The Big Picture | November 2003

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Read it Here First II: The Productivity Paradox

Sunday, November 30, 2003 | 10:36 PM

Stephen S. Roach, chief economist for Morgan Stanley, has an op-ed in Sunday's N.Y. Times: The Productivity Paradox.

If that title sounds vaguely familiar, it may be because of something published here 6 months ago: The New "Productivity Paradox".

Although the language is quite different -- Roach is rather erudite and has an academic tone -- the concepts discussed are somewhat similar. I'm glad to see the meme we first launched into the world June 19th is finding greater resonance.

Source:
The Productivity Paradox
By Stephen S. Roach
NYT, November 30, 2003
http://nytimes.com/2003/11/30/opinion/30ROAC.html

Rookies manning the terminals!

Friday, November 28, 2003 | 06:00 AM

in Finance

Hope you had a Happy Turkey day; While I'm off in Chicago stuffing myself, I thought you might like to see what today looks like historically.

The day after Bird-day is often a winning one in the markets. My best guess is that the senior guys take the day off, leaving newbies and young'uns at the keyboards.

Here's a graphic representation of holiday market performance:

Source: VTO Report

pointer via Paul Kedrosky

A touching holiday tale

Thursday, November 27, 2003 | 06:00 AM

Be sure to check out our charming holiday tale, the "Mensa Society Rejects," over at Essays and Effluvia.

Corporate Death Penalty

Wednesday, November 26, 2003 | 05:59 PM

in Current Affairs | Finance | Politics

The first corporate casualty -- as in death -- appeared in the expanding mutual fund scandal. It was reported yesterday that Eliot Spitzer and the SEC "filed charges yesterday against the Security Trust Company, which processes fund trades, and three of its former executives. The Office of the Comptroller of Currency said it would force the company to be dissolved by March 31. The soon to be deceased company brokered deals between large hedge fund to make improper trades of the mutual fund firms.

"The company is history," Mr. Spitzer said."

This came about after Spitzer -- that's NY Attorney General Eliot Spitzer, if you're Nasty -- had warned the U.S. Senate that the mutual fund industry was in danger. The "punishments could be devastating."

Spitzer used language some considered combatitive and incendiary -- not me, but some. Spitzer testified that a "criminal conviction could be a "death penalty" for a brokerage company. He added "No company should be considered too big to fail."

The only reason Merrill Lynch was allowed to survive was that it employed so many people in the NY area. I suspect Spitzer didn't want to be responsible for putting all those people out of work; It was economics, not politics, because you just KNOW those Merrill employees ain't voting for him anyway. Killing Merrill would have been a devastating blow to the NY and NYC economies. That's right, Spitzer has the power to whack the entire NY economy. Such is the nature of the vaccuum left by the S.E.C., which the NYAG is more than amply filling. Instead, there was that small matter of a $1.4 billion settlement. Give the guy credit, for a lawyer, he certainly can add.

Still, that kind of strong talk has plenty of people scared, as well they should be. If I was Dick Strong, or Pilgrim or Baxter, I'd be hunting around for some serious legal talent about now.

"Some people on Wall Street are starting to worry about the possible repercussions of a rush to prosecute the people who manage $7 trillion of investors' savings." I would suggest that these people are worrying about the wrong things. They should think about putting the fire out before they start choosing new wall paper.

The Times also quoted former S.E.C. chairman Arthur Levitt:

"Although Mr. Spitzer's more aggressive stance and tone may seem improper to some regulators in Washington, it reflects the sinking attitudes of investors. "This kind of extreme language often brings about a reaction, but I haven't seen that reaction kick in yet because the public disgust is still running its course," Mr. Levitt said. "There are some dangers in what he's doing because he can overplay his hand," he added. "But right now the public is so disgusted with the business community that they want to see heads roll, they want to hear intemperate conversation and they want to see people go to jail."

I would submit that its more dangerous to allow these theives to operate unchecked. The bigger danger is for investors to feel the entire system is utterly corrupt beyond all repair. THAT would be devastating.

Source:
A Man of His Word
By Patrick Mcgeehan
NYT, November 26, 2003
http://www.nytimes.com/2003/11/26/business/26place.html

Banking Regulators Shut Down Security Trust Company
By Diana B. Henriques
NYT November 25, 2003
http://www.nytimes.com/2003/11/25/business/25CND-FUND.html

Is the Fed playing a game of chicken?

Wednesday, November 26, 2003 | 12:00 PM

in Finance

I don't know if they are, but CNN/Money seems to think so:

"With stronger-than-expected numbers coming in almost daily and the Fed sitting on its hands, some observers say the central bank is playing chicken with the economy, creating the risk of unnecessarily painful interest-rate hikes down the road. But some other analysts see plenty of potential trouble spots for the economy and say the chances are small that the Federal Reserve will let inflation get out of control."

