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Mad Money Man Jim Cramer Declares Beer Wars Over

October 6, 2009 By Jay Brooks

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Jim Cramer, the knucklehead financial dramatist who hosts the Mad Money program on MSNBC, tackles the beer wars between the major brewers, and trips over himself all over the place. You’d think no one would would watch his show or take his advice after Jon Stewart exposed him so completely earlier this year, but apparently he’s as popular as ever. That’s surprising to me given that his track record is about as good as the average weatherman. The financial markets being complex and interconnected systems, his simple-minded advice seems doomed to failure for that reason alone, but he still promises on his website that you can “Make Money With Money Manager Jim Cramer.” Caveat emptor, I guess. Maybe it’s just me, but I don’t really like having my advice yelled at me while waving cheap props in my face.
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Like most financial analysts I’ve seen talk about the brewing industry lately, Cramer has no real sense of what’s going on or the history involved with why the industry is where it is today. And so they seem to attack in a vacuum, with no understanding of it at all. You can check out his screed here about the end of the beer wars.

He details how the beer world until recently was dominated by eight companies: Bud (Anheuser-Busch) Coors, Corona (Grupo Modelo), Dos Equis (FEMSA / Cervecería Cuauhtémoc Moctezuma), Heineken, Miller, Molson and Pabst. But now that InBev bought A-B and Coors and Miller merged their operation in the U.S., “suddenly” — to use Cramer’s surprising words — “we have a near oligopoly?” First of all, these eight are not the full picture. He’s ignored Kirin, Carlsberg, Asahi, and Diageo; all in the top 10 largest beer companies globally. That’s not to mention Radeberger, Tsingtao, Foster’s and others just below the Top 10.

Then there’s the “suddenly” that Cramer keep and his gang of idiots keep feigning. Brewery consolidation has been going on literally since Prohibition ended, 75 years ago. From roughly 1,000 breweries re-opening in the years after alcohol became legal again to 1984, when there were only 44 left, and the top six accounted for 92% of beer sold, mergers & acquisitions have been on-going. This is hardly a new situation. And that’s just the U.S. The same thing has been happening around the world, both locally and in global markets. We’ve been referring to the “Big 3” — A-B, Coors & Miller — for decades. Now that there are two it’s a problem? “Suddenly?” Please …. give me a break.

Recently, ABI announced they would raise prices this fall, and MillerCoors followed suit … like they’ve always done, again for years and years. But Cramer and others reacted as if this is the first time such a thing has happened. It’s not. The major beer companies, both domestic and import, have been following one another’s lead (usually A-B) for as long as I can remember, and undoubtedly longer.

The New York Times has a similar rant in, of all things, their “breaking Views” section called Rising Beer Prices Hint at Oligopoly. I find it funny that something going on without change for decades could be considered a “breaking view,” but I guess that’s what happens when you ignore history.

Anheuser-Busch InBev — purveyor of the president’s preferred brew, Bud Light — and MillerCoors, a joint venture between SABMiller and Molson Coors, are raising prices at the same time, during a recession and while beer demand is slumping. With 80 percent of the market between them, the move almost begs for an antitrust review. [my emphasis.]

Hello, is anybody home? They’ve been raising prices “at the same time” forever. It means nothing. These are not “hints,” but simply business as usual. What the hell is wrong with these people?

Cramer goes on to rave that because they’re both raising prices that somehow that signals an end to the competition between them. He states that they’ve been “going from competitors absolutely killing each other to a slap happy international beer oligopoly.” He’s more daft than I previously thought, and that’s saying a lot.

He keeps calling Labatt, “Labott,” and incorrectly identifies it with InBev. It is owned by InBev outside the U.S., but domestically it’s owned by North American Breweries. His audience is primarily American, so that makes no sense. Cramer’s advice about buying MolsonCoors stock I can’t say I understand completely and he throws around quite a few numbers that don’t seem to either support his conclusions or even appear rational. He’s mildly clever when he says “Give Beer A Chance” with a peace symbol made of beer cans, but I’d prefer he did his homework instead and knew what the hell he was talking about. What a maroon.

The beer wars, of course, are hardly over.

