Wednesday, December 30, 2015

Was 1945 a Recession Year?

On EconTalk, Russ Roberts, debated Noah Smith on whether economics is a science.  It was a fun discussion well worth listening to. 

At one point Russ brought claimed Paul Samuelson predicted a return to the massive employment of the Great Depression when military spending fell after World War II. Noah Smith replied there was a recession.  I wrote a brief comment, although it turns out that Russ already posted Geoffrey Moore's note on business cycle chronology which treated the 1945 downturn as sui generis.

My analysis:

The NBER indicates a cyclical peak on February, 1945 with a trough 8 months later. Germany surrendered May 8th and Japan August 15th.  Japan's formal surrender was on September 2nd aboard the U.S.S. Missouri.  General MacArthur's boss was the former senator form Missouri.  Missouri is also the only state with two Federal Reserve Banks.

The unemployment rate was 1.1% at the NBER cyclical peak. The highest it rose to in 1946 was 4.26%. Apparently someone predicted 8 million unemployed in 1946. Some predictions were even wilder.

Yes there was a downturn as the U.S. economy ramped down from its most fevered war pace.  Looking at key series from their peaks to troughs, industrial production declined 35.5% from August, 1944 through February 1946. Payroll employment dropped by 3.3 million jobs from November, 1943 through September, 1945. Almost two million of that drop was in September, 1945, more or less VJ Day. The cyclical trough (October, 1945) corresponds to the first post war month. The 37 month expansion that followed ended in November, 1948.  

Do you want to call the 1945 cyclical episode a recession, a peacetime adjustment, or a preliminary ramp-down of the state driven economy? Geoffrey Moore wrote, "There remains the brief contraction after World War II, February—October 1945, which marked the transition from a wartime to a peacetime economy, and which is the most difficult of all to characterize because different measures yield such different results. However, in terms of its impact upon the well-being of the population it must surely be classed among the more modest of those in our list." Interestingly, Moore chooses his criterion of severity as welfare not aggregate demand or production, the more Keynesian categories.

i did not get interested in the business cycle until maybe the 1973-75 recession, on which I wrote my dissertation. My first memory of  economics would have been the copy of Samuelson's Economics which I studied to prepare for high school debate. I do not remember a discussions of business cycle history that talked about either the 1945 downturn or the 1945-48 recovery. They would have either ignored it or refereed to it as a wartime transition or demobilization. Indeed, I do not remember the textbooks of my youth (Keynesian all) dwelling on either the 1945 contraction nor the 1945-48 expansion. One excuse for their silence is that quarterly GDP data starts in 1947. Still the widespread prediction of a return to the Great Depression by the secular stagnationists was not mentioned in polite company.

Monday, November 16, 2015

So Who Owns Park Place?

Craig Karmin and Liz Hoffman report in the Wall Street Journal that Marriott will buy Starwood Hotels for $12.2 Billion (11/16/2015.) By acquiring rival Starwood Hotels and Resorts, Marriott will create the world's largest hotel company with more than one million rooms globally.



Sunday, November 15, 2015

Swedish auto maker Volvo has as a key component of its strategy to gain a competitive advantage by providing a car safer than its rivals' offerings. Volvo reckons people, at least the more affluent ones,will pay more for a car preserving their human capital. Differentiation improves markups. 

In Australia, Rob Taylor tells us in the wall street Journal, the Swedish firm is developing a technology that could help minimize car collisions with kangaroos, a perennial nuisance:


Monday, November 09, 2015

Dipti Kapadia Asks Whether the Jumbo Jet Era Is Coming to an End.direct flight over vast distances problem.

In the 1960s, Boeing introduced the world's first jumbo jet.  This met two key needs of global travel.  The Boeing 747 could carry 450 people and it could fly vast distances such as crossing the Pacific.  For decades, the only way to connect two cities seven or more thousand miles apart wast a jumbo jet. Over time both 747s and various wide aisle twin engine planes extended their range, but jumbo jets were the only solution to the direct flight over vast distances.

Both Airbus and Boeing project global passenger growth at or near 5% a year for the next two decades. This would require both more available seat miles and airports that could accommodate the growing passenger throughput. Airbus and Boeing made different strategic decisions about how their customers, the world's airlines, would respond to meeting this growth.  Airbus decided the global air carriers would continue their hub-and-spoke systems and overcome the resulting choke points at those hubs by flying a yet bigger jumbo jet.  Thus they committed to building the A380, the world's largest jet, which, in one configuration, can seat 950 people.  Boeing figured airlines would increase their international point-to-point flights garnering more business travel with its higher revenue per passenger mile. thus they bet the company on building the boeing 737 Dreamliner, a largely composite (thus more fuel efficient and less costly) plane with a long range and 350-450 seats.

Who is winning?

in this November 9th, 2015, Wall street Journal video, the Journal's Dipti Kapadia wonders if "The Jumbo Jet Era Is Coming to an End?"







