Wednesday, December 30, 2015

Connecting the Extreme Weather Events

If you look at a weather map from this week, it looks like the flooding in Missouri and England and the melting at the North Pole are all connected. On the map, the warm moist air originates in the El Niño-influenced eastern tropical Pacific. It moves north, and colder air in the Rocky Mountains pushes it east. The warm air mass crosses the Caribbean and the North Atlantic Ocean, somehow holding together all the way to the North Pole.

Of course, a meteorologist would explain it differently, perhaps in terms of a counterclockwise flow around a cold air mass, but any way you look at it, it adds up to unusual weather patterns in far-flung places. In my own local area we have seen record high temperatures in the past week. The flood events in the United States and England certainly qualify as disasters, but it is the Arctic melt event just days after the winter solstice that is the most ominous effect. The Greenland ice sheet is protected from rapid summer melting by the heat taken up in the melting sea ice nearby. For that to happen, new sea ice has to form at this time of year. Missing two weeks of refreeze won’t have much impact, but if the Arctic Ocean sees five or six weeks of melt conditions one winter, that puts the world well on our way to a rapid Greenland melt-out.

Saturday, December 26, 2015

This Week in Bank Failures

After an eight-year run, the rate of U.S. bank failures has faded to a near-normal level. There were eight bank failures in 2015, and a similar number is expected next year. This does not mean the banking sector has returned to vibrant health. As a whole, banking remains overstaffed by about 20 percent, and the high overhead combined with an overhang of troubled loans from a decade ago still weighs on hundreds of banks. Regulators this month warned of a new wave of bank speculation in commercial real estate similar to the one a decade ago that led to most of the bank failures since. Artificially low interest rates, which the Fed plans to keep at crisis levels into 2017, also limit banks’ earning power. However, investor confidence has improved enough and the number of deeply troubled banks has declined enough that troubled banks will more often be rescued by private investors than by deposit insurance.

U.K. rules restricting bonuses fall short of European Union requirements by exempting hundreds of hedge funds, fund managers, brokers, and other institutions. The businesses that London sought to exclude from bonus-size restrictions are large by any ordinary understanding but were exempted for being “small” by City of London standards.

Higher One skimmed off $31 million in financial aid intended for college students between 2012 and 2014 through hidden fees on its financial aid debit cards. In a settlement with regulators, it has agreed to refund the improper fees and pay $4 million in penalties.

In a separate debit card settlement, The Bancorp Bank will pay $1 million in restitution and $3 million in penalties after it ignored the terms of private-label debit cards it issued. Despite a name dripping with modern irony, The Bancorp Bank is an old-style corporate institution with little connection to the management agility or information technology of the modern banking industry. In the settlement with regulators, it has agreed to implement modern accounting systems that will enable it to comply with its own contracts.

Hyatt this week disclosed a payment transaction data leak potentially affecting all customers of the hotel chain. The malware was initially discovered November 30 but was not disclosed until December 23. Hyatt has been able to learn very little so far about the nature and extent of the data leak.

As the quarter ends, U.S. credit card issuers have made only modest progress in issuing the chip-enabled credit cards that were supposed to have been released one quarter ago. Probably in one more quarter the credit card industry will be able to replace most current active credit cards with the new card style.

Wednesday, December 23, 2015

The Do-or-Die Christmas, and Its Traffic Accidents

This month as I’ve driven around on my Christmas-season errands, I’ve come upon far more accident scenes than I would normally expect. I haven’t inquired about the accidents but I have heard that two of the accidents I passed were fatal. It seems I can’t drive 20 miles in any direction without seeing police cars attending to an accident scene. In the last two days some of this could be attributed to the unfamiliar traffic mix of commuters, shoppers, and travelers all sharing the same road, but that doesn’t come close to explaining the high rate of accidents when compared to past holiday seasons. I was nearly in an accident myself last weekend when the car I was in narrowly missed a metal cabinet or similar object that skidded along the roadway for fifty yards after falling off a truck. Besides the actual accidents, I have seen far more than the usual number of drivers rushing through intersections without regard for traffic laws or other vehicles. Second-hand reports from friends in England and Australia say that accidents and near-misses during this holiday season are not limited to the United States.

An abrupt increase in accident rates occurs when people are taking uncharacteristic risks, and that seems to be the story of this Christmas shopping season. It’s a measure of consumer time pressure, but also of inflexibility as people aren’t willing to scale back their plans to fit their capabilities. Economic literature describes the way people become willing to take greater financial risks, signing up for Ponzi schemes for example, in periods of declining opportunity, especially recessions. It would seem that this phenomenon also applies to the driving risks people are taking in the current Christmas shopping season. I must emphasize that the high-risk driving decisions come from only a small fraction of drivers at any particular place, perhaps around 1 percent, but this is enough to change the flow of traffic as a whole.

The dynamic of declining opportunity can be misleading. People mostly don’t perceive that opportunities are declining but rather that opportunities are harder to find. This creates more of a do-or-die attitude about each opportunity, even something as fleeting as a Christmas celebration. The feeling is something along the lines of, “This Christmas has to be a success because there is no alternative.” It is the do-or-die approach that leads to the high-risk decisions that create traffic accidents and other unintended consequences. Hollywood celebrates the do-or-die idea in war and asteroid movies. The current situation is not nearly so dire as the ones depicted in the movies, but there must be something about the current situation that makes it seem comparable to the Hollywood disaster stories to a significant number of Christmas shoppers. It will be important to try to identify the cultural causes and to see whether this feeling becomes a trend. If you are out on the roads with Christmas shoppers, please be alert to the drivers who are in an especially frantic mood. Be safe, and have a merry Christmas.

Tuesday, December 22, 2015

Chipotle’s Sick Customers in 4 CNBC Headlines

Here’s a summary of the food-preparation problem at Chipotle taken from the last week of CNBC headlines on the restaurant chain.

  1. Management is intransigent and in denial about the problem. Wednesday, December 16: Chipotle execs: There is no E coli in Chipotle today
  2. The public has reason to worry. Thursday, December 17: Chipotle metric [YouGov BrandIndex “buzz” score] drops to lowest level ever
  3. Foodborne illness originating in the restaurant continues. Yesterday: CDC investigating different E. coli strain at Chipotle
  4. More than half of customers say they are now eating somewhere else. Today: Poll: Are you scared of eating at Chipotle?

Sunday, December 20, 2015

A Busy Shopping Weekend

This year Black Friday did not live up to the hype, but even when it does the traditional busiest shopping day of the year is the Saturday before Christmas. This year the retail sector was looking for a big weekend before Christmas to make up for a generally lackluster December, and from what I saw yesterday in my local area, shoppers did not disappoint. From 9 a.m. until well after dark it was easily the heaviest weekend traffic of the year. The stores I ventured into had mostly long lines, if not steadily all day long.

There are good reasons why the Saturday before Christmas remains such a big deal even as Christmas shopping in general has shifted above Black Friday on the calendar. On any given Thursday or Friday, many workers get paid. Earlier paychecks can be spent at any time, but for someone getting ready for Christmas, the best time to spend the last paycheck before Christmas is the last Saturday before Christmas. That yesterday saw such heavy traffic shows how many Christmas shoppers need that last paycheck to fund their Christmas celebrations.

There is also the procrastination effect. The last weekend before Christmas is the time when gift shopping can’t plausibly be put off any longer. Add both effects to the normal Saturday shopping and you tend to get the busiest shopping day of the year. 

The consumer mood was boosted this Christmas by the absence of a federal government shutdown threat for the first time in years, as Congressional Republicans could not agree on a shutdown strategy. The Fed rate hike last week could have added to the feeling of confidence, even if it will take another year for consumers to see the boost in income from interest on their savings accounts. That shoppers are out in force this weekend says that there isn’t so much concern about the prospects for the economy over the next few months.

Tuesday, December 15, 2015

El Niño Drags Down Oil Prices

It may be the warmest December ever in the eastern United States. When I look out the window it is sunny and almost warm. There is no need to turn on the furnace on a day like this, and across the region, heating oil sales are postponed by a month as we expect November-like weather for the rest of December. It is not just Pennsylvania that is unusually warm. With El Niño conditions, the contiguous United States had the warmest September–November on record, and the year is expected to end up as the warmest ever recorded for the world as a whole. The low demand for fuel for heating has an effect on world oil prices. After two years of drastic decline, oil prices are now nearing the recession minimums of seven years ago. A decline in manufacturing and a slow trend toward electric power for transportation could keep oil prices low for years.

Oil prices go up in the long run as an effect of population growth, but that is a trend that could change after the climate summit in Paris. The final climate agreement, while not spelling out specifics, points toward a change in population policies and may eventually reduce and eliminate government initiatives aimed at promoting population growth. Global population will continue to grow for generations, but any reduction in growth rates will tend to slow the increase in oil prices.

Sunday, December 13, 2015

A Small Step Forward in Paris Climate Agreement

It is hard to get 200 nations to agree on anything, so the Paris climate agreement is a minimalist consensus document. It is a loose framework that points to just enough progress to keep the island nations on board — particularly nations that may be fully submerged as a result of climate change. It adopts both the unrealistic goal of keeping global temperature rise below 2 kelvins (compared to pre-industrial levels) and the impossible goal of keeping it below 1.5 kelvins. What it does not include is any practical way of reaching those goals.

