Felix Salmon

Putting David Einhorn to the taste test

Felix Salmon
Oct 3, 2012 21:01 UTC

David Einhorn is shorting Chipotle, on the rather dubious basis that Taco Bell is going to start seriously competing on the fast-food-which-actually-tastes-good front:

Mr. Einhorn, the president of Greenlight Capital, noted that Taco Bell’s new upscale menu, Cantina Bell, would lure customers away from Chipotle, which offers higher-priced options.

Can Taco Bell really lure customers away from Chipotle? I decided to find out, with the invaluable help of Food & Wine’s Kate Krader, and Reuters’s very own Anthony De Rosa.

The results? In a word, no: there’s simply no way that Taco Bell, even with its Cantina Bell menu, can hold a candle to Chipotle. If you’re used to Chipotle, you might be tempted by Taco Bell’s lower prices — but there’s no way you’ll be tempted by its food.

On the other hand, if you look at the results of polling from YouGov BrandIndex, the perceived quality gap between Chipotle and Taco Bell does seem to be narrowing, and Taco Bell is now perceived to be higher quality than fast-food chains in general.


This is not unprecedented: as you can see, at the beginning of May, Taco Bell actually scored higher on this metric, which is the result of subtracting the percentage of poll respondents who think a brand is “low quality” from the percentage who think that brand is “high quality”. But it does seem undeniable that Taco Bell is doing reasonably well these days, on the quality-perceptions front, while Chipotle’s advantage is shrinking.

Still, I very much doubt that’s going to result in any kind of exodus from Chipotle to Taco Bell — and the reason is that these chains get judged on very different criteria. Do I think that Chipotle is low-quality or high-quality? Ask me that, and I’ll compare it to the Mexican restaurants in my neighborhood. Ask me the same question of Taco Bell, however, and I’ll compare it to other cheap-and-crappy fast-food joints frequented in large part by stoners with the munchies. You could ask the same question about the business-class seats on American Airlines and the economy-class seats on Singapore Airlines: many respondents would say that American’s business class was low quality, while Singapore’s economy class was high-quality. But that doesn’t mean that they would prefer coach class on Singapore to business class on American.

In other words, there’s an important expectations game going on here. America’s consumers now take it for granted that Chipotle is really good by fast-food standards; Taco Bell’s new Cantina menu, by contrast, is basically an attempt (and not a particularly successful one, if my taste test is any indication) to bring the chain up into the realm of “maybe I could possibly eat this while sober”.

Taco Bell has something of a cult following among the young and inebriated. When “marketing strategist” Laura Ries said that a Doritos taco wouldn’t turn Taco Bell into “a more authentic Mexican restaurant”, Joseph Alexiou responded, quite rightly, that she “clearly has no clue about what attracts people to Taco Bell”. After tasting one of these abominations yesterday, I can attest that it is a truly nasty thing: an unidentifiably oleaginous brown gloop acting as glue between two sides of a radioactive-orange shell which tastes like someone dropped a pound of salt into a vat of Irn-Bru and then solidified the result.

Obviously, there is a market for Doritos Locos Tacos. But equally obviously, that market is not the same as the market for Chipotle burrito bowls. Taco Bell might do well in future, and Chipotle might do badly. But Taco Bell is no more going to eat Chipotle’s lunch than I’m ever going to touch a Cantina burrito again.


Curious as to why you didn’t use a blind taste test here. Like “simsimsim” says, doing it this way opens it up to so many different types of biases. It honestly looked like you were ready to hate every bite of a taco bell product and “love” every bite of a Chipotle product. Done this way, the survey is generally useless.

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Animated chart of the day, Apple vs Microsoft edition

Felix Salmon
Sep 18, 2012 18:19 UTC

Back when this blog was on hiatus, I put a chart of Microsoft and Apple valuations up over at felixsalmon.com. People liked it, and so I decided to take the obvious next step, and animate it. The result is the video above, and this gif.

The data are a little bit out of date at this point, and so you can’t see Apple soaring to its latest $650 billion valuation* — but it’s easy to see where it’s going. And the big picture is still very clear: Apple basically curves up with market cap being an inverse function of p/e, as you’d expect; when Microsoft, by contrast, reached its highest valuation, it had a whopping great p/e ratio.

