I'll be offline until Monday, March 3, when posting will resume.
I'll be offline until Monday, March 3, when posting will resume.
The Securities and Exchange Commission just launched its "Financial Explorer" software giving Web users new options to manipulate and interpret financial information filed by U.S. companies.
"At the click of a mouse, Financial Explorer lets investors automatically generate financial ratios, graphs, and charts depicting important information from financial statements," the SEC says. "Information including earnings, expenses, cash flows, assets, and liabilities can be analyzed and compared across competing public companies. The software takes the work out of manipulating the data by entirely eliminating tasks such as copying and pasting rows of revenues and expenses into a spreadsheet."
Try it at www.sec.gov/xbrl.
This is the latest phase of the SEC's attempt to make corporate filings interactive. You can call up executive pay totals and rank fat-cat emoluments by industry, company revenue or market capitalization. The software measures stock-option values two different ways and adds up all the compensation. You can chart business results over time -- not just sales and earnings but a couple dozen metrics including fairly esoteric stuff such as equity income in unconsolidated affiliates.
It's fun, but it'll be a long time before Financial Explorer allows ordinary investors to "access vast quantities of statistics they can manipulate just like the pros do now." That's what Jack Ciesielski, publisher of the Baltimore-based Analyst's Accounting Observer, said would theoretically be possible when the SEC committed to this two years ago.
For the system to work, companies must electronically "tag" data when they file it. Tagging is voluntary and many filers don't do it. Even for the ones that do, data go back only a year or two, to judge from the companies I called up. And you can't play with mutual-fund data yet, that I could see. That may end up proving to be the most interesting tool for the common investor.
Baltimore's biggest remaining independent banking company has gotten whacked again by the real estate club. Provident Bankshares took a $47.5 million writedown in January and said it didn't anticipate any more. This just out:
Based upon newly available information, continued deterioration in market prices subsequent to year-end and its continuing analysis of the REIT portfolio, the Company may realize additional impairment charges on some or all of the remaining $32.8 million of the REIT portfolio at the end of the first quarter...
In addition, based upon the ongoing credit analysis of the Company’s non-agency mortgage backed securities portfolio, the Company may realize additional impairment charges on some or all of $14.9 million of that portfolio at the end of the first quarter due to increased delinquency levels in the loans underlying these securities.
The default rates are impressive. Of Provident's $33 million Real Estate Investment Trust portfolio, the lowest of which is rated BBB, the Jan. 31 default rate was almost 12 percent. Of one $15 million package of "Alt-A" mortgage securities (better credit score than subprime, worse than prime), 9 percent were 60-days or more delinquent. Delinquencies for higher-rated paper are better, however. Overall, delinquencies for Provident's AAA paper were 1.84 percent; for AA paper, 3.79 percent.
Filed this morning at the SEC. BGE's parent is giving CEO Mayo Shattuck pension credit for the time he spent on Constellation's board, before he became CEO in 2001. He is not yet vested in the plan but if/when he is this'll mean a lot more money. This is nothing, however, compared with the pension upgrade he was going to get in the FPL merger.
Effective February 21, 2008, the Compensation Committee of the Board of Directors amended the Constellation Energy Group Senior Executive Supplemental Plan, a non-qualified supplemental retirement plan, to allow participants to receive credit toward the service requirement for time spent in non-employee service to Constellation Energy Group, Inc. (“Constellation Energy”), including time spent as a member of the Board of Directors. Under the plan, a participant must be at least age 55 with 10 or more years of service to retire and be entitled to benefits. As a result of this change, Chairman, President, and Chief Executive Officer Mayo A. Shattuck, III, will receive an additional two years and six months of service under the plan relating to his service as a non-employee member of the Board of Directors prior to his appointment as President and Chief Executive Officer. As of February 21, 2008, Mr. Shattuck is age 53 and has been credited with 8 years, 10 months of service (including the years of director-related service) and remains ineligible for benefits under the plan.
A couple weeks ago those with good credit scores could have gotten a 30-year mortgage at 5.5 percent. Not anymore. Wholesale inflation blasted off in January at twice the rate economists expected, the Labor Department said this morning. That should bump up long-term borrowing costs, because lenders demand higher rates to compensate for the erosion of capital caused by inflation. From AP:
Inflation at the wholesale level soared in January, pushed higher by rising costs for food, energy and medicine. The monthly increase carried the annual inflation rate to its fastest jump in a quarter century.
The Labor Department said Tuesday that wholesale prices rose 1 percent last month, more than double the 0.4 percent increase that economists had been expecting.
The January surge left wholesale prices rising by 7.5 percent over the past 12 months, the fastest pace in more than 26 years, since prices had risen at a 7.5 percent pace in the 12 months ending in October 1981.
After the news was released at 8:30 the yield on the 10-year Treasury note briefly spiked and then calmed down. The 10-year is an OK proxy for the mortgage-rate trend (not the mortgage-rate level). Gold popped $8. With so many inflation signs, I doubt we'll see 30-year fixed mortgage rates under 6 percent for a while.
The Dallas Fed’s annual high-school essay contest, which boasts a $1,000 savings bond as top prize, last year asked students to write on the pros and cons of globalization. This year? Economics in the movies.
The key questions for student hopefuls: “Do you recall any economic lessons or concepts lurking among the [movie’s] characters and storyline? … Does the film illustrate a truth about economics? How do economic concepts shape the characters’ decisions?”
More lackluster housing news, as existing-home sales dipped in January. The National Association of Realtors, however, believes the worst could be over. From AP:
Lawrence Yun, chief economist for the Realtors, said he believed the housing market may be on the verge of bottoming out with a rebound expected to start toward the end of this year. “Subprime loans and other risky mortgage products have virtually disappeared from the marketplace, and over the past five months, this has been reflected in soft but fairly stable home sales,” he said.
You almost want to believe him, until you recall that Realtor flacks have been saying the same thing for years.
The preliminary growth reading for the fourth quarter was barely over zero. When the gross domestic product result is updated this week, economist and investment strategist Ed Yardeni isn't ruling out a dip into negativity. From his note to clients this morning:
This week, we’ll get to see if a recession started during Q4-2007. The quarter’s revised growth rate will be reported on Thursday. The preliminary number was up 0.6%. It wouldn’t take much to push this number into negative territory. However, the Bloomberg consensus of economists is a slight upward revision to 0.7%. The economists at Macroeconomic Advisors, who track real GDP on a monthly basis, are expecting no change from the preliminary number.