Filed Under: Breweries, Editorial Tagged With: Economics, Mainstream Coverage

Weekend Reading

October 4, 2009 By Jay Brooks

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In my on-going efforts to stay caught up, here is some worthwhile reading I’ll suggest taking a look at. These are various random beer articles that have come to my attention over the last few weeks. Enjoy.

  1. Craft Beer In A Can? A Gutsy Move Is Paying Off from NPR
  2. Oh Dear, It’s Beer, Beer, Beer, Beer by Joanne Weintraub, on the Milwaukee-Wisconsin Journal Sentinel Online
  3. That’s a ‘Binge Belly,’ Not a Beer Belly on WebMD Health News
  4. Category Builders vs. Category Killers on the Branding Strategy Insider
  5. Why Every Cold Beer Costs You More by Michael Brush on MSN Money
  6. Celebrate the History of Statistics: Drink a Guinness by Andrew Leonard on Salon’s How the World Works, which is also discussed at the Economist’s View

Filed Under: Beers, Breweries, Just For Fun Tagged With: Economics, Mainstream Coverage

Stuff & The Materials Economy

August 31, 2009 By Jay Brooks

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This is only related to beer insofar as beer, like every consumer good, is a part of the materials economy. I originally found out about this when Greg Koch of Stone Brewing tweeted it a couple of days ago, and I only had a chance to watch the video, The Story of Stuff, on Sunday. It’s about 20 minutes long but quite worthwhile and interesting if you like that sort of thing. It’s a great overview of the materials economy, it’s history, design and and why it’s doomed to fail. So what is The Story of Stuff? Here’s how the website describes it:

From its extraction through sale, use and disposal, all the stuff in our lives affects communities at home and abroad, yet most of this is hidden from view. The Story of Stuff is a 20-minute, fast-paced, fact-filled look at the underside of our production and consumption patterns. The Story of Stuff exposes the connections between a huge number of environmental and social issues, and calls us together to create a more sustainable and just world. It’ll teach you something, it’ll make you laugh, and it just may change the way you look at all the stuff in your life forever.

Again, it’s not directly about beer, only indirectly, but it it is quite illuminating.

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Filed Under: Politics & Law, Related Pleasures Tagged With: Economics

The Conscience Of A Liberal Drinker

June 13, 2009 By Jay Brooks

If you’re a regular reader of the Bulletin, you know I’m a economics junkie and my politics run to the more liberal side. So you probably won’t be surprised to learn I’m a fan of recent Nobel prize winning economist Paul Krugman, who also writes a column for the New York Times. I read his last two books (and the re-issue/update of his The Return of Depression Economics and the Crisis of 2008 is on my reading list). Jack Curtin, who appears lately to be hunkered down in his bunker/cabin in the woods doing nothing but blogging, passed along this little gem about Krugman’s vacation in Brugge. According to the Times, Krugman is in Brugge and had a beer dinner yesterday at Den Dyver. Den Dyver has a 3, 4 and 5-course fixed menu available with a beer paired with every course. I love that fac that he opted for the beer, good beer. Hey Draft magazine, I think you just found your next cover celebrity.
 

Krugman with his dessert beer.

 

Filed Under: Uncategorized Tagged With: Economics

Beer in the Time of Recession

November 24, 2008 By Jay Brooks

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Conventional wisdom is that during an economic downturn, recession or — let’s just say it out loud — depression, that certain businesses are not as challenged, usually ones that provide things that are either absolute necessities (food comes to mind) or make products people have decided for one reason or another that they’re reluctant to give up. Beer is traditionally one of these businesses that is generally thought to be recession-proof because people turn to it as a salve or an inexpensive way to relax, spend time with friends and loved ones and have a good time.

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Craft beer, though more expensive than the mass-produced beer churned out by the big two, can still be characterized as an “affordable luxury.” Even the more expensive single bottles are cheaper than high-end wine or spirits yet I’d argue that they’re just as much of a special treat. Even when strapped for cash, everyone — me included — wants to splurge on themselves, even if only once in a while. It’s sad, but those are the moments we live for. Our economic system is so rigged to favor those at the top of the pyramid that almost everybody else is struggling most of the time. As the rich have gotten richer over the past few decades, real wages of a majority of Americans have fallen precipitously — thank you, Neocons — and the young in their twenties, thirties and even forties are among the first generations to be worse off then their parents.