Is the Fed lying? "So far, the Treasury market apparently believes the Fed's story that the economy needs to grow at a robust pace for a while before the central bankers can stop worrying about a possible, dangerous drop in prices, which would hurt corporate profits and economic growth.

But some economists don't buy it, believing the Fed is manipulating the bond market to keep long-term interest rates low. Though the Fed's main policy tool is a short-term overnight bank lending rate, it also can affect longer-term rates -- as was made painfully clear this summer, when some Fed bungling momentarily sent long-term rates soaring."

This strikes me as a bit chicken little: The long term, 20 year trend in interest rates and inflation has been downwards; Deflationary forces from overseas (China & India) are pressuring prices lower; Huge productivity increases constantly pressure the cost of goods and services lower in the U.S.

I see little danger of inflation, and or more concerned about the economy faltering by mid-2004 -- a situation I presently see as a 40% possibility. Hence, the longer they leave rates low, the better.

Source:
The Fed's game of chicken
By Mark Gongloff, CNN/Money Staff Writer
November 25, 2003: 5:45 PM EST
http://money.cnn.com/2003/11/25/news/economy/fed_chicken/index.htm

GDP Is Revised Up

Tuesday, November 25, 2003 | 11:39 PM

in Finance

Company Profits Soared By 30% In 3rd Quarter: "The economic recovery has picked up momentum, boosting the bottom lines of a wide range of U.S. corporations. The Commerce Department reported that profits at American companies rose 30% in the third quarter, compared with a year earlier. That was the largest year-over-year growth in profits in 19 years and was enough to lift the annual pace of profits above $1 trillion for the first time in history."

Biggest Gain in Two Decades Came as GDP Is Revised Up;
Red-Hot Pace Seen Cooling

"The corporate profit figures were part of a broader report on economic output, or gross domestic product. The government revised up its estimate of the annual rate of third-quarter GDP to 8.2% from the previously reported annual pace of 7.2%. The revision in GDP -- the total value of the nation's goods and services -- occurred largely because companies didn't reduce inventories as aggressively as previously thought in the face of booming consumer demand. Less inventory reduction meant companies had to produce more goods to keep up with demand.

Source:
Company Profits Soared By 30% In 3rd Quarter
By Jon E. Hilsenrath
Wall Street Journal, November 26, 2003
http://online.wsj.com/article/0,,SB106976683161752300,00.html

Holiday Discounts

Tuesday, November 25, 2003 | 05:19 PM

in Finance

One last follow up to the "Will they or won't they" discount discussion:

* French Connection (FCUK)
30% off
December 14-15
http://www.frenchconnection-usa.com/usa/bulk/0312/index3.html

* J. Crew
$30 off $100 purchase and $50 off $150 purchase
through 12/15
http://www.jcrew.com/content/email/F02/1210/cs.jhtml

* Steve Madden
30% off online only
12/13 - 12/16
http://www.stevemadden.com/

* Nine West
50% off select styles and $10 off purchase of $75 or more
through 12/31
http://www.niest.com/email/special2.html?ep_tag=50SALE

* Kenneth Cole
40% off
Dec 13 - 15
http://yen.nysportbike.com/misc/kencole.gif

* 1 800 Flowers
15% off through next year Internet only
http://yen.nysportbike.com/misc/flowers.txt

* Popcorn Factory
15% off through next year
http://yen.nysportbike.com/misc/popcorn.html

* Shelli Segal
Laundry 30% off Dec 13 - 15 (in store only, SoHo & Costa Mesa)
http://yen.nysportbike.com/misc/shellisegal.doc

* Bath & Body Works
free spa foot cream with $10 purchase. Through 12/21.
http://yen.nysportbike.com/misc/bathbody.html

* Jimmi Choo
30% off shoes
on Dec 15th and off boots Dec 27th. (Might be NYC only - unsure).
http://yen.nysportbike.com/misc/jimmi.html

* Ann Taylor
$20 off purchases of $125, $60 off purchases of $250 or more
12/8 - 12/11
http://yen.nysportbike.com/misc/anntaylor1.pdf

* Ann Taylor Loft
$15 off $50 or more, $30 off $100
12/8 - 12/11
http://yen.nysportbike.com/misc/anntaylor2.pdf

* Ann Taylor Factory Store
$10 off $75 or more, $20 off $150 or more 12/7 - 12/11
http://yen.nysportbike.com/misc/anntaylor3.pdf

* Footlocker
30% off
Dec 5-Dec 8
http://ww2.footlocker.com/2002/fl1203a/

* Club Monaco
30% off
Dec 6-8
http://www.clubmonaco.com/events/120302/CSN_Email_US.htm

* Diesel
20% off from
11/27 - 12/24
http://www.diesel.com/propaganda/eggcellent/usa/voucher.html

* Gap, Old Navy, Banana Republic
20-30% off
12/2-12/8 (dates for Old Navy, click for other dates)
http://yen.nysportbike.com/misc/gap.txt

