The $6 Billion Team

Yesterday the parties to the transaction announced that a new ownership group would be buying the Washington Commanders, a National Football League team. The announced price tag for the transaction is a staggering $6.05 billion–a new record for the sale of a professional sports team. The proposed deal now goes to NFL owners for approval,

The Commanders have been pretty dismal lately. The team hasn’t won a playoff game in 18 years, and the franchise, and its owners, have been mired in controversy. Nevertheless, the eye-popping $6.05 million price tag for the team blows the previous record for an NFL team–set by the 2022 sale of the Denver Broncos for $4.65 billion–out of the water. If you’re an NFL owner, you’d presumably be highly motivated to approve the proposed sale, if only to establish a new comparable that can be cited when you decide you are ready to cash in and put your team on the market. If an underperforming team like Washington commands that kind of price, just imagine how much might be paid for more successful franchises, like the Kansas City Chiefs or the New England Patriots?

In case you’re interested, the group that is selling the Commanders paid $800 million for the Washington pro football franchise in 1999. In less than 25 years, the market value of their ownership interest has increased by a factor of more than six–and that doesn’t account for any amounts the ownership group has received from TV contracts, ticket sales, and merchandising deals during the period of their ownership. Seeing the market value of an investment increase more than six times is a pretty good return.

It’s not just NFL teams that have been gold mines at the auction block lately, either. The $6.05 billion price tag for the Commanders edges out the prior record for a professional sports team, which was $5.3 billion paid for the Chelsea F.T. club in the English Premier League last year. Billions of dollars also have been paid for teams in the NBA and Major League Baseball over the past few years.

So, there’s no doubt that professional sports teams have been a pretty good investment recently–but you wonder how long this can last, and whether we’re simply witnessing a huge sports franchise bubble, like the crazed spike in home purchases that helped produce the sub-prime mortgage collapse that led to the Great Recession, or the infamous Dutch tulip market bubble in the Netherlands in the 1600s. It’s not as if sports franchises have lots of tangible assets or obvious intrinsic value, and the continued success of the NFL, which has been bedeviled by concerns about concussions and general player safety problems, among other issues, is by no means assured.

At some point, will liability concerns cause regulation of the sport that changes it so significantly that its current broad appeal falls off–and the owners who paid billions to sit in the owners’ box and wear gear with team logos are left with a stadium, some player contracts, and logos for merchandise that no one wants to buy? If that happens, the ownership of the Commanders could end up being like possession of a fistful of costly and unwanted tulip bulbs in Amsterdam centuries ago.

Back To The Buffet

Some people thought that COVID-19 would mean the demise of the all-you-can-eat buffet. That was a reasonable prediction, because pandemics and social distancing aren’t really compatible with a business concept that puts strangers in close proximity, shuffling through buffet lines and using the same implements to dig into common platters of food. And, in fact, some buffet chains went out of business in response to COVID restrictions.

But now, apparently, buffets are back, and in a big way. The three largest buffet chains–Golden Corral, Cicis, and Pizza Ranch–are reporting growth that is leaving other kinds of restaurants at the end of the line. The sales at those three chains in March were up 125 percent from January 2021, and Golden Corral’s sales last year had increased 14 percent from pre-pandemic levels. The demand for all-you-can-eat buffets is so strong that Golden Corral has plans to eventually add another 250 locations in the U.S.

Why are people flocking to restaurants where they will be dealing with sneeze guards and warming tables groaning with food? The economy is a big part of the reason. All-you-can-eat buffets are seen as an inexpensive way to have a big meal out–with chocolate pudding for dessert, too!–and the chains cater to customers whose income is below the national average. With inflation and rising food costs causing people to feel economic strains and search for value, a trip to an all-you-can eat buffet restaurant helps to stretch the family food dollar. That notion resonates with me, because I remember going with friends to the Swedish Buffet in Columbus when I was a cash-strapped college student and the buffet allowed for maximum food consumption at a minimum price.

The surging popularity of buffets is another sign that Americans are over the pandemic–or at least are willing to accept the risk of infection in search of a bargain and a full stomach.