No one should expect that the 2 kelvin goal can be reached within the next century. That would require, for example, that almost all of the fuel-burning vehicles and appliances being sold this year be scrapped years before they are ready to be retired and replaced with technology not based on fuel, and hardly anyone expects that to happen. To be clear about this, the Paris agreement does not reach nearly far enough to stop Greenland from melting or to keep global sea level rise below 8 meters over the coming centuries. Under the Paris agreement, the industrial world has not yet reached the midpoint of carbon emissions. Carbon emissions that have already occurred are thought to be probably enough to create a 2 kelvin warming effect, so implementing the Paris agreement is probably not enough by itself to keep global temperature increase below 4 kelvins.

The Paris agreement is nevertheless progress, a step in the right direction. These are some of the changes that might come about over the next 20 years or so as the Paris agreement is implemented:

  • The elimination of subsidies for fossil fuels and fuel-burning vehicles
  • Normalization of retirement funding so that official policy does not call for population increase to fund retirement programs
  • Reductions in subsidies for meat and milk
  • Improvements in buildings so that less fuel is used for heating
  • Phasing out of energy-inefficient legacy technology such as fluorescent lighting

Details of implementation are not in the agreement itself, but these details and others will emerge as nations try to meet their separate emissions goals.

Friday, December 11, 2015

This Week in Bank Failures

High-leverage and high-yield funds may have to change strategy or shut down as a U.S. interest rate increase appears imminent. Third Avenue Focused Credit Fund has suspended redemptions and says it will liquidate. The fund has almost $1 billion in assets, down from $2.75 billion last year. Liquidation of a high-yield bond fund typically takes about a year. A Stone Lion high-yield fund that is half as large also suspended redemptions today. It isn’t immediately clear whether the Stone Lion fund will have to liquidate, but that is a common fate of a fund that cannot meet its cash requirements. The fund represents a third of Stone Lion’s total assets.

Redemptions leading to a loss of solvency is a recurring problem with bond funds, which as a rule keep very little liquidity and can go from normal operations to insolvency in just two or three trading sessions when investor sentiment turns. This is a risk that is not widely recognized because it a risk of bond funds themselves, not of the underlying bonds. Given the risk, conservative individual investors should never invest in bond funds, and as investors decide to get out before it’s too late, more bond fund redemptions and liquidations are almost surely on the way.

U.S. interest rates have not increased in nearly a decade, and there are questions about how well the financial sector is positioned to survive normal interest rates when they return around 2019. Interest rate increases put more pressure on distressed business of all kinds, and lenders will inevitably take losses on some of their loans to marginal businesses.

Thursday, December 10, 2015

Firefox Is a Browser Again

Mozilla says it is dropping Firefox OS, its HTML-based mobile phone platform. It’s a surprising retreat from the software-development foundation, which over the past six years or so has put everything it had into the mobile phone project while leaving its popular web browser to try to pick up what new features it could by porting them from the phone project. Firefox OS shipped in its initial version two years ago, and in the process of creating it, with the Firefox web browser largely neglected, Mozilla saw its browser market share fall by more than half. During this period major browser bugs went unaddressed for as many as five versions while important browser features were taken away because it was thought they would make the desktop browser too incompatible with the mobile platform. Mozilla thought it had to take this course because of the enthusiasm of its developers for the mobile phone project.

Perhaps that enthusiasm has waned now that Firefox OS, facing an already crowded market for mobile platforms, has failed to gain any traction in its first two years of release. In any case, the leaders at Mozilla are trying to position the Firefox web browser as their marquee product again. This year saw the Firefox browser ported to the iOS platform, if only for those with the latest iOS version. It shows that Firefox has no intention of disappearing from mobile even if it is no longer trying to own the mobile platform.

The renewed focus on the long-neglected web browser may allow some of its more troubling deficiencies to be corrected. Firefox is still seen as the most standards-compliant browser and it will have a ready audience if it can focus on being secure, user-friendly, and productive again.

Looking back, it is hard to say the Firefox OS project was a mistake even though it ultimately failed. The mobile-first approach at Mozilla helped usher in the current era of mobile-compatible web design, a change that would not have happened so smoothly without Firefox leading the way. It is now not so easy to remember that just a few years ago, few people thought web sites could be mobile-friendly and standards-compatible at the same time. Now that is what everyone expects to see in a web site. That’s a substantial shift in the web, and the world will reap the benefits from it for years to come.

Saturday, December 5, 2015

A Gloomy Report from Barnes & Noble

It is hard not to have a gloomy feeling about the large corporate bookstore after seeing the earnings report for the revamped Barnes & Noble for the quarter ending October 31. Shrinking down Barnes & Noble was expensive anyway, with more than $10 million in one-time expenses and surely a similar degree of distraction occurring during the quarter. Now that the restructuring is complete, it reveals a retail giant utterly dependent on the holiday shopping season. The holiday season is split between quarters, with around 15 percent of holiday gift purchases occurring during the quarter. Even with this advantage, excluding special items, the bookseller reported an operating loss of $10 million.

Barnes & Noble has for years reported losses in the spring and summer quarters. Now it seems the fall quarter is unprofitable too. The latest quarterly loss comes after operating losses of $67 million over the two preceding quarters. It may be unrealistic to expect a profit from Barnes & Noble during any of the first ten months of the year, but if it loses $5 million per month in the off-season, it needs an above-average holiday season to make up the losses. Obviously, it isn’t quite a business model if you need above-average results every time. Statistically, a below-average season must come sooner or later.

There are reasons to doubt the current pace of holiday shopping in general. There was a palpable drop-off in Black Friday traffic and other indications of a generally lackluster season in-store. With store closings and a technically obsolete e-book platform, Barnes & Noble can’t match the results of last year’s holiday quarter. It will be doing well if sells enough calendars, board games, and other high-markup items to show an operating income of $50 million for the current quarter and a loss of $20 million for the year. That would leave the bookseller looking for ways to close stores faster and cut costs in other ways. And if the current quarter’s results are below average?

Friday, December 4, 2015

This Week in Bank Failures

New Fed rules prohibit emergency lending like the AIG and Bear Stearns bailouts in 2008. The rules prevent the Fed from making emergency loans to select companies. In a crisis, the Fed can still offer “broad-based” credit to solvent borrowers, but it must charge a penalty rate on such loans. Under these rules, in a repeat of the banking crisis of 2007–2009, most of the same banks would have survived, but with little or no value accruing to the prior stockholders.

Cost-cutting: Morgan Stanley has begun laying off senior managers in its fixed-income business in London. The moves are said to be a prelude to 25 percent staffing cuts in the fixed-income business, most to take place next week. The company has not commented on its plans. Separately, Barclays is said to plan to reduce staffing by 20 percent early next year in its investment banking operations, in addition to cuts already announced.

Target has agreed to pay banks $39 million to cover part of the cost of replacing cards compromised by the retailer’s massive in-store data leak in November and December 2013. At least 40 million cards were compromised in the data leak, so in total, Target has reimbursed card issuers and shoppers less than $5 per card.

The U.S. Export-Import Bank is back in business after a charter renewal was approved as part of a transportation funding bill that passed Congress last Friday. The bank was effectively shut down when Congress voted to let its charter lapse in June.

The NCUA liquidated Greater Abyssinia Federal Credit Union, which had 425 members, mainly members of the Greater Abyssinia Baptist Church in Cleveland, Ohio. The NCUA decided it wouldn’t be able to restore the credit union to financial viability. The credit union had less than a million dollars in assets.

Wednesday, December 2, 2015

Pin-Drop Week at Retail

Since 2007 I have gotten used to seeing the retail crowds vanish after Black Friday and Cyber Monday, but I never saw a pattern quite like this year. I’m told there were more people shopping in stores on Thanksgiving. The Black Friday traffic I saw was muted, particularly in the afternoon and evening. I did not hear any stories of shopping all night for Black Friday — perhaps that was just a novelty that most people wouldn’t elect to do a second time. On the other hand, I heard of two malls that filled their primary parking on the morning of Black Friday. If Black Friday was slow, the next afternoon was busier than previous years. Then came Sunday, and its retail traffic was slower than an average Sunday. Cyber Monday seemed a little busier in stores than an average Monday.

And then nothing. You could hear a pin drop in stores on Tuesday. After shopping I went to a restaurant at the peak of dinner hour. This was a place that seats 400, but on this occasion they were fortunate to have a family of five in the dining room — otherwise it would have been effectively empty.

Of course, there is a paycheck effect and a fatigue factor that tend to reduce shopping after Cyber Monday. Shoppers who spent their entire paycheck over the extended Thanksgiving weekend might wait for the next paycheck before they go shopping again. Anyone tired out from hours of shopping or traveling might not be ready to shop again until next Sunday. Nevertheless, it seems that Black Friday may be counterproductive from the retail sector’s point of view if there are no shoppers at all the following week. And this year, looking at the sharpest drop-off I’ve ever seen, I can’t help wondering if shoppers got what they wanted a little more quickly this time around.

Monday, November 23, 2015

Christmas Shopping Before Dark

Over the weekend, I saw heavy retail traffic before 4 p.m., but it had faded away to almost nothing by 6 p.m. It was a similar pattern the weekend before. This is not consistent with a pattern of consumers forgetting to go shopping, something I had speculated a month ago based on the results of shopper surveys. It does suggest that shoppers are reluctant to spend much time on their Christmas shopping.

I read one retail analyst suggesting that the average mall visit this year consists of quick targeted visits to no more than three stores. I wonder how many shoppers have time to find out about the range of stores that are available in the malls they visit. If shoppers are moving too fast to take the time to look around, this has implications for retailers wanting to launch a new mall store. It might take some shoppers ten mall visits over a period of years just to notice that the new store is there. A store could open, try several approaches, then close after five years with most mall shoppers never finding out any of this was happening. This represents a new challenge for malls, especially given the increasing store turnover of the last six years. What will make shoppers want to stay in the mall long enough to see what’s there?