Today, for the record, Apple has a market cap of $650 billion and a p/e ratio of 16.4; Microsoft has a market cap of $260 billion and a p/e ratio of 15.6. As far as their earnings ratios are concerned, both are very much in line with the S&P 500, which is currently trading at a p/e of 16.5. Wherever excess earnings growth is going to come from, the market isn’t expecting it from either of these tech giants.

*Yes, I said $700 billion in the video. I meant $700 per share. Oops.

Can gold be used as a currency?

Felix Salmon
Apr 27, 2012 04:59 UTC

It worked! Kinda. I took Matthew Bishop’s challenge, and tried to spend a gram of gold like I would any other currency. And, frankly, didn’t have a lot of luck — until I managed to find a small business where the owner just happened to be standing around. In the end, I got three lobster rolls (and free drinks, too) for one gram of gold. Which were very tasty — thank you Snack Box!

So, what did I learn on my expedition in Times Square?

  • When I tell the Snack Box owner that the gold is real and that “you can tell by how shiny it is”, I’m not kidding. Pure gold is really shiny.
  • The most surprising people turn out to know how much a gram of gold is worth, with an astonishing level of accuracy.
  • Gold is not a currency. I’m reasonably sure that Andrew, the guy behind the counter at Snack Box, would not have accepted my gram of gold unless his boss was telling him to.
  • If you do want to spend gold, then try your luck with small businesses, and don’t expect a good implied exchange rate.
  • Also, bringing a film crew along is unlikely to help you at any big chain store.

Most interestingly, however, at least to me, was how much it actually cost us to obtain that gram of gold. For the purposes of the video, I was using the value of one gram of gold based on its market price per ounce. But if you go out and attempt to buy a gold bar, you’ll never be able to find one for a mere $53. In fact, my producer wound up paying double that, in Manhattan. Even if you do a lot of searching online, you’ll be hard pressed to find one for less than $80. We didn’t try to sell the gold — we wound up getting a delicious lunch instead — but my guess is that in most cities the effective bid/offer is absolutely enormous. And much bigger than for any major global currency.

Still, it was a fun — and tasty — experiment. If you try it yourself, do let me know the results!


I’m not as optimistic as TFF about how much the lobster rolls cost in Time Square. It’s probably more than $20 for the three of them. But still, Felix and his crew paid $26 per lobster roll. Clearly we need to get off gold and get us some lobster & bread futures.

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Muppet TV

Felix Salmon
Mar 24, 2012 00:56 UTC

You need this, after a day like today, I think.


Likewise filed under the label “predictable as night following day” –

Cashing in with a book contract, and Danny (“never shall be heard a discouraging word”) Black defending Wall Street.

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Understanding Greece’s default

Felix Salmon
Mar 1, 2012 15:08 UTC

First, apologies for how Greece-heavy this blog is these days. There are other things going on out there, I’m sure. But we’re going through the largest sovereign default in the history of the world, and surprisingly few people — including senior European policymakers and journalists who are covering it professionally — really seem to understand what’s going on.

At the WSJ, for instance, the news story on today’s official ISDA determination (“Greek Deal Won’t Trigger CDS Payouts, Panel Says”) is bad; the blog post about it by Charles Forelle (“ISDA’s Greek Ruling Not the Last Word”) is very good.

And in Europe, the range of sophistication within policymaking circles is even greater. At the lowest, most basic level, one finds a feeling that it’s a Bad Thing if a European sovereign nation were ever to default, and so therefore it would be a good thing if the bond exchange was organized so that there was no official market determination of default. (Never mind that Greece is already in selective default on its bonds, according to S&P.)

At a slightly higher level of sophistication one finds the short-sellers-are-bad crowd, who don’t like CDS because they allow hedge funds to easily bet against countries. If the messy Greek CDS situation helps to reduce the amount of trust that the markets have in sovereign CDS generally, then so much the better, on this view.

And then, finally, there’s Peter Eavis’s conspiracy theory: if the Greek bond exchange goes really smoothly, and the sun rises in the morning and Italian bond yields stay below 5%, then maybe that’s the most worrying outcome of all. Because at that point Greece will have managed to wipe out, at a stroke, debt amounting to some 54% of GDP. You can see how Portugal and Ireland might be a little jealous. You don’t want to make sovereign default too easy — not least because it would do extremely nasty things to European banks’ balance sheets.

