This Buisnessweek article has the air of trying hard to ignore the story to focus on the story. It’s about how Wal-Mart’s growth is slowing down, and how this is supposed to be some kind of catastrophe for the Wal-Mart empire. But saying that Wal-Mart has a problem is studiously ignoring the problem.

The problem is that whatever sales momentum there is at Wal-Mart is coming from the lowest-margin items at its stores—staples like food and $4 drugs. Indeed, company executives have said in the past they would rather take a hit on profits from these items to attract a large amount of shoppers into its stores who will then stock up on higher-margin goods like apparel. But that’s not happening. Even gift cards, which are usually viewed as something people would use for goods to treat themselves, were being redeemed in January for basics like food.

The article tries quite hard to fault Wal-Mart’s marketing, especially of apparel, in contrast to Target, although “Wal-Mart’s fourth-quarter same-store sales rose 1.7%, which beat Target.” My own take is that Wal-Mart needs to worry a lot more about its overall customer satisfaction and a lot less about keeping up with the Joneses. I think Wal-Mart is showing more of the impact of the “dust” in the economic slowdown than this article credits. If you are going to go in debt, why shop at Wal-Mart? While you are whipping plastic, go for the prize bull and shop upscale. The people who are still playing out their credit are shopping elsewhere, while more upscale markets haven’t hit the end of their credit line yet. When that happens, Wal-Mart’s growth will probably look pretty good again.

From Blomberg……

New York state taxpayers’ weekly borrowing costs increased $2.3 million after banks failed to attract bidders to auction-rate bonds and stopped buying unwanted securities.

Interest rates on Dormitory Authority bonds sold for the City University of New York rose to as high as 6.26 percent last week from 3.42 percent on Feb. 6, according to data compiled by Bloomberg. Buffalo’s rate on water system revenue bonds soared to 11 percent from 3.30 percent. Bonds issued by the Museum of Modern Art climbed to 4.47 percent on Feb. 13 from 3 percent at the end of January.

Rates in the $330 billion auction-rate bond market are rising nationwide after banks from Citigroup Inc. to Goldman Sachs Group Inc. stopped bidding for the debt at periodic sales they oversee, according to Bloomberg data. New York, with $4 billion of auction debt, may convert the bonds to a fixed rate or a different type of variable-rate security, state budget director Laura Anglin said in an interview in Albany last week.

“It hurts,” said Anthony Farina, executive assistant in the Buffalo comptroller’s office. Interest costs on the $63 million of auction-rate bonds rose $93,000 for the week, he said. “Nobody expected this kind of jump.”

Its kind of funny this should pop up today, because we were all talking the other night about slaughter houses and the butchering of cows in particular. This from ABC news…..

A disturbing undercover video showing cows too sick to stand being shoved with forklifts or dragged with chains across a cement floor at a Southern California slaughterhouse has sparked the largest beef recall in the nation’s history.

The U.S. Department of Agriculture ordered a recall of 143 million pounds of beef Sunday evening from Chino-based Westland/Hallmark Meat Co., which is the subject of an animal-abuse investigation. The recall affects beef products dating back to Feb. 1, 2006 that came from the company.

Here is a portion of the video….

See a longer video here.

All the kings horses and all the kings men are working really hard of late.

Here is Naked Capitalism on the attempts of the powers that be to salvage something from the Bond Insurances companies.

Here is Tanta on how the Government’s Sponsored Agencies are going to go about guaranteeing Jumbo mortgages in an attempt to provided stimulus.

And here is Brad Setser to remind us once again why we have not crashed yet.

Professional economists normally have no use for Chartists. The idea that you can predict future price movements based on past behavior of the Chart has not empirical support. Most economists will tell you that there is not much to separate a Chartist from witch doctor.
But one might imagine that Alex Tabarrok has come around Click Here to continue reading.

As a young boy I clashed constantly with my oldest brother. I dislike being told what to do or even the way things are, especially if I am not impressed with the authority and consider myself of comparable sagacity. Without inquiring too closely of recent history, I can admit that even very late in my Click Here to continue reading.

Your boss is the one who tells you what work you must do and who authorizes your paycheck. Many people tell you to do thus and so, of course, but it remains convention that only one person is responsible for the ongoing decision to reimburse you for services rendered.
Your dotted-line boss, within Acme, is a Click Here to continue reading.

We have not been keeping up on the news the last couple of days. Here are some things that you might have missed.

The first link comes from the Financial Times…..

