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Saturday night Columbia economic indicators. Home Expo, where you can buy $7,000 refrigerators, is going out of business. Noodles & Co., where my son and I had a fantastic, pasta-based dinner for $17, was packed.
From Calculated Risk, haiku on the FDIC's seizure of Suburban Federal Savings of Crofton:
Sub Fed SunkTodayBank of Essex saves the day
Are there more to come?
and on the takeover of Florida's Ocala National Bank:
Florida bank toastOcala, rhymes like Orange?
Asset base has burnt
A FAQ for customers of Suburban Federal of Crofton, seized this evening by the Feds, can be read here.
Some highlights:
-- Your transferred deposits will be separately insured from any accounts you may already have at Bank of Essex for six months after the failure of Suburban Federal Savings Bank. Checks that were drawn on Suburban Federal Savings Bank that did not clear before the institution closed will be honored as long as there are sufficient funds in the account. You may speak to an FDIC representative regarding deposit insurance by calling: 1-800-822-7182 or visit EDIE the FDIC's Electronic Deposit Insurance Estimator.-- You may withdraw your funds from any transferred account without an early withdrawal penalty until you enter into a new deposit agreement with Bank of Essex as long as the deposits are not pledged as collateral for loans. You may view more information about Bank of Essex by visiting their web site.
-- All interest accrued through Friday, January 30, 2009, will be paid at your same rate. Bank of Essex will be reviewing rates and will provide further information soon. You will be notified of any changes.
-- Your automatic direct deposit(s) and/or automatic withdrawal(s) will be transferred automatically to your new bank. If you have any questions or special requests, you may contact a representative of your assuming institution at your branch office.
-- If you had a loan with Suburban Federal Savings Bank, you should continue to make your payments as usual. The terms of your loan will not change under the terms of the loan contract because they are contractually agreed to in your promissory note with the failed institution. Checks should be made payable as usual and sent to the same address until further notice. If you have further questions regarding an existing loan, you may call 1-800-822-7182.
FDIC bank receivers were relatively inactive over the December holidays and immediately afterward. Now they're digging in. Today they seized two banks and a thrift, as many institutions as they had processed for the rest of January. Cost to the insurance fund for Ocala and Suburban alone: $225 million.
Taken this evening are:
Ocala National Bank, Ocala, Florida, with approximately $223.5 million in assets and approximately $205.2 million in deposits, was closed. CenterState Bank of Florida, Winter Haven, Florida has agreed to assume all non-brokered deposits. (PR-14-2009)Suburban Federal Savings Bank, Crofton, Maryland, with approximately $360.0 million in assets was closed. Bank of Essex, Tappahannock, Virginia has agreed to assume all deposits (approximately $302.0 million). (PR-13-2009)
MagnetBank, Salt Lake City, Utah, with approximately $292.2 million in assets and approximately $282.8 million in deposits was approved for payout by the FDIC Board of Directors. (PR-12-2009)
This is the first federal seizure of a Maryland depository institution since 1992. Bank of Essex on Virginia's Northern Neck Middle Peninsula is taking over Suburban Federal of Crofton.
The Suburban branches open as Essex branches tomorrow. Bank of Essex gets $348 million in Suburban Federal assets for $303 million. The FDIC takes over another $12 million in (presumably ultratoxic) loans. Loss to the deposit insurance fund: $126 million, which is quite a feat for a thrift this size.
Suburban looks like a typical case of mortgage madness. This is a $350 million bank. 60 employees. As of September it had made $304 million in mortgage loans! That's an undiversified recipe for exactly what just happened.
Interesting that the FDIC had to go so far afield to find somebody to take these guys over. Tappahannock, Va., is two tidal estuaries -- Potomac, Rappahannock -- away.
There were 660 accounts with deposits of more than $100,000 at Suburban as of September, but all deposits are still insured with the Essex takeover. (The new deposit-insurance limit is $250,000 anyway.)
Essex is shouldering some risk for the Suburban portfolio but is being backstopped by the FDIC, which wants to take on as few troubled assets as possible.
Depositors of Suburban Federal will automatically become depositors of Bank of Essex. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage.Over the weekend, depositors of Suburban Federal can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.
The blogo-flareup of hostilities continues.
Mike Shedlock said:
There are numerous YouTube videos, articles, and references to Peter Schiff being "right" rapidly circulating the globe. While Schiff was indeed correct about the US imploding, most of the praise heaped on Schiff is simply unwarranted, and I can prove it.I have talked with many who claim they have invested with Schiff and are down anywhere from 40% to 70% in 2008. There are many other such claims on the internet. They are entirely believable for the simple reason Schiff's investment thesis was flat out wrong.
I have an actual portfolio statement from one of Schiff's clients at the end to discuss, for now let's discuss the main points of Schiff's thesis.
Peter Schiff's brother said:
It is disappointing that you would choose to raise the profile on Mr. Shedlock’s attack on our firm. In particular, his posting on Market Oracle is primarily an attempt to attract business to his own firm (Sitka Capital Management), by bashing a much larger and better known firm. However, the strategies employed by the two firms are completely different and make a direct comparison useless.
Now Peter Schiff says:
My popularity on television and the internet has led a very small money manager to use his popular financial blog to promote his fledgling business by attacking the recent poor performance of my long-term investment strategy. The post is causing quite a stir and compels me to provide some badly needed context.To achieve his ends, this individual has distorted much of what I have been saying and writing, and has twisted the facts to support his own preconceived conclusion. In essence, his piece is nothing more than an overt advertisement (and a highly deceptive one at that) to use my popularity to advance his career. In so doing he has given my critics, particularly some who have been embarrassed by their roles in the "Peter Schiff was Right" video, their moments of retribution. In addition, some members of the press who have never been among my greatest fans are seizing the opportunity to discredit me as well.
It's interesting that Schiff keeps harping on Shedlock's motives and the size of Shedlock's firm, Sitka Pacific, factors that have no bearing on whether Schiff was right or wrong. Debaters resort to ad hominen tactics, students of rhetoric say, when they don't have the facts on their side.
Sen. Chuck Grassley, an Iowa Republican, and Sen. Carl Levin, a Michigan Democrat, took a step toward future financial sanity by introducing a bill that would increase regulation of hedge funds, which are essentially mutual funds for wealthy people.
Despite holding hundreds of billions in investments, often turbocharged with borrowed money, hedge funds typically have not had to register with the Securities and Exchange Commission. The proposed Hedge Fund Transparency Act of 2009 would change that, although it would still allow hedgies to avoid the full legal requirements covering mutual funds.
“Hedge funds have gotten so big and are so entrenched in U.S. financial markets, that their actions can now significantly impact market prices, damage other market participants, and can even endanger the U.S. financial system,” said Levin as he introduced the bill Thursday. “You’ve got to ask how anyone in their right mind could believe that the current regulatory exemption for hedge funds makes sense.”
Hedge funds did not trigger the financial meltdown. That was accomplished mainly by investment banking companies and mortgage originators. But the larger lesson is that secrecy and regulation-lite are dangerous for any financial industry.
Grassley’s and Levin’s bill is one of numerous needed reforms.
Here's a perfect piece of ordnance for those wishing to attack environmental orthodoxy. "Recycling 'could be adding to global warming,' says the headline in the Telegraph. What perfect irony, anti-environmental skeptics will hoot. One of the tree-huggers' most cherished policies is making things worse.
Oh, wait. If you read the story it says that recycled material may aggravate climate change only if it's burned. That has little to do with recycling per se. And oh yeah -- these folks don't believe in global warming in the first place.
In my email is this from Bunnie Gleiman, whose business supplying lumber etc. for building movie and TV sets has been harmed as Michigan, Louisiana and other states lured filmmakers away from Maryland with huge incentives. She writes regarding a column on proposals for Maryland taxpayers to pay for 28 percent of moviemakers' expenses in the state.
Dear Mr. Hancock,My name is Bunnie Gleiman and I am the owner of Bond Lumber and Home Center in Lutherville,Md. My business is 4th generation and still family owned. For the last 30 years, I have had a wonderful niche, I supply all the construction materials for the film and tv industry in Maryland.
Until 2 years ago, this was a very lucrative business. I was able to pay 100% of medical benefits for all my employees and fully fund a 401k at 3% of their salary. Not anymore!!! Since the film industry has gone to other states,my company is suffering and I hope to stay afloat. I don't think you understand that I have 14 full time employees,year round who benefit from this industry,not short lived jobs as you referred to them. I am not alone in this position.
Maryland needs to be on par with other states to keep movies and tv in the state. I hope you will take the time to chat with small business owners who are in this industry and follow up your article with real facts.
I have no doubt there are many businesses that have been harmed by the decline in Maryland filming and many businesses that would be helped if the state subsidized the studios. But the benefits would fall far short of the costs to taxpayers. The answer is for the federal government to ban Michigan, Louisiana and other states from bribing companies for business with economc development incentives. Then businesses can set up shop where it makes the most economic sense, not where the local authorities are most profligate with their citizens' money.
More great stuff from Big Picture. Yesterday's bank-stock boom, Barry argues, is evidence that the latest bailout billons will go straight to bank shareholders and executives.
Consider this statement from Geithner, who said that Treasury is considering a “range of options” for its financial rescue plan, with the goal of preserving the private banking system. “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.”No! Defending these idiots was your old gig. In the new job, you no longer work for the cretins responsible for bringing down the global economy. Please stop rationalizing their behavior, and preserving the status quo!
Yesterday’s 13% surge in bank stocks is a clue as to what an obscene taxpayer giveaway this “bad bank” plan is — its free money for the firms that caused the problems, many of whom still have the same incompetent management in place that caused the problem. Purging toxic assets from bank balance sheets, without punishing the management, shareholders and creditors of these institutions for their horrific judgment will only encourage more of the same in the future. Its moral hazard writ large.
A few reminders for Geithner that are of the utmost importance:
You no longer work for the Banks: The NY Fed is a private corporation, doing the bidding of the FOMC and its private sector owners — primarily, the primary dealers. In other words, the President of the NY Fed works for the biggest commercial and investment banks in New York. That is no longer operational for you.
As Treasury Secretary, your immediate boss is the President, and your ultimate charge are the citizens of the United States, and the finances of the country.
When any conflict comes into play between the nation and the banks, you as Treasury Secretary are on the side of the Nation.
You cannot serve two masters, especially when they are in direct conflict with each other.
Andrew Schiff, Peter's brother, says they have nothing to do wiith the Schiff for Senate Web site. Could be backed by Ron Paul diehards.
Let me assure you that Peter Schiff or Euro Pacific Capital has absolutely no involvement with the Schiff for Senate campaign. We haven't spoken to them, theyve never called us, we don't even know who they are. This is politics in the 21st Century.
