Bloomberg TV

Friday, September 30, 2005

The Big Bad Wolf Economy

Lafferite supply-side "deficits don't matter" voodoo Reaganomics is having its comeuppance right about now, no matter what lead cheerleader Ben Bernanke has to say. For a second consecutive month (after saving basically nothing before that), American consumers dipped into their microscopic savings to spend themselves silly. A troika of bad news then: personal income and personal spending went down while personal savings "improved" to -0.7% from a revised -1.1%. Calculated Risk hit the nail on the head when he said that Hurricanes Rita and Katrina are not responsible for the most part for this slowdown; rather, it seems that a perfect storm was already gathering in the form of "soaring gas prices, nightmarish home-heating costs this winter, plunging consumer confidence, rising interest rates and falling new-home sales".

How much lower can Bush's little girlie man approval ratings get if a full-blown slowdown takes hold? Will the Fed start cutting interest rates again till they reach one percent? Will the dollar finally become toilet paper as the pundits have predicted for so long? As the Chinese curse says, "May you live in interesting times".

Monday, September 26, 2005

Chrysler Contracts GMitis

No sooner had the ink dried on my previous post lambasting GM's questionable decision to stake its future on more blubberly SUVs did Chrysler decide to do the same. For someone who's already said to himself that his next car will probably run on alternative fuel, I cannot fathom this decision at all. Chrysler has done pretty well lately on the strength of traditionally configured, ahem, automobiles like the Chrysler 300C, Dodge Magnum, and Dodge Charger. I think they are deriving the wrong conclusions from this success. Instead of thinking, "You know what, we need to provide more non-SUVs that appeal to consumers", they've gone down the path of "Yeah, these current vehicles are successful because of their huge engines, so let's stuff more of those into new SUVs."

Chrysler's sales pitch is that these new models are more fuel efficient compared to full-sized (-fat?) SUVs, of which it is only introducing one among (count 'em!) five various models. The problem, of course, is that their mileage is, in turn, not as good as that of sedans or station wagons. One hopes that Chrysler will have a good outcome here, but they're definitely not filling a demand for more frugal vehicles, no matter how they try to spin the matter. If even gas lubber extraordinare Bush Jr. calls for fuel conservation, why can't automakers wean themselves off SUVs?

Wednesday, September 21, 2005

GM Stares Into the Abyss

I don't know what parallel universe GM is living in, but from where I'm at, I see high oil prices, a backlash against big SUVs, and a clamor for vehicles using alterative energy. In such an environment, GM apparently sees its salvation in, er, introducing new big SUVs. Despite automakers ladling on ridiculous "Employee Discounts" that do nothing but damage brand equity and depress resale prices, they've suffered a 10% decline in big SUV sales this year. Now, these new trucks may be vastly improved as GM says, but there's still that truckness to them. I'll spare everyone from a philosophical discourse on the metaphysical properties of these hulking behemoths and instead state the obvious: These aren't vehicles for the times. No matter how good they may be, the factors that fuelled this madness in the first place--low fuel prices, fad and fashion--have gone away.

On top of everything, domestic automakers have trained SUV buyers to expect sizeable discounts and consider sticker prices as a running gag. Vastly improved they may be, but I doubt whether GM's belief in these vehicles' superiority will be so pronounced as to warrant holding back from more "Employee Discounts". Once you frame expectations among consumers, they are difficult to remove. What's the score, then? GM's market value is less than that of its cash holdings, its bonds are garbage, and its parts supplier, Delphi, is on the brink of bankruptcy. The US government bailed out Chrysler long ago, but it might not have the wherewithal of doing so for GM since it's incredibly strapped already from activities like keeping afloat the airline industry and its sundry underfunded pensions. GM would break the public finances for good.

For all the similar difficulties it's facing, Ford is at least making a concerted effort to reorient its product line towards alternative energy vehicles. Unless GM comes up with better ideas than "saving" itself with a new line of hulking SUVs, this General might soon be consigned to the trash bin of history.

