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

Discuss.

The Wall Street Journal is keen to point out the Times Co.’s lousy track-record as an investor. It appears that the Times was on the brink of combining About.com, the content farm it bought for $410 million nearly six years ago, with Demand media.

Under the terms discussed at the time, Times Co. would own as much as 49% of a company that would combine Demand Media’s assets including eHow.com and Livestrong.com, with About.com, according to the person familiar with the matter. [...] Ultimately, Times Co. backed out after Robinson and other senior executives decided they did not want to cede control of About.com to Demand.

Based on Demand’s recent share price in its first day of stock trading, the digital-publishing company has a market value of roughly $1.9 billion. The Times Co.’s stock-market value is $1.55 billion. Of course, it’s hard to know how Demand would have fared in combination with Times Co.

If the Times Co. were participating the IPO today, they’re About.com deal would have been a solid two-bagger at least. No matter, the gain would have come too late to hold on to the company’s shiny new headquarters of stave off the steep price paid to Carlos Slim.

Here are today’s favorite reads:

• ‘The stock market is for suckers’ (Macleans)

• In Norway, Start-ups Say Ja to Socialism (Inc)

• Revolt of the Elites (n+1)

• WHY THE MARKET IS WRONG (Carl Swenlin)

• Apple Plans Service That Lets IPhone Users Pay With Handsets (Bloomberg)

• Investing Insights from Top Newsletter Writers! (TRB)

• U.S. military lost more troops to suicide than combat in Iraq and Afghanistan (Congress)

• Why I’ll Miss Keith Olbermann (WSJ)

• The Dubai islands World is ‘falling into the sea’ (Telegraph)

• You say “Velociraptor,” I say “Deinonychus” (Smithsonian)

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In the continued debate over inflation/deflation, there are some who believe the US will only experience worrisome price inflation if there is corresponding wage inflation where employees ask for raises, companies grant them and continue to raise prices to offset it. With plenty of slack in the labor market, wage inflation is very unlikely but it’s wrong to think that is reason not to worry. Commodity prices are unquestionably going up and the prices we pay for many important items are moving up too, especially food and energy. The worst thing therefore from the perspective of the average person is NOT to have wage inflation to offset the rise in prices. Without it, it’s the ultimate middle class squeeze. Also, WE DO HAVE WAGE INFLATION, imported from China where wages are rising across the board for employees that make many of the things we buy.

The FOMC comments on the economy was about the same as in the Dec meeting and they remain dovish on inflation as while they acknowledge that “commodity prices have risen, longer term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.” The Fed continues to partially dictate policy on the CPI and PCE as their gauge without much focus on market signals. Of course the Fed doesn’t want to stop their $600b purchase program until its over so thus needs to craft a statement that confirms their reasoning for it and they seem to have successfully done that. Fisher and Plosser did not dissent and therefore didn’t follow in the foot steps of the departed Hoenig as some speculated they would based on their publicly stated uncertainty with QE2. The real fireworks for markets in 2011 will come as we approach June 30th and thereafter when QE2 is done.

Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He is a white-collar criminologist who has spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.

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The Soviet Union launched Sputnik on October 4, 1957 during President Eisenhower’s administration. President Kennedy launched the American response that led to the Apollo program and the “Space Race.” President Obama used these three space-related terms as metaphors forming the centerpiece of his State of the Union address:

This is our generation’s Sputnik moment.We’re issuing a challenge. We’re telling America’s scientists and engineers that if they assemble teams of the best minds in their fields, and focus on the hardest problems in clean energy, we’ll fund the Apollo Projects of our time. Two years ago, I said that we needed to reach a level of research and development we haven’t seen since the height of the Space Race.

