Monday, September 28, 2015

Shell Abandons Arctic Plans

Shell now admits it’s no match for the Arctic Ocean. The oil company will remain in the Arctic just long enough to plug its latest exploratory well.

From a distance it was obvious all along that Shell did not have the right stuff to operate in the Arctic. A wing and a prayer combined with equipment designed for use in the friendlier waters of the Pacific was obviously not going to be enough to conquer the Arctic, and indeed, Shell’s ships had to be rescued multiple times when the weather took an unexpected turn. It didn’t own an icebreaker and had deployed only an off-the-shelf weather station. From Shell’s point of view, though, it was not about to start designing custom equipment for an ocean that might not have much oil under it. As it is, the company spent billions of dollars this summer drilling a test well that didn’t provide nearly enough oil and natural gas in return. With an annual R&D budget around $30 billion globally, the company is not so well funded that it can repeat that process over and over hoping eventually to strike it rich.

Falling oil prices don’t help, and neither does the retreating Arctic sea ice. The larger areas of open water in the Arctic Ocean make navigation easier but have more than doubled the size of waves and intensity of storms. The more active weather reduces the number of days on which an oil rig can operate. Despite the obstacles, the idea of oil in the Arctic lives on. When oil prices revisit their historic highs of a decade ago, it’s likely that Shell or someone else will come back and try again to strike oil.

Friday, September 25, 2015

This Week in Bank Failures

Hudson City Savings Bank got caught redlining — going out of its way to avoid nonwhite borrowers and low-income neighborhoods. The bank studiously avoided opening branches in minority neighborhoods, and it refused to receive mortgage applications in branches located near low-income neighborhoods. When customers applied for mortgages for houses in low-income neighborhoods, the bank often simply ignored them, Justice Department investigators say. The bank has agreed to pay $5.5 million in penalties and spend at least $27 million in mending its lending practices.

Turning Vatican Bank into an honest, transparent operation has also made it profitable. The bank has gone from barely breaking even to earning $75 million in profit last year, and much of the improvement can be credited to a reform process that largely eliminated the bank’s money laundering practices and ties to the drug trade.

Investigators in Germany searched at least 30 buildings in a tax-evasion probe of Maple Bank, which has its headquarters in Frankfurt but is owned by a holding company in Toronto. Investigators believe the bank was involved in a stock-trading scheme designed to avoid paying taxes on dividend income.

A credit union failed yesterday. The NCUA liquidated SWC Credit Union, with 300 members in Tampa, Florida. Members were employees of or otherwise connected to the Sears retail chain.

Wednesday, September 23, 2015

2 Signs of a Slowdown

Here are two indications of a possible economic slowdown:

Monday, September 21, 2015

TV Declines, Especially Among Younger Viewers

The TV industry now admits that people canceling their TV subscriptions is a trend. NBC News looks at a Magid Advisors study and finds trends that TV carriers and content providers might worry about. Of the 3.7 of TV cable and satellite subscribers who say they are very likely to cancel within the next year, 77 percent cite other sources of TV content, but 23 percent say that is not a factor. Buried in the worries about online video content providers, the bigger trend is that an increasing number of TV subscribers never find time to watch. This is especially so with younger viewers. From the NBC News story, citing Magid:

[I]n the 25 to 34 age-range . . . 7.1 percent of pay TV subscribers said they were "very likely" to cancel their service in the next 12 months.

The commercial culture that commercial television feeds is partly to blame for the decline in television. Commercial culture largely created the consumer time pressure trend, in which most consumers have more things to do than time to do them. It is inevitable that TV viewership is one area that gives way when people run out of time. As long as consumer time pressure continues — and there is no end in sight — the total TV audience will continue to erode.