From the Associated Press:
The head of Nissan Motor Co. said even if the United States is not in recession, its auto industry is.
"We are very lucid on the situation of the industry that there is a recession in the United States, at least in the car market," Chief Executive Carlos Ghosn told reporters, saying automakers face rising costs for iron ore, precious metals, aluminum and other materials.
"These represent risk for the industry," he said.
Ghosn, who is also president and CEO of Renault SA of France, expressed optimism that the market will improve. Renault owns 44 percent of Nissan.
The American auto market "will not stay in recession for a long time," he said.
U.S. car and truck sales totaled 16.1 million vehicles in 2007, down from 16.6 million the year before, according to Autodata Corp. It was the worst performance since 1998 as rising gasoline prices and declining home values sapped consumer confidence.
On the topic of financial poetry, check out this fabulous song on YouTube by Ferris, Baker Watts broker Gregg Somerville. The Subprime Mortgage Blues is the best 12-bar summary of the current financial crisis I have ever heard. You'll laugh. You'll cry. You'll learn why George Washington is about to trade his place on the dollar bill for Chairman Mao.
Be sure to read Joshua Boark's story in today's business section of The Sun. It's about how the cheap dollar, foreign demand and huge corn purchases by government-subsidized ethanol producers are driving up the price of food for American families. Yesterday the government boosted its already-high forecast for U.S. food exports. Boark's opening sentence: "It's a standoff between fuel, foreign trade and American stomachs."
As economist and New York Times columnist Paul Krugman said of ethanol on his blog today: "Bad for the economy, bad for consumers, bad for the planet — what’s not to love?"
My financial-professional friend Sean doesn't think EBITDASO is quite precise enough to describe operating cash flow -- the kind of profits corporations present when they're trying to downplay certain costs. EBITDASO is earnings before interest, depreciation, amortization and stock options. A better term, he suggests is, EBITDAAMPOTA. Let it roll off the tongue. Earnings before interest, taxes, depreciation, amortization and my piece of the action. Other ideas are welcome.
I promised to write a poem about United Therapeutics' Tuesday earnings report. It was at the end of today's column. This is it. EBITDASO is earnings before interest, taxes, depreciation, amortization and stock options. In other words, not exactly the bottom line.
Our profits took a hit, it's true,
But we wouldn't like to say so.
So we'll publish what you can't construe:
Our latest EBITDASO.
Sales rose by leaps and bounds, but sadly,
Our costs leapt even more.
But lest you curse our name too badly,
EBITDASO blurs the score.
Bounteous options with few strictures
The boardroom does bestow.
But you'll always lack the full, fat picture
In the land of EBITDASO.
Although our boss took home a heap,
Don't sweat the small details.
If you'd rather think we bought her cheap,
EBITDASO tells no tales.
Car sales, as recorded and counted by the MVA, are one of the best, real-time tests of the state's economic strength. Maryland new-car sales fell 7.5 percent in January compared with the same month in 2007. Thanks to alert reader John for noting that the figures have been posted and also noting that the average vehicle sales price was down $700 for January. The number of used-car sales fell by 10 percent.
January sales may have been depressed because of the increase in the vehicle-titling tax from 5 percent to 6 percent that took effect after New Year's. That may have spurred people who otherwise would have bought early this year to purchase in December. But December sales weren't so great, either.
More comments about Wednesday's column. From the email inbox:
**** Normally I really enjoy reading your column on business and economic matters. But I must say that your article supporting the legalization of same sex marriage didn't rise to the level of your usually well reasoned positions.
I suggest that you do a little more research before you make statements that are completely unsubstantiated. The position that "nobody chooses to be gay" may be your personal opinion, but there is absolutely no credible scientific evidence to support that their is a genetic marker that predisposes an individual to be gay.
A simple google search would have provided a recent news article from MSNBC, where leading researchers in this area are starting new studies to try to find such a genetic marker(s).
To firmly state that this is a fact, while researchers are spending federal tax dollars to try to prove it is so, undermines your supposition that tolerance is economically beneficial and would lead readers to believe that you have a personal bias in this issue.
**** I think it's not only NOT sensible, but the height of arrogance to want to change the definition of marriage, a definition which has been held by the human race for some 5000 years. Where do you get off doing that ? Marriage equals MAN + WOMAN, period. I have no quarrel with ANY two ( or more ) people who want to bind themselves together, legally or not, for whatever purpose under the sun---just don't call it " marriage ", because it's not.
There have always been such unions-----blood brotherhood oaths, mafias, corporations, unions, conferences---throughout history, but none of them ever had the effrontery or arrogance to call their arrangement something it obviously wasn't.
The rest of your arguments are a pastiche of irrelevancies and dead ends. So states wanting to stay ahead must keep their doors open to "everybody" ???---Please. Does "everybody " include animal lovers, pederasts, drug dealers, and incest duos ? So the end justifies the means ?
Every law we have stems from the laws of God, not the other way around......if not, then everything is moral, everything is legal, and who's to decide whose concept of good is the correct one ? ( I'm bringing in the moral angle because homosexual acts have been considered immoral by all religions on the planet, even though you didn't bring it up in your column.)
My point: you want a civil union ?--Fine, agitate and pass a law. But don't sneak around the back door by changing the definition of a word which has meant the same thing for 5000+ years. That's a cowardly thing to do, and you're lying to your readers.
**** People will say or write anything to prove a stupid point, and this column proves it. What's even worse, people will read this column and believe it. I can't believe The Sun printed this article. You should be ashamed of yourself.
**** Your idiotic opinion that same-sex marriage would be a good thing belongs in the funny pages not the business section.
No wonder the Sun's circulation is plummeting.
"... increased wedding-hall rentals from same-sex nuptials would help generate a net gain for Maryland's budget ..." How silly. Along the same lines, coffin sales would surely increase if we emptied all our prisons. DUH! I hope Martin O'Money hears about this - more money for him to spend!
I would love for you to have had the opportunity to present your thesis to the returning veterans who saved this country in WW II. The laughter would have been deafening.
**** Thank you ! Thank you, thank you thank you ! I only wish my late partner who died 3 years ago was here to see the possibilities for legal marriage on the horizon. Even the conservative Examiner asked for civil unions (less than perfect). Instead of celebrating his life and mourning his passing, I was involved in a nasty estate battle even though he had a will (and am still settling it) and even though we were married in a Quaker meeting for worship in 2003 with nearly 300 witnesses. I know you’re going to receive all sorts of religious blather against what you wrote, but obviously you’re not worried about it too much. Neither is the Sun, for which I am also grateful.
