Office Rumors

March 2008’s briefing from trendwatching.com looks at “free love”. Specifically, this deals with marketing and culture’s shift toward free things. Starting from news-media and all the way to couch-swapping, marketers have been pushed by the saturated nature of most markets to get their foot in the door with free products and innovative promotion.

Hat tip: PJ 

I apologize for being rather late to the gun on this one, but over the weekend the Treasury Department announced (and now Secretary Paulson has officially presented it) that it would support the Fed in its newfound emphasis of “growth at all costs.” I get this from language, such as this:

The new model includes giving sweeping new oversight powers to the Fed as a Market Stability Regulator. It would gain the power to investigate any activities of financial institutions that threaten US economic stability, gather information and combat risks to the financial system as a whole.

This is rather ambiguous from the outset, as are most proposals. Hopefully, in practice, this is not an expansion of regulatory powers beyond the investment banks, as the Fed’s reach of power would quickly enter the realm of the SEC (if it hasn’t already with its actions with Bear Sterns).

The big picture behind this plan–its overall goal–is to improve and streamline financial regulation in the US. This would mean removing much of the ambiguity in the system today, with thrifts being regulated separately from national banks, etc. If the Fed’s regulatory scope expands much, this would work against Paulson’s plan.

According to CNN, there were three short-term parts of the proposal:

• Formalizing the President’s working group on financial markets, creating an inter-agency coordinator for systemic risk, market integrity, consumer protection and capital market competitiveness
• Establishing a commission to oversee mortgages and upgrade state regulations (funny, because they superseded state regulations earlier in the Bush Presidency via the Office of the Comptroller of the Currency to allow questionable lending)
• Increasing the scope if the Fed’s information gathering with regards to investment banks

The rest of the proposal would be longer term in nature and its development would be adjusted based on further analysis of the issues.

Related Links:

• Treasury’s Paulson formally presents financial regulation overhaul plan, CNN Money
  

Prior to the Summer Olympics in China this summer, the New Economist links to an article by Mark Leonard, titled “What Does China Think?” There is interesting coverage of the political repression as well–how it actually amplifies the debate.

Paradoxically, the power of the Chinese intellectual is amplified by China’s repressive political system, where there are no opposition parties, no independent trade unions, no public disagreements between politicians and a media that exists to underpin social control rather than promote political accountability. Intellectual debate in this world can become a surrogate for politics—if only because it is more personal, aggressive and emotive than anything that formal politics can muster.

Interesting. Read the whole article.

Over the past summer, I read an interesting book along similar lines that looked at China’s challenge for America, titled China Shakes the World. The book had great discussion of China’s political and business atmospheres, but was especially insightful in its stories about life on the other side of the world.

The topic of China and its role in geopolitics world wide will become an increasing popular debate in the coming months. It will be interesting whether human rights will advance in China leading up to the games, or if the ruling communist part will assert itself further. 

 It is the last day in March and its baseball season again. For most Minnesota Twins fans, this means another month of what the rest of the country would call “winter.” This fan, however, gets to see spring and outdoor baseball (college) in March. The following are a few thoughts on the season to come.

First, the Twins, who are picked by Vegas to win 73.5 games, will probably be just above that mark near 80. The organization has established a core of players for when it gets into the new ballpark in two seasons and has shown the ability over recent history to call up the right players to get the impact they need.

That said, they’ve lost two rocks from their lineup. Gone are Johan Sanatana’s strike outs and wins along with Torri Hunter’s acrobatic defensive display in the outfield. In their place are relatively no-name players, which have been the real backbone of the Twins success (and struggles) over the past decade. In addition, they will be playing in the toughest division in the American League, if not the entire MLB. Getting to eighty and finishing fourth in the division is a very real possibility.

The Central Division is the strongest in the American League, but still may only place a single team in the playoffs. The wild card will most likely again go to either the Red Sox or the Yankees (with the other winning the division). From the central will either be the Indians or the Tigers. One of those four teams will win the world series, depending on who is hot at the end. 

As for the other divisions and leagues, there really isn’t time, or a personal interest in breaking them all down. Story lines in the National League’s West Division will probably the most intriguing. Outside of that, I will try to avoid discussions of baseball with rabid Cub fans, per usual, at all costs.

Update (3/31): The Twins take their 3-2 over the Angels in the home opener under the Dome, while the Cities get dumped on. Minneapolis Star-Tribune Columnist Patrick Reusse tips his cap to the roof of teflon.

On March 22, there was an interesting commentary from Business Pundit on a CNN Money article regarding what limits should be for corporate boards to withhold information from shareholders. In this case, it is Apple’s CEO Steve Jobs and his choice of alternative treatment for his pancratic cancer.

Currently, regulations such as the Sarbanes-Oxley Act of 2002 require that material information be disclosed with all quarterly reports filed with the SEC. The question Business Pundit had in this context was “what is material?”

Understandably, he didn’t think to highly of Apple’s Board of Directors keeping quiet. In this context, it is completely understandable that the board was reluctant to say anything about it. After all, a large amount of Apple’s intrinsic value comes from their visionary CEO. A loss in the company’s share price affects the directors and shareholders, but the SEC needs to strike a balance between these interests. As with most situations with ambiguous rules, many companies (and Apple has been known to be one of them) take very aggressive interpretations. It will be interesting to see if the SEC adjusts their guidance to include officers of companies and their health conditions. I doubt they will change. Ambiguity allows the SEC to enforce encroachments on the rule as they see fit, so I believe they will maintain their current course.