Sunday, September 20, 2015

Confident Consumers Out Shopping

I saw a busy weekend at retail in Downingtown and around the local area, with a normal busy Saturday followed by a surprising active Sunday. Notably, today I saw shoppers in the early stages of buying Christmas gifts in spite of the summer weather. The weather was favorable for shopping, and Sunday might have seen more early shoppers as football fans prepared for a late game on television, but that isn’t enough to explain the burst of shopping. It may also be a measure of consumer confidence, with employment continuing to grow and the risk of a government shutdown next week looking remote at this point.

Friday, September 18, 2015

This Week in Bank Failures

The Fed failed to raise interest rates after more than a year of signaling an interest rate hike this month. The continuation of low interest rates is good and bad news for banks. Banks and workers alike are squeezed by the artificially low rates, but banks and borrowers in a financial hole, as more than a few still are, gain more time to dig out.

A U.S. appeals court threw out most of a class action on sovereign debt of Argentina, saying the judge acted improperly in expanding the class to include bondholders not affected by the 2002 default. The court has struggled with the scope and scale of the case, which is years away from final resolution.

The NCUA placed a credit union into conservatorship: Bethex Federal Credit Union with 5,000 members in Bronx, New York. Separately, state regulators in New York took control of Montauk Credit Union, with 3,000 members, and placed it in NCUA conservatorship. The credit unions will continue to operate while being managed by the NCUA.

Wednesday, September 16, 2015

How Migrant Policy Affects Birth Rates

With the refugee crisis in Syria and adjoining territories and a prediction of a similar crisis to face Gaza in a few years, it seems an appropriate time to look at the topic of spiritual forces that affect birth rates.

It is a topic that is not often discussed, so the connection between births and a refugee crisis might not be obvious to most readers. If you have not heard these topics connected before, it will seem obvious as soon as you connect the dots. To try to state it simply, the willingness of any potential parent to have new children is influenced by what the parent hears about the value of people in general. Whenever we hear that more people in general would solve a problem, it makes the birth of a new baby seem more beneficial. Whenever we hear that people in general are causing a problem, it makes the birth of a new baby seem more like a problem. This is only a subtle shift in attitude, but the effect is easily measured in the aggregate. For example, during a severe recession such as the one the United States experienced a few years ago, birth rates fall sharply.

Start looking for stories that suggest a problem based on either too few or too many people, and you find them everywhere. Every time a lack of customers leads a mall to close or a college to cancel a course, you get the feeling that there is a place for a few more people. With every traffic jam, mass layoff, famine, or sold-out show, you get the feeling that there might not be a place for a few more people.

There is some reason to think this distinction might be instinctive. Birth rates of prey species in general fall as population increases. This is not merely a reaction to a food crisis as previously supposed, but occurs well before food shortages reach crisis levels. It is something of a stretch to apply that finding to humans, but still, it is a possibility that some comparable reaction exists in humans too.

In the news, reports that imply too many people outnumber those that imply too few. This is especially evident in official reaction to refugees and foreign workers. When a country like Hungary deploys tons of barbed wire on its border or a popular presidential candidate says five million people will have to leave the United States, it sends an unmistakable message. It says we believe we have too many people already.

It is a message reinforced by stories of 30,000 more layoffs at Hewlett-Packard on top of 55,000 that already took place, and this on the same day that we heard of 33,000 layoffs at two giant banks. U.S. unemployment has been above 5 percent for 8 years straight, college debt has become the largest financial burden in the U.S. economy during this period, and the most prominent political debate has been over whether people should be allowed access to health care. Stories like these create a picture of a world already straining to accommodate such a large number of workers.

In truth, there are enormous costs to support the world’s population, which has increased by a factor of 10 in less than two centuries and continues to increase. At the same time, financial policymakers often complain about the effect of falling birthrates on retirement funding, especially in Europe, and there are incentives in a few countries to try to encourage more births. The incentives are having little effect, though, and those who are wondering why need only look at the many headlines that say, in many different ways, how there are too many people already.

Tuesday, September 15, 2015

Record High Job Openings, But Only Steady Hiring

Here’s something that might be hard to figure out: U.S. job openings reached a record high in July, but hiring has not increased much. What does this tell us about the job market?