Sunday, September 18, 2005

Halliburton Perversion and Reconstruction

The beauties of being a heavily-favored contractor include getting loads of dough without unreasonable demands such as fulfilling contracts and being accountable. I have neglected to follow the path of Halliburton's stock price in the past few months until compelled to do so by the folks over at the Angry Bear blog. Well surprise, surprise. At this same time a year ago Halliburton stock wasn't doing as well despite oil prices starting their ascent, perhaps because of the constant unfavorable attention being shed on its connections with Vice-President Dick Cheney. Yet the election focus wore off as November 2 came and went and the good times rolled on.

Bilking the government to the tune of $212 million with little penalty surely helped it when the election spotlight was removed. Plus, in recent times, it has been aided by the quickening pace of oil price increases, which in turn has made demand for oilfield services provided by the company rather high. With the recent cooling down of oil prices, though, some believe that Halliburton won't have it so good. I'm inclined to believe that Halliburton doesn't take such liberties with its private clients, which are less willing to go along with being ripped off as the US government is.

We come full circle to Halliburton circa September 2005. Despite some cooling off in oil prices, which may crimp private sector business, Halliburton is still powering ahead courtesy of taxpayer dollars. Because of its excellent, cost-effective reconstruction work in Iraq, the US government now sees fit to award its favored contractor with more reconstruction work in affected gulf coast areas. The moral of the story: there is none. The opportunist that I am, I thought, "Hey, maybe it's time to get on the Cheney Gravy Train", but no. Sure the stock has doubled in price over the past 12 months, but it appears that the natives are restless. With the spotlight back on Halliburton taking liberties with public funds, Election 2004-style negative press probably will remove some of the stock's buoyancy. It was a good ride for those who bought HAL a year ago at something like $32 while it's now $65. With a business model this good--results are optional in the public sector--the stock was bound to come up.

Friday, September 16, 2005

Mercedes in Hades

A few days back, I got a brochure from the local Mercedes dealer notifying that the latest iteration of Benz’s flagship model, the S-Class, was to be unveiled soon. Whereas in the past such an announcement would have brought great excitement, I approach the current one with trepidation. Simply put, Mercedes doesn’t make them like they used to. M-B is making some pretty big claims about its new car. However, the recent history of M-B’s products has been troubled, making many loyal customers second guess the make. Basically, Mercedes-Benz is now more marketing-led (in the pejorative sense) than engineering-driven. Back in the day, it was said that M-B’s engineers designed the best car they could, then had the bean counters determine its price afterwards. Nowadays, it can be said that the brand has been diluted by a proliferation of too many models as dictated by marketing-led whims, leading to resources spread too thin to ensure uniformly good products. Keeping these thoughts in mind, here are the resulting gripes, all of which are common and valid in my experience:

(1) Mercedes-Benzes break down all the time – Once upon a time, Mercedes was a paragon of engineering excellence and product reliability. It used to be among those makes that garnered the fewest defects in the JD Power survey. Nowadays, its models are nowhere near that level, and many M-B models are now among the most recalcitrant luxury cars according to Forbes. If you ask me, it’s due to overloading the cars with electronics which are more prone to technical glitches. Mechanical solutions seem to have elegance often absent in electronic ones. Instead of designing cars right that have desirable characteristics—predictable handling, moderate weight, good front-rear weight distribution, etc.—Mercedes now tries to correct fundamental design weaknesses by festooning their cars with an alphabet soup of electronic aids. The end result is that they pile on more electronics that have the unfortunate tendency to initiate electro-Chernobyl.

(2) Mercedes-Benzes look kind of funny – A Mercedes used to look like the business, as in “Don’t bother me, I’m a third-world despot who’ll dispossess your entire family at a whim” or “Out of my way, little man, I need to engineer mega-deals that keep the world running”. Nowadays, the messages it sends are more along the lines of “Hey mister, do you want to play miniature golf?” and “The Liberace was a style pioneer”. Tasteful conservative styling has been thrown out the window in favor of faddish styling that probably won’t age well. The main offender is the CLS, a.k.a. “The Banana Car” and the “Venga-Benz”. Despite its size, this big-ass car has virtually no rear headroom because its back windshield slopes down at an extreme angle in the name of style. Even the aforementioned S-Class looks ugly according to CAR Magazine, with its exaggerated Hummer-inspired fenders and BMW-inspired bubble butt. Such offenses would have been grounds for excommunication in the not-so-distant past.

