Saturday, December 22, 2012

ICE -- the mouse that roared -- takes on the Big Board

    In the year 2000, a tiny little upstart energy exchange was born in Atlanta, Georgia. It began by building an electronic trading system for electricity and natural gas, something that was a popular idea at the time.

But it was – perhaps – before its time.

So the InterContinental Exchange cast its eye over the markets to find something with a little more liquidity. Maybe something that could benefit from its technological prowess. ICE spied a very interesting energy exchange on the other side of the Atlantic and engineered a surprising – to the City of London, at least - takeover.

     When ICE bought the International Petroleum Exchange in 2001, no one in the oil business could imagine life without the IPE floor. The idea of oil trading on an electronic exchange was considered heresy. “Impossible,” traders said.

     The thought was that since oil is the game of professional traders, and not mom and pop investors, the floor broker was essential to the game. Swaggering, hard-drinking and mainly Cockney in origin, the IPE floor brokers were considered a permanent fixture in the business.

     IPE’s own automated trading system had gone through many technology iterations and was never up to the task, in many traders’ opinions. So, like a lion stalking the weakest wildebeest, ICE swooped in.

It transformed the International Petroleum Exchange, second only to the New York Mercantile Exchange in terms of energy futures trading, seemingly overnight--from an open outcry “pit” into a sophisticated electronic trading venue. Cockney brokers out, computers in.

     The IPE’s membership and operators should have learned a lesson from their LIFFE brethren, whose massive open outcry trading floor was closing down at the time - pit by pit. LIFFE’s main competitor – Deutsche Borse, had gone electronic with its derivatives trading and was walloping LIFFE. LIFFE’s state-of-the-art floor closed doors in November 2000, while its LIFFE Connect electronic trading system went from strength-to-strength.

     The LIFFE exchange itself sold to Euronext, eventually ending up in NYSE’s hands along with the very valuable acquisitions LIFFE had made along the way. This included the London Commodities Exchange, where softs such as coffee, sugar and cocoa were – almost exclusively – traded.

But ICE’s CEO Jeff Sprecher was not daunted by his competition. His dogged determination to make all things electronic took ICE into clearing in a big way, adding the capacity for clearing OTC credit default swaps, and into diversifying its products offerings. ICE’s dominance in markets from oil to interest rates and credit derivatives prompted NASDAQ in 2011 to choose ICE as its partner in its failed bid for NYSE.

     The fact that ICE persevered with its electronic trading platform, making it ever-faster, offering clearing electronically – is probably why it had the money and the ability to buy the venerable New York Stock Exchange and its many acquisitions. I am sure that during the due diligence process, ICE had a good look at NYSE’s hodge-podge of trading systems and infrastructure.

     NYSE members and management had initially resisted the seismic shift to electronic trading, preferring its image as the bastion of Wall Street with its colorful floor brokers and trading pits and specialists. It adopted a hybrid model of automated-cum-open-outcry trading, buying--and then largely ignoring--state-of-the-art trading systems such as ARCA. Aggressive all-electronic competitors such as NASDAQ and newcomers including BATS stomped all over NYSE’s model, gradually eating away at the Big Board’s once-dominant market share.  

     ICE was lurking in the underbrush. Sprecher’s strategy of diversification meant that he needed to further integrate other asset classes, which – once siloed were now tightly correlated with oil trading. Equities, interest rates, foreign exchange, and agriculturals such as corn and sugar were suddenly noticeable as a necessary adjunct to oil futures and swaps trading.

     Limping from its market battering by electronic competitors, NYSE Euronext was the weakest wildebeest.

     Since 1792, when it was formed under a buttonwood tree on Wall Street, the New York Stock Exchange has captured the imaginations of people around the world. It has attracted some of the best and brightest young people to work on Wall Street, conjuring up an image of stolidity and grace.

     Now, although the NYSE brand will remain, ICE will become the top dog. New York City must be stunned that it has lost its bulwark stock exchange to a jumped-up little technology upstart from Atlanta.

