The addition of 204,000 payroll jobs last month was a nice surprise and will no doubt get lots of attention by the general media. But it's only a single month, and today's figure will be subject to several revisions, including an adjustment of the entire year's data, known as benchmarking. (Data from the two previous months were revised significantly.) More to the point, as Bloomberg columnist Barry Ritholtz reminds us, month-to-month statistics are not the best way to gauge how the economy is doing. He calls the government's employment report "the single most over-hyped, over-analyzed, over-emphasized, least-understood economic releases known to mankind."
Each month, approximately 4 million people leave their jobs, Retirement, layoffs, career changes, whatever. Another 4 million people start new jobs: recent graduates, re-entries to the work force, job changers. What the monthly Employment Situation report measures -- in near real time -- is the net changes between those two numbers. Take the total net number of new hires, subtract the job losses, and you get the marginal change in employment. Since we begin with such a huge number -- 150 million-plus -- and the monthly net changes are so small (50-200k), the overall change is not especially statistically significant. The net changes amount to about one twentieth and one quarter of a percent. During the height of the financial crisis in 2008-09, the net change was about half a percent (-700k). Thus, any single 0.1 percent data point needs to be recognized for what it is. It is but one data point in a longer series. And not an especially accurate one initially.
The Washington Post's Brad Plumer has a good explainer on why the labor force keeps shrinking - and why much of it has little to do with how well or poorly the economy is now performing:
Baby boomers are starting to retire en masse, which means that there are fewer eligible American workers. Demographics have always played a big role in the rise and fall of the labor force. Between 1960 and 2000, the labor force in the United States surged from 59 percent to a peak of 67.3 percent. That was largely due to the fact that more women were entering the labor force while improvements in health and information technology allowed Americans to work more years. But since 2000, the labor force rate has been declining steadily as the baby-boom generation has been retiring. Because of this, the Federal Reserve Bank of Chicago expects the labor force participation rate to be lower in 2020 than it is today, regardless of how well the economy does.
LAPD Police Chief Charlie Beck says he'd like to see better curbside camera surveillance, although based on the LAT post it's not clear how he believes that would enhance LAX's security systems. News reports, citing unnamed sources,have the alleged shooter, Paul Cianca, walking into Terminal 3 with a duffel bag and suitcase that held an AR-15 rifle used in the attack. More cameras might not have helped if the weapon was hidden from view. Still, the law enforcement postmortems are appropriate and might lead to improved responses and communication. The major criticism seems to center on the time it took police to reopen the airport roadways. Meanwhile, Rand Corp. security expert Brian Jenkins questions whether it would make much sense to arm TSA screeners, as some are suggesting. From his LAT oped:
Securing crowded public places is difficult, disruptive and costly. Securing an airport check-in area would require the creation of a physical security perimeter at the entrances to the terminals where passengers arriving with luggage would undergo preliminary screening. But shootings and bombings can also take place in the baggage pickup areas, so these also would have to be secured. Security measures at the entrances would create lines of people waiting to be screened who would be vulnerable to attack outside the terminal. A Rand Corp. study recommended mitigating the potential casualties that might be caused by a bomb by speeding up the check-in and security check procedures, thereby thinning the crowd. But this would not have significant effect in a shooting incident.
Would armed screeners be effective in responding to an armed assault? Shootouts in crowded areas are extremely dangerous. The risks of casualties resulting from friendly fire are high. Police at airports undergo specialized training to engage shooters. Officers at the airport, both from the airport police and the Los Angeles Police Department, are trained in "active shooter" response. Passengers wounded or killed by friendly fire would create a public relations catastrophe for the TSA. The public accepts that this may happen when police are obliged to use deadly force, but there is already a measure of public hostility toward the TSA. Perceptions matter.
Talk about pops - the social network's initial public offering was priced at $26 a share and promptly jumped to $50.09 in the first hour or so of trading before settling down a bit. As of 8:30, it was around $45, which is still a 75 percent bump for those investors lucky enough to have bought in at $26. As I posted last night, a price of $50 or even $40 has little relationship with what Twitter should be valued at, given its tenuous financials. But the market has a way of ignoring fundamentals when there's a quick buck to be made. Needless to say, do not try this at home.