**** Sorry, Jay, I'm not buying your 'economic' arguments to promote gay marriage.
--What sort of future is there in a gay community which does not produce offspring, and in a sense has no real stake in the future of a community? (What business and investment decisions will be made there with an eye to the long-term future?)
--What about "backlash" from stable, traditional families who will choose to re-locate to a more family-friendly locale?
--What does the prevalence of partners-without-children (and higher incomes) do to housing prices, and the availability of middle-income homes?
-- How does the prevalence of a politically liberal citizenry (I'm assuming most gays associate themselves with liberal or leftist political values) affect tax policy and business climate?
-- You might also note the effect that higher-income communities, such as San Francisco, have on attracting young-married couples with children, and in fact, young people with lower incomes. According to recent census data, San Francisco is about last in the country in its percentage of residents under age 18.
-- From a non-economic point-of-view, I would dispute your assertion that promoting gay marriage is "the right thing to do." There is a moral issue involved which isn't answered simply by repeating the pc buzzwords, "diversity"..."tolerance".
**** I just want to say that character and morality are more important than money or the economy! Matthew 16:26 says, "What good will it be for as man if he gains the whole world, yet forfeits his soul? Or what can a man give in exchange for his soul?"
**** I really enjoyed reading your article, "Legalizing same-sex marriage is sensible". My husband and I support gay marriage. Our reasons were more for equality and fair treatment. To show respect to all. It never really occurred to me that our economy as a state could be positively affected. It makes sense. You look at places such as San Francisco that is open to gay people, and the environment there is different. It's active, healthy, and well-established financially. Not that San Fran doesn't have it's problems but overall, they do well for themselves. It's a thriving city. Compare it to a place such as Dayton Ohio and you see divide, segregation, dead downtown area, and less opportunity for employment. Companies are not jumping to move there. We recently moved to Frederick Maryland about 18 months ago. We love living here in Maryland and hope that the economy will improve. I hope gay marriage will be legalized here in the state of Maryland. I agree that we can be a state where people will feel welcome and will want to live here.
**** Wonderfully written piece! The approach helps ease people into an expansion of consciousness and embrace of interdependence. Your calm rendering of the benefits of true equity and vibrant diversity help us all release fear of change, venturing into the new with confidence that we have strength enough to welcome the future. Bravo!
**** THANK YOU, THANK YOU, THANK YOU, Mr. Hancock, for such a wonderfully written, sensible and accurate article on legalizing same-sex marriage in Maryland! As the mother of a fine young man who happens to be gay -- and lives in Baltimore -- it is so encouraging to see articles like this appear. Your information is absolutely accurate and seems to me to be with no argument!!! We are encouraged this year as folks like our esteemed Attorney General bravely spoke out in favor of marriage equality. I am proud to be a Marylander and would be more proud if our state did the RIGHT thing and passed this law! Thank you for a beautiful article!
**** Historically, homosexuality has signaled decay and the dissolution of societies.
The copy editors have arrived. The Web page now says:
February 14, 2008
RBC/Dain Rauscher to aquire FBW.
Click here for press release.
You're heard of earnings. You've heard of non-GAAP (generally accepted accounting principles) earnings. You've heard of free cash flow. You've heard of EBITDA (earnings before interest, taxation, depreciation and amortization.) But have you heard of EBITDASO? The shareholders of United Therapeutics have. From today's report:
“We are pleased to report that United Therapeutics' revenues for the year ended December 31, 2007, totaled $210.9 million,” said Martine Rothblatt, Ph.D., United Therapeutics’ Chairman and Chief Executive Officer. “This is the sixth straight year our revenues have grown by more than 30%. Our EBITDASO (earnings before interest, taxes, depreciation, amortization and stock option expense) for the year were $85.5 million, or $4.03 per basic share.”
I promise to write a poem about EBITDASO if you, the readers, don't beat me to it.
This is not good news for U.S. inflation, which is not good news for long-term interest rates, which is not good news for the Fed's efforts to avoid/get out of a recession. Cheap Chinese imports have kept U.S. inflation low for 10 years. If import prices start rising substantially, so could American inflation. From Reuters:
BEIJING (Reuters) - Chinese consumer inflation rate surged in January to an 11-year high of 7.1 percent and looks set to rise further, cementing expectations that Beijing will stick to a tight monetary policy despite softening economic growth.
Many economists said inflation was likely to intensify, even as the impact of recent fierce weather fades, because of rapid money growth and rising raw material costs that have not yet been passed on to the consumer.
Mounting popular concern over inflation poses a stiff policy challenge for China's leaders, who want to use the Olympic Games in August to showcase Beijing's economic stability.
"The acceleration in money and credit growth in January suggests that inflation is likely to have further legs to run," Hong Liang and Yu Song, economists with Goldman Sachs in Hong Kong, said in a note to clients.
From the FBW Web site. It's RBC Dain Rauscher.
February 14, 2008
RBC/Dain Raucher to aquire FBW.
Click here for press release.
Last week Ferris, Baker Watts, the century-old, Baltimore-based stock broker, announced it would sell itself to RBC Dain Rauscher. The Sun ran several stories, including a retrospsective on Page D1 in the business section that was illustrated with portraits of firm founders William G. Baker (1874-1948) and Sewell Watts (1871-1929). Several readers noted that Watts died in 1929 and wondered if his demise had anything to do with that year's stock market crash.
Sure enough, it turns out that Watts committed suicide three months after stocks crashed in October. As The Sun's Fred Rasmussen wrote a few years ago:
Baltimore's business community was shocked when Sewell S. Watts, senior partner in Baker, Watts & Co., shot himself in his garage at the rear of his home at 1615 Park Ave., on Dec. 27, 1929.
W. Bladen Lowndes, a friend of the family, explained to reporters, "There was absolutely no reason, business or personal, why Mr. Watts should have committed suicide. He had been in a nervous state recently and had been worrying about the losses of his customers in the recent collapse of prices in the New York stock market."
This is from a history of Baker Watts (which later merged with Washington-based Ferris) commissioned by the firm in 1975 and written by John Redwood Jr.
Suffice it to record that the new partners of Baker, Watts & Co., along with the seniors, were subjected to extreme tests of intestinal fortitude, working late into the night and sometimes into the early morning hours in the face of collapsing stock prices, necessitating the sending out of repeated margin calls, although margin accounts were a relatively small part of the firm's business.
