GNP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 10

[Roland]

"OK, you've made your point with as much rhetorical flourish as you could muster"

We have a political disagreement. That attempt at being condescending is just as puny as the attempt to delegitimize my view by claiming that I have no "feel" for some murky aspects of the american soul or whatever it is. I could do the same and take this to Chrissian levels - can't we stick to the issues ?

"Re promoting your interests by lobbying the government, I'm not going to go along with its characterization as a bad thing. It isn't bad and isn't accurately described as corruption."

Lobbying and fighting for your interest is perfectly legitimate. The question is the means and the outcome. If the means are closely related to money (buying access, influence etc), and the outcome is not say general tort reform but an exemption for HMOs, than it is getting closer to your good old bribed official. It is not illegal, but let me borrow from your fellow American again: "it just stinks to high heaven." If it is a national issue for you: Eg, the cronyism and political influence peddling in the public broadcasting company here stink to high heaven. Many things do.

"Here's something to smoke in your pipe: labor unions give just as much to federal candidates as does business, even though less than 20% of the American private workforce is unionized."

Including soft money ? Anyway... labour unions are special interest. What exactly is the point ? I'm not on an anti-business rant here.

[pchang]

bored w/ Civ3

Now that I'm bored w/ Civ3, I've decided to make a come back here. Have I missed much?

[DanS]

Roland: I don't want to clutter this thread with a point-by-point on those issues. As I've said before, it really isn't a political issue--it illuminates nothing wrt politics as far as I'm concerned. Rather, I was directing you to this thread to talk about your decidedly pessimistic view of American business, especially those businesses who innovate.

First off, I come from the view that innovation isn't at all inevitable. It takes a boat load of sweat, risk, and tears. Sometimes it doesn't work, sometimes you make great strides. Sometimes you make great strides but nobody buys it. So you're always going in with a slightly overzealous imagination and hoping that the reality will catch up.

Because of this, I am very willing to look at Enron as a mixed bag--maybe even a net-plus, if you strip away the accounting no-nos and fraud. They were market makers. They were a brash, demanding lot whose claims were overblown. On the other hand, it was precisely this kind of "young Turk" bravado that it took to make the market. If they hadn't made these markets, it is not at all clear that others would have.

"OK, you've made your point with as much rhetorical flourish as you could muster"

Roland: I wasn't being condescending to you. Rather, I was enacting a dialog between the "political class" and a columnist. A columnist has to use overheated rhetoric--cronyism--in order to get noticed, but really isn't meaning to say that the US has a crony capitalist setup. The political class recognizes this and once its attention is captured, focuses on the message--there is an appearance of impropriety.

At worst, this just means that the article isn't good support for your opinion.

Btw, I think that Krug is FOS in that article.

*The Racicot thing is just a political shot at the GOP. Nothing really significant there.
*The FERC guy was a Dole man from wayback and wasn't good on TV. Bush put his own guy in.
*Radioactive waste in Nevada has been going forward for at least the last 10 years (IOW, pre-Bush 43). I knew those on the losing end of that contract and they were no less politically connected.
*The Carlyle Group does good work in a wide variety of industries. In one paragraph, Krug painted them as a racket

This is really tired sh!t.

[pchang]

Enron

It was my understanding that it was not Enron's new trading business that cuased it to go under, but it's older more mainstream energy concerns.

[DanS]

pchang: Civ3 only kept my interest for about 2 weeks.

I'm still ambivalent about what they've done.

Not much happening here.

[pchang]

Enron for Beginners

There was a WSJ article entitled "Enron for Beginners" that I thought was pretty good. Unfortunately, you need a subscription for it. Somehow, I was able to access it once without a subscription. Must be a cookie thing

[Roland]

Dan:

When you say "it really isn't a political issue", then that is a highly political statement in itself - defining the agenda. Taking it ad absurdum, one could say the civil rights movement or the abolition movement wasn't a political issue - just a legal or social matter. Everything is political.

"Rather, I was directing you to this thread to talk about your decidedly pessimistic view of American business, especially those businesses who innovate."

You got that into the wrong channel. There are tons of good, innovating companies in the US (and outside the US). But the 1996-2000 boom was a monumental bubble, and the only "innovation" involved was a breakthrough in structured finance and manipulation. Now we've just started to unravel some of it, while the Fed is still pushing the housing bubble.

"If they hadn't made these markets, it is not at all clear that others would have."

IMO it is. The principle of the exchange is at least 600 years old, the methods of derivatives etc are there and tested, and Enron just applied them to the energy markets. Also, I have no idea how much pioneering Enron did that is here to stay. Any idea ? How much do the european trading firms rely on stuff pioneered by enron ?

