Mammon Among Friends

apple Picks John Browett, European electronics retailer, Dixons' CEO.

2012-01-31T20:55:00.000-08:00

Apple picked a new boss of retail and it is a surpise. They picked the head of Britain's Dixons's: a buy your box heare kind of firm.

Smart move? Time will tell.

Take Your Losses Upfront: Banco Santander Takes a 3.1 Billion Euro Hit

2012-01-31T20:51:00.000-08:00

Profits Tumble at Banco Santander 1/31/201
Spain's largest bank, Banco Santander, announced that its profits were down by 98% in the fourth quarter of last year. It is catching a jump on regulators by writing its losses down earlier.

In this video, Joe Ortiz of DJ Banking Intelligence tell us why.

Innovation Is Alive and Well at Milliken

2012-01-14T12:21:00.000-08:00

Kodak, once a big U.S. innovators is in a terminal decline. John Bussey in this 1/12/2012 Wall Street Journal video shows what textile maker Milliken & Co did right.

WSJ Video: Google, KKR Set California Solar Deal

2011-12-28T10:26:00.000-08:00

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

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

2011-11-20T19:30:00.000-08:00

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.

2011-11-20T13:00:00.000-08:00

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:

11/14/2011

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.

11/7/2011

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:

10/31/2011

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:

9/23/2011

The Birth of Arbitrage

2011-11-17T10:33:00.000-08:00

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

2011-11-17T09:44:00.000-08:00

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.)

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

2011-10-31T20:12:00.000-07:00

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. WSJ.com video 10/31/2011

Act II of the Olympus Drama

2011-10-27T03:38:00.000-07:00

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.

Tom Hoenig Nominated to Be the Vice Chair of the FDIC

2011-10-22T08:45:00.000-07:00

Wow!

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.

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

2011-10-10T04:59:00.000-07:00

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.

2011-10-10T04:29:00.000-07:00

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)

Watch the Nobel Prize in Economics Award

2011-10-09T16:51:00.001-07:00

The September Jobs Report

2011-10-07T08:57:00.000-07:00

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 WSJ.com "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.

2011-10-06T04:28:00.000-07:00

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)

http://video.ft.com/v/1187399924001/Bullish-Baltic-Dry-

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)

http://video.ft.com/v/1202190857001/Revalue-or-else

Is it 2008 all Over Again?

2011-09-22T14:01:00.000-07:00

In an FT video, Michael McKenzie tells us that investors are returning to a 2008 mindset.
"Equity investors are battening down the hatches and fearing the worst as a resolution of the eurozone crisis appears forlorn and the Fed's fiscal stimulus misfires." (2m 28sec)

Turmoil, Curriencies, & Banks

2011-09-20T10:40:00.000-07:00

The Financial Times reports on currency movements and the effects on banks in these two videos:

Currency traders flex their muscles

According to the FT, " [a]s the world's reserve currency spreads its wings, many emerging markets and commodity currencies are getting caught in the downdraft of the risk-off trade in favour of the US dollar as a safe haven." (2m 10sec)

Dollar deluge shores up banks

In this second video, the Ft makes a crucial distinction, to wit: "The promise of unlimited dollars from central banks has buoyed shares in Europe's banks. However, as James Mackintosh, investment editor, warns, the liquidity worry may offer relief but the underlying solvency threat of sovereign default remains." (3m 43sec)

Jamie Dimon Calls Basel III "Anti-American"

2011-09-13T10:42:00.000-07:00

Tom Braithwaite in New York and Patrick Jenkins in London report JPMorgan Chases' CEO, Jamie Dimon, "was supportive of forcing banks to have more capital but argued that moves to impose an additional charge on the largest global banks went too far, particularly for American banks" in an interview in the Financial Times. Read why our favorite banker is always good copy.

He also answered some tough questions in another and was particularly critical of the strident narrative prevailing in Washington and the media about banks and the financial crisis in a third article.

All three stories articles are worth reading.

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

2011-08-29T18:07:00.000-07:00

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

2011-08-29T17:41:00.000-07:00

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)

Twenty Years of a Convertible Ruble.

2011-08-28T19:24:00.000-07:00

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

Steve Jobs Resigns

2011-08-25T00:14:00.000-07:00

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.)

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

2011-08-07T12:39:00.000-07:00

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.

Competing with Home Brew? Anything for Market Share!

2011-07-13T15:38:00.000-07:00

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."

U.S. Energy Production on the Rise

2011-07-11T13:13:00.000-07:00

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:

A Dismal Employment Report, But Hope for Wichita

2011-07-08T13:36:00.000-07:00

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.

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

2011-06-19T13:05:00.000-07:00

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.

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

2011-06-16T15:31:00.000-07:00

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.

Did the Fiscal Stimulus Cause a Net Loss of Jobs?

2011-05-27T14:00:00.000-07:00

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.

Scott Davis, UPS, and the Economy

2011-05-24T20:35:00.000-07:00

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:

http://video.ft.com/v/952418309001/UPS-s-Scott-Davis-full-interview

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

2011-05-23T15:00:00.000-07:00

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!"

Good Bye Reserve Currency?

2011-05-22T21:37:00.000-07:00

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.”

2011-04-14T15:39:00.000-07:00

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.

Employment Was Up in March

2011-04-01T07:34:00.000-07:00

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.

Wichita's Unemployment Rate Falls Compared to Last Year

2011-03-29T07:08:00.000-07:00

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.

China, Monetary Policy, and the U.S.

2011-03-22T16:13:00.000-07:00

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."

J

Quote of the Day: Might Institutions Matter?

2011-03-22T16:02:00.000-07:00

"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

2011-03-22T16:01:00.000-07:00

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:

Boeing 747-8 Passenger Jet Gets Lift Toward Delivery From Freighter Tests

Media Monguls and Respectability Do Not Go Together.

2011-03-22T15:58:00.000-07:00

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

2011-03-22T12:01:00.000-07:00

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:

http://video.ft.com/v/786844760001/A-historic-day-for-the-10-year-treasury-note

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

Should Your Investmests Be In Stronger Currencies?

2011-01-26T04:43:00.000-08:00

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:

2011-01-14T20:14:00.000-08:00

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.

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

2011-01-07T08:46:00.000-08:00

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?

Neither!

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 www.bls.gov/ces/ces_quarterly_birthdeath.pdf."

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.

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

2011-01-06T21:51:00.000-08:00

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."

Future of Investment Banks & Bonuses

2010-12-31T22:49:00.000-08:00

On December 17th, 2010, the Financial Times asks: As regulators and politicians seek to tighten their grip on bonuses and leverage, what does the future hold for investment banks after the financial crisis? and how do food and clothing companies, as well as governments, react to rocketing input prices?

In the chair, analysis editor Frederick Studemann debates the issues with FT colleagues Megan Murphy, investment banking correspondent, Martin Sandbu from the leader writing team and consumer industries editor Louise Lucas.

The video runs 16 minutes and 28 seconds.

Kraft: 3.6% Yield + Plus Emerging Market Synergy

2010-12-24T09:26:00.000-08:00

Kraft will be absorbing its acquisition of Cadbury. Should you buy the stock?