* Gap
15% off
through 12/9
http://yen.nysportbike.com/misc/gap.doc

* Sephora
20% off
through 12/3
http://yen.nysportbike.com/misc/sephora.txt online

* Liz Clairborne
30% off
12/9 - 12/13 (Store list here http://yen.nysportbike.com/misc/storelist.doc)
http://yen.nysportbike.com/misc/liz.pdf

* J Crew
30% off sweaters
12/3 - 12/9
http://yen.nysportbike.com/misc/jcrew.doc

* Brooks Brothers
15% (25% with BB card) off
Dec. 5 only
http://yen.nysportbike.com/misc/brooksbro.html

Congress cuts S.E.C. budget

Monday, November 24, 2003 | 07:01 PM

in Current Affairs | Finance | Politics

"Suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself:"

Despite the ever widening scandals, the yawning chasm between NYAG Eliot Spitzer's effectiveness and that of the underfunded, understaffed, and moraleless S.E.C., our brain trust in Washington has decided to cut funding for enforcement:

"WASHINGTON -- House and Senate Republicans, negotiating an $821 billion-plus year-end spending package, have taken a decidedly pro-business slant to help pick up conservative support after Thanksgiving, when the leadership hopes to win final passage . . .

And amid the growing mutual-fund scandal, the Securities and Exchange Commission, which enjoys bipartisan support, will lose a third of the $96 million budget increase it expected until recently. The decision surprised Sen. Paul Sarbanes (D., Md.), who sponsored corporate-reform legislation in the last Congress that committed the body to a steady increase in funds for the SEC. "Once you push back, you lose the momentum," Mr. Sarbanes said."

Seriously, how unconscionably clueless do you need to be to think the S.E.C. is overfunded? It's simply frightening that we are governed by these clueless morons (of both parties).

I am now officially depressed.

Source:
Omnibus Spending Plan Packs Business Perks
House and Senate Leaders Seek Conservative Support For $821 Billion Package
By David Rogers
Wall Street Journal, November 24, 2003
http://online.wsj.com/article/0,,SB106963342827726900,00.html

Alarms Sounded On Cost of GOP Bills
Lawmakers Increase Spending to Win Votes
By Jonathan Weisman
Washington Post Staff Writer, November 24, 2003; Page A01
http://www.washingtonpost.com/ac2/wp-dyn/A8763-2003Nov23?language=printer

Mark Twain
http://www.twainquotes.com/index.html

Catalyst Week!

Monday, November 24, 2003 | 12:06 PM

in Finance

With two consecutive down weeks behind us, and a long holiday weekend ahead, the market will be seeking fresh catalysts to drive the trading action. GDP is released on Tuesday, and then a long slew of economic reports are concentrated on Wednesday morn. All of these can move the markets, and as such are at the top of our watch list.

By Friday, the rookies will be manning the terminals, as Wall Street fields a skeletal staff. Expect the volume to decrease as the week progresses. The lower volume – and less experienced traders – is what makes the holiday markets relatively easy to push around – especially this Friday. It is part of the reason why seasonal patterns near Thanksgiving have been mostly positive (see chart nearby).

In addition to seasonality patterns, we continue to watch other factors very closely, especially for their impact on Sentiment: Mutual Fund Scandals, Oil Price rises, Dollar declines, and the ever present threat of domestic Terrorism.

The near oversold conditions mentioned here last week did not reach dramatic levels. As such, market buys at the present levels have a higher degree of risk than when we see more oversold conditions. The dip-buyers have become so prevalent that the markets may not be able to reach the extremely oversold conditions so conducive to high probability trades on the long side. That’s also what’s contributing to a lack of a 5% pullback mentioned last week.

Seasonality suggests not only the above-mentioned Thanksgiving pattern, but the year-end rally as well. Starting near the middle of the December, the markets tend to gain steam as last minute contributions to retirement accounts get put to work. Tax selling sets up the January effect: Previously dumped small caps get re-purchased once the 30 day “wash rule” period has elapsed.

The action of the markets the past 2 weeks has been intriguing relative to the prior 6 months. Notably absent from the fray have been the short sellers: Their spasmodic and panicky covering is part of what fueled at least some of the previous rallies. Despite the recent market weakness, there has not been much in the way of “piling on” by the aggressive shorts. Whether this means they been scared out of the market is not certain, but it certainly is worth watching.

Maintain long positions, as we continue to watch market internals for changes in tone; A 5% pullback would be our excuse to become more aggressive buyers.

Chart of the Week: Day Before/After Holidays

Monday, November 24, 2003 | 12:04 PM

in Finance | Media

The periods around certain holidays have some historical seasonality worth paying attention to: In particular, Thanksgiving, Christmas and New Years seem to have a very positive correlation.