The Demise Of The Cheap Car

One of the first cars I ever drove was a brown Ford Maverick. The Mav, shown in a sales poster above, looked pretty good, seated four people reasonably comfortably, got decent gas mileage, and had a bit of get up and go to it. Marketed as “the simple machine,” the Ford Maverick retailed for $1,995. It was one of many examples of the cheap cars that were available at low end of the automotive market.

There aren’t many cheap cars left. In fact, if you are a cheapskate like me, you’d say there are none. The average price paid for a new car in March 2023 was a stunning $48,008, according to the Kelley Blue Book. In fact, only three cars on the market sell for less than $20,000, and the cheapest of those–the Nissan Versa sedan–is listed at $16,925. The cheapest new vehicle offered by one of Big 3 American manufacturers is the 2024 Chevy Trax SUV, which is offered at $21,495. In effect, Ford, GM, and Chrysler have turned away from the affordable car end of the market, where they used to offer cars like the Maverick.

Why isn’t Detroit competing for the buyer looking for cheap cars? Part of the reason is inflation, of course, and some of the cost increases are due to safety features and expensive gadgetry that would never have been added to stripped-down cars like the Maverick. In large part, however, the reason is simply that car manufacturers find it a lot more profitable to build vehicles–primarily SUVs and pick-up trucks–that are loaded with bells and whistles and high-end features and that retail in the upper five-figure range. That’s what is driving up the average price of new cars to that mind-blowing $48,008 number.

Can it really be that there are not budget-conscious young people out there who want to save up their hard-earned wages, make a down payment, and buy a brand-new “simple machine,” like the Maverick, that gets them from point A to point B, without all the bells and whistles, for an affordable price? I find that hard to believe. As it is, that segment of the market must forsake their chance to take deep breaths of that wonderful new car smell, and focus on the used car market instead.

The Fed Looks In The Mirror

Yesterday the Federal Reserve issued an interesting report on the collapse of the Silicon Valley Bank. The most interesting part of the report is its conclusion that the Fed, itself, was partly to blame for the bank’s failure.

To be sure, the report concluded that the primary cause of the downfall of SVB was mismanagement by the bank. SVB had an increasing amount of uninsured deposits–which made it especially prone to the panicky, social media-driven bank run that brought the bank down–and inadequate safeguards against a sudden change in interest rates. The report noted that executive compensation at the bank was tied too closely to short-term profits and the SVB stock price, whereas there were no pay incentives tied to sound risk management and the bank had no chief risk officer during a period when the bank was growing quickly.

But the Fed report also determined that it was partly to blame, too. The report noted that regulators were slow to recognize the problems at SVB and, once those problems were identified, did not effectively press SVB management to change its approach to the issues and lower the bank’s risk profile. A separate report by the FDIC similarly noted that its oversight was not as rigorous as it should have been. According to the Fed report, the passive approach was due in part to recent efforts to loosen regulation of banks, like SVB, with assets of less than $250 billion. As the news article linked above demonstrates, the report is sure to touch off a renewed banking regulation/deregulation debate.

While that never-ending debate rages, the key question to be addressed at this point is: who will be held accountable for the losses sustained by the taxpayer in insuring accounts above the previously identified $250,000 limit and otherwise addressing the rotten fruits of SVB’s mismanagement? The compensation of SVB’s executives soared during the years immediately before the collapse, as the bank followed its risky course, and the bank’s CEO also made millions in SVB stock sales over the past few years. Wil bank officers be required to contribute to cover the losses? And will the regulators who didn’t vigorously push for changes in bank practices after identifying problems keep their jobs?

Waiting For The Axe To Fall

McDonald’s recently announced that it would be implementing layoffs. Earlier this week, it temporarily closed its U.S. corporate headquarters, in Chicago, and asked all HQ employees to cancel in-person meetings and work from home as the company distributed layoff notices. It isn’t clear how many employees will be laid off; world-wide, McDonald’s some 150,000 employees in corporate roles and working in company-owned restaurants.

