Wednesday, August 31, 2005

Happy as Larry
In "1955, General Motors was hauled before the U.S. Senate to explain how it had become the largest corporation in both the United States and the world and how its investors were able to enjoy twice the average manufacturing return on investment. The Senate wanted to know: “Wouldn’t America be better off if General Motors reduced the price of a Chevrolet substantially to make it more affordable for the workingman?” ... Charlie Wilson, the chairman of General Motors, summed up G.M.’s philosophy: “What’s good for General Motors is good for the rest of America.”"
(I was looking for that "good for America" quote and found it in that cite; it is a provocative article and I do not wholly endorse it.)

I was reminded of that "good for America" quote this morning while listening to Dylan Ratigan and his guest discuss the current GM financial bind on Larry Kudlow's show on CNBC. I'm sure Larry will never leave again. The guest, I believe he was from an automobile magazine, was saying the current talks with the UAW to get the workers to reduce their benefits was a little presumptuous in that GM was trying to "abrogate its contract" with its workers. I thought I could hear Larry moan all the way down here in Sydney.

But when the guy suggested that GM could obtain a more level playing field advantage with its non-US competitors if the US government absorbed the health care costs that GM had contracted to provide its workers (nationalized healthcare!), I am quite possitive that they picked up Kudlow's explosion at the California seismological monitoring laboratory.

Now, I'm not sure what you think of Kudlow, but in Australia they have a saying: "Happy as Larry". It has a certain delirious connotation to it. One of the people who is not too happy with Larry is Fiona:

Dylan also had that guy back on pushing "Australia" as an index buy. Ugh. See and back posts noted there.

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Nothing to fear but fear itself

I still can't help but feel that all that "security screening" at the airports is intended more to instill fear and intimidation than actually turn up any terrorists. It's gone way too far. If the little sheep really believe it'll keep the wolves away, they don't know much about wolves. The cause of today's rant:


Arms for the poor

"Military weapons sales worldwide jumped last year to the highest level since 2000, driven by arms deals with developing nations.... The US dominated, signing deals worth $US12.4 billion in 2004 - 33.5 per cent of the value of all deals worldwide but down from $US15.1 billion in 2003. The share of US arms contracts with developing nations was $6.9 billion in 2004, or 31.6 per cent of all such deals, up slightly from 2003's $US6.5 billion."


Bloody big ad

Give that man a New ad. It may not be as snappy as 9 Coronas ( - warning, this goes on for a few minutes) but this ad -- -- sure captures the spirit of the amber gold. (Yes, you do want to run the ad. With sound.)


Eye of the beholder

With the Forbes CEO confab kicking off here today in Sydney, I'm going to brush aside my admonition ( and ask, what do you think is an "appropriate" multiple of executive pay over production worker pay? That is, if a production worker is making, say, $10.00/hr, what multiple of that is reasonable/moral/appropriate/etc. for the CEO? Five times ($50.00/hr), 10 times ($100/hr), 20 times ($200/hr), 50 times ($500/hr), ONE HUNDRED times ($1,000/hr)...?

Bear in mind, in both cases of production worker and CEO we are talking about employees. We are not talking about the owner of the shop. The owners, to whom is owed the profits of the company, are the shareholders. Moreover, we are talking in both cases about people who are adding value to the bottom line (presumably), and who are part of a team; neither of them can produce a profit alone or without the other.

Some would say
“[The level of] executive compensation is in the eye of the beholder.”
( This 2003 article, from Chief Executive Magazine, is an interesting and valuable look at the issue.

The folks at CNNMoney have just reported on a more recent look at the issue:
"In 2004, the ratio of average CEO pay to the average pay of a production (i.e., non-management) worker was 431-to-1, up from 301-to-1 in 2003, according to "Executive Excess," an annual report released Tuesday by the liberal research groups United for a Fair Economy and the Institute for Policy Studies."

At a multiple of 431 times, compared to a production worker making $10/hr, the CEO's pay would be $4,310/hr. And good on 'em, too, eh? It's the trickle up theory.

I don't know if I can properly define obscenity in terms of executive pay, but I feel pretty darn sure I know it when I see it.


Tuesday, August 30, 2005

That'll teach 'em

I've blogged before about the billions of dollars regulators are getting out of banks and others for their dealings with Enron. Regulators also got settlements for payment of USD$1.4 billion from the big investment banks for ("alleged") conflicts of interest in their investment advice (with the same story, "I'm not saying I did anything wrong, but here's a cool Billion Dollars if you don't ask me any more").
What happens with all those billions? Well, that's one expensive education: "little of the money made its way into the hands of jilted shareholders. And most of it never will." (

And to add more to the kitty,: "KPMG will pay USD$456 million [arising out of its role in designing and marketing so-called abusive tax shelter schemes] and watch as nine former partners, including Jeffrey Stein, once the deputy chairman, face criminal charges... Earlier this year, KPMG settled the Xerox matter with the SEC, paying $23.5 million in penalties and interest ...." ( Of course, they didn't admit to any wrongdoing, either.

