October 2009 - Global Economic Watch

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Carlos Ghosn on Implementing Short Term Responses During Crisis to Set Up Long Term Vision

10-30-2009 9:47 AM with no comments

Speaking at the Wharton School, Carlos Ghosn, CEO of Renault-Nissan, listed reasons why automakers were hit the hardest--along with banks--by the global economic crisis.  They "are big consumer(s) of cash," "big employers," "invest a lot of money," and "have a big supply chain."  So the immediate challenge for car manufacturers, Ghosn says, is to get through the crisis.  Managing through the crisis depends on maintaining a "positive free cash flow."  But the long term survival of these companies depends on long term vision, and, he says, managers have to be careful not to sell out the long term vision in fighting the short term problems.  

In this video, he outlines Renault-Nissan's approach in responding to the immediate challenges in such a way that the company also moves toward goals for the future.  For Renault-Nissan, that appears to mean developing zero emissions vehicles:

Posted by Graham Griffith

Sergey Brin on the Future of Google

10-29-2009 1:28 PM with no comments

Sergey Brin popped in at O'Reilly Publishing's Web 2.0 Summit last week, and the Google co-founder took a few minutes to discuss Google (then) just-announced search deal with Twitter, efforts to find revenue streams through social networks, pending new technologies, and even Microsoft's Bing (Brin says he uses the search service).  Here he is talking to John Battelle, via Fora.tv:

Posted by Graham Griffith

Soros To Create New Think-Tank to Rethink Field of Economics

10-29-2009 9:13 AM with no comments

George Soros announced earlier this week that he is launching a new think-tank which will be tasked with, in the words of Alan Rappeport of the Financial Times, "reconceiving the field of economics."  And Soros explained his goal for the Institute of New Economic Thinking (INETT) to Rappeport's FT colleague, Chrystia Freeland:

There’s been a pretty widespread recognition by professionals that something is fundamentally wrong in the prevailing doctrine about financial markets, that you need a new understanding that this whole idea of efficient market hypothesis, rational expectations theory, is totally devoid of reality, and so there is need for new thinking. I’m, of course, one of the protagonists that are putting forward a different alternative, but there are others and I think these alternatives need to be developed. I feel now sufficiently confident that I’m ready to also act as a financial sponsor for this Institute, which will actually develop the alternative.

Soros has been lecturing all this week at the Central European University, in his native Hungary.  In Tuesday's lecture, he laid out his thinking for the new think-tank (you can watch the relevant excerpt here), but the series goes well beyond the financier's views of today's crisis.  The Financial Times has made video of all of the lectures available here.

Posted by Graham Griffith

Cal-Berkeley Global Unemployment Panel

10-29-2009 8:57 AM with no comments

On Wednesday, four academics from the University of California Berkeley discussed global unemployment.  The participants: John Quigley, Goldman School of Public Policy, Brad DeLong, Department of Economics, David Card, Department of Economics, and Andrew Rose, Haas Business School.  Video of the talk is now available here.

Posted by Graham Griffith

Doing Business Country by Country

10-28-2009 11:33 AM with no comments

The World Bank has a map that serves as a great reference for the relative ease of doing business around the globe.  It covers 183 economies, and rates how easy or difficult it is to conduct business in each.  Each country is rated easy, moderate, or difficult.  Click on a country to get its exact ranking based on factors like "starting a business," "getting credit," "protecting investors," and "trading across borders" (there are 10 categories in all).  Then keep clicking through for more and more precise and country-specific data.  Here's a quick look at the map:

Click here to use the interactive map.

Posted by Graham Griffith

Brookings Scholars Haskins and Sawhill on the Path to the American Dream

10-28-2009 10:10 AM with no comments

Brookings Insitution scholars Isabel Sawhill and Ron Haskins have collaborated on a new book, Creating an Opportunity Society.  The book "explores what it will take to help more people achieve the American Dream," according to the Brookings website.  At first glance, they make a curious pair to co-author a book on federal policy.  Haskins was an advisor on welfare policy in the George W. Bush White House, while Sawhill served at the Office of Management and Budget for the Clinton White House.  But they seem to have found common ground.  They agree that the route to a better life is found via educational opportunity, jobs, and strong families. 

They discussed their book yesterday at Brookings, as part of a larger panel.  Frankly, their contributions to the discussion were where most of the compelling new discussion was found.  So here they are.  First, Sawhill:

And here's Haskins with his key remarks:

You can watch video of the other participants here.

Posted by Graham Griffith

Transports Indicate Stalled Economy

10-28-2009 9:07 AM with no comments

The Pragmatic Capitalist has a must-read post about transports.  The data for shipping via rail, trucks, and air transports show very weak shipping activity.  

Nothing has been more confounding during this equity rally than the weakness in the underlying fundamentals of the transports.  Without fail, the data from the transports has been an excellent leading indicator in past recessions.  Warren Buffett has even admitted that the rail data is his single favorite indicator to watch.  But as equity market have ripped higher, the rails and other transports have lagged.

