Friday, November 28, 2008

Black Friday begins

This is from The New York Times:

Black Friday, long the Super Bowl of shopping, is at hand, but it may have become nearly irrelevant. Check out the deals that were already on offer earlier this week:

Diamond earrings at Macy’s were chopped to $249 from $700. A Marc Jacobs bag at Saks, originally $995, fell to $248.45. And for men, a Ted Baker suit at Lord & Taylor was selling not for the usual $895, but for $399.99.

Such crazy prices are a sign of the times, and analysts expect many more such deals during one of the toughest holiday seasons in decades.

Laden with excess inventory, hungry for sales and worried because of five fewer shopping days between Thanksgiving and Christmas this year, the nation’s retailers went into a price-cutting frenzy long before the day after Thanksgiving, the traditional start of the holiday shopping season. For weeks, they have been trying to outdo one another to capture the attention of consumers who have become numb to run-of-the-mill discounts. As the latest T. J. Maxx slogan goes: “Every day is Black Friday.”

In fact, retailers have had so many early “doorbusters” — jaw-dropping deals usually reserved for Black Friday — that “it’s almost not necessary to get up at 5 in the morning,” said Bill Dreher, a senior retailing analyst with Deutsche Bank Securities.

But the retailers are just getting warmed up.

The Toys “R” Us chain is planning the deepest discounts in its history on Friday, with 50 percent more doorbusters than last year. Other retailers are promising that their deals will be even more striking than the sales they have already unveiled — with Wal-Mart, for instance, promising large flat-panel televisions for less than $400.

Such bargains are likely to set the tone for the shopping season to come.

“There’s no reason to suspect this will end,” said Dan de Grandpre, editor in chief of, which has been tracking Black Friday deals for about a decade. “This kind of heavy discounting will continue until we see some retailers start to fail, until they start to go out of business.”

Indeed, the intense competition could erode profits at many chains. Some retailing analysts even fear it could condition consumers to shop only when merchandise is deeply discounted.

Still, stores plan to pull out all the stops on Friday and through the weekend. After all, November and December sales make up 25 to 40 percent of many retailers’ annual sales, according to the National Retail Federation, an industry group. (The day after Thanksgiving is called Black Friday because it was, historically, the day that many retailers moved into the black, or became profitable for the year.)

I'll be honest, I don't know what will happen with retailers on Black Friday. Consumers have already cut back their spending by 1 percent for October, so I would guess that they will continue cutting back their spending, or at least hold their spending for the Christmas season. Retailers have done some serious discounting on their prices, even to the point to where they are panicking about bleak Black Friday sales. With the U.S. now in a recession, the problems we are seeing in the financial industry, the auto industry, and the continually worsening housing woes, I believe this Christmas shopping season will be one of the worst we've seen for the retail industry in about 30 years or so. It is going to be very bad.

I also found this interesting MSNBC News story on retailers sending their merchandise back to liquidators, even before Black Friday:

NEW YORK - The holiday shopping season begins Friday with a blitz of early morning specials. For some U.S. merchants, though, it's practically over already.

Piles of jewelry, clothing and electric drills are bypassing store shelves and heading straight to liquidators by the caseload as stores try to save as much cash as they can.

Major department stores and mall-based chains have cut prices up to 70 percent to move out mounds of excess inventory stuck in the pipeline since the financial crisis hit in September and people snapped their wallets shut.

Big moves of merchandise happen every year — but usually after Christmas. This year stores are desperate to shed inventory even before Thanksgiving.

"The holiday season is over. The reason? It just never got started," said Marshal Cohen, chief industry analyst at NPD Group, a market research firm. "How cheap things are doesn't bode well for holiday success."

The deep price cuts even on luxury brands — think 40 percent off on $5,000 Chanel suits and 70 percent off on designer shoes at Saks Fifth Avenue and 40 percent off $695 Ralph Lauren leopard-printed pumps at Bloomingdale's — are only good news for the dwindling pool of consumers who are comfortable enough financially to take advantage of the deals.

Experts say discounts are only going to get even better as stores resort to more extreme measures to clear out unsold items. The value of coats and sweaters drops dramatically as the winter months wear on.

Still, there is some incentive for choosy consumers to buy early: increasingly lean inventories mean that certain colors, sizes and styles may sell out early. For those who are open minded, it's a bargain hunter's dream.

It wasn't supposed to be this bad. Stores, which typically place orders about four to seven months in advance, had cautiously planned their holiday inventories about 15 percent below last year's levels.

But because of the free fall in consumer spending, stores are now stuck with about 15 percent to 20 percent excess holiday inventory, estimated Burt P. Flickinger, managing director of Strategic Resource Group.

Richard D. Hastings, a consumer strategist with Global Hunter Securities, says the latest culprit — fear of deflation — is also causing stores to dump inventory. Clothing and other merchandise is worth less now than it was even three months ago.

"Prices are slipping too fast, and so by the time you sell the product, stores are not covering their operating expenses," he said.

But stores are only making matters worse. The more they discount and send to liquidators, the lower the prices become. Consequently, stores generate less in sales.

Still, in the current economy, they have no choice. Carrying inventory is a big expense, and stores need to preserve cash at a time of tightening credit.

At warehouses operated by Liquidity Services Inc., a leading online auction company for surplus goods, there are rows and rows of pallets of offloaded merchandise ranging from jewelry to consumer electronics.

At the company's, which auctions surplus goods offered by stores and manufacturers to dollar stores and small businesses that sell on eBay, the number of auctions scheduled for the Thanksgiving weekend has soared to 2,100 — eight times more than last Thanksgiving, said chief executive Bill Angrick.

In other words, what normally happens after Christmas is taking place this weekend, he said.

"This is about survival. This is not about muddling through the holiday season," Angrick said.

Inventory has doubled from a year ago at, which offers brand-name merchandise at discount prices, said CEO Patrick Byrne. Stores are unloading top-notch brands such as Gucci and Prada in recent weeks at a rate he's never seen in the company's nine-year history. And more is arriving by the truckload.

So now the liquidators are seeing their warehouses filled with stock that they can't even get rid of. It makes me wonder if we're going into a price deflation spiral now, or will this be a temporary deflation until the end of the holiday season?

Thursday, November 27, 2008

Terror attacks rock Indian city of Mumbai

Flames and smoke gush out of the historic historic Taj Mahal Hotel in Mumbai. Indian commandos battled Thursday to end a multiple hostage crisis in Mumbai after Islamic militants killed 125 people across the city and grabbed foreign guests in two luxury hotels.
(AFP/Indranil Mukherjee)

I've seen this story come up over the last two days. From The New York Times:

MUMBAI, India — Coordinated terrorist attacks struck the heart of Mumbai, India’s commercial capital, on Wednesday night, killing dozens in machine-gun and grenade assaults on at least two five-star hotels, the city’s largest train station, a Jewish center, a movie theater and a hospital.

Even by the standards of terrorism in India, which has suffered a rising number of attacks this year, the assaults were particularly brazen in scale and execution. The attackers used boats to reach the urban peninsula where they hit, and their targets were sites popular with tourists.

Map showing coordinated terrorist attacks in Mumbai, India. From Yahoo News.

The Mumbai police said Thursday that the attacks killed at least 101 people and wounded at least 250. Guests who had escaped the hotels told television stations that the attackers were taking hostages, singling out Americans and Britons.

A previously unknown group claimed responsibility, though that claim could not be confirmed. It remained unclear whether there was any link to outside terrorist groups.

Gunfire and explosions rang out into the morning.

Indian commandos with sniffer dogs arrive at the Taj Mahal hotel in Mumbai. (AFP/Prakash Singh)

Hours after the assaults began, the landmark Taj Mahal Palace & Tower Hotel, next to the famed waterfront monument the Gateway of India, was in flames.

The latest New York Times story reports that Indian commando forces have taken control of the two hotels, and are both "searching for survivors and battling bands of gunmen who unleashed two days of chaos" in Mumbai. The remnants of the gunmen are now holed up in the Jewish community center. The death toll is estimated to be around 119 to 125 killed. The death toll just keeps rising.

Happy Turkey Day! Palin pardons turkey amidst slaughter!

Happy Turkey Day! And in honor of our stuffing turkey this Thanksgiving, here is that wonderful video of former Republican vice presidential candidate, Alaska governor Sarah Palin performing her official governing duties of pardoning a turkey for this Thanksgiving. However the shocking, breaking news isn't Sarah Palin's turkey pardon--yes, you already know what happens after Palin's pardon. From Countdown:

The irony here is just amazing. Sarah Palin pardons one turkey, and then takes questions before reporters as two turkeys are killed behind her--completely oblivious to the horrifying slaughter taking place. What is really funny is watching the turkey executioner doing his gruesome work. He's having a good old time doing his job, while watching Sarah Palin blather away as he is grinning at the TV cameras--Look Ma, I'm on TV!

