Monday, April 30, 2007

Newspaper Industry Has Ignored Me, and Thus Suffers

Although there have been something like 1,849, 638 blog posts already covering the demise of newspaper circulation in general and the big metro dailies in particular, I am going to contribute the 1,849,639th, well, because I can.

I can't speak for many of the big dailies in particular, only for my hometown paper the NY Times, but it is fairly clear that other big dailies could be diagnosed similarly. Let me throw out the qualifier early, that many different types of people read newspapers and there are many reasons why the newspaper industry's customer base is shrinking, but one of the biggest reasons why newspapers are dying is that they have told post-30 boring white guys like me to, in a metaphorical marketing sense, sod off. (We know our friends and families don't think we're boring, but let's face it, the current cultural zeitgeist deems us college-educated, corporate job-holding, suburban, little-league coachin', golf-playin', patio-BBQin' dudes quite boring.) Not that there is a typical male, but the guy I have described (I'll just surrender to the cultural mandarins and call him P30BWG) represents a large demographic group and a group that has historically been the major consumer of broadsheet newspapers. Principally we like to know what is going on in the world and we like to read about sports and business and books and a few other things. OK, so you can get a decent idea of what is going on in the world (although probably not in Iraqi Kurdistan today or in Havana for the last 50 years) by reading the NY Times, but sports? Seriously what self-respecting P30BWG would actually buy the NY Times for its Sports section? Business? Also, terrible. Once upon a time Floyd Norris was a must read, but nobody I know in the business world views the NY Times as anything close to an indispensible resource for business literacy today. I get several business articles emailed to me each day, and I can't remember the last one that was from the NY Times. Books? Hah! I, and guys like me, love to read and are pretty good customers of the publishing industry. Granted we're not like college professors who basically get paid to read alot of books, but we're good for 10-25 books per year, wot with all that coaching and BBQing we like to do. Me and my buddies and associates constantly seek and trade book recommendations, and I have never had any other P30BWG recommend to me and I have never recommended to any other P30BWG a book that we read about or learned of in the NYT. Either most of the books that you learn about in the NY Times are effeminate twaddle or guides to metrosexualism, or that perception is so strong that P30BWG's stopped looking for book recommendations in the NYT ages ago. Either case, it's bad marketing if the NYT cared to have us as consumers of its product. Sure there is good stuff in the NY Times at the margin but the core product attributes just aren't designed anymore with the P30BWG in mind, which is analagous to a steak restaurant that has good side dishes but the meat is terrible and you can only get a Diet Coke from the bar. Just no reason to patronize. Proponents of the NY Times would claim that they are catering to the urban male who isn't a P30BWG. Hogwash I say. My father and his generation of post-WWII P30BWGs were quite satisfied with the NY Times. The paper valued them as consumers, covered their interests fairly well, and they were loyal to it. It is the paper that has changed, not the P30BWG.

The NY Times is not alone though. There are any number of businesses that have chosen to ignore the P30BWGs and now do a terrible job of marketing to us. A short list of these businesses might include the National Basketball Association, Hollywood, liquor producers, banks/financial advisors, and network television.

So who is doing a good job of marketing to the P30BWG? That will be part two in the series someday...

Financial Yukety Yuk

The finance world is chock-a-block with potential headlines to delight the juvenile mind. Of course, anything with "crack spreads" qualifies, but in today's case it's the Canadian dollar.

As Your PR Agent, I Advise Ripping Off Someone Else's Orwellian Slogan

Internet content providers cleverly employed the term "net neutrality" in their campaign to lobby the government to be anything but neutral in its regulation of the telecommunications industry. The Orwellian tactic has been so successful that it is being ripped off by all manner of groups looking to grab a little economic rent from the Great Sausage Factory. The National Renderers Association ("The Other NRA") has be flogging the slogan, sorry carrying the message of "feedstock neutrality" for biofuels tax incentives. From the April issue of Render magazine: "One can't help but wonder where everyone was hiding during the last three years as NRA battled to get a fair shake on animal-based biodiesel tax incentives."