"Rather, I was enacting a dialog between the "political class" and a columnist. A columnist has to use overheated rhetoric..."

Ok, I got that into the wrong channel. But why should I not use overheated rhetoric ? My main beef is with the incredible hype surrounding the US economy in recent years. And when Woodward calls Greenspan the Maestro, I call him the Clown. Just fair. If we want to talk about Fed policy in earnest, there are several motives I think I can identify, but I still have serious trouble making sense of it.

"At worst, this just means that the article isn't good support for your opinion."

So you disagree with Krugman. How does this support the idea of lack of "tactile feel" of my side ? It's just a simple disagreement. For you almost anything in the US is good the way it is - from campaign financing to public schools to Wallstreet. Fine for a political position, but nothing one could not vehemently disagree with, American or not.

Your government, Wall street and a good junk of your economists hype the US as a free market model. Well, it isn't. Mostly because government is huge and IMO corrupt. Especially on the financial side. So "crony capitalism" is again a catchphrase. Corporatism would be a better term, but that one is occupied by a somewhat different system.

And civ3 is wearing off after 3-4 weeks for me, too... Sid maier, Schmid Schmaier...

[DanS]

"Everything is political."

No doubt, but the "political contributions = impropriety" is such a small portion of that and to focus on it really misses the more interesting and important angles. Everybody's talking about how much Enron and employees gave to politicians, but they gave very little for a top 10 company! $30 million total or whatever to thousands of candidates over 10 years. Compare to the $500 million burned overall just in the last election cycle!

As a political scandal, it's much smaller of a deal than the ADM price fixing. Didn't tune in for that one? That's OK, not many did.

"But the 1996-2000 boom was a monumental bubble, and the only "innovation" involved was a breakthrough in structured finance and manipulation."

No, I think the froth really only came in 1998, and then it was much less than you imagine. A huge change in the way we do business went through the economy during this time period. E-mail and the rest of the internet are profoundly affecting the way business is done.

Blackberrys for everyone!

I think even many of those companies who had their revenues halved in a span of months (I hold the stocks of a couple) will be pleasantly surprised about how much of their '98-'00 revenues that they can regain. It's hardly ever as bad or as good as portrayed.

"IMO it is. The principle of the exchange is at least 600 years old, the methods of derivatives etc are there and tested, and Enron just applied them to the energy markets."

Well, "just applying them to the energy markets" is a very big deal and took a lot of evangelization, hard work, and risk taking. Electricity trading in the US was pretty much a from scratch endeavor. Enron was the market maker.

"My main beef is with the incredible hype surrounding the US economy in recent years."

The only thing to judge it by is the productivity numbers. Productivity has proven resilient. How much do you need to add to the trend in order for the hype to be matched by reality? .25%? .5%? 1%? If we added .5% to the trend (i.e., a little less than 2%), that would be worth an awful lot of hype. We'd be kicking some major Euro ass!

Anyway, I do puzzle over the Euro fascination with the American economy (and American society, FWIW). The US is overcovered in the British media, at least. Not everything is a comparative exercise. Quit talking about us!

"For you almost anything in the US is good the way it is - from campaign financing to public schools to Wallstreet."

Why get overwrought about things that, while they need tweaking, just aren't broken? The one thing about American society that worries me is our inner cities. They grind people to dust and are cruel places.

"But why should I not use overheated rhetoric ?"

Because you already have our attention.

[Roland]

"Everybody's talking about how much Enron and employees gave to politicians, but they gave very little for a top 10 company! $30 million total or whatever"

Amazing how cheap US politicians are.... If the money is so irrelevant, why are compaign contributions from abroad much more restricted ?

And top 10 - based on what ? On a hard indicator like employees or value added or earnings ? Ooops. I said "earnings"...

"As a political scandal, it's much smaller of a deal than the ADM price fixing. Didn't tune in for that one? That's OK, not many did."

ADM ? Aren't they living from the US government protecting the domestic sugar market ? Or is that another ADM ? But you are right, the noise is barely related to the stench.... must be another price fixing though, cause IIRC the US government fixes sugar prices...

"No, I think the froth really only came in 1998, and then it was much less than you imagine."

That remains to be seen. After all, the imbalances in the US economy have stopped expanding, and ka-boom! What will happen when they are rebalanced ? Nothing pretty.

"Electricity trading in the US was pretty much a from scratch endeavor. Enron was the market maker."

Maybe, but was it so unique ?

"How much do you need to add to the trend in order for the hype to be matched by reality? .25%? .5%? 1%?"

Something like 1-1.5 %, judging from the hyped 3.5-4 % trend growth.

