Category: US Corporations

Tariff Collections Are Climbing

The Daily Escape:

The cash flow of Customs and Excise Taxes has doubled in the past two months. From Wolf Street:

“Collections from customs and excise taxes spiked by 81% in April from March, to $17.4 billion, more than double the average monthly collections in 2023 and 2024, according to Treasury Department data today.”

This is the amount in customs and excise taxes that the Department of Homeland Security (which includes Customs and Border Protection) transferred in April into Treasury’s checking account at the Fed. Here’s a graphic representation:

The chart shows that something substantive is starting to happen. Tariffs are taxes paid by businesses to our government. And it adds up:

“For example, GM just announced that the new tariffs would cost it $4 billion to $5 billion this year and lowered its earnings forecast with respect to that. It has also begun to shift production to the US to dodge some of those tariffs.

GM manufactures components in China, it manufactures its Buick Envision at its joint venture in China and imports it, it imports vehicles and components from Mexico and Canada, it imports components and materials from around the world. After its bailout out of bankruptcy by the US government in 2009, GM focused on China and Mexico and shed dozens of US production facilities for components and vehicles. So now there’s a price to pay.”

Today’s automobile market is such that GM cannot pass on these tariffs to consumers. Automakers are having to discount their models and provide incentives to the market to sell enough vehicles to keep their production lines going.

More from Wolf:

“After the massive price hikes during the pandemic, there is no more room left to hike prices. Consumers have had it.”

But profit margins in the auto industry were huge following those massive price hikes. And the companies can eat those tariffs, show up with lower profits, and still be fine.

And not just in the auto industry. Non financial companies in the US made out like bandits during the Covid era of massive price increases. Their balance sheets have plenty of room to absorb the tariffs.

Mere mortals like Wrongo can’t keep up with all the tariff chaos. The governments of China and US are at least now talking about talking about tariffs. Numerous negotiations are apparently underway with governments of other countries, each one trying to get their special deal with Trump.

Under the Biden administration, there were numerous announcements of large investments in US manufacturing facilities by manufacturers. These investments will take time to play out: Years of big investments in the US before mass production can start. These investments alone are a big boost for the US economy. And companies such as GM that already have plants in the US have started to shift more production from their foreign plants to the US plants.

Trump has misplayed his own China tariffs strategy. In 2024 he said that if China tried to invade Taiwan he would impose tariffs:

“I’m going to tax you, at 150% to 200%.”

But today he already has tariffs at 145%. A trade war is about who can take the most economic pain, and that is a fight China clearly thinks it can win.

Trump’s trade protectionism is also harming America’s allies. Trump is pressing Taiwan and others to shift plants to America. Australia, Japan and South Korea face tariffs and demands to decouple from China, a large trading partner for each.

While no Asian country is about to break its security alliance with America. However, countries will be even more queasy about being dragged into a fight over Taiwan.

Trump’s problem is twofold. First, people are smarter than he thinks. They know the economy has worsened since the chaos of Liberation Day. They can see the demarcation in time when the vibes shifted. Second, of all the insanity of the first 100 days of Trump, nothing broke through to the broader public besides tariffs.

From the NYT:

“By late May or early June, consumers could start to see some empty shelves, and layoffs could occur for retailers and logistics industries. The major effects on the US economy of shutting down trade with China will start to become apparent in the summer of 2025…”

Trump desperately wants to evade blame. People have soured on his economic leadership devastatingly early into his presidency. It puts his power — and the Republican majorities’ power — at risk. Trump is very good at getting out of messes. But can he escape this one?

The stated dual purpose of tariffs is to first, change the math for manufacturing in the US. That was already underway with Biden. Second, to increase tax revenues.

Tariffs were the original tax revenues in the US, predating income taxes. And Trump mistakenly wants to take us back to that.

Facebooklinkedinrss

The Art Of The Bad Deal

The Daily Escape:

You cannot negotiate with a market. You can manipulate it, but in the long run markets do what they do. From the NYT :

“A sharp sell-off in US government bond markets and the dollar has set off fears about the growing fallout from President Trump’s tariffs, raising questions about what is typically seen as the safest corner for investors during times of turmoil.

Yields on 10-year Treasuries — the benchmark for a wide variety of debt — whipsawed on Wednesday after Mr. Trump paused the bulk of the levies he had threatened the week before and raised the rates charged on Chinese goods after that country retaliated. The reversal sent U.S. stocks soaring.”

And the bond market is not having any of Trump’s nonsense. We nearly had a major financial crisis. This is the part you don’t know. The bond markets freaking out means that, unchecked, we were maybe a week away from possible bank failures.

We’re talking about the market for US Treasury bonds—normally among the safest assets in the world. They started convulsing, along with the stock market. The yield on 10-year Treasuries leapt to 4.5%, up from 3.9% days earlier. That meant bond prices, which move inversely to yields, had cratered. The failure of both risky and supposedly safe assets at once, threatened to destabilize the financial system itself.