Of course, this brings Keith Olbermann, since he was absent the day of Palin's turkey pardon, into this turkey fracas. From Countdown:

Maybe it is time to get rid of this annual turkey pardon?

Update: Here is the full Slate video of Palin's turkey pardon updates:

Wednesday, November 26, 2008

Consumer spending dropped 1 percent in October

There is not much more to say about this story. From MSNBC News:

WASHINGTON - As the financial crisis was gaining force, Americans cut back on their spending in October by the largest amount since the 2001 terrorist attacks.

The Commerce Department reported Wednesday that consumer spending plunged by 1 percent last month, even worse than the 0.9 percent decline that had been expected.

It says personal incomes were up 0.3 percent last month, slightly better than the 0.1 percent gain analysts had expected.

The big decline in spending in October underscores concerns that the economy is falling into a deep recession. Consumer spending accounts for two-thirds of total economic activity.

The government had reported Tuesday that the overall economy, as measured by the gross domestic product, was declining at an annual rate of 0.5 percent in the July-September quarter. With October's big drop in spending, the view is that the GDP decline for this quarter will be much steeper, with some analysts projecting the economy will contract at an annual rate of 4 percent this quarter.

Many economists believe the current recession will last through the middle of next year and will be the most severe downturn since the 1981-82 slump.

Part of the fall in spending reflected declines in gasoline and other energy prices, which had been soaring earlier in the year. Adjusting for price changes, spending fell by 0.5 percent and it was the fifth consecutive decline, the longest stretch of spending declines since 1990-91, when the country was in a recession.

Consumers are being battered at the moment by rising unemployment, falling home prices and the worst financial crisis since the 1930s. The government has assembled rescue efforts totaling close to $7 trillion including $800 billion in new programs announced Tuesday to boost the availabiltiy of home mortgages and various other types of consumer loans from credit cards to auto and student loans.

In simple terms, we are in a huge world of hurt here. Expect December Christmas spending to drop as well.

Food stamp users hit all-time high

This is from The Washington Post:

Fueled by rising unemployment and food prices, the number of Americans on food stamps is poised to exceed 30 million for the first time this month, surpassing the historic high set in 2005 after Hurricane Katrina.

The figures will put the spotlight on hunger when Congress begins deliberations on a new economic stimulus package, said legislators and anti-hunger advocates, predicting that any stimulus bill will include a boost in food stamp benefits. Advocates are also optimistic that President-elect Barack Obama, who made campaign promises to end childhood hunger and whose mother once briefly received food stamps, will make the issue a priority next year.

"We soon will have the most food stamps recipients in the history of our country," said Jim Weill, president of the Food Research and Action Center, a D.C.-based anti-hunger policy organization. "If the economic forecasts come true, we're likely to see the most hunger that we've seen since the 1981 recession and maybe since the 1960s, when these programs were established."

The Agriculture Department is set to release the new numbers as early as this week. Agency officials declined to confirm the figures but outlined them in a briefing last month for advocates and administrators of state food stamp programs. Breaking the symbolically important 30 million mark comes on the heels of government data showing that 11.9 million people went hungry in the United States at some point last year. That included nearly 700,000 children, up more than 50 percent from the year before.

There is a double-whammy of who is taking food stamps and why. The first is unemployed Americans, where unemployment has jumped to 6.5 percent in October, and is predicted to increase to 8 percent by the end of 2009. These Americans may also be struggling to pay their subprime mortgages, with the increased adjustable interest rates, on their homes. As Americans are trying to keep up with their mortgage payments, on falling values of their homes, some will find themselves being laid off by companies trying to cut back on a slowing U.S. economy. With high mortgage payments and no jobs, is it no wonder that more Americans are turning to food stamps.

Of course, the second whammy is the rising costs of food. According to the WaPost, the consumer price index for food and beverages had jumped 6.1 percent in October. This increase in food prices disproportionately affects low income Americans:

For low-income families, who spend a higher percentage of their monthly budget on food, that rise has been particularly painful. Food stamp benefits are adjusted for inflation only once a year, and as of September, the maximum benefit fell $64 a month short of the cost of the thriftiest, USDA-established diet for a family of four. The annual adjustment in October of 8.5 percent largely brought the benefit in line with food costs again, but the Center on Budget and Policy Priorities, a nonpartisan policy group, estimates that if current inflation persists, by December benefits will again fail to match the cost of the thrifty food plan.

"At a time when we have more people turning to the food stamp program, it is less and less able to meet their basic food needs," said Stacy Dean, the research center's director of food assistance policy.

Americans with higher incomes spend a lower percentage of their monthly budget on food. And since food stamps have not kept up with inflation, the low income Americans will still spend more of their dollars on food--even with the food stamps. And it is only going to get worst as unemployment continues to rise.

Tuesday, November 25, 2008

Pastor advocates more sex for married couples

This is from The New York Times:

GRAPEVINE, Tex. — And on the seventh day, there was no rest for married couples. A week after the Rev. Ed Young challenged husbands and wives among his flock of 20,000 to strengthen their unions through Seven Days of Sex, his advice was — keep it going.

Mr. Young, an author, a television host and the pastor of the evangelical Fellowship Church, issued his call for a week of “congregational copulation” among married couples on Nov. 16, while pacing in front of a large bed. Sometimes he reclined on the paisley coverlet while flipping through a Bible, emphasizing his point that it is time for the church to put God back in the bed.

“Today we’re beginning this sexperiment, seven days of sex,” he said, with his characteristic mix of humor, showmanship and Scripture. “How to move from whining about the economy to whoopee!”

On Sunday parishioners at the Grapevine branch watched a prerecorded sermon from Mr. Young and his wife, Lisa, on jumbo screens over a candlelit stage. “I know there’s been a lot of love going around this week, among the married couples,” one of the church musicians said, strumming on a guitar before a crowd of about 3,000.

Mrs. Young, dressed in knee-high black boots and jeans, said that after a week of having sex every day, or close to it, “some of us are smiling.” For others grappling with infidelities, addictions to pornography or other bitter hurts, “there’s been some pain; hopefully there’s been some forgiveness, too.”

Mr. Young advised the couples to “keep on doing what you’ve been doing this week. We should try to double up the amount of intimacy we have in marriage. And when I say intimacy, I don’t mean holding hands in the park or a back rub.”

Only married couples are suppose to have sex seven days a week? What about the single people, or the unmarried couples?

Then again, maybe the world will become a better place if more people are doing it seven days a week.

November economic headlines

I've been down at my parents' place in Hollister, so my apologies for the lack of posting. Today I'll touch on some of the economic headlines for Turkey Month.

U.S. economy took a tumble in the summer: This MSNBC News story reported that the Commerce Department released the latest statistic on the slowing U.S. economy, where "the gross domestic product shrank at a 0.5 percent annual rate in the July-September quarter." This contraction was weaker than the 0.3 percent rate of decline, as reported a month ago, and the worst showing since the 2001 recession, when the U.S. economy shrank at 1.4 percent in the third quarter of 2001.

Graph showing U.S. gross domestic product growth since 2004. From MSNBC News.

White House press secretary Dana Perino called the lower 0.5 percent GDP figure “troubling.”

Also in the MSNBC story, the Federal Deposit Insurance Corp. reported that the list of banks it considers to be troubled, had shot up 50 percent to 171 banks during the third quarter. This is the highest level since 1995. The FDIC said that the banks and savings institutions suffered a 94 percent drop in third quarter profits to $1.7 billion, the lowest profit since the fourth quarter of 1990.

What does all this mean? We're still not out of the woods yet. The third quarter U.S. GDP contraction was greater than what the economists were expecting. The fourth quarter U.S. GDP contraction will probably be greater than the 0.5 percent third quarter contraction. I'll say it will probably be around 0.7 percent contraction for the fourth quarter. When will the U.S. economy start to grow? That will depend on getting the credit market to loosen up in providing more loans to Americans for businesses, autos, and homes. It will also depend on stemming the number of home foreclosures, perhaps renegotiating the adjustable-rate and subprime mortgages into fixed mortgages for Americans, whose home mortgages are going underwater. It will probably also depend on increasing the wages of American workers, where the MSNBC story reported that American's disposable income "fell at an annual rate of 9.2 percent in the third quarter, the largest quarterly drop on records dating back to 1947. The government’s initial estimate had showed a record 8.7 percent decline in disposable income for the quarter." Americans have slashed their spending "in the third quarter at a 3.7 percent pace. That was deeper than the 3.1 percent cut initially reported and marked the biggest reduction since the second quarter of 1980, when the country was in the grip of recession." Consumer spending accounts for two-thirds of the U.S. economy. If American consumers are not spending, then retailers are slashing prices on their current inventory just to get the products off their store shelves, and will be both cutting back on purchasing new stock and laying off workers. Manufacturing and production of goods will also probably be cut back, with more layoffs, forcing even more unemployed Americans to cut back on their spending. And at the same time, we have a situation where Americans are saddled with so much home mortgage and credit card debt--debt that will need to be paid off, or will end up being defaulted, saddling banks with even more losses as unemployed Americans fail to pay off their debt. We're still not out of the woods yet.