Got that? An alternative phrasing of that sentiment might go like this..."One can't but help wonder why our elected officials weren't doing what they aren't supposed to do under the US constitution by creating an artificial advantage for our industry in response to our persistent economic rent-seeking"

Shape My Future...Don't All Jump At Once

Dear Loyal Readers (all 12 of you):

Now Batting for Pedro Borbon purposefully violates several basic tenets of Marketing, but lately I have been contemplating a couple of changes that could be deemed sensible in terms of making this blog more user-friendly. The first is changing the dreadful blue-background design template to something more easy to read. The second is rectifying the complete disconnect between the URL reference to "crossmolina" and the blog's title NBfPB. Are these good ideas? Does anybody care? Is anybody out there? Bueller? Bueller?


2015 Slogan: "Switch to Efficient, Clean-Burning Coal ..."

Instapundit points to this, and notes the benefit that coal doesn't come from Venezuela or Saudi Arabia. Alas he notes the drawback that coal is filthy. Yes, but one thing is certain, we are a helluva' alot closer, technologically, to "clean coal" than we are to "cellulosic ethanol". Like I've said over and over, the most sensible use of our time and resources is to make the fuels we already use much cleaner rather than demonize them while seeking pipe dream replacements. Now only if we could outbid the mullahs in Tehran for this wizbang clean-burning technology.

Addendum: Of course the enviromentalists will hate coal no matter how clean it gets, because you still have to mine the stuff.

File Under: "You Can't Make This Stuff Up!"

Sometimes the world operates in such deliciously inexplicable ways. Like when fire melts steel in a part of the country that most likely is the heartland of the silly notion that fire doesn't melt steel.

This is almost as delicious as Snoop Dog chiding Imus yet explaining his own blamelessness " 'cause I am taking about real ho's, 'ya know, bitches."

US Stock Market Eating Fried Turkey?

Here's a thought (just spit-balling here), maybe the stock market is defying the negative prognostications of all the nattering nabobs because the good ole' US of A is looking a helluva lot more attractive given unsettling political developments in places that were once thought to be relatively stable and attractive emerging markets. You've got the spread of Chavismo, then Thailand, now Turkey.

Although you'd expect such an attitude to buoy the dollar which ain't happenin' so the theory is speculative. Still my leading candidate is what I call the Max Baucus Lottery.

Malkiel Underwhelms...Again

Since the very day I finished reading "A Random Walk Down Wall Street" I have had an ever decreasing interest in anything that Prof. Burton Malkiel writes. Today's column in the WSJ continues that trend. Malkiel harkens to President Harry Truman's desire for a one-handed economist and then proceeds to demonstrate why Turman felt as he did.

First Malkiel advises, via the addition of today's dividend yield and a likely earnings growth pulled from the ether, that stocks can't reasonably be expected to return more than 7.5% per annum. By the end of the article though, he advises not to bet against the US economy. Second, he cautions about the state of the world, citing such second order threats as Hezbollah, while also noting the remarkable, decades long development of faith in free markets that has transpired around the globe. Thirdly, Malkiel trots out the standard pantheon of Rubinomics bugaboos - the trade deficit, income inequality, the 'low' savings rate as cause for pessimism, but blithely washes these away as something the economy will adjust to. As a final flourish, the good professor warns of the large destabilizing effect of leveraged hedge funds, like Amaranth Advisors, which as we all know was a large, leveraged hedge fund, that didn't actually have a large destabilizing effect.

Malkiel, however, is no Ivory Tower economist, he brands himself as steeped in capital markets reality. So what is his advice as someone who represents the intersection of academic economics and capital markets? Something that the most bare bones financial advisory service would tell you (and that the self-help financial media beat into us), rebalance your portfolio annually.

Friday, April 27, 2007

Debunking the Myth of the "Uninsured"

Greg Mankiw's blog's audience is ALOT larger than mine, so I am gald that he is highlighting this, given that I have mentioned it once or twice (here and here for example).

Wednesday, April 25, 2007

This Max Baucus's Stock Market

Kudlow thinks the stock market is rocking because of robust profits combined with low interest rates. Sure, I guess. I think it is because by buying stocks, investors are going to receive all the corporate profits from 2011 and several years hence in an advanced payment at the low low tax rate of 15%. I call it the Max Baucus Lottery. You gotta be in it to win it!

Diesel Momentum Is Building

I was excited to see my first TV commercial touting Ultra Low Sulfur Diesel the other day (see "Blue Sky" here). Hopefully the public will begin to see diesel as the clean, efficient advancement to existing hydrocarbon technology that it is. What we need to do is embrace the notion that we can make economically efficient hydrocarbon power cleaner by incremental steps rather than pursue some chimerical clean replacement for hydrcarbons. ULSD is great step. Let Ed Begley have his Prius, give me one of these. We'd be doing about the same for the environment, but I'd be doing it in style!

