Politics made the front pages again, but Isaac got moved back. “Romney Vows to Deliver the Country from Economic Travails” and “A Suitor Makes the Case for Divorce” in the New York Times (NYT) and “Romney Vows to ‘Restore’ US” and “After the Celebrating, the Race Moves to Battleground States” in the Wall Street Journal (WSJ) pretty much sum up the political news, while “Storm Weakens But Still is Wreaking Havoc in the South,” (NYT, p. A20) and “Reckoning With Isaac” (WSJ, p. A3) are pretty self-explanatory. The Financial Times (FT) passed on Isaac completely but did have political analysis on page 2, with “Health insurance scheme for elderly rises to top of agenda” and “Parties prepare for tightest of votes in Florida’s bellwether area.” You can see the transition from the convention coverage to the race coverage, from hype to real analysis. Should be a very interesting fall. Once again, I recommend Nate Silver at the NYT as an excellent political analyst.

Europe is the other major meta-story. The deadline is coming near for many European issues, with “Judgment Days Arrive for Euro Crisis” in the WSJ (p. A16) and “Eurozone banks facing sweeping regulation” in the FT (p. 1). In the next two weeks, we have several critical events scheduled in Europe. On September 6, the European Central Bank meets and is widely expected to announce a bond-buying program to support the government bond markets; on September 9, Greece presents its latest attempt at budget cuts; and on September 12, Germany’s constitutional court rules on the legality of the bailout fund and Dutch elections take place, which will probably result in a change of government. I have no doubt I will be hitting all of these issues here in the blog, probably at length.

Once again, politics and Isaac are the big stories. Ryan’s acceptance of the vice presidential nomination hit the front pages of the New York Times (NYT) with “Rousing GOP, Ryan Faults ‘Missing’ Leadership” and the Wall Street Journal (WSJ) with “Ryan Pledges GOP Rebirth in Accepting Nomination,” but the Financial Times (FT) sat this one out. Lots of political commentary in both papers but not much actual analysis.

The hurricane made all three front pages, with “Isaac tests Louisiana’s defenses seven years after the devastation of Katrina” in the FT, “Storm Drenches Gulf Coast; High Water Cuts Off Many” in the NYT, and “Isaac’s Deluge Rolls Wide” in the WSJ. The basic story is that Isaac is a bad storm, causing extensive damage in some areas, but, overall, it isn’t as bad as it could have been—and certainly not as bad as Katrina. The strengthened defenses in New Orleans seem to have worked, by and large. Best wishes to everyone living through the storm and its aftermath.

The two lead stories today are no surprise. Romney’s acceptance of the Republican nomination made two of three front pages: “Republicans Anoint Romney” in the Wall Street Journal (WSJ) and “Romney Secures GOP Nomination After Long Quest” in the New York Times (NYT). The story did not make the Financial Times (FT); the British paper did include election analysis but did not report on the Republican convention.

The second big story today is Hurricane Isaac, which also made two of three front pages—“Hurricane Gains Power and Hits Louisiana Coast” in the NYT and “Obama warns gulf residents not to ‘tempt fate’ as hurricane Isaac nears” in the FT. Isaac only made it to the second page of the WSJ with “Hurricane Isaac Roars Ashore.” Good luck to everyone in Isaac’s path.

You could certainly think so from the headlines. On the front pages: the Financial Times (FT) leads with “Ghost of Katrina haunts Republicans as storm threatens Romney’s party,” the New York Times (NYT) has “As Storm Disrupts Plans, GOP Takes Up Tensions,” and the Wall Street Journal (WSJ) opens with “Isaac Heads to New Orleans: Echoes of Katrina as GOP Gathers.” A couple of points to make here. First, a major hurricane rolling in will always be newsworthy. Second, gas prices are going up as the Gulf refinery complex shuts down, insurance companies start to get nervous, and people prepare for and/or flee the coming storm. Put all of this in conjunction with a presidential nominating convention right in the storm’s path— the storm is actually threatening reporters—and you get even more coverage. Combine that with a prior natural and political disaster . . . well, you get the picture. Expect to see more front-page coverage.

