Felix Salmon

Those panicky markets

Felix Salmon
May 25, 2010 13:44 UTC

Alphaville has most of the datapoints you need this morning. There’s the European bourses, which started off low and basically haven’t moved all day; the FTSE 100 is now pretty definitively below 5,000 for the first time since September. There’s the flight-to-Germany trade: 10-year Bunds are now below 2.86%. There’s Libor, which is looking ugly and getting worse. There’s the euro, of course, which is now at 1.22. And, in case you want policymaker panic rather than market panic, there’s the proposed German short-selling ban.

All of which makes the downward lurch in US stock prices seem pretty reasonable, in context. Stocks are naturally volatile things, and when you decisively break a barrier like Dow 10,000, there’s no predicting what will happen next. But you might want to have another look at the spreadsheet that Frank Tantillo and I put together comparing the Dow at the bottom of the flash crash to the Dow now: not only is the average at pretty much exactly the same place, but nearly all of the component stocks are within a point or two of their flash-crash lows. (IBM, 3M, and P&G are the outperformers; Caterpillar and Microsoft are the underperformers.)

The S&P 500 is down 2.8% today: another day like this, and it’ll break back down into triple digits. Just remember, though, that it was not all that long ago the S&P was trading below 700. As ever, if you’re invested in stocks, make sure you have a strong stomach. And expect a lot more volatility going forwards.

NYT side door opens up again

Felix Salmon
May 25, 2010 13:18 UTC

Peter Kafka actually bothered to ask the NYT about how traffic from side doors (as opposed to the “front door”, which is the home page) would be treated once the paywall goes up. And he got a pretty unambiguous answer:

Readers that are referred from third party sites such as blogs will be able to access that content without hitting their limit, enabling NYTimes.com to continue being a part of the open web.*

That’s great news, and it confirms that the paywall is more of a navigation fee than an FT-style meter. All paywalls have workarounds, and it’s silly to spend a lot of effort trying to stop the determined from reading your content for free. The NYT paywall instead targets the loyal readers who go straight to the site.

Of course, there are consequences to that decision. For one thing, it shrinks the universe of potential subscribers, and therefore the amount of revenue the paywall scheme might realistically make. And more invidiously, it places the NYT’s own blogs at a huge disadvantage compared to everybody else’s. I can link to an NYT article knowing that my readers will always be able to follow the link, but Paul Krugman can’t. Which isn’t going to make him very happy.

And then there are all those devilish details as regards what counts as a story for the purposes of the meter. If a David Leonhardt column links to his rent-vs-buy meter, does following that link tick the meter up a notch? If I go to a blog home page and then click to read an individual post in full, is that an extra story-view? If I quickly click through half a dozen David Pogue blog entries, is that six? And what about search? Is the NYT essentially telling its non-subscribers that they should only use Google to find NYT stories, rather than its own search product? Does a page of search results even count towards the meter, or just when you click on one of those results to read a story?

Many of these details will surely emerge in coming months. But it does now seem as though one of the biggest questions seems to be settled. If you come to the NYT from Twitter or Facebook or Google or blogs, your pageview will not count towards your quota. That’s good news.

Update: The NYT has now sent me their own version of this statement, which explains that the side door works a bit like foul balls in baseball: they count when you’re not about to strike out, but they don’t count when it really matters.

Once the pay model is implemented next year, the majority of our readers will be unaffected when using the site and will continue to have the same experience they have always had. Readers will only be prompted to pay after reaching a certain reading limit. The pay model will be designed so readers that are referred from third party sites such as blogs will be able to access that content. Links from referrals will count toward reading limits but never trigger the gate, enabling NYTimes.com to continue being a part of the open web. Additional details we be unveiled later in the year including the reading limit and pricing.


