Archive for June, 2009
June 30th, 2009 by Jon Taplin
The Pew Center for Media surveyed the Cable TV networks last week.
Fully 93% of cable coverage studied on the Thursday and Friday following his death was about the King of Pop.
Were not talking about Entertainment Tonight here–this is CNN, MSNBC, Fox News they are measuring.The TV News executives are so attuned to the Hive Mind that if they stopped feeding Michael Jackson news and started reporting Iran, the hive mind would tune to another channel. Bill Wasik (Flash Mobs) talked about this to Salon a couple of weeks ago.
Instead, it’s like this giant hive mind will pluck out something that you’ve done and say, this we love, this we bestow the pleasure of 2 million hits on. From there on out, you’re going to use those cues you get from this giant machine to tell you what to keep doing and to tell you what to stop doing. And that to me is potentially scary in all sorts of ways. The hive mind selects for a certain kind of thing, it selects for culture that is instantly digestible, it selects for culture that is sensational in a certain sort of way.
If all news and all culture has to be sensational, then we’re fucked.
I’m going out in the woods to take a long quiet walk.
June 29th, 2009 by Jon Taplin
OK, so Bernie Madoff will spend the rest of his life in jail. But the question of what happened to the money still remains.
The central problem being played out among Madoff victims is that only a small fraction of the nearly $65 billion that disappeared has been recovered.
So he didn’t earn 10% a year on the invested money with some fantastic stock picking skill. Even if he had left it in a money market account earning 2%, it wouldn’t explain how most of the $65 billion has disappeared, unless as I speculated in January it was just a money laundering operation for some very bad people who made sure they got whole.
June 28th, 2009 by Jon Taplin
General Electric’s CEO Jeff Immelt gave a speech in Detroit on Friday announcing a new manufacturing plant. What he said went beyond the usual corporate-speak into the realm of essential truth.
Many bought into the idea that America could go from a technology-based, export-oriented powerhouse to a services-led, consumption-based economy – and somehow still expect to prosper. That idea was flat wrong. And what did we get in the bargain? We’ve seen a great vanishing of wealth. Our competitive edge has slipped away, and this has hit the middle class hard.
As a nation, we’ve been consuming more than we earn, saved too little and taken on far too much debt. Growth in research and development has slowed. Our country has made too little progress on some of the defining challenges of our time – like clean energy and affordable health care. Our budget and trade deficits have reached levels that are clearly not sustainable…
Recently my colleague Peter Loescher, the CEO of Siemens, extolled the importance of Germany as an exporting country. In my career, I have never heard an American CEO say that the United States should be leading in exports. Well, I am saying it today: This country ought to be, and we can be, not just the world’s leading market but a leading exporter as well.
As I have been saying, the consumer economy will not rescue us from this crisis. We have to become an export power again. And this transition has to come soon. Bob Herbert pointed this morning to a shocking study on labor underutilization (unemployed+part time employed+given up looking for a job).
“By May 2009,” according to the Center for Labor Market Studies at Northeastern University in Boston, “the total number of underutilized workers had increased dramatically from 15.63 million to 29.37 million — a rise of 13.7 million, or 88 percent. Nearly 30 million working-age individuals were underutilized in May 2009, the largest number in our nation’s history. The overall labor underutilization rate in May 2009 had risen to 18.2 percent, its highest value in 26 years.”
If a year from now we still have 30 million underutilized workers the civil unrest could be exploited by demagogues of the right and the left. Take your pick. It could get ugly.
June 27th, 2009 by Jon Taplin
My friend John Seely Brown just sent me a report from his Deloitte Center for The Edge called The Shift Index. They make no attempt to hide the bad news for the U.S. Economy–“return on assets for U.S. companies has steadily fallen to almost one quarter of 1965 levels,at the same time that we have seen continued, albeit much more modest, improvements in labor productivity.” The meaning of this is staggering–any productivity gains from the digital revolution have been more than wiped out by our corporate (as well as personal) addiction to debt. To understand this, it’s important to grasp the difference between return on equity (the classic Wall Street measurement) and return on assets. A case study of General Motors from 2003, when SUV’s were selling like hot cakes and the management was touting it’s ROE is instructive.
Let’s calculate ROE for the automotive giant General Motors for 2003. To get the necessary data, go to the GM’s Investor Information website and look for the2003 Annual Report. You’ll see on GM‘s 2003 Income Statement that its net income totaled $3.822 billion. On GM’s 2003 Balance Sheet, you’ll find total stockholder equity for 2003 was $25.268bn and in 2002 it was $6.814bn.
To calculate ROE, average shareholders’ equity for 2003 and 2002 ($25.268bn + $6.814bn / 2 = $16.041 bn), and divide net income for 2003 ($3.822bn) by that average. You will arrive at a return on equity of 0.23, or 23%. This tells us that in 2003 GM generated a 23% profit on every dollar invested by shareholders.
Many professional investors look for a ROE of at least 15%. So, by that standard alone, GM managements’ ability to squeeze profits from shareholders’ money appears rather impressive.
Now, let’s turn to return on assets, which, offering a different take on management’s effectiveness, reveals how much profit a company earns for every dollar of its assets. Continue reading ‘America's Corporate Shell Game’
June 26th, 2009 by Jon Taplin
The Good-Beat It was arguably the single greatest music video ever made and certainly went a long way to make MTV. It is distinguished more by the choreography by Michael Peters than the music, although that’s pretty good too.
