KeNo's Housing and Economic Portal: Tuesday June 6 2017 Housing and Economic stories

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Illinois Budget Crisis Is About to Get Even Harder to Resolve - (www.bloomberg.com) Illinois leaders will blow past a deadline that will leave the state careening toward the third straight year without a budget. The Illinois House isn’t voting on a budget on Wednesday, which means the gridlock-prone government won’t pass a spending plan by midnight. That means approving a budget -- a usually routine task that has eluded the state for 700 days -- will become even more difficult because a three-fifths majority will be required. Democratic lawmakers, who control both chambers, and Republican Governor Bruce Rauner have repeatedly failed to agree on how to solve chronic budget deficits worsened by the expiration of tax hikes in January 2015. "We are probably approaching that point of impaired ability to function at basic level,” said John Humphrey, the Chicago-based head of credit research for Gurtin Municipal Bond Management, which oversees about $10.1 billion of state and local debt and has steered clear of Illinois. “We’ve already probably passed that point. We haven’t seen this in a modern state before.”

Brick-and-Mortar Retail Meltdown Has a Busy Month - (www.wolfstreet.com) This morning, luxury handbag retailer Michael Kors Holdings, which had had stellar sales through 2014, revealed in its Q4 earnings report that it would close up to 125 retail stores and take a $125 million charge, to save $60 million this fiscal year. Sales plunged 11.3% year-over-year in Q4, and the company lost $27 million, or 17 cents a share. It doused investors with a gloomy outlook for its fiscal year 2018, with revenues expected to drop over 5% to $4.25 billion, and with same-store sales plunging “in the high-single digit range.” … Despite a “new $1 billion stock repurchase program” – funded with the money the company is losing, so to speak – share plunged 8.5%. Other retailers aren’t so lucky. On June 1, Gymboree, a children’s clothing retailer, will face an interest payment on its debt that it is unlikely to make. So a bankruptcy filing could be next. Serious bankruptcy rumors started swirling on April 11 when issues with the interest payment cropped up. On May 4, “people familiar with the matter” told the Denver Post that Gymboree was looking to close 350 of its 1,200 stores as part of a broader restructuring in bankruptcy court.

GM Reports Record "Channel Stuffing": Auto Inventory Highest Since November 2007 - (www.zerohedge.com) GM "channel stuffing" just hit a new all time high, with the number of GM vehicles parked at dealer lots and patiently waiting for a buyer rising to the highest since the month before recession officially began, when GM was still pre-bankruptcy GM. As we await all US carmakers to report May auto sales, we remind readers that when we discussed last month's disappointing monthly car sales report, which badly missing expectations showing the fourth consecutive month of declining auto sales - the first time this has happened since July 2009 - we noted what may be the biggest concern for the auto industry: inventory days continued to trend higher as OEMs push product on to dealer lots even though sale-through to end customers has seemingly stalled. Of note, we highlighted GM, one of the few OEMs to actually disclose dealer inventories in monthly sales releases, which reported that April inventories increased to 100 days (935,758 vehicles) from 98 days at the end of March and just 71 days (681,402 vehicles) in April 2016. Indicatively, analysts say an overall inventory level of 60 to 70 days is healthy. 100 is not. GM management was eager to deflect attention from this troubling statistic, and said that soaring inventories are normal and, somehow, "reflect strong sales", as per the press release: "As planned, GM’s inventories reflect strong sales, lower car production and strategic, launch-related growth in truck and crossover stocks."

Mylan May Have Overcharged Taxpayers by $1.27 Billion for EpiPen - (www.bloomberg.com) U.S. taxpayers may have overpaid for Mylan NV’s EpiPen shot by as much as $1.27 billion over the last decade, according to a U.S. government report. Senator Charles Grassley, an Iowa Republican, on Wednesday posted a copy of a report by the Department of Health and Human Services’ Office of the Inspector General. The report says that Mylan, by classifying EpiPen as a generic drug rather than a brand-name product, shortchanged the Medicaid program for the poor. Under Medicaid, makers of brand-name drugs must provide deep discounts on their products. In October, Mylan said it reached a settlement with the U.S. to pay $465 million for misclassifying the drug as a generic product, which doesn’t require the same discounts. Grassley has been critical of the October settlement, calling it too small.

Deepwater Drilling's Cost-Fall Flummoxes OPEC - (www.bloomberg.com) Pumping crude from seabeds thousands of feet below water is turning cheaper as producers streamline operations and prioritize drilling in core wells, according to Wood Mackenzie Ltd. That means oil at $50 a barrel could sustain some of these projects by next year, down from an average break-even price of about $62 in the first quarter and $75 in 2014, the energy consultancy estimates. The tumbling costs present another challenge for the Organization of Petroleum Exporting Countries, which is currently curbing output to shrink a glut. In 2014, when the U.S. shale boom sparked oil's crash from above $100 a barrel, the group embarked on a different strategy of pumping at will to defend market share and throttle high-cost projects. Ali Al-Naimi, the former energy minister of OPEC member Saudi Arabia, said in February 2016 that such producers need to either "lower costs, borrow cash or liquidate."

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