That said, Greece has now broken the sovereign-default taboo; many countries both inside and outside Europe have way too much debt; and now that debt relief is an option for politicians to seriously consider, it’s pretty much certain that at some point another European government will end up choosing that option.

So it’s extremely important for European politicians and voters generally to really understand what’s going on here, rather than just a relative handful of financial-market sophisticates. Greece’s default was a drastic move, and Europe has semi-officially said that it was a mistake: once we’re done with Greece, they’ve said, we’re not going to ask any other European country to similarly write down its private debt.

But the cat’s out of the bag now. Greece had no choice but to default. Portugal and Ireland do now have the choice. And while the cost of default is large, so is the cost of carrying a whopping great debt load. It’s up to the leaders and voters of those countries to determine which is the least bad option.


Yep – Greece’s default is Pandora’s Box. The lid is open and you can’t shut it now. This is going to bring down the entire financial order of the West because there isn’t enough moolah to cover all the sovereign defaults that are just waiting in the wings.

All we did 3 and 1/2 years ago was transfer to the sovereigns the massive private debt that defaulted in the crash of 2008. That is now breaking the camel’s back, since most over-developed sovereigns were already on trajectory toward having their backs broken before the crash of 2008 came along.

It’s ‘prophetic’, if you will, that the collapse of western democratic capitalism should begin, be triggered by, the default of Greece, the Mother of Democracy. It’s 1989-1991 for western capitalism.

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Rubber ducks explain the Greek negotiations

Felix Salmon
Feb 10, 2012 01:40 UTC

Is there really a done deal in Greece? I hope so — but it’s pretty clear that nothing’s in the bag quite yet. In terms of my video above, the Greeks consider themselves in the boat at this point — but the Europeans worry that the Greeks might go back on their promises, so they want not only the Greek executive but also the Greek legislature to sign on. (I didn’t even have a duck for the Greek legislature, I thought the only legislatures we needed to worry about were in Germany and Finland.)

And the IMF duck isn’t in the boat either — Christine Lagarde, too, is demanding further “assurances Greece would stick to the agreed policies whatever the outcome of looming elections”.

It seems that the bondholders are in the boat, however — or as far in the boat as they can credibly get absent a formal bond exchange offer. And that’s why I’m not sold on Floyd Norris’s idea that the money Europe is providing for Greece will instead end up in an escrow account, to be used first to pay bondholders and only second to cover the Greek budget deficit.

If that were the case, the value of the exchange offer would rise markedly: the new bonds would certainly be repaid, and would be worth 100 cents on the dollar, rather than the 60 cents or less that everybody’s expecting right now. It would be a multi-billion-dollar gift to bondholders who expect much less than that, in a context where a few billion dollars could well make the difference between a successful deal and a failed one. If there’s effectively going to be an EU/IMF guarantee of the new Greek bonds, then the nominal haircut would surely be bigger than 50%, and I haven’t heard anything along those lines.

Basically, what’s going on here is that because the bondholders are already in the boat, no one needs to do them any favors. What’s needed is an agreement between Greece and the Troika — something acceptable to both sides, and which the Troika believes that Greece will hold to. Even as sensible people like Mohamed El-Erian can see clearly that that’s not going to happen. “I suspect all three parties to the negotiations know in their heart that their latest agreement, brave as it is, will only last a few months at best,” he writes. “Within a few months, the negotiating parties are likely to be back at the table bickering while Greece continues to stare into the abyss.”

Or, to put it another way, that overloaded pirate ship is very precarious. And even if it manages to get everybody on board now — which is far from certain — it could still easily capsize a few months down the road.


TFF, which is why in a democracy no one ever votes for it….

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Summers: “Inside Job had essentially all its facts wrong”

Felix Salmon
Jan 27, 2012 09:19 UTC

In mid-2009, I went on a search for apologies, from the people who laid the intellectual and regulatory foundations for the financial crisis. I wondered whether and when Larry Summers, in particular, would apologize for what he did at Treasury, and I was heartened when Bill Clinton came out and said that, with hindsight, he was wrong about derivatives regulation.

