Will the US Economy Become a Victim of the Iraq War?

War is not only Hell — but Hellishly expensive:

"In September 2002, the Congressional Budget Office, a nonpartisan
research arm of Congress, estimated that the war would cost $1.5
billion to $4 billion per month. In fact, it costs between $5 billion
and $8 billion per month.

The Pentagon says the "burn rate" — the operating costs of the wars
– has averaged $5.6 billion per month in the current fiscal year, but
that does not include some costs for maintenance and replacement of
equipment and some training and reconstruction costs, experts say."

Recall our Pre-War Analysis from March 19, 2003 (Not-So-Hidden Agenda: Strategic and Economic Assessments of U.S. led Invasion in the Middle East) — we predicted the War in Iraq would last up to 10 years and cost $1 trillion dollars over that decade. That length and expense was (at the time) considered an outlier, far beyond other expectations.   

Now, almost 2 1/2 years later, other analyses are (finally) catching up. A recent study from the Center for Strategic and Budgetary Assessments upgrades the estimates of what the war will cost to ~3/4 of a trilllion dollars (so we are getting closer to my $ trillion dollar estimate).

"The wars in Iraq and Afghanistan have already cost taxpayers $314
billion, and the Congressional Budget Office projects additional
expenses of perhaps $450 billion over the next 10 years.

That could make the combined campaigns, especially the war in Iraq,
the most expensive military effort in the last 60 years, causing even
some conservative experts to criticize the open-ended commitment to an
elusive goal. The concern is that the soaring costs, given little
weight before now, could play a growing role in U.S. strategic
decisions because of the fiscal impact.

"Osama (bin Laden) doesn’t have to win; he will just bleed us to
death," said Michael Scheuer, a former counterterrorism official at the
CIA who led the pursuit of bin Laden and recently retired after writing
two books critical of the Clinton and Bush administrations. "He’s well
on his way to doing it."

The Center for Strategic and Budgetary Assessments, a nonpartisan
Washington think tank, has estimated that the Korean War cost about
$430 billion and the Vietnam War cost about $600 billion, in current
dollars. According to the latest estimates, the cost of the war in Iraq
could exceed $700 billion.

Put simply, critics say, the war is not making the United States
safer and is harming U.S. taxpayers by saddling them with an enormous
debt burden, since the war is being financed with deficit spending."

You can get a visual sense of how much the war(s) have been costing the United States per year below; These data points reflect budget allocations, and do not include the epxenditures for military men and material already budgeted.

Click for larger graph

Mn_casualty_of_war

Chart courtesy of San Francisco Chronicle

One of the few vocal critics of the cost the Iraq war has generated has been Nebraska Senator Chuck Hagel (R). He has pointed out (repeatedly) that the present expenses are many multiples greater than what the White House had promised in 2003; Future expenses threaten to make the war even more costly.

Long term deficit hawks (and that should include equity investors) should take note of Hagel’s obserervations regarding the ultimate impact of this spending: it is throwing U.S. fiscal priorities "out of balance," and "It’s dangerously irresponsible."

Indeed.


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Source: 

CASUALTY OF WAR: THE U.S. ECONOMY

James Sterngold
Chronicle Staff Writer, Sunday, July 17, 2005

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/07/17/MNG5GDPEK31.DTL

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Why is Movie Theatre Revenue Attendance Declining?

There’s been plenty of chatter about declining movie theatrical revenue attendance. You just know the MPAA is itching to tie this onto piracy somehow and thus get some favorable legislation.

Let’s nip this one in the bud, shall we? 5 6 7 factors are hurting theater attendance:

1) Social factors eroding theater environment (talking, cell phones, babies crying, etc.); 
2) Sacrificing long term relationships with theater-goers for the increase in short term profitability (commercials, no ushers, etc.);
3) Higher quality experience elsewhere (Home theater);
4) Declining quality of mainstream movies;
5) Easily available Long Tail content alternatives (Netflix, Amazon);
6) Price;
7) Demographics: Aging babyboomers simply go out to movies less.

