So the razzmatazz of the FIFA World Cup 2010 draw is behind us; much has been revealed to the fans that got up early to sit through the glitzy affair.
We now know Charlize Theron is a bit of a ditz. Sepp Blatter’s love of African beauty is a little more carnal than we thought, and from early impressions the hosts are going to put on quite a show for the world.
But that’s not why the keenest of the country’s football fans got up at an ungodly time on Saturday. Their sole interest lay in which teams the Socceroos would have to overcome if they were to repeat their dream 2006 run into the second round of the tournament.
Let’s not beat around the bushveld, for the draw is a stinker; even worse than Pim Verbeek’s comb-over.
As if Springbok rugby captain John Smit, entrusted with picking Australia’s ball from Pot 2 hadn’t dished up enough trauma to Australian sports fans this year, the front-rower’s fat fingers plucked up an unfortunate set for fans hoping to see Australia progress past the group stages.
So this is how group ‘D’ has shaped up. There’s Germany - a footballing superpower, whose record in the tournament is second only to Brazil. Ghana meanwhile are arguably strongest team in the ‘Africa and South American leftovers’ pot; while Serbia may not have been as feared as Portugal and France in the ‘Euro-trash’ pot but on recent form, they’re far tougher opponents. .
There are some positives. Australia has a strong record against European teams; our gritty no-nonsense ‘European’ style of play tends to make us tough opponents for the likes of Germany and Serbia. And Ghana, didn’t we beat them in a recent friendly? We did indeed, but anyone that saw the game will know, that despite the score-line, Australia were ran ragged by the free-flowing Africans.
We Socceroo fans never let a tough draw intimidate us. The 2006 draw was equally daunting with Brazil and Croatia pitted againstus and the boys showed their mettle. Besides - tantalizing high stakes match-ups is why we so desperately want to be at the World Cup. The reward too, should the Socceroos complete Mission Impossible, is appropriate. For awaiting Australia is the second round tie for the ages set to live in Australian football folklore – a clash against the oldest of enemies – England.
The Group D opponents might be tough, but the draw has been kind to Australia in terms of logistics. All three match venues are well within range of the team’s base on the outskirts of Johannesburg. For those travelling to South Africa to follow Australia, here a brief description of what to expect from the three towns were Australia’s games will be played;
NELSPRUIT…
Nelspruit is the gateway to South Africa’s wildlife parks. It’s deep in the picturesque Mpumulanga region in the Northeast of the country and is less than an hour from the gates to the Kruger National Park – an area the size of Wales where lions, leopards and elephants roam. For about $20 one can enter the park by car and spend the day spotting game. The town, a scenic five hours drive from Johannesburg itself is an unexciting ‘dorp’(slang for ‘little town) with little to see and nothing to do.
RUSTENBURG
Thanks to the boom in platinum prices, and all things dug from the ground, Rustenburg is one of South Africa’s fastest growing cities. It’s still not very big though. For tourist’s there are some modern shopping malls, a result of the city’s increasing affluence but the only real attraction is its close proximity to Sun City – an adult theme park resort of casinos, five star hotels and fine golf courses. Most of Sun City is stuck in the forgettable era it was built in- with but the opulence of the Lost City resort must be seen to be believed.
DURBAN
Durban is the third largest city, and is a seven hour drive for 45 minute flight from Johannesburg. The coastal city is warm throughout the year and is surf and sport mad. The locals are fun loving and friendly and its bars and beaches are likely to become extra accommodating during the tournament. The new football stadium may be set to become a white elephant as the rugby fraternity keeps its faith with Kings Park, but by all accounts is a magnificent new venue. Aussie tour operators fearing a lack of accommodation will transform Kingsmead, the hallowed cricket gr
Monday, December 7, 2009
Sunday, October 18, 2009
The most taxing problem of our time
On the one year anniversary of the Lehman Brothers collapse, we put together a series of articles to mark the event and assess what problems still remained. The issue of banks that are 'too big to fail' but 'too big to save' remained unsolved.
This is our piece.
This is our piece.
