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Sunday, May 25, 2008

Warren Buffett: US Recession “Deeper and Last Longer”

BERLIN (Reuters) - The United States is already in a recession and it will be longer as well as deeper than many people expect, U.S. investor Warren Buffett said in an interview published in German magazine Der Spiegel on Saturday.

He said the United States was "already in recession" and added: "Perhaps not in the sense that economists would define it" with two consecutive quarters of negative growth.

"But the people are already feeling the effects," said Buffett, the world's richest man. "It will be deeper and last longer than many think."

But he said that won't stop him from investing in selected companies and said he remained interested in well-managed German family-owned companies.

"If the world were falling apart I'd still invest in companies," he said.

Buffett also renewed his criticism of derivatives trading.

"It's not right that hundreds of thousands of jobs are being eliminated, that entire industrial sectors in the real economy are being wiped out by financial bets even though the sectors are actually in good health."

Buffett complained about the lack of effective controls.

"That's the problem," he said. "You can't steer it, you can't regulate it anymore. You can't get the genie back in the bottle."

Tuesday, May 20, 2008

A Brief History of Jeans

On this date in 1873, Levi Strauss and Jacob Davis received a patent for the process of putting rivets in pants, and modern jeans were born. But that’s not the whole story.

We bet you think that jeans started as an American trend, specifically among gold miners in California. That’s not, however, exactly right: the history of jeans actually goes all the way back to eighteenth-century Italy. Genoan sailors of the time wore particularly snappy outfits made from denim; the word “jeans” coming from “Genoa.” For that matter, the word “denim” refers to a type of cotton cloth called “Serge de Nimes,” which literally means “cloth from Nimes,” a town in the south of France.

What America deserves credit for is popularizing the product, not inventing them. The first American jeans were made from slightly different fabrics than their European counterparts, but plantation labor eventually made cotton widely available in the States. By the time the Gold Rush started in 1848—not, as the NFL might have you believe, ’49—cotton denim jeans were the standard. But the miners didn’t pick up the trend until 1853, when one Leob Strauss moved to San Francisco, changed his name to Levi (nobody knows why), and started selling his pants wholesale. (There’s another guy who doesn’t get credit nearly as often, although he deserves it. Jacob Davis, a tailor from Reno, Nevada, was the guy who figured out how to put rivets in the corners of pants; he collaborated with Strauss.) A hit among the miners, the jeans were sturdy enough to handle rough work and repeated washings. Strauss shrewdly capitalized on that fact. In 1886, Levi’s Jeans even bore a leather label showing them being pulled between two horses to emphasize how durable they were.

Still, jeans remained the workwear of the rough and tumble West well into the mid-20th century. They started to trickle out to the general public in the 1930s, as Hollywood Westerns started sweeping across movie screens, introducing audiences to macho types sporting jeans as they lassoed cattle, slung guns, and engaged in other cowboyish activities. A decade later, another manly-man archetype picked up the trend: the World War II soldier, who often wore jeans and overalls when off the job. Finally, in the 1950s, teenagers and rebels, with or without causes, realized that jeans would make them look tough, aloof, and hardscrabble – without requiring them to actually do any of the dirty work of cowboys or soldiers. Once James Dean and Marlon Brando donned a couple pairs, there was no stopping the trend.

Saturday, May 17, 2008

Bevinco on the hunt for missing booze at local bars

Zane Campbell of Kirkwood likes to hit the bars early. He starts bellying up about 6 a.m. Yup, that's right, a.m., not p.m.

During a recent Thursday morning, he was at his regular spot at The Old Rock House in Soulard, where he faced an array of open bottles of booze for some five hours. But he wasn't drinking. Actually he was weighing. He took bottle after bottle of vodka, scotch, wine and what have you, scanned the bar code and put each bottle on a scale.

Campbell is a franchisee of Bevinco Corp., a Toronto-based company with a unique computerized method of detecting disappearing alcohol at bars and restaurants. He performs audits — usually weekly — at more than 40 area restaurants and bars.

He's looking for what is called "shrinkage." It means a bartender has a sloppy pouring technique or is giving away too many drinks — or somebody is just plain stealing it. Restaurants and bars typically lose about 20 percent of alcohol to shrinkage, according to restaurant industry estimates, and Bevinco says it can reduce that figure to less than 5 percent.

"With the economy the way it is, bars and restaurants need every dollar coming in," said Campbell. "If you're giving away 20 percent of your booze, it's thousands of dollars."

Campbell, who worked as a bartender during college, has a real appreciation for the loss. He said free-pouring techniques are far from exact.

"You wouldn't believe the waste," he said. "They overpour, and its adds up to a lot of losses, especially in a high-volume establishment."

So while each audit can cost $150 to $400, depending on the number of bottles involved, the examinations can save an establishment $1,000 to $2,500 a week, Campbell said.

As part of the audit, every open bottle of liquor and wine gets weighed. So do cans of energy drinks. And even kegs of beers get placed on an industrial-size digital scale.

"We do a complete inventory of every thing on hand," said Campbell, who has two of his employees help with the tedious weighing of more than 400 bottles at the Rock House.

With this information, Bevinco's computerized process then calculates the exact amount of liquor used during a reporting period against the amount of liquor that had been sold.

For example, the weight of a bottle of a certain liqueur shows that 28 shots had been used during the week. The Bevinco system then compares that to bar receipts to see whether 28 shots had actually been sold. The system will check for every drink that calls for that liqueur. If the system find that only 20 shots had been rung through the bar's cash register, the audit will show the bar is missing eight shots, or a 29 percent loss.

