Random charts - market concentration

 

Source: Healthy Marketplace Index 2019

"Health care spending in the United States is on the rise and accounts for nearly 18% of US economic activity. While policymakers continue to explore the contributors to this phenomenon at the national level, differing local trends add complexity—but critical detail—to the picture of how health care dollars are spent across the country..."

Random chart - stock market returns

Source: By Request, and Just For Fun: Stock Market as Barometer of Policy Success

Random chart - EVs

Source: For Tesla, Electric Car Sales Explode In All The Wrong Places 

"More than 2 million electric vehicles may be on the world’s roads by the end of 2016, writes the Guardian, citing data from the electric vehicle world database EV Volumes. That should be good news for electric carmaker Tesla. It is not. A closer look at the data shows that most of the growth comes from Tesla competitors, and from regions where Tesla is weak. It is a stereotype “that the U.S. market is further ahead in deploying the zero-emission technology thanks to cars such as the Tesla Model S,”  writes Automotive News. As far as Tesla is concerned, electric vehicle sales are exploding in all the wrong places...." Read the rest here.

The cabal?

A recent NYT oped "How a Cabal Keeps Generics Scarce" again blames drug shortages on GPOs (Group Purchasing Organizations)... "The economic root cause is simple: the purchasing organizations have squeezed manufacturers’ operating margins to razor-thin levels. By awarding select suppliers exclusive contracts in return for exorbitant (and undisclosed) “administrative,” marketing and other fees, they have reduced the number of suppliers to just one or two for many generics..."

An earlier blog entry had poured cold water on the position of PADS (Physicians Against Drug Shortages) on this topic. One has to wonder if the NYT so hard up for content that they need to provide a platform for these conspiracy theorists?  Faugh! Replace "cabal" with "shibboleth", because that's what we have here - a common saying or belief with little current meaning or truth. 

Random charts - cleaning challenges

Source: Cleaning Industry Insights Survey: 2013 Findings

Random chart

Source: Credit Easing Policy Tools - Cleveland Fed.

Random chart

Source: Natural gas: fuel of the future

Nice Tag- and QR-related report

PSFK has a very nice report on Slideshare, 'The Future of Mobile Tagging' which "... presents key trends in the mobile tagging space , so as to inspire marketers and their creative agencies about their future use of the technology in their branding and communication campaigns."

Massive cuts? Or not?

A couple of weeks ago Kenneth Feinberg, the Special Master for TARP Executive Compensation for the U.S. Department of the Treasury, came out with his rulings on executive compensation. These were immediately splashed across all the front pages. Most of the declarations went like this: "The Obama administration plans to order that top earners at firms that received billions of dollars in government bailouts will see cash payouts cut by an average of about 90 percent from last year, a source familiar with the matter said on Wednesday The sweeping cuts, negotiated by the U.S. pay czar Kenneth Feinberg will mark a bold move for an administration that has recently railed against excessively high pay on Wall Street." Wow, 90% pay cuts, jubilation in many circles. However, reading on it turned out that this was salary, and that "total compensation ... will be reduced by an average of about 50 percent." OK, 50%, that is still quite a substantial hit...that's showing those Wall Streeters! Rah, rah, score one for "Main Street!"

A few of those in favor of pay cuts cavilled... the cuts only effected companies that were TARP recipients... only the top 25 earners at these firms were effected... they were still left with untold lucre, etc. Those against the pay cuts bemoaned government's interference in matters that did not. However, both sides seemed to agree that big cuts had been effected in remuneration for certain executives.

Well, maybe not. A look at the detail showed a different picture:

• Average cash compensation rates will fall more than 90 percent for the final two months of 2009, compared to the annualized rate for 2008. Base cash salaries are limited to $500,000 for more than 90 percent of employees affected by the ruling.
  
• No salary already paid this year will be "clawed back."
• Including long-term stock awards, total compensation rates for the final two months of 2009 will fall by about 50 percent from annualized 2008 rates.
• Exceptions were made to the cash compensation rule in cases where Feinberg deemed increases necessary to retain "key talent critical to a company's long term success."
• New salary rules and lower pay rates apply to the final two months of 2009.

And, lastly, Feinberg's rulings are expected to set a template for executive pay proposals to be submitted by the seven firms in 2010 if they are still holding taxpayer funds.

Bottom line: these cuts, while real, are nowhere near 90% or even 50%, and this blogger expects that there will be a stampede to pay back; and those that can, will!

