Stagflation?

The '70s are calling. They want their strong economy back, lol. 

At the Wall Street Journal, "A GDP Warning as Signs of Stagflation Appear: Slower growth and persistent inflation explain why voters feel glum about the economy."

Bed Bath & Beyond Files for Bankruptcy

My wife briefly worked there. Briefly. It wasn't her most memorable or rewarding job. 

The company made a bad bet on its own-store brand lines, alienating longtime customers who shopped there for deals on major brand names. 

At the Wall Street Journal, "Bed Bath & Beyond Files for Bankruptcy":

Bed Bath & Beyond Inc. BBBY -2.17%decrease; red down pointing triangle filed for bankruptcy protection to wind down its business after years of losses and failed turnaround plans left the once-powerful retailer short of cash.

The company had warned of a potential bankruptcy for months. It needed a $375 million loan to get through the holidays. It struck an unusual $1 billion financing deal with a hedge fund in February to put off a bankruptcy filing, then scrapped the deal and tried this month to raise $300 million from other investors.

None of the moves were enough. Nor were efforts to stem losses by closing hundreds of stores. Sales evaporated and its stock price tumbled well below $1 in recent weeks, as the rescue efforts dimmed.

The retailer filed for chapter 11 bankruptcy Sunday in the U.S. Bankruptcy Court in Newark, N.J., and said it expects to close all of its 360 Bed Bath & Beyond and 120 Buybuy Baby retail locations eventually. Top lender Sixth Street Partners has put up $240 million in financing to keep Bed Bath & Beyond operating through the liquidation process, the company said.

Bankruptcy gives Bed Bath & Beyond the breathing room to conduct going-out-of-business sales at its physical stores and solicit interest from potential buyers for its remaining assets, such as its branding. Individual investors who continued to back Bed Bath & Beyond during its final months, when it was flooding the market with shares, will likely be wiped out in chapter 11, which prioritizes the repayment of debt over shareholder recoveries.

As Bed Bath & Beyond’s situation worsened, suppliers stopped shipping goods to the retailer. Photo: Johnny Milano/Bloomberg News If a bidder emerges for the business in bankruptcy, Bed Bath & Beyond said it would pivot away from its liquidation plans to pursue a sale.

Once a pop-cultural phenomenon, Bed Bath & Beyond has long been losing shoppers to rivals and struggling to stock its stores. Replacing KitchenAid mixers and other name brands with private label goods further alienated vendors and customers.

Bed Bath & Beyond joins a growing list of once-ubiquitous retail chains seeking court protection. Some like J.C. Penney Co. continue to operate hundreds of stores; others like Sears and Toys ‘R’ Us closed most of their locations; while Circuit City and Linens ‘n Things disappeared altogether.

The country’s largest wedding dress retailer, David’s Bridal LLC, recently filed for bankruptcy and said it would shut all of its stores if it doesn’t quickly find a buyer. It was the chain’s second bankruptcy filing in less than five years....

Bed Bath & Beyond didn’t have an unprofitable year as a public company until 2019—when it reported its first annual sales decline. By then, the rise of Amazon.com Inc. and other online retailers had started to eat into the business. “We missed the boat on the internet,” Mr. Eisenberg said.

A group of activist investors forced the co-founders, who had relinquished their executive duties in 2003 but remained co-chairmen, off the board in 2019. The reconstituted board hired former Target Corp. executive Mark Tritton as chief executive.

Mr. Tritton moved quickly to put his stamp on the company. He sold many of the company’s noncore businesses, including Christmas Tree Shops. Then, in January 2020, he signed a deal to sell roughly half the company’s real estate to a private-equity firm and lease back the space.

With the world in lockdown due to the Covid-19 pandemic, Mr. Tritton pushed through what the company called the biggest change to its assortment in a generation. It replaced name brands such as KitchenAid mixers, All-Clad cookware and OXO spatulas with private-label goods manufactured just for Bed Bath & Beyond.

The rationale was sound: Private-label merchandise carries higher margins and helps retailers differentiate their offerings from competitors. The playbook has worked for countless chains from Target to Macy’s Inc. But it failed at Bed Bath & Beyond for several reasons, according to former employees and analysts.

Mr. Tritton made the switch at a time when supply chains had been upended by the pandemic. Factories had temporarily closed and shipping delays were proliferating, along with rising costs, making it difficult for retailers to keep goods flowing to their stores in a timely manner.

The company also rolled out too many private brands too quickly, before it had the infrastructure to support them, the former employees said. It planned to launch eight new brands in 2021 alone. At first, the results of Mr. Tritton’s strategy looked promising. Bed Bath & Beyond’s sales rose 49% in the spring quarter of 2021, compared with a year earlier when stores were closed for Covid lockdowns. Mr. Tritton presented results to the board showing that some of the early private-label launches—such as the Simply Essential line of bed, bath, kitchen, dining and storage items—were well-received by shoppers, according to people with knowledge of the company.

Some of that buying was due to consumers stocking up while sheltering from the pandemic. As that demand ebbed, the gains quickly evaporated. By August 2021, sales were falling, and they continued to drop, as losses piled up.

“You know if you buy Cuisinart what you are getting,” said Sheryl Bilus, a 68-year-old retired bank manager who lives in Canton, Ga. “But with their own brands, you don’t know what the quality is like.”

Mr. Tritton had planned a similar overhaul of the Buybuy Baby chain by replacing Gerber and other children’s brands with private-label goods. But he was pushed out in June 2022, before he could make many of those changes. Sue Gove, a veteran retailing executive and Bed Bath & Beyond director, was named interim CEO.

Meanwhile, Bed Bath & Beyond’s stock went on a wild ride after Ryan Cohen, the billionaire founder of pet retailer Chewy Inc., took a big stake in the company and agitated for changes, including the sale of Buybuy Baby. The board considered strategic alternatives for the baby chain, but decided against selling because separating it would have been time-consuming and costly, and they needed to nail down a new strategy before marketing it to potential bidders, people familiar with the situation said...

