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As an analyst of business and economic trends, Michael Barone is a pretty good political analyst.
Today, he pens a piece in the Wall Street Journal editorial page, on the demise of the Big Three automakers. He places the blame for the decline of big industrial firms in sectors like steel and autoparts squarely on labor. If only those unions weren't so preoccupied with protecting their members from risk, things would be much better, he argues. "Union-driven legacy costs have already forced many steel compnaies and airlines into bankruptcy," he notes.
It takes two parties to iron out labor agreements. And as much as unions like "legacy costs" -- for yuppies who labor over their keyboards, like Barone, that translates to health insurance and retirement benefits -- management liked them perhaps even more. Throughout the 1980s and 1990s, a period when industrial unions were in decline and under constant assault, management of the Big Three continually agreed to deals with the unions that added legacy costs--in exchange for keeping current wages down, and hence profits up. And it was economically rational for them to do so. After all, fobbing off costs onto future generations of shareholders was a brilliant strategy for guys who could sell stock or cash in options in the short-term.
Worse, he celebrates the replacement of the value-adding, high-paying auto industry--which created jobs in dozens of related industries--with the rise of lower-paying, value-subtracting industries like gambling.
"On the Michigan freeways going up north, the big attractions are not the UAW's cultural haven of Black Lake but Indian casinos and outlet malls, places where people throng to win sudden riches or to take advantage of low prices on brand-name goods. The attempt, made when the economy seemed static, to promise security and leisure and restrained good taste, has failed. We remain, as we have been in most of our history, a nation of hustlers (as historian Walter A. McDougall so strikingly put it) -- a people who strive mightily to get ahead and advance their interests, enjoying the sometimes vulgar opportunities a dynamic economy provides."
Casinos are affirmatively not "places where people throng to win sudden riches." They're places where suckers, many of them people without much in the way of resources, throng to engage in rigged games in which the odds are always -- always -- against them.
Posted by dan at 01:55 PM
The folks at the Wall Street Journal editorial page have some strange ideas about politics. Today, they have an editorial focusing on the corruption scandal involving former Tom DeLay aide Michael Scanlon, former Tom DeLay buddy Jack Abramoff, and Rep. Rob Ney--Republicans all. The only Democrat mentioned in the article is Tony Coelho, who left Congress sixteen years ago. Yet the pull quote in the middle of the piece reads: "Influence peddling goes bipartisan." Huh?
Posted by dan at 01:49 PM
McDonald's is apparently embarking on a project to convince Europeans that its food isn't gross and that it's jobs pay well, offer excellent benefits, and offer wonderful paths for career advancement.
Alison Maitlan and Jeremy Grant report in the Financial Times.
McDonald's will admit next week that it has not done enough to allay European concerns about the nutritional value of meals and the quality of jobs at the world's largest fast food chain.In its first corporate responsibility report aimed at the European market, where sales have suffered amid concerns over food safety and obesity, the company will say it has learned from its customers that "we could do better in our understanding of wider social trends and expectations". . .
The 70-page report, aimed at EU policy makers, pressure groups, shareholders, suppliers and employees, gives details about the content and quality of meals and employment conditions. It draws on the views of a wide range of stakeholders from government officials to health and consumer groups, financial analysts and employees. It says McDonald's is "a leader in food safety and quality" and strongly rejects claims that restaurant workers are poorly paid and skilled, as epitomised by the American Merriam-Webster dictionary expression "McJob". . .
Going on the offensive this month, Jim Skinner, chief executive, signalled that the group intended to take a lead on issues such as obesity. "If you're not the lead dog, you're not going to like the view," he told the annual conference of Business for Social Responsibility, a prominent US non-profit organisation, in Washington."
That's a poor choice of metaphors.
Oh, and the authors buried the best bit of the story:
"In the UK, where it has lost a quarter of its sales in five years, it has launched a direct mailing campaign to educate consumers about the sources of its organic milk and vegetables."
When even the British think your food is bad, you're in big trouble.
