That bummer of a Davos talk could be coming true

8 May

A few months back, I mentioned the talk Oliver Wymann analyst Barry Wilkinson gave at Davos about the possibility of a second economic crises. By all accounts, Wilkinson was pretty apocalyptic. As reported by Reuters, his nightmare scenario went something like this:

The 24-page study describes how banks, unwilling to accept the lower returns on equity, or ROEs, that result from higher capital requirements, may fuel a new bubble by chasing high returns in commodities or emerging markets. Regulators, by focusing their restraints on banks, may drive risk-taking into unregulated funds that also pose danger to the system.

Dour stuff, to be sure. But could he in fact have been onto something? Given the big news in the IPO world this week, it may be. It turns out the year’s biggest IPO is none other than Glencore, a massive, unregulated commodities trader. Per Businessweek last week:

In the wake of the financial crisis, governments and regulators such as the Federal Reserve and Basel Committee on Banking Supervision are cracking down on risk-taking at New York-based banks like Goldman Sachs and Morgan Stanley. At the same time Glencore, a 37-year-old company that primarily focuses on physically moving commodities around the world, faces no limits on leverage, proprietary trading or compensation.

According to the article, the company “made its name” doing business in developing (or not so developing) nations like the Democratic Republic of Congo and Kazakhstan, trading everything from oil to cobalt to cotton. It made $145 billion in revenue last year on $79.8 billion in assets, meaning it has the makings of a big, fat systemic threat. But because it’s also a commodity producer–it owns and operates mines and oil refineries–there’s apparently a chance the company will get an exemption from the Dodd-Frank Act’s margin requirements. Awesome.

So is this the first sign of Wilkinson’s apocalypse coming true? Who knows. But you’ve got to admit, the development is a little creepy.

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Thoughts on Osama’s death

4 May

On Sunday evening, as word of Osama Bin Laden’s demise ricocheted across the world’s media, I was riding a bus home from Manhattan, where I had spent the weekend visiting my mother and a few friends from high school. My phone had gone dead during the trip, and so I missed the wave of speculation which had captivated so much of the country that evening. Instead, I got the news in a single heaping serving as I arrived back at my apartment, exhausted from the weekend.

“You didn’t miss it,” my girlfriend told me as I walked in the door.

“Miss what?”

“The president’s speech.”

“About what?”

A pause.

“Was your phone dead? They killed Osama Bin Laden.”

“Holy shit…yeah, my phone was dead.”

If the cable pundits are right, I will probably remember that awkward and confused moment of revelation for the rest of my life. Osama’s death is supposed to be one of those indelible events–like VJ Day or the Kennedy assassination or 9/11 itself–that my generation will talk about around the nursing home cafeteria table. I’m sure that’s true, and I will almost certainly tell my disinterested grandchildren about how I learned about the demise of the world’s #1 terrorist a good hour after everyone else. But I can’t help but wonder how we, or the history books, will recount the emotions from that day. Because for all the outward celebration, I think most of us experienced something far from simple joy.

Much has been made of the way young Americans flooded the streets that night to celebrate. Some seem to think it was unseemly to throw a pep rally in celebration of a man’s death–even this man. And as someone who lives in DC and hopped in a friend’s car to the White House a little after midnight, I can confirm that the scene was indeed a confused, garish, jingoistic, frat party-like mess. It was clear that police had adopted a hands off policy for the night, and the college students and twenty-somethings dominating the crowd seized the chance to commit whatever amusing illegal act they could think of. I saw guys drinking from open handles of Smirnoff and smelled pot smoke wafting by. More than a few bros climbed up the 30-foot lamposts on Pennsylvania Ave. and waved American flags from the top. Others settled for the trees of Lafayette Park or the equestrian of General Lafayette himself (I tried to climb up a few times and failed). People chanted U-S-A and sang the Star Spangled Banner. They held up hand drawn signs that read “Osama Bin Later, tea partier “Don’t Tread on Me” flags, and Obama campaign posters. One lonely girl stood around with an 8 1/2 by 11 inch piece of cardboard on which she had written “No More War.” She was mostly ignored. Another guy sat on his friend’s shoulders and unfurled  a flag bearing an assault rifle and the words “Just Try and Take It.” He got a crowd.