The Bad-Michael Jackson’s greed singlehandedly wrecked the music business. In the 60′s and 70′s, even the most popular artists were simply advanced the cost of their recording sessions, which were then deducted from their first royalty payments. After Thriller was such a hit in 1982, Jackson asked Epic Records for a $50 million advance against his next 5 records. They foolishly agreed and the music business which had been totally fiscally sane, took on the characteristics of the movie business with outrageous star salaries with no risk on the part of the artists. That of course led to a “winner takes all” crowding effect, in which record companies had to make very large bets and could no longer afford the small bets (Bob Dylan’s first record sold 5000 copies) that might nurture true artistry.
The Ugly
June 25th, 2009 by Jon Taplin
Haley Barbour (AKA Boss Hogg) is now one of the frontrunners for the Republican Presidential nomination in 2012, thanks to the moral turpitude of the rest of the contenders. I couldn’t think of a better representative of the contemporary Republican philosophy. For those of you who haven’t been following Haley’s carreer, here’s a little background from the Institute for Southern Studies.
Before being elected governor in 2003, Barbour worked as a lawyer and lobbyist, founding Barbour & Rogers LLC, which went on to became one of the most powerful lobbying firms in Washington and earned millions working on behalf of the tobacco industry.
Barbour has sparked various controversies during his time in politics, particularly around race and class issues. In 1982, while running a race for U.S. Senate that he eventually lost, a press aide complained to him that “coons” were going to be at a campaign stop at the state fair. In front of reporters, Barbour warned the aide to stop using racist language or he would be “reincarnated as a watermelon and placed at the mercy of blacks.”
During his 2003 run for governor, Barbour again raised eyebrows when he spoke at the Blackhawk Rally, a fundraiser for a council school in Blackhawk, Miss. Also known as academies, these private schools were created by the White Citizens’ Council movement to avoid racial integration. The rally was hosted by the Council of Conservative Citizens, which fought school integration.
What Rush Limbaugh’s party needs as a frontrunner is a corpulent closet racist who made his money fighting for the Tobacco Industry.
June 24th, 2009 by Jon Taplin
Here are two examples of companies headed for the graveyard. As Schumpeter said “Almost all businesses, no matter how strong they seem to be at a given moment, ultimately fail and almost always because they failed to innovate.”
Creative Destruction-Restaurant Division
The Casual Restauant business is in the midst of a price war.
The informal, sit-down restaurant chains that blanket the nation are fighting their most intense price war in years. Applebee’s is offering dinner for two for $20. Ruby Tuesday is handing out coupons for two entrees for the price of one. Chili’s, not to be outdone, is promoting some entrees for $7 or less.
Franchise owners “were very upset that we’re getting hammered here, we’re giving the food away,” Mr. Farro said. In contrast, he said, another promotion offering two-for-one entrees had worked well.
Taking on the I Phone
The Palm Pre has been hyped as the competitor to the I Phone, but it’s not going to happen.
So far, Palm is off to a slow start. Palm’s App Catalog has just a few dozen apps, even as Apple boasts that iPhone users can download 50,000 apps that do everything from receiving baseball videocasts to unlocking a rental car.
The payment system for the Palm app store — important if the company wants to charge for certain programs — is still under construction. And most crucially, Palm has yet to open its software development kit, the main set of tools needed to write apps, to most of the thousands of developers who have expressed an interest in creating programs for the Pre.
June 24th, 2009 by Jon Taplin
Here are two examples of companies headed for the graveyard. As Schumpeter said “Almost all businesses, no matter how strong they seem to be at a given moment, ultimately fail and almost always because they failed to innovate.”
Creative Destruction-Restaurant Division
The Casual Restauant business is in the midst of a price war.
The informal, sit-down restaurant chains that blanket the nation are fighting their most intense price war in years. Applebee’s is offering dinner for two for $20. Ruby Tuesday is handing out coupons for two entrees for the price of one. Chili’s, not to be outdone, is promoting some entrees for $7 or less.
Franchise owners “were very upset that we’re getting hammered here, we’re giving the food away,” Mr. Farro said. In contrast, he said, another promotion offering two-for-one entrees had worked well.
Taking on the I Phone
The Palm Pre has been hyped as the competitor to the I Phone, but it’s not going to happen.
So far, Palm is off to a slow start. Palm’s App Catalog has just a few dozen apps, even as Apple boasts that iPhone users can download 50,000 apps that do everything from receiving baseball videocasts to unlocking a rental car.
The payment system for the Palm app store — important if the company wants to charge for certain programs — is still under construction. And most crucially, Palm has yet to open its software development kit, the main set of tools needed to write apps, to most of the thousands of developers who have expressed an interest in creating programs for the Pre.
June 24th, 2009 by Jon Taplin
The Republican Presidential Prospect Self-Destruction Derby continues. Charlie Crist, John Ensign, Mark Sanford, Newt Gingrich (his old affair will haunt him now), John McCain. What is it about these self-righteous pols that can’t keep it in their pants?
June 24th, 2009 by Jon Taplin
Here is a scary chart. A second wave of foreclosures in California seems to be growing monthly. More disturbing is that twice the number of homes sold each month are coming back on the market through foreclosure. With this kind of supply- demand imbalance anyone who thinks that prices will stabilize soon is smoking something from Humboldt County.
And as for the inflation hawks on Wall Street, what are they snorting?