Wednesday, November 30, 2005

Q3 GDP was 4.3%

Well, well, well. The numbers are out and all I can think of is that life is good here in Hooverville.

These numbers make me want to publicly call upon Michael Steinhardt to explain how such a GDP number is possible with the inept doofuses on the Bush economic team presiding over the store. How is it, Mr. Steinhardt, that the US economy with such bad stewardship could perform so indisputably well in a three month period where interest rates were rising, oil prices soared, a hurricane destroyed a major US city? (What do you mean? No, I never considered the fact that a guy with half a billion $ might not read my blog or give two shiite muslims.)

Even the New York Times has been forced to admit the economy is good, although Don Luskin reveals the sad contortions that the NYT will put itself into to qualify that position. Ah yes, it is not a guaranteed, surething, slamdunk, lock that we will blow out these blow out numbers next year, so we should be worried! That is almost as much of a namby-pamby, pantywaist, milquetoast attitude as the fact that we have too much choice.

Tuesday, November 29, 2005

Prediction: Glenn Hubbard Will Briefly Be MSM Darling

Former CEA Chairman, R. Glenn Hubbard (currently dean of the best business school in the country, nay, WORLD) made a very sensible, very specific criticism of the expansion of Medicare that his former boss, George W. Bush, pushed for and signed into law. Bet the ranch that the MSM will pounce on this and put forth the meme that not even former key Bush aides support the President's economic policies. They will expand this narrow criticism to encompass Bush's entire economic program, especially tax cuts, completely ignoring both Hubbard's and Mankiw's unqualified support for the 2003 tax cuts. Hubbard will briefly go from right-wing hack to 'principled' or some such laudatory label, until of course the MSM realizes that the substance of Hubbard's comments were critical of entitlement expansion and contrary to the notion of nationalized healthcare. Then he'll be a right-wing hack again. The roundtrip should take 1-2 months.

War and the Economy: Americans Don't Buy MSM Line

So, it turns out that Americans that know anything about what is really going on in Iraq aren't very pessimistic as opposed to those who just read the papers. You could say the same for the economy. Unfortunately for the MSM, pretty much every American has first-hand experience with the economy. But, the bozos in the MSM continue to try to convince Americans that times are terrible, and it clearly doesn't seem to be working. We are confronted with sob stories of workers who await layoffs at Delphi and GM, but are not told that these jobs will be replaced in weeks by the great job making machine that is the US economy (left with as little onerous government meddling as possible). We also don't hear that the jobs that are getting wiped out, such as GM in Michigan, are mostly due to the jobs that are being created by Toyota, Mercedes and Hyundai in places like Alabama and Texas. What about the 20,000 or so unfilled trucker jobs, or the many other industries that can't find qualified workers? The other day I went to a presentation by the US country manager of H&M, arguably the hottest apparel retailer today, and she mentioned that their expansion plans in the US are constrained by the lack of available workers. Apparently, there aren't enough people around who can fold and hang clothes and be helpful and nice to customers. There is little justification for all the gnashing of teeth in newsrooms over the plight of 'workers.' My speculation is that the MSM's real lament is that jobs are moving from blue places like Michigan to red places like Texas and from union shops like GM to non-union shops like Toyota. Despite the fact that this has been going on for decades and the cause has been disastrous state government policy, somehow the MSM still misses the point and thinks that these individual stories are news and sells papers. Ask any replanted New Yorker now living in Arizona or Atlanta why they moved, and they won't say that some big bad corporation laid them off, they'll say "high taxes, high crime, crumbling infrastructure, couldn't run a business, bad schools..."

Wednesday, November 23, 2005

Glenn's Mailbox (the dead tree receiving kind)

I'm not saying don't buy this book, but if you want religion, why not just read the bible?

Best News of the Day !!

British pubs will now be able to stay open past 11pm. Visiting Britain will now be significantly more enjoyable. I don't know which is more soul-satisfying, the thought of a pint of Ruddles County gliding down my gullet at midnight if I so choose, or the fact that a government official actually uttered the following:

"It is absolutely clear that the current system has not worked," said the minister.

"Let's not penalise the majority of responsible drinkers because of the crimes of a minority.

