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

Groucho Marx “Whatever It Is, I’m Against It!”

Hat tip Invictus

Source:
Simon Sinek: If You Don’t Understand People, You Don’t Understand Business
by Behance Team, 99%

Interesting graphic via Top Prospect showing another benefit of being at one of the big dogs: When you finally leave, your next start up idea gets VC funded:

>

Click for ginormous graphic

Source: Googlers +1 Facebookers for VC dollars

According to Reuters, a majority of economists now think that U.S. credit will be downgraded.

The debt ceiling plans being proposed likely will not avoid a debt downgrade.

Indeed, as Zero Hedge notes, the cuts being proposed in the debt ceiling proposals would be offset by the costs of the downgrade:

The US downgrade alone, now virtually taken for granted by everyone, will offset any beneficial impact from any deficit reduction that will have to happen for the debt ceiling to be increased.

Indeed, many are starting to say that a downgrade is inevitable.

In truth and in fact, we could still avoid a downgrade … but only if we immediately:

(1) End the imperial wars, which reduce – rather than strengthen – national security (and see this and this);

(2) End the never-ending bailouts for Wall Street;

(3) Prosecute fraud and claw back ill-gotten gains;

(4) End the Bush tax cuts, which Ronald Reagan’s budget director David Stockman said were the worst fiscal mistake in history; and

(5) Slash pensions for public employees, at least when they are pegged to an artificially “spiked” final year’s salary.

The talking heads will say that these actions are not politically feasible.

However, as I’ve previously noted, that phrase is just code for:

The powers-that-be don’t want it, even if the people overwhelmingly and passionately support it.

During the height of last week’s frenzy over the News of the World phone hacking scandal, there was a particular strain of horror to be seen on Twitter about the fate of the Wall Street Journal. Tainted by the paper’s propinquity to Murdoch’s other, riper media outlets, many journalists used the phone hacking scandal as an excuse to pound the table once again at the ways Murdoch had sullied the legendary financial paper.

Some suggested the phone hacking scandal would open a path for the Financial Times to gain readership and influence. Others floated scenarios where Bloomberg or Reuters might pony up $3 billion to “save” the paper. But anyone who has followed the Journal’s evolution closely will tell you that there’s absolutely nothing bad about the paper. Murdoch has sought to transform the Wall Street Journal from a unique newspaper into a broader news organization that uses the newspaper, the web, apps and email to expand its footprint.

Yes, the WSJ is not same paper it was under the Bancroft’s ownership. Then, it produced a quirky hybrid of long form features overlaid upon a dense presentation of micro-detail on companies, markets and economics. For those of us who loved it, the WSJ was a constant companion and a beacon of journalistic aspiration. Few days passed without the Page One editors hitting it out of the park with a fantastic profile, thumbsucker essay or behind-the-scenes tick-tock on a signal event.

One reason for all of the wailing is that what many readers most admired about the Journal is exactly what Murdoch eradicated. Murdoch’s editors made the stories shorter, moved resources off unique beats to duplicate political and social coverage seen elsewhere. But there’s good evidence the Journal was only following readers with those changes. Had the long stories been viable, the WSJ’s changes would have opened a space for Fortune to soar unrivaled or the remade Bloomberg BusinessWeek capture the “thoughtful” reader. Neither has made much noise in the past few years.

Overlooked by so many Journal critics is the way the organization has spread its wings. Where other newspapers have become overwhelmed by a star system that turns the paper into a daily magazine of columns and feature stories, the Journal generates a massive amount of information and repurposes it into blogs, stories, email newsletters, video reports and old-fashioned newspaper stories.

More than any other organization—including the giants Bloomberg and Thomson Reuters—the WSJ is a model of disciplined, integrated and expansive coverage. In the future, it may be looked to as the model for a truly global news organization.

