Special Report: 9.9.2009

Posted by TED Magazine on Wednesday, September 09, 2009

I HEAR & FEEL YOUR PAIN.

Maybe it won’t last forever?

One great thing about being a business journalist is that you “know” a lot of stuff. In fact, the stuff in my head is a lot more interesting than the stuff I have been able to write. Here’s stuff I’ve heard (off the record info) in the past few weeks:

• From a distributor in what I once regarded as a boomtown: “We’re [his company] about to go through a second trough right about now.” 
  
  
• From a distributor sales fella, talking about a home builder with whom he does business: “They used to have 250 people, now it’s 20.”
  
  
• From a project manager for a Midwest electrical contractor: “We bid this job at $1.4 million so we could take it. That is, we bid it under our cost. Two other companies [ECs] came in underneath us, at about $900,000 each. Yes, we’re a union contractor, but the difference here in what we pay and what they pay isn’t that big, and I had included that in our price. Later, I talked to the GC. It turns out both [the other ECs] left a generator out. This happens sometimes, one bidder leaves something big out—and ends up winning. Sure. But two of them?” 
  
  
• From an Atlantic Coast electrical contractor: “We haven’t laid anyone off, not yet. We’re taking jobs below our cost, of course, to keep our people working.”

Your humble reporter is NOT a believer in the saying, “no pain, no gain.” I ran the New York Marathon in 1978; finishing it was painful, but great (after the fact). But then I got really injured, running, shortly thereafter. The pain was such that I could not run much anymore. That really sucked.

There’s also a guy out there who said “that which does not kill us makes us stronger.” I hear that a lot. What I remember is that the guy who wrote this was named Nietzsche. This was a crazy person. He was NOT right.

There’s another guy, named Greenspan. He was called “The Maestro” and even was awarded a knighthood. I keep thinking about him, especially after conversations like the ones cited above; most of our economic troubles can legitimately be laid at his door. Prolonged periods of easy money have a cost—something that Ben Bernanke apparently refuses to think about.

In this case, it might be a case of “you pay for short-term gain with more and more long-term pain.” Or: “That which appears to make us stronger is actually slowly killing us.”

 
HOWARD’S NOT GIVING UP!

…knocks bulb straightjacket

Before it was a blog, TedMag’s Special Report, on June 4, ran nearly 1,500 words on Revolt in Lighting Land—a look especially at how famed lighting designer Howard Brandston used a LightFair podium to slam the idea of banning incandescent bulbs.

Yes, that Howard Brandston, perhaps the most famous lighting person since The Creator (he said “let there be light” before Howard could do it). Now, Brandston has penned 663 words on the subject (printed in The Wall Street Journal). The heart of it:

Here's my modest proposal to determine whether the legislation actually serves people: Satisfy the proposed power limits in all public buildings, from museums, houses of worship, and hospitals to the White House and the homes of all elected officials. Of course, this will include replacing all incandescents with CFLs.

At the end of 18 months, we would check to be certain that the former lighting had not been reinstalled, and survey all users to determine satisfaction with the resulting lighting.

Craig DiLouie’s opinion on the subject is here. My mind wanders to this: Let’s say incandescents are a bad energy choice. In a nation of people who need to do more reading (including, apparently, the contracts some of us signed to buy houses…) do we really need to save energy at the expense of making it harder to sit down and read?

FACTS YOU MIGHT WANT TO KNOW

Cleaning up after the sweeper

Perhaps you’ve noticed the DP Monitor in TED’s Index Room (here’s a link to the Sept. 3 version). It includes a bunch of data you can use to monitor “the recovery” from “The Great Recession.” Or, in Salimando-ese—the whatever-it-is from the whatever-it-was (assuming that’s actually over). Two data points in there are “inbound shipping” (source: Port of Long Beach, Calif.) and “outbound shipping” (source: Port of Los Angeles).

From the Aug. 23 Los Angeles Times: “The ports of Los Angeles and Long Beach are so busy that they move more cargo than the next five largest U.S. ports combined.”

Along the same lines, the Index Room includes another new addition—The Data DIGest, which is put together by economist Ken Simonson of AGC (who also writes for TED). Did you read carefully the Aug. 26 edition, posted here? If not, you’ll want to note this paragraph (note that “PPI” = producer price index)—

PPIs for finished buildings, which include contractors’ overhead, labor and profit, and for nonresidential building work by subcontractors mostly fell in July but rose over 12 months: new industrial buildings, -3.8% and 0.3%; warehouses, -2.0% and 1.4%; schools, -0.1% and 7.7%; offices, -2.0% and 2.7%; concrete contractors, -0.9% and 2.2%; roofing, 0.1% and 8.6%; electrical, -1.7% and -0.2%; plumbing, -1.0% and 4.5%.

