Wednesday, December 28, 2011

WSJ Video: Google, KKR Set California Solar Deal

Wall Street Journal reporters discuss Google Inc. and KKR & Co. Inc. investing jointly in a California solar-power project (12/20/2011):

Sunday, November 20, 2011

Nov 13 2011: Boeing Hits it Big at the Dubai Air Show.

Andrew Parker reports from the Dubai airshow that Boeing has won its largest order (estimated at $26bn) in its 95 year history. (The video runs two  minutes and 20 seconds.) Emirates Airlines bordered 50 B777s.  This came on top of a big order on Monday.

From the show, Parker also analyses the ascent of Emirates, Qatar Airways and Etihad amid allegations of state subsidies.  (This video runs four  minutes and 17 seconds.)

Entrepreneurs Come in Many Shapes, Especially in the Emerging Economies.

In the U.S., eighty percent of job growth comes from small and medium sized businesses.  Forty years ago, when Antoine van Agtmael coined the phrase "emerging markets," there was plenty of reason to doubt their emergence.  But a combination of a revolution in ideas and the emergence of Schumpeter's prime mover of capitalism, the entrepreneur, has made the phrase more than a bit of public relations glitz.

The revolution came when intellectuals championed the market rather than the state as the engine of growth.  This led to financial and economic globalization.

Entrepreneurs come in many shapes, especially in the emerging economies.  Here are a few examples through the medium of Wall Street Journal videos:

Can you make money marketing to customers who live in the barrio?

Peru's new middle class give a whole new meaning to the phrase "living in the suburbs."  The neighborhoods surrounding most Latin American cities are shanty towns where families crowd into shacks made of tin, cardboard, and whatever else might be recycled from the society's discards.  Seeing the barrios around Lima with Guillermo Descalzi in 1967 set the course of my professional career.  Had I any doubt that economic development would be what I studied, it disappeared then and there.

The Flores family own a firm called Topitop.  It has become Peru's largest apparel maker with sales of about $200 million by focusing on the region's emerging middle class.  Topitop aspires to be another Zara (2010 worldwide sales of €2.5 billion.)  The Flores family grew up in the poverty of Huancavelica in the Andes.  Learn how the two brothers worked their way from street venders in WSJ's Matt Moffett's report:


One Man Movie Production Company

And then, on the South American pampas, there is Daniel Burmeister, one of the world's most prolific directors. The WSJ's Matt Moffett reports from Coronel Suarez.


India's Struggling Entrepreneurs

The government of Monmohan Singh has done little lately to make it easier to start and grow a business in India.  The Economist comments, "In the face of slowing growth, high inflation and awful corruption, the government is looking increasingly fossilised. No notable legislation has passed since the general election in 2009. Next year Mr Singh turns 80. He needs bright new talents to rediscover his sense of purpose."  WSJ's Amol Sharma' report from Mysore shows how difficult it is for a start-up.  Four years ago, Vishwaprashad Alva quit a high-paying job with GE's healthcare division in India to start his own company, Skanray Technologies. But getting the company off the ground has been a brutal process:


Brooklyn Entrepreneurs Go to Madagascar for Cocoa

Madecasse, the Brooklyn-based gourmet food company, is going to great lengths to find sources of premium cocoa. WSJ's Peter Wonacott reports from Madagascar:


Thursday, November 17, 2011

The Birth of Arbitrage

Arbitrage is the simultaneous buying and selling of an asset in two separate markets to exploit a price difference.

The Benchmarks Aren't Speaking to Each Other!

For many years, Brent crude oil sold a a very similar price to West Texas Intermediate crude oil.  The former is the benchmark price for oil in Europe; the latter for the U.S.  In the early years of the Brent field (between Great Britain and Norway in the North Sea), Brent sold at a discount to WTI.  Thereafter they sold at parity.  In the last year, Brent has opened a big premium up over WTI, averaging $27 for one recent month.  What happened to arbitrage and the Law of One Price?  A glut of oil in cushing, OK where the market for  WTI is and a shortage in Europe.

That is about to change.

Chip Cummins reports in the Wall Street Journal that Entbridge of Canada is buying the recalcitrant half of Seaway pipeline and will reverse its flow south.   Let the arbitrage begin!

For Kansas:

This means lower margins for Kansas refiners, higher income for Kansas oil producers, and probably higher local gasoline prices.

WSJ's Liam Denning and Mean Street host Evan Newmark discuss WTI's price spike back over the $100 per barrel mark on news of a Canadian company's investment in a gulf coast-to-Oklahoma pipeline.

The Birth of a New Acronym

I know of an agency in Washington that thought its status diminished by having a FLA, so it used a TLA instead. ("What's that?" you ask. An FLA is a four letter acronym, while a TLA is a three letter acronym.)

Well the would is "enriched" by a new acronym: "Sifi." Apparently one does not have to do it in all caps. (We really do need some regulation!) I read in the Financial Times, "Bank of China talks up its Sifi status."I was quite baffled. "Sifi?" I asked. The FT explained the acronym as “systemically important financial institutions.” (I caught it on the second reading.)

