Saturday, March 19, 2011

FX Coverage on CNBC

Sad to say, I was spot-on in this recent post regarding CNBC's plans for covering foreign exchange trading. In it, I wrote,

"Within the past week, I was asked to complete a CNBC survey on the topic. The network's surveys are typically pretty obvious in their focus. This one probed my unaided recall of advertising by various FX trading vendors, then segued into how I felt about the companies and the concept of CNBC airing an FX trading program.

You can see what's coming here. One or more retail FX platform vendors approach CNBC about sponsoring a program focusing on their instruments. With all the cross-currency plays available, plus various forces- interest rates, trade, intervention, etc.- driving FX valuations and expectations, there would be a lot to discuss."

Sure enough, for the past few weeks, CNBC has been advertising it's new program, Money in Motion, which debuted yesterday in the 5:30PM time slot.

So, once again, we see the network bow to its entertainment nature, and tout trading behavior that few, if any, retail viewers should ever venture near.

It would be fitting if Vanguard founder John Bogle boycotted appearances on the network in protest of this latest move that is diametrically opposed to his message to retail investors.

I haven't seen the details of the program's staffing, and I didn't watch its inaugural appearance, though I may have elected to record it. However, at half an hour one day a week, it's reasonable to assume that the network, to start, is borrowing resources to staff it. At least until it knows whether it can expand it sufficiently to merit its own staff and budget.

That won't change my feelings about the program, which I wrote in that prior linked post,

"I continue to feel that CNBC knowingly entices retail investors to believe they can and should engage in investing activities for which they are unsuited. Most retail investors should stick to managed equity and fixed income funds. Few really have the time, knowledge and skill to add unique value by selecting individual equities or bonds, let alone derivatives thereon. For CNBC to devote so much air time- as much as 2 1/2 hours now, including two Fast Money programs and Cramer's Mad Money- is, in my opinion, irresponsible. To add FX to this brew is even worse."

Friday, March 18, 2011

Cloud Computing, Net Neutrality, Regulation & Economics

The Wall Street Journal columnist Holman Jenkins, Jr., wrote an interesting piece last week entitled What Price the Cloud?

In it, he reviewed  the evolving situation regarding heavy internet capacity usage by firms like Netflix and Google, who, of course, want no pricing actions taken against them.

Jenkins wrote, in reference to "once-great firms like Digital Equipment and Wang Labs,"

"The scariest part: Even leaders who grasp what's happening to them often can't change cost structures and business models fast enough to survive."

That's actually a misunderstanding. DEC and Wang really never had a chance once the PC began to spread. No change in cost structure for producing a Wang system could save the company, because the product was just archaic in the face of a multi-functional PC of the late 1980s.

I'm rather surprised Jenkins made this mistake. Schumpeterian dynamics don't typically allow for accommodation by older firms to the newer trends which supplant them. There is little or no effective response. Rather, the older approaches simply disappear.

Still, the core of Jenkins' piece involves whether repricing of bandwidth will hurt companies like Netflix. Everyone's nightmare, of course, is that the cable companies begin to meter individual usage and charge for such usage volumes over a certain level. Jenkins notes how the introduction of ever lower-priced smart phones is driving up bandwidth demand from mobile sources.

He refers to an A.T. Kearney report which finds current economics of the internet unsustainable without some transfer of bandwidth costs to those that generate traffic. But for me, the key passage is this one,

"...but who's to say consumers can't judge for themselves if the restrictions are worth the price?"

Just the other day, I went online and selected three Netflix movies to view on my television. Into the instant queue they went, and I watched them, with no particular interruption, that afternoon (Although, I should note that Netflix has had some recent problems, disappearing from my Tivo unit for a day or so, and freezing up the system on occasion. I suspect usage overload).

What's that worth? For a flat monthly fee, I could watch 30 movies/month. I think that comes out to about 50 cents/film, and considerably less on a per/hour basis for entertainment.

If my cable bill rose by $10 for this level of service, will I really care? Is $10 so much that I'd revert to mailing discs back and forth to Netflix? Unlikely.

I saw the excellent movie Barney's Version in an art house theatre last weekend with a friend. It cost about $25 all in. The price differential between first-run movie experiences and arm-chair selection and viewing off of Netflix remains enormous. Temporarily raising the price of using bandwidth, until the traffic generators respond with more efficient delivery to economize on bandwidth usage, probably won't be crippling for most consumers.