"There should be a very clear principle here - that if people are not causing harm to others, government should get out of their personal lives."

Blimey. There is hope for this world.

Can't Someone Arrange a Meeting...

...between Bono and Hernando de Soto?

I attended the U2 concert at MSG on Monday night and Bono was, as he is admirably known to do, pushing anti-poverty efforts hard. I had pretty cheap seats (metaphorically speaking, more accurately they were far-removed seats and not at all cheap) so I wasn't close enough to pelt him in the melon with this book (and I don't normally make a habit of bringing great works in the field of economics to rock concerts).

I believe that de Soto's book will one day prove as important and be as revered as Hayek's The Road to Serfdom. Hayek got little in the way of recognition throughout his career, but decades later we can say, as Thomas Sowell put it, "the world was wrong and Hayek was right." Sooner rather than later, I hope we can say "while the world mounted countless ineffectual campaigns to eradicate poverty over the years, de Soto had the answer the whole bloody time."

Tuesday, November 22, 2005

The Real Mr. Danger and his Useful American Idiots

Bloomberg has a story on the execrable shenanigans of murderous, election-stealing, socialist dictator Hugo Chavez. However, be forewarned, there are so many bloodboiling elements to this story from petty inanities to deep outrages.

Where to begin? First, we have our Great Sausage Factory aggessively tackling a non-problem, which I've addressed here. High oil prices have NOT had a significant negative impact on the economy and there is NO evidence that swaths of society are struggling economically in this environment.

Second, the GSF's solutions to this non-problem are thoroughly discredited, economically disastrous collectivist proposals. Two high-ranking Sausage Factory workers, Grassley and Dorgan, have proferred, in various guises, the awful anti-capitalist idea of windfall profit taxes.

Third, even if addressing poverty through handouts (another awful idea) is your bag, the "poor" in the US are not the right poor people to be helping. By global standards we don't have poverty in the US. Our poor have TVs, microwave ovens, often have cars and own their own homes. In places like South America, they have ponderous, crushing poverty. This is has nothing to do with helping poor people.

Furthering the bloodboiling is Chavez's malicious and brazen ploy to undermine the current government and social stability in the USA using tactics that on a grander scale would qualify as economic warfare.

Finally, the ultimate outrage is that prominent and powerful citizens like Ed Markey and Joseph Kennedy II are wilfully complicit in this dangerous stunt whether it be through their own ignorance or cynicism. Liberals love to wax perplexed on how a figure like Joseph McCarthy ever got traction in the minds of Americans. Well, when they attempt to import the socialist policies of a highly unfriendly state (nay, an avowed enemy really) in order to undermine the current government, they plant the seeds of McCarthyism.

This is very dangerous ground. Not Chavez's bluster or puny oil spillings, but his discovery and exploitation of today's useful idiots.

Monday, November 21, 2005

Whatever Happened to the "Digital Divide"?

Let me refresh you, the "Digital Divide" is the pernicious, diabolical reality that computers are a) expensive and b) very important in today's world. The dastardliness of it all, in case it isn't obvious to you, stems from the fact that this combination ostensibly means that poorer people, racial minorities especially, have less access to the benefits that computer technology brings and are increasingly, it follows, shut out of the modern world.

Well, where did the Digital Divide go? Down the Memory Hole (along with numerous other mushy pet causes other the years that didn't pan out) because now, someone is doing something about it. Although that someone is the wrong someone.

Here's hoping Wally World starts selling bio-deisel, so that global warming can take its place alongside the Digital Divide in the annals of Ridiculous Crusades of Bygone Eras.

Haven't They Ever Heard of Microsoft Millionaires?

I'm getting to this a little late, but here is a good article that illuminates the war that the French are waging on the little bit of capitalism that remains in that country. The battleground here is the public sale of shares in Electricite de France. My favorite quote is this :

``It's a contradiction to be a shareholder and an employee."

That about sums up the attitude that will keep France's economy in a catatonic state (and this is not from some obscure middle manager, but from the employee representative on EdF's Board of Directors!).

