New York Restaurants Adapt to Recession

Restaurant critic Frank Bruni of the New York Times writes that high-end local restaurants have added deals and started acting more solicitously toward diners as their business slackens due to the recession and financial crisis (hat tip to Cheryl): "Restaurants Stop Playing Hard to Get". Excerpt:

Battered hard already by the recession and petrified of what’s to come, restaurants are talking sweet and reaching out in ways they didn’t six or even three months ago. They’re cutting special deals, adding little perks, relaxing demands and making an extra effort to be accessible.

They’ve seldom wanted you so bad, so they’ve rarely treated you so good. If you can still afford to dine out, you’re likely finding yourself enfolded in what the restaurateur Stephen Hanson— who recently closed two Manhattan restaurants, including Fiamma — describes as a big, tight embrace.

The photo above, of the chef Mario Batali (wearing Crocs), Sirio Maccioni (of Le Cirque), and Jean-Georges Vongerichten (mostly cropped out by Blogger) comes from the New York Times article. Vongerichten's flagship restaurant in New York, Jean-Georges, is one of only three restaurants in the city that has earned Michelin's highest, 3-star rating.

Dramatis Personae

For those confused by the sniping in some recent comment threads, this post may offer a partial explanation.

Dramatis Personae

- Dr. Paul Price aka Stockdoxc99: A retired dentist and stockbroker and prolific poster at GuruFocus and Seeking Alpha. Paul tends to invest in a broad portfolio of stocks he determines to be values based largely on historic earnings data and forward estimates from Value Line and other sources. He also constructs options strategies around various positions.

- William Spetrino, Jr., aka Billytickets: Former prolific poster on GuruFocus, blogger, and author of the book "Consume, Consume, Consume Some More: Spend More, Work Less". He tends to invest in a concentrated portfolio of large cap, blue chip consumer names (e.g., MO, KFT) and Berkshire Hathaway.

- Daniel Wahl aka DanielW: American ex-pat living in Vietnam, blogger and investor. Tends to invest in a fairly concentrated portfolio selected after in-depth fundamental research, and is willing to invest in companies before they are profitable based on an analysis of their assets and profit potential. A former poster on GuruFocus and Seeking Alpha.

Sources of Animosity

Between Daniel Wahl and Paul/Stockdoxc: Daniel Wahl once criticized Paul's understanding of risk, by pointing out that a stock's current price in relation to its previous highs and lows indicates nothing about the stock's prospects going forward. Paul then countered with criticisms of Daniel's understanding of risk. At the time, the investments Daniel had mentioned on GuruFocus, e.g., LEAPs on Potash Corp. of Saskatchewan, were on a tear. Last year, when some of those investments began to decline (e.g., the zinc miner Strategic Resources) Paul became more zealous in his criticisms. Their dispute then got personal.

Between BillyTickets and Paul/Stockdoxc: I don't remember the origins of this one. Maybe one of the principals can explain.

Between Daniel Wahl and BillyTickets: There is no animosity that I am aware of between these two.

Preoccupied with 1985

One of the endlessly entertaining aspects of the Internet is that, no matter how obscure your interests, someone else probably shares them. For some reason, I found myself thinking of a short-lived sci-fi TV show a few days ago, called Otherworld. In the show, pitched as a "Lost in Space" on earth, the Sterling family (pictured above) accidentally passes through a portal in the Great Pyramid of Giza into an alternate dimension version of earth. Although the show only ran for 8 episodes in 1985, it turns out there's a fan site, OtherWorldonline.org, where you can watch all eight episodes online. I've been re-watching them this week. A couple of cultural/historical notes about the show:

- The actor who played the Sterling's teenage son, Tony O’Dell, was born Anthony Dell'Aquila. Interesting that he'd change his name to an Irish one, rather than something more generic (why not just "Dell"?).

- The show's second episode, "The Zone Troopers Build Men", reminded me of John Kerry's faux pas about how if you don't do well in school, "you end up in Iraq". In this episode, the character played by Tony O'Dell, Trace Sterling, gets automatically drafted into the Zone Troopers, the alternate dimension's state trooper-like paramilitary organization, when he slacks off in high school and his grades start dropping. Perhaps this episode's writers shared Kerry's attitude toward the military. There were a couple more interesting footnotes about this episode.

- The second episode guest starred the late Mark Lenard, the actor perhaps best known for portraying Spock's father Sarek in various Star Trek episodes and movies.

- Even though a rudimentary idea of Internet hacking was introduced into pop culture by the early 1980s in movies such as Tron (1982) and War Games (1983) (although the term "Internet" wasn't), the second episode of Otherworld takes a more primitive approach. When Trace Sterling's parents want to find out the terms of his enlistment in the Zone Troopers, rather than hacking into the Zone Troopers' computer system remotely, they break in and steal the Zone Troopers' computer.

Below is the title/credit sequence for the show, which summarizes its premise.

BHP Offers Bleak Guidance

From Bloomberg (Hat Tip: LF), "BHP First-Half Profit Drops 57% on Prices, Write-downs". Excerpt:

The global recession has curbed demand for metals, ending the six year commodity boom that delivered record profits for mining companies. The global economy is worsening and weakness in commodity prices will persist, BHP said today.

[...]

BHP has joined Xstrata Plc and Rio Tinto Group in closing mines, cutting output and slashing jobs because of the recession. Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, last month posted a $13.9 billion fourth- quarter net loss after the plunge in metal prices and the company wrote down the value of some mines and assets.

“If the demand outlook continues to weaken, we will continue to take actions that are required,” Kloppers told journalists on a conference call. “It is difficult to predict when this particular business cycle will turn up.”

This isn't good news for Alloy Steel International (OTCBB: AYSI.OB) in the near-term, as BHP is one of its biggest customers. The mid-term outlook, if BHP sticks with its plan to expand its iron ore production in Western Australia by a third by 2011, may be better.

