Friday, August 29, 2008

Is International Accounting In Our Future?

Accountants: start learning a new set of rules! The Securities and Exchange Commission is moving toward using International Accounting Standards rather than U.S. GAAP.

On the front page of yesterday's (August 28, 2008) Wall Street Journal, Kara Scannell and Joanna Slater reported that the SEC has started the ball rolling to move publicly traded U.S. companies from GAAP to international standards.

They explained the timetable "The SEC's proposal would allow some large multinational companies to report earnings according to international accounting beginning in 2010. The SEC estimates at least 110 U.S. companies would qualify based on their market capitalization, among other factors. The agency also laid out a road map by which all U.S. companies would switch to International Financial Reporting Standards, or IFRS, beginning in 2014, at the expense of U.S. Generally Accepted Accounting Principles, the guiding light of accountants for decades."

Thursday, August 28, 2008

Treasuries Fall After Auction, Faster-Than-Forecast GDP Growth

Treasuries Fall After Auction, Faster-Than-Forecast GDP Growth

By Dakin Campbell

Aug. 28 (Bloomberg) -- Treasuries fell after the U.S. sold $22 billion of debt and a government report showed gross domestic product grew faster than forecast, fueling speculation the Federal Reserve will raise interest rates.

U.S. government debt declined as the Standard & Poor's 500 Financials Index rose 3%, easing demand for the relative safety of the Treasury-backed debt. Traders reduced bets the Fed will remain on hold through the first quarter of next year.

``Today's data confirms our belief that bond yields are headed higher,'' said Ajay Rajadhyaksha, the head of fixed- income strategy at Barclays Capital in New York, one of 19 primary dealers that trade with the central bank. ``If you think about what the Fed seems to be banking on, it is that inflation will start moderating because the economy is weakening. The chances of that happening seem less likely.''

The yield on the five-year note rose 4 basis points, or 0.04 percentage point, to 3.05 percent at 2:17 p.m. in New York, after the government sold $22 billion of the maturity, according to BGCantor Market Data. The 3.375 percent security due in July 2013 fell 5/32, or $1.56 per $1,000 face amount, to 101 15/32. The yield on the two-year note advanced 3 basis points to 2.37 percent. Ten-year note yields were little changed at 3.78 percent.

The government's auction of five-year Treasury notes, the biggest sale of the maturity in more than five years, drew a yield of 3.129 percent, the lowest since March. The yield was higher than the 3.110 percent average forecast in a Bloomberg News survey of 10 bond-trading firms.

Weaker-Demand Signal

The bid-to-cover ratio, which gauges demand by comparing the number of bids with the amount of securities sold, fell to 2.14 from 2.46 at the last five-year auction, indicating weaker demand. Indirect bidders, a class of investors that includes foreign central banks, bought 29.8 percent of the amount sold, compared with an average of 25.2 percent this year.

The government sold a record $32 billion of two-year debt yesterday, drawing bids for 2.18 times the amount on offer.

``Today's results were weaker than the results of the two- year, which indicates some erosion in sentiment toward Treasuries between yesterday and today,'' said Tony Crescenzi, chief bond strategist at Miller Tabak & Co. in New York.

Futures contracts on the Chicago Board of Trade show a 32 percent chance the Fed will hold its 2 percent target rate for overnight lending between banks by at least a quarter-percentage point unchanged through the first quarter next year, down from 36 percent yesterday. Policy makers next meet Sept. 16.

`Grain of Salt'

Treasuries have returned 1.5 percent this month the largest one-month increase since January, according to Merrill Lynch & Co.'s U.S. Treasury Master Index. The gain came as the economy has shown signs of further softening and credit market turmoil. Yields on the 10-year note have fallen from a high of 4.17 percent reached on July 23, and are near a three-and-a-half month low.

The increase in yields today ``has to be taken with a grain of salt,'' said Francis Mustaro, who heads a group managing about $1 billion at J&W Seligman & Co. in New York. ``The trends are in place for stagnant growth and for improved inflation numbers.''

Mustaro said he expects lower yields and ``wouldn't be surprised'' if Treasuries declined 25 or 30 basis points in the coming months.

Gross domestic product increased at a revised annual rate of 3.3 percent in the second quarter, from an advance rate of 1.9 percent in the first quarter, the Commerce Department said today in Washington. The median forecast in a Bloomberg News survey of 78 economists was for a rise of 2.7 percent.

Initial jobless claims decreased to 425,000 in the week ended Aug. 23 from a revised 435,000 the prior week, the Labor Department said, matching the forecast in a Bloomberg survey.