Not that there's anything wrong with that

Maybe all that cash is part of the "reservoir of cash waiting to gush into the stock market?" (


Up against the wall: Murdoch disoriented

Disclaimers first: I have to admit to a deep, dark, secretly held admiration for Rupert. Look, I know he's the PT Barnum of the media world. But there has to be some little bit of admiration for a guy who'd start with a Back of WhoopWhoop (sorry Adelaide) newspaper, add another broken down Podunk (sorry San Antonio) paper, and build what has got to be the most coherent and aggressive vision of world wide media domination that we've ever seen all in one generation.

We get a small glimpse of how he achieved some of that success in a report by Hamish McDonald in today's SMH:

Remember, Murdoch was seen as a true wizard when he first insinuated the News Corporation tentacles into first China and then India (or was it other way round? Whatever). I seems it wasn't, perhaps, all diplomacy and charm. Maybe a few well chosen connections. My techie friends tell me gold plated connectors are the best.

As the story is told, "After taking steps that many critics saw as craven - kicking the BBC off Star's northern beam, canning former Hong Kong governor Chris Patten's memoirs, attacking the Dalai Lama as "a very political old monk shuffling around in Gucci shoes" - Mr Murdoch got along fine with former Chinese Communist Party chief Jiang Zemin... Mr Murdoch now seems much less close to the next-generation leaders around current party leader Hu Jintao, who is increasingly seen as a "neo-authoritarian" intent on enforcing a political orthodoxy that includes tight media controls."

But it hasn't just been cozy bedfellows that helped Rupert's Star shine bright in China. It appears he also set up some Chinese walls within his cobweb of companies to try to get around some constricting regulations:

"In June, uniformed customs officials and inspectors from the Industry and Commerce Administration appeared in offices of a company linked to Star in Beijing, interviewing staff and confiscating certain documents and company seals relating to allegedly illegal marketing of Star's programming to local outlets....
"Around the same time, the State Administration of Radio, Film and Television shut down a deal whereby Star effectively took over the operations of a TV broadcaster based in remote Qinghai province that, via satellite links, could have reached hundreds of millions of viewers around China. The leasing deal with Qinghai TV had been made by a company called Runde Investments, in which a communist "princeling" called Ding Yucheng, son of former communist party propaganda minister and politburo member Ding Guangen, is a prominent investor.... The current propaganda minister - the official title is director of the Publicity Department of the party central committee - is Liu Yunshan, 58, who also has the concurrent position of head of the party's "Spiritual Civilisation Steering Committee". Beijing has said its recent moves against foreign TV penetration were for "national cultural security".

"The alleged direct sales operation was set up through at least one dummy company, according to former marketeer Mr Jiang: "We had to establish our own company in the name of different employees whose ID cards were used for the documentation," he said."

Ahh, the inscrutible Mr Murdoch. I'm sure he'll survive this little inconvenience, also.


Monday, August 29, 2005

The politics of irrational economics

Ever hide goodies from yourself because you know you don't have the self-control to moderate your own impulses? Ross Gittins, the Sydney Morning Herald's Economics Editor, has been focusing more and more on such behavioural traits as he transitions from being a rational economist to an irrational one. Not that he is irrational, but he has of late been helping us explore how the assumptions of rational economic behaviour do not always bear out in the real world, with massive implications for the traditional precepts of economic theory and resultant political policy. His lesson today is "Why labour market 'flexibility' can be bad." (

"... Conventional economics is grounded in the political philosophy of individualism. It's the interests of the individual that matter above all.... And this is as it should be. After all, how could any other person know better than you what purchase or activity would yield you greatest satisfaction? In particular, how could any government do a better job of spending your money than you could?

"It's because individuals are rational that governments can never out-guess their best interests. Trouble is, the burgeoning school of behavioural economics has borrowed from a lot of psychological research to demonstrate convincingly that people are often anything but rational in their decision-making. People regularly ignore any number of economists' rules: opportunity cost, the irrelevance of sunk costs, the fungibility of money and many more.
People are often inconsistent in the choices they make, are confused by too much choice, are unduly influenced by the way decisions are "framed", are susceptible to fads and fashions, are deeply concerned about fairness and are often led by their emotions to do silly things.

"Recognising their problem with self-control, people often impose "commitment devices" on themselves so as to force themselves to behave in the way their long-term selves know they should. These commitment devices often involve some cost, inconvenience or interest forgone. This suggests that, were workers asked to vote on whether the cashing out of working conditions should be permitted, more might opt for less choice than economists would expect. Workers might want to avoid having temptation put in their way."

