Corporate Rotten Eggs
by ilene - August 24th, 2010 8:31 pm
Robert Reich suggests creating a "national database of corporate crimes and settlements" to help regulators keep track of corporations that have a history of disregarding safety concerns. As long as the fines for individual violations is less than the profits realized in the course of business, there is no incentive for these corporations to clean up their act. To do that, the penalties need to be exceed the rewards and inflict some real pain on the corporation, owners, managers and shareholders. This is particularly important with serial offenders because the culture of the company does not change as a result of minor fines, just as the sociopathic nature of hard core criminals does not get cured by a three month stay in prision. – Ilene
Corporate Rotten Eggs
Courtesy of Robert Reich
There are rotten apples in every industry. Or perhaps I should say rotten eggs.
One especially rotten egg is Jack DeCoster, whose commercial egg agribusiness, which goes under the homey title “Wright County Egg,” headquartered in Galt, Iowa, sends eggs all over the country under many different brands. Those eggs have now laid low thousands of Americans with salmonella poisoning, and may well infect thousands more.
DeCoster is recalling 380 million eggs sold since mid-May. Another commercial egg company, also headquartered in Iowa, and in which DeCoster is a major investor, is recalling hundreds millions more.
It’s not clear how rotten eggs are recalled. They’re not like Toyotas. They’re already in our food supply.
But this is only the beginning of the story.
Thirteen years ago when I was Secretary of Labor, DeCoster agreed to pay a $2 million penalty (the most we could throw at him) for some of the most heinous workplace violations I’d seen. His workers had been forced to live in trailers infested with rats and handle manure and dead chickens with their bare hands. It was an agricultural sweatshop.
Several people in Maine told me the fine wouldn’t stop DeCoster. He’d just consider it a cost of doing business. Evidently they were right. DeCoster’s commercial egg business has a record that would make a repeat offender blush.
In 2003, DeCoster pleaded guilty to knowingly hiring undocumented immigrants (who don’t complain about unsafe working conditions, below-minimum-wage pay, and unsanitary facilities). DeCoster paid a record $2.1 million penalty for that one.
In the 1990s he was charged by…
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How We Get Through This Mess
by ilene - August 21st, 2010 6:45 pm
How We Get Through This Mess
Courtesy of John Mauldin at Thoughts From The Frontline
This week I spoke to a small group of businessmen/entrepreneurs about the current economic environment, and after my presentation one asked me whether I didn’t have any good news for them, with a kind of gallows humor laugh. And I tried. But upon reflection there is more I could have said, so this week’s letter will be what I should have said to be a little more encouraging.
The group was a Vistage group in which my daughter Tiffani participates. This is an organization of 12 businesspeople (in this case all CEOs of small businesses) who meet once a month to share and learn about better business practices, accountability, planning, and all the aspects of running a business. Every person I have ever met who has been involved in Vistage has had good things to say about it. I have watched it help Tiffani a lot. She truly runs our business now, allowing me to read and write and travel and speak. I am a very lucky man and proud Dad.
I have particularly watched my partners at Altegris really truly transform their business model through their involvement with Vistage. First the CEO, Jon Sundt, joined, and now the partners have all joined Vistage groups focusing on their roles in the business. Sundt was always a good businessman, but the level of professionalism of his whole company has gone up a notch. It is a pleasure to watch them grow, and they give Vistage a large measure of the credit for their success. In fact, when I went to the Vistage web site to get the link, I saw a brief video of Sundt talking about his experience. (http://www.vistage.com/) I am proud to be their partner.
If you have a business and could use some help and professional mentoring, you should look into finding a Vistage group that works for you. They match businesspeople in different industries but with roughly same size businesses. In tough times you need all the help you can get.
I talked to them about the current economic environment and what I saw coming down the road. Long-time readers know that I think we are in for an extended period of slow growth, high and sticky unemployment,…
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Who Knows Better?
by ilene - August 14th, 2010 2:46 am
Who Knows Better?