According to an internal email obtained by the news media, McDonald’s told employees it was distributing layoff notices remotely to ensure the “comfort and confidentiality” of its employees. In short, McDonald’s evidently believes that employees would rather wait for the axe to fall and then react privately at their homes, rather than hanging out for the possible visit from the Grim Reaper in the office, with their fellow corporate employees.

I’m not sure that is the case. If I knew my job was potentially on the chopping block, I would rather wait for the news coming down from the C suite in the office, with my co-workers. Being alone at home and wondering if every ping announcing a new email was the one that would determine your fate would be too nerve-wracking. At least if you were at the office, you would have some company while you bided your time, and as the news was distributed you’d have a better sense of who got the pink slip, and how widespread the distribution was in your area. That way, the Band-Aid would be ripped off, everyone would know the news, and people wouldn’t have to come into the office the following Monday and repeatedly, and sheepishly, announce their fate as they encountered their individual co-workers.

The McDonald’s news is interesting, and not just because of its decision to briefly close its corporate offices while layoffs are announced. McDonald’s net income has increased recently, but the company’s CEO thinks its structure and organization are outdated, and he says that “we will evaluate roles and staffing levels in parts of the organization and there will be difficult discussions and decisions ahead.” Some wonder whether the layoffs at McD’s are part of an ongoing “white-collar recession,” as companies that are pessimistic about the current economic outlook get rid of corporate jobs while retaining production-level workers.

Who knows? If we are in the midst of a “white-collar recession,” we may see a lot more companies having to make decisions, as McDonald’s did, about where employees should be as they wait to hear about their jobs.


As the fallout continues from the abrupt collapse of the Silicon Valley Bank and the closure of Signature Bank, the federal government’s response to those developments raises some serious questions.

Over the weekend, the Federal Reserve, the Treasury Department, and the Federal Deposit Insurance Corporation announced that all of the depositors in SVB and Signature Bank will be repaid in full, even if they kept more than the $250,000 federal deposit insurance limit in their bank accounts. In addition, the Fed announced that it would offer banks loans against the face value of their Treasury bills and notes and other holdings, even if inflation has eroded the actual worth of those investments.

The government contends that these actions don’t represent a “bailout,” technically, because the banks have been closed and those who owned stock in the banks will lose the value of those investments–but the actions sure smell like a bailout to many people. Some will praise the government for acting swiftly to avoid a potential panic and runs on other banks, but others will wonder about where we now draw the line on the full faith and credit of the U.S. government being employed in the wake of a bank collapse and whether the government’s action was motivated, even in part, by the fact that powerful people in California and elsewhere apparently had relationships with the banks.

President Biden, quoted in the Times article linked above, made an important point when he said that investors in the two banks “knowingly took a risk, and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.” That is unquestionably true, but those who kept more than $250,000 in the banks also took a risk, because $250,000 is the limit for federal deposit insurance. Why should those people and entities be protected against what was a known, avoidable risk? And if the U.S. government is making every depositor whole, what is the point of having an announced limit for federal deposit insurance? Does this mean that, from now on, every depositor will be protected in full, irrespective of how much they have in their accounts? If not, what’s the distinction? And doesn’t this decision encourage risky practices by depositors and banks?

Left unsaid at this point is how the federal government is going to pay for acting as a backstop–again–for troubled banks. Banks have to be permitted to fail, and depositors have to understand that there is risk in going over announced deposit insurance limits. Otherwise, there is no point to having announced limits, and we are left in the untenable position of the federal government insuring every dollar deposited in a bank.

The Pulverizing Power Of Panic

Yesterday a bank failed. Silicon Valley Bank, one of the most prominent lenders to the tech industry and the 16th largest bank in the country, was shut down by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Company took over operations as the bank’s receiver. The collapse of SVB is the second largest bank failure in U.S. history.

Bank failures are never pretty. They often recall Ernest Hemingway’s famous observation that there are two ways to go bankrupt: “gradually, and then suddenly.” Banks operate on a foundation of trust in their stability and integrity, and when that foundation is undercut, failure can occur with breathtaking speed. That appears to be what happened with SVB.