And this is the conclusion that he draws from that (and one which has got a lot of former "rational" colleagues and supporters wondering if he's turning commie):

"When you properly appreciate the fallibility of humans, you realise it's quite possible for governments to understand their best interests better than they do themselves. Historically, governments imposed annual leave, public holidays and meal breaks on employers for good reason. It makes perfect sense for governments to insist that these costly conditions continue to be used for their intended purpose."


Back handed compliment

Putting the best gloss on the Australian market in the aftermath (almost) of the annual reporting season, the Sydney Morning Herald financial columnist Malcolm Maiden said "The most important thing is that the sky has not fallen in." (

You know the aftermath: that's when they go back over the figures after a first look to make them add up better.

Of course, markets being what they are, whatever has been expected is already "baked in" to the current prices. So can current prices get better? When do you eat the cake you baked?

This is a theme I expressed a few days ago, when I pointed out that the whole market was being driven by resources, and many index fund managers were taking investors for a ride because 75% of the market was non-resources.

Malcolm Maiden's column echos that notion. He says, "While sharemarket values haven't been undermined by the June profit reporting season, they haven't been proven to be outrageously low, either", and points out "industrial shares are trading at about 17 times their expected earnings in the year to June 2006, which is relatively high." He intones the sell side line that dividend yields are "still close enough to the current cash rate of 5.5 per cent to persuade many to hang in, in the expectation that continuing share price appreciation will produce a total return cocktail that beats fixed interest", but warns " a strategy of buying industrial shares across the board in the coming year will not produce exceptional returns."

Sunday, August 28, 2005

Gadzooks, god suits

The Questionable Authority reports that some Christian schools are suing the University of California because, it appears, UC won't accept their creationist classes as equivalent for the required science coursework required for admission. But why should I make a hash of his handiwork when you can and should read it directly: Good work, TQA.

Is this deja vu all over again?


Saturday, August 27, 2005

Another reason to love a sunburnt country

Further to my last post, the Howard government ministers have been sown to engage the community in the new spirit of the Australian dream. His Education Minister, Brendon Nelson, has directed that Australian values will have to be taught in Muslim schools, whatever that means. (You might remember him from a prior post He's the guy who has imported the IDiotic "debate" from America.)

Well, among all the commentary that has generated, I think this letter to the editor in the Sydney Morning Herald (Aug 27-28) is pretty much spot on:

"Australian values in Islamic schools? Crikey, cobber, what next? Australian values in federal cabinet? Sure, sport, they are all for a fair go for their mates at the big end of town. And it's just bonza how they wrap themselves in the flag and milk every veterans' turn-out for all it's worth, even though none of them have been within a bull's roar of a gunshot.
But how fair dinkum is participating in wars of aggression in the Middle East, destroying the industrial relations system, hanging up the phone on the outback and creating a society in which young people are reduced to being stressed out workaholics who still can't afford a house, a wedding or a family?
Stone the crows, mate, if Brendan Nelson represents Australian values, then we could all learn something at the mosque. Eh?"Phil Gregory, Narrawallee

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A question of identity

This past week, John Howard's government has extracted his retribution on the the Australian Muslim population and demanded his strict thought discipline that he imposes on all in his party. I won't go into it in much detail (you can search the MSM for the story). Just to put my characterisation on it, what he did was summons a carefully staged, choreographed and scripted gathering of Muslim "leaders" to hear their oaths of homage, fealty and contrition. This to make Howard look both like the loving father and the moral leader that I am sure he honestly wants to be, in the worse way. And I fear that is the way he's chosen. Frankly, to me, it looked too much like Massah calling in a group of House Niggers to get their complicity in taking action against some obstreperous Field Niggers. And it will probably get the same result.

But it could be that more good will come of the exercise than some of us fear, and I look forward to watching what creative juices flow from the lashing. For one, there's been another public airing of just what all the blending of traditions in modern life is all about. In this respect, it seems the ancient prejudices are pretty close to the sleeve of Europeans, and that their models of multiculturalism are not working as well as they could.

For another thing, it looks like maybe the Americans have got it right on this one, at least more right than other places. That'll be sure to get right up the nose of those anti-American folks.

Acknowledgements to Lissa Bockrath for use of her imagery:

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The shrink factor

I can't do better than just link to the story and try to provide some imagery for stimulating your imagination.

Are we all falling down?

Friday, August 26, 2005

To market, to market, to sell to a fat pig

Like so many cows in a paddock enjoying what appears to be a free lunch, the whole world feeds and feeds on the American (and to some extent Australian and European) consumer as "the engine" of world economic growth.

