199 (11 February 2015)

Welcome to week 199!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by a title search.

You can find a pdf of this issue, a cumulative pdf for issues 1-156, and a cumulative pdf for issues 157-present at: https://sites.google.com/site/brucedeanlarson/the-invisible-forces.

(7 February 2015): “Capitalism’s unlikely heroes” (http://www.economist.com/news/leaders/21642169-why-activist-investors-are-good-public-company-capitalisms-unlikely-heroes)

——–[This is one of the Leaders for the week.]  “As inventions go, the public company is one of capitalism’s greatest.  Initial public offerings promote innovation, by providing an exit route for entrepreneurs; being listed makes a firm open to scrutiny; and ordinary people have a chance to invest in capitalism’s wealthy-creating machines.  But the past 15 years have cast a shadow over the public company” for a variety of reasons.  Into this situation have stepped activist hedge funds.  “Mad, bad and dangerous to know, activists are often loathed by public-company bosses for their belligerence and opportunism.  But the bosses are wrong.  Activists are in fact the public company’s unlikely saviours.”  The role of such activists has become more important as index funds mirror financial markets overall and participate less in the examination of corporate management.

********As the article notes, activists are often viewed askance by management and the general public, but they do play a role in the marketplace.  An interesting point made in the leader relates to legal and cultural factors: “European and Asian shareholders say they do not need activists because they have more power than American investors over managers’ pay and appointments. . . . And, for cultural reasons, the few European activists tend to be more diplomatic and consultative than their brash [American] cousins.”  The Leader is attached to “Activist funds: An investor calls” (http://www.economist.com/news/briefing/21642175-sometimes-ill-mannered-speculative-and-wrong-activists-are-rampant-they-will-change-american).

(7 February 2015): “The Politics of Trade: The Top U.S. Negotiator Answers 10 Questions” (http://www.nytimes.com/2015/02/07/business/10-questions-for-president-obamas-trade-negotiator.html)

********Media discussions about the negotiations for the Trans-Pacific Partnership, sort of an Asian counterpart of the North American Free Trade Agreement, are infrequent.  Here Michael B. Froman, President Obama’s chief negotiator, answers questions about the TPP with interviewer John Harwood.  You can find more detailed information about the TPP at: https://ustr.gov/tpp.

(7 February 2015): “Georgia’s Booming Film Industry Produces Shortage of Crew Members” [SR](http://www.wsj.com/articles/georgias-booming-film-industry-produces-shortage-of-crew-members-1423242778)

——–The Georgia film industry “has hit the big time, thanks to generous tax credits . . . But the growth of what many call ‘Y’allywood’ is being threatened by a shortage of makeup artists and costume and set designers—the rank and file of film and television crews.”  Half of the respondents in a recent survey by a state education task force said “they were unable to hire all the workers they needed locally.”  Georgia has long drawn film and television producers “for its varied locations and its low production costs.  Now they are coming in droves because of the tax incentives.”  Republican Governor Nathan Deal, speaking before the Georgia Chamber of Commerce, argued for the establishment of a state-run Georgia Film Academy, noting that “Georgia cannot afford for another state to do to us what we are doing to Hollywood.”

********The Film Academy would be “a partnership between the state’s university and technical college systems.”  Labor costs are substantially lower in Georgia, where the hourly cost of a “grip” is 25% less than it would be in California.  You can learn about North Carolina film incentives at: http://www.ncfilm.com/incentives.html.

********Labor costs are always of concern regardless of location and China is no exception.  In late 2014 the International Center for Joint Labor Research, a project of the University of California, Berkeley and Sun Yat-sen University in Guangzhou City, was shut down with little warning.  “The center . . . sat on the front lines of labor tensions” its experts delving into “collective bargaining, dispute resolution and union rules.”  The Guandong province, in which the certain was located, is one of China’s “most strike-prone regions, where authorities have clamped down on industrial unrest over the past year, labor researchers and activists say.”  You can learn more about the closing of the Joint Center at: (http://www.wsj.com/articles/china-labor-ties-fray-as-grievances-rise-economic-growth-slows-1423528666).  You can learn more about the Joint Center itself at: http://laborcenter.berkeley.edu/topic/labor-in-china/.  Knowledge and the search for truth is often seen as a threat by those in power, and the U.S. is no exception.

(9 February 2015): “RadioShack Suffered as Free Time Evaporated” [SR](http://www.wsj.com/articles/radioshack-suffered-as-free-time-evaporated-1423441817)

