The NYT columnist's post on the question of whether it's a recession:

I’ve had time to look at it a bit more closely — and it’s much weaker than the headline number suggests (and MUCH weaker than the previous quarter, even though the growth rate was the same.) It’s not just that final sales fell, so that the economy grew only because of inventory accumulation. If you look at consumer spending, purchases of goods actually fell substantially. Only service purchases rose — and much of that was housing and medical care.

For examples of inventories climbing faster than sales, see here and here.

Posted by Jay Hancock at 6:22 PM | Permalink | Comments (0)
                    

Everybody's trying to predict the next bubble. Reuters columnist James Saft says it may be emerging markets.

Emerging markets are very likely the next bubble, but don't let that stop you.

Emerging market shares are already expensive relative to developed market ones, but economic growth in places like China and India will continue to pull away, and investors will pay an increasing premium for that, especially if the ageing economic giants of the 20th century slip from their long term growth paths.

And in a process we've seen before with internet stocks and houses, big returns will attract big money, driving further rises and making it all seem very sensible, at least for a while.

The definition of "a while" is of course, as with all bubbles, the key question.

Posted by Jay Hancock at 5:30 PM | Permalink | Comments (0)
                    

Starbucks' profit for the first quarter missed analysts' estimates and fell sharply from the same period last year, the company just reported. Company made 19 cents a share. Wall Street had expected 21 cents, on average. Profit fell 28 percent. The company blamed the recession.

"Fiscal 2008 is a transitional year for Starbucks and, while our financial results are clearly being impacted by reduced frequency to our U.S. stores, we believe that as we continue to execute on the initiatives generated by our transformation agenda, we will reinvigorate the Starbucks Experience for our customers, and in doing so, deliver increased value to our shareholders," commented Howard Schultz, chairman, president and ceo.

Be careful when they say "transitional year." They've been saying that about the Orioles since 1999 or so. This may be worse than just a cyclical bump for the coffee chain. It said it had a "mid-single digit decline" (percentage) in sales at stores open at least a year. That should be disturbing for shareholders. The company's phenomenal growth story appears to be transitioning into something else.

Posted by Jay Hancock at 4:54 PM | Permalink | Comments (0)
                    

My colleague Paul Adams and I are getting questions based on his story today, BGE bills to jump 8% this summer

Readers want to know the exact rates per kilowatt hour starting June 1. The PSC hasn't disclosed the rates, and neither has BGE. BGE rate czar Wayne Harbaugh says the state requires all utilities to disclose new rates on the same day, which will be Friday.

I wrote last week that the "price to compare" for BGE will go up about 4 percent after June 1 to 11.8 cents per kilowatt hour. This is for SUMMER only -- June -- September -- and it doesn't count BGE's additional delivery charge of about 3.4 cents. The 8 percent increase Adams refers to is an average for the 12 months beginning June compared with prices for the 12 months ending in May. It sounds like they bought some winter power this month at pretty high prices, which will crank up the average for the whole year.

PS: But it still doesn't change my opinion on whether you should buy an alternative dirty-electricity product from WGES, Commerce Energy or others. If you want green energy and are willing to pay for it, go for it. But their offers for standard electricity are still higher than what BGE will be charging in the next year. And even if you think electric prices are going even higher, the alternative vendors don't let you lock in for more than two years. So it's not much of a hedge.

Posted by Jay Hancock at 2:20 PM | Permalink | Comments (2)
                    

So economic output only scraped zero in the first quarter instead of dipping below, at least according to preliminary estimates. Gross domestic product grew at an annual rate of only 0.6 percent from January through March, the Commerce Department said.

Bloggers are asking: Where's the recession? A rule of thumb for a recession -- often cited in news reports -- is two consecutive quarters of negative GDP.

But the National Bureau of Economic Research's Business Cycle Dating Committee -- accepted by most economists as the official recession arbiters -- looks beyond GDP to identify economic setbacks. In fact the last official recession declared by the NBER -- in 2001 -- included only one quarter of shrinking GDP. In 2001 there were two negative quarters, but they weren't consecutive. Output shrank in the first quarter, but that was mostly before the official recession began in March. Then output grew at a 1.2 percent annual rate in the 2nd quarter. In the 3rd quarter the economy gave all that up and more. In the fourth quarter -- right after 9/11, interestingly -- output grew at a 1.6 percent annual rate. NBER declared the recession over in November.