Why did the bond markets start to collapse? There was a technical reason, which was that losses in the stock market were so severe and widespread that hedge funds needed to sell bonds to cover losses. And money managers moved away from the slumping US dollar.

But more than that was a general, widespread loss of confidence In the US itself.

So what happened was something like this. Whatever sane minds are in the Oval Office probably desperately tried to warn Trump that we were indeed likely just a few days away from bank failures. That if the catastrophic fire-sale of US government bonds didn’t stop, the consequences would be ruinous.

From JV Last:

“William Cohan had an excellent explanation last night of where the bond market is after Trump’s tariff pause”:

The bond market can be broadly understood as a device that measures risk. The riskier an economic environment is, the higher the yield on bonds goes.

Over the course of Trump’s brief tariff regime the 10-year yield on T-bills went from 3.86% to 4.54% —a 17.6% climb in less than a week. That’s a screaming klaxon alarm.

Yesterday, after Trump announced his 90-day pause, the yield only dropped back to 4.4%. Which suggests that the bond market was not especially reassured.

One of the big risks is China. China holds $760b in US Treasuries. Should the Chinese decide to lower their purchasing of T-bills at the next auction, that will drive up the yield as the Treasury Department has to make them more attractive in the face of slackening demand. Which would in turn ratchet the entire bond market up another level of fear.

Why do bonds matter? Because bonds are how people finance debt—they are a rough approximation of the belief that it is safe to extend credit. And without credit, financial markets can’t function.

It’s all about risk. From Larry Summers: (emphasis by Wrongo)

“Long-term interest rates are gapping up, even as the stock market moves sharply downwards. This highly unusual pattern suggests a generalized aversion to US assets in global financial markets. We are being treated by global financial markets like a problematic emerging market.”

Donald Trump’s erratic and foolish actions have turned America, the most desirable financial haven in the world, into a whirlpool of risk. The safest way to conduct business now is to limit exposure to the US to the greatest extent possible. From the NYT: (emphasis by Wrongo)

“The chaos that has followed last week’s announcement has made companies wary about adding more upheaval with a drastic change to their supply chains. Faced with constant flux and unpredictability, companies are choosing to stay with what they know: longstanding relationships with Chinese suppliers or manufacturing partners.”

Driving multinationals deeper into relationships with China is not the art of the deal. It’s the destruction of stability and the start of a long, slow slide into a vortex.

Consider if you were to make an offer to buy a house: Would your opening bid be 50% of the asking price and would you expect a counter-offer? No, that’s bad faith negotiating. That’s pretty much what this tariff rollout has been like. “Let me start with the most ridiculous thing I can come up with and see if they bite!” The seller would tell you to go F yourself and find someone else to buy the home.

The whole world is going to do this. We’re going to carve ourselves out of a seat at the table.

Let Scott Galloway have the last word:

“The definition of stupid is hurting others while hurting yourself. Let’s hope the Republicans riding shotgun will realize the guy with his hand on the wheel is crazy.

My prediction: Xi will not back down. With Trump, he’s come to the same conclusion as Succession’s Logan Roy re his own kids: ‘You are not serious people.’”

Facebooklinkedinrss

Harris Needs To Speak To Gen Z’s Reality

The Daily Escape:

Before tackling the major subject for today, Wrongo wants to briefly cover something you probably missed. There was an abortion ruling in Georgia that overturned the state’s anti-abortion law. The judge plowed new ground with his reasoning: (emphasis by Wrongo)

“While the State’s interest in protecting ‘unborn’ life is compelling, until that life can be sustained by the State — and not solely by the woman compelled by the Act to do the State’s work — the balance of rights favors the woman….Women are not some piece of collectively owned community property the disposition of which is decided by majority vote. Forcing a woman to carry an unwanted, not-yet-viable fetus to term violates her constitutional rights to liberty and privacy, even taking into consideration whatever bundle of rights the not-yet-viable fetus may have….It is not for a legislator, a judge, or a Commander from The Handmaid’s Tale to tell these women what to do with their bodies during this period when the fetus cannot survive outside the womb any more so than society could — or should — force them to serve as a human tissue bank or to give up a kidney for the benefit of another….When someone other than the pregnant woman is able to sustain the fetus, then — and only then — should those other voices have a say in the discussion about the decisions the pregnant woman makes concerning her body and what is growing within it.”

The ruling is unlikely to be the final word on abortion access in Georgia, since the case will ultimately be decided by the Georgia Supreme Court.

The judge has a solid argument: Why does society have an interest in a viable fetus when we know society won’t lift a finger to financially and medically support the newborn? Why allow the government to intervene at a time when the costs involved for the mother to continue with the pregnancy increase substantially?

