NYT’s Norris transforms humdrum market story

May 7, 2010

What a great example of financial writing from the New York Times’ Floyd Norris, who lifts the normally humdrum market story to new heights:

Combine one part nervous traders, one part Greek crisis and one part trader error. Stir in one part central bank complacency. Bring to boil. Panic.

Read the full story here.


There are only two business models for news

September 10, 2009

I have just finished reading Michael Massing’s excellent survey of the news business  in the New York Review of Books, and the thought struck me: everybody is saying newspapers need a new business model. But there are only two business models for news, and newspapers are already using them: building readership to attract advertisers, and charging for content (or, in most cases, a combination of both). Those are  the business models that have served newspapers well for over a century (and still works for many); ironically, as Massing’s article makes clear, they are also the only business models that work for online news media. Web sites like Slate, Politico and Talking Points Memo – among the few commercial online news ventures that are profitable – are, as far as their business strategy is concerned, no different from newspapers. In fact, Massing notes, Politico would probably not be profitable without the advertising attracted by its print edition.

Newspapers don’t need a new business model; they need to improve the ones they have. That means providing content that attracts readers, and finding ways of charging for online content (newspapers already charge for printed content in the form of subscriptions and cover prices). For some reason this is controversial. Among the most vociferous advocates of free news on the ‘net are, ironically, those who profit – and I mean profit in commercial terms – from it. “Walled gardens,” insists Arianna Huffington of The Huffington Post – “don’t work”. The “link economy” is here to stay. Sure she would say that, because where would Huffington Post be without the “link economy” which allows it provide cost-free news to its readers? Even so, Huffington Post is probably not profitable: the company says it turns a profit some months and not in others, but won’t provide figures.

Attracting advertisers and charging for content are the only commercially viable ways we know of to pay for the production of news. There are many other news organisations that do a great journalism – ProPublica and the like – but they are NGOs, funded by charity. And some argue that great news organisations like the New York Times  should go the same route, relying on endowments rather than profits to stay afloat. It won’t work, argues Massing: “Turning those papers into nonprofits would require the Sulzberger and the Grahams to voluntarily give away their wealth. Even if they were so moved, where would all those billions come from? They simply aren’t out there.”

The debate really should not be about the business model; it should be about journalism.


The proper degree of delusion: Keynes on financial markets

September 8, 2009

One good thing about the global recession is that it has reintroduced the world to the genius of John Maynard Keynes, both as an economist and as a writer. Most of us have heard some of his more memorable one-liners (“In the long run, we’re all dead”; “The market can stay irrational for longer than you can stay solvent”) but how about this for a description of financial markets (which Keynes also famously likened to a “casino”):

(P)rofessional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to a competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one’s judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth and higher degrees.

Take that, efficient market theorists!

By the way, I was reminded of the quotation on reading Paul Krugman’s “How did economists get it so wrong?” in the New York Times, an excellent primer on the development of economic thought since the Depression (but note the initial misquotation of Keynes!).


Latest in financial instruments: CDOs (collateralized death obligations)

September 7, 2009

Fresh out of credit default swaps, collateralized debt obligations and subprime mortgage bonds, Wall Street’s financial wizards have found a new way to make money. According to the New York Times, banks are planning to buy life insurance policies from elderly people who need cash, then package them into bonds that are resold to investors. The investors, in effect, buy the income stream from policies paying out when people die. Call them collateralized death obligations if you will.

Wall Street will make fat fees from packaging, selling and then trading those “bonds”. But here’s the catch: “The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money,” according to the New York Times. Whoa. Knowing what financial traders are prepared to do to make money – remember Enron’s energy traders shouting: “Burn, baby, burn!” as California bush fires annihilated power lines, creating shortages that sent energy prices soaring? – I’m not sure that is such a good idea. How long before some wizz hedge fund manager thinks of bumping Grandma to boost his quarterly returns?