Consumer confidence rises in November: I know that there is plenty of bad economic news to report, but here is some good news to chew on. According to this MSNBC News story, the Consumer Confidence Index now stands at 44.9, moving up from a revised 38.8 in October. "Economists surveyed by Thomson Reuters expected the November reading to slip to 37.9. Still, the November figure is about half of what it was a year ago, and hovers around levels not seen since December 1974, when the index was 43.2." My guess here is that consumer confidence had risen slightly because of lower gas prices;

Gasoline prices nationwide continued to decline, falling 2.3 cents overnight to $1.885, their lowest levels since September 2004 when the average price for three days was $1.886, according to auto club AAA, the Oil Price Information Service and Wright Express. The current price is $1.20 below where it was a year ago and down $2.225 from the peak in July when prices hit $4.11 per gallon.

Gas prices have been falling since around early September. When you find that the cost of filling your tank is chopped in half, from around $4.00 a gallon to $2.00 a gallon, that does provide a little relief to your pocketbook, and probably gives a little bit of a confidence boost. The Consumer Confidence number will probably hover at around the 44-45 range for the rest of the year, considering the continuing bad economic news, falling home prices, unemployment news and such.

Home prices tumble to 2004 levels: I'm really not surprised about this MSNBC News story;

WASHINGTON - Nationwide sales of existing homes fell more than expected last month, as economic fears made buyers leery even though prices plunged to the lowest level in more than four years. And the decline is expected to get worse because October's results reflect sales contracts signed before Wall Street's nosedive.

The National Association of Realtors said Monday that sales of existing homes fell 3.1 percent to a seasonally adjusted annual rate of 4.98 million units in October, from a downwardly revised pace of 5.14 million in September. Sales had been expected to fall to a rate of 5.05 million, according to economists surveyed by Thomson Reuters.

The median sales price plunged 11.3 percent from a year ago to $183,000. That was the largest year-over-year drop on records going back to 1968, and the lowest median sales price since March 2004.

We still have a lot of subprime mortgage crap out there, where Americans are struggling to pay higher mortgage prices due to adjustable-rate mortgages. Banks have been refusing to refinance the subprime stuff because they get higher interest payments on these mortgages to improve their own troubled balance sheets. Unfortunately, the Americans who can't pay off their higher mortgages end up foreclosing on their homes, sending those same over-valued homes back to the banks, which can't sell them to cover their own losses. The MSNBC story reports that there are 4.23 million unsold homes on the market in October, which would take 10.2 months to sell all the homes at the current sales pace. Thus, we still have an almost year's supply of housing on the market. And the housing prices are now falling.

U.S. retail sales struggle in early November: The Christmas shopping season will be a red Christmas for retailers. From MSNBC News;

The results from SpendingPulse provide an early look into the strength of the crucial U.S. holiday sales season, which traditionally begins on the day after Thanksgiving. This year, the major holiday sales period begins on Friday, November 28.

Analysts are predicting the worst holiday sales season in nearly two decades.

Overall apparel sales are down 19 percent from the same period a year ago, according to a report by SpendingPulse, the retail data service of MasterCard Advisors, an arm of MasterCard Worldwide. Apparel sales fell 5.5 percent in September and 12.2 percent in October.

Women's apparel fell 19.7 percent in the first half of November compared with last year, with men's apparel down 20.5 percent.

Footwear sales fell 11 percent, and electronics and appliance sales dropped a steep 22.1 percent, according to the report. Total luxury sales, which includes jewelry and high-end luxury stores, fell 21.1 percent.

Internet sales showed the most modest decline of the period, at 7.5 percent.

SpendingPulse's report includes sales from November 1 to November 15 and comes on the heels of dismal October sales, as consumers focused on essential purchases as the global financial crisis deepened.

"It's still very, very challenging. We've been seeing a deteriorating retail environment for some time, but in the last 10 days of October things started to deteriorate rapidly. That's continuing in November," said Michael McNamara, vice president of SpendingPulse.

Sales were better in the second week of November than the first, as consumers previously distracted by the U.S. election returned to the stores and gasoline prices eased.

I've been looking at the malls, and I'm seeing a lot of retailers posting sales signs of 50 percent off merchandise over the past two weeks. And while Americans may be going to the malls, they are not carrying shopping bags. So retailers are cutting prices to entice Americans into the stores to buy, but Americans are holding back on Christmas purchasing as retailers continue to cut prices. Am I seeing the first signs of a deflationary spiral?

Saturday, November 15, 2008

Happy Tree Friends--Flippin' Burgers!

Okay, I think I'm becoming a fan of these Happy Tree Friends cartoons. They are just sick, disgusting, and so very funny. Today's Happy Tree Friends' cartoon is Flippin' Burgers. This is what happens when a Happy Tree Friend Flippy goes Iraq Post-Traumatic Stress Disorder in a burger joint. From YouTube:

I guess the Pentagon will have to purchase a lot of french fries to keep Flippy happy.

Thursday, November 13, 2008

Hillary considered for Secretary of State?

I found this Yahoo News story through Americablog, and I'm not sure what to make of it. From Yahoo News:

WASHINGTON (Reuters) – Sen. Hillary Clinton, who lost to Barack Obama in the Democratic presidential primary, is being considered to serve as secretary of state in the Obama administration, NBC News reported on Thursday.

The report cited two unnamed advisers to President-elect Obama. The report said Clinton's office would only say that any decisions on the appointment would be up to the president-elect.

The former first lady, who was in a drawn-out battle for the Democratic presidential nomination, is in her second term as a senator from New York.

Several other names also have been mentioned for the top U.S. diplomatic post including Sen. John Kerry, the 2004 Democratic presidential nominee; Sam Nunn, a Democrat and former Senate Armed Services Committee chairman; Sen. Chuck Hagel, an outspoken Republican member of the Senate Foreign Relations Committee; and New Mexico Gov. Bill Richardson, who was U.N. ambassador in former President Bill Clinton's administration and also sought the 2008 Democratic presidential nomination.

I could see John Kerry, Chuck Hagel, or even Bill Richardson as potential Secretary of State nominees under the Obama administration. But Hillary Clinton? I think she could serve this country with even greater distinction as either Senate Majority Leader, or on the U.S. Supreme Court. Probably the best thing Barack Obama could do is to give her the health care issue, and let her run with it through Congress.

At this point, I think we're seeing a trial balloon coming up through the Obama transition team on just where to place Hillary Clinton in the Obama administration.

Update:I've been looking through the Daily Kos comments on the rumor of Hillary Clinton as Secretary of State, and there is some interesting speculation of giving Hillary the SOS position, and then Hillary could become the top Democratic presidential contender in 2016 race--after Obama serves his two terms, and VP Joe Biden would be considered too old to run in 2016. Given that former Republican vice presidential candidate Sarah Palin has her eyes set for the White House, either a run in 2012 or 2016, could we end up seeing a all-female presidential race in 2016 by both political parties?

Talk about some interesting speculating firsts--a first African-American president, followed by a potential first female president.

Gondoliers in Venice for Obama

I don't think I've ever seen anything like this before. From YouTube:

Foreclosures spiked 25 percent on year-on-year high

We've got more bad news in the housing market. From MSNBC News:

MIAMI - The number of homeowners caught in the wave of foreclosures in October grew 25 percent nationally over the same month in 2007, data released Thursday showed.

More than 279,500 U.S. homes received at least one foreclosure-related notice in October, an increase of 5 percent over September, according to RealtyTrac Inc. One in every 452 housing units received a foreclosure filing, such as a default notice, auction sale notice or bank repossession.

More than 84,000 properties were repossessed in October, RealtyTrac said.

Foreclosure rates grew 25 percent nationally over the same month of October, year-to-year. From MSNBC News.

A nasty brew of strict lending standards, falling home values and a tough economy is filtering through the housing market. By the end of the year, the company expects more than a million bank-owned properties to have piled up on the market, representing around a third of all properties for sale in the U.S.

