Yuan to Wings

Two interesting and related stories in the Wall Street Journal today.

Item #1 The Senate voted Monday to move ahead with a bill that would punish China for keeping the value of its currency low, drawing a harsh response from Beijing, which said the measure would severely hurt trade ties.

Item #2 The biggest chunk of Yum's [owner of restaurant chains including KFC, Taco Bell and Pizza Hut] operating profit now comes from China.

Are we sure we want a trade war with China, a country holding a sizable portion of US debt? Imagine putting a tariff on the Colonel's finger lickin' good wings? Perhaps there should just be a conversion rate of Yuan to wings and bypass the US dollar? Are the Chinese sure they really want to eat that stuff? Maybe a CIA plot?

Seems our major export now is "US Culture" -- our movies, our fast food and soft drinks, our way of life -- while the rest of the world manufactures everything else we need.

















Photo courtesy of Daily Times, Lahore Pakistan

All the News That's Feigned to Print

The Rupert Murdoch owned Wall Street Journal reported yesterday that the Rupert Murdoch owned HarperCollins Publishers will sponsor a 10-day book tour by their author, Sara Palin, who is a contributor to the Rupert Murdoch owned Fox News.

The occasion is the publication of her book "America by Heart: Reflections on Family, Faith, and Flag," a follow-up to her best-selling "Going Rogue." In addition to those credentials for her inevitable run for the Presidency, Ms. Palin is also the star of her own reality TV show, "Sarah Palin's Alaska." Her daughter Bristol is indirectly campaigning by her appearance on "Dancing With the Stars," another prime time "reality" media production.

In addition to those qualifications, Ms. Palin has a bachelor's degree in communications, having attended a number of colleges in the pursuit of that degree, was a TV newscaster, and served as a mayor of a town of some five thousand people and for a couple of years as governor of Alaska with a population about the size of El Paso, Texas. She resigned her governorship to pursue her interests in self-promotion.

Besides having Rupert Murdoch's News Corp empire as a backer, she owes her political career to John McCain who brought her to the national stage in a desperate act to carry the 2008 presidential election.

Can this "rogue" politician continue to skillfully manipulate public opinion by charisma alone and a friend in high places? And will she continue to supply News Corp with all the fodder necessary for higher ratings, greater circulation and therefore more advertising and sales? A nice symbiotic partnership? You Betcha'

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Anecdotal Headlines

I haven’t done this in awhile, in fact not since December 2008 as the Dow was rushing towards its low during this recession – that is to highlight some of the headlines from the Wall Street Journal, anecdotal evidence of where the economy and the market might be heading. Back then we were in the thick of it, virtually every headline pointing to fraud, bailouts, bankruptcies, and rising unemployment.

Today, while the Dow basks in the glow of massive liquidity injections in a low interest rate environment, approaching 11,000 as I write this, and investment bankers are rewarding themselves with record bonuses, the economy swims on against the tide of high unemployment (much higher than reported), kicking the state/municipal finance crisis down the road, and rising foreclosures. (We still wait on the consequences of future resets of adjustable rate mortgages.) No one really has an idea of how this will resolve. The CNBC cheerleaders are on the side of a continuing rising market, while there is no shortage of Armageddon forecasters who advise buying gold and farmland and head for cover. No forecaster I, but we seem to be moving from headlining the symptoms, and are getting more to the heart of the matter. It’s interesting that “Fed Chiefs Hint at Low Rates Possibly Into 2011” can be juxtaposed to “Mortgage Rates Hit 8-Month High of 5.21%,” perhaps an indication that the government has less control over the outcome than it did when this crisis began. From today’s Wall Street Journal:

Foreclosures Hit Rich and Famous
Houses with loans of $5 million or more will likely see a sharp rise in foreclosures this year, according to a RealtyTrac study.

Greek Bond Crisis Spreads
Concern over a potential liquidity shortage at Greece's private-sector banks fueled a sharp selloff in Greek debt and equity markets

States Skip Pension Payments, Delay Day of Reckoning
The deferrals come as pension experts say the funds need the money more than ever

Jobless Claims Rise Unexpectedly

Cash Crunch Will Force Governments to Do Less

Fed Chiefs Hint at Low Rates Possibly Into 2011

Los Angeles Faces Threat of Insolvency
Dispute Between Municipal Utility and City Council Over Electricity Rates Deepens Fiscal Crisis; Bond Rating Cut

Big Banks Move to Mask Risk Levels
Quarter-End Loan Figures Sit 42% Below Peak, Then Rise as New Period Progresses; SEC Review

Mortgage Rates Hit 8-Month High of 5.21%




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You Get What You Pay For

Malcolm Gladwell’s “Priced to Sell; Is Free the Future?” in the recent issue of the New Yorker brings up fascinating issues, ones I dealt with my entire career – should “information” be “free.” Part of his article is a critique of Chris Anderson’s new book, Free: The Future of a Radical Price,”which argues that given the inexorable downward price pressure in technology, there is an inevitability that the content itself will become free. Anderson suggests that musicians learn to make their money “through touring, [and] merchandise sales” and newspaper writer retool to become coaches to unpaid writers who will work “for non-monetary rewards.” Fame, crumbs?