One year later we still don’t know if the regulators choice to sacrifice Lehman Brothers was the right one. But we do know they will do whatever they can to not have to make that choice again. Reports Jonathan Shapiro and Jane Lee.
In the final hours of the 158 year existence of Lehman Brothers, the ex-Treasury secretary and former rival banker Hank Paulson, Fed Chair Ben Bernanke, and NY Fed president Tim Geithner faced the toughest call of their lives.
Should they intervene and save the firm? And if they let it fail would the already brittle confidence of the financial markets withstand its collapse?’
While opinions are divided, the current version of history reads that the decision to let it fall was a catastrophic misjudgment. It’s a choice that the world wants to make sure never has to be made again.
The RBA governor Glenn Stevens concedes that managing the systemic risks posed by large bank failures is one of the defining challenges that regulators of his generation will face.
‘The most taxing problem of our time’
“The global policymaking community will have to grapple more effectively with the problem of entities that are ‘too big to fail’, but potentially ‘too big to save’, especially where their activities cross national borders. This is probably the most taxing financial regulatory problem of our time," he said recently.
Some believe that the problem of banks that are too big to fail will never go away.
"There will always be too-big-to-fail banks, no matter where the current debate leads us. When I say that banks’ balance sheets should be capped at $300 billion, I’m not for a minute saying that $300 billion is small enough to fail; I’m just saying that such banks are small enough to rescue,” says financial markets commentator Felix Salmon.
“Too big to fail we can cope with, by rescuing banks rather than letting them fail. Too big to rescue we can’t cope with. And right now, the big four banks in the US are too big to rescue. Which is scary," he said.
Stuff them with capital
One approach is to ensure big banks are more than adequately capitalised.
“If we cannot split banks up and cap the size then as a minimum we have to stuff them full of capital,” says Gary Jenkins, head of fixed income research at Evolution Securities in London.
"They just have to have lots of capital and we have to have much lower risk products being done by the banks and much less risk being taken so that they are much safer entities. And the only way you’ll do that is with regulation."
Others feel that being equiped to manage the failures, rather than preventing them is a more pragmatic approach.
"You’re not going to stop these things from failing, the best you can do is improve your ability to mop up afterwards. One of the big problems – and AIG illustrates it very clearly – is we’re still trying to regulate a global financial system with local rules. AIG was a classic example because as an insurance company it does not fall within central bank regulations. It does not fall under the transparency requirements of the central bank. And that was true of the investment banks too," said David Weiss, S&P's global chief economist.
Servant not master
Another way to manage the ‘too big to fail problem’ is reducing the importance of banks. Measures such as increasing the size and accessibility of capital markets so that businesses can lend directly from institutions is one such measure.
“In the same way that big companies can access funding directly from capital markets, by issuing bonds or commercial paper, I want to start creating a different financial model in the future, in which small companies get funding from sources other than banks,” said Chancellor Alastair Darling of the UK Treasury in a recent article.
“Our goal is to make finance the servant, not the master, of the real economy,” he says.
Jenkins shares a similar view on the role of the banking system.
“When you actually think about it what is a bank? What is it there to do? To oil the wheels of commerce. It being commerce itself is actually in some ways wrong,” he says.
He feels that the banking system should be a commodity or utility-like product, especially since it has become evident that the taxpayer has to stand behind it.
“That’s what it should be and that’s what regulators should want because if, at the end of the day, you have to bail it out - why on earth do you want it to be the main kind of money making machine in your economy? It doesn’t make any sense. They need to have a complete re-think about how the financial system should work. But I don’t think it will happen.”Balance sheet overconfidence
A bit technical this one. Business Spectator column about the health of Australia's companies. All good...for now.
Balance sheet overconfidence
Corporate Australia's balance sheets are now showing virtually no vestige of the credit crunch, but they are by no means home and hosed.
Australia confirmed its status as the great escape artist in the most emphatic way this week. While most central bankers are still assuring their constituents that they had no immediate intentions to withdraw support measures, the RBA thrust us atop a pedestal by becoming the first of the G20 nations to lift rates.