The Day Before/After Holidays (2/8/71 to 11/21/03)

Source: VTO Report

The trading session following Turkey day has seen the Dow up 9 of the past 10 years (Don’t get too excited, as the prior 10 years saw only 4 of 10 up days). Regardless, barring extraneous events, the odds favor this Friday being a day in the green.

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Quote of the Day
“The dimmed outlines of phenomenal things all merge into one another unless we put on the focusing-glass of theory, and screw it up sometimes to one pitch of definition and sometimes to another, so as to see down into different depths through the great millstone of the world.”
-James Clerk Maxwell

Wal-Mart backlash growing

Monday, November 24, 2003 | 03:00 AM

in Finance | Media

Several negative stories out recently on Wal-Mart. We previously referenced the Fast Company article, which was extremely negative. This weekend saw the start of a 3 part L.A. Times article.

Could this be the start of a new trend?

The Wal-Mart You Don't Know
By Charles Fishman
Fast Company, December 2003
http://www.fastcompany.com/magazine/77/walmart.html

Essentially blames Wal-Mart for a massive exodus of jobs to China. While there's some truth in the accusation, it is an all but inevitable consequence of ongoing globalization regardless . . . Still, makes for compelling reading -- and a damning indictment of the occasinally heavyhanded (even clumsiness) out the retailing giant.

An Empire Built on Bargains Remakes the Working World
By Abigail Goldman and Nancy Cleeland, Times Staff Writers
Los Angeles Times, November 23, 2003
http://www.latimes.com/business/la-fi-walmart23nov23,1,2729555.story?coll=la-headlines-business

Not surprisingly, WMT is not a union shop. Part I of this series looks at the impact Wal Mart has as "the third party now that comes to every bargaining situation" -- even for the California supermarkets now in their 7th week of work stoppage. Why? Fear of Walmart!

Foolish Bank promotional ideas

Sunday, November 23, 2003 | 09:49 AM

in Finance

Of all the idiotic ideas to come out of the banking industry, these two recent brainfarts are my favorites. I'll be curious to see how long it takes for either of these banks to drop these promotions, or go bust:

idiotic bank idea #1: Washington Mutual offers free ATM usage for non customers.

This is a twofold winner: First, it raises the question "Why would anyone become a member of this bank? You get the main advantage of opening an account -- free use of their ATMs -- without having to open an account!

If I was shopping for a bank, and it was between Chase, Citibank and WaMu, I would pick the non-Wamu bank. Why? Cause it would give me twice as many bank ATMs to choose from, cost free. Duh.

This promotion has the added bonus of annoying Washington Mutual's existing customer base, who now has to wait at longer lines for the free riding non customers at WaMu's ATMs. Simply brilliant.

How often do you see a major financial institution pay for advertising that 1) discourages becoming a client; 2) Bothers and frustrates the existing clientele? Seriously, what rocket scientist thought this up? And why isn't he working the fry machine at Mcdonalds?

idiotic bank idea #2:Long Island Sumpthin Bank: free ATM usage everywhere!

Explain this Crazy Eddie model to me: Open up a no fee checking account, and all of your ATM usage --including any other bank -- is free! That's right, we will subsidize all your the $1.50 or even $2 fees. Why? Cause we're INSANE!

The only thing which keeps people from using the closest bank (I.e., most convenient) is that damn fee -- which, if you recall, is exactly what the banking industry promised us wouldn't happen oh so many years ago.

How on Earth can these guys stay in Business? I spend about $10 a month on ATM fees, and that micro-payment annoyance is only kept in check cause I'm in Manhattan 5 days a week, where there is a bank every 14 steps. If it were free, I'd run up $1000s of dollars per year in fees. Unless this is merely a promotional thing which lasts a very short time -- which is not stated on the advert -- it sounds like the next Pets.com.

The funny thing is, I hear this commercial on Bloomberg radio constantly, and cannot for the life of me remember the bank name.

Dismal Science ?

Saturday, November 22, 2003 | 07:18 AM

in Finance | Media | Weblogs

Ever wonder why Economics is called "the dismal science"?

The standard answer is that "19th century author Thomas Carlyle used the phrase to describe the pessimistic theories of Thomas Malthus and David Ricardo, since they predicted decline and fall."

Barron's Gene Epstein takes that old saw to task: He cites economists David M. Levy and Sandra J. Peart essay, "The Secret History of the Dismal Science" as the definitive resolution of the issue:

"Thomas Carlyle did originate the phrase, and he did direct it at economists. But the "scientists" he had in mind were not Ricardo and Malthus, but economists like John Stuart Mill and Harriet Martineau. And their "dismal" offence was to advocate the abolition of slavery.

In a fierce and ongoing debate, the celebrated author of The French Revolution referred to "the Social Science [sic]...which finds the secret of this universe in 'supply-and-demand,' and reduces the duty of human governors to that of letting men alone."

