Last week's news that Dubai World, an arm of the emirate of Dubai, was seeking to reschedule its debt sent some shivers through the market. (As we noted, it didn't take a whole lot to move the market on those days of such low volume.) There were also many misconceptions that arose, in part because news is received so sketchily over a long holiday weekend.
First of all, it wasn't the emirate that is having trouble with its debts; it's a wholly owned but separate corporation. Dubai World bears a similar relationship to the Dubai government that Fannie Mae and Freddie Mac pay to our own, except that its business is investing in real estate rather than buying up mortgages.
Many people had expected that the emirate itself would cover Dubai World's debts if the real estate entity got into fiscal trouble, but that has turned out not to be the case. That shouldn't be so surprising - one reason wholly owned entities are set up in the manner of Dubai World is so that the government is shielded from things like bankruptcy.
Like a lot of locales here in America, Dubai crazily overbuilt during the real estate boom of the past decade. One of seven members of the United Arab Emirates, Dubai tried to build itself into another Hong Kong, a little world power. One specialty was man-made islands, one of which was to have its own Trump Tower had been planned (canceled earlier this year). There was even an indoor ski run along the shores of the Persian Gulf. And like a lot of other places, when the crash hit, Dubai couldn't handle the losses.
So now Dubai World is left with $59 billion in liabilities. That may sound like a lot, but the International Monetary Fund estimates that U.S. and British lenders will lose $1.8 trillion between 2007 and 2010. So it's not Dubai itself that presents a danger, but rather the idea that other governments may follow. But until that happens, this is merely another aspect of the real estate crisis, not a governmental crisis.
Monday, November 30, 2009
Friday, November 27, 2009
Black Friday
Black Friday unofficially kicks off the holiday shopping season, which will be watched even more closely than usual this year as investors looks for hints that the recovery is strengthening. What can we expect today? It depends on who you ask.
The National Retail Federation predicts holiday-season sales to decline 1 percent, to $437.6 billion. But the International Council of Shopping Centers, another industry group, expects holiday sales to rise 1 to 2 percent. The industry research firm IBISWorld forecasts retail sales on Black Friday alone to increase 2.8 percent from last year.
A total of 76.9 million people are expected to hit the stores today, about 52 percent of American consumers, up from 42 percent last year, according to the consulting firm Accenture. As many as 134 million people say they will shop over the weekend — up from the 128 million people who planned to do so last year.
But they're not planning to spend a whole lot of money. The Accenture survey found that 86 percent of shoppers won't buy anything without a 20 percent discount, and a quarter said they won't buy anything less than 50 percent off. The global business advisory firm AlixPartners says that 87 percent of consumers plan to spend the same or less than they did last Christmas.
The National Retail Federation projects that the average shopper will spend $683 this year, or $23 less than last season. Some 26 percent of families plan to spend $500 or more this holiday, down slightly from last year's 27 percent.
But is Black Friday really what we should be watching? Paul Dales of Capital Economics notes that today is not usually the biggest sales day of the season, which is in reality the last Saturday before Christmas. Dales found that since 1992, it has often been the case that stronger Black Friday sales resulted in weaker performance overall. Shoppers who spend more on Black Friday may end up spending even less the rest of the season.
Happy shopping!
The National Retail Federation predicts holiday-season sales to decline 1 percent, to $437.6 billion. But the International Council of Shopping Centers, another industry group, expects holiday sales to rise 1 to 2 percent. The industry research firm IBISWorld forecasts retail sales on Black Friday alone to increase 2.8 percent from last year.
A total of 76.9 million people are expected to hit the stores today, about 52 percent of American consumers, up from 42 percent last year, according to the consulting firm Accenture. As many as 134 million people say they will shop over the weekend — up from the 128 million people who planned to do so last year.
But they're not planning to spend a whole lot of money. The Accenture survey found that 86 percent of shoppers won't buy anything without a 20 percent discount, and a quarter said they won't buy anything less than 50 percent off. The global business advisory firm AlixPartners says that 87 percent of consumers plan to spend the same or less than they did last Christmas.
The National Retail Federation projects that the average shopper will spend $683 this year, or $23 less than last season. Some 26 percent of families plan to spend $500 or more this holiday, down slightly from last year's 27 percent.
But is Black Friday really what we should be watching? Paul Dales of Capital Economics notes that today is not usually the biggest sales day of the season, which is in reality the last Saturday before Christmas. Dales found that since 1992, it has often been the case that stronger Black Friday sales resulted in weaker performance overall. Shoppers who spend more on Black Friday may end up spending even less the rest of the season.
Happy shopping!
Thursday, November 26, 2009
Thoughts for Thanksgiving
"Let us remember that, as much has been given us, much will be expected from us, and that true homage comes from the heart as well as from the lips, and shows itself in deeds." - Theodore Roosevelt
"There is one day that is ours. There is one day when all we Americans who are not self-made go back to the old home to eat saleratus biscuits and marvel how much nearer to the porch the old pump looks than it used to. Thanksgiving Day is the one day that is purely American." - O. Henry
"If you count all your assets, you always show a profit." - Robert Quillen
"There is one day that is ours. There is one day when all we Americans who are not self-made go back to the old home to eat saleratus biscuits and marvel how much nearer to the porch the old pump looks than it used to. Thanksgiving Day is the one day that is purely American." - O. Henry
"If you count all your assets, you always show a profit." - Robert Quillen
Wednesday, November 25, 2009
The Fed Looks Ahead
As I mentioned on Monday, the Fed released its Open Market Committee minutes yesterday, a day earlier than usual in deference to the holiday. The key elements of their forecast:
* The U.S. economy is expected to expand by around 2.5 percent to 3.5 percent in 2010. This is up from the Fed's June estimate of 2.1 percent to 3.3 percent.