I watched the party unfold with some detachment–in it, but not necessarily of it. In a way, it was similar to what I experienced on the day the towers collapsed. I was in class in a school building on the Upper East Side that morning. But when I stood in the middle of Madison Ave. and stared at the enormous, volcano-like cloud of smoke and debris that had risen from downtown, I didn’t feel fear so much as a kind of blankness, a sense that my emotions had simply short-circuited. I knew I was watching something complicated and horrible, and over the coming days, as I watched the towers burn and collapse over and over on TV and listened to the sounds of fighter jets overhead, that ineffable feeling lingered. To me, Osama’s death was almost the perfect reverse–wonderful and complicated, a satisfying ending to a story that, no matter how you measured it, would never be a happy one.

For all my ambivalence, the party still seemed fitting. That it was was grotesque, cruelly joyous, and politically confused made it a perfect reflection of the years of frustration and strain that had led to it. What else could possibly do justice to a ten-year man hunt through the mountains of a godforsaken failed state in central Asia? We have spent more than a trillion dollars in part to track down a sickly, bearded demagogue who, as it turned out, had been living under our noses, camped out in the Palm Springs of Pakistan. That our country succeeded was the most and least serious accomplishment one could imagine, a symbolic victory that changed nothing and everything. For those of us who grew up immersed in this last terrible, paranoid decade, it was only our second sigh of relief (the first, for most of us anyway, was Obama’s election). The moment called for a spectacle, and if half the crowd communicated in sports chants (what could be less dignified?), then that’s because that’s the language we’ve learned to express victory. Half those in the streets, I think, were there just watch, if nothing else than out of respect for the moment, to give it the proper, screwed up due.

Will we all remember the strangeness of the moment while we’re old and still yammering about this? Probably not. Memory isn’t kind to complexity–it smooths and simplifies. But if the crowd’s reaction wasn’t tidy and dignified, it’s because the feelings behind it probably weren’t either. I think everyone was permitted to go a little nuts. We’d earned it.

A change of subject

12 Apr

As anyone who takes a few seconds to scroll down will notice, I haven’t published anything on this blog for more than a month. Since starting the project, I’ve realized just how supersaturated the media criticism market already is, and how frustrating it can be to try to contribute something original to it as an amateur blogger. Coming home at 7:00 p.m. and trying to spit out something after the entire Internets has had its shot at the day’s news can feel a bit like shopping for a turkey the night before thanksgiving–the pickings are, suffice to say, slim. At the same time, I’ve also come to a liberating conclusion: nobody is probably going to read this blog with any regularity, meaning I should feel free to write about whatever I want. So welcome to Live Journal territory: this will officially become a repository for whatever it is I want to rant about.

Fact error: New York Times

26 Feb

I feel compelled to point out  a slightly sloppy mistake in today’s New York Times piece on the death of Congressional earmarks. Explaining the sudden demise of pork barrel politics with this year’s budget battle, Carl Hulse writes:

[S]ome veteran lawmakers who had excelled at the inside appropriations game — Robert C. Byrd of West Virginia, Ted Stevens of Alaska, John P. Murtha of Pennsylvania — died, weakening the strong defense that had been built around earmarks.

Now, as a former reporter, I understand the compulsion to try and fulfill the rule of three. But adding Ted Stevens to this list is a bit of stretch, given that he was already out of office by the time of his death. The larger point–that the departure of these old guard appropriators helped shift the debate on earmarking–is probably valid. But details do matter. And the sentence could have just as easily have read “died, or were voted out of Congress….”

Anyway, that’s it for today’s nit picking.

Businessweek on Food Prices

23 Feb

So it appears my last post landed just in time. On Feb. 17, shortly after I tossed up my little squib on rising food costs, Bloomberg Businessweek posted its new cover article, an excellent and concise feature on the  political and economic problems posed worldwide by…wait for it…rising food costs. The piece goes over the many environmental and market forces that have sent wheat prices to record levels, focusing particularly on the weather problems that have shrunk harvests in the United States and China, before concluding that the food crisis could be the first truly existential threat posed climate change. It’s a pretty chilling point and, given the state of the conversation about global warming, one that probably needs to get made over and over. But from a point of personal interest, I was glad to see the writer touch on the role investors might be playing:

As agricultural commodity prices have risen, global investors have been piling into agriculture index swaps, exchange-traded products and medium-term notes. Investments in those products tripled, to $5.7 billion, in the three months ended Dec. 31 from the previous quarter, Barclays Capital said in a Jan. 27 report. New investments in agriculture-related products totaled $2.6 billion in December, compared with $1 billion in November and $1.3 billion a year earlier.

