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Has there ever been a more self-defeating group of large businesses than the U.S. auto industry? Even amid a time of crisis, they just can't seem to help themselves. Nick Bunkley reports in the New York Times on the compensation of top Ford executives. Even if the company had to make newly hired CEO Alan Mulally whole on benefits he was giving up by leaving Boeing, one would think Mulally--if not Ford itself--would have seen the merit of structuring it in such a way so that it didn't involve immense payouts in a year in which the company, amid billions of dollars of losses, is cutting jobs and benefits.
The Ford Motor Company paid its new chief executive, Alan R. Mulally, $28.18 million in his first four months on the job, the automaker said in a regulatory filing yesterday.His compensation included an $18.5 million bonus that Ford, which reported a record $12.7 billion loss last year, disclosed in September when it hired him from Boeing.
Figures in Ford’s annual proxy statement show that his pay was more than three times that of any other executive at the company. That includes the executive chairman, William Clay Ford Jr., who has kept a 2005 promise not to accept any new salary, bonus or stock awards until Ford consistently earns a profit.
The second-highest pay, $8.67 million, was also for only a few months’ work; it went to James J. Padilla, who retired as president and chief operating officer in July.
Three executives received bonuses for their roles in reducing manufacturing capacity, cutting costs and achieving other goals as part of Ford’s overhaul plan, known as the Way Forward. The awards were part of a retention program that the company recently abandoned.
Posted by dan at 09:41 AM
Floyd Norris has not one, but two articles in the New York Times today explaining precisely just how much Sam Zell is getting over on the employees of the Tribune Company. Here, and here. The upshot: under the convoluted ESOP plan, the employees get much of the risk of ownership without much of the benefits. Zell gets much of the benefit of ownership without assuming much of the risk. By agreeing to this transaction, Tribune's public shareholders, in exchange for being able to turn their long-suffering stock into cash, are dumping the long-term problems of the company on an unwilling class of shareholders (employees) who, despite owning a majority of the stock, won't have much of a say in how the corporation is run.
Posted by dan at 09:36 AM
My latest on Slate, on the trials of the long-commuting CEO.
Posted by dan at 09:33 AM
Back in 2003, I wrote in Slate about the stubborn persistence of the Conference Board's Help Wanted Index as an economic indicator. In the years since, it would seem the relevance of newspaper help-wanted advertisements should have faded rapidly, with the rise of Craigslist and online job-listing services like Monster. Of course, the Conference Board has also added tallies of online job listings to its offerings.
So what are job listings data telling us these days? The Conference Boards's Help-Wanted Index is looking pretty weak, at 31 down from 39 a year ago. Reading the tea leaves, Conference Board economist Kenneth Goldstein says: "employment growth may continue, but probably at a more modest pace through spring and early summer."
In an era when job listings are increasingly moving onto the internet, one might plausibly suggest that the business results of big online recruiters might also be a leading indicator. Yesterday, Monster Worldwide updated projections for its first-quarter 2007 results.
"Based on preliminary data available at this time, revenue for the first quarter ended March 31, 2007 is expected to be in the range of $328 to $329 million, or slightly below the revenue outlook of $330-$338 million provided on February 1, 2007. The expected revenue increase of approximately 28% for the first quarter reflects continued rapid revenue growth in the Company's International Careers segment, and reduced growth rates in the North America Careers and Internet Advertising & Fees businesses."
Translation: revenues could come in a little light because U.S. employers aren't listing as many jobs as we expected.
Posted by dan at 08:57 AM
Have you caught the great Planet Earth series on the Discovery Channel? Last night, I was watching the episode on the arctic, and they had these great tracking shots of a polar bear trying to make his way across an ice-floe. Once rock-solid, the ice had become perilously thin. And every time the polar bear put another foot down it plunged through the ice into the chilly waters again.
The housing market these days seems to be about as stable as that arctic ice. Barry Ritholtz has a good round-up of some housing-related news from yesterday. And James Hagerty has the latest inventory figures from ZipRealty in today's Wall Street Journal.