Monday, October 31, 2011

Nabors CEO Eugene Isenberg's $100 Million Severance-Type Paymen

MarketWatch asks "Is Shareholder Capitalism Working?"  MarketWatch columnist David Weidner and Mean Street host Evan Newmark discuss Nabors CEO Eugene Isenberg's $100 million severance-type payment and discuss whether shareholder capitalism is still working. video 10/31/2011

Thursday, October 27, 2011

Act II of the Olympus Drama

From the Wall Street Journal, Olympus defends its deals, but the Chairman resigns and the Euro Zone Looks to Asia for bail out money. 

In this Asia Today video, we find that Japanese camera maker, Olympus, stands by four controversial acquisitions even as Chairman Tsuyoshi Kikukawa resigns.  The Journal's Isabella Steger and Mariko Sanchanta also discuss how the euro-zone leaders now look to Asia for money (we want your money but not your ethics):

4 minutes and 51 seconds, 10/27/2011

Act I

The first act of this drama was enacted a week ago when Olympus fired its CEO, Michael Woodford, who, in turn,  alerted the UK authorities of his findings about payments made by the Japanese camera maker in connection with the acquisitions. Mr. Woodford had hired an outside auditor to do a forensic investigation. In this October 18th interview, Mr. Woodford tells the FT's Louise Lucas why he has taken his concerns about the deal-making at his previous employer to the UK Serious Fraud Office.  Click through to view the FT video which is just over 10 minutes.

Saturday, October 22, 2011

Tom Hoenig Nominated to Be the Vice Chair of the FDIC


I do not know to what party Dr. Thomas Hoenig belongs, but he has been great on the FOMC (the Federal Open Market Committee that determines monetary policy.)  President Obama has nominated him to be the number two official at the Federal Deposit Insurance Corporation (FDIC) which guarantees bank deposits.  The FDIC also is one of the agencies that examines banks for soundness.

Tom Hoenig has been a staunch critic of the "Too Big to Fail" syndrome in American bank supervision.  He has been seemingly a Cassandra warning of the bubble in farmland prices.  Hopefully his arms will not be chained when he raises them to prays for policies to address the problem. 

On the FOMC, Hoenig has voted for raising rates.  Knowing that we are creating new bubbles rather than stimulating new investment in real projects creating real jobs, he has dissented from the prevailing majority.  What business owner in its right mind would invest in a risky business project when there is free money to lever up holdings of financial assets made risk free by the Bernanke put?  Why subsidize investment banking bonuses? And he has not kept quiet.  As Michelle Lucci pointed out over a year ago, "Kansas City Federal Reserve Bank President Thomas Hoenig has been recently speaking publicly about his desire for an increase in the federal funds rate, sooner rather than later, and also about his concern for community banks and the drag on earnings from commercial real estate loans."

Scott Canon at the Kansas City Star warns "Hoenig is ... a provocative selection to join [the FDIC's] board of directors."  Three cheers for President Obama on this one.  Even Ron Paul should be cheering. He would be available should a President Cain need a Fed Chairman.

Monday, October 10, 2011

Thomas J. Sargent and Christopher A. Sims Win the Nobel Prize for Economics

Rational Expectations and the Ability to Distinguish Cause and Effect Empirically

Macroeconomics has long been the theology of economics.  Sargent and Sims tried to take the common sense reality that it is what people expect in the future, not what we currently observe, that drives their decisions.  They developed a type of econometrics (the statistical modeling of economic reality) that would deal with expectations.  In the process they transformed macroeconomics, generally for the better.  This morning the Nobel Prize committee announced they won the Nobel Prize in Economics.

Today central bank credibility is central to economists' thinking about monetary policy.  Guess why.

One drawback of their revolution is that empirical and theoretical models became farther removed from what we can picture in our imagination.  The great oversimplification of the financial sector that Keynes introduced and Hicks the Younger systematized became more imbedded in economists mindset.  We need a revitalization of economists' imaginations to refertilize their mental pictures of the world.

Risks and opportunities for Brazil

Brazil's central Bank has cut interest rates from high levels.   Two weeks before Brazil's next interest rate decision it remains unclear whether the central bank will cut rates again.  In this FT video from October 7 2011, Zeina Latif, Latin America chief economist with RBS in São Paulo, explains to Jonathan Wheatley, deputy emerging markets editor, why although the crisis in Europe looks like an opportunity to cut rates there are multiple risks involved. (5m 24sec)

Friday, October 07, 2011

The September Jobs Report

The employment report that the Bureau of Labor Statistics (BLS) issues on the first Friday of each new month is among the most closely followed of all government statistical issues.  This morning's report showed payroll jobs were up by 103,000 sending bond markets down some more.  The Dow and European equities rose in response although the S&P 500 did not. 

The unemployment rate--9.08% in September-- has been little changed over the last five months.  Overall the BLS survey of households shows a million more Americans working than in August, 2010, an increase in the workforce of 400 thousand and a 2.2 million population increase.  The BLS survey of firms show an increase of 1.4 million jobs.

Last month's report painted a bleaker picture than revised data show.  Luca di Leo and Jeffrey Sparshott report on "Payrolls data for the previous two months were revised up by a total 99,000 to show 57,000 jobs were added in August and 127,000 jobs in July."

Good news for Wichita: aerospace employment is up yet another month.