Let’s move to a powerful idea that emerged in the VP debate. Wrongo thinks the key to winning the election will be how Harris reaches out to Gen Z (those born between 1997 and 2012). PBS Newshour interviewed Kyla Scanlon, who reminds us that Gen Z now has more people in the workforce than the Boomer generation, but they aren’t faring as well. Scanlon says that Gen Z has had a tough go of it, being essentially born into the tech bubble, growing up during the Great Recession and then graduating or being in college during the pandemic.

From Scanlon: (brackets by Wrongo)

“…I think for a lot of Gen Z’ers, rent is definitely not as affordable as it used to be. Real wages have increased, so [have] wages adjusted for inflation, but rent has increased much more. And that’s sort of the foundation of how everyone experiences the economy. It’s where you live and how you have to pay for where you live….people look at the price of rent, they look at the price of gas, they look at the price of food, they just look at the inflation that we have experienced over the past few years, and it’s sometimes just not enough to even make those real wage gains worth it.”

More:

“It’s also the cost of childcare, eldercare, these things that are economically quite painful, but don’t necessarily show up in traditional economic measurements like GDP….They’re things that are… hidden costs that people experience.”

Scanlon also talked about the negative bias in the media that’s driving how people feel about their economic circumstances. Media sentiment on the economy has trended either skeptical or negative for a very long time, so people are reading negative headlines despite the economists and pundits saying the economy is OK. This is a big disconnect for the younger generations who get most of their news from social media.

In the debate, Vance said a few things that certainly resonate with Gen Z and others. He noted three things in particular:

  • People are struggling to pay the bills. Times are tough.
  • The American Dream is fading, and feels unattainable.
  • We should stop shipping jobs offshore.

It’s hard to disagree with any of that, and Harris shouldn’t cede any of this ground to Trump. How hard is it to build this into your stump speech? She could easily acknowledge that we’re in the midst of a global cost of living crisis. The biggest one in half a century.

But it was left to Vance and Scanlon to say the things that most Americans feel.

Gen Z and their younger cohorts mistakenly think that the economy is a zero sum game, meaning that if China is doing well or immigrants are coming here and finding work, that regular Americans must be doing worse, even though the economic statistics say otherwise.

Harris needs to deliver an economic message that’s grounded in the reality that Gen Z and others are experiencing. It can be as simple as acknowledging what Vance or Scanlon called out as problems for many younger Americans.

All she needs to do is “Just Say It”.

Many of Wrongo’s 12 grandchildren (17-32 years-old) largely feel that the American Dream is beyond their reach. They’re certain Social Security won’t be there for them. Most think that they’ll never own a home.

Why can’t Harris speak to this? Harris and the Dems talk vaguely about “the opportunity economy” but a more emotional and empathetic call out is required. People with economic problems need to trust the head of the ticket, and that trust starts with acknowledging their reality: That things aren’t as good for the younger generations as the economic statistics say they are.

The Dems have an actual track record: Investing in infrastructure and encouraging domestic production of strategic goods. Investment in manufacturing is at an all time high. We’re starting to produce advanced chips in Arizona. Unions are stronger than in recent years.

Harris needs to show empathy for those in Gen Z (and younger) who are not fully participating in the opportunity economy.

It will help her win in November.

Facebooklinkedinrss

The Gap Between Economic Statistics (good) vs. People’s Perception Of Economic Situation (terrible)

The Daily Escape:

Monument Valley, Navajo Tribal Park, AZ – May, 2024 photo by Hung Ton

From The Lever:

“Americans paid roughly 25% more on groceries and dining out this March than they paid in January 2020, outpacing the rate of general inflation. Over that same period, the companies behind the country’s 10 largest grocery and restaurant brands have together returned or pledged to return more than $77 billion to shareholders.”

More:

“In March 2024, consumers spent 95% more for a carton of eggs, 33% more for a pound of ground beef, and 22% more for a gallon of milk than they did before the pandemic.”

According to an analysis by Food and Water Watch, a corporate watchdog group, food costs for an average family of four living on a “thrifty” budget increased 50% from January 2020 to January 2024, from $654 to $976 a month.

When economists and pundits talk about the disconnect between America’s overall economic performance and how badly Americans view the economy, this unprecedented spike in food costs is at the heart of the problem.

In 2021, as food costs were skyrocketing, America’s biggest chains and grocery brands blamed the price hikes on supply chain issues and economy-wide inflation. But these same companies have expanded profits and quietly authorized billions of dollars in stock buyback programs and dividend payouts to shareholders.

Former PepsiCo CFO Hugh Johnston told Bloomberg last year that consecutive double-digit price hikes on the company’s products in recent years were “just there to cover inflation”. But in 2023, PepsiCo reported $91 billion in net revenue, a 35% increase over prepandemic income. And it used $7.7 billion of its profits to repurchase stock and issue dividends. Those buybacks increased by a whopping 843% compared to 2021.

