Corn Fed American Beef

Today’s New York Times has an interesting article on the link between farm subsidies and obesity. The author has more to say in this article and this book. Allow me to summarize and annotate today’s item.

Federal subsidies (the way they are currently distributed) pay farmers to raise as much cheap grain as possible. This has gotten the Americans and Europeans in trouble with the WTO, who a) consider this dumping b) point out that American markets are not open to many agricultural products from foriegn nations, partcularly the poor ones whose largest industry is growing food. Indeed, most nations can’t compete with subsidized farmers who can afford to sell below cost.

Lower prices causes farmers to grow even more food in a perverse attempt to "stay even." So prices are continually driven down. Companies like Cargill make lots of money selling things to farmers to increase the amount of food they can grow, no matter that the land can realistically only support so much agriculture. The other result is that the family farmer has been is being pushed out of business by continually lower commodity prices and a technological arms race.

Food Processing Companies like Cargill are more than happy to take this excess supply at rock bottom prices! After all, the subsidies mean the farmer does not actually have to make a profit on the sale of the grain. They then turn this food we don’t need into tasty highly processed food we don’t need. Had you noticed that over the years plain old fashioned sugar has been mostly replaced by corn syrup and "high fructose" corn syrup? And that it shows up in such weird places as turkey lunchmeat and premade spaghetti sauce?

Marketing wizardry convinces us that we need this processed food, and how fortunate we are that the package is so large. Never mind that the package of snacky cakes, chips, soda, or whathaveyou that will surely be eaten in one sitting is something like 2 or 5 servings. Those rich people that aren’t fat? They aren’t buying Kraft Dinner. They are buying organic this and naturally sweetened that. They aren’t supersizing their fast food meals, they are having a balanced meal on a china plate and eating it with metal flatware. “Fries” are to “vegetables” as “pork rinds” are to “meat.”

Consumers get fat eating their fair share of the food surplus. This provides opportunities for business to make money off obesity. In fact, the article doesn’t take this last step. Maybe it should.

Merry Christmas!

It is mid October. The leaves are changing. The kids are bugging you for that perfect Halloween costume — and God forgive you if you forget the accessories. Your local retailers already have brought out Christmas merchandise. Go ahead, look behind the Halloween costumes and candy bowls that make spooky noises when you stick your hand in them. Christmas trees and lights. Barbie, Hot Wheels, and Hello Kitty stockings. The toy section is already bloated with plastic memories that will be broken in six months.

Halloween is a much bigger deal now than it was when I was a kid. Back in those days, Halloween decorating was a matter of carving a pumpkin and putting up whatever black-and-orange thing you and your siblings brought home from art class. Mom might have worn a witch’s hat when she took you trick-or-treating, but she and Dad certainly did not wear costumes unless they were already, um, unconventional. These days, lots of houses are decked out for Halloween, and a wide variety of adult sized costumes are available practically everywhere. More than Generation X’s embracing of all things kitsch, Halloween is big, big, business.

Nevertheless, Halloween has to compete with what is arguably the biggest holiday in America, Christmas. Thanksgiving almost gets skipped in the retail scheme of things. Now, we aren’t talking about Christmas craft items, which have to be started well ahead of time if they are to be ready in December. We are talking about things that in the old days, we didn’t even start to look at until Black Friday. Some analysts are already predicting a lucrative holiday shopping season.

In fact, some retailers claim they feel pressured to put out the Christmas merchandise ludicrously early. However, some of us traditionalists would rather not think about Christmas until after the Halloween costumes are safely put away. Indeed, that’s still almost 2 months before the big day and 4 weeks before the holiday season even begins.

The funny part is that in the bitter cold of January, when the kids go through their sudden growth spurt or your good jacket meets a horrible accident, a large selection of heavy winter coats will be on clearance. In retail-land, it will already be time to shop for swim suits.

Somehow, they make money doing this.