The MSNBC story does provide some background information on the U.S. Treasury's $700 billion bailout program for Wall Street, even to the point of Treasury Secretary Henry Paulson saying that the $700 billion will not be used to purchase "troubled bank assets." That is just another phrase for saying all those subprime mortgages and mortgage-backed securities the banks are holding, that are currently underwater. But the interesting aspect about this MSNBC story is what is not said. The Wall Street banks have been using this U.S. Treasury bailout money for bolstering their balance sheets, buying other banks, paying big executive bonuses, and basically hoarding the bailout money. Everything else--except for making loans. The banks are facing huge problems in renegotiating loans--especially the subprime mortgage loans. According to this Yahoo News Buzz story:

Voluntary programs don't work. There are already several voluntary efforts to encourage banks and their customers to renegotiate failing mortgages on their own, such as the HOPE NOW program that regulators cite frequently as a stand-in for a real solution. But voluntary efforts are marginal at best. First of all, most banks are free to rework loans without any government urging at all. The reason they don't--big surprise--is that they often lose money. Even if the government tries to strong-arm the banks, that doesn't eliminate the loss, and CEOs still have shareholder money to safeguard. Telling stockholders that "the government said so" doesn't usually justify poor financial performance.

By the most optimistic assessment, the banking industry is reworking about 200,000 troubled mortgages a month, without government compulsion. That might sound like a lot, except there are about 5 million mortgages in foreclosure or at risk of default. So 200,000 workouts amounts to resolving 4 percent of the problem each month, assuming there are no additional foreclosures. But the economy is getting worse, not better, and intensifying layoffs are going to lead to more problem mortgages, not fewer. In recent testimony before Congress, FDIC Chairman Sheila Bair said that "some of the voluntary efforts have helped, but it has clearly not helped enough. We are falling badly behind."

A homeowner bailout would have millions of moving parts. Bailing out banks requires a lot of money and a very careful strategy, but once the Treasury Department has determined which banks to help, the process is straightforward: The government buys preferred shares in the bank, according to standardized rules. Even if the government invests in 1,000 banks, the procedure should be the same in virtually every case.

It's extremely difficult to establish standardized rules for salvaging individual mortgages. Of the 5 million problem mortgages, the majority have been "securitized," which in many cases means the loan has been carved up into various pieces representing repayment of the principal, say, or the interest payments, and then bundled up with pieces of other mortgages and sold as securities to investors worldwide. Some of those have been resold to other investors or pledged as collateral in other deals. It could take as much work to identify all the investors in a single $300,000 mortgage as it does to execute a $3 billion federal investment in a bank with thousands of customers. Now, multiply that effort by 5 million loans. Wanna manage that program? Neither does Bair or Treasury Secretary Henry Paulson.

Homeowner bailouts could worsen the problem. Even when reworking a loan might help save a home and keep the payments coming, there still might be risks to the bank--especially if it's a local bank that issued a lot of mortgages in a concentrated area. "If you suddenly tell borrowers there's a lower amount due, others may see that and stop paying," says economist James Barth of the Milken Institute. So bailing out one guy might persuade his neighbor to stop making payments, even if he can still afford to, and hope for a better deal instead. That makes banks reluctant to renegotiate in the first place, and when they do, they often ask for concessions that the borrowers reject.

One stipulation of a federal program, for example, is that in exchange for a loan guarantee, the government gets a big chunk of any future appreciation in the house, even if you don't sell for 25 years. But sharing your house with Uncle Sam is a strange proposition, and even distressed borrowers are reluctant to go along with that.

The worst loans are the hardest to track. If banks simply issued mortgages and then held onto them, as in the George Bailey days, the problem wouldn't be so complicated. In fact, the FDIC is already reworking at least 40,000 troubled mortgages at IndyMac, the big California bank it took over in July. When the loan is held by the bank that issued it, there are no downstream investors to consult, and the mortgage is usually still intact. At IndyMac, workout efforts are aggressive, because the FDIC doesn't have shareholders to answer to and it wants to fix the bank's balance sheet as fast as possible.

But the riskiest subprime loans--and especially adjustable-rate subprimes, the most "toxic" of all--aren't typically held by banks. Here's the math, according to recent analysis from the Milken Institute:

-- About 50 percent of all foreclosures involve subprime mortgages.

-- About 68 percent of all subprime mortgages are securitized.

-- About half of all securitized subprime loans are held by private institutions, rather than government-controlled entities like Fannie Mae and Freddie Mac.

That means the majority of the bad loans bringing down the housing market are controlled by the private investors whose greed and carelessness fueled the problem in the first place. And there's nothing an individual borrower can do to control who holds his mortgage. The government could help borrowers by buying up all those bad loans, at enormous expense, then essentially refinancing on terms more favorable to the homeowners. But that would amount to an egregious bailout of some of the shadiest players in the business. Even if taxpayers could stomach that, the downstream investors all have different stakes in the mortgage-backed securities they hold, with no motivation to agree to a single bailout plan. And so far, nobody in Washington has figured out a palatable way to help borrowers without also bailing out the downstream investors holding the securities, at a price the government can afford. Anybody who can solve that conundrum should contact Paulson and Bair immediately.

The big problem here is all of the subprime mortgages that are either partially floating, or are going underwater, in the market. These subprime loans have been chopped up and sold off into mortgage-backed securities to the point where no one really knows what the true value of the mortgage-backed securities are. Furthermore, the big Wall Street firms--such as American Income Group--have purchased and sold collateralize debt obligations based on these subprime mortgages, only to see these CDOs go underwater, forcing the Wall Street firms to cough up huge amounts of money to cover their own losses. The Yahoo Buzz story reports that there is around 5 million problem mortgages in the U.S. now. That is a huge number of problem loans that the banks will be forced to renegotiate. The banks are going to renegotiate these problem loans, only as a last resort.

But, with the banks holding on to a million foreclosed properties, representing almost a third of all properties for sale in the U.S. market, I think the banks are now starting to realize that it may be better to renegotiate these subprime loans in order to keep Americans in their homes, rather than having even more foreclosed homes sitting, unsold, on the banks' balance sheets. Banking executives are promising Congress that they will use the government's bailout money "to assist with rewriting residential mortgages" to American families. Citigroup has offered to ease mortgage terms for 130,000 customers, resulting in "workouts of over $20 billion of loans." And it is not just Citigroup that is modifying their loan packages:

Several of the nation’s largest banks have made similar offers to hundreds of thousands of homeowners with plans that may wind up helping a larger pool of troubled borrowers than the government’s plan to partly guarantee home loans. Roughly 1.5 million homes were in foreclosure at the end of June, the last month for which data is available, and economists expect more borrowers to default in the coming months as unemployment rises and home values fall even more.

JPMorgan Chase, which acquired Washington Mutual and its troubled loan portfolio, announced plans in late October to cut monthly payments by lowering interest rates and temporarily reducing loan balances for as many as 400,000 homeowners. Bank of America, which acquired the large mortgage lender Countrywide Financial, announced a similar program aimed at 400,000 borrowers as part of a settlement with state officials a few weeks earlier. And HSBC ramped up its mortgage modification effort in January, and has adjusted 61,000 mortgages so far this year.

The loan modification programs closely resemble one that the Federal Deposit Insurance Corporation put in place at IndyMac after it took over that bank in mid-July. Citi plans to reduce monthly payments by temporarily reducing loan balances and by cutting interest rates to as low as 1 percent for up to 2 years. The F.D.I.C. has said it may be able to help 47,000 delinquent IndyMac borrowers.

I think the banks are starting to realize just how bad this depressed real estate market is hitting their pocketbooks. They are saddled with a huge number of foreclosed homes that they cannot sell to cover their losses, and are watching these foreclosed homes continue to drop in value. In addition, these banks are sitting on even more subprime home mortgages that are threatening to go into default, forcing the banks to foreclose even more homes on their books--homes that they still cannot sell to cover their mortgage losses. So the banks are being forced with unappetizing choice of either renegotiating the subprime loans for those Americans that are threatening to go under, or to continue to get saddled with more undervalued, foreclosed, homes that they cannot sell in a slumping real estate market.

We may be starting to see the slow beginnings of a real estate turn-around. But such a turn-around will still take years, as the shake-out from the subprime mortgage mess continues.

Macy's reports $44 million third-quarter loss, Best Buy lowers profit forecast for 2009

Here is another sign of just how bad the retail market is heading. From MSNBC News:

As consumers continued to rein in their spending ahead of the crucial holiday shopping season, Macy's reported a third quarter loss of $44 million on Wednesday as Best Buy slashed its profit forecast for 2009.

Best Buy's announcement comes just two days after smaller electronics retail rival Circuit City Stores filed for Chapter 11 bankruptcy protection.

"Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen. Best Buy simply can't adjust fast enough to maintain our earnings momentum for this year," Chief Executive Brad Anderson said in a statement.

Macy's, one of America's biggest department stores, also said Wednesday that it slashed its budget for 2009 capital expenditures by almost half as it navigates the deteriorating economy. Still, the Cincinnati-based chain reiterated its profit outlook, adding it would be at the lower end of the range if current sales trends continue.