A sharp increase in homes offered for sale last month suggests that home shoppers will find plenty of choices this spring.The number of homes listed for sale in 18 major U.S. metropolitan areas at the end of March increased 6.5% from a month earlier, according to data compiled by ZipRealty Inc., a national real-estate brokerage firm in Emeryville, Calif. The data cover listings of single-family homes, condominiums and town houses on local multiple-listing services.
Over the past 22 years, home inventories nationwide have increased an average of 1.7% in March from February, according to Credit Suisse Group. Supplies typically rise modestly in March as sellers pursue the many families with children who seek new homes in the spring, so they can move during summer vacations.
The big rise in the latest month may reflect sellers' expectations that it will take much longer to find buyers than it did during the housing boom of the first half of this decade, said Patrick Lashinsky, president of ZipRealty. Rather than waiting for April or May, he said, many people planning to move this summer put their homes up for sale in March. He added that many sellers are being cautious, waiting to sell their old homes before committing to buy new ones.
ZipRealty recorded the biggest increases in the metro areas of Los Angeles (12.8%), San Francisco (12.2%) and Washington, D.C. (9.4%). Miami, where a glut of unsold condos has been weighing on the market, showed a modest rise of 1.8% in the supply of all types of homes in March from a month before. But the Miami inventory was up 61% from a year earlier. For all 18 metro areas, the inventory at the end of March was up 35% from a year earlier.
Posted by dan at 08:37 AM
One of the outstanding features of the economy over the last few years is the way in which manufacturers and suppliers have been willing to swallow higher costs for inputs for the sake of holding the line on prices. But if prices of energy and key inputs--sugar, agricultural commodities, metals--remain high for prolonged periods, companies won't hold the line indefinitely.
Yesterday, Hershey, the giant candy company, announced the first price increase in its U.S. confectionary line since December 2004:
An increase of approximately 4-5 percent on the Company's standard bar, king-size bar, 6-pack and vending lines is effective immediately. These products represent roughly one-third of the Company's portfolio. This action will help offset the Company's input costs, including raw and packaging materials, fuel, utilities and transportation. While there has been no change in list prices on these impacted items since December 2004, over this period costs have continued to rise.
Posted by dan at 08:34 AM
Toyota proves, once again, that incentives work. In recent months it has offered better deals on the Prius and other hybrids. And last month, Toyota reported record U.S. sales. For the month it sold 28,453 hybrids, more than double the total for March 2006, meaning hybrids accounted for 11.8 percent of the company's overall sales. That's still an overall drop in the bucket, but the trend is impressive.
Posted by dan at 08:26 AM
There's too much money sloshing around higher education--and the financing of higher education--for there *not* to be conflicts of interest. New York Attorney General Andrew Cuomo seems to be uncovering some that are highly embarrassing for all parties involved. Jonathan Glater has the goods in the New York Times.
Posted by dan at 08:23 AM
No wonder the Federal Reserve is confused as to whether it needs to cut rates to revive a flagging economy or remain vigilant against inflation. There are days when the economic glass seems both half-full and half-empty.
Take, for example, the multi-trillion dollar question as to whether the weakening housing market is taking a toll on consumer-spending related to housing. In theory, the quarterly results from two of the largest retailers of televisions, and other home-based gadgets should provide some insights as to the health of consumer. And this morning, thanks to one of those serendipitous arrangements, both Best Buy and Circuit City reported their results.
The question now is whom to believe. Do we believe Circuit City, whose same-store sales fell 0.5 percent in the quarter that ended in February from a year ago ? (Translation: recession is upon us. Repent! The End is Nigh!)
Or do we believe Best Buy, whose same-store sales rose a healthy 5.9 percent? (Translation: Goldilocks abides. Subprime mess? What subprime mess?)
Posted by dan at 09:58 AM
If you picked New Century, you just won!