More from The Lever: (emphasis by Wrongo)

“Matt Gardner, senior fellow at the Institute of Taxation and Economic Policy, a tax policy advocacy group, said buybacks boomed right before the pandemic when Trump-era tax cuts left corporations with extra cash on hand.”

Advocates for the Republican tax cuts said that companies would reinvest that tax windfall back into the economy via manufacturing and jobs (more trickle down). But many began plowing money into buybacks instead.

Tyson Foods more than doubled its profit margins between 2021 and 2022 after hiking prices for beef, pork, and chicken by 30%. The company claims it raised prices because it needed to offset increased costs in labor, transportation, and grain for animal feed. But data from earnings reports show that while increased operating costs set the company back $1.5 billion dollars in 2022, price increases expanded profits by $2 billion, meaning consumers covered Tyson’s inflation costs plus they also shelled out $500 million more. That year, Tyson repurchased $702 million of its own shares and raised dividends by 4%.

Some Americans trying to save money by eating fast foods have seen those prices increase too. A study of the country’s biggest fast food brands by Finance Buzz found that at all of them, menu prices have outpaced inflation. The Food Institute’s survey shows that: (emphasis by Wrongo)

“Due to inflated costs, 78% of respondents say they now view fast-food as a luxury. The percentage increases to 80% or higher among those making less than $30,000 a year.”

These high food costs have been largely caused by the food industry increasing prices faster than their costs.

Americans are largely supportive of efforts to regulate how much companies charge for food. In a new Data for Progress poll, 69% of respondents said the government “should do more to regulate grocery stores that raise prices to maximize profits.”

Sad to say, the Democrats will not do anything meaningful to bring down the cost of food.

And the higher expense of putting food on the table may partly explain the so-called “vibecession”. There’s a great divide in the US between how people see their personal financial situation (pretty good) and their view of the overall economy (terrible). Here’s another chart:

Data: Federal Reserve Survey of Household Economics and Decisionmaking; Chart: Axios Visuals

In the above poll by the Federal Reserve, respondents are asked to choose from four options when it comes to how they’re doing. The top two choices were “living comfortably” and “doing OK.” 72% of Americans landed in those categories.

Respondents are also asked about the financial well-being of the national economy — the top two choices, “excellent” and “good,” were chosen by only 22% of Americans. In addition, that  gap between people’s perceptions of their financial well-being and that of the national economy has nearly doubled since 2019. From Axios: (brackets by Wrongo)

“This divide is showing up in plenty of surveys. The University of Michigan Consumer Sentiment Index for May [2024] came in lower than 84% of readings since 1978….Just 22% of respondents to a May Gallup poll said they were satisfied with the way things were going in the US, compared to 77% dissatisfied. That’s a wider gap than three-quarters of the time since they started asking the question in the 1970s. A Harris poll last month showed that 56% of Americans think we’re in a recession.”

Brian Beutler reminds us that if Trump were in office today — presiding over full employment while Americans enjoyed more purchasing power than ever before, and inflation was hovering steadily around three percent — he and Republican politicians would claim credit for building the greatest economy in US history.

But Biden and his handlers are vacillating about how to address the economy’s perception gap. From Beutler:

“Nevertheless, the emerging Democratic consensus seems to be that Biden should continue to ‘meet people where they are’: sympathize with the plight of the struggling, implicitly concede that the economy—which would poll through the roof with Republicans stealing credit for it—is actually bad.

Within the White House…aides are pushing for a message that makes empathy toward the economic plight of certain Americans more central….Some noticed a preview…when the president described the April inflation report…‘I know many families are struggling, and that even though we’ve made progress we have a lot more to do.’”

That can’t be right if we can swap Republicans for Democrats without changing anything else, and the perception gap would somehow magically go away.

But Biden shouldn’t be speaking as though the economy is one where more people need help when the truth is that fewer people need it. That would affirm the false notion that economic suffering is broadly based and something must be done to alleviate it.

The WaPo’s answer was an editorial saying that “Nearly everything Americans believe about the economy is wrong”. The same issue also had a story saying that people can’t make ends meet.

Are both of those things simultaneously true? Politicians better figure out which is primary (great economy) and which is secondary (bad personal financial situation).

We know that people are struggling to pay rent and mortgages and now, fast food’s a luxury. This is what is making many people think that this is the worst economy ever. And if you look closely this isn’t just “anecdotal”. The statistics supplied above seem to bear it out in some detail.

Biden needs to brag about the economy but he also must call out the food industry, and show people who are struggling that he’s trying to help.

Facebooklinkedinrss

Oops, Boeing Does It Again

The Daily Escape:

Lenticular cloud at sunrise, Salton City, CA – May 2024 photo by Paulette Donnellon

At a time when Boeing is facing calls by the flying public as well as from governments to return to its focus on safety, the company has scored an “own goal” by deciding to pick a fight with its in-house firefighters union, who help to keep Boeing itself safe.