Felix Salmon
May 25, 2010 06:15 UTC

Murdoch, online: “Non-members who reach a story page are greeted by a Times+ sign-up and login overlay, obscuring the article; there’s no taster, no excerpt and no way that anyone will find those articles via search sites.” — PaidContent

In which IBM appropriates Mehretu imagery in service of congestion measuring and pricing — YouTube

If your ad is such an obvious Christo rip-off that it needs a disclaimer at the end, prolly best to scrap it — YouTube

My profile of Charles Komanoff and his congestion-pricing crusade — Wired

Between 1990-2007, GDP per working age adult increased by 32% in the US, by 30% in EU, and by 31% in Japan — MoJo

Watch Geithner sink a 3-pointer — TBI

The president of the SF Fed makes $20 more per year than her NY counterpart — WSJ

I’m quoted in Tim Fernholz’s piece on banking the underbanked — TAP


Now I had to listen to John Martyn’s Solid Air and I’m melancholy. But also more able to face the news.

Posted by DonthelibertDem | Report as abusive

Loebs and blogs don’t mix

Felix Salmon
May 25, 2010 06:10 UTC

Back in November, I had some advice for the Loeb judges: don’t start up a blogging award, it won’t work. They responded by making me a judge — not of the blogging award, but of the Magazines category. The preliminary judging was held in Los Angeles in March, where the shortlists were decided. Today, the shortlists were announced and I believe that the winners have now been decided.

Reuters nominated me for the Online Commentary and Blogging category and I didn’t make the final four. And this is the point at which according to convention I should talk about how wonderful the nominees are and how any of them will make a worthy winner. But I won’t, because this award is broken — and indeed is even more broken than I had thought it would be when I first wrote about it in November.

To understand why, put yourself in the position of an editor who asks a writer to start up a new blog. The writer agrees, but the blog never takes off. The writer insists on filing carefully honed and balanced self-contained news analyses and does so only every few weeks. After a handful of these things, the blog is abandoned as a failure and the writer continues doing the old-fashioned journalism he’s clearly good at.

Well, a blog just like that is a finalist for the Loeb award. After filing the grand total of 21 blog entries over the course of all of 2009, Jim Prevor, or his editors, picked the best three and submitted them, along with a $100 check; the blog had already been killed by that point and Prevor has posted nothing this year.

The judges were under quite specific instructions. First, they had to judge the blogs by exactly the same criteria used by all the other judges:

* News Value: insight, informative qualities and durability.
* Originality and/or Exclusivity: enterprise and discovery.
* Reportorial Quality: thoroughness and balance.
* Writing Quality: clarity in dealing with description, concepts, findings and complex issues.
* Analytical Value: application of current economic thinking, breadth and depth of coverage, contribution to helping readers see complex issues in a new light.
* Production Value and Visual Impact: (where applicable).

Without violating any confidences, I can say that the judges did just that and did indeed, for instance, look for “balance” in the entries they were judging. That was, after all, their job.

But it gets worse: the judges were also told that although they had to judge the entire submission, they could judge only the submission — and remember that the submissions comprised the grand total of three blog entries. Everything which makes a great blog great was, essentially, placed out of bounds by this restriction. Here’s what I wrote in November:

Blogs are a conversation, and a lot of the value they add lies in their comments sections and in the interplay between each other. The unit of quality for a blog is the blog itself, a living thing, rather than any individual blog entry or even series of entries. The only way to judge blogs is to read them and interact with them in real time. That just doesn’t work in the context of a Loeb jury, which consists of important and busy journalists receiving packages of printed-out entries and then sitting in their armchair reading them in sequence. It’s hard enough to get them to watch all of the broadcast entries; it’s simply impossible to ask them to start regularly reading a list of blog nominees.

At least I thought that they would try; that a number of different blogs would be submitted and that somehow the judges would attempt to pick the best ones. But in fact it never even got that far. The Loeb award for Online Commentary and Blogging is an award not for a blog but rather for a submission of exactly three blog entries, with the concept of a blog being stretched far enough so as to include another of the finalists, the Economist’s Online Debates.

The other two finalists are more familiar to the blogosphere: Francine McKenna‘s single-minded blog on auditors and David Pogue‘s chatty blog at the NYT, where he interacts with the readers of his technology-review column. Certainly it’s impossible to imagine either of them being nominated for any other prize at the Loebs, but that just underlines how weird this award is: it’s meant to recognize that great business journalism has moved online and into the blogosphere and should be awarded when it appears there just as when it appears in print or on TV — but in doing so it seems to be happy to give up some quite specific standards of what great business journalism should be.