Terry J. Lundgren, Macy's chairman, president and chief executive, said in a statement that even in what he describes as a "poor economic environment," he's confident in the company's strategies for gaining market share, particularly as its effort to localize stores more is yielding "promising early results." He expects that strategy to have a more profound impact in 2009.

Best Buy, America's biggest electronics chain, said it expects to end the third quarter with higher inventory levels, short-term borrowings and accounts payable than previously projected due to the drop in consumer spending.

"In 42 years of retailing, we've never seen such difficult times for the consumer. People are making dramatic changes in how much they spend, and we're not immune from those forces," said President and Chief Operating Officer Brian Dunn.

The Richfield, Minn.-based company also faces increased competition from Wal-Mart Stores Inc., which has stepped up its advertising on electronics such as flat-panel televisions as a big part of its holiday push that emphasizes low prices.

With the U.S. economy in what many economists say is a recession, most retailers, whether they sell clothes or higher-end electronics, are seeing sales pressured.

"People selling $30 pairs of jeans are struggling so imagine trying to sell a $3,000 television," said Jon Fisher, portfolio manager at Fifth Third Asset Management.

The problem goes back to the deteriorating U.S. job market. If large American companies are cutting spending, and slashing jobs, Americans are going to cut back on their holiday spending. Even if Americans are able to become employed in holiday retail jobs, they are not going to purchase a $3,000 television by selling $30 pairs of jeans. Best Buy reported comparable store sales fell by around 7.6 percent in October, after falling 1.3 percent in October. Comparable store sales in November 2008 through February 2009 could decline by 5-to-15 percent, leading to an annual comparable store sales decline from about 1 percent to 8 percent. Macy's sales are just as bad. Macy's third-quarter sales dropped more than 7 percent, falling to $5.49 billion from $5.9 billion. Macy's lost $44 million in the quarter, or 10 cents per share, after posting a $33 million profit, or 8 cents a share, a year earlier. But Macy's did perform better than their competitors, J.C. Penny, which experienced an 11.8 percent drop in same-store sales, and Dillards, which saw an 8 percent drop in same-store sales.

What is more, you are not going to purchase a $3,000 television, or a $30 pair of jeans, for the holidays if you are struggling to pay the bills, buy groceries, or keep up with the mortgage.

Applications surge for holiday retail jobs

I have already written a post on jobless claims surging to the highest level since September, 2001. Well, now I have found another interesting story on the U.S. job market--applications are surging for holiday retail jobs. From MSNBC News:

NEW YORK - The odds of landing a part-time job at department store operator Bealls Outlet Stores Inc. this holiday season are slimmer than getting into Harvard: It's one out of every 45.

Don't think the chances are any better at 7-Eleven. One California store received more than 100 applicants in a week and a half for jobs that pay $8.50 per hour — and the retailer doesn't even usually hire holiday workers.

From department stores and convenience chains to call centers, managers who only a year ago had to scramble to fill holiday jobs are seeing a surge in the number of seasoned applicants — many of them laid off in other sectors and desperate for a way to pay the bills.

The flood of jobseekers comes even as the retail industry drastically cuts back on holiday hiring because of the drop-off in consumer spending, and the applicants — who differ from the usual pool, teens or stay-at-home moms looking for extra spending money — reflect the nation's fast-deteriorating job market.

"I thought it was going to be pretty easy, but I am not the only one looking for a job. There are thousands of us going for the same thing," said Kimberly Caparo of Chesterfield, Mich., who has applied for part-time jobs at Toys "R" Us Inc., Home Depot Inc. and Lowe's Cos. Inc. in recent weeks since she and her husband were laid off by American Axle & Manufacturing Holdings Inc.

The important aspect about these holiday retail jobs is that the pay is around $8 to $9 dollars an hour, and provide no benefits--certainly no health care benefits. The work is usually full-time, or part-time, and will only last from November to December. These jobs use to be filled by teens, and lower-income Americans, but with the unemployment rate rising, it appears that more middle-class Americans are taking these jobs in order to pay the bills as their own jobs are lost. And the American workers who are being hired into these temporary holiday job market will probably not be spending much money for the Christmas holidays, not if they are paying the bills on these low-paying retail jobs. According to the MSNBC News story:

What's so striking, store executives say, is how desperate the applicants are.

Rob Duncan, chief operating officer of Alpine Access, a "virtual" call center provider with 7,500 employees working from their homes across the country, estimated a 10 to 15 percent rise in applicants from a year ago. In the past, they were mostly stay-at-home moms looking for part-time work. Now the company, which handles customer service for stores like J. Crew as well as tech support, debt collection and financial services, is seeing more men and more midlevel managers looking for at least 35 hours of work.

"They are looking for replacement income; instead of supplemental income," Duncan said.

And yet, the retail industry is cutting back on their hiring in anticipation of a bad holiday season:

John Challenger, chief executive of Chicago-based outplacement firm Challenger, Gray & Christmas, noted that holiday hiring will fall significantly below last year's total, which was the lowest since 2003. And those with pink slips shouldn't count on new job opportunities even after the holidays, since even more retailers are expected to file for bankruptcy.

The U.S. retail industry alone shed 38,100 jobs in October, bringing the total since January to 297,000, according to Michael P. Niemira, chief economist at the International Council of Shopping Centers. That accounts for 25 percent of the 1.2 million jobs lost in the U.S. so far this year. Yet retail employment only accounted for about 11 percent of total payroll employment — meaning the retail industry is losing a higher proportion of its jobs.

Such retail losses have helped push the nation's unemployment rate to a 14-year high of 6.5 percent in October as another 240,000 jobs overall were cut last month, according to government data released Friday. And many economists believe the unemployment rate will climb to 8 percent or 8.5 percent by the end of next year.

So, let us assume that U.S. companies are cutting back on spending and hiring in anticipation of the slowing U.S. economy. These companies are also laying off American workers, increasing the unemployment rate. Let us also assume that the jobs being lost are middle-income jobs. Those same Americans who have lost their middle-income jobs, are now applying for the low-income holiday retail jobs. The benefit for the holiday retailers is that they are getting high quality American workers for a low wage, and no need for paying health care benefits, for the Christmas season. The big negative for these retailers is that these high-quality American workers, that the retail companies are hiring, will be using their retail income as replacement income for the income from their middle-class jobs that these American workers have lost. These Americans will probably be cutting back on their Christmas spending, including whatever employee discounts they get from purchasing merchandise from the stores they work in. Retailers end up expecting a potentially bleak Christmas season with very poor sales, as Americans cut back on their shopping. The retailers may end up cutting even more jobs, making it harder for unemployed Americans to find work in even lower-paying sectors of the job market.

U.S. jobless claims highest since September 2001

There is not much more to say about this Marketwatch story:

WASHINGTON (MarketWatch) -- First-time filings for state unemployment benefits hit their highest level since September 2001, rising to 516,000 in the latest week, a further sign of how the U.S. labor market's struggling, the Labor Department reported Thursday.

For the week ended Nov. 8, initial claims climbed by 32,000 from last week's revised figure of 484,000.

The four-week average of new claims -- which measures the underlying trend in joblessness -- also hit a historic high, shooting up to 491,000. That's the highest since March 1991.

Graph showing initial jobless claims rising to a high of 516,000. From MSNBC News.

There was more gloomy news in continuing claims, which rose to 3.89 million in the week ended Nov. 1, up 65,000.

The level of continuing claims indicates how difficult it is for displaced workers to find new jobs. Initial claims represent job destruction.

The four-week average of continuing claims was 3.79 million.
Both the figures for continuing claims and four-week continuing claims stood at the highest since 1983.

Unemployment benefits typically run out after 26 weeks for those who are eligible. A new law extends jobless benefits for an additional 13 weeks under a separate federal program.

Thursday's claims data are the latest gloomy indicator for the labor market.
In October, the nation's unemployment rate tipped 6.5% -- the highest in more than 14 years.

Some economists are expecting the picture to worsen further, perhaps considerably.

Let us go back to my previous post on retailers feeling the pinch of sales returns. Retailers were expecting consumers to return around 8.7 percent of total sales, or $219 billion worth of merchandise. That is up from 7.3 percent in 2007. The more that consumers feel threatened by job losses, or have lost their job, the less that they will spend on Christmas shopping. Even more, whatever merchandise that consumers have spent for Christmas, they may end up returning to retailers if these consumers have lost their jobs during the holiday season, or may need cash to pay bills.