While content quality has indeed worsened over the years, it shouldn’t be the main concern this Summer:  As of late, there have been a spate of movies which have been either well-reviewed (Batman Begins) or had good word-of-mouth (Wedding Crashers) or incredible special effects perfectly suited to the big screen (Revenge of the Sith or War of the Worlds).

So what else might be the source of declining theatrical fortunes?

Well, how about the movie theater-going experience itself? The adventure of heading to a cineplex is becoming a less and less pleasant form of entertainment. Many of the headaches involved have been painfully detailed by Bob Lefsetz’ readers (see their ordeals below).

Note that we are not even discussing content quality at this point.

Then there are the adverts. A recent L.A.Times article – Now playing: A glut of ads — points out that even studio executives were stunned by 15 minutes of commercials theatre goers had to endure after paying their 10 bucks:

"As head of production at New Line Cinema, Toby Emmerich is not your typical moviegoer. So when he wanted to see "War of the Worlds" the other night, his choice was between seeing the film in a theater with a tub of popcorn or watching it in a screening room at Jim Carrey’s house, with a private chef handling the culinary options. Despite this seemingly loaded deck, Emmerich opted for a real theater.

"I love seeing a movie with a big crowd," he says. "But I had no idea how many obnoxious ads I’d have to endure — it really drove me crazy. After sitting through about 15 minutes of ads, I turned to my wife and said, ‘Maybe we should’ve gone to Jim Carrey’s house after all.’ "

When DreamWorks marketing chief Terry Press took her young twins to see "Robots" this year, she said, "My own children turned to me and said, ‘Mommy, there are too many commercials!’ Now, when the lights go halfway down, I’m filled with dread. The whole uniqueness of the moviegoing experience is being eroded by all the endless ads."  (emphasis added)

So while the industry laments piracy, consider if you will why going to the theatre has become so much less enjoyable than watching DVD films on your own big screen in the comfort of your home theatre.   

The theatres have adapted Radio’s disasterous Hamburger Helper approach: Short term increases in profitability in exchange for alienating your core audience, who eventually seek out a more enjoyable substitute. Quite frankly, I’m astonished the film industry has (contractually)
allowed theatre owners to degrade their copyright protected product by
diminishing the experience so dramatically.

As Radio has so painfully learned, the end result is a big fat Buh-bye!

To a large degree, this is  a zero sum game: The theatre chains losses are Best Buys’ gain; Is it any surprise that high quality home sound systems and large screen TV sales have gone through a ginormous growth spurt over the past 5 years? Even as the lowest common denominator productions falter, Netflix (and its rivals) allow home theater owners to enjoy a Long Tail orgy of DVD content. 

Yo, theatre owners, when a segment of retail electronics called HOME THEATRE explodes in sales, that is your wake up call. You seem to have been oblivous, and missed the bell ringing.

Good luck getting the toothepaste back in the tube!

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UPDATE: July 25, 2005 7:37pm
At Slate, Edward Jay Epstein explains the numbers behind decreased attendance on increased revenue. Fascinating stuff . . .

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UPDATE II: August 30, 2005 12:07pm
A weekend NYT article, titled Summer Fading, Hollywood Sees Fizzle quotes an exec as blaming the quality of flicks:

"Part of this is the fact that the movies may not have lived up to the
expectations of the audience, not just in this year, but in years prior," said
Michael Lynton, chairman of Sony Pictures Entertainment, which had some flops
this summer, including the science fiction action movie "Stealth"
and the romantic comedy "Bewitched."
"Audiences have gotten smart to the marketing, and they can smell the good ones
from the bad ones at a distance."

 

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Sources:
Now Playing: A Glut Of Ads
The Big Picture
Patrick Goldstein
L. A. Times, July 12, 2005
http://www.latimes.com/business/custom/admark/la-et-goldstein12jul12,1,35978.story

Lefstz Letter
June 5, 2005
(complete sourcing below)

Summer Fading, Hollywood Sees Fizzle
By SHARON WAXMAN
NYTimes, August 24, 2005
http://www.nytimes.com/2005/08/24/movies/24slum.htm

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Continue to see Lefsetz’ readers critique of the theater experience . . .

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