by Gilles d'Aymery
"If they can steal your clothes to keep warmer, they will. If they can pick your wallet to become wealthier, they will. If they can kill your dog to fatten their fat, they will. They justify themselves as being part of human nature and the sons and daughters of Gawd."
—Gilles d'Aymery"It's all the same fucking shit, man."
—Janis Joplin (1943-1970)
(Swans - January 26, 2009) AN ECONOMIC PEARL HARBOR is how Warren Buffett, the CEO of Berkshire Hathaway Inc., described on NBC Dateline, January 18, 2009, the situation in which the U.S. is engaged -- an economic Pearl Harbor! Of course, in the midst of the January 20 inaugural pageant -- very nice, very uplifting; the flurry of executive orders -- close Guantánamo, we don't torture, keep lobbyists at bay, pay freeze, government transparency, etc., etc., etc.; the passage of the guard with its phalange of special envoys dispatched to the frontiers of our empire -- Richard Holbrooke to Afghanistan-Pakistan and George Mitchell to Israel-Palestine; and the dawn of a new era of "responsibility" -- watch your wallets, that's where it will hurt most -- you'll be forgiven if you have not followed what's happening in the world of our financial casino.
BUT IF YOU DID PAY ATTENTION, you may have noticed that a few days prior to the dawn of our change-we-can-believe-in era, the US government had to send another life buoy to Citigroup and Bank of America (BOA), two mega-churches of our sinking financial ship (they are trading at around $3 and $6, respectively). You'll have to excuse me if my numbers are not exactly on mark -- it's becoming incredibly hard to follow the largesses that our government (is it really ours?) bestows on the few at the expense of the many. Each company received a new injection of $20 to $25 billion, on top of the $25 billion they collected last October. Additionally, the government guaranteed $110-plus billion of BOA's toxic assets. Merrill Lynch, which BOA acquired for $50 billion four months ago, lost a stunning $15.3 billion during the fourth quarter. To give you a sense of this hecatomb, suffice it to know that the combined value of the two companies (BOA + ML) was just about $40 billion by the end of last week (BOA has lost over 80 percent of its value in four months)! For its part, Citigroup, by and large insolvent, has decided to split the company into two entities (a "good" and a "bad" bank), thus ending the era of financial supermarkets ushered in by Sanford Weill in 1998 with the help and benediction of the Clinton administration. It'll have taken just about ten years for that experiment -- the combination of insurance, credit card services, brokerage, mortgage lending, investment lending, and traditional retail banking -- to unravel. No worries, Sanford Weill is doing quite well in retirement, thank you.
OTHERS have had it dandy too. Take Bernie Madoff who, always in need of rapid and convenient displacement around New York and Palm Beach, had his Ponzi-scheme firm lease six vehicles, all inconspicuous models... To wit: a 2007 Range Rover, a 2008 Cadillac DTS, a 2007 Mercedes S550, a 2008 Mercedes GL450 SUV, a 2006 Lexus for Palm Beach, and a 2009 Mercedes S550 that was leased just a month or so before the saga unraveled. Robert Rubin (former Goldman Sachs CEO, former treasury secretary under Bill Clinton, and current advisor to Barack Obama) quietly announced that he was retiring from his functions at Citigroup -- aren't rats famous for being first to leave a sinking ship? -- after having made hundreds of millions helping engineer this debacle. Another master of the universe, John Thain (Goldman Sachs, 1999-2004; New York Stock Exchange, 2004-2007; CEO Merrill Lynch, 2007-2009), who's just been ousted after having been paid $83 million in 2007 and another $16 million in 2008 as Merrill was losing tens of billions, had his office redecorated in early 2008 for a mere $1.2 million (again, the firm posted a $15.3 billion loss just for the fourth quarter). Ah, the wonderful world of finance...talk about chutzpah!
