National and Regional News:
February 1st through 11th, 2010
Compiled by: Jay Shenk
Week of February 1st:
A longtime regional company is having financial difficulties, and it’s somewhat unclear what is going on
C.K. Smith, a 100+ year old, regional, Worcester based fuel supplier, is experiencing “financial difficulties”, which have resulted in the closing of 23 Irving gas stations in MA and NH. Irving Oil, an 80 year old company itself, is a very large, privately held Canadian Energy Processing Company that both imports and markets into the United States. According to the Worcester Telegram, Irving’s refinery in Eastern Canada is the largest such facility on the Atlantic Coast of North America, and 75% of Canadian Oil Exports to the US originate from that refinery. Irving Oil doesn’t own any gas stations in the US—all gas stations are owned by individual owners or companies, much like the local Getty gas station isn’t owned by Getty—it’s owned locally. C.K. Smith owns a number of gas stations that were ‘franchised’ by Irving, and those are the ones that are at least temporarily shut down. The local Westminster Irving gas station, owned by Circle K, is not affected, as C.K. Smith has nothing to do with Circle K, the local gas station/convenience store chain. Irving Oil is similarly unaffected, other than perhaps losing some franchised gas stations at least temporarily.
It appears that C.K. Smith was purchased very recently by a company called Petrolex II, since a recent press release says that C.K. Smith is now a division of Petrolex II. It also appears C.K. Smith has changed its name to CKS Holdings, Inc., although to the best of my knowledge nothing has been formally acknowledged.
Some people have different taste in art than me, as well as a whole lot more money
A bronze statue by Giacometti entitled “Walking Man I” just fetched a price of $104,000,000 at a London Sotheby’s auction. The buyer is “unnamed” and bid by phone. Originally the statue was expected to sell for about $32MM.
Preliminary National Budget Proposed
President Obama submitted a $3.8 Trillion preliminary budget to Congress, which raises taxes on high income earners (families over $250K and individuals making over $200K), mainly by allowing the Bush era tax cuts to expire for this income bracket. Capital Gains taxes are also increased from 15% to 20%, and taxes are raised on business, particularly for those operating overseas (the US already has the highest corporate tax rate in the “Group of 30” top industrialized nations). The “Making Work Pay” program, which gives middle income people a $400 a year tax cut, is extended for two years, as are the Bush era “middle class” tax cuts. The Alternative Minimum tax is indexed for inflation (which is a good thing). On the spending side, a few programs will see reduced revenue, but most will see more. At this point, since it still has to make it through Congress, it’s hard to know what exactly will happen to the proposals, and the proposals themselves are considerably more detailed and complex that simply noted above, even before Congress revises the budget.
(My note: the income levels of $200,000 and $250,000 illustrate an issue with calling people “wealthy” based solely on income—if you make $250K around Westminster, you are doing real well, and if you makes $250K in central Pennsylvania, where my family lives, you can buy a few dairy farms and have change left over, but if your family makes $250K and lives in Manhattan, you may not be able to afford anything more than a studio apartment, and your children, if you can afford to have any, will have to attend public schools, which are below par in Manhattan. On the other hand, a politician, stock trader, or movie producer might have $500MM in assets, but make their income in tax exempt bonds, and not pay a penny of income tax—Income tax, as the name implies, only taxes what is defined by the government as income, which for the truly wealthy is just fine, since assets don’t count at all, and income can be sheltered).
The economy continues to be schizophrenic, sending conflicting signals, some hopeful and some very discouraging
The government released unemployment data showing that the unemployment picture picked up slightly in January, which nevertheless sent the stock market heading down like a bobsled, supposedly because of credit problems in Europe.
On the other hand, Cisco, a major high tech company, reported an 8% revenue gain and a 23% profit. The revenue gain was the more significant from an employment viewpoint, as profit gains can be made by simply cutting staff (which is what companies have done). Cisco said it plans to hire up to 3,000 new employees this year (and these jobs pay well), and the CEO, John Chambers, said, “this is one of the most robust, positive turnarounds I’ve seen in my career.”
Update on 2/10: The stock market has continued to bounce erratically around, down on Monday, up on Tuesday, and down today....it's a brave man who's a day trader these days.