Fortunately, this attitude doesn't prevail to any serious extent here in the US. Nearly 60% of American households have decided that it is a good thing to own a piece of something, rather than just sell their labor, and have invested in stock, either directly or indirectly. There is virtually no example of a US company that is a clear leader in its field or is highly respected worldwide that does not enfranchise its employees as owners by instituting stock ownership as a component of compensation. The laggards are nearly always the companies whose employees opt out of participating as owners and thus seek to extract the maximum benefit out of the company for themselves. Case in point, General Motors continues to circle the drain while Toyota continues its march to be the #1 carmaker in the world. The real contradiction is that it is impossible to excel in business without employees who think like owners.

The article does, however, offer some optimism in the fact that many of the employees will indeed purchase shares despite it being decidely uncool. It could have been the 20% discount they received or but I like to think that many EdF employees simply don't buy the primitive anti-capitalist rhetoric of some of their colleagues.

Good week - Bridge to Nowhere dies, Giants Win

Granted the BTN win was symbolic, but the Giants' win was real. It was nice to get back on track after the unfathomable loss to the Vikes last week. There were no obvious standout individual performances, so I thought that this week's honor should recognize cumulative contributions over the weeks. So, for his unheralded but consistently outstanding play that has been a major factor in the Gints D being so stingy giving up TDs to the opposition, joining the good doctor is Osi Umenyiora.

Wednesday, November 16, 2005

Maine Republican: "Screw the Stock Market"

Larry Kudlow has the skinny on how the Republicans are doing an end-run around RINO Lady, Olympia Snowe, on the extension of tax cuts for dividends and capital gains. Good thing. It is amazing the lack of understanding (colloquially known as "stupidity") of the particulars and nuances of tax policy in our Great Sausage Factory. There is a disturbing tendency to see tax policy in black and white terms, either cuts or hikes without any distinction of the relative incentive power of particular tax policies. This is a clumsy view and it results in bad decision-making in the ole' factory. There are all sorts of taxes and tax mechanisms at work in our overall tax policy and all taxes are not created equal, and each one has unique incentive effects. The dividend and capital gains tax cuts had the direct, automatic, and indisputable effect of raising the value of financial assets by reducing the after-tax cost of capital. For the slower readers let me restate this in another way: "these tax cuts made the stock market go UP." These particular tax cuts, however, are set to expire in 2008, which will raise the after-tax cost of capital. Again, it simpler terms..."if these tax cuts are allowed to expire...the stock market will go DOWN." Very simple, UP or DOWN. It is that basic, cut and dried, whatever. Expired div and cap gain tax cuts = stock market decline. Olympia Snowe (and obviously all the Dems who vote likewise) want the stock market to go down. Every pension plan, every retirement account, every 529 college savings account...DOWN!!! Even the State of Maine's Public Employee Retirement Plan (MALPERS ??)...DOWN!!! Olympia Snowe's policy, as a Republican on the Senate Finance Committee, is that stocks should go down. Unbelievable. If the end-run that Larry refers to is unsuccessful, sell your stocks.

Tuesday, November 15, 2005

Germans Order Weak Tea, Get Brown Water

I hinted here that the German election result is looking worse and worse, sad to say, for the Germans and consequently the Euro. Well, the policy program of the grand coalition government are out and they are anything but grand. There will be more government spending, higher taxes, little to no deregulation and no derailing of the imminent energy trainwreck. So while a Merkel chancellorship holds out the prospect of substantial shifts in foreign policy (read George Melloan today for more), it will be more of the same economic policy that got Germans into their 11% unemployment pickle. I think it would be wrong to say that Angie paid a heavy price for the titular head of government. She got exactly what was due her, no more no less; and Germans got the government that they deserve. The market, of course, is barfing all over this outcome and the Euro is now very close to my prediction of $1.15. I speculated that Berlusconi's vulnerability could be one of the developments that drives the Euro to $1.10. Melloan echoes this sentiment and adds developments in Spain for good measure.

Lost in Bizarro World

It is fitting that this past weekend NBC ran a retrospective on Saturday Night Live in the 1980s, because lately we are living in Bizarro World. The liberal Canadian government is proposing return excess tax receipts to its citizens in the form of tax cuts and the Republicans in the Great Sausage Factory here at home are 1) blocking tax cuts, 2) demanding the troops come home, 3) haranging oil company CEOs, and 4) coddling terrorists.

