Greed’s Not Good For Shareholders
by ilene - June 18th, 2010 4:38 pm
Greed’s Not Good For Shareholders
Courtesy of Tim at The Psy-Fi Blog
Don’t Aim to Maximise Shareholder Value
When we look at the genuinely successful business people of our time, that happy band of folks who’ve created true shareholder value, enriching themselves and their followers to an astonishing degree, we find an extraordinary thing. The vast majority of these people are not particularly interested in money and their companies are generally not dedicated to some New Age declaration of shareholder value maximisation.
Greed is not a quality that seems to drive the world’s greatest creators of shareholder value and creating shareholder value is not the aim of the companies that are best at it. In fact we can pretty much guarantee the alternative: wherever you find over-rewarded executives presiding over companies whose main aim is to increase their market capitalisation we should pick up our skirts and get the hell out of it. Corporate greed is bad for ordinary shareholders.
Buffett’s Army
If you read Warren Buffett’s shareholder letters, for instance, you can’t help but notice that the people whose companies he takes over all, by and large, continue to work for him despite being made rich beyond the dreams of our avarice. They tap-dance to the workplace everyday and lead their companies through a set of values far removed from the value enhancing conceits of management consultants.
What seems to set aside great business people and their businesses from the pond life that mainly occupies executive positions is that they focus on things other than making money. These generally involve doing stuff that people actually want to pay good cash for, rather than an obsession with growth. Indeed, the last thing we should want is running our companies is people who are greedy for money, since the opportunities for unscrupulous executives to cheat us shareholders are huge.
Welch on Shareholder Value
The dangers of the concept of shareholder value are outlined by Jacques Reland who quotes Jack Welch with approval:
“On the face of it Shareholder Value is the dumbest idea in the world. Shareholder Value is a result, not a strategy. Your main constituencies are your employees, your customers and your products”
Welch, of course, was the man behind the elevation of shareholder value to cult status in his time as CEO of General Electric, so this looks like…
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DiggNocera: Financial Reform Bill is Perfect – If You’re a Bank
by ilene - June 6th, 2010 11:53 pm
Nocera: Financial Reform Bill is Perfect – If You’re a Bank
Courtesy of Joshua M Brown, The Reformed Broker
Why do I blog so much about financial regulatory reform? Maybe because over a fairly short career of 12 years in the business, about half of those years were spent enduring some of the most destructive calamities in the history of free markets. I’m 33 and have seen enough monetary death and dismemberment to last me 3 lifetimes. Volatility and cycles I can deal with…locusts, pestilence and nuclear detonations are a bit much already.
And I don’t want to hear from any of you Crash of ’87 wusses, we do those types of selloffs like every day.
Anyway, Joe Nocera is back and is dismayed at what he sees as a fairly useless potential bill to be hammered out over the next week or so as the Senate and House versions are melded together…
From the New York Times:
In the first place, there is nothing even remotely radical about anything in these bills. Nobody is suggesting setting up a new Securities and Exchange Commission, which reshaped Wall Street regulation when it was formed in 1934. Nobody is talking about breaking up banks the way they did in the 1930s with the passage of the Glass-Steagall Act. Nobody is even talking about a wholesale revamping of a regulatory system that so clearly failed in this crisis. “They are trying to attack the symptoms, instead of the basic issues,” said Christopher Whalen, managing director of the Institutional Risk Analyst. There is something oh-so-reasonable about these bills, as if Congress was worried that they might do something that would — heaven forbid! — upset the banking industry.
The gist is that the new reforms being proposed are not even sufficient enough to have prevented the last crisis, let alone the next one. Well good, as long as the five largest banks can live with the proposals, I suppose they must be just fine for the rest of us. Rock on.