The news media exaggerates the issue of delays by Democrats concerning when Scott Brown would be sworn in as our new United States Senator from Massachusetts
It was reported in many news outlets that Scott Brown was demanding to be sworn in more quickly than the Democratic majority wanted or was prepared to accommodate. In reality, Senator elect Brown had not been pushing the issue, and when he did request to be sworn in sooner, both the Democrats and Republicans obliged, and he was sworn in immediately. It appears that plans had already been in process for this ceremony, and given the current state of the health care debate in Congress, there would be no reason for the Democrats to stall.
Update on 2/10: Scott Brown was sworn in, and did participate in a crucial vote, where President Obama's nominee to the National Labor Relations Board, Craig Becker, was defeated despite a heavy lobbying effort by organized labor. However, Scott Brown's vote was not critical, as Becker needed 60 votes for confirmation and only received 52. For some good reason I'm sure, a number of Senators didn't even vote, as the final vote was 52-33, meaning 15 Senators didn't vote at all.
Week of February 8th
Howard Stern to American Idol?
In one of weirder stories of the week, Fox is negotiating with Howard Stern to take the place of Simon Cowell on American Idol.
Having heard Howard Stern on the radio occasionally, before he made the jump to outer space (he’s now on satellite radio), his humor is so juvenile, raunchy and politically incorrect that his radio station was fined numerous times by the FCC. He can be very funny, but it’s hard to imagine him fitting in with Ellen DeGeneres as a judge on American Idol. But, if Fox and Howard do come to terms, it’s sure to boost American Idol ratings for at least a few months. After that ‘honeymoon’ period, it’s anyone’s guess what will happen.
If you could base long term climate projections on just one winter, we’d be worrying about the glaciers melting in Florida rather than in the Himalayas.
It’s been a cold winter across North America, including the southern states, but the recent Mid-Atlantic snow storm just put the frozen icing on the cake. Philadelphia got 28.5 inches, 2 inches shy of the all time record of the 30.7 inches set during the Blizzard of 1996. Reagan National Airport outside Washington DC had its 4th highest snowfall ever, 18 inches, and Washington DC’s schools and federal offices were all closed on the following Monday, 2/8. Another snow storm is projected for this area on Tuesday (2/9). Interestingly, we were spared the storm here in New England because, among many other factors, our extremely cold temperatures and accompanying high pressure kept the storm to the south.
Update on 2/10: It's snowing again in Washington DC, Baltimore and elsewhere. Philadelphia might get another 22 inches, Baltimore has now set their all time record for snowfall in a season since record keeping began, and Washington DC, already shut down, might get another foot. Although the storm was a bust here in Westminster and Massachusetts. I heard from a friend in Philadelphia who said, "We are in a really bad situation down here. We have gotten almost 4 feet of snow. Our township is in a state of emergency. There is about 2 ft in the street and no sign of a plow truck.".
Don’t confuse bankers with banks. A bank is just a legal entity while bankers are people, some of whom are still getting whopping big bonuses.
In a fit of populist rage, many of our politicians are going after the big banks, demanding new fees and taxes while expressing outrage about the big bonuses paid to executives and traders at these banks. Given the size of bonuses being awarded, this outrage seems justified (and more), but the case of Bank of America illustrates the inconsistency of condemning banks instead of the people who run the banks—a bank is a legal entity—it is not a person, so it doesn’t feel remorse, and doesn’t really do anything. It’s the highly compensated people in the top echelons of the banks who make the decisions and the big money--some decisions are good and help the economy, some are greedy decisions that help the executives themselves, or in the case of the Great Recession, some decisions helped to crash the economy, although there is plenty of blame to go around for that one.
This distinction between a bank and a banker (or trader) is nicely illustrated by the case of former Merrill Lynch CEO John Thain, who left Bank of America under a black cloud 14 months ago due to problems with the merger of Merrill Lynch and Bank of America. The government is now publicly going after BOA, condemning their bonus culture and saying ‘we bailed them out and now they owe us money back’, despite the fact that the
culprit(s) are no longer there. Mr. Thain left BOA with a very large severance package and bonus, so he isn’t there any longer. Instead, he just joined CIT, another bank that had lots of issues during the credit crisis, and his compensation now will be $500K a year, but with restricted (can’t be sold right away) stock shares worth, get this--$169,000,000 if they were sold at today's values. That’s not too shabby a compensation package.
