Economy: In Consumers We Trust X

In the recent days there was much talk about an alleged double-dip recession in the U.S.. But the doom & gloom fueled by some notorious fear mongers doesn`t have a foundation. The hard data show that the motor of the economy is still running smoothly.

Today the U.S. Commerce Department reported that the consumer spending grew in July by 0.8 %. Consumer spending is very important because it accounts for 70 percent of economic activity.

The Commerce Department also told that personal incomes increased 0.3% last month. That is an encouraging number. In spite of the sluggish job market the majority of the Americans enjoys rising incomes. This should fuel the consumer spending in the fall.

New York: After The Storm

Irene, downgraded from a hurricane category 1 to a tropical storm, has passed the city. I had spent the night on the Lower East side at my girlfriend´s flat. This area stayed quiet, I heard no storm noises. But some unfortunate car owner will find his vehicle covered with a big tree branch.

Other areas of Manhattan were hit harder. At some places we saw trees felled by the storm gusts. The southern peak of Manhattan had another problem: The water. Irene, which arrived during high tide, had pressured the water up the Hudson River and caused problems in lower parts of the city. In Tribeca some streets were flooded because a lot of water spilled out of sewers and huge steam clouds signaled problems with the steam pipelines.

There was another phenomena. The streets were almost empty and many restaurants and shops stayed closed. The mass transport system was still shut down and a taxi ride from the south peak of Manhattan to Lower East side costs double of the usual $10.
The spooky street scene reminded me of the movie "Devil`s Advocate" when Tom Cruise stood alone on 5th Avenue and nobody else was to be seen.

But there were many police cars with their flashing lights on. It seems they wanted to show their presence to discourage looters and other suspicious elements, especially in areas which were evacuated. The cops also warned by loudspeaker about fallen electricity wires, which could electrify the street (just like in the movie "Ice Storm) and the risk of falling branches.

Its seems the otherwise very busy metropolis used the storm to take a short time out.

New York City: Preparing For The Hurricane II

New York City 8 pm east coast time. The city is still preparing for Hurricane Irene. Still no severe winds, but it seems the rain is getting stronger. The streets in south Manhattan, usual full of life, are almost empty and dark - somewhat spooky.

Most shops, restaurants & bars are closed. Many places are secured against possible damages by strong winds. They don`t have many customers because the Metropolitan Transport System (subways & buses) is shutdown. Therefore many shop & restaurant employes stayed at home.

There are a lot of police cars on the street. Maybe  the cops have to demonstrate their presence to discourage possible looter to abuse this emergency situation.

New York City: Preparing For The Hurricane

Visiting New York City always delivers a lot of fun & entertainment. Now the city is preparing for the hurricane Irene. The storm is still around 300 miles away and expected to arrive in the evening. But now at 1.30 pm east cost time there are a lot of preparations.

The city already shut the whole Metropolitan Transport System down and stopped subways & buses. JFK airport already cancelled all incoming flights and will be closed soon. My flight back to Europe, scheduled for Sunday 6pm, is already cancelled.

Therefore I am preparing now for a long cosy weekend at the flat of my girlfriend. For some New Yorkers the weekend will be less comfortable. The officials evacuated some parts of the city, like Battery Park and Rockaway Beach. They expect that the storm surge will pressure the tide up the coastline and into the channels like the East River, which is likely to flood some low-lying areas close to the waterfront.

Its a great time for the media who get a lot of viewers and page clicks now. And the mayor gets a lot of tv-time and can show how he cares about his citizens. Maybe that earns him a lot of voters in the next election.

Some minutes ago we were shopping and preparing for the coming storm. We got some candles and stored a lot of water in case the electricity & water supply breaks down. The nearby Essex Market, which has lot of grocery shops, was already closed. Other grocery shops were jammed. There were long lines waiting at the check out. It seems a lot of people are foraging for the storm.

We will see.

Economy: In Consumers We Trust IX

Do you believe in a new global recession? Then you might take a look on Tiffany´s. The luxury retailer reported today that its profit jumped 33 percent in the second quarter, more than the analysts have predicted.