Big Banks Predict Recession, Fed Pivot in 2023

Hmm.

Let's see if these predictions hit gold.

At the Wall Street Journal, "More than two-thirds of economists at 23 major financial institutions expect the U.S. to have a downturn this year."

Americans Expect Worsening U.S. Economy in 2023, WSJ Poll Finds

Well, Goldman-Sachs will layoff "thousands," and will deny bonuses to "underperforming employees," whatever that means (completely arbitrary?). 

So, it's not looking like a great holiday season for many American workers. 

I'm not getting laid-off, thank goodness. 

Be kind to your neighbors out there, and perhaps say a pray for the less fortunate (or hand 'em some cash while they're out panhandling on the median at the traffic light, *sigh*).

At the Wall Street Journal, "Over a third of voters say inflation is causing them major financial strain":

A majority of voters think the economy will be in worse shape in 2023 than it is now and roughly two-thirds say the nation’s economic trajectory is headed in the wrong direction, the latest Wall Street Journal poll shows.

The survey, conducted Dec. 3-7, suggests a recent burst of positive economic news—moderating gas prices and a slowing pace of inflation—haven’t altered the way many feel about the risk of a recession, something many economists have forecast as likely.

“I just think we are headed toward a recession and it could be a pretty big one,” said Republican poll participant David Rennie, a 61-year-old retired executive with the Boy Scouts of America who lives in Shelton, Conn. “Interest rates are skyrocketing and that’s going to take us down.”

The Federal Reserve on Wednesday approved an interest-rate increase of 0.5 percentage point and signaled plans to keep raising rates at its next few meetings to combat high inflation. The move reflected some moderation after four consecutive increases of 0.75 point.

Economic pessimism is strongest among Republicans, with 83% expecting the economy to worsen. Slightly more than half of independents feel that way, while 22% of Democrats do.

“Our economic diagnostics have become partisan,” said Democratic pollster John Anzalone, who conducted the survey with Republican pollster Tony Fabrizio. “If there was a Republican president, we might see the reverse.”

Mr. Fabrizio said Democrats aren’t paying as much of a political price as one might expect for so many people having negative feelings about the economy. “You would normally see that translate into being bad news for the Democrats,” he said.

Democrats did better than expected in last month’s midterm elections, keeping control of the Senate while losing the House by a narrower margin than nonpartisan analysts forecast...

After this last election, it's pretty clear that the old standard of economic indicators is not what voters are basing the electoral decisions on. If it were otherwise, we'd see big Republican majorities in both chambers of Congress come January 3rd. Nothing that I can see foretells a weakening of the hateful partisanship that's driving the current political scene. If anything, things will get worse. While Elon's takeover of Twitter is great for owning the libs, if you look at the reaction on the left --- the fanatical, practically murderous reaction --- it's a safe bet that 2024's going to be as nasty as ever.

There's more at the link, in any case. 

Nouriel Roubini, MegaThreats

At Amazon, Nouriel Roubini, MegaThreats: Ten Dangerous Trends That Imperil Our Future, And How to Survive Them.

Bradford DeLong, Slouching Towards Utopia

At Amazon, Bradford DeLong, Slouching Towards Utopia: An Economic History of the Twentieth Century.

Liz Truss Fires Home Secretary Hours After Being Jeered in U.K. Parliament (VIDEO)

This woman is in political trouble, man.

At the New York Times, "Britain’s prime minister dismissed Suella Braverman after an email breach. Ms. Truss was also grilled in Parliament over her repudiated budget":

LONDON — Fighting for her political survival after the collapse of her economic agenda, Prime Minister Liz Truss of Britain suffered another heavy blow on Wednesday after she was forced to fire one of her most senior cabinet ministers, the second major ouster in a six-week-old government that has tumbled into chaos.

Hours after Ms. Truss rejected demands to resign herself — “I’m a fighter and not a quitter,” she declared — the prime minister dismissed the home secretary, Suella Braverman, over a security breach involving a government document that Ms. Braverman had sent to a lawmaker in Parliament through her personal email.

Last Friday, Ms. Truss fired her chancellor of the Exchequer, Kwasi Kwarteng, who was the architect of the sweeping tax cuts that rattled financial markets and sent the British pound into a tailspin. The government’s subsequent reversal of those measures has left Ms. Truss’s grip on power into doubt — an impression deepened by Ms. Braverman’s blunt criticism of the government on her way out.

Appearing at a stormy session of prime minister’s questions in Parliament, Ms. Truss repeated her apology for the disastrous fiscal program. But she insisted that she could continue to govern despite all the turmoil.

“I had to take the decision because of the economic situation to adjust our policies,” Ms. Truss said, her obvious understatement drawing catcalls from opposition lawmakers and pained expressions from members of her own Conservative Party.

It was a brutal ordeal for Ms. Truss in only her third appearance for such questioning as prime minister. While political analysts said that the session had not produced the kind of knockout blow that would make Ms. Truss’s ouster imminent, the emergence of the news about Ms. Braverman only a few hours later exposed bitter rifts in the cabinet and a prime minister largely at the mercy of events.

Late on Wednesday, there was another eruption of chaos over a vote on whether to ban hydraulic fracking. Amid shifting instructions from Downing Street about how Conservative lawmakers should vote, tempers rose, there were reports — later contradicted by the government — that the government’s chief whip had resigned, and even accusations that some members were manhandled by senior ministers.

Ms. Braverman, a hard-liner who was hostile to moves to allow more immigrants into Britain to help boost the economy, acknowledged she was guilty of a technical breach of security rules. But in her letter of resignation to Ms. Truss, she said she had “concerns about the direction of this government,” accusing it of breaking pledges to voters and, in particular, of failing to curb immigration.

