The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Another weekend, another pile of shut downs, via The Chart Store:

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Relevant to our soda post (“Pseudo-variety”: Soft Drink Industry Structure) JWagner points us to this video from Robert H. Lustig, MD, UCSF Professor of Pediatrics in the Division of Endocrinology.

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Robert H. Lustig, MD, UCSF Professor of Pediatrics in the Division of Endocrinology, explores the damage caused by sugary foods. He argues that fructose (too much) and fiber (not enough) appear to be cornerstones of the obesity epidemic through their effects on insulin. Series: UCSF Mini Medical School for the Public [7/2009] [Health and Medicine]

Barron’s has some interesting data points on deal activity in 2010:

• 1,701: volume of deals in the first half, about stable with the like period in 2009

• $362 billion: total value of deals in the first half

• 8.7%: rise in first-half deal value from the 2009 period

• $41.6 billion: value of private-equity exits in the period, versus $35 billion in all of 2009

All data via Mergermarket and Merrill DataSite.

My friend and hedge fund manager pal Paul Brodsky is quoted in the WSJ discussing Gold as a Currency.

“Over the past 30 years, the correlation between the dollar and gold is minus-0.65—a high negative correlation. It means the dollar and gold are effectively on opposite ends of a seesaw. When the dollar is in favor, gold retreats. When it is under pressure, gold prices swell.

Look at the nearby chart. It is like a photo of a mountain scene reflected in a tranquil lake. The rises and falls and horizontal meanderings of gold are nearly the negative of the dollar’s.

The implication is that gold isn’t a commodity—at least not one that hews to the definition of something that people and industry consume.

Instead, “gold is a currency” whose daily price is a gauge of the market’s concern about the “potential diminishment” of the purchasing power of the dollar and other paper currencies, says Paul Brodsky, a principal at New York’s QB Asset Management.

If he is correct, it is the potential longer-term weakening of the dollar that is the real issue for the gold market, not inflation or deflation.”

If gold were a currency, you could use it at the supermarket to buy juice, eggs, milk etc. What Paul is really saying is that Gold acts like an alternative to fiat currencies, in large because it is  priced in (declining) dollars.

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Source:
Rethinking Gold: What if It Isn’t a Commodity After All?
JEFF OPDYKE
WSJ, AUGUST 21, 2010
http://online.wsj.com/article/SB10001424052748703908704575433670771742884.html

This is definitely NSFW!

When I first looked at this Friday, it had 317 views — that is now over half a million. Why do I suspect that is going much higher?

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Lyric video for Ceelo’s big, big single FU. Expect a full video for the track next week ahead of its Oct 4th release in the UK and US. (NSFW)

Ceelo’s website is ceelogreen.com

More on Ceelo atwikipedia

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Hat tip The Doree Chronicles

How We Get Through This Mess
August 20, 2010
By John Mauldin

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How We Get Through
“Where Is My V-Shaped Recovery?”
We Have Met the Enemy, and He Is Us
So Where’s the Good News?
LA and Europe

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This week I spoke to a small group of businessmen/entrepreneurs about the current economic environment, and after my presentation one asked me whether I didn’t have any good news for them, with a kind of gallows humor laugh. And I tried. But upon reflection there is more I could have said, so this week’s letter will be what I should have said to be a little more encouraging.

The group was a Vistage group in which my daughter Tiffani participates. This is an organization of 12 businesspeople (in this case all CEOs of small businesses) who meet once a month to share and learn about better business practices, accountability, planning, and all the aspects of running a business. Every person I have ever met who has been involved in Vistage has had good things to say about it. I have watched it help Tiffani a lot. She truly runs our business now, allowing me to read and write and travel and speak. I am a very lucky man and proud Dad.

I have particularly watched my partners at Altegris really truly transform their business model through their involvement with Vistage. First the CEO, Jon Sundt, joined, and now the partners have all joined Vistage groups focusing on their roles in the business. Sundt was always a good businessman, but the level of professionalism of his whole company has gone up a notch. It is a pleasure to watch them grow, and they give Vistage a large measure of the credit for their success. In fact, when I went to the Vistage web site to get the link, I saw a brief video of Sundt talking about his experience. (http://www.vistage.com/) I am proud to be their partner.

If you have a business and could use some help and professional mentoring, you should look into finding a Vistage group that works for you. They match businesspeople in different industries but with roughly same size businesses. In tough times you need all the help you can get.