The question is whether Wall Street speculators are making commodity prices rise faster.

The author’s answer, unfortunately, is another big, fat question mark. The article says the CFTC has been unable to collect the necessary data, and commodities traders, for their part, are denying any responsibility.

Traders say they don’t boost prices, because trading is a zero-sum game: For every buy, there’s a sell. “Speculators will flock to a good, compelling, fundamental story,” says Gary Mead, an analyst at VM Group in London. “If you take away that good, compelling, fundamental story, speculators will look at something else. In this low-interest-rate environment, they’re searching for yield in whatever shape. Right now, it happens to be commodities.”

The problem with this paragraph is that the main point–that for every buy there’s a sell–may just not be true. Back in July, Harpers published a cover article on the food bubble of 2005-2008 which argued that Wall Street banks had created artificial demand for wheat by finding a way to purchase futures contracts without ever needing to unload them. The demand pumped up prices and left millions of the world’s poor starving for lack of bread. Or so the piece went. Sadly, the article is  behind Harpers‘ paywall. I’m not 100% sold on its thesis, but if you can get to it, it’s worth a read, if for no other reason than to see how the writer pieces the article together. His reporting is based largely on the interviews with wheat traders, some anonymous, as well as his own inferences. And much as in the Bloomberg piece, what ultimately comes across is how opaque the market truly is. So when traders say they’re not at fault, we can’t know for sure that they’re lying. We just can’t know they’re really telling the truth either.

Either way, I’m glad to see the issue getting play. At least its a start.

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Commodities, clarified

17 Feb

I probably need to clarify and walk back part of my last post. When I wrote that the NYT story on commodities would probably be the most attention that topic would get for the next few months, I was referring to the broader commodities market and its treatment in the mainstream press, not business news organizations like Bloomberg, et. al. Still, it was a pretty poorly thought out comment, and it ignored the growing wave of coverage about food prices. To me, and I’m guessing to a lot of market watchers, food prices seem to be just part of a larger picture. So when I go on about commodities, I mean more than corn and wheat. I’m talking lithium, lumber, copper–everything. But food prices have a unique news value and are going to be covered in the press on their own special terms. I’m going to try and do a better job watching and commenting on that specific line of stories as they unfold.

Commodities continued

15 Feb

For few moments this morning, the upper-left-hand story on NYTimes.com was a piece reporting that companies are getting ready to raise product prices in order to compensate for rising commodity costs. This, sadly, is probably as close to a moment in the sun the topic is going to get for at least a couple of months. Moreover, the article didn’t offer an awful lot in terms of new material. But I do think it illustrated an important distinction. This was very much a story about the effects of commodity prices, not the possible reasons for their rise. My hunch is that most coverage of the commodities story will fall into the latter category, largely because stressed executives and hurting consumers make for good, and pretty easy, copy. We’re going to hear a lot about potential inflation and its ripples in the economy, especially if Republicans seize on it as proof that they were right about federal monetary policy (remember Sarah Palin’s tiff with The Wall Street Journal over quantitative easing?). But as I said before, I hope someone takes the time to question whether we’re watching a bubble inflate.

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Bubble spotting

9 Feb

Lately, I’ve felt compelled to start reading news coverage of the commodities market. It’s not that I suddenly have some extra cash to invest, sadly, nor does it have anything to do with my longstanding affection for Trading Places. Rather, it’s because there a few credible voices who seem to think it could be the scene of finance’s next big disaster story, and I’m curious to see how the press reacts.

