The Data is Stacking Against Us

Yesterday was a very cool day! It's not every day that you get the first interview with the President of Anheuser Busch since they merged with InBev, not to mention interviews with the Blockbuster CEO, the Chairman and CEO of American Electric Power, Philadelphia Mayor Michael Nutter and Pennsylvania Senator Arlen Specter. It was one of those days where I can honestly say I love my job.

Its days like this that I am reminded of how lucky I am to have the opportunity to meet the kind of people I meet and ask the questions that I get to ask. The unfortunate part of the job over the past six months is that the responses haven't been as upbeat. The news hasn't been as good and the cautious outlook has become mainstream. 

I have talked to experts who have been in their respective fields for 30 years, in some cases more, and they are scared. I have never seen the sense of fear that I see in people's faces, the fear of the unknown. The kind of fear you see in a kids face when they have lost their parents in a crowded park. They wait for mom or dad to come find them or run to a security guard hoping the security guard will find them. Only in this case, they can't be found. The parents are just as lost, stuck in the crowds and unable to make it back right away.  

That would be difficult for any child to digest, let alone an adult. Now imagine that adult is responsible for tens of thousands of employees, billions of dollars in revenues, maintaining morale, speaking to creditors, and negotiating with suppliers, all the while knowing that there is no magic pill. No matter what they do to prevent the worst from happening, it will get worse. Eerily reminiscent of when your child is about to fall and you don’t make it on time. You would do anything to prevent them from hurting themselves yet you know no matter how much you want to protect them they will fall. 

I say this because the data is stacking up against us. Look at what we have learned in the past couple of days.

1. The Challenger, Gray and Christmas jobs number and the ADP Private Sector jobs data reported declines of 181,000 and 250,000 jobs in November. This does not bode well for Friday’s data which means forecasts for 300,000 job losses from the Bureau of Labor Statistics could be a lot worse. 

2. The Wall Street Journal reported on Monday that Credit Bureau TransUnion forecasted the number of consumers with homes two months or more overdue will spike to 7.17% at the end of 2009 from estimates of 4.67% for the end of this year, a 16 year high, due to adjustable rate mortgages about to reset. They don’t see mortgage delinquencies peaking until the first quarter of 2010.

3. While I’d like to believe all of the economists who tell me we will come out of the recession in the third quarter of next year, I don’t buy it. In some places like New York City we haven’t even seen real estate prices collapse like they have around the rest of the country yet tens of thousands of people are receiving pink slips and the city is in dire straits.

4. State and local municipalities are bleeding and now asking for as much as $176 billion dollars of the rumored $500 billion dollar fiscal stimulus plan that will be proposed under Obama’s new Administration. $136 billion of it for “ready to go” projects and $40 billion for Medicaid grants. This after we gave the states $20 billion in Medicaid grants post 9/11 although they were not dispensed until 2003. Now talk of the Treasury or perhaps the Federal Reserve Bank purchasing municipal paper. When does it stop? Your guess is as good as mine. Minnesota Governor Tim Pawlenty joined me the other day before the Governor’s meeting with President-elect Obama about his plans. He flat out said we can’t rely entirely on the government to fix our fiscal houses, “The Federal Government is broke.” 

5. Don’t even get me started on the auto makers who upped the funding requests to $34 billion. GM asked for an additional $6 billion dollars and said they’ll be out of business by year end if they don’t get $4 billion immediately. I can’t speak about this story without losing my marbles. Today I will be interviewing Chrysler’s CEO Bob Nardelli at 4pm. Can’t wait for that. 

6. How about the 49 state colleges that flunked the affordability test? The National Center for Public Policy and Higher Education released a report that said college tuition and fees have escalated 439% from 1982 to 2007 while median family income rose 147%. Student borrowing has doubled. Last year, the cost of a four-year public university education cost 28% of a median family’s income while a private university education cost 76% of a median family’s income. Do those numbers scare you? Shock you? Here in New York City families are packing up and moving to the suburbs because education costs are so high. The cost of sending your family to a public school in a suburb of New York City could be a small fraction of what you’ll pay in Manhattan. What are we going to do when public schools across the country see enrollment increase by double digits next year while their funds are being cut? Will we sacrifice our children’s education in a recession? 

7. Saks Fifth Avenue this morning, once considered the gold standard, had its debt lowered by S&P to B from BB- with a stable outlook. S&P slams them for the same-store sales decline of 11.5% in the 3rd quarter and says the next three quarters will see profitability decline. “We would consider changing the outlook to negative if Saks is unable to improve margins and credit measures in 2009 as a result of its need to remain highly promotional to clear inventory.” I don’t know if you have gone in there lately but it’s not nearly as crowded as it should be this time of year especially given the location across from Rockefeller Center here in Manhattan. I have purchased items there, kept the tags on and asked to get credit back when I knew huge sales were happening at other department stores. Bloomingdale’s twice refunded me 20% when I brought the items back in with the receipt. Saks would have none of it. So after a month of saying no, I returned everything that I purchased with them.  

8. How about our friend Treasury Secretary Paulson who reportedly is considering going back to Congress next week to ask for the other $350 billion dollars. Is that insane? What are we thinking? He just stood up at a press conference two weeks ago and said he would not ask for the remaining funds. When he talks, the markets get hammered. What will that do to the market next week when he has to testify in front of the Senate and Congress as to why he wants the funds and how he plans to use them? Can we afford to watch lawmakers crucify him for what he has or hasn’t accomplished with the first $350 billion dollars? What kind of signal does that send to the market if he feels he needs to ask for the money with less than six weeks until the new Administration takes office?
I don't want to be a downer but the facts are the facts and they're not pretty.