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Miscellaneous

It’s mid-August, about the time that people’s minds turn away from the beach and back to school and work.  Somewhere in here, there will be attention paid to the election, too.  The way things are right now is about all anyone will notice when they get back at it.

So let’s check back on a number of stories we’ve talked about here and see how they developed.

Olympics – This story many people paid attention to.  The big news was how everyone dumped on NBC, as if delayed coverage was a new thing.  That was far from their worst sin, however, showing us medal ceremonies featuring the Star Spangled Banner a zillion times and only a few other ones.  But we did see great stuff all the same, such as Kirani James winning Grenada’s first ever medal (gold!) in the 400m.  That was a good one to watch.  Other nations picking up their first medals were Gabon, Guatemala, and Cyprus.  Our medal count?  Seriously, there was no prize for the most hardware – it’s not like we gained an island or something just for beating out China.  Give it a rest.

Jobs – Obama now stands at a net 468k jobs created during his administration.  That may seem pretty weak, and at 0.4% of the total jobs it’s not much to celebrate.  But it is positive, and we haven’t heard much about jobs lately.  It’s also bigger than the number created during GW Bush’s first term (164k) or second (144k) – but those number only highlight how this Depression has been going on for a very long time.  How much will people hold Obama responsible for the situation?  We are about to see.

Euro – Nothing is new in the Eurozone.  Seriously.  Nothing substantial has changed at all.  Greece is still looking for more new loans, nevermind that they can’t pay back the old ones.  Spain is still teetering but not falling.  France may be weak and Germany is fed up (always a wurst case scenario).  Next story!

Standard Chartered – The British bank that was accused of laundering $250B for Iran has agreed to pay a $340M fine and settle it.  That probably gets auditor Deloitte off the hook yet again, too.  It’s a record fine, but it puts it all behind them.  They sort of admitted wrongdoing and will have internal auditors in place to make sure that it never happens again.  This story turned out to be about as pathetic as things can be.

Heat – July was a record hot one across the US, and the drought worsened dramatically.  But August so far is setting records for being cold, at least here in the middle part of the nation.  The Jet Stream is still not functioning at all, which has to mean something for the winter ahead.  Something tells me that this can’t be good, and that something is a Midwestern belief that somehow the worst is yet to come.

Knight Capital – The company that lost $440M to a “trading glitch” was apparently being investigated by the SEC to determine if there were sufficient safeguards in place to prevent, um, what happened.  Can’t wait to read that report.  The SEC is famous for not only closing the barn door after the horse has bolted, but for claiming that they were conducting an investigation into the status of the agrarian storage unit portal with regards to its status as an effective barrier to equine obviation of said device.  So this is hardly new, but it’s funny.

IPOs – The big news is Groupon, which appears to be failing just 9 months after its big debut.  It’s down 72% from the initial offering, a truly pathetic number.  Facebook is down 46% from its initial price three months into its public journey, and the initial lock-up period expires on Saturday – that’s the day many insiders can finally unload their holdings.  And that’s about it for the great Internet Bubble of ‘012.

So, is no news the same as good news?  This summer, a lot of hot stories slowly petered off into nothing.  Things should change as we move into the fall, if for no other reason than the pending NHL lockout just as the Wild picked up Parise and Suter.  Oh, if you don’t care about hockey then nothing is going on at all.  Nevermind.  Anything I missed?

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8 thoughts on “Miscellaneous

  1. The more things change, the more they stay the same. Standard Chartered (is that really their name?) got off as easy as companies like that always do. The rest of it was funny but nothing really changes at least quick.

  2. In the presidential campaign there has been the issue of the impact of private equity.

    A Jan 2012 study reported by the National Bureau of Economic Research reports a synopsis of the study as follows:

    Do private equity transactions result in job losses or create new employment opportunities? In Private Equity and Employment (NBER Working Paper No. 17399), authors Steven Davis, John Haltiwanger, Ron Jarmin, Josh Lerner, and Javier Miranda analyze data from the U.S. Census Bureau’s Longitudinal Business Database for the period 1980 to 2005. They track U.S. private equity transactions at 3,200 target firms and their 150,000 establishments — that is, specific factories, offices, retail outlets, and other distinct physical locations where business takes place — before and after acquisition, comparing outcomes at target firms to outcomes at “controls” that are similar in terms of industry, size, age, and prior growth.

    The authors find that relative to a control group, employment at target establishments declines 3 percent over the two years following a buyout and 6 percent over five years. The job losses are concentrated among public-to-private buyouts and among transactions involving firms in the service and retail sectors: the largest employment losses occur at firms engaged in retail trade.

    In contrast, independently owned firms exhibit large employment gains relative to the controls in the wake of buyouts, mainly because they undertake more acquisitions. There are more private equity buyouts of independent firms than public-to-private transactions, and they account for a larger share of jobs.

    While private equity buyouts accelerate job losses at target firms relative to controls, they also lead to the more rapid creation of new job positions, particularly in the form of new jobs at new establishments. In fact, the sum of gross job losses and gross job gains at target firms exceeds that of the controls by 13.5 percentage points over the two years following a buyout. About 43 percent of the extra job reallocation reflects a more rapid pace of employment adjustments; the rest reflects acquisitions and divestitures. Overall, net relative job losses at target firms are less than 1 percent of initial employment. These findings provide evidence that private equity buyouts catalyze the creative destruction process as measured by both gross job flows and the purchase-and-sale of business establishments.