*Update: Stock wound up closing at $44.90, up about 73 percent on the day. The overall market, however, fell sharply, with the Dow dropping 153 points, to 15,593.
The much-anticipated IPO is being priced at $26 a share, but that doesn't necessarily mean it's worth $26 a share. Given the hype surrounding the social network's imminent arrival on Wall Street, price could easily get confused with value - a distinction that's especially important in Twitter's case because its financial prospects are so sketchy. Anant Sundaram, a finance professor at Dartmouth's Tuck School of Business, explains the difference (via MoneyBeat)
People conflate the two all the time. Value refers to the intrinsic worth of the business based on forecasts of cash flows and cost of capital. Price, on the other hand, is also driven by factors such as sentiment, momentum, demand relative to supply, and so forth, which can make the price deviate from intrinsic value. In an efficient market, there should be no distinction between value and and price, but we know that markets are not always efficient, and certainly not in every asset. On an intrinsic value basis, even allowing for generous assumptions regarding growth, margins, etc., I believe Twitter is overvalued. For example, to get to even a valuation of $8 billion, Twitter will need to grow its revenues at a compounded growth rate of nearly 30% per year for the next ten years. Even then, 70% of the price that people would be willing to pay for it today lies in cash flow forecasts from year 2024 to forever.
I think investors are overestimating the ability of Twitter -- and others like it -- to be able to monetize non-US and mobile users. The former because there are less advertising-intensive markets than ours is, and the latter because the business model of mobile advertising -- especially in a world in which the user pays for cellular data -- is still in its infancy, with all sorts of twists and turns ahead.
As Twitter begins trading on Thursday, the obvious question is whether there will be a "pop" - that is, will the stock immediately shoot up? Pops can be very profitable for the Wall Street investors lucky enough to be let in at the offering price, but not so much for the companies themselves. From NPR's Steve Henn:
HENN: Neil Stewart [research director for Investor Relations magazine], says Facebook sold so many shares at such a high price, it glutted the market for its stock.
STEWART: It was a shambles in the end. It took a year to climb back to its IPO price. It disappointed a lot of people. It was probably pretty hard within Facebook to keep their heads down working away when all that was going along.
HENN: Recently, Mark Zuckerberg was asked if he had any advice for Twitter on the eve of its IPO.
MARK ZUCKERBERG: See, that's funny on its surface, because I'm kind of the least - the person you would want to ask last how to make a smooth IPO.
HENN: Zuckerberg jokes about it now, but it's might not be fair to call Facebook's IPO a complete failure. The company raised billions of dollars on great terms. And today, its investors - assuming they held onto their stock - are doing great. In fact, there's a school of thought - especially on the West Coast, and especially among entrepreneurs - which believes that a big old-school pop on the opening day of an IPO is actually really bad thing.
BILL HAMBRECHT: When I try to think when did I first start questioning the system, to be honest, the first time really - someone brought it home to me, was in the initial pricing of Apple Computer in 1981.
HENN: Bill Hambrecht is an investment banker based in San Francisco. He's been helping tech companies go public for years, including Apple, Amazon, Genetech and Google. He says a pop doesn't benefit tech firms. It benefits Wall Street.
HAMBRECHT: Steve Jobs figured out very quickly how Wall Street worked. And he really questioned: Hey, why do you price it at 18 when you know it's going to sell at 28? And why do you charge me a 7 percent commission? And, you know, who gets that stock at 18? I mean, you know, why not my friends? Why your friends? I mean, he questioned the whole process.