Friday, November 20, 2015

This Week in Bank Failures

China caught up with an illegal foreign-exchange and money-laundering network, described as an underground bank. The network is said to have cleared more than $64 billion in transactions. Official sources say at least 370 people have been arrested or charged, and thousands of accounts have been closed. This “bank” must represent a significant fraction of illicit capital outflows, so closing it should give China better control of its national money flows. The central bank has advised offshore banks to stop issuing bond repos for bonds in China, instruments it believes are mainly used to circumvent currency controls.

Bank of Cyprus has partly recovered from that country’s financial crisis but says it will need to see further improvements in its loan portfolio before it can start issuing bonds again. The loan portfolio hit bottom about a year ago and has started to improve.

Greece yesterday approved a bank recapitalization program. As a result some Greek bank stocks dropped in value and now trade at less than 1 percent of their pre-crisis peak values. The low stock value reflects the expectation that stockholder shares will be diluted or eliminated with the issuance of new shares.

A government investigation into the collapse of Scotland’s HBOS may result in a few more executives being barred from working in banking. Other regulators will take up that investigation in January.

London bank RBS is eliminating some bonuses that it believes drove sales representatives to sell inappropriate insurance-like services to customers that didn’t benefit from having them. Bank employees routinely mischaracterized the services in order to sell to more customers, a scandal that has embroiled the U.K. banking sector over the last five years. The sales staff will get a 5 percent raise to replace the bonus plan. RBS has also said it will stop using teaser rates on credit cards and consumer loans.

Wednesday, November 18, 2015

On Dark Days, Sweep the Floor

It was then-President George W. Bush who, on an occasion of great tragedy, famously told Americans to go to the mall. It was not the best choice of words, but the essential point holds true today. On a dark day, it is a happier approach to life to do the things you know you have to do in any case, than to sit around waiting, worrying, and pondering. This is a thought that bears repeating in the current period as we face news of man-made disasters and the work of mass murderers on a daily basis. We don’t want to be paralyzed by the rush of bad news. It is better to be doing something than nothing.
   It is a time that calls for action, but also for discretion. Some actions are better than others on days when you are more affected by the weight of the world. It is not the best time for strategic initiatives or political discourse, lest one’s actions be unduly influenced by the mood of the day. Pity the men who used the recent mass murders as an occasion to tweet that it was high time to “go do something” with their right to bear arms and their assault rifles. If they are not hauled into court as suspects in a new mass murder, at the very least the sensibilities in their comments will look less forgivable with the passage of time. 
   No, for those of us who are not within earshot of the explosions and not forced to evacuate our homes and workplaces, dark times call for us to approach our work with an emphasis on humility. We can’t know what the future will hold quite so clearly as we imagine we do on a normal day, but we still know that we are better off and the world is improved if we sweep the floor, clean the refrigerator, delete the unwanted email messages, exercise, return phone calls, get flu vaccinations where medically appropriate, and a thousand other chores and obligations as tedious as they are obvious. On a dark day, the reasons for some of these actions may not be so clear and the work may be more tiring than usual, but the doubt and fatigue do not diminish the value of tasks such as these. When tomorrow comes, we are better off for having done them today.

Sunday, November 15, 2015

Squeezing In Shopping

It’s been an obviously busy weekend at retail wherever I’ve gone, with Christmas shoppers and people buying groceries in advance of Thanksgiving, which is 11 days away. What I saw doesn’t give the impression of consumers forgetting to shop, but of trying to squeeze shopping into a packed schedule.

Friday, November 13, 2015

This Week in Bank Failures


  • Ten traders who worked at Deutsche Bank and Barclays, for a conspiracy to manipulate the Euribor base rate. An additional trader, apparently at a different employer, is expected to be charged next week.
  • Three men who are believed to have stolen and traded in customer data from JPMorgan Chase, The Wall Street Journal, and others.

Fighting extradition: David Drumm, former head of Anglo Irish Bank who provided rosy financial reports and engaged in under-the-table transactions while the bank was collapsing. Arrested in the United States, he is asking to be released on bail while he contests extradition to Ireland.

Wednesday, November 11, 2015

Inventory Buildup at Retail as U.S. Consumers Forget to Go Shopping

Reports of a buildup of inventory at U.S. retail raise the prospect of a heavily discounted Christmas shopping season like 2007. Retailers were planning on a boost in consumer spending this year that hadn’t yet materialized in the third quarter. There are conflicting reports about what has happened in the first half of the fourth quarter. In one survey, for example, consumers indicate that they plan to spend more this holiday season than the last. Falling motor fuel prices also ought to translate to easier consumer spending. Retail reports so far show a reduced level of activity compared to last year’s holiday shopping, though, suggesting that consumers may simply be forgetting to shop.

If boosts in employment and consumer confidence are not immediately translating into consumer spending, it could be a reflection of time pressure. An increase in working hours means consumers have less time to go shopping, even if they have the money to spend. This effect is particularly pronounced among shoppers who try to coordinate their schedules so that they can go shopping together. The savings trend also probably shows that consumers are still thinking about getting out of debt, even if that is a slow process.

What we’re likely to see is steeper discounts in December to try to move out more seasonal merchandise. The 2007 discounts, however, didn’t work to boost revenue at retail. Retailers that can save some of the inventory overhang into next year will do better than those that must sell everything regardless of the loss they end up taking.

It’s rare that the combination of reduced fuel costs, a boost in income, and high consumer confidence doesn’t lead to an increase in spending. Most economists looking at this picture seem to want to say that consumer sentiment must not be quite as strong as the latest surveys suggest, but that explanation will fall apart soon if it’s not confirmed by new surveys. For now, it’s one of those what’s-going-on situations that occur all too often in economics, and we’ll continue to watch the new data releases and try to figure it out.

Friday, November 6, 2015

This Week in Bank Failures

The Fed sounded the alarm on energy extraction loans in a report this week, a joint release with the FDIC and O.C.C. Often oil and gas projects are too heavily bank-financed with too little collateral. Banks are likely to suffer billions of dollars in losses on such loans unless oil and gas prices recover to the levels of 2013 by next year. On a more positive note, the Fed report found that most banks are taking on more realistic underwriting guidelines for energy extraction loans, so the loan losses from oil and gas will not be as large as they might have been a year or two ago.

Arrested: In Belize, the Mexican marketing chief for Allen Stanford’s Ponzi scheme. He is expected to be extradited to Mexico.

Cost-cutting: Standard Chartered Bank will cut 15,000 jobs within the next three years after posting a larger-than-expected loss. It plans to raise $5 billion in a stock issue, up from a $4 billion plan previously reported. Standard Chartered has struggled to get back on its feet as it distances itself from its past money-laundering activities.

Thursday, November 5, 2015

Meat Moves in the News

I’ve been parsing the Kraft Heinz factory closing announcement and trying to see how much of it is influenced by U.S. consumers’ newfound distaste for meat. The job cuts are larger than what was announced previously, but not by much. The factory realignment disproportionately affects Oscar Meyer, the food conglomerate’s unabashed not-even-food brand of processed meat, but it is still only a small adjustment. Consumers could easily cut back on Oscar Meyer and continue to eat meat in more reputable forms.

In the meantime, the meat p.r. juggernaut continues with an embarrassing Money roundup of beef theft, six incidents in all representing more than $5,000 in stolen beef in the United States this year. A story like that is supposed to show that beef remains a hot commodity in spite of the cancer risk, but really only demonstrates that the meat industry, with its enormous advertising budget, continues to wield its influence over corporate media.

Another story worth following in this connection is the Chipotle restaurant closings following an E. coli outbreak tied to Chipotle. Several locations remain closed while the incident is investigated. It is important to note that the source of the bacteria is unknown, but E. coli is generally destroyed by cooking, so the problem is more likely to be related to deficiencies in cleaning the food containers used behind the counter than to any of the cooked meat served in the restaurants.

Wednesday, November 4, 2015

Back to the Drawing Board

A New York Times cover story suggests that China is the new Volkswagen. China, like Volkswagen, has for years been systematically understating the air pollution it generates, carbon emissions in particular, and not by a narrow margin, but by a factor of more than 2. In the case of China, it is a result of factories that failed to report their coal-burning activities. It turns out that less than half of the coal-burning factories in China were being counted. It is similar to the news we got from Volkswagen a few days ago, not about unreported cars, but cars whose emissions were not being accurately estimated.

The combined effect is dismaying. A world that appeared to be on its way to coming to grips with air pollution was, in fact, merely falsifying its records to make things look good while the situation continued to spiral out of control. Neither Volkswagen nor China is a minor detail in the atmosphere. Volkswagen, before its recent scandals, had vied to be the world’s largest manufacturer of fuel-burning cars. China burns more fossil fuels than any other country. If large parts of the carbon emissions and other pollutants are more than double what we had planned on, all the current climate plans are revealed to be bogus. The world has to go back to the drawing board – and the period of action in which we might potentially meet the currently stated goals is years shorter than we thought it was.

Monday, November 2, 2015

Step Toward Canceling Keystone XL Pipeline

The Canadian company behind Keystone XL has asked the U.S. State Department to suspend its review of the proposed pipeline. It’s a first step toward canceling the whole project, which fell victim to falling global oil prices and the high cost of extracting the low-quality crude oil available in Alberta’s oil sands. A major oil dig was canceled a week ago, and that move by Shell surely put a damper on the already dubious pipeline project.

