Author Archive

Numberscruncher: “American Idol” and the Stock Market

John Maynard Keynes, the eminent economist who is back in style, described the stock market as a beauty contest. He asked the readers of his General Theory of Employment, Interest, and Money to imagine a newspaper contest featuring six photos, with everyone who picked the most beautiful being eligible for a prize. The prize winners would be rewarded not for picking the person they thought was the best looking, but rather the person that everyone else thought was best-looking. When it comes to stocks, therefore, the key is to pick the companies that you think everyone else will want to buy, because when they buy the shares, they will bid up the price. It doesn’t matter what you think will be the best investment. Instead, you have to guess what everyone else will choose.

Keynes was trying to simplify his explanation of how the market works, but his example turned out to be strangely convoluted. What kind of contest would this be?

But this week, we have a great example of what kind of contest it is: an American Idol pool. Wherever people gather in this great land of ours, they’ll be betting on which person ridiculed by Simon tonight will end up going all the way. (more…)

Numberscruncher: Who Needs the Radio?

When I was a kid, I had to listen to whatever the DJ picked.

One of the odder decade-end lists was Nielsen’s list of the most-played singles on radio between 2000 and 2009.  It’s a head scratcher – “Drops of Jupiter” got more play than “American Idiot” or anything by Coldplay? Usher was bigger than Beyonce or Justin Timberlake? In what universe?

It’s a list that reflects radio programmers who are out of touch with what real people are listening to. In the first decade of the 21st century, the radio broadcasters consolidated to make more money. Led by Clear Channel, which owns 894 radio stations in the United States, the goal was to offer standardized programming everywhere. Clear Channel also promoted concerts and bands, so it offered a seamless package for advertisers.

The problem is that the listeners revolted. No matter how many times they had to listen to it, a line like “the best soy latte you ever had” never inspired drivers to sing along at the top of their lungs. Besides, Clear Channel stations were so packed with commercials that one was lucky to hear a song at all.

So what happened? People at home turned to the Internet. Why listen to yet another ad for herbal impotence preparations when one could hear good music from Santa Monica or the U.K.? It’s ironic, because in the early days of the Internet, the thought was that radio was the perfect complementary medium because you could have it on in the background while you were online. Of course, that’s when we were all using dial-up.

Clear Channel, meanwhile, is losing money, although that’s in part due to debt and restructuring charges from a 2007 merger with Bain Capital and Thomas Lee Partners, two private equity firms. Sirius XM had 18.5 million subscribers as of September 30 of 2009, all of whom were paying about $10 a month (or driving a new car) in order to avoid the dreck of some Morning Zoo DJ telling poo-poo and pee-pee jokes. Sirius is profitable, although not by much; its $500 million contract with Howard Stern cuts into results a bit.

Apple introduced the iPod in 2001 and has since sold more than 220 million of the devices. They are used with iTunes software, which makes it easy for people to listen to their own music when they are at their computer, running on the track, or in the car. Radio Shack sells cigarette-lighter adapters for people with old cars, and most new models have a USB port. Even boring corporate Blackberries have music capabilities so that a road warrior can hear her own music in a hotel room, not whatever the local Clear Channel affiliate wants her to hear.

The result is that all the decade-end music charts are screwed up. They don’t reflect what people listened to. School kids didn’t learn about Soulja Boy on the radio; their friends told them to go home and find the video of the Crank Dat dance on YouTube. Then they watched Dora the Explorer do it. Radio never entered into the equation this decade.

Back in the olden days, the Clash, the Kinks, Rush, and the Ramones wrote hit songs about the magic of radio. That sub-genre of songwriting is dead. Clear Channel is dying.  Long live rock.

Book Review: Lee Eisenberg, “Shoptimism”

Lee Eisenberg likes to shop. He also has a lot of perspective on how people sell and how people buy. He was the editor in chief of Esquire for many years, telling men what to buy and watching advertisers line up to sell to them. He also worked as an executive at Lands’ End, figuring out how to get customers who pride themselves on being savvy shoppers to part with their above-average income.

Most books written about shopping discuss the evils of it. Naomi Klein’s No Logo and Juliet Schor’s The Overspent American are both about how we are made to feel that we need to buy stuff that we don’t need. And, of course, we all buy things we don’t need. Most people manage their worst impulses, but the waste leads to personal problems like bankruptcy and global problems like excess carbon dioxide in the atmosphere. (Every item at Macy’s right now will end up at Goodwill, and then on to a landfill, in very short order. And not every item purchased will bring comfort or joy to the buyer in the meantime.)