The above is from Carlyle's 1849 essay, "An Occasional discourse on the Negro Question," in which he goes on to use the D-S phrase for the first time. Compared to the "gay science" -- meaning poetry -- he calls economics the "quite abject and distressing...dismal science...led by sacred cause of Black Emancipation."

Epstein further observes "My impression is that Carlyle meant economics was too reductive to recognize the poetry of racial superiority -- and was therefore dismal. -- An essay he published the following year, in which he defended his proposal to re-enslave Jamaicans [!], included the stirring sentence, "Respectable Professors of the Dismal Science, soft you a little!" No examples can be found of his using the phrase in any other way . . ."

My assumption was always that the phrase was not based on the inherent pessimism of its practioners; Rather, I thought the moniker came about simply because economists have such a weak track record in their forecasting follies. Dismal, as in frustrating in their attempts to be more of a Science, and less of an Art. Indeed, I've joked about the difference between Strategists and Economists: The former is usually wrong about the future, while the latter is typically wrong about the past.

The science that liberates? Perhaps not so dismal after all . . .

Sources:

Economy Finds Strength, White House Loses Way
By Gene Epstein
Barron's, November 24, 2003
http://online.wsj.com/barrons/article/0,,SB106926757481677700,00.html

The Secret History of the Dismal Science: Economics, Religion and Race in the 19th Century
David M. Levy, Sandra J. Peart,
Library of Economics and Liberty
http://www.econlib.org/library/Columns/LevyPeartdismal.html

Let It Ride

Friday, November 21, 2003 | 06:27 AM

in Finance

Business Week discusses why Greenie is on hold for a long long time:

"The economy is cooking. Business spending is rising and the job market has turned up. The pickup in growth, in the U.S. and abroad, has sent commodity prices soaring and fanned fears of a resurgence of inflation. The central banks of Australia and Britain have already raised interest rates, and the U.S. bond market figures the Federal Reserve will follow suit early next year.

Don't count on it. Although economic growth hit a staggering 7.2% in the third quarter and is expected to settle in at a zippy 4% over the next few quarters, Fed Chairman Alan Greenspan and his cohorts believe they can take their time before raising rates. Despite investors' skepticism, Fed insiders believe the U.S. is in a unique period where inflation is so low -- and the economy still boasts so much slack -- that they can relax and let things rip. "In these circumstances," Greenspan said on Nov. 6, "monetary policy is able to be more patient."

You know my thoughts: I'm on record saying I think there are no rate increases until the Summer at the earliest.

Source:
Why Greenspan Will Just Let It Ride
by Rich Miller
Businesss Week November 24, 2003
http://www.businessweek.com/magazine/content/03_47/b3859057.htm

Almost (but not quite) Oversold

Thursday, November 20, 2003 | 01:09 PM

in Finance

After 4 down -- and one up -- days, the markets were set to try to reassert themselves, when a terrorist strike in Turkey sent futures much lower. After a fairly hard gap down, the market has been trying to climb back all morning. As mentioned Monday, the markets have been moving from overbought towards an oversold condition - but haven’t quite gotten there yet.

As the nearby McClellan Oscillator chart shows, the Nasdaq is nearing an oversold condition. The Nasdaq Oscillator is the chart of choice, if only because that market has been the leader throughout the rally. As such, its action sets the overall tone. Until rotation away from tech - and into Insurance, Non-cyclicals, Energy, Diversified Financials and Banking - can establish new market leadership, Nasdaq remains the key “tell” for all indices.

The markets have not had a 5% pullback since the rally began in March 2003. Ned Davis Research notes that this is the longest the markets have gone without a corrective drop since 1996. That in turn may be contributing to the lack of a substantially oversold condition and the lower volatility we have been seeing for the past few months.

Other technical data also reflect the not-quite-oversold-enough conditions The Arms Index 10 day moving average is nearing 1.5. That’s a critical reading typical of buying junctures. It is getting close, but not quite there yet.

If major terrorism cannot bring the markets to an oversold condition, what can? We are watching several factors:

Dollar: It dropped to its lowest level ever against the euro. But for massive Japanese central bank intervention, further losses versus the yen were inevitable. While positive for exporters, this is very negative for US deficit funding.

Deficits: The US has two huge and growing deficits - the federal budget, and balance of trade both approaching record levels. The risk is that if we may be unable to attract investors to fund these deficits, then U.S. interest rates will rise. This can choke off the nascent economic recovery.

Foreign Investors: A major decrease in international fund flows suggests a vote of no confidence in U.S. securities by the global investors: Net purchases of dollar denominated stocks and bonds have collapsed 90% - from $49.9 billion in August, to $4.19 billion recently.

As these three issues evolve, they may create the oversold conditions necessary for a bounce.