(Side note: I am slightly disturbed that after 20 years and, I like to think, substantial intellectual and emotional maturation, I still find a green-painted Eddie Murphy saying "I am Gumby, dammit!" uproariously funny.)

Monday, November 14, 2005

Volkswagon Learns Elementary Marketing Lesson

Namely, that people won't pay $70,000 for a Volkswagon. Business school may be overrated, but the brass at Volkswagon could have used a freshly-minted MBA or two, someone for whom Marketing 101 is not a distant memory, to help them avoid such a bone-headed move. Or maybe they could have just looked around their own industry...people will only buy a $70,000 Toyota if it is called a Lexus.

Friday, November 11, 2005

UBS Forecasts EUR at $1.15

UBS, the world's second biggest currency trader, has just come out and said it predicts the Euro to trade at $1.15 in the next few months (note they called for $1.40 at the beginning of the year - ouch! - and they pay their analysts ALOT while Donny Baseball toils away in relative poverty and obscurity. ok, that's not true, I made a little coin being short the Euro). Readers of this blog (all three of you) will find such a prediction quite familiar as I have saying this for a few weeks now.

Should I be worried now that the high-priced minds have come around to my view? Nah. I'm still looking for $1.10. Look no further than today's news out of Germany. Angela Merkel was basically offered the Chancellorship if she abandoned her principles and adopted the Social Democrats economic platform. "Done!" sprechen Angie. So now, in response to Germany's massive deficits (which would be easy to grow out of, like we do here in the US), Merkel has proposed a massive increase in government spending on roads and bridges and stuff. Labor reform, deregulation and pro-growth tax cuts? Nein, nein and nein. So I fear the largest economy in Europe is going nowhere fast. Maybe they'll even build a bridge there.

"Concerned Government" Contrary Stock Play

While the Upper Chamber of the Great Sausage Factory is busy berating oil company CEOs, the price of oil and gas is falling rapidly. Completely predictable. This is further evidence that the government is a good contrary indicator when it comes to economic issues. This can be a profitable investment strategy as well, if you know how to recognize the indicator and play it intelligently. My bet for best "concerned government" contrary play these days are poultry producer stocks (TSN, PPC, SAFM, IBA) , which have taken a hit due to all the avian flu hysteria. Now that the government has decided that the avian flu is a big enough problem in need of $7 billion in government spending, you can be assured that it is no problem at all.

"We're unclear whether there is a direct connection."

That is the depressingly comical response of a Loews executive regarding the shooting death of a patron at a Loews theater in Pittsburgh after a showing of 50 Cent's new movie.Nah, a movie that depicts unabashed deregard for human life in pursuit of fleeting and superficial goals could NEVER inspire actual unbashed disregard for human life. As a pretty uptight honkey myself, I will refrain from addressing the movie itself and the role of gansta' culture in our society, but I will take this doofus corporate executive to task for saying something so stupid (that is defintely my bailiwick). Even though Loews pulled the movie, it is clear from this statement that the company will reinstate it and make some lame excuse that they have determined that there was no connection between the movie's subject matter and the murder in their theater. Reinstate the movie, fine. But have some integrity and be honest with the public. Say something like, "it's a difficult issue, struggling with the influence that movies have on people's behavior and incidents like this may seem to make a case for censorship, but there are much more powerful arguments against censorship as well and we hope that the public understands that we do not support censorship...yadayadayada." Very easy and straightforward. You display honesty, let reasonable people decide for themselves and you don't insult the public. That's pretty good PR in my book. "We're unclear whether there is a connection" are weasel words and this guy is a weasel and that is why so many people think corporations are run by a bunch of weasels (because often they are, more so with entertainment related businesses). The supreme irony is that while denying that "Get Rich or Die Tryin'" has any influence on society, this Loews executive has fully embraced its 'money above all else' and 'business without honor' ethos. He has suppressed his good sense and desire to deal forthrightly with this customers in the pursuit to cover his ass and get back to business. The thought probably never occurred to him to take a principled stand and then get back to business. Sad.

