Prime Fifth Avenue retail rents, per square foot, in 2000: $675
Prime Fifth Avenue retail rents, per square foot, in 2007: $1,500
Prime Fifth Avenue retail rents, per square foot, in 2008: $2,500
Square footage of the Saks Fifth Avenue flagship: 350,000
How much the Saks flagship would rent out for, annually, at $2,000 per square foot: $700 million
Year-on-year change in the Saks Inc share price: -44%
Market capitalization of Saks Inc: $1.4 billion
Fannie and Freddie are down again; the shares are so cheap at this point that even a relatively modest fluctuation of less than 80 cents in the Freddie share price will hit the headlines as a 20% move. The fact is that they’re not plummeting this morning, as the headlines would have it: they’ve plummeted already, and now they’re fluctuating at levels modestly around zero since no one really has much of an idea what the option value of the shares might be.
Why are the shares at zero (plus a little something for option value)? Because Hank Paulson is a ball-buster, as he proved with Bear Stearns, and if he’s going to have to inject capital, the markets are convinced that he’s going to require the existing shareholders to be wiped out. He doesn’t have to do that, of course, but he will: after all, if government capital is the only thing keeping the GSEs functioning, then it’s hardly fair that the primary beneficiaries of that capital infusion should be the shareholders rather than the taxpayer.
The more interesting question is why the GSEs are still paying such a high premium to fund themselves. Freddie paid 113bp over Treasuries to issue five-year notes yesterday, even though Paulson has made it crystal clear that he stands behind that debt.
Here’s my theory: any company’s bond spreads naturally gap out whenever its stock approahes zero. In this case, there’s a countervailing force — the moral hazard play, whereby you don’t trust Freddie the standalone entity to pay you back, but you’re pretty sure that someone (the US taxpayer) will cough up if push comes to shove.
The problem is that although certain hedge funds might be perfectly happy making that moral hazard play, most of the people who historically buy GSE debt like to think that they’re buying something which is more or less risk-free in its own right. Yes, they’ve historically been reassured that there’s a government backstop, but there’s a difference between being reassured by the backstop and relying on it.
So let’s say that a large number of historical buyers of GSE debt (like, say, the Chinese government) decided that if they wanted to take US government risk, they’d much rather just buy US government debt, rather than relying on not-entirely-explicit pronouncements from the Treasury secretary. Right now, there’s not a huge amount of liquidity in global debt markets, and the absence of those buyers can drive rates up quite a lot. It might look irrational — it might be irrational — but it’s not hard to see how a company in trouble will have difficulty raising billions of dollars these days, no matter how much government support it has.
Professional investment advisors don’t spend much time reading blogs, according to an article by Susan B. Weiner CFA which was brought to my attention by Yves Smith:
When the CFA Institute tried to find sources for this story, most people told them they’re not participating in the blogosphere, either as readers or contributors.
We learn bloggers often aren’t licensed professionals:
Some blogs may offer useful information, but even their fans believe you should approach them skeptically.
Robert Harding Financial’s Jeremy Mitchell said to beware because “Many who post these types of blogs are not professionals, most are not even licensed to render financial advice.” Financial Planning Unlimited’s Patrick Valenty handles this challenge by limiting his blog visits to those associated with the Money Show or “reputable financial magazines.”
I can understand why people who spent a lot of time and money and effort getting their CFAs would care about professional qualifications. But someone might want to whisper to Mr Valenty that we bloggers associated with reputable financial magazines don’t have any license to render financial advice either.
The same kind of extrapolation from their own experience pops up later in the article, too:
Clearly, there are more retail investors than professionals doing research on the web, so it makes sense for bloggers to target them. In the opinion of some industry observers, many investment bloggers are just in it to inflate their egos or simply for the money–using search engine optimization to attract web surfers and earn revenue when surfers click on advertisements on their blogs.
I defy Ms Weiner to find me a single investment blogger who makes anything more than pocket money from advertising revenue. Yes, CFAs can and do make a living by giving out investment advice. But bloggers? Not so much.
But the best bit of the article is its sidebar listing "a sample of financial and economic blogs". A lot of them are unfamiliar even to me, although many of the usual suspects are there as well — not just Yves Smith but also Barry Ritholtz, Calculated Risk, Mark Thoma, Paul Kedrosky, Paul Krugman, and Nouriel Roubini. And then, nestled among these sensible and insightful thinkers, one finds Ben Stein. Maybe that explains the skepticism!
The latest bright idea emanating from the office of Dick Fuld would seem to be a highly complex transaction involving warrants and call options and what have you. Take away the jargon, however, and the proposed deal seems quite simple: Lehman basically wants a high-interest, non-recourse loan, secured against its asset-management business.