It is Friday, so no more Fed talk. This weekend, in addition to the NCAA tournament sees the beginning of a new MLS season.

That’s On Point has a great rundown of what to watch for in the coming MLS season. I’ve followed the league regularly and finally made it to a “Beckham was injured” game last season. The author does a pretty good job with his alphabet, which covers a variety of storylines leading into this season.

What makes this season especially interesting is to see the development of young players that will become regulars on the national team. The MLS also does not present the barriers to play (although it isn’t the same level) for US nationals that Europe does through work permit requirements.

This article caught me because of its author’s mention of Landon, however, writing:

L is also for Landycakes, as in Landon Donovan. You can’t talk about MLS without mentioning the once and future poster boy for soccer in America.

Pretty good stuff, and it recognizes a sad reality of the professional sport in this country. Soccer will take a while to catch on in the US when the poster child rarely scores unless its a penalty kick. Oh, and his free kicks and set pieces (corner kicks) are downright awful  95% of the time(Adu awaits in the wings!)–95% because the US Men’s National Team came up with two goals off Donovan corners midweek in a friendly with Poland (note: Poland somehow made Euro 2008, while England did not). Was this luck, or did Landycakes get some pointers from Becks?

Martin Wolf wrote in his column this week that “the dream of global free-market capitalism” has gone the way of the dodo bird. It seems that many of the highly regarded talking heads are all worried about the true implications of the Fed’s Bear Sterns bail-out. Wolf takes it furthest of all, offering a eulogy of sorts for free-markets and deregulation.

If the US itself has passed the high water mark of financial deregulation, this will have wide global implications. Until recently, it was possible to tell the Chinese, the Indians or those who suffered significant financial crises in the past two decades that there existed a financial system both free and robust. That is the case no longer. It will be hard, indeed, to persuade such countries that the market failures revealed in the US and other high-income countries are not a dire warning. If the US, with its vast experience and resources, was unable to avoid these traps, why, they will ask, should we expect to do better?

These are difficult words for a booster of free-markets. More on this later…

The American magazine has the thoughts of five monetary policy think-tankers regarding the Fed’s recent policy decisions. It is interesting to read the thoughts of experts who are relatively split in their opinion of the Fed. I side with Allan Meltzer, political economy professor at Carnegie Mellon University, who gives them a “C or C-” saying:

The Fed has two responsibilities. Monetary policy should be conducted to maintain economic and price stability.

[...]

Monetary policy is too lax at present. The Fed has done too much to prevent a possible recession and too little to prevent another round of inflation. Its mistake comes from responding to pressure from Congress and the financial markets. The Fed has sacrificed its independence by yielding to that pressure.

I could not agree more.

(via Real Clear Markets)

Calculated Risk (via Capital Commerce) pulls together some further commentary on the moral hazard issue the Fed may have created with the bail out of Bear Sterns. It is beginning to look like other banks are looking for similarly easy money, as Wells Fargo’s CEO John Stumpf said he was “not averse” to Fed-brokered deals.

Previously, this blog discussed this topic and I’m glad that there has been a continuing dialogue elsewhere. Was the Bear Sterns deal the only action the Fed will take of this sort? What ever happened to their emphasis on price stability, as opposed to the economy? Most sane people will not kick responsible government regulation to the curb, but when officials and offices stray from their directives, where does the line get drawn?

The idea of the growing moral hazard is shown clearly in the example of other banks now showing interest in Fed help. This is not the answer. Markets require limited regulation, not rewards and bailouts present for those that take outrageous risks. Many parties got away with this during previous bull markets, but in the current market conditions, they are being exposed and should be punished through declines or losses of investments.

If people are used to bailouts, where is real risk–the chance the government might not bail them out? It may sound cliche, but the Fed is greasing this slippery slope.

Related Links:

• Entitlement via Calculated Risk.
• UPDATE: Wells Fargo Says It’s Open To A Fed-brokered Deal: Report via CNNMoney
• Merger Thoughts via Office Rumors 

Recently, there has been a lot of talk regarding the “lost decade” with the markets we live in. Barry Ritholtz, writing a The Big Picture, posted the graph below while discussing this idea in the context of debate on CNBC and the Wall Street Journal.

This graph would indicate that we aren’t out of this slump yet–and may not be for a while as far as the markets are concerned. Also, we must remember that this is a market graph, and not necessarily the growth of the economy in the sense of a GDP figure. The economy exhibits the similar short-term ups and downs, but follows a slightly different route in which GDP growth averages about 2% per year in the United States and has for well over 120 years. The DJIA exhibits greater growth with the appearance of more volatility (the average is measured frequently, while GDP is normally in months). The markets and GDP are economic indicators, but tell a much different story.

 The observation of this graph is interesting in the market context, which shows that a bull run of nearly twenty years may have given way to a bear market. Also, from the looks of this graph, a bear market lasts much longer than a recession (15-20 years compared to 2-4 quarters).

Related Reading:

• Barry Ritholz. Media Appearance: Kudlow & Company (3/26/08). The Big Picture.
• Paul Olmerod. Butterfly Economics.