Warning: This column will feature no Top 10 list recounting the year’s biggest retail and consumer stories.
Instead, I thought I’d do something that journalists don’t always do so well, which is to follow up on some of our stories. So as 2011 comes to a close, I checked in on two businesses I’ve spilled ink on in the last year.
First, I popped into La Mancha Coffeehouse, a small, gutsy undertaking in the up-and-coming but still-has-a-ways-to-go neighborhood of Old North. I first wrote about the cafe in March, when it was about to open at 2815 North 14th Street, down the street from Crown Candy Kitchen.
As you might remember, a group of ’social do-gooders” had run a nonprofit cafe — Urban Studio Cafe — in the same space for about two years, but it ended up closing when it couldn’t make ends meet.
So Victoria and David Holden, who lived nearby and didn’t want to lose what had become an important community space, decided to give it a go as a for-profit cafe.
When I stopped in around mid-morning one day this week, the shop was empty aside from Victoria Holden and her only other employee. They were tidying up behind the counter. So how were things going?
“We’re good,” Holden said. “We’re here.”
Most of her customers are regulars — teachers stopping in on their way to school or workers from a nearby Habitat for Humanity work site, for example. A chess club meets regularly at the shop. And it hosts poetry readings now and then.
But it can be pretty slow at times.
“Business is up and down,” she acknowledged. “Some months we don’t get a full salary.”
The shop had an uptick, however, around the holidays, with more catering orders coming in and people buying gift certificates as presents. And this month, the cafe expanded hours to accommodate a late afternoon and early dinner crowd.
“But it varies a lot,” she said. “I wish there was some kind of (traffic) pattern I could plan for. But some things do revolve around weather and paychecks.”
Still, she’s been heartened by the community support, including regulars who have urged her to raise prices if she needs to.
“They say, ‘We just want you to stay in business. We just want you to be here,’” she said. “So that’s really encouraging.”
By the way, she does plan to raise prices next year to keep up with the rising cost of food and supplies.
A VINTAGE NEW NAME
In May, I wrote about Vintage Stock, a chain of new and used music, movie and video game stores that was moving into some of the shuttered Borders bookstores around town.
The Joplin-based company opened these multimedia superstores, which are larger than most of its other stores, under the banner of “Bam!” Two stores opened over the summer — one at Chesterfield Mall and another at Mid Rivers Mall.
But when a third store opened right before Thanksgiving in the former Borders space in South County Center, it went by a different name: “V-Stock.” Then earlier this month, the other two stores switched to that name, too.
Rodney Spriggs, the company’s chief executive, was a bit vague about the change when I asked if it was because the giant bookstore chain Books-A-Million had objected to him using that name. He said he couldn’t comment but did note that Books-A-Million has been using the “BAM!” name more prominently recently.
“All I can really say is that generally V-Stock ties in closer to Vintage Stock,” he said. “We chose to change it.”
How have the new stores been doing?
“They’ve been great,” he said. “We’re very happy with the sales numbers that have come out so far. It seems like the St. Louis customer base has taken to the concept very well.”
The newest store in South County has actually outperformed the other two by about 10 percent so far, he said. He thinks some of that may be because of demographics.
“South County is a little more blue collar, and I think they really like the idea of the value of buying previously viewed products,” he said.
Spriggs also has been a bit surprised by the popularity of the stores’ movie-rental business. After all, in the age of Netflix and on-demand cable services, who would go all the way to the mall to rent movies?
But Spriggs thinks he knows who: mall employees.
Stronger reports on the job market and manufacturing sent stocks slightly higher Thursday.
The Dow Jones industrial average rose 45.33 points, or 0.4 percent, to 11,868.81. The Dow lost 360 points over the past three days on worries that Europe’s latest plan to keep its currency union intact would fail.
Jack Ablin, chief investment officer at Harris Bank, said the upturn reflects a shift in investors’ attention back to recent signs of strength in the U.S. economy.
“We’re not completely insulated (from Europe), but trouble there doesn’t necessary spell problems for us,” Ablin said.
The number of people applying for unemployment benefits dropped last week to 366,000, the lowest level since May 2008. That’s a sign that layoffs are easing, a first step toward bringing down the unemployment rate, which currently stands at 8.6 percent.
A widely watched index measuring regional manufacturing from the New York branch of the Fed jumped to the highest level since May, far more than economists were expecting. A similar report from the Philadelphia branch also increased faster than analysts anticipated.
