Friday, May 14, 2010

Our Thirst For Oil & Drill, Drill, Drill

Despite the current large crude oil inventory and Euro skittishness lowering oil prices, over the longer term, oil prices are likely to increase. Thanks to supply (depletion of easily tapped sources and increased exploration and development costs for new sources) and demand (particularly the need to fuel growing economies) the market expects oil prices to rise in the coming years
This means more oil drilling.  WTRG Economics illustrates the relationship between oil prices and domestic US drilling activity. Despite the horrific BP drilling accident in the Gulf of Mexico, our economy and lifestyle is, and will remain for quite some time, dependant on hydrocarbons.

Thursday, May 13, 2010

Where Did All The Homeowners Go?

During the housing recession we have witnessed a decrease in home ownership rates and a corresponding, even larger, increase in homeowner vacancy rates. This isn't surprising given the rise in foreclosures.
The Research Institute for Housing America, part of the Mortgage Bankers Association, has published an interesting study looking at What Happens to Household Formation in a Recession. They conclude that homeowner vacancy rates have increased markedly over the past few years and rental vacancy rates have also drifted upwards. This naturally begs the question: Where have these households gone? Well, not into rentals as rental vacancy rates have been steadily moving upward.

 So where did all the people go? The study authors concluded that they moved in with other households and this housing consolidation has resulted in increased home "overcrowding" which is defined as more than one person in a room in a household. The data shows overcrowding increased in all demographic segments they examined.

As the unemployment rate has increased people have been forced to consolidate homes, a trend not likely to reverse until the rate shows a sustained reduction. The implications of this are that household formation isn't likely to return to more normal levels until unemployment drops. People looking for household formation to soak up the excess inventory in the market may just have to wait a while longer.

Tuesday, April 20, 2010

Nothing Boosts Web Traffic Like A Scandal

Look at the impact of the SEC charging Goldman Sachs with fraud on April 16th on web searches and traffic. Amazingly "Goldman Sachs Careers" was still ranked the 9th most popular Goldman related search term during the scandal. Ethics or no ethics, people still regard Goldman Sachs a place where you can make lots of money I guess.

If You Want To Speak To A Teen, Send A Text Message

% of Teens Who Contact Friends Daily By Method

It shouldn't come as a surprise that teens spend lots of time sending text messages, but it's interesting to see just how popular it is. While usage of the other communications methods have remained relatively steady since 2006, text message usage has doubled in the same period. This data is contained in the fascinating new Teen & Mobile Phones study from the Pew Internet and American Life Project.

While teens use their phones for activities other than text messaging, it dominates the usage of the device and amazingly the average teen in the study sends an average of 50 text messages per day, and 31% report sending a staggering 100 or more messages per day. The monthly volume of text messages (357 for users of all ages) exceeds the volume of mobile phone calls which is only 204 based on data from The Nielsen Company.   By contrast, teens between 13 and 17 years of age make only 231 mobile calls per month but send 1,742 text messages!

Friday, April 16, 2010

Goldman Sachs, Maybe Not The Smartest Guys In The Room After All

Goldman Sachs, prides itself on being a principled business which espouses:
  • Our clients' interests always come first.
  • Our experience shows that if we serve our clients well, our own success will follow.
  • Our assets are our people, capital and reputation. If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard.
Turns out they didn't always operate that way. Today the SEC dropped a bombshell and charged Goldman Sachs with fraud in structuring and marketing of CDO's tied to subprime mortgages.  The charges include:

The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.
This flies in the face of their stated business principles and it seems that real damage has been done to Goldman's reputation. As Goldman says. "This [its reputation] is the most difficult to restore." I predict the problems for Goldman and the repercussions have just begun.

Thursday, April 1, 2010

Topeka Will Rule The World

The guys and gals at Mountain View decided that the Google name didn't have that much brand equity, so on April 1 they changed the name to TOPEKA. Much catchier, don't you think ;)

Friday, March 26, 2010

Newspapers: Quickly Becoming Irrelevant

The Newspaper Association of America just released its most recent advertising statistics showing a precipitous decline in 2009. Industry wide print advertising revenue in 2009 fell by 28.6% from the prior year to just $24.8 billion, a level last seen in 1985. Don't think that the revenue model is shifting to on-line advertising. It isn't. Total advertising revenues including on-line were just $2.7 billion higher and fell 27.2%, almost as sharply as print only revenues.

Clearly some of this decline is due to the tough advertising market in a recessionary economy, but magazine ad revenue dropped a comparatively small 11.2% while network and national cable TV was down only 6.6%.