    There has also been the question of the rate of return on private equity.
    NBER published a report in July 2012 with synopsis as follows.

    Each dollar invested in the average [private equity] fund returned at least 20 percent more than a dollar invested in the S&P 500. This works out to an outperformance of at least 3 percent per year.

    Despite the large increase in investments in private equity funds, and the concomitant increase in academic and practitioner scrutiny of them, the historical performance of private equity (PE) remains uncertain. Up until now, there has been uneven disclosure of private equity returns, leading to questions about the quality of the data that have been available. Several commercial enterprises collect performance data, but not for all funds, and not necessarily on fund cash flows. Also, because the source of the data is often obscure, concerns about biases in the samples persist.

    In Private Equity Performance: What Do We Know? (NBER Working Paper No. 17874), co-authors Robert Harris, Tim Jenkinson, and Steven Kaplan take advantage of a new research-quality cash flow dataset to better understand private equity funds and the returns they provide to investors. They find that it is highly likely that buyout funds have outperformed public markets in the 1980s, 1990s, and 2000s. Their estimates imply that each dollar invested in the average fund returned at least 20 percent more than a dollar invested in the S&P 500. This works out to an outperformance of at least 3 percent per year.

    For the more recent vintage funds, the eventual performance will depend on the ultimate realization of their remaining investments, which could be higher or lower than the current valuations upon which the authors rely. All of the performance results are net of fees. The authors also acknowledge that confirmation of their PE outperformance result must await the appearance of a complete buyout fund dataset which does not currently exist.

    This research also finds that Venture Capital (VC) funds outperformed public markets substantially in the 1990s, but have underperformed them in the 2000s. Vintage-year performance — where vintage year is defined as the year when the fund begins investing — for buyout and VC funds, both absolute and relative to public markets, decreases with the level of aggregate capital committed to the relevant asset class. This suggests that a contrarian investment strategy would have been successful in the past in these asset classes. The magnitudes of these relationships have been greater for VC funds.

    Finally, although it is natural to benchmark private equity returns against public markets, investing in a portfolio of private equity funds across vintage years inevitably involves uncertainties and potential costs related to the timing of cash flows and the liquidity of holdings that differ from those in public markets. For instance, there is uncertainty regarding how much to commit to private equity funds to achieve a target portfolio allocation because of the uncertain time profile of capital calls and realizations. Consequently, there exists “commitment risk” when investing in private equity. This contrasts with investing in public markets where there is no distinction between capital committed and invested, and trading is continuous.

    NBER digest can be found at http://www.nber.org/digest/

    • That is very interesting, thank you! I wonder what changed for VC between the 90s and 00s – perhaps the low hanging fruit was taken? Anyway, I will read this more closely. Thanks!

  3. For those of you who want some basic information on 3M I offer a Star Tribune article from earlier this year on Inge Thulin the new CEO

    http://www.startribune.com/business/138983924.html?refer=y

    3M offers an array of products and solutions. A constant theme of Barataria is that aspects of finance are bad and evil. I accept that as factual. But how about 3M. Is 3M financed in a good way?

    Also I wanted to mention Carnegie Mellon University. The author of Barataria benefited from Andrew Carnegie and Andrew Mellon by earning his degree there. In liberals eyes, Carnegie and Mellon are evil. Think about that.

  4. Whoa – I would never say “evil” for finance, it is what it is. But the way some businesses are run are contrary to our history and social values like freedom. 3M used to be one of those resiliant manufacturing companies – self insuring, operating along independent division lines, allowing a lot of room for personality and personal development. That changed when the market imposed its own rather narrow values on the company in the 1990s. There has to be room for more models of how to run a company (like in the piece you gave me to chew on, above!) and some are more reflective of the values we have as a free people in other aspects of life.
    Carnegie? He was a good guy, no qualms there. Mellon? Ah, that does get interesting. More later when I’m not on the road. :-)
    The problem with Big Anything is that our belief in freedom and expression lends itself to a very Free Market, something which becomes an abstract ideal when things get very large. It’s different from capitalism, where the money makes its own way, IMHO. Big can be made to work along the lines of our values, but often it hasn’t. That means that either our social values change or the market has to. History shows that we have often intervened to force the market to be more open and accesible, and that’s a tradition. Are we really going to change that now? What does that mean to our other values as a people?
    Things like “good” and “evil” are defined by our values. We believe in stuff, and it should reflect in our daily life what we believe in. Does it?

  5. The frequency with which you present outrage after outrage in the finance industry suggests to me that you are biased against the good things that finance accomplishes.

    Alan mentioned Governory Romney is a predatory capitalist. I don’t know that that’s true. It is a truism in some liberal minds, but I think Barataria should have higher standards. We need to ask what the proof is.

    Let me put a face on finance. When I was in college I was visiting friends in Indiana and met a man named Anthony deNicola. He played on the football team and was majoring in economics. He pursued a Wall Street career and works on Park Avenue in New York City.
    http://www.welshcarson.com/team/general-partners/biography/?id=1127

    Does his company Welsh Anderson Carson and Stowe create value or destroy value. Does the company hurt people in Kenosha and Green BayWisconsin. I don’t know, but I ask: when are we going to get a positive blog on the finance industry, since Barataria is mostly about economics and finance.
    http://www.welshcarson.com/our-firm

    Barataria is entertaining, but it is important to hold bloggers–who are opinion leaders–to high standards and not have unbalanced accounts of what is going on in business.

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