Of course, as time has passed we have witnessed the enormous influence of government stimulus on the economy and the incredible impact of money printing on asset prices.  As we begin to see signs that government stimulus is failing to generate jobs and a sustainable recovery, the transports continue to forecast a very weak recovery.  Have the transports been right this whole time or is the Fed’s liquidity induced rally a more accurate reflection of the economy?

Read Transports Confirm the Economy is Weak here

(H/T Melissa Acuña, Cengage)

Posted by Graham Griffith

Digital Marketing and Teens' Use of Social Networks

10-27-2009 8:40 AM with no comments

We are learning more and more about how children and teenagers utilize digital media.  And as we learn more, some are suggesting that adults need to be more aware of how younger consumers respond to online messaging.  Ellen Wartella, professor of Psychology at UC Riverside, says teenagers "may be particularly at risk in the new digital marketing environment."  AdAge shares this video of Wartella speaking at the Children's Advertising Review Unit Conference about digital marketing:

Few people know more about how teens are using social networks like Facebook and MySpace than Danah Boyd.  Boyd is a Social Media Researcher at Microsoft Research New England and a Fellow at Harvard University's Berkman Center for Internet and Society.  She has spent several years studying teens' use of social media, and is co-author of the new book, Hanging Out, Messing Around, and Geeking Out: Kids Living and Learning with New Media.  She spoke about her work earlier this month at the University of Michigan's School of Information.  The talk was a fascinating look into the lives of teens in a digital age, and how social networks have replaced the mall as the designated meeting space.

You can watch a video of Danah Boyd's speech (long but worth the time) by clicking here.

Posted by Graham Griffith

The Destructive Power of Yes: Seattle Times on the Failure of WaMu

10-26-2009 10:52 AM with no comments

A little over a year ago, the FDIC seized the assets of Washington Mutual on the bank's 119th birthday.  it was the largest US bank failure (Reuters), and the roots of the failure had a bit to do, ironically, with the message of a WaMu ad campaign--The Power of Yes:

The Seattle Times breaks down the WaMu failure in today's paper, and, in a story now all too familiar, it appears that the thrift was all to happy to say yes just about anybody:

WaMu lured borrowers with a very low interest rate of about 1 percent. But this "teaser" rate was good only for one month. After that, the option ARM could have far higher interest rates than conventional 30-year fixed-rate loans.

With each minimum payment, unpaid interest piled up. Once the debt grew too large, WaMu canceled the minimum-payment option. You could suddenly get a new bill for two or three times what you had been paying.

Another aspect of the option ARM made it even riskier. Washington Mutual broke the most basic rule of lending, a rule as fundamental as "all lifeguards must be able to swim":

It would give you an option ARM even if you couldn't afford to repay it. You only needed enough income to cover the minimum payments.

Read parts 1 and 2 of the Seattle Times coverage here and here

And read the indispensable Barry Ritholtz's take here.

Posted by Graham Griffith

Greg Mankiw Shares a Course Idea

10-26-2009 10:23 AM with no comments

Greg Mankiw, textbook author and former chair of the Council of Economics Advisers, is a teacher by day, blogger by night.  And he's posted an interesting question he'll be asking his class this week:

You are a utilitarian social planner. You have a limited number of H1N1 vaccines. How do you allocate them? Do you (A) give them to specific groups, such as high-risk populations, or (B) sell them to the highest bidder and rebate the revenue lump-sum to everyone? If you choose (A), do you allow those individuals allocated the vaccine to sell their dose to someone else? Be sure to specify the economic environment as carefully as possible. And remember: Your goal is to maximize total utility.

I assume he'd be fine with you asking it as well--but report back your findings.

Posted by Graham Griffith

Navigating Transition, as an Organization and as a Worker

10-26-2009 9:43 AM with no comments

This is a time of transition for the economy, companies across the country.  And when recovery starts to hit in a meaningful way, then many workers will face a new sort of transition as they face new opportunities for advancement.    Michael Watkins, Chairman of Genesis Advisers and author of a new book titled Your Next Move.The Leader's Guide to Successfully Navigating Major Career Transitions.  And as Watkins wrote in an online article for Harvard Business, he believes that a lot of workplaces are set up to face a lot of change:

According to a recent study just 10% of high-potential leaders lost their jobs during the recession (with many quickly securing new opportunities). But fewer than usual received promotions or moved to new companies. So at the first sign that the job market is heating up, many will be dusting off their resumes and seeking greener pastures.

Companies that did a clumsy job of managing cost-cutting and restructuring during the downturn are particularly at risk of losing their best talent as conditions improve. Given plummeting revenues and the need to get costs under control, many firms rightly went into crisis mode. But the way they went about making the reductions varied greatly. For some, it was a process akin to taking a meat cleaver to the organization, with rapid, often indiscriminate cuts, and the attitude that virtually anything could be demanded of the survivors (longer hours, reduced salaries) because things were so dire.

These same survivors, especially the most talented of them, understandably feel absolutely no loyalty to their current employers; they will jump ship the instant they feel it's safe to do so. In fact it's a wonderful time for strong companies to consolidate their positions and accelerate out of the downturn by cherry-picking the very best talent out of competitors who have (probably irreparably) damaged their corporate cultures. Some attention to effective on-boarding is also warranted as it will help you to retain the talent you hire.