I had been meaning to do a post on Wellington Mara, the recently departed owner of the New York Football Giants, but I couldn't come up with the right angle. Clearly I needed a gangsta' rap movie and a doofus movie theater exec to hit upon that angle. Wellington Mara was the opposite of this weasel executive. Wellington Mara stood for and ran his business with integrity and principle. He believed in dealing fairly and honestly and that the rest would take care of itself. He always sought to do the right thing first. As a result he built one of the most successful sports franshises in history, and not just measured by success on the field. On the contrary, the Giants had long periods of mediocrity; but, even during those periods of mediocrity fans filled the seats and the waiting list for season tickets remained decades long. The players, even without the tangible success to bind them to the organization, developed nothing but love for the Giants organization. Why? Because Well Mara believed in doing business with honor and for he and the Giants organization money was not the guiding signpost (btw, Mara died a very wealthy man). There are too many awful business/management books out there by self-appointed gurus and most of them are awful. Unfortunately, one of the best management books that could possibly be written will never be written, because Well Mara would have to write it. Even if Duke was still with us, it wouldn't have been his style to write a book on business, and more importantly, what Well had to teach us about business, you simply can't pick up by reading it in a book anyway. Rest in peace and thank you, Well Mara.

Thursday, November 10, 2005

Not Quite a Super Bowl Ring...

For each of the past 3 weeks I have given what is my version of a game ball to an individual member of the New York Football Giants for sensational play (I wish I could post an audio of Chris Berman doing a "GEEE-MEN!" but I ain't that tech savvy). This is a fun, silly little thing, but ya' know's my damn blog, so I can do this sort of thing.

With eight more games to play in the regular season and a playoff birth looking doable (ooh, hope that wasn't a jinx), it is bound to happen, but I am hoping, sooner rather than later, to be able to give the weekly honor to Oklahoma native Jeremy Shockey so that we can double up in celebrating the fine performances of Sooner staters.

Alaskans Can Be Proud...

...their congressional delegation is not only adept at Grand Larceny but also petty theft.

Given that Alaska has $30 odd billion in the bank thanks to their oil wealth, it would take them about 3.5 hours to earn the interest to pay for this flying salmon. The average US household, making $50,000 a year, pays roughly 16% of their income to the federal government. So in crude terms, it would take SIXTY-SIX YEARS for the income of taxes of an average US household to pay for the "Salmon-Thirty-Salmon".

Thank you Don Young, Ted Stevens, and whichever member of the Murkowski family is currently occupying a Senate seat for Alaska! You may have to stop soon though, the rest of America is getting a little sore down there.

Kuwaiti Oil and How to Sell a Story

Bloomberg TOP has a story on oil this AM that reminds me of a scene in one of my favorite movies, When Harry Met Sally. It is the scene where Sally is having an emotional breakdown over her breakup with Joe and she agonizes to Harry, "and I'm gonna be 40!" Billy Crystal masterfully expresses Harry's typical masculine puzzlement at this hysteria. "In eight years," he says.

The title of Bloomberg's article is "Kuwaiti Oil Field, World's 2nd Largest, is 'Exhausted' ". Wow, no more oil, pretty scary. Not really. What is really happening is that the Kuwaiti's feel that the optimum rate of production for the final 30 to 40 years of the field's presumed life is 1.7 million barrels per day rather than 2.0 million bpd. Some basic math gets you the insight that there must be something like 18-20 billion more barrels left. Exhausted?

Turns out, as the article goes on, that the Kuwaiti's haven't really been investing too heavily in the field. There could be more oil, they just don't know. They might have to ask the evil foreign oil companies to come in, spend some money and see if there is more oil that they can get at. (There usually is and a technique known as horizontal drilling usually allows us to get at it.)

Got that. 18 billions barrels left, and the prospect of more with proper investment, is "exhausted".

Another Bad Month for Manhattan Real Estate

The Manhattan real estate market put in another bad month, reports the NY Post. More evidence in favor of my theory that the real estate markets have inflected. This view does not mean that the whole of US real estate is headed south, just that the bubble markets like New York are in for a rough correction.