Chart of the Day: McClellan Oscillator

Thursday, November 20, 2003 | 11:58 AM

in Finance

Chart of the Day

The McClellan Oscillator is a breadth-based, intermediate-term indicator. It can also be used for short-term timing when it bottoms in oversold territory. Invented in the 1960's by Sherman and Marion McClellan, it has been called “one of the most useful analysis tools in existence.”

Source: Hays Advisory

The Nasdaq McClellan Oscillator is getting towards, but not quite at, the oversold levels associated with sustainable bounces. The NYSE McClellan oscillator (not shown), is not nearly as oversold.

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Quote of the Day
“We've lived through two years of corporate and financial scandals now, passing through almost every industry on Wall Street, from energy trading to accounting fraud to the rigging of initial public offerings to mutual funds sales and trading. What does it say about society when only the lawyers are clean?”
-Dave Callaway

U.S. Music Sales Up

Thursday, November 20, 2003 | 10:49 AM

in Finance | Music

Does the improving U.S. economy have anything to do with this? How about a slew of new and critically well reviewed CDs? The availability of legit on-line music services?

Naah. Not if you ask the RIAA -- they will tell ya its the enforcement hammer that's sending consumers scurrying into retailers to buy CDs.

I don't believe them -- and you shouldn't either. To paraphrase, "Its the economy, stupid."

Sources:
U.S. Music Sales Up as Positive Trend Rolls On
By Sue Zeidler
Reuters Wed Nov 19, 9:56 PM ET

Global music sales continue to fall
by Owen Gibson
Guardian, Thursday November 20, 2003
http://media.guardian.co.uk/newmedia/story/0,7496,1088783,00.html

EMI halts fall in music sales
By Saeed Shah
Independent Digital (UK), 20 November 2003
http://news.independent.co.uk/business/news/story.jsp?story=465472

RIAA Strikes Back At Music Pirates In 2003

WSJ POWER 30

Thursday, November 20, 2003 | 03:07 AM

in Finance | Media

I was surprised that not many people made much mention of the WSJ's "Power 30." It was an interesting dissection of who the BSDs* were -- at least from the WSJ's perspective:

"Who are the most influential people in investing? Warren Buffett? Alan Greenspan? Naturally. But maybe you didn't think of Ed Hyman, or Abigail Johnson. Or baseball's Billy Beane. The following special report on the 30 most influential people in investing over the past 12 months (adapted from SmartMoney)

This year's list reflects the rise to power of those whose main job it is to fight abuses of power by others. The magazine argues that such people are certainly needed -- as are the money machines, geniuses and other strong leaders who round out this exclusive roster.

There are some little-known names here, and others you might expect to see are missing, like that of President Bush. SmartMoney says that as with all world political leaders, "We'll just stipulate that he's powerful and leave it at that."

Still No. 1: Warren Buffett

Policy Players: Alan Greenspan, Ben Bernake, Mark McClellan, Jean-Claude Trichet

Market Movers: Steve Galbraith, Steven Cohen, The American Homeowner, Abigail Johnson, Bill Miller, Bill Gross

Watchdogs: William McDonough, Paul Roye, Dick Grasso and John Reed, Eliot Spitzer

Wise Guys: Charles Ellis, Henry Emerson, Howard Schilit, Ed Hyman, Jeremy Grantham

Innovators: Tim Collins, Billy Beane, Stan O'Neal, David Salem, Daniel Kahneman

Bulldogs: Gordon Crawford, Thomas Jones, Amy Domini, Peter Clapman, Trevor Harris

Source:
The Smartmoney Power 30"
WSJ, November 10, 2003
http://online.wsj.com/article/0,,SB106843378249003800,00.html

*BSD - See Michael Lewis: Liar's Poker" for a full explanation of this term . . .

Data Underestimates New Jobless Claims

Wednesday, November 19, 2003 | 07:21 AM

in Finance

File this one under "Duh!":

The U.S. Labor Department, at the urging of Federal Reserve Chairman Alan Greenspan, is working to fix a "statistical quirk" that causes the government to routinely underestimate the number of newly unemployed Americans each week, a department official said on Tuesday.

Each Thursday, Labor issues its count of Americans filing initial claims for state unemployment benefits in the latest week. In 51 of the past 52 weeks, it has also revised the previous week's number upward, making the picture less rosy than it originally appeared. The weekly jobless claims figures are closely watched by financial markets as the most timely measure of U.S. employment. The data's importance has climbed in recent months as concerns about a "jobless recovery'' from the 2001 recession threatened to undermine economic growth and the Fed warned that unemployment could dampen vital consumer demand.

Source
Data Underestimates New Jobless Claims
Reuters, November 18, 2003

Discounting? What Discounting?

Wednesday, November 19, 2003 | 07:05 AM

in Finance

No Discounting? Boy, that was quick.

I cannot recall the last time a common "meme" was so quickly proven to be false in the financial markets and/or analyst community. As mentioned here yesterday , I do not believe that retailers would win their game of chicken, holding out as long as possible before slashing prices to spur sales.

