As if North Korea didn’t already have enough problems

Posted on by
Reply

Randy Parker over at ParaPundit has this interesting post in which he points out that the shortage of females in China — coupled with North Korea’s crippled economy — presents the real prospect that Chinese men will import substantial numbers of North Korean wifes in the coming decades. Read the entire post, as Mr. Parker notes that the social and economic implications of this development are potentially ominous, but also potentially positive:

The shortage of women in China may end up posing an existential threat to the Pyongyang regime more powerful than anything US policy makers are likely to do. North Korean leaders might react to this threat by engaging in market liberalization reforms aimed at raising North Korean living standards enough to reduce the level of desperation of North Korean women.
The regime in North Korea faces a more general economic threat from China because of rising wages in China. The higher the wages go the greater the incentive for Northeast China factory managers and other businesses to turn to the black market to supply cheap North Korean labor. This will pull both men and women out of North Korea. Will that destabilize the regime more or less than the selective removal of women from North Korea?

Hat tip to Marginal Revolution for the link to this post.

UT team develops ambidextrous computer chip

Posted on by
1

This Wall Street Journal ($) article reports on the development of an experimental computer chip at the University of Texas that is like a chameleon in that its able to change its function according to the task at hand.
Steve Keckler, a UT computer scientist and a leader of the design effort, believes that the chip can be configured to perform as a specialized chip for devices such as cell phones and digital music players or even serve as a powerful central processor in a desktop or other general-purpose computer. The team hopes to have a prototype of the device finished in about a year and ready for commercialization by the end of this decade. The Defense Advanced Research Projects Agency, a Defense Department agency, is funding the UT team’s development.
If the chip works as planned, it will run at a top speed of 10 gigahertz and perform one trillion operations (meaning individual computing tasks) per second. In comparison, Intel Corp.’s current top-speed Pentium 4 processor runs at 3.4 gigahertz and delivers 6.8 billion operations per second. The anticipated performance has led the design team to dub the device a “supercomputer on a chip.”
The UT team has nicknamed their design “Trips,” for Tera-Op Reliable Intelligently Adaptive Processing System. The term tera-op refers to the targeted one trillion operations per second. The system would divide individual processing cores on the chip into tiny sections that could change automatically for several predetermined functions. The idea is that the processing cores would morph as instructions flowed in. Each chip could contain many processing core, which would enable a single chip to perform multiple functions simultaneously while optimizing for each. Conventional chips generally do only one thing at a time. Moreover, the distributed architecture of the UT team’s design would reduce clock delays, which limit the performance of conventional chips.

Spitzer v. Grasso

Posted on by
1

This Holman Jenkins, Jr. WSJ ($) Business World column examines New York attorney general Eliot Spitzer’s latest propoganda campaign . er, I mean, lawsuit in which he seeks to recover a substantial portion of the rather large $200 million in compensation, pension and related benefits that the New York Stock Exchange Board of Directors bestowed on Richard Grasso, the former president of the Exchange. The entire column is good reading, and here are a few tidbits to pique your interest:

The board was chock full of the country’s leading business people, folks like Goldman Sachs Chief Henry Paulson, Bear Stearns’ James Cayne and former New York Comptroller Carl McCall. They voted unanimously to approve Mr. Grasso’s pay knowing full well its magnitude, Mr. Spitzer’s subsequent attempt to lay down a smokescreen for their benefit notwithstanding. Mr. Spitzer lauded himself Monday for taking on the national problem of overpaid CEOs. By leaving the board out of his suit, though, he’s given directors everywhere an all-purpose defense. To wit, I was too dumb, lazy, clueless, indifferent, gullible etc. to know what I was doing.

Mr. Jenkins then examines the nature of the NYSE, the reason that its members paid Mr. Grasso so well, and why they turned on him quicker than a New York minute:

The NYSE is owned by seat holders who show up on the premises every business day. Their livelihood depends on the place. They elect its board. They know what a telephone is for. They have every means and incentive to wield their collective clout to make sure their interests are being served.
Now some NYSE “specialist” firms will tell you they were afraid of Mr. Grasso; they didn’t really know what was going on. If pressed on why they bungled a matter so close to their own interests, they shrug their shoulders like an errant teenager and say they aren’t sure why they didn’t keep a closer check on things.
So we’ll answer for them: They stood back because Mr. Grasso was serving their needs marvelously. Consider the years 1995 through 2000, when the handful of small, little-known businesses that control floor trading pocketed profits of $2.12 billion. The average yearly return on their invested capital: a princely 21.35%. Mr. Grasso’s retirement payoff after 35 years at the exchange may have been gross and unsightly, but it was a small fraction of the riches he helped to preserve for the New York Stock Exchange’s most privileged constituents.
It’s also perfectly obvious why they turned on Mr. Grasso in his moment of political mugging. Anything that brings scrutiny on the inner workings of the exchange, willy nilly, is an invitation to powerful customers who’ve been fighting to eliminate the specialists in favor of a cheaper, more transparent electronic trading system.

