Filed under: Products and services, Wal-Mart (WMT), China

Wal-Mart Stores, Inc. (NYSE: WMT) wants its huge cadre of Chinese suppliers to become more “green” in their operations. Since Wal-Mart CEO Lee Scott is apparently hell-bent on his retailer becoming the most ecologically-conservationist company in the world, this is a move that should have come in 2006, to be honest. Is it just lip service, or does Scott really intend to tell his Chinese suppliers how to conduct their own internal business?

Reducing waste and emissions is the push here. Wal-Mart is already requiring retailer consumer packaging waste reductions along with a whole bevy of other green initiatives, such as making more energy-efficient products and packaging that’s more easily recyclable. In fact, Scott has said that he’s like to have a company that produces no waste and gets its energy from renewable resources in the future. Those are quite lofty goals from a sprawling organization like Wal-Mart.

Scott will also be tackling the issue of appropriate disposal of waste within Chinese vendors who supply to the world’s largest retailer — a back-end type of initiative that’s each bit as important as retail packaging initiatives. Even though Scott indicated it “would take a long time” for these green moves to happen within in Chinese suppliers, the faster the better. As Wal-Mart moves more heavily into the rapidly-growing markets like China and India, a new wave of international growth is building under Scott’s watchful eye. Requiring suppliers from its largest trading partner — China — can’t come soon enough.

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Filed under: Forecasts, Bad news, Economic data, Housing, Recession

Reuters reports that one of the U.S.’s leading economists, Harvard’s Martin Feldstein gave a speech in Florida this day in which he said that the U.S. faces a recession that could be “significantly more severe” than current ones.

This is very bad news because Feldstein is the head of the National Agency of Economic Research (NBER) which is responsible for determining when recessions start and end. Not only that, but he is a Republican whose editorials are frequently in the Wall Street Journal. So for Feldstein to make this claim, he must have very compelling and irrefutable evidence on which to base his prediction. Given his position in the firmament of economists, It would be incredibly irresponsible for him to be exaggerating for effect.

Here are some of the scare quotes:

• “The situation is very bad, the situation is getting worse, and the risks are that it could get very bad.”
• “There’s no doubt that this year and next year are going to be very difficult years.”

• “The housing situation is getting worse by the day.”
• “There is a lack of confidence leading to a lack of liquidity … without credit creation, we can’t have economic growth.”
• “While inflation expectations are still relatively well contained, “you wonder how long that’s going to last.”

Although I have been posting along these lines for a while, I really don’t have much to add. Because when these comments come from the mouth of Martin Feldstein, they have to be all too real.

Peter Cohan is President of Peter S. Cohan & Associates. He also instructs management at Babson College and edits The Cohan Letter.

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Filed under: International markets, Forecasts, Housing, Federal Reserve, Recession

The ever-incisive FT columnist Martin Wolf offers a stark and sober analysis of the United States’ current financial and economic predicament, but it’s an analysis well-worth reviewing, if one has the time.

A synopsis is provided here, but first, full warning: read the analysis when you’re feeling well and in a good mood, not during other times.

Two estimates

Wolf argues that the financial sector’s losses from subprime loans and related asset defaults will total $1 trillion. What’s more, he’s not at the top end regarding a red-ink estimate. Wolf note’s that NYU Professor Nouriel Roubini, Chairman of RGE Monitor, argues that financial losses might amount to $3 trillion.

Is Roubini’s projection off-the-mark?, Wolf asks. Perhaps not, when one includes losses in lateral sectors, which Roubini does. Roubini included in his estimate home value / home prices, which have fallen 10%: Roubini expects them to fall a total of 30% when it reaches this cycle’s trough.

Next, with the analogy that a baseball catcher can better-prepare for a collision at home plate if he gauges where the runner is as the throw comes home, Wolf then works us through the implications of a Roubini Reality: a $2-$3 trillion loss would de-capitalize the financial system - - the biggest U.S financial crisis since the 1930s. Government intervention wouldn’t be an issue. Only the size of the government’s intervention would be open to debate.

The way home

But Wolf goes on to say the above need not lead to a rebirth of the barter system in two thousand and eight, Anno Domini. First, Wolf suspects Roubini’s scenario is slightly pessimistic. Second, citing Goldman Sachs, after allowing for loan loss provisions - - the proportion of loss-making loans advanced by the non-leveraged sector and the ability to write off losses against taxes - - Goldman’s $1.15 trillion estimate for financial sector losses is reduced to $298 billion. Using Goldman’s logic, Roubini’s losses would amount to $750 billion - - large, Wolf states, but manageable.