Now, who is next? One of the distinguishing features of the slow-motion housing and housing-related credit pile-up has been the tendency for analysts to say: (1) it's bad but things are stabilizing; (2) the bleeding stops here; (3) the woes are contained to the subprime sector. And then to reiterate this same series of bromides when the next show drops.
The subprime sector is still reeling. And the news flow is hardly positive. For example, Fremont General just lost its auditor, which is never a good sign. Floyd Norris reports in the New York Times.
Posted by dan at 08:40 AM
Jeff Bailey reports in the New York Times on sudden optimism about the stocks of airlines companies -- after many of them have run up hugely.
“It’s time to buy the airlines again,” Bob McAdoo, an analyst at the Prudential Equity Group, told clients in a March report. He has perhaps the most bullish view among Wall Street airline analysts, with 2007 profit projections that would easily set an industry record.Even with just a modest industry recovery thus far, some airline stocks have staged remarkable advances. American Airlines, for those prescient enough to snatch up shares near the bottom of $1.25 in March 2003, hit $41 recently. They closed yesterday at $30.33 a share.
Continental Airlines, at $3.65 in October 2002, hit $52.40 recently. Yesterday, the stock closed at $36.05. And US Airways more than tripled after its September 2005 stock offering, to $63.27, before settling back in recent weeks. It finished yesterday’s trading at $45.05.
It seems to me that, historically speaking, a great time to buy a stock or a sector of stocks is when they are unloved, loathed, and in the low single digits. It also seems to me that, six years into a (slowing) economic expansion, and with the sector having immense gains under its belt, and with the sector in question having a legacy of labor problems and sudden reversals -- the present might not be a great time to buy this particular sector.
Posted by dan at 08:34 AM
Are you a poor credit risk? Do you need hundreds of millions of dollar? Forget about those stodgy banks, with their forms and covenants. Just call a hedge fund. Richard Beales reports in the Financial Times:
Three-quarters of loans to junk-rated US companies are now provided by hedge funds and other non-banks, according to a new report on the US leveraged loan market.The study highlights the speed with which non-traditional investors are taking over from banks as lenders and changing the way loans are made and traded - a trend that has taken hold in Europe.
Non-bank lenders accounted for a third of the US leveraged loan market 10 years ago, according to the report from Standard & Poor's LCD.
"Non-bank investors have gone from supporting players to leading actors in the leveraged loan market," said Steve Miller, managing director at S&P LCD.
Junk-rated borrowers, especially private equity groups, have in recent years increasingly favoured loan finance over high-yield bonds, the instruments of choice in the buy-out boom ofthe 1980s.
Posted by dan at 09:22 AM
On today's Wall Street Journal, buried on page C9, is an article that should set off alarm bells. Gaston Ceron reports on the rise in margin debt:
After rising 24.2% last year, margin debt, which is accumulated by investors who bet on stocks with borrowed funds, got off to a strong start in 2007. In January, it reached $285.61 billion as the Dow Jones Industrial Average gained 1.3%, passing the previous highest level of $278.53 billion, according to figures from the New York Stock Exchange. That record was set in March 2000, the same month that saw the Nasdaq Composite Index reach its highest closing on record.
Aside from individuals, margin debt also is used by larger investors, such as hedge funds looking for additional leverage. Charles Biderman, chief executive of TrimTabs Investment Research, a Santa Rosa, Calif., stock-market research firm, observed that margin debt has been rising faster than the stock market. "It is usually bearish when margin debt rises faster than the market cap, but we do not interpret recent increases in margin debt as bearish for U.S. equities," Mr. Biderman wrote in a recent report. "In our opinion, margin debt is rising primarily because of better reporting of lending to all clients -- particularly hedge funds."
Anybody remember what happened in March 2000? Anybody care to guess when else in history margin debt, after several years of positive market returns, soared to really high and ultimately unsustainable levels? If you guessed 1927, 1928, and 1929, you're right.