Thursday, October 06, 2011

Bullish Baltic Dry?
September 28 2011: The Baltic Dry index, a measure of the use of the largest ships, has climbed sharply of late while all else is bearish.   In this video, FT investment editor, James Mackintosh,  analyses what this apparently bullish signal tells us about the outlook for the world economy. (3m 29sec)

Revalue or else?
October 5 2011: Back in 1971 Richard Nixon risked a trade war to force the rest of the world to devalue the dollar. The US Senate is considering a similar move to force China to revalue the renminbi. Here James Mackintosh, analyses why the world needs the Chinese currency to appreciate much further. (3m 59sec)

Monday, August 29, 2011

In October, 2010, Ed clarks talks About His Success in Building a Great American Banking Franchise

Why does going after deposits and loans; giving great customer service; and expanding where the opportunity arises sound like this bank is marching to a different drummer?

Toronto Dominion had about 1,000 branches in the U.S. early in the financial crisis and now has 13,000. Dull grey flannel banking earns Ed Clark the Canada’s Outstanding CEO of the Year award!

Oct. 26 (Bloomberg) -- Edmund Clark, chief executive officer of Toronto-Dominion Bank, talks with Bloomberg’s Melissa Long about the outlook for his company. Clark, speaking from the Economist magazine's Buttonwood Gathering in New York, also discusses the prospects for the U.S. economy. (Source: Bloomberg)

Ed Clark on TD

Bloomberg Interviews Toronto-Dominion's Ed Clark

June 3 (Bloomberg) -- Edmund Clark, chief executive officer of Toronto-Dominion Bank, talks about the bank's performance and lending in Canada, its U.S. growth and retail bank customer service. Toronto-Dominion Bank is Canada’s second-largest bank. Clark speaks with Lisa Murphy on Bloomberg Television's "Fast Forward." (Source: Bloomberg)

Sunday, August 28, 2011

Twenty Years of a Convertible Ruble.

For approximately 500 years the Russia has used the ruble as its currency. Since the Soviet Union's fall in 1991, the country has undergone some drastic changes, including the ruble. After the fall the Russians focused on the challenge of converting their centrally planned economy to that of a market based economy with an emphasis with global integration. In 1991, the USA and the IMF recommended the economy undergo a radical “shock therapy” approach to market oriented reform. Rather than kick starting the Russian economy it led to collapse. Millions fell into poverty and corruption and crime grew rampant.

Hyperinflation resulted from the removal of the Soviet price controls. There were monumental difficulties in actually implementing the fiscal reforms. The govenment depended heavily on short-term borrowing to finance its budget deficits from 1991 until the 1998 financial crisis. These financial problems were exacerbated by low prices for Russia’s major exports a lack of investor confidence. The led to a falling ruble, a weakened banking system, and the constant threat of runaway inflation.

Despite these ongoing economic difficulties Russia and its ruble continued to struggle forward, claiming small victories along the way. In 2000, Russia successfully upheld its external debt obligations in addition to making a large advance payment of principal to loans from the IMF and building up its own Central Bank reserves. In 2002 the Russian government successfully assumed its payment of roughly $14 billion in official debt payments coming due. It was able to accomplish these feats through a sound government budget, improving trade, and substantial current account surpluses.

The current account surpluses caused the ruble to appreciate rapidly in value. However given its role in Russia’s exports, the country and the economy depend heavily on the price of energy. The 2001 U.S. recession and the global slowdown after the high tech burst caused energy prices to fall. In 2002 the G8 nations cancelled $20 Billion of the old Soviet Union’s debt. They hoped this would induce Russia to use these savings to safeguard Russia's nuclear and other dangerous materials from terrorists.

In 2004 the Stabilization fund of the Russian Federation was established and integrated into the federal budget as a safety net against falling oil prices. This was aimed at keeping the ruble stable through turbulent times in the energy sector.
The battle for economic stability lasted for more than half a decade. However, in 2007, Russia achieved one of its goals when the IMF certified the Russian economy had achieved macroeconomic stability.

In 2009 Russia’s GDP grew at its fastest since the fall of the Soviet Union. This meant that Russia and its ruble had officially overcome the consequences of the 1990 recession and economic collapse. Throughout all of this the ruble has been under the strains of inflation, although unemployment was cut nearly in half from 2000 to 2007.

In 2011 the upheaval in the Middle East has provided Russia with higher prices and increased demand for its energy exports as it helps to fill the gap left from reduced production in the Middle East. This will hopefully bring welcomed news for the Russian economy and its ruble.

The ruble has improved much more than Russian politicians and laws so that investors having greater faith in the currency than the integrity of its government.

-Stephanie Giberson

Thursday, August 25, 2011

Steve Jobs Resigns

Steve Jobs Through the Years 8/24/2011 7:54:17 PM

Steve Jobs has spent his career challenging conventions about personal computing. He's transformed an industry and changed the way we think about technology. A look back at the accomplishments of an American business icon.

Mossberg: Steve Jobs, a Historical Figure 8/24/2011 8:02:51 PM

Steve Jobs is "one of the two or three leading historical figures of the tech revolution," says WSJ personal technology columnist Walt Mossberg.

Julia Angwin on Steve Jobs's Charisma 8/24/2011 8:24:12 PM

Senior technology editor Julia Angwin discusses Steve Jobs's charisma and the intimidation factor when interviewing the Apple CEO. (Photo: AP Photo.)

Sunday, August 07, 2011

Is that a Tear Rolling Down Alexander Hamilton's Cheek?

