Sunday, July 19, 2009

Weekend Reading

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News we just did not have time to dissect during the week but still deserve notice

Bloomberg: Former Federal Reserve Governor Lawrence Meyer Sees No Return to "Full Employment" Until 2015. I find it remarkable how much more prescient some of these former government officials are once they leave public office and have to face the real world i.e. not spin everything with a happy face. It makes me wonder what Mr. Bernanke's real opinion is as he stares at the ceiling at night. It is nice to see some realists out there - unfortunately in the private sector. These views are consistent with my views of a jobless recovery ex-government transfers of money to create false prosperity and until which time the US government decides what the next bubble it is going to be behind to hide the horrific policy decisions the past few decades have wrought.

The U.S. won’t see a return to “full” employment for another six years, helping to hold down inflation, according to former Federal Reserve Governor Laurence Meyer. “I think there’s going to be a long legacy of the financial crisis and the deep recession,” Meyer said in an interview.

The economy is “a very, very long way off” from its potential growth rate, Meyer said. While the expansion will probably be “modestly above trend next year” and “significantly above trend in 2011,” that won’t help restore the nation to a “normal” job-market, he said. “Full” employment -- or a jobless rate around 5 percent -- won’t return until 2015, he said. “We’re staring in a hole; we’re going to start from a 10 percent unemployment rate,” Meyer said. “The unemployment rate is going to come down very slowly.”


CBSMarketwatch: Wynn Macau's Abnormal Lucky Streak Baffles Analyst. The unusual case of Wynn's bacarrat tables in Macau - this game is the lowest skill game with the highest reliance on pure chance; yet Wynn has been on a 9 quarter "winning streak" above trend.

Baccarat, a card game sometimes described as a simpler version of blackjack, is significant as it's the only game that's played in the special rooms that cater to high-roller VIPs and is the top earner in Macau casinos.

And when it comes to baccarat, the Wynn Macau casino's winning percentage, otherwise known as the "hold rate," has been abnormally high for nine straight quarters. Wynn's winning streak has puzzled both gambling experts and analysts who cover casino companies in the former Portuguese colony. They say a month or two of above-average hold isn't unusual. But what Credit Suisse labeled a "supernormal win percentage," and which has lasted for all but the first two quarters since Wynn opened its doors in 2006, just doesn't add up. "There is no scientific answer," said Gabriel Chan, Credit Suisse's casino analyst based in Hong Kong.


Dealbook at NYTimes: At Goldman, did Inflation Bring Deflation? Ah those sneaky number fudgers at Goldman. By making a small under the radar change to begin counting temporary workers and contractors (all 2000+ of them) Goldman can try to bring down the sure to be public uproar over bonuses PER employee. Because when you spread out a consistent numerator over a larger denominator, you can fool some of the folks, all of the time. Even if some 2000+ of those in the denominator have as much chance of receiving a bonus as I do. I mean really, Goldman... only in your world does "$700,000 in bonuses per employee" sound very much different than "$800,000 in bonuses per employee"

In a footnote to its financial results on Tuesday, Goldman said that for the first time it was including consultants and temporary staff in its overall employee figures. This had the result of increasing its official staffing levels by 2,000 jobs or so in both the first and second quarters. Earlier this year, for example, Goldman said it had 27,898 workers at the end of the first quarter, but now it says that number was 29,800.

... the statistical change also had the effect of reducing Goldman’s compensation per employee number. Coincidence? Or useful in a quarter when it knew it was going to get political heat for returning to big bonuses so soon after taking all that government aid to see it through last year?


WSJ: The Downturn Keeps Divorces on Ice. We've touched on this theme before [Apr 8, 2009: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces. Housing Bubble 2.0? (Not)] and while the rest of the country is not facing Michigan like conditions there is a plethora of of adult children moving in with parents (of course the parents usually are the ones with the house paid off, but no fun 3.2 SUVs in the driveway, or flat screen TVs or other fun toys); it appears divorce is being held off for a "not so" rainy day as well. This is why the "household" formation number - while growing from natural population trends, will be below trend for a few more years. Don't forget all the college kids who instead of getting their first real job and apartment will instead be living with the parents for quite a few more years.