Not being anyone to complain about all the consumption and attention, the good consumers are fattening themselves obligingly for the slaughter. "Americans are getting fatter at a rate never seen before, a report shows." (

The great American marketing machine for the consumer goods industry ( ) presses on from one fad to another, and you can just sense that the next "big thing" will be a huge government funded program (probably with corporate or faith based sponsors) to sell some organised event to take our minds and bodies off the other major issues of the day. Quite unlike, I am sure, President Kennedy's admonition in the early '60's to just put on a t-shirt and go walking "50 miles or bust" in any direction.

And in the tradition of trying to make a buck out of every malady, even to the point of creating the malady or simply creating the perception of a malady, American business has been quick to jump on the "affluenza" condition ( with all the charity of a snake oil salesman. You can order the book ( and you can watch the show ( And you can buy a pig in a poke.

Now, I'm a glutton as good as any other, and I'm not making any claim to some sanctimonious high ground. You'd better believe that this little piggy has gone to market. But it does seem to me that we ought to consider if there is any economic model that can offer us wellbeing and happiness without having to consume ourselves in the process.


Freshly squozen

"Perhaps banks should go back to giving away toasters.
Rising short-term interest rates, and the failure of long-term rates to rise with them, have caused margins at federally-insured banks and thrifts to shrink to their lowest level in 15 years, the Federal Deposit Insurance Corp. said on Thursday.
Margins are now the lowest since the third quarter of 1990, when the U.S. economy was in recession.
Large institutions are feeling more pain because they rely more on short-term borrowings for funding, the FDIC said."

So the banks turn to the real estate market for a fix:

"Lenders 'will do almost anything possible to keep the mortgage factories humming,' wrote CreditSights Inc. analyst David Hendler in June. 'The catch here is that the deep-discount mortgages entice more customers today who may not be able to handle the much higher mortgage payments later.'"

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For every day, turn, turn, turn

You would think if some trend turned, and then did it again, it would go full circle. But that doesn't always happen in the world of the financial press (probably because they realize our attention spans are too short to notice). Look at these 2 Reuters stories and pay attention to the datelines:

"NEW YORK, Aug 4 (Reuters) - Foreign central banks turned net sellers of U.S. debt in the latest week...."

"NEW YORK, Aug 25 (Reuters) - Foreign central banks turned net sellers of U.S. government debt in the latest week...."

Now it may be that there was a reversal between the 2 releases, but if so, using the term "turned", which denotes a trend change, still would not be quite descriptive. Why not just say they "were" net sellers? By using the word "turned" in the Aug 25 report, it implies the "turn" noted in the Aug 4 report didn't happen. Is this just lazy journalism, or is someone trying to hide a real change in trend of some importance? Should we be concerned that central bankers were again net sellers of treasuries?


Thursday, August 25, 2005

The Great Wall street

With the West falling over their collective selves to buy into any China related stock, it's interesting to see what the Chinese collectives think of their own stock market, which has been falling over. On the other hand, like the West, the Chinese property markets have been going like a house-a-fire, and their central bankers have their hands to the hoses, just like Greenspan and other western central bankers. A comprehensive review of the Chinese situation is contained in this article, "Stocks or real estate for China's middle class?" at, and I commend it for your reading. Some appetising excerpts follow:

"China is one of the most savings-oriented nations in the world: total personal savings deposits amount to over 12 trillion yuan (US$1.48 trillion), or around 50% of income. For thousands of years people have been accustomed to putting money under the mattress, and the intermediating role of a banking system has been well suited to the traditional, conservative mentality of saving at a risk-free rate for the future. This mentality, however, is rapidly changing."

"Their investment horizon is typically short; they often do not fully understand the product or company they have invested in; and a "buy-and-trade" strategy is often preferred to a "buy-and-hold" strategy. These investors tend to follow the bandwagon while making investment decisions, participating previously in the 1999-2001 stock market bubble and more recently in the property market bubble."

"Over the past four years, the stock market and real estate market in China have gone in completely opposite directions. Despite robust growth in the economy, the market capitalization of stocks trading on the Shanghai and Shenzhen stock exchanges - China's two stock exchanges with over 1,400 listed companies - has tumbled 45-55% from their peak levels in 2001."

"The real estate market, on the other hand, has flourished. The property market in Shanghai, one of the hottest in China, grew 60% in 2004 over the 2003 level, while housing prices have increased 200% over the last two years."


Confidence game

You can only ignore rising materials cost for so long. Eventually it will take its toll, somewhere, somehow, and then the rot sets in. "For those of you who still doubt that consumers are being pinched at the pump -- assuming yesterday's Existing Home Sales and today's Durable Goods numbers didnt convince you -- consider the following...." (, paying particular attention to the brilliant comment posted by your chef.)

"I don't know if this was intentional or not. On page C5 of today's Wall Street Journal, in a section of about 15 or so brief earnings reports, the editors stacked three items on top of one another, each of which may testify to the growing exhaustion of the American consumer...." (