What's Important in the Financial World (11/23/2011) Bank Stress Tests, Walmart's 10,000th Store

The purchasing managers indices of China, German and France all signaled slow growth or contraction in November. It is a sign that demand for exports and consumer expenditures are in free fall. China and Germany have large enough consumer economies that their numbers are a surprise. Concerns about future income and jobs have slowed consumer activity in even these two relatively strong economies. The PMI figures also signal that demand for goods in the U.S. and EU, the two largest regions based on GDP, has faltered. If PMI is a indication of purchases to come — both by consumers and businesses — then the global economy has tipped closer to recession.

Walmart (NYSE: WMT) has opened its 10,000th store, a new Sam’s Club in Mexico. That country has been as critical to Walmart’s growth outside the U.S. as China has. Mexico has some advantages over China for the world’s largest retailer. China still has tight restrictions on labor, protection of unions and the ability to refuse the construction of new stores on little more than a whim. The news also shows that, while Walmart’s sales have slowed to a crawl in the U.S., overseas demand for the goods and services the company stores offer is still accelerating.

Projections about retail sales over the Black Friday weekend range widely. The National Federation of Retailers expects foot traffic to rise as much as 10%. Some analysts believe that retail sales may be flat for the final two months of the year. E-commerce experts expect sales to be in the low double digits, driven in large part by revenue growth at Amazon.com (NASDAQ: AMZN). The question that will remain unanswered until January or February is whether traffic, both online and in stores, translates into profits. Discounts may be so deep to lure buyers that revenue will turn into losses for many products.

The Federal Reserve said it will conduct another series of stress tests on America’s largest financial firms. The tests will be based on extremely pessimistic assumptions. Among these is that U.S. unemployment will reach 13% in early 2013. The statistic has not been that high since the Great Depression. Wall St. has already said it expects the financial services industry will be badly damaged by a slow economy and bad loans. The stocks of Bank of America (NYSE: BAC) and Morgan Stanley (NYSE: MS) have reached bottoms close to those last hit in March 2009, when the market had created a trough that took it from 14,000 in 2007 to just below 7,000.

Two-thirds of the respondents to a new Barclays poll think Europe will fall into a recession. The other third are likely to be wrong. Signs are many that a recession in the region began more than a month ago. CNBC reports that “Their pessimism about Europe stems from the debt crisis plaguing the region, with nearly 40 percent of investors citing it as the key theme for markets in 2012.” If it is a “key theme,” expect U.S. stock indices to fall through most of next year.

Douglas A. McIntyre