During the stresses of the closing months of 1929, Mr. Baker and Mr. Watts Sr. frequently remained in the office until the very late hours, in general supervising the work and lending encouragement to the hardworking staff. One more than one occassion, Mr. Watts brought over sandwiches and hot coffee from the nearby Southern Hotel. The two senior partners were great stabilizing influences at this very trying time. Thus the organization, as well as the entire financial community and his wide circle of friends, was greatly shocked and saddened by the sudden death of Mr. Watts on Dec. 27, 1929.
No hint about what might have caused Watts to take his life, except this:
... Mr. Watts Sr. had built up a large volume of business in the 1920s in the shares of banks and insurance companies. He had employed a specialist in this field of investment in the person of Paul Zachary, a graduate of the U.S. Naval Academy, who organized and for several years was manager of the firm's Bank and Insurance Stock Department. This activity was discontinued during the Great Depression.
By popular demand, the Kilowatt Shopping Headquarters is back. Alternative energy companies offering to beat Baltimore Gas & Electric's standard price for dirty electricity are few or none. But several do sell more-expensive wind-generated and other "green" energy, which you can't get from BGE. (My colleague Paul Adams wrote about this a week ago.) And if you're afraid BGE's price will rise substantially in coming years (not out of the question), you can lock in with competitors for up to three years. The long-term rates are higher than BGE's present price, but at least you'll know they won't go any higher during the contract period.
Here are the contenders. If I've left anybody out, let me know. Prices below do not include delivery charges, which are tacked on to the generation and transmission price. Be sure to check for cancellation fees if you believe you might withdraw early. For a typical household, every 1-cent difference in the kilowatt-hour price means a $10 difference in the monthly bill.
BGE's standard price:
What you pay if you don't switch suppliers. At the moment it's 10.86 cents per kilowatt hour ($.1086). Buying through BGE pays for electricity mainly from traditional sources: nuclear, coal, natural gas etc. After June 1 it'll be about 11.8 cents.
Washington Gas Energy Services:
One-year contract, 50 percent wind power: 14.60 cents
Two-year contract, 50 percent wind power: 14.60 cents
One-year contract, 100 percent wind power: 15.80 cents
Two-year contract, 100 percent wind power: 15.80 cents
Questions or signup: 1-888-884-WGES (9437)
One-year contract, 50 percent wind power: 15.90 cents
One-year contract, 100 percent wind power: 17.0 cents
One-year contract, regular power: 14.80 cents
Two-year contract, regular power: 14.50 cents
Questions or signup: 1-800-ELECTRIC (1-800-353-2874)
Pepco Energy Services:
One-year contract, 100-percent "green" power (hydroelectric, solar, wind and biomass):
One-year contract, 100-percent wind power: 15.71 cents
Questions or signup: 703-253-1800
Horizon Power & Light:
Contract through Dec. 31, 2008: 13.0 cents.
Questions or signup: 866-727-5658
American merchants like to complain about regulation, but they haven't seen anything like this. Yesterday the U.K. Competition Commission recommended the creation of a new regulator to police supermarkets and their relations with suppliers, concentration of stores, land monopolies and so forth. Perhaps one reason this is necessary is British land-use laws, which are more restrictive than American ones and hinder competitors from moving into the territory. From The Guardian:
A dedicated ombudsman with tough new powers to protect farmers and suppliers from exploitation by supermarkets has been proposed by the Competition Commission.
After a two-year inquiry into the £123bn grocery market, the watchdog wants an ombudsman to police contracts between grocers and their suppliers. The new body will have the power to "proactively investigate" breaches of a new code of practice which will govern how supermarkets do business with their suppliers.
Supermarkets may also have to appoint in-house compliance officers to ensure they comply with the code.
Granted, the competition is not especially fierce. Here are the Insurance Oscars, as awarded by the Insurance Information Institute. Double Indemnity, the Billy Wilder film starring Fred MacMurray, Barbara Stanwyck and Edward G. Robinson, is the logical first choice. Michael Moore's Sicko slips in even though it's (supposedly) a documentary. Reader challenge: Name the top 10 accounting movies.
Double Indemnity (1944)
The Fortune Cookie (1966)
The Killers (1946)
Save the Tiger (1973)
The Rainmaker (1997)
The Thomas Crown Affair (1968, 1999)
To Catch a Thief (1955)
Along Came Polly (2004)
Mortgage refinancing has popped up as rates have dropped. Assuming you can qualify, is this the time to jump? The average fixed rate for 30-year loans this week is 5.72 percent, down from well over 6 percent a couple months ago, according to the Mortgage Bankers Association. The rate for 15-year loans is 5.18 percent. Rates quoted by Bankrate.com are about the same.
Whether this is the time depends on what you believe will happen to the economy. If the country heads into anything more than a light recession, long-term borrowing rates should fall below today's levels. If the economy quickly recovers, on the other hand, you probably should refinance now.
Few economists predict a speedy turnaround. The subprime mortgage mess has caused declining home prices, a huge glut of unsold houses, Wall Street turmoil, declining consumer confidence and increasing reluctance to lend by bankers. Present rates aren't the lowest in recent history. In 2003 the 30-year rate briefly dipped below 5 percent and the 15-year rate touched 4.4 percent. If highly indebted consumers pull back on spending and we head into a bad slump, the 30-year rate could easily fall to 5 percent again for borrowers with good credit scores. A weak economy ought to defuse the inflation threat and lower the demand for borrowed money, thus reducing its price.
Even so, the inflation outlook isn't nearly as benign as when rates were low in 2002 and 2003. Inflation and interest rates are related because rising consumer prices erode the value of fixed-rate loans. If you lend money at 6 percent and inflation is 8 percent, you lose money. So if inflation spikes up, mortgage bankers will raise rates to compensate. Demand by China, India and other fast-growing nations has pushed the price of oil and other commodities to the moon, making long-term inflation more of a threat. If those countries keep growing at their present pace and the U.S. economy doesn't slow substantially this year, you'll wish you had refinanced now.
David M. Walker, Comptroller General of the United States and the only high-ranking federal official to state the truth about this country's looming fiscal disaster, is resigning to continue blaring his message from a newly formed private foundation. In recent years Walker has led the "Fiscal Wake Up Tour," a roving, bipartisan bandwagon delivering a message that politicians won't: The United States' current course of deficit spending and debt buildup will ruin the dollar, cripple the economy, require confiscatory taxes from our grandchildren and severely restrict policy choices decades from now.
