« November 27, 2005 - December 03, 2005 | Main | December 11, 2005 - December 17, 2005 »
Janus, the big mutual fund complex, is still hungover from the investing strategy it pursued in the 1990s: pile massively into trendy stock sectors and hang on for dear life. Doing so means you can shoot the lights out for a few years. But it's difficult to build an enduring business around that.
Indeed,assets under management were about $135 billion in the third quarter, down from more than $300 billion in 2000. And the company's stock remains off about 60 percent from its 2000 peak.
So you would think that the company's managers might have learned a lesson about avoiding overconcentration in hot, volatile markets. Apparently, not.
Craig Karmin reports in the Wall Street Journal:
David Decker, a portfolio manager at Janus Capital Corp., is a self-described contrarian investor. Some mutual-fund watchers say he is less clear in describing the risks he takes.Mr. Decker manages the $2.9 billion Janus Contrarian Fund, which can invest in companies of most any size, almost anywhere in the world. He looks for out-of-favor stocks that he thinks are mispriced, and his strategy has paid off: The fund has handily beaten the U.S. market over the past three years. In fact, it is the top performer in its fund category over that period, according to Morningstar.
Yet, part of the reason for Contrarian Fund's success may surprise some of its shareholders. A Sept. 30 posting on the Janus Web site said that about 46% of the fund's holdings were in foreign companies. What the fund didn't spell out was that $600 million, or 20.7% of total assets, was invested at that point in one often-volatile emerging market: India.
Contrarian Fund has so much money in India, which has been rallying, that it ranks as one of the single biggest investors in that country among U.S. mutual funds. (For more on Indian stocks and their rally, see Heard in Asia.)
Some analysts say Mr. Decker may have heightened the fund's risk by substantially increasing its Indian position, without making the shift clear to shareholders. It serves as an example of how some mutual funds, especially those with broad mandates and relatively few constraints on their investment strategy, can change their composition in ways their shareholders may not be aware of unless the fund spells it out clearly.
Contrarian Fund, for instance, had only about 13% of its assets in foreign stocks at its inception in 2000. The fund uses as its benchmark the Standard & Poor's 500-stock index, which is a performance index focused on the U.S. domestic market, although almost half of the fund's positions are now abroad.
Mr. Decker says he doesn't think the Indian holdings changed the risk of his fund, particularly because he sees himself as a long-term investor. That, he says, means he won't have to sell during downswings. In addition, he says, the Indian stocks he owns represent a wide spectrum of industries and therefore don't move in unison.
Given his investment approach, "the fact is, India is not a risky country," says Mr. Decker, 39 years old, who has been a fund manager at Janus since 1996. "That's a misperception." . . . .
In the fund's Sept. 30 posting, Janus lists all 60 companies in the Contrarian Fund, although they are included without a country affiliation. The 20.7% weighting has to be tallied by the fund holder. Other pages on the Janus Web site break down the positions by geography. The Indian holdings are categorized as "other."
Arjun Divecha, an emerging-markets portfolio manager at GMO in Berkeley, Calif., says all markets have some country risk, but this is especially true of emerging markets. "Investors may think they are buying a stock," he says, "but they are really buying a country."
Posted by dan at 11:50 AM
More on the slow-motion drowning of an American city.
Peter Gosselin's excellent piece in the Los Angeles Times.
Michael Janofsky in the New York Times on the downsizing of Tulane.
Posted by dan at 11:46 AM
How do you say, "no bonus for you," in Japanese? Mizuho Securities took a $224 million loss yesterday due to faulty typiing.
Posted by dan at 11:43 AM
American are living longer. The latest report from the National Center for Health Statistics says U.S. life expectancy has hit a record -- 77.6 years. Good thing the government and companies are taking steps to fully fund retiree health care and pension benefits.
Posted by dan at 11:38 AM
Brody Mullins in the Wall Street Journal does a good job at exposing the silliness of claims about capital gains/dividend taxes and the economy. The House, of course, approved a two-year extension of the temporary 15% tax on capital gains and dividends (which of course, means they're still temporary.)
The 15% rates on capital gains and dividends, which were approved by the Republican-controlled Congress and President Bush in 2003, expire at the end of 2008. The White House and most Republicans would like to extend the lower rates until 2010, saying the rates are an important driver of investment and U.S. economic growth.Although the rates don't expire for an additional three years, Republicans say that failing to extend them now would chill investment by adding uncertainty to the marketplace. "Investment, which is a belief in tomorrow, needs to have some certainty," said Rep. Bill Thomas (R., Calif.), chairman of the House tax-writing committee.
