Content Section

Latest Updates


Hybrids Race Ahead

Don’t focus on the so-so November sales. The real news is fuel efficiency, with hybrids and electric cars surging, writes Daniel Gross.

November 2012 may not have been the best month for sales of cars in recent memory. Some 1.14 million cars were sold in the month. Analysts expect about 14.4 million cars will be sold in the U.S. this year, and that sales will rise again in 2013. That’s an impressive comeback, but it doesn’t approach the sales levels of 2007.

But it is most likely to be the best month for fuel efficiency–quite possibly ever.

Yes, the Prius did well. Toyota sold 16,505 of the iconic hybrids, up about 8 percent from November 2012. But the difference between now and then is that the Prius–and the hybrids–are just the beginning. Competition, concern over gas prices, innovation, and new standards calling for higher gas mileage are combining to give consumers many more choices. And they are taking it up.

There are cars that run only on electricity, like the Nissan Leaf, which sold 1,539 units.

There are cars that run on electricity and gas, like the Chevy Volt, which sold 1,159 units. There are several new hybrids, and plug-in hybrids, on the market. Overall, Toyota sold 24,682 hybrids—there are four different Prius models plus Lexus hybrids–in the month, accounting for 15 percent of the sales, up from 28.7 percent from the year before. Ford’s new C-MAX hybrid, which debuted in October, and offers a plug-in hybrid option, sold 4,848 units.

And increasingly, cars that rely purely on the old-fashioned combustion engine are more efficient. General Motors offers “Eco” versions of models like the popular Cruze. Ford offers “Eco-boost”—a six-cylinder engine with more sophisticated electronic controls—as an option on many of its models, including pick-up trucks. “About 43 percent of the new Ford-150s sold use this engine,” notes Alan Baum, principal of Baum & Associates, a market-research firm specializing in the auto industry and fuel economy, in West Bloomfield, Mich.

Chrysler, which has been behind the curve in innovation, is playing the fuel economy game by rolling out smaller cars that get eye-popping mileage. In November 2012, Chrysler sold 4,489 Dodge Darts, which can get up to 41 miles per gallon; last November, the Dart didn’t exist. Chrysler’s sales of the gas-sipping Fiat 500 also shot up in the month to 3,603, more than double the November 2011 total of 1,618.

This is all good news for the economy, and for the environment. The U.S. car fleet, which has an average age of 11 years, is like a “rolling junkyard,” as Mazda executive Jim O’Sullivan recently put it. Each month, a certain number of clunkers simply conk out. That’s bad news for the owner. But it means that the typical car leaving the showroom simply gets better mileage than the typical car that is being traded in or junked. As people realize that gas prices may be here to stay, all kinds of manufacturers are marketing fuel efficiency across their portfolios. We may have progressed to a stage where turnover and new car sales make the U.S. car fleet more efficient.

Day 27

Fiscal Cliff #Stalemate

Obama took his case to Twitter, the GOP made a counteroffer, and a right-wing think tank elbowed its way into the debate. Yet still no progress! Are we screwed? By Daniel Gross.

It’s Day 27 of the fiscal cliff hostage situation. Republicans made a counteroffer to the president’s intentionally offensive opening gambit, outlining $600 billion in cuts to entitlements and spending and $800 billion in revenues—to be raised without raising tax rates.


U.S. President Barack Obama speaks at The Rodon Group manufacturing facility on November 30, 2012 in Hatfield, Pennsylvania. Obama made a case for action on "fiscal cliff" legislation and urged congress to work together for a solution. (Jessica Kourkounis / Getty Images)

The president responded by doing what so many bored people in D.C. do to while their way through the long hours of the workday afternoon: he took to Twitter. The irony? The president’s mid-day announcement that he would take fiscal cliff questions at 2 p.m., using the hashtag #my2k, was only the third most interesting thing to happen Twitter that day. First, the pope signed on, choosing as his handle @pontifex Then, news broke that Kate Middleton was pregnant with what may be a British monarch 60 years hence.

With only 28 days left until a perfect storm of tax increases and spending cuts hits the economy, why is the President spending his afternoon on Twitter? Any deal to avert the fiscal cliff will be an inside job. If it happens, it will have to come down to a deal made between Obama and House Speaker John Boehner. But the two of them aren’t meeting regularly. And so the president has taken to playing an outside game. Last Friday, he took a campaign-style trip to Pennsylvania to discuss taxes. On Sunday, he dispatched Treasury Secretary Tim Geithner to the talk shows to speak aggressively. The White House is trying to push the country into pressuring Republicans to compromise—or to soften public opinion in the event that we do, in fact, go over the cliff.

The Twitter press conference was essentially partisan warfare by other means. Before it started, House Majority leader Eric Cantor played his usual role of being a non-constructive jerk: “Mr. President, time to get serious. Let’s protect small businesses and families from a harmful increase in tax rates and cut spending,” he tweeted from his handle, @GOPLeader. Note that Cantor’s tweet was not, in fact, a question. It was a statement. And it highlighted the general Republican modus operandi throughout these budget talks: don’t show any sign of actual engagement, just grandstand and repeat talking points.

For much of 2012, the institutional right believed it could overwhelm the president’s popularity and incumbency through the relentless application of third-party money. That didn’t work out too well for the Romney campaign. But they haven’t given up. The Heritage Foundation, the right-wing think tank, earlier in the day deployed some of its donors’ capital to buy up the designated #my2K hashtag so that it could use it to promote its own tweets. And so when people logged on, the top of their feed would contain tweets like this one, from @Heritage:


The Twitter conference started a few minutes late:

Day 26

Republicans Got Nothin’

It’s Day 26 of the fiscal-cliff hostage situation, and it’s clear that GOP negotiators have lost touch with reality. Daniel Gross on their astounding lack of a counteroffer to the Dems.

Adrenaline-filled, aggressive combatants paraded around on national television and started trash-talking, aiming to intimidate their opponents and get inside their heads. Oh, and the National Football League also played some games.


(L) Win McNamee / Getty Images (R) J. Scott Applewhite / AP Photo

Sunday, Dec.  2, was Day 26 of the fiscal cliff hostage situation. And the Democrats, who gained an immense advantage in the negotiations over future tax rates by virtue of their victories in the election, seem, finally, to be developing some swagger. Their tone toward the Republicans has become somewhat patronizing. First, there was President Obama’s mid-week invitation of Mitt Romney to lunch at the White House, which was simultaneously magnanimous and a pretty naked power move. Romney couldn’t refuse to come without looking like an extremely sore loser. The single photo released, which quickly went viral, showed Obama giving Romney the kind of good-try handshake that coaches deliver to their opponents after a thorough spanking.