As an interesting CNBC article recounts, SVB’s downfall took less than two days. On Wednesday, the bank advised investors that it needed to raise $2.5 billion. At that point, the bank was apparently still reasonably well capitalized; at the end of December, it reported $209 billion in assets and $175 billion in deposits. But underlying issues with the American economy had caused some start-up depositors to withdraw their assets to stay afloat, the bank found itself short of funds and was forced to sell the bonds it had available for sale at a loss, and when it announced it needed to raise additional funds the blood was in the water. The bank’s stock price plummeted, the tech investment community spread the word that deposits should be removed from the bank, and customers withdrew an astonishing $42 billion in less than 48 hours, leaving the bank with a negative cash balance of $958 million. With the bank insolvent and unable to find a buyer, regulators stepped in.

The CNBC article quotes one fintech investor as saying that the failure of SVB was “a hysteria-induced bank run” caused by venture capital firms. That’s often what happens–and the sad thing is that the people who panic, withdraw their funds, and precipitate bank failures usually end up safe, whereas the people who leave their money in the bank and trust that all is well often end up sorry. In the case of SVB, the people who kept their deposits in the bank will now have to deal with the FDIC, which insures deposits up to $250,000 per depositor. If you’re someone who had more than $250,000 on deposit at SVB, you might well find yourself out of luck.

For all of our thin veneer of civilization and sophistication, people are still prone to panic–especially panic about money. Let’s all hope that the failure of SVB, coming on the heels of cryptocurrency collapses and other recent negative financial developments, doesn’t provoke a stampede.

Bursting Bubbles

In case you haven’t been paying attention, the economic news in the tech field isn’t exactly great. Recently, Microsoft announced plans to lay off 10,000 workers, and Alphabet, the parent of Google, disclosed that it would be handing the pink slip to 12,000 of its employees. Amazon also has announced sweeping job cuts. By some accounts, almost 50,000 people have been laid off from their jobs in the tech industry already in 2023–and we aren’t even through the first month of the year. That follows a 2022 in which about 100,000 employees of private and public tech-related companies are estimated to have lost their jobs.

This shouldn’t really come as a surprise to anyone with some seasoning. The tech industry grew exponentially during the early days of the pandemic, as the world shifted more to on-line commerce, and it was predictable that, as conditions changed and economic cycles occurred, there would be some retrenchment. What’s interesting, though, is that some of the tech leaders apparently didn’t see this entirely predictable result coming: they were confidently predicting that there had been a permanent paradigm change and the growth would continue, as one recent article notes.

And the company bigwigs weren’t alone in this view. Some young tech workers reportedly are shocked that their cutting-edge companies could–and would–lay them off; they thought they were set for years to come. Interestingly, however, their older and more experienced colleagues aren’t surprised, because many of them have been laid off before in prior tech boom-and-bust cycles.

It’s a valuable tutorial for everyone, although people seem to quickly forget the teaching: economic cycles are inevitable, retrenchment typically follows rapid growth, it’s wise to build some bad news into your business and personal planning, and confident predictions of impending future success frequently turn to ashes in the mouths of the know-it-alls who voiced them. A dose of humility and rationality isn’t a bad thing for tech company leaders–and those shocked young workers have just received a valuable life lesson that they probably will never forget.

The Insider Versus The Average Joe

Something weird happened in the markets earlier this week. About 60 seconds before the November Consumer Price Index data was released, there was a sudden surge in trading of stock futures and Treasury futures–both of which inevitably would be affected by the report that the CPI for November was a bit lower than what economists had forecast. You can see the spike in trading in the chart above, published by Bloomberg in its story about the trading that occurred only moments before the release of the report.

It’s good news, of course, that the November CPI report indicates that inflation appears to be cooling, and we should all hope that trend continues. But the jump in trading activity in the minute before the CPI report was released is obviously suspicious, and suggests that someone who received the report prior to the release tried to profit from the good news. (In fact, the activity sounds vaguely like the plot of the movie Trading Places, where the Duke brothers tried to make a killing from getting an early copy of a government report, only to be foiled by the Dan Ackroyd and Eddie Murphy characters. In this case, however, Dan and Eddie weren’t around, and neither was the guy in the gorilla suit.)

