Archive for February 26th, 2009

Foreclosures hurt all property values … NOT !

February 26, 2009

Ken’s Take: Obama keeps claiming that foreclosures have a debilitating economic impact on practically all homes prices.  That’s just not true.

First, U.S. foreclosures are concentrated in only a handful of states: AZ, CA, NV, FL, and MI … and within a handful of overbuilt, price-bubbled communities within those states.

Second, the evidence suggests that homes need to be immediately proximate to — i.e. within a couple of blocks of — a high number of foreclosures for there to be any significant impact.  In other words, foreclosures in California don’t impact home values in New York.

Third, even if homes are proximate to foreclosures, the impact on home values is minimal and short-lasting, unless there has been a significant economic causal shock in the community (e.g. an auto plant closing)

Bottom line: stopping foreclosures will only help those being foreclosed upon — most of whom deserve to be foreclosed upon.

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Below is a summary of the article’s context.  See the source article for the analysis.

Excerpted from Weekly Standard, “Obama’s Fuzzy Housing Numbers”, Feb 24,2009

If President Obama is to sell his mortgage bailout plan to the public, an important argument will be his claim that preventing foreclosures actually helps all homeowners by preventing housing prices from dropping:

“This plan will not save every home, but it will give millions of families resigned to financial ruin a chance to rebuild,” Mr. Obama told a crowd here, in one of the communities hardest hit by the housing crisis. “It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”

The claim that the program helps “shore up housing prices for everyone” has been frequently repeated by administration officials. Housing and Urban Development Secretary Donovan elaborated on the point:

And in all, this will help, as I said, 3 to 4 million families. But let’s be clear: This will also help millions of other families, as well. Recent research shows that neighboring homes to foreclosed homes lose as much as 9 percent of their value. So people who are not in danger of foreclosure still are suffering from nearby foreclosures. This will help those families, as well. Our estimates are that the average home — not the average home in foreclosure, but the average home across the country will gain $6,000 in value relative to had this plan not been put in place.

The president, the administration, and its advocates can promote any mortgage relief plan they choose on whatever basis they wish. But any claims that there is evidence that bailing out the mortgages of particular individuals helps all property owners is simply not supported by any real research and should be viewed with great skepticism.

Read the full analysis – with numbers and sources:
http://www.weeklystandard.com/weblogs/TWSFP/2009/02/obamas_fuzzy_housing_numbers_1.asp

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If you make less than $250,000 your taxes won’t go up! … yeah, right … continued

February 26, 2009

Ken’s Take: In yesterday’s post, I argued that fully taxing the top 2% wouldn’t come close to paying for Barack-O’s programs.  A day later, here’s the WSJ analysis.  Slightly different numbers, same conclusion.

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Excerpted from WSJ, “The 2% Illusion  – Take everything they earn, and it still won’t be enough”, Feb 26 2009

President Obama has laid out the most ambitious and expensive domestic agenda since LBJ, and now all he has to do is figure out how to pay for it. On Tuesday, he left the impression that we need merely end “tax breaks for the wealthiest 2% of Americans,” and he promised that households earning less than $250,000 won’t see their taxes increased by “one single dime.”

This is going to be some trick. Even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can’t possibly raise enough revenue to fund Mr. Obama’s new spending ambitions.

In 2006, roughly 3.8 million filers had adjusted gross incomes above $200,000 in 2006. (That’s about 7% of all returns; the data aren’t broken down at the $250,000 point.) These people paid about $522 billion in income taxes, or roughly 62% of all federal individual income receipts. The richest 1% — about 1.65 million filers making above $388,806 — paid some $408 billion, or 39.9% of all income tax revenues, while earning about 22% of all reported U.S. income.

As a thought experiment, let’s go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That’s less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable “dime” of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.

The bottom line is that  Obama is selling the country on a 2% illusion.  Taxes on the not-so-rich will need to rise as well.

Mr. Obama is very good at portraying his agenda as nothing more than center-left pragmatism. But pragmatists don’t ignore the data. And the reality is that the only way to pay for Mr. Obama’s ambitions is to reach ever deeper into the pockets of the American middle class.