I talked to them about the current economic environment and what I saw coming down the road. Long-time readers know that I think we are in for an extended period of slow growth, high and sticky unemployment, and volatile markets punctuated by more frequent recessions. That is what you get when you have a deleveraging environment resulting from a credit crisis. It is what happens when the Debt Supercycle ends. We start the journey to the New Normal and it just takes time.

“Where Is My V-Shaped Recovery?”

Remember all the bulls and cheerleaders late last year and into this one talking about a V-shaped recovery? They were making their projections based on what had happened in past recessions. I (and others) argued that that data was meaningless, as it did not reflect the fact that a balance-sheet recession requires years of deleveraging, is inherently deflationary, and all the factors that produce the normal “V” are no longer in play. Bank lending is still dropping. Savings rates go up. Debt gets paid down. Governments run into limits as to how much they can stimulate the economy without creating large and destabilizing debt. Central banks push rates to zero, and then what? This is a far different environment than we have had for the last 70 years. Using past performance to predict future results when the future environment is significantly different than the period in which the data was collected is misleading at best and worthless at worst, leading to bad decisions. Much better to deal with reality.

And just to show that I am really the optimist in the room, let’s turn to my good friend David Rosenberg, writing this morning under the following headline:

“U.S. RECESSION NEVER ENDED; GDP TO CONTRACT IN Q3

“Our suspicions have been confirmed – the recession never ended. Macroeconomic Advisers produces a monthly U.S. real GDP series and it shows that the peak was in April, as we expected, with both May and June down 0.4% in the worst back-to-back performance since the economy was crying Uncle! back in the depths of despair in September-October 2008. The quarterly data show that Q2 stands at a +1.1% annual rate (so look for a steep downward revision for last quarter) and the ‘build in’ for Q3 is -1.5% at an annual rate. Depending on the data flow through the July-September period, it looks like we could see a -0.5% to -1% annualized pace for the current quarter. Most economists have cut their forecasts but are still in a +2.5% to +3.5% range. What is truly amazing is that despite all the fiscal, monetary, and bailout stimulus, the level of real economy activity, as per the M.A. monthly data, is still 2.5% below the prior peak. To put this fact into context, the entire peak-to-trough contraction in the 2001 recession was 1.3%! That is incredible.

“Interestingly, and dovetailing nicely with our deflation theme, nominal GDP fell 0.3% in May and by 0.4% in June. This is a key reason why Treasury yields are melting.”

Politicians are going to be greeted with a GDP number for the third quarter, right before the elections. Will it be negative like Rosie thinks? I am not sure, but in any event it will not be good. Structural unemployment will still be over 10% and deficits will be high.

Look at the following graph from my friends at The Liscio Report. Unemployment and continuing claims have started to rise again. This is not what happens in V-shaped recoveries, gentle reader. The ONLY reason the headline unemployment number has dropped a little is that the Labor Department has dropped so many people from the labor force. Again, if you have not looked for a job for four weeks, they do not count you as unemployed. If you use the labor-force number from just last April, unemployment is 10.5%. Brutal. Who doesn’t know too many people without jobs?

Read the rest of this entry »

Ha!

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Jones Beach, August 19, 2010

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David Gray at the Piano

click pic for larger version; click here for hi-res version

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NSFW:

Your Lucky Day from Dan on Vimeo.

Rather fascinating discussion of the beverage industry from Professor Philip H. Howard of Michigan State University. He concludes there is an oligolpoly, with 3 firms controlling nearly 90% of the beverage options. This lack of competition in this industry is obscured by the apparent variety of choices. Professor Howard calls it pseudovariety – variations on themes:

“Three firms control 89% of US soft drink sales. This dominance is obscured from us by the appearance of numerous choices on retailer shelves. Steve Hannaford refers to this as “pseudovariety,” or the illusion of diversity, concealing a lack of real choice. To visualize the extent of pseudovariety in this industry we developed a cluster diagram to represent the number of soft drink brands and varieties found in the refrigerator cases of 94 Michigan retailers, along with their ownership connections.”

That 89% is broken down as follows:

- 42.8%: Coca-Cola’s 25 brands and 139 varieties;
- 31.1%: Pepsi’s 18 brands and 163 varieties;
- 15%: Dr. Pepper Snapple Group’s 20 brands and 109 varieties;

I am curious as to what % of these are junk drinks using the same cheap, unhealthy corn syrup as their sweetener, versus how many use actual cane sugar.

I find the prof’s graphic (below) bizarrely intriguing chart porn (full version here). There is also a fairly robust discussion at Hacker News.

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chart via Philip H. Howard, Michigan State University

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Thanks to Mike Panzner for recognizing my love of chart porn . . .