But nowhere is the ability of the Australian economy to dodge a bullet more evident than in the financial metrics of Australia’s largest corporations.
Be it by good luck or good management, there are no remnants of the stress of the past two years in the sets of statistics presented by Fitch Ratings at a recent market gathering. The agency says that although gearing levels remain elevated, cash has continued to flow and credit metrics are healthier than during the last downturn in 1992.
Part of this perky outcome for Australia’s corporates is down to what Fitch calls "the residual positive impact of the resources boom" as China continues to scale up economic activity. Australia is well endowed and well positioned in the current circumstances and corporate balance sheets are benefiting.
The big get out of jail card dealt to local treasurers, and one which credit investors are grateful for, is our deep and liquid equity markets. While banks and bondholders ran for the hills, equity investors were happy to recapitalise those companies with stronger business models but whose financial profile was impaired by the downturn.
This cash injection, equal to over 10 per cent of total shareholder funds, pushed debt ratios back to 2006 levels. Without this backing, debt to earnings would have soared to a 1992 number.
With the help of the massive equity raising and a timely re-opening of bank and debt capital markets, treasurers have to some extent managed their liquidity profiles and ensured that most of their looming debt is refinanced.
But it is not time to celebrate. Finding bears at a credit rating agency gathering is not hard (it is the job of a credit analyst to fear the worst) and there is much for corporate Australia to be concerned about.
While the property sector has found its way back into favour, it continues to worry some. Commercial property values remain opaque due to a fairly dysfunctional market, while the inherent structure of AREITS means that companies are obliged to pay out most of their profits. The leverage of the sector becomes apparent when comparing like-rated corporates. While a firm like Foster's can easily pay back all its debt in several years, it would take Westfield – the most lauded of property firms – well over 20 years, even if it was allowed to halt all its dividends to clear its debt.
Another sector that has attracted attention is the energy and utilities sector. Steve Durose from Fitch ratings points out that firms in this sector are likely to need a combination of both debt and equity to meet the massive capital expenditure requirements to maintain networks' security of supply and to transition to a lower-carbon electricity generation mix. Expect to see deals done in both local and international capital markets to support the increased need for new funds.
Many of the other sectors should be alright and could benefit from the booming offshore bond markets. Borrowers in non-cyclical sectors are finding plenty of interest in their bonds. An Australian dairy firm recently tapped markets at margin that was almost half that paid by property trust Dexus, while demand for beverage companies’ bonds is said to be strong. In the domestic market, Wesfarmers has seen its bonds sought after, and perform much better than some of the other new issues, due mainly to its non-cyclical retail assets. And overnight, telco Optus priced ten year bonds 32 basis points inside of Commonwealth Bank, considered among the safest in the world.
Refinancing still remains an issue for many corporates. As James Wadell, director of capital markets origination at NAB noted: “The price that you pay on a bond issue is not important, it is the ability to access the market, and for some that access is still not there.”
Fitch estimates that over $A223 billion of refinancing needs to take place until the end of 2012, most of which is bank debt. More imminent, the ‘twin towers of debt’ loom with large spikes of corporate debt maturing in 2010 and 2011.
This massive task is for the most part expected to be handled. The figure is distorted to some extent by facilities that may never be used, and a winding down of capital expenditure in the material sector will increase the ability to pay down debt.
While the credit crunch doesn’t show in the aggregate stats, treasurers will be humbled by the experience. One lesson they would have learnt is that concentration of maturities and markets will cause headaches down the line. This could result in a strategy of tapping more markets, more frequently and in smaller amounts to smooth out debt profiles and avoid refinancing spikes.
And it is not only corporations that should be wary of celebration.
Despite the chest beating that this week’s rate rise brought, Fitch still has Australia’s foreign currency sovereign rating below AAA to reflect the reliance of our financial institutions on the continuous functioning of offshore debt markets.
Local corporates also face significant uncertainties in the context of the broader economy.