NBER also looks closely at employment, which shrank sharply in 2001 and is shrinking now. The U.S. job base has now shrunk for three months in a row, starting in January. This Friday we'll get the preliminary report for April. In 2001 and 2002 -- an economic downturn considered mild by many economists -- the job base shrank for 15 months straight.

UPDATE: Barry Ritholtz says it's totally a recession because the government's inflation measures are flawed. By underestimating inflation, he says, the Commerce Department is overestimating economic growth. (Bean counters try to strip inflation out of their calculations to get the "real" amount of output increase.) So if you include a better inflation measure, output really did shrink in the fourth quarter and the first quarter.

Posted by Jay Hancock at 12:01 PM | Permalink | Comments (6)
                    

The biggest U.S. financial crisis isn't the housing crunch. It's the government debt bomb being planted by baby boomers to explode in the faces of their children and grandchildren

But presidential candidates and their media interlocutors (both groups largely populated by boomers) have said almost nothing about it. The country is headed toward terrible inflation, huge taxes and economic decline? Pfft. Let's talk about flag pins.

So it's up to you, young people. The only hope is that you realize how badly you're getting ripped off and decide to do something about it. Two new dispatches - a book and a movie, both with Baltimore connections - are your manifestoes.

Read the rest of it here.

Posted by Jay Hancock at 10:37 AM | Permalink | Comments (2)
                    

Many of you have pointed out an omission in my recent material on Baltimore Gas & Electric's time-of-use plan, which gives discounts for electricity burned at low-demand times. The "customer charge" for TOU customers is $12 vs. $7.50 for households on the standard plan. I didn't mention it because TOU customers pay a lower delivery charge per kilowatt hour than regular customers, which basically wipes out the higher customer charge. So the rates are pretty comparable between the two plans.

Posted by Jay Hancock at 11:22 AM | Permalink | Comments (2)
                    

The S&P Case Shiller index showed that metro DC house prices fell almost 3 percent in February and 13 percent from the levels of February 2007. That was about in line with the national average and not as bad as Miami and Las Vegas, where prices were down more than 20 percent year over year. But it's decent decline, and one that's necessary for the housing problem to get fixed. Looks like home sellers are getting more realistic about what their properties are worth.

Posted by Jay Hancock at 10:37 AM | Permalink | Comments (0)
                    

A few days ago I caught Steve Hanke, professor of applied economics, giving a talk to the Johns Hopkins alumni club downtown. The title of the talk: "The Fed's Bubble Machine." Readers of Hanke's Forbes column know that the upshot of a Hanke analysis is often where to invest. The recommendation from the bubble talk: Buy gold. He is also invested in oil, and he thinks the Chinese currency, the renminbi, will also appreciate. The economic prognosis: "I think we're in for a very tough period of time. This is going to take several years to work itself out."

An economist of the "Austrian" school and a monetarist, Hanke blames Alan Greenspan for blowing up the money supply beyond what the economy could productively invest, thus setting the stage for the Nasdaq crash and the housing crash. And inflation.

But he doesn't define a bubble by looking at asset values. Instead, he looks at aggregate demand (as measured by nominal final sales in the GDP accounts) in the U.S. economy over time. "Nominal final sales that are significantly above the trend line is a bubble in the economy."

The Fed's response to the 9/11 attacks and the stock market meltdown of 2002 -- reducing the Fed funds rate to 1 percent -- was "the mother of all liquidity cycles," Hanke said.

One problem with the housing bubble, he said, was the disappearance of traditional banks and loan officers from credit process. With brokers selling loans directly to Wall Street, "there was really nobody monitoring the credit resk. There was nobody evaluating the credit risk in the first place."

The U.S. is in danger of entering a period of stagnation such as Japan experienced in the 1990s, he said. In Japan banks stopped issuing credit into the real economy and stocked their balance sheets with government paper instead. In the U.S., "credit channels are completely plugged up because banks aren't making loans," Hanke said.

Inflation is already high, he said. And the government has a perfect motivation to stoke inflation further -- to inflate away the trillions in debt that it owes. "The certainly don't want to increase taxes to pay it off."

Hanke is amused that credit reform plans would give much more power to the Federal Reserve. "They were responsible for regulating banks" during the mortgage bubble, he said. "They couldn't even do that."

Posted by Jay Hancock at 10:10 AM | Permalink | Comments (0)
                    

Blurbs from a confab of the Society of American Business Editors and Writers, being held at the Sheraton Waterfront in Baltimore this week. Carlyle Group co-founder David Rubenstein spoke early this afternoon. Carlyle Group is one of the best-known private equity funds.

