Last week was a disaster for retailers. Walmart took a double-digit dive in the stock market and wiped out $34B of the Walton Families wealth in just 48 hours. The first time since 1995, Walmart did not generate any cash from its operation. In fact, it spent another $3.5B on capital. The free cash flow was a staggering negative $7.3B. Walmart has $15B in cash. So, how long can the company operate this way? The simple answer is: Not for that long time.
Walmart was not the only retailer who announced bad numbers. Kohl’s and Target’s shareholders lost 25B each, after publishing the their earnings report.
There are obviously problems across the economy and not just for the retail industry. The hangover from the stimulus hurts more than we thought or expected. Now we are paying for it. Many are paying with their jobs after stimulus-rich companies went on a hiring spray. But even more are paying with their retirement savings.
A reset is inevitable, even such a brutal one. Anything else is simply lazy logic and ignorance of the facts. What’s happening now should come as no surprise. The FED printed up $5 trillion and handed it out like Smarties. Companies thought it would last forever. T
To think the effects would not arrive is simple ignorance. It defies logic and any economic theories.
So, do not be surprised about what comes next. A recession is already around the corner.
Sven Franssen