Economy Beers Give Brewers Lift in Downturn

The Wall Street Journal - Mark Lehr's favorite beer is Heineken, but one recent afternoon, the Chicagoan emerged from a 7-Eleven with a 12-pack of Busch that cost him $8 -- about $7 less than a dozen Heinekens.

"My funds are limited right now," said the 39-year-old house painter, noting that he has had far fewer customers during the recession.

Sales of so-called economy brews, including Busch, Miller High Life and Pabst Brewing Co.'s Pabst Blue Ribbon, are rising faster than the nation's beer sales overall, and are helping industry giants Anheuser-Busch InBev NV and MillerCoors LLC weather the economic downturn.

Anheuser, based in Leuven, Belgium, is expected to report healthy sales at its U.S. unit when it posts first-quarter results Thursday, thanks in part to its stable of low-priced brews such as Natural Light and Busch Light.

Though less profitable, these brews are helping Anheuser offset slower sales growth for its larger brands. "We feel we have brands that can meet any consumer need," said Dave Peacock, president of the company's U.S. unit.http://online.wsj.com/article/SB124165010171893491.html#articleTabs%3Darticle

For Fed, Big Test Will Be When to Turn Off the Money Pump

The Wall Street Journal - During the past eight months, the Federal Reserve has pumped more than $800 billion of cash into the nation's financial system, an action that in normal times could lead to an ugly inflation surge.

Fed Chairman Ben Bernanke is confident that isn't going to happen this time around. To quiet skeptics and reassure markets, he and his lieutenants have been going out of their way the past few days to explain why inflation isn't in the outlook and to lay out the tools they have in hand to fight it.

The focus on inflation isn't just coming from the Fed. In a report this month, Goldman Sachs economists sought to knock down what they described as a wave of "inflation hype" they had been hearing from clients and bond-market traders.

The focus on the issue comes with the Fed's next policy meeting, set for next week. With so many programs already in train, the central bank looks unlikely to take dramatic new actions at the meeting. Assessing signs of improvement in the economy, contingency planning and deliberations on long-term exit strategies are likely to be important parts of the discussions.

Inflation might seem like a distant worry today. Last week, the Labor Department reported that consumer prices in March fell year over year for the first time in 54 years. Rising unemployment and idle factory floors mean businesses have little incentive or capacity to raise wages or the prices they charge customers. There's a risk, in fact, that if the economy weakens much more, the opposite of inflation -- deflation -- could become a serious threat.

That's why the Fed's goal for now is to get inflation higher, not lower. It has effectively been printing money as part of its rescue efforts. When it buys mortgage-backed securities or makes commercial-paper loans, as it has been doing, it electronically credits its counterparty banks with cash in return, which pumps new cash into the financial system.http://online.wsj.com/article/SB124018636521933417.html#mod=todays_us_page_one

Bernanke's PR Push Rewrites Fed Script

The Wall Street Journal - WASHINGTON -- Ben Bernanke became Federal Reserve chairman intent on making the central bank less personality-driven than it was under Alan Greenspan and Paul Volcker. But as he confronts an economic crisis that has pushed the Fed to shatter precedent and lend trillions of dollars, Mr. Bernanke is waging a public-relations offensive that casts him in the starring role.

The latest example came Tuesday at Atlanta's Morehouse College, where Mr. Bernanke delivered what amounted to an Economics 101 lecture on the crisis. On a day when the government said U.S. retail sales had fallen a worse-than-expected 1.1% in March, Mr. Bernanke told students he's "fundamentally optimistic" about the economy's prospects. After his speech, he sat with undergraduates at a table and took questions with television cameras rolling.

The Fed chief's efforts to speak plainly to Americans come on the heels of a March interview with CBS television's "60 Minutes" and a February appearance at the National Press Club in Washington, where he took questions from a crowd of journalists.http://online.wsj.com/article/SB123975237751018765.html

Big Grocer Pulls Unilever Items Over Pricing

The Wall Street Journal - A big grocery chain has removed from its Belgian stores about 300 Unilever products that it says are priced too high, a sign of mounting tension between retailers and suppliers as the recession grinds on.

The move by Brussels-based Delhaize SA, which operates the Food Lion chain and other grocery stores in the U.S., comes just days after Unilever reported strong fourth-quarter profit that was driven in large part by its ability to command big price increases despite the ailing economy.

The banished products include everything from Dove soap and Axe deodorant to a jam brand called Effi. Delhaize normally stocks as many as 500 Unilever products in its 775 stores in Belgium.

The stare-down shows how fraught relations between retailers and their suppliers are becoming amid the severe slump in consumer spending. Grocery stores across the globe are putting growing pressure on food and drink companies to lower prices or to offer other more favorable terms.

Faced with penny-pinching consumers and the growing strength of discount stores, retailers are desperate to cut prices, and a growing number are asking suppliers to help foot the bill.

Meanwhile, consumer-goods companies such as Unilever are struggling with a drop in demand from stores whose customers are trading down to cheaper private-label brands. Earlier this month, Kraft Foods Inc. lowered its earnings guidance for the year as retailers, including Wal-Mart Stores Inc., cut back orders.http://online.wsj.com/article/SB123430797027570341.html?mg=com-wsj

Falling Pound Raises Fears of Stagnation

The New York Times - LONDON — An island nation that bulked up on debt and lived beyond its means. A plunging currency. And a financial system edging toward nationalization.