Just consider that when I was a kid, most people I knew were in families where only one of their parents worked, usually their fathers. That my own mother worked — she was a nurse — was somewhat unusual in my neighborhood, which was by no means affluent. It was just a normal middle-class suburb, and a lower middle-class one at that. I can’t think of a single other person on my block where both parents worked full-time. There were one or two wives who worked part-time a few hours a week at local charities, but that was about it.

In 1960, when I was one, only 25% of married couples with children had both parents employed. By 1976, when I was junior in high school, only 33% of married couples with children had both parents employed, and only 31% of all women with babies younger than a year old worked. Today, how many families can boast that only one parent works outside the home? As of 2007 (according to the Bureau of Labor Statistics) the number of families in which both parents work is 62.2%, nearly double the number from the mid-1970s and far more than the 1960s. While I realize that some economists think that’s a choice that women make and that it’s not indicative of anything sinister, I also think they’re full of it. If it currently takes two salaries — each one of which takes 69 hours per week to earn what 40 hours got you just a few decades ago — to keep up with the Joneses, then something is seriously wrong with our society and the way we look at things. It’s not that I think that we should return to the 1950s — I really don’t, trust me on this one — but two salaries should mean twice as much prosperity as it did when only one spouse worked, but it clearly doesn’t.

Ever since the housing bubble exploded — surprising no one who was paying attention — things have been snowballing down prosperity mountain and all our proposed fixes merely trickle. From the housing market, the credit market and Wall Street took a nose dive, with several high-profile financial institutions finally revealing they’ve been out in the business world without any clothes on for quite some time. It’s only now that anyone appeared to notice. Our government, of course, threw money at the problem (as they always do) but only at the banks and financial institutions. Small businesses were allowed to fail, homeowners continue to lose their homes and personal bankruptcies continue to climb. Next, the big three American automakers jetted down to DC to beg for billions while corporation after corporation announced massive layoffs. The unemployment figures for October were just released, and at 6.5% it was the highest since 1990. Even the normally sunny Time Magazine has to admit that things look worse than in previous downturns and many economists think we’re in for hard times.

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So if they’re right, are we in for another depression? And what exactly is the difference between a recession and a depression? There’s a not terribly funny joke among economists that a recession is when your neighbor loses their job and a depression is when you lose yours. But the truth is there is no hard and fast rule about the difference between the two. The media tends to define a recession as two or more consecutive quarters where there’s a decline in the Gross Domestic Product (GDP). By and large, economists don’t like that definition because it ignores many other variables, such as the unemployment rate or consumer confidence. Also, by pinning it to a quarterly figure, it makes it more difficult to determine the exact beginning or end and a short recession may go undetected altogether.

What I find frustrating about this lack of precision in defining our economic condition — no small thing considering how much it effects all of us — is that because of that imprecision it’s almost impossible to say anything with certainty except in hindsight. How that manifests itself is that every talking head claiming some sort of divine financial insight always errs on the side of caution, saying things look great, don’t worry, everything will be fine and other mostly bullshit sunny predictions. They do this for at least two reasons, one benign, the other not so much. First, they try to be reassuring because they’re afraid that people might panic and things that might look only a little bad would turn really bad simply as a result of their telling the truth. So they lie, though in this case it’s somewhat understandable why. Secondly, most of the people who we rely on for financial expertise have a stake in the game and stand to lose personally if things go south, so their advice tends to be very self-serving, like telling everyone not to sell while they’re privately unloading everything they own. This is also why in my opinion the system is rigged and it’s only the people on the outside that lose, the wealthy insiders almost always get to keep their money no matter how much they screw up. Senator Christopher Dodd, chair of the Banking Committee, recently fumed in a PBS interview about how many banks have taken the $300 billion you and I ponied up to “bail out” the credit markets and are hoarding it, buying up healthy companies and paying egregiously high bonuses to themselves — essentially everything but trying to jumpstart the economy by loosening up the availability of credit.