Alexander Hamilton was a pesky immigrant who saw Great Britain's creditworthiness and thus ability to borrow as important to its standing as a superpower as was the British navy.  As the republic's first Secretary of the Treasury, he set the U.S. on course to creating the dollar as the world currency built on the credit worthiness of U.S. treasury bonds.

Pity Mr. Geithner who fate it is to have Hamilton's job when we suffer the indignity of a credit downgrade.  Standard and Poor's announced after markets closed Friday that America's bonds have fallen from AAA to AA.

The announcement brought quick reactions.

Guess who said the following?

"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone...
A little self-discipline would not be too uncomfortable for the United States, the world's largest economy and issuer of international reserve currency, to bear.

"For centuries, it was the exuberant energy and innovation that has sustained America's role in the world and maintained investors' confidence in dollar assets. But now, mounting debts and ridiculous political wrestling in Washington have damaged America's image abroad...
All Americans, both beltway politicians and those on Main Street, have to do some serious soul-searching to bring their country back from a potential financial abyss."

(A) A big bond investor
(B) A foreign upstart
(C) A news service
(D) All of the above
(E) None of the above

The correct answer is (D).  Saturday, in the wake of the downgrade,  Xinhua, China's official news service editorialized the words you just read.  The signed editorial was attributed to Yamei Wang.  It is embarrassing to be lectured by China especially when China is calling a spade a spade.

Wednesday, July 13, 2011

Competing with Home Brew? Anything for Market Share!

The Financial Times reports that "The booze market in Uganda, brewing beer since the 1950s, is growing fast."  In this three minute and 52 second video, Katrina Manson reports on South African SABMiller’s strategy to brew its cheapest bottled beer from crops grown by local farmers and compete with home brew. Katrina Manson is the Financial Times' east Africa correspondent. She tells us about "South African SABMiller’s strategy to brew its cheapest bottled beer from crops grown by local farmers and compete with home brew."

Monday, July 11, 2011

U.S. Energy Production on the Rise

7/6/2011: Markets Hub interviews WSJ's Heard on the Street columnist, Liam Denning that energy production in America is on the rise, which is positively affecting the U.S. chemical industry. Natural gas is the good news:

Friday, July 08, 2011

A Dismal Employment Report, But Hope for Wichita

Unemployment Rate Up, Job Growth Nil

The Bureau of Labor Statistics issued its monthly labor report this morning.  The unemployment rate was 9.18%.  It is up for three straight months now.  The establishment survey showed only 18,000 new jobs, a number so small, it is noise.  No sensible statistician would reject the hypothesis that June's job growth was zero. May's strong job growth was even revised downward. 

The Long Slow Slide

Reviewing the data for the last year is even more depressing.  Although the establishment survey shows a growth of over a million jobs since June, 2010, the household survey shows only about a quarter million more working now than then.  That is a big discrepancy and bodes ill for the next big establishment data revision.  More depressing still is the trend in the ratios of jobs to the population.  This statistic is immune from oddities in Washington's population estimates.  The proportion of the population working appeared to have bottomed out in January, 2010 at 58.23, but now hit a new low in June, 2011 at 58.18%.  

The unemployment rate peaked at 10.15% in October 2009.  The bulk of the improvement since then came from a fall in the number looking for work (i.e., a fall in the labor participation rate.)  The economic distortions caused by the credit boom of the middle of the last decade continue to drag on growth.   Housing starts have averaged a little over a half million for more than two and a half years.  Unemployment in construction is at 15.6% despite a slowly shrinking labor force.  Conventional economic stimulus is poorly equipped to cure such distortions.

But Is Aerospace Up!

Amid all this gloom, there is good news for Wichita.  Manufacturing employment is up nationally.  Moreover manufacturing jobs are up about a percent and a half over a year ago.  

Digging under the published numbers in the BLS report, it appears aerospace employment is up by a thousand jobs in June.  This comes after a great Paris air show for commercial aviation.  Over $90 billion in orders were placed for new planes.  This is good news for Spirit.  Even general aviation is showing glimmers of life.

Sunday, June 19, 2011

The Government Shuts Down Wind Mills and Shell Takes a FL*NG at Sea

The Wind May Blow, But the Power Does Not Flow

Pipelines and/or transmission are the choke point of energy policy. Getting energy from there to here is a big problem. Wind energy is useless if there is no transmission to get it to market. This summer, the Bonneville Power Authority is periodically disconnecting wind power from its grid. (See "Tilting at Windmills" in the Economist.)  Why?  There is so much excess melt water that the Authority is giving away hydro power for free and even paying utilities the cost of getting that power from there to them.  Unfortunately there is not enough transmission to fully share the Pacific Northwest's bounty with the rest of America.  Hence the idle windmills.    Ludwig von Mises's ghost must be experiencing schadenfreude as it mutters "another triumph for socialist planning!"

Getting Natural Gas from There to Here

Natural Gas coming out of the ground does little good unless it can be captured and transported to markets. So what do you do if you find natural gas way out at sea? Your project is in deep water economically and financially (pun intended) and will thus be dead in the water because you can not get the gas to market.  (Sorry.)

John R. Hays, Jr. is fond of reminding me how high tech the oil and gas industry is.  Shell now gives us more evidence of just high tech it is.  Six hundred engineers from around the world have worked on the world's first floating liquefied natural gas facility (FLNG).  Watch the video below to learn about the development phase of the Prelude FLNG Project to define, design and evaluate plans for the facility.  They built a scale model of the FLNG facility and tested it in tanks in artificial marine conditions to see if it would withstand wind and high waves.  The plan is to capture gas from a field far off of Broome, Western Australia, liquify it at sea, and ship the liquified natural gas (LNG) to markets.