Posted by dan at 01:44 PM
With all the speculation about newspaper companies up for sale, Rupert Murdoch's News Corp. is frequently listed as a potential buyer. His comments about newspapers, reported by Andrew Edgecliff-Johnson in the Financial Times, should either (a) dispel such rumors; or (b) make Murdoch-phobes think he's talking newspaper stocks down further so he can buy on the cheap.
Rupert Murdoch has added to the gloom surrounding the US newspaper industry, saying that the business model of most titles is under threat as classified advertising moves online and circulations fall further.The News Corporation chairman, who once decribed classified revenues as "rivers of gold", said: "Sometimes rivers dry up."
Interviewed by Press Gazette, a UK trade publication part-owned by his son-in-law, he added: "I don't know anybody under 30 who has ever looked at a classified advertisement in a newspaper."
His comments came as Knight Ridder, the US's second-largest newspaper group, yielded to shareholder pressure and retained advisers to explore "strategic alternatives", including a possible sale, in response to rising newsprint costs, declining circulation and more competition from the internet.
Mr Murdoch, who owns the New York Post, indicated that US newspapers' editorial strategies were to blame for their financial problems. "Outside New York, it's all monopoly newspapers. Some have good work in them, but it tends to be overwritten, boring and elitist, not a reflection of the general mood in the public."
The notion of Murdoch lecturing U.S. newspaper companies about the source of their financial problems is pretty rich. After all, for all their woes, Knight-Ridder, Gannett, and the New York Times make money on their newspaper operations. I've never seen it suggested anywhere that the New York Post comes close to making a profit.
Posted by dan at 01:38 PM
The act of Steve Miller, the tough-talking CEO of busted auto parts company Delphi, is growing a little thin. He's positioned himself as a great truth-teller, telling blue-collar workers that they'll have to become proletarians again if they want to keep working.
Today, Micheline Maynard fleshes out the theme in the New York Times:
"Robert S. Miller started off as the Oracle of Delphi, handing down dire pronouncements about the auto industry from his lofty post as chief executive of the parts supplier.But with the Delphi Corporation in bankruptcy proceedings, Mr. Miller, known as Steve, has come charging down from the mountaintop to confront Delphi's unions in a way that Detroit has rarely seen.
Calling to mind Gen. George S. Patton, or at least the movie version played by George C. Scott, Mr. Miller is embracing his combatant's role, at least for the attention it is bringing to the crisis facing his industry.
"Somebody had to do this," Mr. Miller said in an interview last weekend. "If I have ended up where I am, the one who has to be a leader for change, I'll keep talking."
He is doing plenty of that. Next month, Delphi is expected to ask a federal bankruptcy judge for permission to terminate contracts paying $64 an hour in wages and benefits combined, so that it can impose sharply lower rates.
Otherwise, says Mr. Miller, a veteran turnaround expert who took over Delphi in July, all of Delphi's 34,000 hourly jobs in the United States are at risk.
He is confident - some might say overconfident - of victory. A ruling in Delphi's favor is "a slam-dunk, given the financial condition of the company," Mr. Miller said.
Yes, labor costs are too high. But as I was reminded yesterday by a bankruptcy expert, it takes two parties to make labor agreements: unions and management. And for years, even decades, the management of the Big Three promised future benefits to employees in exchange for short-term labor peace and short-term control of wages. In retrospect, it was a remarkably stupid decision. If management had made better decisions and long-term financial plans in the 1970s, 1980s and early 1990s, the Big Three and their suppliers wouldn't be in the sad state they're in today.
Strange how it's rarely mentioned what Mr. Miller was doing in the 1970s, 1980s, and early 1990s. He was working at Ford and Chrysler, working on long-term financial plans.