Feinberg's Folly
U.S. czar poised to slash cash pay at seven firms
Wall Street, Meet Ken Feinberg, the Pay Czar
Feinberg Said to Order 50% Pay Cuts at Rescued Firms

Feinberg's cuts mean nothing
Executive Pay Cuts? Hold the Standing Ovation

Factbox: Details of pay czar rulings on bailout firms

Quick clarification: this blogger is not in favor of meddling with existing employment contracts....

Mortgage mess

Making sense of the mortgage meltdown
(via The Great Loan Blog)

Note: the folks most hurt by the fall in prices were, naturally, those at the end of the "Ponzi-ish" increase in home prices in some markets... Most of those who purchased homes 5+ years ago still are 'ahead' (some well ahead, some barely...)

Huh?

Exclusive: Neither Obama nor McCain nor the Government Has a Plan in the Event of a Protracted Oil Stoppage - It Isn't Even Being Discussed is an article that introduces a book just published by the author Edwin Black (via Dialog Press) - The Plan: How to Save America When the Oil Stops—or the Day Before. There is also an associated web site, www.planforoilcrisis.com

OK this is an important topic and it is entirely possible that this is a great book, but this blogger isn't enticed into reading it by the breathless prose of the article, e.g. "... It is like seeing a hurricane developing without a disaster plan or evacuation route. Our allies have oil shortage interruption contingency plans, but America does not..."

Incredibly the article then goes on to say: "... The crude realities: America uses approximately 20 million barrels of oil per day, almost 70 percent of which is imported. If we lose just 1 million barrels per day, or suffer the type of damage sustained from Katrina, the government will open the Strategic Petroleum Reserve, which offers a mere 6 to 8 week supply of unrefined crude oil. If we lose 1.5 million barrels per day, or approximately 7.5 percent, we will ask our allies in the 28-member International Energy Agency to open their SPRs and otherwise assist. If we lose 2 million barrels per day, or ten percent, government crisis monitors say the chaos will be so catastrophic they cannot even model it..."

Hmm, as of today the Strategic Petroleum Reserve currently has 702.6 million barrels, so in the above scenario if we lose "1 million barrels per day" the SPR could close the gap for crude for almost two years (assuming that all the oil can be pumped out of the underground salt domes in Bryan Mound, Bayou Choctaw, Big Hill, and West Hackberry), and not "a mere 6 to 8" weeks. The 6-8 weeks figure is to replace 100% of US import volumes! Add to this that commercial stockpiles of crude in the U.S. are at least as big.

OK, so it's true that there are no stockpiles of refined products e.g. gasoline, jet fuel, etc. (as there are in some other countries). It is also true that the SPR's maximum drawdown is 4.4 million barrels per day and that crude from the reserve would normally only come on line thirteen days after a Presidential order (though it was done faster after Katrina). It is also true that if U.S. refinery capacity was greatly degraded that we would not be able to refine the crude in the SPR, etc. However, the article's gross error highlighted above, plus its suggestion that a 7.5% cut would make the U.S. dependent on its allies (way off the mark) certainly does not motivate this blogger to run out and purchase the book!

Finely calibrated reactions..

Politicians, and especially the presidential candidates, have to tread a fine line while trying to use the recent market 'meltdown' (Fannie & Freddie, Lehman Brothers, Merrill Lynch, etc.) to make points with the public...

"... Of the 354 lawmakers who received money from Freddie and Fannie between 1989 and 2008, Sen. Chris Dodd received the most. But next was . . . drumroll . . . Barack Obama..."

Whoops!

“Both the Republicans and Democrats have given the financial services industry everything it wanted. The finance sector has endless amounts of money to influence politics and can outgun the bank regulators every time.” That was Richard Christopher Whalen, Managing Director of Institutional Risk Analytics..." (2007 interview) and "... It’s the same rough picture over at Lehman Brothers. The firm, says opensecrets.org “has built a strong financial relationship with politicians over the years and coincidentally ranks fourth in the largest contributors in the race for the White House.” Barack Obama has received $395,600 from Lehman and its employees, while John McCain has taken in $117,500...."

A Bipartisan Guide to the Financial Collapse: Who’s not taking money from Merrill and Lehman?

Who knew?

Interesting - M.C. Hammer started thinking re how to exploit the Internet as far back as 1994. After visiting SGI and Apple to find out re video over the Internet he developed "... a passion for understanding how video would be consumed over the Internet and it kind of gave me a headstart with planning how to monetize it as well..."