“The base of the economy is getting stronger,” said Steven Malin, an associate at money manager Aronson Johnson Ortiz.
FedEx Corp. reported that its quarterly income nearly doubled on strong growth in online shopping during the holiday season. FedEx is seen as a bellwether for the economy. Its stock jumped 8 percent.
The Standard & Poor’s 500 rose 3 no fax payday loans.94 points, or 0.3 percent, to 1,215.76. The gains were broad. All but two of the 10 industry groups in the index rose. Utilities and health care rose the most. S&P’s indexes measuring technology and energy stocks edged down less than 0.3 percent each.
The Nasdaq rose 1.70 points, less than 0.1 percent, to 2,541.01.
In corporate news, Michael Kors Holdings Ltd. jumped 21 percent to $24.20 on its first day of trading. The initial public offering valued the fashion design company at $3.8 billion.
Novellus Systems Inc. jumped 16 percent. The semiconductor equipment maker said late Wednesday that it was being acquired by rival Lam Research Corp. Lam fell 8 percent.
Rite Aid Corp. rose 3.5 percent. The drugstore chain announced that losses had narrowed in its third quarter.
European markets rose slightly, a day after big declines, as an auction of Spanish government bonds drew strong demand from investors. Germany’s DAX rose 1 percent; France’s main stock index rose 0.6 percent.
The euro rose against the dollar, moving back above $1.30, a day after hitting an 11-month low. The yields on Spanish and Italian government fell, a sign that investors were less worried about the ability of those countries to pay back their debts.
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Police used batons to disperse opposition activists taking part in a general strike in Bangladesh’s capital on Sunday. A party official said eight people were injured.
The Bangladesh Nationalist Party, led by former Prime Minister Khaleda Zia, is protesting a government decision to divide Dhaka into two administrative zones, a plan they say is aimed at removing the opposition-backed mayor.
Prime Minister Sheikh Hasina, Zia’s archrival, says the split is needed to provide better services to residents. Dhaka is a teeming city of 10 million people with poor infrastructure.
Amid an opposition boycott, the government passed a law in Parliament on Tuesday to appoint administrators for the two zones.
Schools and businesses were shut during the daylong general strike Sunday. A few vehicles were moving in the usually clogged streets.
Mirza Fakhrul Islam Alamgir, a senior opposition party official, said at least eight demonstrators were injured in the dispersal, which took place in front of the party’s headquarters.
He said at least 85 opposition supporters were arrested Saturday, the eve of the strike.
“The government has unleashed a reign of terror to frighten opposition activists,” Alamgir told reporters Sunday. “Police are out to halt our peaceful protests.”
Police say their goal is to maintain order, with some 10,000 security officials deployed in the city.
“It is our duty to protect the people and their property,” said Mehedy Hasan, a Dhaka Metropolitan Police official.
Opposition and government supporters clashed briefly in a separate incident Sunday in which several people were hurt, said APTN cameraman Al Emrun Gorjon, who suffered a head injury.
He said the clash broke out after opposition demonstrators hurled stones at a passing bus. Nearby government supporters then clashed with the demonstrators before police arrived, he said.
Kenneth continues to strengthen in the eastern Pacific Ocean, with forecasters predicting the rare late-season tropical storm will become a hurricane.
The U.S. National Hurricane Center in Miami said Monday that Kenneth had maximum sustained winds near 65 mph (100 kph). The storm was centered about 740 miles (1,190 kilometers) south of the southern tip of Baja California, Mexico, but was moving away from the coast.
It is moving west at 14 mph (22 kph)
Projections show Kenneth moving west out to sea, away from land. There are no coastal watches or warnings in effect.
The eastern Pacific hurricane season ends Nov. 30.
Regulators on Friday closed small banks in Iowa and Louisiana, lifting to 90 the number of bank failures in the U.S. this year.
The number of closures has fallen sharply this year as banks have worked their way through the bad debt accumulated in the recession. By this time last year, regulators had shuttered 149 banks.
The Federal Deposit Insurance Corp. seized Polk County Bank, based in Johnston, Iowa, with $91.6 million in assets and $82 million in deposits. It also closed Central Progressive Bank, based in Lacombe, La., with $383.1 million in assets and $347.7 million in deposits.
Grinnell State Bank, based in Grinnell, Iowa, agreed to assume the deposits as well as the loans and other assets of Polk County Bank. New Orleans-based First NBC Bank agreed to acquire all the deposits and $354.4 million of the assets of Central Progressive Bank.