Business Week's Chief Economist Michael Mandel has the best short, accessible description I have seen of the raging debate among "salt water" and "fresh water" economists over the stimulus. For the anti-stimulus crowd, he might have added the argument that a stimulus will delay the painful collapse and cleansing needed to renew sustained growth. (This is an Austrian, not really Chicago, point of view. But it's an important point in the overall debate.) Otherwise a great summary. The whole thing is worth reading.
... we are getting the equivalent of a full-scale intellectual war, with Nobel prize winners and leading economists actively attacking each other in public... It's important to understand that the vehemence of this debate reflects the resumption of an intellectual conflict that dates to the Great Depression and the famous economist John Maynard Keynes. The question then was whether the New Deal helped shorten or soften the Depression, as Keynes argued, or whether government intervention actually hurt the economy.Surprisingly, the evidence is ambiguous...
In the end, this near-depression is likely to be a transformative event for macroeconomics. We are going to have a mammoth fiscal stimulus package this year—and in all likelihood, more in the near future. And when we see what happens, we may finally settle some of the disputes that have bedeviled economics for 80 years.
From the Federal Open Market Committee statement:
In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
MSM hacks like me who mention Peter Schiff immediately get sent an email from something purporting to be an independent group promoting Schiff as a candidate for U.S. Senate from Connecticut. (He would run against Chris Dodd.) The Website is Schiff2010.com. It seems a little slick and finance-obsessed for a grassroots political effort.
An excerpt:
In the events leading up to the crash of 2008, and over the past several months, Peter Schiff has made a number of very specific predictions. Many have come to pass, while some have not. For example, he accurately predicted the stock, credit, and housing market collapse, while virtually every other financial and political pundit scoffed at such dismal prognostications. On the other hand, though commodities soared and the US Dollar plummeted for most of ‘08, the pattern reversed itself once the crash hit. Schiff had predicted the opposite.Schiff still stands by his predictions of a crashing US Dollar and rising commodity prices, specifically gold, if the federal government continues its policy of massive bailouts, the printing of trillions of dollars out of thin air, and obscene budget deficits. Already, gold has begun a strong rebound, and several analysts are worried about the potential for hyperinflation if the current period of deflation is quelled. Time will tell if these predictions hold water.
Legg Mason posted miserable fourth-quarter results this morning -- a net loss of $1.5 billion, mostly because of the sale of poorly performing structured investment vehicles debt issued by a SIV, which everybody knew about, and new writedowns of the value of investment units that Legg had previously purchased, which everybody suspected.
What's interesting is that Legg would use its earnings release to puff its few investment managers who didn't have a terrible year. With Legg's marketing model founded on the star-manager system, with former stars Bill Miller and Bruce Sherman not glittering so brightly, the firm is trying to draw attention to new names.
From Legg's filing this morning:
As they like to say in the biz, past performance is no guarantee of future results.Mr. Fetting commented, “As 2008 came to an end - the most tumultuous year in modern financial history - all of Legg Mason was honored by the news that our own Charlie Dreifus, Principal of Royce & Associates, was named Morningstar Domestic Stock Manager of the Year for his stewardship of the Royce Special Equity Fund.
Hersh Cohen, Chief Investment Officer of ClearBridge Advisors, and his partner, Scott Glasser, were among five other finalists for the same award, the most prestigious in our industry. Despite all our challenges, the work of Charlie, Hersh and Scott, among many others across our affiliates, are proof points of true investment excellence within Legg Mason and demonstrate why clients continue to work with us.”
In honoring Mr. Dreifus, Morningstar called him “a balance sheet skeptic” and described his fund as an “oasis of calm” in turbulent markets: “Charlie Dreifus made it a lot easier for investors to get back into the black than many of his peers.” Morningstar continued, “The Royce Special Equity Fund held up brilliantly in the bear market of 2000-2002 and it did so once again in 2008.”
SmartMoney recognized two Legg Mason funds as part of the “100 Great Funds” for 2009, given to mutual funds that have posted the highest returns since the 1987 market crash. Hersh Cohen and Scott Glasser were honored for their management of the Legg Mason Partners Appreciation Fund and Mr. Glasser, along with Peter Hable and Peter Vanderlee, took honors for the Legg Mason Partners Dividend Strategy Fund. SmartMoney criteria include fund returns in the top fifth of their categories for the past 5 and 10 years, resilience in bear markets and managers with long-term experience in running the fund.
He sees past the blizzard of hype and distortion. From Gadi Dechter's and Laura Smitherman's story:
"I'm very receptive to any business that wants to come to Maryland," O'Malley said. But, he added, "I can't look at people who are already taking cuts and sacrificing and tell them that we should be cutting big cash-back checks to Hollywood."
"Cash-back checks to Hollywood" is exactly what this is about.
I think I'll pass on this one.
The woman Oprah called “the role model for motherhood,” Kathryn Sansone - a mother of 10, author, and fitness model - is available for an interview to discuss these tips with your readers.Let me know if you are interested in speaking with Kathryn or providing your readers with these tips and survey results.
Corporate moguls taking advantage of the little guy. Michael Moore should do a scathing expose. Today's column:
Entertainment moguls don't need to con little old ladies to finance productions any more, as they did in Mel Brooks' The Producers and its spinoffs.After all, there are state taxpayers to fleece.
Hollywood is getting struggling states to bid higher and higher for the glamour and supposed economic benefits of on-site film production. Maryland is joining the game. Del. Melony Ghee Griffith, a Prince George's County Democrat, says she'll introduce legislation that would have the state pay 28 percent of film-production costs incurred here.
"Maryland doesn't have anything close to being competitive" with other states, says director Barry Levinson, who was promoting the bill in Annapolis yesterday. "Unless state officials do something in terms of becoming more film-friendly, Maryland will continue to lose out."
You always wanted to help Barry produce films like Diner and Tin Men, right? Unfortunately, the taxpayer partners in these deals don't get to share in the box office, premiere parties or much of anything else. They just write checks.
It was a long time coming, but the national recession has hit Maryland. Lorraine Mirabella writes:
The jobless rate jumped to 5.8 percent last month, according to preliminary statistics released today by the U.S. Labor Department . Maryland ended the year with 15,000 fewer jobs than in December 2007, the largest year-over-year loss since September 1992 and the first in five years, according to the Bureau of Labor Statistics.
Until December Maryland had been adding jobs from month to month or at least managing not to lose them in large amounts. As Lorraine notes, the state had 15,000 fewer jobs in December 2008 than in December 2007. But most of these were lost at the very end of the year. On a month-to-month, seasonally adjusted basis, Maryland lost about 11,000 jobs from November to December, as the national financial crisis took hold.
Most of the statewide job loss -- almost 13,000 jobs year over year, came in metro Baltimore. From December to December, Bethesda, Gaithersburg and the other DC suburbs managed to add 800 jobs, according to the government.
This will get worse. 2009 will almost certainly be a recession year for Maryland and metro Baltimore. But the region is still doing better than the nation as a whole. Exhibit A: Pennsylvania, which lost 76,000 jobs from December to December. Pennsylvania's unemployment rate is 6.4 percent. National unemployment is 7.2 percent.
Here is something everybody should agree on, from the Competitive Enterprise Institute's John Berlau:
And given his own serious breach of the tax laws, which he only corrected completely after being chosen as Treasury Secretary nominee, Geithner should show sympathy with the difficulties of individuals and small businesses in dealing with the complexities of taxes and regulations. New financial regulations from the Treasury Department should be carefully thought out so that they don't hinder small investors and entrepreneurs. If Geithner reflects on and learns from his personal and policy errors, he can be a more effective Treasury Secretary.
Andrew Schiff, Peter Schiff's brother, responds to the Shedlock piece. He notes Shedlock is trying to attract clients. He says Shedlock exaggerates the losses of clients of Euro Pacific Capital, Schiff's broker-dealer firm. (Not a hedge fund.) But he doesn't refute anything Shedlock said. The Schiffs say the dollar is overvalued, just as the housing market was three years ago, and will fall. Bottom line: Even prescient people, such as Peter Schiff and Nouriel Roubini, who both called the housing bubble, are not omniscient. But you knew that. (Or should have.)
Jay,It is disappointing that you would choose to raise the profile on Mr. Shedlock’s attack on our firm. In particular, his posting on Market Oracle is primarily an attempt to attract business to his own firm (Sitka Capital Management), by bashing a much larger and better known firm. However, the strategies employed by the two firms are completely different and make a direct comparison useless.
While it is true, that our accounts have suffered badly in 2008, a fact that we have never disputed or ran from, his estimates for the size our of typical client losses are exaggerated and unfair. We have thousands of clients, and since all of our accounts are run individually, holding up the performance of one client is not representative of our firm as a whole. In choosing to characterize our performance he considers only that time frame which he knows was the worst period for our clients. The biggest impediment to our performance in 2008 has been the rally in the dollar, which we did not predict. However, we believe that the rally is as illogical as it is transitory. We still believe that for many fundamental reasons the dollar will fall dramatically. Shedlocks’ criticism is similar to jabs peter got in 2005 when housing market experts were ridiculing him for making gloomy predictions about home prices which at that point were still strong. It didn’t mean that he was wrong then about a housing bubble.
Also, as a broker dealer (not a Registered Investment Advisor as Mr. Shedlock’s firm), it would be illegal for us to publish or to otherwise make claims as to past or expected investment performance. Mr. Shedlock knows this, but sees a chance to gain credibility as a result of our lack of response to his challenge.
I would ask that you mention that commercial interest rather than journalistic objectivity informs Mr. Shedlock’s posting. Please feel free to contact me with any questions.
Print this out. Make as many copies as you have cars. Put in glovebox. Follow colored lines when driving through Delaware to avoid aggravation, danger and the $4 toll on I-95. As Mike Dresser says, "Friends don't let friends go through the Delaware Toll Plaza."
Peter Schiff is being lionized as somebody who got it right about the housing meltdown. Mike Shedlock begs to differ. Sez he:
There are numerous YouTube videos, articles, and references to Peter Schiff being "right" rapidly circulating the globe. While Schiff was indeed correct about the US imploding, most of the praise heaped on Schiff is simply unwarranted, and I can prove it.First, let's start with a look at the claim being made. Peter Schiff concludes many of his articles, books, etc. with the following statement.
Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly.
Highlight in red is mine.I would like to see some proof of that statement. Specifically I would like to see the average returns posted by EuroPacific clients for 2008.
I have talked with many who claim they have invested with Schiff and are down anywhere from 40% to 70% in 2008. There are many other such claims on the internet. They are entirely believable for the simple reason Schiff's investment thesis was flat out wrong.
I have an actual portfolio statement from one of Schiff's clients at the end to discuss, for now let's discuss the main points of Schiff's thesis.
The Dow is up 100 points this morning on a report from the National Association of Realtors that home sales rose in December. There are multiple reasons for skepticsm. The market has been faked out by trivial or misleading economic reports before. The NAR is not a fount of quality, unbiased information. December is a slow month for home sales anyway, meaning a relatively small bump could get blown out of proportion in NAR's seasonal adjustment, which attempts to extrapolate the trend of one month to a full year.