Sarah Percy Dove, Colonial First State’s head of credit research, comments: “We see the rally continuing across all risk assets until government stimulus is removed globally. There is a general acknowledgement among policymakers that it must be done. The unexpected consequences however remain to be seen.”
Balance sheet overconfidence
Corporate Australia's balance sheets are now showing virtually no vestige of the credit crunch, but they are by no means home and hosed.
Australia confirmed its status as the great escape artist in the most emphatic way this week. While most central bankers are still assuring their constituents that they had no immediate intentions to withdraw support measures, the RBA thrust us atop a pedestal by becoming the first of the G20 nations to lift rates.
But nowhere is the ability of the Australian economy to dodge a bullet more evident than in the financial metrics of Australia’s largest corporations.
Be it by good luck or good management, there are no remnants of the stress of the past two years in the sets of statistics presented by Fitch Ratings at a recent market gathering. The agency says that although gearing levels remain elevated, cash has continued to flow and credit metrics are healthier than during the last downturn in 1992.
Part of this perky outcome for Australia’s corporates is down to what Fitch calls "the residual positive impact of the resources boom" as China continues to scale up economic activity. Australia is well endowed and well positioned in the current circumstances and corporate balance sheets are benefiting.
The big get out of jail card dealt to local treasurers, and one which credit investors are grateful for, is our deep and liquid equity markets. While banks and bondholders ran for the hills, equity investors were happy to recapitalise those companies with stronger business models but whose financial profile was impaired by the downturn.
This cash injection, equal to over 10 per cent of total shareholder funds, pushed debt ratios back to 2006 levels. Without this backing, debt to earnings would have soared to a 1992 number.
With the help of the massive equity raising and a timely re-opening of bank and debt capital markets, treasurers have to some extent managed their liquidity profiles and ensured that most of their looming debt is refinanced.
But it is not time to celebrate. Finding bears at a credit rating agency gathering is not hard (it is the job of a credit analyst to fear the worst) and there is much for corporate Australia to be concerned about.
While the property sector has found its way back into favour, it continues to worry some. Commercial property values remain opaque due to a fairly dysfunctional market, while the inherent structure of AREITS means that companies are obliged to pay out most of their profits. The leverage of the sector becomes apparent when comparing like-rated corporates. While a firm like Foster's can easily pay back all its debt in several years, it would take Westfield – the most lauded of property firms – well over 20 years, even if it was allowed to halt all its dividends to clear its debt.
Another sector that has attracted attention is the energy and utilities sector. Steve Durose from Fitch ratings points out that firms in this sector are likely to need a combination of both debt and equity to meet the massive capital expenditure requirements to maintain networks' security of supply and to transition to a lower-carbon electricity generation mix. Expect to see deals done in both local and international capital markets to support the increased need for new funds.
Many of the other sectors should be alright and could benefit from the booming offshore bond markets. Borrowers in non-cyclical sectors are finding plenty of interest in their bonds. An Australian dairy firm recently tapped markets at margin that was almost half that paid by property trust Dexus, while demand for beverage companies’ bonds is said to be strong. In the domestic market, Wesfarmers has seen its bonds sought after, and perform much better than some of the other new issues, due mainly to its non-cyclical retail assets. And overnight, telco Optus priced ten year bonds 32 basis points inside of Commonwealth Bank, considered among the safest in the world.
Refinancing still remains an issue for many corporates. As James Wadell, director of capital markets origination at NAB noted: “The price that you pay on a bond issue is not important, it is the ability to access the market, and for some that access is still not there.”
Fitch estimates that over $A223 billion of refinancing needs to take place until the end of 2012, most of which is bank debt. More imminent, the ‘twin towers of debt’ loom with large spikes of corporate debt maturing in 2010 and 2011.
This massive task is for the most part expected to be handled. The figure is distorted to some extent by facilities that may never be used, and a winding down of capital expenditure in the material sector will increase the ability to pay down debt.
While the credit crunch doesn’t show in the aggregate stats, treasurers will be humbled by the experience. One lesson they would have learnt is that concentration of maturities and markets will cause headaches down the line. This could result in a strategy of tapping more markets, more frequently and in smaller amounts to smooth out debt profiles and avoid refinancing spikes.