The failure of Polk County Bank is expected to cost the deposit insurance fund $12 million; that of Central Progressive Bank is expected to cost $58.1 million.
Polk County Bank was the first bank in Iowa to fail this year, while Central Progressive Bank was the first Louisiana lender to fail this year.
In all of 2010, regulators seized 157 banks, the most in any year since the savings and loan crisis two decades ago. Those failures cost around $23 billion. The FDIC has said 2010 likely was the high-water mark for bank failures from the Great Recession.
In 2009, there were 140 bank failures that cost the insurance fund about $36 billion, a higher price tag than in 2010 because the banks involved were bigger on average. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three were closed in 2007.
From 2008 through 2010, bank failures cost the fund $76.8 billion. The FDIC expects failures from 2011 through 2015 to cost $19 billion.
The deposit insurance fund fell into the red in 2009. With failures slowing, the FDIC’s fund balance turned positive in the second quarter of this year; it stood at $3.9 billion as of June 30.
Dubai’s fast-growing airline Emirates is kicking off the Mideast city’s airshow with an order for 50 Boeing 777s.
The list price for the deal is $18 billion, but airlines typically negotiate discounts for large orders. The announcement was made Sunday by Emirates chairman and CEO Sheik Ahmed bin Saeed Al Maktoum.
Emirates is the Middle East’s largest carrier. It is owned by the government of Dubai, which is recovering from a debt-fueled financial crisis that came to a head two years ago.
The carrier is Boeing’s largest customer for the wide-body 777. Its young fleet also includes Airbus A330s and A340s, and the double-decker A380.
Italian Premier Silvio Berlusconi’s main coalition ally urged him to step aside Tuesday as political uncertainty in the eurozone’s third-largest economy rocked financial markets for yet another day.
Berlusconi’s government is under intense pressure to enact quick reforms to shore up Italy’s defenses against Europe’s raging debt crisis. However, a weak coalition and doubts over Berlusconi’s ability to push through austerity and reforms have financial markets fearing some type of financial disaster in Italy.
“We asked him to step aside, take a step to the side,” Northern League leader Umberto Bossi told reporters as he arrived ahead of a key vote that could force Berlusconi’s resignation. Bossi is the volatile ally who brought down Berlusconi’s first conservative government in 1994 when he yanked his support.
With debts of around euro1.9 trillion ($2.6 trillion), Italy is considered by many as being too big for Europe to bail out, like it has already done for Greece, Portugal and Ireland.
Italy’s center-left opposition said it would abstain in Tuesday’s voting, to make it clear just how fragile Berlusconi’s forces in Parliament are. If he is backed by less than 316 deputies _ or less than half of the 630-member chamber — it would be plain that Berlusconi can no longer count on a majority in the lower house of Parliament, even though the government mathematically could still win the vote to approve the 2010 state finances.
Bossi said the man Berlusconi has already hand-picked to be his eventual successor, former Justice Minister Angelino Alfano, should now lead the government.
But it would be up to the Italian president, Giorgio Napolitano, to decide whether to appoint a new leader or dissolve parliament and call early elections.
International financial officials and the markets, meanwhile, fretted over how long it was going to take for lawmakers to approve measures promised by Berlusconi to rein in Italy’s galloping public debt.
With that in mind, Italy’s borrowing rates spiked Tuesday to their highest level since the euro was established in 1999. Higher rates would make it more difficult for Italy to rollover its debts and will mean they consume more and more of its national income. Italy has over euro300 billion ($412 billion) to raise in 2012 alone.
By late-morning, the yield on Italy’s ten-year bonds was up 0.07 percentage point at 6.60 percent, down from an earlier high of 6.74 percent. A rate of over 7 percent is considered unsustainable and proved to be the trigger point that forced Greece, Ireland and Portugal into accepting financial bailouts.
First the dot.coms popped, then mortgages. Are student loans and higher education the next bubble, the latest investment craze inflating on borrowed money and misplaced faith it can never go bad?
Some experts have raised the possibility. Last summer, Moody’s Analytics pronounced fears of an education spending bubble “not without merit.” Last spring, investor and PayPal founder Peter Thiel called attention to his claims of an education bubble by awarding two dozen young entrepreneurs $100,000 each NOT to attend college.
Recent weeks have seen another spate of “bubble” headlines _ student loan defaults up, tuition rising another 8.3 percent this year and finally, out Thursday, a new report estimating that average student debt for borrowers from the college class of 2010 has passed $25,000. And all that on top of a multi-year slump in the job-market for new college graduates.