Very predictable - and from what I've seen, very misplaced. Even in normal times, airports can be precarious balancing acts, with many thousands of passengers coming and going at any given time and little allowance for the unexpected. When somebody walks in and starts shooting up the place, controlled chaos quickly turns into pandemonium, as we saw Friday morning. Perhaps coordination could have been better, but considering that LAX was back up a little over 24 hours after the incident, it's hard to find fault with police, airlines, and airport officials. All seemed to do a pretty good job. Of course, that makes for dull headlines, so now we're seeing City Councilman Mike Bonin, enabled by local media, suggesting that somehow, some way, the response should have been better. (I wonder how these folks would fare during a sustained emergency.) So far the evidence is thin. From the LAT:
The councilman cited complaints about emergency exits that weren't properly marked, poor communications, flaws in evacuation procedures and inadequate support services for passengers. Many travelers were held for hours in the Bradley terminal, he said, with limited access to food and water and few updates from LAX staff. Those stranded overnight were not informed about alternatives, Bonin added, including a shelter set up by the Red Cross and contact information for nearby hotels. Others did not receive clear direction from airlines on rescheduled and relocated flights, he said. Whatever evacuation plan airport officials may have had Friday "wasn't being followed or implemented," Bonin said in an interview.
"Cited complaints," eh? Many of these second- and third-hand claims seem overwrought, especially since portions of the airport resumed operations later that day, and by Saturday afternoon even Terminal 3, where the shootings took place, was open for business. I was out of town on Friday and could still get updated information from the airport's Twitter feed and its website (which was running slow because of increased usage). All right, so not everyone has Twitter or access to the Internet. And in the first few hours, information was undoubtedly sketchy, as it is in any emergency that involves multiple agencies, federal and local, suddenly being shoved together to sort things out. What's worrisome about this week's soul-searching is that it appears based on hysterical generalizations of what happened - and that elected officials might feel compelled to introduce costly and unnecessary additions to an already well-secured operation. Politicians have a way of screwing everything up. From this week's Business Update on KPCC:
Steve Julian: Business analyst, Mark Lacter, how did the airlines respond to shooting and its aftermath?
Mark Lacter: Generally pretty well, Steve, considering that the airport was effectively closed for several hours on Friday, and most of Terminal 3 was out of commission until Saturday afternoon. You know, there's always this precarious balance in operating airlines and airports, even when things are normal. Just so many flights coming in and going out, and so many thousands people using the facility at any given time - and it really doesn't take much to upset the balance. So, when you have something horrific take place and you see all those travelers stranded outside the terminals, the ripple effects are enormous - not just at LAX but all over the country.
Julian: More than a thousand flights were either canceled or delayed on Friday.
Lacter: And, there was a further complication because the airlines flying out of Terminal 3 are not the big legacy carriers like United and American that have all kinds of resources, but smaller operations with less flexibility. It's not like there's an empty aircraft just sitting in a hangar waiting to take passengers wherever they want to go. Actually, the airlines have gotten better at arranging re-bookings when there's a snowstorm or some other emergency that gives them advance warning. But obviously, there was no advance warning last Friday, so the carriers needed to improvise in handling passengers whose flights were cancelled.
Julian: What did they do?
Lacter: One step was waiving the fees normally charged to re-book flights (and that's gotten to be a pretty penny). In some cases they also waived the difference in the price of the original ticket and the re-booked ticket. But, the policies varied according to the airline, and we heard about travelers not receiving hotel or food vouchers, or having to buy a brand new ticket on another airline if they wanted to avoid the wait - and that can be expensive. Which raises another issue: planes tend to be completely full these days because airlines have been cutting back on the number of flights. And that can be a problem if you're taking a route that doesn't have too many flights in the first place. So, it gets really complicated.
Julian: Why do you think we haven't we heard more horror stories from passengers?
Lacter: Well, look at the cities that the airlines in Terminal 3 fly to - New York, San Francisco, Seattle, Dallas. They're all served by several other carriers. L.A. to New York, in particular, is one of the busiest routes in the world, which means that it's also one of the most competitive. So, even if your flight was cancelled, there's a good chance you'd be able to find space by Saturday (which is normally a slower day for air travel). This is one big reason generally why people like LAX. It's just very convenient.
*Update: Just got off the phone with Mike Bonin, who had good things to say about the Twitter feed, but noted how much of that information was not disseminated as well as it might have been. He and airport officials have been talking about establishing better ways of informing passengers and others on where they should go and what they should do (Parking Lot C was being used as a pickup spot). A texting system might help - or perhaps installing electronic signs in the terminals that can provide updates, much like the freeway signs. In any event, the Airport Commission would take the lead in implementing those changes.