Even when the advertising market improves newspapers will never see a return to their glory days. A January 2010 poll commissioned by the AARP shows that 33% of adults read a print paper less than they did five years ago and 80% would not be willing to pay for an online newspaper if it were unavailable in print.  Perhaps worst of all, young people seemingly have little use for a newspaper based on findings from The Kaiser Family Foundation's study: M2, Media in the Lives of 8 to 18 year Olds. The study reports that young people spend an average of just three minutes a day with a print newspaper, and only 23% are readers, down from 42% in 1999. Kids aren't reading the paper on-line either, spending on average just 2 minutes a day. Instead kids spend their media time watching television. listening to music, using the computer and playing video games. Apparently we are not raising a new generation of future newspaper readers.

If you are interested in the future of newspapers, as I am, head over to the Nieman Journalism Lab at Harvard University which is focused on "how quality journalism can survive and thrive in the Internet age" and they provide excellent coverage on this topic.

Friday, March 19, 2010

You'll Be Moving to The Country

Joel Kotkin, a Presidential Fellow and director of the Urban Futures Program at Chapman University, has an article on his excellent NewGeography site which examines the question: Where and how will Americans live in 2050. It's a fascinating look into the future and I'd highly recommend it.

Among Kotkin's key predictions are:
  • An increase in the US population of 100 million people
  • Scores of new communities will be built
  • Suburbs will continue to grow and thrive
  • Cities in the South and Southwest will be new "aspirational" destinations
  • A resurgence of the American heartland, enabled in part by the Internet
He touches briefly on some of the technology, transportation and construction business implications of  these changes, but the future promises to provide huge opportunities and risks. How will you prepare your business for the future?

Thursday, March 18, 2010

Asparagus as a Metaphor for Industrial Decline

California Asparagus Commission © 2010 
Spring heralds the arrival of delicious, tender asparagus on the menu. This year also marks the continuing decline of the US asparagus crop.

According to the California Asparagus Commission executive director Cherie Watte Angulo, as quoted in the Los Angles Times, California has only 11,500 acres of asparagus under cultivation, down from 40,900 acres in 2000. Twenty years ago California held 62% of the US market share, but that is down to just 10% today. Asparagus is a particularly labor intensive crop that does not lend itself to automated harvesting, sorting and packing so Mexico and Peru, with their comparatively low labor costs, have come to dominate the US market.

To put this in perspective, lets look at the well known decline of textiles and apparel in the US. Over the past 20 years employment in the US textile and apparel manufacturing industries has declined at a 7% and 8% compound annual rate, respectively, according to data from the US Department of Labor.  The market share  for US grown asparagus actually declined more rapidly at a 9% annual rate over the same period. I know looking at changes in employment and market share is a bit of an apples to oranges (pardon the pun) comparison, but it is a reasonable proxy to frame the magnitude of the asparagus decline.

In a future post I will look at additional agricultural sectors to see if asparagus represents an isolated case or is part of a larger trend. As to why we should care where our food comes from, I can think of no better source than Michael Pollan, the acclaimed author of The Omnivore's Dilemma which examined the social, ethical, and environmental impact of food.

Wednesday, March 17, 2010

A Bank Is Just A Bank?

GG4EFSVPQ6KK Every week I look at the list of the banks seized by the FDIC and wonder if the institutions on the list have any shared attributes. Based on an admittedly non-scientific review of the four banks seized last week, it turns out that they may. Mismanagement.

Looking at The Park Avenue and LibertyPointe Banks in New York City, Old Southern Bank in Orlando Florida and Statewide Bank in Covington Louisiana reveals what appears to be significant business lapses. Some issues, like the looting of TARP funds by the former president of the Park Avenue bank were not uncovered until after the bank's seizure. But many other problems were evident long before the FDIC stepped in.

Take the case of Old Southern Bank: in September of 2009, barely three years after its founding, the Federal Reserve Office of Financial Regulation issued a cease and desist order to the Bank's management citing credit and oversight issues and ordering the institution to "maintain effective control over, and supervision of, the Bank’s major operations and activities, including but not limited to, management, credit risk management, concentrations of credit, capital, and earnings." This isn't an unusual citation for a failing bank, however, the bitter public infighting between the Bank's CEO and a board member raises lots of questions. While the deteriorating Florida real estate market contributed to the flood of red ink inundating Old Southern, it seems like bad loans weren't the only problem for just the second bank in the region to fail since the great depression.

OldePointe, the first bank to fail in New York City since 1999 (The Park Avenue Bank became the second, just one day later), collapsed under the weight of bad real estate loans. This came after the five year old bank was charged by the FDIC last July for engaging in "unsafe and unsound" lending practices. Are these poor banking practices related to the Bank's chairman the alleged shoddy real estate development efforts? Perhaps.

A customer walking out of a former Park Avenue Bank branch the day after it was sold by the FDIC to Valley National Bank said, "We thought, a bank is a bank," expressing surprise at the change. What do you think?