“I have made a mistake; I accept responsibility; I resign,” Ms. Braverman added in a reference some saw as an implicit rebuke to Ms. Truss, who has refused to quit despite her admission of a bigger error.

Ms. Braverman was replaced by Grant Shapps, a more centrist figure, whose appointment underscored the shift in the political balance of the cabinet away from the hard-liners who supported Ms. Truss in the leadership contest she recently won and the rising influence of the new chancellor, Jeremy Hunt.

Both men supported the former chancellor, Rishi Sunak, when he ran, unsuccessfully, against Ms. Truss, warning that her economic agenda was a fairy tale. And Mr. Shapps’s support for Mr. Sunak was the reason he was not offered a cabinet job by Ms. Truss when she came to power...

Still more.

 

Labor Day Morning Rant: Principled Free Traders™ and the Imaginary World of 'Econ 101'

It's Buck Throckmorton, at AoSHQ, "It is no secret that I have extreme animus toward the Principled Free Traders™ who sought to offshore every last American manufacturing job out of fealty to a utopian economic system that doesn’t exist in the real world. (And let’s be honest, those so-called “free traders” had no interest in there even being reciprocal free trade of American-manufactured goods. They are globalists who dislike American sovereignty and detest working-class Americans. Denying a living wage to blue collar Americans was a feature, not a bug of our elites’ actions.)."

Moscow’s Struggle to Sustain Its War in Ukraine

At Foreign Affairs, "Is Russia’s Economy on the Brink?":

In April, just weeks after he launched the invasion of Ukraine, Russian President Vladimir Putin maintained that the West could never strangle Russia’s economy. The barrage of American and European sanctions had not succeeded and would not succeed in bringing his country to its knees. “We can already confidently say that this policy toward Russia has failed,” he told his officials. “The strategy of an economic blitzkrieg has failed.”

Such defiant posturing can be expected of Putin and other Russian leaders. But now, six months after the beginning of the war and the imposition of sanctions, many observers are questioning whether Western sanctions have had the tough effects their architects promised. International observers such as the International Monetary Fund have revised their projections of Russian GDP upward from earlier this year. Compared with initial forecasts made right after the imposition of sanctions, Russia’s economy has done better than expected, partly because of deft technocratic Russian policymaking and partly because of tight global energy markets, which have kept the price of oil and gas high.

Russia’s economic overperformance must be placed in context, however. Few observers and policymakers expected sanctions to cause enough pain to force Russia out of the conflict in a matter of months, so Russia’s ongoing war shouldn’t be a surprise. Yet Russia’s economy is still hurting; it is suffering a steeper growth slowdown than was seen during the 2008 financial crisis and one that is unlikely to be followed by a postcrisis rebound. Living standards are being supported by social spending that will be difficult to sustain and that will likely force tough decisions about the government budget over the coming year. Thus far, Putin has promised Russians that he’s fighting a “special military operation,” not a war that could impose tough sacrifices on the population. As time passes, however, the cost of the war and the effects of sanctions on ordinary Russians will only grow.

BELTS TIGHTEN IN RUSSIA

For a health check on the Russian economy, start with some macroeconomic data. Russia’s GDP has shrunk by around five percent compared with last year, with the rate of decline increasing each month since the war began. Industrial production, which includes Russia’s oil and gas industries, has fallen by only about two percent compared with last year (a reflection of high energy prices), although the manufacturing segment of Russian industry has fallen by 4.5 percent. Inflation stands at just over 15 percent, down somewhat from the nearly 18 percent peak after the ruble slumped, then recovered, in March. Adjusted for inflation, monthly wages are down by about six percent compared with last year. (Some analysts have expressed skepticism about Russia’s official data, yet there is no evidence that the state statistics agency is engaged in large-scale manipulation.)

Russia’s inflation statistics may not fully capture the reality that buying certain products is now occasionally difficult (in the case of iPhones) or nearly impossible (in the case of Lexus automobiles). Similarly, inflation data struggle to quantify the impact of reduced quality. Russia’s government, for example, is changing regulations to allow the sale of vehicles without airbags or antilock brakes, which are now difficult to produce because of sanctions-induced supply chain problems. This degradation in quality won’t show up in inflation data, but it will eventually be felt by Russians, especially the urban, wealthier Russians who consume more of the imported goods that are now harder to access.

Even accounting for the inflation captured by government statistics, wages are trending sharply downward, around six percent lower compared with last year. Social welfare payments such as pensions, which are the primary income source for older Russians, have been eroded by inflation since the war began. The government increased pension payouts by over eight percent in June to compensate, but without more such expensive social spending increases in the coming months, the typical Russian’s income will decline in the second half of the year. The fact that retail sales are down by nearly ten percent suggests that consumers have already started saving in anticipation of tighter budgets to come.

THE OIL KEEPS FLOWING

Although households are only just beginning to feel the impact of lower living standards, some industries have already been hit hard. Rather than looking at aggregate industrial production data, which include both raw materials and manufacturing firms, it is more insightful to analyze each sector separately. The raw materials sector has been only slightly affected, which is no surprise given that prices are high and that Western sanctions have been designed to keep most commodities, thus far including oil, flowing freely.

The Russian economy owes much of its resilience to its trade in natural resources. With quiet diplomatic support from the United States, the United Kingdom and the EU have been watering down sanctions that were supposed to take effect against Russian oil exports later this year. To keep energy prices from spiking, the West has backed away from some efforts to stop Russia from redirecting oil exports to other customers, such as China and India. Now, under recent tweaks to sanctions, European firms will be allowed to ship Russian oil to third parties.

Because the West has implemented few significant sanctions on Russia’s oil and gas exports, and because the EU’s oil import ban doesn’t take effect until December, the volume of Russian oil exports is basically unchanged since sanctions were imposed. Sanctions are now forcing Russia to sell oil at around a $20 per barrel discount to global benchmark prices. Still, the latest monthly data that Russia’s government released on its revenue from taxing oil suggest the country is making roughly as much in export revenue as it did in January. By contrast, revenues from the export of natural gas—far less important to Russia than oil exports—have slumped after the Kremlin restricted its sale to Europe.