If something like Pogue’s Posts would never get a Loeb nomination if it was a front-of-the-book column in a weekly tech mag, what’s it doing getting a nomination here? It was certainly helpful to me, during my deliberations as a judge, to ask whether I felt that this particular article was worthy of winning the most distinguished prize in business journalism. But it’s hard to apply that question to the two new categories this year — blogging and Personal Finance, which by its nature is servicey and tends to retread the same ground repeatedly. Indeed, one of the finalists in that category was at heart a reworked version, with more of a personal-finance perspective, of a story which appeared in the same newspaper more than two months earlier. Does it matter to readers if a personal finance story doesn’t break news? Of course not, so maybe that shouldn’t be a criterion. But then you’re treating that category differently from all the others — and if you’re going to start doing that, then you should definitely start judging blogs for what they are, rather than as something which can be judged by reading three posts.

“Cynic”, in the comments to my blog in November, says that while blogs deserve to be considered for Loeb awards, they should be considered for existing awards, rather than being shunted off into a new, unhappy category which many bloggers didn’t even bother to enter. (Yves Smith, for instance, genuinely considered the email from the Loeb awards to be spam, since it sent her off to a funny-looking Australian awards site which then asked her for cash.) There’s already a Commentary award, featuring three great finalists and Michael Wolff; it would be great if that last spot were taken by, say, Ezra Klein or James Kwak. Then, I think, it might really mean something if a blogger won a Loeb. Instead, someone is going to go home on June 29 with the blogging award, having beaten out three other finalists whose work bears no resemblance to what they themselves do. The fact that all four finalists are online doesn’t make them similar in a way that allows judges to judge them against each other; in reality they’re so different that such a determination is to all intents and purposes impossible.

Every so often, I’m approached by someone who has an idea of giving out some awards for business and finance bloggers. I normally try to scare them away by telling them that simply judging such a project would necessarily involve a lot of work. The Loebs took that incredibly difficult task and tried to make it manageable for the judges; in doing so, they failed themselves. And so the Loebs’ first foray into the blogosphere is, as I feared it would be, both unbecoming to the Loebs and utterly irrelevant to the blogosphere.

Update: Cynic’s comment is well worth reading.


Dear Mr. Salmon –

I realize you are very busy, and I mean no offense, but it might make sense to investigate before you dismiss the hard and valuable work that people do.

My name is Jim Prevor. I’m the guy you use as an example of failed blogging. In reality your comments are a critique of failing to read the directions.

There is no Loeb category for blogging. The category is entitled “Online Commentary and Blogging” and the criteria is “excellence in analysis and commentary that originates online” — so if George F. Will decided to give up his Washington Post gig and, instead, post his column online every Tuesday and Thursday — he would be eligible. There is no requirement to have a blog or be a blogger.

The new category is obviously a response to changes in the media whereby many respected publications don’t have the page count to carry all the great stuff they could publish, so they publish it online. Also many of these publications don’t have the frequency and would miss news cycles, so they post online material while it is of public interest.

I happen to have an “Online Exclusive” up right now with The New Atlantis, a quarterly journal on science and technology. The piece is on food safety, the lead relates to the current Romaine lettuce recall and we didn’t want to wait three months for the next issue. So we posted the piece online:

http://www.thenewatlantis.com/publicatio ns/how-to-improve-food-safety

Forbes, The Wall Street Journal, virtually all professional journals, etc. now do “online exclusives” – plus there are so many dedicated sites that only do online, The Huffington Post, The Daily Caller, etc. – these publications run terrific stuff and do it online. Some of it is on blogs, much is not.

To clear the record: Although I have occasionally contributed The Weekly Standard Blog, which is published every day, has dozens of contributors and, contrary to your assertions, did not close — I never had a dedicated blog at The Weekly Standard and never had a blog anywhere that closed.

The pieces I was nominated for had nothing to do with the Blog and were three articles, exactly identical in form and substance to the kind I have had published in the print version of The Weekly Standard, except for reasons of space and timeliness, the editor ran them online.

As far as I go, I write on food safety, sustainability, organics, genetically modified food, traceability and many other subjects at PerishablePundit.com. It is a highly successful online publication.

