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Five Things You Need to Know: The Return of Schlitz... Right On Time


The reemergence of nostalgic brands is closely tied to socionomics and the transition we are seeing take place in social mood.


Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. The Next Wave

"The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building," intoned the New York Times, ominously, this morning.

Indeed. While many are hopeful because the rate of subprime defaults has slowed from astonishing, to merely incredible, the next rung up on the credit score ladder, Alt-A mortgages, has seen defaults quadruple to 12% year-over-year, while Prime mortgages have seen default rates double to 2.7%.

"Delinquencies in Prime and Alt-A loans are particularly challenging for banks because they hold more such loans on their books than they do subprime mortgages," the Times notes.

2. Eight... and Counting

This weekend First Priority Bank of Bradentown, Florida became the eighth bank to fail so far this year.

Sure, that sounds like a lot, but the failures this year are not yet up to even 2002 standards when 12 banks failed. And of the was a far cry from the Post-Depression-Era high of 206 failures in 1989 during the Savings & Loan crisis.

Since October 1, 2002, 36 U.S. banks have failed, according to the FDIC.

First Priority Bank had $259 million in assets and $227 million in deposits and its failure will cost the federal fund that insures deposits an estimated $72 million, according to Reuters. IndyMac, by comparison, had $32 billion in assets and $19 billion in deposits, making it the third-largest bank insolvency in U.S. history.

3. Companies Tap Pension Plans To Fund Executive Benefits

This morning we found yet another heartwarming story of how, during tough times, corporate executives have a way of pulling together to devise new and unique ways to loot from rank-and-file workers.

According to the Wall Street Journal, even as scores of companies freeze pensions for their workers, some are quietly converting their pension plans into resources to finance their executives' retirement benefits and pay.

One such company is Intel (INTC). According to the article, in 2005, Intel moved more than $200 million of its deferred-compensation obligations into its pension plan. Then it contributed at least $187 million of cash to the plan. the benefit is that once the executives get ready to collect their deferred salaries, Intel won't have to pay them out of cash; the pension plan will pay them, the Journal reported.

Wait, it gets better. "Normally, companies can deduct the cost of deferred comp only when they actually pay it," the article noted. "But Intel's contribution to the pension plan was deductible immediately. Its tax saving: $65 million in the first year. In other words, taxpayers helped finance Intel's executive compensation."

Intel defended the move, according to the Journal, saying it "aided shareholders" and "didn't hurt lower-paid employees because most don't benefit from Intel's pension plan." However, "a majority of the tax-advantaged assets in Intel's pension plan are dedicated not to providing pensions for the rank and file but to paying deferred compensation of the company's most highly paid employees, roughly 4% of the work force," the article concluded.

4. The Rich, They're Just Like Us!

Looks like a case of good news/bad news, according to the Associated Press: The rich are sharing our financial pain, but also contributing to it. "It may have taken longer and it may not be as acute, but there are early hints that the economic slump is crimping the lifestyles of the wealthy," an AP article making its way around just about every newspaper in the country noted this morning.

But wait, although no one loves company more than the poor and miserable, there's more... "The problem is that when the wealthy get stingy, it trickles down to the rest of us," the article points out.

Based on data compiled by Moody's from a 2006 federal survey, the 10% of households with the highest incomes account for nearly 25% of all spending, the article noted. That's important, the article notes, because households in the top 20% of the U.S. population ranked by income earn about half of all total personal income before taxes.

Like us, tough economic conditions are forcing the rich to turn more introspective. "People are examining," Joseph Montgomery, managing director of investments at Wachovia Securities, told the AP. "'Do you keep the yacht, do you go to the classic car auction, do you take the private jet?"'

5. The Return of Schlitz... Right On Time

According to the New York Times, Schlitz, the top-selling beer for much of the first half of the 20th century, is poised to make a return... right on time.

Schlitz' owner, Pabst Brewing Co., are hoping nostalgic Baby Boomers will "reach for the drink of their youth."

In many respects, the reemergence of nostalgic brands is closely tied to socionomics and the transition we are seeing take place in social mood.

"People like Leonard Jurgensen say the beer reminds them of better days," the article says. "For many years the product was associated with happy times, especially to people my age," said Jurgensen. "As we all know, the world is not the best it can be today. We used to think those were hard times and when we look back on them, those were the good old days."

It's a testament to how much larger, and more severe, this wave of dark social mood is compared to the last one, the "hard times" Jurgensen says he now remembers with fondness. Interestingly, Schlitz Brewery, while at its peak popularity throughout the last secular bear market between the mid 60s and throughout the 1970s, closed in 1981, just before the secular bull market exploded.

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