What's really at issue here is this. Having learned the ability to buy, perhaps at artificially low prices, cloud-based experiences involving high-speed transfers of video and other high-volume communications applications, will consumers just return to old, pre-cloud habits, or will they willingly pay something for the ability to maintain their new levels of cloud-based information consumption?

But, in the short term, Jenkins is entirely correct when he writes of Apple, Netflix, Amazon and Google,

"All are betting heavily on the cloud. All need to start dealing realistically with the question of how the necessary bandwidth will be paid for."

Current enjoyment of on-demand, large swatches of bandwidth for free can't last much longer. The electronic highway is getting crowded, and sooner or later, tolls will have to be charged to allocate usage, or we'll all experience an inability to view full motion video in a manner that's appealing or worthwhile.

Thursday, March 17, 2011

Bill Dudley's iPads

Tuesday's Wall Street Journal carried an editorial describing audience reactions to New York Fed President Bill Dudley, a Goldman Sachs veteran, as he tried to explain that the cost of living isn't rising.

Apparently, Dudley said,

"Today you can buy an iPad2 that costs the same as an iPad  1 that is twice as powerful. You have to look at the prices of all things."

Well, all things except food and energy, if you're the Fed.

According to the Journal, amidst laughter over Dudley's remarks, someone in the audience replied,

"I can't eat an iPad."

While another shouted,

"When was the last time, sir, that you went grocery shopping?"

In yesterday's post regarding inflation, I noted that not everyone ascribes all price movements to inflation or, for that matter, deflation. Those terms are reserved for monetary creation in excess of, or less than, the growth of an economy.

Just because prices rise, or fall, doesn't mean they are due to (monetary) inflation.

It's pretty distressing that the New York Fed's President can't distinguish between prices which fall due to improved productivity or value-added, prices which rise due to demand, and price moves resulting from reactions to excessive money creation.

Wednesday, March 16, 2011

More Shameful Behavior by CNBC

Only a few months ago, I wrote this post concerning CNBC prominently showcasing the ethically-troubled Steve Rattner.

It simply stuns- and sickens- me that CNBC continues to kowtow to and butter this guy up. He was introduced as if he's God's gift to finance. As if we all know that Rattner 'saved the economy' by allowing GM to wriggle out of a proper bankruptcy, and, in the process, pay off the administration's labor cronies.

Then they proceed to ask the guy's opinions on things which, according to even his swollen bio, seem out of his normal sphere of interest.

Is this really the best guy they can get for this program? What's next- a guest spot for Bernie Madoff, live from jail? Or an hour guest-host spot on SquawkBox?

Disgusting. Just disgusting.

When a major business network so arrogantly panders to someone who violated ethics rules, you know how hypocritical that network is regarding business ethics.

Kelly Evans On The Fed & Oil Prices

Monday's Wall Street Journal had an Ahead of the Tape column by Kelly Evans entitled The Federal Reserve Faces an Oil Dilemma.

In her piece, Evans offered the pros and cons of the Fed's prospective sterilization of oil's price increases. She dutifully trotted out the usual arguments involving effective taxation, consumer spending consequences, QE2, monetary easing and how all of these effects might relate to US economic growth.

What I found odd was that Evans, who is typically very well-versed in both economics and business, completely missed the obvious point.

That is, the Fed's primary job remains dollar price stability. In reality, it really shouldn't be so overly-concerned with adjusting for oil's price, or the various follow-on effects on the US economy. Rather, by maintaining stable prices, in dollars, given supply and demand forces, and money supply growth in concert with some variant of the Taylor Rule, the Fed can provide at least one fairly consistent, if not constant, in an otherwise rapidly-changing economic landscape.

In truth, the Fed isn't going to 'get it right' if it really tries to solve all the simultaneous equations which are theoretically required to arrive at the correct, perfect economic policy prescription for the US economy.

The fact is, despite the Fed or Congress, the US economy, like all economies, must suffer through cycles. And that includes slowdowns and recessions.

The Fed can mitigate (monetary) inflation, and the US economy may still experience rises in the prices of some goods due to demand-supply imbalances. When I learned economics, we called that a price signal. If prices rise, some demand ebbs, while more supply is coaxed into the market, and others seek to replace the goods, the price rises of which have provided opportunities.

To suggest that the Fed can somehow, with just one monetary lever, sterilize the effects of so many disparate inputs to our economic system is laughable. And wrong.

I'm surprise Evans didn't go that route in her column. It would have been more helpful than writing in such a way as to suggest that the Fed has choices which include actually resolving these conflicting economic forces in some perfect or preferred manner beyond simply maintaining price stability.

Tuesday, March 15, 2011

US Outsourcing: A Race To The Bottom?

About a week ago, a friend and I were at our fitness club when he ran into another guy as we were talking.

The third man began to converse, and, in time, mentioned he had been laid off from a New York-based insurance company. He then briefly recounted that, though an IT professional with an electrical engineering degree, he'd been laid off from Bell Labs, then a second firm, and, most recently, from the IT department of the insurance firm.

Understandably disappointed, he railed that there was no manufacturing left in the US, while companies are engaged in what he termed a "race to the bottom," hollowing out high-paying jobs from America and outsourcing them to India, China and Southeast Asia.

However, the laid-off engineer isn't entirely correct. As I wrote in this recent post concerning a recent Wall Street Journal editorial,

"A related common complaint by some pundits is the oft-proclaimed death of US manufacturing.

In a well-written editorial entitled The Truth About U.S. Manufacturing, in last Friday's Wall Street Journal, economics professor Mark Perry (University of Michigan at Flint) debunks that complaint.

Perry observes,

"In every year since 2004, manufacturing output has exceeded $2 trillion (in constant 2005 dollars), twice the output produced in America's factories in the early 1970s. Taken on its own, U.S. manufacturing would rank today as the sixth largest economy in the world, just behind France and head of the United Kingdom, Italy and Brazil. Despite recent gains in China and elsewhere, the U.S. still produced more than 20% of global manufacturing output in 2009.

The truth is that America still makes a lot of stuff, and we're making more of it than ever before. We're merely able to do it with a fraction of the workers needed in the past.

The average U.S. factory worker is responsible today for more than $180,000 of annual manufacturing output, triple the $60,000 in 1972."

It's not that the US doesn't produce things. It's that high value-added goods don't require as many workers per capital dollar to do so. The sorts of manufacturing jobs the engineer had in mind aren't competitive with those in other countries where such lower-value work is done for lower wages.

But this guy wasn't even in manufacturing. So let's consider his general concern- about outsourcing and a 'race to the bottom.'

I don't know where the guy earned his BS in EE, but it seems as if he was a fairly recent employee of Bell Labs. Probably within the last decade. Let's just say, as kindly as possible, that it's not the same Bell Labs of the pre-Lucent era. And it hasn't exactly been associated with lots of Nobel Prizes since ATT was broken up, as it was in the organization's salad days from the 1950s to 1970s.

Further, while the conversation was fairly brief, he typified himself as just a 'financial IT' guy. Working in such a capacity for a garden-variety general insurer is hardly a unique sort of job.

While he complained that it was no longer useful for Americans to earn EE degrees, as engineering jobs went overseas, I thought of Google, Facebook, Cisco, Apple and lots of other technology firms which still appear to be growing and using engineering talent.

Part of being an American is the freedom to educate yourself and then pursue a chosen field and skill set. If you make poor choices, you may find yourself challenged to maintain the career path you envisioned. For example, there are a lot fewer telecommunications engineers now than there were a decade or more ago, when so much more of the existing systems were analog. That's partly why communications are so much less expensive and more powerful.

It's the same with jobs in steel, autos, and even airlines.

In one respect, the laid-off engineer was correct. American companies, in order to remain competitive, for the good of their shareholders, do locate functions where they are most productive. For lower value-added functions, that can mean lower-wage countries outside the US.

Sometimes, companies have gone too far in this direction, as Boeing's CEO recently admitted, and reverse course,
"Then there's the recent comments of Boeing CEO Jim McNerney on CNBC. In answer to questions concerning the Dreamliner's continuing delays, McNerney confessed that the firm had overreached with its design outsourcing. He said that they won't be doing that again, focusing instead on more onshore engineering and design.

If one of the most sophisticated engineered systems we have, a modern jetliner, has failed to be reliably designed and produced globally on time, what are the prospects for equally-sophisticated systems? At least the Dreamliner results in a testable product on which quality control may be performed before it actually goes live in its initial commercial flights. And Boeing has been building such systems for decades.

I think it says a lot that they got the mix and management of global design of the various parts and subsystems of their newest jet fouled up, and are planning to move back to more centrally-sourced services in the future."

It's the higher value-added functions and services that will remain onshore. American productivity is often superior in those areas, especially when requiring large and sophisticated amounts of capital to work so productively.

Sadly, the engineer's comments seemed to signal, more than anything else, that he'd perhaps made some sub-optimal educational and career choices in the past, which led to his having too few highly-valued skills, despite his degree.

The US does have a challenge to continue to create business growth which will employ highly-educated and -skilled Americans in highly-productive jobs which create high value-added. We can continue to expect lower value-added jobs to migrate to lower-wage locales, often offshore.

But that's not the same challenge as every worker to constantly evaluate whether her or his skills will remain competitive and highly-prized in our economy.

Monday, March 14, 2011

My Hate/Love Relationship with Dunkin' Donuts

I've written in prior posts of how much I admire and respect companies or employees who provide an excellent service experience.

By contrast, I typically feel equally passionate, but negative, when a company or its employees or franchisees deliver poor service.

Unfortunately, one of my usually-favorite retail firms, Dunkin' Donuts, has earned a place in the second category. Twice in one week.

Last week, I visited the nearest DD franchise outlet, at the foot of Morris Avenue in Summit, New Jersey, one evening. I ordered several donuts and a small cup of coffee. Very simple. And there was nobody else in the shop. Not only did I have to coach the counter employee on finding the right items, but he didn't pay attention, resulting in my leaving with less than my full order of pastries.

But that was a minor gaffe compared to what I experienced on Saturday morning.

As background, it's worth noting that DD has begun having monthly themes to spur customer visits. For example, February was chocolate lovers' month. They baked and sold a few special varieties of chocolate-filled donuts and pastries which are no longer available.

Right on cue, beginning in March, the chain began promoting, via televised and radio spots, its Big N' Toasty Breakfast Sandwich (hereinafter BNT). Here's the prose describing it:

Start your big day with 2 fried eggs, 4 slices of Cherrywood smoked bacon and American cheese on thick Texas Toast.

With such an onslaught of expensive media, and no mention of a date on which the food item would be offered, it seemed reasonable to assume it is already available. Especially considering that, upon walking into any DD location in the past week, it is already prominently featured on POP display signs and on the permanent menu board located high on the back wall. It's even priced, so you know they are serious about selling it.

In short, all the advertising and marketing cues point to its widespread availability.

So on Saturday morning, I drove the short distance to the Morris Avenue DD to buy a few donuts and take home a BNT sandwich. With 2 eggs and four slices of bacon, plus cheese, it's not the sort of thing I want to consume all at once.

Imagine my dismay when, upon ordering it, I was told, in very broken English-well, actually, I'm not exactly sure what I was told. The first employee babbled incoherently, so I repeated my request. He babbled some more. I caught the word "Friday," and asked if he was saying it was only available on Friday?

Then his colleague babbled with a different accent, letting loose with a stream of words, the only ones of which I initially understood were 'don't have it,' and something about 'that's corporate.'

At this point, I turned to the man in line behind me, offering to let him go ahead of me, as it was becoming clear my order would be neither simple, nor fast. He declined, evidently wanting some free entertainment.

For the next minute or so, I was put through more pigeon English, while three of the store's employees, none of whom spoke clear English, apparently attempted to tell me that DD, the parent, had initiated a media campaign for a new breakfast sandwich which was not yet actually physically available in the stores.

It seemed, if I understood the extremely-poor communications of the employees, that the first items don't hit the retail outlets until this coming Friday.

Can you believe the ineptitude of DD's corporate management? It's owned by a private equity firm, so there's limited machinery to easily contact the firm. I tried once before, when another DD store refused to sell me a bag of espresso beans, although they admitted to having them to make espressos, cappuccinos and lattes. At that time, I emailed the parent on their website, giving them my contact information, but never heard back at all.

Now, the same management team is committing one of what is, to me, the most egregious mistakes a retailer can make- spending heavily on promotion of a new product which isn't yet available in its stores.

That's why I have such a hate/love relationship with DD. I find their atmosphere, usual service, and espresso-based coffee products to be better and less expensive than Starbuck's. But screwups like the BNT sandwich introduction are a real pain.

Just in case, however, the franchisee of that one outlet was at fault, I tried another DD store in a nearby town on Saturday evening. I walked in at 10PM to a mostly-empty shop. There was nobody in line, so I stepped up to the counter immediately. What happened next just cemented my recent sense of DD as having declining service levels.

In this case, at the store on Valley Road in Stirling, an employee looked directly at me, only a few feet away, then continued to talk on his cell phone and walked through a door into the back of the store, deliberately leaving me unserved, and no employees in sight.

Now I'm not sure when I'll return to one a DD store to try the new food item. Or anything else, for that matter. I guess you can characterize me as a formerly loyal DD customer whose patience with the firm's product introduction policy and store service has just about worn out.