"If we added .5% to the trend (i.e., a little less than 2%), that would be worth an awful lot of hype. We'd be kicking some major Euro ass!"

Funnily enough, 2 % was normal for europe until recently - when some countries started deregulating labour markets. Now there's a lot of noise and flactuations in the data.

"Anyway, I do puzzle over the Euro fascination with the American economy (and American society, FWIW). "

To most people here the US is quite irrelevant. But in international business law and economics, you can't escape the noise. So it is the same unhealthy obsession that America had with Japan in the late 80s. Tons of books about the japanese miracle, the japanese threat, japanese nutrition and toilets... it will end when the bubble has run its course.

"Not everything is a comparative exercise. Quit talking about us!"

Well as soon as you scrap attributing the "best in the world" line to your worst crap....

"Why get overwrought about things that, while they need tweaking, just aren't broken?"

Many would disagree with you. But essentially, do what you want. But there is a big interest group hellbent on exporting the way you do things as the international standard - and this is an ugly threat.

[Timexwatch]

Originally posted by DanS
["For you almost anything in the US is good the way it is - from campaign financing to public schools to Wallstreet."

Why get overwrought about things that, while they need tweaking, just aren't broken? The one thing about American society that worries me is our inner cities. They grind people to dust and are cruel places.

Says the man who lives in one of the most dehumanizing cities in America

[Adam Smith]

Here We Go Again....

NEW YORK (CBS.MW) - Tyco sold off sharply as the volume leader on the New York Stock Exchange Tuesday following a disclosure that the industrial giant paid a $10 million fee to one of its directors and another $10 million to a charity he controls.

Tyco fell $6.60, or 16 percent, to $35.40 with 154 million shares trading hands by mid-afternoon. It's the lowest level in about two years.

A company spokeswoman did not return calls by CBS.MarketWatch.com.

Tyco revealed the payment to Frank E. Walsh in a proxy statement filed with the Securities and Exchange Commission.

Tyco (TYC: news, chart ) said in the filing that Walsh "was instrumental" in its $9.2 billion purchase in March of last year of CIT Group, a commercial lender. The unit, renamed Tyco Capital, is slated to the first of three IPOs Tyco is planning in a complex restructuring announced last week. See full story.

Tyco said in the filing that it paid Walsh a fee of $10 million for his services.

In addition, at Walsh's request, Tyco contributed $10 million to a charitable fund established under The Community Foundation of New Jersey.

Walsh, as trustee of this fund, recommends the public charities to which contributions are made.

Tyco has been under scrutiny as part of an overall focus on corporate governance and accounting in the wake of the Enron debacle.

The company has grown rapidly through a series of acquisitions, and now is planning to break itself up in a plan that has yet to capture the fancy of Wall Street.

[el freako]

DanS,

US productivity did indeed improve in the second half of the 1990's - and it did grow faster than most European countries and Japan.

However it still did little to make up the losses you saw in the first half of the 1990's.

GDP per hour worked as % of USA:

1990:
Japan: 68%
Germany: 86%
France: 101%
Britian: 74%

2000:
Japan: 73%
Germany: 96%
France: 96%
Britian: 78%

Source: OECD for the basic figures on GDP, PPP's, Employment and Average Hours. The above figures I calculated using this data.

Only France had slower productivity growth than the US did during the 1990's which was to a certain extent understandable as of the G5 France had the largest rise in Activity, only a modest drop in average hours (4% compared with 7% in Germany and 9% in Japan - in the US average hours actually rose by 3%) and it started out with productivity even higher than the US's level.

[DanS]

Hmm... It looks like a continued movement toward parity to me. I guess this makes sense. The forces of technology should be significant in Europe and Japan.

OK, maybe we suspend the "kick some major Euro ass"--if just for now.

[Roland]

Dan:

"Hmm... It looks like a continued movement toward parity to me."

That move ended pretty much in the 70s; since then hourly productivity in europe and the US is too close to call within all the comparison problems.

And for your productivity growth rates, 0.25-0.5 %points come from statistical gimmicks we don't use. So you can dump the "kick some major Euro ass" in the landfill of history.

"The forces of technology should be significant in Europe and Japan."

And insignificant in the US ? Thou speaketh in riddles again....

AS:

One who early on attacked Tyco was David Tice; his firm is following that, so there should be a occasional but insightful piece at www.prudentbear.com

I have no idea though on why the sudden panic - accounting gimmicks didn't matter in the new economy, I thought ? And so people merrily bought a company registered in Bermuda...

[Colon™]

Funny that Tyco just made another acquisition, of a French fire-safety firm that went bankrupt. OK, the deal wasn’t that big, only worth €27mn, but they still look a junkie that needs to be weaned of its addiction.