In the past, the modus operandi from the White House on tax and spending issues was a tone poem of tortured frustration, self-criticism, and bargaining. They’d make a middle-of-the-road proposal and then very quickly move off it, failing to appease Republicans and demoralizing the base. But this time is different. Now, the Republicans are compromising and demoralizing their base. The Obama White House is largely standing back and watching with glee as congressmen line up to abandon Grover Norquist’s no-tax pledge. (My personal favorite is Rep. Chris Gibson of New York, who said his pledge doesn’t count anymore because, thanks to redrawing of the map, he now represents a different district.) Republicans have generally conceded that a deal will have to include more revenue, but insist now that new revenue arises solely from closing loopholes and capping deductions.

The Democrats are essentially pocketing the Republicans’ capitulation on revenue and asking for much more—they’ve adopted the old GOP strategy of simply repeating their desires as a method of bargaining. The first proposal, which Obama offered late last week, asked for lots of tax increases, plus some stimulus measures, and offered close to nothing on entitlements. Its chief plank was for marginal rates on high incomes to rise. And this time, the Democrats are confident that the Republicans’ cave on revenue is just the beginning. “I don’t think Republicans are willing to shut down the government over 2 percent of the country,” said top economic aide Jason Furman at an on-the-record briefing last week.

The psychological warfare can also be seen in the patronizing tone Democratic officials are now taking toward the Republicans. The Republican leaders, who used to throw terror into Democrats, are now objects of pity. There was Sen. Claire McCaskill, fresh after dispatching Tea Party loon Todd Akin, on Meet the Press. “I feel almost sorry for John Boehner,” McCaskill said. “There is incredible pressure on him from a base of his party that is unreasonable about this. And he’s gotta decide, is his speakership more important, or is the country more important.”

Treasury Secretary Tim Geithner took to the Sunday talk shows, too. For the last several years, Geithner has occupied perhaps the most unenviable position in Washington. He’s been like a quarterback operating behind an offensive lined composed solely of rookies. Time after time, he’s been blitzed—from the right and the left—on the bailouts, aid to the auto industry, and slow movement on mortgage aid. But on Sunday he was the one expressing empathy for poor John Boehner. “They’re in kind of a tough position now,” Geithner said on Fox News Sunday. “They’re trying to figure out how to find a way to support things that they know they’re gonna have to do. That’s going to be hard for them.” (Note: the very willingness of Geithner to appear on a Fox program is a sign of the administration’s newfound confidence.) Geithner pounded home the Obama administration’s talking point: we’ve put forward our plan. If the Republicans don’t like it, they should put forward their own.

In response, the Republicans countered with an offense that resembled that of the feckless Arizona Cardinals on Sunday. The passes were all over the map and failed to connect. Some key players were fatalistic. Sen. Lindsey Graham and Boehner both conceded that we may well go over the cliff. Others denied they had a role to play. Appearing on ABC’s This Week, Rep. Tom Cole said, “I don’t think we need to put a formal proposal out on the table.” Dan Senor, a Romney foreign policy adviser, proclaimed that Obama’s proposal, the one that caused Mitch McConnell to laugh out loud, and that “flabbergasted” Boehner, was too far to the left.


Fiscal Cliff Hostage Talks

It’s Day 24, and the Republicans still have no plan. Daniel Gross asks, Who are the chumps now?

Fiscal cliff hostage situation. Day 24. A lot happened. But nothing happened. At Treasury, Secretary Tim Geithner, who, like his predecessor Hank Paulson, wears a training watch, went through a rigorous cross-fit routine and mainlined Red Bull in preparation for his upcoming Sunday Show Marathon. On the hill, Senate Minority Leader Mitch McConnell LOL’ed at the president’s proposal, which includes lots of tax increases as well as Gene Sperling’s holiday policy wish list. CNBC’s Rick Santelli, reacting to the flood of companies issuing dividends before tax rates rise, conducted what seemed to be an on-air audition for Fox Business Network. The Daily Beast’s fiscal cliff countdown clock went live.

Rep. John Boehner

Speaker of the House Rep. John Boehner (R-OH) speaks during a news conference November 30, 2012 on Capitol Hill in Washington, DC. (Alex Wong / Getty Images)

House Speaker John Boehner staged a brief press conference and pronounced a “stalemate” and that the two parties were “almost nowhere.”

It’s much too early to declare failure, however.

The fiscal cliff hostage crisis is soon to enter its fourth week. But really, the talks about ransoming the hostage haven’t even begun. Typically in a hostage situation, the party holding the hostage sets out its demands. President Obama has finally done that, with Treasury Secretary Geithner personally presenting the plans to Congressional Republicans on Thursday. There’s nothing surprising about the Republicans’ dismissive response.

There is something surprising, however, about the Republicans’ failure to offer an alternative. To be sure, there has been a well-documented, and sudden outbreak of real-keeping among Congressional Republicans, with dozens of legislators abandoning Grover Norquist’s no-tax pledge and acknowledging the need for more revenues. But the guys who want to liberate the tax cuts being held hostage have yet to propose an offer.

And the leadership still does not seem to grasp what is happening. This is not August 2011, or August 2012. The choice before McConnell and Boehner is not between the really unattractive proposal President Obama is offering and their preferred solution, which is the status quo on taxes plus huge cuts in discretionary spending and immediate action on entitlements. Rather, the choice is between what the President is offering—i.e. lots of tax increases paired with small spending cuts and very modest entitlement reform—and the 24-pack of whoopass that the fiscal cliff will deliver in about five weeks: much larger tax increases, plus much larger spending cuts, and no entitlement reform whatsoever.

Yes, President Obama wants to avoid the fiscal cliff. But he also wants to avoid being made to look like a chump, as repeatedly happened in his first term. And so rather than make a proposal and then respond to a stiff arm with a better offer, he is refusing to negotiate with himself. Instead of compromising on his initial offer—and hoping that meeting the Republicans half way with an initial offer will help bring them to the table—he went the other way. The president moved his goalpost further to the left. And rather than try to play an inside game and issue pleas for comity and compromise from the White House, he’s taking his popularity on the road.  

