Apple Joins the Streaming Mélange

Profitable days are ahead for Hollywood types who can survive the #MeToo purge.

There Are Five Different Races in Streaming TV. Here’s Where Apple Fits In.

In the U.S., Silicon Valley and media titans are competing in categories from subscription entertainment to hardware to online-TV bundles

From 2019

WSJ: How the Permian Basin Became North America’s Hottest Oilfield

6/27/2019 11:06AM     

How the Permian Basin Became North America’s Hottest Oilfield

The U.S. has more than doubled its crude output over the last decade. Much of the growth is due to the Permian Basin of West Texas and New Mexico. WSJ traces the hotspot of North America’s crude oil boom, with a look at challenges that producers in the region face.

In the Elevator With Away CEO Steph Korey

In the Elevator With Away CEO Steph Korey

Is there a new business model and or an unsatisfied niche in luggage?  The founders of Away thought so.  Joanna Stern interviews CEO Steph Kore & Cofounder of Away WSJ 4/2/2019

Housing is the Business Cycle

Connor Dougherty, a New York Times economics journalist, does a good job analyzing the role housing has played in past recessions and why it may not be so crucial in the next.  He writes that housing declines presaged all but two of the last eleven recessions.  

Housing starts are one of our best leading indicators.  Even in one of his two exceptions (the recessions of 1953-54 and 2001), housing starts did a credible job of predicting one, 1953-54, leaving only only 2001 as a real anomaly.  Starts led the 1953-54 recession by nine months and fell 11.3% peak to trough.  In 2001 housing starts peaked a month after the economy and led by a month at the trough.  Peak to trough they fell a mere 6.6%.

The "Greenspan put" did not save Dot.Com investors or IT workers, but did provide a soft landing for housing in 2001.   An Austrian might argue that simply made the ultimate housing bust worse six years later. 

Dougherty bases his anlysis on contributions to GDP from the the work of Edward Leamer.  The latter's prescient 2007 Jackson Hole address, "Housing is the Business Cycle," which emphasizes the importance of housing in recessions. 

A Minsky Moment?

John Plender wrote in yesterday's Financial Times,  "Complacent investors face prospect of a Minsky moment."  

One observation is hard to quarrel with, to wit,  "It is historically atypical in that the central banks have been encouraging market participants through quantitative easing to take on more risk to help stave off a perceived deflationary threat. This was, in a sense, a perpetuation of the asymmetric policy pursued by the Federal Reserve before the crisis." we have seen the Greenspan Put on the stock market, the Bernanke Put on the housing market, and are we now seeing the Powell Put on the current bubbles?

Financial assets have grown rapidly relative to the stock of physical capital and certainly some bubbles have been inflated, most notably the growth of unicorns.

On the the hand, he claims hat that "Since the Trump tax changes (sic) are unlikely to have more than a modest impact on potential output, the economy, already close to full employment, could run into capacity constraints."  This is unduly pessimistic.  The Paul Ryan/ GOP/Trump tax cuts have dramatically reduced the cost of equity and, for well capitalized companies, for corporate investment in real capital.  Reducing marginal individual tax rates improves incentives to work.  The limit on state and local tax deductions reduces the tax incentive to drive prices up in the most expensive markets in the nation.

The supply side tax changes combined with the administration's deregulation initiatives has accelerated economic growth after the slowest economic recovery in a century.  Growth, the first real wage rate rises since the 1990s, and the improved incentives have increased labor force participation by attracting workers who have given up or face disincentives to taking paying employment.  Workers on disability have reentered the workforce.  Yes the unemployment rate is the lowest in forty-nine years, but the prime age employment ratio is still below its level at the beginning of the 2007-9 recession even though it is eleven years later.

Not only did the 2017 tax act create supply side incentives for the real economy (which Mr. Plender judges too weak), but it also reduced the tax incentive to over lever.  It limited corporations' ability to deduct interest expense and the lower corporate marginal corporate tax rates reduce debt's tax subsidy.  The debt binges by Netflix and Amazon among others is their last hurray.  

Citing Dr. Doom (Henry Kaufman), Plender worries that "the 10 largest financial institutions held about 10 per cent of US financial assets. Today the figure is about 80 per cent."  While that may reduce the liquidity of financial markets, but it also makes the banking sector more stable.  Canada with similar concentration for a century or more has not had a banking crisis since the 1840s.  A shift of capital raising from the financial markets to the commercial banks by itself would increase the potential for economic growth.  A key initiative by the Republicans with some bipartisan support is to reduce the regulatory burden of smaller banks that are not a systemic threat and shifting the emphasis from regulation to capital.

A Mellienial Job Interview

An enjoyable way to learn what not to do in a job interview or just laugh at the gap between generations.



Beware: Boomers in positions of authority have longer job longevity that millennials  would think just.

Sexy is scary I

Butterwood argues in the Economist that the U.S. stock market is overvalued.  At 32.8, the Cyclically adjusted price earnings ratio (CAPE) is certainly pricey.  Perhaps that is one reason investors have backed off some of their love affair with FAANG stocks.

Buttonwood cites research by Research Affiliates, a fund-management group.
You can hear the authors of the research ("Cape Fear: Why CAPE Naysayers Are Wrong"), Rob Arnott Vitali Kalesnik Jim Masturzo, explain their thesis in in this video.

James Grant And Nouriel Roubini on Macro Risk

James Grant and Nouriel Roubini square off at the Octavian Institute:

GE Cuts Its Dividend and Its Stock Price Drops 7 1/2 %

GE has been much in the news.  It announced that it would cut its dividend in half.  While that would seem to have been much anticipated, the stock nevertheless dropped seven and a half percent.  Thomas Gryta reports in the Wall Street Journal:

"General Electric Cuts Dividend by Half and Slashes Profit Goals
Industrial giant to revamp board as new CEO pursues restructuring"

New SEC rules will make GE look worse still according to Tomi Kilgore on Market Watch,
"GE’s stock suffers worst day in 8 1/2-years after transformation plan unveiled," Nov 13, 2017