Rubenstein:

"Right now, the single greatest investment opportunity in the U.S. are our financial institutions. Nothing else comes close." Said Carlyle will be taking financial equity positions as well as buying back some of its own credit extended to financial shops.

Said sovereign wealth funds from China, the Middle East and elsewhere have been offended by questions about their transparency in the United States. This could repel them from U.S. markets, he said, which of course has implications for liquidity.

"I think the sovereign wealth funds are a little bit disgusted with the way they've been treated by U.S. officials. I don't think they're going to rush to do those deals again."

The second session comprised mutual fund stars Brian Rogers from T. Rowe Price and Robert Hagstrom from Legg Mason. I didn't take notes because I was moderating, but both managers believe the worst of the U.S. credit crunch is over and expect stocks to do well later this year. Both see the Bear Stearns collapse as the nadir of the credit trough.

Hagstrom is impressed with low P/E multiples on U.S. stocks and especially likes certain parts of the wireless and Internet businesses. Rogers is surprised at how high oil has gone. The last $30 a barrel of increase doesn't obviously come from fundamentals, he said. But he owns big pieces of oil companies.

Hagstrom, who wrote The Warren Buffett Way and other books on Buffett, was very surprised that Buffett is buying Wrigley at 29 times earnings -- a lot. But maybe Buffett sees that Wrigley and other makers of consumer nondurables are going to have the ability to raise prices that they haven't had for a long time, Hagstrom said. He said he'd take a closer look. He also thinks things may be turning around for Fannie Mae and Freddie Mac, the government-backed mortgage packagers.

Posted by Jay Hancock at 6:19 PM | Permalink | Comments (1)
                    

New Maryland law abates property tax, increases incentives for renewable energy. From the solar-energy trade association on legislation Gov. O'Malley signed last week.

For homeowners (House bill-377/Senate Bill-207) increases the maximum incentives for state grants for solar applications and broadens them to include geothermal heat pump technology up to $3,000 at $1,000 per ton of heating. The bill also addressed key tax issues that have been barriers to solar energy adoption. Funding incentive levels for solar water heating equipment - now also includes space heating and cooling technology - increases from 20% or $2,000 to 30% or $3,000, whichever is less, of installed cost. Solar electric (photovoltaic) installations will increase from 20% or $3,000 to $2,500 per KW of installed capacity not to exceed $10,000. Geothermal heat pumps will receive a $1,000 per ton credit, not to exceed $3,000. The bill’s tax provisions make the sale of solar systems exempt from sales or use tax - which is 6% of the material cost of solar hardware. Perhaps the most valuable provision for the long-term growth of the industry is that this bill exempts the owners from property taxes on the value of their solar technology.

Posted by Jay Hancock at 10:51 AM | Permalink | Comments (1)
                    

Former Treasury Secretary Larry Summers, in today's Financial Times. (Registration required.)

...America’s commitment to internationalist economic policy is ever more in doubt. Even before the significant increases in unemployment likely in the months ahead, the indicators are all disturbing. Presidential candidates attack the North American Free Trade Agreement. The Colombian free trade agreement languishes. There are increasing attacks on foreign investment in the US, not to mention growing support for restrictive immigration policies...

I suspect that the policy debate in the US, and probably in some other countries as well, will need to confront a deeper and broader issue: the gnawing suspicion of many that the very object of internationalist economic policy – the growing prosperity of the global economy – may not be in their interests. As Paul Samuelson pointed out several years ago, the valid proposition that trade barriers hurt an economy does not imply the corollary that it necessarily benefits from the economic success of its trading partners...

In a world where Americans can legitimately doubt whether the success of the global economy is good for them, it will be increasingly difficult to mobilise support for economic internationalism. The focus must shift from supporting internationalism as traditionally defined to designing an internationalism that more successfully aligns the interests of working people and the middle class in rich countries with the success of the global economy.

Posted by Jay Hancock at 10:37 AM | Permalink | Comments (1)
                    

From today's NYT:

Stung by rising gasoline and food prices, Americans are finding creative ways to cut costs on routine items like groceries and clothing, forcing retailers, restaurants and manufacturers to decode the tastes of a suddenly thrifty public.

In March, Americans spent less on women’s clothing (down 4.9 percent), furniture (3.1 percent), luxury goods (1.3 percent) and airline tickets (1.1 percent) compared with a year ago, according to MasterCard SpendingPulse, a service of the credit card company that measures spending on 300 million of its cards and estimates purchases with other cards, cash and checks.