And it is not only corporations that should be wary of celebration.
Despite the chest beating that this week’s rate rise brought, Fitch still has Australia’s foreign currency sovereign rating below AAA to reflect the reliance of our financial institutions on the continuous functioning of offshore debt markets.
Local corporates also face significant uncertainties in the context of the broader economy.
Sarah Percy Dove, Colonial First State’s head of credit research, comments: “We see the rally continuing across all risk assets until government stimulus is removed globally. There is a general acknowledgement among policymakers that it must be done. The unexpected consequences however remain to be seen.”
Derring Do Down Under
Business Spectator column on Australia's obsession with equities. There is a lot of press about Australia being 'the lucky country', I hope it stays that way but the strong weighting of the nation's retirement savings towards stocks suggests a hint of overconfidence.
In Like Flynn
In Like Flynn
Australia loves a punt. Between the pokies, the TABs, and two-up on ANZAC day, having a flutter is more than a hobby – it is almost a national imperative.
So it should come as no surprise that an OECD study conducted on pension fund allocation found that Australian retirement funds are by far the most aggressive among the 27 countries surveyed.
About 60 per cent of our retirement savings sit somewhere in the ‘global casino’, invested in local or international equities. The US and the UK are aggressive too – sitting fifth and sixth among the list in terms of stock allocation – but our Anglosphere mates are more gun-shy than us, to the tune of at least 10 per cent.
By way of comparison, German retirement funds have only a 10 per cent total allocation to stocks, while our fellow flag-bearers for banking conservatism, Canada, have 30 per cent in equities on the table.
Our bet is big. Not only is it the money we’ll be calling up for food and shelter when we’re too old to work, but the weight of savings in question amounts to more than the entire GDP of Australia.
So apart from the thrill of the bet, why are those entrusted with our nest eggs so gung ho by global standards?
Dr Stephen Nash, fixed income expert at FIIG Securities, has given the question a considerable amount of thought and has come up with a number of possible answers.
Firstly, a belief that those equities are able to provide a return that outperforms the erosive effects of inflation may pervade among local asset consultants. Dr Nash, however, dismisses this approach as weak at best, with better investment options available to guard against inflation.
Another reason is the nature of contributions in the superannuation industry. Because the law mandates that a set amount is contributed each year, as opposed to a set target returned on retirement day, there is a school of thought that pension funds may be a little more liberal in chasing returns and outperforming peers.
While that theory sounds good, there is little conclusive evidence to support the fact that a defined contribution pension is more risky, or has materially different asset allocations, versus a defined benefit pension. Data, admittedly from a few years back but at a time when defined benefit schemes were more prevalent, shows the same overall 60 per cent weighting to stocks in both pension types.
The long bull run also could have contributed to our bias towards equities. Our superfund trustees have become familiar with the returns that can be made with stocks, but have had few opportunities to become accustomed to the risks.
And by global standards, our punting club has had a good run. Australia was impacted by the ‘tech-wreck’ of 2000, but not nearly as adversely as the US technology stock-savvy investor, sucked into the market by ‘irrational exuberance’. Before then, US pension funds also placed 60 per cent in stocks, but the allocation has constantly fallen ever since. Around that time, Australia was on the cusp of a mining boom that has kept on going. Even this GFC hoo-ha has, for the most part, been wiped from memory as the commodities super-cycle continues to spin.
This love of stocks really is Australia-specific. As close as New Zealand, the punters lost their enthusiasm for the share market. The horrors of the ’87 crash saw NZ investors permanently put off stocks and is one of the reasons why their retail bond market dwarfs Australia’s, while the opposite is true of our respective stock exchanges.
Dr Nash also feels that a general lack of understanding, among Australians, about fixed income could be a factor.