Tuesday, October 23, 2012

A Middle-Aged Woman Moves to New York

  If you are waiting for the punchline - I'm it. In the autumn of my life I upped sticks and moved to Manhattan. (Husband and cat to follow soon.) My friends and most of my family think I am nuts.
  Certainly the moving house - twice - and going back to work (more than) full time was a wrench. My time is no longer my own. My home is not my own. I can't find my winter clothes, and I can't seem to get my bills paid on time. Sleep is erratic. And some woman (has to be) has been trying to grab the attention of a sleeping man (has to be) who is double parked outside her VW Beetle (I recognize the horn) since 5:30 am.   Otherwise I think it is working out OK.
  I often heard older friends of mine in London say "I have one more job left in me" and I think that is what has happened here. I was not ready to retire, which is what freelancing from a leafy New England small town felt like to me.
  But retirement is one of the reasons I am here in NYC working full time. As I rush past middle age it becomes ever clearer that I need a lot more money to realize my retirement goals. Which are pretty lofty: a flat in Paris for city/culture/shoulder seasons, a house in a warmer climate (Spain? Florida?) for winter, and a (bigger) house in Maine for summers.
  Then yesterday I read an article in the Wall Street Journal entitled The Let's-Sell-Our-House- And-See-the-World Retirement by Lynne Martin. She and her husband sold their California home and are now spending their retirement traveling from country to country, staying enough time in each one to experience it fully. They stay in flats or houses that they find on or They cook and shop and go to museums, and they soak up the culture of each place they stop. Wow.
   So I have a new plan, thanks to the Martins. I won't forgo a house or two, as I plan to have them paid off by then. But any extra cash I get I will save for travel, going into a special retirement travel fund - for rent, flights, food, fun. We will spend a few months in every place we want to visit, living like natives and learning as much as we can. Suddenly retirement doesn't feel like death to me. And it makes working (more than) full time even more fun.

Wednesday, September 19, 2012

Why Working from Home Does Not Always Work

   I am not the world's most sociable person. I don't like going out for dinner. I don't do parties as a rule. And I get irritable when my house is full of people for more than a few days. So why is it that what seems to be the ideal job for me - working in solitude from home - is far from ideal?
   I moved to a small port city, population 17,000, in Massachusetts a few years ago. After living and working in London for the better part of 20 years, this meant that I was moving to an area where I knew no one, had no work colleagues and no family. My husband had secured a great job in a NH town 30 miles north, where he worked with one of his best friends and found an instant circle of like-minded colleagues.
   Luckily I had already established myself in freelance writing, so I reached out to colleagues and friends and Wall Street types and got contracts for several financial and technology publications, plus I got a lucrative PR gig with a large UK news agency. I worked from 6:30am until 4:30pm most days, with a one-hour gym break or walk mid-morning. The money was pretty good and it was satisfying to see that the more I wrote the more I got paid. I liked the big  house, two cars and clean air but I missed London, I missed my friends. Most of all I missed going to work, where there would be banter and ideas flying and talk of global events or travel or the financial markets.
   To help compensate I started a social group of local writers. As I write this we have about 40 members; usually 15-20 would show up to the "potluck" dinners that they all seemed to prefer (rather than meeting in restaurants). I made some friends. I learned a lot about writing and publishing books, something I had always yearned to try. But there was a major flaw. Few of the group had the vaguest notion of what I do for a living - which is writing about issues and trends in financial markets, energy and technology. I would go so far as to say they disliked hearing about it, especially if I mentioned places on the globe I have travelled or "faces" I have met in the course of my work.
   Then I discovered a fabulous writers' workshop in Boston and signed up for course after course, where I received encouragement and learned about writing a novel.  I finished my novel. And revised it. I met agents at a writers' conference who were encouraging. But I just couldn't drop my paying work to do the work necessary to polish it. Plus - gasp - I found it boring. Re-writing and revising the same 90,000 words over and over again versus writing a hard-punch article about high speed trading? Or a cleverly funny blog about self-learning algorithms? Or a straight-forward story about oil prices? The book lost.
   Gradually I realized that even the stories that I loved writing were getting harder and harder to write. I had no context. I was not going to conferences unless I paid for them. I didn't meet anyone in my line of work. Phone calls helped, but being out of the line of fire was really dulling my senses. I was working alone, in a quiet and sleepy little town. My cats were my only companions during the workday. They don't know much about finance.
   So when a job at my old alma mater McGraw-Hill was posted on Gorkana, I did not hesitate to apply. It offered a newsroom, a team, offices around the world, a topical subject matter. I got the job, and had to speed up my planned move to NYC. So with much organization and money spent I am on my way to New York on Sunday. I don't intend to work from home again for a very long time. Maybe when I retire.