* Core inflation is expected to rise 1.25 percent in 2010, the same prediction the Fed made in June. That would be an increase from an inflation rate so far in 2009 of minus 0.2 percent.
* The unemployment rate is expected to average between 9.3 percent and 9.7 percent by the fourth quarter of 2010. The earlier forecast had seen unemployment between 9.5 percent and 9.8 percent. That's only a slight improvement from the current rate of 10.2 percent, though, and suggests that unemployment will be a problem for far longer than any of us would like.
* The U.S. economy is expected to expand by around 2.5 percent to 3.5 percent in 2010. This is up from the Fed's June estimate of 2.1 percent to 3.3 percent.
* Core inflation is expected to rise 1.25 percent in 2010, the same prediction the Fed made in June. That would be an increase from an inflation rate so far in 2009 of minus 0.2 percent.
* The unemployment rate is expected to average between 9.3 percent and 9.7 percent by the fourth quarter of 2010. The earlier forecast had seen unemployment between 9.5 percent and 9.8 percent. That's only a slight improvement from the current rate of 10.2 percent, though, and suggests that unemployment will be a problem for far longer than any of us would like.
Tuesday, November 24, 2009
The Turkey Economy
The recession has affected a topic near and dear to most of us this week: turkey production. Wholesale turkey prices are down as much as 20 percent due to an oversupply of the big birds, leading to some really great deals at the grocery store. Turkey farmers have also had to deal with higher feed prices - feeding the bird accounts for 70 percent of the cost of raising it. Turkey production is down by roughly 9 percent this year, but that's not been enough to compensate for the decline in consumption.
But it's still a staggering amount of meat. The projection for the fourth quarter of 2009 is that we will produce 1.48 billion pounds of turkey in this country. Fully one-fifth of all the turkey we fix each year is for Thanksgiving.
Overall, the average cost to feed a gathering of ten this year is $42.91, down $1.70 from last year, according to the American Farm Bureau Federation. Just don't skimp on the cranberries: Although poor weather in cranberry-producing states like Massachusetts and Wisconsin has depressed their crop, New Jersey's cranberry production is up 5 percent this year. So those tart red berries on your turkey could very likely be helping our economy.
But it's still a staggering amount of meat. The projection for the fourth quarter of 2009 is that we will produce 1.48 billion pounds of turkey in this country. Fully one-fifth of all the turkey we fix each year is for Thanksgiving.
Overall, the average cost to feed a gathering of ten this year is $42.91, down $1.70 from last year, according to the American Farm Bureau Federation. Just don't skimp on the cranberries: Although poor weather in cranberry-producing states like Massachusetts and Wisconsin has depressed their crop, New Jersey's cranberry production is up 5 percent this year. So those tart red berries on your turkey could very likely be helping our economy.
Monday, November 23, 2009
Short Week Ahead
Thanksgiving Week is here, meaning a short week for the stock market, which will be closed on Thursday and have abbreviated hours on Friday. Even on the days the market is open, volume is expected to be fairly low.
But that doesn't mean there won't be news made. Lower volume means greater opportunity for volatility, so we could see some sizable overall swings in the major indexes. In addition, the usual week's worth of economic reports will be squeezed into the first three days of the week, so the market's reaction to those pieces of news will be compressed as well.
We'll see new consumer confidence numbers on Tuesday, and the Fed's minutes will be released, a day earlier than normal. Then on Wednesday, we'll have durable goods and new home sales figures, plus the new jobless claims, which will also be arriving a day earlier than normal.
That adds up to the possibility of some wild swings on the indexes. But the lower volume means they will likely not be worth paying attention to - even moreso than usual.
But that doesn't mean there won't be news made. Lower volume means greater opportunity for volatility, so we could see some sizable overall swings in the major indexes. In addition, the usual week's worth of economic reports will be squeezed into the first three days of the week, so the market's reaction to those pieces of news will be compressed as well.
We'll see new consumer confidence numbers on Tuesday, and the Fed's minutes will be released, a day earlier than normal. Then on Wednesday, we'll have durable goods and new home sales figures, plus the new jobless claims, which will also be arriving a day earlier than normal.
That adds up to the possibility of some wild swings on the indexes. But the lower volume means they will likely not be worth paying attention to - even moreso than usual.
Friday, November 20, 2009
Seeing the Future
Unemployment has been a huge problem around the nation, but there's one profession that's actually been benefiting from the recession. A report in the Arizona Republic last month found that psychics have been weathering the downturn quite well. But it's not because their clients are asking the age-old questions of whether they'll find true love; they want to know when the recession will end, and whether they should sell their house.
"I'm seeing many more people that are in real crisis situations," said one astrologer. "They're coming to me with questions about whether they're going to be fired, and with more general questions about when the economy is going to improve. Even my wealthy clients are desperate."
It's certainly difficult for even those of us who work at this full-time to divine what's going to happen next with the economy, but that doesn't mean it's time to throw up your hands and turn to a psychic. We can provide you with a little better forecasting than someone with a crystal ball and a pack of tarot cards. But it's nice to see one sector of the economy thriving.
"I'm seeing many more people that are in real crisis situations," said one astrologer. "They're coming to me with questions about whether they're going to be fired, and with more general questions about when the economy is going to improve. Even my wealthy clients are desperate."
It's certainly difficult for even those of us who work at this full-time to divine what's going to happen next with the economy, but that doesn't mean it's time to throw up your hands and turn to a psychic. We can provide you with a little better forecasting than someone with a crystal ball and a pack of tarot cards. But it's nice to see one sector of the economy thriving.
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