« July 30, 2006 - August 05, 2006 | Main | August 13, 2006 - August 19, 2006 »
Mexico continues to deleverage. Tom Barkley reports in the Wall Street Journal
Mexico said it was turning $12.4 billion of its foreign debt into local-currency obligations, as it moves toward a goal of insulating against the global interest-rate fluctuations that wrought havoc on its economy in past decades.As part of a multistep transaction, Mexico's Finance Ministry said it issued $12.4 billion worth of peso-denominated bonds on the country's burgeoning local-currency market. The money raised will be used to pay off $9 billion of dollar-denominated loans from the World Bank and the Inter-American Development Bank, as well as replace funds used to retire $3.38 billion of foreign bonds. . . .
In recent years, the government of President Vicente Fox has nurtured a local bond market to create a safer, local source of credit.
Other Latin nations, such as Brazil and Colombia, have sought to build thriving local-currency debt markets, but few have been as successful as Mexico, which has succeeded in attracting a wide array of foreign and local investors to the market in the last few years. . . .
The move cuts Mexico's external debt as a percentage of gross domestic product to 5.4% from 7%. That compares to about 45% of gross domestic product just before the 1994 crisis. The move reduces Mexico's foreign debt to 27.3% from 35.2% as a percentage of total debt, according to the Finance Ministry.
Posted by dan at 12:54 PM
General Motors reads market signals. John Stoll reports in the Wall Street Journal:
Chief Executive Rick Wagoner said the company will slow production of its new lineup of large sport-utility vehicles during the second half of the year to cope with rising inventory as average U.S. gasoline prices stay at more than $3 a gallon.Any slowdown in production of large SUVs could put a dent in GM's bottom line, as the vehicles are substantially more profitable than the small and midsize cars more Americans have been buying as gasoline prices have soared. The move highlights the risks in GM's strategy of relying on its lineup of large SUVs to propel its North American turnaround in the near term. . . .
According to Ward's, GM built 106,334 Chevy Tahoes in January to June. According to Autodata Corp., 84,933 were sold in the same period, a 4.2% increase from a year earlier.
As of the end of July, GM and its dealers had 82 days' supply of unsold Tahoes, 89 days of unsold GMC Yukons and 75 days of unsold Chevrolet Suburban ultralarge SUVs. Historically, auto makers have aimed for a 60- to 65-day supply, or less, to avoid resorting to profit-draining discounts to clear stock.
Mr. Wagoner said GM won't shut down SUV production lines but will curtail "some" overtime and introduce other products into the production mix. He didn't disclose further details. At least one of GM's production plants is capable of building both full-size SUVs and pickup trucks, and GM is about to launch new versions of its full-size pickup trucks. "We've been basically running all-out," Mr. Wagoner said.
Posted by dan at 12:52 PM
Excellent article by Conor Dougherty in the Wall Street Journal on one of the side effects of the housing boom: the conversion of Bed & Breakfasts into residences. To which I say: Hurrah! I'll take the reliable air-conditioning, mini-bar, and king-sized bed of a Radisson over a B&B anyday. And if I want to have breakfast with a bunch of strangers, I go to a diner.
Bed and breakfasts have thrived for decades by promising to make guests feel like family. Now, a number of B&Bs are being taken over by families who have no intention of leaving.In a side effect of the real-estate boom, scores of traditional bed and breakfasts are closing down as new buyers turn them back into private residences. Behind the vanishing inns is a simple equation: Many B&Bs are worth more as properties than as businesses. And with the real-estate market showing signs of softening, innkeepers now have an immediate incentive to sell out and reap a windfall. Rising interest rates have also made it more difficult for innkeepers to pay the monthly mortgage and still turn a profit by renting rooms to weekenders.
As a result, many operators have served their last apple pancake. In Lenox, Mass., tree-lined Cliffwood Street has one B&B, down from three in the late 1990s. In Cape May, N.J., the owner of the Columns by the Sea turned her beachfront B&B into separate condominiums she's selling for up to $1.5 million. In Aspen, Colo., the owners of the Sardy House converted the inn into a six-bedroom single-family home, now on the market for $20 million. (The property also comes with a townhouse and an eight-bedroom carriage house.) In late 2003, the owners of Mount Misery Bed & Breakfast in St. Michaels, Md., decided it wouldn't be much use wooing would-be innkeepers, so they marketed it as a private home. It sold, for $1.5 million, to Secretary of Defense Donald Rumsfeld.