So do those who warn of a bubble have a case?
The hard part, of course, is that a bubble is never apparent until it bursts. But the short answer is this: There are worrisome trends. A degree is an asset whose value can change over time. Borrowing to pay for it is risky, and borrowing is way up. The stakes are high. You can usually walk away from a house. Not so a student loan, which can’t even be discharged in bankruptcy.
But there are also important differences between a potential “student loan bubble” and an “education bubble.” Furthermore, many economists think the whole concept of a bubble is a misleading way to think about what’s happening, and may actually distract from the real problems. College affordability is a serious issue, but it’s a different one. Borrowing for college and borrowing for, say, a house, are fundamentally different in important ways.
To be sure, there are some classic bubble warning signs:
_Everybody wants in. The idea that higher education is the only way to get ahead has become widely held. College enrollment has surged one-third in a decade. With rising demand, college tuition and fees have more than doubled over that time, outstripping inflation in every other major sector of the economy _ energy, health care and housing, even when housing was bubbling itself.
_Those bills are paid with borrowed money. The volume of outstanding student loans is rising rapidly and now exceeds credit card debt, though recent reports of it crossing $1 trillion may be premature. Moody’s Analytics puts the number at around $750 billion. But while credit card debt is declining, student loan debt keeps going up.
_Just like housing, many student loans were made with little or no research into whether borrowers were fit. Federal Stafford loans are basically automatic for college students, and government backing for other types of loans gave other student lenders little reason to be picky.
_Defaults on federal student loans jumped from 7 percent to 8.8 percent in the most recent fiscal year. That measures just recent borrowers who were already behind within two years of their first payments coming due.
Those numbers are all alarming. But putting them in context requires thinking separately about the ideas of a “student loan bubble” and an “education bubble.”
First, one thing that’s important about the possible student loan bubble is that it poses much less of a threat than housing debt did to drag down the entire economy. Yes, many individual borrowers may find themselves in trouble. But total student loans probably amount to less than 10 percent of outstanding mortgages. Every single student loan could default and it still probably wouldn’t match total mortgage defaults during the recent downturn. More importantly, unlike mortgages, Wall Street isn’t knee-deep in securities comprised of bundled student loans, as it was with mortgages. (It also helps that it’s also harder to speculate in student loans; an investor can flip a house, but not a brain.)
The other big difference with student loans is the dominant role the federal government has assumed in the market in the last few years: it accounts for roughly 85 percent of student debt.
That matters for several reasons.
First, the government is answerable to voters and not shareholders, so it’s more likely than private investors to take steps such as those announced by President Barack Obama to try to relieve student debt burdens.
Second, notes Mark Kantrowitz of the website Finaid.org, it’s important to remember what actually causes a bubble to burst. It’s not simply a run-up in prices. What bursts the bubble is a liquidity crisis, when borrowers suddenly can’t get the money they need pay day loan lenders. Even during the depths of the 2008 financial crisis, when private student loans dried up, the government’s dominant role kept student loans flowing.
That doesn’t guarantee the bubble won’t slowly and painfully deflate over time. But it insures against the chaos of a “crash” where suddenly students can’t get loans at all _ a scenario that could shut down untold numbers of colleges whose students rely on financial aid.
None of that, however, changes the fundamental risk for individual student borrowers: they could borrow heavily to pay for a college education and find the return much less than expected.
It’s here, looking at the debate from an individual borrower’s point of view as opposed to the entire economy, that the debate over the term “bubble” gets tricky. Can an education lose value?
Certainly a college degree can.
A key measure is the wage premium for bachelor’s degree recipients over those with just high school diploma, and there are various ways to measure it. All show the wage premium is substantial, though after rising steadily for years it appears to have slipped some lately. Wages for the median bachelor’s degree recipient are roughly $55,292, compared to $34,813 for those with only high school, according to the latest data from Georgetown University’s Center on Education and the Workforce.
That reflects a premium that has fallen from roughly 67 percent a few years ago to 59 percent (the latest Bureau of Labor Statistics data put the 2010 premium at 65 percent for weekly wages). Still, all told, estimates for the lifetime earnings advantage of a college degree range from a conservative $500,000 to more than $1 million, according to the Census Bureau. Even with recent price increases, for the average student loan borrower that remains a very high return on investment.
It’s true the unemployment rate for new college graduates is more than 10 percent. But unemployment for college graduates overall is 4.2 percent, compared to 9.7 percent for those with a high school degree.