Another interesting point is look at the graph--the jobless claims have really shot up since July of this year. The jobless claims have been hovering between 300,000 to 400,000 from November 2007 to June 2008, but then made a huge jump to around 450,000 in July and have continued to increase. Jobless claims reached 500,000 in September of this year--right around the time of the financial crisis. And now the claims are up to 516,000 for November. Something happened in July to cause employers to cut so many jobs between July and August. According to this August 18, 2008 MSNBC story on jobless claims, President Bush signed a bill in June to extend unemployment benefits by as long as 13 weeks. So jobless claims may have surged in July, as a greater number of Americans took advantage of the unemployment benefits. Some economists were expecting this to be a temporary measure, and that unemployment would drop back down after the temporary benefits were exhausted. But then we have inflation surging in August to around 5.6 percent, the Consumer Price Index jumping by 0.8 percent in July, and median home prices dropping by 7.6 percent during the second quarter. Inflation surged due to increases in energy and food prices, with energy prices increasing by 4 percent on a monthly basis and 29.3 percent annually, and food prices increasing by 0.9 percent monthly, and 8.4 percent annually. Median home prices dropped during the second quarter due to reduced demand in housing, and an increase in bank foreclosures due to the continuing subprime mortgage mess. Banks couldn't sell their foreclosed homes for the value of the subprime mortgage loans they took out on the homes. The bottom fell out of the U.S. economy between July and August, and then the Wall Street financial crisis slammed the U.S. economy in September / October. U.S. industrial output plunged in September by 2.8 percent. We are now seeing the effects of this U.S. economy dropping off a cliff. It is ugly.

Retailers feel the pinch of shopping returns

This is from The New York Times:

Shopping at Nordstrom in Miami this month, Maria Kakouris indulged herself with a $200 pair of satin-and-snakeskin pumps. Then came a spasm of buyer’s remorse. “Those shoes — they are still in my car with the receipt,” said Ms. Kakouris, a real estate agent. “I’m thinking, where am I going to wear them?”

In less challenging times, Ms. Kakouris might have hung onto the shoes. But now she is more circumspect. “They’re going right back where they came from,” she said.

In giving up her splurge, Ms. Kakouris joined a steeply rising number of shoppers who, driven by anxiety over jobs and savings, or an immediate need for cash, are marching back to stores with their purchases.

Consumers are expected to return a record $219 billion of merchandise this year, or 8.7 percent of total sales, compared with 7.3 percent in 2007, according to a survey released Thursday by the National Retail Federation.

Expected increase in the value of return merchandise between 2007 and 2008. From The New York Times.

Joseph LaRocca, a vice president of the retailing group, said that returns of the holiday purchases that many stores rely on to lift them into profitability for the year are expected to be especially high. It is one more measure of the calamity that many retailers are facing as consumers snap shut their wallets.

“Consumers are trading down massively; they are out of money, and that’s where returns come in,” said Howard Davidowitz, chairman of Davidowitz & Associates, a retailing consulting and investment banking firm. “When times are terrible, they look for ways to cut back.”

Analysts say that clothing and accessories make up the bulk of goods that shoppers bring back to stores in search of refunds. Unlike toys, housewares or electronics, fashion items tend to be bought on impulse and are subject to a sudden change of heart.

“Fashion is a feel-good purchase that sometimes doesn’t feel so good once you get it home, and that’s what makes it so vulnerable,” said Marshal Cohen, chief industry analyst for the NPD Group, which tracks retail sales.

First to go back may be the items bought during a moment’s splurge that cause instant regrets: the platform pumps that leave the wearer painfully teetering, the jeans that fit like a sausage casing or that garishly patterned cocktail frock that turns one’s skin a shade of puce.

In flusher times, such items may linger unworn at the back of the closet, but not anymore. “Not if it has a dollar sign attached,” said Candace Corlett, a partner in WSL Strategic Retail, a New York consulting firm.

“Returns are the newfound cash, the new savings account,” she added. “Everything you take back, you are presumably putting in your piggy bank.”

Now if the Christmas shopping season is going to be especially bad for retailers, considering all the bad economic news that has been coming out for the past couple of months, then imagine the worst-case scenario of lopping off 8.7 percent of your retail sales for returns on December 26th. That is going to cut into the poor sales numbers that retailers are expecting for this Christmas shopping season. Candace Corlett, from WSL, points out the hand-wringing among retailers, saying "“This year, even if you made your sales, that doesn’t mean those sales are going to hold. It’s another reason for retailers to lose a lot of sleep.” Another executive at an exclusive Midtown fashion store lamented, “People are returning merchandise in droves. They are combing through their closets like never before, finding anything that still has a ticket on it and bringing it back to the store.” This is just another sign of just how bad the U.S. economy is going into a recessionary tailspin.

Tuesday, November 11, 2008

U.S. economy expected to contract 0.4 percent in 2009

The headline really says it all in this Marketwatch story:

WASHINGTON (MarketWatch) -- The U.S. economy is expected to shrink 0.4% in 2009 compared with 2008, according to the monthly survey of 49 economists published Monday by Blue Chip Economic Indicators.

The economists also expect contractions in the Japanese, British and euro-zone economies in 2009.

The economists' median forecast calls for U.S. gross domestic product to fall by 2.8% in the final three months of 2008 and by 1.5% in the first quarter of 2009. GDP growth of 0.2% is expected in the second quarter next year.

Measured from the fourth quarter of 2008 to the fourth quarter of 2009, the Blue Chip forecasters expect GDP to rise 0.6%, compared with a forecast of 0.1% from the fourth quarter of 2007 to the fourth quarter of 2008.

"The consensus strongly suggests that the current recession will be deeper and last longer than those of 2001 and 1990-91," said Blue Chip editor Randell Moore in his commentary.

"Some of our panelists believe it may rival the 1981-1982 downturn, but that is not yet the consensus view," he added.

The nation's unemployment rate is expected to average 7.4% in 2009; it was 6.5% in October.

The economists also believe the Federal Reserve will cut the overnight target rate to 0.5% during the central bank's December monetary-policy meeting as a further measure to prop up the economy. Less than 10% of the economists see the Fed cutting rates below 0.5%.

The consensus sees the consumer price index, which tracks inflation at the retail level, rising by 1.5% in 2009 after a 4.2% gain in 2008.

The standard definition of a recession is a decline in Gross Domestic Product for two consecutive quarters. The National Bureau of Economic Research defines a recession as:

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.

The U.S. economy has already contracted 0.3 percent for the third quarter of 2008. Economists are now predicting that the U.S. GDP will contract 2.8 percent for the fourth quarter of 2008, and 1.5 percent for the first quarter of 2009. If the economists are correct, this will be three quarters of negative U.S. GDP growth. While the economists are predicting that U.S. GDP will start growing in the second quarter of 2009, I'm thinking it is going to take a lot longer to pull out of this economic morass--perhaps until late 2009 or early 2010. If anything, the U.S. economy will remain sluggish for the rest of 2009, perhaps measuring almost no growth or contraction.

With the amount of bad economic news coming out, I'm not surprised. We've got an enormous housing problem still weighing down this economy, as American homeowners are still facing subprime loans that they can't pay, and houses they are losing to bank foreclosures. Wall Street is still stuck with a pile of underwater securities and CDOs based on the value of worthless home mortgages. The American taxpayer is spending $700 billion bailing out Wall Street. Unemployment has jumped to 6.5 percent. Retail may have to rename Black Friday to Red Friday, considering the slowdown in consumer spending. The Detroit Big Three automakers are asking Congress for a $25 billion bailout package. The U.S. is in an economic clusterfuck here! Let us hope that we've elected a very smart President-Elect Barack Obama to get us out of this mess, because he is going to be stuck up into his eyeballs with this mess.

Monday, November 10, 2008

Feds give another $40 billion of taxpayer money to AIG

I really do not know what to say about this story. From the New York Times:

The federal government announced on Monday an overhaul of its bailout of the insurance giant American International Group, saying it would purchase $40 billion of the company’s stock, after signs that the initial bailout was putting too much strain on the company.

In a joint statement, the Federal Reserve and the Treasury said the move was necessary “to keep the company strong and facilitate its ability to complete its restructuring process successfully.” The new measures, they said, would help the company and promote market stability while protecting the interests of the federal government and taxpayers.

A.I.G. reported a loss on Monday of $24.47 billion, or $9.05 a share, in the third quarter, after a profit of $3.09 billion, or $1.19 a share, a year ago. The results included pretax losses of $18.31 billion from the declining value of A.I.G.’s investments.

Neel T. Kashkari, the assistant secretary of the Treasury who heads the Office of Financial Stability, said in a speech Monday morning that the new A.I.G. plan “was necessary to maintain the stability of our financial system.”

A.I.G. shares were 17 percent higher in late Monday morning trading. In the revised bailout, the Treasury Department will use the Troubled Asset Relief Program, the $700 billion financial system rescue plan, to buy $40 billion of newly issued A.I.G. preferred shares.

