215 (3 June 2015)

Welcome to week 215!  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 1-208, and a cumulative pdf for issues 209-present at: https://sites.google.com/site/brucedeanlarson/the-invisible-forces.

(27 May 2015): “Your Salad Lunches Are Killing American Leather” (http://www.bloomberg.com/news/features/2015-05-27/your-salad-lunches-are-killing-american-leather)

——–[This article was titled “The Shoelace Crisis” in the print edition.]  Auburn Leather of Auburn, Kentucky is a fifth-generation company that is “the uncontested global leader in the leather shoelace industry.”  It sold 50 million laces in 2013.  It is one of the few companies to remain in the U.S. after a mass exodus to China in the 1990s; it bought out “a last competitor in 2009.”  With annual sales in 2014 of $19 million, down from $20 million in 2013, it now faces a challenge—increased hide prices due to “a decline of about 28 percent in Americans’ appetite for beef.”  Higher leather prices matter little to “super-high-end companies such as Louis Vuitton” but for companies like Auburn, selling to the lower end, they are a problem.  Auburn’s solution to this is “to produce more leather goods while using less leather for each product.”  In some cases this has involved negotiating with buyers over product specifications, while in others it has required using some of the leather scraps used by the producers of other leather products.  Lisa Howlett, Auburn’s CEO, says “We’re maximizing every square inch” of leather.

********The joint production of “beef and hides” was discussed by Alfred Marshall in Principles of Economics, first published in 1890.  Book V, Chapter VI, entitled “Joint and Composite Demand.  Joint and Composite Supply” provides a thorough discussion of the topic.  You can find it at: http://www.econlib.org/library/Marshall/marP33.html#Bk.V,Ch.VI.  You can find the discussion of “joint products” in paragraph 20.  Join products are “things which cannot easily be produced separately; but are joined in a common origin, and may therefore be said to have a joint supply, such as beef and hides, or wheat and straw.”  Marshall knew so much.

(29 May 2015): “Startup Matches Heavy Equipment Owners and Renters” [SR](http://www.wsj.com/articles/startup-matches-heavy-equipment-owners-and-renters-1432805583)

——–“The American Rental Association estimates that the share of U.S. construction equipment owned by rental companies last year reached 54%, up from around 40% a decade ago.  Ted Grace, an analyst at Susquehanna Financial Group, said he believes the rate could top 60% within the next five or 10 years.  ‘Younger contractors are more comfortable with renting,’ he said, unlike ‘old-school contractors who have always owned.’”  According to Frank Manfredi, a rental-industry consultant, economic uncertainty and higher purchase prices due to environmental emission standards, have encouraged a move toward rentals, benefitting companies like “stock market darling” United Rentals Inc.  Another company benefitting is Yard Club, the brain child of 31-year-old Canadian Colin Evran, which connects those who would rent construction equipment with those who own such equipment, much like Airbnb does for rooms.

********The article notes that construction and mining equipment in the U.S. are typically idle “more than three-quarters of the available working time.”  Technological change has enabled more of that idle time to be sold.

(30 May 2015): “Obituary: John Nash—Lost and found” (http://www.economist.com/news/obituary/21652250-john-nash-mathematical-genius-died-may-23rd-aged-86-lost-and-found)

——–On May 23rd John Nash and his wife Alicia Nash died in an auto accident.  In 1994 Nash received the Nobel Prize in Economics for his contribution to game theory, in particular his development of “Nash” equilibrium.  His academic career was interrupted by schizophrenia, from which he recovered.  His life was given cinematic characterization in the movie “A Beautiful Mind.”

********The Nobel Prize material on Nash can be found at: http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1994/nash-facts.html.  He wrote his doctoral dissertation under the supervision of Albert W. Tucker, well known by economists as one of the authors of the Kuhn-Tucker theorem; Nash’s dissertation was 28-pages long.  The Wikipedia entry for Nash (http://en.wikipedia.org/wiki/John_Forbes_Nash,_Jr) contains useful information, as does Sylvia Nasar’s book A Beautiful Mind (http://www.amazon.com/Beautiful-Mind-Sylvia-Nasar/dp/1451628420/).

(30 May 2015): “Social change: The weaker sex” (http://www.economist.com/news/leaders/21652323-blue-collar-men-rich-countries-are-trouble-they-must-learn-adapt-weaker-sex)

——–[This is the leader for the six-page essay “Men adrift” that you can find at: http://www.economist.com/news/essays/21649050-badly-educated-men-rich-countries-have-not-adapted-well-trade-technology-or-feminism.]  Although men dominate many fields and many of the top positions in those fields, “there is plenty of cause for concern.  Men cluster at the bottom as well as the top.  They are far more likely than women to be jailed, estranged from their children, or to kill themselves.  They earn fewer university degrees than women.  Boys in the developed world are 50% more likely to flunk basic maths, reading and science entirely.  One group in particular is suffering . . . Poorly educated men in rich countries have had difficulty coping with the enormous changes in the labour market and the home over the past half-century.  As technology and trade have devalued brawn, less-educated men have struggled to find a role in the workplace. . . . As education has become more important, boys have also fallen behind girls in school (except at the very top).  Men who lose jobs in manufacturing often never work again.  And men without work find it hard to attract a permanent mate.  The result, for low-skilled men, is a poisonous combination of no job, no family and no prospects.”

