Business News

I am on the road again for a few days so this morning I went to breakfast and read the Money section of USA Today. Top of the page story, 'Fliers board faster as fewer carry on bags'. This is news? If people have less stuff in their hands they move quicker, not only that, they aren't trying to wheel bags down the aisle that just don't fit. Being a semi-frequent traveller I have always been irritated by fellow flyers who carried on foot lockers and couldn't figure out why they didn't fit in the overhead storage. Don't worry, I shared the blame for this with the agents who allowed this bag onto the plane despite the 'cages' outside the gates saying anything larger then this needs to be checked. After watching 'Airline' a few times about Southwest Airlines reality I don't understand how it happens because those agents are real bastards and seem like they would question if a wallet in a rear pocket were too big.

Below this was the Cover Story about clothing manufacturers getting squeezed by the recent store mergers. Oh my goodness, fewer stores, less space, who would have guessed. I don't understand the Macy's/May's merger getting by regulators but that is life. Normally I think mergers are fine but this one combined the only two department stores I have ever really bought clothes at. The article mentions Kohl's as an option, I grew up in New England and don't know what Kohl's is but it took the old Bradlee's location (bankrupt) so it has inherited the Bradlee's image and I never bought clothes there. JCPenney, never really liked that place for some reason an their new 'image' hasn't won me over just yet. Not even sure I could find one of their stores. Mervyn's just doesn't cut it but if I had bought them out a year or two ago I would be pumping up the advertising and chasing all those like myself.

But what I really found interesting was how many 'labels' were owned by a small number of clothing manufacturers. The articles mentioned how they have opened outlet stores and so on. Based on the number of labels any one of them own they could open their department store, forget the outlets.

My favorite article was at the bottom, 'Mortgage lenders see stock prices sink'. I work in the investment industry and am always amazed at how things work. For mortgage lenders (and many others but this article is about them) when the market was screaming their stocks took off. Sound logical? Yes and No. Theoretically stock valuations are based upon future expectations of a firms prospects. During a boom time analysts and others all see roses and project that the party will last forever. They act surprised when something changes or goes wrong despite the knowledge that the industry was overheated and due for a slowdown or adjustment.

Knowing that the market was overheated and that a slowdown had to come should have been factored into the stock valuations all along. Some error based upon timing of when this would occur can be expected resulting in valuation adjustments but a 20% decline within 2006 is absurd. One would assume that either the stocks were overvalued to begin with or are undervalued now. Given how companies operate I would go with overvalued but wouldn't bet on undervalued now. Many of these firms have been taking on greater and greater risks as they add more options to the mortgages they offer and chase poor risk borrowers to try and juice their returns.

I propose that most of the mortgage lenders (not all, there are some more conservative then others), expecially those lending to risky borrowers have been overstating their income and prospects for several years based upon the real estate boom. When the market is climbing rapidly errors get masked as the person who is short cash sells the real estate and pays off the mortgage instead of defaulting. The companies then say that their default rate is miniscule and use this number to project future defaults despite the historical norm for defaults being much higher. They spin tales of how they have refined the review process and keep on top of the borrowers and act quickly to stem issues but that is all for the media and analysts. The market masked their errors. Soon there will be articles about lenders going bankrupt and they will say how the new 'paradigm' the firm operated in fell apart with the market. Well, there was and is no new paradigm, they capitalize on a short term market and fail in the long term due to the high risk they assumed without generating a comensurate return. Meanwhile senior managers walk away with millions and shareholders lose their shirts.

That was the business news today.

First Amendment & The Press

When the media prints a story from unnamed sources and then refuse to divulge the names of the sources as this would cause sources to dry up I understand. This has to be tempered by the threat of made up sources and the media does a pretty good job of roasting it's own when such a violation is uncovered.

This weekend I was reading the WSJ opinions page from August 19 -20th, 2006. One of the areas I always look to is the upper right hand corner of the second page. Sometimes the opinion expressed in this area is of little to no interest. In this edition I found it interesting. Theodore J. Boutrous, Jr., a lawyer by trade, was expressing his opinion on a lawsuit regarding the use of a phone conversation originally acquired via illegal means. Mr. Boutrous represents Dow Jones, which is noted, so clearly his opinion will support that of the media and the WSJ.

Mr. Boutrous argues that although the taping of the phone conversation was illegal the reporters, and a congressmen who actually received the tape first and passed it on, had a right to publish it as the conversation was accurate and the reporters committed no crime. The argument is obviously one around the First Amendment and freedom of the press.

I disagree. If my TV is stolen and the thief gets on EBAY and sells it, I still expect my TV back. I don't expect the buyer to be arrested. If the Buyer knew the TV was stolen neither they nor anyone else would have purchased it I would like to think. Similar to a pawn store where they actively check for stolen merchandise before purchasing anything to avoid problems with the law and their business licenses.

It is illegal to tape phone conversations without the parties being aware of the taping. The conversation is now stolen property and is readily identifiable as so. A respectable news organization should make sure to return the property and not publish it.

A prosecutor in a court of law would not be able to use such a piece of evidence to convict someone so if it could taint a court proceeding why doesn't it taint a news organization?