Daily Dose of Optimism

NYT Dealbook: Bankers set for a boom, Commodities set for a bust

The New York Times DealBook recently saw fit to post, without noting any irony whatsoever, the following two posts within six minutes of each other. If you like data points on sentiment for commodities vs. other opportunities, this is a great example:

Here's the first, at 8:04am:

London’s Bankers, in Short Supply, Get Fat Pay Packages (May 12, 8:04 am)

Financial workers in the City of London are “holding most of the aces” in the recruitment market as banks desperately search to fill vacancies created by the surge in corporate activity, a new report claims.

Recruitment firm Morgan McKinley said pay packages are becoming more attractive and staff are moving jobs more frequently to meet demand. According to the report, the number of new positions on offer in April was 20.4% higher than last year. (Link)

Here's the second, at 8:10am:

Commodity Traders Should Plan for the Bust of Their Hiring Boom (May 12, 8:10 am)

Being a commodity trader is the hottest job in town. After years in the doghouse, these experts in the arcane arts of contango and backwardation are suddenly worth millions.

In this booming market, anyone who can say “crack spread” without laughing is getting hired, says Breakingviews. But while banks want to pay up now while prices are still high, they’ll be just as fast to fire. Wise traders should ask for multi-year contracts. (Link)

Interesting how one article pretends to understand the future - clearly, commodities are set for a fall - and one is simply telling what we already knew - that bankers are valuable.

I realize that the NYT DealBook'ers simply report what is being written around the web, but they also made the editorial decision to post these right on top of each other without comment.

Ed's wild guess: there are 10x more investment bankers reading newspapers than there are commodity professionals. As such, interpretating hot demand for bankers as "normal" and hot demand for commodities traders as a "bubble" is a journalistic strategy for success: flatter your target audience.

Usually, the things people talk about as a great place to be are peaking, and the things people are fearful (or ignorant of) are still in a bull market. Commodities are getting a lot of play as a phenomenon that is close to "done," and the argument typically given for why commodities are ready to fall is that "this rise can't go on much longer."

On the flip side - in line with the demand for investment banker-types and investment banking services - is how private equity funds continue to raise record levels of capital, and are doing ever larger deals that are dependent on a low cost of funds...in an environment of rising rates.

Simply borrow money to buy a company with almost "no money down," borrow some more money to pay yourself a hefty "dividend," and then sell the equity of the company to the lumpeninvestoriat of mutual funds, "hot" deal chasers, and retail.

From the worldview of Dealbook (and others), private equity is an activity that can (and should) continue indefinitely. But 3 years of high gas prices...can only be the work of anti-American communists. - Ed

The Joys of Corporate Powerpoint, Continued

I made reference to Edward Tufte's book, the Cognitive Style of Powerpoint, in my earlier post, the US Government, Powerpoint, and other disasters.

I realize that the point of that title is somewhat lost if you have not read much about what Powerpoint does to organized, logical thought. Here's a quick article from Wired magazine (2003):

When information is stacked in time, it is difficult to understand context and evaluate relationships. Visual reasoning usually works more effectively when relevant information is shown side by side. Often, the more intense the detail, the greater the clarity and understanding. [...]

Presentations largely stand or fall on the quality, relevance, and integrity of the content. If your numbers are boring, then you've got the wrong numbers. If your words or images are not on point, making them dance in color won't make them relevant. Audience boredom is usually a content failure, not a decoration failure.

At a minimum, a presentation format should do no harm. Yet the PowerPoint style routinely disrupts, dominates, and trivializes content. Thus PowerPoint presentations too often resemble a school play -very loud, very slow, and very simple.

As someone who has spent a lot of time working with powerpoint, as well as having to read presentations created by others, I am quite familiar with the value of the "presentation" to salespeople and mangers, as well as its deficiencies for real communication and teaching.

Corporate managers will generally confess, away from the office, that they like powerpoint (as opposed to a written white paper) precisely for the opportunity to be vague, avoid specific commitments, or to keep some cards up their sleeve.

Just bear that insight in mind the next time someone hands you a "deck," "presentation," etc. - Ed

• For a longer New Yorker article from 2001 on Powerpoint, see here.
• I highly recommend Tufte's powerpoint pamphlet, which can be purchased here.
• For a related short but excellent read by Tufte, see this here.

Oscar's Sundance Envy!

