Business Pundit » Economy

FAA Computer Glitch Delays Flights Across America

Drea — Thu, 19 Nov 2009 15:36:42 +0000

The Federal Aviation Administration (FAA) announced today that a computer glitch would cause delays and cancellations of flights nationwide. The Wall Street Journal has more:

The problem involved the FAA computer system that files automated flight plans, forcing air traffic controllers to revert to the much more time-consuming approach of entering flight plans by hand.

That produced a “domino effect” delaying flights around the country, the National Air Traffic Controllers Association said in a statement. It said the system for processing flight plans was coming back online, but that there will likely be flight delays throughout the day.

Delays began on the East Coast and were rippling out to the west. The problem wasn’t affecting radar coverage or communications with planes in the air, the FAA said. The air traffic controllers union, however, said the FAA systems that provide information on weather and wind speeds at airports also weren’t functioning.

USA Today elaborates:

CNN reports the FAA computer system affected by the malfunction is centered in Atlanta. “The system — the National Airspace Data Interchange Network, or NADIN — appears to be the same one that failed in August 2008. The FAA said flight plans are being processed through the network’s Salt Lake City, Utah office,” CNN says on its website.

CBS News reporter Nancy Cordes has more on the subject via the CBS News website. CBS explains the NADIN “system is located in Atlanta and generates the flight plans for all flights on the East Coast.” She says the glitch is forcing air traffic controllers in the already-congested New York City to space out planes by about 20 miles, instead of the normal eight miles.

CBS adds “the practical ramifications of this problem are that the entire air traffic control system on the East Coast is slowed to about 40-50% of what a normal day would look like. Controllers must input flight data for each takeoff and landing manually.”

The FAA has a history of similar technical failures. They blamed the previous NADIN failure, in 2008, on a Windows upgrade, but offered no more specifics than that, according to Portfolio. By all indications, this was a) not unprecedented, and b) will probably happen again sometime.

Ghost Towns in China Prove GDP is a Farce

Drea — Tue, 17 Nov 2009 15:57:20 +0000

This is a guest post written by Wall St. Cheat Sheet Editor-in-Chief Damien Hoffman.

In 2008, I closely commented on the demise of Lehman Brothers and the hidden cancers on other balance sheets. At the time, the fraudulent real estate bubble found a poster child in Lehman investment McAllister Ranch: a three square mile development in which Lehman dropped a quarter billion dollars of loans … and the mega-community became a ghost town.

Now, a few weeks from the modern space odyssey 2010, video is surfacing that even more costly and extravagant real estate developments in China are following the Lehman model (which was probably 486 Excel sheets built by a 24-year old working 110 hours a week). Welcome to the real, yet imaginary, city of Ordos:

Ordos is a hyper modern city, full of brand new glass walled residential and commercial buildings, yet devoid of inhabitants. In its attempt to present a “growing” economy, and to “invest” its $585 billion stimulus into anything and everything, courtesy of comparable idiocy on the other side of the Pacific, China’s communist party is now ruling over ghost towns. One wonders just how many such “efficient” projects sustain China’s magical 8% growth. (Source: Zero Hedge)

So, there you have it. An entire generation has grown up and been conditioned to believe economics is the fundamental nature of reality, yet the proof continues to mount that economics is simply a wealth shifting game which does not solely enhance civilizations or lives. If the Chinese government eventually pulls a Lehman, the next chapter of history will be messy.

Damien Hoffman is the Editor-in-Chief of Wall St. Cheat Sheet.

GDP Grew 3.5% During Q3. What Does That Really Mean?

