December 12th, 2012
By 2030, no country—whether the US, China, or any other large country—will be a hegemonic power. So opens a new study, by the National Intelligence Council. The product of 4 years of research, the report offers a number of pronouncements: A return to pre-2008 growth rates and previous patterns of rapid globalization looks increasingly unlikely, at least for the next decade; China alone will probably have the largest economy, surpassing that of the United States a few years before 2030; the US, European, and Japanese share of global income is projected to fall from 56 percent today to well under half by 2030; today’s roughly 50-percent urban population will climb to nearly 60 percent, or 4.9 billion people, in 2030; and the worldwide middle class will continue to be bigger better educated and have wider access to health care and communications technologies like the Internet and smartphones. That may be the best news of all in the report. “The growth of the global middle class constitutes a tectonic shift. For the first time, a majority of the world’s population will not be impoverished, and the middle classes will be the most important social and economic sector in the vast majority of countries around the world.”
In reading the report, I was struck by how definitively it seemed to herald the close of the American century (not quite a hundred years if you consider WWII the dawn of American supremacy) and the peace it promised – the Pax Americana. The world today is infinitely more complex and power is not discrete and binary but multivalent and shifting. The report details for us the good, the bad and the ugly of geopolitcs. Developing nations will become especially important to the global economy, including Brazil, Colombia, India, Indonesia, Nigeria, South Africa and Turkey (the developing world already provides more than 50 percent of global economic growth , 40 percent of global investment and 70% of global investment growth). Aging countries will see a period of decline over the next two decades, including Europe, Japan, South Korea, Russia and Taiwan, which could slow their economies further. And at least 15 countries are described as being “at high risk of state failure” by 2030, among them Afghanistan and Pakistan, but also Burundi, Rwanda, Somalia, Uganda and Yemen. In terms of global hotspots, the widespread use of new communications technologies will become a double-edged sword for governance. On the one hand, social networking will enable citizens to coalesce and challenge governments, as we have already seen in Middle East; at the same time, better surveillance tools will allow closer monitoring of civilian populations.
December 10th, 2012
Banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported income of $37.6 billion in the third quarter, a 6.6 percent improvement over third quarter, 2011. This is the 13th consecutive quarter that earnings have registered a year-over-year increase. The other big news – the decline in the number of banks on the FDIC’s “Problem List” from 732 to 694. This is the first time in three years that there have been fewer than 700 banks on the list
For the economy, this means more liquidity as loan balances posted their fifth quarterly increase in the last six quarters, rising by $64.8 billion . Loans to commercial and industrial borrowers increased by $31.8 billion (2.2 percent), while residential mortgages rose by $14.5 billion (0.8 percent) and auto loans grew by $7.4 billion (2.4 percent). The bad news? The nerves around the fiscal cliff may have caused home equity lines of credit to decline by $12.9 billion (2.2 percent), and real estate construction and development loans fell by $6.9 billion (3.2 percent). Remember that $2 billion of property construction and design would be eliminated if sequestration happens, cutting 66,500 jobs.
Still, the FDIC report is cause for optimism. Only 12 insured institutions failed during the third quarter. This is the smallest number of failures in a quarter since the fourth quarter of 2008, when there were also 12. An additional seven banks have failed so far in the fourth quarter, bringing the year-to-date total to 50. Through December 4, 2011, there had been 90 failures year-to-date.
“More than 55 percent of all banks reported loan growth,” Chairman Gruenberg noted. “Small banks are also increasing their lending, including their loans to small businesses.”
The complete Quarterly Banking Profile is available both here and at on the FDIC Web site.
December 6th, 2012
On December 5, 2012, the world lost it’s greatest living jazz artist, Dave Brubeck. Some may dispute that claim but consider his achievements. He was the first jazz artist to reach rock-star status with 1959′s groundbreaking album, Time Out, the first jazz album to sell a million copies. The album gave us the hit singles Take Five and Blue Rondo a la Turk and turned an esoteric art form that previously was appreciated only by beatniks and counterculture snobs into mainstream fare. Brubeck was so popular that he became only the second jazz musician (after Louis Armstrong) to be featured on the cover of Time. In addition to major concert halls, Brubeck played college campuses and brought jazz to new generations. But he was no populist lightweight. Serious jazz artists like Miles Davis covered his work and critics wrote odes to his experiments in time signature.
Needless to say, Brubeck, Paul Desmond and their various band members over the years, wrote and recorded some of the most iconic jazz music heard on the airwaves both then and now. I saw and heard him play in various venues lo these many years, and was always, always fascinated by the depth and breadth of his creativity and technical genius, even at his last performance at Chicago’s Ravinia Festival last season. I couldn’t fathom someone in their 90s being as facile and dexterous on a keyboard as he was. I cherish his music, own 20 of his hundreds of CDs and still retain my original vinyl albums from back in the 1950′s. Thank you, Mr. Brubeck for giving us the music that has touched our soul.