Eisenberg’s approach is different. He wants us to appreciate shopping. His goal, he writes, is to come up with what he calls his Unified Buy Theory, which would take into consideration all of the reasons, good and bad, that we go out and buy stuff. His vantage point is his apartment near Chicago’s North Michigan Avenue, so his tales skew toward those of affluent folks buying expensive items. He briefly takes a job on the sales floor at Target to learn about discount retailing, but he is vague about how long he worked there. I’m guessing it wasn’t long at all. (more…)

Numberscruncher: Taxes Around the World

Americans have a unique phobia about taxes. Years ago, politicians told us that we could have more stuff by paying less money, and we liked that. And so, we believe it despite all evidence to the contrary. And now, our country faces massive deficits and a budget that cannot be cut.

The choice is between raising taxes or cutting Medicare, Social Security, and the Department of Defense. Both are bad politically, but taking an ax to spending will be worse. And although I would rather not see my taxes go up, I am also not happy about living in a rich country where some people have no health care, our educational system is below world standards, and there is at least one person out there who would rather vandalize a church than acknowledge that some Americans go to bed hungry at night.

The first question, of course, is what goes into a tax base. Some jurisdictions tax income (corporate, individual, investment), other s tax consumption through sales or luxury taxes, and still others tax wealth through property taxes, estate taxes, or ownership permits. And, of course, quite a few do a mix of all three. (more…)

Numberscruncher: Sweden Is Not Socialist

Last week, a conservative friend asked me how I liked living in Sweden under Comrade Obama. I sighed. Somehow or another, it has become accepted that Sweden is a frightening socialist state and that life there would be horrible. I am here to defend Sweden, a nation I have never visited.

Sweden is a monarchy, a governmental structure very far from socialism and from the American ideal that all people are created equal.  Marx, of course, believed that his radical socialist ideal started with the violent overthrow of the bourgeoisie, which pretty much eliminates a monarchy. The United States was founded on the principle that people did not need a king because they could rule themselves. We might think that the trappings of a monarchy are pretty and that their personal lives are fascinating, but is anyone really excited about the prospects of Prince Charles replacing Barack Obama?

Marx’s version of socialism, Communism, failed everywhere it was tried. No one seriously advocates Communism anymore. Socialism is more complicated, but it is not what Barack Obama or anyone else in U.S. government advocates. (By the way, “The Communist Manifesto” is in the public domain, in English, and it is short.  There is no excuse for not reading it. Frederich von Hayek would be good to read, too, but his books have a lot more pages.) (more…)

Numberscruncher: The Funny Papers

Stories about the death of newspapers are tired. Yeah, we get it, newspapers are struggling.

This is a drawing of Annie Logue, no relation, a character in a comic novel by Mike Kennedy.

This is a drawing of Annie Logue, no relation, a character in a comic novel by Mike Kennedy.

But the story is all about how there won’t be any more investigative journalism or how bloggers are sloppier than Judith Miller when they do their reporting.

No one looks at the real tragedy: the death of the comics. The comic strip is an art form in its own right, but it is also one closely tied to newspapers.  As newspapers cut back, they often eliminate the page that introduces the paper to new readers in the first place.

$12 a week per paper? Shared equally with the syndicate? For a cartoon that’s run in 100 papers, that represents an income of $31,200 – which means you can’t quit your day job. Scott Adams, Garry Trudeau, and the estate of Charles Schultz may have a little negotiating power, but not many other cartoonists out there do. If the strip catches on, there are greater profit opportunities in the form of books, calendars, character licensing, and possibly television. If you look at your daily paper, though, how many of the strips are good enough to get you to rush out for the book?

The low syndication rates date from a time when a cartoonist would most likely be on staff.  The syndication money was meant to be a bonus, not the primary way that the cartoonist made a living. Comic strip writers would often be employed by a newspaper and also create political cartoons or draw illustrations for stories. Very few were completely independent, at least not when they started. (more…)

Numberscruncher: Gift Cards, Bargains, and Scams

A bargain at twice the price?

A bargain at twice the price?