Saturday, August 4, 2012

Tilting at Algorithmic Windmills

   The hand-wringing and angst expressed in the media over Knight Capital's $440m rogue algorithm is fascinating. Knight Capital, once known as Roundtable Partners and Trimark, is the virtual Don Quixote of algorithmic trading. I have been to its HQ in Jersey City, NJ and spent some time on the trading floor; the atmosphere is pure testosterone. (And the technology mavens are salesmen-on-speed.)
   The damage done by Knight on August 1st was two-fold. The algorithm, buying when it should sell and selling when it should buy, almost cost the brokerage its firm. And it pointed out to an already gun-shy general public that machines are running the stock markets - often badly.
   I believe that the uproar is unwarranted, but it may force high frequency and algorithmic trading firms to take stress-testing of algos and trading systems more seriously. Especially after NASDAQ's lack of thoroughness in testing a new program led to the Facebook IPO debacle.
   Yesterday I heard someone call for the institution of a new position in trading firms - systems risk manager. The SRM would monitor high-speed electronic trading systems for glitches and fat fingers and fraud, reporting to the heads of risk and compliance. I think that is inspired. For years I have been writing about and supporting real-time monitoring and surveillance of trading systems and exchanges using technology, but it never occurred to me that there should be a specific official in every firm. It will create new jobs on Wall Street and in the City of London, while satisfying regulators and investors. I feel a new campaign coming on...

Tuesday, July 3, 2012

The Lie in LIBOR Tumbles Barclays' Diamond

   It is a shame that Barclays' Bob Diamond had to resign over the LIBOR rate-fixing scandal, but I guess it was only a matter of time before the whole LIBOR thing was rumbled. Here is what I wrote when the scandal was revealed in 2010:
March 28, 2100--"I first heard of LIBOR when I started working at Telerate (later part of Dow Jones) in the early 1990's. I was on the energy desk and our reporting counterparts on the finance desk would take the LIBOR calls. The participating banks would call in, tell them their prices and the finance desk would average them and post them online for the British Bankers Association. That's it. Just taking the calls, averaging the prices - throwing out the top and bottom five - and posting them online. Then gazillions of dollars were priced using that figure. When I heard how important it was I said (about the methodology): "You are kidding." But no, they weren't."
   The LIBOR system was designed in the good old days of 'my word is my bond' where a handshake would suffice for a contract. Those days have changed into today's 'anything for a buck' and 'screw thy neighbor' mentality. I'm pretty sure LIBOR has been manipulated subtly for decades; it took the credit crisis and scrutiny of banks' behavior to "out" it. Any pricing system that relies on interested parties contributing to the end result are bound to be corruptible.
   UK politicians are already crowing about Diamond's departure. Labour leader Ed Miliband said it was "necessary and right" that Bob Diamond stepped down, according to the BBC. "But this is about much more than one individual, it's about the culture and practices of the banking industry," Miliband said.
   He is correct. Diamond as CEO of Barclays should, of course, have been aware of the banks' LIBOR practices. But I do fear that Diamond will be the sacrificial lamb for the rest of the banking CEO's. Like Homer Simpson the rest of them will be saying "It was like that when I got here." And that's not good enough.