(3) Mercedes-Benzes have cheap interiors – M-B cars aren’t cheap, but their interiors often are. I swear, the passenger compartment of my previous-generation Volkswagen Passat was noticeably better furnished than that of the last generation S-Class. Hard, shiny plastics, leatherette-like leather, and squeaks and rattles aplenty marred the Benz’s interior. The first iteration of the ML class marked the nadir of M-B interiors. The car magazines I’ve read say that the newer models have nicer interiors, but are by no means on par with those of VW-Audi products. Mercedes has some way to go before it regains more respect in this area.

So, it’s good to know that Mercedes-Benz’ top brass is well aware of this sorry situation by making CEO Dieter Zetsche, formerly the caretaker of better-running Chrysler, the overseer of Mercedes-Benz. Will more buyers still flock to the three-pointed star despite its faded glory? I hope to get a better indication as the newly launched models become available for testing. Until then, it might be advisable to let the German engineers iron out their quality control issues before taking the plunge again.

Blogging Hardware Update

I’m back to my occasional hobby of blogging Bloomberg after a short sabbatical. I’m moving from my after-hours workstation pictured here, where I monitor Bloomberg like a hawk, to more northerly climes. So, it’s ta-ta for now to my usual equipment, an Acer laptop and a TCL television. The Acer is well-equipped but heavy, while the TCL—made by the world’s largest television maker—has a big screen but so-so picture quality. Still, it had a good price, well under half that of a Sony CRT unit.

I’m going back to my usual travel companion, my Lenovo, er, IBM ThinkPad A22M. I bought this unit in 2001 and its Pentium III 1.0 GHz is still going strong. Its battery life isn’t what it used to be, and it wasn’t all that great to begin with. Still, the unit’s light weight and top-class keyboard still make it a joy to use. A problem arises in that I have only one USB 1.1 (old standard) port for an iPod Mini, Viper internet phone, PQI USB drive and Okion Mobix mouse. I’ve partly solved the problem with the mouse by using a PS2 adapter, leaving me with “only” three USB devices vying for one port! I feel that I’ll manage, though. In particular, the mouse is really cute, about ¼ the size of a regular Logitech model (see picture). There are even smaller ones available, but those have touch surfaces when I prefer the tactility of buttons. It only took a minute or two for me to get used to its tiny controls, and it feels like a quality product with its rubberized surface and retractable cord. The accessories are new but the processor’s the same as it was so long ago. I feel blessed to have such hardware available for my blogging activities.

Saturday, September 10, 2005

Does Everyone (heart) the Canadian Dollar?

Let me get this out of the way: I very much admire the economic performance of Canada. In an age when dysfunctional economic performance is thick on the ground, Canada manages that rarest double for a developed economy--trade and budget surpluses. As a result, the Canadian dollar has performed very well as of late, even if it suffers from a negative yield differential compared to the US dollar. Some skeptics said the loonie (Canadian dollar or CAD) would depreciate as the US dollar's yield surpassed that of the loonie, but that hasn't happened. In fact, the currency has just reached a 13-year high this past week.

In a related matter, what exactly do they mean when they say that the loonie is a "commodity currency"? I'm grabbing the following charts from a Canadian government site. The printers were remiss in omitting the x-axis labels, but each vertical line represents a year starting with 2000 and ending with 2004 (these are the latest numbers I could find):

Two observations: (1) The Canadian dollar tracks changes in commodity prices quite well. I did a study once back in graduate school correlating the movements of gold and the loonie with those of some commodity indices and found that CAD wasn't far off the pace of gold--a commodity itself! I'd kill to have a Bloomberg machine in front of me right about now to run an update. (2) Roughly 80% of Canada's exports are US bound. The correlation of that country's exports to the US and overall exports is simply breathtaking.

What can we learn here? The Canadian dollar's strength appears to be backed by strong fundamentals. The Canadian economy is running quite well, and commodity prices are skyrocketing. Some danger is on the horizon, though. MG Forex warns that because Canada is heavily dependent on the US as an export market, the CAD could be hurt if Hurricane Katrina slows demand from the US. One could argue the opposite by saying that Canada stands to gain from meeting post-Hurricane Katrina reconstruction material needs such as lumber and steel. However, The Big Picture offers a hilarious caution to those who automatically swallow the notion that reconstruction is a net boost to the US economy.