Here are a few of Walker's comments from the Fiscal Wake Up Tour's visit to UMBC in Catonsville last fall:
"You're supposed to leave the country not just the way you found it, but better prepared for the future. The baby boom generation is failing on that."
President Bush's commission to address Social Security was "a total waste of time" because it refused to rule out personal accounts, which was a deal breaker from the start.
The wars in Iraq and Afghanistan are "going to cost $2 trillion by the time we're done." [They're up to around half a trillion now.]
If private corporations published balance sheets the way the federal government does, Walker said, their leaders would go to jail.
The biggest deficit in this country right now is "leadership."
He's joining the Peterson Foundation, newly formed by Pete Peterson, a long time fiscal Cassandra. It's good he's not going to shut up. And his resignation now means the lame-duck President Bush will appoint his replacement, not some newly elected president later on. (Walker's 15-year term doesn't expire until 2013.) A new president would be more likely to appoint a patsy. But I can't imagine any replacement being as good as Walker. From the press release:
The Peterson Foundation will be dedicated to engaging in various actions designed to educate and activate Americans, especially younger Americans, the business community and the media, while also seeking and supporting sensible policy solutions to a range of sustainability and transformation challenges. Peterson has committed to contribute at least $1 billion to the Foundation and related efforts over the next several years.
"Pete Peterson is a great American and a living example of the opportunities that America provides to all individuals," Walker continued. "Pete has decided to dedicate a very large amount of money to doing what's right for his country and fellow Americans. It will be an honor and a pleasure to work in partnership with Pete and the various professionals who will be associated with The Peterson Foundation. I feel confident that by working together internally and in partnership with others externally we can champion the type of changes that will help keep America great."
If Barack Obama believes he can unite left and right to forge a new path ahead for America, he ought to take another look at the Maryland primary results. No incumbent Maryland congressman had lost a primary since 1992. On Tuesday two did. Both lost to more-extreme candidates on the left and the right.
Wayne Gilchrest became the latest in a long line of moderate Republicans to bite the dust, losing to Andy Harris, whose campaign touted his pro-gun stance and opposition to abortion and gay marriage. On the Democratic side, Albert Wynn lost to Donna Edwards, who blasted him for his support for bankruptcy reform and vote to give President Bush authority to invade Iraq. The forces of harmony are not prevailing in the 4th and 1st districts.
The Commerce Department published trade-balance results for 2007 today. The trade deficit fell 6.2 percent to $711 billion last year as the falling dollar made imports more expensive. And the best news: American-made goods got more affordable for foreigners. U.S. exports hit an all- time high of $1.62 trillion last year. That was a 13 percent increase over 2006 exports.
I'm being asked about today's column about what was said and known about electricity deregulation 10 years ago. The piece quotes Michael Travieso, who as People's Counsel represented residential ratepayers, predicting the deal would be bad for consumers and cause rate increases. But didn't Travieso sign off on the ultimate deregulation settlement? Isn't that evidence that he approved it? No. The People's Counsel fought deregulation as hard as he could in the legislature -- the first step. In the second step -- negotiating the dereg order with the Public Service Commission, he had little room to move. The Assembly had already enacted the law, and Travieso was under huge pressure to go along with the rulemaking.
Here is a memo he sent every member of the House of Delegates just before the deregulation vote in 1999. Thanks to Del. Liz Bobo for sending it to me. Emphases are mine:
10 Reasons to Vote Against HB 703
1. HB 703's rate reduction is far too small. It provides virtually no cost benefit to residential customers during the period of transition to competition.
2. There is a likelihood that residential rates will go up after the transition period without the corresponding benefit of increased service or competition to control the price.
3. The bill fails to provide any environmental protections.
4. The bill lacks a favorable provision for aggregation, which may be the only way small customers can benefit from competition.
5. The provision for standard offer service allows utilities to use their own high-priced generation and denies standard-offer-service customers the benefits of the competitive market.
6. The stranded costs provision of the bill does not provide for a market test. This means that utilities can reap huge economic windfalls at small customers' expense.
7. The bill is premised on an unsupported claim that commercial and industrial customers will save between 10% and 20% as a result of competition. There is no factual support for this claim.
8. The bill will not allow competition to develop for small customers in the foreseeable future.
9. The bill does not adequately protect small consumers from anti-competitive conduct, utility mergers and the like, all of which will drive up the price to small customers.
10. The stated purpose of the bill -- to benefit all customers -- will not be achieved.
The government reported this morning that nationwide retail sales for January rose 0.3 percent. Forecasters had widely predicted a decline, especially after major department stores, discounters and mall-store chains reported poor January results last week. Possible explanation No. 1: The government numbers are wrong. (Merchants have a much better idea of their results than the Commerce Department.) Possible explanation No. 2: Online sales had a good January. The retailers reporting last week get most of their sales from stores with racks of merchandise and cashiers. Maybe Amazon, which didn't report January sales, had a good post-Chistmas season.
CNBC has posted a transcript of the first part of Warren Buffett's interview this morning with Becky Quick. Some excerpts:
And last Wednesday, Berkshire Hathaway made a firm offer to the three largest bond insurers, who in aggregate I think, insure about 800 billion (dollars) of tax exempt bonds.
And we offered to take over the liabilities for the whole $800 billion of these three companies for a premium that would be equal to, essentially, one-and-a-half times the remaining premium left over the life of the bonds.
So, we put that out there to the three largest insurers and if they should decide to take it, eight-hundred billion of bonds that are now selling as if they were uninsured, or even in some cases a little worse. They're probably selling on balance maybe 5 percent below where would sell for if the insurance was regarded as good, which is 40 billion on 800 billion.
Translation: Buffett is offering a 50 percent bonus to take over bond-insurance companies' very best pieces of business. He'll take on the tax-exempt municipal bonds, which rarely default, and leave the insurers with all the subprime and CDO junk. Not only that, he'll have set himself up as a formidable future competitor for their business. No wonder one insurer already said "no" and the other two haven't replied. Memo to stock market: Don't get so giddy.
Allstate Corp. can't be forced to offer new coverage to million-dollar beach homes likely to be nailed by a hurricane, but just wait... Laura Smitherman reports today that Allstate's decision to raise premiums and stop writing new homeowner policies in certain parts of Maryland doesn't violate the law. Allstate already covers numerous coastal homes in Maryland, and it wants to spread its risk elsewhere. It's not cancelling current coastal policies.
A decision to clear Allstate was based on "the law as it is written, not as we might wish it to be," Insurance Commissioner Ralph Tyler told Smitherman. But they're angling to change the law. These paragraphs from the story are pretty scary.