Thursday, June 14, 2012

Jamie Dimon, Rock Star

'Cause we all just wanna be big rockstars
Livin' in hilltop houses driving fifteen cars
Rockstar by Nickelback

   On the front page of the New York Times today (June 14) is a photograph of Jamie Dimon looking every bit the rock star on his way into the Congressional hearing about JPMorgan's $2bn (plus) credit derivatives losses in the UK. His testimony was described in awed superlatives by TV presenters.  One wag even said that, in PR terms, Dimon's behavior and delivery would become the template for others who find themselves in his shoes going forward.
   Jamie Dimon is not a rock star. He is the CEO of a very large financial institution which proved that regulation is not only necessary but essential.  What Dimon said in so many words was that his team did not understand the risk involved in the positions they were taking. The chief investment office did not understand the risk? That is tantamount to saying no one in the firm understands risk. One horrified trader told me: "Trading is all about a little bit of analysis, a little luck and a complete understanding of the risk you are taking and its possible repercussions."
   Call it hedging or proprietary trading, the bottom line is that JPMorgan's CIO traders did not understand the complex suite of synthetic derivatives they were playing with. They changed their value at risk (VaR) models in the meantime, inexplicably screwing themselves up further, and then changed them back again revealing the losses.
   If the CIO at JPMorgan did not understand the risk involved in its derivatives positions, can investors and regulators really believe that trading departments and CIO's at other banks understand it? I think not. The Bank of England was so shaken up that Andrew Haldane, executive director for financial stability, hinted strongly that large banks should be monitored for risk, according to Reuters.
   Dimon may look the part of a rock star, but he may have allowed his band to party too long while he was out lobbying against regulation. To paraphrase Nickelback, life hasn't turned out quite the way Dimon wanted it to be.

Friday, June 8, 2012

Jon Corzine, Chocolate and Football

   Once upon a time, MF Global's CEO Jon Corzine wanted to turn a reasonably profitable, medium-sized brokerage into a global investment bank.It didn't have a happy ending.
   Jon Corzine believed that, because he had been a trader and CEO at Goldman Sachs and the Governor of New Jersey, he was invincible. In short, he believed his own PR. My husband is fond of an expression that sums it up really well: "If he were made of chocolate he would eat himself."
   I Googled the expression and it seems to have been born in the UK with its roots in football. Now I am not a particular fan of football (English, that is. American football I loathe with a gut-twisting passion; ten seconds of incomprehensible activity and then hours of faffing about and adverts), but having spent 20 years in London knowledge of the sport has seeped into my brain surreptitiously. When you are surrounded by a primordial soup of traders and brokers and bankers who adore the sport, there is a kind of sports-osmosis that takes place.
   The first quote I found regarding eating oneself came from Scottish footballer Archie Gemmill: "If Graeme Souness was a chocolate drop, he'd eat himself."  I actually knew that Graeme Souness had played for the Glasgow Rangers and that he loved seeing himself on TV, so that made sense.
   The second quote came from Scottish football manager Tommy Docherty: "If Jose Mourinho was made of chocolate he would lick himself." When coach Mourinho joined Chelsea he said in a press conference: "Please don't call me arrogant, but I'm European champion and I think I'm a special one," which resulted in the media dubbing him "The Special One." Brilliant. 
  I digress into football to make a point. If a person takes him or herself too seriously and believes his or her own PR, that person is like a lightning bolt for criticism. Especially if he loses $1.6bn of his customers' money. MF Global trustees seem to think Mr. Corzine should have relied less on his own PR and more on common sense and accountability.