The Biden Administration denied that the White House leaked the report, and downplayed the trading data as “minor market movements”–when, as the Bloomberg article linked above points out, it clearly was nothing of the sort. The Bloomberg article notes: “over a 60-second span before the data went out, over 13,000 March 10-year futures traded hands (during a period when activity is usually nonexistent) as the contract was bid up.” And even if we accept that the White House didn’t leak the report, it’s obvious that something happened that requires an investigation, to see who was making those trades, and why.

Under these circumstances, in fact, I would argue that an investigation is mandatory. Trust in the markets is a delicate thing, and an insider trading scandal coming on top of the stories about the inner workings of now-collapsed FTX doesn’t exactly instill confidence in the integrity of the markets. If there is no investigation or prosecution, it will go down as just another example of the fundamental difference between insiders who get to profit from a sure thing and the average Joes who must accept the ups and downs in the accounts that hold their hard-earned retirement savings.

Starbucks On Strike

Some Starbucks workers went on strike today. About 2,000 workers in more than 100 stores in 25 states (out of more than 9,000 (!) Starbucks-owned locations nationwide) walked out. The strike is part of an effort to unionize Starbucks that began last year. The advocates for unionization are seeking higher wages and better working conditions, which would include Starbucks hiring more staff people in its many stores. Strikers say they also walked out to protest anti-union retaliation.

The savvy strikers timed their walkout to occur on “Red Cup Day,” when Starbucks apparently gives customers a red cup that allows them to get free refills of the sugary holiday concoctions that pass for coffee at Starbucks. Workers say it is one of the busiest days of the year at the coffee giant. (I wouldn’t know this because I haven’t been to a Starbucks to buy “coffee” or other pumpkin spice-flavored drinks since, well, ever.)

I have belonged to multiple unions during my working career, and I think unionization efforts and concerted action are important parts of the freedoms (such as freedom of speech) that we enjoy as Americans. I also think such activities help to set the real market price for labor. Sometimes strikes cause employers to recognize that workers really are more valuable than the pay they have received; other times (as in the ill-fated Air Traffic Controllers strike back in the early ’80s) the union advocates realize that they have overplayed their hand.

It will be interesting to see how the Starbucks unionization effort plays out. There is no better way to find out how much those baristas are really worth.

Risky Business

2022 hasn’t exactly been a banner year for cryptocurrency. In the spring, the crypto markets experienced a spectacular crash, and last week a leading crypto exchange platform, FTX, slid abruptly into bankruptcy amid questions about its operations, liquidity, and use of funds. The SEC and Department of Justice are reportedly investigating whether the company’s sudden collapse involved criminal activity or violations of the federal securities laws.

The demise of FTX was so quick and catastrophic that the company’s founder and CEO, Sam Bankman-Fried, is reported to have lost 94 percent of his net worth in a single day. The rise and sudden fall of FTX may well rank right up there with Enron in the riches-to-rags business bust category. But there’s an even more ironic twist to the FTX failure: only a few months ago, during the 2022 Super Bowl, FTX ran a commercial where a skeptical Larry David, with a record of rejecting inventions like the wheel and the light bulb, also rejects the idea of investing with FTX, which is presented as “a safe and easy way to get into crypto.”

As is always the case when a high-flying entity suddenly crashes and burns, there are ripple effects from FTX’s spectacular failure. For example, the Ontario Teachers Pension Plan, the third-largest pension plan in Canada, disclosed last week that it had invested $95 million in FTX entities. (Fortunately for Ontario teachers, the investment apparently represents only a tiny fraction of the money invested by the Plan.) Other entities also had investments in FTX. One of them, a venture capital firm called Sequoia Capital, announced that it will mark down its $214 million investment in FTX to zero. Sequoia told its investors: “We are in the business of taking risk,” and “[s]ome investments will surprise to the upside, and some will surprise to the downside.”

Sequoia’s observation is, of course, true–if the investor understands, as Sequoia did, that cryptocurrency is a risky investment. The problem is that crypto advocates keep trying to present it as something else, as FTX tried to do with that in retrospect hilarious Larry David commercial. If the everyday investor is paying attention, the FTX collapse will make it harder to sell cryptocurrency as the next best thing to the light bulb. And we might want to check to make sure that our pension plans or mutual funds have learned that lesson, too.

