Finance & The Money Culture
A headline from the Toronto Star today:
“Lord can now focus on being premier”
Ah, what a comedown. With all the righteous saved and the sinners packed off for eternal damnation and hellfire, it looks like 2004 will be a different sort of year in the deity business.
The New York Times’ Floyd Norris is far from alone, but his piece today, while verging uncharacteristically on optimistic at the close, demonstrates the indefatigable bearishness in many media quarters about the resurgent bull market. Here are some sample quotes about the year that just ended on the major markets:
That optimism may have been a little overdone … stores catering to those lower on the economic ladder found sales a little harder to ring up … If the season turns out even worse than Wall Street now believes …. that could be an indication the economic stimulus provided by tax cuts is starting to wear off … it might begin to appear that the heavy foot on the accelerator caused the economy to lurch forward but did not get it into gear in a way that will produce the continuing movement investors now expect. [All emphasis added.]
In case anyone’s looking for Brad, me (at least on Monday), or Alan Greenspan (on Saturday), we’re all at the American Economics Association meeting here in San Diego. Runs Jan. 3-5.
All those shrimp you’ve been eating lately? Dumped. Not literally, of course, but figuratively, at least according to the Southern Shrimp Alliance. On Wednesday of this past week it filed a request with the U.S. Commerce Department and the U.S. International Trade Commission to whack Thailand, Vietnam, India, Ecuador, China, and Brazil on $2.4-billion in imports “flooding” the U.S. shrimp market.
The SSA claims that dumping from said countries is egregious, ranging from 30% to 200%. And they have touching stories to go along with the claim, about “rampant unemployment and whole [U.S.] coastal communities suffering”. Senator Mary Landrieu (D.-La.) is, of course, playing along, putting out a release saying that domestic shrimpers need a more level playing field. “For our shrimpers to feed their families and fuel their boats, they must receive a fair price for their catch,” Landrieu said.
But there some big problems for shrimp-tariff fans:
Pardon me for belaboring the obvious, but there is almost certainly no dumping going on. Matter of fact, given the current wage and productivity differences, it is only surprising that gobal shrimp prices haven’t fallen further than they have. And that only makes the conclusions even more obvious: shrimp anti-dumping tariffs are unwarranted, and U.S. shrimpers must modernize or die.
But will the Commerce Department or the ITC see it so sensibly in an election year? We can only hope.
The SF Chronicle has picked N.Y. Attorney General Eliot Spitzer as businessperson of the year. While there are many objections to his being picked, perhaps the most persuasive is that he simply isn’t a businessperson. He is a lawyer and, arguably, a politician, but he is certainly not a businessperson. After a few years of wallowing in post-boom recriminations, it would have been nice to finally celebrate a few business successes — it’s too bad that some in the media apparently can’t stop pining for perp walks.
Are IP lawyers really just prelates? In an otherwise unenthusiastic review of Intellectual Property Rights and the Life Science Industries: A Twentieth Century History in the journal Nature, I ran across this intriguing snippet:
One interesting concept described in the book is that of the “patent community” of IP lawyers who have a vested interest in the IP system, and have “interpretive custody” of the system similar to that of the Catholic priesthood when the Bible was in Latin. [Emphasis added]
While the reviewer, a lawyer, goes on to make the point that academics have at least as much at stake in the wiser-than-thou writ-interpretation game, he rightly concedes the point. The transaction costs involved in any wholesale IP regime change — not to mention the corresponding power shift — are among the more significant quasi-economic obstacles to reforming intellectual property law, little different than the problems Pope John XXIII faced in pushing through his vernacular changes at Vatican II.
There is a wide-ranging interview in Strategy+Business with Nobel-winning economist Dan Kahneman. In light of flu fear, and the current panic about mad cow consumption, his comments about homo economicus and people’s tendency to overweight low probability outcomes are awfully relevant. As he says, “…the prospect of the worst case has so much more emotional oomph behind it.”
On a less serious note, the interview starts with the following question:
A bat and a ball cost $1.10 in total. The bat costs $1 more than the ball. How much does the ball cost?
Drag your cursor over the following blank area for the correct answer. The correct answer is that the ball costs 5 cents, while the bat costs $1.05, Most people say 10 cents for the ball because the original $1.10 figure separates so neatly into $1 and 10 cents. Was your initial response correct? Be honest.
While Moneyball is not writer Michael Lewis’s best book (that honor goes to Liar’s Poker, followed closely by the underappreciated Trail Fever), it certainly has been the Lewis book that has stimulated the most discussion. The gist: baseball manager Billy Bean analyzed oodles of (under-used) statistical data to discover winning could be had more cheaply than other managers thought. Specifically, such things as hitters with high on-base percentage and pitchers who get lots of ground outs were under-valued, at least with respect to said players’ relative compensation.