Friday, May 11, 2012

JPM: Crows' Nests and Glass Houses

   May 11, 2012-- I was listening to CNBC in my car and the smug Joe Kernen was interviewing a British woman, I do not know her identity. In a nutshell he said to her that since the British had lost their empire and had no Navy they had little right to an opinion on U.S. markets or regulatory affairs. The words which really pissed me off were something like: "The only thing Britain has left is Prince William and his wedding." While I was swearing at him via my radio, this British woman answered him coolly: "What we in the U.K. have learned is not to crow when you are on top." A brilliant answer. And one that Jamie Dimon should heed.
   When JP Morgan Chase was on top of the world, having (more or less) successfully fought off the dragons of the credit crisis and financial markets meltdown, Dimon went on a rampage to discourage any sniff of regulatory action. He sent lobbyists by the dozens to Washington, DC (all the banks did) and spoke at any and all conferences or to journalists who wanted a "balanced" opinion on regulation. He was particularly smug when savaging the Volcker Rule. His message: We don't need it. As the British woman on CNBC said, it is a good idea not to crow when you are on top.
   Today JPM sits with a $2bn loss on derivatives, which he admits they lost control of. Lost control? Losing $2bn in one month? If the market was aware that JPM had built up an untenable-looking "whale" of a position in credit default swaps over a month ago, then surely JPM's risk team must have noticed?  According to the FT, the bank had implemented some new risk modelling tools in Q1, which it has now shelved. Have they not heard of testing new applications before they go into a live environment? And where did JPM, or any other bank for that matter, get the idea that using VaR was a good idea? It was obvious after the credit crisis that over-reliance on VaR was one of the problems. (I wrote about it in Financial News in December 2008.)
   Note to Dimon: Don't go out throwing stones at regulators when you live in a glass bank.

Tuesday, May 1, 2012

Oil Price Reporting Agencies: There for a Reason

   Here is a little-known fact: Almost 95% of the oil in the world is priced using reporters' assessments. Amazing, no? Oil price reporting agencies (PRAs), including Platts, Argus Media and ICIS, are responsible for much of the contract pricing of crude oil, oil products and petrochemicals around the world, from the wellhead to the refinery to the pump. Regulators have had little interest in these agencies over the years until that fateful day in September 2008 when crude oil bumped up against $150 per barrel. Since then they have been trying to wrap their heads around this industry we call the oil business. The agencies have been under the microscope of International Organization of Securities Commissions since the G20 asked them to look into last year.
   Alarmed by the sudden interest, these three PRAs are trying to head off regulators by offering up a self-regulation code, according to today's Wall Street Journal. This is a knee-jerk reaction and will do little to assuage regulators, which are being beaten up by politicians trying to somehow force oil prices down.
   But regulators (and clueless politicians) should take note: there is a reason that PRAs exist. Oil is the most non-homogenous commodity on the planet. A barrel of crude oil from one North Sea platform can differ in specification enormously from one only a few nautical miles away. Every refined barrel of petroleum products and petrochemicals differs depending upon the source of the crude oil, the sophistication of the refinery, and the appetite of the consumer. There is no one way to price oil without using the human brain. Only an experienced price reporter knows how specifications differ. Only a human being can tell when a source is telling a lie (and even with experience this is difficult). I should know. I have worked as a price reporter for all three of the above agencies.All of which are dedicated to ensuring the most accurate, honest, BS-proof prices.
   Price reporting is a thankless task, no reporter gets thanked for getting prices right. But the truth is, in the long run they do. They may be wrong for a day, or even a week, but it has been proven again and again that PRAs call the market accurately over time. The regulators should leave well enough alone. The words 'can' and 'worms' spring to mind.

Monday, April 23, 2012

The Oil Business Will Never be the Same

   A new initiative known as the Extractive Industries Transparency Initiative (EITI - catchy!) caught my eye in today's Financial Times. EITI is a move to improve transparency in the trading of oil cargoes from their source, usually national oil companies, to their buyers - independent traders and oil majors. The wholly justifiable suspicion that there may be some industry shenanigans involved with doing business with producing countries such as Angola, Nigeria, Venezuela, Russia (I could go on...and on) gave me a fit of nostalgia for the good old days.
  The good old days were when a trader could take a sackful of cash on a private jet to secure the deal. He (and it was almost always a man) was a brave, resourceful McGyver-with-a-bodyguard kind of trader who often got shot at, or at least threatened with his life, in the name of getting the deal. The stories of oil trading as Wild West were what made working in the oil industry as a journalist so much fun. Not that we could ever publish them...
  EITI is mainly a good thing, no matter how much I will miss the stories. Money paid to corrupt government officials in the name of doing business was never a good thing. The money did not go to the people of these mostly poor, third world countries, it stayed in the pockets of the corrupt bureaucrats.
   There is a snag, however. Once the bribery is stopped the price of oil coming from a lot of places will rise to market levels, raising overall prices for oil. And trading companies will suffer because there will be little margin in doing such deals. If so, it is another case of 'be careful what you wish for.' On the other hand, a trader friend tells me not to worry, saying: "We'll find a way around it."