It yields 3.64% and sells about 13 times 2011 estimated earnings according to
Barron's Dimitra DeFotis. Is the stock undervalued or is the market discounting lousy prospects? Cadbury certainly offers opportunities for synergy. Kraft is strong in countries Cabury is not and vice versa. With the emerging market econnomies providing the world's economic growth, this is important. Hanging over that rosy scenario is the question of whether Kraft can digest iCadbury's sweets. Managements in more than one industry have gotten indigestion from such major mergers.

Still DeFotis explains that mixing Kraft cheese with Cadbury chocolate should sweeten investor returns in this video.

The "Scarbus" 380: Rolls Royce Engine Explodes Forcing a Quantas Jet to Land In Singapore

2010-11-18T09:05:00.000-08:00

Quantas Grounds its A380s

Airbus touts the A380 as the plane of the future. In this News Corp. video you can see the first Qantas airbus A380 touch down in Sydney, October 2008:

&amp;amp;amp;lt;p&amp;amp;amp;gt;&amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;lt;a href="http://video.news.com.au/916397641/Touchdown-A380"&amp;amp;amp;amp;amp;gt;VIDEO: Touchdown A380&amp;amp;amp;amp;amp;lt;/a&amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;gt;&amp;amp;amp;lt;/p&amp;amp;amp;gt;

Quantas is quite proud of its safety record. What other major airline can brag of never having lost a jetplane? Keen on keeping that reputation, Quantas grounded its A380s after the emergency landing of its "scrabus" flight QF32.

According to News.Com.Au "Qantas made it clear it will keep its six superjumbos grounded indefinitely and has rearranged flight schedules using substitute aircraft.

"'The specific checks mandated by the directive were already being carried out by Qantas in conjunction with Rolls-Royce,' it said.

"'Qantas's A380 aircraft will not return to service until there is complete certainty that the fleet can operate safely.'"

Thus the planes of the future is having problems in the present.

News on Airbus's big one, the A380, first. Singapore Airlines found oil leaking from its Rolls Royce engines (courtesy of News Australia):

&amp;amp;amp;lt;p&amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;a href="http://video.news.com.au/1640170536/Singapore-grounds-A380s-until-next-week"&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;VIDEO: Singapore grounds A380s until next week&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/a&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;lt;/p&amp;amp;amp;gt;

And yet more on SKYNews:

&amp;amp;amp;lt;p&amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;a href="http://video.news.com.au/1639113351/Oil-staining-on-A380-superjumbos"&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;VIDEO: Oil staining on A380 superjumbos&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/a&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;lt;/p&amp;amp;amp;gt;
The Fallout for RollsRoyce:

In the Financial Times, Pilita Clark, its Aerospace Correspondent, reports "Rolls-Royce is preparing to cannibalise several half-built A380 superjumbos on production lines to obtain more than a dozen new engines to help its stricken airline customers such as Qantas.

"The engine maker has taken the rare step of negotiating with Airbus, the A380’s manufacturer, about raiding engines from three or four superjumbos due to be delivered next year from its Toulouse and Hamburg assembly plants, according to people familiar with the situation."

In an FT video , Pilita Clark, explains how the spotlight will now fall on Rolls-Royce, the maker of the engine.

The Future of Natural Gas

2010-11-15T06:18:00.000-08:00

Oil prices make headlines; Solar and wind power are sexy, yet natural gas is the real news.

While U.S. oil production has been declining since the 1970s and the peak of world oil production is continually predicted, natural gas looks like the rabbit we are pulling out of the hat. And the future is paved with shale.

It took companies like Mitchell Energy twenty years to figure out how to extract natural gas from the Barnett shale formation in Texas. The technology having been mastered, we now realize that there is an abundance of gas in shale formations around the country and the globe.

Interestingly enough the home of the Whiskey Rebellion and the first U.S. oil rig, Pennsylvania, is home to one of the biggest. The Marcellus shale formation in western Pennsylvania, west Virginia and western New York has been estimated as having natural gas equivalent to the nation's energy needs for twenty years.

Chevron's 4.3 billion Shale Bet

As iStockAnalyst put it, [C]onsider this number: 4.3 billion.That is what Chevron offered to pay for Atlas Energy. As Bill Wince of Chesapeake Energy points out the big integrated oil companies are used to dealing with huge fields and negotiating with governments. Unlike America, in many countries the state not the landowner owns the mineral rights. The independents can field an army of land men who track down tittles and negotiate drilling rights. The Chevrons of the world have decided if they do not have a distinctive competence, they can always buy it.

Platts tells us, "Chevron's first deal in a US gas shale play dovetails nicely with the
company's plans to increase its proportion of gas production from 31% of total
output currently to 41% in the next seven years," according to Atlas' Indian joint venture partner, Reliance Industries, CEO John Watson who spoke at a Bank of America
Merrill Lynch's Global Energy Conference.

This is Not the Last Big Buy

Platts further reported, "Watson said he expects Chevron's Marcellus Shale production to grow from Atlas' 63,300 Mcf/d to more than 500,000 Mcf/d in the next decade and that, combined with the play's proximity to premium markets in the northeastern US made it fit into Chevron's plans.

"The cost per well in the Marcellus Shale are about half that in other
major shale plays such as the Louisiana's Haynesville and Texas' Eagle Ford
because vertical drilling distances in Appalachia are about half those in
rival plays.

"Atlas wasn't the first shale producer Chevron looked at and it probably
won't be the last, Watson said."

Heard on the Street: IEA's Energy Outlook Forecast 11/9/2010 5:42:06 PM
Forecasting the next quarter is perilous. Forecasting the next 26 years is both easier and riskier. Few will remember your forecast after the twenty six years pass and the fundamentals assert themselves over the long run. Still, you have no idea where in the crazy commodity cycle you will be nor what the value of a dollar will be.

The International Energy Agency's 26-year forecast for the energy industry

The Wall Street Journal's Heard on the Street columnist, Liam Denning, talks to the Journal's Lee Hawkins:

Lee Hawkins and Liam Denning also discuss Chevron's "We Agree" Campaign.

Business Jets and Elections

2010-10-27T10:47:00.000-07:00

Molly Mullins reports on a talk by Michael Scheeringa of Signature Flight Support, which operates 103 fixed base operations around the world. At the today’s Wichita Aero Club meeting, Scheeringa reassured her that “It’s a very resilient industry.” She blogs, "The good news is that the market has begun to recover, although recovery has been muted.

"But Fortune 200 companies are flying as much today as they did in 2008, he said. It’s the small business owners who are not using business aviation as much."

That sounds like good news, but we need to see the orders before we know the rebound is truely here. Wichita needs a business jet revival.

Furthermore, she relates his judgement that "The political climate has caused uncertainty in the tax structure of smaller businesses. And that leads to uncertainty about income and generates a lack of confidence." Moreover, "That lack of confidence impacts the business aviation industry in Wichita and elsewhere."

Which brings us to the mid-term elections. The pundits are predicting big Republican gains, perhaps recapturing the House, picking up a half dozen Senate seats, and assorted governorships and state ledgislative seats. The latter is especially important given the redistricting that follows the decinimal census.

The economy hit bottom in June, 2009, but the unemployment rate is actually above where it was at the trough. Economic growth ahs resumed, but Americans are still mired in misery.

Comes November 2nd, the President will be blamed.

But is it just?

President Obama campaigned on the need to fix the economy. That created expectations among the voters. Not surprisingly, the voters wanted those expectations to be met.

What happened?

