Be Prepared, The Worst Is Yet To Come

The large-scale government intervention in the economy is going to end badly. Any number of pundits claim that we have now passed the worst of the recession. Green shoots of recovery are supposedly popping up all around the country, and the economy is expected to resume growing soon at an annual rate of 3% to 4%. Many of these are the same people who insisted that the economy would continue growing last year, even while it was clear that we were already in the beginning stages of a recession.

A false recovery is under way. I am reminded of the outlook in 1930, when the experts were certain that the worst of the Depression was over and that recovery was just around the corner. The economy and stock market seemed to be recovering, and there was optimism that the recession, like many of those before it, would be over in a year or less. Instead, the interventionist policies of Hoover and Roosevelt caused the Depression to worsen, and the Dow Jones industrial average did not recover to 1929 levels until 1954. I fear that our stimulus and bailout programs have already done too much to prevent the economy from recovering in a natural manner and will result in yet another asset bubble.

via Be Prepared for the Worst – Forbes.com.

1,000 Banks to Fail In Next Two Years

The US banking system will lose some 1,000 institutions over the next two years, said John Kanas, whose private equity firm bought BankUnited of Florida in May. “We’ve already lost 81 this year,” Kanas told CNBC. “The numbers are climbing every day. Many of these institutions nobody’s ever heard of. They’re smaller companies.” (See the accompanying video for the complete interview.)

Failed banks tend to be smaller and private, which exacerbates the problem for small business borrowers, said Kanas, who became CEO of BankUnited when his firm bought the bank and is the former chairman and CEO of North Fork bank.

“Government money has propped up the very large institutions as a result of the stimulus package,” he said. “There’s really very little lifeline available for the small institutions that are suffering.”

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Unemployment – 13 Million Jobless

Unemployment zoomed to 8.5 percent last month, the highest in a quarter-century, as employers axed 663,000 more workers and pushed the nation’s jobless ranks past 13 million. The hard times were only expected to get harder — a painful 10 percent jobless rate before long.

The current rate would be even higher — 15.6 percent — if it included laid-off workers who have given up looking for new jobs or have had to settle for part-time work because they can’t do any better. That’s the highest on record for that number in figures that go back to 1994.
Source.

Tent City For Homeless Moving To California Fairgrounds

California Governor Arnold Schwarzenegger said a make-shift tent city for the homeless that sprang up in the capital city of Sacramento will be shut down and its residents allowed to stay at the state fairgrounds.

Schwarzenegger said he ordered the state facility known as Cal-Expo to be used for three months to serve the 125 tent city residents, some of them displaced by the economic recession. The encampment may be shut down within a month, said Sacramento Mayor Kevin Johnson. The move comes after the Sacramento City Council last night agreed to spend $880,000 to expand homeless programs.

“Together with the local government and volunteers, we are taking a first step to ensure the people living in tent city have a safe place to stay, with fresh water, healthy conditions and access to the services they need,” Schwarzenegger said in a statement. “And I am committed to working with Mayor Johnson to find a permanent solution for those living in tent city.”

California, home to one of every eight Americans, has been particularly hard hit by the housing market collapse after many residents turned to exotic mortgages to afford homes. The tent city, which has long existed along the banks of the America River, gained national attention last month when some of its recently homeless residents were featured on the Oprah Winfrey Show.

Source

Supermarkets Emergency Plans To Keep Shelves Full – UK

Fears that scores of supermarket suppliers will go bust next year have led the country’s major chains to draw up emergency plans to replace them, The Observer can reveal.

Separately, on the high street, bailiffs are getting ready for their busiest Christmas ever, with a slew of retailers expected to go into administration.

Supermarket chain Asda, led by Andy Bond, is working on ‘worst-case scenarios’ across the board – combing its supplier base and examining alternatives to them. ‘Suppliers are under a lot of pressure and there will be casualties,’ said a senior executive at another store chain, which has already stepped in to pay troubled suppliers ahead of schedule. ‘We need each other, it is not a zero-sum game.’

The need for alternative supply lines has been brought into focus by the collapse of Woolworths and its distribution arm, EUK, which supplied the supermarkets as well as Zavvi, the former Virgin Megastores, with CDs. However, cracks have been showing in other areas, with milk processor Dairy Farmers of Britain in the midst of a restructuring that will see two dairies close and up to 640 jobs lost.

The damage a collapsed supplier can do is laid bare at Zavvi, which has been destabilised during the most important sales weeks of the year. It has been forced to suspend its website with former parent Virgin stumping up a £5m ‘fighting fund’ to keep shelves filled in the key trading days left between now and Christmas. But with no obvious successor to step into the void left by EUK, Zavvi faces a grim outlook in 2009.

Tesco said it was supporting suppliers that needed extra help by giving an indication of future orders. ‘The worst thing for a supermarket is for a supplier to go under, because you are left with a big hole and investing in a new one is a big deal,’ said a Tesco spokesman.

Analysts say the supply of ready meals is vulnerable. Major players include the heavily indebted Premier Foods and Icelandic group Bakkavor. The latter has £140m trapped in collapsed Icelandic bank Kaupthing, although it says its UK operation, which supplies all the major grocers, is not affected.

Relationships between supermarkets and suppliers are often tense at the best of times. Suppliers hoping for additional protection from the powerful supermarkets – who have been accused of making unreasonable demands in price negotiations – look set to be disappointed as the Competition Commission’s plan to create an ombudsman looks doomed. Asda will not sign up to the scheme, so the matter looks set for referral to the government’s business department in the new year.

The collapse of Woolworths has come to symbolise the dire state of the high street, where retailers are facing the worst trading conditions in a generation. And with a spate of administrations expected early in the new year, bailiffs are gearing up for a festive feeding frenzy around ‘quarter day’ – when even struggling retailers must find three months’ rent – which falls on Christmas Day.

‘We have had more instructions than ever before and I’ve been in this career for 21 years,’ said Jon Dawkins, chief executive of bailiffs’ firm Dawkins, whose clients include the Crown Estate, Transport for London, asset managers Prudential and Threadneedle, as well as all the major property agents.

Landlords want to get their cash while retailers still have money in the tills after the Christmas rush – and before administrators are called in and cash is ringfenced for secured creditors.

via The Observer.