The pending cancellation of the pipeline is a cautionary tale. Had the project gone forward five years ago, it still likely would have been canceled at this point, but at far greater expense — nearing completion instead of being still on the drawing board. It would have been a boondoggle, a massive public giveaway that accomplished nothing. Development of the oil sands can still go forward, but at a slower pace that makes financial sense and that works within the limits of the existing pipeline network.

Meat: Nervous Cancer Denials, Lifestyle Changes

A week after the WHO report linking red meat and processed meat to cancer, the news media is still full of nervous denials from the meat industry, and that makes me think the new guidance is putting downward pressure on meat consumption. One of the frequently repeated comments by meat industry representatives is that the WHO report is not telling people to stop eating meat entirely, and that’s accurate as far as it goes. More to the point, though, the new guidance strongly implies that the average affluent consumer in countries like the United States and Brazil would do well to reduce meat consumption by more than half. That kind of reduction is what the meat industry is afraid of, and it’s the lifestyle change they won’t be talking about when they talk to the press. If 10 percent of consumers reduce their meat consumption by half, which looks likely enough in the latest reports, that translates to a 5 percent reduction in demand for meat, a change large enough to close some of the marginal meat factories. For the meat industry, that is a bigger change than they face when a small number of consumers, such as those who have learned they are at risk for heart disease or diabetes, drop meat entirely.

An individual can make a 50 percent reduction in a narrow category of consumption without quite noticing the change. An example of this is seen in desktop computers, where many users who previously replaced equipment after 3 years are now waiting 6 years without consciously considering the length of the delay. Meat has little nutritional significance, so a consumer can cut back by quite a lot without feeling the effects. Some observers think the WHO report might mark a turning point, and that consumers may now collectively cut back meat consumption by as much as 4 percent a year over a period of years without any noticeable fuss or overt discussion along the way.

Friday, October 30, 2015

This Week in Bank Failures

Reorganizing: Deutsche Bank said it wanted to focus on corporate finance and global transaction processing, and this week we learned the restructuring will cut deeper than the statements of two weeks ago suggested. The bank will sell off all retail banking operations and make an additional 15,000 job cuts on top of that. It will shut down all operations in ten countries: Argentina, Chile, Denmark, Finland, Malta, Mexico, New Zealand, Norway, Peru, and Uruguay. Russia did not make this list, but the bank said previously it would drastically scale back its operations in that country. Aside from everything that is closing, the bank says it will trim its customer list by half in the core businesses that remain. Deutsche Bank plans to complete these changes within five years.

Raising capital: Standard Chartered Bank plans a $4 billion stock issue. General Electric is said to have at least three bidders for its French bank. Lloyds wants to sell £2 billion in new shares in the spring to replace the government’s remaining post-bailout ownership share, but plans might not be realistic. Most Wall Street banks will need to raise capital, an estimated $200 billion in total, to meet proposed rules covering margin requirements for credit default swaps not cleared through exchanges and capital requirements for systemically important banks

Rescued: In one of the strangest buyouts in the post-recession era, First Niagara in 2010 bought out the holding company of Harleysville National Bank, which had spent itself into insolvency with ill-timed acquisitions in mortgage lending and weath management. It seemed a bit much for First Niagara to take on, but the deal was ultimately approved. Now it is First Niagara’s turn to be rescued. The acquiring bank this time is KeyBank. The deal values First Niagara at $11.40 per share or about 25 percent less than the stock was worth before the Harleysville National Bank acquisition. Ratings agency Moody’s has placed KeyCorp on review for downgrade because of the added credit risk the bank takes on from the deal.

Wednesday, October 28, 2015

Shell Cancels Oilsands Project

Shell is canceling another major oil project, this one the Carmon Creek oilsands project near Peace River in western Alberta. Shell announced the project in 2013 when oil prices were much higher, then slowed it down when oil prices fell last year. Now it is dropping the project from its investment list and taking a $2 billion accounting charge as a result of the canceled project. At CBC News:

It is surely the right decision for Shell. With no sign of an oil price rebound in the near term, and facing higher costs than originally expected in the oilsands extraction, Shell would be taking a big risk if it went forward with such a large dig. It is also good news for Alberta, providing some assurance that will still be some recoverable oil in the ground 25 years from now when rising prices for oil make the asset actually mean something.

The move also makes sense in terms of pipeline capacity. Existing pipelines can pump oil out of Alberta over the next century or so, and that is better management than the proposed expansions that could pump the region dry in 35 years or less.

There are new signs of softness in oil prices, with petroleum vessels taking the long route around the Cape of Good Hope because all available petroleum storage in Europe is already filled. The lack of storage for oil products suggests that prices of gasoline and diesel will have to decline between now and December, possibly setting up a new decline in crude oil.

Tuesday, October 27, 2015

Closed on Black Friday

I think it now qualifies as a countertrend: REI is joining a short list of U.S. retail chains that will be closing not just on Thanksgiving, but on Black Friday too. That major retailers are willing to forego Black Friday shows that the biggest shopping day of the year at U.S. retail, coming at the peak of the Christmas shopping season, isn’t all it’s cracked up to be. If the intense foot traffic is so bargain-focused, how can it translate into the kind of markup that can keep a retailer going? Best Buy is one retailer that has admitted to losing money on Black Friday, but just getting potential customers in the door one time each year is a win for the consumer electronics giant — maybe then it will be remembered and make its money the day the microwave or television breaks down. But not every retailer is so desperate to remind customers it still exists. REI stands as one of the most reliable sources for the outdoor recreation equipment it sells. Its customers won’t forget it’s there just because it takes a day off.

In a way, REI is showing off by closing on Black Friday. Its Black Friday strategy shows that it’s in a strong position in almost the same way that Best Buy shows that it is barely holding on. If closing on Black Friday works, other retailers might try the same thing. Those who want to make the same point on a smaller scale might postpone opening on Black Friday till noon, which is a sharp enough contrast to the stores that open at midnight or earlier. However, not just any retailer can try this. A day off has to be earned. Sears, for example, wouldn’t dare take Black Friday off. Shoppers who arrived to find a store like Sears closed would just assume the struggling department store had finally gone under, and that’s an impression no business wants to make.

Monday, October 26, 2015

WHO Finds Link Between Meat and Cancer

In a report published today, an expert panel at the World Health Organization made two findings about meat:

Red meat
After thoroughly reviewing the accumulated scientific literature, a Working Group of 22 experts from 10 countries convened by the IARC Monographs Programme classified the consumption of red meat as probably carcinogenic to humans (Group 2A), based on limited evidence that the consumption of red meat causes cancer in humans and strong mechanistic evidence supporting a carcinogenic effect.
This association was observed mainly for colorectal cancer, but associations were also seen for pancreatic cancer and prostate cancer.
Processed meat
Processed meat was classified as carcinogenic to humans (Group 1), based on sufficient evidence in humans that the consumption of processed meat causes colorectal cancer.

These findings probably surprised no one, since anyone who did a similar review of the science would come to similar conclusions. The magnitude of the effect of processed meat on intestinal illness became clear in a study published two years ago. Indeed, meat industry lobbying groups around the world were expecting the WHO announcement and had their rebuttals prepared in advance. With the huge amount of money spent advertising meat every week, it is hardly surprising that newspaper stories gave more space to the point of view of the meat industry than to that of nutritionists and cancer researchers.

I am not sure many people will be convinced by the p.r. blitz, though. When a butcher says meat is good for you, the conflict of interest is pretty obvious. When cancer researchers say at least half of cancer in and around the intestine appears to be caused by eating meat, there is no comparable conflict of interest.

The WHO report will have little immediate effect on consumers but will eventually lead to changes in institutional food. I am not about to tell people to stop eating meat any more than I would tell them not to eat Halloween candy. Just don’t try to live on that kind of food. All indications are, that’s an approach to food that won’t end well.

Sunday, October 25, 2015

Harleys, Leather Jackets, and Grandpas

I was in a thrift shop. Most of the shoppers were there to look for Halloween costumes. Two men in their thirties were shopping for more practical items. One commented that he wanted to take a minute to look for a leather jacket.

The other man chuckled at the stylistic choice. “Why? Are you a grandpa?” The way he saw it, a leather jacket was something you would wear if you wanted people to think of you as an old man.

Of course, this is probably not the way most people who wear leather jackets think of their look. The protective qualities of leather mean you’re ready for what happens when things start flying. That can translate to a sense of adventure. But that connotation doesn’t come across when you are just standing around, or worse, sitting on the sofa.

As a rock musician, I wear leather jackets sometimes, not just for their historical association with rock, but also because it’s a style I can easily afford. Most of my leather jackets cost me between $3 and $8 in places like the thrift shop where I was, even if it didn’t have any on the racks on this particular day. I feel sure I look a little more natural in a cotton fleece sweat jacket, but those cost more and don’t last nearly as long.

The price I pay for a leather jacket ought to tell me something. Something that costs more than $50 to make and sells for $6 is something that has fallen out of favor, even if it is something as durable as a leather jacket. You won’t see much leather on today’s rock musicians. When you do see a rocker wearing leather, the wearer is likely to be a heavy metal musician, an actual motorcycle rider, or a musician old enough to be working on his 15th album. In my case, I fall into that last group.

Leather sneaked into heavy metal mainly because Judas Priest singer Rob Halford saw an opportunity to introduce elements of S&M fashion into the band’s look, but it was also helped by the Easy Rider film from a decade before, which featured Harley-Davidson motorcycles, leather jackets, and the Steppenwolf song “Born to Be Wild.” Of course, the black leather jacket was a staple of rock ’n’ roll style from a decade before that. This jacket in turn was based on the bomber jacket pilots wore in the early decades of aviation. While the links are easy to trace, it is easy to see how the leather jacket has come to mean so many different things to different people.