Thursday, June 16, 2011

FT interview with Carmen Reinhart, co-author of This Time is Different, about the crisis in Greece

This Time Is Different:
Eight Centuries of Financial Folly
Carmen M. Reinhart & Kenneth S. Rogoff

Joseph Count de Maistre once wrote of "history, which is empirical politics."  I find it makes for good empirical economics and finance as well.  Carmen Reinhart and Kenneth Rogoff have written a history of eight hundred years of financial crises.  I am remined of the Pete Seeger song, "Where Have All the Flowers Gone?"  The refrain is:

"When will they ever learn? When will they ever learn?"

On May 5, 2010, Aline van Duyn, the Financial Times' U.S. Markets editor, interviewed Carmen Reinhart, co-author of This Time is Different In this first video, they talk about the history of financial crises and their patterns (4m 41sec).

Then the hangover

What happens after a crisis has happened?  In this second video, they talk about the aftermath of financial crises  (4m 55sec)  To my simple-minded ears, the consequences of financial crises sound awfully much like Austrian unemployment rather than Keynesian unemployment.  How heretical!

I Owe, I Owe, It's Off the Cliff We Go!

In this next video, the discussion turns to the role of debt and monetary policy. (3m 13sec) Maybe the economy hasn't read the textbooks?

Was it a Greek who said there was nothing new under the sun?

And then, in this last video, they turn to the crisis in Greece, and the possibility for contagion and restructuring .(4m 11sec) Note this was done over a year ago.

Friday, May 27, 2011

Did the Fiscal Stimulus Cause a Net Loss of Jobs?

Ohio State University economists Tim Conley and Bill Dupor have done a study of the impact of the fiscal stimulus embodied in "The American Recovery and Reinvestment Act." They concluded that the Act created or saved 450,000 state and local government jobs but destroyed or forestalled a million private sector jobs. Investors' Business Daily editorialized "That's a net loss of half a million jobs."

The working paper, "The American Recovery and Reinvestment Act: Public Sector Jobs Saved, Private Sector Jobs Forestalled",  bases its statistics analysis on a cross-sectional analysis by the state and a program.

Tuesday, May 24, 2011

Scott Davis, UPS, and the Economy

May 21 2011 Scott Davis, the chief executive of United Parcel Service, tells the FT’s Gillian Tett that US growth numbers are disappointing. Mr Davis points to exports as a bright spot but says that there needs to be more forward movement on bilateral free trade agreements.

Click through this link to see the UPS Chief talk to the Financial Times it takes 8m 36sec:

Monday, May 23, 2011

No Wonder We Have a Trade Deficit: Did You Know You Need Permission to Export Natural Gas?

As the U.S. Balance of Payments Drives Us Deeper Into the Hole

The U.S. is running a current account deficit of almost a half trillion dollars (c. $450 billion.)  China has accumulated some $2 trillion of dollar denominated foreign exchange reserves in its $3+ trillion hoard.  The U.S. Treasury is in hock to China for over $1.1 trillion.  Our energy trade deficit was approximately $850 billion in 2010.  That means that other than energy, our current account had a surplus of some $400 billion.

Getting our international accounts into surplus and preserving the reserve currency status of the dollar should be a priority.  The President has called for doubling our exports in five years.  It is not clear what might make that happen, but exporting something the U.S. has in surplus should be good news.  Or so you would think.

Cutting Into Our Energy Deficit Should Be a Good Place to Start

Gregory Meyer writes in the Financial Times, "The US approved the first exports of large quantities of natural gas through the Gulf of Mexico," specifically, the Department of Energy granted a license for Houston's Cheniere  Energy to "refit a gas import terminal to condense and ship up to 2.2bn cubic feet a day" of liquified natural gas (LNG.)  According to the DOE, "In August 2010, [Cheniere's] Sabine Pass Liquefaction, LLC filed a two-part application requesting authority to export up to 803 billion cubic feet per year of domestically produced natural gas as LNG for a period of 20 years. On September 10, 2010, the Department approved these exports to 15 countries with which the U.S. already has a Free Trade Agreement covering natural gas. Today the Department is extending this authorization to include all other countries except those that lack the ability to receive imports or those with which trade is prohibited by U.S. law or policy."

Please note: Cheniere had to ask permission to help right our balance of payments! 

Apparently we have rules that prohibit exporting natural gas.  Getting a "Get Out of Jail Free" card also allows others to lobby against the license.  In this case a group called the Industrial Energy Consumers of America lobbied against Cheniere.  No wonder the dollar is on the ropes!

Are these rules some fossilized leftovers from the 1970s?  ("A sober economic historian would judge the years 1973 to 1982 as the worst decade in the last sixty years." See also "When Will They Ever Learn?") In that horrible decade, we had widespread natural gas shortages caused by government price controls.  A tangled web of administrative rules, laws, and policies tried to contain the damage done by price controls.

Some background:

Pioneers like Michell Energy developed some tricky technology that has allowed Americans to tap huge new reserves of natural gas.  These reserves are trapped in deep shale formations that require very unconventional drilling techniques to capture the gas.  These reserves ("shale gas" for short) have been the focus of a drilling boom in the U.S. and have created an enormous glut of natural gas.

