A Sea of Unwanted Imports

By MATT RICHTEL -  N.Y.Times  -  November 18, 2008

Fotos

LONG BEACH, Calif. — Gleaming new Mercedes cars roll one by one out of a huge container ship here and onto a pier. Ordinarily the cars would be loaded on trucks within hours, destined for dealerships around the country. But these are not ordinary times.

For now, the port itself is the destination. Unwelcome by dealers and buyers, thousands of cars worth tens of millions of dollars are being warehoused on increasingly crowded port property.

And for the first time, Mercedes-Benz, Toyota, and Nissan have each asked to lease space from the port for these orphan vehicles. They are turning dozens of acres of the nation’s second-largest container port into a parking lot, creating a vivid picture of a paralyzed auto business and an economy in peril.

“This is one way to look at the economy,” Art Wong, a spokesman for the port, said of the cars. “And it scares you to death.”

The backlog at the port is just part of a broader rise in the nation’s inventories, which were up 5.5 percent in September from a year earlier, according to the Commerce Department. The car industry has been hurt particularly, with sales down nearly 15 percent this year. General Motors has said it would run out of operating cash by the end of the year if it does not receive a government bailout.

But the inventory glut in Long Beach is not limited to imported cars. There has also been a sharp drop in demand for the port’s single largest export: recycled cardboard and paper products.

This material typically goes to China, where it is used to make boxes for new electronics and other products that are sent back to the United States. But Chinese factories reacting to sharply falling demand are slowing production, so they need less cardboard. Tons of paper are piling up recycling businesses around the port, the detritus of economies on hold.

Long Beach is an important port, particularly for the West. It is where imported products arrive and filter through the tributary of trucks, trains and retailers into the hands of consumers. But now, products are just sitting.

“We’re supposed to move things, not store them,” Mr. Wong said.

Roughly 20 percent of the nation’s container imports last year came through Long Beach, putting it close behind the largest container port, Los Angeles. This year, shipping volume at Long Beach is down 10 percent from 2007, and nearly all major ports around the country have seen similar declines. Veteran port workers say the slowdown since mid-October is like nothing they have ever seen. And it is having a cascading impact on other businesses and workers.

In the 150-acre terminal where Toyotas are unloaded, there is a sea of Corollas, Camrys and RAV4s. The mere presence of so many cars is not unusual, given that Toyota brings in 250,000 cars a year in biweekly shipments. But in a sign that something is amiss, dozens of tractor-trailers that transport new cars to dealers sat empty last week amid the rows of Toyotas.

Kurt Golledge, 48, was one of just two truckers loading his green, 75-foot-long hauler with cars last week. Mr. Golledge said eight of his colleagues were laid off this month because Toyota dealers did not want more deliveries.

“I was dropping cars in Henderson, Nev., about a month ago and the dealer told me: ‘Take ’em somewhere else and dump ’em,’ ” said Mr. Golledge, who works for a company called Allied Systems. “All the dealers are telling us the same thing.”

Auto dealers typically place orders with manufacturers months in advance, but they can modify their orders to receive fewer vehicles.

“The ships keep coming, but there’s nowhere for the cars to go,” Mr. Golledge said. He said he believed the vehicles he was loading would be his last before he was laid off, and he was already considering where he might find a new job.

While shipments for some items have slowed, the cars have kept coming in at their regular pace partly because the auto factories can take months to adjust to changes in demand. Toyota is wrapping up a deal to use six acres to park cars at the port, and is seeking more space.

“Toyota wants as much as we can give them,” said Gail Wasil, assistant director of the port’s real estate division.

For its part, Toyota says the higher-than-usual inventories at the Long Beach port are a result of shrinking demand, particularly in Southern California, which is one of its biggest markets. The company declined to say how many cars were at the port or how long they would be warehoused.

Toyota has adjusted its output to reflect falling demand, said Sona Iliffe-Moon, a Toyota spokeswoman.

Ms. Wasil said Nissan, whose cars arrive through the port of Los Angeles, sought a deal with Long Beach to park its overflow vehicles there. Mercedes struck a deal to use more acres just a few weeks ago, she said.

Officials from Mercedes and Nissan did not return calls seeking comment.