J.D. Power, for one, is quite optimistic.

On Global Warming Legislation & Environmental Crimes

Once again, my favorite quote from one of my favorite political philosophers:

"The people never give up their liberties, but under some delusion."

Dow 13,000 Means...

So the Dow has crossed 13,000. Let me offer the obligatory dismissal of 13,000 as an artificial milestone as well as the blithe dismissal that the Dow is merely 30 companies out of a much larger universe. Still, it is a good occasion for a self-congratulatory post (what isn't?). What did I say about the stock market not long ago? This. And then there is the housing situation. What did I say about that. This (granted I said it in Nov. of 2005). And while I'm at it, I also said this about rates and the dollar.

Lenders Had No Monopoly On Subprime Culpability

Previously I had the temerity to place just as much if not more of the blame for the subprime mortgage crisis on greedy and/or stupid borrowers. Well, here is an interesting story that adds "criminal" to that list of adjectives. To be sure, there were hucksters selling mortgages to the unsuspecting (who should have been more suspecting), but it seems there were also hucksters taking money from the unsuspecting (who also should have been more suspecting). Alas, all the fallout will focus on the lenders and of course the do-gooders will overshoot, as apparently they already are.

Tuesday, April 24, 2007

Boeing vs Airbus Update

Virgin buys 15 Dreamliners.

Update: and Air Canada too.

UUpdate: Apparently I missed the really juicy part of the story.

UUUpdate: US Airways too. Ouch, Ouch & Ouch.

Monday, April 23, 2007

This Just In. Commie Pinko Reporter at NY Times!!

OK, here is my best Claude Raines..."I am shocked, SHOCKED...that David Leonhardt has written a ridiculously biased piece in the NY Times." From Greg Mankiw's blog we get a link to Leonhardt's 'exploration' of the economic advisors to the presidential candidates. The article is ridiculous beyond belief. I can sum it up for you: "Republican advisors = all about tax cuts, thus boring and awful. Democrat advisors = all about nationalized healthcare and saving the environment, thus cool and exciting."

It strikes me as particularly dishonest of Leonhardt to go on like he does that Democrats have exciting and "serious" proposals about healthcare and lamely states that guys like Hubbard and Cogan merely, "like tax cuts." Hey man, ever heard of THIS BOOK (mentioned here and here )!! I find it hard to belive that Leonhardt doesn't know of this book, he'd be a terrible journalist if he didn't. Obviously Leonhardt knows about this book, but he chose to ignore it. What a jerk.

OK, I will concede the small probability that Leonhardt is ignorant, yet good faith ignorant as opposed to willfully ignorant, of his subjects' policy work. In which case the remedy is easy. I, Donny Baseball, will accept a small fee from the NY Times Company to provide my commentary and analysis to NYT's economic columnists on an advance basis.

Private Equity Is Agent of Efficiency for the US Today

I may be a little rusty after the hiatus, so I am going to take this slow to avoid a headrush...

A while back I mentioned that the UAW has a terrible hand going into the next few years. Well, this article just adds solid confirmation to the trend. The capital flowing in to take public companies private appears limitless. Size will not protect you anymore. Nobody is safe. Not Chrysler, not Ford, not GM. If you have a failed business model, brought to its knees through decades of appeasing labor unions, you have a fat bull's eye on your corporate keister right now. The money is there.

Not that this is a foregone conclusion. Alan Mulally and Rick Wagoner could yet sell the UAW on the merits of swallowing a little castor oil now to avoid further imperilling the companies and ensuring a new set of bosses will be running the show with a much more anti-union management playbook. Chrysler, I think, is gone. Its German overlords don't have the stomach for the fight. The unions will do all they can to keep private equity's hands off Chrysler, because anything that new owners demand of Chrysler's UAW members will eventually be matched at Ford and GM.

The forces of efficiency-promotion are at work via our capital markets and the energy is gathering too fast to resist at this point. Corporate managers that stub their toes for a mere second and unions that have heretofore run the shop, will get swept away.

Tuesday, April 17, 2007

Flooding and Taxes

Sorry folks, blogging has been and will be light due to the 4 feet of water that is in my basement courtesy of the bad-ass storm, or "nor'easter" as they call it, that whacked NY state over the weekend. Someone told me that 1 cubic foot of water is 7 gallons. So I'm figuring there's about 11,750 gallons of water down there. Right at tax time too. Life can be a cruel mistress.

