LA Biz Observed

The one economic report that could decide the election

2012-02-10T21:36:55Z

Mark your calendars - the government comes out with its October jobs report on Friday, Nov. 2 - just four days before the elections. As Nate Silver notes:

That will represent the first time since 2000 that a jobs report immediately preceded a presidential election. If the election is too close to call at that point, the report could very easily make the difference.

Anyone remember that George W. Bush initiated the auto bailout?

2012-02-10T20:48:57Z

The Republican candidates keep insisting it was the work of that socialist Obama, but you might recall that his predecessor made the first move on helping the auto industry. "I'd do it again," the former president said. "I didn't want there to be 21 percent unemployment." Bush made his remarks at a meeting of the National Automobile Dealers Association, whose members are quite pleased with the recent spurt in auto sales. Chrysler dealers are especially pleased - and they're also outraged that Republicans like Karl Rove are taking the automaker to task for its Clint Eastwood Super Bowl commercial. From NYT columnist James Stewart:

[David Kelleher, president of the Chrysler National Dealer Council], said his fellow dealers, Republicans and Democrats alike, were so angered by criticism of the ad that he convened an emergency meeting of the dealers' council this week and, for only the second time in his memory, the council issued a public statement on behalf of Chrysler's 2,300 dealers. The video "was designed to relate to those still suffering the effects of the recession, that they may be buoyed by our example and they may find the courage to endure through to similar success going forward." the dealers said. "We have no doubt that this ad had no political agenda of any kind but rather a statement of fact and hope for the future for all of us and America."

Republican leaders have made it quite clear that their basic goal in 2012 is to defeat the president, but attacking every single thing that comes out of the White House does not seem like a great strategy. As Stewart points out: "Candidates of either party who strap their campaigns to the weakness of the national economy run the risk of looking as if they are rooting for high unemployment and economic hardship." That's exactly what's happening.

California coffers not filling up that quickly

2012-02-10T20:26:15Z

January revenues were 5.5 percent below the projections in Gov. Brown's recent budget proposal. Compared with the projections made in last summer's budget package, they're down almost 12 percent. The numbers, which Controller John Chiang called "disappointing on almost every front," are one more reminder of how unpredictable these tax receipts can be. State finance officials hope that revenues will pick up in the spring, as they usually do around tax season. There's also the potential bounty from the Facebook offering. From the controller's report:

Both income and consumer spending have grown at a faster clip in California relative to the remainder of the U.S. during 2011. Even residential real estate has begun to improve with prices stabilizing and defaults and foreclosures trending downward steadily across the state (see chart on page 4). California still has a long way to go, and this month's General Fund receipts highlight that fact. Some econometrics are moving in the right direction, but the chronic budget deficit continues to weigh heavy on California's ability to meet its obligations and fund new policies.

Is the McMansion craze fading?

2012-02-10T19:53:22Z

Well, maybe. Census figures show (via the Atlantic) that the median size of a new home in 2010 was 2,169 square feet, down from a 2007 peak of 2,277 square feet. The recession is an obvious explanation - as is a trend by aging baby boomers to downsize. These kinds of averages, however, can vary considerably by location - and I'm not sure L.A. will be the first place to see a pullback from the McMansion craze. In what can only be described as "McMansion Gone Wild," hotel heir Anthony Pritzker is building a 49,300 square foot home that features all the obvious excesses. From the WSJ:

Plans filed with the city of Los Angeles, which deemed the mansion finished in November, provide more details. The 49,300-square-foot, two-story home surrounds a courtyard and includes a two-level basement with amenities including a game room, bowling alley, bar and media library. Above ground, there's a gym with changing rooms, his-and-hers offices, an arts-and-crafts room and a hairdressing area. Other buildings on the property, including a detached recreation room and a guest house, bring the total square footage of the compound to just over 53,000 square feet. The home has a large skylight, roof-mounted solar panels and a curving driveway. A lawn spreads around part of the home, with a "floating pool" and spa anchoring one end of the property.