But a recent report by Federal Reserve economists found that the cut in the dividend rates didn't boost the stock market or lead to significant increases in the amount of money companies paid to investors as a proportion of their earnings. "We fail to find much, if any, imprint of the dividend tax cut news on the value of the aggregate stock market," the Fed economists wrote.
Elsewhere, the FT reports that my Congressman, budget chickenhawk Chris Shays, voted for the deficit-increasing tax extensions. As Holly Yeager writes:
"Chris Shays, a moderate Republican, cited the role tax cuts had played in the economy, adding, "I believe that if I vote to raise taxes, it would be a mistake."
Readers of Slate may recall my pre-2004 election discussion with Shays over his fiscal record in recent years. He's a very nice guy. But if Shays thinks he's a moderate on fiscal issues, he's delusional. When push comes to shove -- and even on votes when push doesn't come to shove, like yesterday's 234-197 vote -- Shays simply goes along with his fiscally insane colleagues.
Posted by dan at 11:30 AM
Clare MacCarthy and Paivi Munter report in the Financial Times that the Danes are slowly -- slowly -- coming to grips with the fact that giving citizens sabbaticals is an expensive proposition.
For years, the world has wondered how Denmark can afford its cradle-to-grave welfare system.Now the Danes themselves, faced with increased global competition and an ageing population, are questioning the viability of their generous model. . . .
Although Danish economic growth is high and unemployment low, a third of working-age Danes draw state transfer payments such as student grants, sick pay, unemployment pay and early retirement entitlements.
While the official retirement age is 65, half of all workers take advantage of a scheme to stop working at 60.
As the size of the working-age population declines, the burden of those drawing government support is set to increase dramatically.
But giving up the benefits of free healthcare, free education, universal pensions and paid sabbaticals - parents with children under the age of nine can take up to 52 weeks' leave of absence per child and receive a weekly allowance worth DKr1,960 ($311, €263, £178) - will not be easy.
Posted by dan at 11:27 AM
I guess this David Barboza story in the New York Times about wealthier people in the West paying young Chinese people to play online games for them, so they can start playing at higher levels, is a positive sign about globalization creating service jobs in China. But I can't help but think it's just an example of globalization and technology enabling dorky better-off people to pay dorky worse-off people to waste their time.
Posted by dan at 11:24 AM
Does anybody else find this funny? One of the law firms that Conrad Black, the right-wing newspaper publisher currently under indictment, used when he ran Hollinger was Torys LLP. Where did they order lunch from, Burke & Burke?
Oh, and according to the Wall Street Journal, Torys just agreed to pay Black's former company, Hollinger International, $30.3 million: "to settle Hollinger's potential claims against Torys, which represented Hollinger International during the period that company executives are alleged to have diverted tens of millions of dollars from Hollinger."
Posted by dan at 11:23 AM
Oh to have the certainty of the blinkered. The Wall Street Journal editorial page rhapsodizes about the success of the temporary reductions in taxes on capital gains and dividends enacted in 2003.
"The stock market has risen by about $4 trillion in value, and an esitimated 40% of that gain is directly attributable to increases in the after-tax return on equities, thanks to the cut. (If the tax cut expires, the market will instantly give back those gains.)"
With that kind of certainty, these guys shouldn't be writing op-eds or producing failed tv shows, they should be running a hedge fund--call it the Opportunistic Opportunist Fund. If there is some sort of mechanistic reaction whereby a decrease in taxes automatically boosts the market by a fixed percentage, and whereby an increase in taxes automatically decreases the market by a fixed percentage, then all an investor has to do is watch tax changes and place bets accordingly. Of course, this logic would have led an investor to massively short the market from, 1993 to 2000--after all, marginal taxes on the rich (i.e. investors) went up in 1993.
Also, a discussion question for Gigot & Co. Since the enactment of the dividend tax cut in May 2003, the stock of your parent company, Dow Jones, is down 18 percent. Absent the tax cuts, how much would shareholders have lost?
The comedy continues.
"Dividend payments to shareholders have doubled in two years, according to data gathered by the American Shareholders Association."
Now, the American Shareholders Association isn't a grass-root organization made up of individual investors. It's part of the Grover Norquist outfit Americans for Tax Reform. They share the same suite on L St. in Washington.
Lets assume ASA is playing it straight. The way I read their data, it doesn't show anything like a doubling of dividend payments to shareholders in two years. In this report from October, the ASA tallies up dividend payments of the S&P 500 for the last several years. On page 2, it shows that S&P 500 companies paid out $160.65 billion in dividends in 2003, $178.09 billion in 2004, and $201 billion in 2005. That's a 25 percent increase between 2003 and 2005, not 100 percent.