Thursday, April 19, 2012

Not so Cuckoo the Swiss

   Switzerland is about to come down hard on hedge funds, which have been flooding into the country for the past few years. The combination of Switzerland's low taxes, light touch regulatory regime, and rich victims  - I mean citizens - seemed too good to be true for hedge funds escaping tougher regulatory climes. Dozens of funds and managers fled NYC and London for Geneva, Zug, Zurich and beyond, driving up property prices, filling up international schools and generally pissing off the xenophobic Swiss.
   The one thing the hedgies did not expect was that the Swiss would tighten regulations, making it into one of the most “exacting” jurisdictions in the world for money managers, according to the Financial Times. The Swiss government is claiming that it wants to be in line with new EU regulations, but that can't be it. Switzerland has never deigned to even be a part of Europe, and especially not the EU.
   So why are they doing it? Here is one clue: "Wealthy individuals would also be stripped of their automatic status as 'qualified investors' permitted to deposit money with hedge funds directly," the FT said.
   And here is another: There is anecdotal and press evidence that Swiss citizens are having to leave the country to find apartments and houses to rent or buy, because it is too expensive to live in Switzerland. The hedge fund managers, with their vastly deep pockets, are pricing the Swiss out of the market.
   My conclusion is twofold:
1.) Swiss private banking is one of the mainstays of the economy, and these banks have been losing business to hedge funds.
2.) Swiss citizens do not want to live in France or any other second-rate country outside their own borders.
   The Swiss government takes care of the Swiss first and foremost. Hedge funds better start looking for another place to hide.

Monday, March 19, 2012

On Honeybees and Goldman Sachs

  I met a bee keeper who told me that honeybees are misunderstood. "They only sting you when they are attacked - or sat on," he said. They don't like to attack because once they sting an attacker they die, disemboweling being a fatal side effect. When this happens, the bee sends out a chemical 'smell' which warns the other bees, and they then attack the killer (if they weren't already).
  While I was listening to these fun facts I couldn't help but mentally compare bees' behavior to that of human beings in financial markets. Financial markets players are part of a large hive - the markets, and smaller hives - their own companies. In terms of the 'market hive' if someone on the outside attacks, say a regulator trying to lay down new rules, the entire market hive tries to fight off the attacker. In terms of a 'company hive' if someone from outside the company hive attacks the employees (worker bees) gather to defend the hive.
  But what happens when someone from inside a hive attacks, as did the infamous (for now) Greg Smith did with Goldman Sachs? The company's queen (Lloyd Blankfein) and a higher-up worker bee (Gary Cohn) gathered the other worker bees and rallied to the cause that is Goldman Sachs. But the market hive seized on that moment of perceived weakness, in what is arguably one of the strongest hives, and savaged its share price. GS shares fell by over $4.00, instantly wiping over $2bn off of its market cap. All because a worker bee revolted.
  What does this tell us about human behavior? That company hives host honeybees which are protective of their own, and that market hives consist of giant hornets that savage a company hive at the first sign of trouble.
  In order for a company hive, that is as strong and secretive as a Goldman Sachs, to survive within the greater market hive it probably needs to be a private company. As a public company Goldman's creates envy and jealousy in the market hive. As my gym pal told me, a stinging bee will spend its dying moments distracting its victim by flying around its head as if it were going to sting again. Greg Smith's stinger is gone, along with (probably) his career. But the buzz continues. Goldman's needs to keep its revolting worker bees under control.

Thursday, March 15, 2012

Goldman Op-Ed: The Words "Well Duh" Spring to Mind

  UPDATE 03/16: A very good piece in the NYT about the JOBS Act and how it will open the door to financial fraud, possibly fueling another dot com boom. Perhaps the NYT is on a crusade to support new financial regulation? If so, I will lend my support. (But I still don't approve of printing op-eds from disgruntled bank employees.)