The other up-front meta-story for the day is the Apple-Samsung patent ruling, in which Samsung was ruled to have infringed on Apple’s patents. Because intellectual property is the key to the technology business, the ruling has been felt across the industry, as reported in the FT with “Tech stocks reel from Apple court victory” (p. 1) and in the NYT with “Samsung Case Puts Apple Closer to Fight With Google” (p. B1). This ruling will play out in the near term with inter-company battles intensifying, per the NYT headline. Longer term, it may play out in generally lower levels of innovation, as it becomes tougher to navigate through existing patents. Good for large companies, not good for society as a whole.

Many stories today that deal with issues we have discussed before, with only two new things really worthy of note.

Gloom covered the front pages of the papers today. (If it bleeds it leads!) But this time, there were relatively few silver linings to help brighten up the darkness. Perhaps all the problems we saw in the spring aren’t quite solved yet.

Economic weakening was the big meta-story. For Europe, it was reported in the form of increasing disputes about how to resolve the ongoing financial problems of Greece and Spain, among others. The Financial Times (FT) led with “Athens and Berlin in public spat over funds,” which is just what it sounds like, following with “Dutch socialists catch scent of victory” (p. 2). This is important because Holland, which is one of the few remaining AAA credits in Europe, has been a key German ally in demanding fiscal austerity from debtor nations. If Holland changes sides, the European balance of economic power shifts, too. Moreover, the socialists are eurosceptics and have opposed the fiscal rescue pacts and funds; take away the rescue mechanisms, and the euro would most likely have already failed. The Dutch election and the pending ruling by the German Constitutional Court are therefore both potential deal breakers for the euro. It should be an interesting early September. The New York Times (NYT) also weighed in with “Europeans to Debate Further Aid to Greece” (p. A4) and “European Officials Meet as Signs Point to Recession” (p. B3).

The big financial news yesterday was the release of the Federal Reserve (Fed) meeting minutes, which were widely interpreted as signaling that the U.S. economy will receive additional monetary stimulus very soon. The news made the front pages of the Wall Street Journal (WSJ) with “Fed Moves Closer to Action” and the Financial Times (FT) with “Fed shows a strong consensus for action,” as well as the front business page of the New York Times (NYT) with “Many at Fed Ready to Act if Necessary.” These articles all seem to agree that the Fed will provide additional easing unless the economy improves sharply and unemployment starts to drop much more quickly than it has been. This is also the consensus of the private economic forecasters I follow, as well as Commonwealth’s Investment Research team.

What is interesting about this story is the unanimity of reaction in the press and economic community—and the absence of reaction in the equity markets. I would have thought that the markets would have responded more positively to the prospect of additional stimulus. The fact that they did not means that either the market already expected more stimulus—which is probable—or the Fed is losing its ability to goose the markets. If it is number 2, this is not good.

With no overarching stories out there, and with the dog days seeming to lie back down for a nap, each of the papers chose a different front page today. The New York Times stayed with politics, as expected, and chose to focus on the “legitimate rape” controversy with “Ignoring Deadline to Quit, GOP Senate Candidate Defies His Party’s Leadership” and “Missouri Controversy May Endanger Republican Chances This Fall,” both on the front page. The stories are pretty much captured in the headlines. The final front pager touches on another story we have been following, “Dispute Over Islands Reflects Japanese Fear of China’s Rise,” which is also pretty self-explanatory. I have said it before and I will say it again—keep an eye on this.

The Wall Street Journal (WSJ) put Europe on the front page; “Europe Pressures Intensify” focuses on the problems facing Angela Merkel, the head of the German government. Nothing new there—we have known for a long time that the problem wasn’t solved and that there were no easy solutions—but by putting this on the front page, the WSJ is bringing it back into the conversation in a big way. Look for euro risk to make its way back into discussions and into the market as we come closer to September 12, the deadline for the German Constitutional Court ruling on what Germany can do to aid other countries. U.S. politics only made it to page A5, with “Akins Defies His Party’s Pleas to Quit.” Interesting to see the differences between the papers’ treatments and headlines, and that is why we read both.

For the first time in a while, there don’t seem to be meta-stories that can be cleverly (?) tied together. It is beyond me to connect an incredibly stupid comment in Missouri, finally modern membership at Augusta National, and a suspended death sentence in China, not to mention the economic stories. So we will have to take them one by one.