INDUSTRIAL WOES

Unlike Russia’s energy industry, the rest of Russia’s industrial sector has been hit hard. Among the worst affected sectors have been cars, trucks, locomotives, and fiber optic cables, each of which has seen production fall by over half. In other sectors less exposed to foreign ownership or complex supply chains, such as textiles or food processing, production is flat or in some cases has increased relative to last year.

One cause of this industrial disruption is the withdrawal of Japanese, U.S., and European firms that had factories in Russia. Some of these factories will reopen under new Russian ownership, but operating them independently may prove difficult. Manufacturers are also struggling to source necessary materials. Accessing components from abroad is now far trickier, because even products not under formal restrictions are harder to access, ship, and pay for. “I cannot say we’re facing a total blockade,” the CEO of Transmashholding, a Moscow-based railroad equipment firm, told Russian media, referring to the difficulties his firm has in shipping and paying for imported components. “But we face increased friction.”

A key question over the coming months is whether these industrial disruptions intensify or are resolved. On the one hand, Russia has now had nearly half a year to establish alternative payments and logistics networks, which should allow some crucial nonsanctioned imports to reach the country. On the other hand, Russian firms when surveyed say they are continuing to draw from existing inventories, implying that they are still struggling to source necessary components. Monthly data show that Russian imports of industrial goods and components remain far below prewar levels...

Still more.

 

Definition of a Recession

From Douglas Murray, at the New York Post, "Undocumented, underhoused chestfed kids are not in a recession, say Dems":

“We should avoid a semantic battle” said Janet Yellen yesterday. “A what?” In short it seems what the Treasury Secretary means is that we should not use the word “recession.”

That is a shame, because people, including Yellen’s boss, used to like to use the word a lot. In October 2020, when he was running for office, Joe Biden said “President Obama and I left Donald Trump a booming economy – and he caused a recession. He squandered it just like he has everything else he’s inherited in his life.” He said the same thing in September 2020, claiming that American was in a “recession created by Donald Trump’s negligence.”

Fast forward a couple of years and The White House is now reframing the meaning of the word and warning us all not to use it. It is true that until yesterday it was generally agreed that two straight quarters of negative GDP growth was the common definition of a recession. But yesterday President Biden said, “That doesn’t sound like a recession to me.” This fact should surprise no one.

Because re-naming things is one of the left’s favorite pastimes. If you cannot change the facts then you can at least change the language around the facts. By doing so you can massage the facts, make them less concerning and in the process wish reality away. For a time, at least...

Keep reading.

White House Braces for Grim News on Economy (VIDEO)

Yes, the White House is "bracing" being attempting to redefine what a recession is. 

At Politico, "White House braces for grim news on economy":

Bracing for impact: Even if Thursday's GDP report shows a second consecutive quarter of negative growth, you won't hear the Biden admin using the R-word.

The Council of Economic Advisers is redefining what a recession is...🤔https://t.co/HHBYJKqP5V pic.twitter.com/gecR93vPPj

— Jacqui Heinrich (@JacquiHeinrich) July 24, 2022

Senior administration officials are hitting the airwaves and arm-twisting reporters in private, imploring anyone who will listen that the economy is still healthy.

The White House is scrambling behind the scenes and in public to get ahead of a potentially brutal economic punch to the face that could give Republicans the chance to declare that the “Biden recession” is under way.

Wall Street analysts, economists and even some in the Biden administration itself expect a report on Thursday to show the economy shrank for a second straight quarter, meeting a classic — though by no means the only — definition of a recession.

Senior administration officials are hitting the airwaves and arm-twisting reporters in private, imploring anyone who will listen that the economy — despised by majorities of both Republicans and Democrats fed up with inflation — is still healthy.

But White House officials admit that changing people’s minds is a daunting task as the highest inflation in four decades severely cuts into wages even as the economy continues to churn out jobs and Americans keep spending.

Economic Advisers and one of Biden’s longest-serving aides, said in an interview. “What we are trying to do is explain things in a much more nuanced way than most people are getting from the daily news flow.”

Bernstein’s CEA and the Treasury Department are cranking out blog posts and studies arguing that the current post-pandemic moment — while strange and disconcerting to many Americans — is nowhere close to a recession.

Treasury Secretary Janet Yellen showed up on NBC’s “Meet the Press” on Sunday and declared, “This is not an economy that is in recession.” On Monday, senior Biden aide Gene Sperling ventured into hostile territory on Fox News. The next day, National Economic Council Director Brian Deese joined the White House briefing to make the case.

Aides are even quietly praising occasional White House nemesis Larry Summers, the voluble former Treasury secretary who on Monday said on CNN that anyone who says we are in a recession now is “either ignorant” or “looking to make political points.” Summers still believes a recession is likely in the relatively near term.

Biden on Friday afternoon received a briefing from Yellen, Deese, Sperling, CEA Chair Cecilia Rouse, Energy Secretary Jennifer Granholm, Budget Director Shalanda Young and Amos Hochstein, coordinator of international energy policy at the State Department.

The lengthy, remote session focused on just how much gas prices are dropping (a White House fixation), the impact of that decline on consumers and continuing geopolitical issues — mainly the war in Ukraine — that could still send oil and gas prices soaring again.

White House press staff are also regularly convening background briefings with economics reporters and senior administration officials to talk up the economy’s strengths, no matter what the GDP numbers say this week.

For their part, Republican leaders sense an opportunity to leverage their already big advantage on the economy as a midterm election issue and ride it to even larger gains in November than polls predict...