In this data-drenched age, that sort of things gets people thinking about data-mining. Where else, as the folks at Marginal Revolution ask today, might you apply Moneyball-style spelunking tactics?
Folks might have a look at a book about … jai-alai. Two years before Lewis’s Moneyball came out there was a wildly quirky book from a Computer Science professor at Stony Brook, New York, who wrote about how in one year of betting jai-alai he had increased his initial stake by 500%. How? By simply doing a better job of analyzing historical data. It is fascinating, and what’s more, for folks interested in trying that sort of data spelunking themselves — whether in the stock market or in sports — it is much more applicable, for obvious reasons, than Lewis’s book.
You have to hand it to Paul Krugman: He does know how to absolutely madden his critics, the sorts of people who think that the Princeton economist and New York Times columnist is near demonic. Because Paul Krugman is stubbornly convinced that the current economic resurgence is no resurgence at all.
Here is his argument: In today’s column Krugman concedes that the unemployment rate of 5.9 percent — which he cagily calls the “measured” rate — isn’t that high by historical standards. But, he says, there is “something funny about that number”: an unusually large number of people have given up looking for work, so they are no longer counted as unemployed. And more measures apply, like the length of time it takes laid-off workers to get new jobs. Given all of this, Krugman argues that the gains are going mostly to corporate profits, which rose at an annual rate of more than 40 percent in the third quarter. Yes, those gains are going mostly to stockholders and executives, but he points out that while more than half of Americans own stock, most own very little, so they don’t participate.
Krugman’s points aren’t outright wrong, as certain of his tireless critics think. It’s just that he is walking very far out a very thin plank. What makes his non-boom hypothesis falsifiable? What level of job growth over what period would cause Krugman to turn tail and proclaim all’s well with the economy? Merely a return to historical norms? Why, then, the use of the word “boom”? Must the economy “boom” again for him to feel that prosperity is returning and growing?
After all, Krugman (like myself) was a staunch critic of the boom-bubble economy of the late 1990s, so it is peculiar, to say the least, for him to crankily complain that only another boom now would prove that the economy is finally back on its feet.
What would AOL and Time-Warner have looked like if AOL hadn’t bought Time-Warner? A Financial Times guest editorial today considers the question and comes up with defensible numbers, but an indefensible conclusion.
Before the Time-Warner deal was announced, AOL shares traded at $73.75, giving it a market capitalisation of $170bn. By December this year the combined AOL Time-Warner was worth only $79bn. If AOL hadn’t bought Time-Warner it would have been purely an internet stock, and the Morgan Stanley internet index fell 86% over the period. Arguably, a Time-Warner-less AOL would therefore have fallen to a value of $24bn or so. In other words, instead of having 55% of AOL Time-Warner, AOL shareholders would have had 100% of a $24bn AOL. Having a chunk of AOL Time-Warner — worth $43bn — is clearly preferable.
The situation is different, of course, from the perspective of Time-Warner shareholders. When the deal was announced that company was worth $90bn. The FT says that a portfolio of comparable media companies has dropped 16 per cent since that time, so Time Warner might now be worth merely $76bn. Instead, of course, Time Warner shareholder’s have 45% of AOL Time Warner which is worth merely $36bn. In other words, Time Warner sharholders lost $40bn.
Fair enough, and shame on Time Warner’s Jerry Levin. But the FT columnist (a partner at Boston Consulting Group) goes on to argue that Levin might have spent that $40bn on something else more profitable, and his company would have been far better off.
I suppose, but as the saying goes, if my aunt had wheels she would be a bicycle. That is not what happened, and Time Warner made what its executives thought was the best decision at the time, recombining Time Warner with AOL to create a massive media property. No-one, I don’t think, is alleging actual folly here, at least not in the Tuchman-ian sense of the knowing pursuit of policies contrary to one’s own interests, despite the availability of feasible alternatives. Sure, in retrospect Levin was wrong, but who really and truly knew at the time?
Here, instead, is the author’s finger-waggling conclusion:
“The AOL Time Warner merger was just one more event in the agglomeration of media and entertainment and the churning of asset portfolios. While media businesses are shuffled and must tolerate the occasional meddling of various corporate parents, they will ultimately be run best as stand-alone assets. The people who make money are those who create the content, those who control the physical distribution and, of course, the investment bankers who pander to the egos of media executives who want to build empires.”
Apparently it’s really about class warfare. By that illogic the bad guys are the executives and the investment bankers, not the dopey investors who under-valued Time Warner, and over-valued AOL, forcing the two of them together.