November 28, 2012

Wednesday Off-Topic (Moderated) Open Thread (112812)

Filed under: Lucid Links — Tom @ 6:05 am

Rules are here. Possible comment fodder may follow later. Other topics are also fair game.




  1. Jenkins: The Media Choke on a Twinkie

    Nevertheless, one of the major parties to the Twinkie bankruptcy, the bakery union, has been unstinting in explaining the company’s trouble in written and spoken word to anyone who wants to listen. The Hostess brands are valuable. The Hostess bakery and packaging operations are reasonably competitive and efficient, and while some ­reorganization and downsizing are inevitable, these properties are still worth owning.

    Hostess’s problem, as the bakers point out in bankruptcy filings printed in legible English, and as Hostess management has pointed out in its own equally readable filings, is that Hostess’s valuable parts are held back by Hostess’s high-cost, Teamster-staffed system for moving Twinkies and other delights from production facility to store shelf.

    This high-cost distribution system means the company doesn’t make money on many of its existing sales. It means it can’t profitably extend sales to new customers and new geographical markets that might keep Hostess factories busier than ever.

    Now, as we said, a good bet is that people act rationally where their material interests are concerned. The bakers make a perfectly rational judgment, in rejecting further concessions and triggering the liquidation of Hostess, that their members would be better off if no longer wedded to Hostess’s Teamster-dominated delivery network.

    The Teamsters, who swallowed hard and agreed to concessions in hopes of avoiding liquidation, are telling you something too. The Teamsters are telling you, quite rationally, that nothing of value would likely remain in the Hostess distribution system in a liquidation. Look at the buyers lining up for the Hostess brands, such as Tastykake owner Flower Foods and the investment fund that owns Pabst Blue Ribbon, who slaver after an opportunity to roll Twinkies and related indulgences into their own existing delivery networks. They slaver after Hostess’s distribution operations not at all.

    Interesting angle. So basically unless the Teamsters voted themselves out of the Hostess business model entirely, none of them would survive. From the Baker’s Union POV, they would be taking a pay cut to keep the Teamster Union in the picture and that wasn’t worth it to them. So it’s everyone for themselves…

    Comment by dscott — November 28, 2012 @ 1:04 pm

  2. #1, very, very sad.

    Comment by Tom — November 28, 2012 @ 2:34 pm

  3. De Facto admission by Fed member that the money supply is out of control because they feel shackled to government spending not producing jobs as theory dictates.

    Feud at The Fed: “Horrific Consequences” For Unlimited Quantitative Easing Video

    “It’s important to maintain the overall level of asset purchases at $85 billion, at least for a time until we can see whether or not we are doing better or things are going more slowly, and we can adjust, depending on that assessment,” Evans told reporters attending a speech at the C.D. Howe Institute in Toronto

    Evans said he would judge the labor market as substantially improved once he sees monthly job gains of a least 200,000 for about six months, as well as above-trend growth in gross domestic product that would lead to declines in unemployment.

    “I would be very surprised if we could achieve that before six months have passed, and I would not be surprised if it takes until the end of 2013,” he said.

    But Dallas Fed President Richard Fisher, a self-identified inflation hawk, said the U.S. central bank could get into trouble if it does not set a limit on the amount of assets it is willing to buy.

    ‘You cannot expand without limits without horrific consequences,’ Robert Fisher told reporters on the sidelines of the conference organized by the Levy Economics Institute in Berlin. ‘There is no infinity in monetary policy, we know that from the German experience.’

    But indeed Obama believes budget deficits can go indefinitely and thus the Fed is obliged to purchase said Treasuries if they are not purchased by others. Note that not one crisp $100 bill need be printed to achieve the purchase of Treasuries, it’s all done electronically via ones and zeros so there is no way to know for such how much money is in circulation. The Congressional audit of the Fed this summer proved as much in regards to the transparency of the Fed’s activities by loaning $16 trillion over the space of 3 years.

    The German experience like the Zimbabwe and Argentina episodes ramped up to hyper inflation. The question here where there is no precedent given the lack of transparency using wired money to gauge is how quickly the end will come for the US. Many don’t realize the significance of using wired money instead of physical money. Physical money requires an armored car to move it, thus every movement of that money can be tracked until the Fed destroys it. Whereas electronic money that appeared out of thin air from the Fed wire transfer can be lost such as via a bad stock deal and never ever be seen.