Jet Deals Fall at Dubai Air ShowConcern about slowing aircraft sales has risen in recent months

Monday, October 12, 2015

India's Stock Market Outlook

During its October 10th, 2015 Asia Form, Barron's Isabella Zhong interviews Invesco's Paul Chan on what's ahead for India stocks, interest rates and the spending power of India's growing number of consumers.

Must One Be Bearish About China's Stocks and the Yuan?

Yuan Devaluation? Think Again. 10/10/2015 12:05AM Isabella Zhong asks Gavekal's Louis Gave talks about China's correction, what's ahead for the yuan, and why he likes Chinese airport stocks in this October 10th, 2015 video:


David versus Goliath: Bollywood's new challange

India has one of the world's fastest growing economies and its second largest population, a population projected to overtake China in the not too distant future. Bollywood's produces far more movies, though less revenue, than Hollywood and is known for its fantasy feeding extravaganzas. Now it is experiencing a new genre facilitated by the digital revolution.

Short films in India are attracting investors and established Bollywood players, spoiling audiences for choice. On October 6, 2015, the FT's Jyotsna Singh reported from Mumbai on how the explosion of digital access has fueled their popularity:

Tuesday, September 29, 2015

How the Interest Rate "Super Cycle" Pressures Insurance Comapnies: Allianz

Allianz is one of  the World's largest insurers.  Here Allianz's chief executive, Oliver Bäte, speaks with Alistair Gray, who covers insurance the FT, talks to  about ultra-low interest rates, asset bubbles, M&A activity and Pimco after the departure of Bill Gross in this September 27, 2015 View from the Top.  Do credit bubbles have to burst? Is the interest rate "super cycle" driving investors into foolishly risky investments and insurance companies into mergers they will regret?

Saturday, September 19, 2015

Thursday, August 20, 2015

How Not to Run Out of Money in Retirement


Jack Otter, the editor of Barron's Online, interviews Texas Tech University Professor, Personal Financial Planning, Michael Finke in this video.  They discuss a new breed of annuity and a new law, that offer a strategy to help retirees guarantee income in their later years:



Putting aside $125,000 from your tax protected retirement fund so that it is not subject to the mandatory withdrawal and guaranteeing an income at age 80 has attractions.

Tuesday, July 07, 2015

King Coal Was a Merry Ole Soul, But No Longer: Natural Gas Now Is the #1 U.S. Electricity Generator

The June 24th Energy Information Agency (EIA) Electricity Monthly Update shows that in April Natural Gas was the number one U.S. source of electricity generated as measured by megawatts of output.  It moved ahead of coals in the standings by generating 31.46% of all electricity generated.

The technological revolution in the oil and gas industry has notched up another new first.  

Over the last few years, the U.S. exported more petroleum products than it imported for the first time in 52 years.  Then it became the world's largest petroleum exporter and finally the world's largest oil producer.


The technological revolution.  

Often the amazing technological revolution that has transformed both America's and the world's energy picture is referred to as the Shale Gas Revolution.  This is increasingly a misnomer.  The same innovations have been applied to the Mississippian Limestone formation here in Kansas and the Permian Basin in Texas, to mention but two examples.  The former has been producing oil since 1915, but the revolution has revitalized recovery from a field thought to be largely played out.  The Permian Basis was first developed in the 1930s.  The new techniques are recovering oil as deep as 10,000 feet from strata of various rock types.  The revolution combines computer technology that I can only describe as three dimensional GPS with engineering that allows horizontal drilling a mile or more sideways miles beneath the surface of the earth and with hydraulic fracturing, a technique first used here in Kansas 67 years ago.  Yet few say "high tech" when they talk about about oil and gas.

This could only have happened here in the U.S. where individuals own the mineral rights, where the rule of law still generally prevails, where independent petroleum companies flourish, and where immigration was once encouraged.

A sobering thought:  

If the various immigration laws of the last ninety five years had prevailed before 1920, the revolution's father, George Mitchell, would have been born in bankrupt Greece not Galveston and would not have studied geology at Texas A&M. The Economist put it well: "Few businesspeople have done as much to change the world as George Mitchell.

What might not have been!

Tuesday, April 28, 2015

Who Needs Horatio Alger, We Have Hamilton!

Peggy Noonan recently reviewed  a hip hop play.  "Hip hop?" you day, "Has she flipped her wig?"

Actually she has tipped her wig figuratively to a Broadway biography of one of our bewigged founders: Washington's right hand man, a triumvir of the Federalist Papers, and our first Treasury Secretary: Alexander Hamilton.

The U.S. economy achieved its takeoff into sustained economic growth by 1840, long before all but two countries in the world.  Yet a betting man or woman in 1780 would have found little to choose among our new fledgling republic strung along the Atlantic compared to Argentina, Canada, Mexico, and Brazil in terms of who would have been economically successful. Richard Sylla, perhaps our preeminent financial historian of U.S. financial markets, makes a compelling case that Hamilton's financial reforms enabled the emergence of a sophisticated financial system.  That financial system financed the young republic's emergence as an economy.  Thus economic takeoff took place here and not somewhere else.