More about business journalism ethics, and virginal sex therapists

March 30, 2009

In a recent blog post, I argued that business journalists shouldn’t be allowed to report on companies in which they won stocks. Warwick Lucas, an investment analyst at a securities firm, made the following comment: 

“Should anyone believe in a s*x therapist who is a virgin? Or a chef that doesn’t eat their own cooking? Then why would the opinion of someone on the trading or investment merit of shares be worth reading if they didn’t stick their necks. As far as I’m concerned a lot of so-called best practice is just a triumph of form over function.”

The Afrikaans writer CJ Langenhoven once said: you don’t have to be a carpenter to know that a table is badly made.

How right he was. You don’t have to be an investment analyst to know that now is not a good time to put your life savings in the stock market (and you didn’t need an investment manager to lose a lot of money in the stock market over the past year, although it would have helped).

Most of the world’s most highly respected financial news organisations – Bloomberg News, the Wall Street Journal, the Economist, Reuters, you name them – have strict rules about the investments their journalists may or may not make. And in most cases, the rules boil down to not allowing their reporters to cover companies in which they own stock. The following excerpt, from the New York Times’ code of ethics, is fairly standard:

 “125. Because of the sensitivity of their assignments, some business/financial staff members may not own stock in any company (other than the New York Times Company). These include the Market Place writer, other market columnists, the regular writer of the daily stock market column, reporters regularly assigned to mergers and acquisitions, the daily markets editor, the Sunday investing editor, the Sunday Business editor, the business and financial editor and his or her deputies.”

 So by arguing that the opinions of people without a stake in the market are worthless, Warwick is blithely dismissing all the journalists and columnists who work for these organisations. Maybe he is right. But what about the 300 000 other stock brokers, investment analysts and the like who pay $1 600 a month for Bloomberg?

 Is it a case of form over substance? Well, the current debacle in the global financial system should have taught us that sometimes, form is important. It is precisely because regulations, rules and norms were thrown out the window that we sit with the problem we have. The fact is, there is a clear conflict of interest when a journalists writes about a company while holding shares in that company. One way of addressing that conflict is to declare the jurnalists’ stock holdings, as Fin24.com does. But that doesn’t quite solve the problem, as far as I am concerned.

 Take for example, an investment adviser who works on commission for one of our big insurance companies. If he analyses your needs, and advises to invest solely in products offered by that insurance company, well – his advice may be in your best interests. But you would still be well advised to seek a second opinion.

 A last word: I wouldn’t ordinarily eat the food of a chef who won’t eat his own cooking. But the idea of a virginal sex therapist is rather appealing….


What about the crossword? Putting in a good word for newspapers

March 19, 2009

This ran on my Thought Leader blog earlier:

The Rocky Mountain News, Cincinnati Post and New York Sun are gone. The Seattle Post-Intelligencer published its last edition on Tuesday. The San Francisco Chronicle, Philadelphia Inquirer and Minneapolis Star-Tribune are in their death throes. Even the mighty New York Times had to go hat in hand to a shady Mexican billionaire recently to keep the wolves from the door.

The newspaper industry in the US is, it seems, at death’s door, and the punditsphere is abuzz about what may replace it. “Hyperlocal” news, suggests Steven Berlin Johnson. An iTunes model, based on micropayments for online news, ventures Walter Isaacson. Nothing, says Clay Shirky in a widely blogged and discussed essay which argues that the new models of journalism have not been invented yet.

Mostly, the internet is being blamed for the newspaper industry’s troubles, but my own view is that the current problems of US newspaper companies are due more to the general state of the economy (which is causing a fall in advertising revenue across all “traditional” media) and bad business decisions by some newspaper companies (Tribune, New York Times), which saddled themselves with huge debt which the credit crunch has made impossible to refinance. Whatever lies at the root of the problem, I seem to be about the only person under the age of 45 who still thinks it would be a tragedy, and a danger to our way of life, if the newspaper became extinct.

Why, you may ask? Newspapers will disappear, good riddance and we’ll find our news elsewhere.