An obsession with the stock market has long persisted, resulting in one the highest levels of stock ownership in the world. The infrastructure to access bonds is also simply not there. The man on the street will find it much easier to put his savings on an ‘exotic multi perm quinella’ at the trots than to buy a corporate bond, and it can probably be done in greater volumes. In the US, Europe and Japan the culture of bonds is far more prevalent, with thriving retail markets for fixed income securities.
While changing the equities bias within Australia’s investment community would be nothing short of a cultural revolution, there are signs that this is slowly getting underway. The early development of the retail corporate bond market may have been stunted by a renewed interest from wholesale investors and a recovery in stocks, but smaller deals by the likes of Heritage Building Society and Brookfield, and a order book of $A3 billion for the Commonwealth Bank’s new PERLS issue, shows that interest is piqued.
Dixon Advisory, a boutique investment firm that advises clients who self-manage their superannuation funds, has also seen overwhelming interest in its corporate bond funds. They’re close to locking up their fifth this year, with over $A200 million raised in their first four offers.
Regulators, too, are keen to see a market develop, as taskforces examine the workings of the superannuation industry and seek to ensure safer investment alternatives are available to retirees.
The form guide might not show it, but here’s a tip – the Australian public will be embracing bonds in 2010.
Tuesday, October 6, 2009
Beware the regulator
The fear of banks that are too big to fail, and to big to save has been perplexing global regulators for some time. How they solve this problem have a massive impact on global banking.
Beware the regulator
Hector Sants, the head of the UK market regulator the FSA, said recently that the market wasn’t scared enough of him. ‘We want people to fear us,’ he said.
Well, on Friday afternoon some Australian bondholders incurred the new-found wrath of the FSA when it told RBS to withhold the return of capital to investors of locally-issued junior bonds.
The FSA, rightly or wrongly, objected to the early redemption of the bonds on the grounds that the UK taxpayer had not tipped billions into the bank’s coffers for the benefit of yield-hungry Australian bond investors.
In truth, the secondary market valuations on these bonds anticipated this action to some degree, but it does show eagerness on the part global watchdogs to show their fangs.
If credit, equity and even commodities investors are not frightened, they will do well to pay careful attention to the behaviour of regulators as they seek to redraft the rules of global capital markets.
Deutsche Bank are attentive. This week the bank shut down a popular exchange traded oil fund because of ‘limitations imposed’ by the NY Mercantile Exchange. The fund used leverage and exposures to oil futures but could not generate returns because it was restricted from buying more contracts once it hit the regulator’s limits.
But it is in the global banking sector where the impact will be largest and there could much at stake depending on the direction and determination of global regulators.
With the Lehman’s anniversary approaching, they will more conscious of the financial reform ‘to do’ list. One item that policymakers will readily admit is too hard to solve, is the ‘too big to fail’ issue whereby financial institutions grew so large that their collapse would unravel the global capitalist system.
It’s been logged as a problem, but perversely some of the organisations that were deemed too big, have swelled even further.
The complex problem becomes even more perplexing when ‘the too big to fails’ extend across multiple jurisdictions.
“Basically it’s an elephant problem. You’ve got all these regulators, each of which controls a very small part of the overall animal. So one guy’s responsible for the trunk, one guy’s taking care of the tail, one is taking care of the left rear toenail, and everybody says, ‘Well my part of the elephant’s doing fine, but somewhere along the line the animal died and It’s not my fault,” explains David Weiss, global chief economist at Standard & Poor’s.
One of the very few ways to tackle the problem, according to Gary Jenkins, head of credit research at Evolution Securities, is to stuff these elephants full of capital.
“They just have to have lots of capital and we have to have much lower risk products being done by the banks and much less risk actually being taken so that they are much safer entities. And the only way you’ll do that is with regulation.”
The end result may be banking systems that are easier to patrol, given there are fewer but more solid institutions. But as Jenkins points out, regulation needs to be conducted on a global scale to be effective.
Regulatory steps in the direction of reducing the ability of big banks to take risks will, on the surface, play into the hands of lenders but reduce the opportunities to equity stakeholders. It may also create a nimble class of smaller banks with higher funding costs, but higher profit potential, operating alongside the caged elephants.