The dynamic is playing out across the country. The California Association of Bed and Breakfast Inns says seven of its members sold their properties last year -- each to buyers planning to convert them into private homes. Overall, the Professional Association of Innkeepers International says the number of rooms in B&Bs and country inns decreased 11 percent in 2004 compared with 2002, to 148,000, the latest data available. (The PAII uses "inn" and "bed and breakfast" interchangeably for small lodgings that serve breakfast, with places that also serve dinner labeled "country inns.") The innkeeper association has seen the transformation firsthand: Since 2000, three of its seven board members sold their own inns as private homes.
Posted by dan at 12:48 PM
Michael Derby reports in the Wall Street Journal that the government's auction of 30-year bonds didn't go so well.
An otherwise well-received cycle of Treasury auctions this week ended on a sour note yesterday, with a poorly received sale of $10 billion of 30-year bonds.The long-bond offering, a reopened sale of a security first offered in February, yielded 5.08%, a level just over 0.02 percentage point above where the security traded at the 1 p.m. Eastern time bidding deadline. Yields move inversely to prices, and this auction's "tail" is a sign of tepid demand.
Worse, the bond's bid-to-cover gauge of investor interest was an anemic 1.77, and compared poorly with past offerings. Meanwhile, buying from "indirect bidders," which are large investors, accounted for 32.8% of the supply, compared with 65.4% in February. The Treasury also sold $13 billion in 10-year notes Wednesday and $21 billion in three-year notes Monday as part of its quarterly refunding.
So far, the market has been able to absorb the new supply, with benchmarks only modestly lower since before the Treasury began its refunding Monday. Prices were unchanged to modestly lower yesterday. At 4 p.m., the benchmark 10-year note was down 1/32 point, or $0.3125 per $1,000 face value, at 99 18/32 to yield 4.931%. The 30-year bond was down 7/32 point at 91 12/32 to yield 5.066%, up from 5.051% Wednesday.
Clearly, foreign investors aren't quite as interested in long-term government paper as they have been. But it's still pretty remarkable that the government can sell 30-year debt at about 5 percent.
Posted by dan at 12:44 PM
My take on the protein glut, in Slate.
Posted by dan at 12:43 PM
Michael Abramowitz reports in the Washington Post on the Bush administration's plans to cut entitlements. I have to say, it's very difficult to understand why someone like Henry Paulson would have such a passion for cutting highly successful social insurance programs.
The Bush administration has begun sounding out lawmakers and other key figures about mounting a new bipartisan effort to rein in the costs of Medicare, Medicaid and Social Security after the midterm elections, according to officials in the administration and on Capitol Hill.No specific plan has been advanced, and administration officials are proceeding gingerly given the political debacle that beset the White House last year when President Bush promoted a plan to create private accounts in the Social Security program. But they have been sending strong signals in recent weeks that they want to try something again after the elections in November.
The new Treasury secretary, former Goldman Sachs chief Henry M. Paulson Jr., has made it clear that a major reason he took the job is to tackle the rising cost of government health and Social Security spending, which he described last week as "the biggest economic issue facing our country." . . .
Bush, for his part, appears fixated on the issue, even as he is focused on securing new immigration legislation and preoccupied by several world crises. Despite being forced to shelve his Social Security plan -- which included establishing private investment accounts and reducing guaranteed benefits down the road -- Bush regularly mentions his desire to tackle the issue again.
"We need to cut entitlement spending," the president said in one typical comment last month, as he reviewed the midyear budget numbers. "The easy fix is to say 'Let somebody else deal with it.' This administration is going to continue trying to work with Congress to deal with these issues."
Posted by dan at 12:38 PM
Another bizarre op-ed from Michael Barone in the Wall Street Journal today.