Unwinding the ties of matrimony is rarely simple or inexpensive, but for many couples, the sour economy is complicating the process further. Divorce lawyers say many couples are delaying the decision to dissolve marriages and are staying in unpleasant situations for fear of being on their own at a time of economic uncertainty.

Others are being forced to live together after the divorce is final for financial convenience
. That can strain the emotions and result in awkward negotiations about subjects like dating.

"People are saying, 'I've put up with it for the last 10 years, I can put up with it for another year,'" says Gary Nickelson, president of the American Academy of Matrimonial Lawyers. In a poll of 1,600 of its members, the group says, respondents estimated that divorce cases in the six months through March were off 40% from normal levels.


USA Today: Consumers Turn to Rent to Own Stores in Rickety Environment. Can't actually own a flat screen TV? You still deserve one; rent it! At 10x the cost of actually owning it of course. I don't think I've ever dealt in this small sector on the blog, but I was looking at the 2 major players when we were thinking of what sectors would prosper as the US consumer was obliterated (we chose pawn shops unfortunately which have been hammered by their association with payday loans) The 2 major players are Rent-a-Center (RCII) and Aaron's (AAN) - key point in this story is the change in customer showing up...

The rent-to-own industry has a history few retailers would envy but recent sales most would covet. Aaron's, the second-largest retailer in the $6.3 billion industry, plans to open 200 stores in 2010 on the heels of an 18% increase in same-store sales last year. Aaron's recent growth is almost unheard of in this economy.

Rent-to-own stores lease electronics, appliances and other household items by the week or month. Payments can be applied toward a purchase. Critics say the industry has taken advantage of vulnerable customers for years by making rental payments so high that a product's ultimate purchase price is exorbitant.

While not growing at the rate Aaron's is, the largest rent-to-own chain, Rent-A-Center, is also thriving. Same-store sales were up 2.3% last year, thanks in part to a higher-income client base that's expanding in the recession. Both chains say it's not uncommon these days to have customers with household incomes topping $50,000, which used to be the highest incomes they served.


NYTimes: At Beazer Homes it Was See No Evil, Hear no Evil. Simply an amazing account of went on at Beazer Homes which somehow remains in business. The CEO claims he has no idea any of this was going on, which begs the question - what exactly is the CEO's role again? What a great world - you can claim credits (and bonuses) on good times, acting as a strong steward with the type of brain power the peasants can only dream about. And when things go bad, you can claim ignorance. In most jobs, ignorance would lead to dismissal... in the public CEO spot, apparently its a defense. As an infamous Detroit Lions coach once said "what does it take to get fired around here?" The board? Still there - with no changes. Business in CronyAmerica as usual folks. What is pathetic is the "slap on the wrist" fine - $15 million. Remind me of the billions of rip offs on Wall Street which Spitzer would go after and company ABC would settle for $12 million. Basically it says "continue do what you are doing and consider the fines, if you are caught, just as a tax on business as usual". As you know, regulation is evil and only slows down innovation in America.

For years, Beazer Homes USA was much more than a builder of houses. It was a veritable crime wave. The company defrauded buyers, particularly poor people being sold homes they could not afford. It defrauded the federal government by getting government-guaranteed mortgages for those buyers. It created subdivisions now dominated by dozens of foreclosed homes.

Beazer lied to shareholders about how much money it was making. First, it lied by claiming it was making less than it was. Then it lied by hiding losses when the housing bubble began to burst. To keep the lies going, the government says, the company prepared fraudulent documents to mislead its auditors.

Last week, Beazer settled the legal problems stemming from its crimes. It entered into a remarkably generous deferred prosecution agreement with the Justice Department, in which the company will pay $15 million, and perhaps more if it manages to earn profits enough and does not decide to file for bankruptcy.