The nation's economic problems were essentially long term in nature (huge and chronic trade imbalances, lack of domestic saving, misallocated resources from the credit boom.) Yet the President focused on short term solutions: fiscal stimulus. Worse, he delegated the job of designing the solution to Congress.

Then, with the economy being far from fixed, the President switched his priority to changing the health care system and its financing. Reallocating resources for a sector equivalent to 17% of the whole economy (four times the size of the auto industry) predictably set off a debilitating dog fight between the winners and the losers. To make matters worse, the President delegated the design to Congress. Will Rodgers once predicted that "no one's wallet is safe when congress is in session."

If voters are angry with the President's economic policies, their anger is understandable.

After they express that anger on November 2nd, the President should address the source of that anger and ask the American people for a second chance. He should warn them that our problems are long term and there are no quick fixes. We must realistically face America's secular economic decline before it is too late and put forth the painful policies that will reverse our strategic decline. The tea party activists who are focusing on the size of the federal deficits have unwittingly brought to fore a very real problem. The U.S. can only use deficits to attack weakness of demand if the dollar remains the world's reserve currency. And the more it uses the deficits to stimulate the economy the closer we are to losing the dollar's reserve status. When foreigners stop taking our dollars, our options close and we start looking more like Greece and Spain.

Moreover, without significant policy changes there is a very real threat in the medium term. The perceived erosion of the rule of law (think of the treatment of GM's bondholders), the costs of the healthcare system reengineering, and the prospect of tax hikes if the Bush tax cuts expire have eerily recreated the conditions of 1936. These set the stage for the Roosevelt recession of 1937. We avoided the financial collapse that trasformed the recession of 1929 into the Great Depression. Now we have recreated the conditions for the 1937 recession, a recession whose severity was exceeded only by the contractions of 1929-33 and 1920.

President Obama should take advantage of his party's upcoming defeat to embark on a new program of economic leadership.

Economic Update: Wichita and the World

2010-10-19T19:07:00.000-07:00

1) The world economy is eighteen months into an economic recovery. The U.S. economy lagged six months behind. Employment lagged another six months behind that and Wichita lagged yet further behind. The most recent news is mixed. the Commerce Department reported Housing starts were up. Alan Rappeport writes in the Financial Times that "That was stronger than economists expected and marked the third month running that starts increased." The Fed reported that September industrial production was down. Rapeport tells us that "US industrial production fell for the first time in more than a year last month."

2) The U.S. unemployment rate is still at 9.5% reflecting the enormous dislocations caused during the bubble years of 2004-7. The administration's two top economists Larry Summers have retreated to academia. CNN interviewed Peter Diamond the new Nobel Laureate who seems to see it differently. He told CNN’s Fareed Zakaria GPS: "The central focus of the problems in the economy right now is not that the labor market is working badly but the demand for labor is way down. ... I view the US economy as extraordinarily adaptive . . . I expect the economy to adapt this time as well."

3) Wichita and Kansas are seeing signs of recovery. Wichita's August unemployment rate at 8.2% is down a percentage point from a year ago. (August is the worst month each year.) For four straight months we have seen an improvement over the year before. A new state study shows job openings up and up relative to the number out of work. The Kansas Department of Labor reported, "There are more job vacancies in Kansas this year than last year, according to the 2010 Job Vacancy Survey. The survey, completed by employers during the second quarter of 2010, found there were an estimated 32,091 job vacancies statewide. This represents a 24.5 percent increase in vacancies from 2009." World trade is vital for Kansas and the world economy is pulling up the Kansas economy.

4) As for the aviation industry, it is a three legged stool: commercial, military, and general aviation. Commercial aviation is reviving. The lessors are back. The other two legs are weak. Most countries are cutting military spending around the world. General aviation (business jets and private planes) is still in a big slump.

5) The business aviation industry has its big show in Atlanta while we speak. In connection with that, Honeywell's new forecast shows a 10% increase over the next decade, but tough slogging over the next two years. For 2010, Honeywell Aerospace estimates deliveries of 675-700 new business jets, down 16-17 percent from 849 in 2009 mainly due to continued global economic weakness as well as overarching concerns about government debt, austerity programs, export growth, financing costs, and general availability. Rob Wilson, President, Business and General Aviation, Honeywell Aerospace said "The industry should begin another period of expansion by 2012" Molly Mullins reports on Hawker's new business jet, the 200 and on Cessna's new version of the Citation, the Citation X.

6) Hawker-Beechcraft's two lines of business are military and business jets: not a pretty picture. Kansas has put together a package to keep it from moving to Louisiana, but the union has now rejected the firm's proposed labor contract. This cloud remains over our economic horizon.

Wichita's Unemployment Rate Rises Seasonally to 8.4 Percent; GDP Grows at 2.4 Percent; and Europe's Mercedes Reves Up

2010-08-20T12:11:00.000-07:00

The Stock Market Falls Again

Here it is Friday afternoon and the U.S. Stock Market is down some more after a 144 point plunge yesterday. The Fed of Philadelphia's activity index took a dive and new claims for unemployment jumped over a half million. That latter is one statistic economists do not want to see rise and it is one of the Conference-Board's leading indicators. Yesterday's plunge turned a nicely developing global rally into a global route.

Markets have been particularly spooked since the Commerce Department issued its GDP report a week a go. The economy grew at a 2.4 percent rate in the second quarter. This was seen as lack luster growth. However the deceleration was not due to a lack of demand but to an over appetite for imports. Real, domestic final demand grew at a 4 percent annual rate. More economic stimulus would further aggravate our current account balance.

Its Bureau of Economic Analysis revised the last two and a half years of national income accounts estimates showing, as I expected, that the recession was deeper and the recovery stronger than previously reported.

Good News From Germany

The global rally had been fueled by news that the Bundesbank had increased its forcast of German economic growth. Germany is the Eurozone's engine. Moreover the strength in the world economy is reflected in the new resource M&A boom according to Javier Blas and William MacNamara in the Financial Times. They report, "The rise of China and India has sparked a renewed surge in aggressive dealmaking in the resources sector, with more than $50bn in proposed takeovers this week alone wagering on continued strong commodities demand."

The American stock market is focused on the possibillity of a "double-dip recession." As I said yesterday, "I don't see a double-dip recession, either here or nationally...It's too late for one to start. They need to happen within 12 months." We had a double dip recession in 1973-75. The economy fell in response to the oil shock of the arab oil embargo. The economy recovered in the first half of 1974, but as inflation artificially inflated manufacturing order books, firms soon found their perceived demand to be ephemeral. Industrial activity plunged after June in the "second dip." The recession of 1982 followed closely (fourteen months) on the heels of the 1980 reession leading some economists to argue it was really one double dip recession not two separate recessions.

There real recession threat for the U.S. is more medium term. When tax hikes and the supply side effects of the new health care legislation hit in 2011 and 2012, we could see something like the "Roosevelt Recession" of 1937-38.

Wichita's Good Bad News.

Dan Voorhis of the Wichita Eagle reported, "The July unemployment rate in the Wichita area hit 8.4 percent — worse than June, but much better than the 10.3 percent in July 2009." That compares with 8 percent in June.

The rise is seasonal. As Voorhis points out, "The unemployment rate typically rises in July as thousands of students and school staff enter the work force looking for jobs." Chris Moon in the Wichita Business Journal notes that "metro [Wichita] had 26,669 people who were out of work, up from 25,184 a month ago."