The Connecticut primary reveals that the center of gravity in the Democratic Party has moved, from the lunch-bucket working class that was the dominant constituency up through the 1960s to the secular transnational professional class that was the dominant constituency in the 2004 presidential cycle. You can see the results on the map. Joe Lieberman carried by and large the same cities and towns that John F. Kennedy carried in the 1960 presidential general election.Ned Lamont carried most of the cities and towns that were carried by Richard Nixon. In Stamford, where Joe Lieberman grew up the son of a liquor-store owner, and where there are still sizeable blue-collar and black communities, Mr. Lieberman won with 55% of the vote. In next-door Greenwich, where Ned Lamont (like former President George H.W. Bush) grew up as the scion of an investment banker family, and where the housing values are now among the highest in the nation, Mr. Lamont won with 68% of the vote. If Mr. Lamont wins in November, he will be just one of several members of a Democratic caucus who have made, inherited or married big money.
The working class Democrats of the mid-20th century voted their interests, and knew that one of their interests was protecting the nation in which they were proud to live. The professional class Democrats of today vote their ideology and, living a life in which they are insulated from adversity, feel free to imagine that America cannot be threatened by implacable enemies. They can vote to validate their lifestyle choices and their transnational attitudes.
Boy, Barone must encounter some serious status anxiety when he attends his Harvard and Yale Law school reunions. How else to explain his animus toward people who live in more expensive houses than his, make more money than he does, and go on more exotic overseas vacations?
Barone uses the term "secular transnational professional class" as an epithet, as if educated folks with good jobs who think and do business globally are a bunch of fifth-columnists. Note that these are people who make "lifestyle choices" and have "transnational attitudes." But of course virtually all CEOs of the Fortune 500 are members in good standing of this class, as are virtually all the hedge fund managers who live in Greenwich, and virtually all the venture capitalists who live in Silicon Valley.
Where would our economy be if it were run only by captains of industry who are agressively non-secular, do business only in the U.S., and rely on the skills of non-professionals? We'd all be working at Domino's Pizza.
Posted by dan at 03:17 PM
A month after the climactic game ended, the Financial Times has declared a winner the World Cup: Adidas. Richard Milne and Lucy Killgren report:
Adidas-sponsored France may have lost to Puma's Italy in the World Cup final, but the sporting goods company famed for its three stripes showed its strength off the pitch yesterday, unveiling a better-than-expected second quarter performance. . . .Of the big kit-makers, including Nike and Puma, Adidas is seen as having had the best World Cup. It confirmed that view yesterday with sales up 20 per cent to €1.8bn (£1.2bn) on a like-for-like basis - or up 60 per cent to €2.4bn including its takeover of Reebok."
Posted by dan at 09:48 AM
Nouriel Roubini, a charter member of the Gloom and Doom caucus, writes in the Financial Times that the rest of the world better get ready for an American recession.
The odds that the US will slide into recession have risen since last month from 50 per cent to 70 per cent by my estimates. The US Federal Reserve took its foot off the brake on the economy this week when it took a pause in tightening monetary policy for the first time after 17 successive interest rate rises in spite of rising inflation. But it is too late. The Fed might have been hoping for a soft landing for the economy but instead it faces recession. The implications will be felt globally. The rest of the world will not decouple from the US economic train, as some analysts predict. When the US sneezes, the rest of the world still gets the cold.The US recession will be triggered by three unstoppable forces: the housing slowdown; high oil prices; and higher interest rates. The US consumer, already burdened with high debt and falling real wages, will be hard hit by these shocks.
The effects of the housing slump will be more severe than those following the technology bubble implosion in 2001. The negative wealth effect on consumption of falling housing prices - and the related sharp fall in home equity withdrawal - are also larger than the wealth effects of the collapse of tech stocks in 2000. Property, unlike the tech stocks, is a significant part of household wealth. Finally, about 30 per cent of US employment in the latest recovery has been related to housing.
The second-quarter US gross domestic product figures are an ominous ÂÂsignal: consumption of durable goods are already falling; residential investment is in free fall; and inventories are up as still-high production faces falling sales growth. Higher investment in equipment and software, expected to offset lower spending on housing and consumption, is instead falling.
As consumer demand is slowing, profit-rich companies are not finding good investment opportunities to increase capacity, and are thus returning such profits to shareholders in an unprecedented buy-back bonanza. . . .
Posted by dan at 09:45 AM
Who says print is dead? Merissa Marr reports in the Wall Street Journal:
Disney also announced the sale of its 50% stake in celebrity magazine US Weekly for about $300 million. Disney sold the stake to its partner Wenner Media LLC, after deciding the magazine was no longer a strategic asset. The company bought the stake for $40 million in 2001.