New York Stock Exchange

New York Stock Exchange (Andrew Gombert, EPA / Landov)

Trading stocks on whether there’s a deal by January 1 is a fool’s errand. In the long run, the market just doesn’t care about that stuff, writes Daniel Gross.

Thursday marked Day 23 of the Fiscal-Cliff Hostage Situation. Vanquished Republican presidential candidate Mitt Romney came to lunch at the White House. House Speaker John Boehner and Senate Majority Leader Harry Reid stuck out their tongues at one another. The hostages—the Bush-era tax rates on income, capital gains, and dividends, and the defense and other budgets subject to sequestration— remained locked up in Washington. And in New York, investors reacted poorly to the news. “Stock gains dented over twists in budget talks,” as the MSN Money headline put it.

Let’s step back for a minute.

If you’re trading stocks based on whether you think taxes will go up on January 1, 2013, or whether it seems more or less likely that Congress and the Obama administration will strike some grand bargain on entitlements and taxes in the next few days—well, you’re not too sharp. And if you’re in turn basing those decisions on what public officials are saying about the prospects of such a deal, then you’re kind of a dope.

Stock trading is a fool’s game to begin with. Very few investors can beat the market. The market is dominated by insane, hyperactive machines that frequently don’t know what they are doing. Professionals mostly fail at beating the indices. And a bunch of those who do, we’re learning, are clumsy cheaters. (Pro tip: if you’re IM’ing about insider trading, don’t use phrases like “I don’t want to go jail.”)

Watching and reacting to what Congress people say about the cliff negotiations and the prospects of a deal won’t give you an edge—regardless of what the headline writers say. Why? Well, the overwhelming majority of stuff that elected officials say to the public is bulls--t.  What they say has no bearing—frequently on the truth, or on whether a deal will get done. When someone says they’re optimistic about something about to happen, they could be genuinely optimistic—or they could be full of it.

Also, investors don’t seem to be very good at figuring out who really matters in these debates. The other day, CNBC’s Michele Caruso-Cabrera told a Democratic House member, Raul Grijalva, that his remarks against concessions on entitlements were making the stock market go down. Grijalva is a member of the minority in the House; most investors had likely never heard of him before his appearance.

More broadly, the market—and many of those who interpret the market’s mind on our behalf—have an extremely simplistic and wrongheaded view of what is good for it. The conventional investing wisdom assumes that a deal—any deal—to avert the fiscal cliff will be good for stocks and the economy at large. That may be true. It may also not be true. In fact, I suspect that at the end of the day the people who are agitating most ardently for a big deal are going to be very disappointed. Compared with a few weeks ago, we are much less likely to have major entitlement reform and more likely to have large tax increases on the rich, with marginal rates rising, taxes on capital gains and dividends rising, and the rich losing some of their cherished deductions. The investor class has been begging for a resolution. The resolution they’re likely to get could be a sharp slap in the face.

Will that be good for stocks in 2013 and beyond? Who knows? In fact, hiking taxes significantly on investors may not influence the markets at all. My colleagues in the politico-financial industrial complex vastly, vastly overvalue the relation of government policy and marginal tax rates to asset prices in the stock market—especially my colleagues on the right side of the aisle.

Insider Trading

Spitzer: Big Fish Are Tough to Nab

Eliot Spitzer

Eliot Spitzer. (Kris Connor / Getty Images)

Former governor and white-collar crime buster Eliot Spitzer tells Daniel Gross that levying fines for insider trading is easy compared to pinning guilt on a company’s top dogs.

The law-enforcement response to the financial crisis and misdeeds on Wall Street has generally been disappointing. There has been a steady procession of insider-trading cases, in which hedge-fund managers have been nailed for manipulating the market. But the failures of AIG, Lehman Brothers, Bear Stearns, Fannie Mae, and Freddie Mac required massive bailouts and inflicted enormous damage on the economy. While Wall Street firms have entered into a series of expensive settlements, there have been virtually no prosecutions of top executives.

Eliot Spitzer agrees with those criticisms—to a point. “There is some legitimacy to the notion that insider-trading cases do not confront the structural problems that undergird the most significant cancers that metastasized on the Street prior to ’08—the conflicts of interest woven into the business models of the major banks,” he told me. Few regulators and prosecutors understood Wall Street from the inside out the way that Spitzer did. As New York attorney general, he went after the knots of conflicts after the dotcom bust, making Wall Street banks settle and change their research practices, nailing big mutual funds for abusive trading, and pushing the giant insurer AIG to remove its CEO.

But Spitzer doesn’t buy into the popular progressive critique that the insider-trading prosecutions have been a sideshow. “Having said that, [the prosecutors] deserve an awful lot of credit for having pursued insider trading in the very determined way that they have,” said the former New York governor and current Viewpoints host. “It is an area of fraud that has always been there, and probably will always be there, because the temptations are there.” What’s more, he notes, “They haven’t just gotten small fish, they got big players.” For example, the U.S. government has won convictions of a ring involving Raj Rajaratnam, the former billionaire head of the hedge fund Galleon Group, and Rajat Gupta, the former head of McKinsey & Co. and a Goldman Sachs board member. And now it is pursuing hedge-fund giant SAC Capital.

The problem for prosecutors is that the sins of the financial crisis were very difficult to pin on the head honchos as crimes. “The issue of corporate remedies is the most difficult and the most challenging issue we have to deal with in this whole mess,” he said. “Finding and ascribing criminal intent to a CEO is rarely going to happen.” Goldman Sachs Lloyd Blankfein, he notes, wasn’t directly involved in the Abacus transaction—a collateralized-debt obligation (CDO) deal gone bad that led to a $550 million settlement. “You’d never see an email where the CEO talks about doing that deal. This isn’t how business is being done.” And so in many cases, the best that prosecutors can hope for is a settlement, in which companies pay penalties and neither deny nor admit their guilt. In the meantime, the CEOs stay on.

In the 80s, the Securities and Exchange Commission took the lead in prosecuting insider trading. A decade ago, it was Spitzer’s New York attorney general’s office that went after big Wall Street firms. Now the prosecutorial energy is coming from Preet Bharara, the ambitious U.S. attorney for the Southern District of New York.