Nvertheless, I'd wager that the other two commodity currencies--the Australian (AUD) and New Zealand (NZD) dollars--have more to gain against the US dollar at this point, especially after you factor in their higher O/N yields of 5.50 and 6.75% respectively. The loonie is rightly strong, but it's been wandering in overbought territory for quite some time now, particularly if you look at AUD/CAD and NZD/CAD cross-currency pairs.

Thursday, September 08, 2005

Draconian Hovnanian

The US housing market is overripe and bound for a considerable slowdown. Witness one Hovnanian Enterprises, which has lots of activity in New Jersey and more in superhot California and Arizona. Today it sent the whole housing sector kaboodle reeling after announcing lackadaisical earnings and forecasts. Sooner or later, some sense was bound to creep into the real estate market which has owner/renter and income/house price disparities that are nearly beyond belief. Is this the start of rationalization? I think so; current events seem to have put the fear of God into people who spend well beyond their means. I Pulte da fools who Toll all day just to make ends meet paying off loans that KB adjustable rate or interest-only mortgages.

To reiterate, housing-related jobs have accounted for 40% of jobs created post-recession. If the housing sector stagnates, there's a good chance that more jobs aren't needed in an industry that's just treading water. Hence, even if housing prices don't diminish significantly a la the housing bubble scenario, considerable economic fallout will befall the US economy as a big part of it increasingly dependent on the housing craze peters out. For those who made a killing these past few years, I congratulate you, but all things must come to an end. (PS: Hovnanian common stock's ticker is HOV, so the Yahoo Finance! graphic is a bit misleading.)

Wednesday, September 07, 2005


As an owner of an iPod Mini and a 1st generation iMac, I was mightily disappointed when Apple announced that it was abandoning PowerPC chips for (gasp!) Intel processors. All this time, I was duped, I mean, convinced by Apple that Motorola processors were superior to the Wintel empire's. Dvorak was clairvoyant. First came the Mac Mini which was cobbled together with PC parts, and now Apple has gone whole hog and embraced the wretched Pentium peddlers. Don't they have any decency to at least go for AMD chips? [The author feigns righteous indignation by gesticulating wildly.]

All this begs the question, "If Apple uses PC parts and PC processors, isn't it basically an operating system provider?" Yes and no; Apple will still attach proprietary doodads to its machines, yet deep down, Mac and PC hardware will converge. Read this passage from Think Secret about the upcoming bastard machines and weep:
Along with running Mac OS X, Windows XP installs without hitch on the Intel-based Mac, just as it would on any other PC, and booted without issue when installed on an NTFS-formatted partition.
I bring this up as Apple's ticker symbol scrolls by and mocks me by signaling that it's reached an all-time high. So Apple stock is doing well now, but what will happen when consumers learn the truth that newer Apples are nothing but tarted up PCs? Like Pixar and its slump in DVD sales, Apple is likely to be Jobs' next comeuppance if he doesn't figure out how to differentiate his machines better, perhaps by running Itanium chips as Dvorak suggested. My point all along has been, yes, the iPod is a great product, but AAPL is a computer company, not a music company. Treating the computer side like a lesser business might lead to loyal customers fleeing the brand, leaving fickle sorts for whom the iPod is only a passing fancy. And, oh yeah--real Macs use Motorola chips.

South Korea Powers Ahead

The power of branding is something that Korea can teach the world. Just a few years ago, Korean products were el cheapo substitutes for Japanese makes. The Asian financial crisis almost forced Korea's hand, and it took the country a long time to recover. Well, guess what? Korea's most widely watched stock index, the KOSPI, has just reached an all-time high. At a time when the Dow Jones is more like the Down Jones (which I actually saw as a typo on CNN), Korean stocks are powering ahead.