Finally, Mr. Jenkins then turns to the motivation of Mr. Spitzer, who has made quite a name for himself extracting “settlements” from various businesses:

New York’s Attorney General, heir to a local real estate fortune, has specialized in presenting his wealthy business targets with both a problem and a solution, the latter involving writing a big check with their firm’s money. He may not exactly provoke gratitude (except among CEOs more than usually afflicted with Stockholm Syndrome) but he’s seen as someone with whom business can be done.
His political ambition is zeppelin-like, lurching over Manhattan in unmoored, alarming fashion. He was obviously eager here to limit his political risk by portraying the NYSE’s famous board as victims rather than culprits in the Grasso pay scandal. But no judge or jury will fail to understand that he’s giving them a pass for his own political interests.
Mr. Grasso understands this too, and has semaphored that he will drag them into court, forcing them to choose between pleading gullibility, inattention and incompetence or undermining Mr. Spitzer’s case. True, even a court victory might not get Mr. Grasso his good name back, but more than a few would applaud his show of resistance to a budding demagogue.

Spitzer’s case against Grasso is beyond absurd. No one held a gun to the head of the NYSE Board or its compensation committee when it approved Mr. Grasso’s compensation and related benefits. The NYSE is not bankrupt, so its creditor interests are not in a position to challege the Board’s decisions regarding management compensation. Perhaps the Board members made a bad, lazy or incompetent decision in compensating Grasso to such a liberal extent, but that’s a reason to replace Board members, not to persecute Grasso.
Spitzer’s purge on Wall Street has become so misguided that Mark Haines of CNBC joked the other evening that “the government might as well throw all of Wall Street in prison and release anyone they find innocent.” Mr. Jenkins hits the nail on the head in pointing out that the real purpose of this lawsuit is the promotion of a demagogue’s agenda rather than the protection of any public interest.
Finally, the always insightful Professor Bainbridge comments on this foolishness here. Professor Ribstein’s equally interesting observations about this mess are here.

Stros break losing streak

Posted on by
2

Roy O had his game face on tonight and gave up only three singles in seven innings as the Stros broke their five game losing streak in beating the Cubbies, 5-0. Lance Berkman cranked his sixth dinger in eight games, a two run shot off of Astro-killer Carlos Zambrano to the Conoco Porch in the left center of the Juice Box.
Andy Pettitte takes the hill on Wednesday evening as the Stros go for the two game sweep against the Cubs’ Greg Maddux. After an off day on Thursday, the Rocket opens the weekend series with the Cards at the Juice Box.

A logical SPR policy

Posted on by
Reply

Blogging time is restricted for a couple of days, but Arnold Kling’s TCS piece on the Strategic Petroleum Reserve is quite good, as is his blog’s follow up piece. Arnold sums up his theory regarding the SPR as follows:

It should be the responsibility of the private sector, not the government, to obtain insurance against oil market disruptions. The SPR has introduced government into the oil market as a destabilizing speculator.

Arnold also provides an excellent explanation of the concept of backwardation in regard to the price of oil.

Stros leaking serious oil

Posted on by
Reply

The Stros limp home tonight after losing their fifth straight game and fourth straight to the Reds, 7-5. Berkman is the only player hitting consistently well, and no one is pitching lights out at this point. Not a good combination, and the schedule is not favorable. The Stros begin a two week stretch of playing the Cubs and the Cards with Roy O taking the hill against the Cubs on Tuesday night in the Juice Box.

Shell, this is getting monotonous

Posted on by
Reply

Shell reduces reserve estimates again. Here is the WSJ ($) article on the latest reduction.
Here are the previous posts on the Shell reduction of reserve controversy.

Justice opens criminal inquiry into Ernst & Young tax shelters

Posted on by
Reply

This Wall Street Journal ($) article reports on the Justice Department’s decision to open a criminal investigation into Ernst & Young LLP’s promotions of potentially abusive tax shelters. This investigation follows on the heels of a separate criminal investigation into sales of certain tax shelters at KPMG LLP. Here are prior posts on Ernst and KPMG’s recent legal troubles.
The investigation of Ernst reflects the continuation of the Justice Department’s continued effort to crack down on tax evaders and their professional advisers, including accounting firms, law firms and financial institutions. A plethora of tax-shelter sales spurred by the late-1990s economic boom and stock-market rally is estimated to have reduced federal tax revenues by billions.
Earlier this year, the Manhattan U.S. attorney’s office notified KPMG that it had begun a criminal investigation into the firm’s promotion of certain tax shelters that the IRS has deemed potentially abusive. The initiation of a criminal investigation into Ernst’s similar activities comes at a time of growing concern in the business community that there already are too few major accounting firms (it’s the “Big Four” now) to audit the world’s largest companies.
The criminal investigation of Ernst is somewhat surprising in that Ernst last summer reached a civil settlement — which included payment of a $15 million penalty — with the IRS to resolve allegations that it failed to register its tax-shelter strategies with the government and maintain lists of investors who participated in them. Ernst disbanded the division that had been involved in developing and marketing its most aggressive tax shelters and, as part of the IRS settlement, Ernst also instituted organizational changes aimed at ensuring future compliance with federal and state tax laws. As a result, it was thought that the IRS settlement concluded the government’s action against Ernst for past shelter-related matters.