To compound matters, many of the management turkeys who helped steer Delphi into bankruptcy are in line for gigantic bonuses if Miller manages to slash wages deeply enough. James Mackintosh reports in the Financial Times:
"Bondholders in Delphi have added their voice to shareholders and unions opposing an executive bonus scheme for the bankrupt US car parts maker which the company estimates could be worth $488m when it emerges from Chapter 11 protection.Wilmington Trust, trustee for $2bn of the company’s bonds, warned that the “extremely generous” pay plan could put “increased strain on [Delphi’s] already tenuous relationship with their hourly employees”. In legal documents filed to the New York bankruptcy court late on Tuesday, Wilmington said the pay scheme provided no incentive to control restructuring costs, no incentive to maximise the value of assets, and that it tries to short-circuit normal Chapter 11 processes by allocating equity to executives before a restructuring programme is agreed. . .
The bondholders’ objections came shortly after four large US and European pension funds who are shareholders in Delphi objected to the pay plan, as the Financial Times reported on Wednesday. The investors, who are also pursuing a class action lawsuit against Delphi and others alleging fraud, claim that the plan would pay bonuses to executives involved in widespread accounting mis-statements over the past four years. . .
The USW, in court documents, said: “At a time when it asks its workers and retirees to make unfathomable sacrifices, the denizens of Delphi’s corporate suite seek to line the pockets of a small number of top executives and arrogate to themselves 10 per cent of the equity of the reorganised operation before even the first step is taken toward stabilisation.”
In court documents Delphi has said the bonus plan was “reasonable and competitive” and would “increase the ... ability to attract and retain executives while also motivating executives to create value for all stakeholders”. . .
Under the plan, drawn up by consultants Watson Wyatt, the top 486 US executives would share a cash bonus of up to $87.9m on emergence from bankruptcy. . .The top 595 executives would share 10 per cent of the equity, which Watson Wyatt estimates could be worth $400m.
A new executive bonus plan worth $21.5m in the first six months would also be adopted, based on earnings before interest, tax, depreciation, amortisation and restructuring costs.
In addition, Delphi wants the court – which must approve the plan before it can be introduced – to continue a golden handshake package adopted just hours before the company filed for bankruptcy last month. Under the payoff scheme, 21 top executives will be given 18 months pay and bonus if they are made redundant.
Maybe the Oracle of Delphi should start delivering a tough message to the yes-men surrounding him. The notion of paying retention bonuses to keep failed middle managers around in Detroit is especially absurd. Nobody's hiring!
Posted by dan at 09:17 AM
"Look to your left, look to your right, one of you won't be here in four years." Back in the day, this old saw was allegedly uttered by deans and college presidents at the freshman orientation of [PLACE YOUR IVY LEAGUE/PEER GROUP COLLEGE/OR COMPETITIVE INSTITUTION NAME HERE]. I heard it my freshman year at Cornell at 1985, although it was thought only to apply to the engineers.
Apparently, it applies to hedge funds, too.
Shayna Stoyko of Dow Jones Newswires reports:
"As hedge-fund assets swell at about 20% a year, about one in every three new funds likely will fold within three years, often becausem oney managers who open their own firms don't recognize which skills they lack for running a business.Ron Geffner, a lawyer with Sadis & Goldberg LLC in New York, whose firm represents about 400 hedge funds, cited that rate of failure."
Funny how you never see statistics like that from hedge fund trade groups, or from the people who compile hedge fund indexes. After all, funds that go out of business probably have negative returns. And if their returns were included, the overall performance of the asset class wouldn't look quite as good.
Posted by dan at 09:10 AM
One of the most dispiriting things about the Republican ascendancy over the last several years has been the constant reopening of arguments thought to have been long-since settled: Social Security, evolution, etc. The nomination of Judge Samuel Alito to the Supreme Court has opened a whole new can of once-settled worms. And as many issues upon which there has long been a consensus come under assault, it somehow becomes a big story when a right-winger affirms an essential truth.
Case in point. In today's New York Times, David Kirkpatrick breaks the apparently astonishing news that Supreme Court nominee Samuel Alito believes in the principle of one-man, one-vote.
Moving to defend the Supreme Court nominee Samuel A. Alito Jr. against attacks on his stance on civil rights, the White House said Tuesday that he had assured senators last week of his commitment to the principle of one person one vote.Judge Alito believes and has told senators that he believes 'one man one vote' is bedrock principle," Steve Schmidt, a White House spokesman, said Tuesday.