Economic Analysis: Friday’s stunning announcement of liquidity problems at Bear Stearns’ (NYSE: BSC) might give one the impression that the task is becoming less manageable, but so far the U.S. Federal Reserve, in conjunction with its companion major central banks (European Central Bank, Bank of England, Bank of Japan, Swiss National Bank) has demonstrated it is up to the task. Namely: 1) Maintain key institution liquidity; 2) Maintain financial system liquidity; 3) Prevent financial service losses from irreparably paralyzing healthy sectors; and 4) As the International Monetary Fund has outlined, notify all major national governments that additional fiscal stimulus - - emergency, short-term and long-term - - may be needed in the months and quarters ahead.

**

Much, much later, during a decidedly calmer period, citizens and national legislatures can start to investigate why this financial crisis happened in the first place.

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Filed under: Industry, Law, Housing, Recession

Talk about closing the barn door after the horses are gone.

Yesterday, Treasury Secretary and former Goldman Sachs CEO Hank Paulson called for greater oversight of financial institutions in the U.S. Apparently, some bankers got a little crazy with the fancy financial instruments and now the credit markets are busted. So Paulson is calling for a new sheriff to come in and clean up the town.

But where was the sheriff when the celebration was really going wild? This isn’t the time to worry about that. As Paulson stated, “This effort is not about finding excuses or scapegoats. But poor judgment and poor market practices led to mistakes by all participants.” You see, everybody is equally to blame. Bankers who made millions selling AAA-rated junk bonds, brokers who flipped houses on the side, little old ladies who lost their homes — everyone made mistakes. Now it’s time to clean up the mess, no questions asked and no hard feelings.

Of course, Paulson’s call for new regulations is to be welcomed. More transparency in banks and ratings agencies would be great, and stricter control of brokers would help too. But I really have to wonder, how did this mess develop in the first place? Could it have anything to do with the relentless war against government regulation that the political right has been fighting for decades now? Paulson is a proud Republican; the celebration that holds that government is the problem, not the solution. But I guess that’s only until the markets are collapsing and investment banks are threatened with insolvency. Then — and only then — can government regulation play a positive role by sweeping away all the debris and getting the whole cycle started again.

Here’s an interesting quote about regulation from Paul Volker, the legendary former head of the Federal Reserve:

I think it seems clear that both the market and the political system will always try to game the Federal Reserve and find ways of getting around restraint. Nobody likes restraint. Everybody likes the stock market to go up forever and the economy to go up forever. When the central bank tries to restrain, the natural instinct is to find some way around it, to find substitutes and new political instruments less directly under central bank influence. If they can’t find the way economically, they will look for it politically, which presents another problem. It is also very clear from history that whatever changes in procedures and policy were made this day will cause changes in the market system tomorrow, as the market adapts to what you’ve done and tries to find a way around it.

While Volker is speaking about the Fed, his words apply to virtually all government regulation of financial markets. I think the lesson is clear enough: markets need to be regulated, although many market participants will fight tooth and nail to avoid or escape regulation. So cheers to Hank Paulson for finally calling for stricter rules for financial institutions. I just hope that Volker’s lesson will be learned finally, and that the next time a politician calls government regulation a problem, voters remember what an economic crisis feels like, and boo him off the stage.

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Fed takes rare path to aid Bear Stearns
MSN MoneyCentral - WASHINGTON (AP) - The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis. The action won praise from the administration

Broadpoint Hires 20 Year Industry Veteran, Robert I. Turner, as Chief
MSN MoneyCentral - Broadpoint Securities Group, Inc. BPSG today announced that, effective March 31, 2008, Robert I. Turner will become Chief Financial Officer of the Company as well as its principal operating subsidiary, Broadpoint Capital, Inc. Brian Coad, the Company

Esmark Incorporated Completes the Sale of Its Minority Interest in
MSN MoneyCentral - Esmark Incorporated is a vertically integrated steel producer and distributor, combining steel production capabilities through both blast furnace and electric arc furnace technologies with the just-in-time delivery of value-added steel products to a

Stocks Fall on Bear News
CNBC - The news sent Bear Stearns shares into a freefall and the Dow Jones Industrial Average on a pit-in-the-stomach rollercoaster Bear Stearns “got money, we should be relieved. Where did they get it? The Federal Reserve, lender of last resort,” Art

The Walt Disney Company Announces Redemption of 2.125% Convertible
MSN MoneyCentral - The Walt Disney Company DIS announced this day that it will redeem all of its outstanding 2.125% Convertible Senior Notes due 2023 (CUSIP No. 254687AU0), on April 15, 2008 (the “Redemption Date”) at 100% of the principal amount of the Notes plus accrued