MC Hammer Hoping for Comeback as Internet Titan
AlwaysOn & STVP: Summit at Stanford Breakout session video: "Music Artists Go Entrepreneurial"
MC Hammer blog

Fannie and Freddie...

So the Feds have stepped in and taken control of Fannie Mae and Freddie Mac. Everyone is having a field day finding things to criticize, especially the politicians who seek to affix blame for this state of affairs. Note that it is always someone else's fault - the Democrats pointing at the administration, the Republicans fulminating against the fact that the two FMs are GSEs (government sponsored enterprises, what the British call quangos, quasi non-governmental organizations) and not private sector companies.

Fannie Mae was originally created as a government entity to provide liquidity to the mortgage market. Banks that had loaned money to consumers for mortgages could sell them to Fannie Mae to get 'new' money to make additional loans. Additionally, this allowed the banks to reduce their interest risk. Fannie Mae could own the mortgages or package them and sell them as mortgage-backed securities.

Per Wikipedia: "... For a simplified example, a bank can sell one hundred $1000.00 bonds that pay 7% interest based on a mortgage loan for $100,000.00 that it made where it charged its customer 7%. The bank would therefore recoup the money lent to the homeowner, and the bond owners would effectively be lending the funds to the homeowner. The homeowner would not know this because he or she would still be receiving the bill from the bank who would pass the payments on to the bond owners (this is known as servicing the loan). Doing this solves both problems simultaneously, as the investor seeks a sure fixed interest rate at which to invest his or her money and the bank recoups its funds to lend more money. Under this model however, the investor is at risk if the borrower does not pay the monthly payment or the loan is not repaid from the sale of the house. Even though many investors might purchase bonds that are based on multiple mortgages, betting that only very few of them would have any problems, the US government sought to increase demand for these bonds (and therefore supply of mortgages, and therefore, lower mortgage interest rates) by creating Fannie Mae to guarantee the bonds. What Fannie Mae does is essentially makes any missed payments to the bondholder that the borrower misses, and also makes up for any loss for the loan not being fully repaid either by the borrower or from the sale of the house, and skims a certain percentage of the payment each month and holds the funds in reserve as insurance against these scenarios. Therefore investors believe they have no risk unless Fannie Mae itself becomes bankrupt..."

In the late 60's Fannie Mae was converted into a private, stockholder-owner corporation to get it off the government books. As time went by Fannie Mae started to engage in other practices to increase its income, and to use derivatives to hedge its cash flow. Even though it did not directly receive government funding, Fannie Mae has always benefited from an implied government guarantee (given that the Congress essentially favored it in many ways e.g. allowing Fannie Mae to maintain a capital/asset ratio much lower than other financial institutions) that has greatly lowered its cost of doing business.

The Congress has had an incestuous relationship with the two GSEs - Senators and Representatives have received significant campaign contributions; have been lobbied and 'wined and dined'; have profited from the revolving door between administrations, the Congress, and the GSE-universe (Fannie Mae, Freddie Mac, their lobbyists, etc.); etc. Fannie and Freddie have served the Congress' will all too well, making it easier to borrow and own a home, thereby increasing home ownership. The two GSEs ended up having half the U.S. residential mortgage market, or around USD 6 billion.

As long as housing prices trended upwards all was well. However, with the bursting of the subprime bubble, increasing numbers of defaults have hurt the two, causing them huge losses. Given the risk to their viability the government was forced to step in and place them under conservatorship. The risks of not doing so were too steep - if Fannie and Freddie had gone under it would have caused havoc, for example hurting families' savings, their ability to get home and auto loans, etc. Additionally, pension funds, state and municipal entities, as well as many foreign governments have been big purchasers of their mortgage-backed securities, and defaults would have a huge ripple effect (as well as leading to a loss of confidence in the U.S. economy and U.S. government that could be catastrophic given that the U.S. depends on other countries to fund its deficits...)

It is amusing to see this cast (especially by the Democrats) as a morality play, with Republicans and rich fat cats responsible for feeding at the public trough and ripping off the poor middle class - that has not reaped any benefit and is now unfairly feeling the fallout in the form of a reduced standard of living. The fact is that the Democrats, in fact both parties, have always made a fetish of the middle class - at every election it's all about which party can do more for the middle class. As if via their rules, via GSEs such as Fannie and Freddy, etc. the Congress has not pushed home ownership that has greatly benefitted the middle class. For example, by enshrining the deductibility of home mortgage interest the Congress has (in financial terms) assisted the middle class by many, many orders of magnitude more than they have ever done for the poor (e.g. subsidized housing, etc.)