This is the one great "good news" news story in recent years for the U.S. economy. Natural gas prices are fluctuating near $4 per mmBtu. Henry Hub Natural Gas settled at $4.32 today.  This is close to a third of its 2008 peak.  By way of comparison, the energy equivalent price of oil would be about $16 per mmBtu.  This means Americans are getting a great bargain.

Internationally, prices are much higher.  Britons pay over twice our price for natural gas and in Asia the price is more like four times as much.  In much of the world, natural gas contracts are tied to the price of oil.  Why are these price differences not arbitraged away?  It is not easy to get natural gas from one place to another.  The U.S. has facilities for re-gasifying imported liquified natural gas (LNG).  These facilities were built in the 1970s: remember those artificial shortages?  Our facilities are limited for liquifying natural gas for export.  Hence this project and similar ones.  How many are going to rush to invest in such facilities if they will wait for eight months may to be told, "No you can't!"

Sunday, May 22, 2011

Good Bye Reserve Currency?

It was a bit of a shock to read James Politi writing in the Financial Times that the, "World Bank sees end to dollar’s hegemony."  The shock was not that the dollar will lose its status as the sole reserve currency in the long run, but that the source of the forecast was the World Bank.  The lead author of the report of the World Bank report was Mansoor Dailam.  He sees a "multi-currency system" with the euro, the renminbi, and the dollar playing roles.  Dr. Dailam argued the "shift will be driven by the increasing power and strength of emerging market economies, with six countries – Brazil, China, India, Indonesia, Russia and South Korea – accounting for more than half of global growth in 14 years."  From now to 2025, the World Bank pegs emerging economies as growing 4.7% and the developed economies barely hitting a 2.3% growth rate.

The FT quotes the report as saying, “The current predominance of the US dollar would end sometime before 2025 and would be replaced by a monetary system in which the dollar, the euro and the renminbi would each serve as full-fledged international currencies.

Thursday, April 14, 2011

Our favorite hawk, Federal Reserve Bank of Kansas City President Thomas Hoenig, spoke with Bloomberg in London.   On Bloomberg Television's "The Pulse," Maryam Nemazee asks Hoenig about the Fed's quantitative easing strategy, recent revelations on the Fed's lending during the financial crisis, the U.S. job market and banking regulations. 

Friday, April 01, 2011

Employment Was Up in March

The Bureau of Labor Statistics (BLS) reported jobs on U.S. payrolls were up 214,000 in March and the unemployment rate fell to 8.8 percent. Particularly encouraging was a 17,000 increase in manufacturing jobs.

And What About the Aircraft Industry?

The BLS did not publish data for the aerospace industry, but it did report that jobs in transportation equipment were up 6,100. If we exclude motor vehicles and part, the rest of the sector (mostly aerospace) was up 2,900 jobs. That is good news for Wichita.

Tuesday, March 29, 2011

Wichita's Unemployment Rate Falls Compared to Last Year

The Kansas Department of Labor gave us new evidence that Wichita is continuing on its slow road to economic recovery.  Dan Voohris reported in the Eagle, "The unemployment rate in the Wichita area fell in February to 8.4 percent from 8.7 percent in January, according to the Kansas Department of Labor.
It was also below the rate of 8.9 percent in February 2010."   It is prudent to compare the new data for February with February a year ago since the data have a strong seasonal swing.

Voohris quoted Friends University finance professor and Mammon Among Friends blogger, Malcolm Harris, as saying, "'We're seeing a trend, and that trend is in the right direction'...But, he cautioned, 'we've got a long way to go.'"

This theme was taken up by the Associated Press.  Referring to Wichita, the wire service reported: "The falling unemployment rate in Wichita shows an improving jobs trend in this aviation manufacturing hub that was hard hit by the economic downturn."

Dan Voorhis found evidence that the demand for temporary workers has been strenghthening which is often a harbinger of increased demand for permanent workers.  From the Arnold Group's Phillip Hayes, Voohris learned that in February hours worked by temporary workers were up 85 compared with a year ago. "Demand started to increase in April and continues to do so." He learned from Hayes that "The conversion of those temporary workers to full time, though, is just beginning."  Naturally enough, "Employers are reluctant to convert temps to regular employees in case demand drops."  

Particularly encouraging is that Hayes "is seeing the strongest demand for manufacturing workers."  Is that a further sign that the aircraft industry is reviving or might this be a sign that other sectors are taking the lead?  The data are not telling. Boeing and Airbus have both increased their production rates for their single aisle mainstays.  Nationally aerospace employment has gone up more often then not these last eight months. While that may be a straw in the wind and the wind seems to be blowing in the right direction, but it is a pretty wimpy breeze by Kansas standards.

Tuesday, March 22, 2011

China, Monetary Policy, and the U.S.

The U.S., still the monetary linchpin of the global economy, is fighting its unemployment with monetary and fiscal stimulus rather than addressing the dislocations created by the housing bubble.   This repeat of its policy mistakes in the wake of the high tech bubble is destabilizing the world economy.  The emerging world has led global economic growth over the past decade with China, Brazil, and India the main powerhouses.   Super loose monetary policy in Europe, Britain, and especially the U.S. has flooded them with foreign exchange reserves which have threatened to over inflate their economies.