Courtesy of Michael Panzner at Financial Armageddon
In my latest column for DailyFinance, "The Disconnect Between Consumer Confidence and Retail Sales," I argue that the yawning gap between these two measures is telling us something. Chances are, it’s saying that consumers know better than the official statistics about what’s really going on in the U.S. economy.
Click here to read the article.
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Michigan Consumer Sentiment Index
by ilene - July 31st, 2010 7:48 pm
Michigan Consumer Sentiment Index
Courtesy of Doug Short
With all the other releases on Friday, especially the 3-year revised GDP, I’m a bit late in updating my monthly Michigan Sentiment chart.
The University of Michigan Consumer Sentiment Index for July is 67.8, down significantly from the June reading of 76.0. The survey’s chief economist, Richard Curtin, summarizes:
Scarce jobs and stagnating incomes have been the top concerns of consumers for some time. What changed in July was their recognition that the anticipated slowdown in the economy will keep jobs scarce for some time, while their uncertainties about future prospects were increased by the policies of the Obama administration. Rather than itching to resume old spending habits, consumers have begun to actively embrace a more defensive outlook, making them more likely to further pare their debt and increase saving and reserve funds. This new defensive posture could result in even slower economic growth and fewer jobs in the future.
See the full release in PDF format here.
Because the sentiment index has trended upward since its inception in 1978, I’ve added a liner regression to help understand the pattern of reversion to the trend. I’ve also highlighted recessions to help evaluate the value of the Michigan Consumer Confidence Index as a leading indicator of the economy.
Note: The Real GDP numbers include the Second Quarter and are now updated with the BEA’s revised estimates from 2007 through First Quarter 2010.
****
Read more about Doug Short here >
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Should China Dump Dollars for Commodities? What about the “Nuclear Option” of Dumping Treasuries? Can Global Trade Collapse?
by ilene - July 30th, 2010 5:59 pm
Should China Dump Dollars for Commodities? What about the "Nuclear Option" of Dumping Treasuries? Can Global Trade Collapse?
Courtesy of Mish
Every time there is a little blip by China in its purchasing or holding of US treasuries, hyperinflationists come out of the woodwork ranting about the "Nuclear Option" of China dumping treasuries en masse.
Such fears are extremely overblown for several reasons.
1. China’s purchasing of US assets is primarily a balance of trade issue. If the US runs a trade deficit, some other countries run a trade surplus and thus accumulate dollars. This is purely a mathematical function as I have pointed out many times.
2. If China dumps treasuries for Euro-based assets, oil-based assets, yen-based assets or for that matter anything other than dollar based assets, the problem merely shifts elsewhere and those buyers would have to do something with the dollars such as buying US treasuries or other US assets. This too is purely a mathematical function.
3. If China dumped treasuries it would tend the strengthen the RMB and China has been extremely reluctant to let the RMB appreciate. Indeed, the US is begging China to revalue the RMB upward, but China resists.
While China may make short-term moves in its reserve holdings, the odds of China dumping treasuries or dollars in size is quite remote.
Capital Tsunami Is The Bigger Threat
Michael Pettis discusses those ideas and more in The capital tsunami is a bigger threat than the nuclear option.
An awful lot of investors and policymakers are frightened by the thought of China’s so-called nuclear option. Beijing, according to this argument, can seriously disrupt the USG bond market by dumping Treasury bonds, and it may even do so, either in retaliation for US protectionist measures or in fear that US fiscal policies will undermine the value of their Treasury bond holdings. Policymakers and investors, in this view, need to be very prepared for just such an eventuality.
… the idea that Beijing can and might exercise the “nuclear option” is almost total nonsense.
In fact the real threat to the US economy is not the dumping of USG bonds. On the contrary, in the next two years the US markets are likely to be swamped by a tsunami of foreign capital, and this will have deleterious effects on the US trade deficit, debt levels, and employment.
…
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GDP: 3 Years of Massive Downward Revisions; Inventory Adjustments Run their Course; Where to From Here? Fed’s Counterproductive Policies
by ilene - July 30th, 2010 5:09 pm
GDP: 3 Years of Massive Downward Revisions; Inventory Adjustments Run their Course; Where to From Here? Fed’s Counterproductive Policies
Courtesy of Mish
The BEA has finally admitted something anyone with a modicum of common sense already knew: The recession was far deeper and the "recovery" far weaker than previously reported.