Alexander Hamilton is one of my favorite Founding Fathers.  More to the point he exemplifies what makes America America and nowhere is it better expressed than in this very 2015 Broadway musical, "Hamilton"  Listen to Lin-Manuel Miranda, its playwright and star, as he performs "The Hamilton Mixtape" at the White House Evening of Poetry, Music, and the Spoken Word on May 12, 2009. He is accompanied by Alex Lacamoire:




As always, Peggy Noonan expressed it well: "Why did they weep? Why was everyone so moved?
Because it hits your heart hard when you witness human excellence. Because the true tale of how an illegitimate, lowborn orphan from the West Indies went on to become an inventor of America is a heck of a story. And because it is surprising yet perfect that that story is told in a hip-hop/rap/rhythm-and-blues/jazz/ballad musical whose sound is pure 2015 yet utterly appropriate to the tale."

Miranda read Ron Chernow's biography and wept because he identified with a great story of a great man who overcame all odds, yet a man made with feet of clay. Read it and drink in the story of our country.   

If Americans in 2015 can listen to this tale without a dry eye, then we know the revolution has spent its course and it is time to learn Mandarin. 

Thursday, April 23, 2015

Chian's deceleration: What Should the CFO Worry about?

The Chinese economy grew averaged double digit growth for two decades. Recently that has slowed to 7-8 percent.The Conference Board has identified a set of structural factors that indicate a long “soft fall” to 3 to 4 percent growth. Ethan Cramer-Flood explains what this implies for pricing, credit, and compliance.



Monday, March 23, 2015

Bolloré Is No Mercier

Jean-Marie Messier took a stogy French utility and construction conglomerate and converted it into an unwieldy media monstrosity in numerous related and unrelated businesses including Universal Studios.  During the dot.com bubble, he drank the internet Cool Aid and paid fabulous prices for companies whose value evaporated like water spilt on summer asphalt.

As the value of his empire collapsed, he met his Götterdämmerung

Eventually French financier Vincent Bolloré took a dominant position in the company, became Vivendi's chairman, and divested many of its assets to concentrate on content. In the process, Vivendi has piled up €16bn of cash. Lex’s Oliver Ralph and Robert Armstrong discuss whether Vincent Bolloré should return this money to shareholders in this Mar 23, 2015 video:


However, there is nothing like idle cash to attract the wolves.  Bolloré now faces an activist challenge from Wall Street’s quiet professor Peter Schoenfel, the head of the hedge fund, P. Schoenfeld Asset Management.

The inside story of how Clarke’s tenure at Tesco came to an end

Andrea Felsted and Andrew Hill tell "The inside story of how Clarke’s tenure at Tesco came to an end" in the Financial Times, July 23, 2014

Wednesday, February 04, 2015

Tea with Carly Fiorina

Carly Fiorina advises Stamford MBAs on making tough choices and leadership:
Emily Mekinc gives us an interview with Carly Fiorina Landini Brothers in Old Town Alexandria , Virginia. The powerhouse who made HP what it is tells, among other things, the advice Steve Jobs gave her after she was fired. 

Monday, January 26, 2015

The ABCs of Income: MLPs, REITs, and BDCs

Jack Hough and Jack Otter on the best investments for income in 2015, including the benefits of dividend stocks and the pros and cons of Treasury bonds.  MLPs are master limited partnerships, REITs are real estate investment trusts, and BDCs are business development companies.  They suggest there are some which are oversold.

Are there are a few undervalued stocks out there?


Meryl Witmer is a portfolio manager with Eagle Partners.  She looks for undervalued stocks which is getting harder and harder as the market gets pricier. Speaking at the Barron's Roundtable,  she explains why two stocks, Houghton Mifflin and Gildan Activewear, are undervalued in this January 17th video:

Sunday, January 25, 2015

Carly Fiorina Faced 'Tough Choices'

The "HP Way" and the change agent.

Carly Fiorina talks about leadership, management, and culture ans her book, 'Tough Choices:' 





"When culture becomes convention, then something has to change."

"...sometimes the toughest choices you have to make are to fire somebody, not because they're not getting results, but because their values and judgment are inconsistent with what you say you stand for. The toughest personnel choices I have ever had to make in my career are where I have had to deal with abusive or dishonest people and, let's be honest with each other, abusive, dishonest people get results in business."

"I was taught long ago that values are what guide your behavior when no one's looking and you think no one will find out."

Thursday, January 01, 2015

On Monetary Policy, Are You a Dove or a Hawk?

Our own Federal Reserve Bank of Kansas City President, Ester L. George, has been called a hawk based on her votes and statements in the Federal Open Market Committee. The financial press characterizes those in central banks who want to move strongly to fight inflation and speculative excess by tightening monetary policy and raising interest rates as "hawks." Those who advocate lower interest rates are called "doves."

What's with these terms?  : The terms 'dovish' and 'hawkish' are second nature to anyone covering central bank policy, finance and economics. But where do the terms come from? In this December 24th, 2014 video, FT Alphaville's Izabella Kaminska delves into the Vietnam war, evolutionary game theory and even 'Mary Poppins' to find out.