The chart and table below take a look at the box office gross revenues for movies nominated for an Academy Award for Best Picture from 2000-2005. The blue line shows the total gross revenues for all five nominated films, using a comparable baseline of revenues pre-award ceremony, and the red line shows the percentage of industry gross box office revenues those films contributed.

Fun fact: the average revenue for ANY 5 movies in a given year has been pretty consistent at about $80 million dollars (excluding best picture grosses). The 5 films in the best picture category in 2000 could be counted on to generate 7x as much revenue as 5 average films, peaking in 2002 at 8x, and falling to 3x in 2005.

My conclusion? The academy awards has a serious dose of Sundance Festival envy. The Academy Awards want to reclaim the mantle of artistic respectability that has been "stolen" from them over the years by the smaller festivals. Hence, instead of rewarding movies that average viewers actually respond to, they seek to praise the films that "critics" love.

Data courtesy of Box Office Mojo. - Ed

MarketWatch Struggles with Wall Street Blogs - Part 2

(I wrote the text below over my winter vacation as part of one of my 2006 predictions, but hadn't found a reason to publish it until the prior post on MarketWatch. For my original response to MarketWatch on Wall Street blogs, click here.)

Major media makes people foolish. Television is by far the worst culprit, but pretty much any information source where the communication stream is one-way is guilty.

I think the reason for this is simple: there's no effective way to engage with and challenge something broadcast via a major, one-way communication portal. When you realize that yelling at the TV will only get you so far, viewers become docile, resigned to the fact that there's not much to do when you don't trust what you're hearing other than disengage, and turn to American Idol.

For example: how do you call "bullshit!" on a major media outlet in such a way that a similar audience who heard the original message also hear yours?

• Write a clever letter: which, if they don't completely ignore it, will get about five seconds of airtime in a marginal format.
• Start your own: estimated cost to start a TV station or newspaper: $25 million

Choices are fairly grim as far as leveling the playing field between those who control the organs of major communication, and those who merely watch them. Of course, there is still the web, but I grant that we are in the infancy of information on the web, not anywhere near the peak. As clever as you may be on the web, it will be a while before you reach the audience that major network television stations do, every day of the week.

So, while I do think that the web will eventually be the dominant way that people get their information, it's interesting to see how those who currently control communication (ie, journalists and their publishers) feel about us newcomers - whether you call us bloggers, writers, citizen-opinion columnists, citizen-publishers, morons, etc.

After all, one of the highest values of most journalists is that every American is equal, right?  Theoretically, journalists should be the most excited that the average American now has an outlet for their opinions.

Of course, in practice, it doesn't quite work that way. Journalists of all stripes think one of two things about the interactive dynamic of the web.

• It's great: there are a good number of smart people throwing out ideas for free, which can be copied by major media outlets who do the same thing for money (these enlightened folks are in the minority).
• It's nothing special: because there is no quality filter - any idiot can, and generally does, participate.

I've spoken to two journalists off-line about blogging (without discussing my own.) Leaving aside how egalitarian most journalists pretend to be in print - typically while trying to dictate how other people and organizations should behave - it is fascinating how in-egalitarian journalists are when it comes to the average person's right to participate in their domain of (ahem) expertise - the marketplace of publicly expressed ideas.

Sample journalist opinion of blogs: "just another asshole with an opinion."

It's preposterous when you think about it: If journalists had their way, everyone with a pulse would vote, but no one would be able to have their voice heard publicly unless they authorized it. Journalists, who spend more time than anyone filling pages with rhetoric about democracy are also those least excited to see it actually practiced through the free exchange of ideas on the web. It's a rich irony, and a sad one. - Ed

MarketWatch Struggles with Wall Street Blogs

MarketWatch had a piece on finance blogs Thursday. The author, David Weidner, spends most of his energy re-affirming the fact that pretty much the only reason to read Marketwatch is for Herb Greenberg.

Two things about the article stuck out:

• Weidner spent 1/4 of his article writing about a blog that doesn't exist. Based on this, I assume that he only bothered to write the article because someone from Dealbreaker gave him a draft press release. Calling the first 750 words of his column "rushed" would be a polite way to describe how poorly he covers this topic until he reaches the subject of Dealbreaker.
  
