The Stimulus Hangover Is Here… and It’s Brutal

Andy Snyder|May 23, 2022

Netflix is laying off hundreds of workers.

Carvana fired 2,500 workers… over Zoom.

Robinhood slashed nearly 10% of its workforce.

Peloton canned 2,800 people.

And even Facebook has enacted a hiring freeze, with other big firms saying hiring should now be considered a “privilege” for teams.

My, how things have changed.

There’s a critical lesson in this. For the astute, it’s a moneymaker.

But to really see what’s happening, we need to look through the fingers shielding our eyes and take in even more of the carnage.

Dire Figures

Last week was hell for retailers.

The Walton family lost $34 billion in 48 hours as their baby took a nose dive. Behemoth bellwether Walmart took a double-digit plunge last week after it opened its first quarter books – reluctantly, we’re sure – to anybody with the stomach to look at them.

Not only did the company not generate any cash from its operations (the first time that’s happened since 1995), it spent another $3.5 billion on capital.

In all, its free cash flow was in the red by $7.3 billion.

Ouch.

A company with $15 billion in cash can do that for only so long before the comptroller raises an eyebrow… or runs for the Arkansas hills.

The problem?

Folks on the inside made a very bad calculation. They spent a lot of money on inventory… just as consumers were stepping back.

Just as the company geared up for big sales, the inflation monster crept into Joe Sixpack’s wallet and stole his purchasing power.

Kohl’s, too, saw problems.

Its shareholders lost $25 billion in wealth as the market gagged on the company’s earnings report.

It turns out the company’s overzealous merchandise buyers boosted inventory by 16.5%… in a year when management now thinks sales will be up a mere 1%.

Oops.

Perhaps there should have been a memo.

The same thing happened at Target, where another $25 billion disappeared. You probably heard the news… but may have missed the gossip and the inside chatter.

Its brass said there are “clearly” problems across the economy and that inflation-stirred spending cutbacks forced it to make “aggressive” discounts on its inventory.

In one of the most prescient statements of the year, Target’s CEO made some ominous remarks.

“In our other three core merchandise categories, apparel, home and hardlines, we saw a rapid slowdown in the year-over-year sales trends beginning in March when we began to see the impact of last year’s stimulus payments,” CEO Brian Cornell said.

“While we anticipated a post-stimulus slowdown in these categories, and we expect the consumer to continue refocusing their spending away from goods and into services, we didn’t anticipate the magnitude of that shift.”

That’s the big folly.

It’s happening all across the American economy.

Too Much… Then Too Little

The hangover from the stimulus hurts more than the drunk and disorderly thought… and now they’re paying for it.

Many are paying with their jobs after stimulus-rich companies went nuts with hiring. But even more are paying with their retirement savings as the hot air comes out of it all.

The Wall Street Journal summed it up well…

Retailers were on a major sugar high last year when everything – supply chain delays, low inventory, homebound customers and stimulus checks – seemingly conspired to feed their bottom lines. A comedown was inevitable, but not one so brutal or swift.

Yes, but we disagree with that last line.

In fact, we’ve disagreed for months.

A comedown this brutal was inevitable. Anything else is simply lazy logic and ignorance of the facts.

And we’re not just saying this because the facts are now clear. We’re not one of the oh-so-many who will call a recession when the whole crowd finally sings in tune.

Oh no… we’ve been out on this lonely limb for quite a while.

And so says the landmark issue of Manward Letter we printed nearly six months ago.

What’s happening now should come as no surprise. We printed up $5 trillion and rushed it out to the American landscape.

Companies thought it would last forever.

They hired. They bought. And they covered their hides.

To think the effects wouldn’t be equally gargantuan to the sum we pulled out of thin air is simple ignorance.

It defies logic.

What comes next will surprise even more.

More on that later in the week…