To look past the seasonal effects, compare July's unemployment rate to the same month in 2009 (10.3%.) That is a big drop. This is the third straight month that the unemployment rate improved compared to a year ago and that provides grounds for optimism. The Eagle quotes this Friends University professor as seeing "encouraging economic trends that will soon translate into better employment. 'I can see the unemployment rate in the fall closer to 7 percent than where it is now.'
[and the] strength in commercial aircraft construction and a general demand for Wichita-made products in other parts of the globe.."

Kansas

Seasonal factors drove the state unemployment rate up for July to 6.9 percent. Kansas Department of Labor economist Tyler Tenbrink said "Kansas continued to see steady but slow job growth in July. An increase in goods producing jobs, like construction, are very important. We are still seeing a decline in some service providing jobs, like information services and financial activities. A bright spot this month within those declining industries was administrative and support services, which includes job placement services for temporary workers. We are particularly interested in job gains in this area because employers tend to use these services before hiring permanent workers. This industry saw its first over-the-year job gain since June 2008, a positive indicator that we may continue to see growth in other industries in the coming months."

Sheila Bair, Financial Reform, and Fannie and Freddie: Of Sound and Fury

2010-07-21T11:20:00.000-07:00

President Obama has signed into law the Dodd Frank financial reform law.

The most needed provision of the new law is its authority to resolve failing non-banks procedures along the lines of the FDIC's bank failure resolution process when the non-bank poses systemic risk The FT's Tom Braithwaite interviews Sheila Bair, Chairman of the FDIC, in this video (10m 19sec) "about how she is going to implement the new powers that were given to her by the new legislation on financial reform."

In an unrelated(?) story, Congressman Issa has dug up some very interesting facts about two non-banks not covered by Dodd-Frank. The Financial Times' Suzanne Kapner reports "Countrywide Financial made 153 “VIP” loans to Fannie Mae executives, in an effort to win goodwill from the giant mortgage finance company, according to a letter released on Tuesday by a US congressman.

"An additional 20 VIP loans were made to Freddie Mac employees, the other large government-sponsored buyer of home loans, according to the details released by Darrell Issa, a California Republican."

Senator Dodd was a recipient of two of Angelo's VIP loans.

Which brings us to the most interesting question about the financial reform package. The President assures us this will end future bailouts. Unfortunately, the President left the job of constructing a bill to Congress. Congress gave us a 2,300 page rewrite of financial regulation and it contains is no solution to the Freddie Mac and Fannie Mae problem. Here is the biggest sinkhole in the federal bailout and not a word! I guess Congress did not want to mess with the Financial Industrial Complex. Incidentally (?), Senator Dodd and President Obama were the two biggest recipients of campaign contributions from Fannie and Freddie sources. Dr. Blair prudently sidestepped a question on this amazing omission. Neil Murphy, an eminent banking authority, loved to ask "Other than that, Mrs. Lincoln, how was the play?" I can hear him ask it again.

But do not worry! Suzanne Kapner writes, "Barney Frank, a Massachusetts Democrat, has said that he plans to start work on new legislation when Congress returns from its August recess. The White House is expected to submit plans for fixing the system by early next year."

"To-morrow, and to-morrow, and to-morrow,
Creeps in this petty pace from day to day,
To the last syllable of recorded time;
And all our yesterdays have lighted fools
The way to dusty death."

Farnborough, Jobs, and Wichita

2010-07-21T09:31:00.000-07:00

Wichita's unemployment rate is 8.0 percent.

The national recovery is starting to come to us. Wichita's unemployment rate was 8.0 percent June, down from 9.0 percent in June, 2009. Dan Voorhis reported in this morning's Eagle. "'Given that it's for June, that's a positive sign for Wichita,'" quoting Mammon Among Friends' own Malcolm Harris, Professor of Finance at Friends University.

Note the data is not seasonally adjusted. The national unemployment rate, which is, fell to 9.5 percent (from 9.7 percent.) The national rate fell as fewer folks were in the June labor force. That was in part because of the seasonal adjustment and in part because those census workers who took the work for a few extra dollars but were not looking for permanent work left the labor force. He also quoted "Jeremy Hill, director of the center for Economic Development and Business Research at Wichita State University, [who] said the bulk of the new jobs has come in the medical sector and professional and business services."

As I told Dan Voorhis, "We're 12 months into a national recovery and some of that is spilling into the local economy." One big area of improvement is the aircraft industry. New aircraft orders are up for the five months through May according to Commerce Department data. Although well below the boom years of 2007 and 2008, there is a distinct recovery showing up. Both Boeing and Airbus have been conservative in their production planning. Boeing is now slowly stepping up its 737 production, a sign it is growing confident. Increased production also protects Boeing from potential cannibalization of the 737 market by its and Airbus's new planes. Spirit Aerospace largely avoided layoffs by using a shortened workweek during the worst of it. By thus spreading the work around, it conserved its younger workers who are the manufacturer's future.

Which brings us to Farnborough:

The Farnborough International Airshow is this week: 19-25 July 2010. The biennial show was last held at the peak of the boom in aircraft orders. The 2008 show (pictured on the right) set a record of US$88.7 billion worth of orders announced during the show. Note planes are priced in dollars not Euros.

Boeing's Dreamliner made a splash. The 787 flew into Farnborough Monday and returned home yesterday. Gulliver, the Economist's Business Travel commentator blogged, "The Dreamliner is much more than just another incremental upgrade to Boeing’s fleet: its revolutionary lightweight carbon-composite wings and fuselage mean much-improved fuel efficiency (20% better than comparable planes made from aluminium, according to Boeing). This could well persuade airlines to open some direct routes around the globe that they previously deemed uneconomic."

Today's Eagle carries an AP report by Jane Wardell and Emma VanDore that orders have totaled $25 billion.

There is life among the aircraft lessors. Halleluja!

I knew the aircraft industry was in trouble when I learned AIG was Boeing's and Airbus's biggest customer. AIG required a federal bailout, CIT entered bankruptcy and GE Financial was in trouble (the piggy bank that Jack Walsh built was broken.) Lessors' share of aircraft orders dropped from 40 percent to 2 percent.

The Financial Times' Pilita Clark reported that "Steven Udvar-Hazy made a notable re-entry into the field. He is one of the biggest names in aircraft financing who founded and ran ILFC, AIG’s aircraft leasing arm, until his departure earlier this year. He announced a $4bn order for 51 Airbus A320 family aircraft for his new leasing company, Air Lease Corporation."

"That news was swiftly followed by Boeing’s announcement that GE Capital Aviation Services, the aircraft leasing arm of General Electric, was ordering 40 of its best-selling 737 jets valued at around $3bn, according to the manufacturer’s published prices."

The A320s and the 737s are the workhorses of much of commercial aviation and seem to be commodity most easily leased. Udvar-Hazy largely created the air leasing business with International Lease Finance Corporation (ILFC), now owned by AIG. When AIG lost its AAA bond rating, ILFC got shut out of the commercial paper market and was hard pressed to buy new planes. Udvar-Hazy's solution? He left ILFC and started a new company and now he has ordered 40 Boeing 737-800s. That should be good news for Spirit Aerospace here in Wichita which makes fuselages for 737s.

Is the market developing according to Boeing's view of the world or Airbus's?