I read the news today, oh boy.

Yesterday’s Sunday newspaper was interesting. It was not interesting for the headline reading “Roy fights for life,” although I do hope both Roy and the Montecore are alright. Far more interesting was the note next to the masthead: “More than $60 in coupons and 1600 job listings inside!”

Those 1600 job listings sure sound like the sign of a good economy. An optimist would point out that those are only the listed jobs, and doesn’t include the type of job one must see an agency or a recruiter about. However, this is the kind of town where even jobs for Doctors and Lawyers are put in the newspaper, so don’t get to thinking those 1600 jobs are a small fraction of the jobs available. Furthermore, some percentage of the available jobs are part time, reducing the number of actual “career opportunities.”

Another unfortunate fact about those 1600 job listings is the fact that this area is growing wildly. The county adds 50007500 new residents each month. Even if half those people are children — and yes, the school system is strained by the ever increasing number of students — suddenly 1600 jobs isn’t that much.

Driving around town, there are other signs that all is not well with the local economy. The overwhelming majority of apartment complexes have large banners proclaiming “$99 Move In Special,” or simply “Free Rent.” And remember, this is in a rapidly growing city with a relatively vibrant local economy.

Those $60 in coupons are looking awfully appealing.

If you do no other reading today, take a look at what the Canadians have to say about our economy, and this summary of American economic prosperity in the real world by Jonathan Tasini. Frankly, I could not have put it better.

How to Make Money Selling Cars

Step one, make a car that people want. Step two, sell it for a price that people will pay, and yet is higher than the cost of designing, making, selling, and delivering the car to the final customer.

Alright, that was oversimplified.

As I write this, the large American auto manufacturers are trying desperately to sell cars. Ford has announced layoffs. Chrysler has announced $4000 incentives on brand new 2004 vehicles and $5000 on 2003s. GM is offering no-cost loans — something they are only able to do because they both build and finance the car. The number one item if you search for “American Cars” is “The End of Detroit: How the Big Three Lost Their Grip on the American Car Market.”

Meanwhile, the Japanese are selling cars almost as fast as they can make them. Honda and Nissan are both doing well, but by far the biggest success story is the redesigned Toyota Prius. You may remember the Prius as a very small, rather pricey hybrid car, distinguishable from the Echo only by the chrome. This year it is a somewhat larger hatchback available for roughly $21,000. It even gets substantially better milage than before. Edmunds describes it as “a legitimate family sedan that offers everything you would expect.” There are no incentives, no rebates.

Toyota is selling almost 6 times as many of them as they expected. It remains to be seen whether this demand will hold up, but this is nevertheless impressive. Although this car may not meet everyone’s needs, people who bought them seem to be happy with them. This isn’t one of those cars that wows the automotive press but falls short in real life, by all accounts. Toyota has step one (above) well under control.

But what about the second step, being able to sell it at a profit? Toyota claims they have that under control too.

Does it seem odd that the Detroit newspapers didn’t have much coverage of this success story? I thought so too. Maybe being someplace where the majority of the people can get family discounts on Big 3 cars gives them myopia regarding foreign cars. Time for Detroit to take a road trip.

Clash of the Regulators

Short quiz: all answers will be either a) Elliot Spitzer, b) William Donaldson, or c) None Of The Above.

1. Who is the current head of the Securities and Exchange Commission?

b) William Donaldson took the position in February of 2003, taking over from embattled Harvey Pitt, who was generally regarded as ineffective.

2. Who is the Attorney General for the State of New York?

a) Elliott Spitzer has had the position since 1999, and in all likelihood has done things that benefit you, even if you don’t live in New York.

3. Who recently reached a settlement with several major brokerages regarding alleged analyst hyping of overpriced stock for the benefit of the company?

a) Elliott Spitzer conducted a damning probe of brokerage research practices, resulting in massive settlements. None of the firms involved wanted to face criminal charges in the matter, as that would have been a corporate death sentence.

