Archive for July, 2009

• The Real World in Washington
  Eddy Elfenbein, July 11th, 2009 at 6:12 pm

  They’re currently filming the Real World in Washington.
  I saw a few of the housemates strolling along Florida Avenue yesterday. Here’s a bad picture of some of the girls:
  
  If you squint carefully you can make out the cameraman stalking them in the bushes, which looks kind of creepy (as opposed to me and my cellphone).

• Crossing Wall Street Turns Four
  Eddy Elfenbein, July 11th, 2009 at 5:58 pm

  Happy fourth birthday to Crossing Wall Street! This is my 4,289th post.
  Here’s my very first:

  Europe Vs. Gillette and P&G
  The European Constitution finally ended its nasty losing streak yesterday when it was approved by voters in Luxembourg. Even if the good people of the Grand Duchy had voted against the referendum, the Eurocrats don’t seem terribly interested in losses at the polls. The Constitution is quite popular as long as no one actually has to vote on it. That’s why the Luxembourgian Yes vote (or Jo vote?) is so important. It keeps “the process” alive. And that’s the important thing—the process. The Constitution has already been shot down by voters in Holland and France, yet the EU leaders insist that “the process” continues, which I take to mean as “vote until you get it right.”
  However, there’s another election coming this Tuesday that might similarly be ignored by the Brussels Busybodies. In Boston, Gillette’s shareholders will meet to vote to approve their merger with Procter & Gamble. The deal will almost certainly be approved. Warren Buffett, Gillette’s largest shareholder, has called it a “dream deal.” That’s a nice endorsement to have.
  But the merger has hit an unexpected snag—the EU doesn’t like it. Now let’s recount the action: We have two U.S.-based businesses agreeing to a friendly merger. The deal has been approved by U.S. regulators, and it will certainly be approved by shareholders. But the regulars in another country (or entity, at least) object. And what’s the sticking point?
  Toothbrushes.
  I’m not making this up. Gillette owns the Oral-B brand of battery-powered toothbrushes, and P&G has its own Crest brand. The EU thinks that if the two are combined, the new cowboy superpower will have a competition-stifling command of the global toothbrush market. Think of the horror. Across the continent, mom-and-pop toothbrush makers will be driven out of business by uncouth Americans. Oral care has generally not been a major concern for Europeans, so I guess this is progress of some sort, but it’s a disturbing trend nonetheless.
  This isn’t the first time Europe has interfered with American business. As the economy has gone global, so have the bureaucrats. Four years ago, the EU blocked General Electric’s merger with Honeywell. But the issue there was at least something cool, aircrafts. But toothbrushes?
  If you had to sum up the pettiness of the European bureaucracy, this would be as good as any. But this is what the Global Economy looks like. Gillette and P&G will have no problem finishing their merger. The Europeans might delay it for a while, and the companies will probably have to sell off some units. But now, every time two businesses even think about merging, they’ll have to consider what might happen in Brussels, not to mention, Luxembourg.

• The Power of Free
  Eddy Elfenbein, July 10th, 2009 at 10:24 pm

  From Virginia Postrel’s review of Chris Anderson’s Free: The Future of a Radical Price:

  Monty Python created a YouTube channel with their most popular skits in hopes of enticing fans to buy their DVDs. Their shows and movies soon hit Amazon’s best-seller list, with increased sales of 23,000 percent.

• Fans Flock to Mourn California, 1849-2009
  Eddy Elfenbein, July 10th, 2009 at 1:47 pm

  Iowahawk is on the scene:

  From a humble beginning as a water-poor remote Spanish mission outpost, California proved to be a precocious and talented child performer. It struck gold with ‘Sutter’s Mill’ in 1849, earning accolades and attracting millions of crusty bearded prospectors. Black gold soon followed with ‘Arizona.’ Unlike many child acts, California made a smooth transition to adolescence, scoring a major hit with ‘Agriculture’ in 1891.
  Even a frightening bout with tremors did not stop the flow of hits. The 1915 megasmash ‘Hollywood’ broke all records, as did the wartime favorite ‘Aerospace.’ More recently, California topped the charts with ‘Tourism,’ ‘High Tech,’ and ‘Coastal Pretension.’
  For a time it seemed as if the superstar could do no wrong, but behind the glittering facade of Disneyland Manor troubling signs of mental instability began to emerge. The state developed a well-publicized drug problem during filming of 1967’s ‘Summer of Love,’ and briefly dabbled in strange religious cults. Under the influence of spiritual guru Jerry Brown, it began wholesale experimentation in exotic spending programs, eventual resulting in a traumatic 1979 stay at the Prop 13 Rehab Center.
  During the 80’s and 90’s California enjoyed a brief career renaissance with hits like ‘Olympics,’ ‘Real Estate’ and ‘Dot Com Boom,’ but personal problems plagued the reclusive star once again. During the recording of the ‘OJ’ and ‘Rodney King’ albums, friends and visitors expressed concern over its recurring tremors and penchant for self-mutilation.
  “California used to be so happy and beautiful,” said a horrified Ohio. “I hardly recognize it any more.”
  During that period, camp insiders say the increasingly psychotic state began driving away its long time professional management team and support crew. In its place, it assembled an entourage of con men and embezzlers, some of who stoked California’s increasingly bizarre environmental paranoia. It was seldom seen in public without a breathing mask to ward off imagined pollutants.
  Worse, the hits began drying up; the huge 2001 flop ‘Dot Com Bust’ put a huge crimp into California’s once unlimited cash flow. Despite the setback, insiders say the superstar was unwilling to change its lavish lifestyle, and retreated once again into spending abuse. Personal expenses skyrocketed, propelled in part by California’s eight million adopted foster children. During the 90’s sensationalistic accounts of child abuse began surfacing. Eyewitnesses reported California cruising local neighborhoods in school buses, luring unsuspecting kid for sessions of ‘public education.’ By some estimates hundreds of thousands were left traumatized and severely brain damaged.

  Read the whole thing.

• The Big Business of Overdraft Fees
  Eddy Elfenbein, July 10th, 2009 at 11:05 am

  Contrary to what you might think, banks love overdrafts. They’re happy to cover you then charge a hefty fee. This year banks will rake in close to $40 billion through overdraft fees. To put that in context, it’s about double what they’ll make off credit card penalties. If it weren’t for overdraft fees, nearly half of all banks and credit unions wouldn’t have made any money last year.
  USA Today reports:

  Large banks also reserve the right to process large transactions first, triggering more overdraft fees by emptying the account more quickly. Some even charge consumers before they overdraw by deducting a purchase when it’s made, rather than when it clears, pushing the account into the red sooner.

  There is a simple way for consumers to avoid all this—balance your freakin checkbook!

• The Volatility Storm Has Passed
  Eddy Elfenbein, July 10th, 2009 at 10:38 am

  What happened to all the volatility? Here are the closing S&P 500 levels for Tuesday, Wednesday and Thursday—881.03, 879.56 and 882.68. Snore!
  Here’s a look at the S&P 500’s daily changes going back to 2005.
  
  Right now we’re at 881.38. This market is flat!

• CNBC Follows Up Its Special Report on Weed with One on Hookers and Another on Porn. Trend?
  Eddy Elfenbein, July 10th, 2009 at 10:15 am

  Is it me or does there seem to be a trend with CNBC’s special reports? First David Faber did an excellent job with “Marijuana Inc: Inside America’s Pot Industry.” Tonight is the premiere of “Dirty Money: The Business of High-End Prostitution.” And next Wednesday, they air “Porn: Business of Pleasure.”
  And they employ Dennis Kneale.
  Don’t get wrong, I’m all for this vice stuff. But some of their sponsors aren’t too thrilled with the idea. Mediaite notes that Charles Schwab pulled it sponsorship of Fast Money—though not from CNBC entirely.

• Same-Stores Sales for June
  Eddy Elfenbein, July 9th, 2009 at 3:18 pm

  Here are the mostly ugly totals for June:

  DISCOUNT
  BJ’s Wholesale Club -7.5 pct
  Costco -6 pct
  Target -6.2 pct
  DEPARTMENT STORES
  Bon-Ton Stores -8 pct
  Dillard’s -14 pct
  Fred’s 0.2 pct
  J.C. Penney -8.2 pct
  Kohl’s -5.6 pct
  Neiman Marcus -20.8 pct
  Nordstrom -10 pct
  Macy’s -8.9 pct
  Saks -4.4 pct
  Stage Stores -12.6 pct
  CLOTHING AND TEEN-ORIENTED
  Abercrombie & Fitch -32 pct
  Aeropostale 12 pct
  American Apparel -13 pct
  American Eagle Outfitters -11 pct
  The Buckle 9.6 pct
  Cato Corp. -3 pct
  The Children’s Place Retail Stores -12 pct
  Destination Maternity -10.7 pct
  Gap Inc. -10 pct
  Hot Topic -7.9 pct
  Limited Brands -12 pct
  Ross Stores 1 pct
  Stein Mart -8 pct
  TJX Cos. 4 pct
  Wet Seal -11.1
  Zumiez -19.3 pct
  DRUG
  Rite Aid Corp. -0.6 pct
  Walgreen Co. 3.4 pct