From The Stand, a Seattle-based newsletter about working people:

“The more than 120 fire fighters who protect Boeing employees and facilities in Washington state — members of the International Association of Fire Fighters (IAFF) Local I-66 — are struggling to get a fair contract from the Arlington, Virginia-based company.”

At the heart of the dispute is Boeing’s insistence on raising the time it takes for firefighters to reach the maximum pay scale from 14 years to 19 years. Negotiations have been ongoing through a federal mediator for more than two months, with no deal reached. Nineteen years is nearly the entire work span of a firefighter’s career. If this deal is accepted, they will hit the top of their pay scale and retire soon after. It’s understandable why that would be good for the company. From Boeing: (emphasis by Wrongo)

“Despite extensive discussions through an impartial federal mediator, we did not reach an agreement with the union….We are disappointed the union chose not to even bring our offer to its members for one final vote….We have now locked out members of the bargaining unit and fully implemented our contingency plan with highly qualified firefighters performing the work of IAFF members.”

More from The Stand:

“Boeing’s “last, best and final offer” to the fire fighters was rejected by more than 80% of IAFF I-66 members. The union says the offer failed to address fire fighters’ concerns about short staffing, pay that’s significantly lower than local fire departments, and step increases that take 19 years to reach the top of the pay scale…”

Obviously, “Safety First” remains Boeing’s motto. Maybe that’s Safety of our bonuses First. This also reminds Wrongo of the old saw:

“Socialism is the fire department saving your house. Capitalism is the insurance company denying your claim.”

Continuing Boeing’s recent tradition of quality operations (?) and stable management, they’ve now moved on to scab firefighters for their burning needs. The entire Boeing firefighting staff is 125 people. So think about the negotiations on how many years should exist between pay step increases: Boeing’s demand makes no effort to meet somewhere in the middle. Wrongo isn’t sure what is driving the Boeing Board of Directors: The union only has 125 members, so the amount of money Boeing would pay if they employed a “meet in the middle” settlement seems tiny compared to the scale of Boeing’s total expenses.

It’s also awful for Boeing’s Board that this was reported in the media on the same day that the FAA announced another investigation into Boeing over falsified recordkeeping in its 787 program: (emphasis by Wrongo)

“In an email to Boeing’s South Carolina employees on April 29, Scott Stocker, who leads the 787 program, said a worker observed an “irregularity” in a required test of the wing-to-body join and reported it to his manager…..After receiving the report, we quickly reviewed the matter and learned that several people had been violating Company policies by not performing a required test, but recording the work as having been completed…”

Son of a door plug! The world is watching in real time how difficult it can be to turn a huge company’s culture around, particularly when the members of the firm’s C-Suite whose major function in the corporation is its financial performance doesn’t see the maintenance of that culture as a huge problem. It may take many years for Boeing to pull out of this nosedive, or they may fail entirely.

In the meantime, do you feel their planes are safe enough to fly?

Facebooklinkedinrss

Cartoons Of The Week – March 31, 2024

Last week, it seemed as if every cartoonist wanted to draw something about the Baltimore Key Bridge, or about Trump’s bibles. Here’s the best of the lot.

Bridge collision brought some elephants to reality:

Some saw it as a metaphor:

Trump reduced to schilling:

It could have been worse:

The Biden Impeachment failed:

Suck it up, buttercup:

Capitalism is no longer ready for prime time:

Facebooklinkedinrss

Autoworkers Have A Deal

The Daily Escape:

Sunrise, Northern VT – October 2023 photo by Kristen Wilkinson Photography

The UAW announced Monday evening it had reached a tentative agreement with GM, the last of the Detroit car companies to complete negotiations with the Union. So all three have a tentative agreement which will now be voted on by UAW members. This is a big deal, even if nobody’s talking about it.

Some details from The Insider:

“The 25% pay increases by April 2028 agreed to in the new contracts raise top pay to about $42 an hour, according to the union. That starts with an 11% immediate boost upon ratification, three annual raises of 3% each, and a final increase of 5%. The UAW said restoration of cost-of-living increases, which were suspended in 2009, could boost the total increases to more than 30%.”

Some industry analysts have estimated that Ford’s contract, if ratified, would add $1.5 billion to the company’s annual labor costs. Ford estimated that this could add up to $900 in labor cost to each vehicle rolling off its assembly lines. Another analyst says the pact will reduce profitability by 1%. To put these numbers into perspective, keep in mind that a fully loaded Ford F150 can run over $80k. That means the car companies can afford this deal.

Labor accounts for 4-5% of the average cost of making a car for the Big Three. Also, the Big 3 have made $250 billion in profits over the past decade and have diverted a substantial amount of that money into stock buybacks to enrich wealthy shareholders and top executives instead of investing in their businesses or paying their workers.