    Example: We start with $10k of stock and $10k of dollar bills, this equals $20k of total assets. I buy $10k worth of stock, those $10k dollars are sent to the seller. My stock drops to $1k, meaning I lost $9k. This leaves $11k in total assets between me and the former seller. I borrow $9k from the Fed who wires me the funds and charges me a pittance of interest. Magically, the total assets are $20k again. The market conditions change and my stock is worth $10k again in addition to the $9k which turns into $90k. Total assets are now $110k ($10k+$10k+$90k). I pay back the Fed their $10k plus interest and now the total assets are $100k.

    OR conversely, I lose that loaned $9k plus my $1k and declare bankruptcy, leaving the Fed with zero $k thus the total assets are now $10k from the dollars the former seller. The Fed can’t lose money since it never really existed.

    Under scenario 1, in the old days, the Fed would be required to inject $80k to balance the ledgers with printed money. As you can see the money supply would increase wildly causing a potential problem with inflation via a bubble. I.e. the housing bubble, and the dot com bubble before it.

    If they didn’t inject physical dollars there would be a shortage of dollars causing liquidity issues throughout the financial system. Not so anymore with electronic ones and zeros. Perhaps this is why the Fed has taken such unthinkable actions in the past four years? They arrogantly (hubris) think they have solved the liquidity transfer issue and thus can wire money indefinitely.

    As I have said in previous posts, the reason hyper inflation hasn’t occurred yet in the US is probably due to the Fed wiring loans to financial institutions to prop up their balance sheets. They are furiously trying to make up the lost money via the arbitrage between the Fed’s cheap money and the Treasuries and Eurobonds. Sooner or later they will pay back the cheap loan, but then maybe not since when would inflation ever be at a rate less than the Fed’s loan interest unless the Fed itself called the loan?

    For now, we will have to just wait and see how this fiasco turns out to determine what is the inflection point where hyper inflation takes off. It will be sudden and without warning I suspect.

    Comment by dscott — November 28, 2012 @ 3:50 pm

  4. Interesting followup to my thoughts:

    The Cost Of Kidding Yourself

    The only way to accurately measure changes in a nation’s economy is to do so relative to the world (see Notes for non-nerds below before protesting). According to the World Bank, the U.S. represented 31.8% of the world’s economic activity in 2001. By the end of 2011, that share had dropped to 21.6%, meaning America’s slice of the world economy is 32% smaller than it was a decade ago, and getting smaller every day. Note that America’s housing bubble did nothing to boost the U.S. on the global stage.

    As horrific as these results are, they’re better than Japan’s, whose “lost decade” proved only to be prologue for its “lost-er decade.” Japan’s share of the world economy fell more than 35% from 2001 to 2011 (literally worse than Zimbabwe) and has now shriveled 54% from its peak. But Japan’s real collapse did not coincide with the bursting of its stock and real estate bubbles in 1990 and 1991 respectively. The decline actually began in 1995 when policymakers allowed government debt to exceed 90% of GDP (a milestone the U.S. quietly passed in 2010)…

    …All three of these countries are in death spirals for the same reason: They believe that they have the ability to avoid recession by simply printing their own money. As America’s 100-year numbskull (and current Federal Reserve Chairman) Ben Bernanke once mused:

    “…the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

    I don’t know about comparing to the world as the only way but the charts and tables do make a convincing argument as to the declining REAL output of the US. It also could be true that the rest of the world’s economies grew MORE than the US. IF we knew what the real amount of goods and services actually were made in units other than dollars we might find that because of the undercounting of the inflation adjustment to GDP, real output has dropped not increased. What we may really find is that like Japan, the US has been undergoing a “managed” decline to make it’s standard of living equalize to the rest of the world. Scary thought…and fits right in there with Obama’s redistribution of wealth belief system.

    Comment by dscott — November 28, 2012 @ 4:20 pm

  5. This can’t possibly end well:

    Companies Shelling Out Billions to Beat the ‘Fiscal Cliff’

    Taking advantage of super-low interest rates, companies have been issuing debt at a record rate this month. Some say they plan to use the proceeds to fund dividends and share repurchases.

    “I think what you’re seeing is a reaction to the lack of clarity around the tax laws, and that’s what Treasurers and CFOs are doing,” said Joel Levington, managing director of corporate credit at Brookfield Investment Management.

    Christopher Reich of Thomson Reuters IFR points out, for instance, that Murphy Oil [MUR 57.58 0.53 (+0.93%) ] in its prospectus Tuesday also said that it would use the proceeds of its more than $600 million offering of 5-year, 10-year and 30-year bonds to fund its previously announced special dividend, among other things.

    Yeah, Obamanomics at work, companies paying dividends with borrowed money.

    Comment by dscott — November 28, 2012 @ 6:28 pm

  6. These companies are in substance engaging in partial liquidations.

    Comment by Tom — November 28, 2012 @ 7:39 pm

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