This year, legislators are considering proposals to address the legal standard governing when insurers can change their underwriting policies and whether insurers should be required to get prior approval for any changes.
In addition, lawmakers said, a bill could address deductibles related to coastal coverage and how homeowner efforts to protect their property and smart planning by localities should be reflected in policies.
"We just found it to be very arbitrary that you can come in and cherry-pick where you did not want to do business," said Del. James N. Mathias Jr., an Eastern Shore Democrat and former Ocean City mayor.
If you want to encourage further coastal development and have inland homeowners subsidize coverage of million-dollar beach homes, this might be a good legislative session.
Gee, what a surprise. Maybe chopping down the rain forest to grow ethanol crops and burning coal to refine the ethanol isn't actually good for the environment. The fuel of the future isn't all it's cracked up to be. From a new study in Science magazine:
Most prior studies have found that substituting biofuels for gasoline will reduce greenhouse gases because biofuels sequester carbon through the growth of the feedstock. These analyses have failed to count the carbon emissions that occur as farmers worldwide respond to higher prices and convert forest and grassland to new cropland to replace the grain (or cropland) diverted to biofuels. Using a worldwide agricultural model to estimate emissions from land use change, we found that corn-based ethanol, instead of producing a 20% savings, nearly doubles greenhouse emissions over 30 years and increases greenhouse gases for 167 years. Biofuels from switchgrass, if grown on U.S. corn lands, increase emissions by 50%. This result raises concerns about large biofuel mandates and highlights the value of using waste products.
The people who manipulate -- err, I mean manage -- the Dow Jones Industrial Average made their first change since 2004 this morning. They kicked out cancer vendor Altria (Philip Morris) and Honeywell and added Chevron and Bank of America. This is a pretty good sign that the bull market in oil and commodities is over. The Dow has a history of "buying high" and "selling low," just like the amateur, "buy the latest fad" investors that the Wall Street Journal likes to make fun of.
At the end of 1999 -- near the peak of the tech bubble, and near the bottom of the bear market in oil stocks, the Dow ejected Chevron and three other stocks in favor of Intel, Microsoft, SBC and Home Depot. At the time Chevron was selling for around $45. Now it's selling for around $80. Intel and Microsoft sell for less than what they fetched when they were inducted into the Dow. Here is the press release for today's Dow announcement.
BGE's "commodity" natural-gas price is virtually unchanged in February, at 93.60 cents per therm. The January price was 93.64 cents. The February price is still higher than the level in February 2007, when warm East Coast weather caused a drop in demand. A year ago the price was 88.10 cents per therm. But 94 cents isn't bad. In February 2006, the price was $1.0116 per therm. In January 2006, it was $124.05, when shortages caused by Hurricane Katrina drove up the price. As usual, those who rejected offers of a fixed natural-gas price for this winter came out ahead. The offers I saw were for around $1 per therm. The price never got over 96 cents.
These prices are for the gas only; delivery charges are extra.
Gallup's Eric Nielsen emails some links related to the Angus Deaton's happiness paper and Gallup's worldwide polling of human well-being.
I wanted to make sure that you knew that the Gallup study he drew from is actually an ongoing study. Annually we are in those 130+ countries gauging the well-being of the citizens. Amazing data and findings are constantly being written up.
Finally, in addition to the massive global poll we are also completing surveys with 1,000 adults every single night on the topics of well being, politics and personal economics. Of particular interest to you might be our economic monitoring.
THE GALLUP people were at it again this month, phoning up Americans and asking, "Are you satisfied or dissatisfied with the way things are going in the United States at this time?"Gallup never polled Julian Simon, to my knowledge. But I know what his answer would have been.
"Compared to what?"
You or I, queried on the course of the nation, would think about our MasterCard balance. We'd consider the recent burglary down the street, our job, the neighbor's new Chevy. Maybe we'd weigh school test scores, and we'd account for shenanigans in Washington.
Simon would have rubbed his shiny knob of cranium and noted that, a century ago, a tenth of American babies died before their first birthday.
Life expectancy in 1900, he would have told the pollster, was 48 years. Feeding the nation required almost half the country's workers to toil on farms. The average workday was 10 hours, and it didn't include lunch at Le Cirque.
Air pollution in big cities was worse than now. Indoor plumbing barely existed. Americans with brown or black skin couldn't vote, were banned from good schools and were subject to lynching at the rate of about one every three days.
Satisfied with the way things are going?
Simon was overjoyed.
His death last week deprives the country of an antidote to pessimism, self-absorption and historical nearsightedness. A professor in business administration...
... at the University of Maryland, Simon, 65, was best known for betting against global doom-sayers on economic trends.
In 1980 he bet biologist Paul Ehrlich about the future prices of five strategic metals. Ehrlich, who was warning of swelling populations and resource shortages, wagered that prices would spike. Simon, who made a career of showing how human ingenuity has consistently boosted resources to the blessing of mankind, bet they would fall.
Ehrlich was spectacularly wrong, and in 1990 he paid Simon $576.07.
But Simon was more than a provocateur. His optimism grew from hard scholarship and statistical rigor. In books such as "The State of Humanity" and "The Ultimate Resource," he charted the once and future ascent of man.
He didn't deny that problems exist. He just argued convincingly that they're often exaggerated and that what he called "the long-run measures of human welfare" are bullish. Population explosion will halt as global standards of living rise, he believed, and future generations will continue to advance against the forces of poverty, crime, pollution and hate.
He was hard to classify politically.
He promoted immigration, which infuriated conservatives. His belief in liberty and free markets put him in the conservative boat, but he disavowed that label.
He came with a gentility, curiosity and lack of ostentation and presumption that set him apart from the Forbes magazine crowd, the yahoo capitalists with trophy wives.
At heart, Simon was a humanist in the Renaissance sense, a believer in the dignity, potential and destiny of the species. "The ultimate resource," he held, isn't oil or titanium or wheat. It's people's brains.
Here on Earth, war looms in Iraq. Indonesians are rioting over food prices. The rain forest is under attack. Graduates of Baltimore high schools can't read. AIDS continues to slay hundreds of thousands.
"Life improves slowly and goes wrong fast, and only catastrophe is clearly visible," said Edward Teller.
Simon helped us peer through the haze to detect life's gradual but persistent betterment and its fundamental goodness. Without him, the murk deepens.