If leather is out of fashion these days, Harley-Davidson, the motorcycle manufacturer, is dealing with the same issue. Benjamin Preston quotes Kelley Blue Book analyst Michelle Krebs in The Guardian:

The younger generation has no interest in Harley-Davidson as far as I can tell. Unless you ride a motorcycle or scooter in a city as your transportation, motorcycles are a splurge millennials can’t afford and have no interest in – especially Harley-Davidson, which seems like a old white-guy brand.

The “old white guy” is almost the same as the “grandpa” I started out with. The rest of the story in The Guardian’s business section is worth a look:

Leather jackets and Harley-Davidson are caught up in the inherent impracticality of the aging rebel persona. In the eastern United States in particular, they tie into stereotypes we’ve seen too much of. We have all seen people who seem to sincerely believe that ratty clothes, the “rebel flag,” dodging responsibility, beer, firearms, being ready to fight, and being as loud as humanly possible are the solutions to the world’s problems. That point of view might be laughable, but it is just common enough to be taken seriously. If you want to be cool, you can’t be seen as buying in to that point of view. The impractical side of the aging rebel is especially uncool these days.

Impracticality is, I must admit, a drawback of leather jackets. They’re good only in a narrow range of weather. I don’t like the sweaty, clammy feeling that goes with a leather jacket in warm weather, like September. I look foolish shivering in a leather jacket in freezing weather in December. Leather won’t last long if I wear it out in the rain. That leaves only about 30 days in the fall season on which a leather jacket makes any sense, basically in November. That’s too restrictive a season to allow a garment to be a staple of a wardrobe.

If leather jackets are not so practical, Harley-Davidson has worse problems. A Harley-Davidson motorcycle burns through just as much fossil fuel as a Toyota Prius. That’s not because it’s designed badly, but more an inherent limitation of the technology. The internal combustion engine loses efficiency when you scale it down to the level needed for a car or a motorcycle. That in itself is a hard sell to those of us who may be young enough to see the coastlines submerged by the sea level rise caused by burning fossil fuels. What makes it embarrassing is that the Harley costs about the same as the Prius. Seriously? You could have bought a car, but it wasn’t loud enough for you?

Adding to the practical difficulties, there are the stylistic difficulties, which also are hard to get around. Motorcycle safety requires the kind of leather jacket that is no longer cool as soon as you’re parked.

Harley-Davidson, I think, will have to come up with a new, more practical story to win over the under-45 crowd. As for the leather jacket, its run might be over. With modern materials that offer more design flexibility, it’s hard to make a case for making clothing out of leather except as a nod to another era.

Friday, October 23, 2015

This Week in Bank Failures

Banks in Greece are preparing their capital plans as the Greece bailout process focuses on recapitalizing banks during November.

Deutsche Bank now says it will focus mainly on its corporate finance and global transaction clearing and will sell, shut down, or minimize the other parts of its business.

The U.S. House is preparing for a vote to revive the Export-Import Bank. The bank was forced to stop conducting business earlier this year when the House leadership refused to allow a reauthorization vote. 

Thursday, October 22, 2015

YouTube’s Donation Bucket

YouTube is almost ready to launch its subscription service. YouTube Red is a lot less than YouTube had in mind when it started to experiment with music-oriented subscription services three years ago, but I think that is simply because the various experiments all failed. Will YouTube Red bring viewers or the music industry, scared off by years of aggressive tinkering, back to YouTube? Probably not, but that doesn’t seem to be the point. The new $10-per-month subscription offers so few extras, you could easily forget you are paying for a premium version of YouTube.

A few regular viewers might pay for YouTube Red or the forthcoming YouTube Music just to save the bandwidth that YouTube’s ads take up. Mostly, though, the subscription services seem to be meant as YouTube’s donation bucket. It’s the easy way for YouTube supporters to give Google something to help cover the cost of operating its 100,000 video servers. In return, YouTube will give you what it was going to give you anyway. For those who can spare the money, maybe that deal is fair enough.

Tuesday, October 20, 2015

Canada Votes Against Austerity

Canada was clearly tired of austerity budgets, government giveaways to business, and the damage to the economy that both caused. With the ruling party and the largest opposition party both pledging continuing austerity, voters turned out in large numbers to support the Liberal party, which had promised a more economically active government. The two leading parties when the campaign started lost almost half of their seats to the Liberal party.

Canada’s big bet on oil exports didn’t look so smart this year after two years of declines in the global price of oil, and concerns over global warming have dampened enthusiasm for fossil fuels. The shift from simplistic cost-cutting to economic reforms ought to help Canada’s flagging economy recover from the rout in oil. Aside from the obvious problems with the heavy reliance on oil, the larger lesson in the election is about the political risk of austerity budgets. Government austerity, most of the time, is a code word for shifting wealth from the majority of people to a wealthy minority, and that obviously does not provide a formula for broad-based prosperity. If you keep taking things away from taxpayers year after year without delivering results, it doesn’t take too many years before the story gets old.

Saturday, October 17, 2015

Frustrated Outburst Points to Alaska’s Post-Pipeline Future

One of the surest signs of an enterprise in long-term decline is when it starts to refer to its friends and supporters as enemies. A sociopath, of course, struggles perpetually to understand the distinction between friend and enemy, but most of us arrive at this confusion only after years of hard-fought disappointments. It happens, that is, when we are working against nature, trying to reach a goal dictated by ego but not easily found in the possibilities of the situation.

This is why it is so distressing to see the reactions of officials in Alaska yesterday to three minor procedural setbacks in offshore oil drilling in the Arctic Ocean. To put the day in context, it is important to understand how minor these setbacks are. Two of them were oil leases that will expire on schedule instead of being extended. The two oil companies in question had, in ten years, shown no inclination of drilling for oil in the leases they paid for. Three extra years would not have changed anything — the leases would still have expired without so much as a visit from the oil companies that nominally owned them. The third setback was the Interior Department canceling two years of oil lease auctions. The auctions would have failed anyway, after not a single oil company expressed interest in bidding. If the auctions had gone ahead and leases been purchased by speculators, it would have been a great deal of wasted motion that still wouldn’t have resulted in any drilling. For deeper context, see FuelFix:

These three non-events drew an alarmingly violent reaction from Alaskan officials. One characterized the White House as the sworn enemy of fossil fuels. In reality the White House is a staunch supporter of fossil fuels and has subsidized the sector more than any other corner of the economy. Another official yesterday hinted that Alaska might take over a national park that is at issue by military force. That is something that obviously won’t happen, but the fighting words are nevertheless a sign of something. Other comments were disturbing in similar ways — putting the blame for the oil industry’s failings on the native people of Alaska, on defeatist attitudes — on anything but the real problems, the lack of oil in the ground and the low market price for oil this year.

This kind of thinking is the work of ego. When you’re convinced that you’re right and nature is wrong, you can seize on anything as an obstacle. If you drill for oil and find none, then the oil must be beyond the coastline, or beyond the national park boundary. The coastline and the administrative line become the imaginary enemies. Now, it seems, the government that subsidizes the effort and the workers who operate the oilfields, or those who don’t want to work in the oilfields, are also the enemies. But this phase of lashing out can’t sustain itself. The only things that will keep Alaska going in its current form are more oil in the ground and higher market prices — forces of nature that Alaska, despite the bluster, has little ability to influence.

If the situation is as dire as yesterday’s outburst implies, we can expect the fundamental character of Alaska to evolve over the next ten years as unemployed and underpaid workers leave to seek opportunities in places where the economy is sunnier. Farther in the future, someday the pipeline will fail and with hardly any oil flowing, there won’t be the money to patch it up again. With a warming climate, my guess is that agriculture in the panhandle will at some point overshadow other economic activities in Alaska, with the capital Juneau becoming the center of the state again. These are changes that are almost unimaginable at this point, and there are few historical parallels that help explain what a post-pipeline Alaska will look like. It is important to remember, though, that there was an Alaska before the pipeline. The history of extraction, whether of oil or something else, is that it rarely lasts much longer than a lifetime before the underground resource is depleted, and there is nothing at this point to say that Alaska will be the exception.

Friday, October 16, 2015

This Week in Bank Failures

Arrested: David Drumm, the head of Anglo Irish Bank shortly before its collapse. He is wanted in Ireland on 33 counts including forgery related to a bizarre series of securities and banking transactions in 2008 while the bank was going down under his watch. Drumm is in custody in the United States and says he plans to contest extradition.

Wednesday, October 14, 2015

How Sea Level Disaster Could Affect Municipal Finances

A new study published in the Proceedings of the Natural Academy of Sciences (PDF) estimates the threat of sea level rise to coastal U.S. cities and towns. More than 400 municipalities but most notably Miami, New Orleans, and Boston will have substantial populations below sea level as a result of carbon emissions from existing energy infrastructure. That is, pollution from factories and power plants that are already operating worldwide is enough to put these cities mostly underwater. Before 2050, barring an extreme change in global energy policy, carbon emissions will be sufficient to make it inevitable that these places fall below sea level. After carbon emissions occur, sea level rise is delayed by half a century or longer because of the time it takes land-based ice to melt, but the actual flooding is not gradual. Flooding is most likely to occur suddenly in a catastrophic event such as a hurricane or tsunami.