In that same Journal piece:

In Los Angeles's tony Brentwood neighborhood, the 18,300-square-foot limestone home of New England Patriots quarterback Tom Brady and supermodel Gisele Bündchen is reached via bridge over a pond that separates it from the driveway, according to plans filed with the city of Los Angeles. The master suite has his-and-hers closets, both with skylights, and the master bath connects to an outdoor bath area with a saltwater plunge pool and shower; a covered walkway connects the rest of the home to a 1,590-square-foot gym with skylights over a garage. The first floor includes a playroom, service kitchen, library with terraces and a "morning bar." According to plans, the property also has a pool, spa, pool house and a playhouse.

Dirty little secret: Fans care a lot more than players

2012-02-10T16:52:30Z

Maybe that explains why strikes almost never last an entire season: Players want the money, just like any other employee would. Team loyalty? Sorta, but... From LAT columnist Bill Plaschke:

I've always felt the Happiest Place on Earth was not Disneyland, but the hallway outside NBA locker rooms after a playoff elimination game. The players on the winning team are happy to keep playing, and the players on the losing team are happy to be going on vacation. The losers loudly joke with the winners, exchange phone numbers with them, brag about their upcoming trip to Mexico, then put their children on their shoulders and skip into summer.

[CUT

I've always felt that the greatest example of pro football unity does not take place in a fourth-quarter huddle, but in postgame handshakes. Have you seen how these combatants suddenly join forces on the field after the final gun, hugging, laughing together, hanging out like best friends, a dozen impromptu reunions? Remember how, on the field after a supposedly tough three-point loss last season, Dallas' Tashard Choice actually asked Philadelphia's Michael Vick for his autograph?

Drug violence and all, Mexico is holding up pretty well

2012-02-10T16:41:31Z

The tourists and business travelers have kept coming, except that many more are coming from Brazil, China and Russia. Actually, what's going on in Mexico tells you a little something about the effects of globalization, writes WSJ columnist John Bussey.

"Mexico is an important strategic location for IHG, and the company works with franchisees to develop hotels for the long term," says Stephen Boggs of InterContinental Hotels Group, whose brands include Holiday Inn. IHG expects to launch 46 new hotels in Mexico by the end of 2014. It has 120 in Mexico now. Marriott says its new Courtyard Mexico City Airport Hotel opens in May and is aimed at the business traveler. It has 19 properties in Mexico, with nine more scheduled to open by 2016. And the new DoubleTree by Hilton near the Mexico City Airport opens next fall. Hilton Worldwide has 23 hotels and resorts in Mexico. It is planning a 35% expansion.

[CUT]

Even after periods in which hotel rooms went vacant and cruise ships canceled port calls, tourism picked up at the end of 2011. The government believes 2012 will be a record for the sector, which accounts for 9% of GDP. Expedia says it has seen a surge in travelers to Mexico from emerging markets. They are travelers who like to spend. The average Russian will stay nine nights compared with an American's three and a half. And whereas the American might spend $1,000 a week, the Russian will drop that in a day on spa treatments at Le Blanc and the wine cellars of Cancun, says Gloria Guevara, Mexico's tourism secretary.

Friday morning headlines

2012-02-10T16:13:18Z

Stocks down sharply: Attention has focused on Greece all week, and today the news is not so good. Dow is down 110 points.

Greece debt deal held up: The leader of a tiny but influential party within the nation's coalition government has changed his mind and is now opposed to the latest round of austerity measures required for a new bailout deal. (AP)

Consumer sentiment declines: The early February reading from Thomson Reuters/University of Michigan shows a drop in the index to 72.5 from January's 75.0. Consumer sentiment has been trending upward in recent months. (Reuters)

Banks face additional litigation: Yesterday's big mortgage settlement is not the end of the government inquiries into possible wrongdoing. From the LAT:

The settlement releases the banks from claims involving foreclosures, mortgage customer servicing and loan originations. However, authorities can still investigate various fraud claims, including those involving the mortgage bonds whose meltdown triggered a global financial crisis. What's more, there is no criminal immunity or release from private claims by individuals or class-action lawsuits.