The case developing against SAC is another sign of Bharara’s ambition. Last week, the government charged (PDF) Mathew Martoma, a junior executive at the huge hedge-fund complex, with trading on insider information gleaned from a doctor who helped oversee drug trials. Having secured the cooperation of the doctor, the government is aggressively pursuing Martoma. And on Wednesday, SAC told investors it has received a Wells notice—a formal notification from the Securities and Exchange Commission that it plans to pursue the company.

To a degree, Steven Cohen may be an irresistible target for prosecutors. It seems he either has remarkably bad judgment choosing employees, or he has set up an environment in which some people feel compelled or welcome to cheat. Even though he has yet to be directly implicated in any wrongdoing, the government has busted several people for insider trading who were either former SAC employees or SAC employees at the time of their alleged wrongdoing. For all intents and purposes, however, Cohen is SAC. He owns most of the capital SAC manages and makes all the key decisions. “He’s like the John Gotti of the hedge-fund world,” Spitzer notes, taking pains not to compare hedge funds with organized crime. In a prior generation, government prosecutors would put charts on the wall to identify the five organized-crime families and signal who they were after. “Today the target is hedge funds, and Steve Cohen is the capo di capo.

But getting him won’t be so easy.  In the other insider trading cases the U.S. attorney’s office has successfully pursued, it was armed with wiretappings, tapes of conversations, and the cooperation of key players. That doesn’t seem to be the case here. The indictment of Martoma didn’t show any sign that the government had tapes of conversations between Martoma and Cohen. And Martoma has thus far said he is going to fight the charges.

Insider Trading

Cloud Over a Titan

Hedge funds are a brutal business, but for years Steven A. Cohen has been a legend. Now he appears to be an indirect target in a massive insider-trading case. Daniel Gross reports.

Steven A. Cohen is a mythic figure in the hedge fund world. With an estimated net worth of $8.8 billion, the secretive 56-year-old investor is 40th on the Forbes 400. His compound in the back country of Greenwich, Ct., is filled with so many recreational amenities it has been referred to as Chelsea Piers (PDF), and he’s a major collector of modern art and a philanthropist. Children’s hospitals on Long Island and New York bear his name.

Steven A. Cohen

Steven A. Cohen, founder and chairman of SAC Capital Advisors during an interview at the SkyBridge Alternatives (SALT) Conference in Las Vegas, Nevada on May 11, 2011. (Steve Marcus / Reuters / Landov)

But in recent years, as the Securities and Exchange Commission and Preet Bharara, the U.S. Attorney for the Southern District of New York, have ramped up investigations into insider trading, Cohen’s name has kept popping up. More than half a dozen people have been convicted or accused of insider trading who were former employees of the massive Greenwich hedge fund Cohen runs, SAC Capital Advisors, or who were SAC employees at the time of their wrongdoing. Last year, Sen. Charles Grassley (R-IA) called for an investigation into SAC’s trading. And on Monday, Matthew Martoma, a one-time analyst at SAC, appeared in Federal Court in Manhattan on charges of alleged insider trading and was released on a $5 million bond.

The indictment (PDF) alleges that SAC reaped a huge windfall by trading on confidential, nonpublic information about poor results of an Alzheimer’s drug trial. Martoma allegedly obtained the information from Sidney Gilman, a physician who helped run the trials. (Gilman is now cooperating with the government.) Based on the information, the government says, SAC quickly sold huge positions it had amassed in two companies, Elan and Wyeth, that were developing the drug—and then bet the companies’ stock would go down. The actions allegedly led to “over $276 million in illegal profits of avoided losses in July 2008 by trading ahead of a negative public announcement” on the drug, according to the indictment.

The episode is noteworthy not just for its size, but for the alleged involvement of Cohen, who appears to be an indirect target of the indictment.

Hedge funds are a brutal business. Finish the year up, and you get a big bonus. Lose money for a year or two, and you’re out. Investors don’t hesitate to pull out their funds after a lean year, even if it has been preceded by several fat years. Every hedge-fund portfolio manager has to have an edge—some secret sauce, experience, or domain knowledge that helps him profit in highly volatile markets.

But in an industry with a high degree of mortality, SAC has thrived and evolved into an institution. It is one of the largest hedge funds in the world. Thanks to its superior performance, SAC charges higher management fees than most of its peers.

Many observers and industry participants believe that Cohen’s edge is simply trading skill. Several hedge-fund professionals tell me they believe Cohen is simply the most talented trader out there, one who can process information more intelligently and effectively with his peers. After all, the markets are highly unpredictable. Stocks can go down on goods news and rise on bad news. Cohen is an excellent sailor in choppy waters.


Every Day Is Cyber Monday

Black Friday sales slumped, but who cares? Americans are confident—and willing to shell out big bucks online for the holidays, writes Daniel Gross.

Black Friday, the official opening to the frenzied Christmas shopping season, has never been more heavily covered than it was this year. Paradoxically, it may have never mattered less.

Cyber Monday

Paul Sakuma / AP Photo

For years, the day after Thanksgiving was a great retail harbinger, a leading indicator of how the vital Christmas shopping season will turn out. In an economy driven by consumer spending, Black Friday assumed totemic importance. Analysts sift through the traffic and sales rung up by mall retailers the way Roman priests used to inspect chicken entrails for omens. But thanks to shifts in technology and consumer habits, Black Friday has lost a great deal of its real and symbolic importance. Sure, millions of Americans queue up, as if at a party. And, yes, Black Friday provides the spectacle of gunplay, arrests, and casual violence. But in the future, we may not have Black Friday to kick around.

Why? Consistent encroachment is pulling sales that would have taken place on Black Friday earlier in the week. Shoppers who wish to get a jump on their lists without wading into occasionally violent crowds start shopping the Wednesday before Thanksgiving, as my family did. Retailers have also decided to get a jump on the competition by opening Thursday and offering enticing discounts. That means a bigger portion of the retail-sales pie is being consumed on the day pumpkin pie is consumed. Walmart reported that on Thursday night, “during the high traffic period from 8 p.m. through midnight, Walmart processed nearly 10 million register transactions and almost 5,000 items per second.” The logic is inescapable: the merchandise is there and paid for. So why not try to move it?

As a result, a lot of retail business that was not conducted on Thanksgiving Day 2011 was conducted on Thanksgiving Day 2012. It’s likely the same will be the case next year. This trend reduces the utility of Black Friday sales as an indicator. As ShopperTrak reported, while more Americans hit the malls on Black Friday 2012 than on Black Friday 2011 (foot traffic was up 3.5 percent), actual sales fell by 1.8 percent. Said ShopperTrak founder Bill Martin: “While foot traffic did increase on Friday, those Thursday deals attracted some of the spending that’s usually meant for Friday.”