 

President Andrés Manuel López Obrador Brings Back Mexico's Nationalization of the Economy

This never ends well for Mexico, and especially not for U.S. taxpayers, who always get stuck with the bill when the U.S. government rushes in to bail out our southern neighbor every time its economy crashes. 

At the Wall Sweet Journal, "Mexico Takes Aim at Private Companies, Threatening Decades of Economic Growth":

Populist president seeks to reclaim state control over oil-and-gas, electricity sectors; ‘It’s a closing off of Mexico’.

MONTERREY, Mexico—For the past 20 years, a 1,100-megawatt power plant owned by Spain’s Iberdrola SA outside Mexico’s industrial capital has kept the lights on for scores of companies such as brewing giant Heineken NV, despite winter freezes, a hurricane and the occasional brush fire.

But since January, half the gas-fired plant has been forcibly shut down by Mexico’s government, which argues that private energy companies have plundered Mexico like Spanish conquistadors of old. The electricity shutdown forced dozens of firms in Monterrey to return to the inefficient and more costly state-run utility for their power.

In September, a fuel-import terminal owned by global investment firm KKR & Co. was closed at gunpoint by Mexico’s energy regulator, months after it closed two other such terminals owned by U.S. companies. Last year, the government took over operating control of the biggest oil find in recent Mexican history, stripping it from a U.S. company that made the discovery. It is also trying to revoke the operating license of Latin America’s largest wind farm, majority owned by Japan’s Mitsubishi Corp., an example of how the government’s policies are hobbling Mexico’s transition to renewable energy.

Going after private companies might seem like something from the playbook of Socialist Venezuela rather than Mexico, which in recent decades has transformed itself into one of the world’s most globalized nations, signing free-trade deals with more than 40 countries and using manufacturing exports to become the U.S.’s second largest trading partner. Along the way, it lifted millions of its citizens out of poverty.

But Mexico’s populist leader Andrés Manuel López Obrador, who took office in 2018, is shifting the country to a 1970s industrial policy focused on the domestic market, natural resources such as oil and greater state intervention, from backing state-run energy giants to using the army for major public-works projects.

“It’s a closing off of Mexico,” says Gabriela Siller, an economist at Mexico’s Tecnológico de Monterrey.

The change is especially stark in Mexico’s crucial energy sector, where the government has launched a broad effort to stop new private investment and restore the dominant position of former government monopolies in both oil and gas and electricity—effectively reversing a 2013 constitutional overhaul that opened both markets to private firms.

The moves will cost Mexico billions of dollars in forgone investment; raise domestic energy prices; limit the growth of oil and electricity output; and damage the competitiveness of Mexican companies and hundreds of multinationals that operate here, according to the U.S. government, private companies and economists. It also risks prompting more migration by job-seeking Mexicans to the U.S.

The president says, without offering evidence, that past governments were paid off by multinationals to allow them to enter the market and destroy the state oil giant Petróleos Mexicanos, or Pemex, and the state-run utility, Federal Electricity Commission, or CFE, leaving Mexico’s energy security at risk and consumers at the mercy of profiteers. He also argues that Mexico’s turn to an open economy left too many poor people behind.

“They had a plan to close all the CFE plants and leave everything to the private sector, to such a degree that half our country’s electricity is now made by private companies,” the president said at a news conference.

The CFE has a monopoly on residential power, which it subsidizes heavily. But it lost hundreds of industrial clients over the past decade as firms opted for cheaper electricity provided by private firms. The CFE usually doesn’t subsidize electricity for large corporate clients, and its prices can be up to 30% to 50% higher than those of private power producers. Some privately produced renewable energy is a third of the price of the CFE’s power, according to Mexico’s renewable energy association.

In many ways, the decommissioned electricity plant outside Monterrey is a metaphor for Mexico’s stalled economy and a glimpse of the country’s potential economic future.

From 2019 through 2021, the first full three years of Mr. López Obrador’s presidency, Mexico’s economy shrank an average of 1.14% a year, according to government data. While the U.S. regained its prepandemic level of economic output by mid-2020, Mexico is among the few countries in the hemisphere, along with the leftist dictatorship of Venezuela, that hasn’t yet recovered, according to estimates from the International Monetary Fund.

The Mexican economy is now lagging that of the U.S. and Canada in a sustained way for the first time since shortly after the mid-1990s, when all three countries banded together in a free-trade deal then called the North American Free Trade Agreement, or NAFTA.

Next year, Indonesia is set to overtake Mexico as the world’s 15th-biggest economy, according to IMF estimates.

At the same time, migration from Mexico has accelerated to the U.S. for the first time since the early 2000s. In fiscal year 2021, U.S. apprehensions of Mexican migrants along the U.S.-Mexico border more than doubled over the previous year to almost 655,600. That figure is set to rise in 2022, U.S. government data show.

Mexico’s average electricity prices for companies are already about 40% higher than the U.S., according to Mexican business chamber Concamin, putting the country at a disadvantage for manufacturing. But economists say Mr. López Obrador’s policies will make matters far worse.

Since Mr. López Obrador took power, the government has halted new auctions for oil-and-gas exploration by private firms, new mining concessions and new investments for private electricity generation, including solar and wind farms that can produce electricity at roughly a third the CFE’s average cost, according to figures from Mexico’s energy regulator.

Last year, the government passed a law forcing the national electric grid to give priority to electricity produced by the CFE, even though its power is more costly and polluting than that of private firms. The laws retroactively affected an estimated $22 billion in investment by firms such as Iberdrola. Energy regulators have also tied up oil-and-gas firms from Shell to BP to prevent them from opening up new filling stations to compete with state oil giant Pemex, the companies said.

The law forcing the grid to use the CFE’s electricity first could raise Mexico’s electricity costs by up to 52%, or some $5.5 billion a year, and boost CO2 emissions by up to 73 million tons a year, a 65% jump from current emissions, according to a recent study by the U.S. government’s National Renewable Energy Laboratory. That would prevent Mexico from meeting its carbon reduction goals under the Paris Climate Agreements, say environmental groups like the Natural Resources Defense Council. Mexico’s Environment Ministry declined to comment.