But the raw, nonadjusted numbers look good enough to suggest that last month's dip in mortgage rates is starting to have an effect. Actual, unadjusted December sales of existing homes (as opposed to nonexisting, hallucinated homes?) were 364,000 -- 4,000 MORE than were sold in December 2007. The biggest bump came in the west -- 90,000 homes sold last month vs. 66,000 in December 2007. December isn't as slow as I would have guessed -- the biggest months last year were June and July, with 504,000 houses sold in each month.
But there are still far more homes on the market than buyers, and prices need to fall even more. A huge portion of these sales are out of bank foreclosures. A recent bump in mortgage rates isn't helping.
Timothy Geithner will probably be confirmed as Treasury secretary by the Senate today. The Senate should reject him. He has been at the upper reaches of international finance for more than a decade. He has an MA in international economics from Johns Hopkins SAIS. He failed to pay $34,000 in Medicare and Social Security tax in 2001 through 2004. After being nailed by the IRS in an audit for 2003 and 2004 deficiencies, he still failed to pay what was owed for 2001 and 2002 until he became aware that Obama would nominate him to be Treasury secretary. He failed to give satisfactory answers as to why this was so.
He is being considered to be head of the agency that runs the Internal Revenue Service. He is being considered to run the agency that is bailing out big banking companies run by CEOs who continue to pay themselves enormous amounts even in the face of demonstrable failure. He is in charge of trillions in taxpayer money. The Treasury secretary needs to be above reproach.
The Bush administration had blocked California, as well as Maryland and a dozen other states that chose to follow California's lead with a "Clean Cars Program," in imposing stricter emissions standards than what federal law requires. Obama will reverse the policy, the New York Times reported last night.
WASHINGTON — President Obama on Monday will direct federal regulators to move swiftly to grant California and 13 other states the right to set strict automobile emissions and fuel efficiency standards, two administration officials said Sunday evening.The directive makes good on an Obama campaign pledge and marks a sharp reversal from Bush administration policy. Granting California and the other states the right to regulate tailpipe emissions is one of the most dramatic actions Mr. Obama can take to quickly put his stamp on environmental policy.
The presidential orders will require automobile manufacturers to begin producing and selling cars and trucks that get higher mileage than the national standard, and on a faster phase-in schedule. The auto companies had lobbied hard against the regulations and challenged them in court.
From the Maryland Department of Environment's Clean Cars Program site:
Maryland Clean Cars ProgramIn early 2007, a bill was introduced in the Maryland General Assembly to reduce emissions from motor vehicles. The legislation passed both houses and Governor Martin O’Malley signed the Maryland Clean Cars Act into law on April 24, 2007. On November 19, 2007, the Clean Cars Act was adopted into Maryland regulations.
The Maryland Clean Cars Program adopts California’s stricter vehicle emission standards. These standards will become effective in Maryland for model year 2011 vehicles, significantly reducing a number of emissions including volatile organic compounds (VOCs) and nitrogen oxides (NOx). The VOC reduction is expected to be 3.4 tons/days greater than the Federal standards and the NOx reduction is expected to be 2.9 tons/day greater than the Federal Tier 2 standards. VOCs and NOx emissions cause Maryland’s ozone problems.
Currently, the Clean Cars Program represents the only program that directly regulates carbon dioxide (CO2) emissions. Transportation is the fastest-growing source of CO2 in the U.S. and CO2 is the most prevalent GHG. In Maryland, approximately one third of CO2 emissions are emitted from cars.
Apropos of today's column on when Verizon will bring its FiOS cable/Internet product to Baltimore:
I couldn't get a straight answer either, but there seems to be creeping progress. The pressure is rising on Verizon to start serving Maryland's biggest city.This is an educated guess: The company will start stringing cable and digging trenches in Baltimore in 2010, four years after it began bringing FiOS to Howard County and other, wealthier suburbs.
A Harford Countian writes:
Excellent article about FIOS today, but it's applicable to more than just Baltimore City. I live in the "not so affluent" suburbs of Harford County (Joppa), and am extremely frustrated with not being able to get any estimate from anyone about when FIOS might be available in my area. I have no cable or satellite yet, and would like to hang on until FIOS is available, but not knowing when it will be makes the decision very hard.
Intrade, where you can bet on politics, economics and entertainment, seems to have modified its flawed depression bet. Intrade's depression definition is a GDP decline of more than 10 percent. In the original version, the bet would pay off if annualized quarterly GDP declines added up to more than 10 percent for four consecutive quarters. That means you could win the bet without an actual 10 percent decline in GDP.
The original bet and rules are still on Intrade's site. But there are new depression bets, which Intrade couches in terms of absolute change in GDP dollar value rather than the rates that tripped it up before. (I can't get the link to work, but click here, then on "Financial" and then "Economic Numbers.") But the rules are still problematic. In the new bet, Intrade will trace changes in nominal GDP instead of real, inflation-adjusted GDP. Nobody measures business cycles this way.
The $14.4 trillion, third-quarter GDP (seasonally adjusted annual rate) identified as the economic "peak" in Intrade's rules was a peak only in nominal dollars. The real, inflation-adjusted peak came in the second quarter, as the BEA release shows. The third quarter, which looks like economic expansion under Intrade's rules, was really a decline in GDP after you account for last summer's energy inflation.
Here are Intrade's new rules:
For the purposes of this contract only a "depression" is defined as a 10.0% decline in GDP from its peak value. This market group also contains -15.0% and -20.0% contracts to allow trading on the magnitude of a "depression".This contract will settle (expire) at 100 ($10.00) if GDP declines by the percentage specified in the contract (or more) from its peak value between Q4 2008 and Q4 2009 (inclusive).
The contract will settle (expire) at 0 ($0.00) if GDP declines by less than the percentage specified in the contract from its peak value between Q4 2008 and Q4 2009 (inclusive).
The data used for expiry will be the final (not advance or preliminary) GDP numbers (seasonally adjusted at annual rates) published quarterly by the Bureau of Economic Analysis as may currently be found on Table 1.1.5. Gross Domestic Product.
Table 1.1.5 will be updated with the final GDP figures after their release. The final GDP figure for Q4 2009 (the last quarter considered for this contract) is expected in March 2010.
For information only the current peak final GDP value is Q3 2008 and was $14,412.8 billion. This figure will be updated if a new peak is established. If any quarterly GDP figure is greater than $14,412.8 billion then a new Peak Value will be established. GDP will then need to decline by the specified amount from this new Peak Value for the contract to expire at 100. For more information on peak values please click HERE.
The formula used to calculate the percentage change in GDP is as follows
((Quarterly final GDP Figure / Peak Value) -1) * 100
For an example of how this formula will be used please click HERE.
Treasuries are selling off this morning after Treasury secretary nominee Geithner told Congress that the Obama administration believes China is manipulating its currency. China, a key financier of the United States' budget and trade deficits, owns hundreds of billions in Treasury securities. The short-term fear is that a piqued China will dump Treasuries to demonstrate its displeasure. The long-term fear is that China will actually stop manipulating its currency, which has kept U.S. interest rates low, inflation low and Chinese goods cheap.
The yield on the 10-year note (which moves inversely from the price) is up to 2.65 percent this morning. The yield on the 30-year bond popped from 3.22 percent to 3.36 percent.
If those Black Friday sales in November didn’t seem as sweet as you expected, here’s proof: Government data show consumer prices were much higher in Baltimore-Washington that month, compared with November 2007, than in the nation as a whole.
Clothing, in particular, showed few signs of markdowns. National apparel prices were flat compared with the previous November, suggesting that retailers were eager to move the merchandise with low prices. But in the Baltimore-Washington region apparel prices soared 6.3 percent over the same period.
Possible credit goes to this region’s relatively healthy economy. It may not feel like a boomtown, but according to the latest figures neither Maryland nor the District of Columbia nor Virginia is losing jobs the way the nation as a whole is.
With higher demand, stores theoretically wouldn’t need to offer as many bargains to clear the market.
Overall, consumer prices for Baltimore-Washington were up 2.5 percent from November to November, more than twice as much as for the country. Fuel and utilities helped regional inflation outpace that of the nation.
So did prices for health care, one of Baltimore’s specialties. Consumer medical costs rose by 4.2 percent from November to November for Baltimore-Washington but only 2.7 percent for the country.
Scott Shane & William Glaberson of the NYT:
WASHINGTON — Saying that “our ideals give us the strength and moral high ground” to combat terrorism, President Obama signed executive orders Thursday effectively ending the Central Intelligence Agency’s secret interrogation program, directing the closing of the Guantánamo Bay detention camp within a year and setting up a sweeping, high-level review of the best way to hold and question terrorist suspects in the future.
Every two years the Government Accountabiliy Office publishes a list of what are politely called "high risk" federal programs -- ie., ones that don't work. (As in, the Detroit Lions are at high risk of not making it into this year's Super Bowl.) This year, in a bold stroke of analysis, GAO has decided that U.S. financial regulations leave something to be desired.
THE OUTDATED U.S. FINANCIAL REGULATORY SYSTEM. The worst financial crisis since the Great Depression has revealed major weaknesses in the U.S. financial regulatory system, which failed to keep pace with recent market trends, such as the emergence of large, interconnected financial conglomerates, and the development of new, often complex, investment products. In the near term, strong oversight is needed to ensure that the huge sums being deployed by the Treasury Department and other government entities are achieving their goals and are being used efficiently. Long term, GAO believes that modernizing the U.S. financial regulatory system and aligning it to current conditions is an essential step to reducing the likelihood that our nation will experience another financial crisis similar to the current one.
Other problem areas include the Food and Drug Administration's oversight of medical products and the Environmental Protection Agency's monitoring of poisonous chemicals.
This idea, from the indefatigable Peter Morici at the University of Maryland, is promising. Of course, it's largely what the TARP was supposed to do in the first place:
Banks continue to suffer losses on bonds backed by failing mortgages, credit cards and auto loans, and questionable corporate debt. To assist, the Treasury has used TARP funds to purchase capital in healthy and deeply troubled banks alike; however, no one can calibrate how high bank losses will go, because no one knows how far housing prices will drop and how many loans will ultimately fail.The Obama Treasury could put a floor under bank losses, through government guarantees on their bonds, or by creating an aggregator bank that purchases those securities from banks altogether.
Guarantees would give the banks profits on bonds whose underlying loans are mostly repaid, and shift to taxpayers losses from those bonds whose loans are mostly not repaid. That would require additional large subsidies from taxpayer to the banks.
An aggregator bank, however, could turn a profit. It could purchase all the commercial banks’ potentially questionable securities, at their current mark to market values, with its own common stock and funds provided by the TARP. Then the aggregator bank could balance profits on those securities whose loans pan out against losses on securities whose loans fail.
An aggregator bank could perform triage on mortgages. It could work out those whose homeowners can be saved with some adjustments in their loan balances, interest rates and repayment periods; foreclose on mortgages whose homeowners could not meet payments with reasonably concessions; and leave other loans alone.
Commercial banks acting alone cannot accomplish triage as effectively, because individually they can have little effect on how much housing values will fall. In contrast an aggregator bank, holding so many mortgages and working in cooperation with Fannie Mae and Freddie Mac, could have a salutary impact on housing values. It could put some breaks on falling home prices.
I have heard as much from those concerned about the environment and overpopulation as from those who oppose immigration because of increased crime, increased social-services costs or cultural dilution. Here are some responses to this column on immigration. It is stunning to me how many people want to turn off the mechanism that created this country. People obsess over the costs of immigration without seeing the benefits. The column isn't about illegal immigration. It's about a long-term plan for intelligent, legal immigration. I agree the environmental pressures produced by millions of new American lifestyles are a concern. The answer: Carbon caps, emissions standards and other measures to reduce the damage.
I suggest that you go to negativepopulationgrowth.org and start reading. One of this country's biggest problems is overpopulation. Your "solution" to current economic woes--use the immigrants--is short-cited.George Bush would be proud of you if he read that article.
And:
Immigration will never work because we as humans are animals, according to science, and we will continue to act as such. Hell, we can't even get along with our own kind much less people who can't even speak our language. By the way, the failure of the Neanderthall species was they failed to adopt a universal language which led to their extinction. I live in a racially diverse neighborhood and I can tell you that racism is alive and well. The Indians stay with Indians, the blacks with the blacks, the Mexicans with the Mexicans. No one talks to anyone and there is always tension. That, my friend is the way of the world. It is reality that has been around since the beginning of humane kind.
I guess that explains what a failure this country has been since it began to admit immigrants in volume in the 19th century. This kind of argument has been made since immigration began.
Do you have any idea how many of our welfare dollars already go to immigrants and their families? You state that "We need new taxpayers to help pay it [national debt] off." No doubt that is true, but how many wealthy new immigrants are going to come forward to help pay it off? Additionally, you state that "one way to improve the economy is productivity." Yes, we know about that. Productivity is going overseas to cheaper labor, and our own citizens are being laid off or fired. How many plants have "outsized" and thus caused layoffs of thousands of U.S. workers? We've seen it happen here in MD and WV. Jobless Americans make poor consumers, poor homebuyers, and poor taxpayers. And lowest blow of all, you assert that "the senior lobby is too entrenched" and that reducing Social Security benefits will help to "fix" the economy. Someday you, too, may be a senior citizen existing on Social Security. In the meantime, you're speaking from the viewpoint of the comfortably employed. Not fair!
And:
I really wish some immigrant could take your job at half the pay--at the rate the Sun is going that might happen. The quality of the articles would probably improve. Why not just outsource the Sun to China to write and prepare, as their people will work for a dollar or two a day. If that happened, the paper would probably be of better quality..Our unemployment rate is going up and up. Obviously we need more immigrants to put more American citizens out of work. Of course we could cut the prices of houses to immigrants by 50% and give them 2% mortgages, so they could afford to live here and send our citizens to poor houses. The idea that increased immigration will save us is demeaning to American workers.
And:
I feel your article supporting increased immigration as a solution to our economy's fiscal problems ignored the exploding population problem in the U.S., which was eloquently outlined in a brief letter to the editor in The Sun just two days ago (Jan. 19). We are at 300 million plus now and headed for 400 million by mid-century if current rates of immigration hold. The increases you advocate would worsen those figures. Immigration now accounts for two-thirds of U.S. population increase. Such increases would put tremendous pressure on existing national resources. And while additional immigrant workers might help to shore up the financial stability of major entitlement programs in the short run, they will also put pressure on those very same programs down the road because of the added beneficiaries they will produce. I'm not saying that immigration doesn't have a place in the larger scheme of things, but for the sake of balance I feel your article should have acknowledged the population downside of what you're advocating.
From the WSJ on what Geithner & the IRS knew and when they knew it:
After the Internal Revenue Service audited him in 2006 and discovered the payroll-tax errors, Mr. Geithner corrected them for 2003 and 2004. Only after Mr. Obama picked him last fall to be Treasury secretary did Mr. Geithner pay the Social Security and Medicare tax he owed for 2001 and 2002. In private conversations last week, Mr. Geithner told members of Congress that he should have paid his 2001 and 2002 payroll taxes sooner, according to lawmakers and their aides. He also said accountants failed to catch the error.
Why did Geithner pay back the 2001 and 2002 FICA taxes only after he knew he would have Senate confirmation hearings? And why didn't the IRS immediately audit his returns from 2001 through 2005 and bill him for the deficiency? A clerk with hardly any training could figure out that the error uncovered by the 2006 audit was also present in previous years. In any even, the presence of domestic income and a complete absence of FICA contributions ought to trigger an audit almost automatically in any year.
My former Sun colleague Tom Horton, who has thought about population growth and the environment much more than I, has some objections to today's pro-immigration column. Essentially his argument seems to be that 300 million American lifestyles, with their huge, disproportionate consumption of resources, is already putting enough burden on the planet. The more Americans we add, the greater the resource drainage. Read Horton's report for the Abell Foundation on population and the Chesapeake Bay here.
My column begins:
So President Barack Obama, presiding over what will surely be the biggest budget deficits in history, doesn't want the country to go bankrupt."If we do nothing, then we will continue to see red ink as far as the eye can see," he said at a news conference two weeks ago. He'll summon a "fiscal responsibility summit," he told The Washington Post last week. America, he said, must make "hard decisions" about Medicare, Social Security and other expensive programs.
Hard decisions, of course, will include cutting costs and benefits, which will anger Democrats. We'll also need to raise taxes, which will anger Republicans.
But the hardest decision of all may be about increasing immigration, which even Obama doesn't seem to want to talk about. The retreat from trillion-dollar deficits must include recruiting millions of new Americans to share in this country's bounty as well as the cost of running it.
Read the whole immigration column here.
Horton emails:
I think there are a couple big flaws in your argument for more immigrants to bail us out. we can and should accept immigrants here, but more in keeping with historic numbers, averaging a few hundred thousand a year, which is close to replacement level (about that many people leave here each year).I think what you propose is just another form of unsustainable borrowing against our future, environmental and economic. immigrants do a funny thing a few years or a generation after they get here--they become full fledged americans, just as they should, with full fledged demands on social security, medicare, clean water, land for suburban homes, condos at the beach, etc. etc. etc.
so the problems we have now, tough and real ones indeed, are just compounded. of course we could then quadruple, quintuple the number of immigrants to pay for all this...but come on...so I think you are looking at this in a shortsighted way...eventually we've got to understand the only long term prosperity, economically and environmentally, is a stable population and a steady state economy (and no, there's no way to just flip a switch and go to that...but we need to start talking about it).
the other big flaw is you don't talk about the savings we'd have in a lower growth scenario--all the roads, sewers, power plants, expanded social programs we wouldn't need to build and subsidize if we weren't always running hard to accommodate constant growth.
Leave it to Sen. Chuck Grassley to get into the details of tax lapses. He asked Geithner which tax software he used to prepare the returns that left off FICA taxes amounting to $34,000 over several years. Geithner worked for the International Monetary Fund, which didn't withhold taxes for Social Security or Medicare. Hard to believe a trained economist and financial expert could make such a big mistake, but people are spacey.
Geithner's answer to Grassley's question: Turbotax. But, he said, the mistakes were his, not Turbotax's.
Everybody wants to own Treasury securities. Thanks to guaranteed repayment by Washington,
they’re almost the only assets that haven’t fallen into the toilet. The Wasatch-Hoisington U.S. Treasury Fund owned Treasuries when they weren’t cool. The fund, advised by Hoisington Investment Management of Austin, Texas, has been unflinching in its devotion to long-term Treasuries.
The bonds it owns are risky when interest rates rise but do very well when the economy falters, rates fall and government guarantees are the only things investors trust. Hoisington economist Lacy Hunt has been warning for years about deflation – the threat of falling consumer prices and evaporating demand that faces the economy now.
Deflation is great for long-term Treasuries. Last year the Wasatch-Hoisington fund gained 38 percent. That’s the reverse of the Standard & Poor’s 500 stock index, which lost 37 percent. The fund, which would have seemed hopelessly boring during the 1990s stock bull market, has also creamed stocks over the long term. Since 1995 it has delivered an astonishing 9 percent per year, vs. 7 per cent a year for the S&P 500.
Some analysts say Treasuries are the latest investment bubble, doomed to pop when inflation and the economy pick up. Hunt and colleague Van Hoisington believe that the economy will continue to struggle and that long-dated Treasuries will do well over the long term.
Calculated Risk has identified a howler in Intrade's futures contract on whether or not we'll have a depression. Intrade, of course, is the site where you can bet on all kinds of events, from sports to politics to economics. The informal definition of a depression seems to be a decline in GDP of 10 percent or more. Intrade's site indicates that traders believe there is a 56 percent chance of depression this year.
How will the Intrade rulemakers decide if there is a depression?
This contract will settle (expire) at 100 ($10.00) if quarterly GDP figures show the US economy has gone into a depression in 2009.The contract will settle (expire) at 0 ($0.00) if quarterly GDP figures DO NOT show the US economy has gone into a depression in 2009.
For expiry purposes a depression is defined as a cumulative decline in GDP of more than 10.0% over four consecutive quarters. This is calculated by adding together the published (annualized) Real GDP figures (as detailed below). If these annualised figures add up to more than -10.0% over four consecutive quarters then the contract will expire at 100.
Example 1:
In Q1 the Final Real GDP figure is -3.5%
In Q2 the Final Real GDP figure is -2.5%
In Q3 the Final Real GDP figure is -2.0%
In Q4 the Final Real GDP figure is -2.3%The sum of these figures is -10.3% so the contract will be expired at 100.
...
Negative quarters in the preceding year will count towards the total GDP decline for expiration purposes. For example, if the total decline in GDP from Q3 2008 to Q2 2009 exceeds 10.0% then the contract will expire at 100.
Yikes! As CR points out, the quarterly GDP figures are annualized. That is to say, they express a quarter's change in GDP as if the trend continued for a whole year. The actual GDP shrinkage in the first quarter in Example 1 isn't 3.5 percent. It's really less than 1 percent. The actual annual GDP shrinkage in Example 1 would be something around 2.6 percent, not 10.3 percent. No wonder betters are placing 56 percent odds on a winning contract. According to the above example, the Intrade "depression" contract will pay off even if there is only a moderately severe recession.
This language, also in Intrade's description -- "For expiry purposes a depression is defined as a cumulative decline in GDP of more than 10.0% over four consecutive quarters" -- is the proper way to phrase it and conflicts with the examples. Lawsuits?