What’s more, the mall may be the wrong place to be looking for shoppers. With every passing day, every passing week, and every passing month, a larger chunk of retail sales are conducted in front of computers, on mobile phones, or on tablet devices. People have never had a greater ability to shop from the comfort and privacy of their own homes. Plenty of people who were horrified at the prospects of stores being open on Thanksgiving pushed back from the table to make an order on or on Rue La La. As the National Retail Federation noted on Thanksgiving Day, NRF estimated “more than 35 million Americans visited retailers’ stores and websites Thursday—up from 29 million last year.” That’s an increase of 20.6 percent.

Simply put, online shopping is taking market share from physical retail sales—on Black Friday and every day of the year. Online shopping is not yet 20 years old, so overall it has a small chunk of retail sales. But increasingly, every day is Cyber Monday. According to the Census Bureau, in the first 10 months of 2012, sales at “nonstore retailers” were up 11.8 percent from the first 10 months of 2011, while overall sales were up just 5.5 percent. So far this year, nonstore retailers have accounted for about 8.6 percent of total retail sales. That means that overall holiday shopping sales can rise by a decent margin even as bricks-and-mortar sales barely budge. That’s what NRF said happened over the weekend. As The New York Times reported online, “sales increased 17.4 percent on Thanksgiving, and 20.7 percent the next day, according to I.B.M., which tracks e-commerce transactions from 500 retailers.” In its survey, the National Retail Federation found that “the average person spent $172.42 online over the weekend, or approximately 40.7 of their total weekend spending, up from 37.8 percent last year.”

Because the geography of shopping, and working in retail, is shifting, analysts who look only at Black Friday sales at stores aren’t seeing the whole picture. Rapidly changing consumer behavior makes it difficult to compare results from year to year. Instead, we have to look at online and physical sales on the period from Thanksgiving Day to Sunday to get a true view of how the holiday shopping season started.

Fiscal Cliff Divers

The Thelma & Louise Caucus

Up for a cliff dive? The outliers in the Thelma & Louise Caucus are—they believe careening over the fiscal cliff is a necessary step to rationalize our tax code. Dan Gross explains why he’s one of them.

Tuesday was Day 14 of the Fiscal Cliff Hostage Situation. With Congress out of session and most representatives heading home for Thanksgiving, there weren’t any formal talks. The presumption seems to be, however, that Congress and the White House will come together to make a deal before Jan. 1, thus preventing tax rates from soaring and feared automatic spending cuts from kicking in.


President Barack Obama speaks before Speaker John Boehner, Secretary of the Treasury Timothy Geithner and other cabinet members during a meeting on November 16, 2012 in Washington, DC. (Toby Jorrin / AFP / Getty Images)

Most voices in official Washington earnestly assure Wall Street, the wealthy, and companies that they want nothing so much as to make a deal in the next several weeks. And we should take them at their word. But here and there, it’s possible to detect voices who are urging inaction. Some people, left, center, and right, believe careening over the cliff would be an affirmative good, a willful act of liberation, a step that is necessary to rationalize our tax code. I’ve dubbed these folks the Thelma & Louise Caucus. And I count myself a member.

Comparatively few members of Congress can be seen actively advocating for a lack of resolution. It’s frowned upon. But Sen. Patty Murray, the high-ranking liberal Democrat from Washington, isn’t afraid of the cliff. As Matt Yglesias of Slate points out, Murray in July spoke of the utility of going over the cliff in purely practical terms. In her view, the expiration of the Bush tax cuts establishes a new baseline of significantly higher rates, which would then make it much easier for Republicans to sign off on a tax cut deal. “We will have a new fiscal and political reality,” Murray said. “If the Bush tax cuts expire, every proposal will be a tax-cut proposal, and the pledge will no longer keep Republicans boxed in and unable to compromise.” And, in Murray’s view, this gives Democrats the upper hand. “If middle-class families start seeing some money coming out of their paychecks next year, are Republicans really going to stand up and fight for new tax cuts for the rich?” Without the cliff, there’s no prospect of a deal.

Other members of the Thelma & Louise Caucus believe the cliff is desirable for reasons of justice, not of tactics. Jonathan Cohn, the longtime reporter and Ann Arbor–based health-care maven at The New Republic, is the president of the Michigan chapter of the caucus. For Cohn, the cliff solves all sorts of problems. He never liked the Bush tax cuts to begin with and says we need the money. “I always thought that we should get rid of all the Bush tax cuts,” he said. “It seems to me the Clinton-era tax rates were just fine.”

Jonathan Chait of New York magazine, who is a native of Michigan and formerly worked at The New Republic, represents the realpolitik wing of the caucus. Even before the election, he was gaming out the smart politics behind a cliff dive:

“On the morning of November 7, a reelected President Obama will do … nothing. For the next 53 days, nothing. And then, on January 1, 2013, we will all awake to a different, substantially more liberal country. The Bush tax cuts will have disappeared, restoring Clinton-era tax rates and flooding government coffers with revenue to fund its current operations for years to come. The military will be facing dire budget cuts that shake the military-industrial complex to its core.”

Going over the cliff, Chait argues, will finally allow Obama to turn the tables on the obstructionist Republicans who have made his life hell for the past four years. And he will be able to give up trying to compromise with House Speaker John Boehner because the nature of the game changes. Obama and his crew, Chait writes, “understand something important, something that has not quite sunk in with wary liberals, obstinate conservatives, or split-the-difference deficit scolds: They no longer have to.”


Made in the U.S.A.

People will pay more for products born in the United States—and Chinese consumers agree. Daniel Gross on whether the stamp of approval means more money.

For a long time, U.S.-based manufacturers have felt like the deck was stacked against them. Labor costs are lower almost everywhere, especially in China. Taxes on profits are comparatively high. The most rapidly growing end markets are also overseas, and it frequently makes sense to manufacture heavy items like cars or appliances near the consumers who will buy them.

Made in the U.S.A

Chris Rank, Bloomberg / Getty Images

But trends have a way of reversing. Rising labor costs in Asia and the continuing hard work American firms have done on efficiency and productivity have helped reduce the cost advantage of offshore locations. In an influential report, Made in America, Again (PDF), the Boston Consulting Group (BCG) suggested that up to 3 million manufacturing jobs could return to the U.S. over the next several years.