THE CREDIT CARD operations of both behemoths have also moved into red ink, which should tell you that the shoes keep falling faster than they can be resoled (more on falling shoes below). In short, Citigroup and BOA are slowly being nationalized though it's not publicly admitted (we don't want the specter of socialism to raise its ugly head, do we?). Other, lesser banks keep failing too. In 2008, regulators closed 25 banking operations. In the first three weeks of 2009, already three have been seized by the FDIC: National Bank of Commerce in Berkeley, Illinois; Bank of Clark County in Vancouver, Washington; and First Centennial Bank of Redlands, California.
NOW, IF YOU expand your horizon beyond the borders of your obliviousness, you must have noticed that the UK has now officially entered recessionary times, its economy shrinking by an annualized 6 percent in the last quarter (ditto of Germany, by the way). The Bank of England had to take a 70 percent stake in the Royal Bank of Scotland. Next in line for nationalization is Barclays, which has lost two-thirds of its value in just about one month. Ireland, Spain, Greece, and Italy are sinking fast -- the entire Euro Zone is imploding. In Asia, with China's economy contracting at a faster pace than expected, Japan and South Korea are heading into deep recessions...
BACK ON THESE shores you will have noticed that the first half of the $700 billion (plus pork) bailout has already been fully spent and no one knows where the money has gone -- talk about transparency. You will also have noted that the new crew (made up of old hats) intends to spend the next $350 billion to further "stabilize the financial markets." Hey, if it did not work the first time around, let's try again...
A FEW CYNICAL and certainly un-patriotic Americans think that another $1 trillion will have to be spent to shore up the banking system's common equity before the wheels of lending start churning again. Add the coming economic stimulus, tagged upward of $800 billion, and you are quickly looking at a $3 trillion deficit in 2009 (W. will indeed look quite moderate for his spending!). Where the money comes from is anyone's guess. Europe has too many troubles of its own to finance our gluttony. Shaking our fingers at China will be rather counterproductive, at least for our borrowing purposes. Oil producers have seen their surpluses dwindle due to the dramatically lower prices of oil & gas. Americans are broke and even the wealthy are feeling the pain. So, the logical output for financing this bottomless insanity can only be the printing press. That's why I do not buy into the stag-deflation theories being bandied around. Inflation, possibly hyperinflation, is a much more likely outcome. Indeed, responsibility is going to become the buzz word in the next few years. It will mean, take it and shove it up yours...
ANOTHER SHOE has indubitably fallen -- the hedge funds. Remember my January piece, "Bernie Madoff And The Establishment," in which I highlighted the wailing of the elites through the words of Thomas Friedman? We need new "ethics and regulations," wrote our capitalist minstrel. For cause: In or about 1998, there were around 3,000 hedge funds (up from a few hundred in 1988) managing about $375 billion. By 2008, they had surged to about 10,000 that managed assets worth $2 trillion -- including Thomas Friedman's money and that of many other super-wealthy individuals or families, and, sadly enough, many pension funds. The managers, mind you, had a real sweet deal. They charged 20 percent of profits and 2 percent of the managed funds. It was all done in an atmosphere of bonhomie so long as the investors were getting a cushy return -- scratch my back, I'll reciprocate... Let happy times roar! Unfortunately, the roaring times came to an end as it is estimated that hedge funds have lost 24 percent in 2008, on average (some have lost up to 70 percent) -- hence Friedman's wailers... Now, 24 percent of $2 trillion amounts to a staggering loss -- and the !@#$%! managers keep charging their 2 percent while in some cases no longer redeeming the funds (check Kenneth Griffin's Citadel Investment Group.) In comparison, Bernie Madoff's swindle was really cheap change!
ANY OTHER SHOES FALLING? Let's see. You mean, in addition to unemployment shooting through the roof, home real estate in the ditch with foreclosures increasing by the day, business bankruptcies ballooning, bank defaults, hedge funds' demise, states in disarray, communities crumbling, car companies on life support..., don't you? The next big one to look for is the commercial real estate sector. This one has yet to hit but it's coming and it's going to be painful. And then you have all those derivatives and Credit Default Swaps worth on paper some $60 trillion but whose real market value no one dares quantify because they can't possibly be bailed out. The CDSs alone is a $30 trillion market, half that amount -- more than the US GDP -- being gambling vaporware.