No doubt the newspaper industry is under siege, and is probably the most threatened during this Great Recession. But Gladwell’s scathing dissection of the YouTube “business model” points the way to the inevitability of two universes, a subscription model such as the successful Wall Street Journal, one that offers a level of professionalism or specialization people are willing to pay for and then the free one like YouTube, a commodity aimed at a mass market, supported either by advertising or by the provider being satisfied by cornering market share/eyeballs (Google in the case of YouTube).

The New York Times had attempted a subscription model for its Op-Ed Columnists, miscalculating that this is the unique value of the Times. That value, though, as with the Washington Post, is its gestalt and by charging for a part of the paper and not all is to devalue the sum total of its parts. Pay per view is not feasible but dedicated followers will pay for access to such well established icons.

Similarly, newspapers that do not have a national standing, have an opportunity to expand their coverage of local issues – to create the specialization needed to buttress their own brands. Of course, content is not the only issue, it is the subscription model itself. Giving print subscribers nearly free access to the on line version is one approach, particularly as technology such as the iPad become ubiquitous. The pricing of an online version (only) is the more critical issue for these publications, and that will be dependent on their own distinctive market position. The devil is in the details, but Gladwell’s article is a good reading.

Swimming against the deflationary tide

There was a small, unobtrusive article in today’s Wall Street Journal: “A Deflated Fed Battles to Keep Prices Up”

Here are the bullet points:

* “In March the consumer-price index slipped 0.4% below its year-earlier level, the first decline in over 50 years”

* “It is hard to imagine [consumers] returning to their spendthrift ways anytime soon”

* “Falling prices would make it tougher for borrowers to pay off debt, leading to even more defaults and even tougher lending standards”

* To fight back… “the Fed could buy the Treasuries issued to finance such moves. In practice, that is like printing money and handing it out to households, and it is pretty much what is happening now.”

* “When the fight is between falling prices and the Fed, it is hard to predict which will prevail.”

Add to this mix, 30-day T-Bills now yield nearly zero (0.02%). Soon, one may have to pay the Treasury to hold short-term deposits, but nonetheless if deflation persists or worsens, equities and bonds will not be able to compete with cash. Everyone is expecting inflation as a consequence of government spending, but prolonged deflation would be a Black Swan with potentially serious consequences. Gold fell more than $13 an ounce today, below a technical support level, another indication that inflation may not be the main worry.

Anecdotal Headline Annotations

If I was handed a copy of today’s Wall Street Journal only a couple of years ago, I would have thought the headlines were a forecast of an ethical and economic Armageddon. How otherwise does one interpret the following captions, from just one day’s newspaper?

Governor Jailed in Alleged Crime Spree
In Illinois, Blagojevich Is Accused of Seeking to Sell Obama’s Senate Seat; Five-Year Corruption Probe

AIG Faces $10 Billion In Losses On Trades

The Stock Picker’s Defeat
The Fallen; Bill Miller. The declining fortunes of leading business figures. Second in a series.

Hard Times for Parmigiano Makers Have Italy Ponying Up the Cheddar
Government Tries a Bailout, ‘Just as There Was for Banks,’ to Help Struggling Producers

Fannie, Freddie Executives Knew of Risks

Restaurant Jobs, Like Tips, Shrink
Big US Employer Traditionally Has Served as a Fallback for Jobless, Immigrants

Panel to Criticize Handling of Bailout

Specifics of Stimulus Take Shape
Democratic Leaders Resist Growing Push for a Package Larger Than $500 Billion

Rangel’s Problems Dog Democrats

Pressure Mounts on Merkel for Bigger Fiscal Boost

Drop in Japan Tool Orders Exposes Global Spending Cutbacks

Developing Countries Feel Slump

Auto Bailout Moves Closer; Senate Battle Next Hurdle

China Urges Its Airlines to Curb Plane Orders

Pirate Attacks Keep Law Firm Buzzing

Sony to Cut 8,000 Jobs, Close Factories
Electronics Giant’s Turnaround Effort Undermined by Slumping Demand, Holiday Discounts

Resorts Feel Chill From Recession
Businesses and Consumers Curb Travel Plans; ‘AIG Effect’ Helps Create New Tone

GM Sees Sales Plunge in Brazil

NFL to Cut Jobs in Face of Recession

New York Times Holds Talks With Lenders

Safety Trumps Yield in Bill Sales
Investors Scoop Up 0% Short-Term Notes

Fed Weighs Selling Own Line Of Debt

Securities Firms Claw Back at Failed Bets

Some Commodities Investors Find Another Way to Lose Money

Reddy Ice Executives Gain On Prearranged Trading Plans

Tycoon’s Fall Is a Warning for Europe
Sanahuja Patriarch Loses Control of Metrovacesa; the Perils of Heavy Debt

Families Cut Back on Day Care As Costs – and Worries – Rise

These headlines are pretty much in order as they appear and although they are selective, there are no offsetting, positive ones. Perhaps that is merely a tendency towards yellow journalism to sell papers. But no wonder we all live in a state of anxiety without any real explanation as to how we have arrived at this point (although many commentators are adept to spinning plausible stories with the advantage of hindsight) and, certainly, without understanding how the forces behind these stories might play out in the future.