Rolla Heinen, Due Diligence Manager – The Alter Group, Music Lover
December 5th, 2012
As Hostess Brands, Inc. – the 80-plus-year-old baker of such iconic brands as Twinkies, HoHos, Hostess CupCakes, DingDongs and Wonder Bread – enters into liquidation and probable acquisition, the online price of the sugar-filled delicacies is soaring.
As soon as Hostess announced the end of production, Twinkie lovers started scrambling to buy every Twinkie they could find. In some cases, the buyers visited eBay and Craigslist to sell their hoards – presumably at a significant profit. Price tags for a box of 10 Twinkies hit four and even five digits; the retail price is in the $5 range. One enterprising eBay seller, who is asking $10,000 for a box of Twinkies, has vowed to donate 10 percent of the proceeds to local charities. Despite the conventional wisdom about the longevity of Twinkies, the majority purchased in mid-November will be past their sell date in approximately one month.
Chances are that another company will buy out Hostess Brands and breathe new life into its products. The most likely purchaser is C. Dean Metropoulos and Co., a private-equity firm that specializes in resurrecting troubled heritage brands, such as Pabst Blue Ribbon beer, Bumble Bee Tuna, Chef Boyardee pasta, and PAM cooking spray. Of greatest value to any purchaser are Hostess’ intellectual property rights, which allow the manufacture and sale of the brand’s flagship products.
Hostess’ intrinsic brand value means that acquiring the name is a good business decision for the eventual buyer. According to Michael J. De La Merced, “One company’s castoffs can be another company’s golden goose — or in this case, cream-filled confection. It is a common trade in bankruptcy court. Sellers are hoping to drum up cash for their creditors, and buyers are betting they can revive the brands. Even though consumers are increasingly crunching on kale, Twinkies and other sugary snacks still make loads of money. Hostess makes billions of dollars of sales each year.”
December 4th, 2012
Black Friday holiday sales set a record in 2012 with 247 million shoppers visiting the malls or shopping online. That’s 21 million more people than in 2011. Total sales topped $59.1 billion. The typical holiday shopper spent $423 over the weekend, a $25 increase over the $398 recorded last year. The National Retail Federation (NRF) defines the “Black Friday weekend” as the Thursday, Friday, Saturday and Sunday after Thanksgiving. One of the big stories is that online spending alone soared past the $1 billion mark for the first time ever, according to comScore.
Cyber sales rose 26 percent compared with one year ago, when shoppers spent $816 million. This year, the average online shopper spent $172.42 over the Black Friday weekend, nearly 40.7 percent of their total purchases. Of online shoppers surveyed by NRF, 27 percent reported making purchases on Thanksgiving Day, while 47.5 percent shopped on Black Friday itself. Amazon.com was the most-visited retail website, followed by Wal-Mart, Best Buy, Target and Apple.
Retailers’ door-buster specials drew shoppers to the stores. “There’s no question that millions of people were drawn to retailers’ aggressive online promotions this weekend, making sure to research and compare prices days in advance to ensure they were getting the best deal they could,” said BIGinsight Consumer Insights Director Pam Goodfellow. “However, with shopper traffic increasing at department, discount, and clothing stores over the weekend, it’s clear that consumers still recognize Black Friday as one of the biggest in-store shopping days of the year, as they have for decades.”
The NRF had forecast that worries over the possibility of the fiscal cliff and the anemic jobs market might put a damper on holiday spending. Its guesstimate is that holiday spending will rise just 4.1 percent this year, compared with 5.6 percent in 2011. A survey by ShopperTrak found that 307.57 million Americans shopped in stores, a 3.5 percent increase over last year. Bill Martin, ShopperTrak’s founder, is more optimistic. He notes that store traffic hasn’t reached this level since 2006, possibly marking a return to pre-recession levels and could be a sign of recovery. “We’ve seen that consumers are willing to shop a few extra stores,” Martin noted. “This could translate into more impulse buying and stronger sales.”
November 26th, 2012
The October employment report won’t blow anyone out of the water, but showed a modest improvement that caused many to breathe a sigh of relief. According to the Department of Labor, 171,000 jobs were added in October – the highest number since February. Retailing (up 36,000); healthcare (up 31,000) and business services (up 51,000) showed the most significant gains. August and September employment numbers were also revised upwards by 84,000 jobs. The nation’s unemployment rate stood at 7.9 percent, a slight tick upwards from the 7.8 percent reported in September.
Possibly of greater significance is the fact that the workforce showed signs of growth, with the labor force participation rate rising to 63.8 percent. More than 500,000 Americans started job hunting in October. The current number includes 12.3 million people who have no jobs; 8.3 million who work part-time; and 2.4 million who have stopped looking for work. Compare this with October, 2009 – at the height of the Great Recession — when the unemployment rate was 10 percent. Prior to the recession, the unemployment rate averaged five percent or less. Even though it has declined from its peak, it is still approximately three percent less than what is considered to be full employment.