The bucks have continued to flow to the top, but the company thinks the responsibility for the crimes lies elsewhere. Heads rolled among lower-level officials, but the chief executive and chief operating officer have kept their jobs.

The board — all of whose members were there when the crime wave was under way — has not changed at all. After the directors learned of the crimes, they did take some action. In 2008, a disastrous year for the company, the board gave the chief executive, Ian McCarthy, a bonus for his efforts in “communicating the importance of compliance by employees.”

If a boss can preserve his deniability about crimes committed by his company — perhaps by showing little curiosity about just how the profits are being earned when he is taking in millions from cashing in stock options — then he can escape being held accountable if the crimes are eventually uncovered.


USA Today: Tourists Pay Prices as States Jack up Taxes to Balance Budgets. Another topic we've both predicted and detailed for 2 years. Just know, it's becoming more expensive to travel with a lot of fees you don't think about.

Taxes on travel are soaring as states and cities target the wallets of tourists and business travelers for new revenue. Hotel taxes, car rental fees and other charges were jacked up in many states in an effort to balance budgets by last week, when the fiscal year started in 46 states.

Among places where taxes rose:

Hawaii. The hotel room tax increased from 7.25% to 8.25% on Wednesday and will rise to 9.25% in July 2010.
Nevada. The room tax will increase up to 3 percentage points, to a maximum of 12%. In Las Vegas, the hotel tax jumps from 9% to 12%. Reno's tax was already 12% and is not scheduled to change.
New Hampshire. The tax on rooms and restaurant meals rose from 8% to 9% and was extended to include recreational vehicles at campgrounds.
Massachusetts. Cities were given authority to raise the hotel tax from 4% to 6%, in addition to the state tax of 5.7%. Taxes on eating out will rise from 5% to 6.25% statewide, plus another 0.75% if cities choose.
New York City. The city, which raised its hotel tax March 1 to 14.25%, not counting other fees, will start charging more for Internet reservations.


AP: Lean Times at Pamplona for Running of the Bulls. Looks like Wall Street is not the only place bulls have had a difficult time the past few years. The world's tourists just don't have the bucks they used to and when they do (see previous story) it's getting expensive to move around.

Daredevils sprinting with one-ton fighting bulls swallow an exhilarating cocktail of adrenalin and fear. Now, a new brand of jitters has set in at one of the world's great fiestas as businesses ponder the partypooping impact of economic woe.

....... it is mainly merchants who are feeling the pinch of the world's economic downturn. Rates on hotel rooms are down because of slacker demand, big-spending American and other foreign visitors are harder to find, and bars that usually make a killing off hordes of thirsty patrons from around the globe expect to serve up less booze.

"We thought San Fermin would always fill up," said local entrepreneur Mikel Ollo. "We created a fictitious bubble, and that bubble has burst."


Playboy: Raging Bulls. Of course, I only read for the articles and I did it only as a service for readers - but this is just an amazing account of the travails of ex Wall Streeters as they adjust to the "real world"; many cannot. So they go to Argentina - to live a life of drugs, partying, and trying to find a new way to get rich. Remember, this world is getting flat and its "cost of living" arbitrage - your millions (much of which you spent of course) might not go far in NYC anymore but you are a kind in Buenos Aires. After I read this, I realized I simply have no idea of how life works for the 20, 30 year or alpha male crowd on "the Street".

Around October, when the economy went into free fall, a bunch of out-of-work finance guys in their 20s descended on Buenos Aires, where you can have the penthouse, the steak dinners and the bottle service at ridiculous nightclubs and still save money renting out your apartment in New York or London.

Lifestyle arbitrage, baby
! The word got out, and the party built on itself, making the fantasy it offered all the more intoxicating: Come spend a month—or four—in Buenos Aires, where you really are a master of the universe, where nights are sleepless and potential business deals are all scams and the clubs teem with unemployed expat bankers looking for their identities in piles of cocaine and the bloodshot eyes of hookers and thieves.

Jason got to the party four months early. That's not his real name. This is his story.

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