The government created an $85 billion emergency credit line in September to keep A.I.G. from toppling and added $38 billion more in early October when it became clear that the original amount was not enough. As part of the revision, the Federal Reserve said it would reduce that credit line to $60 billion.

When the reorganized deal is complete, taxpayers will have invested and lent a total of $150 billion to A.I.G., the most the government has ever directed to a single private enterprise. It is a stark reversal of the government’s assurance that its earlier moves had stemmed the bleeding at A.I.G. But Fed officials said the $40 billion investment would allow them to reduce their exposure to $112 billion from $152 billion, and improve the condition of the collateral for its loan. The revised deal will probably intensify the debate in Washington over why some companies should be saved while others are left to wither.

I'm getting the feeling that the American taxpayer is buying a huge boondoggle of a lemon under this AIG bailout deal. The federal government will spend $30 billion to help AIG "buy up a type of security called collateralized debt obligations that the company had agreed to insure against default. The securities are now held by institutional investors. As their insurer, A.I.G has been forced to put up large amounts of cash as collateral as the global economy has soured and the securities seemed increasingly likely to default." It appears to me that the federal government is not bailing out AIG, but rather these "institutional investors," who are holding these securities and demanding payment from AIG. In other words, our taxpayer money is going into the bank accounts of these "institutional investors." I would like to know who these "institutional investors" really are--Wall Street banks? Hedge funds? Big name investors? We have already spent $150 billion to keep AIG afloat, and it will probably require even more billions of taxpayer money to continue propping up AIG. Is it really worth it?

This deal is really starting to stink badly.

More job losses coming

There are a number of stories coming out today, revealing some big job cuts in U.S. companies. Again, this shows that the U.S. economy is in some deep, smelly, crap, with businesses and consumers running scared.

Let us start with Wall Street. CNBC is reporting some rumors that Wall Street could be slashing some 70,000 workers "in an effort to cut costs in the face of a sharp economic downturn and credit constraints, according to a published report." Around 150,000 financial jobs have been lost worldwide, with investment banks and trading businesses the hardest hit. Then again, Wall Street should be starting to cheer, since the U.S. Treasury is giving away another $40 billion in American taxpayer money to AIG.

Now let us go to DHL. In the New York Times, DHL has announced that they are cutting 9,500 jobs in its U.S. operations, conceding the U.S. shipping market to its rivals FedEX and UPS. DHL will be turning over its domestic air-cargo service to UPS, close its U.S. Express ground hubs, reducing the number of stations from 412 to 103. DHL has already eliminated 5,400 jobs since January. So for this year, DHL has eliminated 14,900 jobs. And the year isn't finished yet.

Nortel is cutting 1,300 jobs. According to The New York Times, the telecommunications company Nortel announced a third-quarter loss of $3.4 billion, saying that it will cut its own workforce by around 5 percent, or 1,300 jobs. It appears that much of this $3.4 billion loss is coming from both a write-down in the value of its business, as well as some deferred tax credits the company will not be able to use. Nortel has been trying to sell its optical communications business, but there are no buyers. The company employs around 30,000 workers, and has said that it will "freeze salaries, reduce the use of consultants and review its real estate holdings." Nortel has around $2.6 billion in cash, however the company is suspending dividends on preferred shares in order maintain its cash levels. To sum it up, Nortel is in trouble.

Circuit City is going bankrupt. This is also from The New York Times. The consumer electronics company Circuit City has filed for bankruptcy protection:

Circuit City, the ailing electronics retail chain, filed for bankruptcy protection on Monday, underscoring the tenuousness of the nation’s retailers.

Vendors — increasingly worried about Circuit City’s ability to pay for its purchases — choked the company’s operations as the critical holiday season got under way and ultimately led the company to seek bankruptcy protection.

Circuit City said it hoped to win back its vendors’ support by using a $1.1 billion line of credit to pay for any new merchandise and services that it receives.

“The decision to restructure the business through a Chapter 11 filing should provide us with the opportunity to strengthen our balance sheet, create a more efficient expense structure and ultimately position the company to compete more effectively,” James A. Marcum, vice chairman and acting chief executive, said. “In the meantime, our stores remain fully operational, and our associates are focused on consistent and successful execution this holiday season and beyond.”

The company, the nation’s second-biggest consumer electronics retailer, has been limping along for months, struggling to compete against its bigger rival, Best Buy, and Wal-Mart Stores.

Its shares have lost more than 90 percent of their value since the beginning of the year. Its stock price has been so abysmal — it had an average closing price of less than $1 over 30 consecutive trading days — that the New York Stock Exchange recently warned it was not high enough for listing.

Circuit City is stuck in the same position as Mervyn's is currently in. Mervyn's was a mid-level retail clothing and housewares store that couldn't compete against the low prices of Wal-Mart, nor the higher quality and value of Macy's. As a result, the company went bankrupt. Circuit City is also a mid-level consumer electronics retail store that cannot compete on the low prices of Wal-Mart, nor the higher quality and value of Best Buy. Thus, Circuit City was being squeezed on both ends and, just like Mervyn's, is going bankrupt. Circuit City has already closed down 155 stores last week, and plans to reduce its workforce by around 20 percent through "store closing and job cuts at its corporate offices." If this holiday retail season is going to be a major falling off the cliff, then I seriously doubt that Circuit City will survive into next year.

As companies start cutting back on spending and production, they are also going to lay off more workers in the next couple of months. This U.S. recession has started as a long, slow slide, but we are now deep in it. And it is probably going to take a very long, slow climb just to get out of it. So there is going to be a lot more bad economic news coming in the future.

Saturday, November 08, 2008

The first Obama crisis--What kind of puppy to get for the White House?

From YouTube:

I guess President-elect Barack Obama will have to find some kind of mutt to solve this serious crisis before they move into the White House.

Obama positions himself to reverse last minute Bush executive orders

Maybe change is really coming under this new Barack Obama administration. From The Washington Post:

Transition advisers to President-elect Barack Obama have compiled a list of about 200 Bush administration actions and executive orders that could be swiftly undone to reverse the president on climate change, stem cell research, reproductive rights and other issues, according to congressional Democrats, campaign aides and experts working with the transition team.

A team of four dozen advisers, working for months in virtual solitude, set out to identify regulatory and policy changes Obama could implement soon after his inauguration. The team is now consulting with liberal advocacy groups, Capitol Hill staffers and potential agency chiefs to prioritize those they regard as the most onerous or ideologically offensive, said a top transition official who was not permitted to speak on the record about the inner workings of the transition.

In some instances, Obama would be quickly delivering on promises he made during his two-year campaign, while in others he would be embracing Clinton-era policies upended by President Bush during his eight years in office.

"The kind of regulations they are looking at" are those imposed by Bush for "overtly political" reasons, in pursuit of what Democrats say was a partisan Republican agenda, said Dan Mendelson, a former associate administrator for health in the Clinton administration's Office of Management and Budget. The list of executive orders targeted by Obama's team could well get longer in the coming days, as Bush's appointees are rushing to enact a number of last-minute policies in an effort to extend his legacy.

A spokeswoman said yesterday that no plans for regulatory changes had been finalized. "Before he makes any decisions on potential executive or legislative actions, he will be conferring with congressional leaders on both sides of the aisle, as well as interested groups," Obama transition spokeswoman Stephanie Cutter said. "Any decisions would need to be discussed with his Cabinet nominees, none of whom have been selected yet."

On January 20, 2009, the new president-elect will be sworn in, and the eight-year nightmare of President George W. Bush will finally be over.

Sales of guns surging after Obama win

I'm just going to post this story without much of a comment. I'm not even sure what to say, except that there are plenty of Americans who are fearful of the coming Rapture Day, where Barack Obama will become President of the U.S., and then take away all of their guns! From

PHOENIX (Reuters) - Sales of rifles, pistols and ammo are surging in parts of the United States, as many gun owners fear President-elect Barack Obama's administration may seek to tighten ownership of certain weapons.

"The day after the election, I had many more calls than usual from people looking for semi-automatic rifles," said David Greenberg, the owner of the Second Amendment Family Gun Shop, in Bisbee, Arizona, who sold out of AR-15 rifles in recent days.

"There seems to be a fear they will be banned, and it's fairly likely," he added. "Obama and Biden are driven to eliminate firearms from the face of the country."

Gun stores and trade groups have reported a spike in firearms sales in the run-up to the November 4 election victory of Democrat Obama and Vice President-elect Joe Biden, who many perceive as strongly pro-gun control.

The National Shooting Sports Foundation, a trade association for the shooting, hunting and firearms industry, reported a 10 percent jump in gun sales this year based on its analysis of an excise tax placed on firearms and ammunition, and a spokesman said the increase had grown dramatically ahead of the election.