The People's Bank of China's Governor, Zhou Xiaochuan (on the left in Bloomberg photographer Tomohiro Ohsumi's picture) sees fighting asset bubbles as well as inflation in his job description.   The central bank has raised its reserve requirements for the third time this year, according to the Aaron Back and Tom Orlik in the Wall Street Journal: "China's central bank said Friday it will raise the share of deposits banks must hold in reserve by half a percentage point, the third increase this year, as inflationary pressures remain in the spotlight."  At the time of the Bank's November reserve requirement increase, Bloomberg News reported, "China ordered banks to set aside larger reserves for the second time in two weeks, draining cash from the financial system to limit inflation and asset-bubble risks in the world’s fastest-growing major economy."  This enforced increase in banks' liquidity restricts their ability to expand loans.

Nor is this the only monetary policy tool being used.  The central bank raised interest rates in February.   Indeed, "[t]he PBOC raised the reserve requirement ratio six times last year, and benchmark lending and deposit rates three times since October. The previous reserve ratio increase took effect Feb. 24."  In November, Qu Hongbin, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong, told Bloomberg  the bank “decided to fight forcefully” against the impact of America's loose monetary policy.

Gordon Chang, author of "The Coming Collapse of China," talks about China's economy and currency policy. Chang, speaking with Betty Liu on Bloomberg Television's "In the Loop," also discusses Federal Reserve Chairman Ben S. Bernanke's November speech in Frankfurt.

Below Keith McCullough, chief executive officer of Hedgeye Risk Management and a Bloomberg Television contributing editor, to Bernanke's defense of quantitative easing (see above.) What does this mean for for U.S.-China relations? McCullough speaks with Betty Liu on Bloomberg Television's "In the Loop."


Quote of the Day: Might Institutions Matter?

"We economists hadn't focused on financial interactions and how that can lead to financial instability. Believe it or not, most models used by central banks only looked at savings, ignoring credit institutions and securities markets. That reflected a mainstream view that institutions don't matter. This was cognitive dissonance of a high order."

Joseph Stiglitz in Barron's.

Boeing Co. unveiled its new 747-8 passenger jet

Feb. 14 (Bloomberg) -- Boeing Co. unveiled its new 747-8 passenger jet to customers, employees and investors yesterday in Everett, Washington. Boeing has targeted the end of March for the first flight of the aircraft, which it calls the Intercontinental. Bloomberg's Maryam Nemazee reports in this video:

Media Monguls and Respectability Do Not Go Together.

Media companies represent a large chunk of the global economy and a big piece of the world's stock market capitalization.  Unless you consider Apple a media company, the only one to make the list of the top 100 most respected companies by professional investors was Walt Disney, which went from #20 to #12.

Read the story in Barron's:

Most Respected Companies 2/12/2011 3:03:01 AM

Barron's presents its annual ranking of the most respected companies in the video below. Apple comes in first for the second year in a row. Johnson & Johnson fell from last year's ranking.

What explains this lack of respect in one of the business world's largest sectors?

The Curse of the Media Mogul

The media hold a peculiar place in the business world, for they are the natural habitat of that most peculiar species, the media mogul.  We do not speak of car moguls or utility moguls, yet the media sector is dominated by huge international companies run by over sized personalities.  A media mogul even provides a James Bond flick with its villain.  In "Tomorrow Never Dies," Elliot Carver is a caricature of News Corporation's Rupert Murdoch.

Three Columbia Business School professors, Jonathan Knee, Bruce Greenwald and Ava Seave, also see media moguls as villains but in their case they see the shareholders as the victims.  Jeremy Philips summarizes their argument in his Wall Street Journal review of The Curse of the Mogul (New York: Portfolio, 2009)  "that media conglomerates as a whole have underperformed since the advent of the Internet. The Web has eroded the barriers protecting traditional businesses without improving the competitive position of even one incumbent. For a new competitor, of course, lower barriers mean opportunity, but they will mean opportunity for still newer competitors, too, making it difficult to establish a sustainable advantage. Citing Warren Buffett, the authors say that companies should be 'continuously digging the moat around their business.' But media companies have often done just the opposite, 'inadvertently construct[ing] bridges for competitors when they think they are strengthening the moat.'"

Glitz, Ego, or Value?

Do you agree with the Columbia dons that media moguls are obsessed with growth and overlook true competitive advantage?

And Then There Is Italy

Italy is the only country to entrust its government to a media mogul (Silvio Belursconi) and now finds the office of the presidency embroiled in a sex scandal. For movie stars, scandal sells. That same principle may not hold for Italian politics.

The Financial Times reports: "On Tuesday a Milan examining judge accepted a request from prosecutors, who said they had sufficient evidence concerning a “significant” number of prostitutes, to proceed to an immediate trial of the 74-year-old prime minister without holding a preliminary hearing. The case will begin on April 6.

“Ruby,” a Moroccan nightclub dancer named Karima El Mahroug is "alleged to have joined erotic 'bunga bunga' parties last year..." She, then "aged 17, denies having had sex with the prime minister. Mr Berlusconi says he has never paid for sex and also denies pressing a Milan police chief to free the teenager from detention last May." His excuse is diplomatic: he wished to avoid an incident. He thought her to be "the niece of Hosni Mubarak." The people went to the streets of Mubarak's Egypt to oust him. The Italians have mostly headed to the espresso bars. Then again, they have the ballot box to deal with their media mogul.