  03/15 BLOG: The Op-Ed column in the 03/15 edition of the New York Times, written by a disgruntled Goldman Sachs employee, created quite a stir in the media. My immediate reaction to the piece was: "Goldman Sachs? A toxic atmosphere? Ripping off customers? Well, duh!" Goldman Sachs is an investment bank, an aggressive and highly competitive trading entity. Of course customers get ripped off. Naturally the atmosphere gets toxic. Has Greg Smith (the GS quitter) ever been inside another investment bank for crying out loud? I remember when London banks started writing structured derivatives contracts in the early 1980's, designed to "help" third world countries manage their debt. These deals were openly called "ripping their faces off". Traders have been calling naive people on the other side of trades "muppets" since, well, The Muppets. (The op-ed furor is now being called "Muppetgate"! LOL)   And where did the warm and fuzzy feelings Smith experienced at the beginning of his GS career come from? Maybe leftover from the initiation period where gung-ho types gee-up the new troops for action. Still, it took 12 years to realize the truth? C'mon.
  The puzzling thing is - why did the NY Times run the op-ed at all? Plenty of disgruntled, fired and passed-over-for-bonus employees must send in letters every day. Does someone on the editorial board have a grudge against Goldman? The NYT would do well to remember that Wall Street pays bazillions of dollars in taxes to New York City and state, plus hires hundreds of thousands of people who read the NYT on their way to work every day. It seems the paper might have bitten one of the hands that feeds it.
  I enjoyed the media frenzy, along with send-ups by Stephen Colbert and Dave Borowitz and other comedians, most of whom had never heard of Goldman Sachs only five years ago. Our little world - Wall Street and the City of London - has made the mainstream. Unfortunately for Greg Smith. He will go in down in history (a very short history) as a whiner - or whinger as we say in England. I don't fancy his chances at another job in the industry.

Wednesday, February 22, 2012

NIMBYs are Killing America

  Let me first clarify that I am not a Glenn Beck-style doomster; I don't actually think any one thing will "kill" America. It is a large and prosperous country that is undergoing some economic difficulties, true, but it will not "die".
   Some of what Americans hold dearest, however, will "die". Cheap gasoline, for one. Right now all over the country there are news headlines decrying the price of gasoline. Friends ask me how they can help stop oil speculation: Can they write their congressmen? Can they start a campaign? Republicans blame President Obama. CNN and network anchors shake their heads but offer little explanation apart from noting that Iran has stopped exports to British and French oil companies. Speculation is blamed, as usual. 
   But the speculation is based on the perception of higher prices in future, because of a lack of supply and a surfeit of demand.   As Ian Taylor, CEO of oil trading firm Vitol, said: “The supply side of the market is a mess." Taylor, speaking at IP Week in London, noted: “Demand, even if not great, continues to grow. So it's difficult to see much price downside from current levels.”
   The supply side is a mess for many reasons, most of them political. The crude oil dilemma is not the one that should worry people, though. On balance, there is plenty of crude oil and other refinery feedstocks. Natural gas and shale gas (from hydraulic fracturing or fracking) are plentiful, as is the mucky crude squeezed from oil sands (mainly in Canada). The problem is there is little infrastructure to support the shipping and refining of these feedstocks.
   Enter the NIMBYs. The Not In My Back Yard syndrome seems counter to what Americans actually want, which is cheap oil. Most recently the Keystone pipeline, designed to carry oil from Alberta to be refined in multiple places in the U.S., was delayed because no one wanted it to run through their backyards. Plants designed to liquefy natural gas, thereby making it moveable on tankers, are being turned down all over the country. Fears over terrorist attacks on the plants or the tankers are cited, but the real reason? NIMBY. The same NIMBY spirit has scuppered wind and solar farms, waste-to-energy projects, waste-to-fuel plans and hundreds of other ways in which the US could provide more of its own energy.
   One of the biggest problems in the US is the shortage of refinery capacity. There has not been a new refinery of any decent size built in the United States since 1977. Why? NIMBY. If anything, refineries are disappearing. I have written about this before, I know, but it bears repeating. We have lost 500,000 barrels per day of refining capacity on the U.S. East Coast in the past year. These provided nearly 3% of daily U.S. refined products consumed. Most recently the St. Croix Hovensa refinery, operated by Hess and PDVSA, the Venezuelan state-owned oil company, closed removing 350,000 b/d and about 13% of the East Coast's gasoline. It is true that many of these closed due to lousy profit margins. But selling them was not a viable option because any company that bought them would bear unlimited liability for any environmental problems - past or present - that arose. And refineries can be dangerous (explosions are not uncommon) and polluting (ditto spills). NIMBY, thanks very much. 
   But then I won't complain about the price of gasoline - because I think it is too cheap. Gasoline has been too cheap in the United States for a very long time. The low cost of gasoline led to the production of giant SUVs and pickup trucks that can carry a baby elephant and haul its mother on a trailer (the over-reliance in Detroit on producing and selling these relics nearly destroyed their industry altogether). Cheap gasoline gave us roads where there were once railroad tracks; roads which are now crying out for improvement and expansion to handle even more cars. It led to vast, soulless suburbs from which you cannot commute or shop without cars.
   So I say "good" to higher gasoline prices. To the government I say build us some railroads and let us put up waste-to-energy incinerators (cleaner emissions than burning natural gas, believe it or not); to the car companies I say give us smaller, fuel-efficient cars. To home builders I say make the cities more liveable and affordable and let the suburbs die. But the NIMBYs will win, as always. And they will HATE $5.00 gasoline.