Posted by dan at 09:38 AM
Ruth Simon reports in the Wall Street Journal on some of the issues raised by widespread use of adjustable rate mortgages.
Luisa Cordova-Holmes was looking to lower her monthly payments when she refinanced her $312,000 mortgage in 2004. Instead, she wound up digging herself into a ditch.For their new loan, Ms. Cordova-Holmes and her husband chose a so-called option adjustable-rate mortgage, which carried an introductory rate of 2.35% and gave her multiple payment choices each month. "I had a lot of financial obligations," says Ms. Cordova-Holmes, an accountant who lives near Detroit.
Two years later, however, the interest rate on her loan has jumped to 8.75%, her loan balance has climbed to $324,000 and her minimum monthly payment has risen to $2,257. She says the terms of the loan weren't clearly spelled out.
Ms. Cordova-Holmes says she would like to refinance, but can't -- in part because her loan carries a prepayment penalty that would force her to shell out thousands of dollars if she did. Instead, she's trying to sell her home. But with Detroit's economy slumping, she hasn't been able to find a buyer. When she and her husband first put the house on the market last summer, they were asking nearly $400,000. Now they're willing to accept as little as $270,000.
"We're in a very bad situation," she says. "The payments are just killing us."
In recent years, homeowners like Ms. Cordova-Holmes have embraced adjustable-rate mortgages -- and such variations as option ARMs, interest-only mortgages and "piggyback" loans, which, respectively, allow borrowers to make a minimum monthly payment, pay interest and no principal in the loan's early years, or finance 100% of the purchase price. The growing popularity of these products has helped fuel consumer spending, as well as double-digit home-price gains and rising homeownership rates.
Yet the downside of the lending boom is starting to show. Rising interest rates are taking a toll on family budgets as growth in home prices flattens -- and, in some areas, prices fall.
Mortgage delinquency rates hit 2.32% in the second quarter after bottoming out at 2.06% in the fourth quarter of 2005, according to an analysis by Equifax/Moody's Economy.com. The portion of adjustable-rate mortgages that were at least 90 days past due has climbed 141% in the past year, according to a recent study by Credit Suisse that looked at loans made to borrowers with good credit. That compares to a 27% rise in such delinquencies for fixed-rate mortgages.
Many borrowers who run into trouble have relatively low incomes or scuffed credit records. But housing counselors say they are also hearing from a growing number of middle- and upper-middle-income borrowers who borrowed heavily to finance spending or buy a house they could barely afford. NeighborWorks Homeownership Center in Sacramento, Calif., says that 38% of the borrowers it's seen this year have "moderate or above-moderate" incomes, up from 24% last year.
In Illinois, the new crop of borrowers includes people with bills for private schools, fancy cars and child care and monthly incomes of $3,500 to $10,000, says Michael van Zalingen, director of homeownership services at Neighborhood Housing Services of Chicago. Many of these borrowers took out loans that didn't require them to document their income and overstated their earnings, he adds.
Steven Schwaber, a bankruptcy attorney in the Pasadena, Calif., area, says he's getting more calls from small-business owners who had refinanced into ARMs, tapping their equity in an effort to keep their businesses afloat. "All of the sudden their budgets are out of whack because their house payment went up by 25% or 30%," he says, at the same time fuel prices are rising. Some would have wound up filing for bankruptcy anyway, he adds, but rising interest rates have pushed others over the edge.
Credit-counseling agencies say that in the past few months they've seen a growing number of homeowners pinched by rising mortgage payments. Neighborhood Housing Services of New York City says it has been "flooded" with calls from borrowers who took out ARMs two years ago and whose rates are now resetting for the first time. And Consumer Credit Counseling Services of Atlanta, which works with borrowers nationwide, says it has tripled its housing counseling staff in the past six months to keep up with increased demand.
Until recently, most mortgage-payment problems were an unfortunate byproduct of major life changes, such as job loss, medical problems, divorce or a death in the family. But for the new wave of troubled borrowers, the problems stem largely, or in part, from the structure of their mortgage, housing counselors say.
In the past, the home mortgage "was a steadying influence; it neither rose nor fell over time," says Elizabeth Warren, a Harvard Law School professor who has studied consumer bankruptcies. "All that has changed in the last half-dozen years," she adds. "The mortgage payment is now more variable than any other expense for millions of people. We're working in completely uncharted territory."