• Weidner did not mention Jeff Matthews, who writes the best finance blog out there. This probably explains why Weidner doesn't understand what the "media keeps yabbering on about" when they yabber about blogs. Although Jeff is also a bona fide hedge fund manager, his OSTK campaign - on his blog - helped make him a figure in CNBC's televised coverage of the company.

Now, unlike Weidner, I spend some time reading through his archives before writing this piece, and I found that he basically writes "gossip"-type columns that rehash old news.

Hence, it is not much of a surprise that the blogs he considers "the best of Wall Street [blogs]" - Wall Street Folly and Under the Counter - are the ones most like his own.

With content as good as Jeff's out there, that Weidner is either not aware of it or chooses to ignore it while celebrating average finance-gossip blogs - the sort that someone who knows nothing about finance can relate to - makes me wonder whether he simply doesn't understand much about the subject he writes about, and prefers to read stuff that doesn't push that knowledge envelope. - Ed

Update: See part two of this piece for related thoughts.

2006 Prediction: Blogs to be Taken Seriously in 2006

Paul Kedrosky had a prediction for 2006 up a while back that said:

All this low-rent schadenfreude [by bloggers at the expense of MSM] will come back to haunt bloggers in 2006 when a major blog is hit with correct Blair-esque allegations of having twisted the truth and made shit up.

I don't think this idea has real legs to stand on, but I do have a prediction and some related thoughts:

Ed's 2006 prediction:

We will see blogs taken seriously, both by readers and MSM, and ported to other forms of media, notably TV, and in a major way - not just via talking head appearances.

By this, I mean finding the best bloggers and putting them on CNBC, Meet the Press, or even giving prolific and personable bloggers their own TV shows. There is probably a Conan O'Brien type talent in the works out there right now.

Newspapers will run an entire section that re-prints blog posts for off-line reading. Previously unknown bloggers will get book deals. (That already happened! Ed: I mean people who write about things other than the embarassing details from their sex life...)

Now, my prediction is a little easy here: the move towards putting good bloggers into other media formats is already starting!

Instead of simply reading the rambling genius of Mickey Kaus, I am also now able to watch and hear him on Bloggingheads.tv. (Of course, it's on a blog right now, but that could change.) I find Kaus is actually more entertaining on screen than in print.

The move is simple and logical. If I like reading someone's work, there's a decent chance they're as interesting in person as well.

Here's what I think doesn't work about Kedrosky's prediction that a major blogger will fall from making stuff up:

(1) Other than triumphalism in support of the Iraq war, it's hard to imagine a topic where a blog could suffer a scandalous downfall on a scale large enough for enough Americans to need know via a major media outlet. (Unless it's a blogger-murder, a blogger-insider-trading scandal, or it turns out that one of those "Iraqi bloggers" is really Donald Rumsfeld.) That no blogger would suffer for Iraq makes sense to me, as it would require first implicating the President, Congress, CIA and about 95% of the media first.

(2) There's not much room to fall in reputation if you are an active blogger. Other than the fact that a blog can earn a regular, loyal reader base of people united in their generally high intelligence and refusal to pay for information - unless you're independently wealthy or running a publicity-hungry startup - can there be a more debased position for an intelligent and accomplished person to be in than to devote a significant portion of their time putting out their opinions for others to read...for free...in a forum where anyone can reach out and pee on their work?

Where's the reputation from which to suffer a reputational loss? The greatest penalty a blogger can suffer for putting out free ideas is obscurity. A once great blog whose reputation is tarnished would become like any newbie blog that, in general, no one pays attention to unless you had some notoriety in your former life.

What tends to happen to blogs - with almost a depressing regularity - is that major blogs simply start to suck. Usually this stems from a loss of humility, driven by hit traffic, with generally drives them to believe that because they posted something, people will care about it. (Ed: Which explains why I insist on toiling in obscurity...)

(3) If there was a major error on a blog, another blog would be the one to call them out on it. If a blog corrected the major error...one blog would gain status while another lost it...so the blogosphere preserves its overall integrity. Mainstream media is definitely not going to correct a factual blog error on national media for a few reasons, primarily because MSM assumes most blogs are just error-prone ramblings anyway.

But here's another idea: when and if the MSM pays attention to an individual blog, it's like focusing the sun through a magnifying glass on an ant. The traffic spikes like you wouldn't believe. The blogger's ego is inflated to the point of exploding... hence, as a survival strategy, it would make sense for MSM to continue to ignore existing blogs while creating their own, "closed loop" blogs (see: RealMoney.com blogs, BusinessWeek blogs, WaPo blogs, etc.), hoping that the mass of the public doesn't recognize the fact that they're being conned by these almost-blog offerings.