The big story, which made the front pages, is the remark by the GOP Senate candidate from Missouri that “legitimate” rape victims don’t get pregnant, because their bodies prevent it somehow. To the surprise of no one outside the Missouri Republican Party, many took exception to this. The Financial Times (FT) has a photo and paragraph headed “Rape rage,” the Wall Street Journal (WSJ) has “Crucial Senate Race in Uproar,” and the New York Times (NYT) has “GOP Is Pressing Candidate to Quit Over Rape Remark.” This Senate race was considered one of the easiest for Republicans to win and is crucial to their chances to take over the Senate. The papers report that the candidate is being pressured by the party to step down, but as of this morning, he was refusing. Not sure where this story goes, but I find it hard to think of a way that it’s good for the Republicans. I may have to change my bets on the Senate on Intrade.

The meta-story over the weekend was the conviction of the Russian punk band Pussy Riot on charges of hooliganism. They were sentenced to two years. This made the front page above the fold in both the Financial Times (FT), with a big picture and the headline “Outcry over Pussy Riot verdict,” and the Wall Street Journal (WSJ), with “Russian Band Found Guilty.” The FT also followed up on Monday with “Pussy Riot sentences open perilous split in Russian society” (p. 2). The conviction represents a blow against Russia’s reputation as a state ruled by law and is the latest step the government has taken against the opposition.

On Monday, the meta-story was China, hit for both politics and economics. Political issues led the front pages of the New York Times (NYT) and the WSJ, with “Chinese Defer Death Penalty in Lurid Killing” and “Sentencing in China Stokes Politics,” respectively. The FT also covered the subject in “Murder trial verdict looms for disgraced Bo’s wife” (p. 3). These stories show the verdict as an attempt to close down a potentially embarrassing case while minimizing damage to the country’s reputation and exposure during a leadership transition. External politics also received coverage in “Anti-Japan protests flare across China as crisis deepens over disputed islands” (FT,p. 1) and “The South China Sea’s Gathering Storm” (WSJ,p. A11); this is a brewing conflict I have mentioned repeatedly over the past couple of weeks.

In Summary

Should Countries Stay or Go?

The big story today is the most recent decline in Facebook shares, which was prominently reported in the Wall Street Journal (WSJ) with “Facebook Investors Cash Out” (p. A1), in the Financial Times (FT) with “Investors defriend Facebook shares” (p. 1), and in the New York Times (NYT) with “Facebook Shares Hit New Low Amid Fear” (p. B1). Sounds pretty bad, right, when a new tech heavyweight drops almost 50 percent from its initial price? Things must be bad?

The dog that isn’t barking—at most maybe whining a little—is that the U.S. markets are actually doing really well. Yesterday brought them back to relatively high levels, as reported all the way back on page C4 of the WSJ with “Stocks Approach Multiyear Highs.” With the markets doing as well as that, maybe it is time to worry. The fear referenced in the NYT Facebook headline certainly has not shown up in the VIX, referred to as the market’s “fear index,” which the WSJ comments on with “The Fear Gauge Goes Quiet – Too Quiet” (p. C1). We have had a quiet August, and when September rolls in and everyone takes a fresh look at the world politics and economy, perhaps they won’t be as sanguine as they are now.

An interesting mix of stories today. Financial malfeasance makes all of the front pages again. “Bank Deal Rankles Regulators” on page A1 of the Wall Street Journal (WSJ) is about how the Standard Chartered settlement with New York State could derail other investigations and has annoyed British regulators. The Financial Times (FT) has “StanChart rallies as settlement welcomed” on page 1 and a follow-up story on page 15, “StanChart pays hefty price for ‘small errors’,” which makes many of the points I did yesterday about the speed of settlement and the magnitude of the fine with respect to what Standard Chartered admitted. The thrust of the article is that the bank was forced to settle quickly, regardless of the merits of the case, because of the effect uncertainty would have on its business and because of a reluctance to go head-to-head with the regulators. I am not so sure, but we will see. My bet is that more problems will show up.

The front page of the New York Times (NYT) has “No Criminal Case is Likely in Loss at Corzine Firm,” about the collapse of MF Global. Two interesting things here: first is the emphasis that, once again, there is no punishment of individuals for business disasters, and second is the personalizing of the story, even to the headline. Again, I would say this is a growing trend; personal accountability will become a much bigger part of the financial industry, especially at the risk end, and rolling heads will become a mandatory part of settlements. Corzine, of course, is still on the hook from both a civil and regulatory perspective—a point the article makes explicitly.