Posted by dan at 09:31 AM
Remember all those silly arguments that the backdating options was a big tempest in the teapot, that there was nothing wrong with backdating options, that the executives were just figuring out smarter and more efficient ways to pay themselves? Apparently, the U.S. Attorney in Brooklyn doesn't agree. Julie Creswell reports in the New York Times on the indictments of executives at Comverse Technology.
Posted by dan at 09:28 AM
Nick Bunkley writes in the New York Times about Ford and GM's contrarian business strategy.
As gasoline prices surge past $3 a gallon in most of the country and closer to $4 in some cities, sales figures show Americans are snapping up small cars that go easier on fuel and on their wallets. But none of the smallest cars are designed or developed by Detroit companies, which in the face of high gas prices are now highlighting another kind of automobile not usually thought of as energy efficient: the muscle car.Ford Motor said Wednesday that it planned to build a 325-horsepower version of the Ford Shelby GT. It also plans a big luxury car, the Lincoln MKS, which will become the struggling brand’s flagship sedan. The announcement came at an industry conference here sponsored by the Center for Automotive Research.
On Thursday, General Motors is expected to confirm that it will resurrect one of its most famous muscle cars, the Chevrolet Camaro, which was a hit at the Detroit auto show in January. . .
Ford or Chrysler sell no subcompacts in the United States, even though they or their corporate parents sell them in other global markets.
By contrast, Toyota, Honda and Nissan have all introduced small cars in the last few months, all of them sold overseas.
“It is a mistake and it’s very disappointing,” said John Casesa, managing partner of Casesa Strategic Advisers in New York. “I just think it shows that Detroit still has a business model predicated on low energy prices."
Posted by dan at 09:24 AM
Vikas Bajaj has a good article on the front page of the New York Times about the slowing second-home market. Apparently, interest rates and excess supply are a more powerful force than the demographic trends (well-off baby-boomers with cash and time to burn) spurring second-home purchase.
Posted by dan at 09:22 AM
From David Brooks' column in the New York Times today ($ required) on the prospects of a hypothetical third party:
On fiscal policy, the McCain-Lieberman Party sees a Republican Party that will not raise taxes and a Democratic Party that will not cut benefits, and understands that to avoid bankruptcy the country must do both.
This line begs a question: In the last few years, which party created a new open-ended, debt-funded entitlement?
The most salient fact about fiscal policy in recent years is that those in control of the White House and Congress have vastly expanded entitlement spending, with little help from the opposition Democrats.
Posted by dan at 09:18 AM
One theory afoot holds that fast-food restaurants will benefit as consumers -- exhausted, debt-ridden, ravaged by inflation, high-energy prices and slowly growing wages -- stop spending money at sit-down restaurants. Burger King CEO John Chidsey said as much after his company reported poor results recently. It's possible. But the number just don't support the theory. McDonald's same-store sales in July rose by just 1.9 percent.
Posted by dan at 09:52 AM
Desperate times calls for desperate measures. And some sectors of the homebuilding industry have clearly entered desperate times. Dominion Homes, a publicly-held homebuilder, reported its quarterly results last week. And they were ugly. Revenues fell 28 percent, but the cost of real estate sold fell only 17 percent, and so its margins were wiped out. The company reported a loss from operations, which is not a good sign for a company that doesn't have piles of cash sitting on its balance sheet.
Then last Friday came the real sign of desperation. The executive team announced that it would voluntary slash its salaries.
Posted by dan at 09:44 AM
Here's a big group of highly educated, well-trained professionals who could see their wages fall: doctors who treat Medicare recipients. Jane Zhang reports in the Wall Street Journal:
Medicare, moving to contain health-care costs, announced plans to cut physician-payment rates by 5.1% next year. The Centers for Medicare and Medicaid Services also said it will fine specialty hospitals as much as $10,000 a day if they fail to timely disclose financial arrangements with physicians.The cuts, which would keep payments to doctors under the government's insurance program for the elderly and handicapped at about $61.5 billion in 2007, would be necessary to rein in the program's rapid growth, said Medicare chief Mark B. McClellan. Payments for physician-related services increased 10% in 2005; next year, such payments, combined with those for hospital outpatient services, are expected to grow by 10.6%.
"We need to get out of the vicious circle of rapid growth in utilization and spending, and falling real payment rates," Dr. McClellan said. "I'm very concerned about our current system. I don't think it's sustainable."