Drea — Thu, 29 Oct 2009 17:59:37 +0000

The Commerce Department today said the economy grew at 3.5% during the third quarter of this year. This is the first time that gross domestic product (GDP) has been positive since Q2 2008. It is also the fastest rate of growth since Q3 2007. According to Forbes:

Growth was driven by consumption, exports, federal government spending, home building and inventories. Consumption contributed 2.4% of the growth, with a particular boost in autos. Thanks to the Cash for Clunkers program, motor vehicle output added 1.66 percentage points to GDP. But even without this particular stimulus program, consumption improved and the economy grew nearly 2%, a swift turnaround from the first quarter of 2009 when the economy was shrinking at a 6.4% rate.

The U.S. economy grew in the third quarter for the first time in a year as consumer spending and investment in new home-building rebounded, data showed on Thursday, unofficially ending the worst recession in 70 years.

If you’re like me, and you suspect there’s some hot air behind these numbers, you’re not alone (Reuters):

Strip out Cash for Clunkers and 3Q GDP growth came in at 1.6 percent. Also strip out slowing inventory cuts and GDP would have been just 0.6 percent. Then you have a report that the WH has overestimated the number of jobs created by the stimulus.

Barry Ritholz assesses the conclusion that the GDP numbers mean an end to the Great Recession:

We begin looking at the NBER definition (of recession):

“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.” (emphasis added)

That definition raises an interesting question. If we look at the 5 factors NBER considers — GDP, real income, employment, industrial production, and wholesale-retail sales — its somewhat ambiguous to say unequivocally that the recession is over. We are still losing an inordinate number of jobs (250k+ / mo), industrial production has improved, but is soft, retail sales have been mostly flat, and real income has been negative for a decade.

Perhaps the bimodal definition the NBER uses is outdated: Read literally, their definition suggests that there are only two options, either the economy is expanding or contracting. It might be worthwhile to consider a third possibility: None of the above. The economy might have reached a state of stasis — a balance where it neither expands nor contracts.

Commenter IvoZ adds:

…if GDP is created by debt, then there are 2 possibilities:

1) Debt is used for increasing productivity or in a positive NPV project.

2) Debt is used for consumption. In this case we have negative capital formation. So we have positive GDP, but value is being destroyed (like eating away your capital). And people are cheering it, because – you see – GDP is positive!

Using GDP to measure economic performance is misleading in itself, even if GDP is properly calculated. Then add all the distortions of how GDP is calculated! Using GDP is like using an earnings or revenue number, while ignoring the balance sheet effects to achieve them.

The Wall Street Journal sums it up:

The economy is about to post growth numbers reminiscent of the good old days, otherwise known as the “old normal.” But a “new normal” of slower growth might be inevitable.

“New normal” might also include putting an end to recovery claims that don’t pan out.

First Time Home Buyer Tax Credit Extended to April 2010, Previous Homeowners

Drea — Thu, 29 Oct 2009 15:33:39 +0000

A new Senate proposal will offer a first time home buyer tax credit extension to homes under contract by April 30, 2010. The former deadline was November 30, 2009. The home buyer tax credit will also be offered to people who have lived in the same home for five years, according to the proposal, which at time of writing hasn’t passed yet, but has bipartisan support. Bloomberg has more:

An agreement reached yesterday by the Democrats would let homeowners who buy a new home qualify for a $6,500 credit if they have lived in their prior residence for five years, according to Regan Lachapelle, an aide to Senate Majority Leader Harry Reid.

“The compromise we have now would expand the credit beyond first-time homebuyers,” Lachapelle said. Lawmakers expect to consider the measure as part of a bill to extend unemployment benefits, she said. That measure has been held up by a disagreement with Republicans over other proposed amendments.

Lawmakers have said they want to keep home sales from slipping as the economy struggles to recover from the worst drop in home prices since the Great Depression. The plan would extend the homebuyers credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale, according to a person familiar with the details of the agreement.

The credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law, Lachapelle said.

High Costs Force McDonald’s Out of Iceland

Drea — Tue, 27 Oct 2009 16:31:59 +0000

McDonald’s will close all of its restaurants in Iceland next week, after high ingredient costs, high import taxes, and a depreciation of the Icelandic krona have made the national Big Mac the most expensive in the world. The Guardian has more:

The closure of the fast-food giant’s three restaurants on Monday means Iceland will become one of the few European countries, including Albania and Bosnia and Herzegovina, without a McDonald’s.