RENEWABLES FUNDING IS A-COMING

…comments NOT from the government

What about the stimulus? What about the renewables boom? If you’ve been thinking along those lines, you need to read this.

MasTec is a contractor that does, typically, “outside”-ish work—including telecom, utility work, etc. It’s into the wind, now, too. Here are a couple of paragraphs from the mouth of Jose Mas, president/CEO, in the company’s July 30 earnings conference call:

Since the beginning of 2009, we have bid or provided pricing on over $1 billion worth of wind projects. Of that total, we have been formally awarded approximately $100 million, we have lost approximately $275 million, and are awaiting final results on over $600 million worth of projects, a large number of which we believe we have a very high likelihood of winning.

Part of the challenge we are having is that, the number of these proposals and bids have been out since early this year. While pricing activity and dialogue with customers on these projects is very active, final awards and firm start dates are not materializing. However, we believe that this is a temporary issue. We expect a major catalyst to be the adoption of final language and guidelines around the stimulus’ federal government loan guarantee program.

The program currently has allocated $7 billion to be used to pay for credit subsidy costs which will translate in approximately $70 billion of loan guarantees and project spending. That should fund well over 40,000 megawatts of renewable energy projects that would need to begin construction by September 30th of 2011.

You might question Jose Mas’s sanity. Or you might credit him for belief in what’s coming and promptly discount that. Or maybe he said this to boost his stock over the short term (that happens). But the guy’s name is on the door; I think he’s in it for the long term. I choose to give credibility to the idea that 40,000mW of renewables construction is going to begin, and probably before the Sun explodes.

SOLAR-RIGHT-NOW FACT SHEET

…“new distribution channels?”

Away from the Internet, I found a transcript of an April 21 appearance by Barry Cinnamon, chairman/CEO of Akeena Solar, at an “emerging growth conference.” I am not familiar with this company or its stock (symbol AKNS). However, I like what Cinnamon had to say and the way he said it. Here is some of it (selections & emphasis added by Salimando):

“…look at everything that you knew about the solar industry over the last five years and forget about it…three specific points:

“First, the cost of the panels are dropping like a rock, and that’s just supply and demand. There’s an oversupply of polysilicon. There’s lot of panel production capacity.

“Second, installation costs for these systems are also dropping very, very quickly—mainly because of new technology…things like our Andalay panels, where we’ve taken all of the pieces and we have built it into the panel. So we have 80% fewer parts, much less labor. The panels put out AC power instead of DC, so they’re much safer and easier to install. So you are seeing a two-fold reduction in the cost of the inherent panels and the cost to put them in.

“Third, we believe that new distribution channels are going to open up when you look at solar panels that are much cheaper.

“…Panel pricing is going down by a couple of dollars a watt…with these new technologies, with integrated racking, wiring, grounding, and AC panels, the installation cost are going to be a fraction of what they are now, going from $2 to $.50 cents a watt. And these new companies that come in are going to have different business models, with different profit requirements.

“So when you add all that up, you’re looking at the old industry—which is installed systems at $8-a-watt—to the new industry, with installed costs of $3.50 a watt. And they you put the 30% investment tax credit on top of that, it’s $2.45 a watt.”

Remarks above came from an April event; you can read Akeena’s Aug. 6 earnings call here.

DON’T MISS THESE!

Linkfest No. 5

ON LEDs:

1. There’s a Canadian magazine, Electrical Business. The magazine’s site has videos—short bursts from an editor, on key topics. Here he is weighing in on the CFL vs. LED debate. It’s short, not sweet, and gets right to the bottom line. 
   
   
2. The August issue of IEEE Spectrum included a feature with the Chiller-channel type headline, “The LED’s Dark Secret.” The key word here is DROOP (I am not making this up). The article, including footnotes, runs just past 4,000 words. BUT you’re not going to want to stop there—at the time of my visit (Sept. 4), there were another 3,300-plus words from people with comments (and it wasn’t typical Internet flame-war-type baloney, either).

According to the article, there are differing theories as to the cause of droop. But (according to the concluding sentence), we don’t yet know the answer to “the burning question that remains: ‘What causes droop?’ ”

Are Sunspots Disappearing?—from NASA. Extrapolating current trends [which is always dangerous!], “sunspots could completely vanish around the year 2015.”

State tax decline in Early 2009 was the sharpest on record—from the Rockefeller Institute. Link takes you to a 19-page PDF.

Even if you’re headed for Seattle for NECA’s Sept. 13-15 show, you won’t go back and read up on the voters’ defeat of the “green”-ish referendum (put on the ballot by the city council). Had it passed, Seattle supermarket shoppers would have paid $.20 for each bag provided at the supermarket checkout counter (paper or plastic).