Could college prices rise so much, and the premium fall so far, that a degree is no longer worth it? Of course, for some degrees. But in a modern economy, it’s difficult to imagine that happening across the board. Here’s where a degree is truly unlike other assets _ most should correlate at least somewhat with skills that are useful in the world. Particular degrees may prove bad bets, but to imagine the premium on education itself dropping off a cliff is to imagine a world where things have gone so wrong that job skills no longer matter.
Or, as Kent Smetters, an economist at the University of Pennsylvania’s Wharton School, puts it: “In that case, nobody’s worried about paying back their loans. Everyone’s heading for bunkers in Idaho and canned goods and that kind of stuff.”
Here’s the rub: Nobody earns a generic “college degree.” Degrees are earned from different schools, with different reputations, and in different majors with much different payoffs. What counts most, says Georgetown’s Anthony Carnevale, are the courses you take and your major. Roughly 30 percent of associate’s degree recipients earn more than people with bachelor’s degrees. A graduate with a mere certificate in engineering will earn roughly 20 percent more than the average bachelor’s recipient.
That suggests there isn’t one big bubble, but many smaller but significant ones stretching across different sectors _ certain liberal arts grads, artists, lawyers who borrow six figures for law school and can’t find a job, and students at for-profit colleges. The signs of a bubble at for-profits are unmistakable: Enrollment has tripled in a decade, roughly 96 percent of graduates have loans and borrowing is substantially higher than at other types of institutions. Default rates recently jumped to 15 percent.
But what’s most important is the huge numbers who never earn a degree at all. At community colleges and for-profit schools, roughly one in five aiming for a bachelor’s degree fail to secure it. Even at four-year public universities, the failure rate within six years is almost half. Anyone who borrows a large amount of money and then fails to complete a degree is in a world of hurt _ quite possibly worse off than if they’d never even tried to go to college in the first place.
Disarming former Libyan rebels could take months and weapons will not be taken by force, Libya’s new prime minister said in an interview broadcast Friday, signaling a shift from previous pledges of quick action.
Abdurrahim el-Keib also acknowledged that the National Transitional Council, which is to lead Libya to its first free election within eight months, has not yet established full control over the country, but said it is making progress. The NTC declared Libya liberated on Oct. 23, three days after the capture and killing of dictator Moammar Gadhafi.
The proliferation of armed ex-rebel militias in Libya and the NTC’s still shaky grip have raised concerns about growing instability during the transition period, which is to end with the election of a national assembly by June.
Thousands of civilians across Libya took up arms during the eight-month war that brought down Gadhafi. Some have returned to their pre-war lives, but others have remained in their fighting units, manning checkpoints and patrolling streets. In recent weeks, there have been reports of fighters using weapons to settle personal scores.
El-Keib, who will run the interim government for the next eight months, told France24 radio Friday that collecting those weapons “is going to take some time.”
“We will not force people to take quick and hasty decisions and actions and come up with some laws that just prevent people from holding arms,” he said. Instead, the government will try to work with the fighters, by offering alternatives, including training and jobs, he said.
“Hopefully, before the eight months end, we will be able to have those armed freedom fighters lay down their arms and go back to their business,” he added.
The head of the NTC, Mustafa Abdul-Jalil, said earlier this week that Libya’s interim leaders need quick access to billions of dollars in Gadhafi regime assets, frozen by a number of countries since the start of the war, to be able to disarm fighters and secure weapons.
Citing lack of funds, Abdul-Jalil said his government can’t do much in the interim period to secure weapons sites and munitions depots that were left unguarded and exposed to looting during the war. Libya border officials have reported heavy weapons smuggling into Egypt, and Israel has said some of those arms have reached the Hamas-ruled Gaza Strip.
Earlier this week, Libyan officials said they discovered chemical weapons that had previously not been declared by the Gadhafi regime when it pledged to abandon the pursuit of non-conventional weapons.
In the Netherlands, the organization that oversees the global ban on chemical weapons said it will work with Libyan authorities to verify and destroy chemical weapons. The Organization for the Prohibition of Chemical Weapons said it was told earlier this week of suspected chemical weapons caches beyond the stockpiles earlier declared by Gadhafi.
The organization said Friday that none of Gadhafi’s known chemical arsenal was plundered during the civil war. Libya declared in 2004 it had tons of sulfur mustard and other chemicals used to make chemical weapons.
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