Recession May Be Blowing in the Wind
By Iben Browning’s count, there were about 70 tornadoes along the Gulf Coast last November. That bit of information may seem like vital news to fishermen, not businessmen. But Browning, 70, a climatologist and Paine Webber consultant who works out of his home in Sandia Park, N.M., is now something of a celebrity in the financial world: His observations about tornadoes led him to predict this year’s drought in the Farm Belt.
“He’s very good,” says John Coleman, senior vice president in charge of Paine Webber’s institutional sales division in Chicago, for whom Browning has been consulting since 1975. “He’s done a lot of good predicting. He’s the most popular consultant we’ve had.”
Browning’s best call came in the Browning Newsletter dated Dec. 21, 1987. In it, Browning, who has a Ph.D. in biology from the University of Texas, wrote that “one of the precursors of high, dehydrated winds in the High Plains is winter tornadoes along the Gulf Coast. . . . The tornadoes were there because the Jet Stream was there, hence the Jet Stream was not over the High Plains where it could have been bringing in moisture.”
More upsetting is Browning’s current projection for the months and years ahead--that food prices will rise sharply because of yearly droughts and this will lead to a “recession/depression” in the United States that won’t end until 1993.
“Drought and dust storms will occur repeatedly from 1989 to 1993,” Browning says. And, he adds, “every major depression has been associated with dust storms.”
Browning thinks problems will begin later this year. Food prices will rise because of the drought, leaving consumers with less money to spend on non-essential items. This, in turn, will sour the U.S. economy.
The pattern will be similar to past recessions, he says. In the 1982 recession, food, fuel and housing ate up 82% of a family’s per-capita disposable income, according to Browning. In ordinary times, 75% of a family’s income goes for these items.
Browning, a sometime inventor and author who recently wrote a book on AIDS, won’t say how high he thinks that food prices will go. But the WEFA Group in Bala-Cynwyd, Pa., estimates that the drought could cause food prices to rise 4.68% this year and 6.64% in 1989. So how does someone like Browning go from projecting weather patterns to giving economic forecasts?
“Everything is climate,” he says. “The climate causes crop failures and famines, and people find this very depressing. They are so depressed that the economy is depressed.”
Are small investors returning to the stock market? At least one mutual fund organization, T. Rowe Price Associates of Baltimore, says they are, although tentatively, for the first time since last October.
In June, about $70 million was moved from T. Rowe Price money market funds to stock mutual funds, says spokesman Steven Norwitz. In addition, about $90 million in new money went into the stock funds--outpacing redemptions by a wide margin.
But investors are still nervous. Norwitz says T. Rowe Price’s most popular stock fund is the New Era Fund, which invests in such inflation hedges as precious metals and energy stocks.
“I think you are seeing a pattern that you see often, where money follows performance,” says Norwitz. But, he says, that doesn’t mean investors are ready to embrace stocks wholeheartedly.
Sooner or later, Wall Street will be looking for something new to worry about. The most likely issue? Reduced consumer spending.
Several experts have recently said U.S. consumers are about to go on a savings binge--reversing years of big spending. Charles Clough and Christine Pinto, investment strategists for Merrill Lynch, think consumers already have too much debt and will soon see a drop in the growth of their disposable incomes. “We think a reduction in financial net worth as a result of the market crash and softening home prices may prompt consumers to try to rebuild their savings rate,” Pinto says.
The Federal Reserve Board may be thinking the same thing. In its May report, the central bank revealed that five of its districts (Boston, New York, Philadelphia, Cleveland and Kansas City, Mo.) have experienced moderate to sluggish retail sales growth.
Psst. Want to know which big European high-technology company is looking for a mate in the States?
It’s Plessey Co., the London-based manufacturer of telecommunications equipment, micro- and defense-electronics components and aerospace equipment. Stephen Walls, director of finance, says Plessey could make acquisitions in the aerospace-electronics and defense-equipment fields in the United States in the not-too-distant future.
“We’ve looked at a number of opportunities in recent months and continue to look at some of these today,” Walls said. When might Plessey buy? Walls says his company’s time frame is “measured in months rather than in years.”
Walls, of course, won’t say whom Plessey is talking to. But he will say that any acquisition must be compatible with the company’s existing business, probably won’t be multibillion-dollar in size, is unlikely to be hostile and won’t be of any company involved in major parts of supersecret defense projects.
And one more thing: Walls says Plessey is also looking to get into a new core business in the next six to 12 months--also probably through an acquisition. “One area we thought about was the data-processing, software systems sector,” he says.
When Long Island recently took the bold step of banning the use of polystyrene containers, Wall Street yawned. But the issue of what to do with these foam packages once their hamburgers are devoured could be a sleeper in the ‘90s.
Long Island’s move is not likely to have a big impact anytime soon on Dow Chemical Co., the largest manufacturer of the foam containers, which give off toxic gases when burned. (Leonard Bogner, a chemical analyst at Prudential-Bache Securities, says it could cost the company a penny a share of its earnings.)
But Dow and other chemical companies could be hurt if other municipalities follow Long Island’s lead. And that could be happening.
Suffolk County (Long Island) legislator Steven Englelbright, who introduced the bill banning the containers, says he’s received about 30 phone calls from other cities considering similar legislation. “The natural constraints or limits of the environment are felt earlier on an island. What we have happening here is a preview for other parts of the nation,” he predicts.
Some Wall Street subscribers to the Dow Jones News Service are angry. On June 23 at 11:47 a.m., the news agency ran a story on its new and much more expensive Professional Investor Report debunking a rumor about the possible acquisition of Hershey Foods Corp. Hershey’s stock price dropped sharply. But readers of the regular Dow Jones service didn’t get the information until 14 minutes later . . .
Wall Street sources say a management group from Tenneco’s refinery operations is considering a leveraged buyout that the sources say has little chance of success . . . Prudential-Bache chief economist Edward Yardeni says he wouldn’t be surprised if the Dow Jones industrial average was back over the 2,700 level by early next year . . . General Cinema Corp. could soon restructure, says Joseph Frazzano, an analyst with Oppenheimer & Co. He’s betting it will sell its 19% stake in Cadbury Schweppes and will eventually go after the 40% of retailer Neiman-Marcus that it doesn’t already own . . .
Jeffrey L. Berenson, the mergers and acquisitions whiz at Merrill Lynch, says activity is very strong in the business. How many deals is he working on? “More than I can count,” Berenson says . . . The stock market rose during each of Billy Martin’s four previous exiles from the New York Yankees--2% in 1978-79, 29% in 1979-83, 18% in 1983-85 and 36% in 1985-87, says First Albany Corp.