4. Who led charges against Dennis Koslowski, whose trial for essentially robbing Tyco Corporation blind while employed as its CEO began today?

c) None of the above. He is being prosecuted by the District Attorney of Manhattan (not this one, the real one).

5. Who is prosecuting all the Enron executives?

c) None of the above. A consortium of State Attorneys General and the Department Of Justice are handling the various criminal cases. The SEC continues to investigate Ken Lay, who has yet to be charged with any crime whatsoever.

6. Who recently brought charges against several mutual funds and hedge funds for illegal trading practices, despite being a hedge fund investor himself?

a) Elliot Spitzer charged that some hedge funds were able to (among other things) buy and sell stocks to mutual funds at the previous day’s prices. That’s like being able to make a bet on yesterday’s sporting events. It is a well known fact that Mr. Spitzer has been an investor in a hedge fund formerly (and legally) run by noted commentator Jim Cramer.

7. Who is prosecuting noted banker Frank Quattrone for obstruction of justice?

b) William Donaldson’s SEC, although a) Eliot Spitzer is trying to determine if there is enough evidence to bring state charges against Quattrone.

8. Who is prosecuting the fraud case against various WorldCom executives, including former CEO Bernie Ebbers?

c) None of the above. It is being prosecuted by the Oklahoma Attorney General. The Feds are not happy about it.

9. Who has recently been in the Congressional hot seat?

b) William Donaldson has been grilled by the Senate several times recently.

Bonus extra credit short answer question
Given the answers to the questions 1-8, are you surprised by the answer to question 9?

Not at all.

The Rich Get Richer, the Poor Get Poorer

It’s not just a proverb, it’s not just a Johnny Rotten lyric, it’s the undeniable truth.

At the beginning of the week, Forbes was proud to announce that the 400 richest Americans got 10% richer over the last year. Indeed, each of the 25 richest Americans saw an increase in net worth. These people are all Billionaires with a B.

Meanwhile on the other end of the economic spectrum, an authority no less credible than the United States Census Bureau reported at the end of the week that not only are there more people living in poverty this year than last year, not only is the median American income declining, but it is the second year in a row that poverty has increased and wages have decreased. The income gap between the highest and lowest paid Americans is also growing. Now, 12.1% of Americans earned less than the poverty level. That’s just short of one in every 8 Americans. About 13 million of them are your neighbors in suburbia — about 8.9%. These aren’t those people living under the bridge downtown; they are regular people like you. The change in suburban poverty is the lion’s share of the national increase. More than 1 in 4 single mothers and 1 in every 20 married couple live in poverty. Over 16% of American children live in poverty. There’s something to think about next time you drive past a public school.

It is oh so easy to blame the President, his tax cuts, and his economic “plan” for this divergence. He is the obvious target, the low hanging fruit. After all, it happened on his watch. There are also sound arguments to support the kneejerk reaction. Jackson Thoreau has written an excellent discussion of the ways Bush Administration policies have contributed to the poor getting poorer. It is worth a read, and although there is an insult to Kelsey Grammer, he does not resort to mindless Bush-bashing. Some members of Congress are not so circumspect, accusing the administration of “burying” the data by quietly releasing it on a Friday morning, a time when few people expect new economic data. The administration blames the increasing poverty on the economic slowdown — you remember, the one that supposedly ended almost 2 years ago.

There are more voices speaking about why the rich are getting richer. Forbes points out that much of the change is due to tech stocks rising. This does not explain Warren Buffett. Buffett, number 2 on Forbes’s list, has been against the repeal of the estate tax despite the fact that his heirs would greatly benefit. Furthermore, he called Bush’s dividend tax break “voodoo.” Although Mr. Buffett has not commented on today’s news, it is a pretty good bet that he would ascribe some blame to the Bush tax agenda. Others have come out and said so.* Another man who stood to gain a lot from Bush tax cuts, a man with more money than I am ever likely to have, Jim Cramer,* suggests that it is not the dividend tax cut that was the problem, but coupling it with a capital gains cut.