The cuts are based on a formula in the Medicare law. They can be reversed by Congress, which has done so in the past. About 80 senators have expressed support for increasing, not reducing, Medicare payments to physicians.
Posted by dan at 09:33 AM
Well, Joe Lieberman lost yesterday. And it wasn't legions of blog-reading leftists that did him in. (There aren't many leftists in Connecticut.) No, it was legions of angry, well-off, highly educated professionals -- yuppies -- who did him in. Check out the vote total by town, conveniently supplied by the Hartford Courant.
Lieberman did quite well in blue-collar, working-class redoubts like Bridgeport, East Hartford, Norwich, and Waterbury.
But Lamont racked up big margins in the tony towns of the shore (Madison, Clinton), in Litchfield County (Kent, Litchfield), and especially in Fairfield County. In Greenwich and New Canaan, Wilton and Weston, Darien and Westport, Lamont won by nearly 60-40 margins. By their hundreds and thousands, my neighbors left their million-dollar-plus homes, got in their hybrid SUVs and Volvo station wagons, and registered their displeasure. In Bushenfreude central -- Westport -- 57.6 percent of the town's registered Democrats turned out for the primary, a huge figure, and they went for Lamont by a big margin. And the vast majority of them have still never heard of DailyKos. In fact, the higher the town's median income, it seems, the bigger majority Lamont received.
This morning on the "Today" show, Lieberman closed out his interview with Anne Curry by saying something to the effect that he was going to continue to run, in part, because he wanted to save the Democrats from becoming the party of "Ned Lamont and Maxine Waters." Hmmm. He may be trying to get on the ballot as an independent, but he's already running like a Republican.
Posted by dan at 09:14 AM
Back in June, I highlighted the plight of Six Flags, the theme park company that Washington Redskins owner Daniel Snyder had taken over. Last week, the company reported its quarterly earnings.
The good news: revenue per capita (i.e. visitor) for the quarter rose 15 percent from the year-ago quarter.
The bad news: there were a lot fewer capitas this year than last. Attendance fell 14 percent, from 11.2 million to 9.6 million. Even accounting for the 300,000 visitors lost due to the closure of the park in New Orleans, that's a pretty sharp fall-off. And yesterday, the Associated Press reported that the company would be closing the largest theme park in New York four weeks early this year.
Posted by dan at 09:09 AM
It's one thing to fail to make good on pension promises. It's quite another thing to lie and break laws while doing it. Former SEC Chairman Arthur Levitt has completed his investigation into San Deigo's public employee pension scandal -- now underfunded by $1.4 billion -- and has concluded that there was plenty of wrongdoing. Mary Williams Walsh reports in the New York Times
"The city’s pension system was not brought to a crisis merely as a result of abnormally low investment returns,” Mr. Levitt told city officials, dismissing an explanation frequently cited for pension problems in San Diego and elsewhere. “Nor was the system brought to a crisis as a result of a ‘perfect storm’ of unpredictable catastrophes.”Instead, Mr. Levitt said, “San Diego officials fell prey to the same type of corruption of financial management and reporting that afflicted municipalities such as Orange County, and such private sector companies as Enron, HealthSouth and any number of public corporations.”
Officials created a maze of calculations and artificial devices to make it look as if the pension fund was in fine shape. But in reality, it was developing a shortfall currently measured at $1.4 billion.
In a 266-page report, Mr. Levitt presented lists of city officials, divided into categories according to which laws they were said to have broken. Some had demonstrated willful intent to deceive the public, he said, while others had merely shown negligence or failed in their fiduciary duties.
Over the years, the manipulations spilled over into other areas, and the investigators even cited violations of the Clean Water Act, as officials overcharged homeowners for their sewer bills to protect favored businesses from the rising cost of sewer maintenance.
Many of the officials said to have broken laws are no longer in office. The report also cited failures by the outside law firms and finance professionals who were helping the city run its pension fund and issue bonds."
The full report can be seen here.
Posted by dan at 08:57 AM
Well, this comes as a big surprise. Cablevision, the cable company that has the great fortune of operating in the wealthy New York metropolitan area, and that has the great misfortune of being run by James Dolan, the perpetually stumbling son of founder Charles Dolan, has become the latest company to fess up to fishy stock-option dating.