German Bunds

The difference in yields between U.S. 10-year government notes and similar-maturity German bunds, a benchmark for European debt, was 39 basis points, after widening yesterday to 41, the most since Aug. 1. Bunds fell yesterday after European Central Bank policy makers Axel Weber and Lucas Papademos said rates may have to rise as the economy recovers.

Demand for U.S. Treasuries may be buoyed because money managers need bonds to match monthly changes in the benchmark indexes they use to gauge performance, said Tsutomu Komiya, an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan's second-largest brokerage.

New securities are added to bond market indexes each month. The Treasury issued 10- and 30-year debt in August.

``Demand from investors will increase'' as August comes to a close, said Komiya, who helps oversee the equivalent of $88.7 billion. Prices may decline in September, he said.

Agency Debt

Investors also may show a greater interest in Treasuries as they reduce their holdings of agency debt, notes sold by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The Bank of China sold $4.6 billion of agency or agency mortgage-backed debt in July and August, according to a note to clients written by Andrew Brenner, co-head of structured products and emerging markets at MF Global Ltd. in New York, which cited the bank. MF Global is the world's largest broker of exchange-traded futures and options contracts.

Fannie Mae Chief Executive Daniel Mudd replaced three top deputies to restore investor confidence after record losses and a 90 percent drop in the shares, the Washington-based company said in a statement yesterday.

To contact the reporter on this story: Dakin Campbell in New York at

Last Updated: August 28, 2008 14:22 EDT


Dan Henniger talks about the impact of Starbucks:

Inflation fears steer ECB away from rate cuts

Inflation fears steer ECB away from rate cuts

August 27 2008: Ralph Atkins writes in Frankfurt for The Financial Times:

European Central Bank policymakers signalled fresh alarm over the outlook for eurozone inflation on Wednesday even as German data indicated that headline inflation rates had fallen from record highs.

Comments by ECB governing council members suggested cuts in interest rates were far from being considered by the bank, despite the abrupt slowdown in eurozone growth.

Axel Weber, Germany’s Bundesbank president, warned that another increase in borrowing costs might be necessary when growth recovered.

Reflecting lower energy costs, Germany’s annual inflation rate dropped from 3.5 per cent in July to 3.3 per cent in August on a European harmonised basis, the country’s statistical office reported.

Economists forecast that eurozone figures, released on Friday, would show inflation across the 15-country region had also fallen, perhaps to 3.9 per cent or 3.8 per cent from the record 4 per cent in July.

But eurozone inflation still remains significantly higher than the ECB’s goal of an annual rate “below but close to” 2 per cent.

Lucas Papademos, ECB vice-president, warned in a speech in Buenos Aires that labour cost growth had accelerated and that inflation was likely to remain above the ECB’s target “for a considerable period of time before declining only gradually in the course of 2009”.

The ECB’s fear is that high inflation rates will become entrenched through “second-round effects” with slower growth having little dampening effect. The emergence of a wage-price spiral would “require a stronger degree of monetary tightening in order to achieve price stability”, Mr Papademos warned.

Earlier J├╝rgen Stark, an ECB executive board member, told a German newspaper that second-round effects had become “broad-based”. Heightening the ECB’s concerns, IG Metall, Germany’s powerful engineering trade union, has indicated it could demand a wage increase of up to 8 per cent in forthcoming wage negotiations.

The ECB policymakers’ comments reinforced expectations that ECB interest rates would remain on hold at least until well into next year.

Unlike the US Federal Reserve – which has slashed US borrowing costs in the past year – the ECB sees its job as focused on controlling inflation rather than riding to the rescue of economic growth.

Eurozone wages and prices are also slower to adjust then in other economies, strengthening the case for a more cautious stance by the ECB.

At the same time, the ECB is sticking to its forecast that eurozone growth could pick up this year. Gross domestic product contracted by 0.2 per cent in the second quarter and activity would remain “subdued” in coming months but “gradually recover in the fourth quarter of this year and in the course of 2009”, Mr Papademos said.

The ECB raised its main interest rate to 4.25 per cent in July largely to underscore its determination to counter second-round effects.

Mr Weber at Germany’s Bundesbank told Bloomberg that discussion about lower eurozone rates was “premature”. He went on: “If the economic outlook brightens somewhat again towards the end of the year and next year, which I still expect, we’ll have to see if action is necessary.”

The Bundesbank president expected that ECB forecasts for eurozone growth, to be released after its interest-rate setting meeting next week, would be revised downwards slightly while its inflation forecasts might be “slightly higher”.

Saturday, August 23, 2008

Maybe Bernanke Should Learn Portuguese

Brazil's central bank has raised its policy rate to 13%. Our Fed has the federal funds rate at 2% or two hundred and sixty basis points below inflation. So who is following a Third World monetary policy? The home of Embraer or Boeing?