Now, BCG says there is more reason for people who make stuff in the U.S. to take heart. According to a new survey, consumers at home and abroad say they are willing to pay more for certain products bearing a “Made in the U.S.A.” stamp. Driven by a combination of patriotism, fear of the potential danger lurking in some China-made goods, and a concern over quality, 80 percent of American consumers say they are willing to pay a premium for products made in the U.S. instead of Chinese products. Nearly 60 percent of U.S. consumers said they had consciously chosen more expensive American-made products over cheaper Chinese ones in the previous month. Perhaps more surprising, some 60 percent of Chinese consumers said they would do the same. “We were really surprised at how much the Chinese consumer values the Made in America brand,” said Hal Sirkin, senior partner at BCG. (You can read more about the survey here.)

The preference for U.S.-made goods was particularly pronounced in product categories, such as hand tools. “For things people expect to be durable and pass on to your children, they are willing to spend the extra money if they can afford it,” said Sirkin. “And Chinese products just aren’t designed for the durability that we expect.” He also noted that anything that deals with children—toys, baby clothes, children’s furniture—found a similar response. Media reports on problems with Chinese-made drywall, or on lead paint in Chinese-made toys, have made parents think beyond price. Sirkin noted that 37 percent of U.S. consumers said they would be willing to pay 10 percent more for baby food if it were made in the U.S. 

Of course, it is easier to purchase patriotically when doing so is less costly. And Sirkin says that the shrinking cost difference between manufacturing in China and the U.S. is affecting consumer preferences. “Wages in China have been rising about 15 to 20 percent per year,” Sirkin noted. “And so the value equation has changed. Instead of having to pay double for a U.S.-made product is in many instances, the consumer is only going to have to pay 20 percent more.”

Sirkin and his colleagues were surprised by the changing attitudes of Chinese consumers, who are now much more keenly attuned to issues of quality in everything from dairy products to toys and furniture. “Chinese consumers are quietly recognizing the value of 'made in the U.S.A.,'” Sirkin said. In the survey, 50 percent of Chinese consumers said they had deliberately chosen American-made products over Chinese ones—even if it costs the same or more. This preference is largely due to rising concerns over quality and environmental issues among middle-class Chinese consumers.

Now, there’s some reason to be skeptical of these numbers. Surveys tend to measure sentiment and attitudes, rather than behavior. People do not always do what they say. And the playing field between U.S. and Chinese manufacturers isn’t quite level. But Sirkin says there is an important message embedded in this study. “People tend to discount U.S. manufacturing,” he said. “And they shouldn’t. The message for U.S. manufacturers and retailers is that they are undervaluing the Made in America brand by not making it prevalent.”


Don’t Believe the Hype

Will we have a deal in 2012? Market watchers say yes, but the GOP remains solidly anti-tax, and big businesses like Walmart aren’t taking any chances. Daniel Gross reports.

On Day 13 of the Fiscal Cliff Hostage Situation, the prevailing mood about a deal to head off tax increases and spending cuts was optimism—even complacency … at least in New York.

Last Friday, President Obama held meetings with congressional leaders. When the protagonists emerged and declared them to have been productive, the stock market began to rally. The optimism continued.


President Barack Obama speaks before Speaker John Boehner, Secretary of the Treasury Timothy Geithner, and other cabinet members during a meeting on Nov. 16, 2012, in Washington, D.C. (Toby Jorrin / AFP / Getty Images)

Monday morning. As the headline put it, “Dow Soars 150 on Cliff Hopes.”

In fact, there seems to be a growing consensus among those who follow markets with the same ardor as they do on MSNBC that something is happening. A deal will get done, simply because it has to be done. Time is running out, and if no grand bargain is reached, bad things will happen. Wall Street, whose denizens have the most to lose from a vault over the fiscal cliff, craves a resolution. Which is one of the reasons CNBC is running its “Rise Above” campaign, which calls for Washington to eschew partisanship and make a deal to avoid the cliff.

On Sunday night, Goldman Sachs—the firm believed by many to control Washington, D.C.—sent out an optimistic note, suggesting that the hostage would be released in a few weeks: “We believe the ‘fiscal cliff’ ultimately will be avoided, but precedent suggests any resolution will not happen until mid- to late-December.”

Monday morning, Ben White, Politico’s sharp New York–based watcher of the calamitous intersection of Wall Street and Pennsylvania Avenue, declared it all over except from the shouting. “There seems little chance the cliff battle will go near or past the Dec. 31 deadline,” White wrote. “Nearly every signal from Republicans suggests they understand they have lost the war over taxes going up on the wealthiest Americans” and are figuring out how to cut their losses. “So while talks will continue and the public kabuki will play out for a few more weeks, we are really just waiting on a final score.”

That’s possible. But let’s take a step back. Just because the White House and congressional Republicans told us their meetings Friday were fruitful, it doesn’t mean they were. Hell, Neville Chamberlain thought his September 1938 meeting in Munich with the Germans was fruitful. To admit that a meeting was not fruitful is to admit that you wasted your own time, and, worse, the time of the media that staked out the meeting to get the anodyne post-meeting quote.

Day Nine

Fiscal Cliff’s First Victim?

In his latest dispatch from the precipice of tax hikes and spending cuts, Daniel Gross on the hostage no one wants to save: the payroll tax cut.

We’re now in Day Nine of the 2012 Fiscal Cliff Hostage Situation

Social Security Good Deal

Bradley C Bower / AP Photo

On Wednesday, the CEOs came and went from the White House. Talks between Congressional leaders and President Obama are slated to kick off tomorrow. As Thanksgiving approaches, the White House is still holding the Bush-era tax cuts hostage. What’s more, automatic budget cuts that will affect major contractors are slated to kick in on Jan. 1—the same cruel day that tax rates on capital gains, income, dividends, and states rise.

In theory, it’s all open to negotiation. The tax cuts could be warded off through simple legislation. A deal could forestall some of the tax increases, or a package of tax reforms could provide higher revenue, thus obviating the need for marginal tax increases. And so while the Bush tax cuts are in jeopardy, they’re still very much alive. But the standoff may have already claimed one victim. One of the hostages is clinging to life, and will not likely emerge alive from the standoff: the temporary payroll tax cut.