I also write columns for and edit a whole group of business-to-business publications that focus on fresh foods: PRODUCE BUSINESS magazine, DELI BUSINESS magazine, Cheese Connoisseur magazine, etc.

I have written business and opinion pieces on the Op-Ed pages of The Wall Street Journal, the Star Tribune and in many other venues.

I’ve been fortunate and people have found value in my work. I’ve won over one hundred editorial awards and am the recipient of The Timothy White Award for Editorial Integrity and, yes, now, I am a proud finalist for the Gerald Loeb Awards for Distinguished Business and Financial Journalism for work that originated online.

What, precisely, is your problem with that?

Very truly yours,

Jim Prevor

Posted by JimPrevor | Report as abusive

Youthful swearing, cont.

Felix Salmon
May 25, 2010 03:28 UTC

Remember the Global Business Oath of the Young Global Leaders at Davos? Let me remind you: it’s a terribly silly and earnest document which begins with “As a business leader I recognize that” and ends with “This pledge I make freely and upon my honor.” In between is a bunch of do-goody pablum. But thanks to Ben McGrath’s wonderful Talk piece in the latest New Yorker, I now know that the Global Business Oath has a rival: the MBA Oath. This one has a few small differences — it starts with “As a business leader I recognize my role in society” and ends with “This oath I make freely, and upon my honor.” But it also has a big difference: it’s a book, which can be bought at places like 800 CEO READ.com.

In hindsight, this was probably the biggest problem with the Global Business Oath, whose Twitter feed has only 264 followers, to the MBA Oath’s 568. For one thing, there are many more MBAs than there are Young Global Leaders, so the MBA Oath has a naturally larger constituency of smug young backstabbers to cultivate. And more importantly, the first thing that the inventors of the MBA Oath did was sell the book rights to the concept, with some unspecified “portion” of the proceeds going to “support the MBA Oath movement”. After all, in this world, if you’re not doing well by your idea, then you hardly count as even doing any good in the first place. So Max Anderson and Peter Escher first sold their book, and then parlayed their advance, before the book was even published, into well-paying jobs in asset management. Which I’m sure comports perfectly with the final principle of their oath:

I will invest in developing myself and others, helping the management profession continue to advance and create sustainable and inclusive prosperity.

So far, over 3,000 people have taken this oath, all of whom were presumably unfazed by the idea that they were pledging their personal honor to “help the management profession continue to advance”. If, that is, they actually read the thing.

Dangerous strips

Felix Salmon
May 24, 2010 21:23 UTC

It’s the headline which strikes you first: “Strippers Declare Inflation Dead as Dealers Revive Zero-Coupon Treasuries”. Ha, strippers. Geddit? But behind the headline is a very long and dry article about the market in long-dated zero-coupon Treasury bonds, which apparently are all the rage right now:

“We are in some sort of a new normal environment and inflation is not going to be a problem anytime soon,” said Jeffrey Caughron, an associate partner in Oklahoma City at Baker Group Ltd., which advises community banks investing $20 billion of assets and is recommending that some clients buy zero-coupon Treasuries. “Strips would be beneficial if we go to anything close to deflation.”

Treasury 30-year zero-coupon bonds have returned 16.7 percent this year, including 15.2 percent in May, according to Bank of America Merrill Lynch indexes.

Strips are outperforming the rest of the $7.9 trillion market for Treasuries…

They’re beating the Standard & Poor’s 500 Index, down 2.46 percent in 2010, and the Reuters/Jefferies CRB Index of 19 commodities, which has fallen 11.3 percent. Treasury Inflation- Protected Securities, or TIPS, developed in 1997, have also lagged behind, gaining 3.32 percent on average.

It’s true that strips are great buys in a deflationary environment, because they carry no reinvestment risk. But it’s also true that these things are highly volatile, and I would think very long and very hard before advising any small or even medium-sized community bank to play in this particular pool.