Wal-Mart Stores reports stronger-than-usual sales of peanut butter and spaghetti, while restaurants like Domino’s Pizza and Ruby Tuesday have suffered a falloff in orders, suggesting that many Americans are sticking to low-cost home-cooked meals.

Over the last year, purchases of brand name cookies and crackers have fallen, according to Information Resources, which tracks retail sales.

Sales of Nabisco graham crackers have dropped 7.5 percent, and Keebler Fudge Shoppe cookies have slipped by 12.3 percent. Not even beer is immune. Sales of inexpensive domestic beers, like Keystone Light, are up; sales of higher-price imports, like Corona Extra, are down, the firm said.

Some are skipping drinks altogether. The number of people ordering an alcoholic drink fell to 31 percent last month from 42 percent last summer, according to a survey of 2,500 people conducted by Technomic, a restaurant industry consulting firm.

But, but! Americans are not giving up the true necessities.

By no means has the economic downturn been bad for all product categories. For instance, sales of big-ticket electronics, like $1,000 flat-panel televisions and $300 video game systems, are on the rise, according to retailers and research firms.

Posted by Jay Hancock at 10:21 AM | Permalink | Comments (2)
                    

Green Hornet: When journalists were heroes, production values were terrible and scripts were worse. Plus, Bruce Lee (as Kato) kicks total badguy keister. 9:30 p.m. Fridays on AmericanLife network. (Verizon FIOS channel 213.) 

Posted by Jay Hancock at 4:10 PM | Permalink | Comments (0)
                    

Dear Jay,

If you're ever by chance doing something on the correlation between how people look and how they do professionally (i.e., many believe short or heavy people have a tougher go of it), please consider a chat with nationally respected hair transplant surgeon Dr. William Rassman to discuss the connection between baldness and leadership. A timely angle in this regard might be the fact that we haven't elected a bald President since Eisenhower.

Thanks so much for your consideration!

Update: From comments. Good one!

Guess that one hit a little too close to home, eh Jay my boy?

Posted by Jay Hancock at 4:28 PM | Permalink | Comments (1)
                    

Here is a beautiful illustration on the economics of power production. Ohio is about to put the brakes on deregulation, prohibiting the further transfer of generation plants (paid for by utility ratepayers) to unregulated corporations. But Duke Energy has filed an apparently last-minute motion with the Feds to switch its Duke Energy of Ohio plants to an unregulated affiliate, where they would be able to charge what the market bears. From the Cleveland Plain Dealer:

Duke has filed a request with the Federal Energy Regulation Commission to move ownership of its power plants to unregulated companies owned by North Carolina-based Duke Energy Corp.

Duke made the FERC filing as the Ohio Senate approved Gov. Ted Strickland's energy bill on Wednesday.

The new law specifically prohibits such transfers of ownership unless the Public Utilities Commission of Ohio agrees, an unlikely consent any time soon.

This kind of transfer set the stage for Maryland's electricity problems. The switch of BGE's former generation plants to an unregulated affiliate owned by Costellation Energy led to very large price increases for BGE ratepayers and very large profits booked by Constellation. Constellation is BGE's parent.

It's true that fuel prices have driven up generation costs and that these have been passed on to BGE consumers. But profit on the former BGE plants has risen even further than costs. Most are coal and nuclear plants with relatively cheaper fuel. In an unregulated market where the marginal price of electricity is largely determined by expensive natural gas, coal and nuke plant operators make a killing. Under regulation they would have had to pass those lower costs on to consumers.

Duke obviously wants that kind of action in Ohio. Its Ohio plants seem to be fueled by coal.

Posted by Jay Hancock at 3:13 PM | Permalink | Comments (3)
                    

Robert Wildrick, CEO of Jos. A. Bank Clothiers, called apropos of today's column that spanked the company for refusing questions from analysts and not better explaining how it will cope with what looks like a U.S. recession. Wildrick:

-- Apologized for the fact that no executives returned my calls.

-- Said (good naturedly!), "I don't like being compared to a communist leader."

-- Said lawyers have discouraged the company from taking questions on their conference calls. Bank is the subject of shareholder lawsuits. Its lawyers are concerned not so much about conference-call queries from large investment houses as questions from short-sellers and litigants, he said. The lawsuits have no merit and amount to "extortion," he said.

"It isn't the analysts that we're afraid of. It's that other people will come in on the call, and they might be setting us up. And they [lawyers] don't want us to do that at this time."