It remains to be seen how this will eventually play out financially - how big of a hit will the government end up taking - will taxpayers be out hundreds of billions, make a small loss, break even, or even come out positive in the long run? It will be a few years before this shakes out.

Fannie Mae homepage
Fannie Mae - Wikipedia
Fannie, Freddie: Feds Step In
Battle begins over future of mortgage giants
Freddie Mac/Fannie Mae bailout: Guess Who Wins
Fannie, Freddie taken over partly to ease foreign nerves
Fannie, Freddy rescue binds taxpayers to housing markets
Federal takeover of Fannie Mae and Freddie Mac - Wikipedia
U.S. Senate Roll Call Votes 110th Congress - 2nd Session

Roll call for the legislation that enabled the takeover of Fannie and Freddie - note that McCain, Obama, and Clinton all did not make the vote...

Oil price follies - II

Oil Speculators provides information on a private Swiss energy conglomerate called Vitol, which apparently has taken huge positions (quote "... at one point in July, the firm held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange...").

The article goes on to say "CFTC documents show Vitol was one of the most active traders of oil on NYMEX as prices reached record levels. By June 6, for instance, Vitol had acquired a huge holding in oil contracts, betting prices would rise. The contracts were equal to 57.7 million barrels of oil -- about three times the amount the United States consumes daily. That day, the price of oil spiked $11 to settle at $138.54. Oil prices eventually peaked at $147.27 a barrel on July 11 before falling back to settle at $114.98 yesterday. The documents do not say how much Vitol put down to acquire this position, but under NYMEX rules, the down payment could have been as little as $1 billion, with the company borrowing the rest... So much for supply and demand."

Apparently this must be "proof" that it is speculators such as Vitol that are responsible for the run up in world oil prices... Vitol bought huge while "betting prices would rise." They did, and no doubt Vitol made out like a bandit. Seems like a post hoc ergo propter hoc argument, however, assuming causality... Buying a huge position while gambling that prices will rise can hardly be the cause of prices rising, otherwise why have we had fiascos like the "Nick Leeson/Barings Bank" and "Jerome Kerviel/Societe Generale" blowouts?

Also, what if Vitol had bought huge positions after July 11th while "betting prices would rise?" Would prices have continued to rise due to speculation, instead of falling as they did in reality? Hmm, so much for "so much for supply and demand."

Oil price follies - I

Earlier this blogger had noted that there doesn't seem to be an accepted "correct" answer re why oil prices climbed so high, the three dominant theories being a) supply/demand and external factors, b) speculation, c) the fall of the dollar (or perhaps, a fourth theory, a combination of the previous three).

In How to Burn the Speculators the onus is placed squarely on the speculators. Perhaps, perhaps not. This blogger, however, was wondering about a statement included i.e. "And as economist Tom Palley has pointed out, consumers can help too. An awful lot of gas is stored in cars. If people stop topping off and make do with half a tank, they'll back up supply and lower demand. It's a brilliant suggestion and definitely worth a try." Hmm, brilliant? Over the past year this blogger has averaged 550 miles a month. Assuming that this stays constant, as does his mpg, this blogger is not sure how he is reducing his demand one iota by only filling up half a tank each time. It seems like this would only require twice as many trips to the gas station, wasting a little more gas (unless the gas station is always along the daily route). Multiply by all the other motorists out there... What was so brilliant about that suggestion?

Previous blog entries:
Who (or what) is responsible for high oil prices?
Dunces

Fannie Mae & Freddie Mac

In report after report this blogger has been hearing about how the recent problems with Fannie Mae and Freddy Mac are dreadful, simply dreadful, because there has been “privatization of gain and a socialization of loss.” Visions of fat cats making out like bandits while the poor taxpayer is stuck with any and all loss dance through the air. Well, maybe not.

Consider the fat cat who purchased one hundred thousand shares of FNM on January 1st, 2005 at $71.21 a share. Cost $7.121 million (ignoring any commission costs). The aforementioned fat cat holds his shares until today, July 24th, 2008. In that time period FNM pays dividends sixteen times, said dividends ranging from 10 cents to 50 cents a share, for a grand total of $482,000 in dividends. At close of day July 24th FNM is worth $12.02 per share and the fat cat has lost over $6.4 million ($7.121 million + $482,000 - $1.202 = $6.401 million). As he sorrowfully sits by the radio, he hears with bemusement how Fannie Mae has privatized gain and socialized loss.