Saturday, April 30, 2011

The NFL Union's Decertification- I'm Confused

Roger Goodell, Commissioner of the NFL, wrote a thought-provoking editorial in the Wall Street Journal last week. Coming on the heels of the court decision upholding the players' union's decertification, he enumerated a set of consequences which seem to contradict the original reason for that union.

With so much government machinery in place since the 1930s to facilitate unionization, it is rare, perhaps unprecedented, for a union to dissolve itself as a response to a breakdown of negotiations with management.

To an observer like me, reading Goodell's piece, it seems that all the conventional reasons for unionization were simply tossed out the window by the better players, to the detriment of the worse.

Among the items the Commissioner cited were: no more standardized pensions; no minimum salaries; no balancing of teams with respect to salary caps, probably resulting in some teams becoming permanent 'farm teams' for better ones; no standardized rules of pension eligibility.

I have regular discussions with a friend who is a New Jersey public school teacher. He is, of course, unionized. It's not a choice, if he wants to teach in that school system. He often claims he could or should make more money for what he does, and I point out that, were teaching not unionized, he well might. But, as it is, his union protects inept teachers, thus holding down his own compensation.

In the NFL players case, we see a union, as a maneuver in response to the owners' lockout, simply contradict decades of verbiage concerning labor solidarity. Instead, they have literally abandoned each player to his own fate.

Goodell correctly asked why there is even a draft this week? The union structure with which it is associated, due to the union-pressured rules governing club hiring of players, free agency, etc., has vanished. So, in theory, every club with an interest in the best first draft choice could, and should, pursue him.

It's going to be fascinating to see how professional football morphs as a result of this novel, unexpected union move.

But it sure does seem to contradict all the usual arguments unions give for their necessity.

Friday, April 29, 2011

Enjoying Bloomberg

After so many negative posts concerning business, economic and political coverage on CNBC, I was delighted to learn that I now receive Bloomberg from my cable provider.

So for the past few days, I've been liberally sampling the channel's offerings. What I've discovered is that Bloomberg has more energetic, objective and hard-hitting, unfiltered coverage of all three topics.

For example, on the day following Bernanke's press conference this week, there was a lot of criticism of his remarks by the anchors.

Similarly, there was quite a roasting of Buffett over the Lubrizol incident. He came under fire for essentially having been lax in probing Sokol's investment. Not something CNBC would ever dare suggest, since Becky Quick gets so many exclusive interview opportunities with Buffett.

Yet, from watching Bloomberg, it seems their own coverage of Berkshire's annual meeting and interviews with Munger and Buffett will be quite extensive.

Unlike CNBC, which has anchors who either ask questions so dumb and obvious that their heads must hurt, or voice no opinion at all, the Bloomberg on-air staff seem vibrant, well-informed and offer interesting commentary. It's an interesting mix, because the anchors seem better-informed and less hesitant to state facts. Their questions are sharper.

Additionally, the anchors and reporters did a fairly bare-knuckles story on Donald Trump, pointedly detailing each of his three corporate bankruptcy filings. They pulled no punches in declaring that he'd be torn to shreds by Republican opponents for his business missteps.

Perhaps the most notable difference from CNBC is Bloomberg's much more candid, objective coverage of the Fed and politics. I never saw a single sitting Fed official interviewed, so maybe it wasn't a coincidence that so much more of Bloomberg's coverage of that institution was negative and blunt regarding inflation and excessively easy monetary policy.

It really highlighted how much of a Fed and administration lapdog CNBC has become.

This morning I sampled some of the Bloomberg content opposite Squawkbox, and found it quite acceptable. And devoid of empty-headed commentary so often present on CNBC at that hour.

I expect that as time passes, I'll be viewing CNBC a lot less, and Bloomberg a lot more.

Boeing, The NLRB, Right-To-Work States & Bernanke

The NLRB's ruling against Boeing's production facilities in right-to-work South Carolina are clear evidence of government's schizophrenic attitudes toward business.

On one hand, we have Wednesday's remarks by Fed chairman Bernanke, at his press conference, that employment and economic growth are desirable objectives. His maintenance of ultra-low rates reflects his belief and hope that these, alone, will spur economic growth.

Then we have the NLRB's partisan, pro-union vote to curtail Boeing's opening of a second production line for its 787 Dreamliner in a state that doesn't require closed or union shops.

Lamar Alexander wrote a persuasive editorial just a week later explaining how, as governor, he was able to lure Nissan's plant to Tennessee, rather than neighboring Kentucky, because the former is a right-to-work state.

Alexander went further, arguing that the NLRB's Boeing decision will cause foreign and even domestic producers to see a risk that having operations in even one unionized state could subject them to capricious NLRB rulings forbidding them from doing business in any of the 23 states that are right-to-work.

Makes no sense, does it? Bernanke claiming to be holding rates low to facilitate greater economic activity and employment, while the NLRB rules to restrict employment to higher-wage states that will, consequently, employ fewer to build those 787s.

Easy money and government hand-wringing over slow employment growth are false when the same government acts to create such massive uncertainty for corporations, such as in the Boeing case. Decisions such as the NLRB's effectively abrogate corporate decisions on locating production facilities, which will necessarily affect their subsequent decisions concerning putting their companies at risk in the US to such deep and serious government intervention into their internal operations.

Perhaps Boeing's next move is to relocate the South Carolina lines in other countries.

Thursday, April 28, 2011

Bernanke On Inflation & The Dollar

Who hasn't weighed in by now on Bernanke's press conference yesterday afternoon?

Contrary to CNBC blowhard Jim Cramer's predictions that Bernanke would silence all inflation critics, the reality was more like a Hail Mary pass. Yes, Bernanke did attempt to claim that commodity prices have surged due to developing nation demand, as Cramer predicted. Not that it was such a hard call to make.

The trouble is, it's not just oil. I don't think US food demand is down as much as its oil consumption is from a few years ago. But we have broad grocery store inflation approximating 10%.

Bernanke's hopes for moderated inflation while Americans pay more for food and gasoline just aren't believable. Further, technically, inflation is a monetary phenomenon, and Helicopter Ben has been monetizing Treasury debt and presiding over a weakening dollar.

I thought all the hoopla over how Ben would handle the press conference was overdone. He's a smart guy and has taught at Princeton. He's suredly used to intelligent questions. Trouble is, his answers weren't comforting for the US economic outlook on inflation, prices and dollar valuation.

But, on hearing that rates won't be rising anytime soon, the equities indices, of course, went wild.

Well, I guess it's one silver lining amidst some pretty unsettling comments from the guy who is supposed to defend the dollar and provide for stable, healthy monetary conditions in the US economy. Neither of which he's doing at present.

Subtle Political Bias On CNBC Yesterday Morning

Sometimes political bias seeps into business coverage so subtly that you don't really notice it at first.

This morning, on CNBC, this was on display front and center.

David Faber was co-anchoring with Becky Quick and Joe Kernen. Faber projects serious analytical credentials, which served to further blur what was about to take place. The guy he replaced for the morning has no such credentials, having apparently been selected to provide ethnic balance on the morning program.

Thus, when House GOP Majority Leader Eric Cantor appeared for an extensive discussion regarding the upcoming action on the nation's debt limit, the biased stage was set.

I won't give a blow by blow account of the discussion. You can probably correctly guess that Cantor defended the need to cut spending while raising the debt limit.

Faber, who leans politically fairly far left, judging by his on-air comments over a decade, chided Cantor for potentially creating a monetary disaster by causing the federal government to default on its debt.

For the record, despite what so many pundits, and Tim Geithner, allege, that's not the only outcome of a failure to raise the debt limit. The House can easily pass a bill to direct the Treasury to prioritize spending in order to pay interest, retire maturing debt, etc., so that internal spending is left unfunded.

What was so subtle, however, was how the network employed Faber to give a patina of credible analysis to what is largely a political topic.

Cantor gave as good as he got, being the intelligent and poised guy that he is. But what struck me as I listened was how, given Faber's line of attack, was his clear desire to put Cantor on the defensive, and completely ignore the excessive spending in Washington.

How differently another network could have handled the same appearance. Imagine a co-anchor asking Cantor if it were wise to pass the debt limit increase without any corresponding spending cuts to at least try to rein in federal fiscal excess?

The debate ran to issues like tax reform, on which Faber used the magic liberal phrase about wealthy people and corporations paying "their fair share." In this instance, Faber's analytical credibility was perhaps most misused, because his comments displayed a total misunderstanding of the difference between tax rates for and total taxes paid by various income strata. But, to hear Faber tell it, right along Democratic party lines, Cantor was espousing cutting spending on the poor, giving tax relief to the wealthy, while flirting with US government default.

Later, Texas Congressman Ron Paul made a guest appearance to discuss his announcement of an exploratory committee for a presidential candidacy, as well as his views on Bernanke's afternoon press conference.

In Paul's case, the subtle bias was to play a sort of video rope-a-dope. Paul is very serious and well-informed, being the current chair of the sub-committee of the House overseeing the Fed. When Paul lit into the Fed's opaqueness, failure to maintain the dollar's value, and a host of other mistakes, the co-anchors were largely mute. Nobody tried to debate Paul's allegations, nor make him out to be a wing nut. Instead, it was like Paul was declaiming into an empty room.

Sometimes I think CNBC is the anti-business network. This morning was a good example of it.

Wednesday, April 27, 2011

Derivatives Clearinghouses

This past weekend edition of the Wall Street Journal featured a lead staff editorial commenting on mandates for derivatives clearinghouses contained in Dodd-Frank.

The editorial made much of the many warnings now being uttered by people who either voted for the bill or were silent when their comments would have mattered. Specifically, the piece cites Ben Bernanke's reference to Pudd'nhead Wilson and the matter of 'watching that basket' very closely.

Perhaps I'm in the minority, but I believe that well-run clearinghouses or exchanges for derivatives would be an improvement over what went before.

Remember how Lehman's demise triggered concerns over daisy-chains of various derivatives? How AIG was seized because of fears of too many little-understood connections among its financial products unit's many credit default swap positions?

Back then, the fear was unknown linkages among many derivatives, some of which may have even been sold by parties which could not actually fulfill their obligations under the agreement.

Shouldn't we then welcome having well-capitalized, monitored exchanges where parties have posted sequestered collateral for their derivatives? Where sellers are vetted for their financial capability to perform? Or at least are clearly analyzed by counterparties? Where rules are clear regarding what happens when a counterparty fails to perform?

I'd rather see a separate, well-run exchange for derivatives than rely on the same type of inept regulators who allowed the last financial crisis to occur. Mind you, nobody has either proven or determined that derivatives, per se, brought about the collapse. But because of derivatives risks at firms like Lehman and AIG, which were affected by the mortgage market collapse, regulators and legislators pulled those instruments into the maelstrom when new, excessive, poorly-understood regulations were written and passed.

Of course, if we truly expect and want federal bailouts for any large financial entities, then it may be moot to observe that exchanges can fail, too.

But, absent that, I would expect a standalone exchange for derivatives to provide much more clarity regarding their risks to firms and counterparties, going forward.

Tuesday, April 26, 2011

More Bad Politics From Rattner On CNBC

CNBC seems to have a pretty bare cupboard of guests these days. This morning they again featured the truth-challenged Steve Rattner. Ethically-challenged, too, it appears.

This morning, the network wanted someone to do a beat-down on Paul Ryan's budget proposals. So they logically turned to a former Obama administration czar. One who never saw government power he wasn't happy to use to coerce investors, rather than adhere to Constitutionally-enshrined bankruptcy processes.

What's rather strange is that the Squawkbox producers would have Rattner, who doesn't have a long career background in federal budgetary matters, appear solely to comment on Ryan's budget.

Rattner duitfully trashed the House GOP member's proposals, solemnly declaring that Americans weren't ready for, didn't want, Medicare to become a voucher program. That they want their promised benefits as is.

As I discussed in today's post on my companion political blog, it's not so clear-cut. Having given Americans an unsustainable, unaffordable benefit for nearly 50 years, Democrats now cry foul when Republicans- or anyone, for that matter, including independents, Tea Partiers, whomever- point out that the choice being framed between realization of this unsustainability and unaffordability or bankrupting the country, is an inconvenient truth.

Despite Rattner's claim to political neutrality, by no longer making campaign contributions, his very position on Medicare paints him as one of those who chooses to be blind to reality.

Of course, his next statements were predictable. Taxes have to rise. No question- in order to fulfill unwise promises made by dim-witted politicians in the late 1960s, in an era of feel-good American economic hegemony, the rich must be sheared.

Too bad an ostensible business network has to engage in such partisan politics, and attempt to disguise such antics as objective punditry.

Indexing- What's In A Name?

In the Wall Street Journal's weekend edition of two weeks ago, Matt Phillips wrote a nice piece describing fund manager Joel Greenblatt's recently-initiated "value-weighted indexing" funds.

I've read the book Greenblatt, founder of Gotham Capital, wrote for the Little Book of Investing series. Frankly, I like Vanguard founder John Bogle's volume better. Perhaps because, as the developer and manager of a quantitative equity portfolio strategy, I'm biased. If I weren't using my own approach, I'd generally adhere to Bogle's. Greenblatt is a value style investor who relies on fundamentals which my proprietary research found to be relatively weak. It remains challenging for me to distinguish between a "value" equity and, well, a poorly-performing equity.

But, to each his own.

However, Phillips' piece described Greenblatt's latest creations. You can read the article for details. Basically, Greenblatt employs what he calls "value weighting," wherein the funds weight holdings based on value-oriented scores.

With all the buzz around broadly-based ETFs and concerns over expensive, actively-managed funds, one wonders whether Greenblatt hasn't just produced a sort of 'fighting brand' category of funds with an index label.

But, as Phillips quoted one observer,

"This is an actively managed quant fund. There's no indexing involved. Just beause you use math doesn't make you and indexer."

So true.

Perhaps Greenblatt is simply becoming a more astute marketer, while following an old brokerage habit- create new products when the older ones become too efficient, i.e., have declining margins. Or, in this case, perhaps become less fashionable as expensive actively-managed funds.

Monday, April 25, 2011

On Research Design: Coffee Loyalty

Just about two weeks ago, the Wall Street Journal published an article by Julie Jargon (is that a cool reporter's name, or what?) discussing the results of coffee drinker loyalty research from CustomersDNA.

I kept the article because of the counter intuitive results presented in the piece, i.e., McDonalds had the highest scores on customer loyalty among the three major US chains- Starbucks, Dunkin' Donuts and the golden arches.

With my background in marketing research stretching back to my undergraduate studies in marketing, I was perplexed that an independent firm which, apparently, conducted objective research, would reach such surprising conclusions.

What would have to be true for that conclusion to make sense?

After all, nearly everyone I know who frequents Starbucks swears by it. Same for Dunkin' Donuts. My own experience at McDonalds, except for outlets located at major highway rest stops, is service so poor that their espresso-based coffees are simply not memorable.

That's when I reread the article for the second time and realized what was wrong.

CustomersDNA only surveyed patrons about coffee. Any and all coffee.

Well, for Christ' sake, McDonalds has been selling coffee for longer than Starbucks has been in business. That's not the point.

In a paragraph located near the end of her story, Ms. Jargon discussed pricing for basic, brewed coffee at the three chains, repeating the contentions of the researchers that McD's lower prices were the prime cause of their superior loyalty measures among customers.

Having realized this flaw in the study, the whole piece became of basically no importance to me. Nor, I would suspect, anyone else actually interested in how the three chains stack up competitively in espresso and non-coffee beverages.

What I can't figure out is why a research firm wouldn't understand this point and design their surveys and methodologies accordingly. After all, McDonalds entered the espresso-based coffee segment recently because of its higher margins and price points. Same with DD.

And, if you've been to Starbucks or Dunkin' Donuts very often, you would, like me, probably see very few basic, brewed coffee orders. Who cares about that segment? Sure, Starbucks introduced Via, but that's primarily for the home market.

It goes back to something my mentor at Penn's business school's marketing department, Jerry Wind, taught me so long ago. You should be able to specify your detailed research plan, down to the output tables and hypotheses tested, before going to the field with your research. But if you have failed to design the instrument and sampling plan correctly, you're already screwed.

In this case, hard as it is for me to believe, apparently CustomersDNA didn't bother to distinguish between espresso and brewed coffees.

Or did they, but one has to pay for those results?

Too bad if it's the latter, because as Jargon's article reads, and this isn't her fault, the results are, well, boring enough to make you need a cup of coffee to stay awake.