• The Fed Strikes Back
  Eddy Elfenbein, July 9th, 2009 at 1:49 pm

  Despite have a ton of cosponsors, Ron Paul’s bid to get a full audit of the Fed seems have died in the Senate. Vice Chairman Donald Kohn took on the issue today on Capitol Hill:

  The Congress, however, has purposefully–and for good reason–excluded from the scope of potential GAO audits monetary policy deliberations and operations, including open market and discount window operations, and transactions with or for foreign central banks, foreign governments, and public international financing organizations. By excluding these areas, the Congress has carefully balanced the need for public accountability with the strong public policy benefits that flow from maintaining the independence of the central bank’s monetary policy functions and avoiding disruption to the nation’s foreign and international relationships.
  The same public policy reasons that supported the creation of these exclusions in 1978 remain valid today. The Federal Reserve strongly believes that removing the statutory limits on GAO audits of monetary policy matters would be contrary to the public interest by tending to undermine the independence and efficacy of monetary policy in several ways. First, the GAO serves as the investigative arm of the Congress and, by law, must conduct an investigation and prepare a report whenever requested by the House or Senate or a committee with jurisdiction of either body. Through its investigations and audits, the GAO typically makes its own judgments about policy actions and the manner in which they are implemented, as well as recommendations to the audited agency and to the Congress for changes or future actions. Accordingly, financial markets likely would see the grant of audit authority with respect to monetary policy to the GAO as undermining monetary independence–with the adverse consequences discussed previously–particularly because GAO audits, or the threat of a GAO audit, could be used to try to influence monetary policy decisions.
  Permitting GAO audits of monetary policy also could cast a chill on monetary policy deliberations through another channel. Although Federal Reserve officials regularly explain the rationale for their policy decisions in public venues, the process of vetting ideas and proposals, many of which are never incorporated into policy decisions, could suffer from the threat of public disclosure. If policymakers believed that GAO audits would result in published analyses of their policy discussions, they might be less willing to engage in the unfettered and wide-ranging internal debates that are essential to identifying the best possible policy options. Moreover, the publication of the results of GAO audits related to monetary policy actions and deliberations could complicate and interfere with the communication of the FOMC’s intentions regarding monetary policy to financial markets and the public more broadly. Households, firms, and financial market participants might be uncertain about the implications of the GAO’s findings for future decisions of the FOMC, thereby increasing market volatility and weakening the ability of monetary policy actions to achieve their desired effects.
  These concerns extend to the policy decisions to implement the discount window and broadly available credit facilities. These facilities are extensions of our responsibility for promoting financial stability, maximum employment and price stability. Indeed, unlike the institution-specific loans that the Federal Reserve has made that now are subject to GAO audit, these broader market facilities are designed to unfreeze financial markets and lower interest rate spreads in concert with our other monetary policy actions. It is important that, like other monetary policy decisions, the Federal Reserve remain independent in making policy decisions regarding these facilities.
  An additional concern is that permitting GAO audits of the broad liquidity facilities the Federal Reserve uses to affect credit conditions could reduce the effectiveness of these facilities in helping promote financial stability, maximum employment, and price stability. For example, even if strong confidentiality restrictions were established, individual banks might be more reluctant to borrow from the discount window if they knew that their identity and other sensitive information about their borrowings could be disclosed to the GAO. Rumors that a bank may have used the discount window can cause a damaging loss of confidence even to a fundamentally sound institution. Experience, including experience in the current financial crisis, shows that banks’ unwillingness to use the discount window can result in high and volatile short-term interest rates and limit the effectiveness of the discount window as a tool to enhance financial stability.
  Overall, the Federal Reserve believes that removing the remaining statutory limits on GAO audits of monetary policy and discount window functions would tend to undermine public and investor confidence in monetary policy by raising concerns that monetary policy judgments in pursuit of our legislated objectives would become subject to political considerations. As a result, such an action would increase inflation fears and market interest rates and, ultimately, damage economic stability and job creation.

• Earnings Calendar
  Eddy Elfenbein, July 9th, 2009 at 12:06 pm

  Earnings season is approaching and 13 of the 20 stocks on the Buy List have a quarter ending in June. Here’s a calendar of report dates. A few haven’t said when they’ll report so I’m estimating by what they’ve done in previous years:
  Amphenol (APH) July 16
  Baxter (BAX) July 16
  Stryker (SYK) July 21
  Eli Lilly (LLY) July 22
  SEI Investments (SEIC) July 22 est
  Danaher (DHR) July 23
  Aflac (AFL) July 29
  Fiserv (FISV) July 29
  Becton, Dickinson (BDX) July 30
  Nicholas Financial (NICK) July 30 est.
  Moog (MOG-A) July 31 est.
  Cognizant Technology Solutions (CTSH) August 5 est.
  Sysco (SYY) August 6 est.