Source:
A Dubious Way to Prevent Fiscal Crisis (NYT)
Photo by Jr. Deputy Accoutant
There will be blame
by ilene - May 14th, 2010 12:56 pm
So my Comedy Central break last night was about the oil geyser in the Gulf of Mexico, and whether anyone’s actually responsible, followed by Jon’s report on the big banks’ winning sprees, and a call for a nut based economy, and then an interview with Ian Bremmer on the derivative market and the end of capitalism. That was refreshing! – Ilene
Jon Stewart’s Daily Show
There will be blame
As BP comes up with new solutions for the oil spill by scrambling letters, the government tries to figure out how it happened.
| The Daily Show With Jon Stewart | Mon – Thurs 11p / 10c | |||
| There Will Be Blame | ||||
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Ian Bremmer
Ian Bremmer believes that America has to defend its free market principles to succeed in the world economy.
| The Daily Show With Jon Stewart | Mon – Thurs 11p / 10c | |||
| Ian Bremmer | ||||
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Hoarders
The big banks make money by taking the bailout money we gave them and lending it back to the government with interest.
| The Daily Show With Jon Stewart | Mon – Thurs 11p / 10c | |||
| Hoarders | ||||
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Full Daily Show episode here.>>
Buffett Defends the Indefensible: Goldman Sachs and Rating Agencies; Goldman’s Sweetheart Deal With Buffett Revisited
by ilene - May 5th, 2010 11:51 am
Buffett Defends the Indefensible: Goldman Sachs and Rating Agencies; Goldman’s Sweetheart Deal With Buffett Revisited
Courtesy of Mish
In the midst of the stock market crash, Warren Buffett got a great deal on Goldman Sachs preferreds. Those preferreds are making him $15 a second.
I do not fault Buffett one second for taking that deal. It seemed like a great deal at the time, and it was. The problem is, it’s important to distinguish between a deal good for his shareholders, and the integrity of Goldman Sachs.
Sadly, Warren Buffett is now caught in no man’s land, unable or unwilling to see the difference.
With that backdrop, please consider Buffett strongly defends Goldman; Berkshire net up.
Speaking at Berkshire’s annual meeting, Buffett also said Berkshire swung to a $3.63 billion first-quarter profit, compared with a year-earlier $1.53 billion loss, helped by an improving economy and gains from investments and derivatives.
Buffett said he did not hold against Goldman the U.S. Securities and Exchange Commission civil fraud lawsuit alleging the bank hid from investors that securities underlying a risky debt transaction were chosen by Paulson & Co, a hedge fund firm that was betting they would lose value.
News that investigators opened a criminal probe into Goldman has led to increased speculation about Blankfein’s job security, but Buffett expressed strong support.
Asked who should run Goldman if Blankfein were replaced, Buffett said: "If Lloyd had a twin brother, I would vote for him. I have never given that a thought."
The $5 billion investment consists of preferred shares that throw off $500 million in annual dividends, plus warrants to buy an equal amount of common stock. Goldman can buy back, or "call," the preferreds at a premium.
GOLDMAN, DERIVATIVES
"We love the investment," Buffett said. "Our preferreds are paying $15 a second, so as we sit here, ‘Tick, tick, tick, tick,’ that’s $15 every second," he said.
Buffett added that the SEC lawsuit was not a serious enough event to raise reputational issues that would call into question the Berkshire investment.
That last sentence is complete nonsense at best. At worst it is a blatant lie.
Goldman’s reputation most assuredly has been called into question by the SEC. Moreover, Janet Tavakoli calls it into question every day of the week. So do many others. Arguably so did the the market, judging from its reaction.…
The Problem with Factory Farms
by ilene - April 26th, 2010 1:08 am
In the first article, Claire Suddath interviews author David Kirby about his book "Animal Factory: The Looming Threat of Industrial Pig, Dairy, and Poultry Farms to Humans and the Environment
The Problem with Factory Farms
By Claire Suddath, courtesy of TIME
If you eat meat, the odds are high that you’ve enjoyed a meal made from an animal raised on a factory farm (also known as a CAFO). According to the USDA, 2% of U.S. livestock facilities raise an estimated 40% of all farm animals. This means that pigs, chickens and cows are concentrated in a small number of very large farms. But even if you’re a vegetarian, the health and environmental repercussions of these facilities may affect you. In his book Animal Factory: The Looming Threat of Industrial Pig, Dairy, and Poultry Farms to Humans and the Environment
What exactly is a factory farm?