The central banks are the biggest banks around and while there are no imminent signs of their failure, some in the market are most fearful of how they might act.
A professional rate-watcher from a macro hedge fund sent us an observation from a blog.
“There's a large amount of money on sidelines waiting for investment opportunities; this should be felt in market when ‘cheerful sentiment is more firmly intrenched.’ Economists point out that banks and insurance companies never before had so much money lying idle.”
The quote appeared in the Wall Street Journal in August 28 1930 – reproduced in ‘newsfrom1930.blogspot.com’. If it sounds familiar it’s because it’s similar to comments heard recently, including this one from JPMorgan, published this week.
".. the amount of cash still sitting in money market funds and in bank deposits shows many have not enjoyed the rally this year. This suggests further upside from here if/when the economic data continues to be strong."
Our rate-watcher says it’s easy to see how, back then in the 30’s, the central bankers were fooled into thinking it was time to tighten monetary stimulus. He’s very scared they might make a similar mistake this time around.
Mock op/ed The future of finance journalism
Like most people, the subject matter that is of most interest to me, is well…me! I am essentially an online finance journalist and find the fate of the trade is fascinating. What is the purpose of financial journalism and in what form is it most valuable and commercially viable? Since I am stranded in the office by a Spring downpour, I’ve decided to write a mock-op/ed for the New York Times, even though I have plenty of real stuff to do…. (As if the NYT would give me over 750 words!)
Jonathan Shapiro’s Mock Op-Ed in the New York Times, October 10, 2009
Providers of financial news are at a critical junction as they march deeper into the online era. The decisions that executives make today will either ensure their prosperity or cast them into oblivion.
Finance news is somewhat different to other forms of news. News generally consists of items of interest. While in many cases finance news is interesting, it is crucially something else –it is tradable. How and when and what information is disclosed influences decisions and asset prices and is therefore inherently valuable. This will never change.
What has changed is how this information is delivered. The sheer importance of financial information has meant that it will always travel quickly but the median in which it is being delivered continues to evolve with technology.
News and finance information can be divided crudely into two categories. Information can be facts/developments and opinion/insight. In most instances, it is in the financial system’s broader interests to ensure facts are divulged democratically which offers little opportunity for one provider to differentiate itself from another.
The objective of opinion or insight is to either anticipate facts or developments or interpret their meaning. Opinions should not have the same limits applied to them, they are merely the beliefs of providers to other observers and generally it is the responsibility of the reader to determine and pursue the opinions deduced from public facts, he or she finds valuable
Broadly speaking the online and print media aim to deliver both the fact and opinion desired by readers.
As an online journalist, the ultimate embarrassment is to be beaten to a story by the print media. This means the print journalist has discovered a development, typed it up, had it edited and sub-edited, sent it off to the printers, who have run thousands of copies, sent them to the trucks and to the paper boys and newsagents, who have then delivered the paper to the doors and stores of the city before I’ve had any idea of the story. An online or wire journalist can publish the same story inside five minutes of finding out about it and a print scribe is at a clear disadvantage.
It’s clear then that the print format cannot compete in terms of timeliness breaking fact. So then what are the benefits of the clumsy old press? Well it’s not dead yet. Printing is an expensive and time consuming process which in itself acts as a quality control. To use an analogy, compare the last e-card you used against the last wedding invitation you received. The copy also has to carry resonance that lasts long enough for it to be edited, inked and delivered. Also for the price of a coffee, it’s the equivalent of a PA printing off all the best bits of the day and adding some pictures for you to read with your coffee. Not to be discounted is the value and prestige of physical permanence versus fleeting light.
Some things work for print but most things work against it. The challenge the print media faces, in addition to being easily out scooped, is to consistently match online copy for quality of insight. This is where economics comes into play . While the value of online advertising remains opaque, the revenue from print adverts can sustain the old model for the time being by essentially funding better quality. But for how long? It’s hard to envisage anything other than a slow decline in the print media as information is delivered faster and better.
