Thursday, January 31, 2013

Stuttering Santander

In this FT video (2m 41sec), Stuart Kirk and Oliver Ralph discuss Spain's premier bank, Santander.  Globalizing itself with major invasion into Latin America primarily, it has gone all out for growth over the past decade.  This diversification out of its home market has proven wise.  Spain is doing badly with 20% unemployment.  The path to earnings growth has not been a Yellow BRIC Walk. Its emerging market hope, Brazil, is falling short of expectations. 

The Great Rotation Part II

In this second video (4m 19sec), those hoping for a "great rotation" from bonds to stocks might start by looking for smaller rotations within the equity market. James Mackintosh, investment editor, says the signs are mixed.

The Great Rotation Part I

In this January 31st FT video (5m 18sec), David Bowers, global strategist at Absolute Strategy Research, discusses the main issue in asset allocation with Long View columnist John AuthersFinancial panic has subsided into mere nervousness that a great rotation by investors from bonds into equities could be imminent.  Is the shift in monetary regime clear enough yet, and there is a danger of over-exposure to defensive equities or 'bond proxies.'  

Monday, January 28, 2013

Would Alan Mallay Use the Verb, "Witchhunt?"

Boeing's 787, the Dreamliner, has been grounded worldwide because to fire worries with the lithium ion batteries used in it. According to the Economist's Schumpeter blog, the grounding "follows a string of safety problems, including two fuel leaks and an electrical fire aboard a domestic flight that required an emergency landing. There is particular worry about the potential for the plane’s lithium-ion batteries to catch fire."  Moreover the blog also quotes Sandy Morris of Jefferies who "points out that Airbus’s A350 (a forthcoming rival to the 787 which is already more than a year behind schedule) uses lithium-ion batteries like the ones suspected of causing some of the 787’s problems. So if they are to blame, the A350 programme may suffer too."

Jon Ostrower and JoAnn S. Lubin wrote in yesterday's Wall Street Journal that two very high profile CEOs have their names very firmly attached to the Dreamliner: Ford's Alan Mullay and Boeing's Jim McNerney, chairman and CEO since July 2005.

They write that in the summer of 2005, Boeing "hired Mr. McNerney as CEO, succeeding an interim chief after Mr. Stonecipher, who had resigned suddenly because of an affair with a subordinate. A short while later, Mr. Mulally, who had also been a contender for the CEO job, left.
"Boeing soon stumbled as a string of supply-chain and design delays pushed back delivery of the Dreamliner by 3½ years. 'We are trying to witch-hunt the issues in this program right now,' Mr. McNerney told investors in October 2006 as the problems became apparent."

I find it hard to believe Alan Mallay would have said that.  "Witch-hunt" does not sound like a word in his vocabulary.  In American Icon: Alan Mulally and the Fight to Save Ford Motor Company, Mullay's biographer, Bryce G. Hoffman, describes how he used the same techniques to turn Ford around that he used in managing projects like the 777. He built teams with his weekly "war room" meetings that thrived on a culture of both trust and accountability.  Hard bitten, cynical Detroit executives took his "aw shucks" Midwestern manners for weakness.  That did not last long. Those veterans of cutthroat corporate politics soon learned to either cooperate and be up front or play their political games somewhere else.

It would be interesting to learn how McNerney's management style differs from Mullay's.  It would be interesting to learn which style works better across the teams of engineers and managers from Boeing and its suppliers.

Hiring McNerney from the outside was forced on Boeing by the Department of Defense after successive scandals.  Military work is the other half of Boeing's business.  Such government induced changes in management can have unforeseen consequences.  Think of AIG after New York State's Eliot Spitzer forced Maurice R. Greenberg out in 2005.  It is hard to imagine Greenberg letting his trading desk get as out of hand as his successor did.  The subsequent near collapse of AIG and its bailout are now history. 

In this video from January 24th, Ostrower tells the Journal why both McNerney and Mulally have much at stake:

Spirit, as a big supplier of the Deamliner, is of course vulnerable to the plane's troubles.  we here in Wichita hope for a speedy resolution.

Are Treasuries Turning?

The bull market in US Treasuries is three decades old. 
Michael Mackenzie, US markets editor, tells Long View columnist John Authers in this January 25th video (5m 10sec) that this could be about to change.   The rise in equities as a harbinger of a strengthening economy suggests bond yields are set to rise.  

Friday, January 25, 2013

America's airfleet getting long in the tooth.

Carol Massar on Bloomberg TV reports the America has the oldest fleet of commercial aircraft:

The video was on Bloomberg Television's "Bloomberg Rewind," January 18th.

Thursday, January 24, 2013

Deleveraging: When Will They Ever Learn?

The recent recession was caused by the overexpansion of credit.  Part of the financial recovery from a bubble is the reduction of debt on a society's collective balance sheets (businesses, financial institutions, households, and governments.)  This reduction is referred to as "deleveraging."

The Economist's Buttonwood columnist worries that "the US is the only nation where it's possible to argue that any deleveraging has occurred."  For most developed countries, overall debt to GDP ratios are higher now than during the financial crisis.

Even that is not enough, he says: "Nevertheless, if you think the system was overgeared in 2007, at the height of a credit boom, then it's hard to argue it's not overgeared now. " "Gearing is British for levering.  Americans convert the noun, "leverage," into a verb for the same purpose.

Monday, January 21, 2013

Will This Movie on Fracing Light Your Fire?

Ann McElhinney and Phelim McAleer have directed a new documentary about hydraulic fracturing that gives a very different picture from that portrayed in the Acadamy Award nominated documentary, "Gasland."  McElhinney is a bit of a fiery journalist, perhaps because of the attempt to muzzle the Irish pair (see below.)  Telling an Irishman or Irishwoman to shut up is hazardous.  Here are some things she has to say about what they found in researching "FrackNation: A Journalist's Search for the Fracking Truth:"

She is certainly right that the first hydraulic fracturing was done here in Kansas in 1947.  It was in the Hugoton field in southwest Kansas.  I doubt that that conventional well was in a shale formation since the field is "mostly Permian limestone and dolomite."

Video journalist Phelim McAleer questioned Josh Fox, the producer of the anti-hydraulic fracturing documentary "Gasland," about why he failed to disclose that methane has been present in Colorado water for decades and thus flammable at the tap:

In the New York Post, McAleer wrote last spring, "One of the most dramatic images in 'Gasland' is footage of a resident lighting his tap water with flames shooting out of the faucet.

"As a journalist, I wanted to learn more, so I went to a Q&A with Gasland director Josh Fox. As I questioned him, Fox eventually admitted that he knew people could light their tap water in these areas decades before fracking came on the scene.

"But he did not include the fact in his documentary because, he said, 'It was not relevant.'"

He then went on to tell of Fox's attempts to get the above video removed from YouTube and other internet sites.

Unlike "Gasland" and "Promised Land," Matt Damon's anti-fracing movie FrackNation is not financed by big Hollywood money.   It took a much more democratic route to finance itself.  Christopher Toto tells us "FrackNation, like many independent films of late, went the Kickstarter route to help bring its story to the masses."

According to the director's statement, "'FrackNation' was funded through the crowdsourcing website Kickstarter. The filmmakers raised $212,265 from 3,305 backers on Kickstarter on April 6, 2012. It was one of the most successful documentary campaigns in the history of Kickstarter."

John R. Hays, Jr., an eminent Texas attorney with an extensive practice in the oil and gas industry, tells me that the proper way to shorten "hydraulic fracturing" is "fracing" not "fracking," given industry practice.  I am afraid the industry is losing the spelling war: it is not the geologists and the petroleum engineers who are winning.