When the rich claim they are not paying enough taxes, you know something is wrong.

*Please forgive the links to abstracts. They were the only free way to present you with the relevant information.

Don’t Call Us, We’ll Call You

Yesterday, a Federal District Court ruled that the Federal Trade Commission does not have the authority to run the National Telemarketing Do-Not-Call list. The ruling appears to hinge not on First Amendment free speech issues, but rather on issues of formal jurisdiction. Thus, my comments may be obsolete by the time you read them. As an example of how popular the Do-Not-Call list is, there are 50 million numbers registered compared to 46 million dial-up internet customers in the United States. Please keep in mind when comparing these figures that some households have registered multiple phone numbers, and that some broadband internet customers have a dial-up account as backup connectivity. Nevertheless, this list clearly has popular support and is already being funded by a tax on telemarketers themselves. Expect Congress to act quickly.

I fully support the idea of a Do-Not-Call list. Like many people, I refuse to buy products from some stranger who calls me on the phone. I frankly don’t understand why anyone would whip out the credit card for some unknown person who calls claiming to be a representative of some business that he or she did not first call personally. Furthermore, the idea that I would set up an appointment for an unknown salesman to visit my home on such a basis is ludicrous.

The Direct Marketing Association should not be fighting this list in court; they should be embracing it. It represents a comprehensive list of people like me, who will not do business with their clients under any circumstances. By properly using such a list, they increase productivity of their employees by sharply reducing the number of failed sales calls. That’s right. By not calling people who will not buy, they increase odds of reaching someone who will. The people who make a living as telemarketers should not see this as job threatening; they should see this as potentially improving their close ratio and thus increasing their bonuses.

Unfortunately, the list is useless. Exempted are “political organizations, charities, telephone surveyors, the business of insurance (to the extent that it is regulated by state law), or companies with which you have an existing business relationship.” Apparently, the FCC ceded authority to the FTC to regulate “telemarketers from financial institutions, telecommunications companies and others.” In my case, at least 90% of the telemarketing calls I have received in the last 3 years are exempted from Do-Not-Call list restrictions.

In the immortal words of Bugs Bunny, “What’s all the hubbub, bub?”

A Yen for Dollars

Unless you really like financial news, you may not have noticed that the value of a dollar has been sharply declining this week. The dollar has been declining for quite a while, but the pace has started to alarm investors, economists, politicians, and businessmen both here and abroad.

The good news — if it can be called that — is that a weak dollar makes American goods more competitive overseas. For example, a Volkswagen will cost more relative to a Ford in the states, while the Ford will seem to have a price cut in Germany. Unfortunately, this logic applies to everything Americans buy that is imported: fruit, meat, clothing, computer chips, Canadian lumber, Italian leather sofas, Bosch spark plugs; frankly Americans import most of what they buy. That is the definition of a trade deficit. That is where this policy will hit you in the wallet. The theory is that a weak currency will make it more cost effective to manufacture things here in the Good Old U. S. of A. and cause companies to hire back those 3 million or so factory workers whose jobs have evaporated during the Bush II Administration. This assumes several unrealistic things, not the least of which is that companies that have moved manufacturing overseas to take advantage of cheap labor and brand new factories are willing to move back.

The same devaluation that makes it desirable for foreigners to buy American cars makes it undesirable for foreigners to have American assets, such as stocks and bonds. Big deal, you say? Asian banks own over $1 Trillion (with a T) of the United States’ national debt. Imagine what happens if they decide to sell just a tenth of their positions.

Furthermore, the weak dollar makes it undesirable for foreigners to travel to the United States, as if current visa policies do not do the job. Has anyone told the Treasury Secretary that the Commerce Secretary is trying to encourage tourism? Secretary Snow, who replaced the largely ineffective Paul O’Neill,* has made a series of statements that make sense in a vacuum, but not in reality-land.

