after Gymboree refused to pay some of its bills in recent months, placing the retailer on a collision course with creditors. The retailer said in its filing late Sunday that it hopes to slash $1 billion of its $1.4 billion in debt and to win approval for its plan by Sept. 24.

“We expect to move through this process quickly and emerge as a stronger organization that is better positioned in today’s evolving retail landscape, with the right size store footprint and greater financial flexibility to invest in Gymboree’s long-term growth,” the retailer’sCEO Daniel Griesemer said in a statement.

Like other retailers, Gymboree buckled amid declining mall traffic, fixed rental costs and online competition. Other mall retailers that have recently succumbed to bankruptcy filings include Payless ShoeSource, Rue21 and The Limited.

Global financial services giant Credit Suisse predicted last week that up to 25% of nation’s malls could close by 2022.



Apple shares fell more than 2 percent Monday, falling for a second-straight day due to mounting concerns about unsustainably high stock prices. The iPhone maker’s stock has lost nearly 6.2 percent of its value in just two days.

The decline Monday came after Mizuho downgraded the stock to neutral from buy and lowered its price target to $150 from $160.

“We believe enthusiasm around the upcoming product cycle is fully captured at current levels, with limited upside from here on out,” Mizuho managing director, Americas research, Abhey Lamba, said in a Sunday note.

Apple’s stock fell 3.9 percent Friday as major tech stocks suddenly plunged. Shares closed 2.39 percent lower Monday at $145.42, after hitting a session low of $142.51.

The stock closed at $154.99 on Thursday before the big selling began.



What’s happening this morning? Stocks fell pretty much throughout Asia and prices are weak in Europe too. The US futures are down ~6 points. US TSY yields are flattish while 10yr yields are down in France and Italy following weekend political developments (the UK political situation remains very fluid although this really isn’t impacting anything beyond the shores of that country). Crude has a small bid following some encouraging news out of Qatar (Qatar remains committed to the production agreement and Kuwait is hopeful on a resolution to the current regional friction).

Eurozone tech stocks are getting hit too (the SX8P tech index is down >3%, led on the downside by AMS AG, STM, ASM Int’l, Dialog Semi, ASML, Logitech, etc.). The US tech carnage on Friday wasn’t so much a function of fundamentals (which remain healthy) but instead a return to the Nov/Dec ’16 post-Trump reflation playbook (which is why bank stocks did very well in the US last week) as a series of American political developments could help pave the way for pro-growth policy upside surprises in the months ahead. While the odds of a corporate tax bill may be higher than investors anticipated at the start of last week, the ultimate rate cut won’t be as dramatic as initially hoped (~27-28% instead of 15-20%) and the other pieces of the pro-growth agenda (individual tax cuts, large-scale infrastructure spending, legislative deregulatory actions) are unlikely to make it to Trump’s desk.

Meanwhile while tech will remain under pressure (the space has become overcrowded w/a lot of lazy/complacent money chasing momentum and these weak hands can be quick to exit – that departure process usually takes longer than just a few days) it’s unlikely banks will receive the required cooperation from Treasuries (higher yields and a steeper curve) for the BKX to hit fresh highs. Note that AAPL was hit w/its second d/g in as many weeks this morning (Mizuho cuts from Buy to Neutral; this follows the d/g from Pac Crest last Mon 6/5).



Bitcoin suddenly plummeted Monday, amid increased worries that the young digital currency system is growing too quickly.

The decline came as major U.S. technology stocks fell for a second straight day on concerns that the sector has risen to unsustainable levels.

At least two major bitcoin exchanges also had problems, while a new blockchain project raised a record high level of funds Monday.

“We are seeing greed being exhibited in the open,” said William Mougayar, author of “The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology. “This is not good for the overall ecosystem. Eventually, something more normal will prevail.”



There appeared to be a glimmer of hope for the restaurant industry last month, when despite ongoing negative restaurant sales and traffic performance in April, BlackBox Intelligence Executive Director, Victor Fernandez said that “there are some reasons to be cautiously optimistic about the second quarter, at least in terms of improvement over what we’ve seen in the recent past” adding that “the move of the Easter holiday meant that April’s results were likely softer than they would have been without this shift, meaning spending in restaurants was probably a little stronger than the numbers show.”

Alas, any trace of optimism was doused with the latest BlackBox snapshot report (based on weekly sales data from over 27,000 restaurant units, and 155 brands representing $67 billion dollars in annual revenue) which found that May was another disappointing month for chain restaurants by virtually all measures.

More concerning is that the restaurant industry has not reported a month of positive sales since February of 2016, according to BlackBox.

The latest report from the National Restaurant Association found much of the same:as a result of softer sales and customer traffic levels and dampened optimism among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) registered a sizable decline in April. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.3 in April, down 1.5 percent from a level of 101.8 in March.

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