Full article:
http://online.wsj.com/article/SB123561551065378405.html

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The Stimulus: Obama’s missed opportunity … to do something right (and maybe great)

February 26, 2009

Ken’s Take: Sameulson is a left-leaning economist, which should give him some broad credibility. I think his analysis is right on target.  Below are highlights.  Full article is well worth reading.

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Excerpted from IBD, “Stimulus Needs More Power At Front End” Samuelson, February 20, 2009

Judged by his own standards, President Obama’s $787 billion economic stimulus program is deeply disappointing.

Given his dire warnings (about the economy), you’d expect the stimulus package to focus almost exclusively on reviving the economy. It doesn’t, and for that Obama bears much of the blame. His politics compromised the program’s economics. Look at the numbers.

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The Congressional Budget Office estimates that about $200 billion will be spent in 2011 or later — after it would do the most good. For starters, there’s $8 billion for high-speed rail …  the design and construction will occupy many years. It’s not a quick stimulus.

Then there’s $20.8 billion for improved health information technology — more electronic records and the like. Probably most people regard this as desirable, but here, too, changes occur slowly. The CBO expects only 3% of the money ($595 million) to be spent in fiscal 2009 and 2010.

The peak year of projected spending is 2014 at $14.2 billion.

Consider the retrofitting of federal buildings to make them more energy-efficient.  Obama says “We’re creating jobs immediately.”  Yes — but not many. The stimulus package includes $5.5 billion for overhauling federal buildings. The CBO estimates that only 23% of that would be spent in 2009 and 2010.

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Worse, the economic impact of the stimulus is already smaller than advertised. The package includes a “patch” for the alternative minimum tax. This protects many middle-class Americans against higher taxes and, on paper, adds $85 billion of “stimulus” in 2009 and 2010.

One problem: “It’s not stimulus … Congress was going to do it anyway. They do it every year.” Strip out the AMT patch, and the stimulus drops to about $700 billion, with almost 30% spent after 2010.

The stimulus package offers only modest relief to states. Using funds from the stimulus, states might offset 40% of their looming deficits,. The effect on localities would probably be less.

The stimulus provides most funds to states through specific programs. There’s $90 billion more for Medicaid, $12 billion for special education, $2.8 billion for various policing programs. There’s a big downside: “Temporary” spending hikes for specific programs … will be harder to undo, worsening the long-term budget outlook. The major outcome:  more power centralized in Washington.

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No one knows the economic effects of all this; estimates vary. But Obama’s political strategy stunts the impact from what it might have been.

By using the stimulus for unrelated policy goals, spending will be delayed and diluted.

Politics cannot be removed from the political process. But here, partisan politics ran roughshod over pragmatic economic policy. Even the token concessions (including the AMT provision) to some Republicans weakened the package.

Obama is gambling that his flawed stimulus will seem to work well enough that he’ll receive credit for restarting the economy — and not be blamed for engineering a colossal waste.

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Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=320024639130404

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Do as I say, not as I do … Barack "Line by Line" Obama threatens to "call out" governors & mayors if they waste money

February 26, 2009

Ken’s Take:

After signing a near trillion dollar pork-laden, spending plan, President O warms mayors and governors that American taxpayers “expect to see the money that they’ve earned — they’ve worked so hard to earn — spent in its intended purposes without waste”. 

That’s a non sequitur since most of the Obam-dictated “intended purposes” are wasteful and non-stimulative to start.

Do people really buy thiese contradictions and  mumbo jumbo?   

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Excerpted from yahoo.com, “Obama warns mayors not to waste stimulus money”, Feb 20, 2009

President Barack Obama warned the nation’s mayors on Friday that he will “call them out” if they waste the money from his massive economic stimulus plan.

“The American people are watching,” Obama told a gathering of mayors at the White House. “They need this plan to work. They expect to see the money that they’ve earned — they’ve worked so hard to earn — spent in its intended purposes without waste, without inefficiency, without fraud.”

Using his presidential pulpit, Obama demanded accountability, from his friends in local government as well as his own agencies. He said the new legislation gives him tools to “watch the taxpayers’ money with more rigor and transparency than ever,” and that he will use them.

“If a federal agency proposes a project that will waste that money, I will not hesitate to call them out on it, and put a stop to it,” he said. “I want everyone here to be on notice that if a local government does the same, I will call them out on it, and use the full power of my office and our administration to stop it.”