The mothballing of cars is nothing new for Detroit, where thousands of unwanted American-made cars have been parked over the last two years at Michigan’s state fairground and in lots at its airports.

It is more unusual to see a lot at the California port filled with thousands of unsold Mercedeses, most of them gathering dirt on the plastic white film that protects their hoods and trunks. Some appeared to have been stashed at the port for several months.

Last week, Mercedes delivered around 1,000 more cars to Long Beach on the Grus, a 580-foot container ship.

“A year ago, I was looking into buying one of these for my wife,” said Kurt Garland, the terminal manager overseeing the unloading of the white, silver and black sports cars, sport utility vehicles and sedans. “Now I’m not. I’m saving money, paying bills, hunkering down.”

Not far away, metal, cardboard, paper and plastic are piling up in the lot of Corridor Recycling. The company takes in refuse from around the country, then bales it for shipment to China. The cardboard is used to make new boxes while used shrink wrap is turned into shoe soles and insulation for sleeping bags and coats.

For much of this year, the company shipped about 25 containers a day, each filled with 23 tons of refuse to be recycled. But after the Olympics, demand slowed for recycled metal. In October, demand for everything else took a sharp downturn, and for the last two weeks the company has not shipped a single container.

“It just came to a complete stop. Absolutely a stop,” said Gilbert Dodson, the recycling company’s co-owner. “I’ve seen it slow over the last 25 years, but this is the worst,” he said of the current downturn.

Like his counterparts in the auto industry, Mr. Dodson is looking for extra space to accommodate the growing number of bales on his three-acre property. The recycled goods keep arriving in big trucks, even though he now pays only $21 a ton for refuse he paid $120 a ton for earlier this year, but there is nowhere for him to export.

“It keeps coming in,” he says. “But no one is buying.”

The Golden Years, Tarnished

Clifford Kraus, N.Y.Times, 12/11/08

DELRAY BEACH, Fla. — Since the stock market began to fall, friends have been coming to Barbara Goldsmith to talk about their depression, loss of appetite, insomnia and cravings for hot fudge sundaes.

“People are grieving,” said Ms. Goldsmith, a semiretired psychotherapist who counsels fellow residents of the Gleneagles Country Club, a gated community here. “There was a death. Their money died.”

In communities like Gleneagles and in the homes of retirees across the country, these are days of fear and uncertainty. In theory, retired people are not supposed to invest much in the stock market; in reality, many millions of them do. With the economy in free fall and stocks down about 40 percent this year, legions of middle- and upper-middle-class people are suddenly worried about having enough to carry them through.

To be sure, no bread lines are forming at places like Gleneagles. The community remains placid and, on the surface at least, highly prosperous. Retirees play golf, tennis and cards amid peach-colored condominium villas, ornate fountains, and manicured palm trees and violet bougainvillea.

But sustaining that comfortable life for another two or three decades, as many retirees hope to do, requires money. People with investments that were worth $1 million or $2 million a few months ago are suddenly canceling cruises, clipping supermarket coupons, eating at home rather than at restaurants and cutting back on contributions to their grandchildren’s college educations.

Like retired people everywhere, residents here knowingly juggled what they saw as competing risks.

They all heard the standard advice to move their assets out of stocks and into supersafe investments as they neared retirement. But, with interest rates so low, the returns on safe investments like government bonds were meager, and many of them saw a risk in not keeping some money in stocks. To finance a long retirement, they figured they needed the gains characteristic of the stock market.

Keeping money in stocks left them exposed, of course, to the risk of a once-in-a-lifetime market meltdown. Now, that day is at hand.

“Every television monitor in the card room and locker room is on CNBC, so we can get aggravated all day,” said Jerry Rivkin, 75, a retired appliance store owner. “We’re playing for nickels and dimes while we watch ourselves losing tens of thousands.”

To cope, some people are selling their homes up North, so they will have the money to stay here. A handful of condominiums in Gleneagles have gone into foreclosure, something that was almost unheard of until recently. Humor is becoming darker as residents tell jokes about their shrinking “301(k)’s” and the sorry inheritances their children will be surprised to receive.

For years, retirement and financial advisers have said that elderly people should be lightly invested in stocks, putting most of their assets in bonds, certificates of deposit and other conservative investments. But even some of the experts acknowledge that such a strategy does not always work for retired people in good health who can live to be 90 or older, unless they have a lot of money or move to a place with a low cost of living.