The first step to understanding an industry and a company's business model is asking who are the customers. On the commercial side, Airbus and Boeing (and Bombardier and Embraer) sell to commercial airlines and air freight companies. The customers' business models will drive the demand for their planes. As the busiest airports get more and more congested, the airlines will either have to fly bigger planes with more seats into those hubs or fly longer point-to-point routes to relieve pressure on the hubs. Airbus in the A380 bet on the former, while Boeing in the 787 bet on the latter.

Pilita Clark reported from Farnborough Monday that "Emirates, the Dubai-based airline, on Monday announced a $9bn order for 30 Boeing 777 passenger jets, making it the biggest deal so far at the show."

This follows the the Berlin airshow where she reported on June 8th that "the Dubai-based airline, placed one of the largest civil aircraft orders in history on Tuesday when it said it would buy 32 A380 superjumbo passenger jets from Airbus in a deal worth $11.5bn." That Airbus claimed was the biggest commercial aircraft order by dollar value ever.

At the time the FT's Clark further reported, "Emirates already had 58 A380s on order, with Tuesday’s announcement taking that number to 90, firmly cementing its position as the largest operator of the superjumbo.

"The deal is a big boost for Airbus, which now has 234 orders from 17 buyers. The programme is far from making a profit, however, after it was affected by numerous delays and cost overruns.
In addition to its A380 orders, Emirates has 70 Airbus 350s, 18 Boeing 777-300s and seven Boeing air freighters on order, totalling 143 wide-body aircraft worth more than $48bn.

"The world’s largest passenger jet, which typically has 525 seats, costs $346.5m at list prices, although large customers receive sizeable discounts."

While the luxury airlines can offer has been much commented on in the press, Airbus is stressing that the A380 is a money maker for airlines: "The big news for operators is that the A380 is earning hard dollars at the same time. Introducing this next-generation jetliner is saving customers millions in operating costs annually while creating thousands of extra seats on long-haul routes. With the lowest cost per seat and the lowest emissions per passenger of any large aircraft, the A380 provides a competitive edge."

Molly McMillan reports in Air Capitol Insider, Hawker Beechcraft has found some business and Bombardier brags "it has captured 50 percent of net orders in the 100- to 149-seat marekt segment over the past two years. The program is on schedule for entry into service in 2013."

In a video report, Richard Milne reports from the Farnborough Airshow on the rise of emerging market manufacturers and the challenge posed to Airbus and Boeing from the Bombardier C-Series. (3m 5sec)

Separately,Molly McMillan reported in the Eagle, that "Hawker Beechcraft is looking at states that might be suitable for developing facilities to build parts for the company and has narrowed the field to two — Mississippi and Louisiana" according to its CEO, Bill Boistur. Molly McMillin reports that he said, "'The market for our products has decreased dramatically over the last 18 months...Our view is that this is not a momentary decrease, and we believe strongly it's necessary to adjust the cost structure of the company to be able to be profitable in a small market.'"

Can a company be more credit-worthy than its government?

2010-06-14T09:08:00.000-07:00

In this June 10 2010 video, the Financial Times investment editor, James Mackintosh explains that in 2008, McDonald's became more credit-worthy, according to its bonds and credit default swaps, than the US government. Back then, it was seen as an oddity but now investors are starting to sit up and pay attention. Mackintosh explainss why the spreads don't really make sense. (3m 3sec)

The Balance-Sheet Recession

2010-06-10T13:41:00.000-07:00

The CFA Institute is holding it conference in Boston. The Wall Street Journal reporter, Donna Kardos Yesalavich, speaks with Nomura Research Institute's chief economist, Richard C. Koo, who describes the current recession as a "Balance-Sheet Recession." 6/4/2010 2:39:28 PM

Banks and Risk

2010-06-06T13:16:00.000-07:00

The Economist walks through how financial institutions misread the risks they were taking, and were more vulnerable than they imagined in this video.

Stephen Roach: Unconscionable Policy Blunders

2010-06-06T13:04:00.000-07:00

Stephen Roach, the chairman of Morgan Stanley Asia on the bittersweet taste of vindication and China's role in the economic crisis:

Myron Scholes on Financial Innovation and Regulation

2010-06-06T12:53:00.000-07:00

Myron Scholes is a Nobel Laureate for his work in financial innovation, the Frank E. Buck Professor of Finance, Emeritus, at the Stanford Graduate School of Business, and the chairman of Platinum Grove Asset Managemen. The seemingly esoteric mathematical model he and Fisher Black developed for pricing options is now checked on every trading floor and is used even by stogy accountants. The Economist interviews him on why innovation must lead, how markets should be regulated, and why taking huge risks became so comfortable going into the financial crisis.

The Economist on the The German Economy

2010-06-06T12:38:00.000-07:00

What China Sees as Its Borders are not What its Neighbors See Them

2010-06-06T10:49:00.000-07:00

In this video the Economist reviews the history that has led to suspicions between China and its neighbors that bedevil its boundaries to the east, south and west:

Please note that the Republic of China overthrew the last Chinese dynasty. When Mao Zedong led the Chinese Communist revolution against the Republic, he eventually conquered the mainland after Japan withdrew. Chiang Kai-Shek retreated to the island of Taiwan with his government.

Asia's growing economic power.

2010-06-06T10:36:00.000-07:00

The Economist shows graphically that Asia is regaining the economic dominance it enjoyed a millennium ago - but it still has some way to go.

The "B" in BRIC is Brazil and Henrique Meirelles is Brazil's Banker

2010-06-06T09:55:00.000-07:00

My four favorite central bankers are Thomas Hoerner, Glenn Stevens, Mark J. Carney and Henrique Meirelles.

Henrique Meirelles is the president of Brazil's Central Bank. In this video he has tea with the Economist and says there's no room for complacency despite Brazil's impressive economic performance.

Treasury Securities ar ethe Risk Free Asset...For Now

2010-06-05T15:09:00.000-07:00

On Ft.com, James Mackintosh, investment editor, explained in a May 27 2010 video how the dollar remains the world’s reserve currency despite the enormous US budget deficit. (1m 48sec)

But we can only print dollars to pay off our debt if countries take those dollars. Can we fool all the countries all the time?

Apple vs. Microsoft II

2010-06-05T14:02:00.000-07:00

Clare McKeen argues that you should hold both cool Apple and Stogy Microsoft.

Have Stocks Fallen Too Far?

2010-06-05T10:59:00.000-07:00

On June 1st, 2010 Jennifer Hughes, senior markets correspondent for the Financial Times, asked whether the stock market sell-off overdone. Looking at the ISM’s purchasing manager’s survey and anticipating Friday non-farm payrolls data thought that a week of good news from big headline data could mark a turning point, and given the current pessimism pervading the market, the real tail risk might be a move to the upside. (2m 34sec)

Unfortunately, the BLS disappointed.

http://video.ft.com/v/89323862001/June-1-Is-the-sell-off-overdone-

Mark Hurd, CEO of Hewlett-Packard

2010-06-05T10:51:00.000-07:00

Jun 3 2010 Mark Hurd, CEO of Hewlett-Packard, speaks to Richard Waters, FT West Coast editor, about acquiring Palm, moving into the smartphone market, vertical integration and the impact of the Foxconn suicides. (11m 24sec)

They discuss business models, vertical integration, and product innovation.

Can the BLS Move the Dollar? If So, Which Way?