barrel-man

What’s this got to do with beer, apart from driving us all to drink more of it? Well, that’s really the question. Will this economic downturn, if it keeps spiraling downward like the cynic in me believes it will, also effect beer, even though it’s been largely recession-proof in the recent past? If the situation continues to worsen and we enter a full-fledged depression, will that change the game? During the great depression, beer was essentially out of the equation — at least legally — though it did help bring us out of it when FDR urged the repeal of Prohibition to boost morale and stimulate the economy. As the 75th anniversary of its repeal is less than three weeks away, it’s worth noting that it was economics that got us into prohibition and economics that got us out again. See, for example, page 438 if the Encyclopedia of Public Choice in Google Books. There’s also a nice overview of this in Reason magazine, from July 2007, entitled the Politics of Prohibition.

Prior to the creation in 1913 of the national income tax, about a third of Uncle Sam’s annual revenue came from liquor taxes. (The bulk of Uncle Sam’s revenues came from customs duties.) Not so after 1913. Especially after the income tax surprised politicians during World War I with its incredible ability to rake in tax revenue, the importance of liquor taxation fell precipitously.

By 1920, the income tax supplied two-thirds of Uncle Sam’s revenues and nine times more revenue than was then supplied by liquor taxes and customs duties combined. In research that I did with University of Michigan law professor Adam Pritchard, we found that bulging income-tax revenues made it possible for Congress finally to give in to the decades-old movement for alcohol prohibition.

Before the income tax, Congress effectively ignored such calls because to prohibit alcohol sales then would have hit Congress hard in the place it guards most zealously: its purse. But once a new and much more intoxicating source of revenue was discovered, the cost to politicians of pandering to the puritans and other anti-liquor lobbies dramatically fell.

Prohibition was launched.

But then a little thing called the Great Depression came along and lots and lots of people lost their jobs, meaning that the amount of income tax the federal government could collect also fell, initially about 15%. Three years into the Great Depression, income tax revenue dropped another 37% to 46% below pre-depression revenues and by 1933 they were 60% lower.

And so Congress (with the urging of anti-prohibitionists) was able to float the 21st Amendment successfully because they needed the money that alcohol taxes provided to their bottom line. One leading member of of the House of Representatives said at the time that he believed that without the economic necessity brought about the Great Depression that it would likely have taken at least another 10 years to repeal Prohibition, despite its obvious failure and unintended negative consequences.

Two things that bear watching in the present, as the weeks and months unfold, is what the economy does and what happens to the taxes on beer. Keeping in mind what’s happened in the past and especially with excise taxes, it seems to me these will be the most important factors that will affect how beer does through this recession. It may be that people do indeed keeping buying and drinking beer at the same rate, which would mean essentially that beer is indeed not affected at all by the economy (and it’s possibly even enhanced by a dip, such as if consumers forgo more expensive pleasures and instead choose beer when they “treat” themselves).

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Or it could come to pass that the macro beers’ sales remain flat and craft beer sales begin to slow because people have less money and the price has gone up, due to a rise in energy costs and raw ingredients. It’s not happened yet, but there are signs that such a scenario may be on the horizon.

If the tax assault on the alcohol industry is successful in California, it will almost certainly spread to at least 38 other states. That will raise the price of beer across the board, further depressing the beer economy, if the not the whole shebang. It seems a little bit odd to me that politicians are entertaining budget fixes that essentially target specific industries that are already experiencing difficulties. What good does it do to extract another pound of flesh if the body then dies and you can’t get anything from it anymore? Not only are other segments of the economy not having higher taxes levied on them, but they’re actually being given money to insure that they don’t go out of business and more jobs aren’t lost. Not so with the alcohol industry. At a time when any sustainable industry should be seen as a positive in our very fragile economy, politicians (with neo-prohibitionists whispering in their ear) are doing just that; trying to make it more difficult for the alcohol industry to function. To say that seems short-sighted is an understatement.

The beer industry alone (again not including wine and spirits) supports over 1.7 million jobs and pumps around $189 billion into our economy, generating $25 billion in business and personal taxes and another $11.5 billion in consumption taxes. If history is any guide, that should mean politicians should respect our contribution.