The industrial model for animal food production first started with the poultry industry. In the 1930s and ’40s, large companies got into the farming business. The companies hire farmers to grow the animals for them. The farmers typically don’t own the animals — the companies do. It’s almost like a sharecropping system. The company tells them exactly how to build the farm, what to grow and what to feed. They manage everything right down to what temperature the barn should be and what day the animals are going to be picked up for slaughter. The farmer can’t even eat his or her own animals. People who grow chickens for Perdue in Maryland have to go down to the market and buy Perdue at the store.
We collectively refer to these facilities as factory farms, but that’s not an official name. The government designation is CAFO, which stands for Concentrated Animal Feeding Operation. Basically, it’s any farm that has 1,000 animal units or more. A beef cow is an animal unit. These animals are kept in pens their entire lives. They’re never outside. They never breathe fresh air. They never see the sun.
What are the health and…
Weekly Unemployment Claims at 442,000, 4-Week Moving Average drops to 453,750
by ilene - March 25th, 2010 1:45 pm
Weekly Unemployment Claims at 442,000, 4-Week Moving Average drops to 453,750
Courtesy of Mish
Please consider the Unemployment Weekly Claims Report for March 25, 2010.
In the week ending March 20, the advance figure for seasonally adjusted initial claims was 442,000, a decrease of 14,000 from the previous week’s revised figure of 456,000. The 4-week moving average was 453,750, a decrease of 11,000 from the previous week’s revised average of 464,750.
Unemployment Claims
The weekly claims numbers are volatile so it’s best to focus on the trend in the 4-week moving average.
4-Week Moving Average of Initial Claims
The 4-week moving average is still near the peak results of the last two recessions. It’s important to note those are raw number, not population adjusted. Nonetheless, the numbers do indicate broad weakness.
4-Week Moving Average of Initial Claims Since 2007
This was a good report in that claims have started to drop again, the first time since December 5, 2009. This is a step in the right direction, if it holds. On the other hand, to be consistent with an economy adding jobs, the number needs to get to the 400,000 level.
Also note that it takes 100,000+ jobs a month for unemployment to drop (barring changes in the participation rate).
At some point, employers will be as lean as they can get (and still stay in business). Yet, that does not mean businesses are about to go on a big hiring boom. Indeed, unless consumer spending picks up, they won’t.
IS CONGRESS ABOUT TO DERAIL THE ECONOMY?
by ilene - March 18th, 2010 4:46 pm
Here’s an excellent discussion on the economy and China. We present many views here, and Pragcap’s are some of the most thoughtful and balanced. And if you haven’t yet, check out Op-Toon’s Review (fun images and satirical commentary). – Ilene
IS CONGRESS ABOUT TO DERAIL THE ECONOMY?
Courtesy of The Pragmatic Capitalist
The United States government has made a curious series of interventionist moves over the course of the last 18 months. Some have been beneficial, but not surprisingly, few of these policies are actually helping the economy recover from the Great Recession.
As I’ve previously mentioned, Keynesianism can work. There is good government spending and bad government spending, despite the constant shrieking from Austrian economists with regards to all spending being bad. Giving money (on a silver platter) to banks who are not reserve constrained is exhibit A of bad spending. Spending money on a healthcare plan in the middle of a recession is a close runner-up. The banking bailouts not only set a terrible social precedent, but were also implemented with the belief that banks are reserve constrained – something that is entirely false.
The great recession was never a banking sector problem despite it being labeled as a “credit crisis”. In reality, this was a consumer driven crisis. The results prove this. The banks have recovered, but lending hasn’t improved. Why? Because this is a consumer driven recession. Banks aren’t reserve constrained. Finding willing borrowers, on the other hand, is a whole other matter….