Henrique Meirelles is the head of the Banco Central do Brasil and he understands his job description.

Antonio Regalado and Joanna Slater relate in today's Wall Street Journal, "During one of Brazil's many past bouts of high inflation, Henrique Meirelles recalls, he and his maid had a deal. On payday, she didn't have to work. That way, she could rush to the store and spend her entire month's salary before it became worthless.

"Mr. Meirelles is now head of Brazil's central bank, and the country's inflationary past is a big reason why he now ranks as one of the world's toughest inflation fighters. Even as the global economy slows, the Banco Central do Brasil has acted more aggressively than many of the world's central banks against inflation, raising short-term interest rates to 13%. The bank is expected to raise rates again in September."

The whole article is quite interesting. My favorite quote comes when Senhor Meirelles explains there is little "room for leniency. When there is disequilibrium between supply and demand, he says, it will be corrected in one of two ways: higher prices or higher rates.

"'The big advantage of using the interest rate is that you have someone in the driver's seat. When inflation is taking care of it,' he says, 'no one is driving.'"

A Global Approach Is Needed to Beat Inflation

Adam Posen is an astute observer of international economics and the Peterson Institute for International Economics. His colleague, Arvind Subramanian, is a Senior Fellow. Here they give some sage advice to the worlds central bankers in a commentary on The fed has set off a world wide inflation and I will take teamwork to defeat it.

A global approach is needed to beat inflation

By Adam Posen and Arvind Subramanian

The Financial Times: August 21 2008

The world’s top central bankers meeting in Jackson Hole this weekend should do more than bemoan their respective financial risks. They should hammer out a joint approach to reducing global inflation, centred on a common public commitment to tighter monetary policies. Moreover, with the European Central Bank and a few emerging market central banks (such as those of Brazil and India) having taken the lead, the spotlight should be on the US Federal Reserve and People’s Bank of China. They must participate in this effort, rather than try to free-ride – which would only delay and increase the cost of their own inevit­able tightening.

The view of many central bankers is that there are few if any gains from monetary policy co-ordination. This view profoundly misreads the present situation.

Thursday, August 14, 2008

Friday, August 08, 2008

Last Fall Ellie Berger Became President of Schoalstic Trade Publishing


Lisa Holton Leaves Scholastic to Launch New Media Venture

New York, NY (October 5, 2007) -- Scholastic, the global children’s publishing, education and media company, today announced that Ellie Berger has been promoted to President of Trade, succeeding Lisa Holton, who resigned her position as President, Trade and Book Fairs to launch a new media venture. Ms. Berger will report to Richard Robinson, Chairman, President and CEO of Scholastic, as will Alan Boyko, who will continue in his role as President, Book Fairs. For the next several months, Lisa will be available to the company in an advisory role.

“I am sorry to see Lisa leave Scholastic, but she has decided the time is right for her to launch her own new media venture,” said Richard Robinson. “At the same time, I know that both inside and outside the company there will be unanimous agreement that Ellie Berger is uniquely qualified to succeed Lisa and to lead our publishing program going forward.”

Mr. Robinson continued, “With more than 20 years experience at Scholastic, Ellie has a depth and breadth of knowledge about every facet of our book business. As Publisher, she has guided the strategic direction of the Trade program, working closely with the editorial staff to acquire, develop and market great books, series and franchises. She has helped to balance the Scholastic portfolio of titles in order to serve the rich diversity of our readers, and has worked closely with all Scholastic channels.

“Ellie is universally respected throughout the industry as the person at Scholastic who makes things happen -- from sales and marketing to publishing, acquisitions and operations. Within Scholastic, Ellie has worked directly with colleagues in every division of the company, earning their deep admiration and trust. I am confident that Ellie will lead us to a strong expansion of our trade publishing program.”

Ellie Berger joined Scholastic in 1985 as Managing Editor and has since held numerous positions at the company. Among her many accomplishments, Ms. Berger has been instrumental in negotiating strategic relationships to publish books based on popular properties and expanding the licensed publishing business. She has also been responsible for directing the Klutz® and The Chicken House companies. Since 1998, she has been involved in guiding the complex production and manufacturing operations around the publication of every one of the Harry Potter books including the seventh and final book in the series that broke all publishing sales records when it launched July 21, 2007.

Mr. Robinson added his praise for Ms. Holton’s leadership during the launch of Harry Potter and the Deathly Hallows. “As recently reported in Scholastic’s first quarter earnings, the release of the seventh Harry Potter book was enormously successful. Lisa’s leadership of the entire Harry Potter team, along with the marketing and distribution strategies that she and the team executed, were instrumental in helping us achieve unprecedented revenue and profit. During her tenure at Scholastic, Lisa contributed significantly to the forward movement of the company and helped position us for our next period of growth. I am grateful for her contributions.”