The payroll tax cut—or tax holiday—was not part of the Bush-era tax cuts. Rather, it was a post-stimulus effort to goose the economy in 2011 and 2012. As Mitt Romney and his allies have famously pointed out, 47 percent of Americans don’t pay any income tax. But pretty much everybody with a job pays payroll taxes—the regressive 6.2 percent tax levied on the first $100,000 or so of income that funds Social Security and Medicare.

In late 2010, as President Obama suggested, Congress approved a temporary one-year payroll tax cut that reduced the rate from 6.2 percent to 4.2 percent. This was part of a larger package in which Congress extended the Bush tax cuts for two more years and threw in extended unemployment insurance. Since many people pay more in payroll taxes than they do in income taxes, the cut was quite meaningful. Somebody with a salary of $50,000 would see an extra $1,000 in her paychecks over the course of the year. And since such middle-income earners are likely to spend—rather than save—these tax cuts, it was a pretty effective form of stimulus. The estimated cost for 2011 was $112 billion.

Now, the beauty of a temporary tax cut is that you can always accuse the other side of wanting to increase taxes if they simply want to let the temporary measure expire as it was designed to do. That’s the tactic Republicans have been using against Democrats and Obama with the Bush tax cuts for the past several years. Obama briefly turned the tables on the Republicans over the payroll tax in late 2011. And so, at the end of 2011 with the economy growing slowly and concerns about the ability of consumers to sustain the recovery, Congress and the White House struck another deal to extend the 4.2 percent payroll tax rate through 2012. Another 12 months, another $100-billion-plus into the consumer economy.

For the past several months, both sides have pretty much assumed that the payroll tax cut would fade away at the end of the year—regardless of who won the election. Why? Republicans never really liked it; in theory, the tax cuts undermined Social Security and Medicare, which is vital to their geezer constituents. What’s more, it’s a tax cut on wages of typical workers. And for ideological and personal reasons, Republicans much prefer cutting taxes on high earners, and on investment and estates. That’s where the real money is.


CEOs Woo Obama 

Fiscal Cliff

Clockwise from left: President Barack Obama, Goldman Sachs CEO Lloyd Blankfein and Pepsi CEO Indra Nooyi. (AP Photo (3))

Corporate America went all in on a Romney victory. But as pragmatists, they’ve come around quickly. By Daniel Gross. 

It’s day eight of the fiscal cliff hostage crisis situation. And while a resolution still seems far off, there have been some significant changes. For the first time, President Obama, the holder of the hostage, has issued his demands. And a new set of external players is entering the scene: America’s chief executive officers.

Here’s the state of play. Come Jan. 1, the U.S. will go over the fiscal cliff. The Bush-era low tax rates on income, capital gains, dividends, and estates will expire. At the same time, automatic cuts that will affect defense contractors and other industries dependent on government will kick in. In the wake of last week’s election, President Obama came into control of items that Republicans in Congress desperately want. If Obama simply sits back and does nothing, the wealthy will have to start paying more taxes and the greatest Republican legislative achievement of this young century will disappear in a matter of weeks.

In previous installments, we’ve documented how Republicans have already made significant concessions—first acknowledging the need for more revenues in any deal, and then saying those revenues should come primarily from eliminating tax breaks for the wealthy. Meanwhile, Democrats have generally stood fast and have increased their demands.

The last 24 hours have brought new developments. First, President Obama has laid out a marker for a grand bargain—and it’s a much more aggressive one than he has put out there previously. The Wall Street Journal reported, in advance of a meeting Friday with congressional leaders, Obama is calling for “$1.6 trillion in additional tax revenue over the next decade, far more than Republicans are likely to accept and double the $800 billion discussed in talks with GOP leaders during the summer of 2011.” Ouch. For those counting at home, that’s twice as much as was on the table just 13 months ago. As for the Republican suggestion that all the revenues come from tightening tax deductions and loopholes? Forget about it. Treasury Secretary Tim Geithner, appearing at a Wall Street Journal event, said Obama is “not prepared to extend the upper-income tax cuts.” So as Republicans edge closer to the Democrats’ position, the Democrats are moving away from the Republicans.

Now, America’s CEOs are getting involved. This evening, President Obama will meet with a group of top bosses at the White House to discuss the fiscal cliff and other economic issues. Among those attending: Pepsi CEO Indra Nooyi and GE CEO Jeff Immelt. To the extent corporate America got involved in the 2012 election, it was generally on the side of Mitt Romney. Lobbying organizations like the Chamber of Commerce funded huge anti-Obama advertising campaigns, while lots of CEOs contributed to anti-Obama Super PACs.

In effect, CEOs, especially Wall Street CEOs, went all in on a Romney victory. But as pragmatists, they have come around rather quickly. Many CEOs are genuinely freaked out at the prospect of the fiscal cliff. “At a Wall Street Journal CEO conference in Washington, 73 percent of participants said their primary concern was the so-called fiscal cliff,” the Journal reported Wednesday. But the bosses seem to be more worried about the impact of a slowdown on their companies’ bottom lines than on their own. An informal show of hands at the conference showed many of the CEOs were personally willing to pay higher taxes to reduce the deficit. In the precincts of the rich, there is rising acceptance that their personal tax rates will be higher next year.

Goldman Sachs CEO Lloyd Blankfein took to the op-ed page of The Wall Street Journal to offer an olive branch of sorts. Expressing concern that the fiscal cliff would “derail the fragile recovery,” he urged Congress to act. He accepted the premise that revenues must be part of the deal. “A number of CEOs and companies agree and support principles that call for a comprehensive and balanced solution to the debt problem—increased tax revenues and decreased spending,” he wrote. Blankfein also seemed to accept that tax rates on personal income would have to go up. “Broadening the personal income-tax base by closing loopholes will generate substantial additional revenue while minimizing increases in marginal tax rates [my italics] that could stifle risk-taking and robust growth.” Notice the small but important change here: increases in tax rates on personal income should be minimized, not ruled out. In other words, Blankfein’s position is quite closely aligned with Geithner’s.

Now, Blankfein doesn’t speak for the Republican Party any more than Robert Rubin speaks for the Democrats. But to have the CEO of one of America’s most powerful investment banks publicly make the case that it is OK for marginal tax rates to rise is significant. It’s amazing the difference a week makes.


The Day Romney Lost the Election

Most savvy pundits thought Ohio would be President Obama’s firewall. But it was really the uemployment data that turned out to be his impregnable fortress. Daniel Gross reports.