A Historic Day for the 10-year U.S. Treasury Note

In this video (4m 25sec), the FT's Michael Mackenzie takes to the floor during the final 20 minutes leading up to the sale of $24bn in 10-year treasury notes as the bond market passes a key test of investor sentiment with record demand for the new issue:

Uncle Sam can still sell paper.   But for how long?

Wednesday, January 26, 2011

Should Your Investmests Be In Stronger Currencies?

Inflation is being manifest in commodity prices. Food prices topped the high they reached in 2008. Producer prices were up 4.1 percent over a year ago driven by commodity prices. An oversupply of dollars is behind the global commodity boom as we export our inflation to the booming BRICs.

Portfolio manager, Bill Gross manages more bonds than anyone in the world.  Pimco's founder talks to Barron's Michael Santoli  on the improving economic outlook for 2011. Problems loom with declining dollar, government debt and high unemployment:

Meanwhile, the Reserve bank of India has raised its benchmark rates, yet prices may be outpacing the increases in rates. Dow Jones Newswires' Mark Cranfield reports:

Friday, January 14, 2011

Jamie Dimon is our favorite banker. His bank, JP Morgan-Chase, is one of three banks that come out big winners from the financial crisis. The other two are Toronto Dominion (TD Bank in the U.S.) and Wells Fargo. (Bank of America made most of the right moves and was forced into the Merrill Lynch merger and the jury is still out whether they should be added to the list.)

If you want to hear the world's top banking talking fast and not hiding under a grey flannel suit, fire up this interview with CNBC:

In the interests of full disclosure, the Harris family owns modest amunts of JP Morgan stock, some of which was bought in March, 2009.

Friday, January 07, 2011

America's unemployment rate dropped from 9.8% to 9.4%.

The Bureau of Labor Statistics released its employment report for December. America's seasonally adjusted unemployment rate dropped from 9.8% to 9.4% in December. Is this proof that the household survey is inherently unreliable or that this is a reversal of trend?


The unemployment rate has been following a slow downward trend since the fall of 2009. Now looking at the seasonally unadjusted data, we also see it has been falling for five straight months relative to the same month last year (SPLY in postalese.) This trend has been masked by the seasonal adjustment process (see the previous post.)

No doubt analysts will be disappointed by the small increase in jobs (103,000) reported by the establishment survey. Do not give it too much weight. These data will be revised, perhaps drastically in February, leading also to substantial revisions to the GDP series. This will cause the whole history of the recovery to be rewritten.

The good news is that the establishment data may become a more useful real time cyclical indicator. The BLS announced, "Effective with the release of January 2011 data on February 4, 2011, the establishment survey will begin estimating net business birth/death adjustment factors on a quarterly basis, replacing the current practice of estimating the factors annually. This will allow the establishment survey to incorporate information from the Quarterly Census of Employment and Wages into the birth/death adjustment factors as soon as it becomes available and thereby improve the factors. Additional information on this change is available at"

And that is very good news. Tracking the next cycle with the jobs data will be more accurate.

On a sour note, the BLS will update the household estimates with new population data in February. Historically the gnomes resident in the Postal Square Building have not been time series friendly in their population updates.

Thursday, January 06, 2011

Maybe America's Employment Malaise Is Not as Bad As It Seems

Tomorrow we get to see the December employment data.  It may well show that things are not as gloomy as we have been seeing.    Certainly America's 9.8% unemployment in November was depressing and in that vein, I wrote "A quick survey of the numbers demonstrates that the national economy is mired in a malaise worse than in any previous postwar U.S. recession."

Wall Street has grasped at any number of straws in the wind to convince itself that things are looking up.  Unemployment claims are down, manufacturing purchasing mangers are saying things are up.  Can the stock market's upbeat tea reading be right?  Yes, it can.  

Whatever tomorrow's data show, the employment scene may not be as bad as it now looks.  I am mostly looking at the household survey data.  The last two recessions demonstrate that the establishment data is an unreliable real time guide to cyclical trends.   The survey is badly biased during downturns and perhaps recoveries.  It misestimates the cyclical impact of births and deaths of firms on employment.  

Why might the data paint an overly gloomy picture?  I have come to believe that the seasonal adjustment overcompensates during cyclical swings.  Consider these data:  while the seasonally adjusted unemployment rate is 9.8%, the unadjusted rate for November is 9.3%.  Not surprising.  Retailers hire going into the Christmas season. On a seasonal adjusted basis, retail employment was down from October (establishment data); yet that same survey shows retail employment was up over November, 2009.  Curious.  Moreover, the national seasonally unadjusted unemployment rate (household survey) is down from a year ago for four straight months.

The seasonal adjustment process averages data over thirty years.  It is a blunt instrument for dealing with the massive impact household deleveraging is having on retail sales, the structure of the retail sector, and thus seasonal retail employment.  Indirectly, this affects the estimate of the seasonally adjusted national unemployment rate as well.

Before you break out the champagne,  note my favorite long term cyclical indicator, the employment rate peaked in April.

While I am backtracking on what I said about the national employment picture a little, I stand by my two conclusions on our long term prognosis and Wichita's prospects:

"The fundamental dislocations that led to the recession of 2007 to 2009 have not been addressed." and

"We have three significant strengths on which [to buck the national] trend...: exports, energy and entrepreneurship."