The latest trend in the “something for nothing on the Internet” game is the pay-to-bid auction site. The auction operator lets such items as cash and gift cards go at prices far below face value because all the bidders, even the losers, have paid to place their bids. Some of these sites claim to be helping people beat the recession. One, PsychoAuction.com, even has a complicated back story involving a founder, Nick Dickreuter, who was let go when Lehman Brothers failed. According to the PR version of the story, Dickreuter lost all respect for money and now gives things away online.

Except, of course, that Dickreuter clearly respects money. Hs site stands to make a lot of it from those who don’t understand how giveaway auctions work.  It’s not like Dickreuter took a vow of poverty and went out to serve the poor.

PsychoAuction isn’t the only site following a pay-to-bid model. DFWbid.com is another that has been mentioned on different bargain-hunting Web sites. The pitch is that you can get a $25 gift card for $8; the reality is that a lot of people spend money to bid without winning. (more…)

Numberscruncher: Insider Trading

It’s darn near impossible for an investment manager to beat the market once you adjust performance for risk and fees. Every quarter, when Morningstar shows its fund reports, more than half of all funds prove to be laggards after adjustments. We all know that Warren Buffett can beat the market because he’s pretty much the only person who can. Bernie Madoff lied. And Raj Rajaratnam allegedly traded on inside information.

Alleged Inside Trader

Alleged Inside Trader

Even then, it does not seem to have helped him much. The Galleon Group of hedge funds, which Rajaratnam managed, has shut down in the wake of insider trading charges against Rajaratnam and several associates. However, it doesn’t look like the funds’ performance was all that great, so Rajaratnam and company may base their defense on the fact that they did not make excess profits. One of the charges is that Galleon made $500,000 trading in options in Google after receiving a tip from an employee of Google’s investor relations company that earnings would be lower than expected. To make that profit, an inside trader would have to identify informants, figure out how to reach them, compensate them, act on the information, and take the risk that it was good information. These steps involve time and expense that cut into the profits from insider trading. The profits have to be huge to overcome the costs, and they may not be big enough to compensate the inside traders for the risk. And then, of course, the information has to be good. A wise inside trader would probably sit on the first few tips just to see if the tipper has good information. But even a tipper with mostly good information will have a few duds. (more…)

Numberscruncher: The College Sustainability Report Card

The academic world is its own little terrarium that ends up affecting the broader cultural ecosystem. Universities are relatively (though not completely) removed from the economic cycle, so they tend to be stable employers. Students spend their three, four, or five years immersed in new ideas, meeting new people, and managing a set of new responsibilities. Faculty members do research, teach students, and talk to other people all day in an attempt to find out new things. It all filters into the world that the rest of us live in, although not always directly.

College students often take up causes, some of which they continue to pursue after graduation. A popular cause is the environment. Does student activism make a difference? The annual College Sustainability Report Card, released early this month, attempts to measure the influence of students and others in making campuses more sustainable. The report is prepared by the staff of the Responsible Endowments Institute, an organization that evaluated campus governance and endowment investing and is supported by Rockefeller Philanthropy Advisors. This is the third year of the study, which now tracks the 300 colleges with the largest endowments as well as another 32 campuses that asked to participate.

The study evaluates campus facilities, student life, and endowment policies to grade different schools. Campuses can pick up points for green buildings, bringing organic produce into the dining halls, or committing part of the endowment to investments in sustainable technologies. The researchers focus on the money for two reasons. First, it gives some clues about the administration’s approach to transparency and engagement. Second, the more money a college has, the more it can spend on such things as LEED-certified buildings and alternative-fuel shuttle buses. It’s not necessarily a surprise that Harvard has an A- (the highest possible grade this year) and Youngstown State University is a D+. (more…)

CD Review: N.E.D., “No Evidence of Disease”

Gynecologists who sing.Years ago, I had a friend who was a singer in a retro-punk band called Vaginal Cancer. He picked the name after his girlfriend had had a suspicious Pap smear. (It was through this couple that I met my husband. They broke up, and we’ve been married for 16 years.) There was a brief moment in my life when I felt very cool, being in divey Chicago punk clubs and hanging out with the band during all three of their shows. Or maybe it was just two.

That’s one reason that the press release about the gynecological cancer awareness album No Evidence of Disease by the band N.E.D. caught my attention. The band name is medical shorthand for the album’s title; the members are gynecological surgeons who are also skilled amateur musicians. The group came together to play covers at medical conferences and benefits, and they found that people stayed to listen and even invited them back. They decided to write songs, engage professional producers, and turn their project into a full-fledged Cause CD. (more…)