The president did not specify how, exactly, he would call out one of his own agencies or a local government about wasteful projects.

http://news.yahoo.com/s/ap/20090220/ap_on_go_pr_wh/obama_mayors

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Batteries are the key weapon in the battle for energy independence … too bad we’re losing the weapons race.

February 26, 2009

Ken’s Take: Lithium ion batteries are the projected heart of future hybrids electric cars.  Currently, the U.S. has no significant manufacturers of even small scale lithium ion batteries, and is behind in the R&D chase to develop auto-capable sizes. And, oh yeah, lithium is mined mostly in Argentina, Boliva, & Chile … not in the U.S.  This is a big deal

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Excerpted from Business Week, “Electric Car Battery Wars”, Feb 12, 2009

President Barack Obama has set a target of 1 million electric cars on U.S. roads by 2012. That will require about $40 billion worth of domestically produced batteries. Most experts agree that lithium ion, which can be used to create batteries that weigh far less and store more power than those in today’s hybrids, will be the dominant technology.

The big question is whether any U.S. battery maker will be a major player by the time a mass market develops for electric cars. The field is already crowded.

Some U.S. companies claim to have prototypes that work. They include A123 Systems, a Massachusetts Institute of Technology spin-off, and Franco-American venture Johnson Controls-Saft, which has snared contracts with Ford Motor, BMW, and Mercedes-Benz (DAI). But the Americans face Asian rivals with deeper pockets and far more lithium-ion experience.

The Asians can also better afford the hundreds of millions of dollars needed to build large, state-of-the-art factories. U.S. investors are unwilling to risk such sums for startups—especially now that the recession and cheap oil have dimmed the future of hybrid cars. After surging this fall, Ener1’s stock has fallen by half since mid- December, to around 4.

Should Uncle Sam provide billions in loans and grants to a promising but unproven business? Or should the government wait for the market to sort things out before it backs a U.S. company? The risk is that by then another major industry could go the way of memory chips, digital displays, the first solar panels, and the original lithium-ion batteries used in notebook PCs and cell phones. American scientists, funded by federal dollars, were at the forefront of each of those. Yet the industries—and the high-paying manufacturing jobs that go with them—quickly ended up in Asia. U.S. labor costs and taxes drove many operations abroad, but often industries fled simply because Asian governments, banks, and companies were more willing than Americans to risk big capital investments.

Battery makers are expected to get some of the $25 billion set aside last year under Washington’s Advanced Technology Vehicle Manufacturing Program to speed the commercialization of green cars.  Under the $790 billion stimulus package under debate in Congress, U.S. lithium-ion makers also could compete for $2 billion in grants to fund research and development and manufacturing.

Lithium ion is regarded as a core enabling technology for plug-in hybrid vehicles, which, unlike most current hybrids, can be recharged with normal household current and run much longer on electricity before a gas-powered engine takes over. Lithium-ion cells can store up to three times more juice and generate twice the power of the nickel-metal hydride batteries used in today’s hybrids.

General Motors and Ford both assert that a domestic lithium-ion industry is vital if the U.S. is to be a major player in green cars. Otherwise, Detroit’s fate would be in the hands of suppliers half a world away.

China has more than 10 manufacturers—Beijing has declared lithium ion a strategic industry.

Analysts say no U.S. or Asian contender has solved all of the challenges of producing lithium-ion car batteries that are safe, reliable, and affordable: Questions linger over the battery’s ability to last long enough to satisfy car buyers, for example.

The U.S. is still in the race. The Energy Dept. has poured some $600 million into lithium-ion research.

The strongest U.S. player right now is Johnson Controls. Its French partner Saft has a cell plant, while Johnson’s big edge is its supply and design relationships with the world’s top automakers. But lithium-ion technology is vastly more complex than that of lead-acid batteries.

Skeptics counsel caution. Some doubt there will be a mass market for electric cars within a decade. When gas cost $4 a gallon last summer, consumers who shelled out the extra $3,000 for a hybrid like the Prius, with nickel-metal hydride batteries, were close to breaking even. But next-generation lithium-ion batteries will add at least $8,000 to the price of a plug-in when all the electronics are included. For drivers to save money on the Volt, Anderman calculates production will have to reach 1million cars a year, and gas will have to pass $5 a gallon.