WHAT'S MIND-BOGGLING is that the new crew, filled with impressive resumes, keeps following the same failed W.'s (and Clinton's, and G. H. W.'s, and Reagan's, and Carter's) path. Stabilize the financial markets; make banks lend again; have households return to their consuming practices; increase debt; shoot for the stars...and keep a few wars going (amongst other ineptitudes)...
CITATION FOR THE AGES: "We can't solve problems by using the same kind of thinking we used when we created them."
WHETHER Warren Buffett describes the situation appropriately, "the U.S. is engaged in an economic Pearl Harbor," with all its war-like subliminal connotations, one can only hope this entire mess is not going to turn into a "Stalingrad," a "Waterloo," or a "Berezina."
MORE PET FOOD SAGA. In my last Blips #77, I told the story of how the price of our dog food had increased by 50 percent as the company, Natura Pet Products, Inc., decided to shrink the size of its serving by 25 percent. I chose to follow up on the story and wrote the following e-mail directed to the manufacturer and the retailer with a copy to various newspapers (NY Times, Ukiah Daily, SF Chronicle, and our local AVA):
Good people at Natura Pet Products, Inc., and Rainbow Agricultural Services (with copy to the Press):
As Joe Weinstein once quipped, "My dog is worried about the economy because Alpo is up to 99 cents a can. That's almost $7.00 in dog money."
In the spirit of the sense of responsibility ushered by the new Obama Administration, could you kindly explain to me how come a bag of "holistic" Innova dog food that cost $40 for a 40-pound bag a couple of months ago is now costing $45 for *only* a 30-pound bag?
Full story at: http://www.swans.com/library/art15/desk077.html
In The New York Times of January 18, 2009 (Business section, page 5), the giant Cargill, Incorporated, ran an ad that read: "Pet food companies are like any food company. Constantly fluctuating input costs can play havoc with margins and profitability. They need costs to stay predictable. Cargill helps a large global pet food company accomplish this by providing risk management strategies to hedge the cost of soybean meal and whole grain corn and wheat in commodity markets -- while supplying them with key ingredients. Our expertise assures that even if commodity costs rise or fall, the company can keep prices stable and the quality of ingredients high for products like dog and cat food. Because no one likes to raise prices on their best friend."
So, good people, what gives? You've just increased the price of your product by about 50 percent. Any "holistic" justification, or simple price gouging?
To say the least, and to use one of our former president's, George W. Bush, favorite expressions, this is a huge disappointment (though not on par with the absence of WMDs in Iraq) -- a huge disappointment nonetheless.
I'd appreciate getting your side of the story before I stop shopping at Rainbow and start buying another brand of healthy food for my dog.
(Question to the Press: Could you take the time to cover the real stories out there? We are being pilfered left, right, and center...)
A puzzled and very "disappointed" customer.
AN HOUR OR SO later, the phone rang. "Hello?" "Is this Gilles d'Aymery?" the man asked. "Yes, this is he..." "Hi, my name is Jim Mayfield, the owner of Rainbow Agricultural Services in Ukiah. Just got your e-mail..." "Want you to know..."
FOLLOWED A LENGTHY DISCUSSION. Jim was neither upset nor aggressive -- actually, quite friendly. He simply wanted to explain his side of the story: He had no influence or take in the pricing of his suppliers, which have increasingly resorted to the lower-content scheme. His markup, between 25 and 32 percent, which pays for his operation and the well being of his 55 employees, is essentially guided by the competition from the "big boxes" -- Wal*Mart and the like...