Please consider BEA report Gross Domestic Product: Second Quarter 2010 (Advance Estimate) Revised Estimates: 2007 through First Quarter 2010
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.4 percent in the second quarter of 2010, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.7 percent.
The real story in the report was not the continuing ratcheting down of GDP forward estimates, but rather massive backward revisions, most of them negative, dating back three full years.
Revision Lowlights
- For 2006-2009, real GDP decreased at an average annual rate of 0.2 percent; in the previously published estimates, the growth rate of real GDP was 0.0 percent. From the fourth quarter of 2006 to the first quarter of 2010, real GDP increased at an average annual rate of 0.2 percent; in the previously published estimates, real GDP had increased at an average annual rate of 0.4 percent.
- For the revision period, the change in real GDP was revised down for all 3 years: 0.2 percentage point for 2007, 0.4 percentage point for 2008, and 0.2 percentage point for 2009.
- For the revision period, national income was revised down for all 3 years: 0.4 percent for 2007, 0.6 percent for 2008, and 0.4 percent for 2009.
- For the revision period, corporate profits was revised down for all 3 years: 2.0 percent for 2007, 7.2 percent for 2008, and 3.9 percent for 2009.
- For 2007, the largest contributors to the revision to real GDP growth were a downward revision to PCE, an upward revision to imports, and a downward revision to state and local government spending;
- The percent change from fourth quarter to fourth quarter in real GDP was revised down from 2.5 percent to 2.3 percent for 2007, was revised down from a decrease of 1.9 percent to a decrease of 2.8 percent for
…
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Marc Faber: Relax, This Will Hurt A Lot
by ilene - July 27th, 2010 11:42 am
Marc Faber: Relax, This Will Hurt A Lot
Courtesy of Tyler Durden
Marc Faber closed out this week’s Agora Financial Symposium with a speech that pretty much recapitulated the view that the end of the world is if not nigh, then surely tremendous dislocations to the existing socio-political and economic landscape are about to take place (with some very dire consequences for the US). His conclusive remarks pretty much summarize his sentiment best: "We’ve had a trend for most of the past 200 years: GDP of countries like China and India went down while the West surged. That’s now changed. Emerging economies will go up, and your children in the West will have a lower standard of living than you did. Absolutely. We won’t sink to the bottom of the sea. But other countries will grow much faster than us. The world is very competitive, and the odds are stacked against us. Americans, with their inborn arrogance, will not let it go that easily, so there will be lots of tension going forward." While long-time fans of Faber will not be surprised by the gloom and doom (not much boom) here, anyone else who still holds a glimmer of hope that at the end of the day the CNBC spin may be right, is advised to steer clear of Faber’s most recent thoughts.
And while we do not have the full presentation yet, the salient points have been recreated below courtesy of the Motley Fool. For those who desire a far more in depth presentation from the inimitable Mr. Faber, we direct you to his June 2008 capstone presentation: "Where is the boom, and the doom" – link here.
On reality: My views are not all that negative. I think they’re just realistic. I want to face reality. You have people like Paul Krugman who thinks we should have another bubble to pull us out of this. He actually said that. But he said the same thing in 2001. And you know how that turned out.
On unintended consequences: The Fed doesn’t seem to have learned anything at all from its mistakes. Their current policy of cutting rates to zero is designed to create sustainable growth, but they’ve created larger and larger volatility in markets. There are many unintended consequences of their actions.
The oil bubble of 2008 is a good example. In 2008, the price…
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DEFLATION!!
by ilene - July 23rd, 2010 8:53 pm
DEFLATION!!
Courtesy of The Pragmatic Capitalist
Wow! We see the word “Deflation” everywhere; we see it in every financial publication and hear it every time we turn on financial TV. We see that the pundits who were bearish because of runaway inflation have just recently included deflation as well as inflation to be the problem. We were talking and warning about the ramifications of deflation as far back as the late 1990s. That was when we authored the “Cycle of Deflation” (see 1st chart). Whenever we used the word deflation back then, and through 2001, Microsoft Word did not recognize the word and then spell check would constantly try to get us to replace this unusual word with inflation or some other word that started with “de…. .”