Thursday, April 12, 2007

How You and Me Are Going to Outfox Max Baucus

Greg Mankiw has a post today rebutting Robert Frank's dismissal of marginal tax rate reductions. I am not going to wade into that technical discussion except to say that it is fun to watch academic economists dress up in jargon and debate, again, whether incentives matter. This post did however prompt me to post about a dinner I had the other night (where coincidentally Ned Phelps was sitting at the next table over from me...reducing his, or his companions', savings in lieu of a little consumption, namely of expensive wine, Williams-Selyem Pinot Noir to be precise). Anyway, at the dinner I was chatting with a large shareholder of a small company about recapitalization options. The company in question has a large amount of cash, very little debt and not much of an appetite for acquisitions. So how should we go about returning that cash to shareholders? Buy in shares? Maybe but that increases the equity holders' stakes increasing their reliance on a liquidity event someday, which may or may not be doable, depending on economic conditions, before 2010 when the 15% capital gains tax rate goes up. Why tee up a potentially much higher tax bill? Pay a dividend? Fine. Regular or one-time special? Well, if you commit to a regular dividend, you expose investors to the increased dividend tax rates when the 15% rate also goes up in 2010. A special dividend looks like the way to go. You can determine the precise amount of excess cash and control the timing, so shareholders can get a hefty payout at the 15% rate. OK, done, the big shareholder will discuss it with the Board of Directors.

That's when it hit me. I probably knew in a vague sense the consequences, but at that moment it crystalized for me. It is so obvious. Hundreds if not thousands of company's will be recapitalizing in 2009, paying out huge special dividends just before the dividend tax rate goes up. Many will lever up and many will cease dividends altogether post 2010 and use the cash flow to reduce the debt, in essence pulling profits forward in time to give their shareholders cash at the 15% rate and reduce the level of future profits that would be subject to higher rates of taxation. Imagine that, receiving your little slice of US corporate profitability for years 2011-2015 in 2010, cash money! The implications for the Treasury are that there will be a surge of revenue in 2010 and a cratering of revenue beyond. Private equity types are doing this already. When the outlook for capital gains is cloudy (or even when it is not) they sell bonds to pay themselves a fat dividend. As 2010 approaches, everybody will be getting in on this game. You've got to own stocks to get your share of the cash tsunami but massive capital losses would be in the offing. Start learning now about buying long dated puts on the market indices and/or selling calls.

Furthermore, congress will interpret the revenue surge as a permanent increase in the tax base, and they will rapidly increase spending. The post 2010 federal budget deficits could be huge when the tax receipts dry up. With guys like Max Baucus at the wheel, I say it's a safe bet. Won't be good for treasuries.

With treasuries and stocks looking bad, usually what happens is capital flows to real estate (think 2002). I think it is fair to say that 2011 is far enough away for the collective memory of where we are today with real estate to have faded by then. I predict another real estate boom circa 2012.

The Invisible Hand of Accountability

Now that the official word on the Duke Lacrosse Non-Rape Travesty has been handed down, the messy, ad hoc mechanisms of accountability will be unleashed. The major question in terms of accountability is not who gets sued from here on in (and some people and institutions will indeed be targeted with civil claims) but to what extent the invisible hand delivers its version of accountability. It seems pretty clear that Reade Seligman and Colin Finnerty will not return to Duke as is understandable, but what ultimately matters to Duke's institutional health is how many college-bound high school seniors and rising juniors will make the same determination that the poisonous environment at Duke is hardly what they are looking for in a college experience. This is of primary concern for Duke given that, more than anything, it needs high caliber students to maintain its stature. If the A students and the 90th percentile SAT scorers and the top-notch athletes abandon Duke, then the B students and 80th percentile SAT scorers will fill the slots and a vicious cycle of declining standards could set in.

The same goes for the Group of 88. It is unlikely that there will be any official sanction undertaken by Duke's administration, but the invisible hand will have its say here too. There may always be demand for Karla Holloway's African-American Literary Genres class, but then again numerous students might independently decide that her conduct throughout the scandal has revealed a deeply illiberal mentality that is unfit to inform their educational experience. Likewise for any of her 87 discredited colleagues. Without students willing to sign up for their classes, what will become of many of these professors? Perhaps nothing will come of it and Duke will continue to employ them although their services are in low demand, but perhaps Duke will be forced to evaluate the need for teachers that students refuse to be taught by. Who knows. Such developments will hardly be noticable as they will unfold over the next several years and won't make the news. Still, the verdict of the invisible hand, whether it chooses to deal a soft blow or a hard blow to the institutional health of Duke, is unavoidable.