I think you can discount Ms. Lenz's comments at the end of the article, she deals with totally price insensitive Wall Streeters who are set to get fat bonuses this year and the type of properties she is talking about are a small subset of the market, which is not representative of "the market."

Tuesday, November 08, 2005

And Speaking of Plaxico

I didn't read this on any sports page: "Young superstar receiver doesn't bitch about his pay, shows up to camp on time, fits in with teammates, is happy to share the load as he fulfills his role to make his team successful and makes zero incendiary comments in the media."

I've been reading something else.

UPDATE: Russ Roberts at Cafe Hayek has a good take on the latest bizarre developments in the T.O. soap opera. Russ always does an excellent job of parsing the world of sports with sound economic analysis. Even so, Russ's analysis boils done to this: The guy is an asshole and a poison to the Eagles organization, and the Eagles first duty is to be a successful organization. Pretty simple. Although as a fan of the New York Footbal Giants, I would like to see the soap opera run for a few more episodes.

This Is Getting to be ALOT of FUN !!

This week the honor goes to Plaxico Burress for that spectacular one-handed grab against the Niners.

Background here and here.

I'll Try Not To Break My Arm...

patting myself on the back, but my string of posts on the Euro vs. USD and the housing market are starting to look pretty good. Toll Brothers came out today and said that housing demand is softening, which is the big story in the stock market today. Also, the Euro, which busted through resistance (I hate saying that because I hate technical analysis, but that is the best way to describe it) on the downside on Friday, continues its freefall today. We are not far from the $1.15 level that I predicted. I stand by $1.10 for sometimes in 2006. What will be the catalyst? Who the hell knows. Perhaps the French will remain intransigent on farm subsidies in trade talks in Hong Kong in December and the US finds a way to band with countries like Brazil and India to get a free trade agreement that isolates France. Or maybe we have Italy implode politically. Berlusconi is hanging by a thread. Or maybe these "youths" or "racaille" or whatever you want to call them (just not "Muslims") will continue to be a thorny problem.

Friday, November 04, 2005

US Dollar Update

I posited here that the Euro is in a tough spot and headed down, to $1.15, maybe even $1.10. The economic and market fundamentals just seem to be arrayed against it. Greenspan has been telling us that the economy is robust, hurricanes and all, and to expect better rates on lendable money. Now he is getting help from all manner of news events that are pounding away at the animal spirits. France looks like it is in some deep yogurt with some disaffected folks who have managed to keep a serious mayhem machine up and running on 8 days now. People debate whether this is a Muslim blowup, a "third Intifada", or just about jobs, more specifically the lack of jobs. From the market's point of view, does it really matter? Either way, it's bad mojo as it highlights the state of the economy and the political risks in a Euro bulwark country. Germany did it's part last month with a whimper of an election, now it is France. So, today the Euro seems to have broken through some downside resistance and is at $1.1820 as I type. I suspect traders don't want to be in Euros over the weekend with the prospect of the 50% of Clichy and Aulnay residents who do have jobs joining in over the weekend.

The Euro can't afford alot more bad news. Hold on to those greenbacks, Mr. Buffett.

UPDATE: Warren Buffett has reduced his bearish bet on the dollar (scroll) after losing $900 million on a faulty analysis of the trade deficit's effect on the dollar. Brilliance in stock picking does not port over to currencies and commidities very well. Julian Robertson proved that. Now, so has Warren. Let's be honest though, I wish I was in a position to vaporize $900 million and not sweat it.

Thursday, November 03, 2005

What Sarbanes-Oxley has Wrought

I have blogged on Sarbanes-Oxley before, here and here.

Well, here it is in black and white and on file at the SEC - exactly what SARBOX has achieved:

"Collins Industries, Inc. (OTC: COLL)announced today that its Board of Directors has approved a plan to terminate theCompany's obligation to file reports with the Securities and Exchange Commission(the "SEC"). This would be accomplished through a 1-for-300 reverse stock splitof the Company's outstanding common stock to be followed immediately by a300-for-1 forward stock split (the "Reverse/Forward Stock Split"). If thetransaction is completed, the Company expects to have fewer than 300shareholders of record. As a result, the Company would no longer be required tofile periodic reports and other information with the SEC, although the Companyanticipates that its stock will continue to be quoted on the Pink Sheets."