UPDATE: Others noted the problem in the Intrade contract before Calculated Risk, among them James Kwak of RGE Monitor and Baseline Scenario.
It's nice to see history from the crowd sometimes instead of on TV or from the press box. Obama's speech was a bit of an anticlimax. Not having timed it I would say it was 10 or 15 minutes. But it was in the low 20s, so people didn't exactly want him to launch a stemwinder, either. Plus he's saving stuff for Tuesday. The best thing about the day was the camaraderie on the streets, the good humor waiting hours in line, the hawkers hawking all kinds of Barack stuff, people trading Obama stories.
We got in line around 12:30 and were in War Memorial Plaza by 2. The police and volunteers did a great job with crowd control, and the crowd did a great job of behaving. The line headed west on Baltimore Street, with a huge loop up Calvert and back, then heading south on St. Paul, where we joined it, to points unknown. Saw a few people try to cut in line; they were politely told what the story was, and they went to the back. The family in front of us -- five or six folks, including a little girl of 9 or so and an older aunt from New Jersey -- were doing the full Obama. They waited four hours to see him today in Baltimore. Then on Tuesday they're getting up early to take a 7 a.m. MARC train to the National Mall, where they have standing-room tickets to see the inaugural oath. They have MARC reservations to come back to Baltimore, where they'll change into evening wear and catch a limo back to the district for a round of balls.
The crowd seemed evenly split between blacks and whites, with a decent amount of Asians. We kept seeing people we knew from Howard County. The Morgan State University choir, which sang about a half hour before Obama appeared, was gorgeous. Some workout guru came out a couple times to get the crowd moving and warmed up. Obama was on time, which never would have happened if Bill Clinton had been the headliner. The guy was always two hours late. A recording of Ray Charles singing 'God Bless America' was the perfect exit music after the Obamas and the Bidens left the dais. The people selling hand-warmers did a land office business.
Midtown Baltimore is almost empty. A few bundled up people walking down Calvert, St. Paul & Guildford toward City Hall. The Sun's garage at Centre & Calvert is starting to fill up with Obama sightseers on the first level, but there are hundreds of spaces left. Many out-of-town license plates. Arkansas. Florida etc. All in all there is less activity down here than I would have expected. Now we're about to go stand in line at Guildford & Baltimore sts. to get in. No Blackberry, so no liveblogging.
Mrs. H., son No. 2 and I are heading downtown. It's a low-odds operation, given that 150,000 people are expected to compete for a space adequate for 30,000, that City Hall is telling people to line up before the 1 pm admittance time and that it's after 11. But we're going to drive down to the Sun, a few blocks away from War Memorial Plaza, check out the scene and try our luck at getting in.
Long undies. Check. Regular pants. Check. Warmups, check. Undershirt, regular shirt, iceland sweater, down parka and anorak shell... Will report back on conditions downtown when I get to the Sun.
But the economy needs more bailouts. In my inbox, from the Economic Advisory Committee of the American Bankers Association. Doesn't seem to be up on ABA's site yet.
“Conditions have deteriorated considerably since the committee met in June,” said Bruce Kasman, committee chair and chief economist for JP Morgan Chase, New York. “With consumption contracting and job losses intensifying, it is unlikely that the picture will brighten soon,” he said.However, according to Kasman, “Implementation of a substantial stimulus package combined with continued monetary ease by the Federal Reserve should bring the economy out of recession before the end of the year.”
“Banks are paying close attention to credit quality, but continue to provide funding for credit-worthy households and firms,” said Kasman. “Treasury’s capital injections have helped.”
UPDATE: Here is the link to the whole ABA economic forecast.
He's saying the right things. This looks like more than lip service to try to placate Republicans. In an interview with the Washington Post,
President-elect Barack Obama pledged yesterday to shape a new Social Security and Medicare "bargain" with the American people, saying that the nation's long-term economic recovery cannot be attained unless the government finally gets control over its most costly entitlement programs.That discussion will begin next month, Obama said, when he convenes a "fiscal responsibility summit" before delivering his first budget to Congress. He said his administration will begin confronting the issues of entitlement reform and long-term budget deficits soon after it jump-starts job growth and the stock market.
"What we have done is kicked this can down the road. We are now at the end of the road and are not in a position to kick it any further," he said. "We have to signal seriousness in this by making sure some of the hard decisions are made under my watch, not someone else's."
Hallelujah. Hard decisions, of course, will require tax increases, which Republicans don't want to admit, and benefit cuts, which Democrats don't want to admit. That's what leadership is for. Obama's watering down the declaration by saying "some of the hard decisions," however, sounds less determined than it could have.
I think we're going to see it several more times before the end.
From the Associated Press:
STOCKS REGAIN GROUND AS HOPES GROW FOR BAILOUT
Yay. Against odds and expectations, JP Morgan earned money last quarter. Sure, only 7 cents a share, or $702 million. But that was more than expected by analysts, who had forecast the big banking company to break even.
The bad news is that Merrill Lynch's losses for the quarter are so big that Bank of America needs more bailout money to complete the deal. So the financial bloodbath isn't over. Before the real economy can recover, the financial economy needs to stop cratering. The Merrill Lynch damage shows that hasn't happened. And it probably won't happen until home prices stop falling. Predictions of the restarting of economic growth in the second half of 2009 are looking very optimistic -- and unrealistic.
Yes, Lacy Hunt and Van Hoisington are talking their book. They have had clients in long-term Treasuries for years. But their strategy has produced rich rewards. They're out with their 4th-quarter commentary, which as usual is excellent. The whole thing is worth reading, but here are the money quotes:
In the world’s three most recent debt deflations – the U.S. from the 1870s to the 1890s, the U.S. from the 1920s to 1940s, and Japan from the 1980s to the very present – the low in long term interest rates occurred about 15 years after the end of the debt mania (Chart 5). Even 20 years after the end of the debt boom, interest rates were not much above their yearly average lows. Using this history as a guide, it would not be surprising to experience a decade of low and declining interest rates.During 2008, long term Treasury bond yields fell from 4.5% to 2.7%, producing an extremely strong total return for such investments, as typified by the Wasatch-Hoisington Treasury Bond Fund (WHOSX), which returned 37.7%. Credit problems affected returns elsewhere in debt markets, limiting returns on the Barclays Capital U.S. Aggregate Bond Index (formerly the Lehman Index) to 5.2%. The decline in long Treasury yields reflected the intensification of recessionary forces as well as a collapse in inflationary expectations.
While the historical record indicates that the ultimate low in Treasury yields lies years away, the path to the ultimate low will be anything but smooth or linear as significant volatility continues. As the experience from U.S. and Japanese history indicates, many “false dawns” will occur, with investors assuming that the long-delayed cyclical recovery in economic activity is at hand. During these pleasant but relatively short interludes, stock prices will probably rise dramatically and bond yields will increase. If history is a guide, however, these episodes will further drain wealth and will be thwarted by the persistent forces of the debt deflation. With yields in the long Treasury market very low in nominal terms, the real return will be greater if deflation sets in. Moreover, in Japan from 1988 to the present, as well as in the U.S. from 1872 to 1892 and 1928 to 1948, the total return on Treasury bonds exceeded the total return on stocks. Such a condition cannot happen for the long run, but it did happen in these three instances spanning two decades. As a hedge against a recurrence of a prolonged debt deflation, some investors may want to consider even larger positions in high quality, long term Treasury securities.
Two very smart sentences by Megan McArdle. She's talking about Walt & Mearsheimer's controversial book on the U.S. Israel lobby, but her point about affinity, not conspiricy, as the best, Ockhamesque explantion for most political behavior, is universal:
In some ways, the Israel lobby is more powerful than Walt and Mearsheimer posit, because like most muckrackers trying to expose the influence of powerful groups, they tend to assume conspiracy where affinity is a better explanation. Environmentalists excoriating the environmental lobby, for example, gloss over the fact that it is Detroit's union jobs, not its CEOs, that Michigan representatives labor so mightily to protect--that votes are usually a better explanation for politician behavior than campaign contributions.
The December retail sales results were terrible, no doubt. You know it's bad when removing the miserable auto-sales business from the total IMPROVES the result. Not counting autos, retail sales declined 3.1 percent in December from November. Counting autos, total retail sales declined 2.7 percent. That was still more than twice what economists predicted. (Story here.)
There aren't many ways to sugar coat the numbers, but I'll try. First of all, these are seasonally adjusted, which is problematic. December retail sales are the seasonal variant to end all seasonal variants. December sales weren't really 2.7 percent less than November's. Are you kidding? The holiday shopping season always makes December huge. But Census Bureau statisticians adjusted the December results so they could try to make a month-to-month comparison with November. This is fraught with difficulty and prone to error. Still, there is one way to get around seasonal-adjustment potholes: compare the numbers from December 2008 with those of December 2007. Result: Major ugliness. Year-over-year sales for December, the most important shopping month of the year, were down 9.8 percent. No way to pretty up that warthog.
The other thing making the numbers look bad is something that wasn't adjusted for -- changes in the consumer price index. Just as inflation makes unadjusted sales increases look better than they really are, deflation makes unadjusted sales decreases look worse than they really are. Stores probably didn't sell 9.8 percent fewer units this December compared with last December; but thanks to deflation and door-buster sales what they did sell fetched 9.8 percent less at the cash register.
The most striking example is gas stations, whose sales plunged 36 percent from December 2007 to December 2008. But most of that, of course, is the plunge in the per-gallon price, not a decline in the number of gallons sold.
UPDATE: Calculated Risk notes that Census calculates that REAL, price-indexed, deflation/inflation-adjusted retail sales fell year-over-year by even more than the nominal number. But the Census people used November price-change history to adjust the number, and deflation probably accelerated in December. Look, I'm not saying the numbers aren't ugly. I'm saying don't take them totally at face value.
You know it’s a bad recession when even investments in sin, war and debauchery aren’t holding up.
The Vice Fund, which trucks in alcohol, tobacco, gambling and defense stocks, advertises that such businesses benefit from “steady demand regardless of economic condition.”
Not this economic condition. The fund is down 40 percent from a year ago – more than the S&P 500.
While cigarette maker Philip Morris has held up pretty well, rival Reynolds American has plunged, and so have other tobacco death merchants. Very high tobacco taxes – Maryland recently increased its cigarette tax by $1 a pack – have made nicotine less attractive even for the addicted.
Nor does an economically challenged world seem to be resorting to the bottle in a big way. Anheuser-Busch InBev stock is down by half. Constellation Brands (Robert Mondavi wine, Fleischmann’s gin) has also plunged.
Defense stocks have done OK. But casinos are awful. Wynn Resorts, based in Las Vegas, ground zero of the housing meltdown, has fallen from $114 last year to below $50.
Reliance on sin spending hasn’t worked very well for Maryland government, either. Legal cigarette sales have plunged, although smuggling has probably boomed. Growth in alcohol tax collections is slowing. State bean counters project lottery sales to decline this fiscal year. It’s enough to drive you to drink.