——–[In its most recent bankruptcy filing, RadioShack announced the closing of nearly 1,800 stores.]  In 1963 when Charles D. Tandy purchased the nine stores of the Radio Shack chain, Tandy “explained to the New York Times why it made perfect sense for a retailer of do-it-yourself leather handicrafts to buy an electronics distributor.  ‘Leisure time is opening markets to us . . . The shorter workweek, human curiosity, idle hands—all offer opportunities in this business.  Everyone’s spare time is our challenge.’  What Mr. Tandy couldn’t know was that the real challenge his company would eventually face was the slow erosion of the very leisure time his company profited by filling.”  According to Juliet Schor, the author of The Overworked American, the 1950s was a time of shrinking workweeks and the establishment of university departments of leisure studies, to investigate “what Americans would soon be doing with their ever-expanding supply of free time.  Then, in about 1970, the trend reversed.”  The average worker in 1979 put in 1,687 hours a year—that number grew to 1,868 in 2007.  “The net difference, 181 hours a year, represents more than a month of extra work every year.”  As RadioShack growth to 7,000 stores “was built primarily on the back of citizens’ band radio hobbyists, who bought components from the store and relied on the knowledge of its staff, many of whom were franchisees and devoted hobbyists themselves.”  The company “was once a cultural phenomenon—a place with a unique geographic but also psychological reach, a hub of one of the many leisure-time activities Americans once enjoyed to a degree it’s hard to fathom now, in a time when apps allow those of us with more money than time to outsource even the minutest details of our lives.”

********The article ends with a question and an answer.  “How did we arrive at a culture of disposable everything?  The simplest answer is that we no longer have time for anything else.”

********You can learn more about RadioShack’s bankruptcy filing and see an interactive map of all RadioShack store closings, including one in Asheville, North Carolina, at: http://money.cnn.com/2015/02/09/news/companies/radioshack-store-closings/.  You can learn more about The Overworked American (1993) at: http://www.amazon.com/Overworked-American-Unexpected-Decline-Leisure/dp/046505434X/.

(9 February 2015): “Bigger Container Ships Bigger Risks” [SR](http://www.wsj.com/articles/bigger-container-ships-pose-bigger-risks-1423443013)

——–“The big container ships that ply the world’s trade routes are growing ever larger, holding down the cost of ocean shipping, but also raising concerns among vessel operators, insurers and regulators about the potential for catastrophic accidents. . . . Today, the newest and biggest container ships can carry around 18,000 twenty-foot-equivalent units [TEUs] . . . industry watchers expect ships as large as 22,000 TEU to come into service by 2018.”  Though accidents involving container ships have been few in recent years, “their cost has been rising.”  An accident, however, provides enormous challenges.  A marine-risk consultant has estimated that “it could take two years just to remove the containers” from an 18,000 TEU vessel.  Contributing to the challenges of big ships is their handling, because “the ocean affects bigger ships differently than smaller ones,” with the phenomena of “springing” and “whipping” at issue.

********It would appear, then, that although average operating costs tend to decrease with increases in ship size, there are substantial additional risks associated with increases in ship size.  The continued growth of ships suggests that those operating cost reductions continue to dominate increased risks.  That may well change when the first big container ship has an accident.

(9 February 2015): “Renters Are Majority in Big U.S. Cities” [SR](http://www.wsj.com/articles/renters-are-majority-in-big-u-s-cities-1423432009)

——–“American cities—and not just the priciest ones—are more and more the domain of renters.  Renters made up the majority of the population in cities at the core of nine of the nation’s 11 largest metro areas in 2013, a sharp change from 2006, when renters were the majority in just five of those cities.”  In a report by New York University’s Furman Center and Capital One Financial Corp., a substantial “shift in the proportion of renters in all major cities—even in lower-density, relatively inexpensive places such as Houston and Dallas.”  The resulting “demand for apartments is rising so fast that it is starting to overwhelm supply in many cities, which is pushing up housing costs nationwide.”  Demographic changes, as well as the reversion to levels before the housing booms, have contributed to this demand increase.

********The full report of the Furman Center on “Renting in America’s Largest Cities” will be available in mid-February.  In the meantime, you can learn more about it (and sign up for the full report when it appears) at: http://furmancenter.org/nationalrentallandscape.  The press release for the report can be found at: http://furmancenter.org/files/pr/CapOneNYUFurmanCenter_PressRelease_9FEB2015.pdf.

********The Asheville Citizen-Times reports that “A housing-needs analysis of the four-county Asheville region . . . found an apartment vacancy rate of 1 percent” (http://www.citizen-times.com/story/news/local/2015/01/31/looking-rent-asheville-good-luck/22644859/).  The article on RadioShack above, including this article on renting, shows that uses of time and space are changing dramatically.

(10 February 2015): “It’s No Fun Making Toys, Toasters in USA” [SR](http://www.wsj.com/articles/its-not-fun-making-made-in-usa-toys-1423524315)

——–The relative lack of “contract” manufacturers in the U.S. is limiting the ability of manufacturers to produce domestically, rather than in China.  “Contract manufacturers make products for other companies that prefer to focus on product design and marketing.”  According to Shanghai-based consulting Stephen Maurer of AlixPartners, in China “you can find a specialist in any product . . . “You want a toaster oven?  There are a dozen contract manufacturers that make toaster ovens.  That kind of contract manufacturing just doesn’t exist anyplace else.”  In the U.S., “contract manufacturers generally make parts, as opposed to finished products.”  Even when contract manufacturers for a product are found in the U.S., they are generally require larger orders than Chinese producers.

May you have a good week!

Bruce

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