So please spare us the tears about the workers’ hard-fought gains putting the Big 3 in peril. The NYT wrote:

“The terms will be costly for the automakers as they undertake a switch to electric vehicles, while setting the stage for labor strife and demands for higher pay at nonunion automakers like Tesla and Toyota.”

To paraphrase, the NYT says that those evil unions are ruining shareholder value and will cause strife at Tesla, a company renowned for its fantastic working conditions.

Be it ever thus in the media: Unions demand, management offers. Note how the media framing is always “the automakers” as the protagonists, with workers as a mob that’s making trouble. Why can’t those workers be happy and content with their lot in life, which is ordained for them by the Higher Power?

Back in the real world, the tentative UAW agreement rewards autoworkers who had sacrificed much during and since the Great Financial Crisis. They now get record raises, more paid leave, greater retirement security, and more rights at work.

The UAW win is a testament to the power of unions and collective bargaining to build strong middle-class jobs, while helping a few of our most iconic American companies to thrive. The UAW workers have not only seen many of their jobs automated and offshored, they also hadn’t received an inflation-adjusted raise since the early 2000’s.

That the UAW prevailed shows that unionizing on a large scale is a viable path to rebuilding America’s middle class. Fed up with continual economic hardship at the hands of the Big 3’s management, these strikers achieved something good for themselves and their families. Moreover, they did it legally. Despite the NYT’s protests, they didn’t steal anything from anyone. They didn’t ask for handouts. They demanded a good future for themselves and their families.

This should be a lesson to all people whose labor is undervalued. You can organize and negotiate better contracts for yourselves.

And don’t underestimate how important a low rate of unemployment is to low-wage and working-class Americans, and how that also gives unions leverage. Biden’s American Rescue Plan Act of 2021 provided an economic stimulus that boosted US consumer purchasing power to the point that we avoided the expected recession. And today’s scarcity value of labor helped close the deal with the Big 3.

For some context, these landmark gains by the UAW, along with what the Teamsters secured with their UPS contract, and what health care support staff got at Kaiser Permanente go far beyond the pay and benefits that workers receive at their non-union counterparts. Except for railroad workers, it’s been a very good year for unions.

Once again, Biden took a risk that he hadn’t before by explicitly siding with the UAW. It paid off for him and the Union as well.

Finally, kudos to Shawn Fain and the UAW negotiating team!

Wrongo appreciates that Fain seems to understand class consciousness by describing the workers as working class. And their strategy was pure divide and conquer.

The final word on these tentative agreements will ultimately come from UAW members themselves when they vote on the new contracts.

Facebooklinkedinrss

Monday Wake Up Call – July 17, 2023

The Daily Escape:

Comb Ridge, UT & AZ – July 2023 photo by RC Bullough Photography

Wrongo and Ms. Right were urban pioneers in NYC in the early 1980s. We rented a loft on Maiden Lane in the financial district. Back then, we had to go uptown or to Hoboken, NJ for groceries because there were so few people living amongst the downtown forest of office towers.

But by the 2020 census, lower Manhattan was the fourth fastest-growing residential neighborhood in NYC. Since the pandemic, downtowns have looked more like the ghost towns of the 1980s with so many workers adapting to remote work. And they seem to be staying away.

Things are going to get interesting. We may be at the beginning of a massive structural change, not just a temporary blip impacting office towers: It seems that companies have figured out they won’t ever need this vast amount of vacant office space. Brookings says that office utilization averages less than 50% across major US downtowns. While The Gothamist reports that national office vacancies are at a high of 19.2% (compared to 12.6% in early 2020). They also report that McKinsey predicts that remote work will erase $800 billion from urban office real estate values.

This has many cities thinking about conversion of office space into residential space. In NYC, 25 Water Street, which was once home to the Daily News and JPMorgan Chase, has a plan to gut the offices, carve out courtyards and add 10 floors to the 22-story structure. GFP Real Estate and Metro Loft bought the building, formerly known as 4 New York Plaza, in December for about $250 million.

One loophole is that the Financial District doesn’t require that the conversions include any affordable housing. So this project will not have any apartments with capped rents for low-income units. That isn’t true in other parts of the City, like Midtown, Queens or the Bronx.

Boston is testing an incentive program for developers to convert empty downtown offices into housing. Mayor Michelle Wu announced that the owners of repurposed buildings could get up to 75% off on their property taxes. Boston’s office market vacancy rate climbed to 14.2% in the second quarter, the highest level in 20 years, according to data from CBRE Group Inc. And median monthly rent for a one-bedroom apartment has jumped 8% in the past year to $2,800.

Boston’s downtown has about half of the city’s office space. An October 2022 report commissioned by the city found that economic activity downtown remained 20% to 40% below pre-pandemic levels for industries like retail.

Back in NYC, Mayor Eric Adams is also proposing incentives to designate 136 million square feet of office space for conversion to residential development. It’s worked before: A 1995 tax break for conversions helped create 13,000 new apartment units in Lower Manhattan.