Lithium-ion car batteries are an exciting technology. Whether they will generate an exciting U.S. industry is anyone’s guess.

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The Players

Although a mainstream market for electric cars may be a decade or more away, governments and companies worldwide are spending massive amounts of money to gain an edge in supplying batteries for them. Here are some key players

A123 (U.S.)
This MIT spin-off has $250 million in venture capital. It supplies small quantities of batteries to Daimler, Volvo, and Chrysler and wants $1.8 billion in federal aid to build plants in the U.S.

AESC (Japan)
This joint venture between Nissan and NEC may have the deepest pockets. It plans to invest $275 million in facilities to produce lithium-ion cells for a wide range of vehicles.

BYD AUTO (China)
One of the world’s top battery makers, BYD already offers a $22,000 plug-in hybrid in China and hopes to sell cars in the U.S. soon. Warren Buffett owns 10%.

ENERDEL (U.S.)
Once part of Delphi, EnerDel has invested $200 million in an Indiana plant. Its biggest customer is struggling Norwegian hybrid carmaker Think. EnerDel wants $480 million in U.S. loans.

JOHNSON CONTROLS-SAFT (U.S.-France)
This joint venture has a factory in France and has deals with Mercedes, BMW, and Ford. Johnson Controls’ edge: It’s already a top supplier of conventional car batteries.

LG CHEM (Korea)
A leading maker of lithium-ion batteries for cell phones, LG outflanked U.S. rivals to win a deal to supply GM’s Chevy Volt plug-in. GM plans to assemble LG batteries in Michigan.

PANASONIC (Japan)
After buying Sanyo’s lithium-ion business, Panasonic may be the company to beat since it’s allied with mighty Toyota, which is planning an electric car for 2012.

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Full article:
http://www.businessweek.com/magazine/content/09_08/b4120052113533.htm 

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Get those frugal consumers to buy something …

February 26, 2009

Excerpted from BusinessWeek, “How to Win Frugal Consumers and Influence Them to Buy”, by Susan Berfield, January 29, 2009

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For a while, Paco Underhill of the consulting firm, Envirosell, has been telling merchants that there are no new customers, which is his way of saying that stores must get better at persuading existing customers to purchase more. He has also noticed that people more often make decisions about what to buy when they’re out shopping, not before. This gives stores an opportunity: If they can compellingly present information about merchandise they might exert greater influence on consumers.

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In better times, when people selected an item from the shelf, they usually purchased it. Now the average amount of time shoppers spend in the aisles is increasing, by around 20% as they read labels more carefully. That sounds like it might be a good thing for retailers. But Underhill says people are more frequently discarding items in other parts of the store, particularly near the cash register. “They are trading out or experiencing buyer’s remorse,” he says.

Then there is the matter of choice: Underhill says some shoppers can’t deal with it, and if the item isn’t a necessity, they’ll just walk away. “Merchants have to take some control over the consumer’s eye,” he says. “Put up a sign that says ‘Our Best Seller’ or ‘Our Best Student Computer.'”

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Underhill and I go shopping at Whole Foods, a retailer known for trying to entice shoppers with “good stories” about its products. A large sign over the red kale and rainbow chard is titled “Why Buy Organic.” The explanation is probably too long for most people to read, he says, but that’s O.K. It’s meant to make shoppers feel they’re buying something valuable, maybe doing something virtuous.

A small sign stuck into a pile of Russian Banana fingerling potatoes reads “How cute are these?” Underhill loves it. “These are more expensive than Idaho potatoes, so they’re trying to find creative ways of getting you to trade up or try something new.”

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When Underhill talks to his clients about signs, he is concerned with what he calls the dropout rate, or the percentage of people who don’t read through an important piece of information.

Underhill’s work for a spice maker is an excellent case in point. The company had designed a pricey display for supermarkets, and the prototype categorized the bottles as spices, extracts, essences, or flavorings, and had no noticeable effect on sales. The distinctions the company was making were meaningless to shoppers. “Who cares what it is? What it does to food, how it tastes and smells, are all that counts.”

Edit by DAF

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Full article:
http://www.businessweek.com/magazine/content/09_06/b4118045670299.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis

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Posted in Mktg - Merchandising In-store, Mktg - Promotion, Retailing | Leave a Comment »