For example, back in June, Snow defined a “strong currency” as follows: “You want people to have confidence in your currency. You want them to see the currency as a good medium of exchange. You want the currency to be a good store of value. You want it to be something people are willing to hold. You want it hard to counterfeit, like our new $20 bill. Those are the qualities.” This may be his personal definition, and it may even be the Administration’s official definition, but it is not the definition most people use. It’s like defining all computers as using Microsoft Windows; saying it does not make it so. As CNN’s Justin Lahart put it, “Most currency traders had thought that the “strong dollar” policy had something to do with fostering economic policies — like low inflation, reduced debt and strong growth — which lead to a higher exchange rate for the dollar.”

In a more recent example of Bizarro-World Economics, just yesterday Snow proclaimed before an international audience of leading bankers and economists that the United States’ budget deficit would be cut in half by 2008. He went on to say that would take place due to growth and “disciplined spending” without tax increases. I fail to see how this is possible without hiring accounting experts from Enron and Worldcom. The fact that an expert from the International Monetary Fund thought this was reasonable should raise big red flags. Granted, it only took 2.5 years to go from budget surplus to an over $400 Billion deficit. But that was before the War on Terror, nation building in Afghanistan, overthrowing the albeit oppressive government of Iraq, two massive tax cuts, adding an entire new Department to the Executive Branch, proclaiming that No Child should be Left Behind, and giving sweeping new powers to the Department of Justice. We haven’t even figured out how to make Social Security work out after the Baby Boomers start retiring, and we’ve had since 1946 to work on that.

In the end, the currency devaluation is a high stakes game of chicken with China and Japan. The primary aim is to force China to de-link it’s currency with the dollar.** This link is one of the reasons Chinese goods are so darn cheap you almost can’t avoid buying them in the States — well, that and slave labor. The secondary aim is to force Japan to stop artificially lowering the value of the Yen, making Japanese goods cheaper overseas and stimulating Japanese manufacturing.

Should prices of Asian goods rise, inflation will result. That will force Greenspan to raise interest rates. That in turn will effect mortgage rates, the availability of investment capital, and the amount of interest the United States has to pay on the National Debt.

No matter who blinks, you lose.

*O’Neill was a good CEO, lousy Secretary of the Treasury. When he was nominated, Wall Street was pleased, thinking it meant someone competent and clueful would be running the show. It is unknown why exactly the administration thought another good CEO would succeed where another failed.

**Linking a currency may be a good short term idea. For example, certain South American nations did it to halt hyper-inflation. However, in the long term, Alan Greenspan is paid to care about how monetary policy effects America, not any other nation whose currency may be linked to our own.

A Message to Madison Avenue

I’d like to take a moment to talk about advertising. I begin with the basic premise that advertising is supposed to make the people who see it do something.

This appears to be a radical concept.

There is a lot of really lousy advertising out there. It’s not just misleading banner ads on websites, or spam that promises low mortgages. Be honest, have any of you actually bought anything based on a pop-up ad? Television and radio ads are quite awful these days. Here are some examples of basic ad types that I can’t imagine being effective.

Hey kids! Adults are idiots! Make Mom and Dad buy this product for you! Mistake one, forgetting where the money to buy things comes from. Mistake two, insulting that source of money. That “idiot” adult is where kids get their revenues. You don’t see kids counting up their allowance money to buy breakfast cereal and hyper-mega sugary snacks.