Good news for L.A.'s budget: A $72-million shortfall in the current fiscal year has vaporized through a series of cost-cutting measures. The city still faces a deficit of $150 million to $200 million in the next fiscal year, though that's down from as much as $250 million. From the LAT:

"We're down to the bone and so the next challenge is really figuring out how we're going to do business differently," [said budget head Miguel Santana], noting that the city is looking at contracting out some city-run services and programs, such as its animal shelters and the zoo. Santana said the city will also have to seek concessions from unions on increased contributions to pensions and healthcare, which are contributing to the city's ongoing budget turmoil. "That's going to be a hard conversation to have, but we need to do that," he said.

Gas prices edging higher: An average gallon of regular in the L.A. area is $3.820, according to the Auto Club, up 2.6 cents from last week.

Theater owner challenges Kodak: CIM Group filed an objection in U.S. Bankruptcy Court to the camera company's efforts to back out of its 20-year naming rights deal for the Kodak Theatre. (Rochester Democrat and Chronicle)

Big quarter for Activision: The huge success of the latest "Call of Duty" installment helped boost profits and beat expectations. The company's "World of Warcraft" online game continues to lose subscribers, but at a slower pace. (LAT)

Cruise ships can't release sewage: The federal ban designates a "no discharge zone" that run three miles off the California coast. The regulations follow a 2005 state law that bans ships from dumping waste. (LAT)

How to know if you're eligible for mortgage relief

2012-02-10T01:19:25Z

Well, you really can't, not now anyway. It might be months before individual homeowners know if they'll benefit from the $26 billion settlement. (Check that - if your mortgage is held by Fannie or Freddie, you will not be affected by the deal.) Loan servicers haven't even worked out the specifics of eligibility. From the NYT:

The settlement provides help for those who owe more than their home is worth -- what's known as being underwater. For borrowers who are delinquent on their payments, or who are at risk of defaulting on the loan, help may include a reduction in their existing loan principal or other modifications. Borrowers who are up to date on payments may be able to refinance into a new loan at current interest rates, which remain at record lows.
Borrowers who lost their homes through foreclosure between Jan. 1, 2008, and Dec. 31, 2011, will receive cash payments, expected to be about $2,000, The Times reported today. They will eventually receive forms in the mail instructing them what to do. A recent estimate from the settlement negotiations put the average aid for homeowners at $20,000, The Times also reported.

As I mentioned earlier, there's a website called nationalmortgagesettlement.com that lays out some of the basics - but not the details.

Paying too much attention to the Dow?

2012-02-10T00:56:14Z

Of course it's followed too closely - especially considering that the index of 30 large companies might or might not reflect the strength of the overall economy. And yet, it's the one metric that receives daily - often hourly - attention from the average American. It's the daily litmus test on whether things are going in the right or wrong direction. So yes, it's a big deal - even if it shouldn't be. NPR's Adam Davidson examines the Dow backstory:

Charles Dow, who created the Dow Jones average in 1896, didn't bother to comment on his own metric more than once a month. So what happened? How did we develop this 24-hour fixation on the Dow? Blame the Panic of 1907. This was a severe recession. Banks were collapsing. Everyone was trying to make sense of a disastrous economy. They wanted some handy metric that could tell what each day's news meant. "So they looked around," [says John Prestbo, editor and executive director of Dow Jones Indexes], "and they found the Dow Jones industrial average. It took on a life of its own, shall we say."

Why does MarketWatch employ a columnist who is a white nationalist?

2012-02-09T21:14:38Z

Peter Brimelow writes about personal finance for the online news service - all the basic stuff about dividends, capital gains taxes, and gold. But Brimelow has another side - he's editor of VDare, which publishes the works of anti-Semitic and racist writers. Brimelow is a thug - he blames non-white immigrants for social and economic problems and urges the Republican Party to focus on winning the white vote. Ugh. But he does get around: He was invited to speak at this week's CPAC confab in Washington D,C., which apparently has a few folks riled up. So why is this guy working at MarketWatch? Surely, the honchos know his background (he's not keeping it a secret). Business Insider has asked Dow Jones (owner of MarketWatch) for comment, but so far nothing. I'm reaching out as well. Will keep you posted.