Posted by dan at 08:53 AM
Mary Williams Walsh has a perfecta in the New York Times today. There's a front-page article on the huge shortfalls in public pension plans. And she's also got a piece in the business section on an appellate court ruling that, if upheld, would give the green light for companies to convert defined-benefit plans into cash-balance plans, which are essentially designed to reduce the benefits owed and paid to older workers.
Note the brilliant reasoning by Judge Frank Easterbrook:
In the appellate court ruling, Judge Easterbrook wrote that older workers were generally correct in perceiving “that they are worse off under a cash-balance approach” because such a plan eliminated the possibility of earning larger benefits as they neared retirement. “But removing a feature that gave extra benefits to the old differs from discriminating against them,” the judge wrote.Yesterday’s decision protects I.B.M. from having to pay up to $1.4 billion in remedies to about 140,000 employees and retirees to settle the two significant claims in the original lawsuit, filed in 1999. Both sides in the class-action lawsuit had agreed to cap the remedies at that amount in 2004, while they waited for the appellate ruling.
Posted by dan at 09:32 AM
Excellent article by Geraldine Fabrikant in the New York Times on the piecemeal sale of Malcolm Forbes's empire. The underlying message: Malcolm's children, and grandchildren, are far better at spending wealth than creating wealth. (Although they certainly made out OK on my first book, which is still in print ten years after its publication.) No wonder the magazine is so obsessed with cutting the estate tax.
Posted by dan at 09:28 AM
My latest in Slate, on the struggles of yuppie-oriented retailers: Starbuck's, Williams-Sonoma, etc.
Posted by dan at 07:02 PM
Jurek Martin with a good column in Saturday's Financial Times on the silly tendency of columnists--especially David Brooks--to equate fellow writers with great historical figures.
"I began to realise that the American neo-conservative movement had become truly unhinged when a columnist I normally respect equated an ideologue I do not with Winston Churchill.The writer was David Brooks in the New York Times and his Churchillian doppelgänger was William Kristol, who sees existential threats to America everywhere and now believes bombing Iran is perfectly all right.
In fairness, Brooks, generally a thinking conservative, was illustrating that the “conservative mansion is a fractious place”. But it was the historical comparisons he drew, which is presumably how his neo-con friends see themselves, that made me question their sanity.
If Kristol was Churchill, he wrote, George Will, the prim columnist who now doubts regions of the world can be transformed on an American whim, had to be Burke (that would presumably be Edmund Burke the philosopher, not James Lee Burke, the writer of dark Louisiana thrillers, though you never know).
The arrogance that makes these comparisons possible is actually quite disturbing. After all, we live in the real world of today, with all its often unintended consequences, not the simpler one of times past when the bad guys just lived in Moscow, Berlin etc.
But history teaches us a lot. It reveals, for example, that Churchill fought in a war he also reported on and knew as much about doubt and depression as he did about glorious victory in war. It is not clear to me that Kristol, living in his salon bubble and TV studios, has ever seen the world other than as he thinks it should be.
Posted by dan at 10:46 AM
But who will edit French literary magazines? Andrew Bounds reports in the Financial Times on the latest developments in Europe's labor markets.
European employers are free to refuse a job to smokers, clinching tobacco users' status as the continent's last pariahs.The European Commission, which has presided over a vast array of anti-discrimination legislation in the past six years, says its laws did not cover tobacco users.
The position was revealed when Catherine Stihler, European parliament deputy, tabled a question to the Commission on behalf of a pro-smoking constituent alarmed at reports that an Irish call-centre company had advertised for staff, warning "smokers need not apply".
Mrs Stihler's query about whether the advert breached European law was answered by Vladimir Spidla, the commissioner for employment and equal opportunities, who said it did not. "EU anti-discrimination law prohibits discrimination on the grounds of racial or ethnic origin, disability, age, sexual orientation and religion and belief in employment and other fields," the Czech commissioner told Mrs Stihler.
"A job advertisement saying that 'smokers need not apply' would not seem to fall under any of the above mentioned prohibited grounds," he added in a written reply vetted by the Commission's lawyers.
Mrs Stihler, a British Labour party MEP, asked her question after the Irish company, Dotcom Directories, placed such an advert in May.
The Irish government had said it did not breach any laws.