Am I missing something?
Apparently. It all depends on how you define shareholders. Dan Clifton of ASA says that dividends paid to individual shareholders of S&P 500 companies -- people who hold individual stocks outside of pensions, mutual funds, ETFs -- have in fact doubled. The numbers: $32.7 billion in 2002, $49.1 billion in 2003, $59 billion in 2004 plus $9 billion special dividend from Microsoft, making $68 billion; and an estimated $67.7 billion in 2005.
Posted by dan at 10:47 AM
U.S. businesses may get a big unfunded mandate, courtesy of the business-friendly House Republicans. Holly Yeager reports in the Financial Times:
"An immigration bill set for swift approval in the House of Representatives would require all US employers to use a government database to verify that their employees are not illegal immigrants.Republican sponsors of the proposal acknowledge that it would impose new responsibilities on business but argue it is a necessary step to eliminate the "job magnet" that they say attracts illegal immigrants. But business representatives reject any implication that they are to blame for illegal immigration and worry that the requirement would overwhelm the system used to check employees' legal status.
The proposal, drafted by James Sensenbrenner, chairman of the House judiciary committee, is expected to be approved today by the committee and to be considered by the full House next week.
The mandatory employment verification provision would expand a pilot programme, created in 1996, that is now used by about 3,100 businesses on a voluntary basis. Within two years all employers would be required to check the status of all new employees, and within six years the status of all employees.
[Roy] Blunt said the proposal "obviously creates an additional obligation for [business], but it's an obligation that needs to be met". He said the key to controlling illegal immigration was ending the lure of jobs paying better money than those available in immigrants' home countries.
"If they can't get that job, they don't leave," Mr Blunt said. "And so employers have to be a critical part of the solution."
In other words, according to Blunt, the way to stop illegal immigration is to continually reduce wages so that they're no longer appealing to workers in Mexico and elsewhere. Of course, businesses are already doing their part in this regard. Just look at the data on personal income.
Posted by dan at 10:16 AM
The Federal Reserve has published its latest monthly data on the fuel of the U.S. economy: consumer borrowing. Either Americans spent significantly less in November, or they earned significant more and had to borrow less to sustain the same amount of spending. Consumer credit fell at an annual rate of 4 percent in the month. Both revolving debt and non-revolving debt fell. Total consumer credit outstanding actually fell by a few billion dollars.
Posted by dan at 10:03 AM
Ruth Simon of the Wall Street Journal is on the front lines of the impending peak in housing.
"Individuals are pulling back from buying homes and condos as an investment, in a move that could accelerate the cooling of the housing market.In markets such as Las Vegas, Miami, Phoenix, San Diego and Washington, D.C., where investor activity had been heated, fewer people are competing to buy properties as an investment, real-estate brokers and housing analysts say. Some investor-owned properties are returning to the market for sale. With the pace of price appreciation slowing, some investors who were betting on quick profits are instead being squeezed.
The apparent pullback by investors is recent and is just beginning to show up in national data. Evidence of the development can also be seen in a number of markets that had until recently been a hotbed of investor activity. As speculators withdraw from the market in San Diego, for instance, the number of investors buying property has fallen by nearly half, estimates Russ Valone, president of MarketPointe Realty Advisors, which tracks the San Diego housing market.
In the Phoenix area, as many as 30% of properties for sale are currently owned by investors, says Jay Butler, director of the Arizona Real Estate Center at Arizona State University. Six months ago, most investors were buying rather than selling, he says. The shift has helped to drive up inventories of homes for sale in the Phoenix area, which climbed to 22,340 in October from 8,600 in April, according to data from the Arizona Regional Multiple Listing Service.
In the latest sign that the housing market is cooling, the National Association of Realtors said yesterday that its index of pending home sales dropped 3.2% in October. The reading is the lowest since March. . . .
Earlier this year, Sandra Geary, a broker in California's Sonoma County, was running seminars that drew as many as 200 would-be investors. She's also taken California investors on out-of-state home-buying expeditions to Arizona, Idaho, Nevada and Oregon and bought more than 30 rental properties for her own portfolio. But in recent months, her investor sales have fallen more than 75%. "Now that the market is slowing down, it's scaring investors away," she says.
Some investors also are backing out of preconstruction properties they bought. In San Diego, cancellation rates for new condominium units climbed 47% in the third quarter over the second, in part because a growing number of investors are getting cold feet, according to the Building Industry Association of San Diego County.