“With life expectancies being what they are, and medicine getting better and better every year,” said Joseph La Scala, a senior financial consultant at GunnAllen Financial, “someone who is entering retirement now needs to be a long-term investor, and that means there needs to be more of an allocation to growth investments such as equities.”

According to government statistics, a third of retirees have almost no stock exposure. But those are mostly poor or lower-middle-class people who rely on Social Security for income. Others are shielded by pension benefits, although those have been shrinking in recent years, especially for younger retirees.

Retirement experts say a majority of people in the middle and upper-middle classes have portfolios that are far more weighted with stocks, and therefore are more risky, than is commonly recommended. According to a recent survey by the University of Michigan that was sponsored by the National Institute on Aging, in the wealthiest 40 percent of the population age 75 and older, more than half had at least a third of their accumulated savings in stocks.

“Older middle-class people have made plans based on a set of assumptions of how the world works, and the world has gone crazy,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. Those assumptions once included the notions that bank accounts and corporate bonds were secure, and blue-chip stocks were the best long-term investments.

“If you call my mother,” said Jason J. Fichtner, acting deputy commissioner of the Social Security Administration, “her goal was $1 million to retire on in stock equities. She had that for a weekend, and now it’s worth $600,000.”

At Gleneagles, people still play cards, swing 9-irons and take painting classes. But the anxiety in the community is palpable, and rising.

“I feel terrible,” said Harry Pure, 80, retired athletic director at Philadelphia University, who has lost 25 percent of his savings.

While taking a break from a painting class, he said, “It was nice to put your head on the pillow at night and know you felt secure. Now I put my head on the pillow and the brain cells are not going to sleep. All different scenarios are playing in my mind now: What to do? What to do? What to do?”

Even those with relatively large portfolios are feeling the pain.

“This threatens our lifestyle,” said Sid Freedman, a 74-year-old former owner of a textile company who divides his time between Gleneagles and Great Neck, on Long Island. With more than $2 million in assets, he said, he thought he and his wife were set for a long, secure retirement.

But he said his portfolio was down 30 to 40 percent. Without a pension, he said he might have to start contemplating his “safety net” if the market keeps falling: the unpleasant thought of selling his house on Long Island, even though that would mean less time with his children and grandchildren up North.

Uppermost on Mr. Freedman’s mind is his divorced daughter who has two children and a good job, but no support from her former husband, he said. Mr. Freedman had put aside enough money in a fund to pay for a year and a half of college for her oldest son, but that investment was down 20 percent, and he was to start school next year.

“We’re looking at a totally new ballgame,” Mr. Freedman said after playing tennis. “My mother lived to be almost 101 and her mother lived to be 90, so what it means is, if conditions get worse, we could outlive our money.”

Charles Mailman, 77, a retired zipper manufacturer, said he had accumulated a portfolio worth more than $1 million, 70 percent in stocks, and lost $300,000 in September and October. He said the days of yearly cruises for him and his wife were over for now.

“No more decorating, no more vacations, no more heavy-duty spending,” he said with a sigh. “If the market has hit bottom and it’s on the way back, I can live with that; the question is, what happens if it hasn’t?”

As for his broker, Mr. Mailman said, “He still says, ‘Sit tight. You have good stuff.’ They all say the same thing.”

Many people believed in stocks, they said, because the stock market had been good to them for years and represented the best way to keep their portfolios intact or growing.

“We stayed in stocks because they were so wonderful,” Jack Leinwohl, 67, who owns a U.P.S. store here to keep up his income, said. “I sold out everything two weeks ago so I can sleep.” He said he was looking to return to the market, though, because “I could be out of money in 10 years.”

Others say they do not dare to look at their portfolios anymore, or ask their spouses how things are going, for fear of the answer.

“There is no need for George and me to be crazy together,” said Ms. Goldsmith, 71, the psychotherapist, speaking of her husband. “I sleep, but George doesn’t.”

As for her three children, Ms. Goldsmith added, “I am getting them ready. If they are counting on their inheritance, they are in deep trouble.”