Philip Tobin, the director of Dotcom Directories, said smokers were antisocial and took too much sick leave.
He told Irish radio in May: "If people are smoking on a coffee break or in their own time, they come back into the office and they stink. We have a very small office here and it would make things unbearable for the other staff. To be honest, if these people can ignore so many warnings and all that evidence, then they haven't got the level of intelligence that I am looking for. Smoking is idiotic."
Posted by dan at 10:43 AM
It's really hard to square the Senate Majority leader's academic credentials with his public statements. In a little squib in the Wall Street Journal about the deficit, Frist comments on a Congressional Budget Office report that narrows its projection for this year's budget deficit to a mere $260 billion. The report "highlights the combined benefits of a strong, resilient economy working in tandem with Republican policies to restrain both taxes and spending," Mr. Frist said.
Restraining spending? According to the most recent Treasury monthly statement, through the first nine months of the current fiscal year, spending has risen 8.8 percent.
Posted by dan at 10:39 AM
Small, scary article by Ian McDonald in today's Wall Street Journal on saving habits of post-boomers.
The national personal-saving rate -- the fraction of after-tax income left after spending -- has been falling for a long time. Between the end of World War II and the early 1980s, U.S. citizens consistently saved about 9% of their income after taxes. So far this year, average savings are negative by more than 1%, according to data from Moody's Economy.com Web site. This calculation doesn't include capital gains on assets you already own and counts tuition and a Hummer as the same type of "spending," but the numbers are still ugly enough to merit worry.You would think the necessity of socking away a little money might be clearest to young people. After all, their careers coincided with the proliferation of 401(k) plans and a decrease in the role of pensions, now so rare they verge on being quaint. They also came of age with the notion that Social Security's financial support is iffy. The saving rate for post-baby boomers -- people 42 years old or younger -- has steadily slipped during the past 15 years. It was nearly minus 18% in the year ended March 31. That is chilling, considering that most pundits suggest we save 15% to 20% of pretax income for retirement and other goals. "It's absolutely counter to the fact that the vast majority of us will have to fund our retirements," says Mark Zandi, chief economist at Economy.com.
What gives? One theory says the under-42 crowd has been spoiled by above-average returns from stocks, bonds and real estate, combined with low interest rates and inflation. U.S. stocks averaged an 18% annual gain in the 1990s, compared with a 10% historical average. While cooling now, high housing values led many to borrow through equity loans.
People who expect big returns, low interest rates and low inflation may figure they can meet their goals with paltry savings today -- or none today and a little tomorrow. This wastes the advantage of a longtime horizon for reaping compounded investment gains.
Posted by dan at 10:36 AM
Delta Air Lines asks a court to let it terminate the pilots' pension plan.
Posted by dan at 10:34 AM
Martin Feldstein, writing in the Wall Street Journal, throws cold water on the soft landing conventional wisdom. His article reads in part:
A soft landing is a natural aspiration for any central bank confronting an unacceptably high rate of inflation. For today's Federal Reserve, that means bringing inflation down to less than 2% without the fall in output and employment that would constitute a recession.The Fed governors and Reserve Bank presidents appear to believe this will happen. Their "central tendency" economic projections, summarized in the July Monetary Policy Report, state that the Fed's favored measure of inflation, the PCE price index excluding food and energy, will decline from the 2.9% rate in the most recent quarter to between 2% and 2.25% in 2007, presumably on its way to Ben Bernanke's "comfort zone" of 1% to 2% in 2008. They project this to occur with real GDP growing above 3% and the unemployment rate remaining under 5%. Indeed, not a single one of the 19 FOMC members projected growth of less than 2.5% in 2007 or an unemployment rate above 5.25%.
Although this optimistic outlook is possible, experience suggests that it is unlikely. A mild slowing of economic growth is generally not sufficient to reverse rising inflation. That generally requires a sustained period of excess capacity in product and labor markets, with GDP growth falling significantly or even turning negative.
If discontinuities happen on the upside--viz. the 1990s stock market, this decade's housing market--why is it that so many economists and analysts simply don't see it within the realm of possibility that discontinuities can happen on the downside, too?
Posted by dan at 10:30 AM
From today's Financial Times:
"Mars in a bitter struggle with cocoa-addicted moths."
The story is about Mars, the company, not Mars, the planet.
Posted by dan at 10:27 AM