Yahoo Finance writes: "The best performance was in the Asia-Pacific region, where sales surged 55 percent to $173.2 million. Sales in Europe rose 32 percent, while sales in the Americas gained 25 percent. Even Japan, which is still regaining its footing following an earthquake and nuclear scare earlier this year, posted a 21 percent sales increase" (finance.yahoo.com ).

The New Yorkers also gave an encouraging outlook and lifted their guidance (the profit they expect) for the whole year.

These numbers fit well to the strong reports other up-market consumer companies, like Starbucks or Victoria`s Secret, gave in recent days. At least the well-off are still in buying mode and keep the motor of the global economy running.

Movies: Another Earth

 

(Drivebycuriosity) - How would you feel if you accidentally ruined the life of others? How would you deal with that guild? This is the subject of the movie "Another Earth", directed by Mike Cahill (www.imdb.com). The film tells the story of a student girl who caused a fatal car crash. We are learning how she adapts to her new life caused by the accident and how she tries to heal mentally herself and her victim, a male composer. 

The title of the film refers to a phenomena: Another earth appeared suddenly in the sky. The pictures of this huge blue disk in the sky, much bigger than the moon, are pretty. But the mirror planet is just the icing on the cake. The director isn`t really interested in the other earth. We don´t learn much about the twin celestial body. The movie isn´t really science fiction and doesn´t pretend to have a scientific explanation for this event. We just learn that there might be people on the other earth who could be duplicates of ourselves.

Cahill is much more interested in the interaction between the girl and her victim and there lies the charm of "Another Earth". Its fascinating to watch how a relationship develops between the girl, played by the newcomer Brit Marling, and the man, William Mapother, who won a bit fame for his role in the tv series "Lost".

The movie focuses on Brit. Its appealing to watch her clean and almost innocent face. Her expressions make her face a book you can almost read. Doubts, suspicion, comprehension, joy, disappointment and other emotions are moving like clouds over her face.  

"Another Earth" is a slow and quiet film, both fascinating and calming.

Investing: What We Can Learn From Warren Buffett

Doom & Gloom? Not for Warren Buffett. When (almost) everybody sells, he buys. Buffett's holding company Berkshire Hathaway Inc. announced today that it would invest $5 billion in Bank of America Corp. He got the stocks very cheap, the papers had plunged 50 percent from a year ago.

That separates Buffett from the hedge funds and the clueless masses of speculators. In the recent weeks both groups reacted like lemmings. They followed blindly the gloomy herd and dumped stocks with falling prices, a reaction to the speculations about an alleged double-dip recession in the U.S.

In contrast the legendary investor shows a long-term thinking. He demonstrates patience and confidence in the strength of the U.S. economy which shapes the business of the Bank of America.

Economy: A Self Fulfilling Prophecy?

The stock markets tanked in recent weeks. A reaction to the cooling global economic climate. Some spectators claim that the stock markets are already pricing-in a new recession. Some pundits go even further, they fear that the falling stock prices have a negative impulse on the economy. The tanking stock markets could cause a new recession, they assert. This would be a case of a self-fulfilling prophecy.

I think, these fears are overblown. In 1987 the stock markets crashed worldwide around 30% on a single day, but no recession happened after that. Maybe the crash then caused some economic counter measures - like cutting interest rates - which stabilized the economy. This was a case of a self-destroying prophecy.

We will learn soon how the real world will react to the stock market gloom. Maybe some of the consumers will reduce their expenditures because part of their wealth is invested in the stock market and they might feel less wealthy now. But we don´t see those  reactions yet. Consumer companies who cater to the well-off, like Starbucks or Victoria´s Secret are still reporting prosperous businesses.

It might also be that the falling stock prices are slowing some company investments, because some managers are getting more cautious. Some economic reports like the Philli Fed Index show that manufacturing companies in the northeast of the U.S. are indeed delaying orders.

But otherwise the weak stock market creates at least 2 beneficial impulses:

1. The oil price fell last week into the low $80s  and costs now around 30% less than in April ($114). This may animate consumer spending because people have to spend less at the gas pump and have therefore more money available for other goods.

2. The U.S mortgage rate plunged to 4,15%, a 50-year low. Mortgage debtors could now refinance cheaply and save a lot of money, which they could spend otherwise. The falling mortgage rates should also rekindle the weak housing market.