Here’s a graph of the yield on 30-year strips since the beginning of 2008. The 17% return this year, as you’ll see, is positively quiescent by Strips standards, and comes only in the wake of a torrid 2009, in which strips lost about half their value. As for 2008, well, the less said about that, the better:


I’ve mentioned in the past that TIPS strips would be an interesting long-term investment, if they actually traded and existed, which they don’t. But long-dated Treasury bond strips are for sophisticated investors only, and I think it’s very dangerous to read too much into their price action. Either the yield on these things closely tracks the yield on 30-year Treasury bonds, in which case you’re in much safer territory with the more liquid plain-vanilla instrument, or else it goes completely haywire, in which case you’re simply on your own and good luck to you. (It’s not just 2008: note the crazy spike in strips yields one year ago last week.)

If you want to make a leveraged bet on the future direction of interest rates, there are lots of derivatives markets where that’s very easy. If you’re a community bank and you’re barred from making such bets, then you’re basically violating the spirit of those regulations by buying strips. They’re dangerous things, and it’s probably best to stay well away.


Rates are staying low for a real LONG time. I don’t see inflation happening until 2012 the way Europe is going


Posted by STORYBURNcom2 | Report as abusive

Chart of the day: The NYT and the econoblogosphere

Felix Salmon
May 24, 2010 18:50 UTC

Jeff Bercovici finds a new study which shows just how important the NYT’s business section is to its online franchise. Here’s the chart:


Jeff notes that the WSJ is nowhere to be seen on the list of the most linked-to websites, despite the fact that it has twice the print circulation of the NYT:

PEJ’s study suggests that the links that would have gone to WSJ and FT in the absence of pay walls have been going to the Times instead. The content on nytimes.com most often linked to by bloggers is business and economic news, which accounts for 29% of linked stories — as much as the next two areas (politics/national news and technology) combined. Surely in an all-free online universe, many if not most of those links would go to financial publications instead of to a general-interest paper.

The NYT can claim only some of the credit for its dominance of the business blogosphere: this was a battle that the WSJ and FT surrendered early on, ceding the field to the Gray Lady. But now that the NYT has this enviable position, one would think that it would be trying to capitalize on it as much as possible, rather than spending an inordinate amount of management time and Carlos Slim’s money putting together a paywall which risks sending all that high-value traffic elsewhere. (Like Reuters.com, for instance.)

What the NYT should be doing is reiterating loudly and as often as possible that side doors will be completely free: any blogger linking to a NYT story can know that her readers will see that story, and not barge straight into the firewall. If there has to be a paywall, then it should be put up behind the homepage, and should act more as a navigation fee than as an FT-style meter. (I hate the FT meter, despite the fact that I have a full subscription there, because when I follow a link to FT.com from Twitter on my iPhone, I run into the firewall. The FT should just automatically give a pass to all readers coming from Twitter, especially if they’re using mobile devices.)

Unfortunately, the the NYT has been backtracking on its early statements about keeping the side doors open. And if it closes them, FT-style, then it might well lose a very large chunk of its most valuable readers: the people who read business and finance blogs and who follow links from those blogs to nytimes.com. The NYT has some good business coverage, but it hasn’t got its present dominance of the econoblogosphere through merit alone: the lack of a paywall has been much more important. It’ll be very interesting to see how willing the NYT is to throw all that away, in the service of a paywall plan which will likely not make it any money at all.


“Domestic terrorism” was a separate category?

Posted by Mega | Report as abusive

The politics of finance

Felix Salmon
May 24, 2010 18:06 UTC

It’s politics-of-finance day today, with The Big Money running an excerpt from Jonathan Alter’s new book, about Paul Volcker and Larry Summers, while John Heilemann has a big New York cover story on the relationship between Obama, Geithner, and Wall Street.

Alter is unsparing when it comes to Summers:

Inside the White House, David Axelrod was among the few representing the so‑called populist side of the argument, and a joshing debate broke out. Axelrod asked Summers, “So, what does your plutocrat constituency make of this, Larry?”

“It’s good to be hearing what Che thinks,” Summers replied.

But if Summers was more politically shrewd and more aware of the consequences of his outbursts becoming public, the old habits persisted. When Christie Romer was brought in to be the chair of the Council of Economic Advisers, Summers tried to exclude her from important meetings. Romer fought back, even suggesting to Summers that sexism might have played a role in her exclusion, a serious charge given that he was fired as president of Harvard for perceived sexism.

“Don’t you threaten me!” Summers yelled.

“Don’t you bully me!” Romer shouted.