With the pound at a multidecade low and British banks requiring ever-larger injections of taxpayer cash, it is no wonder that observers have started to refer to London as “Reykjavik-on-Thames.”

While that judgment seems exaggerated, there are uncomfortable parallels between Iceland’s recent financial downfall and Britain’s trajectory. Equally important, news that widening bank losses in Britain have necessitated another round of government life support provides a stark example to the United States.

Washington’s attempts to stabilize financial institutions have failed so far, as well. And now the Obama administration, along with the rest of the world, could watch Britain to see what a bank nationalization might look like, and what it might suggest for American banks.

Ordinary Britons have a more basic worry. After relishing the boom that transformed the drab United Kingdom into Cool Britannia, they fear that the disheartening economic stagnation of the 1970s might return.

The pound, a symbol of British independence from the Continent that is revered nearly as much as the queen, is now down nearly 29 percent against the dollar from a year ago.

There has been a steady drumbeat of gloomy economic news for months, but the mood in Britain has darkened starkly in recent days.

On Monday, Royal Bank of Scotland warned that its 2008 losses could hit £28 billion, or $38 billion, even as Prime Minister Gordon Brown announced a second bailout package for the troubled banking sector worth tens of billions of pounds. Ultimately, the British rescue effort could cost at least £350 billion, with some estimates ranging far higher.http://www.nytimes.com/2009/01/22/business/worldbusiness/22pound.html?partner=permalink&exprod=permalink

Rates: When Zero Is Way Too High

Post Courtesy of Emily Mullin

BusinessWeek - Can an interest rate of zero be too high? Unfortunately, yes. A new analysis by Goldman Sachs (GS) concludes that the Federal Reserve's cut in the federal funds rate to a record low of zero to 0.25% on Dec. 16 isn't going to be nearly enough to get the economy going again. The report says the Fed would need to reduce the federal funds rate to negative 6% by the end of 2010 to supply the needed amount of monetary stimulus.

The problem: It's literally impossible to cut interest rates below zero. As a result, "we are entering a world with interest rates that are far too high for the economy's good," Goldman Chief U.S. Economist Jan Hatzius wrote in a Jan. 16 research note.

That's a big negative for a U.S. economy that's already in a deep slump, with retail sales, industrial production, and exports all plummeting. Citigroup (C), Bank of America (BAC), General Motors (GM), and Chrysler, among others, are struggling to keep their heads above water. Circuit City, the second-biggest U.S. electronics retailer, announced on Jan. 16 that it was going out of business and closing all its stores by the end of March. Meanwhile, homebuilders like Lennar (LEN) and D.R. Horton (DHI) are getting squeezed by a record decline in home prices.

Ordinarily when the economy slows, the Federal Reserve can juice it up by cutting short-term interest rates to below the rate of inflation, meaning that in inflation-adjusted terms, rates are actually negative. For example, if inflation is running at 6% per year and interest rates are at 4%, the "real" rate is negative 2%. Negative real rates entice people to borrow money for consumption or investment, which gets the economy going again and soaks up unemployed workers and equipment.http://www.businessweek.com/bwdaily/dnflash/content/jan2009/db20090119_561565.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis

Drop in Inflation Lifts Europe Stocks

The New York Times - American stock markets opened higher on Tuesday while crude oil prices rose above $50 a barrel, their highest levels in more than a month, before falling back slightly.

Oil prices plunged from their summer peaks of $145 a barrel as the economic downturn spread, but they have rebounded from their lows as motorists took advantage of lower gasoline prices. A dispute over natural gas between Russia and Ukraine and a production cut by the OPEC cartel of 2.2 million barrels a day have highlighted concerns about tightening energy supplies.

“At least for the next couple months, it’s pretty much going to be strictly a supply and demand type of situation,” said Al Greenberg, head Chicago Board Options Exchange floor trader at BNY ConvergEx Group. http://www.nytimes.com/2009/01/07/business/07markets.html?partner=permalink&exprod=permalink

Is College Worth the Cost

Dollar's Rise Could Damp Inflation

The Wall Street Journal - The U.S. dollar marched higher again on Friday, continuing a development that could ease inflationary pressures but also could slow a U.S. export boom.

Just a couple of months ago, policy makers were alarmed about how far the dollar had fallen. Now evidence is building that its seven-year slide may be ending.When a currency strengthens, it's usually a sign of health in the underlying economy. In this case, the dollar's rally is a sign of weakness in other economies. Reports in recent days showed that the economies of Japan and Europe contracted in the second quarter, and the U.K. slowed. It's now looking less likely that the rest of the world will be insulated from U.S. economic ills.

The dollar's latest rise is closely tied to recent declines in oil and other commodity prices. As economies in the rest of the world slow, demand for raw materials appears to be waning, which is taking pressure off commodity prices. These goods are typically priced in dollars. As the U.S. currency strengthens, commodity producers have less incentive to increase their prices, further easing the upward pressure on prices. http://online.wsj.com/article/SB121884105817145699.html?mod=hps_us_pageone