-- Noted that shares in other retailers have fallen as well as Banks' shares. "The segment is not in favor now. The thing we have control over is our performance, and we try very hard to take care of our customers."

-- Defended the company's large inventory. "Part of our stategy has always been to carry a lot of sizes... If you're going to be in business you've got to have all of them...so that when you come in the store we have a good shot at having your goods. One of the things that has made us sucessful is we have sizes. We have a very high closure rate; it's like 93 or 95 percent. The only way to do that is stock up on key items."

-- Didn't really answer analyst Richard Jaffe's main question in the column. For the first time in years, costs are rising substantially in the places Bank makes its clothes. In the face of rising costs and an uncertain U.S. economy, how will the company maintain profits?

Wildrick noted that Bank's profits, profit margin, employment and other measures have improved to a very impressive degree since he took over in 1999. But what about profits going forward, in this challenging environment?

"It's a good academic question," he said. "But that's what management is here for."

Posted by Jay Hancock at 12:08 PM | Permalink | Comments (0)
                    

The University of Michigan issued the latest consumer sentiment stats at 10 a.m. Almost as worrying as consumers' poor expectations for economic growth are their robust expectations for inflation. From AP:

An early advance fizzled on Wall Street Friday after a consumer sentiment reading fell to its lowest level in more than 25 years and a disappointing forecast from Microsoft Corp. weighed on technology issues.

The Reuters/University of Michigan consumer sentiment index came in at 62.6 for April, down from 69.5 a month earlier — and the lowest reading since the early 1980s — as Americans contended with rising energy and food prices. Consumers' flagging mood is worrisome for Wall Street because consumer spending accounts for about 70 percent of U.S. economic activity.

From Dismal Scientist:

The University of Michigan consumer sentiment index dropped 6.9 points in April from the March average, according to final data. The index came in at 62.6, which was 0.6 points below the preliminary reading and the lowest reading for the index in 26 years. The decline from March was fairly evenly split between the expectations and current conditions components, although the latter was responsible for most for the decline in the second half of the month. Near-term inflation expectations rose very sharply, while long-term expectations also rose significantly.

Posted by Jay Hancock at 11:26 AM | Permalink | Comments (0)
                    

Who was the one member of Russia's legislature to oppose Vladimir Putin's latest move to crush the press? From the AP story:

Russia's lower house of parliament has voted for new restrictions on the news media after a Moscow newspaper reported that President Vladimir Putin had divorced his wife and planned to marry a champion gymnast.

The State Duma voted 339-1 on Friday to allow authorities to suspend and close down media outlets for libel and slander following the furor over the story, which was denied by both Putin and the former gymnast.

Critics say Putin has presided over a steady rollback of post-Soviet media and political freedoms. Under his rule, all major national television networks have come under the control of the Kremlin or its allies and Russia's print media have also experienced growing official pressure.

Posted by Jay Hancock at 10:23 AM | Permalink | Comments (0)
                    

Today's column is on Jos. A. Bank Clothiers' refusal to take questions from its owners and its owners' proxies on quarterly conference calls.

Jos. A. Bank Clothiers stock has fallen by nearly half since last spring. The menswear chain is defending itself against two shareholder lawsuits. Analysts worry it might get squeezed between a falling economy and rising costs. "Short sellers," who will profit if the shares fall further, are betting on it.

How does the company respond? With a passive-aggressive pout guaranteed to egg on the skeptics. Bosses Robert N. Wildrick and David E. Ullman don't take questions on conference calls with stock analysts. Apparently, they don't talk to journalists anymore, either - at least not this one.

Hey, Joe: "Fair disclosure" doesn't mean being scrupulously evenhanded by telling almost nothing to nobody. You're hurting yourself as well as investors. You might even have a good story to tell...

A retail veteran sends the comment below, saying the real question isn't inventory or communication but whether men's tailored clothing will continue to sell. It's a valid point, but people have been predicting the demise of the men's suit for 20 years. It hasn't happened yet.

Jay, I always am interested in and usually agree with what you write, but you somewhat missed the critical issue with JOSB. It's not inventory, many have considered their inventory too high for some time. It's logical to question inventories rising faster than sales, but this isn't A&F we're talking about. Men's tailored clothing's turn is the slowest of slow. And product offering changes very little from year to year. With the dollar's continued weakness and high levels of demand from India and China Bank may be accelerating some buys to counter anticipated inflation. In any case, this isn't central. It's not their mark up/markdown marketing strategy. I don't