What lies behind this resurgence? The emergence of Korean brands as global ones is definitely a factor. For instance, Samsung's image has been burnished by its range of cool phones, LCD displays, and other state-of-the-art consumer electronics. Nowadays, I and many others regard Samsung as a premium brand and not another also-ran. (LG Electronics isn't far off the pace.) Hyundai is also becoming renowned as a value-for-money make, featuring a range of desirable cars. You would've been considered a cheapskate for buying a Hyundai in the past, yet it's now a perfectly good substitute for Japanese makes. Check out the Hyundai Sonata now and back when it was lumped with the Yugo and tell me that there's no difference.

Also strong are steelmaker POSCO (just in time for China's commodities boom) and Daewoo Shipbuilding (which has benefited from growth in shipping). What do all these companies have in common? They've established brand equity whether they're B2B or B2C firms. Taiwanese firms, many of which make electronics approaching commodity status, would be well-advised to follow the Korean example. Indeed, BenQ is their first major attempt at branding. The future is always uncertain, yet building a good reputation with customers helps in any situation. Let South Korea show us the way.

Tuesday, September 06, 2005

John Berry Riles Markets

Veteran Fed watcher and Bloomberg columnist John Berry has given pause to those expecting Greenspan and Co. to refrain from making an eleventh straight 25 basis point hike in the Fed funds rate. Just as forex and bond traders were pricing in no changes for the month of September and perhaps the rest of the year, Berry's column hit the wires. The market response was immediate. According to Reuters:

Dollar buying perked up late in the Tokyo session on comments by Fed watcher John Berry. His column, in Bloomberg News, said the odds were slightly in favour of the Federal Reserve raising rates by 25 basis points when it meets on Sept. 20.
The Euro subsequently dropped a full cent, while the 10-year US Treasury's yield rebounded to 4.06%. We know that Bloomberg covers markets well, but this is an instance when Bloomberg actually moved markets. Whether Berry is right, though, I'm not certain of yet.

Sunday, September 04, 2005

Hurricane Katrina, FEMA, and Clinton

I've tried to avoid posting about Katrina, but something just struck me as I watch constant coverage of it on Bloomberg TV. Much has been made of FEMA director Michael Brown's lack of disaster response qualifications. That is by now well-documented and the ineptitude it resulted in is constantly being shown on TV sets worldwide. Why is it that the Clinton administration had an ace FEMA man, James Lee Witt, while the Bush 43 administration has someone so widely castigated?

The answer is on page 428 of "My Life", Bill Clinton's autobiography. Speaking about his 1992 campaign in the wake of Hurricane Andrew:
Traditionally, the job of FEMA director was given to a political supporter of the President who wanted some plum position but who had no experience with emergencies. I made a mental note to avoid that mistake if I won. Voters don't choose a President based on how he'll handle disasters, but if they're faced with one, it quickly becomes the most important issue in their lives.
The rest is history. Clinton "reformed FEMA so that it was no longer the least popular government agency but the most admired one, thanks to James Lee Witt" (p. 614). "My Life" has been criticized as overlong and under-organized. Maybe so, but every now and again you come across wisdom like this that makes you want to slap your 45 RPM copy of "Glory Days" on the turntable. Make no mistake; despite his failings, Clinton saved a lot of lives by hiring Witt instead of one of his golfing buddies or political donors. Let's hope that Witt's appointment by Governor Blanco helps. It's time to set political favoritism aside and let the best qualified persons do what can be done to save lives.

Thursday, September 01, 2005

It's Worse Than Zero Savings

Sometime ago, I complained that Bloomberg TV omits to mention the incredible plunging household savings rate. Today's most recent report sheds more light on the so-called Goldilocks economy: the savings rate is now at -0.6%. In its inimitable way, MarketWatch publishes top stories in something like 30-point type. Today's headliner--as eye-catchingly distressing as it is--actually understates the manic superconsumption in the US right now. Mark my words: if sanity doesn't take hold among US consumers, a $1 trillion current account deficit in 2006 is a distinct possibility. Bloomberg, please take note and report this figure.

WHAT'S THE MATTER WITH YOU? DON'T READ BLOGS! BUY STUFF ONLINE! AFTER THAT, HEAD TO THE SHOPPING MALL/AUTO DEALER/LOCAL EATERY AND spend, spend, SPEND! (Just kidding; I'll support the manic overconsumption by buying lots of medication.)


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