Jon Ogmundsson, managing director of Lyst, holder of the McDonald’s franchise in Iceland, said the rising cost of importing ingredients and no sign of economic recovery meant the business was no longer financially viable.

A Big Mac in Reykjavik sells for 650 krona (£3.22), but the 20% price rise required to make a decent profit would have increased it to 780 krona (£3.86), which would have made the Icelandic version of the burger the most expensive in the world.

“I’ve sold more hamburgers in the last few months than ever before, but the cost is prohibitive. It just makes no sense,” Ogmundsson told Reuters. “For a kilo of onion, imported from Germany, I’m paying the equivalent of a bottle of good whiskey.”.

McDonald’s opened in Reykjavik in 1993. The company said in a statement that it would not seek a new partner in Iceland owing to the state of the economy and the complexity of doing business in an island nation of just 300,000 people.

Six States Sue Treasury Dept. for Unclaimed Bonds

Drea — Mon, 19 Oct 2009 13:50:18 +0000

Image: Temple University

Six state attorney generals are suing the federal government for ownership of unclaimed bonds. The AP has more:

Most American families bought at least one bond (during the national World War II bond fundraising effort) and many never cashed them in — thanks in part to a 40-year maturity in the bonds. And those same “Series E” war bonds continued to be sold by the federal government until 1980. More than $16 billion worth of the bonds are unclaimed, either lost or forgotten about with the death of the original purchasers.

The state attorneys general suing the Treasury Department charge that the federal government made no effort to find those people. They want the money given to the states, who have a legal system in place for finding the owners of unclaimed funds.

It’s not like the states will get the money free of obligation, about $55 million in the case of Montana. The states would be obligated to pay bondholders no matter if it takes them decades — or longer — to show up. In the meantime, though, states usually earmark the interest earned on such unclaimed money for schools or other purposes.

States involved include New Jersey, North Carolina, Montana, Kentucky, Oklahoma and Missouri, according to the article. The Treasury Department claims it does try to find bond owners, and offers this website to help them find the bonds themselves, writes the AP. The department argues that most people are aware of their bonds. Some don’t cash them in for tax reasons, or out of patriotism, said a Bureau of the Public Debt spokeswoman in the article.

Final arguments will be based on perceived constitutional contracts between the federal government and states.

Women May Soon Outnumber Men in Workforce

Drea — Wed, 23 Sep 2009 14:20:29 +0000

For the first time in history, women may outnumber men in the workforce. Job losses and women’s ever-changing roles are responsible. USA Today has the scoop:

Women held 49.83% of the nation’s 132 million jobs in June and they’re gaining the vast majority of jobs in the few sectors of the economy that are growing, according to the most recent numbers available from the Bureau of Labor Statistics. At the current pace, women will become a majority of workers in October or November.

The change reflects the growing importance of women as wage earners, but it doesn’t show full equality, Hartmann says. On average, women work fewer hours than men, hold more part-time jobs and earn 77% of what men make, she says. Men also still dominate higher-paying executive ranks.

Through June, men have lost 74% of the 6.4 million jobs erased since the recession began in December 2007. Men have lost more than 3 million jobs in construction and manufacturing alone.

The only parts of the economy still growing — health care, education and government — have traditionally hired mostly women. That dominance has increased in part because federal stimulus funding directed money to education, health care and state and local governments.

There may be a she-vival in the he-cession. Ideally, however, the economy will grow to a state where everyone has a shot at employment, regardless of gender.

Fedex Plans to Raise Rates Next Year To Counteract Falling Profits

Drea — Thu, 17 Sep 2009 17:00:45 +0000

FedEx will increase shipping rates 5.9% next year to offset falling profits. The BBC reports:

Its net profit for the three months to the end of August was $181m, which was down 53% from the same period last year.