Two years ago the Gallup Organization polled people in 132 nations on what the economists like to call "life satisfaction" and what we call happiness. To the surprise of some, the study showed that people in rich countries are far happier than those in poor countries. There is a myth (blame Jean-Jacques Rousseau) that indigent peasants live in primitive bliss and that only modern technology and stress bring misery. The Gallup responses, crunched by Princeton economist Angus Deaton, demolish such a notion.
Happiest are the Danes, Swiss, Norwegians, Canadians and Australians, according to Deaton's paper. Unhappiest are those in Cambodia, Togo, Chad, Sierra Leone and Niger. Of course the first set of nations is quite wealthy and the second set quite poor. But it's not an either-or situation. A little more income brings a little more happiness, and a moderate amount of income brings a like portion of life satisfaction. South Korea is roughly half as wealthy -- and half as happy -- as Finland. Russia is half as wealthy and half as happy as South Korea -- but a heck of a lot happier than Togo.
There are exceptions. India is poorer but happier than China. Pakistan is much more satisfied with life than India, even though incomes are similar. And the United States underachieves in the happiness race, ranking below less-wealthy nations such as Canada and Denmark. These are averages, of course. But you're far more likely to score high on the happymeter if you live in a developed nation. Psychologist Abraham Mazlow, who knew people can't "actualize" themselves until basic physical needs are met, figured this out long ago. Anybody who still believes economic growth isn't essential to human potential should read Deaton's paper.
Here is a graph from the paper. The higher up on the chart, the happier the countries are. The farther to the right, the richer they are. Bubble size denotes population. The graph also plots differences in happiness by wealth and age group.
From Calculated Risk:
Maybe the Goldman guys still have Tom Petty's Superbowl performance on their minds since they titled their research report today Free Fallin'.
Feb. 7 (Bloomberg) -- Federal Reserve Bank of San Francisco President Janet Yellen said the U.S. economy will probably avoid a recession and policy makers' interest-rate cuts should help the expansion pick up pace later in the year.
``The Fed's policy actions should help to promote a pickup in growth over time,'' Yellen said in a speech today in Honolulu. ``I consider it most probable that the U.S. economy will experience slow growth, and not outright recession, in coming quarters.''
Yellen said risks are that growth turns out worse than forecast, and that policy makers must be ``prepared to act in a timely manner,'' echoing last week's Fed statement. Investors anticipate the central bank will lower its benchmark interest rate by a further half point by mid-March after five reductions to 3 percent since September.
From Don Fry and the Greater Baltimore Commitee. (Constellation is a GBC member):
Dispute with Constellation not in state's best interest
In a state that's importing as much as a third of its electricity, facing projected rolling brownouts as soon as 2011, and sorely in need of new investment in its power generating and transmission infrastructure, is there any way that Maryland stands to benefit from the dispute that has broken out during the last two weeks between Maryland regulators and Constellation Energy Group?
I can't think of any.
But the spectacle of Maryland's Public Service Commission (PSC) engaging in a war of words with a Fortune 200 company that was -- and hopefully still is -- planning to build a multi-billion dollar 1,600 megawatt nuclear power plant in our state is most certainly not good for our business climate, much less our energy future...
It occurs to me that, in the long run, the best interests of the citizens of Maryland are not well served by open warfare between state government and one of the state's most prominent private companies. Nor is this the image that we want to project to the business community in the rest of the country. It does not play well with potential investors considering doing business in our state, and markets do not react favorably to it. It will certainly not endear Maryland to energy companies outside the state that would otherwise consider investing in Maryland's energy infrastructure.
Saks and Costco did well, and Wal-Mart had a small gain. Still, not a good January report from U.S. retailers. More evidence that we have entered the first consumer recession since 1991. Even the rich folks have slowed spending. (Store-to-store sales at Nordstrom fell almost 7 percent in January compared with results from the same month last year.) From the AP story:
The nation's retailers delivered more evidence of a stumbling economy Thursday, as merchants including Wal-Mart Stores Inc. reported weak January results, extending a malaise that has deepened since the holiday shopping season.
Wal-Mart, the world's largest retailer, reported a 0.5 percent gain in same-store sales. Analysts surveyed by Thomson Financial had expected a 2.0 percent increase. The company said it continues to do well with staples like groceries but that home furnishings remain weak. The discounter, however, stuck to its fourth-quarter earnings forecast.
Rival Target Corp. reported a 1.1 percent decline in same-store sales in January, worse than the 0.6 percent analysts expected.
Costco reported a 7 percent gain in same-store sales, surpassing the 6.6 percent estimate.
Within the department store sector, J.C. Penney Co. had a 1.9 percent decline in same-store sales at its department stores, though the results were better than the 6.3 percent Wall Street expected.
Upscale Nordstrom suffered a 6.6 percent same-store sales decline, worse than the 0.7 percent decrease expected. Saks Inc., which operates Saks Fifth Avenue, said same-store sales rose 4.1 percent, better than the 2.2 percent estimate. But in a release, the luxury retailer said shoppers continue to shift more of their spending to sale merchandise amid a challenging economic environment.
Macy's Inc. on Wednesday reported a 7.1 percent decline in same-store sales, worse than the 5.9 percent decrease. The company also said it was cutting about 2,300 management jobs as the department store operator consolidates three regional divisions and decentralizes buying to reduce costs and boost sales.
Limited Brands reported an 8 percent drop in same-store sales in January, worse than the 6.9 percent forecast.
Among teen retailers, Abercrombie & Fitch Co. had flat same-store sales, matching Wall Street expectations. Pacific Sunwear suffered a 7.4 percent drop in same-store sales; analysts expected a 1.2 percent rise.
Missouri's Accountability Portal sets the highest standard for state financial disclsoure -- an example that Maryland and every other state should emulate. Anybody anywhere can find out the most trivial facts about Missouri finance -- what state employees earn; who's delinquent on their taxes and how much in travel reimbursement was paid to which officials and legislators. Another way the Web is making life much better.
If anything, says Business Week Chief Economist Michael Mandel, today's disappointing figure for 4th-quarter productivity growth is too high.
Quite bluntly, I'm suspicious of the number. Neither companies or consumers are behaving as if productivity is rising.
Charles Plosser, president of the Federal Reserve Bank of Philadelphia, went way beyond merely paying lip service to inflation-fighting in a speech today in Alabama. The stock market took this badly and reversed a 100-point Dow gain from earlier in the day. Plosser is only speaking for himself, but it sounds like he is less than eager to continue the Fed's course of lowering short-term interest rates. Excerpts from the Bloomberg story:
The Philadelphia Fed chief said the ``aggressive'' rate cuts will help U.S. growth return to its 2.7 percent trend rate next year. At the same time, he warned that slower growth by itself won't tame inflation and that there are some signs from price expectations that the Fed's credibility may be weakening.