In New Orleans, no more than 2 percent of the current city by population will remain above sea level a century from now. Realistically, the remaining land will be more like 10 percent of the city, but only because of fill brought in at considerable expense to raise the ground surface and keep the city alive for tourists. Levees and sea walls are on the drawing board for New Orleans, but they will protect the city only temporarily. Inevitably one day one section of sea wall will fail, perhaps in high winds, earthquake, or war, resulting in damage to the rest of the wall and permanently submerging virtually the entire city.

Besides the direct harm caused by such flooding events, it is worth planning ahead for the financial disasters they could cause. To greatly simplify the situation, imagine a 2065 hurricane or blizzard that puts 15 percent of Boston underwater and causes extensive damage to an additional 15 percent of the city, so that with extended evacuations the population and workplace infrastructure is abruptly reduced by 25 percent. Would the remaining 75 percent of the city be financially strong enough to meet the city’s financial commitments and also rebuild as needed? And if not, would rising taxes force more people to move out of the city until eventually the entire city is abandoned, or worse, taken over by outlaws and warlords?

This is the scenario of a science fiction writer, of course, and it takes a combination of bad legal, financial, and land use policy combined with a natural disaster to make such a financial disaster possible. The reason it is worth thinking about is that policies egregious enough to create such a disaster are currently in place in the majority of U.S. coastal states. In Pennsylvania, to cite one example, if a widespread disaster drove a city into insolvency, current law does not provide any possibility for the city to ever recover. Meanwhile in North Carolina, the law prohibits authorities from considering known future sea level rise in land use planning. Bad laws like these are not easy to correct, but the saving grace is that we may have half a lifetime to make policy corrections before a catastrophic coastal city failure occurs.

Besides the obvious corrections in state laws, cities that may be subject to predictable disasters should not borrow as much as U.S. cities currently tend to borrow. It is the debt load that turns a physical disaster into a financial disaster for the rest of a city. Limits on city debts are hard to enforce, but this year’s Boston Olympics experience shows a reason to hope that political activists can deter cities from making large-scale financial mistakes that politicians alone are unable to avoid.

Monday, October 12, 2015

Chip-and-PIN Arrives in U.S.

Chip-and-PIN is the biggest upgrade for credit cards since the magnetic stripe, and it can’t be expected to go smoothly or arrive on schedule. Nevertheless, the credit card transition has finally reached the United States in a big way. As of October 1, most retailers had terminals that can accept the new chip-and-PIN cards, or at least they had ordered the new terminals and were waiting for them to be manufactured, delivered, and installed. Banks started to mail the new-style credit cards to all cardholders in September, but the industry has never created and mailed so many cards all at once, so cardholders can expect delays of up to three months. Parts of the transaction processing network can handle the new chip-authorized credit card transactions, and others will be handling that capability in the coming weeks.

It helps that most of the world has already made this transition, and there is no question that the improved security could prevent an abrupt collapse of the transaction processing network someday. Nevertheless, the transition would be going even slower but for the high-profile network intrusions at Home Depot, Target, and other major retailers. Banks and retailers are hesitant to add any new obstacles to the shopping experience, and that is why they are being so cautious with the transition. No one will be happy if there are glitches that cause valid cards to be declined at stores, so the industry is bending over backward to minimize those occurrences. The October 1 deadline might have passed already, but we can expect the extreme caution to continue, at least until the next major transaction security breakdown.

As a cardholder, you mainly need to get used to the new terminals and replace your old cards with the new ones as they arrive. Don’t make the mistake of thinking a magnetic-stripe card will still work just because the expiration date says 2017 or 2018. In my own case, I started the month with only three cards that are EMV-compliant. Banks are prioritizing the cards that are used ten times a month over ones that are used only once or twice. The majority of cards haven’t been used at all in the last three months, and those are likely to be the last to arrive.

The new cards incorporate active ID logic that generates a new unique code for each transaction so that the card number itself doesn’t have to be stored along the way. Network intruders won’t be able to obtain as many card numbers as before, and that fraud opportunity will diminish in scale as more parts of the system are upgraded, eventually disappearing completely around 2019 when we are entering PINs for every credit card transaction. That will close the most glaring gap in transaction security, allowing banks and retailers to focus on other security gaps that also has to be closed.

Friday, October 9, 2015

This Week in Bank Failures

Deutsche Bank could suspend its dividend as it looks at €6 billion in losses and charges related to its global restructuring, which is still in its very early stages.

The stock of U.K.-Swiss commodities trader and miner Glencore has fallen by half since the start of the year. Traders and analysts worry about the company’s liquidity facing falling prices for metals, ores, oil, and other commodities. Bank of America warns that banks could have around $50 billion of exposure to Glencore mostly in the form of lines of credit, money that could be at risk if Glencore loses liquidity. Another analyst thinks that no U.S. bank has as much as $1 billion at stake in Glencore, focusing on Glencore’s largest credit facility with an estimated balance of $15 billion. This line of credit is said to have 34 lead banks. We might find out more about specific banks’ exposure in the footnotes to this month’s financial statements.

Layoffs are on the way at Standard Chartered Bank. The bank has told its staff it is preparing to cut 1,000 jobs. Besides its own operational problems, Standard Chartered is affected by the economic slowdown in East Asia.

BP will end up paying about $55 billion in claims from its 2010 oil spill in the Gulf of Mexico, which killed 11 workers on the drilling platform and spread oil over most of the Gulf. The liability covers only a small fraction of the damage done and is not a large enough sum of money to represent a threat to the company’s continuing operations.

In another major corporate liability case, Volkswagen has set aside €6.5 billion to cover costs related to its diesel software problems. Its ultimate costs could be several times higher if it has to buy back a large number of defective vehicles, and it is not known what banks might be affected by the liquidity problems that would result at Volkswagen in that scenario.

S&P has warned about economic impact on Australia in particular as a result of a predicted recession in China.

Milwaukee-area bank Securant Bank & Trust has issued $11 million in new stock, equal to about 6 percent of assets. It’s a move that the bank said was necessary to avoid bankruptcy. Securant had spent the last two years selling assets and cutting costs after the FDIC ordered the bank to raise capital and improve its operations.

Thursday, October 8, 2015

Drawing Lines for Ports on Hudson Bay

It is already a logistical challenge to build ports on Hudson Bay, which until recent times was frozen over most of the year. It is still a very cold place with limited resources and transportation. On top of the logistics, there is an administrative challenge. The borders of the provinces that have plans for northern ports, Quebec, Manitoba, and Ontario, are placed right on the waterline, so that while a port might be within a province, its piers would not be. It is an untenable situation for law enforcement at least.

With the first major ports just a few years away, it is a question for Ottawa to look at. Probably the borders should be redrawn at fixed points extending at least a few miles from shore. The borders have become a matter of urgency for Quebec as it tries to draw up a maritime strategy, facing border questions not just along Hudson Bay but on its northeast coast on Hudson Strait. That conundrum probably provides enough of a push to have the border question taken up in the near future.

Wednesday, October 7, 2015

Flat Seasonal Staffing at Retail

It is a difficult holiday shopping season to predict, with household income up but consumers showing signs of reining in spending, so it’s no surprise to find that U.S. holiday staffing plans are around the same level as last year. Some of the largest seasonal employers have said they plan to hire the same number as last year: Target, UPS, Walmart, Macy’s. Toys “R” Us is the largest retail chain reducing its seasonal staffing, but it is cutting back its plans only 11 percent. Amazon has not finalized its seasonal hiring plans, but with half a dozen new logistics locations opened this summer, it is fair to guess Amazon will be employing more people in total than last year. Retailers have 3 percent more permanent staffers than last year according to a Challenger, Gray & Christmas survey, so that may reduce the need for temporary workers during the holiday shopping season. Retailers are also investing in new technology that it is hoped will smooth the shopping experience, following a decade of limited investment at retail. If the new generation of apps helps shoppers find what they are looking for incrementally faster, that should reduce crowding in stores and reduce the peak staffing levels needed.

Sunday, October 4, 2015

The Random Center and the Gossip App

I just spent more than an hour being fascinated with the story of a forthcoming app that encourages people to write down their opinions of other people. When you rate someone with this app you provide a numeric score which can be averaged together with everyone else’s opinion of that person. The app presents itself as a sort of social-media popularity contest in which, if you possess many of the virtues that make up popularity, you may strive to achieve the lofty goal of a 4 rating on a scale that goes from one to five.

It won’t work, though, and not just because the app strikes most people who hear about it as a terrible idea. The 4 rating a user is encouraged to strive for is out of reach because of the mathematics of social networking. If everyone’s opinion of you is considered equally, then your rating is determined by people who barely know who you are. These are people whose opinion of you is based on superficialities, hearsay, and having confused you with someone else. It is the people who barely know you, or who think they know something about you but perhaps don’t, who determine your rating simply because there are so many more acquaintances than friends. If you have 100 friends while 10,000 people have met you or heard about you, it is the larger group that matters when everything is averaged together. Obviously there is a high degree of noise and randomness in opinions that come from people who don’t really know the first thing about you, and random values tends to fall near the center on average. To consider this question, imagine how you might rate all the people you have met over the past year. It would be hard to form meaningful opinions. In most cases you have nothing to go on. You would mostly be guessing. With so much randomness it may be impossible for anyone to remove themselves from the random center far enough to be ranked as low as a 3 or as high as a 4 when the scores are averaged together.