The healthcare debate is a bit more messy. While the social aspects of healthcare spending are likely positive, you just have to wonder about the motives of the men pushing this plan when we are mired in the worst recession in 75 years. Is healthcare really our top priority when unemployment remains near 10%? More importantly, is this an efficient form of government spending when we could easily target job creation or other productive investments in the long-term growth of America (China’s high speed rail system comes to mind here). Meanwhile, we have an antiquated infrastructure. Where are the priorities?…
Conventions Say Good Riddance to Chicago Over Costs and Union Work Rules
by ilene - November 13th, 2009 1:53 pm
Conventions Say Good Riddance to Chicago Over Costs and Union Work Rules
Courtesy of Mish
Major conventions are ditching Chicago over outrageous costs for McCormick Place electricians. Please consider High costs drive major trade show out of Chicago.
Chicago ditched. Tens of thousands of outsiders say it’s too expensive to spend their money here; $52 million would have been pumped into our economy by some 28,000 visitors. Instead, a major trade show says it’s leaving Chicago behind for good.
This week, CBS 2 reported on outrage over the hundred dollar case of Pepsi. Exhibitors feeling ripped off. Threatening not to come back.
Now, it’s happened. McCormick Place electricians were the straw that broke the camel’s back for one Chicagoan who says he reluctantly said "no" to bringing his convention back home.
The Tribune reports the Healthcare Information and Management Systems Society, which held its annual meeting at McCormick Place for the first time in April, is taking its 2012 show to Las Vegas instead.
Healthcare Information and Management Systems CEO Steve Lieber told CBS2 it’s all because of the electricians.
"Our costs were about $200,000 more," said Lieber. "So it went from $40,000 to $240,000 for the electrical work alone."
The city got the word Wednesday that the huge medical convention wouldn’t return. They’re also sweating out a decision by an even bigger show.
The International Plastics Showcase has been in Chicago since 1971, but now a spokesman says: "We are looking at other options."
Like Orlando. Though the medical trade group says it’s deeper than union versus non-union towns.
"It was the number of hours and the number of people it took to do the identical job," Lieber said.
Two months ago, McCormick Place quietly fired two-thirds of its electricians, promising to bring back only the best, and only when they’re needed; trying to change the work rules and work ethic that’s already cost Chicago tens of millions of dollars.
The article says the issue is not unions but rather "work rules".
Excuse me but who sets those work rules? Mickey Mouse?
If it takes 3 times as many workers to get the job done in Chicago then union rules are more than likely the culprit.
Not to fear, I have the perfect solution: raise property taxes and sales taxes to paper over falling revenues. That may sound…
Short Seller Fleckenstein: I’ll Start Selling AFTER Earnings Season
by ilene - October 8th, 2009 7:31 pm
Short Seller Fleckenstein: I’ll Start Selling AFTER Earnings Season
Courtesy of Vincent Fernando at Clusterstock
Fleckenstein Capital’s twelve-year-old short-selling fund that shut down last December is planning to start hunting around again for opportunities.
Yet they’re waiting until after earnings season, and could even wait until early next year.
For Fleckenstein Capital, while 2010 could be a very rough year for the market, 2009 could end strong. Even these shorts don’t want to step in front of earnings season right now.
Bloomberg: Future bets against U.S. stocks will “almost certainly” include technology companies, especially semiconductor makers, Fleckenstein said.
“They’re going to report good earnings, but a lot of it is a function of double- and triple-ordering, so their businesses are going to look better than they really are,” he said.
In a Bloomberg TV interview, Bill Fleckenstein said he expects weak businesses to run into trouble next year, especially if rates start rising. Nevertheless it appears he wants to see the economy’s "less worse" trend come to an end before he takes action.
What does he favor in the meantime? Shares in gold related companies.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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