Posted by dan at 04:14 PM
This endless summer may not be so endless. Stephanie Kang and Peter Sanders report in the Wall Street Journal:
The nation's largest surfboard component maker suddenly ceased operations on Monday, throwing the surfing industry into instant turmoil amid concerns of a shortage of boards.Clark Foam, which has provided an estimated 80% or more of the bulk of polyurethane foam cores used to make surfboards since 1961, closed its main operation in Laguna Niguel, Calif., and satellite offices around the nation, with no warning given to clients.
The move could cause a severe short-term shortage of the base materials commonly used to make surfboards.
U.S. surfboard manufacturers since Monday afternoon have been scrambling to secure foam or alternative materials from companies as far-flung as Australia, South Africa, Spain and Brazil. Industry observers estimate that Clark Foam's 100 employees annually manufactured about 300,000 foam moldings, known in the industry as "blanks."
Gordon "Grubby" Clark, 73, founder and owner of closely-held Clark Foam, sent a seven-page letter Monday to his main distributors saying he was under scrutiny by the Environmental Protection Agency and California state and local agencies as a polluter and for violating county fire codes. In the letter, Mr. Clark said he decided to suddenly shutter his business because, "the State of California and especially Orange County where Clark Foam is located have made it very clear they no longer want manufacturers like Clark Foam in their area."
But Tuesday both the Orange County Fire Authority and the EPA disputed Mr. Clark's assertions that they have been targeting him as a violator or for criminal or civil prosecution. Representatives from both agencies said the company has never been fined and has been generally compliant.
Though surf manufacturers and retailers are concerned with Monday's closure, some believe the industry will now be spurred into embracing and developing newer technologies and materials and seeing the greater entry of foreign component manufacturers and suppliers.
Posted by dan at 03:21 PM
In the A section of today's New York Times there's a hysteriical, heartwarming full-page ad from Hugo Chavez to the people of America.
I can't reproduce the photo of the little girl looking joyfully at a Chrismtas present as lights from a Christmas tree twinkle in the background, but I can reproduce the text.
"SHARING THE WARMTH OF THE SEASON. VENEZUELA IS WARMING UP THE HOLIDAYS IN NEW YORK.""When temperatures dip -- and heating oil prices rise, the best holiday gift for a low-income family is to help them stay warm.
To help keep those in need warm this winter, CITGO--a major supplier of heating oil to the Northeast -- is reaching out to help these families enjoy a warm holiday and safe winter.
Working with non-profit housing and community organizations, CITGO is offering a significant amount of gallons of heating oil at deeply discounted prices to qualified residents of the Bronx, Queens, and Harlem.
Why would an oil company give such a gift? Because we're not just any oil company. CITGO is a subisidiary of Petroleos de Venezuela S.A. (PDVSA), the oil company owned by the people of Venezuela, whose traditional solidarity is expressed once again through this heating oil program. . . . .
The United States is Venezuela's long-time trading partner and friend. The U.S. has been there for others in need; now it's our turn.
What better way to embrace the holiday spirit?"
Feliz navidad to you, too, Hugo.
Posted by dan at 03:14 PM
What's next, Trent Lott producing a Jackie Robinson biopic?
David Halbfinger reports in the New York Times on ABC's efforts to sign up Mel Gibson's television production company to produce a four-hour miniseries based on the memoir of a Holocaust survivor.
I've never heard of Quinn Taylor, BC's senior vice president for movies for television, but he's got an awful way with words. Sample quotes:
But Quinn Taylor, ABC's senior vice president for movies for television, acknowledged that the attention-getting value of having Mr. Gibson attached to a Holocaust project was a factor."Controversy's publicity, and vice versa," Mr. Taylor said.
And:
"Mr. Taylor likened "Flory" to ABC's critically acclaimed 2001 miniseries "Anne Frank," one of dozens of television productions that have dealt with the Holocaust in recent decades. He cautioned that Mr. Gibson's level of involvement would not be determined until the mini-series was completed - which at this stage of any project is still a long shot - and he has seen it. "If it happens to be produced by Mel's company, it doesn't mean he's going to be out there flogging it like he did 'Passion of the Christ,' " Mr. Taylor said."
And Gibson's production company is called Con Artists? This isn't a miniseries deal, it's a knock-off of The Producers.
One can only assume that Disney CEO Bob Iger, who proudly claimed in the Wall Street Journal the other day that he's a fantastic slipper, is snoozing comfortably.