********The leader notes that “In America pay for men with only a high-school certificate fell by 21% in real terms between 1979 and 2013; for women with similar qualifications it rose by 3%.”  This is a dramatic change, although it fails to notice that there was a large disparity by the earnings between men and women in 1979—I suspect that men still earn more than women with similar qualifications.  The article itself is well worth study.  It provides a close look at some of the changes that have transformed (and are transforming) American and global culture.  It is hard to avoid the conclusion that the relative position of men, especially those with little formal education, has declined dramatically in the last forty years.  With regard to family formation, it is asserted that “many blue-collar men no longer have the sort of earnings or prospects that will make women want to marry them.”  In order for some of the necessary earnings and societal changes to take place, some men, no doubt women, too, will need to adjust their views of masculinity.  Public policy may be able to do that.

(30 May 2015): “Magna Carta: Eight Centuries of Liberty” (http://www.wsj.com/articles/magna-carta-eight-centuries-of-liberty-1432912022)

——–[This is the Saturday Essay.]  “It was at Runnymede, [“a water-meadow alongside the River Thames in the English country of Surrey . . . just over 20 miles (32 km) west of central London” (http://en.wikipedia.org/wiki/Runnymede),] on June 15, 1215, that the idea of the law standing above the government first took contractual form.  King John accepted that he would no longer get to make the rules up as he went along.  From that acceptance flowed, ultimately, all the rights and freedoms that we now take for granted: uncensored newspapers, security of property, equality before the law, habeas corpus, regular elections, sanctity of contract, jury trials.”  Although the “Great Charter” has been a big deal in England, it “has always been a bigger deal in the U.S.”  Reflective of that the divergence “between English and American conceptions of Magna Carta.  In the Old World, it was thought of, above all, as a guarantor of parliamentary supremacy; in the New World, it was already coming to be seen as something that stood above both Crown and Parliament.  This difference was to have vast consequences in the 1770s.”  The “War of Independence” was seen as “Loyalists and patriots alike . . . as a civil war within a single polity, a war that divided opinion every bit as much in Great Britain as in the colonies.”

********As the article notes, it Magna Carta gave rise to “the law of the land.”  A phrase that suggests that “The law is not determined by the people in government, nor yet by clergymen presuming to interpret a holy book.  Rather it is immanent in the land itself, the common inheritance of the people living there.  The idea of the law coming up from the people, rather than down from the government, is a peculiar feature off the Anglosphere.”  Indeed, “the common law grows like a coral, case by case, each judgment serving as the starting point for the next dispute.”  The 1215 Magna Carta was written in Latin but you can find an English translation at: http://www.bl.uk/collection-items/magna-carta-1215.  Much additional information can be found at: http://en.wikipedia.org/wiki/Magna_Carta.

(1 June 2015): “Special Report” The war on big food” (http://fortune.com/2015/05/21/the-war-on-big-food/)

——–[This article appeared online on May 21.  The date given is for the print edition.]  “Try this simple test.  Say the following out loud: Artificial colors and flavors.  Pesticides.  Preservatives.  High-fructose corn syrup.  Growth hormones.  Antibiotics.  Gluten.  Genetically modified organisms.  If any one of these terms raised hair on the back of your neck, left a sour taste in your mouth, or made your lips purse with disdain, you are part of Big Food’s multibillion-dollar problem.”  Although the “idea of ‘processing’ . . . arose to make sue the food we ate didn’t make us sick.  Today many fear that it’s the processed food itself that’s making us unhealthy.”  As a result, “the top 25 U.S. food and beverage companies have lost an equivalent of $18 billion in market share since 2009.”  All this is to say that “Big Food is under attack from Startup Granola.”  Traditional packaged-food companies aren’t standing pat, however.  “Some are attempting to buy their way into the natural space, acquiring small health food companies by the fistful.  Almost all are radically rethinking their own product recipes.  Kraft Foods . . . is removing synthetic colors and artificial preservatives from its flagship mac and cheese.  Tyson has announced it is eliminating the use of human antibiotics in its chickens raised for meat.  General Mills, which has already removed genetically modified organisms (GMOs) from its original Cheerios, has cut sugar by 25% in its Yoplait yogurt.  All of these developments have happened in the past half year.”

********The article points out that some of the larger food companies, like Campbell Soup, is making acquisitions to bring new thinking and products into the company.  CEO Denise Morrison of Campbell recognizes that bringing new companies “into the fold” may erode the very characteristics that made a company like Bolthouse Farms (http://www.bolthouse.com/) attractive, so the headquarters of Bolthouse will remain in Bakersfield, California rather than being combined with Campbell’s headquarters in Camden, New Jersey.

********Graphs adjacent to the article show how the per capita consumption of selected foods has changed from 1970 to 2013.  I was surprised to see how much my consumption has mirrored general patterns.

(2 June 2015): “The 109,894-Word Annual Report” [SR](http://www.wsj.com/articles/the-109-894-word-annual-report-1433203762)

——–The 2013 annual report of General Electric Co. stretches 246 pages.  It is packed with a variety of information, including the company’s “internal controls, auditor statements and regulator-mandated boilerplate on ‘inflation, recession and current volatility’” that, according to GE’s CFO Jeffrey Bornstein, “Not a retail investor on planet Earth could get through.”  Due to expanded disclosure requirements, “Companies are spending an increasing amount of time and energy beefing up their regulatory filings.”  The average 10K, a regulatory filing, was “about 42,000 words in 2013, up from roughly 30,000 words in 2000.”

********Clearly there is an increased demand for those who produce and make sense of regulatory filings, financial and otherwise.  I thought it was interesting that roughly two-thirds “of all stock in the U.S. is owned by institutional investors such as pension funds, mutual funds, and insurance companies.”  These companies, in contrast to individual investors, have the staff, i.e., time and money, to make sense of these documents and use them in investment decisions.

May you have a good week!

Bruce

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