And while less tangible and quantifiable, the contributions small breweries make is not just economic, but they are also good citizens of their communities, giving charitably back into them, spending much of their money locally (where possible) and running their businesses in a green, sustainable fashion. Harm them, and you harm the communities that support them, too.

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Our economy today is arguably more complicated than before and during the Great Depression, so it’s obviously very hard to predict what might happen in the future. After the last depression, many social nets were put in place in an effort to prevent such a widespread economic situation from ever occurring again and to protect citizens from feeling its effects as acutely. FDR’s New Deal included programs to both help people out of their condition and also to keep it from happening again. There was opposition from conservative fronts while it was going on, but the problems were too great to ignore. In fact, the backlash of the New Deal is probably the neo-conservative movement of today, which has done so much to harm to our society lately.

For an excellent account of the politics of it, read Nobel prize-winning economist Paul Krugman’s The Conscious of a Liberal. In it he discusses conservative opposition to the New Deal programs and how many of them have been effectively chipped away at or removed completely by neo-cons — what he calls “movement conservatism” — beginning in the late 1970s, though the seeds were being sewn as far back as the 1950s.

I vividly recall growing up that all of my grandparents — and people of their same generation — were still very much effected by their experiences during the Great Depression. The notions of frugality, saving and near miserliness that meant survival back then continued to be factors they considered in making decisions some fifty years later. I had two dotty great aunts (sisters of my maternal grandmother) that always embarrassed me whenever we’d go out for a meal. One would steal as many sugar packets and other condiments as she could fit in her purse unseen and the other would carefully take as many as had been unused by our group. In other words, if there were five for lunch and one used a sugar packet in their coffee, she would take four sugar packets believing she was entitled to them since they went unused by the lunch party. That these otherwise normal, and by all accounts pretty well-off, people were so frugal to the point of being cheap was not anomalous to my family. I saw this behavior all the time. Ask me the next time you see me about the orange juice in my wife’s grandmother’s refrigerator when we visited her during our honeymoon. The difficulties of the Great Depression left a deep impression on an entire generation.

Is the beer industry’s glass half full or half empty? I admit that the prospect of another protracted depression is something that keeps me up at night. That so many of the protections that were intended to protect the economy and its citizens have been weakened or are gone altogether is a further source of concern. So is the fact that we may already be in one but not know it because we can’t define it and talking heads don’t want us to panic doesn’t help, either. Even if I don’t accept Morris Berman’s assertion (though I do — sigh) that we’ve entered a new Dark Ages (in his mesmerizingly depressing Twilight of American Culture) it’s hard to ignore that as a bully and the lone remaining Superpower that most nations view us less charitably than they did eight years ago. I’d like to believe our new President will be able to reverse our course, but I’m not sure the ship of state can be turned in time to miss the iceberg (that’s what happens to your metaphors when you have a 7-year old obsessed by the Titanic). While I’m cautiously “hopeful,” I’m also enough of a realist to know that he won’t be ale to walk into the oval office January 20 and make everything all better.

half-full

The Republicans will undoubtedly fight tooth and nail every step of the way and the Democrats in Congress continue to show what pussies they really are (as evidenced by their abject failure to remove Touché Turtle … er, Joe Lieberman, from his committee chair or the Democratic Caucus). So in my mind that’s a lot to overcome and very little in the way of seeing how to do it. That’s for the economy at large. What about the micro-economy that is beer? On the one hand, the industry’s been recession-proof for quite some time. But the game appears to be changing, possibly worsening, so that may not hold true if the economy continues to fall like a snowball rolling down a hill. Politicians should respect beers’ contribution to the economy in terms of jobs, tax revenue and just generating cash, but there are also neo-prohibitionist agendas that are seizing this moment in history as an opportunity to kick us while we’re down. These interests are pressing hard to raise the state excise tax and state by state promote other damaging legislation. Now is not the time to be apathetic or ignorant of how their efforts might effect all of us. Now more than ever, we have to be as vigilant as they are unceasing in their attacks. I don’t know what Beer in the Time of Recession will be like, but it’s probably going to be a bumpy ride. Strap in. Grab a beer. Pay attention. And perhaps most importantly, continue to support your local brewery as long as you can.

Filed Under: Beers, Editorial, Politics & Law Tagged With: Economics

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