Adjusted for inflation, the Fed's benchmark rate ``is now approaching zero,'' making it ``clearly an accommodative level,'' Plosser said.
Fed rate cuts alone can't solve all ``economic ills,'' such as bad debts in the mortgage market, the re-pricing of subprime- mortgage securities and potential lower ratings for some financial companies, Plosser said.
``The markets will have to solve these problems, as indeed they will,'' Plosser said. ``But it will take some time. However, the Fed can and should help by offsetting some of the restraint created by tightening credit conditions and the sharp reduction in housing investment.''
Plosser, whose anti-inflation stance has been among the Fed's toughest, said he is ``skeptical'' that slower economic growth will reduce so-called ``core'' inflation, which excludes food and energy costs. ``I expect little progress to be made in reducing core inflation this year or next,'' he said.
``Fortunately, so far inflation expectations have not changed very much,'' Plosser said. ``But they bear watching because there are some signs that they, too, are edging higher. These may be early warning signs of a weakening of our credibility, and we must be very careful to avoid that.''
The most important economic statistic is not the Dow Jones Industrial Average, the gross domestic product or the federal budget deficit. The most important statistic is productivity growth -- increase in output per worker, in the most commonly discussed variety -- which determines society's standard of living. Five hundred years ago output per worker was minimal, which meant that almost everybody lived way below what we think of as the poverty line. Since then, thanks to technology improvements, output per worker has multiplied hundreds of times, and so, consequently, has what workers earn for a day's labor. These days even some families below the poverty line might have been considered well off in the Middle Ages.
Healthy productivity growth enables output growth, government budget surpluses and rising employee incomes. It's true that robust productivity improvements in recent years have translated more into big corporate profits than into worker gains. Without productivity growth, however, the picture would be even bleaker -- inflation, stagnant output growth and poor tax revenues.
U.S. labor productivity grew at an annual rate of 1.8 percent the fourth quarter, the government announced this morning. That's not bad, but it's not great. For all of 2007 productivity increased by 1.6 percent. This is more evidence that the computer-led productivity boom that began in 1995 or so is petering out, although it's still too early to say so definitively. One result of the last economic slowdown -- from 2001 to 2003 or so -- was a huge increase in productivity -- growth of 3 percent annually or so. Businesses squeezed a lot more product from fewer workers, and they may do so again in this slowdown.
However, there is one big difference between now and then. The early-2000s slump was caused by a decline in business investment, while consumers kept spending. That allowed companies to reap big gains from the investment and hiring they had done in the 1990s. This slowdown looks like it'll be the first consumer recession since 1991. In that case, the outlook for productivity growth isn't nearly as bright.
The Federal Reserve hasn't lowered short-term interest rates in almost a week, and the stock market is way ticked. More Ovaltine, please! The Dow was down almost 200 in the first half-hour of trading. T. Berry Brazelton would tell you that this is the predictable result of the indulgence of juveniles. The vigilante stock market is back.
Big Picture's Barry Ritholtz looks at his readership statistics and finds big spikes in August and January. Both August and January, of course, marked temporary bottoms in the stock market and a good time to buy for traders.
In addition to the other indicators I track, I have another "special" sentiment reading. Its become my secret weapon. What is it?
As a group, it seems that traffic to blogsites can be tracked as a contrary indicators -- especially when the market is under pressure.
Note that the selloff in August, and then the more recent whackage in January, each created a major traffic spike -- which led to a bottom, and a healthy bounce.
By rejecting a $50,000 settlement, WYPR's Marc Steiner sheds some light on the process of employee firings, especially terminations of high-profile employees. Jill Rosen reports today that WYPR management offered money if Steiner would stay on the air until May and agree not to speak to the media about what happened. Since they wanted Steiner gone, they weren't really seeking four more months of his services. They wanted him to keep quiet and give the appearance of an "orderly" transition.
Usually, employees take the bait. Over and over again when employees and organizations go their separate ways, news reporters seeking information hit stone walls in either direction. The employer won't comment because "it's a personnel matter." And the employee won't comment because he/she has gotten hush money and signed a contract agreeing not to comment. The amount of money is always a secret. Agreeing to such a deal would have gone against everything Steiner represents, and good for him for rejecting it. (Full disclosure: I have been on his show several times, and he says nice things about me on the air.)
I forgot that the January jobs report was out today. The Labor Department reports that U.S. employers shed 17,000 jobs last month -- coming on top of December's disappointing addition of (revised in today's release) 82,000 jobs. The unemployment rate dipped slightly, but this means next to nothing. Unemployment is based on a separate survey that many economists think is much less reliable than the "Current Employment Survey," which polls companies and other employers on job trends. The unemployment statistics are based on phone surveys of households.
This is not technically a recession yet -- the Business Cycle Dating Committee at the National Bureau of Economic Research won't make that determination for maybe another year. But it's hard to believe we're not in one.
Hershey Co. will boost wholesale chocolate prices for the second time in a year, the company said a couple days ago. On average, prices charged to retailers will go up 13 percent on about a third of the Pennsylvania-based company's products. Hershey blamed higher prices for raw materials (cocoa beans and milk), electricity, shipping and other expenses.
This is classic pass-along inflation. Input costs are up, so end-users have to pay more too. It's affecting numerous other kinds of goods and services, but chocolate producers and consumers are presented with an especially bitter cup. In April Hershey raised prices on the same items by 4 percent to 5 percent, the Associated Press reported. Mars increased prices on Snickers and Milky Way bars in March and did so again last week, AP said.
The biggest blow to Hershey is milk prices -- up 19 percent last year, according to the Bureau of Labor Statistics. Food companies have blamed food inflation on government programs to boost the use of ethanol, an alternative to gasoline derived mainly from corn. Subsidized demand for ethanol has driven up corn prices, which increases the cost of feeding a cow, which you would think would drive up the price of milk. The ethanol lobby denies this, saying supply, demand and government programs determine milk prices, not input costs.
In any event, food executives say higher food prices will keep going. Two weeks ago Indra Nooyi, PepsiCo's joint chairman and chief executive, predicted that "structural inflation for food is here to stay for another two to three years", according to the Times of London. "This is not about scale and taking out costs," she said, suggesting there is little producers can do to avoid passing on high prices to consumers. "It is about the behaviour of governments, of ethanol programs."