In the interests of being fair, I’m not sure John Thain deserves the blame for how the BOA/ML merger worked out. It appears that the government itself deserves plenty of blame and that they might have pressured him into making the deal, but it’s easier to scapegoat others than blame yourself. Regardless, the bonus culture remains remarkably intact on Wall Street.
Toyota, a car company known for safety and reliability, is having massive recall/safety issues.
In a move that will cost at least $2 billion, Toyota is recalling a number of their top selling models for braking issues. The Camry is being recalled, and the Prius might be recalled (check with your dealer for details). The problem is that Toyota, unlike many of its competitors, doesn’t have any software or hardware that resolves a conflict when both the accelerator and brake pedals are depressed simultaneously, and there have been isolated cases where the accelerator has become jammed and the driver is unable to stop the car—most famously, a California policemen and his family were killed in a crash where his problems stopping the car were well documented--he radioed in what was going on to the police, until the transmission ended in a 100 mph fatal crash.
In GM cars, for instance, if a situation like this were to happen, the brakes mechanically override the accelerator (the brakes are stronger), and in most other Japanese and German cars there is software that will prevent acceleration if both the gas pedal and brake pedal are pushed simultaneously. Toyota is putting a similar software fix in place as part of the recall.
Not related to Toyota’s problems, but as a bit of good news about the economy, Ford just a few days ago reported a surprising profit, in excess of $2.7 billion, its first profit in 4 years.
Talk about getting stiffed in a will......
Melvin Simon, a shopping mall developer and one of the richest men in the United States, changed his $1 billion will just 7 months prior to his death in 2009, effectively excluding his children by his first wife from his will, while increasing substantially the share to his second wife, Bren Simon, as well as the share going to charity. His health was so bad at the time the will was changed that his hand had to be guided on the paper as he affixed his signature to the will.
The original will, in place for 10 years prior to the new will, left his second wife Bren 1/3 of the estate, a second third was to be distributed to his grown children after Bren SImon's death, but with the income from that third going to Bren until her death, and the final third was to go to charity.
The new will, set up in early 2009, now leaves half the estate to Bren Simon, while the other half goes to charity, but only after Bren's death. In the meantime all income from that half also goes to Bren Simon. In 10-15 years after Bren's death, if there is any money left in the 1/2 devoted to charity, the grown children would then receive a distribution.
Since there are four grown children, three from Melvin Simon's first marriage and Bren's daughter that he later adopted, this change in the will, if it withstands a court challenge, means that the three children from Melvin's first marriage, who would have gotten substantially more than $100,000,000 upon Bren's death, now will get $0, and even after the 10-15 years, when the charitable trust expires, they will probably get the same amount, $0, if they are even still alive by then.
A court challenge is in process, brought by the oldest daughter from Melvin's first marriage. The case will focus on whether Melvin was mentally capable to change his will in 2009. In should be noted that Melvin and Bren were married for nearly 40 years, since 1972, and who knows what all has gone on between the factions in the family.
While on the subject of wills, not everyone realizes that in Massachusetts there is a 'chivalry' law in place if both parents are killed at approximately the same time, say in a car crash. In such a situation the man is presumed to have died first. That actually could have unintended repercussions for inheritances in a blended family without proper wills drawn up. The estate would immediately pass to the wife, and then immediately pass to her heirs, bypassing any children on the male side of the family.
The Super Bowl sets a record for the largest audience in TV history.
This year's Super Bowl game between the Saints and the Colts was a great game, close until the end and finally won by the underdog Saints (formerly known as the "ain'ts"). But it also was historic. The record 106.5 million viewers who tuned in to watch the game finally beat the record set in in 1983, when the final version of M*A*S*H drew 106 million viewers. This is in line with a recent trend. Sports events and specials like the Grammy and Golden Globe Award shows are doing well, while regular network programming viewership continues to decline. To keep it in perspective, there are 38% more households with TVs today than in 1983, when the final version of M*A*S*H aired. Finally, New Orleans may have put Katrina behind it.