Posted by dan at 03:05 PM
Eric Lipton reports in the New York Times that the Rosemary Barbour, the Gautemala-born wife of Mississippi Governor Haley Barbour's nephew, has been landing big federal contracts for post-Katrina relief efforts.
"Her company, named after her two children, Allen and Camille, was started in 2000 after she had run a laundry service for students at the University of Mississippi. Last year, she won two contracts worth $675,750 from the United States military to provide washers, driers and showers at Camp Shelby in Mississippi, where her husband also works as a spokesman and director for special services. . . .Mrs. Barbour said any business she had secured, with Camp Shelby or FEMA, had been based on merit. "We are just a normal business trying to build my American dream," Mrs. Barbour said."
Right.
Posted by dan at 02:55 PM
An interesting new study from the Pew Hispanic Center. Most migrants who flock to America from Mexico illegally aren't coming here because they're desperate for work. They're coming before they're desperate for better work.
From the executive summary:
The vast majority of undocumented migrants from Mexico were gainfully employed before they left for the United States. Thus, failure to find work at home does not seem to be the primary reason that the estimated 6.3 million undocumented migrants from Mexico have come to the U.S. Policies aimed at reducing migration pressures by improving economic conditions in Mexico may also need to address factors such as wages, job quality, long-term prospects and perceptions of opportunity.
Posted by dan at 02:52 PM
A fascinating byproduct of the Manhattan real estate boom. Florence Fabricant reports in the New York Times reports:
Emperor's Roe, a new boutique in Harlem, is stocked with caviar, smoked fish, foie gras, cheeses, pâtés, tinned delicacies like escargots, olive oils and various condiments. "With million-dollar condominiums, the neighborhood is begging for luxury products," said its owner, David Mills, left, who had been the manager of Caviarteria.Mr. Mills obtained beluga caviar from Bulgaria before imports were banned and sells it for about $200 an ounce. He is also planning to open a lounge and a silvery tasting bar and cafe on the premises: 200 Lenox Avenue (120th Street), (212) 866-3700.
Posted by dan at 02:48 PM
An intelligent, decently-reasoned article found its way onto the Wall Street Journal op-ed page this morning:
John Goodman of the National Center for Policy Analysis argues for scrapping the Medicare prescription drug plan:
"Seniors don't understand the options. The government instructions contain mistakes. Taxpayers suspect they're going to get soaked. So why not junk the new Medicare prescription drug program before it kicks in on Jan. 1? Throw it out kit and caboodle, go back to the drawing board, and start all over.In the White House, this idea is considered heresy. Even the most conservative voices on Capitol Hill are only suggesting a delay in the program's introduction. But gradually something is beginning to dawn on a lot of Washington insiders, something they didn't understand when the program was enacted two years ago. We are about to launch an enormously expensive entitlement program and no one has any idea how we are going to pay for it."
It's worth reading the whole thing, although I think Goodman is a bit delicate when he writes:
"There was a major controversy over the original estimate of this program's 10-year cost. In fact, the program is being phased in for the express purpose of making the first 10 years' costs deceptively low."The "major controversy" was that the administration essentially lied about the cost of the program.
Posted by dan at 09:48 AM
And then it's back to business as usual. On the opposite page, George Melloan notes in his column that:
"The 'War on Terror' has dragged on longer than America's involvement in World War II, although of course with infinitely fewer casualties."
How is that possible? I never took any math beyond A.P. calculus. But the definition of infinity is pretty clear, at least in mathematical terms. It's a number larger than any number you could possibly imagine, and thus nearly impossible to quantify.
However, it is possible to quantify the casualties suffered by U.S. troops in World War II and in the current War on Terror. And it is possible to quantify the relationship between the two figures--you divide one into the other. The result is a small number, but a real one. And thus while we can say with certainty that casualties in the War on Terror are far lower than they were in World War II, they are finitely lower, not infinitely lower. This is the sort of thing a copy editor at a decent college newspaper would pick up.
Posted by dan at 09:35 AM
A South African beer company, which owns one of the iconic American beer brands, just paid $1.2 billion for a one-quarter stake in a Colombian brewer named after a region in Germany. Here's the press release from SAB Miller:
London and Johannesburg, 6 December 2005. SABMiller plc announces that at the closing of the voluntary tender offer on the Colombian Stock Exchange for all of the shares in Bavaria S.A. (“Bavaria”) which the SABMiller group does not already own (the “Offer”), acceptances had been received in respect of 62,375,024 shares in Bavaria, representing 25.19% of Bavaria's share capital, and increasing SABMiller’s interest in Bavaria from 71.77% to 96.96%.The total cash consideration payable as a result of acceptances of the Offer is approximately US$1,215 million.