So, 2006 is the year of blog TV - bring it on! - Ed

2006 Prediction: A Thesis for Re-Invigorating the News Business (GCI, CBS, KRI, NYT, WPO)

It's clear that something isn't right in the news business, but in contrast to those who think that major news outlets are toast, I offer this prediction:

2006 will see important steps by news companies to turn the tide, re-invigorate their businesses and grow readership, and a few will even find a new formula to succeed at this for the long haul.

I think this may be fairly obvious, as MSM (Main Stream Media) firms have so many advantages that they don't exercise well enough. For starters:

• Journalists are paid to write
• Full time news gathering and editorial staff already in place
• Expertise in layout and printing of hard copy information
• Physical distribution nationally and/or locally
• Typically have established web presence
• Recognized and generally trusted brands

However - and this is the reason why blogs are sprouting up like weeds in an untended sidewalk - MSM has significant things that are working against it:

• By design, journalistic writing conventions are fragmented, repetitive and dull
• Major papers routinely confuse "quality" with length
• Multiple editors are one or more steps removed from writers and either err on the side of blandness or make errors that can only arise from not being familiar with a subject
• By seeking to be "definitive" on every subject there is inevitably a lot of hemming and hawing while one is "first" but incomplete on facts
• Articles are generally written with the assumption that readers don't know much about a topic
• There are unwritten, but widely shared "truth codes" about how topics can be discussed, and what can be said about them; journalists can be penalized severely for violating them
• Most journalists think that the primary way in which they fail to serve the public is their inadequate criticism of conservative politicians

That said, I think the problems faced by MSM firms have a clear source: an oversupply of institutional voices exhibiting the characteristics as above. This can be rectified as firms go out of business, consolidate, or figure out new approaches to communicating news.

There is a big opportunity for a mainstream company to buck the conventions of "how to talk about the news" and by setting new protocols, to win new readership. Love it or hate it, Fox News has responded to this imbalance of supply and demand, and provided an alternative. Now, Fox gets ratings that are greater than the sum of all its cable competitors in most of its time slots.

Although it is "cool" to say that Fox is propaganda, surely any investor worth their salt can appreciate that when a body is as monolithic in opinion as media is in the US, that there is something vital being overlooked. Blogs are evidence of this - a good blog is about meeting the need for interpretations of news and events, to spare readers from a doomed life of reading stale AP "toe-the-party-line" articles.

Certainly, it couldn't be hard for a news intermediary to figure out how to freshen up its writing, and to re-jigger its coverage such that they avoid putting us to sleep, or falling into the same old biases that characterize news media today. I think this is an issue of tweaks to a business model that otherwise has all the right infrastructure in place, right now.

Most of my news originates from MSM, as I expect it will 50 years from now. That doesn't mean the press will be exactly the same, but firms with an advantage today have every opportunity to retain that advantage tomorrow...if they want it.

The question for investors: which management team, at which firm, has the gumption to get this right? - Ed

A Prescription for the New York Times Business Section

A quick open letter to Aaron Ross Sorkin, who actually seems like he has the know-how to save the NYT business section:

No one needs business prose. For every single article I've ever seen in the NYT, there is almost always another source that gives me exactly the same information, only with so much less pretense and narration that, for the life of me, I don't really understand why the NYT bothers with business.

Why I mention this now: I read the business section of several newspapers regularly. Almost never, the NYT.

However, I'm inspired by Dealbook: the most forward looking email service I've ever seen from a major paper. I've been a subscriber for several years, and it is an indispensable part of my mornings - like an emailed blog - and if you let that instinct guide how the rest of business coverage should be directed, you'll do ok. - Ed

UCLA Professor "Proves" Media Bias

I assumed that the media was biased "left", even if I didn't have an academic to tell me my intuition was correct. The study detailed below provides a handy currency for any random (future) discussions on media bias.

In addition to the study detailed below, I would also like to see the study that shows that people who go to college need to hear that a university study proved something before they realize it is true.

Of course, if anyone is aware of any significant caveats to this study, let me know.