Felipe Calderón, Mexico’s president from 2006 to 2012, tweeted last October, “What Mexicans need is more clean energy…and not more polluting and expensive energy from the CFE. The government’s changes seek to stop renewable energy from private firms and force us all to pay for old fossil-fuel energy.”

Thanks to more than 200 lawsuits against the new dispatch rules, a judge last year ordered the government to temporarily block their implementation. The government is appealing the order and has vowed to start implementing the changes despite it. Mexico has halted auctions for new renewable-energy investments. Three such auctions between 2015 and 2017 were so successful they doubled the country’s renewable energy capacity to 15 gigawatts, according to the wind industry association. During the 2017 auction, Mexico set a then-world record low price for wind power per megawatt hour and close to a record in solar, making both forms of energy produced here far cheaper than electricity made by fossil fuels and among the cheapest sources of energy in the world.

With no more private investment in wind or solar farms, the country’s renewable energy capacity will stall. Mexico’s state utility is currently building five natural-gas fired power plants and doesn’t plan on opening its first solar farm until 2027. It has no plans for wind farms.

“If Mexico can’t create a legal framework to promote renewable energy, then General Motors isn’t going to get rid of its zero carbon plans. Unfortunately, we just won’t consider Mexico as an investment choice,” Francisco Garza, the president of GM in Mexico, recently told a meeting of financial executives.

Foreign direct investment during Mr. López Obrador’s first three years averaged $31.4 billion a year versus $35.7 billion a year during his predecessor’s six-year term, according to central bank figures. Meanwhile, for the first time since NAFTA came into effect, Mexico saw a net outflow of investment in publicly traded stocks and bonds for two consecutive years.

The government’s policies are causing the country to miss out on a historic chance to attract more U.S. companies that are trying to diversify their supply chains away from China and face growing labor shortages at home, economists say.

“The Mexican government needs to do some soul searching about why investment has been so weak,” said Alberto Ramos, chief economist for Latin America at Goldman Sachs. “It’s not just the pandemic. I think it’s the overall business environment, and it’s a pity because there are great opportunities Mexico could be taken advantage of.”

KKR said it planned to sue the Mexican government for $667 million in damages linked to the takeover of its fuel terminal. Houston-based Talos Energy said it would pursue international arbitration over the government’s decision to seize operating control of its Zama field, which shares oil with a neighboring field under Pemex’s control.

Mexico’s government said it is in talks with Talos, KKR and other U.S. firms to resolve the issues.

The three closed fuel terminals all supply gasoline to private oil companies that are competing with state oil firm Pemex to sell gasoline, part of the 2013 overhaul in Mexico that ended Pemex’s monopoly...

The Market Is Melting Down and People Are Feeling It. ‘My Stomach Is Churning All Day.’

I don't have to take disbursement from my Roth IRA or my 403(b) until I'm 69, which is still a ways off. Hence my funds, with luck, will recover after the economy emerges out of the coming recession.

But folks who had immediate plans? They're fucked.

At WSJ, "Many are watching investments they meant for down payments, tuition or retirement shrink day after day":

The last time Todd Jones heard this kind of panic in his clients’ voices, it was 2008 and the global financial system was on the brink of collapse.

Mr. Jones, the chief investment officer at investment advisory firm Gratus Capital in Atlanta, now finds himself fielding similar calls. Two clients, both retirees, asked him this month to move their portfolios entirely to cash. Mr. Jones persuaded them to stay the course, saying the best way for investors to achieve their goals is to still be in the market when it eventually rebounds.

“Those people were not in a good place,” said Mr. Jones, 43. “They had a lot of anxiety about goals and dreams and being able to live their lifestyles.”

Stocks, bonds and other assets are getting hammered this year as investors wrestle anew with the possibility that the U.S. is headed toward recession. On Friday, the Dow Jones Industrial Average recorded its eighth straight week of declines, its longest such streak since 1932. The S&P 500 flirted with bear-market territory.

Families are watching the investments they meant for down payments or college tuition or retirement shrink, day after day. They’ve seen big retailers like Walmart and Target record their steepest stock drops in decades this week, after earnings that signaled an end to the pandemic spending boom.

The market turmoil has scared corporate chieftains away from taking their companies public. In Silicon Valley, dreams of multibillion-dollar valuations have been replaced by the reality of layoffs and recoiling investors.

Stock prices have been hurt by forces that appear in nearly every cycle, such as rising interest rates and slowing growth. There are also idiosyncratic ones, including the rapid return of inflation after decades at a low ebb, a wobbling Chinese economy and a war in Ukraine that has shocked commodity markets.

The Federal Reserve has raised interest rates twice this year and plans to keep doing so to curb inflation, but that makes investors worry it will slow the economy too fast or by too much.

To investors it can feel there is no safe place. While the vast majority of individual investors are holding steady, that is in part because customary alternatives don’t offer much relief. Bonds, normally a haven when stocks are falling, have also been pummeled. The cryptocurrency market, pitched as a counterweight to traditional stocks, is sinking.

For Michael Hwang, a 23-year-old auditor in San Francisco, the market’s tumble means he could wind up taking out loans to get an M.B.A. He has been hoping to pay his tuition out of pocket when he eventually goes back to school.

For Arthur McCaffrey, an 80-year-old retired research scientist from Boston, it means wondering if he’ll live to see his investments recover.

Rick Rieder, the head of fixed income at giant asset manager BlackRock Inc., likened the state of financial markets to a Category 5 hurricane. The veteran bond trader has been in the business for three decades and said the rapid price swings are unlike anything he has seen...

Keep reading.

 

Mariana Mazzucato, Mission Economy

At Amazon, Mariana Mazzucato, Mission Economy: A Moonshot Guide to Changing Capitalism.