Europe, the Euro, and the Possible Failure of Political Integration

Europe, the Euro, and Political Integration

One of my favorite movies is Star Wars, for a number of reasons. The scene I am reminded of right now is the one where the Imperial stormtroopers stop Luke and Obi-Wan, and Obi-Wan uses a Jedi mind trick to make the troopers let them go.

The meta-story today is again the Paul Ryan candidacy and the presidential race. The Financial Times (FT) leads with “Obama uses heartland visit to launch first attack on Romney running mate,” the Wall Street Journal (WSJ) opens with “Presidential Race Snaps Into Gear,” and the New York Times (NYT) has a front-page picture and “Medicare Rises As Voters’ Issue in GOP Gamble.”

Other Ryan stories include “Everything Wall St. Should Know About Ryan” on page B1 of the NYT, which states that he actually may not be very pro-financial industry; “Ryan’s Record Shows Flexibility on Policy” on page A4 of the WSJ, which notes that Ryan voted for the Troubled Asset Relief Program (TARP), the Bush-era Medicare prescription drug benefit extension, and an early version of the auto bailout; and “Obama tries to harvest votes in Iowa” on page 4 of the FT, which has the subtitle “The president blames Paul Ryan for holding up the farm bill.”

Balancing Europe and the Euro

The media has focused a lot of its attention on Europe recently—and deservedly so. The meta-stories generally concern weakness in one country or another or the slow disintegration of hope for Greece. I wrote a couple of weeks ago about how I thought Europe would end up pulling itself together for political reasons—the fear of history, mostly—but I did not really delve into what would have to happen to make that the case.

In July, I spoke at the Commonwealth Live! networking tour. The conversations I had there, as well as the increasing sense that Europe is continuing to deteriorate, suggested that I should lay out how I see the evolution of the eurozone and how it might succeed or fail. This thought process will obviously adjust to conditions on the ground, and one reason for writing it down is to track the changes as we move forward.

The big story over the weekend and on Monday was the Paul Ryan vice presidential selection. The U.S. presidential race really started with that announcement. Yes, I know that we have had months of Republican primaries and you could argue that the race began when Romney wrapped up the nomination. But until this weekend we did not really know what the race would be about.

Once again, nothing particularly new or noteworthy on economics, politics, or finance in the papers. One article I did find interesting was on a tidal power project here in Maine that’s nearing completion: “The Search for Energy Takes a Turn Underwater” on page A8 of the New York Times (NYT). Apparently, this will be the first commercial tidal power station. If it’s successful, it could lead to further development.

As I have outlined before, energy is the one big area where the U.S. is vulnerable, but the fact that we keep exploring different ways to generate energy should help solve the problem—and probably sooner rather than later. There is an unavoidable gestation period for new technologies, but when they do hit, they can have huge effects in a short period of time. Fracking is the best example I can think of—it has already changed the natural gas world—but there are others as well. Tidal power may or may not be one of them, but this potential energy source has been under development for a while, and it’s getting close to viability.

Sorry to miss yesterday’s post, but I spent the day in Story Land. For those of you not from New England, this is a small amusement park built around fairy tales—Cinderella’s castle, Heidi’s grandfather’s hut, the Three Billy Goats Gruff, and similar exhibits. It is perfect for small children, and my four-year-old son had what was possibly the best day of his life. We opened and closed the park and had a two-hour drive each way—thus, the day was not conducive to posting a blog.

It was an interesting day, though. From my son’s perspective, the whole thing was free, as it was paid for by a higher power (me). The visitors covered an amazingly wide range of people—Hasidim, Muslims, WASPs (me again), multiple races and socio-economic classes—all united in letting our kids have fun. The park itself was very well designed, well run, and incredibly effective at extracting money from dad’s wallet.