Forget the naysayers, January's employment report really was good

2012-02-09T19:49:22Z

This business about the declining jobless rate being connected to more people dropping out of the labor force is simply not true - and for reasons only an economist could love. In other words, it's complicated. But it's worth bringing up because we're starting to hear noises from certain corners of the right - as well as certain know-it-alls from the blogosphere - that the numbers aren't as good as they seem. Except that they really are. From NYT columnist Floyd Norris:

Each January the bureau updates its population estimates, and this update was particularly large because it had a new census to use. The policy is to not revise the earlier unemployment survey numbers, so sometimes there are big apparent changes that are not actually there. That is what happened in January. The government says that the estimate changes reduced the labor force participation rate by 0.3 percentage points. Without the new estimates the number would have been unchanged from December to January. The changes had no effect on the unemployment rate.

Mortgage settlement not perfect but acceptable

2012-02-09T18:59:21Z

The dollar amount - at least $26 billion and perhaps as much as $40 billion - sounds pretty impressive until you realize that there's $700 billion in underwater mortgage debt in the United States. That represents homeowners who owe more than what their homes are worth. So this is nothing close to making things right or setting the stage for fundamental reform of the mortgage lending business. But everybody knew that wasn't about to happen - the housing crisis is going to be resolved slowly and incrementally. Meantime, some relief will be provided to homeowners who got caught up in the mess, and the banks can resolve at least a portion of their liability. Given the number of hands that were involved in this thing, it's a miracle that any deal was done. From the LAT:

The most prominent guarantee secured by the attorney general's office is that the banks are required to write down the mortgage debt of Californians by $12 billion, including through offers of short sales in which homeowners are allowed to sell a home for less than the amount they owe on the property. About 250,000 Californians are covered under that part of the deal. If the banks don't fulfill the $12-billion guarantee they will have to make cash payments of up to $800 million directly to the state, a provision that is enforceable in California court, instead of federal court in Washington, where the rest of the deal is covered.

From Matthew Yglesias:

The bottom line is that a range of struggling homeowners should have a few thousand dollars of help coming their way either in the form of direct settlement checks, principle modifications, or enhanced ability to refinance. This is a drop in the bucket compared to the total quantity of lost wealth, but in practical terms thousands of dollars today can be worth a lot more to a family than the hope that years of highly politicized litigation will pay off bigger in the future.

From Felix Salmon:

Let's say I lent you $350,000 to buy a house, and that house is now worth only $250,000. I'm holding that mortgage on my books at par, but if I sold it there's no way I could get $350,000 for it, or even $250,000. I give you a principal reduction of $40,000, so that you now owe $310,000. That's good for you -- which is why the settlement is a welcome development. And it means that I have to take a $40,000 write-down on my balance sheet. But the mortgage is still being held on my books at $310,000, which is still more than I could have sold it for before the write-down. In other words, what's happening here is that the mortgage settlement is at heart largely just encouraging banks to bring their balance sheets closer to reality -- which is something they'd have to do sooner or later in any case.

By the way, there's a settlement website that provides lots of information about the deal.

Why all the back surgeries at a hospital in Hawaiian Gardens?

2012-02-09T18:34:22Z

When considering a serious spinal operation, you probably wouldn't think of Tri-City Regional Medical Center as the place to go. But this small facility has been doing a boffo business, especially for workers' compensation patients. It billed insurers $65 million in 2010, largely thanks to Paul Richard Randall, who was a consultant for Tri-City and has been paid millions of dollars in marketing fees, the WSJ reports. He both recruited surgeons to the hospital and supplied metal implants for the surgeries through distributorships he owned. Nice.

The U.S. attorney in Los Angeles has investigated Mr. Randall's practices. By last August, federal prosecutors had prepared a charge that, if filed in court, would accuse him of conspiring to inflate the cost of spinal-surgery hardware and use part of the proceeds to pay kickbacks to doctors to refer workers' compensation patients for surgeries at Tri-City, according to a copy of the charge reviewed by The Wall Street Journal. Mr. Randall said he is just one of a dozen spinal-implant distributors in the Los Angeles area who mark up the price of the surgical hardware they provide to hospitals, and "there's nothing illegal about what I'm doing, my lawyer tells me." As for the kickback allegation, "that's not true," Mr. Randall said.