Posted by dan at 09:28 AM
Yesterday, John Snow said U.S. workers could expect pay increases in 2006.
"WASHINGTON (Reuters) - Treasury Secretary John Snow said on Monday that a steadily expanding U.S. economy has reached a point where it should start generating good news about incomes and jobs.We're about at a tipping-point here where we're going to see much improvement in wage rates and compensation," Snow said during an interview on CNBC television."
Notice the double conditional -- "about at a tipping point."
Sibson Consulting, a human resources consulting firm, thinks otherwise.
Teresa Rivas reports in the Wall Street Journal:
That raise you are waiting for might turn out to be smaller than you think.As white-collar workers look forward to base salary increases for 2006, they shouldn't look further than this year's average 3.7%, according to projections from Sibson Consulting, a human-resource consultancy unit of Segal Co. of New York. Sibson examined data from its own clients and from six studies conducted by other corporate and consulting institutions, surveying a total of more than 3,000 employers.
Despite the economy's continued growth, increases forecast for 2006 match those from 2005, and only inched up 0.2 percentage point from the increase seen in 2004.
When there are enough applicants for jobs, companies don't have to lure new workers, or keep existing employees happy, with wages as tempting as those they might offer amid fiercer competition.
"Employers base the overall increase in salaries primarily on the labor market or cost of talent, and there hasn't been a big change in the labor market, so salary increases are expected to be about like they have been in recent years," says Sibson Senior Vice President Jim Kochanski. Employees may also consider other criteria when deciding to leave a job.
Still, workers can take heart that their raises aren't decreasing, and for most people, layoffs aren't looming. The slow but steady rise in salaries is likely to continue in the near future. The trend of 3% to 4% increases becoming the norm could be frustrating for employees, as the rewards for efficient workers won't be much higher than those for their less capable counterparts.
Posted by dan at 09:22 AM
Was the 2003 dividend tax cut tonic for the stock market? Four Federal Reserve Board economists say no. Karen Richardson reports in the Wall Street Journal.
When President Bush slashed the tax on dividends in 2003, supporters hailed the move as a way to stimulate the economy and boost the stock market.At least for the stock-market part of that plan, the jury is still out. A group of Federal Reserve Board economists concludes that the tax cut, which slashed the dividend-income tax on stocks to 15% from about 30%-38%, was a dud when it came to boosting the stock market when it was announced and passed in 2003 -- a time period, they say, that the stock market should have reacted most strongly.
Nor did the tax cut lead to a significant increase in the amount of money companies paid out to investors as a proportion of their earnings, the study adds.
"We fail to find much, if any, imprint of the dividend tax cut news on the value of the aggregate stock market," the economists -- Gene Amromin, Paul Harrison, Nellie Liang and Steve Sharpe -- wrote in a paper they presented in October.
Posted by dan at 09:18 AM
Stuart Elliott reports in the New York Times on how ad forecasters are dialing back their estimates for ad spending growth in the U.S. in 2005 and 2006. The c.w. holds that this would be bad news for the economy. As Elliott notes:
Advertising spending is considered a gauge of the health of the economy, so the widespread predictions of cutbacks may augur some softness ahead. That may be tempered, however, by the unanimously robust estimates for growth in ad spending online, a category that for many analysts also includes new technologies like video-on-demand and broadband.
In years past, I'm sure that ad spending was a pretty accurate gauge of the health of the economy. But I'm not so sure today. Despite all we read about the growth of online spending, the overwhelming majority of ad spending still goes into old media: network and cable tv; newspapers; radios. And given that all three now present advertisers with serious problems -- tv with Tivo/DVRS, newspapers with their declining circulations, and commercial radio with its fed-up audiences -- it's a wonder big marketers aren't cutting back on ad spending more. These media simply don't work for advertisers the way they used to. What's the point of buying ads on television if a big chunk of the audience -- especially the young chunk you want to reach -- is skipping the ad entirely? Less robust growth in ad spending is surely bad news for the big agencies. But it isn't necessarily bad news for the economy at large.
Posted by dan at 09:09 AM
Ford, like GM, is in a bit of trouble. It's stock is down, sales in November were off 15 percent from a year ago. So naturally it's decided to stop running ads for its most expensive cars (and hence the cars most likely to bring high profits) in venues where people with disposable income might be exposed to them.