As far as I am concerned, the big news today is yesterday’s successful landing of the NASA rover on Mars. We haven’t had all that many space triumphs recently, so here’s to the engineers who made it happen! The Wall Street Journal (WSJ) had it on page A1—where it belonged—with “Rover Probes Secrets of Mars,” the Financial Times (FT) had it on page 1 with “Curiosity sets out to answer mysteries of Mars” and on page 5 with “Mars robot puts US back on the map,” and the New York Times (NYT) had it all the way back on A9 with “After Safe Landing a Rover Sends Images From Mars.” What was the NYT thinking?

The other big story is the ongoing lobster roll investigation. I went up to Linda Bean’s in Freeport, across from the L.L. Bean store there, to check out one of the WSJ best, and I am sorry to say that I was disappointed. The roll was only so-so, as it was overtoasted and needed more butter. There were lots of large pieces of firm lobster, which was excellent, but there was not enough seasoning and mayo. You don’t need a lot, but you do need some. Overall, probably a 7 or 8 out of 10, which is definitely not bad, but not best in class, either.

http://www.youtube.com/watch?v=GnJ5dnFJjrA 

This week, I am writing from Maine, so the posts will probably be somewhat shorter than normal and the timing may be erratic. I am taking the chance to research lobster rolls up here—for your benefit, of course. After reading a Wall Street Journal (WSJ) story on the best lobster rolls in Maine, I feel obligated to do my own research. Further reports as the story develops.

A quiet weekend, with the only meta-story being the Friday rally, variously attributed to a Spanish bailout hint in the Financial Times (FT) and to job gains in the WSJ. Monday really had no meta-stories, but the papers displayed interesting differences in focus.

Financial markets take one step back, two steps forward

The latest financial market glitch leads the papers today. The problems generated by Knight Capital with its new and undertested trading program rattled the markets, raised systemic questions, and may well have killed the company. The Financial Times (FT) focuses on the firm with “Software glitch leaves brokerage Knight nursing loss of $440M,” while the New York Times (NYT) takes two looks at the revealed risks with “Errant Trades Reveal a Risk Few Expected” on the front page and “An Automated Jolt for the Markets” on the front business page. The Wall Street Journal (WSJ) is relatively restrained, with the headline “Loss Sweeps Trading Firm” on the front page.

The consequences to the firm, in the end, will not matter to the markets. The consequences of the systemic risks that were revealed, however, are a lot more important. I have to say that this gets back to the issue I discussed in the “Taking a Ferrari into the Back Country” post regarding how we have optimized the system. Knight was clearly focusing on speed to deployment and optimizing for speed under competitive pressures, rather than optimizing for robustness. If every piece of the system is like this, small wonder it is fragile. Every event like this makes it more important to optimize for robustness—or at least introduce it into the discussion.

The papers are all about slowing global growth today, featuring articles that talk about how the U.S. has gone from grow-grow in the first quarter to slow-grow in the second: “Wary Fed Is Poised to Act” on page A1 of the Wall Street Journal (WSJ), “Fed hints at fresh action on economy” on page 1 of the Financial Times (FT), and “Fed Defers New Action But Growth Has Slowed” on page B1 of the New York Times (NYT).

Other countries and areas have been hit as well: the NYT has “Local Governments Face Fiscal Peril, State Comptroller Warns” on page A15, the FT has “Asian output hit by global headwinds” on page 1 and “Weakness in Europe and Asia dents US revenues” on page 13, and the WSJ has “Factories Lose Steam As Global Fears Rise” on page A2. Even hedge funds are shrinking, as seen in “A Hedge Fund Too Big To Profit” on page B1 of the NYT and “Bacon to pay investors $2bn” on page 13 of the FT, which talk about the voluntary downsizing of a large and famous hedge fund.

Similar to yesterday, today is quiet with lots of clouds but also some beams of sunshine. I’ll start with the clouds.

Unemployment is a tough story both domestically—“U. S. Faces Battle to Retrain the Jobless” on page A1 of the Wall Street Journal (WSJ)—and internationally—“Joblessness Hits New Highs in Euro Bloc” on page A9 of the WSJ, “Pressure on ECB as unemployment in eurozone hits high” on page 4 of the Financial Times (FT), and “Joblessness in Euro Zone Reaches Record High” on page B8 of the New York Times (NYT). The headlines are pretty self-explanatory, and this is clearly a meta-story with legs in both Europe and the U.S. Note that, although the headlines emphasize solving the problem in the U.S., they merely note that the problem continues to worsen in Europe.