Twittering toaster, twittering toilet—no, I am most definitely NOT hallucinating.

QUESTIONING THE RECOVERY

Bubble blowing to the extreme

Global economies have blown lots of bubbles—and seen them pop—in the past 10 years. We’ve had bubbles in NASDAQ, the telecom sector, the dot-com sector, home and commercial real estate prices, and mortgage finance (as well as all kinds of debt). 

Question No. 1 is “how do we escape a Depression?” that should have (or has) resulted from these sequential nightmares. Question No. 2 is “if our solution is to create yet more debt, do we put ourselves at risk of blowing another—perhaps final—bubble?”

Governments in the U.S. and China are substituting huge debt creation for systemic use of credit (for productive or unproductive purposes) by businesses and individuals.

In China, citizens are still savers; combined with a demand dip from the West, you have a recipe for disaster (in a country that, annually, must create new jobs for millions). The government directed banks there to loan money hand-over-fist and, if anything, regional commissars and bankers responded enthusiastically. Were any of the loans needed? Were the borrowers qualified to put money to work productively? Time will tell.

In the U.S., people who owned houses borrowed heavily from 2002 to 2007 (dipping into home equity) as did first-time home buyers (some clearly not qualified). The resulting flood of borrowed money floated the economy. Now that (some) lenders ask 20% equity before financing a mortgage, the volume of housing flips has dipped, as has construction. How do you fix a steep decline in consumer debt? Thus far, the answer is for the government (which can borrow cheaply, compared to the rest of us) to expand borrowing.

Question No. 3, for electrical distributors, is what happens if—from the perspective of, say, 2015—this really is the blowing of the final  economic bubble?If we’ll soon have serious regrets about what’s happening now, you might be circumspect in expanding inventory to match any apparent boomlet. When you can borrow, you might well take advantage—if you can prove (to yourself) that you won’t regret it come the absolutely worst case.

ANOTHER LOOK AT THE U-6 RATE

…recent historical numbers

This blog has focused on the national U-6 unemployment rate, instead of the “headline” rate that you see in the general media. The U-6 rate, found in Table A-12 of each monthly employment report from the Bureau of Labor Statistics, combines

The unemployed as counted in the headline rate;

plus

Those not counted as unemployed, but in the labor force and “not looking for work” (a/k/a “discouraged workers”);

plus

Those working part-time who really would like full-time jobs.

Joe’s assertions: 

A.     This number is a lot more important than the “headline” number.

and

B.     In making comparisons with what happened in the 1930s, or in Europe right now (for two examples), better to use the U-6 rate than the headline.

Look at the U-6 rate as a measure of the real slack in the economy, if you like. Or look at changes in the rate as likely indicators of increasing or decreasing consumer demand.

You can argue with any of that. Here are the past five years of July U-6 unemployment rates (not seasonally adjusted):

July 2005 = 9.1%

July 2006 = 8.8%

July 2007 = 8.6%

July 2008 = 10.8%

July 2009 = 16.8%

[Incidentally, the NSA U-6 rate in the Sept. 4 BLS report on August employment was 16.5%. A slight drop, at the same time that the “headline” rate bumped up from 9.4% in July to 9.7% in August.]

There are 154.5 million people in the civilian labor force, according to the July 2009 BLS employment report (interestingly, that’s about half the population). The difference between this past July and two years ago is 8.2%.

Multiplying that out, it equates to roughly 12.7 million people who were gainfully employed in mid-2007 who are not in that situation any more, and who indicate that they wish to work full-time.

If there really is a recovery, you’d expect the U-6 to shrink on a monthly basis. Right?

There are other data embedded inside the employment report. On the same level as U-6 (i.e., BAD news) is the chart below, from Barry Ritholtz’s blog.

There may be explanations for how this chart makes you feel—and how you shouldn’t feel that way (“unemployment is a lagging indicator”)…but essentially, it probably scares you. It scares me. IT SHOULD!

	Joe Salimando of EFJ Enterprises is a consultant, web content provider, and wordsmith based in Oakton, Va. To contact him, call 703-255-1428. See also The EleBlog.
Personal Disclaimer: The appearance of the ambling pachyderm is indicative of the writer’s obsession with elephants, not his political leanings.
IMPORTANT NOTE: THIS COLUMN REFLECTS ONLY THE OPINIONS OF ITS AUTHOR AND DOES NOT REFLECT THE OPINIONS OR POLICIES OF NAED, TED MAGAZINE, OR THE ADVERTISERS ON THE TEDMAG WEB SITE.