Past year is undoing of Bear Stearns
CNN Money - NEW YORK (AP) - A decade ago, Bear Stearns (NYSE:BSC) Cos. refused to help bail out a hedge fund that was deemed ‘too huge to fail,’ drawing the ire of its brethren on Wall Street. On Friday, it found itself hat in hand, looking for the same kind of

Corrections Corporation of America to Present at Citigroup’s 5th
MSN MoneyCentral - Corrections Corporation of America (NYSE: CXW), the nation’s largest provider of corrections management services to government agencies, announced this day that Todd Mullenger, Chief Financial Officer, will present at Citigroup’s 5th Annual Small and

Mastodon skeleton awaits sale in California garage
Reuters - Fiddler stated they need the money an on the internet auction could bring, and her son would rather to build hot rod vehicles in the space Reuters is the world’s largest international multimedia news bureau, providing investing news, world news, business news

MPs angry as spending list exposed
Western Telegraph - National News People want to know that their MPs are working hard and are not taking money that they shouldn’t.

First Cash Increases Share Buyback Authorization
MSN MoneyCentral - ARLINGTON, Texas, March 14, 2008 (PRIME NEWSWIRE) — First Cash Financial Services, Inc. (Nasdaq:FCFS) this day announced that it has increased the size of its current share repurchase plan. Under the newly amended plan, as authorized by the Board of

Family of Murdered Maplewood Man Increases Reward Money
KSDK - (KSDK) — The family of a Maplewood man offers a $5,000 reward for information that helps police solve his murder, last June. “We need to have justice prevail for him and for our family,” said Joan Chanitz, the wife of John Chanitz who was shot and

Microsoft, Yahoo execs finally meet
CNN Money - SAN FRANCISCO (AP) - Microsoft (NASDAQ:MSFT) Corp. met with Yahoo (NASDAQ:YHOO) Inc. to discuss the software maker’s unsolicited takeover bid earlier this week, a breakthrough that could be the first step toward a friendly deal between the two rivals

United Therapeutics CEO sells shares
MSN MoneyCentral - NEW YORK (AP) - The chief executive of biotechnology company United Therapeutics Corp. exercises options for 8,200 shares of stock under a prearranged trading plan, according to a Securities and Exchange Commission filing. In a Form 4 filed with the

McKinney police release bank robbery suspect’s description
Dallas Morning News - By RICHARD ABSHIRE / The Dallas Morning News rabshire@dallasnews.com McKinney police are asking for the public’s help in Randy Roland said the man got away with an undisclosed amount of money.

Money-sniffing dogs earn their retirement
Miami Herald - After years of sniffing out millions in contraband cash at Miami’s ports, two U.S. Customs and Border Patrol K-9s will get their day by the pool. Zeek, a yellow Labrador retriever, and Que, a golden retriever, are being retired from a life of

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Jonathan writes “Today, the 14th of March, is Pi Day 2008. Pi Day is internationally celebrated in honor of the mathematical constant “Pi,” who’s actual value will — now and forever — remain unknown. NeoSmart Technologies has a run-down on the history of Pi, Pi Day, and the significance of Pi and other such “magical numbers” to science and technology. ‘Pi isn’t just a number that you can use to calculate circle-related mathematics, it’s a symbol of something by far greater. Pi is one of many “magic” numbers that are found everywhere — if you know where to look. These magic numbers can’t be explained, they just are. And if you use them right, they make it a lot easier to do a lot of really complicated things… In a way, they’re a testimony to technology and computers (or vice-versa, depending on how you look at it).’”

Read more of this story at Slashdot.

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Maggie McKee writes “The Cassini spacecraft flew into the icy geysers erupting from Saturn’s moon Enceladus on Wednesday in an attempt to figure out what they were made of, but a glitch prevented the probe from actually ‘tasting’ the plumes. An ‘unexplained software hiccup’ put the Cosmic Dust Analyzer (CDA) out of commission. Ironically, new software designed to improve the capability of the CDA to count particle hits may be to blame. Mission managers may try to re-attempt the plume fly-through later this year.”

Read more of this story at Slashdot.

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I don’t believe in imaginary property writes “The flagship physics journal Physical Review Letters doesn’t grant authors to submit material to Wikipedia, or blogs, that’s derived from their published work. Recently, the journal withdrew their acceptance of two articles by Jonathan Oppenheim and co-authors because the authors had asked for a rights agreement compatible with Wikipedia and the Quantum Wikipedia. Currently, many scientists ‘routinely do things which violate the transfer of copyright agreement of the journal.’ Thirty-eight physicists have written to the journal requesting changes in their copyright policies, saying ‘It is unreasonable and totally at odds with the practice in the field. Scientists want as broad an audience for their papers as possible.’ The protest may be having an effect. The editor-in-chief of the APS journals says the society plans to review its copyright policy at a meeting in May. ‘A group of excellent scientists has asked us to consider revising our copyright, and we take them seriously,’ he says.”