As for the more serious charge leveled against the paper by Joe Nocera in his New York Times column–that the WSJ editors blithely reported Rupert Murdoch’s dismissive comments about the phone hacking scandal without serious challenge–he’s right. That story stuck out like a sore thumb. And it reflects Murdoch’s poor judgment more than anything else because the fact that it was such a painful anomaly only underscores the fact that on 99.9% of the rest of its coverage, the Journal plays it more than straight.

Here’s Sarah Lyall and Graham Bowley in the New York Times yesterday:

“Rupert likes to gossip,” a senior journalist at the paper said. “He is interested in what the news is that day.” But, according to a former editor at one of the London papers, “Rupert has an attention span of — maybe not zero minutes — but nine minutes.”

In an informal conversation with the senior journalist on the newsroom floor, Mr. Murdoch showed that he was especially excited by the future introduction of the weekend Review section, the journalist said. “He said he wanted to make it upmarket. He wanted to make it brainy. He said, ‘I really want people to have something to read’ — stressing the word read — ‘on weekends.’ ”

But for all their personal closeness, Mr. Murdoch makes no effort to influence the news coverage, said Mr. Thomson, The Journal’s top editor.

“We simply do not discuss details of coverage,” Mr. Thomson said via e-mail. “Not once. Never. There is a clear, distinct, very honorably observed demarcation line. Rupert respects the independence of the editor and my autonomy, and to suggest that we skew coverage is an insult to all of The Journal’s journalists, who person for person, pound for pound are certainly the best in the world.”

Even if you don’t believe that Murdoch honors the line between editorial and the publishing side at the Journal, any objective assessment of the news organization over the last few years has to give News Corporation’s stewardship credit.

Source:

Murdoch Veterans Portray a Fully Engaged Boss
by Sarah Lyall and Graham Bowley
The New York Times; July 26, 2011

http://www.nytimes.com/2011/07/26/world/europe/26murdoch.html?pagewanted=1&_r=1&ref=global-home

Here is some midweek reading:

• What’s Wrong With America’s Job Engine? (WSJ)
• The Virtues of Free Markets? Not what you think (Freakonomics) see also S.E.C. Removes Credit Ratings From Regulations (Deal Book)
• Three signs that investors are getting nervous about a possible U.S. default (Washington Post) see also Companies Bracing for U.S. Default (WSJ)
• Downgrade Jitters (Aleph Blog)
• Lessons From the Malaise (NYT)
• Civil War: GOP Coalition Splinters Into Open Conflict Over Debt Ceiling (Talking Points Memo) see also Bernanke May Need to Stay ‘Above Politics’ in Standoff Over Debt Ceiling (Bloomberg)
• Is America Doomed? (BBC) (Short answer: Probably not)
• The return of a zero-sum world (Salon) see also Kipling’s game theory lessons for Greece (FT)
• WTF? Soldiers battle car dealers over inflated prices, loan terms (I Watch)
• Scientists Discover Tipping Point for the Spread of Ideas (Science Blog)

What are you reading?

Source:
The Unreasonable Beauty of Mathematics
Scientific American
July 26, 2011

I do not see evidence that the next recession is imminent.

However, that does not prevent me from reading others who do, to wit Gluskin Sheff’s David Rosenberg.

Rosie has been one of the biggest bears on the street, despite rising equity and commodity prices (perhaps because of why we have rising equity and commodity prices).

Regardless, this is his 7 point plan to get ready for the next recession:

1) “High-quality corporates” plus companies with “A-type” balance sheets and “BB-like yields.”

2) Reliable dividend paying Stocks (including preferreds).

3) Low debt-to-equity ratios, high liquid asset ratios, good balance sheets, no heavy debt.

4) Hard assets: Oil and gas royalties, REITs –  focus on income stream.

5) Sectors / companies with “low fixed costs, high variable costs, high barriers to entry/some sort of oligopolistic features, a relatively high level of demand inelasticity.” This includes utilities, consumer staples + health care.

6) Alternative assets that do not rely on “rising equity markets” or are independent of volatility trades.