**Update: Another problem, as I'm hearing from several readers, was the lack of coordination among law enforcement, with lots of police officers on site but not knowing what to do. Perhaps the fact that multiple agencies were handling the incident added to the confusion. Obviously this isn't great, especially considering how contained Friday's event turned out to be. But again, some perspective is in order - with LAX you're dealing with a small footprint that handles tens of thousands of people, many of them not familiar with L.A. and many of them not conversant in English. You're also dealing with a law enforcement culture that tends to be cautious and methodical in these situations, perhaps to a fault. In those circumstances, it's inevitable that not everything will go as planned and not everybody will be satisfied.
This is the last week on the job for Geraldine Knatz, who was brought on in 2006 by former Mayor Villaraigosa as the first woman executive director of the Port of Los Angeles - and who was not asked back by Mayor Garcetti. (She'll be staying on in a transitional capacity through next January, working with interim executive director Gary Lee Moore.) The mayor's office has been vague about its decision, though folks who follow the port were not surprised. Container traffic has been down so far this year, but more than that Knatz had a sometimes rocky relationship with port tenants, as I posted in early October. That's not ideal considering how Panama, Mexico, Canada, and Long Beach all want a piece of L.A.'s business. "We don't have the leverage we used to," she acknowledges. Even so, Knatz made huge strides in reducing truck emissions, thanks to implementation of the clean air program, and has overseen major investments in capital improvements involving cargo terminals and related infrastructure. Prior to coming to Los Angeles, Knatz, who is 62, was managing director at the Port of Long Beach. She's held positions at the two facilities for most of her career. This week, I sat down with Knatz at her office in San Pedro to discuss her tenure (interview is edited for clarity).
So this is your last week...
My last board meeting is on Thursday. But I don't officially retire until Jan. 31.
It's been announced as a retirement. Are you really retiring or are you going to do something else?
Yes, I am actually retiring. But I had already made plans to resume teaching at USC in the civil engineering school. I have a file folder over there from everybody who's emailed me and wants me to be on this board, do that thing, other academic appointments. I've also had people coming at me with full-time jobs right now, but I don't want to work full time.
Are you going to take it easy for a while?
(Laughs) No, I'm going to jump right into other things. For eight years I've gotten up at 4:45 and I get here by 6. I like getting in here early because you can get through a lot of work. So I'm looking forward to sleeping late - until about 6.
What are the things you're most proud of?
I think the fact that we were able to clean up the port and turn our capital program back on. When I came over here from Long Beach - and I don't remember the specifics of my interview with the board members - but basically it was "We have to get rid of the dirty old trucks" and the board president told me years later that as soon as I said those words he was sold. To me the most significant thing is that the Wilmington air station now doesn't show any [particulates exceeding] the national ambient air quality standards. That's monumental.
Everybody's heard about how the expansion of the Panama Canal represents a threat to the L.A.-Long Beach port complex. As you leave, how do things look?
I look at the competition on three fronts: Panama, Mexico - our largest customer here is building a $1-billion terminal in Mexico - and then Canada. We haven't lost services to Canada, but Long Beach has.
Tell me about the competition between L.A. and Long Beach.
I've been here for a long time and it's never been this cutthroat. There's no organic growth now. So the carriers are trying to achieve economies of scale by pooling their assets, getting rid of some ships, and filling up the remaining ships. The terminals that those ships call can make or break a port.
More consolidation, so more pressure to be included in their plans.
Exactly. If they're using five terminals in L.A. and Long Beach, they're going to say, "Okay, which terminal is the most efficient, provides the best turn time?" So there could be some winners and losers in the future. In some sense, I've been playing defense to make sure none of [our tenants leave]. It's a battle. You constantly have to be on your toes. You have to be watching everything. Historically, we would do business with smaller companies. They may have been family-owned businesses, maybe just operating on the West Coast. Now, we're doing business with multi-national companies, and decisions are being made globally about where the ships are going. So we don't have the leverage we used to before.
This is still very much a guy industry. Have you found yourself needing to show them who was in charge?