Alloy Steel should report its fiscal 1Q earnings later this month, so we'll see if it has been able to stay profitable in this environment. Assuming the finished goods on Alloy Steel's year-end balance sheet represent Q1 sales (admittedly, a big assumption -- they could represent orders that were canceled or delayed for several more months), figuring a 40% gross profit margin on them, and then assuming that AYSI's net income equals about 18% of revenue (the case for fiscal '08), I get a guess of ~$192k in 1Q earnings, or about 1 cent per share.

The photo above, of one of BHP's mining areas in Western Australia, comes from BHP's website.

The Pain in Spain

The Times of London reports that, as the unemployment rate has reached 14.4% in Spain in the wake of the real estate bust there, more housewives are turning toward prostitution to make ends meet ("Few jobs and little hope as Spain faces growing crisis" -- Hat tip, Matthew Yglesias). In his post on this on his Think Progress blog, Yglesias notes that, in pre-Euro recessions, Spain had the option of devaluing its currency, which would stimulate its economy by making Spanish exports more attractive. An article by Edward Chancellor in today's Financial Times elaborates on the role the Euro is playing in the current crisis ("EMU on the rocks and all exits closed"). Below are a few excerpts from it.

The euro was created to bring economic stability to Europe. However, the politicians who promoted European Monetary Union ignored inherent flaws in the project. The credit crisis has exposed these flaws. As a result, a number of the weaker eurozone members are facing severe deflation and a quite desperate economic outlook.

The leading European politicians behind the euro project, such as former French president Francois Mitterrand, weren’t much interested in economics. In a new book, The Euro: The Politics of the New Global Currency (Yale) David Marsh shows how these politicians brushed aside the concerns of their advisers as they rushed eagerly towards monetary union. Mr Mitterrand’s vision for the single currency, says Mr Marsh, was “based on emotion, psychology and wishful thinking” rather than rational economics.

It was hoped that the euro would bring faster and more stable economic growth, while exporting Germany’s record of price stability to other members of the single currency. But many potential economic problems with European Monetary Union were identified decades ago. In 1973 Derek Mitchell, a British Treasury official, observed that the loss of exchange rate flexibility would remove a simple method for rectifying imbalances between Europe’s economies. Without the option of exchange rate depreciation, once imbalances appeared “equilibrium could only then be restored”, declared Mr Mitchell, “by inflation in the ‘high performance’ countries and unemployment and stagnation in the ‘low performance’ countries, unless central provision is made for the imbalances to be offset by massive and speedy resource transfers”.

It's worth reading the rest of Chancellor's article. He goes on to argue that the euro is playing a similarly deflationary role today as the gold standard did in the 1930s, but that it would be more difficult for euro-zone countries to extricate themselves from the euro than it was to drop the gold standard.

The photo above, of the Spanish royal family in better times, comes from King Juan Carlos's website.

Robert Samuelson on the Proposed Stimulus Package

In his syndicated column today ("Too Little Bang for the Bucks"), Robert Samuelson makes some good points about the stimulus package as recently passed by the House of Representatives. Key excerpts:

The $819 billion program passed by the House will only slowly provide stimulus. The Congressional Budget Office estimates that in fiscal 2009 (through this September) about 21 percent [$169 billion] of the new spending and tax cuts will flow to the economy.

[...]

A package so large can be defended only because the economy is so weak -- and seems to be getting weaker by the moment. The central purpose is simple: halt downward momentum. Perhaps some of the out-year spending might ultimately prove useful. But the immediate need is for the stimulus package to stimulate -- now. It needs to be front-loaded; it isn't.

Obama's political strategy fails to address adequately the economy's present needs while also worsening the long-term budget outlook. Some of his "temporary" spending increases in practice will almost certainly become permanent. There were tough choices to be made -- and Obama ducked them all.

Much is made of the ideological arguments about government spending versus tax cuts in the context of this stimulus bill, but there's less to those arguments than meets the eye. In practice, since the tax system is already highly progressive, most tax relief targeted mainly at lower income earners will essentially be government transfer payments (e.g., refundable tax credits). The key issue with respect to front-loading any fiscal stimulus is that, aside from the relatively small amount of money that can be spent on shovel-ready infrastructure projects, the only other way to impact the economy this year is through fast-acting measures such as transfer payments (e.g., unemployment insurance, food stamps) and tax relief (e.g., a payroll tax holiday).

From the Dust Bowl to the Super Bowl

Bruce Springsteen is going to play the halftime show during the Super Bowl today. That, and the recent punditry about the prospects of us heading into a Great Depression 2.0, reminded me of this article from the New York Times Magazine on Springsteen from a dozen years ago, The Pop Populist¹. For those who may not remember, Bruce Springsteen wasn't always overtly political; the article describes what may have been his inflection point in moving in this direction, his participation in a Los Angeles rally against California's anti-preference initiative Prop. 209.

The month the New York Times Magazine article was published (January, 1997) Springsteen's Steinbeck-inspired solo album, The Ghost of Tom Joad was nominated for a Grammy for best folk album. In a triumph of incongruous timing, Springsteen had released an album of haunting songs with lyrics recalling the Dust Bowl era (e.g., freight train-riding hobos) on the eve of the dot-com bubble and economic boom of the late 1990s. Maybe he'll play something more upbeat tonight.


¹If memory serves, that issue featured a cover photo of Sprinsteen in a leather jacket with the caption "A Steinbeck in Leather". Unfortunately, the article I linked to doesn't include that photo, and a brief image search via Google lead to some unfortunate results (mostly likely due to the word "leather"). Hence, the image above (via Amazon.com) from Springsteen's album The Ghost of Tom Joad.