More on hedging fuel costs

Posted on by
2

Following on this Professor Ribstein post and this reply post here over the weekend regarding most airlines’ failure to hedge fuel costs, this NY Times article reports that the hedging of fuel costs also varies widely in other fuel intensive businesses. One reason is that the practice is risky:

In a vexing illustration of the risks associated with hedging, though, not every company has been so fortunate.
For instance, the PanOcean Energy Corporation, which produces oil in West Africa, lost $1.4 million in the most recent quarter by essentially agreeing to sell oil for about $30 a barrel when the price of oil climbed much higher – just below $40 a barrel last Friday. PanOcean made the bet as part of a loan agreement with its bank.
“It’s a crap-shoot, isn’t it?” said David Lyons, chief executive of PanOcean, no stranger to risk after developing a natural gas field in Tanzania in East Africa to complement operations in Gabon. “Personally I feel hedging activities are overdone, but it’s something our financial agreements require us to do.”

Many companies find it less risky (albeit more incompetent) simply to avoid hedging and pass along the increased fuel costs to their companies:

Many choose instead to raise costs for their customers, contributing to concerns about rising inflation.
One company opting for a fuel surcharge instead of hedges is Waste Management, the Houston-based garbage collection company with a fleet of 20,000 trucks around the nation. Heather Browne, a spokeswoman for Waste Management, said fuel costs still remain a relatively small amount of the company’s revenue, about 3 percent of $11.5 billion.

Nevertheless, hedging fuel costs is increasingly important for fuel dependent companies that serve a limited geographical area:
For companies with a more limited geographic reach and more dependent on the fuels that are becoming a bonanza in the oil patch, hedging is increasingly considered a necessity. Southwest Airlines exemplifies this trend, with 80 percent of its fuel needs hedged for this year and 2005, and 30 percent for 2006 at prices below $30 a barrel.
Alaska Air, which operates Alaska Airlines and Horizon Air, is also among the few that hedged a large share of its fuel consumption, about 40 percent this year and next, at prices from $25 to $27 a barrel. But even that was not sufficient, the company acknowledges.
“We’re not at the Southwest level,” Bradley D. Tilden, Alaska’s chief financial officer, said in an interview. With the company consuming about 400 million gallons of jet fuel a year, each penny increase in the price of the fuel costs the company $4 million a year, he said. Jet fuel prices have climbed to $1.17 a gallon from 76 cents a gallon this time last year.

Nevertheless, many major airlines remain slow to hedge:

Other airlines are struggling with the prospect of large losses after hedging fuel needs at relatively high prices, like Continental Airlines, which secured 80 percent of it fuel consumption at $40 a barrel this quarter and 45 percent at $36.40 a barrel for the third quarter.
Delta Air Lines and Northwest Airlines did not hedge at all this year and American Airlines, the nation’s largest carrier and a unit of the AMR Corporation, hedged less than 10 percent of its fuel needs for the second half of the year, according to a report by Lehman Brothers. Prying information from companies that placed erroneous bets on the price of fuel is sometimes akin to pulling teeth.

Finally, the NY Times piece observes correctly that the risk of hedging is not a reason to avoid it:

“People get their feelings hurt when they hedge poorly,” said J. C. Whorton, executive vice president of StratCom Advisors, a company that provides risk-management services. “But it’s most often the case that those companies that fail to hedge at all have done a very poor job.”

My prior post noted Warren Buffett’s distaste for investment in the airline industry because of its traditional lack of profitability. Could it be that the airline industry is simply an example of Mr. Buffett’s following observation about troubled businesses?:

“When a manager with a great reputation takes on a company with a poor one,
it is the company’s reputation that survives.”

Professor Ribstein is inclined to agree with Mr. Buffett.

Reds whack sleepwalking Stros again

Posted on by
Reply

The listless Stros made the forgetable Corey Lidle look like Tom Seaver today as the Reds mowed down the Stros for third straight day, 7-0. The Stros have now lost four straight and their boat is clearly taking on some serious H2O.
Tim Redding will try to salvage a game in Cincy for the Stros in Monday night’s game. Roy O opens the Cub series on Tuesday night at the Juice Box.