Heilemann, meanwhile, reports that the current administration, which saved the banks from nationalization, is now held in such contempt that Lloyd Blankfein, a Democrat, “has taken to trashing Obama to his friends in unusually brutal personal terms”, and that at least one big Wall Street bank is likely to slash its Obama donations by more than 90% in 2012.

Both Alter and Heilemann trace the decision not to nationalize to a dinner at the White House in April 2009, attended by Paul Krugman, Joe Stiglitz, Alan Blinder, Ken Rogoff, and, at least according to Heilemann, Jeff Sachs as well. Krugman and Stiglitz were in favor of nationalization, but we open about the fact that it would be an expensive and fraught course of action; Obama, faced with an alternative, sensibly took it.

The overwhelming impression I get from reading both accounts, however, is that we’re still in the middle of the story and that no one has a clue what the ending is going to be. The fate of Wall Street is not remotely settled yet, and indeed it’s not at all obvious what the Obama administration wants the fate of Wall Street to be. But Wall Street, it’s clear, is not going to be satisfied with anything short of a complete return to the status quo ante. They’re going to have to get used to disappointment.


Barney Frank needs to raise the tax rate on Wall Street payouts to 60%. The UK is already at 50%


Posted by STORYBURNcom2 | Report as abusive

Preparing for bank downgrades

Felix Salmon
May 24, 2010 13:46 UTC

Mark Gongloff goes out on a limb today, saying that if the final financial regulatory reform bill passes in anything like the form passed by the Senate, “the rating companies will almost certainly lower credit ratings for some of the biggest banks”.

No one from any ratings agency is quoted in the piece, but it’s worth reading between the lines here: while the story explicitly says that “all of the banks either declined to comment or didn’t return phone calls seeking comment”, there’s no such disclaimer about the ratings agencies. So I think it’s fair to assume that Gongloff got his story straight from the agencies themselves, on the proviso that he not quote them directly.

It seems that the ratings agencies want to be ahead of the curve on this issue: Gongloff points out that there’s no indication in the markets that banks’ borrowing costs have been rising at all in anticipation of the coming bill; normally ratings agencies only downgrade after spreads have widened.

On the other hand, it’s not clear just how harmful a downgrade would be. Here’s Gongloff’s worst-case scenario:

A five-notch downgrade of Bank of America by Moody’s to Baa2 from Aa3, the equivalent of an S&P rating cut to BBB from AA-, could raise the interest-rate spread over Treasury yields that the bank must pay to borrow by 1.43 percentage points, according to prevailing market rates on Friday compiled by S&P.

That could add $2.38 billion to Bank of America’s annual interest expense, assuming the bank’s long-term debt rises by a net $170 billion a year, as it did in 2009.

For one thing, no one’s going to downgrade BofA by five notches: it’s still too big to fail, after all. And according to BofA’s annual report, its total interest expense last year was already $30.8 billion: adding $2.38 billion to that would be a blow, but hardly an enormous one, given that the bank’s interest expense in 2008 was $40.3 billion, and in 2007 was $52.9 billion.

But in any case, there’s simply no way that BofA would ever allow itself to get downgraded to anything with a B handle, and if that did happen then we would be back in fully-fledged crisis mode. Certainly the bank wouldn’t be blithely increasing its long-term debt by $170 billion a year: rather, it would be deleveraging as aggressively as it possibly could. And its spreads would have gapped out by much more than 143bp.

It’s also worth noting that if credit ratings are pretty useless things most of the time, they’re particularly useless when it comes to banks. Remember when Moody’s upgraded every bank in Iceland to triple-A status in February 2007?

So I take this story as a warning to the banks to position themselves for downgrade risk, if and when a final bill gets passed. But I don’t think that any downgrades — which will probably be only one notch, in the first instance — are going to make much of a dent in their borrowing costs.


The mistake here is to assume that downgrades have a linear affect. As Patricio stated there is probably a number of step-up clauses in their debt covenants and it will have serious knock-on effects in the money and repo markets in terms of their ability to raise ANY capital in those markets.

Yet another one of those unintended consequences and what happens when you pass poorly thought out regulation on the back of populist rhetoric.

Posted by Danny_Black | Report as abusive