Keynes had no sure cure for slumps

By Edmund Phelps

Financial Times, November 4 2008

What theory can we use to get us out of the impending slump quickly and reliably? To use the “new classical” theory of fluctuations begun at Chicago in the 1970s – the theory in which the “risk management” models are embedded – is unthinkable, since it is precisely the theory falsified by the asset price collapse. The thoughts of some have turned to John Maynard Keynes. His insights into uncertainty and speculation were deep. Yet his employment theory was problematic and the “Keynesian” policy solutions are questionable at best.

Banks spoke of the downturn in house prices as an effect of some sort of shock. In their models, random shocks are forever knocking asset prices from forecast values. In fact, no quake or drought or other exogenous force caused prices to drop. The prime cause was forecasting with badly mistaken models. Speculators and home buyers, thinking that rentals or building costs would go up, bet on higher house prices in future, which also raised the price of existing houses. But over the years neither rentals nor costs (in real terms) budged. If they did not rise, (real) prices would sooner or later have to go back down.

This was Keynes’s world. At Cambridge, he showed how an investor might allow for unknown contingencies in his Treatise on Probability. In London, he ran a hedge fund with O. T. “Foxy” Falk and grew rich, only to get caught in a collapse of commodity prices in early 1929. He concluded that investors’ beliefs were “flimsy”. As one investor, then others, desert, the asset price, previously rising, may merely falter at first but finally collapses sharply along with the conventional belief.

Keynes put asset prices at the centre of employment determination in his 1936 General Theory. If a change in sentiment causes steep declines in valuations of business assets (along with share prices and house prices), business investing is cut back and employment contracts – unemployment rises – mostly in capital goods industries.

Unfortunately nothing went well after that. Keynes made a huge mistake in not distinguishing between a drop in asset prices springing from monetary causes – an exogenous, or autonomous, increase in the demand for money – and one springing from causes having nothing to do with supply and demand for money – say, diminished expectations about future returns on business assets or houses. The former phenomenon could be solved by monetary means: the central bank could boost the money supply (by purchasing public debt, say), which would drive asset prices back up without driving up other prices and wages equally in a pointless spiral.

Edmund Phelps. Nobel 2006 por (por decirlo así) ponerle la inflación esperada a la curva de Phillips

The recent collapse of speculation on houses, however, is a non-monetary phenomenon: there has to be a drop of the money price of (a basket of) houses relative to the money price of (a basket of) consumer goods. Keynes argued that a boost of the money supply would work here too: workers would be unaware that wages in competing jobs elsewhere had jumped as much as their own, so they would be afraid to require as high a real wage as before; thus hiring would be stimulated and employment would go back up. But sustaining that recovery would surely require endless wage inflation at a rate always a step ahead of expectations – an unappealing policy. Increasingly, Keynes focused on non-monetary measures to change the new non-monetary equilibrium following a loss of investor confidence.

Keynes always felt that consumer demand too drives employment. An increase in demand encourages companies to raise production and hire more workers – at first. But in an open economy with its own currency, the stimulus would mostly go abroad. In the global economy, increased consumer demand would ultimately do little more than raise interest rates, thus setting off declines in real asset prices, investment and real wages.

Keynes emphasised investment demand as a lever to increase employment. By that theory, one might stimulate private investment through an investment tax credit or subsidies for new companies or new hires. Keynes favoured investment by the state or state enterprises.

Americans – their airports nightmarish and their bridges falling down – would welcome “infrastructure”. Yet it must be asked whether a massive shift from private to state investment would not damp the conception, development and adoption of new commercial ideas for innovation. Capitalism theory stresses diversity in sources of new commercial ideas, in the pool of entrepreneurs available for their development, in sources of finance – angel investors, venture capitalists and the rest – and in the array of end users. It also stresses how important it is that owners of financial and business enterprises be accountable to no one (except their own consciences) – thus free to use their intuition – in contrast to the strict accountability rightly required of state employees. Thus a greatly increased presence of the central government in a country’s investment sector could constrict innovation and lower the quality of the innovations that are made. We would be left still in a slump.

At the end of his life Keynes wrote of “modernist stuff, gone wrong and turned sour and silly”. He told his friend Friedrich Hayek he intended to re-examine his theory in his next book. He would have moved on. The admiration we all have for Keynes’s fabulous contributions should not sway us from moving on.