I suspect it’s not going to happen — just as the $5 billion bail-out by the Koreans didn’t happen either. Fuld is in no position to dictate terms, and any potential buyer knows that the longer they wait, the better the deal they’re likely to get. Bear failed because it didn’t have friends when it needed them; we’ll find out soon enough how well-liked Lehman is. Does anybody really want Lehman to survive as an independent entity? That’s the big question now.
I just found Juliet Chung’s fascinating article on wine pricing at restaurants, which appeared in the WSJ on Friday. Here’s a couple of datapoints for you. A bottle of 2004 Opus One will cost you $195 at Houston’s in San Francisco, or $425 at NoMI in Chicago;
a 1999 Dom Pérignon Champagne is $155 at Legal Sea Foods in Washington, $595
at Per Se in New York. And a 2003 Screaming Eagle is $1,500 at Jardiniere in San Francisco, which seems like a lot of money until you realize it’s $5,435 at Prime in Las Vegas.
The article gives a few reasons for the discrepancies: wholesalers charge different rates in different states, for instance, and restaurants with few tables and high overheads will have larger markups than those with economies of scale and lots of turnover.
But the biggest lesson from the article, at least for me, was implicit rather than explicitly stated: never order fine wine in any hotel restaurant, whether it’s in Chicago (NoMI is in the Park Hyatt) or anywhere in Las Vegas. The tips given in the article about ordering New World wines and lesser-known varietals might help you save money in any given restaurant, but they won’t prevent you from being ripped off if that’s what the restaurant is doing. Indeed, the cheaper wines are likely have even bigger markups than the more expensive ones:
An inexpensive bottle might be priced three to four times its wholesale cost, while a pricey wine may be marked up only 1.5 times…
At Las Vegas’s Caesars Palace, home to Restaurant Guy Savoy and Mesa Grill, wines that cost less than $100 wholesale are marked up more than those that cost over $100 to "get them to a certain level" in line with the rest of the restaurant’s pricing, says Stuart Roy, who buys and prices wine for the casino’s restaurants.
In general, I think there are two types of wine lists: the large and intimidating ones, on the one hand, and the intelligently-curated and impressive ones, on the other. The former are much more likely to have ridiculous mark-ups, and if you find yourself paging through eighteen pages of fine Bordeaux in a leather-bound volume which weighs more than the average bible, that’s probably a sign that if you’re paying for the meal out of your own pocket, you might want to concentrate more on the food than the wine.
Oh, and Per Se’s excuse that its $595 Dom includes service? Assuming that the service charge is 20%, that makes the implied cost of the wine $495 — which is still four times the retail price at Hi Time, my favorite wine shop in California.
I don’t know what the rest of Per Se’s wine list looks like; it’s possible that they mark up the Dom for the show-offs, while putting less of a premium on more obscure labels. But somehow I doubt it. Maybe I should join the Bellagio’s team of undercover sommeliers (for real!) to find out.
(HT: Durham’s Bull)
Activist urges Natixis to halt rights issue: Einhorn moves to Europe. Letter here.
Plummeting value of synthetic CDOs demand action: "Investors are easily sitting on unrecognised market value losses of several hundred billion dollars".
Grade Inflation: "There is no evidence of grade inflation (which doesn’t, of course, mean that it doesn’t exist) and that the reasons for thinking it would be bad if it did exist are pretty weak."
Who’s Your City? A great line from Clay Shirky: "Anyone who’s predicting the decline of big cities has already met their spouse."
The 11 Least Fuel Efficient Hybrids: The Chrysler Aspen Hybrid and the Dodge Durango Hybrid both get a pathetic 19mpg.
Lehman Brothers looks as though it’s going to sell its asset management arm, Neuberger Berman, for a sorely-needed $10 billion or so. That’s got to be good news for the stock, right? No: Lehman shares are down more than 10% today, and its credit default swaps have gapped out as well.
There’s no doubt that if Lehman shares had risen today, everybody would know why. But the fact that they’re down puts financial journalists into a quandary: they have to pretend that there’s some reason, and the best they can do is "writedown fears".
That said, DealBook has a good post today on why selling Neuberger might be a bad idea for Lehman: it could harm the bank’s credit rating, send its compensation ratios soaring, and make future cashflows almost impossible to predict (and therefore to price). "Selling the unit would be tantamount to selling a ship’s anchor in the midst of a storm," says the piece, citing no one in particular.
And the "writedown fears" reason isn’t as silly as it looks at first glance: Lehman’s drop of $1.66 a share today is smaller than the per-share losses that the likes of Kenneth Worthington are now forecasting in the third quarter.
But my feeling is that there isn’t a reason — certainly not a nice clean easy-to-fit-into-a-headline one — why Lehman’s stock is tanking today. Sometimes stocks move and we know why. More often, stocks move and we don’t know why, which doesn’t stop journalists from guessing. And sometimes stocks move for no particular reason at all — especially when they’re surrounded by uncertainty, they’re highly leveraged, and there’s a good chance that the CEO will be out within a month.