"Gun owners are afraid of what Obama is going to do as far as guns," said spokesman Tony Aeschliman. "He has a clear record of being against us."

Obama stated his support for the right to bear arms during campaigning, although both he and Biden back a permanent ban on assault weapons -- military style semi-automatic rifles -- and "common sense measures" to keep guns away from children and criminals, positions which spurred concern among some gun enthusiasts.

"It's always been the liberal or Democratic agenda to restrict gun ownership," said Jim Pruett, the owner of a gun store in a Houston-area strip mall, whose sales more than tripled on the Saturday before the election to $35,000.

In McPherson, Kansas, gun dealer Steve Sechler said demand at a gun show last weekend jumped by more than 50 percent as buyers rushed to stock up on guns including Kalashnikov and AR-15 rifles.

"Most of the people there were cussing Obama and saying we need home defense," Sechler said.

You might also want to stock up on that duck tape as well.

Slowing economy forces marketers to cut back on junk mail

I guess there is one silver lining coming out of this U.S. recession--I'll see a lot less junk mail arriving at my mailbox. From MSNBC News:

Marketers are generally a persistent lot, but they're beginning to think that bombarding your mailbox might not be worth it.

At the rate things are going, credit card companies will send a billion fewer unsolicited offers to consumers by the end of the year, dropping from 5.2 billion offers last year, according to data released yesterday by Synovate Mail Monitor, a market research firm. Home-equity credit mailings dropped 66 percent in the third quarter this year to 72.9 million, compared with 215 million in the same period last year, according to market research firm Mintel Comperemedia. Mortgage mailings dropped 44 percent to 182.4 million from 324.1 million in same period last year.

Among large institutions, Citibank and Charles Schwab cut back the most, reducing 98 and 95 percent, respectively, of their consumer-banking solicitations in the third quarter of this year compared with the second, according to Mintel. Bank of America mailed 49 percent fewer credit card offers and HSBC, one of the first banks to announce big subprime write-offs in the housing crisis, sent 44 percent less. Representatives of the four companies had no comment.

"People who have good credit don't need another credit card," said Barry Kassel, chief executive of RTC Relationship Marketing in Georgetown. "And other people are overextended. It's an over-commoditized category in which anybody who passes a credit screening pretty much has too much credit card in their wallet already."

WHAT??? Credit card companies are saying that they are reducing the number of junk mail to consumers because they have good credit? I would say that it is the other way around. According to this October 30, 2008 MSNBC story, banks are now asking the federal government for credit card debt forgiveness:

Big banks have formed an unusual alliance with consumer advocates to urge the government to allow huge portions of credit card debt to be forgiven, a turnabout from recent years when the banking industry lobbied strenuously to make it harder for consumers to erase their credit card debts in bankruptcy.

The new pilot program — which the banks hope will become permanent — could involve as many as 50,000 people struggling with credit card debt. On an individual basis, the amount of debt to be forgiven would rise according to the severity of the borrower's financial situation, up to a maximum of 40 percent.

Amid rising job losses, consumers — even those with strong credit records — have been defaulting at high levels on their credit cards. Banks already battered by the mortgage and credit crises are bleeding tens of billions in red ink from the losses. The largest credit-card banks each set aside between $1 billion and $3.5 billion in the third quarter for losses on card loans as their profits plummeted.

Graph showing increase in credit card delinquency rate, and credit card debt outstanding. From MSNBC News.

The biggest credit card lenders include Discover Financial Services LLC, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Capital One Financial Corp., American Express Co. and HSBC Holdings.

Credit card charge-off rates, balances written off as unpaid, rose to 6.8 percent in August, up 48 percent from a year earlier, according to Moody's Investors Service.

Americans are lumbering under about $900 billion in credit card debt, according to the latest available Federal Reserve figures. People who are in credit counseling, on average, carry seven cards.

Many of the people now having trouble making their credit card payments are in a double or triple whammy: their mortgages or car loans also may be under stress.

Here are some graphs showing just how much debt Americans have accumulated, from the Prudent Bear via Bonddad:

If a greater number of Americans are defaulting on their credit cards, possibly due to mortgage problems, or job losses, then these Americans are obviously not going to be credit-worthy for card solicitations in the mail. The last thing these credit card companies are going to admit is just how much money they are losing to the rising default rates on credit cards, and that they don't want to spend money sending even more credit card solicitations to Americans who have defaulted on their credit cards. So we get this PR-marketing BS from the marketing companies saying that people with good credit shouldn't get more credit card solicitations. If anything, the different credit card companies would want to solicit those Americans with the good credit ratings for their cards, and their business. The banks are mailing fewer credit card offers because there are probably fewer Americans with good credit ratings.

However, the catalogue companies might just be in a different pinch. Back to the MSNBC News story:

Catalogue companies, already pinched by a postal rate increase last year, began scaling back earlier this year. Late last month, the Postal Service projected that it would carry 9 billion fewer pieces of all types of mail in fiscal 2008 than it did the year before.

"All of the catalogers I'm talking to are working to reduce their dependence on mail," said Hamilton Davison, executive director of the American Catalog Mailers Association, which estimates that companies spend $5.6 billion on postage annually. "The industry is feverishly trying to figure out a way to find viable [customers] in other ways and when it does there'll be an enormous migration away from mail."

Look at intimate apparel, but never buy? That slinky lingerie catalogue may stop showing up. High-end houseware companies, feeling the ripple effects of the housing downturn, are cutting back, too. Earlier this year, after reporting a 42 percent revenue loss, Williams-Sonoma said it would trim its mailing list. Neiman Marcus, renowned for its holiday wish book with trinkets such as the $20 million personal submarine or $12 million Bombardier Learjet, is cutting back.

"We have reduced the number of catalogues by double digits over our original budget, reduced the paper weight, looked at alternative, more efficient formats, taken pages down per book," said Stan Krangel, president of catalogue retailer Miles Kimball, which has multiple brands including Exposures and Walter Drake. "Many of these options hurt response from the consumer, but we have to reduce our costs and are constantly seeking efficiencies. We are looking at the same trend for next year."

Earlier this year, a survey by the Direct Marketing Association showed a 55 percent drop in the number of companies that said a paper catalogue was their primary market channel for business.

For average American households, Mintel analysts estimate, the trend points to more room in their mailboxes. Last quarter, for example, 8.3 fewer pieces of credit card junk mail showed up compared with the same period in 2005.

Here, I would say there are two factors in the cutting back on catalogues. The first, obviously, is the rising cost of postage to mail all of the catalogues to Americans' mailboxes--especially in this time of a slowing economy. The stores are probably also feeling the pinch, as consumers are cutting back on their spending. The stores need to cut back on their expenses. One way is to cut back on the printing and mailing of these catalogues to American consumers, which will probably be dumped into recycling bins.

The second factor would be the internet. It is cheaper to create a store website, show the products you are selling in your store, and then provide an online order form for those Americans willing to purchase your product via their credit cards (If they still have a credit card). The product could then be shipped to a mailing address. Internet shopping is big news for retailers:

Forrester Research predicts online retail sales will grow 12% this holiday season, the slowest growth to date but more than five times the tepid 2.2% increase the National Retail Federation predicts overall in November and December.

"The brick-and-mortar retailers who haven't made online a priority are going to be most challenged this holiday," says Matt Poepsel, a vice president at Web experience manager Gomez. "If their attention wasn't on the Web before, it certainly is now."

Research out Wednesday by NRF's digital division,, and shopping search site Shopzilla, shows online retailers even more optimistic: 56.1% expect their holiday sales will be up at least 15% from last year. They, too, predict slower growth: 77.5% of the retailers surveyed last year expected their sales to grow more than 15% — and they were right. Online holiday sales overall rose 19% between 2006 and '07, according to Web marketing firm ComScore.

Internet shopping is cheaper for consumers, since they don't have to use gas to drive to stores to shop, and can shop anytime they wish--even late at night or early morning, when such stores are closed. It is certainly cheaper for the brick-and-mortar stores, since the entire transaction is processed online, and the product can be shipped from the warehouse to the customer's address, eliminating the high cost of keeping a store open. Internet shopping also eliminates the need for sending out catalogues, since the customer can access the store online. That is not to say that overall retail sales will increase due to internet shopping, but rather internet shopping may have a greater impact on retail sales for this holiday season.

Of course, I will probably not be able to afford all the credit card offers, the high-end housewares, or the slinky lingerie products gracing the pages from the even fewer catalogues that will fill my mailbox during this cliffhanging holiday season. Then again, a reduction in junk mail could reduce the number of trips I would be forced to take in stuffing this useless paper in my recycling bin.

Now if only I could figure out how to reduce the amount of junk in my email box.