But that attitude is based on a misunderstanding of what a newspaper is and of what constitutes a successful newspaper. A newspaper is not a stack of newsprint with ink on it. That is just the delivery system. The newspaper is a vast organisation that gathers news, processes it and distributes it. If a newspaper dies, it is not just the stack of newsprint that stops rolling off the printing presses in the dead of night. The whole organisation ceases to exist, and with it its ability to gather and process news. Newspapers spend vast resources on gathering and processing news and the online media that are replacing them don’t, for the simple reason that the online media have not yet discovered a business model that can pay for a large news-gathering infrastructure. So when a newspaper dies, a huge news-gathering infrastructure dies with it, and the readers suffer.

The Seattle Post-Intelligencer, for example, had an editorial staff of 165 for its print edition. In its new online guise, it will have only 20. It stands to reason that 20 can’t do the work of 165, so as a result, it will focus on opinion and entertainment rather than news. Who will take over its coverage of the city, the state and the nation? The new online version cannot be described as a substitute for the newspaper.

What will be the consequence? Dire, if you accept that the news media play an essential role in a democracy by informing citizens, providing a platform for debate, and monitoring government and other powerful institutions on behalf of the public. The various online media that are replacing newspapers will not be able to fulfil those functions on a sustained basis. Democracy, our ability to hold powerful institutions to account, will suffer.

What is a successful newspaper? In almost all the debate around the state of the industry, the assumption is that a successful media organisation is one that makes money. Financial viability becomes the criterion for measuring success, and newspapers are described as failures because they can’t attract enough advertising revenue to pay their bills. But if you think in terms of the role of news media in a democracy, a successful newspaper is one that fulfils its functions of informing, debating and monitoring. The commercial model for newspaper publication that dominates most of the world is just one way of achieving those objectives. There are other ways. The success of public television, for example, is not measured by how much money it makes. So to argue that a newspaper is not successful because it isn’t viable as a business is fallacious. More than a million people pay to read the New York Times (in hard copy) every day. Its services are in huge demand and it does a heck of a job of telling people what is going in the world, their country and their own back yards. It is very, very successful, even though its owners are struggling to repay debts, and its revenues are falling. If it goes under, it can’t be said to have failed as a news organisation. As a business, maybe.

For Steven Berlin Johnson, the demise of city newspapers is an opportunity to increase “hyperlocal” coverage. He writes:

“I adore the City section of the New York Times, but every Sunday when I pick it up, there are only three or four stories in the whole section that I find interesting or relevant to my life — out of probably twenty stories total. And yet every week in my neighbourhood there are easily twenty stories that I would be interested in reading: a mugging three blocks from my house; a new deli opening; a house sale; the baseball team at my kid’s school winning a big game. The New York Times can’t cover those things in a print paper not because of some journalistic failing on their part but rather because the economics are all wrong: there are only a few thousand people potentially interested in those news events, in a city of 8 million people. There are metro area stories that matter to everyone in a city: mayoral races, school cuts, big snowstorms. But most of what we care about in our local experience lives in the long tail. We’ve never thought of it as a failing of the newspaper that its metro section didn’t report on a deli closing, because it wasn’t even conceivable that a big centralized paper could cover an event with such a small radius of interest. But of course, that’s what the web can do … Five years from now, if someone gets mugged within a half mile of my house and I don’t get an email alert about it within three hours, it will be a sign that something is broken.”

Johnson is missing a very important point. There may be only three stories out of 20 in the New York Times City section that he is interested in, but in order to find those, he has to read — or at least skim — the 17 others. And so he knows what is going on in the rest of his city, what is happening to other people. If he has his way, he’ll only know what directly affects him and his immediate neighbours. That is going backwards; instead of building social cohesion, it is fragmenting our lives into cocoons. That cannot be a good thing.

And one last thing: what about the crossword?


Why bank execs should take the blame for the crisis

March 12, 2009

Rather good piece by William D Cohan in the New York Times, explaining what caused the US banking crisis and why executives are responsible. They were not buffeted by forces beyond their control, Cohan argues, but victims of their own bad business decisions, for which they were paid handsomely.

The same applies, of course, to the geniuses who have run our own Old Mutual into the ground…