Justin Wolfers, meet Tim Wheeler, the CEO of UK property group Brixton.
Mr Wheeler said the opening lines of the American songwriter’s All Along the Watchtower “seem to capture the beleaguered mindset of the UK commercial real estate market”.
For those of you who don’t know them by heart:
"There must be some way out of here," said the joker to the thief,
"There’s too much confusion, I can’t get no relief.
Businessmen, they drink my wine, plowmen dig my earth,
None of them along the line know what any of it is worth."
I think that Wheeler is comparing himself to the joker, here. Presumably not this one.
Welcome, Caroline Baum, to the please-Mr-Greenspan-shut-up society.
There is something unseemly about Greenspan’s conduct. Former presidents don’t criticize U.S. foreign policy during times of war, Jimmy Carter notwithstanding. The same unspoken rule should apply to economic policy…
So here’s my advice, Mr. Greenspan. Give speeches for $150,000 a pop and share your wisdom with your key clients, who must pay you handsomely.
When the press calls, just say "no comment." This is an acquired skill, but I’m sure you’ll catch on.
Why won’t Greenspan take Baum’s advice? Because he’s still playing defence, trying to justify his actions as central bank governor. Baum isn’t just telling Greenspan to shut up, she’s also saying things like this:
There’s enough blame to go around for what started as the subprime crisis, but surely Greenspan, the country’s chief economic policy maker for 18 years, must shoulder the lion’s share.
Greenspan, a feisty soul, wants nothing more, on reading such words, than to fight back. But Baum is right: he shouldn’t.
(HT: Newton)
For a wonderful real-world example of Martin Wolf’s take on global capitalism, check out Niklas Magnusson’s profile of Swedish activist investor Christer Gardell. This being Sweden, Gardell isn’t only unpopular with unions and other leftists, he’s even unpopular with shareholders:
The Swedish media has called him "the corporate pirate" and "the bad boy of Stureplan," after Stockholm’s financial district…
Gardell and Forberg, 42, have stirred up controversy in Sweden, a society built on consensus and compromise in which public criticism of company executives is rare…
"I am very skeptical in regards to these venture investors’ way of breaking up companies," [former prime minster Goran] Persson told Swedish television during the national election campaign, which the Social Democrats lost in September 2006. "It is they who will destroy the national capitalist structures."…
After buying a stake in Volvo in the autumn of 2006, Gardell demanded a change of top management at a construction equipment unit.
That move drew criticism from shareholder Carl Bennet, a Swedish investor…
When Gardell and Forberg called in 2005 for the sale of Skandia, the only company still trading on the Stockholm bourse since the market opened in 1863, shareholders fought back…
Thousands of members of the Swedish Shareholders’ Association, which represents smaller investors, gave the group permission to try to stop the sale by influencing board members and larger investors.
About 43 percent of the shareholders’ association’s members regard Gardell as a corporate raider and a danger to Swedish industry, according to an Internet poll conducted in February and March by the association.
In the Anglo-Saxon world, the phrase "shareholder value" means nothing more than "maximizing the market value of the shares". In Sweden, by contrast, shareholders can be actively opposed to such moves. If they gain money but in the process the country loses a major company, they might well be very unhappy.
Gardell is proof that such attitudes can and will be arbitraged, which in its own way is quite sad. If everybody in Sweden is quite happy with Skandia trading at a discount to what the company could fetch in a sale, that’s an entirely viable state of affairs which can last indefinitely — until someone like Gardell comes along, forces himself onto the board, and agitates for just such a sale. Persson is right that Gardell is destroying the distinctively Swedish capitalist structures: that’s not just political rhetoric. Gardell’s investors might like the results, but it’s understandable that Swedes more generally don’t.
(HT: Manham)
Give Bill Gates, Mike Kinsley, and Conor Clark credit: if their Creative Capitalism project achieves nothing else, it has certainly brought into being one of the most interesting, diverse, and provocative group blogs on the internet. And Martin Wolf’s tour de force this week, hidden under the bland title "Profit-maximization as the sole goal of a corporation", is one of the best blog entries I think I’ve ever read.