First of all, it shouldn’t be too surprising that job openings move more easily than hiring. Creating a job opening is fundamentally a budgeting action. It may involve some paperwork, like writing a job description, but there are few controls on this process. Any job description will serve to hold the place of a job opening. Actual hiring is not nearly so easy. To attract qualified applicants the job description has to mean something. A would-be employer has to consider potential candidates, probably interview several, and ultimately persuade one of the candidates to take the job. This is hard work at least, and there is no assurance that it can be accomplished for any particular job opening. With so many steps along the way, there are hundreds of ways the hiring process can be delayed or derailed.

I’ve written at length about how unrealistic job descriptions can be. Employers routinely require 10 or more rare skills that don’t have any particular tendency to go together, not stopping to think that the ideal worker they are describing might occur only once per one trillion people. Then the proposed salary might be the market rate for a worker possessing just one of the required skills. Some job openings are no more than excuses. Lower-level managers who are told to hire, but who don’t want to do so, can create a whole range of obstacles for job applicants just so they can tell the middle managers they report to, “I can’t find anyone!”

Employers might know they have to offer more money to fill their vacant positions, yet still take time to make the adjustment in the budget. As long as the labor shortage within the company has not reached a critical point, these unfilled positions can remain open indefinitely. Job openings, then, can’t always be taken literally. The existence of a job opening is a sign of a company potentially willing to hire. It is not a gauge of either eagerness or urgency.

Friday, September 11, 2015

This Week in Bank Failures

The total number of U.S. bank branches continues to decline despite the lack of recent headlines on the subject. The days when a major bank would close 50 branches in a state on the same day might be over, but branches are closing more quietly at a rate of about 3 per business day, or almost 1 percent per year. Banks are cutting costs and hope they are saving time for their customers by moving more transactions online.

Standard & Poors classified Brazil debt as junk amid concerns that the state-owned oil company could fail. Brazil is leaning on state-run banks these days as privately owned banks, facing financial pressure, have become more reluctant to lend.

Monday, September 7, 2015

A Dairy Protest Gone Horribly Wrong

Sometimes a protest is just the wrong idea. That was especially evident today with the dairy farmer protest today in Brussels. Dairy farms in northwestern Europe produce more milk than Europe could possibly consume. With the persistent overproduction, the milk they produce sells at ruinously low prices. The situation has been getting worse for the farmers in spite of years of warnings about the excess. Dairy farmers do have a reason to complain. The protest today, though, was not just ill conceived, but also ill timed. In the end, it was a protest gone horribly wrong. Europe today is worried about the inflow of people escaping the wars of the eastern Mediterranean and had no interest in hearing wealthy farm owners argue that their subsidies are too low. Drivers and the news media tried to ignore the tractors that tied up traffic until a police officer suffered an injury serious enough to be wheeled away on a stretcher. After that, the water cannons came out and the protestors were lampooned on social media. Under the circumstances, it would be hard for anyone to defend dairy farmers trying to prevent a meeting on the refugee crisis from going forward. Citizens and politicians alike tonight are surely wishing there weren’t so many dairy farmers, and there is a chance they may seize on the idea of phasing out dairy subsidies as a way to correct the imbalance. Of course, that is the opposite of what the dairy farmers were asking for, but it is the right answer in terms of economic and health policy. After today’s action, the dairy farmers’ legislative friends might not be quite so willing to speak out in defense of the subsidies that are at the heart of the problem.

Thursday, September 3, 2015

Corruption and a Political Mess in Guatemala

The political situation in Guatemala is just the latest cautionary tale about the way corruption can make a mess of things. A retired general ran on the promise to fix corruption, but now faces arrest after prosecutors suspect he was in the middle of a customs bribery scheme as president and the legislature voted to take away his immunity from prosecution. The legislature will be meeting today to name an interim president.

At Reuters:

At Guardian: