GE's Continuing Woes

Judging by this morning's Wall Street Journal article, Jeff Immelt and GE just can't catch a break these days.

It's not enough that Bill O'Reilly's Fox News Factor program bashed Immelt and GE yet again last night. It's become an almost twice-monthly event now, since he first did it in April, when I appeared as O'Reilly's guest to discuss Immelt's awful performance leading GE since late 2001.

The nearby Yahoo-sourced five year performance chart of GE and the S&P500 Index continues to show the diversified industrial giant struggling to even match the market index. And it's only gotten worse in the past two months.

Now it appears that Immelt can't even sell GE's private label credit card business.

It seems, believe it or not, that when you want to unload a turkey, other people actually notice and shy away.

Imagine that! Didn't Immelt and his minions figure other business people can do the math, too, on GE's card portfolio's weak returns?

According to the Journal article, GE, which does a lot of card issuance and processing for so-called private label accounts, runs a card business which is riskier and less profitable than the average major bankcard- Visa and Mastercard- business at a large commercial bank.

These days, your local department store or big box chain's credit card is, in all probability, actually outsourced to GE for the operation of the program.

What I find, well, arrogant, is that the senior guys at GE, including Immelt, think that they can just nonchalantly dump their mediocre card business onto some other company- preferably a bank- and the buyer won't notice the portfolio's problems.

The Journal article notes that Chase and other commercial banks have now retreated from considering the purchase of GE's business.

It's one thing when you have a rare crown jewel in your company, or a well-performing misfit with the rest of your business portfolio, and you expect to get some interest from prospective buyers when you want to sell the business.

In this case, however, GE is trying to peddle an also-ran credit card business as the whole sector is experiencing rising chargeoffs.

These guys at GE just don't get it, do they? Not only are they not the smartest guys in the room. Everyone else is not just stupid, either.

How much longer will GE's board put up with Immelt's follies? Probably a long time. But shareholders can sell now, and contribute to a further slide in the company's stock price and total returns.

George Soros' World-Class Ego

This past weekend's Wall Street Journal edition carried a piece on George Soros' latest warning- an asset 'superbubble.'

Like Julian Robertson and Michael Steinhardt, George Soros seems to get lavish attention long after his period of successful trading, or investing, if you prefer, has ended.

The Journal article notes that Soros made large fortunes in 1992 and 1997 by betting, respectively, against the pound and the bhat. While never proven, rumors have always swirled around Soros concerning whether or not he was the recipient of insider leaks about the British financial authority's intentions regarding the pound.

Now, writes Greg Ip, Soros,

"wants to be remembered most as a philosopher. Since he was a student in 1952, he has been promoting his economic theory, which he calls 'reflexivity.'

In essence, he argues that markets don't simply reflect fundamental determinants but can change those determinants in a way that causes asset prices to go to extremes. In his latest book, "The New Paradigm for Financial Markets," he argues a "superbubble" has developed in the past 25 years and it is now collapsing."

Ip notes that Soros' predictions have routinely falled wide of the mark. He prematurely sounded the death of the US dollar in 1987, yet neither the world-wide depression, nor global conflict of which he warned have arrived. In 1998, he claimed that

"The global capitalist system....is coming apart at the seams."

Actually, it would seem that in the decade since Soros wrote that somber prediction, global capitalism has contributed to more trade, wealth creation and freedom than ever before in man's history.

Believe it or not, Soros actually alleges that, because in the story about 'the boy who cried wolf,' the wolf really arrived after three warnings, his three most recent books warning of global economic catastrophe mean he is now probably correct.

I'm serious. Greg Ip's piece quotes that comparison by Soros. You cannot make up stories this silly.

To prove how important his ideas are, Soros notes,

"The most popular reaction to my philosophy is....success has gone to his head and he wants to be more than what he is....But I would like my ideas to be judged on their own merit. I think I'm on the verge. For the first time, this book is a best seller. I was asked to testify (before the Senate Commerce Committee) because a staff member read the book."

Well, if I told George Soros that I happened to see a copy of his book in the garbage, would he promptly declare it to be garbage, too?

If he seriously believes that because some no-name staffer to some Senatorial windbag read his book, it now is important, his long-ago success has gone to his head.

I laughed when I read the next passage, where Soros answers Ip's question about whether policy or academic heavyweights are noticing his ideas,

"It has certainly not penetrated academia, and not policy makers, either. I wish I could engage in a discussion with (the Federal Reserve). I'm waiting for a phone call. I'm (meeting with) Alan Greenspan."

These days, I don't think Greenspan's such a hot economic ticket, George.

At the end of Ip's piece, he quotes Soros actually saying something interesting,

"This is, of course, [Joseph] Schumpeter's creative destruction idea. However ... going overboard in generating change is not necessarily a good thing. Financial innovation may not be an unmixed blessing because it really prevents proper regulation.

If you look at the 19th century, you had creative destruction going on, one financial crisis after another. But each time you had a crisis, you had an examination of what went wrong, and you put in some instrument or some institution to prevent it from happening.

I'm not advocating ... central planning because that's worse than markets. But the regulators need to learn from the mistakes that they have made. I think it's pretty clear that you've got to accept responsibility for moderating asset bubbles. ... That involves regulating credit as well as [interest rates]."

It's not clear what Soros is actually saying here beyond the existing awareness that some regulation of financial services is a beneficial activity. He does not speak to the perennial difficulty of staffing such governmental entities with employees who are as motivated and intelligent as those whom they would regulate.

Perhaps what would satisfy Soros, and it would satisfy me, is to regulate certain classes of financial services activities, such as insured deposit-taking, residential mortgage, consumer and conventional business lending, and transactions processing, very strictly and heavily, so as to safeguard these core economic activities.

Non-commercial banking practices involving riskier investments will always be subject to loss of capital and liquidity risks, to name just two. It's unclear how much regulation can function effectively, other than to try to herd over the counter markets, such as swaps, into exchanges. The Treasury, under Paulson, is already headed that way.

As I wrote here a while ago, in response to Henry Kaufman's tirade against financial innovation, I think, over time, we've been far better served by the phenomenon than we've been hurt by it.

I think Soros' thinking here is muddled, if it's anything relevant at all.

Why does anyone pay attention to him? Because, I guess, like Robertson and Steinhardt, once, years ago, in different market conditions, George Soros made a lot of money. And even he confirms it was due in no small measure to luck.

So on this basis, we should all listen to his personal crackpot theory of 'reflexivity?'

God help us if that's what we've sunk to in the US.

Current Market Signals

Things sure have changed in the equity markets since March.

Back in the final weeks of that month, as the Fed opened the discount window to investment banks and assisted in the retention of trades on the books of the failing Bear Stearns, my partner and I saw signals that the worst of the equity and options markets for long positions was over. The Fed, as my partner put it, was not going to allow money to be made on the short side anymore.

At that time, the risk was to the financial services sector and, it was believed, the credit markets in general.

We carefully monitored our new signaling/risk management tools and bought calls in April and May. By June, we again bought calls, but with a sense that maybe we should have straddled.

We were right.

In just two months' time, we sold call options with returns of over 150%, and roughly 50% on the April portfolios. May's options were less profitable, but still returned positive results, with one call exercised for a very significant return.

Now our signals look very similar to those of both December and March. Our S&P-based volatility measure has risen significantly to levels near that of mid-March, while the S&P returns in trailing months has been dropping.

Without divulging our specific proprietary measures, this combination is a lethal one for equities.

What has stunned my partner and me is that we don't really think there has been much in the way of new, fresh, bad economic news. But the business media and political machines of both parties seem to be dwelling on the worst economic and sentiment measures they can find.

Housing is compared to the Great Depression, as is joblessness, though both are wrong.

Energy producers are maligned, as are derivatives markets investors who provide liquidity and price discovery services to energy futures markets.

Now, they are labelled 'profiteers' and 'speculators.' Talk of windfall profit taxes and stiffer regulation or prohibition of 'speculation' is rampant among our King Canutes in Congress.

In fact, I don't think economic measures have declined as precipitously as the S&P and its futures have. Perhaps the one new development is more awareness of higher, if not crippling, inflation, and a potential rise in the Fed rate sometime in the next few months.

But these two factors alone seem to be offsetting the less-than-catastrophic business and economic news occurring recently.

Back in April, I thought we had a good 4-5 months of call options portfolios before we had to worry about weakening markets.

Instead, in only six weeks, we're somewhere between neutral and short in our evolving outlook for equity allocations in the next month.

You Read It Hear First...... Reuniting Commercial & Investment Banks

Late in March, I wrote this post concerning the ultimate result of the Fed's decision to open the discount window to investment banks. In that post, I wrote,

"Looking beyond simply Bear Stearns, can anyone truly justify the existence of all four of Goldman Sachs, Merrill, Lehman and Morgan Stanley? Especially in the modern world of large private equity firms and hedge funds? The former provide additional underwriting, M&A advisory and asset management, while the latter focus on providing trading capacity and investment management.

Other than emotional reaction of former employees seeing their old firm's name vanish, what would be different if one or more of those names were bought by or merged with a commercial bank?

Contrary to Andy Kessler's view, in the Wall Street Journal this past January, about which I wrote here, it's unlikely now that an investment bank will do the buying. With their high leverage and dependence upon commercial banks for funding, I suspect the investment banks are the more vulnerable. Now having access to the Fed discount window, it's only a matter of time before the regulators get around to levying a new regulatory framework on the investment banks."

In today's Wall Street Journal, Dennis Berman writes, in an article entitled, "Maybe It's Time To Put the Banks And Wall Street Dealers Back Together,"

"Speculation has in recent weeks mounted that one of the Street's brokers may even buy a commercial bank. Whether true, the rumors speak to three deep changes under way.
First, looming Federal Reserve assistance and regulation could force brokers to keep reserve ratios similar to that of deposit-taking banks. Second, short-term bank funding now is regarded with suspicion. It is capable of being yanked at a moment's notice, sending a bank such as Bear Stearns to the brink of bankruptcy (it is now part of J.P. Morgan Chase). Third, the securitization markets also have contracted, which is in turn forcing the investment banks to shrink their balance sheets.

In theory, these problems are all solved by putting a large, plodding typical bank -- with stable deposits and returns -- next to the more-speculative realms of investment banking and trading.
Citigroup, the prime "universal bank" sounded good in theory, too. It has performed miserably since its creation after Congress rolled back the Depression-era limits a decade ago. That misses the relative success of J.P. Morgan Chase and Bank of America, the country's two other big universals."

I'd disagree with Berman's evaluation of Chase's and BofA's 'relative success,' as I described the entire publicly-held financial sector's woeful performance in yesterday's post.

But Berman has finally arrived at the same conclusion I did last three months ago. He further observes,

"Three or four years out, the investment-banking model is coming to an end," says Brian J. Sterling, co-head of investment banking for boutique adviser Sandler O'Neill & Partners. "If it walks like a bank and quacks like a bank, it's going to have capital ratios like a bank." "

No argument from me. In fact, I concluded that March post with these thoughts,

"A natural consequence to this will probably be even more smart financial services people migrating back to the privately-financed arena. Just like consumer goods merchandising has the 'wheel of retailing,' whereby new entrants compete at the low-cost end of the market, as existing players migrate upwards in terms of quality, service, selection and price, so, too, it seems, will financial services now have its own version of this 'wheel.'

Only in financial services, the 'wheel' is between publicly- and privately-held concentrations of capital and risk management. Again, viewed from afar over decades, the story of commercial and investment banking for the past forty years has been a gradual selling of transactions, asset and risk management businesses at their 'tops,' as formerly-private banks of both stripes went public, followed by managerial ineptitude, decline in risk management, and excesses in pursuit of growth via more risk.

Now that the public is absorbing the brunt of the losses, via equity ownership of these firms, the logical next step is for the better executives to join the early-adopters in forming new, or joining existing private equity and hedge fund shops."

It seems nearly everybody missed the real event of late March. It wasn't helping Bear Stearns avoid the unraveling of its entire book of credit default positions. It was the opening of the Fed window to investment banks, and the inevitable changes in regulation and/or capitalization requirements that will follow.

Yes, you read it here first. Three months ago.

On The US Financial Service Sector

I ran into an old friend this weekend who works as a senior foreign exchange trader at one of the larger NYC commercial banks.

This particular trader is very common-sensible and experienced, both in trading and banking. Conversations with him are always a pleasure.

After discussing the volatility in the currency and energy equity markets, he asked what I thought about financial service equities.

When I related the opinions contained in these recent posts about commercial and investment banks- here, here, here and here- he readily agreed.

Furthermore, he concurred with me that among investment banks, there only seems to be sufficient talent and cultural maturity to staff one successful publicly-held investment bank, i.e., Goldman Sachs. Other than that, he agreed that private equity and hedge funds employ the next-best non-commercial bankers, with the other, smaller three investment banks- Merrill, Lehman and Morgan Stanley- now populated by also-rans.

The nearby Yahoo-sourced price chart for Goldman, Merrill, Morgan Stanley and Lehman clearly shows that only the first one has outperformed the S&P500 Index over the past five years. And even Goldman hasn't done that consistently.

On the commercial banking side, my friend prophesied dismal prospects for growth on the order of perhaps 5% per annum, like a bond return. In this, he shares the view of my friend B and me that the largest US commercial banks are now so large as to prohibit effective management of both risk and growth.

Again, the nearby five year Yahoo-sourced price chart shows that Chase, BofA, Wachovia and Citi have all underperformed the Index for the past five year period.

As I told my friend, I wouldn't hold any financial services equity right now. Or, perhaps better put, I don't see my quantitative equity selection process producing any financial service equities anytime soon. I suppose it's technically possible, but, given these charts, barely.

I sure hope so.

Robert Mundell's Nobel-Quality Economic Insights

Economic Nobel Laureate Robert Mundell's interview with Kyle Wingfield of the Wall Street Journal appeared in the weekend edition of that publication.


What ought to concentrate the mind of any business person wonderfully is Mundell's clear, explicit assertion that the failure to make the Bush tax cuts permanent will push the US "into a big recession, a nosedive."

Mundell continued,

"This would be devastating to the world economy, to the United States, and it would be, I think, political suicide."

The economist opined that his own view of the best corporate tax rate is that it be set at 25%.

On the seemingly-endlessly debated topic of whether we are currently at risk of a new round of serious stagflation, Wingfield relates,

"With prices again rising as growth slows, some economists are worried that stagflation could be making a comeback. Not Mr. Mundell- not yet.

He draws a comparison with the situation in 1979-1980. Start with the dollar price of oil, which he calls "one of the two most important prices in the world" (the other being the dollar-euro exchange rate).

"If you look at the price level since 1980," he begins, "oil prices would naturally double by the year 2000. So from $34 a barrel in 1980 to $68 a barrel. And then...because the inflation rate's about 3.5%, it would double again by 2020. So the natural price...would be something like $136 in2020.

"Now, we already got to $130-something, but...I really think the price is going to settle down, probably below $100, if not below $90. What I'm saying is we're not so far off track."

"The price of gold in 1980 was $850 an ounce. And the price of gold today is about the same. It's astonishing," he says. "It's true, gold did go up" to more than $1,000 an ounce earlier this year, "but the public doesn't believe that there is inflation. If there was big inflation coming, then you'd see the price of gold going up to $1,500 an ounce very quickly, and that hasn't happened."

I found Mundell's opinions to be both reassuring and troubling. Reassuring that gold prices indicate we are not necessarily in for a serious, long-term bout of inflation.

Troubling about the absolute necessity of making Bush's tax cuts permanent. McCain wants to do so, but doesn't really prostyletize that convincingly. We know Obama wants to run the other way and raise taxes everywhere possible.

At least I can take comfort in the likelihood, per Brian Wesbury's observations about political gaffes being punished in internet time now, in this post, that if Obama is elected, and he conspires with Congress to raise taxes, that mistake should be rectified at the ballot box in, first, two years, then four.

It took a Carter to bring us Reagan. We may have to suffer through Obama to revitalize our economy, in terms of lower tax rates and government spending, with another fiscally conservative President, regardless of his party.

The New Socialism

Missouri Democratic Senator Claire McCaskill is busy abrogating the rights of shareholders of Anheuser-Busch this week.

As I wrote in these recent posts, here and here, Busch would do their shareholders a favor by selling to InBev.

Now, McCaskill is weighing in to try to block any purchase of the ailing, underperforming brewer by the international beer giant.

Is this a member of the same US Senate that squawks about shareholder democracy and voting on CEO compensation?

So it's okay to strip shareholders of their right to a better return by selling the company to an acquirer offering a higher price than the inept Busch family can deliver. That, evidently, is not abrogating shareholder democracy principles.

Sounds like another bout of federal government socialism to me. Of course what McCaskill really wants is to preserve jobs in St. Louis, no matter how that affects the actual owners of the Anheuser-Busch company.

Yesterday, on Fox News, I saw an interview with a Democratic House member from New York who actually called for all US oil refineries to be nationalized, so that,

'the people of America can decide how much gasoline they want to produce.'

Can it get any scarier than that?

At a time of US recovery from financial excesses in the mortgage market- which, we now learn, was abetted by the apparent bribery of Democratic Senators Dodd and Conrad by Angelo Mozillo of Countrywide- and a softening of growth, why does anyone think that bureaucratic functionaries and politicians in Washington know anything more about how to run businesses, create jobs and/or wealth than the millions of Americans who actually do that everyday throughout the country?

From the Senate witch hunt among the American oil company CEOs to their desire to bail out the very mortgage companies who bribed Senators, with taxpayer money, it seems that we are suddenly in the grip of a big wave of socialism in our federal government.

Hopefully, American business will survive this round of flirtations with the creeping socialism of our economy, but I'm getting worried.

About Oil, Futures, Governmental Mandates & Speculation

It's a strange month when Fox News' Bill O'Reilly and uber-liberal Illinois Democratic Senator Dick Durbin agree on something- anything.


This month, both of them have called for the severe restraint of, if not total prohibition against, investor trading in oil commodity futures.


Durbin wants trading in oil futures curtailed so that if you buy oil on the open market, you must take physical delivery. O'Reilly calls for substantially higher margins to be put down on oil future trading.

Both accuse 'speculators' of driving the price of oil up to the $130 neighborhood. I don't know what Durbin's estimate is, but O'Reilly makes a big deal out of the cost of oil when pumped out of the Arabian peninsular sands, and alleges that most of the rest of the price of a barrel of oil is what 'OPEC charges.' Further, he calls for governmental mandates to force American automakers to produce a certain amount of flex-fuel vehicles.

I like a lot about O'Reilly, but I don't agree with him on this issue.


First, I don't think the current price of oil is being manipulated by a group of speculating investors. Rather, it's the natural result of oil refiners gradually tightening capacity to match demand, after decades of losing money on the downstream business due to grossly excess capacity.


Second, OPEC does not 'charge' a price. Oil is bought and sold in competitive financial markets. It's the right of the owner of a non-renewable commodity to decide how much of it they will sell at what price they take. O'Reilly is wrong to castigate those owners of petroleum for exercising their right to decide how much to sell.


Third, if oil prices were being manipulated artificially by speculators, I would expect to see a lot of selling of oil futures by large hedge funds. Contrary to what a friend in institutional money management alleges about banks not extending credit to short sellers, those shorting equities don't need loans. And derivatives aren't equities. They dwarf the equity markets in terms of commodities.


It bothers me that both Durbin and O'Reilly demonize American oil companies as if they should be punished for doing well for their shareholders in a world in which they are slowly being squeezed out of ownership of the resource they refine.


As to governmental mandates for building flex-fuel vehicles, that's nonsense. Washington's artificial 'fuel economy standards' have put the American automakers in the poor house by forcing them to pump out cheap, unprofitable, largely-unwanted small cars to offset sales of the SUVs and pickups that Americans actually bought. Requiring flex-fuel cars will just do more of the same.


If Americans want flex-fuel cars at prices that Detroit can build them, they'll sell. As Dick Armey notes, whenever government mandates something, it means the public won't buy it any other way.


Both Durbin and O'Reilly are mistaken, in my opinion, in their rush to legislate large-scale governmental mandates to what is a passing economic situation. Do they both really believe some governmental functionaries will do a better job than American entrepreneurs and businessmen motivated by profit?

I can believe that Durbin really believes they will, but I think O'Reilly has just temporarily let his anger overrule his common sense.

All we will get out of governmental interference will be predictable graft, corruption, and favoritism of selected businesses by civil servants, instead of truly market-tested solutions to energy challenges.

My Saga of Ken Lewis' Awful Retail BofA: The End

Beginning about a month ago, I wrote two posts concerning my appalling treatment at the hand of Ken Lewis' Bank of America, here and here.

Now I can write the end of that sad story of Ken Lewis' hapless, gigantic money center bank.

Having had no acceptable follow-up from any BofA employee in the wake of their unexplained loss of sensitive customer data and related issuance of new debit/ATM cards, I had proceeded to open a new account with the new branch of an old, small local commercial bank.

When I balanced my BofA account this week, there was a new $12 'monthly account maintenance fee.' That did it.

It had been my intention to retain the BofA account, in case there was a reason to switch back. But when I saw them engaging in high-handed, extraneous fee-charging, I knew I had to act fast.

The next day, I wrote a check for the bulk of the balance of my account and deposited the check in my new account at the other bank. Then I visited the local BofA branch in Summit to close my personal account there.

Upon finally catching the eye of one of the platform officers, as his loud guffaws on an obviously personal phone call filled the cavernous old 1930s, echo-chamber style marble building, I announced in a loud voice that I had come to close my account.

Amidst some discussion of account numbers, drivers license IDs, etc., he informed me that I'd have to wait until all outstanding checks had cleared. I replied that, since his bank was now charging me monthly maintenance fees, I had absolutely no intention of allowing that to happen.

He must process my request now and close the account. With a defiant look, he said he couldn't, because he didn't know how much was left in the account. I told him I had just drained most of the funds into my new account at the other bank, and he then triumphantly claimed that now he'd have to wait for that to clear, unless I happened to know the amount of the check.

"Of course I know the amount. It's $382," I calmly replied.

With a scowl, the junior bank officer turned to his screen and typed in some figures, announcing a final, cleared balance, adding,

"Of course, that's not precise. The actual number might be slightly different."

"It had better be precise," I said, "I've been a VP at Chase, so I think I know that one of the basic, core functions of a bank is to know exactly what a customer's balance is."

More scowling from the bank employee, who heatedly said,

"I don't need your attitude!"

"Would you like to call your branch manager over here now?" I coolly replied.

"That's your choice," he said.

"No, it's yours," I responded, "but I think your manager would be surprised to hear you, in his presence, repeat your statement that your bank can't give me an exact accounting of my balance in the account at your branch."

More frowns and huffy breaths. Then the officer announced a final balance, had me sign a withdrawal, and disappeared for a few minutes to retrieve my cash.

When he returned, he handed me the envelope, printed an account closing confirmation document, and wished me well.

Memo to Ken Lewis, CEO of BofA:

Ken-

Nowhere in this process did your junior bank exec in the Springfield Avenue branch of your super-giant-sized bank ever ask me why I was closing my account. Or what, if anything, he or his manager, or anyone at BofA, could do to retain my business.

Instead, your young platform officer, having been forced to end his jocular personal call to attend to my business, merely performed the account closing as efficiently as possible, even dispensing some free attitude of his own to a departing customer.

A departing customer with a brain and mouth, Ken. Who has friends in the community, Ken.

Truth is, in the weeks since my first post, I helped two other members of my fitness club decide to close their BofA accounts, too.

How easy it would have been, Ken, for your bank to have flagged my account, so that if/when I came to close it, I would have been immediately sent to the branch manager's office to discuss how your bank might retain my account and business.

That might have caused me to think your employees and, by extension, you, actually cared about my business. But you don't. And they don't.

And it shows. It showed from the first ham-handed form letter from "Gordon Rains" announcing you had probably compromised some of my personal financial information, so you needed to send me a new ATM card.

No wonder why your bank is in such trouble Ken.

Best of luck sorting out this mess. Everyone knew you were overmatched when you tried investment banking. The Countrywide debacle isn't looking so good, either, lately. All those bribes Angelo allegedly gave to his Fannie Mae and Democratic Senate friends in the form of sweetheart jumbo mortgage loans.

At least we all thought you and your crew knew how to run a simple, basic retail bank branch business.

Well, we were all wrong.

Brian Wesbury On Change In America

Last Wednesday's Wall Street Journal featured an editorial by one of my favorite economists, Brian Wesbury, entitled "Change We Can Believe In Is All Around Us."

Wesbury's piece was nearly a full half-page in the Journal, so I won't go into excruciating detail. The headline themes will suffice for my purposes.

Partway through his piece, Wesbury wrote,

"Look at the chart nearby. America's manufacturing output, as measured by the Federal Reserve, is up seven-fold since 1950, but manufacturing jobs as a share of all jobs have fallen to 10% from 30%. Your grandfather and father may have worked for General Motors (and joined the UAW), but it's likely that you don't and won't.

The problem, if it really is one, is not foreign competition or evil financiers. It is technology and productivity. In the 10 years ending in 2007, durable goods manufacturing productivity averaged an annual growth rate of 4.8%. In other words, if real growth is less than 4.8%, the sector needs fewer workers year after year.

For the economy as a whole, overall U.S. business productivity rose 2.7% at an average annual rate during the decade ending in 2007, 1.7% in the decade ending in 1997 and 1.4% in the 10 years through 1987. Change is everywhere, and it's accelerating."

Wesbury thus notes that if you want change, baby, you're already getting it- in spades! As with rapid economic and social change throughout the centuries, this sort of change can actually make politicians fearful of blood running in the streets.

Back in the 1920s and '30s, when Schumpeter was writing about creative destruction, the hot economic topic of the day was whether unbridled American capitalism would destroy itself by depressing wages so low as to create social unrest and overthrow of our economic and governmental systems. Socialism was perceived as the greatest threat, and it actually came in the person of FDR and his many ill-considered New Deal programs- NRA, court packing, etc.

In a manner similar to Milton Friedman's and Anna Schwartz' "A Monetary History of the United States," Wesbury goes on to view American history as a collision of productivity and innovation with populism which has tried- and still tries- to control that economic vitality,

"This has happened before – in the Industrial Revolution – where the political environment bred America's first real populists, people like William Jennings Bryan and Theodore Roosevelt. Bryan was perhaps the best orator of American political history, and like Mr. Obama, he could affect people emotionally. Roosevelt, like Mr. McCain today, was a true American hero and one tough guy. History may not be exactly repetitive, but it sure seems to move to similar rhythms.

Unfortunately for the American economy, the populist movement of the late 19th and early 20th centuries led to a rapid growth in government intrusion into business activity. The populists didn't like the gold standard and demanded more government regulation.

In 1913, the Federal Reserve System was created and the income tax was introduced to pay for a growing government. And then, during the Great Depression – which was caused by the new Fed, trade protectionism and tax rate increases – a massive expansion in government took place.

Forty years later, in the malaise of the late 1970s and early 1980s, the U.S. finally figured out what it was doing wrong. By returning to hard money under Paul Volcker, and lower taxes and less regulation under Ronald Reagan, the high-tech leg of the Industrial Revolution began.

The fruits of this are plain to see. Rather than watching the sun set on the U.S., as many believed would happen in the early 1980s, the U.S. has experienced one of the greatest booms in wealth creation in world history. And the impact of our technological innovation has helped lift untold numbers out of poverty."

So to Wesbury, the American experiment has been a revolving door between economic wealth creation and lifting of all incomes by resulting economic expansion, and governmental attempts to restrain this vitality, tax it and use the proceeds to misallocate resources to 'the poor.'

Wesbury continues in that vein, noting,

"This technology has created massive amounts of change. Like the Industrial Revolution before it, the current transformation is anything but pain-free. It's what Joseph Schumpeter called creative destruction. Google, Craigslist and Microsoft have been prospering. General Motors, United Airlines and the New York Times have not. In the midst of layoffs in the newsroom, it's hard to see anything good happening in the rest of the economy.

Americans have had it so good, for so long, that they seem to have forgotten what government's heavy hand does to living standards and economic growth. But the same technological innovation that is causing all this dislocation and anxiety has also created an information network that is as near to real-time as the world has ever experienced.

Decades ago the feedback mechanism was slow. The unintended consequences of the New Deal took too long to show up in the economy. As a result, by the time the pain was publicized, the connection to misguided government policy could not be made. Today, in the midst of Internet Time, this is no longer a problem. So, despite protestations from staff at the White House, most people understand that food riots in foreign lands and higher prices at U.S. grocery stores are linked to ethanol subsidies in the U.S., which have sent shock waves through the global system.

This is the good news. Policy mistakes will be ferreted out very quickly. As a result, any politician who attempts to change things will be blamed for the unintended consequences right away."

Thus, Wesbury notes that because of recent rapid change, originally economic-based, in information technology, boneheaded governmental changes will be quickly penalized in the next election cycle, rather than, as in the last century, 30-40 years later.

This is important as both Presidential candidates and Congress have turned increasingly protectionist, focused on meddling in American business, and provincial with respect to US energy policy and the global energy situation.

Thus, Wesbury concludes,

"Both Mr. McCain and Mr. Obama view the world from a legislative perspective. Like the populists before them, they seem to believe that government can fix problems in the economy. They seem to believe that what the world needs is a change in the way government attacks problems and fixes the anxiety of voters. This command-and-control approach, however, forces a misallocation of resources. And in Internet Time this will become visible in almost real-time, creating real political pain for the new president.

In contrast to what some people seem to believe, having the government take over the health-care system is not change. It's just a culmination of previous moves by government. And the areas with the worst problems today are areas that have the most government interference – education, health care and energy.

The best course of action is to allow a free-market economy to reallocate resources to the place of highest returns. In the midst of all the natural change, the last thing the U.S. economy needs is more government involvement, whether it's called change or not."

Consider Mr. Wesbury's points when you read about Obama's desire to tax and spend millions on government-directed technology. Or McCain's neo-environmentalistic refusal to let private enterprise drill for oil within sensible parameters for protecting said environment.

We've had great, productive change in America since the reversal of the economic malaise that ended with the Carter era. If we want it to continue, creating wealth and jobs for Americans who want to work and accept the American proposition of positive change, we had better listen to Brian Wesbury.

The Death of Old Lane

Last Thursday's Wall Street Journal carried an article about the final death of Citigroup CEO's hedge fund, Old Lane, entitled "Citigroup To Close Hedge Fund; Blow to CEO."

The piece details the fund's founding, growth, purchase by Citigroup, at Chairman Bob Rubin's insistence, and, then, its demise.

But, a blow to Pandit? Hardly. Granted, $100MM of his $165MM payday for Old Lane's sale is still stuck in some sort of successor fund. Let's say he even loses 80% of that. Pandit still nets, right now, before taxes, $85MM.

That's right. Pandit was able to off-load a turkey of a hedge fund with less time operating in the public markets than any other financial institution would tolerate before even considering to invest large sums in it, let alone buy it. Remember, Pandit never actually ran a hedge fund before. He was a middle-office guy at Morgan Stanley.

So basically, after getting helped to leave Morgan Stanley amidst the scuffling a few years ago, Pandit and his colleagues started a hedge fund and ended up having one of America's largest commercial banks ask to buy it at an inflated price.

I think it's fair to say that most Americans, and even a lot of commercial bankers, would feel extremely fortunate to have failed at operating a hedge fund and be paid at least $85MM, pre-tax, for the privilege.

Don't you?

How in the world is the closing of Old Lane a blow to Pandit? Rubin, yes. Pandit, no.

If anything, it simply clarifies how lucky Pandit was, and how much teflon seems to be adhered to him now. That nobody even considers that the business and 'record' that attracted him to Citigroup's Chairman and board, now being discredited, are grounds to rethink Pandit's job qualifications says more about how badly-overseen Citigroup is than how inept Pandit is.

Of course, Pandit has plenty of time to provide more evidence, in addition to his so-far inept record as Citigroup CEO, that he is, in fact, pretty inept as a commercial bank CEO.

But this month, Bob Rubin should be taking the axe for his appallingly bad judgment in the Old Lane affair.

Murdoch, YouTube and Sensibility

Last week the Wall Street Journal published a special section on digital technology and strategies. Among the stories in the section was an interview with Rupert Murdoch.

In that interview, the following exchange was reported,

"Ms. Swisher: How do you look at a YouTube? Sumner Redstone sued Google. Why didn't you sue them?

Mr. Murdoch: We came down to the view in the end that it was doing more to promote our shows than it was to hurt them."

I loved this short portion of the article. It so typifies wh Murdoch has been so successful.

Back when Google acquired YouTube, and the whole lawsuit issue came up, my consultant friend, S, and I were discussing what Redstone was doing, and who else might sue.

We agreed that, for most older media properties, YouTube actually stimulates new viewing, usage and, ultimately, purchase, at no expense to the owners of the properties.

Redstone clearly did not see it that way. But if you look at Redstone's companies, it's not a really pretty picture.

Over the past five years, as the nearby, Yahoo-sourced chart of prices for News Corp, CBS, Viacom and the S&P500 Index indicates, both pieces of Redstone's empire, split up in late 2005, have done poorly.

While CBS unexpectedly outperformed Viacom, which was supposed to have the better assets, and was still headed by Redstone, it, too, under CEO Les Moonves, has come back down to earth.

While Murdoch's NewsCorp may trail the S&P, it has handsomely outperformed all of Redstone's media properties. Its recent decline, along with CBS and Viacom, has been much milder, and has even turned up again recently.

My guess is that Murdoch's instincts for content media, in which he began, rather than Redstone's self-aggrandizing management style and expansion from movie theaters, accounts for a lot of the performance difference.

Thus, Murdoch's sense of getting something for nothing by letting Google's YouTube use his media content without payment or lawsuits over the whole matter indicate his better feel and touch for new media.

The performance numbers certainly seem to bear this out.

What Shareholder Democracy Does NOT Mean

This week's news is replete with opportunities to discuss 'shareholder democracy.'

Dick Fuld's Lehman Brothers has mismanaged itself so badly for the past year that there are serious questions about its long-term viability. Fuld sacrificed his CFO and COO yesterday.

Where's the shame, Dick? How about your scalp, too?

Then we have Carl Icahn fighting for the average shareholder at Yahoo, seeking to replace its board with his own slate. Mr. Icahn, known as a corporate raider several decades ago, does pretty much the same thing now, but with a much better image.

Whereas he and his ilk were thought to be simply greedy in the 1980s, now they are more correctly viewed as threatening inept boards and corporate management teams.

Over at Citigroup, the current CEO's hedge fund, Old Lane, has finally been closed by the bank. Remember that it was Bob Rubin, Citi's Chairman, who pushed the bank to buy the untested, new fund in order to get Pandit. Now, the fund's mismanagement has caused outside investors to flee and the whole mess to be simply closed. At tremendous cost to Citigroup's shareholders.

Where's your shame, Bob?

Finally, we see InBev formally go after Annheuser-Busch, the American brewing giant headed, but not controlled by, a member of the company's founding family.

To a greater, or lesser extent, these corporate situations all involve an aspect of that now politically-correct, perennially-hot topic, shareholder democracy and its cousin, corporate governance.

As I understand the manner in which Congress, and many institutional investors, define shareholder democracy, they believe company owners, using their votes for slates of directors and various issues on proxy statements, should exert their will on a company's board of directors and management team.

Forgive me for being out of step, but I don't buy that. To me, that is not what shareholder democracy means.

In my view, shareholder democracy means one thing, and one thing only.

I can buy or sell any US equity for an inconsequential brokerage fee into a liquid market in which a price exists by reason of the competing forces of buyers and sellers for that, and other equities.

Look at the nearby Yahoo-sourced five-year price chart of the companies I mentioned above, and the S&P500 Index.

What do these companies have in common?

First, none have had a five-year run about which their CEOs should, or can be proud. Yahoo barely beat out the passive S&P Index.

As the next chart shows, also for the last five years, next to Google, Jerry Yang and Terry Semel did nothing for their shareholders.

So, what's my point?

This. Why would anyone own these turkeys, when there are many more, better-performing equities in the US markets?

A second thing all of those equities share is that we- my investment partner and I- don't own any of them, or options thereon, in our portfolios.

Sure, Carl Icahn, with billions to invest, representing his fund holders, has the experience, cachet and financial heft to take large positions and then create upward pressure on a stock because of what the market believes will probably occur once he gains influence over his target's board.

But the average investor- even an institutional one- is not Carl Icahn.

For the vast majority of them, the myth of voting their shares to change corporate behavior is just that- a myth.

The real genius of the US equity markets is the average, or even rather large investor's ability to simply sell what s/he no longer thinks is a good investment, and buy something else, at a very low transaction cost, and virtually no impact on market price.

Next to this simple, easy-to-understand capability and expectation, the long, expensive and typically futile process of buying sufficient shares to vote a board out or otherwise influence a company's management seems agonizingly difficult.

Finally, let's take a moment to consider the genesis of our modern publicly-held common stock corporations. I don't believe they exist because hundreds of colonial Americans came together down near Wall Street back in the early days of the country, near a buttonwood tree, to demand access to then-private investment vehicles.

No, I'm guessing our modern corporate form owes more to the Dutch and British trading companies which had common shareowners. These firms needed to raise capital, and issuing shares to investors was a good way to do that without the cumbersome need to have hundreds of equal 'partners.' Instead, a board was 'elected' by the shareowners, but the operating officers of the firm really ran the companies.

Even today, how many shareholders actually nominate directors who win board seats? Very few. Mostly, it takes a Carl Icahn to do that.

So the intent of the publicly-held corporation was never to let shareholders actually influence how the company was run. It was to give them the feeling that they voted for a group of respected people who oversaw the company's management.

Truth is, the people who founded and ran publicly-held companies, or do so today, don't want shareholder interference- just their money.

People, wake up! Shareholder democracy means you can enter and exit a publicly-held company's shareholder group easily and with minimal price impact.

It doesn't, never did, and is not supposed to mean you actually get to influence the management team, nor how much they are paid.

If you like the total returns you (could) enjoy from a company's management, then buy the firm's stock. If you don't, then don't buy, or sell it.

Period.

Believing that you, as an investor, can do anything more, with any real effect, is simply to delude yourself.

More On Lehman's Slide To Oblivion

Today's breaking financial service sector news is all about Lehman- again.


This time, the firm announced the departure of its CFO, Erin Callan, and its COO, Joseph Gregory.


Somehow, amidst the firm's turmoil and management mediocrity, CEO Dick Fuld remains untarnished and firmly in place.

As the nearby Yahoo-sourced three-month chart for the embattled investment bank and the S&P500 Index clearly shows, it's been a stunningly-fast decline for the firm's luckless shareholders.

Or, maybe witless shareholders?

In just three months, Fuld and his team have managed to destroy roughly 50% of their shareholder's value, while recapitalizing the firm just three days ago by about 50%, after first saying it was unnecessary.

While Lehman is the smallest and weakest of the four remaining investment banks- Goldman, Merrill and Morgan Stanley being the other three- one wonders why anyone would have bought equity in these firms after January. Especially in Lehman.

Trying to time 'turnarounds' is dicey in the best of circumstances. In financial services, trouble tends to come from excessive, poorly-managed risk. In Lehman's case, this is true in spades.

Being number four doesn't just mean being smaller. When it comes to risk management, judging by the results of the past twelve months, it seems to also mean just being worse at this key financial service firm function.

That said, I would simply re-emphasize the conclusions of my prior posts about Lehman, found here and here.

To repeat David Einhorn's observation, Lehman has added capital it said it didn't need, to offset losses it had earlier denied experiencing, from instruments about which it was less than forthcoming.

Now, the firm has jettisoned its two key members of its own mis-management team.

What trust can possibly be remaining by anyone regarding Lehman? Investors? Debt holders? Eventually, even counterparties and customers will worry about the safety of their assets or trades, and the slide into oblivion will accelerate for Lehman.

This time, though, Hank Paulson & the Fed have recent experience with Bear Stearns on which to draw to manage a less market-affecting end to the smallest public investment bank.

Dennis Kneale's Succinct Analysis: We Are NOT In Bad Shape

Yesterday on CNBC, co-anchor Dennis Kneale, late of Forbes, presented the very defensible and, in my opinion, correct view that the seemingly-widespread handwringing about the current US economic situation is overdone.

As Kneale noted, 1980 was far, far worse than 2008.

Back then, the price of a barrel of oil was roughly $107, versus $130 now, a rise of slightly less than 30%. But consider the following other measures.

The average fuel efficiency of a car was 25mpg in 1980, versus 32mpg now. Even with so many SUVs on the road. That's a rise of roughly 23%.

What about non-transportation usage of oil for power generation? Six years after the initial 1974 oil embargo, the US generated only 10% of electricity generated from oil. Now, it's down to only 1.6%! More than an 80% decline.

The inflation outlook is similarly different now from then. Back in 1980, a typical monthly CPI change was 1%, in contrast to today's modest .2%. Again, an 80% decline!

Lastly, interest rates are at totally different levels. In the Carter era, rates were north of 10%, whereas now they are far lower, with Treasuries at 4% this morning.

Yes, the Carter era was incomparably worse than today's Bush economy.

The US is nowhere near the levels of misery index and widespread despair that led to Carter's mistaken steps such as: windfall oil profit tax, gasoline rationing, and lectures to Americans on reducing credit usage and wearing more sweaters.

Certainly, with a Presidential election season gearing up, we'll be hearing a lot from at least one candidate about how the US is on the brink of depression, failure, catastrophe, etc.

Don't you believe it.

The Beauty of Markets: Energy and Julian Simon

Wednesday's editorial in the Wall Street Journal by Holman Jenkins, Jr., entitled "The Coming Oil Investment Boom," largely sums up my own thoughts on the current situation involving oil supply, demand and price.


Congress is engaged in folly, as it both tried, and failed to pass a massive piece of pork masquerading as an energy bill, decries the result of functioning world oil markets, demands more supply from others, yet won't fully exploit America's own energy supplies.

But, as Jenkins writes, the real world is reacting correctly to the oil situation,

"With a couple billion Chinese, Indians and others joining the global marketplace, they will need energy, and lots of it. The price mechanism is our only hope.

Sure enough, it's working. Money is pouring into Canada's massive tar sands. A thousand substitutions are taking place on the demand side. Sales of SUVs are falling; sales of four-cylinder sedans are up. The number of miles driven by American motorists shrank in February for the first time in 26 years.

At $70 a barrel, we worried only that the folly of India and China in artificially holding down prices to consumers would spread. The news is happy here too. Taiwan, Indonesia and Malaysia are cutting back subsidies or thinking about it. India and China may not let prices float anytime soon, but they're letting gas lines and spot shortages ration supply anyway."

Yes, already consumers and markets are adjusting supply and demand via price, while onlooking producers and investors are also behaving rationally. New substitutes for conventional, oil-based hydrocarbon energy are being developed without any government mandating them.

Jenkins continues by opining on whether the current price of oil is largely a function of speculation,

"If today's towering price of oil reflects some speculator's bet on a long-term scarcity of liquid motor fuels, this will prove the misguided bet of a lifetime. Hydrocarbons are abundant and can be extracted from living plant matter as well as from their fossil remains. Many oil fields under current technology are considered depleted when they're still 50% full. But technology advances, doesn't it?

Yet there's one miracle of adaptation that even $135 oil apparently can't vouchsafe. It can't bring intellectual coherence to American rhetoric or policy on energy.