The results of an audit may often suggest whether the loss is being caused by overpouring, "mis-rings" in which the bartender records the wrong drink on the cash register, or theft.

For example, one client saw that 2.3 ounces of Glenlivit Scotch had been used, but only 1.5 ounces had been sold. That meant 0.8 ounce was missing. That's not a full shot. Because Glenlivit doesn't get poured in any mixed drinks, Bevinco would not think it was caused by a mis-ring. Instead, the missing Scotch was probably overpoured.

Mark Disper, owner of the Rock House, contracted with Bevinco after he opened the bar and restaurant in July.

"The concept was exactly what we were looking for. It gives us a way to monitor and keep track of our performance," he said.

Campbell said missing liquor doesn't necessarily indicate wrongdoing, but "it could be that a bartender's pouring techniques are wrong. But it all adds up."

Bevinco isn't suggesting that bartenders stop pouring complimentary drinks, he said.

"You definitely want your bartender to give your regulars or those who might become regulars free drinks," Campbell said. "The competition is super thick."

However, Bevinco recommends that bartenders be given a manager-approved, separate tab for this purpose.

"That way when I pull the sales, I can account for the comps so they don't figure into the shrinkage," Campbell said. "You definitely want to take care of your customers."

Wednesday, May 14, 2008

The ethics of hoarding

In the Philippines, they're threatening life sentences for traders hoarding rice. In the United States, grocers need to put limits on rice purchases just to keep their shelves stocked. Philippine traders are now afraid to fill their warehouses, for fear of being called a hoarder. Even ordinary US shoppers are worrying that buying a big bag of rice might make them a hoarder. In this climate, it's worth thinking about what hoarding actually is.

Let me start by saying what it isn't. Stocking your pantry with goods that you're going to use isn't hoarding.

Hoarding is buying goods and storing them in the hope of selling them at a higher price.

Of course, there's an aspect to that in practically every business. Ordinary business behavior is different from hoarding mainly in that most businesses add value--the baker transforms the flour into bread, the butcher cuts up a carcass into steaks and chops. Just repackaging can add value--the wholesaler buys rice by the railcar and sells it in 50 pound sacks to the grocer who then sells it to shoppers by the pound.

Ordinary businesses also have a steady flow to their buying and selling. The gas station may have thousands of gallons of gasoline in its underground tanks, but that gasoline is for sale every day, not held off the market waiting for the price to go up.

A hoarder, though, doesn't add value by transforming the product in some useful way, nor does he make his money on the markup from wholesale to retail. He just buys stuff and holds on to it, hoping to sell after the price goes up.

Merely doing that is ethically neutral--often, in fact, beneficial. A clever hoarder will buy when prices are low (which is a source of price support for suppliers who would otherwise be suffering) and then sell when prices are high (providing supplies when there would otherwise be a shortage). If he makes a profit, it's a legitimate return on the capital that was tied up during a period of low prices. Buying low and selling high is not just a way to make money, it also helps stabilize the market, protecting both suppliers and consumers.

Hoarding becomes ethically objectionable when the hoarder waits until prices are already high, and then buys goods in the hope that prices will go even higher. That's not stabilizing. That can turn tight supplies into shortages and send prices up to where basic staples are beyond the means of all but the wealthy.

Note that this sort of hoarding is also not a very good way to make money. If supply and demand are already clearing, at whatever price, there's no particular reason to suppose that prices will go even higher. In fact, over the medium term--once suppliers have a chance to grow more or make more, and once consumers have a chance to adjust their habits to use less, you can expect prices to go back down. Hoarders buying at that point may drive the price up in a speculative frenzy, but once they start selling, the price will go right back down again, meaning that most of them won't make any money. They will, though, make the price gyrate. It's those price gyrations, together with the shortages caused by taking the product off the market, that make hoarding objectionable.

From an ethical point of view, there's no reason for ordinary consumers to worry that they might be doing something bad by stocking up. In fact, the stockpiles of ordinary consumers are a positive, stabilizing force when there are supply and price shocks, because the consumer with a stockpile will naturally limit purchases when there's a shortage. It's only the consumers with bare shelves who are buying when the price has just shot up.

Hoarding is a bad word, though--something that you wouldn't want to be accused of, even if you could make a reasoned argument about the stabilizing effects of stockpiles. In the US, we're not at the point of ugly mobs forming when someone carries a couple extra bags of rice out of the grocery store, but Americans are as good at forming ugly mobs as people anywhere.

Ethics aside, as a simple, practical matter, you don't want to be trying to build your stockpile after shortages are already in the news. Once that happens, cut back on use to make your current supplies last. Switch to stockpiling stuff that's still cheap--there's always something, unless times are very bad indeed. Especially during a time of shortages and soaring prices, there's no better investment.

Thursday, May 8, 2008

Some China firms outsourcing to USA to cut costs

By Xeni Jardin

An article in the LA Times this week on businesses from China bargain-hunting on operational costs by outsourcing to the USA:

Liu Keli couldn't tell you much about South Carolina, not even where it is in the United States. It's as obscure to him as his home region, Shanxi province, is to most Americans.

But Liu is investing $10 million in the Palmetto State, building a printing-plate factory that will open this fall and hire 120 workers. His main aim is to tap the large American market, but when his finance staff penciled out the costs, he was stunned to learn how they compared with those in China.

Liu spent about $500,000 for seven acres in Spartanburg -- less than one-fourth what it would cost to buy the same amount of land in Dongguan, a city in southeast China where he runs three plants. U.S. electricity rates are about 75% lower, and in South Carolina, Liu doesn't have to put up with frequent blackouts.