Since joining Scholastic in May 2005, Ms. Holton has brought in key talent across a number of departments within the Trade division. She worked closely with the Book Fairs group to diversify and deepen the management team as well as extend and expand online marketing activities. She oversaw the acquisition and development of a number of major new series, including Goosebumps Horrorland, which will marry a new line of books with Internet content also written by R.L. Stine, and Allie Finkle’s Rules for Girls, Meg Cabot’s first series for middle grade girls.

Known for her marketing acumen, Ms. Holton also oversaw the shift to campaigns that combine grassroots outreach with Internet marketing, including the Captain Underpants Purple Potty Bus Tour and The Seven Questions campaign leading up to the release of Harry Potter and the Deathly Hallows.

Lisa Holton commented, “I have had a great time at Scholastic and am proud of the many things we’ve achieved. It has been a once-in-a-lifetime experience. I am incredibly excited about exploring the intersection of print and online and look forward to publishing in this new media frontier.”

Scholastic Corporation (NASDAQ: SCHL) is the world's largest publisher and distributor of children's books and a leader in educational technology. Scholastic creates quality educational and entertaining materials and products for use in school and at home, including children's books, magazines, technology-based products, teacher materials, television programming, film, videos and toys. The Company distributes its products and services through a variety of channels, including proprietary school-based book clubs, school-based book fairs, and school-based and direct-to-home continuity programs; retail stores, schools, libraries and television networks; and the Company's Internet site,

Kyle Good

Thursday, August 07, 2008

Ken Rosen On Fannie Mae and Freddie Mac

Ken Rosen is one of the most astute observers of the housing sector. He heads a real estate hedge fund and is the Chairman of Rosen Consulting Group. He taught at the Haas School (Berkley) for many years.

Here he assesses the situation at Fannie Mae and Freddie Mac:

Fannie Mae and Freddie Mac: Look past the jargon, and you'll find a $5 trillion scandal

My recent Perspective column in the Wichita Eagle.

Tuesday, August 05, 2008

Greenspan Is Fighting the Last (But Two) War

The United States in in the third of three nineteenth century type trade cycles. Yet our policy makers are still using a very different model of the cycle to guide their way through policy choices. Cyclical rules of thumb are dominated by the first eight post-World War II recessions. These were predominately short inventory cycles.

This puts policymakers in a position very much like the general fighting the last war who makes decisions that were winning one then but disastrous in the current war. The Spanish Armada was the best and most powerful naval force of its time. But it operated under the same model of naval warfare that prevailed at Lepanto, the great Christian victory over the Turks in 1571. At Lepanto, the fleets fought each other as collections of floating castles. The tactics consisted of ramming ships and soldiers fighting soldiers through boarding. Unfortunately for the flower of Spanish chivalry, the British demonstrated the superiority of an entirely new way of fighting naval warfare based on gunnery and maneuverability. Of the forty eight thousand soldiers and sailors who left Spain, barely fifteen hundred returned and the sun set on the greatest empire ever built.

When it comes to economic policy, few generals are as respected as Alan Greenspan. CNBC reported "Greenspan said on Thursday (7/31) that a slowing global economy may push the United States into recession, though it is not yet in one." [He is at least six, if not twelve, months off on that one.]

Greenspan said in an interview on CNBC television: "I think the data at this stage in the United States are not ... suggesting recession," but added, "We're right on the brink and I would be more surprised if we didn't (have a recession) than if we did, given the financial state."

What data was Greenspan looking at? Inventories: "Greenspan said companies were controlling inventories effectively and that 'at this stage, I think they are the major reason why in the very short term we're fending off inflationary pressures.'"

Friday, August 01, 2008

July Employment: The National Recession Is Still Bypassing Wichita

The Bureau of Labor Statistics issued its July Employment report and it gave cold comfort to those who deny we are in a national economic recession. The July unemployment rate rose to 5.7% from a June rate of 5.5%. In contrast, Wichita's unemployment rate was 4.3% in June.

Payrolls fell by 51,000 jobs. Wichita's export base is still doing well. The Labor Bureau does not break out the aircraft industry in its report, but by my analysis of their data jobs grew in the industry by about 1.3% over last year. In contrast many local companies serving other markets have experienced weak demand over the last year.

One measure of how the economy is doing is the ratio of jobs to the American population. Although it is a little noisy from month to month, it portrays the fundamental trends (see the chart.) In this recession the employment ratio has fallen by 107 basis points (1.07 percentage points.) That is mild in comparison with prior recessions: either we have a lot more pain ahead or we are in a very mild recession.