Both developments should overcompensate the negative impulses and help to rekindle the economy in autumn.

Internet: Creative Destruction

The internet looks like a Cockaigne (in German: Schlaraffenland:  A place, where, like in the medieval mythical land of plenty, almost anything is free.) Without paying you get search results, news, stock market quotes, videos and a lot more. That is bad for companies who have to sell these things to earn money.  In particular, newspapers & magazines are suffering under the "all is for free" maxim. Many media companies are losing (paying) readers and advertisers.

This might be a pretense for the culture pessimists. Some claim that the Internet generally destroys more income & jobs in the traditional industries than it creates by itself (www.digital-dd.com). The world wide web is therefore allegedly deflationary for the whole world economy, these pessimists claim.

But I think that the culture pessimists are wrong, as always. The Internet is just a part of the technical progress which has been raising the wealth of the world for centuries. The economist Joseph Schumpeter popularized the term "creative destruction". This creative process leads to a legion of inventions & innovations and is the reason that mankind is much wealthier today than decades and centuries ago. Technical progress is the fundament of our wealth.

The invention of book printing for example destroyed the jobs of thousands of monks who copied texts by hand. But otherwise this innovation also created publishing houses & book sellers. And many authors got rich. But more important is that printing (inclusing newspapers  & magazine) made the spread of information possible, which was the fundament of the rise of the western world. Books helped to spread knowledge, the basic of sciences like medicine and the global industry.

Ideas spread faster

The world wide web is still young but it already created huge markets for smart phones, tablet computers, e-book-readers and other Internet connecting devices. But I guess another issue is much more important: The Internet makes information much cheaper; it reduces the cost of information. With the help of the net we discover things we didn`t know existed before. Ideas spread much faster, making the world richer.

This isn`t restrained to sites like Match.com! Internet platforms like  Expedia, Groupon, Hotels.com, OpenTable or Facebook are helping other businesses like shops, restaurants and legions of producers to meet potential buyers. Recommendations on Amazon.com or on Facebook create markets for the mentioned products & companies, many of them would have stayed unknown without this help.  With the help of the world wide net shelf warmers, otherwise collecting dust somewhere, find prospective buyers.  People can sell there services everywhere in the world. Every seller & buyer finds a lot more opportunities.

Even for the beleaguered media companies the situation gets better. Some weeks ago the New York Times reported that they now sell a growing part of their articles online (digital subscriptions). The newspapers may loose buyers in their traditional market, but - with the help of tablets and other Internet connecting devices - they can find paying customers elsewhere in the world.

Therefore all these platforms (and who knows what follows Twitter or LinkedIn) help the motor of the world economy run  smoother. The internet isn`t depressive, the opposite is true, it creates a better and wealthier world.

Economy: In Consumers We Trust VIII

These days there is a lot of speculation about a new recession, a so-called double-dip recession, in the U.S. But there still is encouraging news from the consumer front.

Today the Reedbook Chain Store Sales Index arrived, which climbed this week 4.7% Y/Y (last week:  +4.8%). This barometer, as measured by a private organization, indicates that consumer expenditure, which makes up around two-thirds of the U.s. economy, keeps up well.

This number may clam the fear that the recent turmoil on stock market cut too deep into consumer expenses. It was feared that the group of the wealthiest might react to falling stock prices, because part of their wealth is held by stock investments and they might now feel less wealthy.

But there are other developments which are more favorable for the consumer:
1. The job market is healing. Jobless claims are falling and the July job report showed that payrolls and average salaries are rising.

2. Also helpful is the easing of the oil price. Since April the price of this important commodity fell on the financial markets from around $110 into the $80s. Therefore consumers & companies have more money in their wallets and need to spend less at the gas pump.

Books: A Very Short Introduction Series

 

(Drivebycuriosity) - I like to read books, but, like everyone,  I find little time for them. Therefore I enjoy sometimes a series of tiny pocket books with the title "A Very Short Introduction", published by the Oxford University Press ( veryshortintroductions ). These paperbacks deal with a lot of issues, written by experts in these fields.