The White House has previously declined to comment publicly on the conversations its court nominees have in meetings with senators, and its unusual statement is part of a strategic tug of war between the administration and its liberal opponents over the direction of the debate on the Alito nomination. Liberal groups are seeking to broaden their criticisms of Judge Alito from the issue of abortion rights to a more wide-ranging discussion that includes civil rights and police searches.
Democrats began raising questions about Judge Alito's position on the principle of one person one vote last week after the disclosure that in a 1985 memorandum seeking a promotion in the Reagan administration he expressed strong disagreement with the Warren Court's landmark reapportionment cases. The cases, most notably Baker v. Carr in 1962 and Reynolds v. Sims in 1964, required states to draw electoral districts with equal populations, preventing the creation of uneven districts that dilute the representation of black voters.
Next week will doubtless bring the scoop that Alito told Sen. Rick Santorum he thinks Plessy vs. Ferguson was, in fact, correctly decided.
Posted by dan at 09:04 AM
Ever since Private Capital Management called for Knight-Ridder to auction itself off, analysts have wondered what the deal was. After all, investors aren't exactly clamoring to buy massive newspaper companies.
Last week, I hypothesized:
"Perhaps it has something to do with the pocketbook of Bruce Sherman, Private Capital's CEO. Seth Sutel of the Associated Press reported earlier this month that in addition to owning nearly 20 percent of Knight Ridder, PCM owns "an average position of nearly 10 percent in nine leading newspaper companies, according to a recent research report by Morgan Stanley analyst Doug Arthur." Yikes! By pressing for a sale of Knight Ridder, Sherman is seeking an exit strategy for one big holding—and perhaps trying to light a fire under a sector in which he seems to be stuck."
Now Joseph T. Hallinan advances the ball in the Wall Street Journal. It does have something to do with Sherman's pocketbook.
"As Florida money manager Bruce S. Sherman presses his campaign for a sale of Knight Ridder Inc., he and other principals of his firm could collect a $300 million bonanza this summer -- depending on how things shake out. . .Legg Mason, the Baltimore financial-services firm that acquired PCM in 2001, had agreed to make the $300 million payment to Mr. Sherman and the other principals if PCM reaches certain growth targets by next Aug. 1. Under the acquisition agreement, Legg paid $682 million in cash for PCM and agreed to two additional contingency payments on the third and fifth anniversaries of the deal. The first of those payments, for $400 million, has been paid.
A sale of the newspaper-publishing company at the right price could help PCM meet certain financial-performance targets. . .
The flagging fortunes of PCM's big bets on newspapers certainly haven't helped the firm's performance. Year to date, PCM's investments have lost money -- something rare in its 20-year history -- and its once-hot asset growth is slowing. Mr. Sherman is highly regarded among money managers, and PCM has recorded losses in only two previous years since 1986.
Over the last five years, PCM has bet heavily on newspaper stocks, acquiring stakes valued at roughly $4.3 billion. PCM has about $30 billion under management invested in stocks. . . .
Earlier this year, PCM's investors received disappointing news. "Your account sustained a modest loss," reported the PCM newsletter for first quarter of 2005. By the third quarter of this year, the news wasn't much better. Mr. Sherman told investors their accounts performed in line with major stock-market indexes. But the portfolio's "return during the third quarter underperformed the market..." As of Sept. 30, PCM's investments were down 0.6% so far this year."
A big money manager is trailing the market for the year, and the poor performance of the stocks he chose is inhibiting his inability to get a huge bonus. So now he wants Knight-Ridder to sell itself. Makes sense.
Posted by dan at 08:56 AM
Soon, public sector workers are going to wake up to the same rude reality that has whacked private sector workers upside the head in recent months: their employers can't live up to the promises made to them about reitrement health care benefits.