2010-06-05T10:49:00.000-07:00

On June 3rd, 2010, James Mackintosh, investment editor for the Financial Times, looked forward to the Bureau of Labor Statistic (BLS) monthly employment report from the US. He discusses how interest rates and the strength of the economy inter -react with foreign exchange markets in determining the value of the dollar. (2m 15sec)

U.S. High Yield Default Spread Premia

2010-06-01T20:12:00.000-07:00

March 10 2010 John Authers says that it is good news that the credit market is much less newsworthy than it used to be. What are junk spreads compared to likely losses form default? Deutche Banks provides some estimates and the trends. (2m 57sec)

BRIC Solid Growth For the P&Gs of the World

2010-06-01T20:08:00.000-07:00

Apr 29 2010: Consumer goods companies are coming back. Jonathan Birchall in this FT.com video, reports on solid results from Procter & Gamble, Colgate-Palmolive and Unilever, fuelled by demand in emerging markets. (1m 35sec)

Money Illusion

2010-06-01T20:04:00.000-07:00

March 3 2010 One of the strongest forces behind the rebound in stock markets may be money illusion. People tend to think about investments in nominal terms (without taking into account inflation), and in terms of their own home currency, says John Authers in this FT.com. (2m 33sec)

Bursting Bubbles Leave Their Marks

2010-06-01T20:00:00.000-07:00

March 9 is the tenth anniversary of the crash of Nasdaq's bubble.

In this FT.com video,John Authers opines that we are still suffering consequences.

What a Difference a Year Makes: US TV networks

2010-06-01T19:35:00.000-07:00

In this May 20 Video,Kenneth Li notes how TV networks are re-thinking business models. On and off screen, the media industry is returning to comfort zones disturbed in recent years by thousands of alternative sources of entertainment on the internet. Across the media sector, executives were eager to convince advertisers that television is as resilient as it was in the eras they are harking back to. (1m 54sec)

Not Your Typical CEO

2010-05-31T20:36:00.000-07:00

The Wall Street Journal's Kaveri Niththyananthan talks with Virgin Atlantic's President Richard Branson about the future for Virgin, strikes at BA and price fixing allegations. Branson is for competition in ways many CEOs are not.

Virgin's Jilie Southern Talks strategy and the Airline Outlook

2010-05-31T20:32:00.000-07:00

The Wall Street Journal's Kaveri Niththyananthan interviews Virgin Airline's Chief Commercial and Financial Officer, Jilie Southern, about the outlook, the impact from volcanic ash and her opinion on new government policy:

Apple Worth More Than Microsoft?

2010-05-31T20:19:00.000-07:00

The WSJ's Simon Cosnable and Dennis Berman joins the News Hub to discuss how last Wednesday (5/26/2010), Apple's market capitalization past Microsoft's:

When Earnings Go Up, Stocks Go Down?

2010-05-31T20:00:00.000-07:00

Corporate profits are still posting positive surprises, but Alex Eule reports the market has seemingly lost interest. From Barrons.com's:

When the Euro Sneezes, Does the Aussie Dollar Catch Something?

2010-05-31T19:59:00.000-07:00

WSJ's David Wessel joins the News Hub and discusses why Europe's problems threaten not just Europe. Note the great view of the Sydney Opera House seen from St. Aloyisius? The next building after that is the Parthenon in Athens.

Has Greece's Profligacy Made Some Top European Stocks A Buy?

2010-05-31T19:44:00.000-07:00

The Euro crisis has driven the currency down versus the dollar making Europen stocks cheaper for those of us who buy with greenbacks. It has also driven European stock prices down in Euros.

Does this mean there are bargains? Vito J. Racanelli, Barron's European Editor suggests some candidates:

As Australia Goes, So Goes the Global Economy?

2010-05-31T19:34:00.000-07:00

Andria Cheng previews this week's news from Asia.

Australia's GDP and Rate Decision: Among the world's central banks, the Reserve Bank of Australia (the RBA) has aggressive withdrawing monetary stimulus The RBA is expected to keep its rates steady as European debt worries roil global markets.

China's Purchasing Managers' Index will show where the world's second largest economy is going.

Here is a Barron's video:

Ryan Air and Ahold to Report

2010-05-31T19:29:00.000-07:00

Aude Lagorce reports on the forthcoming earnings reports by Ryan Air and Ahold:

Are Stocks Cheap?

2010-05-27T13:36:00.000-07:00

May 24 2010: On FT,com, investment editor James Mackintosh asks whether stocks are cheap. In this video he compares European stock and bond yields and the basis point spread in LIBOR markets.

U.S. Retail Sales

2010-05-27T13:25:00.000-07:00

Jason Weisberg of Seaport Securities talks about upcoming US retail sales figures and last week's glitch that saw equity markets sell off sharply. (2m 39sec)

The Giant To The South: Prometheus Bound?

2010-05-27T13:24:00.000-07:00

In this Financial Times video, Jonathan Wheatley reports on the colossal challenge facing Brazilian farmers and manufacturers because the country lacks the infrastructure, the roads and port facilities, to export its wealth. (3m 24sec)

May 26 2010

Risk Aversion

2010-05-27T13:23:00.000-07:00

Aline van Duyn reports that investors are running away from risk. Could it be that we are mostly talking about speculators who being subsidized by too cheap money compliments of Chairman Bernanke?

The Voice Crying Out In the Wilderness

2010-05-19T05:50:00.000-07:00

Maria Anastasia O'Grady normally writes about Latin America. She is the Wall Street Journal's Americas columnist. Perhaps her experience with Latin American inflationist policies and monetary proflicacy made her the appropriate person to interview Tom Hoenig, the one hawk on the Federal Open Market Committee, the only member who seems to think loose money sinks economies. Ms O'Grady explains this is in part because Tom Hoernig learned bank supervision in the the 1970s in the mid-west when the energy and farmland bubbles burst in the late 1970s and early 1980s. He saw the effect on the local economies, businesses, employment, and growth. He is no stranger to the human costs of bubbles.

Yet our policy makers are once again pursuing a policy of negative real policy rates (i.e., the federal funds rate is set below what inflation is expected to be. Investing in T-Bills is a guaranteed mug's game. it would seem new bubbles are on the way. "But if it happens the fault won't lie with one stubborn voice of dissent, crying out in Missouri."

It is refreshing to hear Hoenig tell us that "'Monetary policy has to be about more than just targeting inflation. It is a more powerful tool than that. It is also an allocative policy, as we've learned. In other words, when we kept interest rates unusually low for a considerable period we favored credit and the allocations related to it over savings, and we created the conditions that I think facilitated a bubble."

Here Is One Investor Who Thinks Fighting Bubbles Is In Dr. Bernanke's Job Description!

2010-05-18T20:19:00.000-07:00

Many still think Alan Greenspan walked on water. Jeremy Grantham is not one of them. The good Dr. Greenspan seemed to think that preventing bubbles was neither part of his job nor realistically feasible. Having suffered thorough the aftermaths of the high tech bubble and the housing bubble, has thinking on Constitution Avenue changed? unfortunately not. Pauline Skypala writes that "Mr Grantham sees Ben Bernanke, chairman of the Federal Reserve, following the same path as his predecessor." He and his firm have identified thirty two bubbles over the last ninety years.

As to his own business, the investment business, does it add value? "The business is a zero-sum game, he points out, and 'we collectively add nothing but costs'. Costs have grown because there is no fee competition, due to the agency problem and the information advantage the agent has over the client. Growing complexity has increased the client’s dependence on the industry."