Jeremy Peters reports in the New York Times:
After a threatened boycott from a conservative religious organization, the Ford Motor Company has said it will cut back on advertising in gay-oriented publications.The group, the American Family Association, called for the boycott in May because of what it said was the company's "track record for supporting the homosexual agenda."
After a meeting last week between Ford executives and members of the group, the company said that its Jaguar and Land Rover brands would no longer be advertised in gay publications. It said it had no plans to change the advertising strategy for Volvo, another Ford unit.
Posted by dan at 09:04 AM
Verizon bring the trend home to its white collar style. By freezing the pension plan and forcing 50,000 managers to rely more on 401(Ks), the company expects to save "approximately $3 billion over the next 10 years."
Posted by dan at 08:57 AM
Something tells me that when Tom Friedman visited Bangalore on his shiny happy globalism tour, he didn't stop at the truck stop a few miles outside of town. His colleague Amy Waldman did, and reports today in the New York Times:
"Sangeetha Hamam, a bathhouse, sits on the national highway near this gritty truck stop about nine miles north of Bangalore. Its mistress is Ranjeetha, a 28-year-old eunuch who lives as a woman. Her lipstick and black dress provide a touch of glamour in the small dark shack.Her clients are not only truckers, but also Bangalore college students and other city residents. They know to look for sex at highway establishments geared toward truckers. Her customers - as many as 100 on Sundays for her and five other eunuchs - come for a "massage" and the anal sex that follows, but also for the anonymity the location confers.
Ranjeetha knows men will pay more for unprotected sex, but she calculates that the extra money is not worth the risk to her livelihood and life. She knows they can go elsewhere; there are some 45 bathhouses doubling as brothels near this truck stop. She also knows several eunuchs who have died of AIDS.
India has at least 5.1 million people living with H.I.V., the second highest number after South Africa. It is, by all accounts, at a critical stage: it can either prevent the further spread of infection, or watch a more generalized epidemic take hold. Global experts worry that India is both underspending on AIDS and undercounting its H.I.V. cases.
Posted by dan at 08:54 AM
For hipper-than-thou ad industry folks, the future may not lie in figuring out ways to place ads in video games or on blogs. It may lie in figuring out how to get a chunk of the rapidly growing ad spend in the developing markets. That's where the action is.
The Wall Street Journal reports:
ZenithOptimedia is calling for global ad spending on major media to increase 4.8% in 2005, down from 7.4% in 2004, thanks to the absence this year of the Olympic Games, U.S. presidential elections and World Cup soccer. Global ad expenditures are expected to rise 5.9% in 2006, ZenithOptimedia says.The Publicis Groupe media-buying firm sees growth coming less from maturing markets such as the U.S. and Western Europe, and more from countries such as Brazil, Russia, China, Indonesia and India. Generally speaking, growth in these upstart areas is fueled by expanding media opportunities and a growing consumer market, says Steve King, ZenithOptimedia's worldwide chief executive.
Posted by dan at 03:01 PM
Disney CEO Bob Iger gives the Wall Street Journal the sort of quote that could come back to haunt him.
WSJ; As you change things, what do you lose sleep over?Mr. Iger: I'm blessed with being a great sleeper.
I was a great sleeper, too--right through Chicken Little.
Posted by dan at 02:51 PM
The market for stock markets is booming. The Economist takes a contrarian view ($ required.)
Posted by dan at 02:48 PM
Tom Braithwaite writes in the Financial Times that the French have surprisingly good broadband.
In reality, France is one of the European leaders in broadband internet penetration, with 36 per cent of households enjoying fast access to the web - higher than in Germany, the UK or Italy. By next year, according to research by Datamonitor, the penetration of digital subscriber lines will be higher than in any other European country or the US, largely because prices are the lowest in western Europe.
Posted by dan at 10:15 AM
Joann S. Lublin and Lee Hawkins in the Wall Street Journal point out the deficiencies of GM's board.
The good news for Mr. Wagoner is that his board of directors is sticking with him, despite shareholder misgivings. But GM's board, which includes two former CEOs who left their posts early as their own companies struggled, soon could face pressure of its own.Las Vegas investor Kirk Kerkorian, who controls 9.9% of GM's stock, now is more than $350 million in the red on his investment in the car maker. Mr. Kerkorian has signaled he may seek a seat on the board, which would probably be occupied by Jerome York, a former Chrysler Corp. and International Business Machines Corp. finance executive and veteran of corporate turnarounds. . . .