Watkins discussed his new book with Sarah Green of Harvard Publishing:

Posted by Graham Griffith

Andrew Ross Sorkin on Lehman's Fuld, and 'Too Big to Fail'

10-23-2009 9:55 AM with no comments

New York Times writer Andrew Ross Sorkin's Too Big to Fail: Wall Street's Near-Death Experience is the too-important-to-ignore book of the moment.  The details about Hank Paulson's interactions with executives from his old firm, Goldman Sachs, when he was Secretary of the Treasury are getting a lot of attention (from Felix Salmon, for example).  And Sorkin's detailed account of the government's efforts to broker a deal to merge Goldman Sachs and Wachovia after Lehman Brothers failed last September is another highlight (you can read an excerpt of the book that covers this at Vanity Fair).  Sorkin spoke about these and other hot topics from the book with Charlie Rose.  Here's an excerpt in which Sorkin talks about former Lehman CEO Richard Fuld:

Watch the full interview here.  

Posted by Graham Griffith

Paying for Content: NYT Circulation Revenue Passes Ad Revenue in 3rd Quarter

10-23-2009 9:34 AM with no comments

The New York Times passed an important milestone this week.  Circulation revenue for the third quarter was $175 million, up 6% from a year ago, according to Ryan Chittum of the Columbia Journalism Review.  The milestone?  Circulation revenue has now passed advertising revenue, which was $164 million for the quarter-down 27% from last year.  And as Chittum points out "this is not a good thing":

This is not a good thing, of course. The ad-to-circ ratio was two-to-one just three years ago. The radical shift is almost entirely due to the loss of ads (most of which aren’t coming back). But not quite: Circulation revenue is up by $20 million or so in that time. At a time of misery in the industry and when naysayers say you can’t charge for news online, theTimes and other newspapers are increasing the money they get from charging for news.

The worst news here? Online ads at the NYT were down 19 percent in the quarter. Oh, also, the entire company lost $36 million in the three months ending in September. That’s pretty bad, too.

Read Chittum's post on the NYT's circulation earnings here, and also his earlier reporting on growing circulation revenue in the news business here.  

This inevitably--although perhaps hastily--draws one into the question of whether the Times should consider a pay-for-content model online.  The news comes the same week as The Wall Street Journal looks to add to its pay-for-content strategy with the new "Professional Edition" starting in November. And the pay-for-content strategy might hit the video service of Hulu (NewsCorp, which owns the Wall Street Journal, is one of the owners of Hulu) as well.

Posted by Graham Griffith

'The Warning' from Frontline

10-22-2009 10:48 AM with no comments

As head of the Commodities Futures Trading Commission, Brooksley Born was concerned about secretive trading practices of derivatives.  She wanted more oversight of the derivatives market.  But Alan Greenspan, Larry Summers, and others wouldn't listen--and blocked her attempts to put more regulations into the financial system.  When 2008 hit, her worst fears started coming true, as she tells Frontline:

It was like my worst nightmare coming true. I had had enormous concerns about the over-the-counter derivatives [OTC] market, including credit default swaps, for a number of years. The market was totally opaque; we now call it the dark market. So nobody really knew what was going on in the market.

And then it became obvious as Lehman Brothers failed, as AIG [American International Group] suddenly appeared to be on the brink of tremendous defaults and turned out had been a major credit default swap dealer and needed hundreds of billions of dollars to keep it alive, the contagion in the marketplace from those failures brought many, many of our biggest financial services companies to the brink of collapse. And it was very frightening.

Born's story is at the center of a new Frontline documentary called The Warning.  Here's a preview:

You can watch the full program here.

Posted by Graham Griffith

Forbes: Top 10 Small Companies

10-21-2009 3:35 PM with no comments

Forbes Best 200 Small Companies in America list will hit news-stands with the November issue of the magazine.  The top 10 list is available online.  And it features 5 new members.  

1. Lumber Liquidators, (Toano, VA)

2. Allegiant Travel, (Las Vegas, NV)

3. Quality Systems, (Irvine, CA)

4. LHC Group, (Lafayette, LA)

5. Green Mountain Coffee Roasters, (Waterbury, VT)

6. Transcend Services, (Atlanta, GA)

7. Rackspace Hosting, (San Antonio, TX)

8. NVE, (Eden Prairie, MN)

9. American Public Education, (Charles Town, WV)

10. American Science & Engineering, (Billerica, MA)

"Rankings are based on earnings growth, sales growth and return on equity in the past 12 months and over five years," according to Forbes.  Other than success at building profitable business models during a recession, the companies don't immediately appear to have a lot in common.  From retail (Lumber Liquidators and Green Mountain Roasters), to a couple of specialized engineering firms (American Science & Engineering and NVE), to health care (LHC) and education (American Public Education)A fairly varied list of companies--a range of sectors is represented.  Read more about the companies here.  

Posted by Graham Griffith

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