Wednesday, April 11, 2007

Beer Tourism

This is a neat article (HT: Say Anything) combining two great activities of life, traveling and drinking beer. While the rankings are clearly subjective, one has to call into question the authors' judgment given some of the daft selections made. Burlington, VT is #4 and London, England is nowhere on the list. Simply daft. Unbelievably snortworthy. As much as I appreciate the nod to the Irish in selecting Dublin, a very good beer town, London is far and away a superior beer town, a giant among beer meccas offering astounding variety and quality. And Mexico City? Simply an awful choice. Yes, some Mexican beer is quite good and a coldie on hot Mexican afternoon is deeply satisfying, but Mexico City doesn't come close in quality and variety to be on this list. Here's my list:

1. London
2. Bruges (Brugge)
3. Munich
4. Amsterdam
5. Prague
6. Montreal
7. San Francisco
8. Sydney
9. Portland, Maine (Yes, I said Portland Friggin' Maine)
10. Copenhagen

If Peak Oil Is Real, This Is Why

Check out the stunning graph included in this Forbes editorial (must scroll down). It is a fine editorial but one thing it doesn't touch on that this graph helps illustrate is that Peak Oil is not inevitable. The blue bars essentially represent state-owned entities that milk their resources for lavish social spending in order to stay in power and dampen resentment over despotic rule rather than invest prudently for long term viability. The red bars represent publicly owned entities who are answerable to investors who care about protecting long term value. The blue bars don't reinvest and apply the latest technology, the red bars do. The blue bars are why the Peak Oil theory even exists. Less blue bars, more red bars, no Peak Oil.

1GOCs— A: Saudi Aramco B: NIOC (Iran) C: Qatar Petroleum D: ADNOC (UAE) E: Iraq NOC F: Gazprom (Russia) G: KPC (Kuwait) H: PDVSA (Venezuela) I: NNPC (Nigeria) J: NOC (Libya) K: Sonatrach (Algeria) L: Rosneft (Russia) M: Petronas (Malaysia) O: Lukoil (Russia) P: Pemex (Mexico) Q: Petrochina (China) T: Petrobras (Brazil) Y: ONGC (India) Z: Sinopec (China). 2IOCs— N: ExxonMobil R: BP S: Chevron U: Royal Dutch Shell V: Total W: ConocoPhillips X: ENI. Source: Credit Suisse First Boston.

Bloomberg: Ignore 4.4% Unemployment, the Economy Stinks

The MSM's constant harping and dishonest portrayal of the economy has paid dividends...a "man on the street" poll done by Bloomberg/LATimes indicates that a solid majority of Americans foresee a recession within a year and disprove of George Bush's handling of the economy. I doubt the poll's results but it may well be true, in which case all it proves is that a majority of Americans are completely clueless and/or deluded about the health of the US economy. Check out this penetrating analysis from a professor at the Colorado School of Mines: ``We spend ridiculous amounts of money on the war and now we have issues with the subprime housing market." Ah yes, those seminal economic metrics, war spending and the subprime lending stability. Oddly, the article then proceeds to admit that a majority of people feel good about their own personal economic situation. The article even admits the well-known heuristic error that people make in ignoring their own personal satisfaction to arrive at a pessimistic view of the world at large. Then we are treated to a host of putative verities that the poll is supposed to validate, e.g. the tax cuts aren't helping the middle class, blacks are more pessimistic than whites, the subprime mortgage reckoning is the lenders' fault and the government should intervene to help poor people. There isn't an ounce of economic wisdom in this article and, for me, it recalls Winston Churchill's aphorism that the best argument against democracy is a five minute conversation with the average voter.

Wednesday, April 04, 2007

Alas, No Calls to Rein In New Jersey's Rampant Greed

When corporations underfund their workers' pensions, it's clear evidence of corporate greed tramping on the worker that needs to be dealt with strict regulation. When it is government that does the exact same thing, well, the same sort of accusations and calls for punishment don't seem to fly. No biggie, they'll just raise your taxes and fix the problem. If this was General Motors it would be a sure sign that capitalism is nothing if not exploitative.