Karine Jean-Pierre Gets Off to Rough Start (VIDEO)

Cringeworthy.

DOOCY TIME: Biden's "Twitter posted the other day, 'You want to bring down inflation? Let’s make sure the wealthiest corporations pay their fair share.' How does raising taxes on corporations reduce inflation?"

Karine Jean-Pierre: "So, are you talking about a specific tweet?" pic.twitter.com/8z1F5puDAR

— Curtis Houck (@CurtisHouck) May 16, 2022

International Workers' Day

Yesterday, actually, May 1st.

According to Wikipedia,"the date was chosen in 1889 for political reasons by the Marxist International Socialist Congress, which met in Paris and established the Second International as a successor to the earlier International Workingmen's Association."

Here's more, "Workers of the World Unite! May Day Celebrates Working-Class Solidarity":

The origins of a holiday celebrating workers can be traced back to labor and trade union movements in the late 19th century. As dreadful working conditions in factories became highly publicized during this period, particularly in meat packing plants, through works such as Upton Sinclar’s The Jungle, movements to improve working conditions (both for workers and for public health and safety) grew in size and intensity. On May 3, 1886, as workers rallied to demand an eight-hour workday in Chicago’s Haymarket Square, mass confusion erupted when a bomb exploded in the crowd and the police opened fire on the crowd. The Haymarket Affair, as this event is remembered, was used as pretext for widespread repression of workers and for the arrests of labor organizers, radicals and immigrants.

Not coincidentally, as progressive organizations and labor parties around the world began to celebrate International Workers Day on May 1 in commemoration of the Haymarket Affair, Labor Day was established in 1894 in the U.S. on the first Monday of September with the support of the American Federation of Labor, in part to distance the labor movement from its more radical elements. May Day continues to be celebrated around the world; and in the US, it has taken on special significance for immigrants’ rights activists. The convergence of the demands of workers for better wages and working conditions, and the demands of immigrants for dignity and freedom from the violence imposed by the immigration enforcement regime, is a fitting tribute to the role that immigrants have played in the labor movement in the United States.

The history of the labor movement is largely the history of human beings, living at the margins of mainstream society, uniting in solidarity, asserting their rights and fighting for a better, more fair world. It unfortunately remains true that racism, xenophobia and white supremacy redound to the benefit of those with economic and political power. From racist appeals to white supremacy that destroyed radical efforts during Reconstruction towards true multiracial democracy, to the xenophobic red scare that followed Haymarket and the repression of the Black Panther Party, racism and anti-immigrant rhetoric represent not only an existential threat of violence for marginalized people, but also a powerful weapon used by the ruling class to undermine solidarity among working people. Immigrants and marginalized people continue to be used as scapegoats for crime, poverty and other societal problems which can rightly be attributed to systems of exploitation that entrench privilege and power, and not those oppressed by these same systems.

It is, in many ways, the time of monsters. The Trump presidency ushered in a new era of domestic repression of Black and brown people and brought violent white supremacist rhetoric back into American mainstream political discourse. President Biden was elected with broad progressive support but has largely failed to roll back the worst Trump-era immigration policies. The COVID pandemic laid bare the harsh reality facing American workers, forced to risk their health and livelihood, often without adequate workplace protections, while America’s billionaires added nearly $2 trillion to their net worth. The United States continues to spend more on its military than the next nine countries combined while millions of its people are unhoused.

And yet, a new generation of the working class—union members and unorganized workers alike, students, LGBTQIA+ people, immigrants, Black, brown, and Indigenous people—stands ready to meet this political moment and organize to demand a better future. Workers at the Amazon JFK8 warehouse in Staten Island recently won the first union victory at any Amazon facility, led by a Black supervisor who was fired after organizing a walkout to protest unsafe working conditions at the start of the pandemic. Activists throughout the state are mobilizing to shut down the ICE Processing Center in Folkston in solidarity with detainees on hunger strike in the facility. And here in Athens, a coalition of organizations are demanding Community Benefits Agreements for large public projects, and United Campus Workers of Georgia are campaigning for a living wage for UGA workers. This May Day, let their struggles be our struggles. The only way forward is with solidarity among the multiracial working class of the United States and workers of the world.

Yes, because our pampered and privileged "students" and LGBTQIQ+ plus activists are taking all the assembly line-workers' jobs, low-skill manual laborers' jobs, fast-food and retail workers' jobs, and those in cleaning and janitorial services, the food industry, construction labor, longshoreman, parking lot attendants and car washers, truck drivers, and low-level white-collar worker positions, and more! 

Down with the colonialist, racist, multi-phobic finance capitalists of the world! 

Hey, hey! Ho ho! Late-stage capitalism's got to go! 

Yes, these "industrious" purple-haired campus proletarians have joined in working class solidarity with all the world's expropriated and oppressed! *Yawn.*

More here, "Workers around the world mark May Day with rallies for better working conditions."

U.S. Economy Shrank 1.4 Percent in Weakest Quarter Since 2020

Let's Go Brandon!

At the Wall Street Journal, "U.S. GDP Falls 1.4% as Economy Shrinks for First Time Since Early in Pandemic":

Supply disruptions weighed on the economy, but consumers and businesses continue to spend.

The U.S. economy shrank at a 1.4% annual rate in the first quarter as supply disruptions weighed on output, though solid consumer and business spending suggest growth will resume.

The decline in U.S. gross domestic product marked a sharp reversal from a 6.9% annual growth rate in the fourth quarter, the Commerce Department said Thursday. The first quarter was the weakest since spring 2020, when the Covid-19 pandemic and related shutdowns drove the U.S. economy into a deep—albeit short—recession.

The drop stemmed from a widening trade deficit, with the U.S. importing far more than it exports. A slower pace of inventory investment by businesses in the first quarter—compared with a rapid buildup of inventories at the end of last year—also pushed growth lower. In addition, fading government stimulus spending related to the pandemic weighed on GDP.