Friday, February 3, 2012

Susan G. Komen: How Not to Manage PR

  I frequently write PR material for a company that produces software enabling companies to sense and respond to business events and/or crises. Innovative companies can thus anticipate things that might happen that could spell disaster and avoid them - or even profit from them. One of the examples we are using in a book about this (I am ghostwriting part of it) is the BP oil spill. BP badly misjudged the power of social media and the US Gulf oil spill became an international scandal. From premature press releases about how minimal the spill was, to badly-timed yacht trips by its CEO it was a monument in how not to handle a crisis. BP's CEO Tony Hayward was ejected, the share price was shredded, and the furor no doubt jacked up BP's legal bills and settlements by billions of dollars.
  Lessons that should have been learned from this apparently sailed over the heads of the executives at breast cancer non-profit Susan G. Komen. When it decided to jettison one of its mainstay partners, Planned Parenthood, Komen completely misjudged the public reaction. Twitter caught fire with mostly outraged Tweets the morning the news hit (Feb. 2) and Komen's Facebook page attracted thousands of comments - predominately negative. Komen released a holier-than-thou video blog from its CEO Nancy Brinker further fanning the flames, then a day later changed its excuse - then changed its mind and put PP back on its "Friends" list.  Now if only it could claw back the goodwill it lost in the space of 24 hours.
  According to news stories, Komen execs had months to think about the possible backlash, but failed to take any pre-emptive actions. They even let PP send out the first press release, completely failing to anticipate the backlash. That one of its execs was fervently pro-life and had a vendetta against PP never entered their minds? The fact that women don't care about politics when it comes to their bodies, as long as they can get proper care and make their own decisions about pregnancy? Idiots.
  I was never a supporter of Komen, the over-marketing of pink ribbons and T-shirts (and even a limited edition pink Smith and Wesson pistol - seriously!) put me off. I tend to avoid organizations that market themselves too aggressively, figuring they must be hiding something. Any organization with a brand as recognizable and strong as Komen's should have realized that brand management includes anticipating crises, complete with plans to respond to and mitigate damages. In the case of Komen, technology is not the answer, common sense is. But, as Voltaire said: "Common sense is not so common."

Thursday, January 19, 2012

UPDATE: Get Ready for $5.00 Gasoline

UPDATE to my blog dated 12/29/2011

 Added to the 500,000 b/d of lost production in closed/closing US refineries (see blog below) we now face the loss of the venerable St. Croix Hovensa refinery, operated by Hess and PDVSA, the Venezuelan state-owned oil company, says CNBC. The refinery produces 350,000 b/d and supplies about 13% of the East Coast's gasoline. Hello $5.00 per gallon.