Brookings raises the question of what the taxpayers’ interest should be in these conversions:

“To what extent are current high office vacancies a market problem whose burden falls on the private sector (property owners and investors) and to what extent do they represent a market failure and policy problem to which government must respond with financial support from the public?”

The advocates of tax breaks and other financial incentives say it will:

  • Help drive foot traffic to downtown businesses struggling from a lack of commuters.
  • Bolster municipal coffers, as cities often rely on property taxes from office buildings.
  • Supply much-needed housing amid a shortage that has many paying exorbitant rents.

It seems that office-to-home conversions are no more a comprehensive remedy for housing than e-bikes are for transit issues. Few office buildings are truly suited for conversion. It’s often more straightforward for developers to knock down the existing structure and build condos from scratch.

Moreover, the best thing that cities can do to encourage more housing is to loosen zoning restrictions, allowing multi-use and apartment buildings to be developed rather than just supply tax breaks.

The battle lines are drawn. The 25 Water St. developer said state and city lawmakers will have to pay up if they actually want to turn vacant offices into homes:

“The politicians, if they want to create housing in New York City out of these buildings, they will need to provide significant incentives….And if they want to provide affordable housing, those incentives would have to be even higher.”

Time to wake up America! We can’t let our mayors give away more tax revenues to developers! We’re unsure if the current rate of office utilization will improve or not, so cities need to be smart about what they do next. To help you wake up, we dust off an oldie. Here are the Rolling Stones with “Salt of the Earth” from their album “Beggars Banquet”. Performed live at the Rolling Stones Rock and Roll Circus in 1968. This was the first tune where Keith Richards had the lead vocal:

Sample Lyric:

Raise your glass to the hard-working people
Let’s drink to the uncounted heads
Let’s think of the wavering millions
who need leaders but get gamblers instead

Facebooklinkedinrss

Bed Bath And Beyond: Another Retailer Bites The Dust

The Daily Escape:

Super bloom, Carrizo Plain NM, CA – April 2023 photo via Today’s California

Bed Bath and Beyond (BBBY) filed for Chapter 11 bankruptcy on April 23. It said it will liquidate its assets and close its remaining stores unless it can find a bidder for the 360 Bed Bath and Beyond stores and for the 120 buybuy BABY stores.

A little history: A year ago, the prices of their bonds began to collapse. By August 2022, suppliers halted shipments due to unpaid bills. When this became public, its 30-year bonds, issued in 2014, plunged to 16 cents on the dollar (last Friday, they were at about 5 cents on the dollar).

From Wolf Richter:

“While all this was going on, the company promoted its latest turnaround plan and closed hundreds of stores. But you can’t turn around a failing brick-and-mortar retailer. On January 5th this year, the company issued a “going concern” warning.”

There are at least three lessons to take away from the BBBY story: First, they are the latest victim of the move to online shopping. People trusted Bed Bath & Beyond, and they had a pretty good e-commerce business. They could have done very well with it if they had accepted 10 years ago that they needed to phase out of their brick-and-mortar stores.

But brick-and-mortar retailers have difficulty letting go of their brick-and-mortar storefronts. They just can’t explain to their investors that their huge, fixed investment in physical stores are doomed and need to be closed.

Wolf has two great charts comparing the rapid growth in e-commerce and the steep drop in sales by brick-and-mortar retail over the past 15 years:

These two charts show that e-commerce basically replaced $5-9 Billion in annual in-store sales for the retail industry. The top chart shows that e-commerce had reached about $115 billion by 2023. The lower chart shows that in-store sales fell from $17 billion per year in 2008 to a low of $8 billion in 2020 before recovering to nearly $12 billion in 2023.

The second issue was that rather than investing in their business, BBBY spent $11.6 billion on share buybacks from 2005 to 2021. Since 2010, BBBY basically burned $9.6 billion in cash on its share buybacks. Like other companies, BBBY used share buybacks to drive up its share price, as “demanded” by its large shareholders and Wall Street. In addition, by not using that money to transition to e-commerce, they began driving the company towards April’s Chapter 11 filing.

A third problem was that the activists that won control of the BBBY board created a self-imposed disaster. While BBBY had withstood competition from Amazon earlier, in 2019, activist investors in control of its board hired a CEO who implemented a private-label product strategy. This led to customers no longer finding the national branded goods they expected on BBBY’s shelves. Products like AllClad, Kitchen Aid, Rowenta, Miele, Corning, Wustof and Braun. So customers bought them elsewhere. That sent sales down even further, and left BBBY in a cash-poor position.

Wrongo and Ms. Right occasionally shopped at our local BBBY stores, both here in CT and earlier in CA. We always thought it was a good value proposition, particularly for towels, sheets and pillows. Back then, the stores seemed well-stocked and the 20% off coupons didn’t hurt.