Consumer spending, the economy’s main driver, rose at a 2.7% annual rate in the first quarter, a slight acceleration from the end of last year. Businesses also poured more money into equipment and research and development, triggering a 9.2% rise in business spending.

“The most important aspects of the domestic economy held up better than they did at the end of 2021, when growth was soaring,” said Diane Swonk, chief economist at Grant Thornton, in a note.

Two years after the pandemic struck, the U.S. economy faces challenges, including supply disruptions related to the pandemic and Ukraine war, labor shortages and high inflation. Central bank officials lifted their benchmark rate in March by a quarter percentage point from near zero to tame inflation, and they have signaled more increases are likely to follow.

Many economists think that the economy can withstand higher interest rates and return to modest growth in the second quarter and beyond, in part because consumers and businesses are continuing to spend.

Americans are spending more on services amid lower Covid-19 case totals and the lifting of remaining pandemic restrictions. Travel is one key example: Hotel occupancy rates are up from January, and more people are also boarding planes.

George Lewis, co-owner of Brass Lantern Inn in Stowe, Vt., is seeing a surge in demand. Visits to his bed-and-breakfast on Maple Street are running strong with rooms selling out some weekends this spring, a sharp shift from earlier in the pandemic when the inn relied on small-business aid to survive.

“People have called up: ‘Are you really sold out?’ ” Mr. Lewis said. “I’m like, ‘Yeah, yeah, we’re really sold out.’ ”

Still, Mr. Lewis is more concerned about business next year. For one, it isn’t clear where inflation will be, he said. Prices have already risen briskly for heating oil to warm rooms, as well as for the cheddar cheese Mr. Lewis uses in egg strata, a breakfast casserole he serves up on Saturdays.

Consumer spending is another wild card, he added.

“We don’t know what people’s pocketbooks can accommodate after this year,” he said. “Some people are spending…independent of what the cost is.”

Looking ahead, economists surveyed by The Wall Street Journal estimate GDP rising 2.6% in the fourth quarter of 2022 from a year earlier, matching 2019 annual growth, but logging in well below 5.5% growth recorded last year.

The labor market is a key source of economic strength right now. Jobless claims—a proxy for layoffs—have been near historic lows and fell last week to 180,000 as employers clung to employees amid a shortage of available workers. Businesses are hiring and ramping up wages, supporting consumer spending.

High inflation, though, is cutting into households’ purchasing power. Consumer prices rose 8.5% in March from a year earlier, a four-decade high. Elevated inflation is wiping away pay gains for many workers: average hourly earnings were up 5.6% over the same period.

Fast-rising prices are also challenging many businesses...

 

Glenn Loury, Brown University Professor of Economics, Was Addicted to Crack in the 1980s (VIDEO)

This is something else, at Loury's Substack, "The Only Professor in the Halfway House, With Jordan Peterson":

A few months back, the one and only Jordan B. Peterson invited me onto his podcast, and I’m happy to say the episode has just been released. Our discussion ranges from climate change to divorce rates to the Pareto principle. Jordan is a clinical psychologist, so we spend a lot of time with our social scientist hats on.

We also get into some more personal material. Jordan’s early research into addiction leads him to ask about the place of spirituality in my own experience with addiction and recovery. As you may know, in the 1980s, I became addicted to crack cocaine. I had a terrible habit, and it could easily have cost me my career, my family, and my life. I had the support of friends, treatment, and my late wife Linda to help me through, but I also found a kind of spiritual support from two different sources: Christianity and Alcoholics Anonymous...

And watch:

Former Labor Secretary Robert Reich Attacks Oil Companies, Calls for 'Windfall Tax on Higher Profits' (VIDEO)

Secretary Reich is a smart guy --- and he's always been a man of the left --- but he used to be more free-market, more for regular labor union agitation and better wages, etc. 

Nowadays, he sounds more and more like a doctrinaire Marxist. He's a Professor of Public Policy at U.C. Berkeley, so he's being marinated in the nasty stew of woke campus leftism. 

And here he's calling for a "windfall tax" on oil companies. 

Extreme tax proposals are de rigueur for Democrats these days. Bernie Sanders is calling for a 90 percent marginal tax rate on the wealthy. Thankfully, the idiot Dems will be out of power next January. President Biden's going to have to compromise on reviving domestic energy production, and if things go right, a Republican will win the 2024 general election.

Honestly, I love the guy, but please let it not be Donald Trump. One Trump term was enough.

Watch, at CNN, "CEOs at major oil companies come under fire for high gas prices."

Janet Yellen Says No Danger to U.S. Dollar's Reserve Currency Status

I've been reading about the prospects of the greenback remaining the dominant money in global trade and finance. See, Benjamin J. Cohen, Currency Statecraft: Monetary Rivalry and Geopolitical Ambition.

Yellen says no fear, the dollar's still here.

At Bloomberg, "Yellen Rejects Notion Sanctions Could Undermine Dollar Dominance":

Treasury Secretary Janet Yellen said the U.S. dollar is in no danger of losing its status as the world’s dominant reserve currency as a result of sanctions imposed against Russia over its invasion of Ukraine.

“I don’t think the dollar has any serious competition, and is not likely to for a long time,” Yellen told reporters in response to questions following a speech in Denver on Friday.

Some commentators, including Credit Suisse Group AG interest-rate strategist Zoltan Pozsar, have warned sanctions that blocked Russia’s access to its foreign currency reserves could drive other countries away from the dollar.

“When you think about what makes the dollar a reserve currency, it’s that we have the deepest and most liquid capital markets of any country on earth,” Yellen said. “Treasury securities are safe, secure and immensely liquid. We have a well-functioning economic and financial system and the rule of law. There really is no other currency that can rival it as a reserve currency.”