One of my favorites is "The Renaissance" by Jerry Brotton (amazon.com ). It has just 148 pages (including the index). The author describes the period from 1333 through 1605 when Europe awoke from the agony of the dark middle ages and the economic growth started which lasts untill today. Brotton reports about the jumpstarts of the western economy, science, medicine & art which made the growth of wealth possible.

I am also impressed by "The Roman Empire". The Author,  Christopher Kelly, distilled the peak years of the ancient capital`s history (31 BC through AD 192) in just 153 pages. Surprisingly easy to read are "Molecules"  and "The Elements", both by Philip Ball. He tells us how atoms are interacting and forming our world and how science, especially chemistry, makes use of this. "Mathematics", "Statistics" and "Logic" helped me refresh my basic knowledge. Also "Cosmology" and "Galaxies" are well done and opened my eyes to the infinity surrounding us.

This series, which covers a broad range of issues including the arts, philosophy and politics, is very helpful if you want to take a quick dip into a not too familiar matter.

Economy: A New Recession? Not Likely

The danger of a new recession in the U.S. is the talk of the town. But I think this so-called double-dip recession is highly unlikely. Here´s why:

1. The U.S. consumers are still in spending mood. Last week a lot of U.S. retailers, including department store J.C. Penney, discounter Target, luxury chain Saks, wholesale club operator Costco Wholes and fashion holding Limited Brands (Victoria´s Sectret) reported surprising strong sales for July (driveby.consumers ). Today Macy´s, the leading U.S. department store, and the fashion retailer Polo Ralph Lauren reported both more quarterly profit & revenues as expected and upped their guidance for fall ( reuters).

The consumers are still optimistic and are reacting to the healing job market. In July payrolls rose by 117,000 employes, the jobless rate dropped to 9.1%. Average hourly earnings climbed 0.4%. Yes, that is slow, but no sign of a recession either.

2. The profits of the companies are rising. I guess there are two main reasons for that: First: Companies are getting more efficient. Lower cost enable them to grow even in a sluggish economy. Second: Companies are benefitting from the rapid growth of emerging markets (driveby.with-little-help ). A recent study from Societe Generale shows that the emerging markets bolster the profits of global operating companies in general.

3. The emerging markets are still growing strong. The rising spending in China and other high growth countries  - like India, Russia, Brazil and Turkey - stays the engine of the global economy and should counteract the weakness in the U.S. and Europe.

4. The price of oil fell to around $80, after climbing to $114 in spring (minus 30%). Other commodities got also cheaper. That is a big relief for consumers who have now more money in their wallets and can spend more bucks in the shops. Cheaper oil and other commodities should therefore bolster the retail sales in fall.

The reaction of the commodity markets is the big difference to 2008. Then the price for oil exploded to $147, other commodities also got more expensive, even though the recession had already started then. The high expenses for gas, heating oil & food forced many consumers to cut spending for other goods, even for their mortgages. Now falling commodity prices in combination with a healing job market are helping the economy.

Standard & Poor`s? Way Behind the Curve

The stock markets tanked today. The market participants were spooked by Standard & Poor`s downgrade of the U.S debt. But why? Did anything change fundamentally over the weekend? No.

Did the Dollar fall today? No, the U.S. currency rose against the Euro & the British Pound ( marketwatch.dollar)! Did the interest rates of U.S. government bond climb today? No. The interest rate for treasuries (bonds issued by the U.S. government) dropped  .marketwatch.treasury-yields  !

No wonder. Standard & Poor´s is way behind the curve. The recession/crisis ended in spring 2009. Since then the U.S. economy is healing, towed by the recovering global economy. The economic indicators show that the U.S. economy is still growing, though slowly. Consumers spend more money as the rising sales of the retailers show, the profits of the companies are climbing, that implies more tax income for the government.

The downgrade decision doesn`t have much to do with the economic environment. Many commentators explained the S&P downgrade as a political decision ( theatlantic.com). They might be right. And the downgrade might be connected with the huge ego some people at Standard & Poor`s show. They demonstrated that they can move the markets whatever it may cost.  By the way: After Warren Buffett criticized, that the S&P people confused their job, they downgraded the outlook of his company (blogs.barrons.com ). That is like a "kindergarten": If you damage my sandcastle, I will damage yours.