Not The Next Big Thing

Economic theory teaches that stock prices usually are brutally honest. When investors are deciding whether to put money into a company or venture, social niceties typically go out the window, and investors–particularly the professional money managers–take a hard look at the company’s products and business plan and make an unvarnished judgment about whether they will succeed or fail. If the product line looks like a winner, buy decisions will follow; if products and sales are disappointing, the sell sign flashes.

The stock market’s honest judgment is saying something is wrong at Meta, the parent company of Facebook, Instagram, and WhatsApp that is trying to introduce us to the “metaverse”–the virtual world pictured above. And the consequences have indeed been brutal: Meta closed at $323 a share on February 2, 2022 and $97.94 yesterday. Yesterday alone, the stock price fell $31.88 a share, losing 24.56 percent of its value, and the stock information page linked above says Meta’s “technicals” put the stock down into the “strong sell” category. In short, if you’re a shareholder in Meta, you’ve had a bad year, and apparently some investors have decided enough is enough.

Why has this happened? Some observers believe that Mark Zuckerberg, the Meta kingpin whose metaverse avatar is seen above, has unwisely focused all of the company’s attention on the metaverse, rather than protecting and nurturing the company’s core assets, like Facebook, which are facing their own problems. And the effort to summon the future in the form of the metaverse hasn’t gone well. So far, at least, people haven’t jumped at the chance to don virtual reality headsets, create an avatar of themselves, and interact with other people in interactive virtual spaces. The fact that the headsets are expensive–Zuckerberg recently introduced a new headset that goes for $1,500 a pop–and the virtual reality graphics don’t look all that compelling isn’t helping. One of the recent developments announced by the company, that metaverse characters will now have legs, sounds like a funny parody of a bad TV commercial. “Metaverse characters–now with legs!”

Meta’s struggles reveal a basic truth about technology companies: sometimes the tech product is a huge hit, but many times it isn’t. For every smartphone or personal computer that are wild successes, there are other devices or concepts that crash and burn. And it looks like the metaverse that Meta had invested billions in developing might just fall into the latter category. A recent article in Forbes expressed the point this way: “The entire problem with Mark Zuckerberg’s fascination with the metaverse is that he’s trying to force a sci-fi reality to happen long before the rest of the society wants or needs it to actually exist.” 

A Monte Carlo Kind Of Year

Financial planners like to do what they call a “Monte Carlo” simulation to test the strength of their clients’ retirement assets. They reason that simply taking the average return on stock and bond indices over the past 50 years and applying those numbers to yield a straight-line result doesn’t paint a true picture, because the markets go up and they go down, rather than delivering a rate of constant return. Monte Carlo simulations use random elements to build in years with different degrees of negative and positive performance, including during the years when you might be selling some of your portfolio to fund your retirement. The underlying concept is that if your holdings can weather the impact of a few really bad years, they will be a more reliable platform on which to build your retirement plans.

2022 has been the kind of year that Monte Carlo simulations dream about.

It’s hard to overstate just how bad this year has been in the financial markets. It is the proverbial “black swan” year, where every potential target for investment has turned to mud. As CNBC reported recently, the S&P 500 index is down 24 percent for the year, and the Bloomberg U.S. Aggregate Bond Index is down 16 percent. If both stocks and bonds finish the year in the red, it will be the first time that has happened in decades.

That’s not supposed to happen. Every financial planner advises clients to follow a mixed portfolio strategy, because bonds are supposed to hold or increase their value if stock prices are falling. All told, CNBC says this has been the worst year in the financial markets since 1969–when Richard Nixon took office as President, the Vietnam War was still raging, the Beatles were still recording music, hippies roamed the country, and Neil Armstrong set foot on the Moon. In short, it has been a long time since the markets were this bad.

The CNBC article notes that these terrible black swan years tend to happen when multiple negative economic factors converge. This year, those factors include persistent inflation, rising interest rates in response to the inflation, and a recession that is either here or on the immediate horizon–the financial types can’t quite decide which. You could also add an energy crunch, supply-chain issues, a volatile housing market, and a shooting war between Russia and the Ukraine to the mix of troubling developments.

