Wal-Mart will push prices down for holiday shopping

CNNMoney.com is reporting that Wal-Mart will offer a price guarantee this holiday season. From Nov. 1 through Dec. 25, 2011, Wal-Mart will refund the difference if you find a lower-priced product at a competitor’s store in your local market. This program will help drive down the cost of holiday shopping for consumers and likely erase much of any pricing advantage that Wal-Mart’s competitors manage to find. Interestingly, it could also encourage retailers to push their own prices up, closer to Wal-Mart’s, given the effective lack of price advantage.

Note well that I cannot think of a single retailer who consistently charges lower prices than Wal-Mart on anything. So maybe this whole thing is more a marketing gimmick than anything else?

For more details see “Wal-Mart introduces Christmas price guarantee program.”


The Federal Reserve finally tries to fight a bubble…in the price of farmland

(Hat tip to a friend who pointed me to this article)

Under Alan Greenspan, the Federal Reserve was known to stand on the sidelines while bubbles in asset prices grew and grew. Greenspan had a lot more faith in the Federal Reserve’s ability to mop up the subsequent mess caused by a bubble’s collapse than in its ability to stop a bubble, much less identify one.

It seems times have changed. On October 13, Businessweek chronicled the Fed’s efforts to make sure that soaring prices in agricultural land do not lead to another messy bubble and economic calamity. Prices have indeed soared across the midwestern United States:

“The Kansas City Fed reported land values were 20 percent higher than a year ago. The Chicago Fed reported a 17 percent increase in its district, the fastest increase since the 1970s. Nonirrigated farmland in the Minneapolis Fed district increased 22 percent in price.”

The factors driving these increases are the same as I reported from a related Planet Money piece: “Land prices have doubled in Iowa over the past few years“: “elevated crop prices, soaring farm income, and record-low interest rates.”

As a result, nervous regulators are demanding rigorous stress tests of banks up to their gills in agricultural loans. Businessweek also reports that regulators are “…scrutinizing the lending standards, loan documentation, and risk management at the country’s 2,144 agriculture banks.”

I will be very interested in the outcome of all this scrutiny. The same Federal Reserve that helped create record low interest rates is working to ameliorate the impact of those very same interest rates. This episode is a reminder that flooding an economy with liquidity does not produce equal outcomes for all sectors. Recovery and prosperity does not even need to appear in the sectors most impacted by the malaise the Federal Reserve scrambles to repair. Instead, the money tends to collect where it will generate the highest returns due to other economic factors. Currently, it seems that the bet is on farming. I believe the Federal Reserve was aiming for housing…


San Francisco earns windfall from driving up the cost of parking on holidays

Parking enforcement is one of the sneakier ways a local government can drive up to costs of living in a city without generating direct protest and sometimes without generating even much notice. The San Francisco Chronicle reports that in the last fiscal year, the city of San Francisco raked in $1.5M in additional revenue – $660K from meters and $820K from parking fines – from removing Memorial Day, the Fourth of July, Labor Day and Veterans Day as meter-free holidays. The change occurred July, 2009 and has produced eight holidays that are no longer meter-free.

While the city celebrates the extra money it makes, the citizens can only lament the extra inconvenience and hassle of remembering to pay meters on these holidays, not to mention the additional costs in parking. The disparity in fines versus collected fees likely demonstrates (or confirms for me) that parking rules are mainly about generating lucrative fines.

For more details see “Holiday parking enforcement: cash cow for the city


U.S. workers missing out on the “reflation celebration”

Several times on these pages, I have “celebrated” various confirmations of reflation as indicated by the soaring salaries of CEOs, largely through stock-based compensation. On October 10th, the New York Times printed the results of a study that confirmed what many of us already knew from informal observation: the wages of U.S. workers have fallen at a faster rate than they did during the recession. This “deflation” is working in the exact reverse of the trend for those who who hire these workers and run their companies! From “Recession Officially Over, U.S. Incomes Kept Falling” (NY Times via CNBC):

“Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials. During the recession — from December 2007 to June 2009 — household income fell 3.2 percent.”

This is a sobering statistic that has potentially dire implications for the economy in general. Compare this situation to that in China where an on-going study in the New York Times concludes that China’s government has propped up its banks and large corporations at the expense of Chinese workers (see “As Its Economy Sprints Ahead, China’s People Are Left Behind.”):

“Under an economic system that favors state-run banks and companies over wage earners, the government keeps the interest rate on savings accounts so artificially low that it cannot keep pace with China’s rising inflation. At the same time, other factors in which the government plays a role — a weak social safety net, depressed wages and soaring home prices — create a hoarding impulse that compels many people to keep saving anyway, against an uncertain future.

Indeed, economists say this nation’s decade of remarkable economic growth, led by exports and government investment in big projects like China’s high-speed rail network, has to a great extent been underwritten by the household savings — not the spending — of the country’s 1.3 billion people.

This system, which some experts refer to as state capitalism, depends on the transfer of wealth from Chinese households to state-run banks, government-backed corporations and the affluent few who are well enough connected to benefit from the arrangement.”

Neither system, in the U.S. or China, appear stable to me. With China dependent on the income (or rising debt) of U.S. workers to keep its exports alive, these systems of increasing inequity actually start to look increasingly unstable. I will be monitoring these processes even more closely going forward. They are certainly deflationary, not inflationary.


Production costs may have the last laugh on The Simpsons

The venerable cartoon series “The Simpsons” has a strong following that has kept the show alive for a record 23 seasons. However, NPR reports hat rising production costs threaten to deliver the last laugh on The Simpsons. 20th Century Fox Television wants the show’s actors to take a 45% pay cut on the $8M a year they currently earn. A $4.4M salary sure sounds fantastic to 99% of us, but in wages and income, relativity counts. These actors have certainly built lifestyles to match their salaries and a sudden and drastic cut could actually cause at least a few of them some hardships (hopefully just in the short-term).

If negotiation go poorly, the actors will be left with zero pay. Hopefully, they will still get a cut of the treasure trove that awaits in syndication. NPR states that “…one analyst noted that ending the show would make it worth even more in syndication — perhaps $1.5 million for each of the show’s 506 episodes, which would bring in something like $750 million.” This means the studio actually has a large incentive to end the series rather than continue to pay high production costs to keep the show going.

For more, see or listen to “Do Rising Costs Have ‘The Simpsons’ On The Ropes?


Land prices have doubled in Iowa over the past few years

Land prices have doubled in Iowa over the past few years. The team at Planet Money conclude that the land boom throughout the agricultural U.S. Midwest is being driven by “real” economic forces. They identify low interest rates, grain traders, and government subsidies for ethanol as key drivers of this boom. Low interest rates are enabling land purchases. Grain traders and the demand for ethanol are driving up corn prices which in turn make land for growing corn more dear. Starting with auctions in Iowa, Planet Money takes us to a part of the country that is booming while much of the rest of the country is stagnating.

Finally, one “seasoned farmer” warns that this boom is indeed a bubble and points to the crash in land prices in the 1980s after a similar period of exuberance.

Listen to “The Tuesday Podcast: The Land Boom