Deborah Solomon has the goods in the Wall Street Journal:
"A looming accounting change is forcing state and local governments to fess up to something that's been lurking on their books for years: Many have made costly retirement health-care promises without planning how to pay for them.Under a new accounting rule, governments soon must start recognizing their long-term obligations to pay for retirees' health benefits -- and, for the first time, publicly disclose what it would cost each year to fund that liability.
For many governments, the promised amount is likely to be sizeable enough to prompt big changes such as cutting retiree benefits, borrowing money and diverting tax dollars from other spending priorities -- or risk a credit-rating downgrade that could significantly boost borrowing costs. Estimates of obligations for some states range from $500 million to as much as $40 billion.
"This is going to be a big jolt to many state budgets, and this problem is one that is not immediately resolved," said Cecilia Januszkiewicz, secretary of Maryland's department of budget and management.
In many ways, the problem facing state and local governments mirrors that which has faced some companies, especially in labor-intensive, unionized industries such as autos and steel, which made big promises on pensions and health care that they ultimately couldn't afford to fund. Many governments are expected to respond in much the same way as corporations, which have slashed benefits since being forced in 1990 to recognize their retiree health-care obligations in financial statements."
There's much more.
Posted by dan at 08:52 AM
The Financial Times has an amusing little snippet wherein it taps into the brain of Grover Norquist.
"We've locked in the brand for the Republican party," Norquist said yesterday at a meeting with reporters organised by the Christian Science Monitor. As president of Americans for Tax Freedom, he encourages politicians to sign his Taxpayer Protection Pledge, committing them to oppose all tax increases."You can walk in to the voting booth dead drunk, vote for the Republican and know that he or she won't raise your taxes."
I guess if you're sufficiently hammered, you'll forget all about the Alternative Minimum Tax, which functions as a tax increase on millions of Americans each year. In a few years, voters will have to be really plastered to keep their minds off the expiration of the temporary tax cuts enacted by the Republicans earlier this decade. After all, given the binge spending of Bush and Congress in the past several years, making them permanent is an impossibility.
Posted by dan at 08:48 AM
President Bush and Vice President Cheney have generally opposed aggressive efforts to curb greenhouse gas emissions on the grounds that doing so would hurt economic growth. After all, how can an economy grow when it is spewing fewer noxious fumes into the atmosphere? If the sum total of your business experience is in the oil and oil services sector, as it was for Bush and Cheney, it's easy to think that way.
But as is so often the case with these guys, the reality is something else. And this time the evidence is coming straight from the White House. Fiona Harvey reports in the Financial Times:
Emissions of greenhouse gases from the US fell for the first time in more than a decade between 2000 and 2003 owing largely to a shift in heavy manufacturing away from US shores to cheaper locations such as China.James Connaughton, chairman of the White House's Council on Environmental Quality, said yesterday the decrease of 0.8 per cent in gases such as carbon dioxide, methane and nitrous oxide had been unexpected: "This was not something we would have projected."
The slight fall had come even as the US population grew by 8.6m and increased its gross domestic product by the worth of the economy of China, Mr Connaughton said.
Greenhouse gas emissions in the US, from sources such as electricity generation, motor transport and industry, increased by an average of about 1 per cent a year during the 1990s. The last time the country's greenhouse gas output fell significantly was in the early 1980s following a recession, and there was a slight decline in about 1990-91.
Posted by dan at 08:43 AM
In a recent National Review column, John Tamny rips into liberals and Republican moderates for their failure to drink adequate amounts of the supply-side Kool-Aid.
Despite clear evidence that the marginal rate cuts of the 1920s, ’60s, and ’80s (not to mention the 2003 tax cuts) led to higher revenues, Sen. George Voinovich (R., Ohio) recently said that “contrary to what some of my colleagues believe, tax cuts do not pay for themselves.”
Imagine the audacity to state plainly the obvious. Hmm. Lets see what other weak-kneed, economically illiterate, growth-hating yutz has recently put forth the astonishing heresy that tax cuts don't pay for themselves. Oh, how about N. Gregory Mankiw.
Money quote: "the dynamic effect of a a cut in capital income taxes on government revenue is only 50 percent of the static effect. That is, one half of a capital tax cut pays for itself."