Now, a FULL WEEK BEFORE Thanksgiving, Wal-Mart (WMT) has looked into the eyes of their fellow retailers and called their bluff: the retailing giant has fired a broadside -- not a shot across the bow, but a fusillade into the flank of the not-so-good ship Toys-R-Us (TOY). Upping the ante from previous price cuts, Wal-Mart will press their specialty adversaries on price while they are somewhat vulnerable to margin compression.

To WMT, they -- apparently -- couldn't care less about Toy margins. They simply want to bring customers into the store, margins be damned. To Toys-R- US, the X-mas season is 40% (or more) of their year's sales. A bruising fight will hurt revenues, margins, profits, and ultimately their stock price and market cap.

Here's an excerpt from this morn's WSJ:

Wal-Mart Stores Inc. has launched the Great Toy War of 2003 and its top soldier is Hokey Pokey Elmo.

In late September, a full three months before Christmas, and a month before hot holiday items normally are promoted, Wal-Mart Stores slashed the price on Fisher-Price's newest dancing doll to $19.46 -- a stunning 22% discount to the Toys "R" Us price of $24.99.

Then, by mid-October, Wal-Mart had cut prices on more than a dozen toys. A survey of the prices for 15 popular toys conducted by Banc of America Securities found that Wal-Mart's prices were 12% cheaper than Toys "R" Us and 8% less than prices at discount retailer Target.

The steep and early price cuts are roiling the industry. Tuesday, Toys "R" Us acknowledged Wal-Mart's moves caught it by surprise and hurt its third-quarter results. Its stock price fell 5.4% Tuesday in New York Stock Exchange composite trading, after falling 11% Monday when company's earnings came out.

While parents may love the lower prices, other competitors are frustrated, saying they are hard-pressed to match prices below their costs. Yet they can't afford to lose more market share to Wal-Mart . And manufacturers fret that the discounting will cheapen their brand names, quash innovation and prompt consumers to buy only when toys are on sale . . ."

On Wall Street, beware of Analysts bearing wishful thinking -- its a sure path to the poor house . . .

Source:
Wal-Mart Fires the First Shot In Holiday-Toy Pricing War
By Ann Zimmerman, Joseph Pereira and Queena Sook Kim
Wall Street Journal, November 19, 2003
http://online.wsj.com/article/0,,SB106920927210407600,00.html

Wal-Mart kicks off toy price war
Report: No. 1 retailer slashes tags on popular and hard-to-find items, surprising Toys "R" Us.
CNN/Money November 19, 2003

Related Story:
Toys 'R' Us to Close 180 Stores
11/18/03
http://online.wsj.com/article/0,,SB106908127475163400,00.html

Are Retailers playing a game of "Chicken?"

Tuesday, November 18, 2003 | 11:48 AM

in Finance

Retail, X-Mas & Discounting: I've been thinking a lot lately about retail sales. Some of that is due to recent earnings -- especially Home Depot (HD) and Wal-Mart (WMT); Part of it is due to our imminent kitchen renovation.

The Hpme Depot's 3rd quarter resultswere terrific (as was Lowes) -- but that's strictly a function of ultra low interest rates. Wal-Mart's conference call was more intriguing, given their CEO's comments (mentioned here last week).

What's been so intriguing is the surprising amount of "no discounting this year" chatter you may have been hearing this pre- Christmas season. My personal opinion is that its mostly nonsense. Oh, they'll wait as long as they can, but the discounting genie is out of the bottle. Here are some reasons why:

1) They are early: You cannot help but notice all the Christmas decorations up since Halloween. While we all hate it when the holiday shopping season becomes a 3 month orgy of crass consumerism -- one month is plenty -- the early decorations provide a hint into the retail thought process. It smacks of too high expectations, or perhaps desperation. Regardless, its apparent that retailers both want AND need a very strong showing.

2) They are discounting: I've been seeing very aggressive special offers via direct mail. We're on a few lists (not spam, but stuff we chose to be on). Consider some of the discounts, which have been very aggressive:

Lord & Taylor: One of the nicer Department stores in the "high, but not insanely priced" higher quality category (and one of my favorite Men's departments). They are having a 50% off sale on nearly everything in the store pre-Thanksgiving. They sent a catalogue with several 20% off coupons, applied to the already 50% off. L&T happens to have a lovely Men's sweater section, and I see their cashmere sweaters have been reduced to $89. Add the 20% coupon to that, and you are looking at $200+ items being sold for $72. (Now that's a sale).

Macys: Has their pre-Thanksgiving sale, and their direct mail flyer has lots of 15 -20% off coupons, to be applied to the "lowest ticket prices."

Dansk: is a midlevel flatware and china store. High quality stuff at reasonable prices. Not that you would mistake their wares for Villeroy & Boch , but still fairly decent. Their inventory clearence sale is on, and that's before you apply the additional 30% off.