There’s nothing very new here. But in the space of barely more than 1,000 words, Wolf manages to digest and clarify an astonishingly broad range of thought about what capitalism is, can be, and should be, under different systems around the world. I wouldn’t dare try to summarize Wolf’s essay any futher, so just go and read the whole thing. But here are some excerpts, to give you a taste:
By creating a competitive market for corporate control, we more or less force companies to maximize shareholder value, or at least behave in ways that the market believes will lead them to do so…
A company is viewed in the Anglo-American world as a bundle of contracts. But companies are also social organisms created by a highly gregarious mammalian species with a unique capacity for large-scale co-operation over time and space. Companies have cultures and histories. For many of those most closely associated with them, they also have (and offer) a certain meaning. Committed workers in successful companies do not work in order to maximize shareholder value or even to earn the largest possible living. Indeed, it is impossible to direct most companies solely by the goal of profit-maximization. (Goldman Sachs may be an exception.) …
The idea that a company is an entity that can be freely bought and sold is culturally specific. It is the view, above all, of Anglo-Americans. It is not shared in most of the rest of the world…
In this perspective, shareholders are not genuine owners. They contribute nothing of value to the competitive strengths of the firm, enjoy the benefits of limited liability and are well able to diversify the risks they run. They are merely an (ever-shifting) group of people with a claim to the residual incomes. Those with the biggest (undiversifiable) investment in the firm — and thus the greatest exposure to firm-specific risks — are not shareholders, but core workers. The interests of the latter are, therefore, paramount.
As Wolf himself admits, none of this is particularly relevant to Gates’s conception of "creative capitalism", beyond the simple fact that you can’t think clearly about creative capitalism without knowing what capitalism is. As such, this blog entry demonstrates one of the key strengths of the Creative Capitalism blog: it isn’t confined to discussing Gates’s ideas, but ventures much more broadly than that. It’ll be very interesting to see how many of these excellent but arguably off-topic entries make it into the published book version of the blog.
Paul Kedrosky quotes David Rosenberg today on the implications of a rising savings rate:
The savings rate is going to be forced higher. This, again, is going to be very, very disinflationary. It means that fashions are going to change. It means frugality is going to set in. We’re going to be living in smaller houses, driving smaller cars and living more frugally.
David Roche, weirdly, comes to the same conclusion from the opposite premise. While Rosenberg says that disinflation is back with a vengeance, Roche says it’s dead. Yet he agrees on the return of frugality:
Disinflation is dead! The twin decades of disinflation brought many economic benefits but it was also characterised by the replacement of thrift by leverage in many economies, most notably in the major Anglo-Saxon ones. Now we shall see thrift replace leverage. This has multiple impacts. US living standards will be lower. Consumers worldwide will discover value rather than luxury shopping – it’s a Wal-Mart world rather than a luxury branded goods one.
In the long term, this is all good. America’s negative savings rates are unsustainable, so it’s good that they start rising, especially as capital-exporting countries in Asia start to develop greater capacity to invest in themselves rather than abroad. What’s more, there’s good credit and there’s bad credit. Good credit is invested wisely and results in economic growth; bad credit is simply consumed, spent on unproductive assets like houses and flat-screen TVs, and doesn’t fund the means by which it will be repaid. As consumers curtail their borrowing and increase their saving, that will free up the banks’ precious capital to fuel growth-oriented commerce. As Roche notes:
The financial sector will never be able to grow credit at five times the rate of GDP again… Banks are going to have to rely much more on traditional funding of assets by old-style deposits than over the past 10 years.
Given that, it’s just as well that those old-style deposits are going to be rising.
I never thought I’d say this, but America has become too obsessed with gas mileage. Prius owners use their real-time mileage readout to try and get the absolute maximum number of miles out of every tank; politicians talk dreamily of cars getting 100 miles to the gallon; and even seasoned Detroit auto journalists have started going mileage crazy. Here’s David Kiley, reviewing the Smart Fortwo:
The Fortwo has the best fuel economy of any gasoline-powered car that’s not a hybrid, but its EPA ratings of 33 miles per gallon in the city and 41 mpg on the highway are far worse than I would expect for such a small package…
Call me a dreamer, but for a car as small and expensive as the Fortwo, I’m looking for 45 mpg/city and 52 mpg/highway, at least.
The Smart car, remember, is an urban runabout. It’s not designed to commute hundreds of miles a week on highways, it’s designed to get you around town efficiently. So let’s do some basic sums here.
Assume that the Fortwo is driven 100 miles a week, entirely in stop-and-go city traffic. At 33 miles per gallon, that’s 3 gallons of gas. As 45mpg, it’s 2.2 gallons of gas. The difference, of 0.8 gallons of gas, will cost you about $3.
Now, all things being equal, would it be nice to save $3 a week on gas? Yes — but of course all things are not equal. In order to get the Fortwo up to 45mpg in the city, Daimler would have to charge more for the car — much more than I’d be saving in gasoline costs. Alternatively, they might have to make the engine less powerful. But given the number of highways which snake through US cities, there will always be some highway driving in the Fortwo, and Americans are going to want to keep up easily and not feel underpowered in those situations. Even in its present incarnation Kiley describes the Fortwo’s power as merely "OK".
All of which is to present yet another example of why gas mileage should be inverted. Instead of expressing a preference for 45mpg over 33mpg, Kiley would instead be preferring 2.2 gallons per 100 miles over 3 gallons per 100 miles. To Americans currently using 5 or 6 or 7 gallons per 100 miles, that last 0.8 gallons might not seem like as big of a deal. Only once we’ve got the average car up into the 30s does it make sense to start worrying much about going even further, into the 40s or 50s or even 100s.