This would be a very very interesting seminar to attend today. Too bad it's 2,800 miles away, at Stanford.
Liberals and Libertarians: Kissing Cousins or Distant Relatives?: When Jan 13, 2009 3:00 pm (Tuesday). Where: Encina Hall, Philippines Conference Room (C330).LIBERALS: Joshua Cohen / Political Science, Stanford University. Pamela Karlan / Law, Stanford University. Bradley DeLong / Economics, UC Berkeley
LIBERTARIANS: Brink Lindsay / Cato Institute. Will Wilkinson / Cato Institute, Blogger at FlyBottle. Virginia Postrel / Dynamist
That liberals and libertarians share philosophical origins is clearly implied by the common Latin root for both words, liberalis, meaning open or generous. Both philosophies advocate civil liberties, individual autonomy, limited state interference in private affairs, and a non-bellicose foreign policy. Where the two stances have diverged is with respect to fiscal and regulatory issues. Although liberals generally view markets as the best way of organizing production and distribution, they have been more sympathetic than libertarians to governmental involvement in the management of markets for the public good. Moreover, whereas both liberals and libertarians generally concur that the public sector should avoid excessive spending, the former have been more supportive of government programs to expand opportunity and provide social insurance.
During the 1960s and 1970s, when the public sector was expanding and government spending was rising sharply, libertarians leaned strongly toward a “fusionist” coalition with traditional social conservatives and generally supported the Republican realignment of the 1980s and 1990s. Since 2000, however, the Republican party has succumbed to ideologies that have shifted it steadily away from core libertarian principles by curtailing civil liberties, expanding government intrusions into private affairs, running up huge fiscal deficits, expanding federal control over local institutions such as schools, and launching costly military invasions in the absence of direct threats.
In the wake of these developments, the “fusionist” coalition between libertarians and conservative republicans has substantially frayed and perhaps the time has come to reconsider the historical estrangement between liberals and libertarians. Given shared positions with respect to civil liberties, state involvement in private affairs, fiscal responsibility, and the War in Iraq, it may be fruitful to search for common ground in other areas. Is there room for compromise on contested regulatory and fiscal issues, or are liberals and libertarians destined to be occasional tactical allies with fundamentally conflicting strategic visions? And regardless of possibilities for closer political cooperation, what libertarian insights do liberals need to do a better job of appreciating, and vice versa?
My friend and former Sun London bureau chief Bill Glauber is touching base with America as the country prepares to inaugurate Obama. He's road tripping from Chicago to the National Mall, filing stories for the Milwaukee Journal Sentinel on the way. You want the REAL "Real America"? Glauber will find it, in small towns & large, among whites, browns and blacks. Here's the first installment. Read the whole thing here.
Chicago - The road to Barack Obama's inauguration begins here, in the big city on the prairie.You swing by Grant Park, now snow-covered, where Obama claimed the presidency on a warm autumn night, electrifying hundreds of thousands of people who thronged the great lawns and softball fields.
You pass Federal Plaza, a sturdy, muscular space, where he gave a speech in 2002 at a small rally in opposition to war in Iraq, a speech that put him on the political map.
You glimpse Hyde Park, where Obama taught law amid the Gothic splendor of the University of Chicago and where he moved his family nearby into an elegant home opposite a Byzantine-style synagogue.
And then you head into Chicago's far south side, where it all began, in a neighborhood called Roseland.
This is where Obama landed in early 1985, a young community organizer fired by progressive dreams.
One week from today, Obama is to be sworn in as the 44th president of the United States.
So far away
There is an immense gulf between Roseland, where a predominantly African-American community struggles with an economy battered by the long-ago loss of manufacturing jobs, and the White House, the glittering center of international power.Walk along the neighborhood's main shopping thoroughfare on S. Michigan Ave., a world away from Chicago's glorious "Magnificent Mile," and here is what you see: security guards outside clothing stores, a few restaurants, pharmacies, a bank, a barber shop, a wig shop, a photo studio, storefront churches and a furniture store with large mattresses standing near the entry.
In my inbox yesterday, a pitch for covering an American Enterprise Institute gig today in which Thomas Donnelly will make the case for directing part of the bailout to the defense industry.
I thought you might be interested in tomorrow’s State of the Union preview at AEI, which will include a briefing by resident fellow Thomas Donnelly on the need to set aside a portion of the stimulus package for defense. Mr. Donnelly will outline his plan for a defense stimulus tomorrow Tuesday, January 13, 2009. The foreign and defense policy panel discussion will be from 1:00 to 2:15 p.m.http://www.aei.org/event1864
Among Donnelly’s key points:
Defense investments will create thousands of American jobs across the 50 states, preserve jobs at risk from premature program terminations, promote American exports and create a secure environment for global economic recovery.
Defense will be key to any stimulus package: The security of worldwide commerce depends upon safe, cheap and uninterrupted flows of goods and service through a variety of “commons” – the seas, air, space and cyberspace – that are protected every day by U.S. military forces.
The gap in military spending of the past 15 years – more than $150 billion in deferred projects in the 1990s alone – has created a “defense deficit” that has resulted in a wholesale obsolescence in front-line systems: U.S. troops are still fighting with planes, ships and land combat vehicles designed in the late 1970s and purchased during the Reagan buildup.
There is a strong correlation between defense spending and past recoveries.
Defense manufacturing is among the most competitive elements in the U.S. manufacturing sector.
Defense programs more than meet the “shovel ready” threshold set for infrastructure projects in the stimulus package.
Robert McCullough, the energy finance expert who was key in exposing so much of the shenanigans at Enron after that company collapsed, responds to my post (and Barry Ritholtz's comments incorporated in my post) pooh-poohing the 60 Minutes piece on oil speculation.
McCullough: The basic problem with a snarled ball of twine is that straightening it out takes more time than most people are willing to give -- including 60 Minutes. I made that mistake when they called me in September. Remember, most of the "facts" you have heard are surmises -- often run backwards from results -- since the CFTC has far less command of the forward markets than they had in the past and no one follows spot markets at all.
Hancock said: I was looking forward to the 60 Minutes piece last night on oil speculation. Unfortunately, the piece was thin and extremely unenlightening. Morgan Stanley took huge positions in crude! Who knew! Barry Ritholtz has a good summary of things that were unmentioned or glossed over, below. I'll add one more. The piece threw around huge volume numbers on oil contracts traded vs. oil delivered, correctly showing there was lots of speculation. But it never explained how the spot price got to be be $145.
McCullough replied: Spot and forward markets have become almost perfectly correlated. This happens when market participants have no independent opinions on the future prices -- often when the market is characterized by high concentration and the trading strategies of the majors are more important than the fundamentals.
Hancock said: Forward markets are where the speculation takes place.
McCullough replied: Actually wrong. The basic spot forward gambit employed so effectively by Enron and others involves running up spot in order to liquidate a forward position at a profit. The CFTC actually fined Enron for this in 2003 (courtesy of our investigative efforts.)
Hancock said: Morgan Stanley and everybody else can trade futures all day because if you sell a contract before maturity you don't have to take delivery. But if speculation was the main driver, how did the spot price get so high also? The spot price reflects deliveries that have to be stored or sold and consumed, and speculation is much less of a factor.
McCullough replied: Since we have no data on spot markets for oil, this is simply a surmise. My testimony at the Senate in September recommended that we start getting some since we do follow such data for other energy types. I suspect that you are assuming that the spot market is a supermarket where you need to worry about buying more than you can place in the trunk of your car. This is not a very good model. You can run up prices on the NYMEX and then either buy storage or simply keep your supertanker in port for another day. Remember, oil moves very, very slowly around the U.S. and the world -- at approximately a walking page along the pipeline.
Hancock said: In fact NYT columnist Paul Krugman argued that speculation was a minimal factor because the huge, unsold inventories that would have indicated hoarding and speculators just didn't exist. The high spot price suggests that booming demand from China and the other factors Ritholtz mentions were also key factors.
McCullough replied: Ah, Krugman. Suffice it to say that his crystal ball has been a bit cloudy ever since he accepted consulting fees from Enron. Having no data, he is assuming the state of inventories. If kept within the U.S. we have some data from the EIA. If kept anywhere else, no such luck. Since tankers take 90 days to round the horn to get to Houston, the definition of inventory requires some careful thought.
Barry Ritholtz said: But merely claiming that the run up in Oil prices was due to unprecedented speculation misses the big picture of what actually occurred. And, it reflects a lack of understanding of how markets work, and the psychology of booms, bubbles and busts.
Here are a few factors that I believe the folks at 60 Minutes either misunderstood or overlooked completely during the run up from $20 to $100:
1. Oil is priced in US Dollars. Since 2001, the Dollar fell 40% (from 120 to 72); Oil rise nearly 5 fold over the same period. And Oil’s collapse occurred over a period when the dollar formed a short term bottom; it has certainly had its most significant rally in years (72 to 88).
McCullough replied: This is a particularly painful boil to lance. Exchange rates vary between the U.S. and every different trading partner. The U.S. dollar fell relative to the Euro, which is the one region where we do not buy oil. The exchange rate with our oil suppliers changed very little. Our major oil supplier exchange rates even improvedEven if you believe that wily Europeans bid up all the oil prices with their Euros (and where did they put all the oil?), the scale of the oil price run up dwarfs the exchange rate changes.
Ritholtz said: 2. Over the same period that Oil prices were rising, the US was fighting two major wars in the Middle East, Iraq and Afghanistan. These impact prices via psychology and risk of supply disruption — especially at a time when producers were running flat out.
McCullough replied: True, to a degree, but the wars were in place before the spring run up. I actually ran the news against the run up and there is virtually no correlations to be found.
Ritholtz said: 3. Energy prices rose during a global economic expansion (fueled by low rates and cheap money); Oil fell during a period that marked the beginning of the US recession and the start of a global slowdown.
McCullough replied: Another painful boil to lance. The EIA forecasts demand and supply very, very well. Their forecasts of both supply and demand were spot on in 2008. Their price forecasts were, well, hopelessly wrong. The famous Chinese and Indians automobiles are particularly humorous. We forecasted their demand very well, mainly since you have to make the car before you run it on the highway. Since we knew how many cars they make, we know exactly how much fuel they are likely to use.
Ritholtz said: 4. Since 2001, Commodities of all sorts rose significantly: Steel, aluminum, cement, cotton, soy, livestocks, foodstuffs, precious metals, etc. Were they all driven by speculation, or was something else going on?
