Are we in a recession?
Experts and politicians argue this question every day.
Meanwhile, the nation’s gross domestic product — a barometer of recession territory — is floundering like a fish out of water.
The Commerce Department revised its second-quarter outlook and said the nation’s economy grew 1.9 percent.
But the government revised its positive fourth-quarter 2007 number and said the economy actually shrunk by 0.2 percent over that period.
In the meantime, large retailers keep going bankrupt.
Mervyns LLC, Shoe Pavilion Inc., Steve & Barry’s LLC, Shaper Image Inc., Linens ‘n Things Inc., Levitz Furniture Inc., Wickes Furniture Co. and Metromedia Restaurant Group — which owns Bennigan’s and Steak & Ale and Tavern restaurants — have all recently filed Chapter 7 or Chapter 11 bankruptcy documents.
Rumors are flying that Circuit City could be next.
“This is the beginning of a wave,” said Harlan Platt, professor of finance and corporate-turnaround expert at Northeastern University in Boston. “In every economic boom, investor enthusiasm leads to over-expansion. In recessions and slow periods, companies on the fringe begin to fail.”
The recent bankruptcies — along with the financial failure of IndyMac bank and a handful of other institutions across the country — is only the beginning of more to come, Platt said.
“Many of these companies are in California,” he said, but wouldn’t divulge names. “If the stock price is less than $5, they’re in trouble. Any investor in those stocks should give them a serious look.”
During the real-estate rush, several banks never made covenant deals when lending money. A covenant gives a bank authority to usher in a turn-around strategy for a failing company.
“They must’ve been on LSD to lend money with no covenants,” Platt said. “That’s like buying a car without brakes. You eventually know it has to crash.”
–matthew.wrye@inlandnewspapers.com