The “Monte Carlo” name is supposedly based on the casinos in that tiny nation, where random chance plays such an important role in whether you win or lose. This year, the “Monte Carlo” name suggests that investing has been a gamble–and thanks to all of the negatives the dice have come up snake eyes.

Hoping For A Warm Winter

There are dire forecasts for the winter in Europe. The forecasts aren’t about the weather, specifically, but more about the ability of Europeans to stay warm and European factories to operate when the temperature drops and energy supply problems reach a crisis point.

An article recently published in Fortune outlines the issues. Many European countries made the decision to rely on Russian natural gas as one of their primary energy sources. When it invaded the Ukraine, Russia provided 40 percent of the natural gas for the 27 countries in the European Union. Some European countries then responded to the invasion by stopping purchases of Russian natural gas, while others were cut off by Vladimir Putin.

Obviously, losing 40 percent of a primary energy source–natural gas is the second most popular energy source in Europe behind oil–puts a dent in your energy policy. And, as the Starks are fond of saying, “winter is coming.” Prices have skyrocketed to historical record levels. The cost of electricity has already tripled in some places, and governments are scrambling to reopen coal-fired and nuclear power plants that were shuttered in moving toward “green” energy. The EU countries also are looking to other, non-Russian sources, but they don’t yet have the infrastructure, such as pipelines and processing terminals, needed to use the alternative suppliers. Building that infrastructure can’t happen overnight.

That means there is an immediate energy crunch, and the experts consulted by Fortune paint a bleak and alarming picture of what might happen when the snow falls. They say that world energy supplies are so precarious right now that any increase in demand could cause even bigger price spikes, mandatory rationing, and mass shutdowns of factories and businesses, “devastating European economies with a wave of unemployment, high prices, and in all likelihood public unrest and divisions between European nations.” That’s petty scary stuff. Some European factories have already stopped or reduced operations, and some countries have already instituted some energy conservation policies to try to preserve supplies in advance of the winter. The rubber won’t really meet the road, however, until the cold weather hits and energy demand increases in response.

So let’s all hope that the European winter is mild, and our friends overseas aren’t left to shiver in the cold and dark. But praying for warm weather isn’t exactly sound energy policy. What has happened in Europe should cause our government, and every government, to take a careful look at their energy policies and focus on making sure that energy supplies are secure. That means reducing dependence on unreliable energy sources–like Russia–and taking steps like building nuclear power plants and pipelines to provide domestic sources of energy that won’t be turned off when winter comes.


Inflation has affected everyone in the country this year, but it has had a particularly acute impact in California: according a recent article published by a local Los Angeles TV station, food prices are up 13.5 percent and energy prices, including gasoline, have shot up 25.6 percent. With price increases like that, it’s not surprising that the article also reports that inflation is a significant and growing concern for citizens of the Golden State.

California has come up with a very California-like response to the inflation problem. The state is sending out what state legislators are calling “inflation relief” payments pursuant to a tax refund program that was enacted over the summer. All told, some 23 million Californians are expected to receive payments that will range in size from $200 to $1,050. The total cost of the inflation relief package is $17 billion, which will come from a state tax surplus fund. Governor Gavin Newsom said the payments will result in “more money in your pocket to help you fill your gas tank and put food on the table.”

Is sending money out to millions of Californians with the idea that they will promptly spend the funds a good idea? Critics say the plan is “economic illiteracy” that will feed the inflationary spiral by stimulating demand–and, according to the law of supply and demand, when demand increases and supply remains static, prices will increase. If 23 million Californians suddenly are ready to spend their inflation relief payment, it’s not hard to see that having a meaningful impact on the demand side of that basic economic equation.

Inflation is a concern for everyone, but sending out checks doesn’t seem like a wise, long-term, sustainable approach to the problem. The latest inflation data, for a rolling 12-month period that includes September, is supposed to be released this week. If it shows that the inflation rate has increased, will California simply shell out additional payments?