Then, in 2010, Inside Job came out, and demonstrated the need for the likes of Summers to be asked direct questions about their culpability on the record, on-camera. But Summers refused to be interviewed for that film, despite having known its director, Charles Ferguson, for many years. And when he does sit down for a rare on-the-record video interview, these questions never seem to get asked.

So I was very happy to see that Krishnan Guru-Murthy at least tried to ask Summers these questions earlier this week. Krishnan starts off with standard Summers-interview questions, asking him what he thinks about UK fiscal policy, and Summers gives his standard wise-man answers. But then Krishan gets steadily tougher, asking Summers about the advice he gave the president-elect in 2008, and eventually about his deregulatory tenure at Treasury.

And Summers doesn’t even come close to apologizing, or admitting that he made any kind of mistake at all. Quite the opposite: he starts getting very touchy, telling Krishnan that he’s reducing complex questions to overly simplistic black-and-white narratives. Halfway through the interview, Krishnan asks Summers whether laissez-faire capitalism isn’t working for the middle classes. And Summers pushes back. “I’m a Democrat,” he says, adding that “I’ve long been someone who favored significant interventions to protect the environment.”

Protect the environment?” responds Krishnan. “Didn’t you advise the president not to sign up to Kyoto?”

“No, no,” replies Summers.

“You didn’t?”

“No. I advised that an agreement be designed in order to protect the American economy, and the United States not take on obligations that would render its businesses uncompetitive.”

Summers never explains how this differs from advice not to sign up to Kyoto, nor does he give an example of any “significant interventions” he pushed for to protect the environment. Because the interview soon moves on to the subject of deregulation, with Summers saying that he “was for moving derivatives to exchanges” — something Krishnan lets stand — and deciding to pick the ground of Glass-Steagal on which to fight, saying that Lehman and Bear Stearns might have survived had they been part of bigger banks.

Well, yes, they might — but then again, they might also have just created another Citigroup, requiring massive bailouts from the government. Personally, I don’t think that repealing Glass-Steagal was in and of itself a major cause of the financial crisis, but Summers goes further, saying that huge financial supermarkets are a good thing (he holds up Canada as a model).

Krishnan continues to push. “Even Bill Clinton says that he was wrong to listen to the wrong advice when it came to derivatives. And that was your advice.” (Has Summers ever been asked questions like this, on camera, by an American reporter?)

Summers responds, again, that “it’s complicated”, and then builds up to attacking Krishnan:

Would it have been better if the whole of the 2010 financial reform legislation had passed in 1999 or 1998 or 1992? Yes, of course it would have been better. But at the time Bill Clinton was president, there essentially were no credit default swaps. So the issue that became a serious problem really wasn’t an issue that was on the horizon… If you want to assign responsibility, If you take a market that essentially didn’t exist in the 1990s, that grew for eight years from 2001 to 2008, and then brought on a major collapse, if you were looking to hold people responsible, you would look to… officials of the Bush Administration. I’m not going to tell you that I foresaw this crisis in all its dimensions, but without sounding like Newt Gingrich here, for you to read two articles that a researcher handed you and sling this stuff is not really to give your viewers a very clear chance.

0396m.gifSummers is absolutely wrong about credit derivatives not existing in the late 1990s. He was Treasury secretary from 1999 to 2001; Euromoney Magazine had splashed the words “Credit Derivatives” all over its front cover in March 1996. And Brooksley Born, between 1996 and 1999, was literally losing sleep over those things as head of the Commodity Futures Trading Commission. Summers’s response to Born? To make sure she was marginalized, and, eventually, pushed out of her job entirely.

And of course it’s a bit rich for Summers to criticize Krishnan for asking uninformed questions (they’re not uninformed at all, actually), when he has steadfastly refused to answer informed questions from the likes of Charles Ferguson.

Eventually, Krishnan attempts another tack. “It’s not to put all the blame on you,” he says. “But you started on a trajectory that was then continued by the Bush Administration.” The reply is a classic:

“No, no, no, no. That is just not credibly correct.”

Krishnan then brings up Inside Job and the issue of the revolving door, which of course Summers took full advantage of with his $5-million-a-year job working one day a week for DE Shaw.

“Inside Job had essentially all its facts wrong,” replies Summers, unbelievably, resorting to an argument based on timing: because he didn’t work in financial services before he was Treasury secretary, and because he waited a few years before taking that job at DE Shaw, Summers says it’s “absurd” to blame the revolving door for any of his actions.