Explaining the brokers Part I: Why are brokers’ balance sheets so huge?
The root of all evil? The harmful effects of money.
Non-existent fees and the ephemeral nature of trading profits: A glimpse at what dsquared does in his day job.
Fish Food For Thought: "All too often it seems like if the market makes a move at 11 AM or whatever, someone appears to just go to a newswire and pick one story that came out right before that and just declares causality. But there’s another factor at play too imho, Strict Observance of the Sacred Narrative. If the narrative is that the market moves inverse to oil (despite evidence that there is not a particularly strong correlation), then any time a market drop coincides with an oil pop, bam, we have our Market Driver of the Day."
Day of the Crocodile: Peter Godwin on Mugabe and Zimbabwe.
Time Warp: We miss the HedgeWorld staffers already; they’re victims, I think, of the Thomson Reuters merger.
Seeking Alpha (twice), Colin Barr, Stacy-Marie Ishmael, and many others have blamed today’s price action in Fannie and Freddie — they’re down about 20% apiece, albeit from a very low level — on an article which appeared over the weekend in Barrons. I saw the article too, it didn’t seem to have anything new in it, and these are very dangerous levels at which to put on a short. So who’s selling?
At this point if you’re a long-term buy-and-hold investor you might as well stay in, you’ve lost the vast majority of your money anyway. And the bond markets didn’t seem to care too much about the Barrons article: according to John Jansen the agencies’ spreads widened out only about 5bp. So while I’m willing to believe in theory that it was the Barrons article which was responsible for the sell-off, I have to admit that the mechanism by which such price action happens defeats me.
A couple of things worth bearing in mind: this wasn’t simply a case of dealers marking down their prices in the wake of the article appearing: volume was significantly heavier today than normal. Also interesting is that the stocks fell in price all day long. In any case, if someone can explain how exactly a Barrons story is meant to be able move a very liquid market like this, I’d be much obliged.
Baruch thinks that sell-side analysts deliberately game the earnings-expectations system:
Analysts with buy ratings on a stock will have lower earnings numbers going into quarters than their peers, so they don’t inadvertently raise the average of published sell side expectations, “the consensus number” as calculated by Bloomberg or Reuters.
It’s definitely the case that an analyst with some kind of buy rating — and most ratings are positive, remember — has a vested in having the company in question "beat expectations" and thereby ratify his buy rating. And if he keeps his earnings estimate low, that will help to keep expectations low, and thereby maximize the chances that those expectations will be beaten. Cunning.
I’m not convinced this is a big problem. Partly because, as Baruch notes, the really important number to beat isn’t the consensus earnings number as published by Reuters or Bloomberg, but rather the "whisper number". And partly because most analysts are sheep anyway, and their earnings estimates are always within a pretty narrow range around whatever the company has indicated to them that its earnings are going to be. In other words, earnings estimates aren’t a good guide to what analysts think, but they are a good guide to what the company in question wants analysts to think.
Even so, if you wanted another reason to ignore sell-side earnings estimates, here you go. It’s a perfectly good one.
This full-floor apartment on Park Avenue first hit the market in November 2005 with an asking price of $18.9 million, or $3,000 per square foot. Almost three years later, it’s still unsold. Maybe it’s a function of the $17,138 per month that the owner will have to cough up in maintenance and tax payments? Probably not. In any case, the seller has clearly embraced the new realities of the New York real-estate world. The price today is $31,120,000: $5,000 per square foot.
You don’t even need me to tell you who the seller is, do you.
I’ve written about Sarah Thornton’s Seven Days in the Art World a couple of times, so I feel I ought to mention what I thought of the book as a whole. Your mileage might vary: by sheerest coincidence the book overlaps quite a lot with my own personal experience. One chapter concerns an auction I attended; another is about a biennial I also went to. In a third, the central event of the chapter is the sale of a painting, 727-727, by Takashi Murakami, which I have declared a masterpiece. (It turns out that Stevie Cohen bought it at Art Basel for $1.2 million.)
The book can be a bit annoying. The central conceit of describing seven carefully-chosen days is pretty flimsy: by the end, the "day" comprises Thornton swimming laps at the Hotel Cipriani in Venice, reminiscing on the week she’s just had. And Thornton clearly has so many friends in the art world that one can’t help but feel that the price of her unparalleled access was her objectivity and reliability. Everyone is treated with deference and respect: the book can be revealing, but it’s certainly no exposé.