The issue at stake revolves around so-called delinquency rates, the proportion of people who fall behind on their debt repayments. When American households have faced hard times in previous decades, they tended to default on unsecured loans such as credit cards and car loans first – and stopped paying their mortgage only as a last resort. However, in the last couple of years households have become delinquent on their mortgages much faster than trends in the wider economy might suggest. That is particularly true of the less creditworthy subprime borrowers. More­over, consumers have stopped paying mortgages before they halt payments on their credit cards or automotive loans – turning the traditional delinquency pattern on its head. As a result, mortgage lenders have started to face losses at a much earlier stage than in the past.

“In the past, if a household in America experienced financial problems it tended to go delinquent on its credit cards, but kept on paying its mortgage,” says Malcolm Knight, head of the Bank for International Settlements, the central banks’ bank. “Now what seems to be happening is that people who have outstanding mortgages that are greater than the value of their home, or have negative amortisation mortgages, keep paying off their credit card balances but hand in the keys to their house … these reactions to financial stress are not taken into account in the credit scoring models that are used to value residential mortgage-backed securities.”

Anecdotal evidence that this was going on has been piling up for awhile. Now it seems that it may be showing up in broader statistical samples. If this snowballs, housing prices could really drop.

Related to the above is this story from Bloomberg….

Standard & Poor’s said it cut or may reduce ratings on $534 billion of subprime-mortgage securities and collateralized debt obligations, the most sweeping action in response to rising home-loan defaults.

The downgrades may extend bank losses to more than $265 billion and have a “ripple impact” on the broader financial markets, S&P said in a statement today. The securities represent $270.1 billion, or 47 percent, of subprime mortgage bonds rated between January 2006 and June 2007. The New York-based ratings company also said it may cut 572 CDOs valued at $263.9 billion.

The reductions may increase losses at European, Asian and U.S. regional banks, credit unions and government-sponsored enterprises such as Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks, S&P said. Many of those institutions haven’t written down their subprime holdings to reflect a drop in market values and these downgrades may force them to recognize losses, S&P said.

The rating agencies have been downgrading things for awhile now. But doing half a trillion dollars worth in one whack still makes people sit up and take notice.

It is kind of funny that S&P is saying that the rating cut will force banks to recognize losses. The name of the game seems to be avoid having to face up to the facts at all costs. This from Naked Capitalism…..

But it seems that duplicity, um, creativity of various sorts is not only being encouraged but actually endorsed. First we had the Federal Home Loan Banks making massive loans to subprime lenders, particularly Countrywide. Now we have the SEC permitting subprime lenders to engage in what can only be described as misleading accounting.

If a mortgage servicer modifies a loan in a mortgage trust, an off balance sheet entity, in ways not comtemplated by the trust’s charter, the trust dissolves and the loans go back to the lender. But even though loan mods are often the best of the bad choices available when dealing with underwater borrowers, if the servicer does mods in a way that violates the trust charter, that means the poor overstrapped subprime lender has to take more assets onto its already not-so-hot balance sheet.

Enter the SEC with a magic wand. You can have your off balance sheet treatment, meddle with it like it really isn’t off balance sheet, but still keep your preferred accounting treatment.

Large parts of China are getting pounded by major snow storms. From BBC…

Severe winter weather is causing travel chaos in China as tens of millions of people try to return home for the country’s main holiday, Lunar New Year.

At least 170,000 people are stuck at the railway station in Guangzhou, in the southern Guangdong province, where most trains have been canceled.

Many thousands are stranded because of blocked roads, with some areas running out of salt to spread on icy surfaces.

More than 20 people have been killed since the severe weather began.

Part of the problem is simply that China is not equipped to handle snow in any form. If you watch this clip you will see people spreading salt from the back of trucks by hand. But main reason this heavy snow fall is such a crises has to do with China’s economic polices. As the the Financial Times explains….

An acute coal shortage left China suffering its worst power crisis in years as unseasonably large snowfalls saw hundreds of thousands stranded when they tried to travel to their families for the lunar new year holiday.

About half of China’s 31 provinces and regions have been hit by “brownouts”, or voltage reductions, caused by Beijing’s attempt to reimpose and tighten price controls on commodities including coal and oil.

Beijing is using old-fashioned price controls in an effort to stop food inflation, which has pushed the consumer price index to an 11-year high, from spreading to the rest of the economy.

Power companies insist the brownouts are the result solely of coal shortages. But executives admit privately the industry may have exacerbated the situation to drive home to Beijing the unfairness of price controls. Global prices of coal, China’s staple fuel, have surged, causing pressure for the rises to be passed on. Power industry margins have also been cut by higher freight costs.

China has about a trillion dollars invested in US bonds that they are taking heavy losses on, and yet they don’t have an energy infrastructure that is equal to their needs. If they allowed their currency to float against the dollar, they would not be having such a problem with inflation and energy would be cheaper for them.

Their loss is America’s gain, but how long can they continue like this?