As a college grad, not only do I distrust my instincts, I also distrust university studies until I know what the primary objections to them are. - Ed

Link: Media Bias Is Real, Finds UCLA Political Scientist (Dec 2005)

While the editorial page of The Wall Street Journal is conservative, the newspaper's news pages are liberal, even more liberal than The New York Times. The Drudge Report may have a right-wing reputation, but it leans left. Coverage by public television and radio is conservative compared to the rest of the mainstream media. Meanwhile, almost all major media outlets tilt to the left.

These are just a few of the surprising findings from a UCLA-led study, which is believed to be the first successful attempt at objectively quantifying bias in a range of media outlets and ranking them accordingly.

"I suspected that many media outlets would tilt to the left because surveys have shown that reporters tend to vote more Democrat than Republican," said Tim Groseclose, a UCLA political scientist and the study's lead author. "But I was surprised at just how pronounced the distinctions are." ...

How Business Journalists Could Make My Life Easier

I would like to explore the topic of how business journalists could make my life easier. Let's start by looking at a brief article, in all its original 150 word Associated Press glory:

Radyne to Accelerate Vesting of Options
Radyne Board Agrees to Accelerate Vesting of Options to Reduce Stock Compensation Expenses

PHOENIX (AP) -- Radyne Corp. said on Monday its board agreed to accelerate the vesting of employee stock options in order to reduce expenses in the future.

The maker of satellite and cable transmission software and equipment said it will immediately exercise options on about 1.4 million shares, which would have resulted in $3.5 million in stock compensation expenses over the vesting term of the options.

The company said that its board also agreed to increase the annual fee to directors who are on committees other than the audit committee to $2,500, up from $1,500. The fee for the chairman of the audit committee was increased to $6,000 from $5,000.

Shares of Radyne, which have traded between $7.15 and $15.49 over the last year, closed up 13 cents at $14.12 on the Nasdaq.

The suject of this article is clear from the title: "Radyne to Accelerate Vesting of Options."  This single piece of information is presented four different ways:

1. The Title, "Radyne to Accelerate Vesting of Options"
2. The Sub-Title, which clarifies that it is the board who as agreed to do this, as well as their rationale, to "Reduce Stock Compensation Expenses"
3. The first sentence, which repeats the subtitle and adds that these would be future expenses.
4. The second sentence, which adds a quick description of the company, which anyone reading an article on this minute of a detail should know, and then adds the number of shares vesting and the dollar amount.

Finally, the news article adds some new information, that the directors will receive a marginal increase in directors fees ($1,000), and provides the 52-week high and low as well as the 1-day change for the stock.

Let's look at the journalistic conventions on display here. The first one convention constitutes most of the problem for all journalism; the others are business-journalism specific:

• Restating one fact multiple times, but making sure that no single repetition contains all the information a reader needs.
• Adding tiny blurbs about companies that readers should already know if they care about the company. 
• Providing information about stock prices in an article where the article is clearly not a driver of movement in the company's stock.

Now, I'm sure these journalistic conventions are a product of the days when most information accessible to readers was all that could "fit" in the paper they held in their hands, but I'm pretty sure they don't apply anymore.

So, in the interests of self-interested public service, let me offer a re-write:

Radyne to Accelerate Vesting of Options

PHOENIX (AP) -- Radyne said on Monday its board agreed to accelerate the vesting of employee stock options, and immediately exercise options on 1.4 million shares to reduce expenses in the future, which were expected to be $3.5 million over the vesting term of the options.

The company said that its board also agreed to increase the annual fee to directors who are on committees other than the audit committee to $2,500, up from $1,500. The fee for the chairman of the audit committee was increased to $6,000 from $5,000.

Having a ~50% "text inflation" factor in the articles I read, spread out over 50+ articles a day adds up, and it is wearing. Sure, I could skim, filter out the extra words in the articles I read, but why should I have to pick apart something that another person is putting in unnecessary effort to complicate?

Nothing points to overcapacity in journalism today like the presence of multiple news-gathering organizations dedicated to producing flowery prose on stories that should be brief and tightly edited.

You'd think that in today's environment that journalists would have a strong incentive to increase the user friendliness (ie - clean, streamlined prose) of their product. After all, it's not like media firms are having a tough time or anything...right?

I want to read this stuff, and lots of it. Lots of it. And remember: once I'm done reading an article, I then need to decide its relevance to what I already know. (That's the hard part.) No need to make data mining and analysis any harder than it already is. - Ed