The company said that the slow economy was hurting its sales. It is to raise express shipping rates 5.9% in January. It said falling fuel prices had reduced its profitability because its fuel surcharges lag behind the price of oil.

Next year’s rate increases will fall “slightly below an average 6.9% increase that it put in place to start 2009. In both cases, FedEx noted that lower fuel surcharges likely would offset about 2% of the rate increases,” according to the Wall Street Journal.

FedEx also noted a 4% decrease in overseas priorities deliveries, “the smallest slide in four quarters, reflect(ing) returning global demand,” says Bloomberg. “Analysts consider FedEx to be an economic bellwether because it moves goods ranging from mortgage documents to auto parts to clothing.”

Eli Lilly to Cut 5,500 Jobs by 2011

Drea — Mon, 14 Sep 2009 16:51:34 +0000

Eli Lilly will reduce its workforce by 13.5% in the next two years, to cut costs when its patents expire. MarketWatch has more:

Early Monday, Lilly said that it plans to whittle down its global ranks to 35,000 employees by the end of 2011, a move that should help reduce its cost structure by about $1 billion. Lilly currently has about 40,500 employees worldwide.

In a statement, Lilly attributed the move to the expected loss of market exclusivity for several key products, beginning in 2011.

Lilly’s top-selling product, the antipsychotic Zyprexa, is slated to lost patent protection in 2011. The drugmaker is expected to lose protection for its second best-seller, the antidepressant Cymbalta, around 2013. Also slated to lose protection over the next few years are the osteoporosis drug Evista, insulin product Humalog, and lung cancer treatment Alimta. Each drug generates annual sales of over $1 billion.

As part of the cost-savings initiative, Lilly also said it plans to reorganize the company into five units: oncology, diabetes, established markets, emerging markets and animal healthcare.

AdvanceIndiana has more on the people likely to be most affected by the cuts:

…many of the cuts could come in Indianapolis where the company employs 13,500 at its corporate offices, labs and manufacturing facilities. Lilly has already reduced its workforce by several thousand through attrition over the last several years. The City of Indianapolis gave tens of millions of dollars in tax abatement incentives to the company during the administration of Mayor Bart Peterson, who is now a senior vice president with Lilly, based on investment and employment promises made by the company.

Are We In For An Economic Downpour?

Lela Davidson — Mon, 31 Aug 2009 21:37:34 +0000

Just when I had started feeling better about the 401k, when the idea of new hockey skates for the kids didn’t send me into a budgetary panic, when I thought designer jeans might be in reach - Psych!

This just in: TrimTabs Investment Research reported today that selling by corporate insiders last month reached $6.1 billion, the highest amount since May 2008. Further, the ratio of insider selling to insider buying hit 30.6, the highest level since TrimTabs began tracking the data in 2004. This is not good news.

“The best-informed market participants are sending a clear signal that the party on Wall Street is going to end soon,” said Charles Biderman, CEO of TrimTabs. “When corporate insiders are bailing, the shorts are covering and investors are borrowing to buy, it generally pays to be a seller rather than a buyer of stock”

Signals That Wall Street Rally Will Soon End

In addition to the insider selling, TrimTabs noted the following indications that the rally is about to end.
Short interest on NYSE stocks plummeted by 10.3% in the second half of July
Margin debt on all US listed stocks spiked 5.9% in July
51.6% of advisors surveyed by Investors Intelligence are bullish

TrimTabs also reports that the actions of U.S. public companies have been bearish. In the past four months, companies have been net sellers of a record $105.2 billion in shares.

“Investors who think the U.S. economy is recovering are going to get a big shock this fall,” said Biderman. “Companies and corporate insiders are signaling that the economy is in much worse shape than conventional wisdom believes.”

Excuse me, I have a pair of jeans to return.

Image Credit: gilles chiroleu