7) Precious metals. Specifically, he puts a $3,000 target on Gold.

The era of aggressive growth is giving way to an era of income equity. For those of you so defensively inclined,  this portfolio of ideas is a good place to begin thinking about where to hide.

Stress in the Eurozone – A Follow-Up
July 26, 2011

This commentary was written by Bill Witherell, Cumberland’s Chief Global Economist. He joined Cumberland after years of experience at the OECD in Paris. His bio is found on Cumberland’s home page, www.cumber.com. He can be reached at Bill.Witherell@cumber.com.

As global investors’ attention moves back across the Atlantic to the US debt-ceiling/budget-deficit drama, the Eurozone crisis has eased. However, as discussed below, we still have not seen the final act. Last week, at their summit, the Eurozone leaders finally took some important steps designed to deal with the sovereign debt crisis. The text of the July 21 “Statement by the Heads of State or Government of the Euro Area and EU Institutions” can be found here. While the agreed actions cannot be described as a comprehensive solution to the multiple issues that brought about this crisis, they indicate that governments understand and are now ready to effectively address most of them. This result exceeded by a considerable margin the expectations of many, and the actions were positively received by European equity markets. The subsequent rally in these markets extended for four days, only to be cut short by unease over the political impasse in the US.

The most immediate need facing Europe’s leaders, Greece’s financing gap, was met with an agreement to provide 109 billion euros ($159 billion) in official financing for Greece. This includes traditional direct-rescue funding loans, a provision of 20 billion euros for buybacks of Greek government bonds, and several programs that are designed to encourage private bond holders to participate in the rescue, swapping old bonds for new ones with longer maturities and enhanced credit. Bond holders that participate will experience an estimated loss of 21% in current value. To offset this damage to bank bond holders, 20 billion euros is being provided for bank recapitalization. As some have noted, the decision to allow the European Financial Stability Facility (EFSF) to recapitalize banks could well have long-run fiscal implications.

Another important element relates to the terms of the existing European Union/IMF programs for Ireland, Portugal, and Greece. Maturities have been extended and interest rates lowered, a step that will provide an important easing of the financial burdens facing these countries.

An increase in the role and flexibility of the EFSF to address contagion is particularly welcome. In future the EFSF will be able to act pre-emptively “to avoid contagion” on behalf of any Eurozone country, including countries not already in a rescue program, by intervening in secondary markets. This action would be based on analysis by the European Central Bank (ECB) that indicates “the existence of exceptional financial market circumstances and risks to financial stability.” As noted above, the EFSF also is to be allowed to “recapitalize financial institutions through loans to governments.” This provision also extends to all Eurozone member countries. A notable omission in these decisions is any increase in the size of the EFSF. An increase surely will be needed and hopefully will be made before another crisis arises and forces governments to act.

The move to finally recognize the need to have some restructuring of Greece’s debt had become unavoidable, and the leaders’ decision to bite the bullet on this was welcome. Moody’s subsequent downgrade of Greek debt this week was expected by markets. However, Moody’s warning about possible future downgrades of creditor countries because of the implications of last week’s decisions is troubling markets as we write.

At Cumberland Advisors, we believe the immediate crisis in the Eurozone has been eased and the members’ weapons to counter future flare-ups have been strengthened. Resolution of the crisis can come about only through increased competivity, investment and growth, which will require politically difficult economic reforms, particularly in the weaker-economy countries. Bearing in mind the restrictive fiscal policies that are required, these economies face an extended period of suboptimal growth. The performance of the stronger Eurozone core economies, in particular Germany and France, will likely continue to diverge from that of the weaker economies. We have raised our heavy underweight of the Eurozone in our International and Global Multi-Asset Class portfolios back to light underweight positions. We are refraining from going to overweight because of our concerns about the Eurozone banks, the headwinds of restrictive fiscal policies, and the possibility of further monetary tightening by the ECB.

Bill Witherell, Chief Global Economist

http://www.cumber.com