McCullough replied: CFTC surveillance of these markets has also gradually been reduced to a fraction of previous efforts. To a degree, there is a chicken and the egg problem with commodity prices since, while oil in the U.S. is mainly used for plastics, home heating oil, and gasoline, the rest of the world uses it for electricity and transportation which does tend to increase other prices. Gold, of course, is always a special case. While I don't necessarily subscribe to the central bank gold lending price collapse hypothesis, it does tell an interesting story
Ritholtz said: 5. Since the 1% Fed funds rate of 2002-03, inflation has had a dramatic impact on ALL prices — from medical costs to insurance to education to health care to transportation to housing to food and energy. That 60 Minutes failed to even mention inflation in a piece on Oil prices is a terrible oversight on their part.
McCullough replied: Again, inflation just doesn't do much to explain the price of oil doubling until July 3, 2008 and then falling by 75% to December 31st.
Ritholtz said: 6. Throughout the 1990s and 2000s, cars were increasingly replaced with SUVs and trucks in the United States. Not only did these get appreciably worse gas mileage, that fleet transition took place as the total US miles driven rose. Over the past 20 years, people have lived increasingly further away from their jobs. Hence, increased US demand for energy accompanied (and increased prices).
McCullough replied: Again, this assumes our supply and demand forecasts were off. They just weren't. I can walk you through the forecasts if you would like.
Ritholtz said: 8. 60 Minutes interviewed Mike Masters, a hedge fund manager who had testified before Congress that speculation was driving prices. They omitted to mention he was talking his book. His holdings in energy sensitive stocks — with large positions, the vast majority in call options, in AMR Corp (AMR), the parent of American Airlines, Delta Air Lines (DAL), General Motors (GM), UAL Corp (UAUA) and US Airways (LCC) — were responsible for his fund losing 35% of its value before the Fall 2008 market collapse..
McCullough replied: I also testified at that hearing with a somewhat more sophisticated analysis. The CFTC did a pretty good job of trashing his numbers. They did not criticize mine, by the way.
Ritholtz said: 9. China boomed~! More and more global manufacturing outsourcing saw factories being built throughout China. They also went through a wild process building out the nation in preparation for the 2008 Olympics held there. Oh, and China, like the US, also began filling its Strategic Petroleum Reserves. Another small country, India, was booming over this period also.
McCullough replied: Boy this boil takes a lot of lancing. Again, we called world demand and supply very well over 2008. You can check the EIA web site if you need corroboration. Chinese automobiles are not hard to forecast, but Oklahoma sweet crude prices totally escaped us.
Ritholtz said: 10. The rise of extremist terrorist groups like al-Quada, the hostility of Iran towards the West, supply and political disruptions in places like Nigeria, and overt hostility to the US by oil producers like Venezuela President Hugo Chavez also contributed to drive prices up. The political factors were also omitted.
McCullough replied: Curious story here. OPEC complained that they were not reveiving the high prices. Venezuela's own web site shows lower prices for crude exports to the U.S. than the U.S. EIA data shows that we paid to Venezuela. OPEC increased production in July to help lower prices.
I was looking forward to the 60 Minutes piece last night on oil speculation. Unfortunately, the piece was thin and extremely unenlightening. Morgan Stanley took huge positions in crude! Who knew! Barry Ritholtz has a good summary of things that were unmentioned or glossed over, below. I'll add one more. The piece threw around huge volume numbers on oil contracts traded vs. oil delivered, correctly showing there was lots of speculation. But it never explained how the spot price got to be be $145.
Forward markets are where the speculation takes place. Morgan Stanley and everybody else can trade futures all day because if you sell a contract before maturity you don't have to take delivery. But if speculation was the main driver, how did the spot price get so high also? The spot price reflects deliveries that have to be stored or sold and consumed, and speculation is much less of a factor. In fact NYT columnist Paul Krugman argued that speculation was a minimal factor because the huge, unsold inventories that would have indicated hoarding and speculators just didn't exist. The high spot price suggests that booming demand from China and the other factors Ritholtz mentions were also key factors. Ritholtz:
But merely claiming that the run up in Oil prices was due to unprecedented speculation misses the big picture of what actually occurred. And, it reflects a lack of understanding of how markets work, and the psychology of booms, bubbles and busts.Here are a few factors that I believe the folks at 60 Minutes either misunderstood or overlooked completely during the run up from $20 to $100:
1. Oil is priced in US Dollars. Since 2001, the Dollar fell 40% (from 120 to 72); Oil rise nearly 5 fold over the same period. And Oil’s collapse occurred over a period when the dollar formed a short term bottom; it has certainly had its most significant rally in years (72 to 88).
2. Over the same period that Oil prices were rising, the US was fighting two major wars in the Middle East, Iraq and Afghanistan. These impact prices via psychology and risk of supply disruption — especially at a time when producers were running flat out.
3. Energy prices rose during a global economic expansion (fueled by low rates and cheap money); Oil fell during a period that marked the beginning of the US recession and the start of a global slowdown.
4. Since 2001, Commodities of all sorts rose significantly: Steel, aluminum, cement, cotton, soy, livestocks, foodstuffs, precious metals, etc. Were they all driven by speculation, or was something else going on?
5. Since the 1% Fed funds rate of 2002-03, inflation has had a dramatic impact on ALL prices — from medical costs to insurance to education to health care to transportation to housing to food and energy. That 60 Minutes failed to even mention inflation in a piece on Oil prices is a terrible oversight on their part.
6. Throughout the 1990s and 2000s, cars were increasingly replaced with SUVs and trucks in the United States. Not only did these get appreciably worse gas mileage, that fleet transition took place as the total US miles driven rose. Over the past 20 years, people have lived increasingly further away from their jobs. Hence, increased US demand for energy accompanied (and increased prices).
7. Since gas prices hit $4 a gallon and the recession began, total US miles driven fell significantly, by several billion miles. As expected,t he drop in driving was followed by a fall in prices.
8. 60 Minutes interviewed Mike Masters, a hedge fund manager who had testified before Congress that speculation was driving prices. They omitted to mention he was talking his book. His holdings in energy sensitive stocks — with large positions, the vast majority in call options, in AMR Corp (AMR), the parent of American Airlines, Delta Air Lines (DAL), General Motors (GM), UAL Corp (UAUA) and US Airways (LCC) — were responsible for his fund losing 35% of its value before the Fall 2008 market collapse..
9. China boomed~! More and more global manufacturing outsourcing saw factories being built throughout China. They also went through a wild process building out the nation in preparation for the 2008 Olympics held there. Oh, and China, like the US, also began filling its Strategic Petroleum Reserves. Another small country, India, was booming over this period also.
10. The rise of extremist terrorist groups like al-Quada, the hostility of Iran towards the West, supply and political disruptions in places like Nigeria, and overt hostility to the US by oil producers like Venezuela President Hugo Chavez also contributed to drive prices up. The political factors were also omitted.
There’s a lot more, but the bottom line is this: Higher energy prices were caused many many factors over the past 8 years. Certainly, speculation played a part at the end of the run — but it always does. Oil fell more precipitously than it rose, but don’t all markets do that? Didn’t the S&P just plummet nearly 50% in a year, after a 5 year run?
Speculation is merely one aspect of what happened. 60 Minutes missed the other 59 elements . . .
The well-known Baltimore stock broker and financial adviser is a guest blogger on The Baltimore Sun's Read Street reading blog today.
His advice includes:
-- I'm giving you permission to NOT do a family budget. This runs counter to many financial planners, who will probably tell you that before you do anything, you need to get on a budget to monitor your expenses.-- Instead, I'm going to ask you to do something much simpler, requiring much less time on your part, that will allow you to reach your financial goals…are you ready? I want you to save 15 percent of your income, starting immediately.
-- You see, saving 15 percent, or surviving on 85 percent, are the same thing…it's just a question of perspective. And, unlike doing a budget, once you put your savings plan on autopilot, it's simple. I didn't say it'd be EASY, but it's simple…just have 15 percent of your pay automatically direct deposited into your Roth, your 401(k), your savings/investment account…whatever your goals are, apply those monies there.
The dreaded December labor report is out. It's bad. From AP:
The nation's unemployment rate bolted to 7.2 percent in December, the highest level in 16 years, as nervous employers slashed 524,000 jobs. The labor market is expected to remain weak as mass layoffs continue.The Labor Department's report, released today, underscored the terrible toll the deepening recession is having on workers and companies, and highlights the hard task President-elect Barack Obama faces in resuscitating the flat-lined economy.
For all of 2008, the economy lost a net total of 2.6 million jobs. That was the most since 1945, when nearly 2.8 million jobs were lost. Although the number of jobs in the U.S. has more than tripled since then, losses of this magnitude are still being painfully felt.
With employers throttling back hiring, the nation's jobless rate averaged 5.8 percent last year. That was up sharply from 4.6 percent in 2007 and was the highest since 2003.
Although economists were forecasting even more payroll reductions in December -- around 550,000 -- job losses in both October and November turned out to be deeper than previously estimated. Revised figures showed that the employers slashed 584,000 positions in November and another 423,000 in October.
The third paragraph is somewhat misleading. It's true that this is the biggest calendar-year job loss since 1945. But as a portion of the economy -- how you should really measure -- the 2008 job losses are small compared with what has happened in some previous recessions. And measuring by calendar year, while offering a convenient benchmark, is somewhat artificial. Recessions' severity is best measured by "peak to trough" percentage change -- the value at the top of the boom compared with the value at the bottom of the slump. By this measure the recession in the early 1980s was still worse than this one. But this one ain't over.
Often, when financial writers talk about "running the printing presses" to increase the money supply, it's a metaphor. Money stock and currency in circulation don't necessarily move in tandem. But in this economy metaphors have become real. As this graph from the St. Louis Fed shows, the greenback population started soaring last summer and hasn't stopped. It's the biggest jump in currency growth since the Y2K scare.
The weekly Freddie Mac mortgage figures are out. The average rate for a conforming 30-year mortgage is 5.01 percent, the lowest since they started keeping track in 1971. The rate for a 15-year mortgage is 4.62 percent.
All 19 Macy's stories in Maryland have survived a corporate downsizing that will shut down 11 stores and eliminate 960 jobs. This is a testimony to Maryland's relatively strong economy as other regions struggle.
"These closings are part of our normal-course process to prune underperforming locations each year in order to maintain a healthy portfolio of stores," said Terry J. Lundgren, chairman, president and chief executive officer of Macy's, Inc. "While new store growth has slowed in the current economy, our long-term strategy is to continue to selectively add new stores while closing those that are underperforming."Stores to be closed are located in:
-- Ernst & Young Plaza (Citicorp Plaza), Los Angeles, CA (135,000 square feet; 136 employees; opened in 1986)
-- The Citadel, Colorado Springs, CO (195,000 square feet; 105 employees; opened in 1984)
-- Westminster Mall, Westminster, CO (156,000 square feet; 110 employees; opened in 1986)
-- Palm Beach Mall, West Palm Beach, FL (190,000 square feet; 71 employees; opened in 1979)
-- Mauna Lani Bay Hotel, Island of Hawaii, HI (3,000 square feet; 3 employees; opened in 1983)
-- Lafayette Square, Indianapolis, IN (160,000 square feet; 84 employees; opened in 1974)
-- Brookdale Center, Brooklyn Center, MN (195,000 square feet; 72 employees; opened in 1966)
-- Crestwood Mall, St. Louis, MO (166,000 square feet; 176 employees; opened in 1969)
-- Natrona Heights Plaza, Natrona Heights, PA (73,000 square feet; 124 employees; opened in 1956)
-- Century III Furniture and Clearance, West Mifflin, PA (83,000 square feet; 3 employees; opened in 2000)
-- Bellevue Center, Nashville, TN (211,000 square feet; 76 employees; opened in 1990).