Translation: "We buy out small shareholders. We no longer have to file financials. Our stock will cease to be traded on the most transparent, fair and investor-friendly exchange to one that is notoriously much less so."

"In addition to significantanticipated cost savings resulting from the elimination of these reportingrequirements, we expect that the reduced burden on management will allow ourofficers to focus more attention on improving our operating performance andserving our customers and the communities where we operate. Further, the Companywill be able to avoid significant costs associated with Sarbanes-Oxley Section404 compliance."

Translation: "Sarbanes-Oxley has tipped the scales, it no longer is worth being a public company if you are small."

So, let's review. The law that was supposed to ensure greater transparency and make the stock market safe for all of us, especially the little guy, is driving companies to purge the little guy, become less transparent, and shun our world-class public capital markets.

Score another beaut for the Great Sausage Factory!

UPDATE: Here's more direct from the proxt statement:

Q: What are some of the advantages of the Reverse/Forward Stock Split?
A: The Special Committee and the Board of Directors believe that theReverse/Forward Stock Split will have, among others, the following advantages:
• The Company will terminate the registration of its Common Stock under the Exchange Act, which will eliminate the significant tangible and intangible costs of being a public reporting company, including the initial costs of compliance with Section 404 of Sarbanes-Oxley of $1,500,000, and the annual costs of compliance with Sarbanes-Oxley and related regulations (with estimated tangible costs savings/cost avoidance of approximately $845,000 before taxes annually, consisting of (i) $200,000 in annual costs historically incurred, (ii) $550,000 in annual costs that would otherwise be expected to be incurred in order to comply with Section 404 of Sarbanes-Oxley, and (iii) $95,000 in annual costs that would otherwise be expected to be incurred in order to comply with other provisions of Sarbanes-Oxley).

Wednesday, November 02, 2005

Duetsche Telekom to Lay Off 32,000 Workers

On top of the 11% unemployment that Germany is already suffering under, Duetsche Telekom announced today that it will unload 32,000 workers. Given the state of the German economy, and that DaimlerChrysler and Siemens are also shedding workers, the job prospects for these folks are dim. Within Germany that is. Strong European economies, like Ireland and Spain, are absorbing workers. Leaving aside the horizon-broadening that comes with travel, it is not an enviable situation to be faced with having to leave your country to find work. (I know, Mexicans do it all the time. Germany is not Mexico, however, it is the world's 3rd largest economy.)

One of our great blessings in this country is that our federal republican (small r) system allows for policy variance among states. So if a state pursues economic policies that yield bad results, chances are great that there are other states that have pursued substantially different polices that offer better prospects to make a living (like my state, NY, which has been losing its citiznes to the south, west and southwest for decades). So people can pick up and move and not have to leave their nation's borders. Not so in Europe. It is mostly an all or nothing thing, policymakers either get it right or they get it wrong for the whole nation, and better prospects lie beyond national borders. The integration of the EU may be easing the movement of people between places like Germany and Ireland, but the increasing centralization of economic policymaking will sterilize the gains. If the EU apparatus squelches the policy competition between member states, the free flow of people won't be of much use. Policymakers will just be getting it right or wrong for the whole of Europe rather than for its constituent parts and there will be no outlet countries if things go badly. While a New Yorker might feel out of place in Arizona, it's smooth sailing compared to a Liepziger having to make do in Cork.

An Update on the Housing Bubble

I have been of the opinion that we are in a housing bubble for four years now, which means I have been wrong, although, I have always maintained that the bursting of said bubble was not inevitable, but certain if several factors fell into place. Well, these factors are falling into place and actually getting unforeseen help from the President's tax reform commission.

My central thesis has been this: housing has benefitted from the fact that it has been an asset class with no competition and cheap access. The cheap access is well known - low mortgage rates - but the lack of competition from its traditional competitor asset classes has been an ignored factor in my opinion. First, stocks. They became radioactive as the Internet bubble burst and the wave of corporate scandals rocked th nation's confidence in this asset class. Second, bonds. In response to 9/11, the Fed drove rates way down, rendering the yields that investors could receive on their lendable capital meaningless. Cash reserves earned you less than 1% in the early aughts ('00s). Piddly. That left housing (commodities too, but most average people are not comfortable investing in commodities). Easy money and the lack of alternatives sent real estate into the stratosphere. Other, tangential factors that further drove the real estate market were the cheap dollar, which atracted foreign buyers and the surging cost of homebuilding materials, which drove up the replacement cost of existing homes.