At the same time, Thornton’s level of access is quite astonishing. She jets around with Murakami and his dealers, talking about the way in which he’s so hard on his assistants that a large number of them quit en masse, leaving a 16-panel successor painting to 727-727, destined for Francois Pinault, unfinished in a Murakami warehouse. And I liked the fact that Thornton spent a day with students at Cal Arts who would be well described, in the words of Anthony Lane, as "people for whom beauty is at best an anachronism and at worst an embarrassing joke".
Overall, Thornton does a good job of capturing the present moment in the art world; she gives the rest of us a pretty good indication of how small it really can be. It’s easy to be intimidated by grand institutions like Christie’s or the Tate Gallery or the Venice Biennale. And indeed it’s easy to be intimidated too by many of the rich and urbane and sophisticated people that Thornton is hanging out with. But then you realize that the Thornton’s long list of people she talked to for the book — a list full to bursting with bold-face names — is massively overweight that tiny minority of art-world people who are extremely successful at what they do, and you realize too that pretty much everybody in the book, Thornton included, is trying to make a living out of art, in one way or another.
Largely absent from this book are the minor dealers, the artists who have been struggling for years, the dejected and rejected, the whole rest of the iceberg. And in a way, that’s the most telling part of the whole book: the bubblicious art world of today has a blitheness to it which I’m sure won’t last long if and when the bubble bursts. Come that oft-forecast day, Seven Days in the Art World will be seen, I think, as a portrait of today’s excesses, and of a world where even those who claim to dislike the art world’s fakeness still can’t resist immersing themselves in it.
At one point, in Venice, Thornton is at an art-world party on the Grand Canal:
A couple of tables away, amid a scruffier entourage, sat John Baldessari. The sage L.A. artist was drinking a no-nonsense vodka on the rocks with his long legs stretched out in front of him. This year he was staying at the five-star Danieli… "Now I receive a lot of invitations, but I usually say no," he said with some satisfaction… Although he despairs of the social hierarchies and the "visual overload," Baldessari has come to like Venice, in part because he has a bad sense of direction. "I’ll turn the wrong way coming out of the elevator every morning," he said. "In Venice, everybody is always lost, so you don’t feel bad when you pass someone you know sitting at a café for the third time in ten minutes."
Well, at least the vodka is no-nonsense.
Are there too many Damien Hirst paintings? Some people are worried that there are, or at least that Hirst was putting the market in his own works in peril by making so many. Those people are relieved that he’s ceasing production of most of his trademark series, a decision announced, idiosyncratically and en passant, in a video on the Sotheby’s website. Bloomberg got a formal confirmation from Hirst’s company, Science Inc:
"Damien does not want to comment further on what he says in the interview, but we can confirm that 2008 will be the last year that Damien produces butterfly paintings, spin paintings or medicine cabinets."
This is big news, and welcome news too, to some collectors:
"This is a reassuring message from Damien," said London dealer Ivor Braka, who confirmed he was the buyer of a $3.3 million Hirst butterfly canvas and a $2.6 million spot painting at Sotheby’s "Red" charity auction in New York in February…
"Some people were beginning to talk about when this level of production was going to stop," said Braka in a phone interview. "We now know these works are finite."
In the short term, this announcement can’t help but boost the prices which the paintings will sell for at the Sotheby’s auction next month. In the longer term, however, there are risks associated with it. Hirst’s success is largely predicated on a steady drumbeat of selling from his dealers around the world. If Hirst stops supplying them with art, they’re going to stop selling it, and the circus could move on.
A lot depends, of course, on what Hirst does in 2009 and onwards. Will he keep his large staff and simply set them to work on brand-new series? Or will he scale down? Given that the most successful artists from Warhol onwards have tended to be the ones with lots of assistants and massive output, I’m sure that Hirst’s business manager is proposing the former course of action. But Hirst is now so wealthy he can do what he likes: he hardly needs the money any more.
In any case, the absence of a primary market in the established series is going to put a much greater emphasis on the secondary market, and I wonder whether some enterprising soul (maybe even Hirst himself) might not try to set up a transparent Hirst exchange which would obviate having to sell to dealers or consign to auction houses. Artists have always tried to have as much control as they can over their primary market; maybe Hirst could be the first to control the secondary market as well. (It would make sense if he did: after all, Hirsts are easily faked, and any painting sold through him would be guaranteed authentic.)
I’m reminded of the demise of Thomas Kinkade, another hugely successful artist who sold in bulk. He was brought down by the growth of a secondary market out of his control. Here’s something I wrote about Kinkade back in 2006; I’m sure that Hirst doesn’t want the market in his paintings to follow a similar trajectory, and that’s one of the reasons that he’s ceasing production of his current series.
There were a lot of Kinkades to go around, and many of the buyers were people who bought on the assumption that their paintings would increase in value and they could make money on their investment. Up until the arrival of the internet, that worked for Kinkade, whose company set the prices for all his paintings and would raise them steadily. After the arrival of the internet, a whole industry arose buying and selling Kinkades at market-set, rather than Kinkade-set, prices. And that was the end of the success days for the company: without monopoly pricing power, Kinkade was nothing.