Posted by dan at 09:02 AM
It's fashionable to hear thinking among the bienpensant centrists that the liberal Democrats now in control of Congress pose a threat to free trade. But I've long argued that free-traders have as much to fear from the Republicans who have been running the show in Washington. Whether it was the Karl Rove-inspired steel tariffs of the first term, the persistence of absurd agricultural subsidies, or the general lack of interest in the ways in which the heightened insecurity surrounding jobs, incomes, and saps the support for free trade, or the general ability to convince foreign governments to see things our way, this administration hasn't done the cause of free trade a whole lot of good.
Now, the Bush administration has responded to the anxiety induced by free trade by. . . .making Vanity Fair more expensive! Greg Hitt reports in the Wall Street Journal:
The Bush administration imposed new economic sanctions against China, a vivid reflection of the increasingly tough climate in the U.S. toward free trade -- particularly with Beijing.The new duties apply narrowly to complaints that Chinese producers of glossy, high-quality paper used in books and magazines are unfairly subsidized by their government -- just $224 million of annual imports, or less than 1% of the total goods and services Americans buy each year from China.
But the action is likely to have much wider ramifications. It opens the door to a potential rush of similar complaints by American manufacturers, from steel to plastics producers, that face stiff competition from the Chinese. And it signals, more broadly, an increasingly harder line on trade emerging both at the White House and in Congress.
John Engler, president of the National Association of Manufacturers, has long called on the Bush administration to take a tougher stance on trade and praised the decision for giving U.S. companies new "recourse" to blunt "China's distortions of trade."
The dollar slipped in the foreign-exchange market following the late-morning announcement, as currency traders showed nervousness about rising trade tensions -- particularly since China happens to hold a large quantity of U.S. currency, stocks and bonds.
The Chinese government sharply criticized the move in a rare public statement released by the Chinese Embassy in Washington. "The Chinese side will watch closely over the development and reserve all rights to safeguard its lawful rights and interests," it said. The statement added that the U.S. action was "unacceptable to the relevant industry in China" and had "hurt their feelings."
Posted by dan at 04:05 PM
One of the necessar preconditions for an investment bubble is for large numbers of businesspeople to start extrapolating from impressive short-term trends into the long-term future. Remember all the pro forms for the 1990s that showed sales of a fledling e-commerce company rising 60 percent annually for the next six years? I believe that we're in perhaps the second or third inning of a bubble in alternative energy, an argument I flesh out in more detail in my upcoming book, Pop! Why Bubbles Are Great for the Economy, which should hit the bookstores in about 38 days.
We could be entering the fourth inning. Andrew Martin reports in the New York Times on how corn, which is increasingly being used to feed ethanol plants, is a hot, hot crop.
With demand for ethanol pushing corn prices to $4 a bushel or higher, it was not a surprise that farmers intended to plant a lot more corn this season.What was surprising about the Agriculture Department report released yesterday was just how much they intended to plant — a staggering 90.5 million acres, the most since World War II and 15 percent more than last season. . .
In the last several years, farmers and investors have been rushing to expand ethanol capacity, a trend that was accelerated by a 2005 energy bill that mandated 7.5 billion gallons of renewable fuels by 2012 and by refiners phasing out the use of the fuel additive methyl tert-butyl ether, or MTBE. Soaring gasoline prices have also encouraged ethanol production.
There are currently 114 ethanol plants, compared with 95 in January 2006, with 80 more under construction and hundreds more in various stages of planning, according to the Renewable Fuels Association.
When all of the current plants under construction are completed, probably in early 2009, ethanol plants will need about 4.3 billion bushels of corn a year to produce more than 12 billion gallons a year.
Ken McCauley, president of the National Corn Growers Association, said the planting report showed that farmers responded to demands from the ethanol and livestock industry to grow more corn.
“It really shows you that that market is doing its thing,” said Mr. McCauley, a Kansas farmer.
The market is doing its thing with a substantial assist from the government.
Posted by dan at 03:49 PM