Posts Tagged ‘John Kerry’

Is Sears Really In Trouble?

Tuesday, February 14th, 2012

Sears is trading at its lowest level levels since John Kerry won the Iowa Caucus and New Hampshire Primary in 2004 — and that’s not good news for one of America’s oldest retailers. The retailer, which owns Kmart as well as the Kenmore, Craftsman and Lands’ End brands, announced  after Christmas that it would close between 100 and 120 Seas and K Mart stores. Unfortunately, the news just appears to be worsening.

Sears shares declined after CIT Group halted lending to Sears suppliers — without comment — out of fear those vendors will not get paid.  The news seemed to confirm it was true without actually saying so.  A Sears’ spokesperson said the firm disagreed with CIT’s actions and that CIT payables affected less than five percent of Sears’ inventories.

“Sears Holdings has more than adequate liquidity and ample resources at our disposal which give us significant financial flexibility,” the spokesperson said, noting that it is “important to separate disappointing operating performance with liquidity.”  The Sears spokesperson said that the company closed out December with $4.2 billion in liquidity.

Paul Swinand, an analyst with Morningstar in Chicago, said CIT may not be the start of a trend. He noted that the company now run by former Merrill Lynch head John Thain may be acting overly conservative because it went bankrupt in 2009.  It can be forgiven for being more risk averse than other lenders.  Swinand did note that Sears has to turn its fortunes around or suppliers could become reluctant to continue selling goods through Sears and Kmart stores. Sears is expected to report massive losses for the fiscal year and analysts are forecasting a decline in sales. Vendors could run out of patience.  “When people talk about a retail death spiral, it starts when vendors start tightening shipments because you could lose the ability to get the best merchandise,” he said. “The worry is that if Sears keeps piling up losses, you have to wonder what companies like Electrolux or Whirlpool might do.”

One risk when a factoring company pulls credit to suppliers is that others may do the same thing. Some factors already have become reluctant to take on shipments to Sears, while others are demanding a “substantial” premium,  Bobby Cohen, CEO of Lochem Capital, said, “There’s so much low-hanging fruit out there that they say to themselves, ‘I don’t need to have a dog in this fight,’” said Cohen, whose Roslyn, NY-based company serves as a broker between buyers and suppliers. The upheaval likely will be temporary, he said.

Sears has adequate liquidity that it will pull through the current situation, said Matthew McGinley, managing director at International Strategy & Investment Group in New York.  “Even with Sears’ deteriorating financial condition, it is pretty unlikely that a vendor shouldn’t ship over the near term,” he said.

“We disagree with their action” and “point out that other factors are approving shipments to Sears,” Chris Brathwaite, a Sears spokesman, said.  “It’s important to note that Sears Holdings has more than adequate liquidity and ample resources at our disposal.”

Despite Brathwaite’s optimism, losing CIT’s financing could ultimately set off a chain reaction among other backers, where they also stop backing Sears.  Even though Sears has been making its payments on time, CIT has not been given some financial projections it requested, said Jack Hendler, president of Net Worth Solutions, a merger and acquisition advisory firm.  Other factors — those who provide loans or lines of credit to suppliers to tide them over until retailers make payments — are still approving orders, he said, but are also waiting for similar information and have been wary. “CIT decided not to wait and get their attention,” Hendler said.

According to analysts, Sears will survive in the short term.  Just the same, credit actions usually lead to more credit actions.  Try maxing out a credit card and see what happens to your credit.

Jon Levy: European Real Estate Opportunities

Monday, April 26th, 2010

Jon Levy is a European Union analyst with Eurasia Group and a frequent commentator on European issues, appearing on CNN, CNBC and NPR.  He was previously director of national security policy for John Kerry's presidential campaign. Jon Levy is a European Union analyst with Eurasia Group and a frequent commentator on European issues, appearing on CNN, CNBC and NPR.  He was previously director of national security policy for John Kerry’s presidential campaign.  In a recent interview for the Alter NOW podcasts, Levy discussed several factors shaping European real estate markets – as well as European investment in U.S. assets.  His comments touch on the outlook for eastern Europe, investment thinking in Germany and some of the macroeconomic challenges facing the U.K.  Levy’s comments add a unique perspective to some of the key trends we are watching in the European markets.

A few insights…

German open-ended real estate mutual funds are expected to invest 12 billion euros (approximately $18 billion) in Europe and the United States over the next few years.  These funds have already raised three billion euros in the first eight months of 2009, reinforcing a sense that – at least for Germany – the worst of the financial crisis is over and markets are stabilizing.  Germany is now one of the most aggressive investors in American real estate, behind only Australia.  These funds display a preference for high-quality, income-producing assets.

Levy noted that there has been dramatic tightening of credit and liquidity in Eastern Europe.  However, as he notes, the ability to adopt the euro – while an uneven and politically charged process – provides an exit from this environment – a key distinction with other emerging market crises.  Furthermore, within Eastern Europe, there are significant differences in outlook, with several regions and sectors poised for growth.  This situation, Levy argues, may present attractive entry points as broader credit and liquidity conditions lead to more favorable asset prices.

In the United Kingdom, an estimated $350 billion is needed to refinance commercial real estate loans in a market where many properties have gone into default and values have declined 44 percent since 2007.  The leasing pool in the City of London has been dramatically reduced as there is a consolidation in the banking and asset management industry.  There is a strong emerging view that the UK needs to diversify its economy away from financial services and back into manufacturing and agriculture to achieve a healthier balance.  Levy also provides some insight into the situation in the UK.

Eurasia Group is the world’s leading political risk and consulting firm that helps corporations make informed business decisions in countries around the world.

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