Baltimore Councilwoman Helen Holton and developer Ronald Lipscomb have only been indicted, not convicted. The allegation: Holten steered development tax breaks to Lipscomb in return for a $12,500 poll she commissioned and he paid for. As alleged corruption goes it's not exactly a paper bag full of hundred-dollar bills delivered through the back door. But when will public officials learn that they need to avoid even the appearance of receiving favors from business people?
Lipscomb is a beneficiary of two tax cuts for Inner Harbor East. The giveaways are known as "payment in lieu of tax," or PILOTs. They're always smaller than the official tax. Wouldn't you like to be able to scrap your city property tax and instead negotiate with City Council on what you'll pay?
What's unusual here is the allegation of corruption in allocating the tax breaks. Usually ribbon-cutting ceremonies, legal political contributions and the chance to portray themselves as "pro-business" are enough to get public officials to approve corporate welfare. I can't recall many cases where corrupt money was alleged to have changed hands. But surely there have been many instances where it was never found out.
If we cut down on government handouts to business, we would reduce the temptation on both sides. (Yes, I realize the futility of this argument, made as the federal government is implementing a $2 trillion-plus bailout program.)
This is a step toward replacing blind faith in badly flawed wholesale electricity "markets" with sanity and regulatory sense. Joseph Keilliher, head of the Federal Energy Regulatory Commission, is stepping down as chairman.. Now Obama can start putting people at the agency who will look more closely at market power, manipulation and other shenanigans.
UPDATE: Power Market Today reports Kelliher will stay on as commissioner.
Kelliher to Step Aside as FERC Chairman, Remain CommissionerFERC Chairman Joseph T. Kelliher, who was tapped by President Bush, announced Wednesday that he will step down as chairman effective Jan. 20, the day the government reverts to Democratic leadership, but he will continue to serve as a commissioner.
"Although my term as commissioner does not end until 2012, I will also immediately begin to recuse myself from FERC business as I explore other career opportunities," Kelliher said.
How can he recuse himself from his job and still draw a paycheck? I want that deal. In any event, it sounds like he's outta there.
Federal Energy Regulatory Commission Chairman Joseph T. Kelliher today issued the following statement:“Today I announce my intention to step down as chairman of the Federal Energy Regulatory Commission (FERC), effective January 20, 2009. Although my term as commissioner does not end until 2012, I will also immediately begin to recuse myself from FERC business, as I explore other career opportunities.
“It has been an honor to serve as chairman of FERC at this particular time, with the expanded power granted the agency in the Energy Policy Act of 2005. This law gave FERC better tools to discharge its historic missions of guarding the consumer from exploitation and promoting the development of a robust energy infrastructure, as well as giving the agency new missions on grid reliability and enforcement. It has been a privilege to exercise this new authority and define these new missions.
“I thank President Bush for giving me this opportunity to serve the public.”
UPDATE: Helpful background on Obama's energy team from Gerry Norlander of NY PULP. (From late November.)
President-elect Obama has named Dr. Susan Tierney and Rose McKinney-James to his transition team for the U.S. Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC), which is organizationally within DOE. Both appointees, former state utility commissioners of Massachusetts and Nevada, respectively, have a record of supporting electricity industry deregulation, or, as it is euphemistically named, "restructuring."
Beautiful. This fiscal year's deficit will equal nearly 9 percent of the value of all the goods and services produced by the country. Or, in dollars, $1.2 trillion, says the Congressional Budget Office. Blame the bailout, plunging tax revenues etc.
FEDERAL DEFICIT OR SURPLUS, PERCENTAGE OF U.S. ECONOMY
Nouriel Roubini:
We believe the U.S. economy is only half way through a recession that will be the longest and most severe in the post war period. U.S. GDP will continue to contract throughout 2009 for a cumulative output loss of 5% and a recession that will last close to two years.
Note the careful use of "believe" and the future tense. This recession has not been shown to be the worst since the Depression, yet many are already declaring it to be so. From today's column:
Trips off the tongue, doesn't it? "The worst recession since the Great Depression."Special interests seeking bailouts, politicians pushing legislation and even some news organizations assure us it's true.
Except it's not. Not yet. From what we know so far, this recession isn't even close to being as painful as the terrible slump of the early 1980s. Not the deepest. Not the longest. By some gauges, it's not even as bad as several less severe downturns.
The economy is on an alarming course, and it may well break post-Depression records before we're done. Many analysts are forecasting such an outcome. But let's not hasten the day by scaring people into thinking it's already here.
Read the whole thing here.
The "commodity" natural gas price for Baltimore Gas and Electric customers dipped to $1.037 per therm for January, not much of a change from the $1.046 level for December. Still below competing offers and well below some of them -- like the $1.599 fixed price BGE Home was offering last year.
Natural gas prices have plunged along with the cost of energy generally. Unless there is a miraculous economic recovery, they'll probably be even lower next winter.
Roland W. Burris, appointed by Illinois guv Blagojevich as Barack Obama's successor as Illinois senator, was turned away from the senate today as he tried to take the seat. His lawyers, reports the Washington Times, include Kurt Schmoke, the former mayor of Baltimore and now Howard University law professor.
[Burris] came within feet of the Senate chamber Monday as new members were preparing to be sworn in but was denied entry to the floor.He advanced to the Secretary of the Senate's office, just steps away from the gallery overlooking the chamber, before his paperwork was rejected because it was not signed by Illinois Secretary of State Jesse White, who refused to do so due to the scandal surrounding the governor. His signature is legally required but is almost always a pro forma move.
"I presented my credentials to the secretary of the Senate and advised that my credentials were not in order, and I would not be accepted, and I will not be seated, and I will not be permitted on the floor," Mr. Burris said.
Mr. Burris' three attorneys, who accompanied him to the Capitol, said they were considering legal action to force Senate leaders to accept the new junior senator from Illinois.
"Number one, our option is to file in a district court," said Timothy W. Wright III, a Chicago lawyer. "Our option is to seek to continue to deliberate with the Senate leadership and perhaps get them to reverse themselves. I think there are several options that we're accorded."
The other attorneys were former Baltimore mayor Kurt Schmoke, a law professor at Howard University, and William Jeffress.
David Lereah became known as the Baghdad Bob of the housing meltdown, after Saddam Hussein's spokesman who insisted Iraqi troops were achieving glorious victories even as they dropped their arms and ran. Lereah, author of Are You Missing the Real Estate Boom?: Why Home Values and Other Real Estate Investments Will Climb Through The End of The Decade—And How to Profit From Them was chief economist for the National Association of Realtors.
When he occupied that seat, he was consistently, extravagently and amazingly wrong in his public pronouncements about how healthy the housing market was. Now, in Money magazine, he admits he spun housing trends.
Q. Were you wrong to be so bullish?A. I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right in line with most forecasts. The difference was that I put a positive spin on it. It was easy to do during boom times, harder when times weren't good. I never thought the whole national real estate market would burst.
Q. The NAR's latest forecast calls for a slight increase in home prices next year. Thoughts?
A. My views are quite different now. I'm pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we'll see a very modest recovery in sales activity in 2009. But we've still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It'll take a long time to get back to the peak prices we saw in many markets.
Q. Any regrets?
A. I would not have done anything different. But I was a public spokesman writing about housing having a good future. I was wrong. I have to take responsibility for that.
Apple chief Steve Jobs says a hormone imbalance caused his weight loss. "I’ve decided to share something very personal with the Apple community so that we can all relax and enjoy the [Macworld] show tomorrow," he writes in a letter posted on Apple's Web site.
Fortunately, after further testing, my doctors think they have found the cause—a hormone imbalance that has been “robbing” me of the proteins my body needs to be healthy. Sophisticated blood tests have confirmed this diagnosis.The remedy for this nutritional problem is relatively simple and straightforward, and I’ve already begun treatment.
Details please. Owners of this $80 billion (market cap), publicly traded company deserve to know.
Funny Christmas card from Dunbar, the armored truck company that bills itself as "The Most Trusted Name in Security."
In a column about how much dough Warren Buffett is extracting from Constellation Energy, I had written, "The Brink's trucks are plotting the route from Pratt Street to Omaha even as you read this."
Sean Gibbons, vice president of corporate communications for Dunbar, sent a printout of the column with the card and suggested that Dunbar could have moved the Buffett loot, too. Dunbar is based in Hunt Valley, which I did not know.
My family's wireless plan rolls over this month, so I added a line for myself. I hate it already. Don't ask me for the number because I don't know what it is.
As a late adopter, I have helped retard technological progress for decades. While I bought my first computer in 1985, I didn't own a CD player until 1995. I don't have a digital camera. But I take comfort from this NYT story from this year on late adopters.
Experts say that late adopters, or technology laggards, are not necessarily Luddites and can play a pivotal role in keeping the beat of innovation.“Laggards have a bad rap, but they are crucial in pacing the nature of change,” said Paul Saffo, a technology forecaster in Silicon Valley. “Innovation requires the push of early adopters and the pull of laypeople asking whether something really works. If this was a world in which only early adopters got to choose, we’d all be using CB radios and quadraphonic stereo.”
Credit markets for housing are loosening up a bit. Will automobile lending be next?
Car dealers certainly hope so.
Thanks partly to the decline in consumer spending power and partly to the evaporation of credit, 2008 was the worst year for auto sales in a very long time. Maryland dealers sold 16,842 new cars in November, down 38 percent from November 2007 and the worst result for any month in more than a decade.
But dealers hope federal bailouts will do for car loans what they’re starting to do for home loans. Mortgage rates have fallen more than a percentage point on news that Washington will start buying mortgage-backed securities. On Wednesday Freddie Mac announced that interest on a 30-year, fixed rate house loan had fallen to 5.1 percent, the lowest at least since 1971.
Auto loans got a boost this week when GMAC, the affiliate that accounts for most General Motors financing, got a $6 billion capital injection from the government. GMAC immediately said it would start making car loans to borrowers with credit ratings higher than 620 – a subprime score that illustrates the difficulty of reviving lending without creating new bad debt.
In another bailout facility, Washington intends to lend money to hedge funds and other investors who buy securities backed by auto and other consumer loans. The idea is to provide capital for new loans by taking the old ones off primary lenders’ books.
Car dealers are already offering pretty good financing. In coming weeks the deals should get even better.
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.