What “this” is Obama referring to when he says “This is our generation’s Sputnik moment”? (And whose generation is “our” generation?) Sputnik was a “moment” — its launch was a sensation. It caused Americans to engage in a massive reappraisal of U.S. policy and leadership. Sputnik made clear a potential Soviet threat to American’s lives. The Soviet Union first tested a hydrogen bomb in 1953. By 1957, the Soviets had the rocket technology to put Sputnik in orbit. It was clear that they would soon have the capability of attacking any American city with a hydrogen bomb — and that the U.S. had no means of stopping such an attack. Sputnik was an enormously big deal because every American understood the unprecedented threat to our survival.

President Kennedy made Sputnik one of the keys to his campaign. It happened on Eisenhower’s watch. Kennedy claimed that it showed the need for a new, more innovative generation to take the reins of power and revitalize the nation. Whatever “this” Obama was referring to, it isn’t a “moment” and it hasn’t caused such a reappraisal. Because Obama cannot tell us what “this” is, it’s tough to use the metaphor to convince the nation that we should pay for the modern equivalent of a space race to address it.

Asking what “this” Obama was referring to when he raised the Sputnik moment metaphor leads us to the missing “why” in the centerpiece of Obama’s address. Why are we going to “fund the Apollo Projects of our time?” Here’s the full context Obama provided:

Two years ago, I said that we needed to reach a level of research and development we haven’t seen since the height of the Space Race. In a few weeks, I will be sending a budget to Congress that helps us meet that goal. We’ll invest in biomedical research, information technology, and especially clean energy technology — an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.

Senator Obama had a position on climate change:

Global warming is real, is happening now and is the result of human activities. Barack Obama and Joe Biden believe we have a moral, environmental, economic and security imperative to tackle climate change in a serious, sustainable manner.
Reduce Carbon Emissions 80 Percent by 2050: Barack Obama and Joe Biden support implementation of a market-based cap-and-trade system to reduce carbon emissions by the amount scientists say is necessary: 80 percent below 1990 levels by 2050. They will start reducing emissions immediately in his administration by establishing strong annual reduction targets, and they will also implement a mandate of reducing emissions to 1990 levels by 2020.

Senator Obama, in a speech commenting on President Bush’s 2006 State of the Union address, had a position on energy independence:

“Focus your operations on oil, especially in Iraq and the Gulf area, since this will cause them to die off [on their own].” These are the words Osama bin Laden. More than anything else, these comments represent a realization of American weakness shared by the rest of the world. It’s a realization that for all of our military might and economic dominance, the Achilles heel of the most powerful country on Earth is the oil we cannot live without.

President Obama never even attempted to explain why his space metaphors were apt. If energy dependence on the Mideast and climate change pose an existential threat to the U.S. — as Senator Obama believed and argued — then President Obama needs to make the most powerful case possible to convince the American people of the need to spend over $100 billion in additional federal funds to support development in renewable fuels. Instead, President Obama’s mention of these matters in his address was so cursory and opaque (“an investment that will strengthen our security [and] protect our planet”) that he seemed almost embarrassed to even raise the dangers that Senator Obama warned endangered our nation and world.

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Via Good, comes this piece of chart porn: In the first three quarters of 2010, businesses spent more than $94 billion on advertising; these are the companies that paid the most for your attention in that time.

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FOMC Minutes

Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

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The 5 year auction was very good as the yield was 1-2 bps below the when issued and the bid to cover of 2.97 is above the 12 month avg of 2.76 and the best since July ’10. Treasuries are off the lows of the day in response. The maturity comes after yesterday’s 2yr which is most sensitive to expectations of where the fed funds will be and before tomorrow’s 7 yr which becomes more sensitive to inflation and growth expectations. We also of course get to hear from the newly constituted FOMC in 1 hr. Bottom line, I don’t have one in terms of the market message of this solid auction. Tomorrow should be more interesting in gleaning one.

New York University Professor Nouriel Roubini talks about the global economy and U.S. fiscal policy. Standard Chartered Chief Economist Gerard Lyons joins the discussion moderated by Tom Keene on Bloomberg Television’s “The Pulse.” They speak from the World Economic Forum meeting in Davos, Switzerland.

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