People familiar with GM say Mr. Wagoner relies heavily for advice on GM's presiding director, George Fisher, the chairman of PanAmSat Corp., who stepped down from the helm of Eastman Kodak Co. in 2000. Another board confidant is Eckhard Pfeiffer, ousted as Compaq Computer Corp.'s chief in 1999. Mr. Pfeiffer, now chairman of Accoona Corp., gets along well with Mr. Wagoner because Mr. Pfeiffer "loves cars, he's global and he certainly has views on Europe," the informed individual says. GM has a major presence in Europe and is in the midst of a difficult turnaround effort there.
Some outsiders question the quality of advice that Mr. Wagoner can get from people who themselves ultimately weren't successful as CEOs. "When a company is in trouble, the board can be a tremendous resource to the CEO," says James E. Schrager, a professor of entrepreneurship and strategy at the University of Chicago's Graduate School of Business who has studied the auto industry. In GM's case, though, Mr. Schrager says, "we don't have the kind of former CEOs here who can do strategy." So, the board fails to realize "the strategies GM is doing are getting nowhere." . . .
There is only one active CEO on GM's board: E. Stanley O'Neal of Merrill Lynch & Co., who also is a former GM employee and executive. Mr. O'Neal worked the late shift at a GM plant in Doraville, Ga., after high school and attended a college formerly called General Motors Institute. He eventually worked in the GM treasurer's office.
Posted by dan at 10:09 AM
Fiona Harvey writes in the Financial Times:
"The US National Association of Insurance Commissioners will discuss climate change at its meeting tomorrow in Chicago.The discussion had been planned to take place in September in New Orleans but was postponed following the devastating Hurricane Katrina."
Posted by dan at 10:07 AM
Richard Waters of the Financial Times thinks he's found the heart of the appeal of the Blackberry.
"Take the case of Brad Garlinghouse, an otherwise seemingly normal technology executive who lives in California. Mrs Garlinghouse, he says, has forbidden the use of laptop computers in the bedroom. The BlackBerry, however, is granted admission to this inner sanctum. It rests on Mr G's side-table - handily close, he says, in case he wakes up in the night with an idea that needs to be committed immediately to e-mail.No wonder the spouses of BlackBerry-besotted executives wonder whether the behaviour of their loved ones is entirely sane.
The addiction may be partly physical. David Placek, whose company, Lexicon Branding, came up with the name for the device, says he has studied how users bond with the gadgets: a lot of the pleasure comes from cradling the device in the palm, thumbing the scroll wheel and caressing the smoothly elliptical raised keys. "There's a playfulness to it - it's the most toy-like productive thing in the world today," he says.
Next thing you know, parents will be warning adolescents that excessive use of the blackberry can cause blindness.
Posted by dan at 10:02 AM
Great interview by Simon Kuper of the Financial Times with Prince Alwaleed of Saudi Arabia.
He's clearly a brilliant investor but he's also clearly somewhat kooky.
Money quotes:
I venture that there seems to be some dissent within Saudi Arabia. "From what?" demands the prince. Well, from the monarchy. "Where do you get that from?" The newspapers. "Frankly speaking, I don't see that at all. Most people in Saudi Arabia are really for the government. And, frankly speaking, if you look at so-called dissent outside Saudi Arabia, it's only Saad al-Fagih [a dissident in London]. That's superb. Population of 16 million indigenous and six million expatriates, you have one guy going publicly." It seems tactless to mention another prominent Saudi dissident, Osama bin Laden. . . .
Does having lots of money make you happy? Only when you give it away, the prince reveals. "When the tsunami happened, I was the biggest single contributor in the world. When the Pakistan catastrophe happened, I am the... single biggest contributor on the globe. I went to Pakistan personally. The prime minister told me: 'Prince, your visit is more important than what you can pay us.'"
My favorite is the diet advice.
I was very fat before. My peak weight was - do you want pounds or kilos? - 89 kilos. Then we went down to 60. No spaghetti, no bread, no butter, no meat. Complete moratorium. I eat only one meal a day."
Posted by dan at 09:55 AM
A great nugget buried in Julia Mead's article in the New York Times over the dispute involving a rabbi at the Jewish Center of the Hamptons.
"The Reform synagogue is housed in a vast wood and glass structure designed by Norman Jaffe. Members of its congregation include the film director and producer Steven Spielberg, the publisher and businessman Mortimer B. Zuckerman, the investment banker Bruce Wasserstein, and the real estate developer Dan Rose and his wife, Joanna. Its annual membership dues cost as much as $25,000."
Must be to pay for the pashmina tallises.
Posted by dan at 08:58 AM