Labor Pains and Why Even E.T. Couldn't Phone Home
Drying out
Phone home:
The last thing I wrote, in my final
pre-Floyd column, was that while officials of several companies hadn't called me back, I did hear from a guy named Lou, who runs the
ServiceMaster
(SVM)
franchise in these parts. And right there, while the deluge was at its worst and while water was filling my basement, he had promised to come out first thing in the morning to start sopping up the basement. Only thing I hadn't counted on was Lou getting flooded. Turns out Lou's shop was in a northern New Jersey town called Lodi, which was buried under enough water to fill many basements.
Tell us what you think on our
message boards.
At last check -- yesterday -- his phone was still out of order. He wasn't alone, of course. If you haven't heard, the geniuses at
Bell Atlantic
(BEL)
and
AT&T
(T)
kept a critical amount of switching devices for long-distance and wireless phones in the basement of a building in a flood zone. That meant that, until late Sunday, we couldn't make calls outside of our town, which meant we couldn't access the Internet and we had no cellular service. We were isolated, I tell ya,
TheStreet Recommends
isolated!
(I ranted enough about this on
"TheStreet.com" on
Fox News Channel
-- bad timing for
Mike Kagan
, our guest, to recommend Bell Atlantic!)
Being without a phone was one thing, but at least you could travel 20 miles to find a cell that was working for a wireless chat. Going cold turkey off email, my primary link to the outside world, was maddening. Never realized just how much of an Internut I've become. Scary. What's even more scary, though, is to think that the same geniuses that put the phone system in the flood zone are responsible for making it Y2K-safe!
Labor pains:
Hate to keep referring to Jeff Matthews of
Ram Partners
, the guy who penned the
Amazon.com
(AMZN)
piece
here recently and who warned a
year ago about how auto-parts maker
Federal Mogul
(FMO)
looked like an accident waiting to happen.
But he's got another theme that is equally compelling (at least I think so): rising labor costs. This is something
nobody
on Wall Street is really talking much about -- the impact of rising labor prices on profitability. Yet Jeff says it was mentioned as a challenge by company after company at last week's
Donaldson Lufkin & Jenrette
undefined
growth-stock conference. With the job market
so
tight, all sorts of companies are being forced to boost their labor costs to attract workers, in what amounts to a wage war. It's particularly noticeable in the fast-food industry.
One analyst recently talked about how wage costs last quarter were up more than 5% at
Wendy's
(WEN)
, and execs from
CBRL Group
(CBRL)
(
Cracker Barrel
) have recently been making similar comments. Just yesterday, in reiterating his neutral rating on
Starbucks
(SBUX)
,
Morgan Stanley Dean Witter
analyst Robert Ohmes said in a
First Call/Thomson Financial
report that the company's North American retail business "continues to experience pressures on the labor-expense line."
What do you think about labor costs and accounting practices? Let us know on our
message boards. The tight labor market is so bad that
Hon Industries
(HNI)
, which makes office furniture and filing cabinets, recently warned that it would miss its third-quarter numbers, in part because it can't find enough people to work in its factories.
So, if labor prices are rising, why hasn't this showed up in consumer prices? I'll leave that to
Padinha
to answer. But one explanation is that some industries, especially retail and fast food, are hard pressed to pass along the higher prices. Unless that changes, Jeff expects to see tighter margins and lower profits. Which stocks will suffer the most? Jeff is betting against those like Starbucks and Wendy's, "where the charts look bad for whatever reason and where fundamentals are deteriorating because of labor."
A trend worth watching.
Accounting antics:
Beg to differ with
Lashinsky's
comments at a speech last week on accounting, the one where he said accounting won't matter until the bull market ends.
Hey, buddy, it already matters. Companies are getting whacked in record numbers for being overly aggressive. And don't be surprised if you see a new round of write-offs and restatements early next year after auditors, fearing the wrath of the
Securities and Exchange Commission
, get tougher than ever during the year-end audit.
Hey, but this from the guy who
defended
Lucent
(LU)
on last week's TV show.
Who do you think should play Herb, Gary B. and the rest of the TSC gang? Join the Herb
message board..
Rhoda's husband, eh?!:
That's who
G.B. Smith's
wife
says should play me in
TSC: The Movie
. Considering that
David Groh
appears to have fallen off the face of the earth, should that tell me something?! (P.S., Gary: My wife thinks
Peter Yarrow
-- you know, Paul and Mary's cohort -- better suits you than
Brad Pitt
! Maybe you could become the Singing Chartman! If you only had a hammer...)
Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at
herb@thestreet.com. Greenberg also writes a monthly column for Fortune.
Mark Martinez assisted with the reporting of this column.