Posted by dan at 08:59 AM
It gets worse. James Dao reports in the New York Times:
Less than three months after Hurricane Katrina ravaged New Orleans, relief legislation remains dormant in Washington and despair is growing among officials here who fear that Congress and the Bush administration are losing interest in their plight.As evidence, the state and local officials cite an array of stalled bills and policy changes they say are crucial to rebuilding the city and persuading some of its hundreds of thousands of evacuated residents to return, including measures to finance long-term hurricane protection, revive small businesses and compensate the uninsured.
"There is a real concern that we will lose the nation's attention the longer this takes," said Representative Bobby Jindal, a Republican from Metairie, just west of New Orleans. "People are making decisions now about whether to come back. And every day that passes, it will be a little harder to get things done."
Officials from both parties say the bottlenecks have occurred in large part because of a leadership vacuum in Washington, where President Bush and Congress have been preoccupied for weeks with Iraq, deficit reduction, the C.I.A. leak investigation and the Supreme Court.
Posted by dan at 08:52 AM
Conrad Black, the disgraced newspaper publisher, has been indicted by U.S. Attorney Patrick Fitzgerald for allegedly lying, cheating, and stealing loads of cash from public shareholders.
"All in all what has happened here has been the grossest abuse by officers or directors and insiders," Fitzgerald said.
But according to Jay Nordlinger at National Review, the accused thief is just a misunderstoood mensch.
"Conrad Black has been indicted, and I don't know whether he's guilty. I believe I do know this: He is fundamentally a force for good, and when he's clear of this — however long it takes — he will make waves once more in the media world. And those waves will be positive."
Question: How many tens of millions of dollars does a neo-con have to steal before one ceases to become a force for good?
Posted by dan at 08:45 AM
When it comes to fiscal policy, a lot of folks at the American Enterprise Institute believe in a free lunch. But apparently, the whole crowd there gets something pretty darn close to it.
The Financial Times reports that Washingtonian dubbed AEI one of the places to work in Washington. "Among AEI's perks: a top-floor dining room (with waiters) that serves 50 cent breakfast, three-course gourmet lunches for $4 and free muffins and cookies."
"People who work there can get free books written by AEI scholars." (That's a perk!)
Ironies abound. People at AEI are constantly urging employers to be less paternalistic and to push more responsibility onto their employees. What's more, economists will tell you that when an institution needlessly subsidizes a good unduly, it simply encourages excessive consumption. Four-dollar three-course gourmet meals? No wonder William Bennett hangs out there so much.
Posted by dan at 08:38 AM
Two articles in today's New York Times business section contribute to the emerging thesis that hedge funds in 2005=mutual funds in 2000. An asset class that had grown massively in size to the point where returns--as an asset class--are likely to disappoint.
1. Robert Johnson, the billionaire founder of BET, and a brilliant media entrepreneur, is starting a hedge fund fund of funds with Deutsche Bank.
2. Riva Atlas reports that J.P. Morgan Chase, a bank that has a recent history of riding investment waves long after they've crested, is starting a new mutual fund that will be managed by a hedge fund company it bought last year. Minimum investment: $10,000. Here's the rub, though. But it won't be run like a real hedge fund. "While the fees are still steep at 1.95 percent annually or more, the mutual fund's managers will not take a share of any of the profits." Hmm. One of the reasons really rich people invest in hedge funds--instead of just parking cash in mutual funds--is that the managers, who get 20 percent of the profits, have huge incentives to bust their ass to outperform the market. And if you're a star portfolio manager at Highbridge, would you rather be managing a pool of cash where you get (a) a chunk of the 20 percent of profits plus the management fee; or (b) a chunk of the management fee.
In other words, J.P. Morgan Chase is offering small investors all the downside of hedge funds--a steep management fee, trading costs--with none of the upside. Brilliant!
Posted by dan at 08:28 AM
The price of getting high is apparently getting hire. Add cocaine to the list of consumer goods whose price, after having fallen dramatically since the 1980s, has started to rise again. Juan Forero reports in the New York Times.