I'm pretty much a nose-to-the-grindstone person. In all my years at Long Beach, I was known for getting things done. And so when you deliver for people, I think they're pleased about that. I noticed in your blog that you had made a comment about how everybody hates me. Where did that come from? It's true that I've probably made some enemies down here. We're a landlord. We have 300 tenants. Let's put it this way: I wasn't going to let anybody take advantage of the city. So if people don't pay, we're going to take action. If people don't do the right thing, we're going to take action. And I wasn't shy about bringing those things to our board. But all in all, I think I've been pretty fair.
So you and the mayor: Have you gotten along with him in the past?
Oh yeah. He was always very supportive of the port.
Why was the decision made to call it a day?
I felt a duty to stay on at least another year because of the upcoming labor negotiations. It's a very critical year. But as soon as I got an indication that they wanted to make a change, I was cool about retiring.
Are you pretty comfortable about leaving?
I worked [at the Port of L.A.] longer than I thought I was going to. I thought I would be here five years. The average tenure of a port director is six and a half years, and on the West Coast I'm the old timer at eight years. The last Long Beach guy was there eight months.
You've spent pretty much your entire career at the two ports. Did it just work out that way or did you have a real preference to be here?
This is the most exciting place in L.A. I swear. You never get bored. It's constantly changing. It's just something that gets in your blood.
When cable companies and content providers are at loggerheads over a new contract, they usually work out a deal without too much damage being done on either side (even it it means extending the deadline several times). That's how many folks expected the impasse between CBS and Time Warner Cable to work out. But the latest quarterly results not only show TWC losing 306,000 video subscriptions during the July-September period, but satellite provider DirecTV gaining 139,000 subscribers in that same quarter. Not all the gains and losses were the direct result of TWC blacking out CBS programming for more than a month, but these numbers are far higher than Wall Street had been expecting. What this does, of course, is provide CBS with considerably more leverage in its future contract deals with other pay TV providers, while at the same time instilling fear within the cable and satellite industries. The wild cards are alternative online platforms that must also work out arrangements with the broadcast providers - and which some consider to be potential cable allies. For now, the landscape is a mess. From LAT columnist Mike Hiltzik:
What it pointed to was an abject failure of telecommunications regulators in Washington, who have stood stupidly by as mergers in the cable industry and between cable firms and content providers put the public interest at risk. Things are likely to get worse before they get better, because Washington responds only to money, and the cable and broadcast industries still have pantsfuls of that. Time Warner Cable showed during the blackout that it feels no responsibility toward its customers when its own profits are at stake. Yet its near-monopolization of Internet data services in the regions where it holds its franchise continues to stand.
The federal government's EB-5 visa program allows foreigners to invest in U.S. businesses or developments in return for getting to the front of the line when applying for green cards. The program, which has been around since the 1990s, is getting more attention lately because so many Chinese investors with money to burn are signing up. But it's also been criticized on several counts, including a little-enforced provision that allows a smaller minimum investment for projects located in economically needy communities. Turns out that the parameters for such inclusion are pretty loose, as the Business Journal is reporting this week. A hotel project in Marina del Rey is classified as being in a a high-unemployment area, for example. Basically, they're gerrymandering locations in order to include low-income communities like South L.A. and Crenshaw.
At Via Marina and Tahiti Way in Marina del Rey, San Diego's Hardage is planning a $70 million, 288-room Marriott Courtyard hotel. The developer hopes to raise half that amount through EB-5 investments. It expects to begin construction late next year, according to the project website. But Marina del Rey has an unemployment rate of less than 6 percent, almost half the county average and ranks in the top 10 in per-capita income in the county, according to Census Bureau data. Though the project is not in a city, county or census tract defined by the state as a high-unemployment area, it still qualified after a Hardage subsidiary drew a map annexing faraway communities. The map heads northeast from the marina, avoiding the commercially successful areas of Santa Monica, Culver City and Playa del Rey, then expands broadly to the southeast, encompassing poorer communities such as Crenshaw, Baldwin Hills, Leimert Park, Hyde Park and a wide swath of South Los Angeles.
I reported on EB-5's shortcomings last year in a Los Angeles magazine piece on Chinese investment.