Online news providers are gradually stumbling on the subscription model to supplement erratic advertising revenue. They have come to realize that consumer will always pay for something that they either need or see as ‘value’, and there’s value in swift access.
In fact, access will always have value on many fronts. A media provider that is able to find facts that no-one else can or provide unique and original insight. Access is a virtuous circle in that a wide reaching net incentives newsmakers to engage with one provider over the other. Insight is harder to erect barriers around, but more difficult to sift through amidst the infinite blogosphere.
So what is the essence of value in finance journalism? In my experience it’s a combination of timely fact and quality opinion, and ideally a combination - timely opinion. This is the future of finance journalism. Sharp and insightful comment and analysis that helps readers understand the facts with greater speed. It is where the virtues of print and online media meet.
Jonathan Shapiro’s Mock Op-Ed in the New York Times, October 10, 2009
Providers of financial news are at a critical junction as they march deeper into the online era. The decisions that executives make today will either ensure their prosperity or cast them into oblivion.
Finance news is somewhat different to other forms of news. News generally consists of items of interest. While in many cases finance news is interesting, it is crucially something else –it is tradable. How and when and what information is disclosed influences decisions and asset prices and is therefore inherently valuable. This will never change.
What has changed is how this information is delivered. The sheer importance of financial information has meant that it will always travel quickly but the median in which it is being delivered continues to evolve with technology.
News and finance information can be divided crudely into two categories. Information can be facts/developments and opinion/insight. In most instances, it is in the financial system’s broader interests to ensure facts are divulged democratically which offers little opportunity for one provider to differentiate itself from another.
The objective of opinion or insight is to either anticipate facts or developments or interpret their meaning. Opinions should not have the same limits applied to them, they are merely the beliefs of providers to other observers and generally it is the responsibility of the reader to determine and pursue the opinions deduced from public facts, he or she finds valuable
Broadly speaking the online and print media aim to deliver both the fact and opinion desired by readers.
As an online journalist, the ultimate embarrassment is to be beaten to a story by the print media. This means the print journalist has discovered a development, typed it up, had it edited and sub-edited, sent it off to the printers, who have run thousands of copies, sent them to the trucks and to the paper boys and newsagents, who have then delivered the paper to the doors and stores of the city before I’ve had any idea of the story. An online or wire journalist can publish the same story inside five minutes of finding out about it and a print scribe is at a clear disadvantage.
It’s clear then that the print format cannot compete in terms of timeliness breaking fact. So then what are the benefits of the clumsy old press? Well it’s not dead yet. Printing is an expensive and time consuming process which in itself acts as a quality control. To use an analogy, compare the last e-card you used against the last wedding invitation you received. The copy also has to carry resonance that lasts long enough for it to be edited, inked and delivered. Also for the price of a coffee, it’s the equivalent of a PA printing off all the best bits of the day and adding some pictures for you to read with your coffee. Not to be discounted is the value and prestige of physical permanence versus fleeting light.
Some things work for print but most things work against it. The challenge the print media faces, in addition to being easily out scooped, is to consistently match online copy for quality of insight. This is where economics comes into play . While the value of online advertising remains opaque, the revenue from print adverts can sustain the old model for the time being by essentially funding better quality. But for how long? It’s hard to envisage anything other than a slow decline in the print media as information is delivered faster and better.
Online news providers are gradually stumbling on the subscription model to supplement erratic advertising revenue. They have come to realize that consumer will always pay for something that they either need or see as ‘value’, and there’s value in swift access.
In fact, access will always have value on many fronts. A media provider that is able to find facts that no-one else can or provide unique and original insight. Access is a virtuous circle in that a wide reaching net incentives newsmakers to engage with one provider over the other. Insight is harder to erect barriers around, but more difficult to sift through amidst the infinite blogosphere.
So what is the essence of value in finance journalism? In my experience it’s a combination of timely fact and quality opinion, and ideally a combination - timely opinion. This is the future of finance journalism. Sharp and insightful comment and analysis that helps readers understand the facts with greater speed. It is where the virtues of print and online media meet.
Friday, September 18, 2009
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