You may wonder why we would bring up the fact that we were so early in deflationary warnings which are really only just now becoming recognized as a threat. At that time, we believed that the deflation about which we were warning during the biggest financial mania of all times would have taken place when the bear market started in 2000 and the recession hit in 2001. However, the Fed decided to make sure deflation did not take place by lowering fed funds from 6 ¼ % to 1% and, then kept it there for a year. Remember, 2002 was when Bernanke gave the helicopter speech where he implied that he would do whatever it took to control deflation-”even drop money out of helicopters.” Well, what they did was exacerbate a housing bubble that was already in force and started a second financial mania with stocks following the housing market into the stratosphere.
We wish Greenspan and Bernanke would have let the tremendous overleveraging (even at that time) unwind with the recession and, even though it would have been very painful, let the public repair their balance
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Frugality the New Reality in Australia; Predatory Customers Addicted to Discounts
by ilene - July 21st, 2010 4:11 pm
Frugality the New Reality in Australia; Predatory Customers Addicted to Discounts
Courtesy of Mish
I have commented many times on US Consumer and Corporate Frugality but inquiring minds might be interested in happenings down under. Frugality has gone global.
Predatory Customers Addicted to Discounts
The Herald Sun reports Retailers could take years to recover because customers addicted to discounts.
A bargain frenzy since the global financial crisis has led consumers to expect and accept only slashed prices.
The dire forecast, from market research company TNS director Chris Kirby, comes as bored staff in some stores are put to work cleaning, tidying and changing window displays because of a lack of customers.
At some sites, especially fashion outlets, stock is discounted by up to 70 per cent as soon as it hits shelves to attract shopper interest.
"Consumers are no longer willing to accept the first price they find. They know there’s a good chance of finding it cheaper somewhere else," Mr Kirby said. "In essence the industry is training us to become professional, if not predatory, consumers."
The caution came as a Commonwealth Bank economic index that tracks credit and debit card transaction value trends across a wide range of industries reported the weakest spending since the height of the global financial crisis in early 2008.
Desperate Retailers Slashing Prices by 75 Percent
Please consider Retailers slashing prices by 75% as Queensland sales slow
One retail organisation, the United Retail Federation, said the slump was at its worst in Queensland, where small retailers were struggling to move stock, even after heavily discounting items.
The bleak picture is at odds with scenes of hundreds of shoppers queuing at lay-by counters to take advantage of major toy sales.
Thousands of bargain hunters queued at Big W stores for the start of its two-week toy sale, which ended last week.
One Gold Coast shopper complained of a four-hour wait at her local Big W store, and of being hit in the ankles with shopping trolleys in the stampede.
Target will follow with its toy sale from July 22 to August 4, having already released its 72-page catalogue offering 120 half-price bargains.
But Australian Retailers Association director Russell Zimmerman said retailers generally were finding it difficult to clear stock, even at hefty discounts. "It’s tough out there and retailers are finding it harder
…
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CNBC Host Accuses Guest Of Just Trying To Scare The Crap Out Of Everyone
by ilene - July 16th, 2010 6:04 pm
CNBC Host Accuses Guest Of Just Trying To Scare The Crap Out Of Everyone
Courtesy of Gregory White at Clusterstock
CNBC’s Simon Hobbs fought it out with Michael Pento today about the reality of the current economic situation in the U.S.
The fireworks start around 3:25, when Hobbs starts questioning the current generation of CEO’s for misunderstanding our post crisis world. Pento argues that right now people aren’t spending. Hobbs says that in Latin America and Asia, they are.
Pento then argues that consumers are going to be paying down debt for several years, and that the U.S. will be weak through that time period. The two then fight it out over the U.S. AAA rating and taxes.
At 6:00 minutes in, Hobbs says, "You’re just peddling the power of nightmares," and "Wars are fought because of that sort of attitude."
Pento goes on to make points about how people need to take the threat of U.S. sovereign debt seriously.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
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