There is a more fundamental reason why the new popularity contest app I spent so much time reading about won’t work. It is not really a popularity app. Even if the network is the mobile Internet, the medium is writing, and writers are also asked to provide a numeric score, what the app is fundamentally all about is talking about people who aren’t there. In other words, it is a gossip app at heart. One of the problems with gossip is that you can spend long periods of time immersed in it and come away with no information of practical value. After all, isn’t that what I just did? Gossip makes itself seem important, but when you realize how much time you are wasting, time you could have put toward an activity that would better your situation, the appeal fades. An app rooted in gossip will inevitably meet the same fate.

Saturday, October 3, 2015

Tip-Shaving in the U.K.

The tip-shaving scandal that nearly brought down a Philadelphia restaurant chain a year ago has popped up in the U.K., where the public has learned of a dozen prominent restaurant chains systematically skimming off as much as two thirds of table servers’ tips. Some of this is legal under current U.K. laws if done correctly, but customers aren’t happy about any of it, and restaurants that get caught out are promising to mend their thieving ways. In the end, the laws will likely change, and at least one restaurant chain will collapse under the weight of customer disapproval, but there won’t be any prosecutions. As in previous tip-shaving cases, that’s because it’s hard for justice officials to imagine that the law is intended to prevent the powerful from preying on the weak.

Friday, October 2, 2015

This Week in Bank Failures

National Bank of Greece (NBG) may be selling its Turkish subsidiary Finansbank. The sale could bring in €3bn, enough to cover the estimated capital shortfall at NBG. NBG had previously been thinking of selling a 40 percent stake in Finansbank, but could get a better price selling its 99 percent stake to a single buyer.

Lawmakers in Greece are on track to complete legislative reforms this month to qualify for euro zone bank recapitalization funds in November.

In Russia, 1/6 of privately owned banks have closed in the last two years, with the national economy slowed by low oil prices and isolationist politics. B&N Bank, gambling that the economy turns around soon, has become the fifth largest bank by buying up seven of its competitors so far. With its latest acquisitions, B&N may now be large enough to be considered too big to fail.

The specter of bank failure returned to Georgia tonight with state regulators closing The Bank of Georgia, with 7 locations southwest of Atlanta and a quarter billion dollars in deposits. Fidelity Bank is taking over the deposits and purchasing all but a few of the assets. The failed bank had specialized in real estate loans.

In the opposite corner of the country a much smaller bank failed. Hometown National Bank in Longview, Washington had less than $5 million in deposits. Twin City Bank is taking over the deposits and purchasing most of the assets.

Thursday, October 1, 2015

A Narrow Window for Hits

Now that Apple Music’s 90-day free trial phase is winding down, can you name the big hit songs of the last few months?

If you’re like most music fans, you can’t name more than one or two new hits released during the last quarter. You probably recognize several of the new songs when you hear them, but don’t know them well enough to rattle off a list of titles. The well-publicized launch of Apple Music had a chilling effect on new releases, with many held back so they wouldn’t cross paths with the free trial period. This happened even though Apple decided at the last minute to pay royalties during the trial period. There may be a flurry of memorable songs in the next five weeks, as recording artists and record companies try to fit their potential hits in the narrow window between the Apple Music trial period and the Christmas music season. Timing of product releases has always been a tricky question, but it is rare that the timing of record releases becomes so constrained. It shows, at least, how much impact institutional changes can have on the publicity efforts of musicians.

Monday, September 28, 2015

Shell Abandons Arctic Plans

Shell now admits it’s no match for the Arctic Ocean. The oil company will remain in the Arctic just long enough to plug its latest exploratory well.

From a distance it was obvious all along that Shell did not have the right stuff to operate in the Arctic. A wing and a prayer combined with equipment designed for use in the friendlier waters of the Pacific was obviously not going to be enough to conquer the Arctic, and indeed, Shell’s ships had to be rescued multiple times when the weather took an unexpected turn. It didn’t own an icebreaker and had deployed only an off-the-shelf weather station. From Shell’s point of view, though, it was not about to start designing custom equipment for an ocean that might not have much oil under it. As it is, the company spent billions of dollars this summer drilling a test well that didn’t provide nearly enough oil and natural gas in return. With an annual R&D budget around $30 billion globally, the company is not so well funded that it can repeat that process over and over hoping eventually to strike it rich.

Falling oil prices don’t help, and neither does the retreating Arctic sea ice. The larger areas of open water in the Arctic Ocean make navigation easier but have more than doubled the size of waves and intensity of storms. The more active weather reduces the number of days on which an oil rig can operate. Despite the obstacles, the idea of oil in the Arctic lives on. When oil prices revisit their historic highs of a decade ago, it’s likely that Shell or someone else will come back and try again to strike oil.

Friday, September 25, 2015

This Week in Bank Failures

Hudson City Savings Bank got caught redlining — going out of its way to avoid nonwhite borrowers and low-income neighborhoods. The bank studiously avoided opening branches in minority neighborhoods, and it refused to receive mortgage applications in branches located near low-income neighborhoods. When customers applied for mortgages for houses in low-income neighborhoods, the bank often simply ignored them, Justice Department investigators say. The bank has agreed to pay $5.5 million in penalties and spend at least $27 million in mending its lending practices.

Turning Vatican Bank into an honest, transparent operation has also made it profitable. The bank has gone from barely breaking even to earning $75 million in profit last year, and much of the improvement can be credited to a reform process that largely eliminated the bank’s money laundering practices and ties to the drug trade.

Investigators in Germany searched at least 30 buildings in a tax-evasion probe of Maple Bank, which has its headquarters in Frankfurt but is owned by a holding company in Toronto. Investigators believe the bank was involved in a stock-trading scheme designed to avoid paying taxes on dividend income.

A credit union failed yesterday. The NCUA liquidated SWC Credit Union, with 300 members in Tampa, Florida. Members were employees of or otherwise connected to the Sears retail chain.

Wednesday, September 23, 2015

2 Signs of a Slowdown

Here are two indications of a possible economic slowdown:

Monday, September 21, 2015

TV Declines, Especially Among Younger Viewers

The TV industry now admits that people canceling their TV subscriptions is a trend. NBC News looks at a Magid Advisors study and finds trends that TV carriers and content providers might worry about. Of the 3.7 of TV cable and satellite subscribers who say they are very likely to cancel within the next year, 77 percent cite other sources of TV content, but 23 percent say that is not a factor. Buried in the worries about online video content providers, the bigger trend is that an increasing number of TV subscribers never find time to watch. This is especially so with younger viewers. From the NBC News story, citing Magid:

[I]n the 25 to 34 age-range . . . 7.1 percent of pay TV subscribers said they were "very likely" to cancel their service in the next 12 months.

The commercial culture that commercial television feeds is partly to blame for the decline in television. Commercial culture largely created the consumer time pressure trend, in which most consumers have more things to do than time to do them. It is inevitable that TV viewership is one area that gives way when people run out of time. As long as consumer time pressure continues — and there is no end in sight — the total TV audience will continue to erode.

Sunday, September 20, 2015

Confident Consumers Out Shopping

I saw a busy weekend at retail in Downingtown and around the local area, with a normal busy Saturday followed by a surprising active Sunday. Notably, today I saw shoppers in the early stages of buying Christmas gifts in spite of the summer weather. The weather was favorable for shopping, and Sunday might have seen more early shoppers as football fans prepared for a late game on television, but that isn’t enough to explain the burst of shopping. It may also be a measure of consumer confidence, with employment continuing to grow and the risk of a government shutdown next week looking remote at this point.

Friday, September 18, 2015

This Week in Bank Failures

The Fed failed to raise interest rates after more than a year of signaling an interest rate hike this month. The continuation of low interest rates is good and bad news for banks. Banks and workers alike are squeezed by the artificially low rates, but banks and borrowers in a financial hole, as more than a few still are, gain more time to dig out.

A U.S. appeals court threw out most of a class action on sovereign debt of Argentina, saying the judge acted improperly in expanding the class to include bondholders not affected by the 2002 default. The court has struggled with the scope and scale of the case, which is years away from final resolution.

The NCUA placed a credit union into conservatorship: Bethex Federal Credit Union with 5,000 members in Bronx, New York. Separately, state regulators in New York took control of Montauk Credit Union, with 3,000 members, and placed it in NCUA conservatorship. The credit unions will continue to operate while being managed by the NCUA.

Wednesday, September 16, 2015

How Migrant Policy Affects Birth Rates

With the refugee crisis in Syria and adjoining territories and a prediction of a similar crisis to face Gaza in a few years, it seems an appropriate time to look at the topic of spiritual forces that affect birth rates.

It is a topic that is not often discussed, so the connection between births and a refugee crisis might not be obvious to most readers. If you have not heard these topics connected before, it will seem obvious as soon as you connect the dots. To try to state it simply, the willingness of any potential parent to have new children is influenced by what the parent hears about the value of people in general. Whenever we hear that more people in general would solve a problem, it makes the birth of a new baby seem more beneficial. Whenever we hear that people in general are causing a problem, it makes the birth of a new baby seem more like a problem. This is only a subtle shift in attitude, but the effect is easily measured in the aggregate. For example, during a severe recession such as the one the United States experienced a few years ago, birth rates fall sharply.

Start looking for stories that suggest a problem based on either too few or too many people, and you find them everywhere. Every time a lack of customers leads a mall to close or a college to cancel a course, you get the feeling that there is a place for a few more people. With every traffic jam, mass layoff, famine, or sold-out show, you get the feeling that there might not be a place for a few more people.

There is some reason to think this distinction might be instinctive. Birth rates of prey species in general fall as population increases. This is not merely a reaction to a food crisis as previously supposed, but occurs well before food shortages reach crisis levels. It is something of a stretch to apply that finding to humans, but still, it is a possibility that some comparable reaction exists in humans too.