The stores failed, ultimately, not because Kinkade treated them badly, and not because other stores were undercutting them. The stores failed because Kinkades are a commodity, and anybody wanting to buy one could get a second-hand Kinkade online at a much lower price than that charged at retail. Buyers no longer believed that their paintings would increase in value, so they bought fewer than they used to. And when they did buy, they were likely to buy already-existing Kinkades rather than new ones.
As a general rule, no retailer has ever consistently been able to make money by selling the proposition that his goods are going to increase in value after they’re bought. Kinkade managed it for a few years, but then, inevitably, the bubble burst. And when bubbles burst, people get hurt. It’s not the fault of Thomas Kinkade, it’s simple market dynamics.
The Christian Science Monitor has a classic example of "Opinions on Shape of Earth Differ" syndrome. It runs a first-rate op-ed by Mark Lange on the invidious and predatory behavior of credit-card companies. It then, however, neutralizes Lange’s piece by featuring, equally prominently, a disingenuous and slippery op-ed by "award-winning attorney"
J.H. Huebert, defending the credit-card companies. Meanwhile, CSM opinion editor Josh Burek has audio interviews with each writer, letting them explain their own position and not asking any hard questions.
Lange’s piece is well worth reading.
There’s plenty to reform. During the housing bubble, credit-card vendors inflated interest rates – even as the Fed slashed them – and found increasingly sneaky ways to usher their customers into perpetually indebted servitude. Such as:
ß∑Raising rates as high as 32 percent on existing balances, with no notice, even when they’ve always been paid on time.
ß∑Compressing the time between statement mailings and due dates.
ß∑Charging interest on debt already repaid.
ß∑Posting on-time payments after their due date – and then charging late fees.
It’s astonishing how universal and profitable such practices are:
This year, card companies will break all records for late fees, over-limit charges, and other penalties, pulling in more than $19 billion. Not to mention extra charges for paying by mail or by phone (try $14.99). Credit card is the only industry where customers pay extra to be allowed to pay. Where agreements can be changed without notice. Where nearly half of industry revenues come from penalty fees.
Huebert, who’s on the faculty list at the Ludwig von Mises Institute, is reduced to setting up straw men:
If card issuers can’t recoup the cost of late payments through fees and increasing interest rates, they’re going to be less able to give cards to people on the lower end of the economic spectrum, depriving those people of the ability to build credit.
No one is suggesting that card issuers not be able to "recoup the cost of late payments". The recouping-the-cost bit is fine, it’s the making-$19-billion-a-year bit which people are having an issue with. If those monies were retained by "people on the lower end of the economic spectrum" rather than being seized by the credit card companies, maybe they wouldn’t have bad credit to begin with.
Huebert would have you believe that there’s a cross-subsidy going on, and that people who suffer large penalty charges end up subsidizing those who pay off their balance every month. He says that he and people like him "deliberately game the system" by not paying any fees, and implies that the credit card companies lose money on him.
But they don’t, of course: they just make money the old-fashioned way, by charging merchants a percentage of the sale price.
I’m actually more annoyed by the presence of Huebert’s op-ed opposite Lange’s than I would be if it appeared on its own. In order for an opinion editor to run a piece solo, it needs to pass a certain quality threshhold, and anybody willing to run Huebert’s piece in such a manner is very easy to ignore. But when you have two pieces "balancing" each other, the main aim of an opinion editor is just to find someone willing to take the other side of the argument; the quality threshhold drops dramatically.
Lange’s piece stands alone, very well. The fact that Burek and the CSM felt the need to balance it out with Huebert’s is simply depressing.
The NYT has the news, this morning: BusinessWeek is adding a feature to its website at the end of September. This is clearly meant to be a big deal: it’s the product of "two years of quiet development," we’re told, and it "should double BusinessWeek’s traffic on the Web within two years".
I wish BusinessWeek luck. There are some good ideas lurking behind the new feature, called Business Exchange: increasing search-engine referrals, encouraging readers to get involved, making the most of user-generated content rather than relegating it to unread comments streams. But you never really know with these things: sometimes they work, sometimes they don’t, and the best way to find out is to try them and see. Nothing should take "two years of quiet development": it’s much better to take something basic and improve it in the wild than it is to spend years trying to perfect something behind the scenes which might not take off at all.
But big media companies are very bad when it comes to experimentation and willingness to fail. Sometimes they see someone else doing something they like and simply acquire it, like Conde Nast did with Reddit: that kind of thing can make a lot of sense. But it’s much less common for them to try to grow such things in-house. That’s partly because when they do try the in-house route, they end up in the same position as BusinessWeek: the project ends up taking vast amounts of time and management cycles, everybody wants their own bright ideas included, and eventually the whole thing becomes laden with monster expectations which only serve to increase the probability that it will end up disappointing.