BBBY followed a classic path to failure: The retail founders preside over rapid growth. Then when Wall Street and the financers get involved, the founders step back. They then hire “professional” CEOs from their big retail rivals who apply whatever worked at their previous employer.

The new leadership skips the crucially important step of giving customers more of what they need than competitors do, focusing instead on sophisticated financial engineering.

All the while their aggressive rivals are going after their customers. This leads to a loss of market share, ultimately sending a once-proud retailing icon into bankruptcy. To BBBY’s credit, they outlasted far older, bigger and better financed competitors from Sears to Montgomery Ward to pretty much everyone else in their household-goods space.

Is late-stage Capitalism at fault in the BBBY story? You betcha.

Facebooklinkedinrss

Saturday Soother – February 25, 2023

The Daily Escape:

Death Valley sunset, Death Valley NP, CA and NV – February 2023 photo by Leila Shehab Photography

From the NYT:

“To Democrats, the train derailment and chemical leak in the hamlet of East Palestine, Ohio, is a story of logic, action, and consequences: Rail safety regulations put in place by the Obama administration were intended to prevent just such accidents. The Trump administration gutted them.

To Republicans, East Palestine is a symbol of something…more emotional: a forgotten town in a conservative state, like so many others in Middle America, struggling for survival against an uncaring mega-corporation and an unseeing government…”

If you follow FOX news you can be forgiven for thinking that the federal disaster relief teams just got around to dealing with the hazardous materials spill in East Palestine, Ohio.

Actually, those federal teams have been on the scene since it happened.

Republicans are trying to make a political meatloaf out of Biden’s visiting Ukraine rather than visiting Ohio. Or why it took Pete Buttigieg three weeks to visit the site. Even the East Palestine mayor Trent Conaway said Biden’s trip to Eastern Europe was “a slap in the face.” But if Biden had visited, you know the mayor would say he had better things to do than shepherd around a bigwig.

Their message is that Democrats are indifferent to working-class voters.

But maybe there’s something under the surface of these politics-as-usual arguments. The derailment presents issues that Republicans rarely like to grapple with: Corporate power and a clear need for government regulation.

What may be brewing is a new and different message by the GOP’s populist wing, one that breaks with Party orthodoxy and targets corporate America. And Norfolk Southern, owner of the derailed train and also behind a clear lobbying effort to keep the government from improving rail safety, is a big and very easy target.

Vox quotes Saurabh Sharma, the president of American Moment, a public policy organization that aims to influence young conservatives to become more populist:

“I think that this tragedy that happened in East Palestine is an opportunity for Republicans that have been looking for opportunities to distinguish themselves from the neoliberal set in the party to do so.”

The execrable JD Vance was in East Palestine with Trump, and told Axios afterwards that figures like Trump, Tucker Carlson and himself recognize that East Palestine residents and those like them were the GOP’s voters:

“The three of us, in our own ways, recognized instantly: This is fundamentally our voters, right? These are sort of our people. It’s a reasonably rural community. It’s been affected by industrialization,” Vance said. “These are the people who really lost when we lost our manufacturing base to China, And these are the people who are going to be forgotten by the media unless certain voices make sure that their interests are at the forefront.”

Wow, Yale grad Vance, trying to speak mid-western English says: “This is fundamentally our voters, right?”

The question is: Can Republicans build an economic populist base within their Party? It’s clear that Trump deserves criticism from the Democrats over the accident, since it’s easy to connect the derailment to Trump’s deregulation of ineffective train braking systems, the cause of the accident. That means Trump wouldn’t be exempt from political attacks by economic populist Republicans.

Conservatives like Jon Schweppe, the director at the American Principles Project, a conservative think tank, tried to link a few ideas together:

“There is a growing sense that all of these corporations are against us — not only are they trying to screw us over on the woke stuff, but generally, they just don’t care about ordinary people.”

The American Principles Project is virulently anti-woke, anti-trans and anti-voting rights. Can they also be anti-corporations? And how close are they to mainstream Republicans?

Can the East Palestine accident cause Republicans to embrace truly populist issues? Would the GOP tie corporate graft and greed to bureaucratic incompetence and Democratic indifference? They seem to fit easily within existing Tucker Carlson messaging.

BTW: All of it also fits very easily into Democratic messaging.

But let’s forget about who’s woke or, how will the second year of the Ukraine war go? It’s time for our Saturday Soother, when we disengage from the world as completely as possible and focus on finding a calm state to prepare us for the week to come.

Here in the Mansion of Wrong, we spent time upgrading our internet service to fiber optic. That wasn’t the promised slick changeover touted by the provider, but it’s finally working.

To get soothed, settle in a big chair by a south-facing window and watch Lang Lang play Debussy’s “Suite Bergamasque, or Clair de lune”. This performance was part of an album launched in Paris on Valentine’s Day, 2019. Listen as Lang Lang performs on a boat cruising along the Seine while you enjoy Paris at night:

 

Facebooklinkedinrss