By one count, America sits on enough oil and gas to meet its own needs for half a century. We won't help ourselves although our environmental delicacy somehow doesn't stop us from screaming at other countries to tear up their own pristine wildernesses to supply us with cheap energy. President Bush rushes to the Saudis, supplicating for more oil. Congress threatens OPEC with antitrust action. Go figure. That U.S. politicians can afford to indulge a persistent unreality about a basic input of industrial civilization only testifies to how responsive and resilient the global energy market has been despite the political silliness it meets at every turn."

This passage really hits home. Just this morning, on CNBC, the Democratic governor of Kansas spent several minutes speaking carefully out of both sides of her mouth. When asked directly by the program's guest host, a Bush administration economic official, whether she supported exploiting US energy resources currently off-limits due to Congressional legislation, the governor managed to say everything and nothing. She's for conservation and lower energy prices, preservation of American wilderness for future generations and energy production.

Nowhere did she acknowledge how silly American politicians look as they behave as described by Jenkins- demanding the despoiling, if that's what it is, of other countries' environments to supply the world with more, less expensive oil.

As I wrote here in November, Julian Simon would be nonplussed about the situation. Without the signals of higher oil prices, how will markets and consumers ever know to behave in ways which allow market forces to bring about solutions?

As Jenkins writes,

"But the biggest fools today may be those greenies who are clapping their hands over $135 oil as if this somehow represents the beginning of the end of fossil fuels. High prices are not the equivalent of carbon taxes – they will have the opposite effect in the long run, spurring investment and technological progress to bring vast new resources of fossil energy into production. For instance, turning coal, oil sands and oil shale into motor fuels, which is cost-effective at half of today's oil price, means massive additional releases of CO2. It's the worst nightmare of the climate worrywarts."

Yes, indeed. Because if you think that the US Congress or any other governmental body on the planet knows more about which energy sources, at what prices, should be developed to replace oil, you deserve the ham-handed governmental solution you're going to get from that.

In summary, Jenkins contends that the global warming crowd needs to 'grow up',

"Growing up would begin with recognizing that science doesn't prove the case against CO2. Our political system has been looking at the problem of climate change for a generation, and lack of action is not due to the machinations of big oil – but to the inability of policy to bridge a giant chasm between proposed costs and benefits. Even if carbon's guilt is assumed, the economics are far from certain that it wouldn't be cheaper just to endure a changing climate.

Growing up would also mean realizing that climate activists are in danger of losing all political credibility as they become handmaidens to corrupt pork bonanzas for the corn ethanol lobby and Silicon Valley alternative energy impresarios. Look no further than the climate bill being debated on Capitol Hill this week. The only real question it poses is how much Congress will spend on climate pork while having no discernible impact on climate.

Finally, growing up means recognizing that their one politically and morally saleable proposition is to offer carbon taxes as a de facto consumption tax, with the proceeds used to offset labor and capital taxes that discourage work and investment. This would be a case of taxing "bads" not "goods," with benefits for growth and the average voter's bottom line independent of any problematic evidence about CO2 and climate.

Voters and their representatives then could at least contemplate supporting a climate policy on cost-benefit grounds, rather than on the religious posturing that Al Gore and others adopt to push what they can't sell rationally. Will the greens learn these lessons? Not likely – which is why $135 oil may prove the beginning of the end of any political movement to do anything about climate change."

That last sentiment is really insightful. How many times do politicians mandate what won't sell on the free market? When you hear "mandate" from a legislator, look out. Someone's lobbyist hit pay dirt and you're going to pay.

In this case, as Jenkins notes, what Al Gore and company can't present as a salable proposition in the free markets, they hope to connive and manipulate the US Congress to mandate instead.

That energy/climate change bill mercifully failed already. In the meantime, people we don't even know, and some who we do, are busily engaged in innovation to supplant $135/barrel oil with new energy solutions for America and the world.

If we're lucky, oil prices will remain relatively high long enough to see these new technologies come to market and result in the world moving again to a lower long-run energy cost curve.

Lehman Again- Today!

Back in April, here, shortly after Bear Stearns' demise, and, again, more recently, here, I have written about the remaining weakest investment bank, Lehman Brothers.

Currently, the smallest public major investment bank is having difficulties due to largish losses and a very public fight with short-seller David Einhorn.

Einhorn was on CNBC one morning last week, launching salvos against Richard Fuld's Lehman. Lehman has been studiously silent and declined to also appear on CNBC to answer Einhorn's allegations regarding the investment bank's asset quality and probable writedowns, plus their need for capital.

This morning, as I write this, the news is that Lehman is, in fact, seeking some $6B in commmon and preferred equity to remain in decent shape in terms of its balance sheet.

On CNBC discussing all of this is, shock of shocks, my old boss of bosses, George Ball, once CEO of Hutton, now a part of Lehman, and, later, PruBache Securities. I find it curious why the former CEO of what were essentially retail wire houses would be the appropriate guest host to discuss a primarily institutional investment bank's potential demise.

And, to make my point, Ball was mouthing silliness such as, maybe when Fuld is under fire for leverage, is the time he should shrink, stay independent, and lever up even more, to stay independent!

You can't make this stuff up!

Who exactly does Ball think will lend a levered up Lehman more money? And with less total asset cushion, as they sell off assets to manage risk?

More to the point, the talk on CNBC was about just who would want to buy Lehman at this point. Like me in the second linked post, they felt that Lehman's business model is now hopelessly and fatally flawed.

And, like me, they considered the really strong players- private equity and hedge funds. I didn't bother to write about this element of the Lehman endgame, but it's sensible to me.

Commercial banks don't really need a Lehman, since they all compete with it anyway, lend it money for liquidity, and, to a bank, are in fairly serious straits themselves just now.

The more likely result is for the Blackstones and their ilk to cherry pick the choice employees and, finally, bid for parts of Lehman's balance sheet, after forcing writedowns of the toxic stuff.

The real issue here is, again, public versus private ownership of these types of financial institutions. As I've written for nearly a year now, the really good financial services talent, except for Goldman, has left for the private world years ago.

If you think I'm wrong, consider Dillon Read. How many times has that boutique investment bank sold itself to a slow, fat public financial services company- Equitable comes to mind in one round- at a market top, only to buy itself back at the bottom? I have literally lost count.

But it begs the question of why anyone thinks there are really good opportunities for long-running, consistently superior total returns at any publicly-held financial service firms anymore, when their competition is off the radar screen, in the privately-held world.

I suspect that if today, this week, this month, aren't the end of Lehman as an independent publicly-held company, they probably mark the beginning or middle of the end of that era.