The surging price of everything from copper to wheat has been the subject of an ongoing, if half-formed, discussion within the business media for a while, and there have been murmurs about an outright bubble since at least December 2009. Last month at Davos, Oliver Wyman analyst Barry Wilkinson made himself the least popular kid at school by predicting that a commodities bust could usher in a second financial crisis as early as 2015. Wilkinson’s talk earned a significant round of media coverage, but most of it focused on his criticisms of the global safeguards that were enacted after the 2008 meltdown. Aside from a blog post by The Atlantic’s Derek Thompson, most articles seemed to underplay the fact that Wyman pinpointed commodities as a problem spot.

The big commodities stories so far have dealt with the more immediate effects of rising prices. Companies are stocking up on raw materials out of fear for their profit margins. Economists are debating whether core inflation is about to spike. They’re important stories about issues which could strike at the heart of the global economic recovery. But the possibility of a bubble also deserves scrutiny, even if only a few people are talking about it now.

After all, ignoring the pessimists was one of press’ great mistakes the last time the economy fell apart. In an essay published this weekend, ex-New York Times scribe and current Huffington Post writer Peter Goodman took some time to reflect  on the role journalists played in the run-up to the 2008 financial crisis, and I think his observations are instructive here. The piece discusses Bad News: How America’s Business Press Missed the Story of the Century, a book edited by former Dow Jones correspondent Anya Schiffrin that probes the various and sundry screwups of the financial media during Wall Street’s march towards armageddon. Goodman, who contributed a chapter, finds little reason to hope that the press will spot the next big bubble before it bursts, writing that most reporters are too enmeshed in the culture they cover to spot the problems most of their sources are missing. Dissident voices, the ones who see trouble coming, simply don’t get heard. He writes:

Financial crises build over many years through the fabric of the culture itself, warping expectations, altering the risks people and institutions are willing to bear in pursuit of return on their money, while tilting the balance away from the intrusions of government regulation. Journalists operate within our culture, and we absorb collective understandings.

If  commodities are forming a bubble right now, the concerns  among businessmen and investors probably won’t be focused on a bust 3 years down the line. It’ll be on the next batch of quarterly earnings reports. What I wonder is whether reporters will force themselves to have a longer horizon than their sources. Even if there’s nothing there, we won’t know unless somebody looks.

-MD

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The New York Times’ essay on the battle for Tahrir Square

3 Feb

Like anybody else with even a passing interest in world events, I’ve spent the past week glued to coverage of the uprising in Egypt and what reporters there have dubbed “the battle for Tahrir Square.” While I’ve left most of the media analysis to the professionals, there is an article in today’s New York Times by Anthony Shadid that I wanted to comment on.

The piece describes the scene amongst democracy protesters Wednesday as they retrenched and fought back against pro-Mubarak forces. It suggests (really declares) that the Arab World “may never be the same again.” Here are the core three paragraphs:

The protesters have spoken for themselves to a government that, like many across the Middle East, treated them as a nuisance. For years, pundits have predicted that Islamists would be the force that toppled governments across the Arab world. But so far, they have been submerged in an outpouring of popular dissent that speaks to a unity of message, however fleeting — itself a sea change in the region’s political landscape. In the vast panorama of Tahrir Square on Wednesday, Egyptians were stationed at makeshift barricades, belying pat dismissals of the power of the Arab street.

“The street is not afraid of governments anymore,” said Shawki al-Qadi, an opposition lawmaker in Yemen, itself roiled by change. “It is the opposite. Governments and their security forces are afraid of the people now. The new generation, the generation of the Internet, is fearless. They want their full rights, and they want life, a dignified life.”

The power of Wednesday’s stand was that it turned those abstractions into reality.

This, of course, is anything but a straight news dispatch. I don’t think calling it a news “analysis” is appropriate either. It’s fair to say that we’re witnessing a watershed moment in Arab politics, no matter what the final outcome is. But the article goes further, becomes essayistic. There’s a tone of glorification, which may be appropriate in some ways–the people rising up in Cairo are committing an act of bravery, and reporters would be remiss to deny it–but seems a little unusual for the Times. Is Shadid rooting for the Egyptian street, or just giving it proper respect? Probably a little bit of both.

The paper has plenty of straight news coverage from yesterday’s turmoil. But I can’t help but wonder if this is a sign of where it’s heading editorially. I guess we’ll see.

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Moratorium on mind-boggling

27 Jan

I just realized that I’ve used the phrase mind-boggling in two of my last four posts. No more, I promise.

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