3) They are interest rate sensitive: The kitchen renovation has me spending time in Home Depot and Home Depot Expo. (Lowes falls somewhere in the middle of this spectrum of warehouse to high end design).

Ordered kitchen cabinets from HD. They spent a lot of time with us -- design, layout, measurement. No pressure, no commission sales/design staff. Very competent, actually a pleasure to deal with. We ended up with an upper mid-tier Kraftmaid for a reasonable price. HD is doing the install also. We looked at appliances there, as wells as Expo, Sears, and Best Buy. Ended up buying 'em at P.C. Richards, where they were very, very willing to really haggle on the prices -- came in below budget (can't say the same for the floor or backsplash). Again, not high end, but upper mid-tier -- GE Profile, Amana, Maytag. (I dig the new beefy looking appliances -- who came up with the idea of marketing kitchen stoves to Men?) But what struck me at all these places was the heavy discounts or the willingness to drop prices to close a deal. It probably didn't hurt that we ordered everything before the improved GDP and jobless numbers came out -- that may have given us more leverage when negotiating.

4) They are importing foreign goods: Also spent some time (a few weekends ago) at the Tangers Outlet Center in Riverhead.

This shopping experience was another story entirely. Mrs. BigPicture (and her sister) are huge outlet fans. You need to be a savvy shopper at these places. We've watched over the years as the outlet centers went from a little known bargain hunters delight to selling lower priced, made-for-the-outlets junk -- and then back again. If you know clothes -- Mrs. BP teaches a course in Fashion Design & Illustration -- then you can do exceedingly well there.

This last trip was simply too much: Its so obvious that discount shopping has become an enmeshed part of our consumer culture. The local papers had adverts for 30% off (I spent $1.50 cent on 3 copies of Newday). Stop in the outlet center office and pick up a coupon book for $5 -- well worth it. With the coupons, there were some serious bargains to be found.

I do not believe retailers will be able to go back to charging full prices until we are in a much later stage recovery -- think 1996-99.

Some examples: Mrs. BigPicture found a pair of knee-high leather boots at Bass (I never can talk her into the thigh high ones). They are $139, on sale for $89. With the 30% off coupon, they were a little more than $60. (Made in USA? Try Brazil)

After my last clothing debacle, I thought I should have some "back up" shoes in the office. Bass was running a "buy one pair, get the second 1/2 off" promotion. Plus the 10% off coupon. I got a pair of black tasselled loafers, and another pair of penny loafers. Net net -- under $100 for two pair of shoes. Thats a joke -- the penny loafers alone used to cost that much.

In the Gap, I found a long sleeved striped polo shirt, made in Guatemala for the factory outlet. The funny thing is that this was the exact same style and color as one I bought on the Gap on 23rd St & Lex in Manhattan when I was in grad school -- in 1986. Only these were 2 for $20; The old one -- long since tattered and discarded -- was ~$35 dollars, on sale for $16 or so. That was over 15 years ago.

No wonder Greenie ain't too worried about inflation.

Same story at Levis: Heavily discounted jeans. With the coupons, Levis premium jeans (regularly $50) ran a touch more than their cruddy signature line does at Wal-Mart ($23.99), An even better deal was had at Le Gourmet Chef -- New Contemporary Calphalon pans, which are almost always at list price everywhere -- 30% off with the coupon.

All this leads me to 3 conclusions:

1) Discount shopping has become a sport, and will not fade until much, much later in a cyclical recovery.

2) The continued importation of goods from China, Malaysia, India and Philippines will only accelerate. Expect South American nations -- i.e., Guatemala and Brazil -- to more aggressively join this circle.

3) We can ascertain what consumer spending will be like over for the next 6 months by watching the Xmas game of discount chicken -- if retailers are forced to discount sooner rather than later, that implies consumers are being very cautious with their spending, and are pulling their horns in a bit.

We will find out soon enough -- Thanksgiving is next week, and the big holiday rush starts the next day . . .

UPDATE: See:

Holiday Discounts for a slew of retail discount (web) coupons;

Discounting? What Discounting? for the latest salvo from WAL-Mart

Sources:
Dansk
Lord & Taylor
Home Depot
Home Depot Expo
Lowes
Kraftmaid
Sears
Best Buy
P.C. Richards
Tangers Outlet Center
Levis
GAP
Calphalon

Macy's website is a Flash hell, and as such is omitted.

Extended Market Vulnerable to Pullback

Monday, November 17, 2003 | 01:22 PM

in Finance

The Usual Suspects? -- After a week of heavy churning, the markets finally gave up their attempts to break out. We mentioned last week that we would be watching four aspects of market internals. Two factors - Sector Leadership and Market Breadth - have turned decidedly negative. Sentiment has moved off its most optimistic levels, which is ultimately healthy for the markets. As the nearby chart shows,