HEY JIM, I said, I shun the big boxes. I've not once set foot on Wal*Mart's floor in Ukiah (that is a true statement) and I do try my utmost to give my patronage to family and local businesses -- the money stays in the community... If there had been any Titanic iceberg between us (there was not) it would have thawed right there. He asked me not to drop Rainbow for reasons not in his control. I said I would not, and asked that he take the time to write a response by e-mail, which he did. We ended the conversation on a friendly note. "Next time you come, Gilles, hunt me down!" Since then we had a couple of e-mail exchanges in which I assured him that we would keep our patronage going (since we buy more than pet food at his store), and he sent me a suggestion for another brand of healthy but cheaper dog food.
COMPARE THIS HUMAN INTERACTION with the e-mail I received on January 24, 2009, signed "Ashley, Natura Consumer Service Rep." It read:
Thank you for contacting Natura Pet Products. We at Natura are honored to have you as a customer.
Due to the increase cost of our ingredients we were forced to face a price increase. We absolutely refuse to cheapen the quality of our ingredients as some other pet food manufacturers have done.
The options available were to keep the bag size the same and increase the price or decrease the bag size and keep the price the same. Natura chose to keep the price the same and decrease the bag size along with making all the bags throughout the Natura lines uniform. We do apologize for the inconvenience this has caused you.
Again with the bag decrease we did not add on an additional price increase. If you have experienced an additional price increase this is one that was provided by the distributor or the retail store.
If you have any additional questions please feel free to contact me at your convenience.
Natura Consumer Service Rep
WHICH ELICITED THIS ANSWER:
Thank you very much for your e-mail that explained the rationale used by your company to pilfer and take advantage of hapless consumers.
You just lost one of them.
I'VE BEEN SAYING IT OVER AND OVER: Shop locally; support family businesses. Yes, you may pay a little more than at the Big Boxes, but you get real service and real human interactions in exchange. Jim Mayfield could have laughed me off. He sure did not as he picked up his phone. His message was two-tiered: Don't drop me for reasons I did not cause, and, I'll make it good to you. Simple message, which he took the time to convey both by voice and in writing... I'll sure fight him for the $5 increase in the 10-pounds-lighter bag, and will take exception with the quality of my dogs (are you saying, Jim, that my two dogs are not worth the food because we cannot afford the price?), and I'm sure he will grumble internally that I am a pain in the butt; but he will do everything he can to keep me more or less satisfied (so he can keep feeding his dog!). Ashley, certainly a fine person, is just doing her customer service job 9 to 5 with no intent or knowledge whatsoever on how to keep this biped and his dogs happy. She couldn't care less. See the difference, doggy or otherwise?
I'D BE REMISS if I were not relating another note from Jim Mayfield. I wrote in my last Blips that Rainbow was part of a wealthy family that owns several Ace Hardware stores (four in the county, if I am correct). Jim countered:
One more clarification. You stated that "the same wealthy family" owns Ace Hardware stores.... My cousin who owns the hardware stores may beg to differ with your definition of family. Although we are related (first cousins) our bank accounts and business operations are not. Please correct that error.
I STAND CORRECTED and apologize for the error. After all, is there anything in common with my family back in France and me, but for the last name? Mendocino County is no exception, it would appear.
NOT JUST FOODSTUFF is going up. According to the FBI's National Instant Criminal Background Check System (NICS), gun sales have increased 24 percent for the month of December 2008 over December 2007 (1,523,426 vs. 1,230,525 checking requests). "This increase," according to PRNewswire-USNewswire, "follows a 42 percent rise in NICS checks for the preceding month, the highest number of checks in NICS history." "Sales of firearms, in particular handguns and semi-automatic hunting and target rifles, are fast outpacing inventory," according to bean counters at nssf.org (National Shooting Spots Association). "Final year-end NICS data reveals a total of 12,709,023 background checks reported in 2008, up 14 percent from 2007."
SOMEHOW, it does not make me feel safer.
. . . . .
C'est la vie...
And so it goes...
La vie, friends, is a cheap commodity, but worth maintaining when one can.the life line won't hurt you much, but it'll make a heck of a difference for Swans.