It’s weird that Summers, who loves debate, generally refuses to sit down in some public forum and answer serious, informed questions about the legacy of his tenure at Treasury; it might well be that this single interview is the closest we’ll ever get. And on the basis of this interview, it’s clear that, far from apologizing for his actions, Summers is going Full Bluster, denying any culpability, and choosing instead to violently reject and belittle any suggestion that he holds any responsibility for the crisis at all.


I couldn’t believe this interview. As you suggest, Felix, the guy is not only mendacious but a deeply unpleasant human being. I did my own, shorter blog about the interview here:- http://www.ianfraser.org/larry-summers-w ashes-hands-of-all-responsibility-for-cr isis/ The very idea that Summers should even be considered for the World Bank role shows how little we seem to have learnt since the crisis and fills me with mild horror.

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Felix Salmon
Jan 26, 2012 10:56 UTC

It’s time to move the World Economic Forum away from the Swiss enclave with which it has become synonymous, at least for one year. A Greek island — Arianna Huffington suggests Patmos, while Andrew Ross Sorkin is more partial to Santorini — would be perfect: a change of climate, a change of scenery, and an opportunity to bring the forces of global plutocracy to bear exactly where they can do the most good. Davos has billionaires, but it doesn’t have any yachts.

Patmos 2013: you know it makes sense.

Update: More recruits!


Patmos, the island where the Book of Revelations was written, predicting the Apocalypse with its talk of scorpion tailed locusts sounds perfect venue for the rich to gather.

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The markets didn’t just vote on the Euro summit

Felix Salmon
Dec 9, 2011 22:09 UTC

Am I feeling a bit sheepish about my extreme pessimism of last night, in the wake of a healthy stock-market reaction in both Europe and the US? Not really. Markets did rise, but the movement was within what you might consider standard noise for stock indices these days: roughly 2% in Europe, a little lower in the US. A resounding vote of confidence in the EU this was not: instead, it looks more like the bad deal done in Europe was already priced in, and the markets just continued, today, on their normal volatile and noisy path. In fact, it’s not at all clear that the EU treaty was responsible for any of today’s market move at all.

In the video I shot yesterday with TBI’s Simone Foxman, Simone talks about how Europe’s bailout mechanism is a fragile thing. For one thing, she admits that “the ECB has to get involved in one way or another”, and that we’re not seeing that right now; later on, she wonders whether the markets would even place all that much faith in a German guarantee of PIIGS debts if Germany has been downgraded. “It’s going to be really tricky to not lose a lot of investor confidence” if and when the eurozone breaks up, she says, and when Germany is called upon to provide guarantees, “by then, markets may not trust them enough. If that fear keeps rolling, it snowballs down the mountain and all of sudden becomes an avalanche”.

This is one of those situations where the conventions of reporting market moves on a daily basis are decidedly unhelpful if you want to get a feel for what’s going on in Europe. The fact is that Europe still has a lot of very strong companies, which are worth real money going forwards; in many ways, owning those companies is a much smarter thing to do than simply putting your euros on deposit in a European bank. So looking at the share prices of European companies is really not a great way of working out what the market thinks of the prospects for the future of the eurozone. And looking at the value of the euro doesn’t help much either. Instead, you want to look at more obscure indicators, like the amount that Italian and Spanish banks need to pay if they want to borrow money on the interbank market.

More simply still, just look at the amount of new capital that Banco Santander — one of the strongest banks in Spain, if not Europe as a whole — is now being asked to raise. (More than €15 billion, if you must know.) Here’s Santander’s share price, over the past couple of years. The thing to notice is the inexorable downward slide, not any small uptick today. Does anybody really think we’ve now seen the all-time lows for this indicator? If not, then let’s stop treating intraday market noise as some kind of referendum on the latest Euro treaty.


Clearly Felix your pessimism was misplaced since the markets didn’t react.

People are finally realising that change in the EU takes time, and while journalists have daily deadlines, the EU politicians and officials do not. Perhaps it would be a good idea for journalists to refrain from hyperbole and hyping up each successive meeting as a ‘last chance to save the Euro/EU/World Economy/mankind’ so we might then begin to see what’s really going on?

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