“Wow, that was a funny commercial for…. what was it again?” Stop me if this is too logical, but if your customer can’t remember your product from the time he sees the commercial to the time he buys something, it wasn’t a very good commercial. Remember those “Ernest” commercials back in the late 80s? Very funny. What were any of them for? Darned if I remember. By contrast, we all know that Gilbert Gottfried’s characterization of the Aflac Duck is supposed to remind us to ask our employers about supplemental insurance. Those of us old enough to remember know that the “Where’s the beef?” lady was exhorting us to go eat at Wendy’s. We know that when he’s not getting high, Steven thinks all us “dudes” need to call Dell and get a computer sent straight to our doors. This case, by the way, illustrates the dangers of having a single, visible, fallible spokesperson.

Hey hey! Who here likes to polka?? It doesn’t matter how good an ad is if it doesn’t reach people apt to buy the product. Thankfully, advertisers have more or less realized that kids looking to buy dolls, toy cars, and GoGurt are not watching Cartoon Network at 11 PM on a school night. Likewise, the readers of Sesame Street Magazine are not in in a position to buy a new minivan. They aren’t even in a position to reach the pedals.

Here, have some heavy-handed morality to go. Public Service Announcements (PSAs) are not actually trying to sell us anything. They are trying to get us to do something — or not do something. Just Say No. Save Water. Talk To Your Kids. All are generally good messages. But sometimes they take themselves way too seriously: if you use drugs you support terrorism; won’t somebody please think of the children. Even the best of this class of ads lends itself to parody: This is your brain; this is your brain on drugs; this is your brain on drugs with a side of bacon. Let’s take it easy here. I think we all know the PSA message of the week.

Some of the most perplexing ads are “image ads.” Basically these are run by large companies, often with many subsidiaries, to remind us they exist. Sure, maybe you aren’t in the market for a GE product today, but maybe your dishwasher will break next week, maybe you’ll need a light-bulb next month, maybe your company will need jet engine next year, or maybe you’ll buy some GE stock for your retirement account. It’s hard to say whether these ads are effective.

An effective ad makes someone want to do something. That is all any of us needs to remember.

The Grasso is Greener on the Other Side

There. It’s done. Dick Grasso has resigned as head of the New York Stock Exchange. A man who was debatably the most powerful man on Wall Street is now unemployed, in answer to widespread calls for blood since disclosure of his $140 Million salary package. Please go ahead and feel free to sample some of the news coverage. Even the Head of the SEC and the Senate wanted to know what was going on. Many people are outraged that he received so much money. And yes, it certainly is a lot of money.

But personally, I’m inclined to think he worked pretty hard for it. Several of those news items in the last paragraph make it clear that he worked his way up from the bottom, earning less than $85 per week in the late 60s, and that he simply knows more about how the arcane NYSE system works than anybody. Who coordinated things such that the markets were only closed for 4 days after September 11, 2001? Dick Grasso, that’s who. For those who aren’t experts in Manhattan Geography, the World Trade Center was walking distance from the NYSE. Many brokerages, mutual funds, and financial advisors had offices in the WTC. There are faces you no longer see on CNBC because they were at Ground Zero. There were other companies that lost 3-letter types in the terrible incident — that falls under the category of what the SEC likes to call “material information.” Almost everybody on Wall Street lost someone they knew that day. Many of them watched the Towers go down live and in person. The financial markets would have fared far worse to be closed another week. This is to say nothing of the impact such a delay would have had on the economy as a whole. Yes, I do believe that not being able to access the capital markets would have had a negative effect on American business.

Fine, that was 2 years ago, what has he done lately? Where was Dick Grasso when the lights went out last month? In his office, making sure things would run smoothly in the morning, on generator power of course. He slept in his office that night.

Don’t start thinking this is the end of the story. The money was not just sitting on the floor of the NYSE waiting for somebody to pocket it. The Board of the NYSE had to sign off on this mess, and now they will have their noses rubbed in it. In fact, if you think Dick Grasso was overpaid, the Board is where to lay the blame. Expect heads to roll. The volatility of the situation is illustrated by the fact that they couldn’t find someone to replace Grasso before lunch.

My inner tin-foil hat wonders who stood to benefit from Grasso’s demise.