What Has Paris Got to Do with What My Lady Buys at Kohl's or Penny's?

2010-05-13T09:00:00.000-07:00

While some of us ask whether the oddly proportioned ladies on the fashion runways were genetically engineered, a reader of the Wall Street Journal asks Teri Agins, the Journal's fashion editor, about "How Fashions Trickle Down From Runways to Stores."

Agins tells us, "Runway creations provide many ideas that trickle down to the masses. Alexander McQueen's low-riding 'bumster' pants [see picture by Rex] seemed downright radical in the mid-1990s. But the revolutionary silhouette inspired many interpretations—and gradually morphed into the low-rise jeans that are so ubiquitous in shops today. Of course, not every design has a runway origin; Capris date back to the 1950s but were revived as recently as a decade ago.

"The mainstream market offers a mix of original designs and runway interpretations."

Penny's, J. Crew, and the rest keenly follow the traveling fashion show as it goes from Milan to Paris to New York. They then design for their own customers. Agins writes that stores "have design teams who possess a keen sense of their consumer fans and give them what they want." Consequently, "what's offered in stores doesn't really change very much. Most customers gravitate to familiar styles that work on many body types, tweaked just enough to look new."

One of the cleverest firms is Zara which has honed the art of imitation and design. Its competitive advantage lies in the speed with which it can put trendy designs on the racks and turn over their fashions. Zara is headquartered in Coruña, Spain. It has ridden its design cycle and supply chain management to spectacular growth and profitability for its parent,Inditex.

Inditex earned €1.3bn on sales of €11.1bn over its fiscal year ending January, 2010, up from the prior year's €1.25bn. Retailers typically have fiscal year ends ending in January. This permits a general inventory after Christmas and January "white sales." Mark Mulligan explained in the Financial Times that "sales rose 7 per cent," not bad in a global recession which hit particularly hard in Europe. Mulligan attributed it to "expansion in Asia [which] helped offset weakness in the domestic market and other faltering European economies. After stripping out currency factors, global revenues rose 9 per cent, the company said."

Benjamin Graham and Commodity Based Money

2010-05-08T14:40:00.000-07:00

Vivian reviews World Commodities and World Currencies, by Benjamin Graham (McGraw-Hill, 1944) on the website bufferstock.org . She writes that Graham "wanted [the IMF] to finance international multi-commodity buffer stocks which would be bought and sold automatically; and to monetize what was in these pools to back paper money as gold did in 1944 with a commodity reserve currency.

"Curiously enough, Graham's views - called "groceries first" - garnered support from economists as divergent as von Hayek and Lord Keynes."

Payrolls Are Up, Employment is Up, and the Labor Force Surges Causing a 9.9% Unemployment Rate

2010-05-07T06:45:00.000-07:00

BLS released its April jobs report. Unemployment hit 9.9% because the labor force jumped by 805,000 including almost 200,000 re-entrants. Payroll jobs were up 260,000. Private jobs up 231,000 including 44,000 manufacturing jobs.

Although the unemployment rate rose, the household survey showed employment growing faster than population for the fourth straight month.

As for Wichita's unemployment situation, aviation is the core of its economic base. There was no evidence of a rise in aviation jobs in the report motor vehicle manufacturing jobs rose by 4,100 jobs while other transportation equipment employment fell by 4,000.

Correction: The last sentence should read: "There was no evidence of a rise in aviation jobs in the report: motor vehicle manufacturing jobs rose by 4,100 jobs while other transportation equipment employment fell by 400."

Zuckerman: Investing in an Age of Bubbles

2010-04-26T05:36:00.000-07:00

Zuckerman: Investing in an Age of Bubbles WSJ 4/25/2010

Author of the Greatest Trade Ever, Gregory Zuckerman, explains to Simon Constable why he thinks the world of investing has changed and how small investors should be willing to try new tactics to make money.

What Paulson Taught Zuckerman About Investing

2010-04-26T05:35:00.000-07:00

What Paulson Taught Zuckerman About Investing WSJ 4/24/2010

Author of the Greatest Trade Ever, Gregory Zuckerman, explains to Simon Constable how small investors can learn from the quirky outsider tactics of John Paulson, the hedge fund manager at the center of the Goldman Sachs subprime trading scandal.

The Economy Hit Bottom, But It Is Still Not Official

2010-04-13T09:01:00.000-07:00

June, 2009?

Here at Mammon Among Friends, you have been reading for some time that the recession of 2007-2009 ended last June (i.e., June, 2009.) The Business Cycle Dating Committee of the National Bureau of Economic Research (the NBER) ducked the issue, although it looks like a consensus agrees with me. Their caution flows from a fear that we might have a repeat of 1980 and 1982 when we had either back to back recessions or one double dip recession. The committee's decision was for the former.

I have no doubt we are well into a recovery and that the trough was June 2009.

Robert Gordon agrees: "It is obvious that the recession is over. Real GDP has recovered strongly from a trough in 2009:Q2 and by 2010:Q2 (the current quarter) will have reached (or be very close to) its value reached in the peak NBER quarter of 2007:Q4...The traditional measure of production used by the committee is the Federal Reserve Board Index of Industrial Production (IIP), which reached a well-defined trough in June 2009. For those who object that the IIP refers only to about 15 percent of the economy, the broader monthly measure real manufacturing and trade sales also reached its trough in June 2009. The private firm Macro Advisers has constructed a measure of monthly GDP that is available back to 1992, and this also indicates a cyclical trough in June 2009. While real GDI is flat across 2009:Q2 and 2009:Q3, quarterly real GDP reaches its trough in 2009:Q2, as does the average of quarterly real GDP and real GDI. Thus we have three monthly measures that reach a trough in June, the average of two measures of aggregate economic activity which reach their trough in 2009:Q2, and no clearly defined troughs occurring later than that in any series other than the traditional lagging data on aggregate hours of work and total employment."

Gordon is the senior guy on the committee now that Victor Zarnowitz is dead. I'm in good company!

Jeffrey Frankel seems to be in the same camp. On April 5th, he blogged, "The recession is over."

What is a Recession?

A recession is a broad, sustained decline in a wide range of economic indicators. The committee has put increasing stress on GDP over the years , although not as much as they did in 1966. Still the monthly indicators are decisive and most of the coincident indicators are measures of private activity: e.g., real retail sales, industrial production, personal income minus transfer payments.

The committee's actual statement was:

"The Business Cycle Dating Committee of the National Bureau of Economic Research met at the organization’s headquarters in Cambridge, Massachusetts, on April 8, 2010. The committee reviewed the most recent data for all indicators relevant to the determination of a possible date of the trough in economic activity marking the end of the recession that began in December 2007. The trough date would identify the end of contraction and the beginning of expansion. Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature. Many indicators are quite preliminary at this time and will be revised in coming months. The committee acts only on the basis of actual indicators and does not rely on forecasts in making its determination of the dates of peaks and troughs in economic activity. The committee did review data relating to the date of the peak, previously determined to have occurred in December 2007, marking the onset of the recent recession. The committee reaffirmed that peak date."

Where Are We At? Where Are We Going?

We certainly should have a strong recovery given how far the economy fell. The first part of a recovery is when things are at their worst. Places where the housing bubble was the worst will recover more slowly.

My greater concern is that the administration's health care payment "reform" and taxing will create a second recession much like the very severe Roosevelt recession of 1937-8. That would not be pretty.