In the news, reports that imply too many people outnumber those that imply too few. This is especially evident in official reaction to refugees and foreign workers. When a country like Hungary deploys tons of barbed wire on its border or a popular presidential candidate says five million people will have to leave the United States, it sends an unmistakable message. It says we believe we have too many people already.

It is a message reinforced by stories of 30,000 more layoffs at Hewlett-Packard on top of 55,000 that already took place, and this on the same day that we heard of 33,000 layoffs at two giant banks. U.S. unemployment has been above 5 percent for 8 years straight, college debt has become the largest financial burden in the U.S. economy during this period, and the most prominent political debate has been over whether people should be allowed access to health care. Stories like these create a picture of a world already straining to accommodate such a large number of workers.

In truth, there are enormous costs to support the world’s population, which has increased by a factor of 10 in less than two centuries and continues to increase. At the same time, financial policymakers often complain about the effect of falling birthrates on retirement funding, especially in Europe, and there are incentives in a few countries to try to encourage more births. The incentives are having little effect, though, and those who are wondering why need only look at the many headlines that say, in many different ways, how there are too many people already.

Tuesday, September 15, 2015

Record High Job Openings, But Only Steady Hiring

Here’s something that might be hard to figure out: U.S. job openings reached a record high in July, but hiring has not increased much. What does this tell us about the job market?

First of all, it shouldn’t be too surprising that job openings move more easily than hiring. Creating a job opening is fundamentally a budgeting action. It may involve some paperwork, like writing a job description, but there are few controls on this process. Any job description will serve to hold the place of a job opening. Actual hiring is not nearly so easy. To attract qualified applicants the job description has to mean something. A would-be employer has to consider potential candidates, probably interview several, and ultimately persuade one of the candidates to take the job. This is hard work at least, and there is no assurance that it can be accomplished for any particular job opening. With so many steps along the way, there are hundreds of ways the hiring process can be delayed or derailed.

I’ve written at length about how unrealistic job descriptions can be. Employers routinely require 10 or more rare skills that don’t have any particular tendency to go together, not stopping to think that the ideal worker they are describing might occur only once per one trillion people. Then the proposed salary might be the market rate for a worker possessing just one of the required skills. Some job openings are no more than excuses. Lower-level managers who are told to hire, but who don’t want to do so, can create a whole range of obstacles for job applicants just so they can tell the middle managers they report to, “I can’t find anyone!”

Employers might know they have to offer more money to fill their vacant positions, yet still take time to make the adjustment in the budget. As long as the labor shortage within the company has not reached a critical point, these unfilled positions can remain open indefinitely. Job openings, then, can’t always be taken literally. The existence of a job opening is a sign of a company potentially willing to hire. It is not a gauge of either eagerness or urgency.

Friday, September 11, 2015

This Week in Bank Failures

The total number of U.S. bank branches continues to decline despite the lack of recent headlines on the subject. The days when a major bank would close 50 branches in a state on the same day might be over, but branches are closing more quietly at a rate of about 3 per business day, or almost 1 percent per year. Banks are cutting costs and hope they are saving time for their customers by moving more transactions online.

Standard & Poors classified Brazil debt as junk amid concerns that the state-owned oil company could fail. Brazil is leaning on state-run banks these days as privately owned banks, facing financial pressure, have become more reluctant to lend.

Monday, September 7, 2015

A Dairy Protest Gone Horribly Wrong

Sometimes a protest is just the wrong idea. That was especially evident today with the dairy farmer protest today in Brussels. Dairy farms in northwestern Europe produce more milk than Europe could possibly consume. With the persistent overproduction, the milk they produce sells at ruinously low prices. The situation has been getting worse for the farmers in spite of years of warnings about the excess. Dairy farmers do have a reason to complain. The protest today, though, was not just ill conceived, but also ill timed. In the end, it was a protest gone horribly wrong. Europe today is worried about the inflow of people escaping the wars of the eastern Mediterranean and had no interest in hearing wealthy farm owners argue that their subsidies are too low. Drivers and the news media tried to ignore the tractors that tied up traffic until a police officer suffered an injury serious enough to be wheeled away on a stretcher. After that, the water cannons came out and the protestors were lampooned on social media. Under the circumstances, it would be hard for anyone to defend dairy farmers trying to prevent a meeting on the refugee crisis from going forward. Citizens and politicians alike tonight are surely wishing there weren’t so many dairy farmers, and there is a chance they may seize on the idea of phasing out dairy subsidies as a way to correct the imbalance. Of course, that is the opposite of what the dairy farmers were asking for, but it is the right answer in terms of economic and health policy. After today’s action, the dairy farmers’ legislative friends might not be quite so willing to speak out in defense of the subsidies that are at the heart of the problem.

Thursday, September 3, 2015

Corruption and a Political Mess in Guatemala

The political situation in Guatemala is just the latest cautionary tale about the way corruption can make a mess of things. A retired general ran on the promise to fix corruption, but now faces arrest after prosecutors suspect he was in the middle of a customs bribery scheme as president and the legislature voted to take away his immunity from prosecution. The legislature will be meeting today to name an interim president.

At Reuters:

At Guardian:

Monday, August 31, 2015

Wayne Dyer’s Advice on Retirement

When I think back over the life and work of Wayne Dyer, for some reason what I remember first is his advice on retirement. Perhaps it is because it was one of his farthest forays into my chosen field of economics. Retirement, Dyer insisted, was not something to aspire to, but a fraud that you were better off not participating in. It was a concept that powerful commercial interests would try to enroll you in, but your own interests lay elsewhere. At the risk of trying to quote from memory, he said something rather like, “Take the word ‘retirement’ out of your vocabulary.”

I was skeptical, but in the end, I became convinced that he was right. Mortality and disease statistics back up what he was saying. So many people die the year after they retire that it would seem you will live a happier life if you find a way to keep working in your old age regardless of what the institutional forces around you say you should be doing. If you are forced out of one job because of your age, you can take another. If no employer will have you, you can arrange for work on your own terms. Statistically speaking, that is the most reliable way to stay healthy and happy. But if the best strategy is to maintain and protect your ability to work for as long as you can, then what is the use of retirement?

Dyer himself never quite retired, though he lived to be 75. In his recent interviews, his message and advice continued to evolve as it always had. His web site lists 11 upcoming events, appointments he won’t be keeping. The last listed is a conference near me in September 2016, a keynote address that I surely would have attended. When I reflect on this, I ask myself, why wouldn’t you want to live your life such that your death represents not merely an occasion of sorrow but an actual, practical loss to the people around you? I think this is something to aspire to, rather than the commercial idea of an endless vacation. It you are inspiring people, solving problems, doing some kind of useful work that not just anyone can do, then after your departure, you will be missed in more ways than one.

Friday, August 28, 2015

This Week in Bank Failures

Workers at HSBC in the U.K. were working late tonight to fix a failed payments system that had dropped an estimated 275,000 payments. Most of the payments were direct deposits of paychecks, so it was a high-profile gaffe from a bank that has faced more than its share of problems this year.

The U.S. Department of Labor has tentatively declined to recommend waivers for three giant banks that manipulated base rates, and in one case, also manipulated stock prices. Without the waivers, the banks will have to stop managing retirement accounts.

Bad loans are starting to pile up in China, according to the latest reports from the largest banks there. Construction companies have long been credit risks in China, but factories and retailers are starting to miss payments too as the manufacturing sector slows.

Bloomberg reported on a fake Goldman Sachs in China. A leasing company using the Goldman Sachs name, but not connected to the real Goldman Sachs, is said to have links to organized crime.

A credit union was liquidated today. State regulators in Iowa put SCICAP Credit Union, with around 1,000 members, into receivership. The NCUA then transferred most assets and member accounts to Community 1st Credit Union.

Lower Fuel Prices, More Driving Miles

With U.S. fuel prices down by 1/3 since last year, you would guess that people were driving more, and we are, but not a lot more. Total vehicle miles as estimated by the U.S. Department of Transportation are up about 4 percent from the year before. That is enough to set an all-time record for the country, as population growth adds to the slight increase in individual driving.

The increase of 4 percent is barely enough to create an increase in the total amount of motor fuel sold. The countertrend of increasing fuel efficiency, which includes electric, natural gas, and hydrogen vehicles is probably enough to cancel out the increased driving distance in the long run. The replacement cycle for vehicles is also part of the fuel efficiency trend. When vehicles from the 1990s are retired and replaced with new vehicles based on current designs, fuel efficiency goes up. Of course, if the quantity of fuel is about the same, that means the revenue from fuel has declined by about a third from last year.

Thursday, August 27, 2015

Climate Change Hits Barrow

A webcam at Barrow, Alaska shows coastal flooding from a moderate storm in the Arctic Ocean to the north. It is not a severe storm by Atlantic or Pacific standards, but Barrow was built on low-lying land. When Barrow was built no one expected the town would see the effects of summer storms because the sea ice that previously covered the Arctic Ocean would dampen any storm effects. In the last 20 years similar storms have threatened villages on the west coast of Alaska. Now with retreating sea ice, this effect has reached the north coast.

As sea ice retreats in future years and the sea waters warm, this kind of storm at Barrow will be a routine occurrence. It is easy to see that some buildings will need to be reinforced against the waves. In the long run, with a sea level rise of 7 meters on the way within 200 years or less, the entire town will eventually have to move to higher ground.

Update: In Alaska Dispatch News: High winds cause flooding in Barrow, prompts Shell to pause oil drilling