If you look away from the Sonics trial for a moment, you can see warning signs that the seemingly immune local economy is actually pretty precarious.
Our Alfred E. Neuman ("What, me worry?") state and local political/economic cultures appear likely to come under greater strain in the weeks ahead.
Converging debt/credit crises, and exploding energy costs, will continue to depress economic growth nationally. Energy-intensive businesses, such as airlines, may have a shakeout. Midwest flood damage will at the same time cause food prices to escalate. State and local government revenue forecasts are being adjusted downward around the country.
Enjoying another handsome Northwest summer, this may seem distant to us. But it is not. Short term, attention has centered on the Seattle Sonics-City of Seattle legal struggle. But whether the Sonics stay or go, the effect will be small compared to other matters involving jobs, growth, and tax revenues in the region.
- Boeing Co. got a smack to the head Wednesday morning, June 25, when Goldman Sachs rated it a "conviction sell." Boeing stock opened down 5 percent Wednesday. It is 34 percent down from its 52-week high of $107.83. The Goldman report noted that the Dreamliner 787 "has yet to have a flight test" and that high fuel prices internationally were likely to dampen demand for aircraft sales. It projected lower earnings for Boeing over the next two years.
Washington Mutual shareholders approved yesterday a $7 billion investment by private-equity company TPG and others who are buying WaMu common stock at $8.75 per share. The investment involved a dilution of prior shareholders' equity. WaMu stock closed at $5.80 per share Tuesday, down from $42.63 a year ago.
The truly bad news for WaMu shareholders and its diminishing workforce is that the $7 billion is unlikely to be sufficient to cover the company's bad loans. As more capital is sought and secured, investors' stake will be further diluted. Critics of the TPG deal continue to allege that a proposed buyout by JPMorgan Chase would have better served both shareholders and the company. CEO Kerry Killinger is unlikely to withstand continuing pressure for his resignation. It is conceivable that WaMu could fail and/or yet be absorbed at a fire-sale price by another financial institution.
- A major hedge-fund investor warned Fisher Communications yesterday that it should proceed with a sale.
- The Seattle Times Co. is trying to sell its Maine assets to raise capital to keep its flagship local daily afloat. The Blethen family, majority owners of the Times Co., overpaid badly for the Maine properties and now cannot unload them. Meantime, the same pressures plaguing newspapers nationally are being felt strongly in the region. McClatchey recently announced cutbacks at its Tacoma, Olympia, Tri-Cities, and Bellingham newspapers. The Times and Seattle Post-Intelligencer, publishing locally under a joint-operating agreement, both have been in the red for several years. Seattle is the smallest U.S. market with two morning newspapers. If you have not noticed, classified advertising — once the cornerstone of daily newspaper revenue — has all but disappeared from the two papers and is now mainly online. A betting person would wager that Seattle would be a one-newspaper town by 2010.
- The housing downturn locally has not been noticeable as compared to the huge corrections in south Florida, Phoenix, southern California, Nevada, and other markets. But housing has, nonetheless, slowed here and is likely to do so for at least the next year.
- CEO Howard Schultz is trying to reinvigorate and regenerate the competitiveness of a Starbuck's which once dominated its market.
- Bill Gates' departure from Microsoft, for the world of philanthropy, should go smoothly. Yet industry analysts and institutional investors have raised recent doubts about the company's business model. The on-again, off-again Yahoo merger discussions have left an impression of a confused management team. Microsoft will remain a powerhouse company, rooted in our region. But it faces competition on several fronts. Its stock price has remained static over a long period.
We are diversified here and not subject to the crushing adjustments of the kind, for instance, that followed the 1970s Boeing crisis. But we have no particular virtue which exempts us from financial/economic trends affecting other places.
Our Alfred E. Neuman tendencies are most apparent in the continuing effort of Sound Transit to launch a new multibillion-dollar ballot measure this fall to finance an unneeded regional light rail system and in other city, county, and state proposals for new taxing and spending when the economy is weakening, taxpayers belabored, and tax receipts headed down.