Now, much of that is reversing. Bond yields are getting back to acceptable levels and banks are tripping over themselves to get your deposits, offering 3.5% and up on your cash. Stocks haven't regained the trust of most people, but as taxes on dividends and cap gains have gone down, they are harder to ignore. The dollar has gained back some significant ground, so our housing market is looking like less of a deal to foreigners. The only thing that I see that hasn't reversed noticably have been building materials. When insulation, lumber, glass and roofing materials come down in price, the picture will be complete.

This is all very neat and tidy but it still ignores an important factor - sentiment. All the logic in the world is often not enough to counter prevailing sentiment, which Keynes (blech!) dubbed "animal spirits". I have blogged here and here about the importance of animal spirits behind the housing boom and argued that factors which impact those spirits are more dangerous to the housing boom than the gradually shifting economics. I argued that the rate increase on Sept 20 was the first in a wave of things that would whack the animal spirits drving the housing market. People can easily see an 8% 30-yr fixed again and air is seeping out of the market already. Now comes the Tax Reform Commission to suggest that the housing mortgage deduction should be rethought (not a bad idea, if not the best idea coming out of the commission). Granted, this may never make it through the Great Sausage Factory, but the fear that it might would be enough to make homebuyers think twice. Once this proposal hits the front pages, the housing market could be in for real trouble.

Tuesday, November 01, 2005

The Objective and Practical Need Not Apply

The Powerline guys covered John Tierney's ruminating on why university faculties are overwhelmingly liberal. Tierney simply puts forth the arguments presented to him by various, presumably liberal, academians and allows them to fall flat of their own accord.

Well, as someone who has one foot in academia and one foot out (mostly out, thankfully), I feel there is a better, expository argument. To wit, conservatives are not attracted to environments that are not governed by principles of accountability, objective standards and the discipline of the marketplace – i.e. the university, where faulty scholarship can thrive and demonstrably failed theories can still retain enormous respect. Further, conservatives are generally not attracted to forums that address meaningless issues. The world does not need a new feminist interpretation of Beowulf, or a GLBT view of impressionist painting or some other such typical pursuit of the modern University, and a conservative would chafe at the thought of resources being spent on something of such negligible value.

This Week It Is Tiki Barber...

...who gets to have his picture next to the heroic Sen. Tom Coburn! (background here)

Three Cheers for my Alma Mater's New President

In response to the NCAA's politically correct crusade against college's with American Indian-themed nicknames, William & Mary's new president has this to say.

Hip Hip Hooray #1 - "NCAA, Give Me a Break"

"First, the “Tribe” moniker is designed to communicate ennobling sentiments of commitment, shared idealism, community and common cause...It is neither meant to be derogatory nor understood by the broader community to be so."

Hip Hip Hooray #2 - "You're Clueless and Thinking Small, NCAA"

"Third, regional Virginia tribal leaders, with whom we have consulted, indicate that they clearly do not consider William and Mary’s use of the term “Tribe” to be “hostile and abusive.” To quote, for example, Chief William Miles of the Pamunkey Tribe, with whom I spoke: 'I speak for my tribe in saying that there is no perception whatsoever that William and Mary uses the term “Tribe” in a negative way. We’re worried about poverty, homelessness, health care and the like for our people. Not the use of the name Tribe.' "

Hip Hip Hooray #3 - "...and You Have Some F*%&ing Nerve, NCAA!"

"I feel compelled to express the hope that when the NCAA actually explores the operation of intercollegiate athletics at William and Mary, it will quickly come to recognize that we have much to teach the nation about the fusion of excellence in athletics with excellence in academics. With a broad array of intensely competitive programs, the College, last year, achieved the fourth highest Academic Performance Rating in the nation. A remarkably accomplished football team amassed a 100 percent graduation rate."