2010-04-10T20:30:00.000-07:00

Jamie Dimon, the boy from Queens, Mammon Among Friends' 2009 Banker of the Year, and hero of the financial crisis, has taken on Washington. "Mr. Dimon Goes to Washington" Robin Sidel and Damian Paletta wrote last Wednesday that far from keeping a low profile in our bankerphobic time, "he's spent the past year launching his own campaign to stave off government proposals that would rein in profits, boost consumer protections and impose new fees."

Here is Robin Sidel discussing what they wrote with Kelly Evans and Evan Newmark.

Junk versus Quality

2010-04-09T09:01:00.000-07:00

Is it time to shift from the bottom fishing bargains to the solid investments?

How to Buy a Mutual Fund

2010-04-09T08:59:00.000-07:00

A mutual fund is an open ended investment company. Here Jonathan Burton tells us to look beyond just what the fund has done lately when picking which fund to invest in.

You should also carefully examine your own personal financial objectives in light of your own financial consideration.

Market Geeks and Gold

2010-04-09T08:55:00.000-07:00

Gold at $1,127 an ounce?

Technical analysts predict there is more juice in the gold rally.

Technicians focus investment decisions on psychology and pure supply and demand considerations. Since they look at chart patterns, they are often called "chartists."

Three Imbalances Threaten Long-Term Economic Stability

2010-04-03T08:03:00.000-07:00

You can may have read the following commentary in the Wichita Eagle(3/25/2010):

The Economic Recovery

We are emerging from a financial and economic crisis of historic dimensions. Unemployment reached levels not seen since 1982. America suffered the largest falls in industrial output and housing starts since the "Roosevelt Recession" of 1937-38

However deep the recession, the recovery is well under way. A long list of indicators hit bottom last year and are rising: auto sales (February), durable goods orders (March), real retail sales (April), housing starts (April), and industrial production (June). The fall in global industrial production ended in March as did world trade's in May.

Most economists are sanguine about the long term but judge the current recovery to be fragile and weak. The consensus is wrong. This recovery is solid and broad-based.

Emerging economies (particularly Brazil, China and India) are leading a worldwide expansion. America's longer-term prospects are the real worry.

The Reckoning

Three major imbalances threaten the country's long-run economic stability and prosperity. We went into this crisis with a trade deficit equal to 5 percent of GDP and savings rates near zero. Government deficits equaled 1.2 percent of GDP when unemployment was still only at 4.6 percent. We could finance these imbalances only because the rest of the world was willing to lend us trillions of dollars. That dependence is neither in our long-term economic nor geopolitical interests.

This overdependence on foreign credit led to massive misallocations of America's resources. The housing bubble grew from 2003 and peaked in August 2006. Over that time period, home-building sucked an extra $900 billion in real resources away from the rest of the economy.

Finance and real estate grew to over 20 percent of the economy. Our brightest young graduates found it more attractive to become financial engineers rather than build planes and invent new products. We will be paying for this deadweight loss in higher unemployment and lower economic growth for many years.

The Future

Correcting the imbalances means we must save more and use less of what we produce for ourselves. In other words, Americans face lower living standards

Lower standards of living and a falling dollar will translate into higher domestic prices. If policymakers misinterpret those rising prices and continue to fight structural change with the wrong tools, they will start a vicious policy cycle culminating in the loss of the dollar as the world's reserve currency and unpredictable turmoil.

Where are our policies now? This recession was global and induced a global response. Many nations including America have disinterred the theories of John Maynard Keynes to justify massive government spending programs ("fiscal stimulus") to fight the recent economic recession. Central banks have used the ideas of Keynes' nemesis, Milton Friedman, to justify vanishingly low interest rates ("monetary stimulus") and unprecedented financial market interventions ("quantitative easing") toward the same end. This focus on the short term is crowding out the need for correcting the economy's imbalances. I doubt either Keynes or Friedman would wholly approve of the sins being committed in their names.

And in the Long Run...

What makes a great statesman? Historian J. Rufus Fears found three essential elements. A great statesman clearheadedly identifies and analyzes a major problem. Then he implements a solution that works both in the short run and in the long run. Focusing on the immediate problems of the 1930s, Keynes dismissed "the long run, (when) we are all dead."

Yet in the 1940s, Keynes turned around and engineered a remarkably resilient postwar monetary system. That act of statesmanship produced peace and prosperity for generations. Contrast that with current economic policy, where "in the long run, we are all in the soup."

You Doubted that We Are in a Recovery? Jobs Up by 162,000 Confirming the Household Uptrend

2010-04-02T08:34:00.000-07:00

Confirmation for the Recovery

Mammon Among Friends has been dating the cyclical trough at June, 20010. Skeptics can now finally find confirmation that there is indeed a recovery in the jobs data announced this morning.

The Bureau of Labor Statistics announced, "Nonfarm payroll employment increased by 162,000 in March, and the unemployment rate held at 9.7 percent. Temporary help services and health care continued to add jobs over the month. Employment in federal government also rose, reflecting the hiring of temporary workers for Census 2010. Employment continued to decline in financial activities and in information."

The Household Survey of Employment

I have been following the household data very closely. While noisy and trend distorted by the Census Bureau's insensitivity to the need for useful time series, the household data do not suffer from the cyclical biases of the payrolls data.

The unemployment rate remained at 9.7 percent in March, below its cyclical high of 10.1 percent in October. For three months, households have reported large increases in employment after a huge drop in December (During Christmas, retailers did not hire as many workers as the seasonal adjustment process projected.) Labor force growth has been strong.

Employment increased faster than population again in March. Common sense dictates that the employment ratio, which hit bottom in December, should be a long lagging indicator. Bottoming out six months after the cyclical peak would be consistent with that characterization.

The unemployment rate is now five months past its cyclical high and the employment ratio is three months past its cyclical low. This reflects the global recovery.

The Economic Recovery

We are emerging from a financial and economic crisis of historic dimensions. Unemployment reached levels not seen since 1982. America suffered the largest falls in industrial output and housing starts since the “Roosevelt Recession” of 1937-8.

However deep the recession, the recovery is well underway. A long list of indicators hit bottom last year and are rising: auto sales (February), durable goods orders (March), real retail sales (April), housing starts (April), and industrial production (June.) The fall in global industrial production ended in March as did world trade’s in May.

Wichita

Aircraft orders were up sharply in February according the the Census Bureau for the second straight month. The BLS payroll data indicated aerospace employment was level for March (it does not break out the detail in its monthly reports.)

Jobs

2010-03-05T10:18:00.000-08:00

The Bureau of Labor Statistics released its Monthly Employment Report for February. Reading the tea leaves, we find confirmation that the economic recovery is underway. I stick by the judgment that June, 2009 was the trough.

There was little agreement among economists anticipating the reports. Snow had dampened construction activity and retail sales particularly in the east. The "Consensus" estimates were a drop of 50,000 jobs and a rise in the unemployment rate from 9.7 percent to 9.8 percent. The unemployment rate actually stayed at 9.7 percent and jobs dropped by 36,000. According to American households, employment increased by more than popul;ation for the second straight month and it looks like the employment population ratio hit bottom in December.

If you strip out auto sales from the BLS's estimate of transportation equipment employment, we find jobs fell by a thousand. This gives us some evidence that aircraft industry jobs are not growing.