Writing in The New Yorker, John Cassidy says that “Over the past year, the total number of people employed has risen from 140.3 million to 143.4 million, according to the household survey. After allowing for population growth, the number of people unemployed has fallen by a million, and the number working part-time or no longer actively looking for work has dropped by about half a million. The number of people who have been out of work for more than six months – the hard-core unemployed – has fallen by more than 800,000, and it now stands at five million.”
Despite the upbeat news, Americans still are not seeing any improvement in their standard of living. In October, the average hourly wage for workers in the non-farm sector fell one penny to $23.58. Wages have risen a scant 1.6 percent in the last year, less than the inflation rate.
November 15th, 2012
With its recent acquisition of Lucasfilm, Ltd., the Walt Disney Company has wagered $4.05 billion that it can increase the worth of the formidable “Star Wars” franchise. Included in the sale are the copyrights for “Star Wars”, producer shares in the “Indiana Jones” movies, as well as Lucas’ Industrial Light and Magic (ILM), an awards-winning special-effects operation. Additionally, the transaction allows Lucas to retain ownership of some of the nation’s priciest real estate, the Skywalker Ranch. The 4,000-acre residential and work spread is located in Marin County, CA, and worth an estimated $100 million. Lucasfilm employees will continue to work at the Skywalker Ranch production facility.
The real story here is whether Disney offers a superior distribution network for Lucas’ intellectual property. Disney’s consumer-products division – which earned more than $3 billion in 2011– is a powerful technology-driven platform for distributing content globally. According to Disney CEO Robert Iger, “Technology has proved more friend than foe to great storytelling. It allows us to distribute in ways we never thought would have been imaginable.” For example, if released today, the last three “Star Wars” movies would have generated $1.5 billion each when adjusted for inflation, the growing international market and the popularity of 3-D. Related merchandise sales would have earned an additional $215 million in 2012. By contrast, Lucasfilm earned $550 million in operating in profit when the last “Star Wars” movie was released in 2005.
According to the Forbes 100 List, Lucas was worth an estimated $3.3 billion as of September, 2012, and ranked # 120 among the world’s wealthiest individuals. Reports are that Lucas will donate most of the proceeds from the sale to education-focused groups. Although Lucas has not yet specified who will be the beneficiary, a likely choice is Edutopia, which empowers innovative coursework in schools. Lucas currently serves as Edutopia’s chairman.
November 6th, 2012
Seven-time Tour de France winner Lance Armstrong has been banned for life from cycling and stripped of his titles, with all 14 years of his meteoric career officially expunged from the records. According to International Cycling Union (known by its French acronym of UCI) president Pat McQuaid, “Lance Armstrong has no place in cycling.” Armstrong had previously been banned from the sport by the U.S. Anti-Doping Agency (USADA), which found “overwhelming” evidence that he was involved in “the most sophisticated, professionalized and successful doping program.”
Estimates are that the scandal will cost Armstrong at least $150 million in lost corporate sponsorships from companies such as Nike, RadioShack, Anheuser-Busch and Oakley. Despite that, all four plan to continue supporting Armstrong’s anti-cancer charity, the Livestrong Foundation, which has raised more than $400 million since 1997. In 2011, Livestrong served more than 325,000 individuals. Additionally, the French Cycling Federation (FCF) has asked Armstrong to return € 2.95 million (the equivalent of $4 million) in prize money. Armstrong’s team sponsor, the U.S. Postal Service, also paid the cyclist more than $12 million in performance bonuses between 1999 and 2005, which it may ask to be returned. Additionally, Armstrong may be stripped of the bronze medal he won at the 2002 Sydney Olympics, although he will be allowed to keep his yellow jerseys.
Armstrong continues to deny that he has ever used performance-enhancing drugs, noting that he has passed multiple drug tests. Despite the denials, he recently changed his Twitter bio to reflect his new status from “Father of five amazing kids, seven-time Tour de France winner, full-time cancer fighter, part-time triathlete” to “Raising my five kids. Fighting cancer. Swim, bike, run and golf whenever I can.”
Armstrong became a wealthy man over his career, amassing a fortune worth $125 million and he was the sport’s greatest star. The 2005 tour de France – the last that Armstrong won — drew 15 million viewers watching from along the road, while another two billion worldwide followed the race on television. In 2005, cycling was a $6 billion industry in the United States alone.
Although Armstrong’s downfall is of epic proportion, he is not the first athlete to be discredited. Legendary Olympian Jim Thorpe lost his gold medals when it was learned he had played professional sports, which was not allowed in 1912. The medals were restored in 1982 – 30 years after Thorpe’s death. Ben Johnson – once dubbed “the fastest man in the world” – was stripped of his gold medal after he tested positive for a banned steroid. Track superstar Marion Jones, the first woman Olympian to win five medals, pleaded guilty to perjury after testing positive for performance-enhancing drugs. She also was banned from the 2008 Beijing Olympics and sentenced to six months in prison and two years of probation for lying about her drug use.