I’m not at all convinced that BusinessWeek’s professional audience really has any inclination to set up a profile page, complete with photo, which lists that person’s online reading habits. Still, it’s an interesting idea, and BusinessWeek’s partner LinkedIn has had no little success doing something similar. So it’s well worth trying out, and seeing if it sticks. It’s just not worth spending huge amounts of time and money on until you know for sure that your audience has some interest in it.
House prices are finally falling in London:
Asking prices in London fell 5.3% in August, according to the Rightmove house price survey – equivalent to a ߣ21,000 drop in a single month. Prices in some of the most sought-after suburbs are falling much lower. The average asking price in Wandsworth fell from £522,000 to £481,000 in a single month – or 7.9%.
In dollar terms, of course, it’s much worse: £522,000 on July 15 was $1,045,000, while £481,000 on August 15 was $896,000. That’s a drop of $149,000, or 14.3%, in one month.
And this is in Wandsworth (there’s a map here if you don’t know where Wandsworth is) — a perfectly pleasant borough, but nothing spectacular. The main reason to live there is that you can’t afford something nicer: that the average asking price there was ever more than a million dollars is simply astonishing.
(Via Smith)
Tony Munroe of Reuters does his best today to report on the latest changes to the Citigroup Asia org chart, but it’s not an easy task — especially when the regional CEO, Ajay Banga, starts talking about bringing "the organizations and geographies together under one cluster head". Which is about as meaningless as management-speak gets.
Indeed, rather than simplifying anything, Banga seems to have created a patchwork of four sub-regions and seven product groupings. "Previously," says Munroe, "Citigroup’s Asia business was led by heads of its institutional clients group, global wealth management and consumer units." That’s three people, by my count. Now there’s Banga himself, plus four sub-regional heads, and seven more product heads, being careful not to double-count the sub-regional head who’s also a product head (Stephen Bird, who gets North Asia and consumer banking) or Banga himself, who’s directly overseeing the alternative-investments group.
Deeply emedded somewhere in this new matrix is some portion of the $400 billion in non-core assets which CEO Vikram Pandit wants to sell off, if only he can identify what they are. If you wanted to make such an operation as difficult as possible, you might well engineer a management shake-up along the lines of what Banga has now announced.
But the saddest part of Munroe’s story is Banga’s rationale for imposing all this on his 70,000 employees:
"I want the client not to have to navigate Citigroup. I want us to navigate Citigroup and bring it together at the front end for them…
If you’ve got the business run through products it’s very difficult to make everything come together across product lines for a client," Banga said.
This is exactly what Citi has been saying ever since the merger with Salomon Smith Barney a decade ago. There’s nothing new here, just the same old rhetoric. And with the nine (count ’em) different product heads in the Asia-Pacific region alone, I very much doubt anything’s going to change this time round, either.
Aline van Duyn tells an increasingly familiar story today: that while corporations have a very clear hierarchy of debt payments, with preferred stock, mezzanine debt, senior debt, senior secured debt, and all that, individuals do not — and they don’t always act according to expectations. She quotes TowerGroup’s Dennis Moroney explaining why mortgages aren’t necessarily senior debt:
"As they are losing value on their homes, they may be less motivated to repay their mortgages. Instead, they will focus on necessities, such as eating or paying for heating fuel. To pay for those, they need to keep their credit cards open. Credit cards have become an essential item for many people.”
This seems perfectly reasonable, but the real insight, I think, comes at the end of the column, when Aline talks to Larry Rosenberger, the former chief executive of Fair Isaac. Yes, it’s entirely possible to come up with reasons why people might stay current on their credit cards while defaulting on their mortgages. But are they actually doing that? The fact is that we simply don’t know, and it’s not going to be easy for Rosenberger to find out.
One of the obstacles Mr Rosenberger has encountered is finding the right data. Just as the mortgage financing business was sliced and diced through the use of securitisation, there is no central database with good and comprehensive information. The sector was so profitable for so long that there was little incentive to invest in updating databases or add new information to internal tracking systems.
“I have the impression this is going to be tough,” says Mr Rosenberger. “The value chain in mortgage lending was chopped up and the data collection has become choppy because of it. Without the data, it is hard to really work out what exactly is going on.”
The securitization of mortgages has made it hard for individual borrowers to find someone capable of modifying their loan. It seems it’s also made it hard for any individual lender to find out much about borrowers, in aggregate. There really was a lot to be said for the days when borrowers and lenders actually knew each other.
Hotel Occupancy Rate Rising, Data Show: "In May the average cost of a hotel room in New York climbed to $350 a night from $300 in May 2007."
Dr. Doom: Nouriel Roubini gets the NYT Magazine treament.
Finally, cities at night:
