301 (25 January 2017)

Welcome to week 301!  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 an Internet title search.

(17 January 2017): “The Upshot: Presidents Have Less Power Over the Economy Than You Might Think” (https://www.nytimes.com/2017/01/17/upshot/presidents-have-less-power-over-the-economy-than-you-might-think.html)

——–“Presidential reputations rise or fall with gross domestic product.  The state of the economy can determine if presidents are re-elected, and it shapes historical memory of their success or failure. . . . But the reality is that presidents have far less control over the economy than you might imagine.  Presidential economic records are highly dependent on the dumb luck of where the nation is in the economic cycle.  And the White House has no control over the demographic and technological forces that influence the economy.  Even in areas where the president really does have power to shape the economy . . . the relationship between presidential action and economic outcome is often uncertain and hard to prove.”

********The article does a nice, compact job of summarizing the principal factors that affect economic performance, indicating those areas where the president has little direct control—monetary policy—and slight direct control—fiscal policy.  Other areas of potential influence affect the economy slowly.

********There are things, however, that can affect the economy very quickly—political events.  This is discussed briefly in “How Political Events Change Currency Value” (https://daily.jstor.org/how-political-events-change-currency-value/).  The post points out that the effect of these events tend to be transient and short term, whereas larger economic factors “are the fundamental determinants of a currency’s health.”  The foundation article for this post is “Democracy and Markets: The Case of Exchange Rates,” which appeared in the American Journal of Political Science in 2000.  The article can be accessed at the bottom of the post.

(19 January 2017): “Get Rich.  Save the World.  Gut Fish” (https://www.bloomberg.com/news/features/2017-01-19/get-rich-save-the-world-gut-fish)

********This article is hard to summarize.  In part, it is the story of 32-year-old venture capitalist Rod Baird who is looking in unusual places to invest.  In this case it is the waterways of western Kentucky.  In part, it is the story of “Lula Luu and John Crilly, . . . energetic former academics” who created the business Fin Gourmet, which draws upon the abundant Asian carp to make its products.  And in part it is the story of Ronny Hopkins, a commercial fisherman in Kentucky.  As Baird notes, “If Donald Trump wants to deliver on his promise to create rural jobs, he doesn’t need to create anything out of thin air.”  The problem is that “The talent is there, but the capital isn’t.”

********What drew me to this article was its explicit mention of carp, which was (and presumably is) ubiquitous in the Rock River of my hometown of Watertown, Wisconsin of my youth.  Were people really harvesting carp and selling them in restaurants as something desirable?  Yes.  It turns out that Asian carp are something else.  They can “grown into 70-pounders known to jump as high as 10 feet.”  As the article notes, there a lots of YouTube videos shown the carp “in flight.”  Here is one: https://www.youtube.com/watch?v=tLmJjRqXDCo.  Evidently the sound of boat motors sets them off.

(21 January 2017): “Schumpeter: Businesses can and will adapt to the age of populism” (http://www.economist.com/news/business-and-finance/21714935-how-executives-balance-shareholder-expectations-and-social-pressures-businesses-can)

——–“As they slid down the streets of Davos this week, many executives will have felt a question gnawing in their guts.  Who matters most: shareholders or the people?  Around the world a revolt seems under way.  A growing cohort—perhaps a majority—of citizens want corporations to be cuddlier, invest more at home, pay higher taxes and wages and employ more people, and are voting for politicians who say they will make all that happen.  Yet according to law and convention in most rich countries, firms are run in the interest of shareholders, who usually want companies to use every legal means to maximise their profits.”  Although naïve executives “fear that they cannot reconcile these two impulses . . . Wiser executives know that shareholder value comes in shades of grey.”  Schumpeter “reckons there are six distinct corporate tribes, each with its own interpretation of what shareholder value means.  Firms have some flexibility to choose which one they belong to.”

********The column lays out a spectrum of tribes, with corporate fundamentalists on the far right and corporate apostates on the far left.  In between, moving from right to left, there are corporate toilers, corporate oracles, corporate kings, and corporate socialists.  This is what it would look like without the modifier:

apostates     socialists     kings     oracles     toilers     fundamentalists

According to the article, most Western firms are toilers that “believe in the primacy of shareholder value but are prepared to be more patient than the fundamentalists.  From the standpoint of the invisible forces, the group of oracles is especially interesting, as they “want to maximise profits within the law, but with a twist.  They think the law will evolve with public opinion and so they voluntarily do things today that they may be required to do tomorrow.”  All in all, the article provides a useful perspective on the factors considered by corporate executives and boards in making decisions.

********In relation to this, the article “What to Expect from Trumponomics: Quick Take Scorecard” (https://www.bloomberg.com/politics/articles/2017-01-20/trumponomics-is-jawboning-by-another-name-quicktake-scorecard) is of some interest.  The key sentence, as you will see, appears in the first paragraph: “Early in his first press conference as president-elect, Donald Trump said he would make pharmaceutical companies bid for U.S. business because they were ‘getting away with murder’ on drug prices.  Indexes that track pharmaceutical stocks plummeted.  It was classic Trump, doing what economists call ‘jawboning,’ or moving markets today with threats of action in the future” [italics added].

(25 January 2017): “Mall Owners Rush to Get Out of the Mall Business” [SR](http://www.wsj.com/articles/mall-owners-rush-to-get-out-of-the-mall-business-1485262801)

——–“Mall landlords are increasingly walking away from struggling properties, leaving creditors in the lurch and posing a threat to the values of nearby real estate.  As competition from online retailers batters store owners, some of the largest U.S. landlords are calculating it is more advantageous to hand over ownership to lenders than to attempt to restructure debts on properties with darkening outlooks.  That, in turn, leaves lenders with little choice but to unload the distressed properties at fire-sale prices.”  Although the abandonment of such properties can negatively impact the creditworthiness of borrowers, this is not always the case.  Regarding this Steven Marks, the head of the U.S. REIT group of Fitch Ratings, notes such defaults need not be negative: “If anything, we oftentimes view these transactions positively, as it indicates financial discipline to not commit corporate capital towards failing or uneconomic investments.”

********As the article notes, “In the case of a default, creditors make claims only on the collateral that backs the loan, not on the borrower itself.”  Perhaps that is why (some) student loans are treated differently than mall loans—the lack of collateral.  In the absence of a real asset to sell, students cannot walk away from the loan.  Some former students die still owing on their loans.

********The article made me think about the topic of “recycling malls.”  A couple of readers of the WSJ mentioned four possibilities: educational institutions, municipal (county or state) administration, offices, and housing.  I’m sure there are others.  What an interesting study it would be to see what is happening to these malls.  A good place to start for ideas would be to sift through the Comments to this article.

May you have a good week!

Bruce

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