"After years of disappointing news about the easy availability of cocaine on American streets, the Bush administration on Thursday said its multibillion-dollar drug war in Colombia was showing signs of success, with the retail price of the drug in the United States sharply higher and the level of purity lower.From February to September, the price of a gram of cocaine rose 19 percent, to $170, while the purity level fell 15 percent, the White House Office of National Drug Control Policy said.
White House officials said those trends were consistent with a shortage of cocaine and validated the United States' $4 billion, multiyear plan to wipe out cocaine drug crops in Colombia through aerial spraying."
I wonder how that gets factored into CPI.
Posted by dan at 10:13 AM
A brilliant article by Suein Hwang in Saturday's Wall Street Journal about white flight from public schools in Silicon Valley.
Over the past 10 years, the proportion of white students at Lynbrook has fallen by nearly half, to 25% of the student body. At Monta Vista, white students make up less than one-third of the population, down from 45% -- this in a town that's half white. Some white Cupertino parents are instead sending their children to private schools or moving them to other, whiter public schools. More commonly, young white families in Silicon Valley say they are avoiding Cupertino altogether.Whites aren't quitting the schools because the schools are failing academically. Quite the contrary: Many white parents say they're leaving because the schools are too academically driven and too narrowly invested in subjects such as math and science at the expense of liberal arts and extracurriculars like sports and other personal interests. . ."
Articles like this make the Journal well worth the subscription for even casual readers. My favorite unironic quote from the article:
Some whites fear that by avoiding schools with large Asian populations parents are short-changing their own children, giving them the idea that they can't compete with Asian kids. "My parents never let me think that because I'm Caucasian, I'm not going to succeed," says Jessie Hogin, a white Monta Vista graduate.
Posted by dan at 10:10 AM
Bill Alpert has a good (bearish) piece in Barron's about Amedisys, a home health care company. Somebody might want to advise the company that, in an age of large deficits and in which Congress is finally looking for ways to chop spending, you've got to be careful how you talk about your business. Money quote:
"Then there's Amedisys' proprietary case-review system, which lets it bill more from Medicare. Last year the system helped it get 4% more revenue from each 60-day episode of patient care."
Posted by dan at 09:42 AM
Interesting snippet from Sandra Ward's interview in Barron's with John Hathaway, portfolio manager of the Tocqueville Gold Fund on a bubble in Treasuries:
There is so much money sloshing around the system, to the extent it is risk-averse it goes into Treasuries. On the other hand, you have negative real rates throughout the yield curve. Latest 12-month inflation is running about 4.7%. An investor has to go out almost 30 years on the yield curve just to get even. There is so much paper around and returns on assets are so hard to come by that it is driving money in this direction, and that's created the bubble. But these conditions are very favorable for gold.
Posted by dan at 09:40 AM
Joseph Nacchio, the former CEO of Qwest Communications whose sales of the stock of the once high-flying company have been under investigation, is offering a novel defense.
As Shawn Young reports in today's Wall Street Journal that "Colorado's U.S. attorney, William Leone, is focusing on whether Mr. Nacchio sold Qwest stock in 2001 based on insider knowledge that the company wasn't doing as well as he and other executives claimed publicly."
Nacchio's defense: he had access to information bearing on Qwest's performance that he didn't share with other executives or the public.
Joseph Nacchio, the former Qwest Communications International Inc. chief executive under scrutiny in an insider-trading probe for selling shares of the company as it was allegedly fudging its books to boost revenue, is mounting an unusual defense: He believed Qwest was doing well because it was getting lucrative secret national-security-related work from the federal government, people familiar with the matter say. . . .People familiar with the matter say Mr. Nacchio's defense team is trying to head off any indictment by arguing that he was in a unique position to believe the company was performing as claimed because he knew that Qwest had landed some federal national-security contracts and was poised to get more. At the time, Mr. Nacchio was serving on two federal advisory panels that dealt with such issues -- the Network Reliability and Interoperability Council and the National Security Telecommunications Advisory Committee -- so he would know generally about the government's needs.