Read more of this story at Slashdot.

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Filed under: Earnings reports, Forecasts, Bad news, Products and services, Consumer experience

Shares of women’s apparel retailer AnnTaylor Stores Corp. (NYSE: ANN) have been taking a hit today following this morning’s earnings release. Citing restructuring expenses and lower sales, AnnTaylor posted a loss of $6.7 million for its fourth-quarter.

For the quarter, the retailer stated it swung to a loss of 11 cents per share, compared with a profit of 31 cents in the same period a year ago. Included in the company’s earnings figures were 30 cents charge related to its restructuring program. Excluding that, AnnTaylor’s earnings numbers would have come at 19 cents a share. Analyst, on average, expected the company to show quarterly earnings of 20 cents per share.

The women’s apparel retailer also reported a quarterly revenue decline of 2% to $600.8 million, compared with $610.5 million in the previous year, which included an extra week. The company missed analysts’ predictions for a higher revenue of $609 million, according to Thomson Financial.

Looking at same stores sales (sales at stores open at least 12 months), the quarter saw a drop of 3.2%. Weak demand for the company’s clothing products resulted in declines of 78% at AnnTaylor and 0.5% at Loft.

With persistent fears over a possible recession the department store retailer had to face a pretty difficult 2007. The tumbling housing market, credit crush, and higher food and gas prices brought a slowdown in consumer spending; the effects of this are reflected in the company’s earnings.

Looking ahead, AnnTaylor didn’t show too much optimism and forecast a “challenging” first half of 2008. The company said it plans to take some cost-cutting measures to improve its performance. Thus, AnnTaylor forecast first-quarter earnings in a range of 35 cents and 40 cents per share, below analysts’ expectations for a profit of 41 cents per share. Excluding restructuring costs, the retailer also predicted full-year earnings of $1.80 to $1.90 per share. Analysts, on average, expected the company to show full-year profit numbers of $1.95 per share.

After its weak earnings numbers, AnnTaylor’s pessimistic outlook added more pressure to investors who already face fears over the weak market conditions. As a result, Wall Street has reacted by pushing the stock down over 8% to $21.93 this morning.

Eliza Popescu is a financial writer for the on the web investment advisory service Investor’s Observer.

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Filed under: Products and services, McGraw-Hill Companies (MHP), Economic data, Recession

Bloomberg News reports that McGraw Hill Co.’s (NYSE: MHP) Standard & Poor’s (S&P) reportedly called the bottom of the subprime meltdown after estimating its toll at $285 billion, up from a previous forecast of $265 billion. It raised its estimate because of increased loss assumptions for collateralized debt obligations (CDOs). And it claims that, “The bulk of writedowns may have already been taken.”

Maybe, maybe not. S&P is not exactly objective about this. It was among the ratings agencies that caused the problem in the first place. How so? As I posted, back when the $6.1 trillion MBS market was booming, investment banks would pit rating agencies against each other to see which one would give a AAA rating to the toxic waste they were brewing. If S&P won the contest, it would get the lucrative fee from the investment bank.

S&P and its peers made good money by lending their credibility to the firms they were supposed to rate objectively in exchange for those fees. And when the MBS market began to collapse, the ratings agencies suddenly realized that there was no more new ratings business to be had. So they’d to go plan B — trying to salvage their reputations by downgrading the MBSs that they had previously blessed. This reinforced the collapse of the MBS market.

Now I am wondering whether S&P’s claim that the end is near has any substance behind it. Does it know the payment status of each of the, say, 14,000 mortgages within each of the MBSs being held by institutions around the world? Does it understand the specific valuation methods that each MBS holder is using and determined that these methods will pass muster with their auditors?

And perhaps most importantly, has it taken into account the effect that a fire sale of MBSs will have on their values? This comes to mind in light of the default of Carlyle Capital, about which I posted here. If banks take possession of these MBSs to try to minimize their losses, won’t more and more of these MBSs be thrown on the market? And won’t this further depress prices?

I would like to believe S&P. But in my mind, its credibility is suspect. And even if it had been perfectly objective throughout all this, MBSs are so complex that I don’t think anybody can really say how bad the situation is prone to become.

Peter Cohan is President of Peter S. Cohan & Associates. He also instructs management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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