In a campaign full of many twists and turns, it’s clear to me precisely when Mitt Romney lost the election: Friday, Oct. 6, 2012.

Romney 2012

Mitt Romney speaks to reporters on his campaign plane en route from Pittsburgh to Boston, on Nov. 6. (Charles Dharapak / AP Photo)

It may seem counterintuitive, because it was just three days after Obama’s disastrous debate performance in Denver. It was a time when the polls and prediction models were all showing substantial movement toward Romney. And a look back at the graphs will show that Obama began to stabilize and pull away much later in the month.

So what happened on Oct. 6?

At 8:30 a.m., the Bureau of Labor Statistics released what was likely the single most consequential economic data point in recent political history: the September employment report. BLS reported that the companies added 114,000 payroll jobs in the month. The unemployment rate, calculated from a separate survey in which BLS asks individuals about their employment situation, ticked down from 8.1 percent in August to 7.8 percent in September.

The report was important: psychologically, economically, and politically. Most savvy pundits thought Ohio would be President Obama’s firewall. But it was really the uemployment data that turned out to be his impregnable fortress.

It was the first time the unemployment rate had fallen below 8 percent since January 2009. But flows are more important than levels, and more easily understood. Or to put it another way, it’s not so much where things are that matter, but the direction they’re going. Since hitting its lows in 2009, the economy had been fitfully—and then steadily—improving. Between March 2009 and the fall of 2012, the stock markets had essentially doubled. In October, the economy was in its 39th straight month of growth. Even the housing market was coming around. And incumbents tend to get rewarded for improvement.

The labor market, however, remained a big question mark. The economy continued to shed jobs into early 2010. And in many months, job growth was painfully slow. That was electoral poison for Barack Obama.


Romney's Iowa Problem

The Republican candidate's chances of winning the Hawkeye State may be blowing away. Dan Gross explains why.

President Obama ended his second presidential campaign in the state where his first presidential campaign gained its first crucial breath of wind. Four years later, it seems wind may be giving Obama a boost in Iowa.

Mitt Romney

Mitt Romney speaks to supporters in Dubuque, Iowa on Nov. 3, 2012. (Charles Dharapak / AP Photo)

Iowa is a swing state that Mitt Romney has contested but doesn't look to be winning. The RealClearPolitics poll aggregation gives Obama a 48.7 - 46.3 lead over Romney. Nate Silver's 538 projection gives President Obama an 84.3 percent chance of winning the Hawkeye State. And wind may have something to do with it. Why? Romney, along with many Congressional Republicans, has opposed the renewal of the longstanding wind energy production tax credit, which makes wind energy projects viable. And no state gets more economically from wind than Iowa does.

In August, I spoke with Rob Hach, founder and president of Anemometry Specialists, based in Alta, Iowa; he's a registered Republican and 2008 McCain voter who was attending the Democratic National Convention as an Obama supporter. His firm, which has 27 employees, conducts assessments on wind projects and wind resources to see where they are economically feasible. "In Iowa, there are thousands of people employed making wind turbines, blades.  There are a lot of farmers who have been able to enjoy the royalties. There are a lot of students going to school at community college to go to work on wind turbines," he said. "They are quite disappointed with Governor Romney's position on renewable."

Wind is a big business in Iowa. According to the Iowa Wind Energy Association, the state is the third largest for wind production, with 4,536 megawatts of capacity. Texas and California are first and second. When it comes to the percentage of electricity generated by wind, Iowa is far and away the leader in the U.S., with 20 percent. "As more of our new wind farms come online, I wouldn't be surprised to see it reach 25 percent in the next 6 months," said Harold Prior, executive director of the Iowa Wind Energy Association.

Putting up wind turbines creates a lot of good collateral economic activity. Wind turbines are very large and heavy, and hence difficult to ship over long distances. So areas that erect a lot of wind turbines tend to attract manufacturers and suppliers. The state's 2,800 turbines have brought hundreds of manufacturers and suppliers to Iowa, from which they export to other states and countries. The construction of wind farms is leading other investors to plow cash into constructing electricity distribution and transmission lines. Several thousand Iowa jobs rely on wind power. And each year, landowners collect more than $14 million in payments in exchange for allowing turbines to stand on their property.

Of course, the industry is only viable thanks to the 20-year-old production tax credit, which gives the owners of turbines a tax refund for every electron of electricity they generate in the turbines' first ten years of operation. But the Federal Renewable Electricity Production Tax Credit is in danger of sunsetting at the end of this year. As such, it is another one of the victims of the bizarre politicization of alternative energy.

George H.W. Bush signed the first production tax credit into law in 1992. In 2008, George W. Bush rhapsodized about the possibilities of solar.  "I really see a day in which each house can be a little electric generator of their own and feeding back excess power into the gird through the use of solar power," he said. But since the election of President Obama, Congressional Republicans have generally opposed efforts to back alternative energy. In part it's because there was a lot of green energy stuff in the stimulus, which virtually every Republican opposed. In part it's because a lot of big GOP donors are in the oil and coal industry, which rightly view renewable energy as a threat. And in part it's because  some alternative energy programs involved making large loan and investments in individual companies like Solyndra. To nobody's surprise, despite intense lobbying from the large companies involved, the Senate and the House have not agreed to extend the production tax credit.

About the Author

Author headshot

Daniel Gross

Daniel Gross is a columnist and global business editor at The Daily Beast.

- Advertisement -

Shame on You, Walmart!

With an Ohio Walmart hosting a holiday food drive for its own workers, The Daily Beast's Michael Tomasky criticizes the notoriously stingy company for not paying them more.

  1. Obama Gets Credit for Stock Market Play

    Obama Gets Credit for Stock Market

  2. Twitter’s IPO: World Reacts Play

    Twitter’s IPO: World Reacts

  3. Phone Throwing App Is Awful Play

    Phone Throwing App Is Awful


More Business News & Views

Congress: Hail Our Media Overlords

Congress: Hail Our Media Overlords

Forget Comcast being on the ropes over its proposed multibillion-dollar merger with Time Warner Cable. It smoothly overrode concerns at a Senate hearing Wednesday.

Breaking: Trend Stories Are B.S.

Woman Power

Christine Lagarde’s Tightrope Act


The ‘Money Honey’ Moves On

You're Hired

Obamacare Frees Us from Cubicles