If charged, Mr. Nacchio would counter any assertion that he knew the company was faltering in part by arguing that other executives who had expressed worries about revenue shortfalls internally didn't know about those projects, the people say.
So the defense against a charge of insider trading is that he was actually engaged in a different form of insider trading?
Posted by dan at 09:18 AM
On the Wall Street Journal op-ed page, Devesh Kapur of the University of Texas and John McHale of Queens' School of Business in Canada, warn that the U.S. may be failing in one of the most important global markets.
"America has seen the number of legal migrants, who tend to be more educated, fall by nearly a third over the past few years -- much more sharply than less educated illegal immigrants, according to the Pew Hispanic Research Center. Enrollment of foreign students in U.S. higher education declined for the first time since the 1950s. And when Congress failed to extend legislation that tripled the quota for highly skilled workers under the H-1B program, the number allowed in under this program has fallen as well. This ambivalence towards foreign talent risks depriving U.S. universities and businesses of the high-octane fuel that helps drive the American innovation machine.The U.S. economy relies on this fuel. In science and engineering, almost a quarter of the college-educated workers were foreign-born; among workers with engineering doctorates, a staggering 51% were foreign-born, according to the 2000 census.
Now is not the time to scale back foreign recruitment. The explosive growth of higher education in many developing countries, particularly in Asia, has caused a perceptible, if gradual, shift in the global talent pool. China and India are producing more engineers than all industrial countries combined.
Meanwhile, larger developing countries have new opportunities to attract jobs for skilled workers and keep them at home. Today's skilled jobs are increasingly service jobs, and, unlike manufacturing jobs, service work is skill-intensive rather than capital-intensive. With the rising educational attainment in many developing countries, and the low capital costs of outsourcing service labor, developing countries have an emerging competitive advantage.
For example, in the U.S., H-1B visa issuance declined sharply after 2001 (from 195,000 to 65,000 today). Less access to skilled workers from India -- where the most H-1B beneficiaries came from -- has been followed by the growth of outsourcing to that country. In 1978, IBM had to close its operations in India; this year IBM's India operations will employ more than any other non-U.S. country. . .
U.S. firms will increasingly have to compete against other industrial nations to attract skilled migrants. American success in attracting global talent is being emulated by other countries. Canada, Australia and the U.K. have all reformed immigration policy to better target and increase their share of skilled immigrants.
Posted by dan at 09:12 AM
Deborah Brewster in the Financial Times reports that the Financial Accounting Standards Board "would require defined-benefit funds, which hold about $4,000bn in assets, to stop 'smoothing' their returns and instead report actual returns each year."
A horrified Alistair Lowe, director of global asset allocation at State Street, notes that if they were to do that, "Company earnings would [be] at the mercy of what the pension fund can earn in the stock and bond markets."
Um, as if they're not already? Publicly-held companies have treated gains in their pension funds as earnings for years. Of course, they used to calculate the impact of returns on earnings in part by estimating returns they could get in the stock and bond markets. And few analysts squawked about that. I guess it's only a problem if they have to use real numbers.
Posted by dan at 09:05 AM
Amtrak may be a disaster, but commercial freigh train operators are finally finding themselves in the happy position of having high demand for their services. The upshot: rail freight is about to become more expensive.
Andrew Ward in Atlanta reports in the Financial Times:
James Young, who was appointed chief executive of Union Pacific last week, said rail services had been under-priced for the past 20 years, discouraging operators from investing in track improvements and rolling stock.The comments indicated that US rail customers were likely to face additional rate increases at a time when transportation costs were already being pushed up by high fuel prices and capacity shortages.
Union Pacific's prices have risen about 5 per cent this year, compared with 1 per cent growth last year.
Further rate hikes would increase tensions between operators and their customers, which have complained bitterly about delays and unreliability on US railways over the past two years.
Posted by dan at 08:57 AM
My column in today's New York Times, on housing and jobs.
Posted by dan at 07:53 AM