A Tri-City official told the paper that the hospital ended its relationship with Randall in the middle of last year, a few months after it ousted the executive who had hired him.

Tri-City, a 107-bed facility just south of Los Angeles near Long Beach, illustrates a U.S. health-care trend, the increasing total bill for back surgery, that the Journal has traced in articles over the past 15 months. In California, this trend shows up in the workers' compensation system. California employers paid $7.1 billion in insurance premiums to cover their workers' compensation liability in 2010. Spinal-fusion surgery is a growing part of the care these premiums pay for. It accounted for 40% of inpatient hospital charges to the state workers' compensation system in 2010, up from 30% in 2001, a Journal analysis of hospital discharge data shows.

Mayor pushes subway "very close to the sea"

2012-02-09T18:05:12Z

He started off calling it the "subway to the sea," but that was such a bald-faced lie (the extension ends in Westwood), city officials had to push back and dub it the Westside extension or some such. Now, Mayor Villaraigosa is inching his rhetoric back near to the water. In an interview this morning on "Marketplace," he calls it "a subway that will take us very close to the sea." Now if you live in Akron, that's kind of true. Not so much if you're stuck in traffic on the 10. For voters who might be asked to consider an extension of Measure R, it's an important distinction.

Thursday morning headlines

2012-02-09T16:34:37Z

Stocks around the line: Wall Street doesn't seem especially impressed with the Greek bailout deal or the U.S. mortgage settlement. Dow is down a few points.

Mortgage settlement reached: Under the $26 billion agreement between the major services and the states, which include California, nearly two million current and former American homeowners could see some relief. From the NYT:

Under the plan, federal officials said Thursday, about $5 billion will go in cash payments to states and federal authorities, $17 billion will be earmarked for homeowner relief, roughly $3 billion will go for refinancing and a final $1 billion will go to the Federal Housing Administration. If nine other major servicers join the pact, a possibility that is now under discussion with the government, the total package could rise to $30 billion.

Greeks reach deal: Political leaders agreed to a package of harsh austerity measures in return for a financial bailout. The deal is expected to include $172 billion in new loans, saving the nation from a default. From the NYT:

Once the deal is finalized and the measures are approved by the Greek Parliament in the coming days, the lenders are expected to begin releasing to Greece the aid it needs to prevent a default when its next debt payment comes due on March 20. The deal is also expected to pave the way for a bond swap under which private investors would take losses of as much as 70 percent -- a deal that must be completed well before the debt comes due.

Jobless claims fall again: Weekly filings dropped 15,000, to 358,000, lower than expected and nearing a four-year low. When applications fall consistently below 375,000, it usually signals a drop in the unemployment rate. (AP)

Kodak to stop making digital cameras: Really the end of an era for the company that brought photography to the masses. The company, which filed for bankruptcy protection, says it will look for other companies to license its brand. (AP)

More TV streaming: Television viewership as a whole is steady, mostly because people over 65 are watching more than ever, but Nielsen reports a decline in viewing among Americans under 35, even when DVR viewership is factored in. From the NYT:

Adults ages 25 to 34, for instance, watched about four and a half fewer hours of television in the third quarter of 2011 than at the same time in 2010 -- the equivalent of about nine minutes a day. Viewers ages 12 to 17 also watched about nine fewer minutes a day. The demographic in between, those ages 18 to 24, watched about six fewer minutes a day.

Apple to introduce iPad 3: It'll be much faster than the iPad 2, reports All Things Digital, with improved graphics. Announcement is set for first week in March, and the retail roll-out sometimes after that.

Another Dodger bidder: Add Michael Heisley to the list. He's the billionaire owner of the NBA's Memphis Grizzlies, and one of 11 bidders that survived the initial cut. (LAT)

Sign of the times: Californians are generally feeling more optimistic about the economy, according to the Citibank survey, but half of those questioned say they've dipped into investments to pay for routine living expenses. (LAT)

Programming note: I'll be on City Maven Radio Hour at 11 a.m. on LATalkRadio.com.