Home Prices Fall - No Surprise

Two major housing price indexes, a 20-city and 10-city compilation by Standard & Poor's and Case-Shiller, both hit record declines. But there's no surprise if you've been even cursorily following the economic churn in the country.

The "value" that people perceived was a result of demand, over-supply of money, speculation, and a general economic hysteria. Not being grounded in anything truly substantial, it was waiting to evaporate, and now we're seeing that happen. But I actually think this is good news for the economy, getting back to a more realistic state that might allow more moderate but supportable growth.

There's an interesting article in the Washington Post about oil speculation and transparency. The impact of speculation has become enormous:

Big Wall Street firms representing the interests of pension funds, endowments and wealthy individuals around the country have grown in just a few years from minor participants in the oil markets to their most dominant force.

These financial firms -- whose holdings of oil contracts are now larger than the collective demand of airlines, trucking firms and other companies that need oil to run their businesses -- have become the focus of an intense debate in Washington over whether their exponential growth is contributing to the surge in oil prices.

And, apparently, such people as Ben Bernanke are claiming that speculation has no effect on oil prices because about half the people bet that it will rise and half bet that it will fall. That sounds nice, but my bet is that is a "normal" pattern and not what we've been seeing, because then about half the people at any given time would be losing money. When the swings are as big and violent as we've seen, and fueled by margin buying, those losses will be enormous, pushing a lot of people out, which means you now have a mechanism that is leaning one way, not balanced.

Even if the bets were even, it's the mass of investment that causes the problem, because it has no balancing interest, like the organizations that actually want to use oil, and hence are interested in stability and lower prices. According to Bernanke's theory, at least have the people who are taking positions in oil - which means buyers, not sellers - want the price to go higher, a very different mindset than ever before. I'm guessing that's enough to cause the fluctuations and price surges we've seen.

The Commodity Futures Trading Commission has been tracking some of the investment activity, but is keeping the information secret, claiming that it doesn't want to reveal too much proprietary information about the traders, and that the complexity of the information alone, if made public, could have misled the commodities markets. But wouldn't you think that the people who wouldn't be misled would be the people who actually do this for a living - the traders in the commodities markets?

It sounds like the CFTC is dominated, as one might expect, by the biggest trading forces, which means the speculators. The organization does claim that it "always been and continues to be committed to market integrity and to market transparency." It just has an idiosyncratic way of showing it.

Norway's Sovereign Wealth Fund and Ethical Investing

It's always nice to think that you could maintain an investment portfolio while strongly taking ethics and social justice into account. Apparently Norway is doing just that. It's pulled out of Wal-Mart (labor issues), BAE Systems (nuclear weapon production), and almost two dozen other companies whose behaviors it has found wanting. And yet it's worth almost $406 billion. Nice work if you can get it ... and, apparently, you can.

Oil Futures Up, Oil Stocks Down

It seems a complete contradiction, but oil companies' stocks aren't keeping pace with rising oil prices. Far from it, according to the Wall Street Journal:

The stock price of major oil companies hasn't kept pace with the price of a barrel of oil, which is now 95% more expensive than 12 months ago. Investors are skeptical that majors such as Exxon Mobil Corp. and Royal Dutch Shell PLC, which do everything from drilling oil to refining it to selling it, are going to have big futures. The stocks are actually down this year.

Apparently analysts are saying that they face problems in oil production in the long term, "making some observers think these companies may not even be around in 10 to 15 years." Jeez, Louise. It makes you wonder why they aren't pumping huge amounts into alternative energy - or even something that seems totally unrelated. When your business depends on goop you pump out of the ground and you know supplies are limited, you might think that finding something with some long-term potential would be, oh, I don't know ... necessary?

When the CEO is Fired, Does the Director Follow?

On BNET, I had a piece on VMware's CEO being summarily fired and the accompanying attempt to clean up the PR mess. In doing the research, I noticed that although the bio of the old CEO (and co-founder) had been taken down, her name was still on the list of directors. And that got me scratching my head. Had the company forgotten that part of the web site?

And then I realized that while the board could fire a CEO, it wasn't clear that it could necessarily fire a director. Oh, it might not put the person up for another term, but I don't know how many companies allow removal of a director for anything short of some great legal failing. If she decided to hang around, they might have to put up with her views for the near future. Granted, most people wouldn't want to stay around after being told they were unwanted, but what of the stubborn cusses who refuse to give up? It could make for a very uncomfortable board room.

The Myth of the Long Tail

As I'm trying to get ready for weekend festivities, I'm putting a premium on efficiency, so I'm going to point to a BNET post I have on a new study looking at the "long tail" concept, and how it simply doesn't seem to hold water when you start looking at what is happening in businesses.

The real question is when does having access to many products really help a business. I'd argue that for a store, money would go out the window because you couldn't get enough people physically through the doors to make money from their interest in the vast majority of items. In my own business experience, I've found that some amount of "extra" items can help a catalog appear to be the place to go for products, even though the bulk of sales still come from the normally hot items, but even then you have diminishing returns because of the cost of printing a catalog. Even in a web-only environment, there's still a cost of bandwidth, of managing a database, and of communicating with vendors to get products in. So, the long tail - in moderation - can help boost overall sales and even profit (higher margins) of resellers. If you're a vendor, though, putting your faith in what this can do for you is probably foolish ... unless you're the vendor that came out with the book in the first place.

Dollar Takes Another Pounding

The Guardian notes that the dollar has just fallen to a low against the pound ($2.10) and the euro ($1.47). Driving the proof that, when it comes to expectations, there may be no bottom, is speculation whether China is going to start shifting its foreign reserves out of dollars.

Analysts said today's falls had been sparked by comments made by Cheng Siwei, vice chairman of China's National People's Congress. He told a Beijing conference on Tuesday that China would "favour stronger currencies over weaker ones, and readjust accordingly".


A vice director of China's central bank, Xu Jian, was also quoted as telling the conference that the dollar was "losing its status as the world currency".

Those hoping for lower oil and fuel prices in the US should not keep holding their breath, because relief is a long way off. As my wife, after reviewing some old receipts, said to me last night, "I started longing for the days of $1.89 gas. Then $2.89 gas." And then $3.89 gas.

Wal-Mart Changes Logo

As the Wall Street Journal noted, Wal-Mart is about to change its logo. "The new logo has white letters on an orange background followed by a white starburst, and the store's name will appear as one word: Walmart. "

Have you thought about what it will cost the company? New bags, new broadcast and print ads, new collateral, web site changes - literally, any and every thing that had the logo on will have to be changed. At least none of us who write about business will have to remember the old spelling. We'll just have to learn and remember the new one. It'll be worse than remembering to change the year on checks after January 1.