#money

Tony Schwartz:

Many retailers, for example, seek to save money by understaffing. The result is rushed, overworked and mistake-prone employees and higher turnover, which leads to unhappy, antagonized customers. The counterintuitive solution, Ms. Ton says, is to increase “slack” — meaning to have more employees available than are absolutely required at any given time of day.

QuikTrip, in contrast with most of its competitors, purposely overstaffs stores so that they can accommodate employees with emergencies or who are sick or on vacation. The result is happier employees and better-served customers. Ms. Ton cites one study of a 500-store retailer that found that every additional $1 spent on employee salaries resulted in an increase of anywhere from $4 to $28 in sales.

Funny that.

Speaking of Mike Trout, here’s Cliff Corcoran on his deal:

Still, it’s hard not to see this contract as a major victory for the Angels. They just added three years of Mike Trout’s prime to their future without breaking the bank. Assuming Trout’s salaries over the course of this deal escalate in accordance with his service time, Jered Weaver, C.J. Wilson and Josh Hamilton’s contracts will all have expired before Trout is making top dollar. The real bottom line, however, is that the Angels have locked up the best player in baseball through the end of the decade at a fraction of his projected value. From a team’s perspective, you can’t do better than that.

Agreed. A very smart play by the Angels.

ESPN:

The Dodgers are ending the Yankees’ 15-year streak as baseball’s biggest spenders and as of Tuesday had a projected payroll of $235 million, according to study of all major league contracts by The Associated Press.

New York, which last failed to top the payroll rankings in 1998, was a distant second at $204 million. After that, it was another huge gap to Philadelphia at $180 million, followed by Boston at $163 million and Detroit at $162 million.

End of an era. Good riddance.

Meanwhile, the lowest payroll? The Astros at $45 million — which is still up from $27 million last year. With his bonus, the Dodgers pitcher Zack Greinke will early more than that this year by himself.

Apple CEO Tim Cook, talking to Daisuke Wakabayashi:

Last year, we grew (revenue) by $14 billion to $15 billion. Yes, those percentages are smaller compared to a year earlier and two years earlier and so forth. But that doesn’t mean that you’re not a growth company. We were in hyper-growth, or whatever is above growth. We went from $65 billion to over $100 billion to $150 billion to $170 billion. These are historic, unprecedented numbers. I don’t know any companies adding growth at that level. So when you say $14 billion to $15 billion compared to those numbers, it’s clearly smaller and a smaller percentage, but, to put it in some context, that’s like adding three Fortune 500 companies in a year. I think that’s hard to say that’s not a growth company.

This is another way to articulate the Law of Large Numbers issue that Apple faces. And it’s certainly hard to argue with.

Derek Thompson talks to Harvard Business School professor Anita Elberse about her new book, Blockbusters:

Thompson: Would I be oversimplifying your thesis if I said: “In movies, music, TV, and books, people have learned that $1 spent on a blockbuster is better than $1 spent on a not-blockbuster”?

Elberse: I think that’s a good way to summarize the book. Another way is to say that, although there is no way to play it safe in the entertainment industry, a blockbuster strategy is the safest way to play. In investing, we intuitively think we should make a number of small bets. A blockbuster strategy is the opposite. It means making fewer huge investments. But it turns out to be safer.

I don’t actually agree with that generalization. Often in (company) investing, bigger bets are also “safer” because the companies that are able to command larger investment dollars are much further along in their business life cycles. Hence, discussions like this one this past week.

Also problematic:

Thompson: I think my friends are most familiar with the blockbuster formula playing out in movies, and my sense is that they hate it. They see big loud sequels and adaptations taking over and they want to know who to blame. So who’s to blame?

Elberse: There are a number of people who are negative about blockbusters, and that surprises me. Put yourself in the mind of an executive. They know everybody pays the same amount for a movie, whether the studio invested $10 million or $300 million. To complain about studios overspending is odd, because the price of the ticket doesn’t change. In what other industry do we complain about companies increasing their spending when they don’t raise prices? In video games, it’s the opposite. People are thrilled when companies spend more on the next [Grand Theft Auto].

Except that they do raise prices — they just raise them across the board for big movies and small movies alike. It’s why the reporting of box office numbers is so fucked up. Yes, movies are making more money, but they’re often not actually selling more tickets. The tickets just cost far more than they should at the normal rate of inflation. 

Tim Fernholz:

People can’t really respond to stimuli much faster than in one second. The benchmark comes from cognitive scientists who find that it takes 650 milliseconds for a chess grandmaster to realize that a king has been put in check after a move. Below that time period, you can find “ultrafast extreme events,” or UEEs, in which trading algorithms cause prices to change by 0.08% or more before returning to human-time market prices. This appears to be the case when many simple algorithms, operating on limited information, pile into a single trade.

If a crash happens, but no one can actually see it, did it really happen? Apparently yes.

Gretchen Morgenson:

Among the few companies to include an executive pay performance measure based on innovation is 3M, Mr. Van Clieaf said. Its “New Product Vitality Index” measures the percentage of the company’s total sales from products introduced in the last five years. “They recognize that to have sustainable growth and value, they must continue to be an innovation company,” he said.

Intriguing idea.

David Barboza:

Doing business in China takes a lot of cash because Chinese authorities refuse to print any bill larger than the 100-renminbi note. That’s equivalent to $16. Since 1988, the 100-renminbi note, graced by Mao Zedong’s visage, has been the largest note in circulation, even though the economy has grown fiftyfold. (The country’s national icon, Chairman Mao, appears on nearly every note: the 1-, 5-, 10-, 20, 50- and 100- renminbi note.)

That’s crazy. Also crazy at the opposite end: the EU’s 500-euro note.

Scott Woolley chose an awful title, but makes an interesting point about the government’s 2009 loan to Tesla:

Personal loans made in 2008 by Elon Musk, Tesla’s co-founder and CEO, provide a telling contrast. Musk received a much higher interest rate (10 percent) from Tesla and, more importantly, the option to convert his $38 million of debt into shares of Tesla stock. That’s exactly what he ended up doing, and the resulting shares are now worth a whopping $1.4 billion—a 3,500 percent return on his investment. By contrast, the Department of Energy earned only $12 million in interest on its $465 million loan—a 2.6 percent return.

The government had huge leeway to demand similar terms as part of its loan, given the yawning gap between its interest rate and the cost of Tesla’s next-best source of capital. The government was ponying up more capital than all of Tesla’s previous investors combined. At a bare minimum, the Department of Energy could have demanded a share of the company equal to the 11 percent Musk received for his $38 million loan the year before. Such an 11 percent share would be worth $1.4 billion to taxpayers today.

Of coures, the government is not an investment firm — BUT they did take large ownership stakes in some of the banks during the bailouts.

Also, the government had the option on up to 3 million Tesla shares as a part of the loan — BUT those options evaporated when Tesla paid back the loan early (which was part of the incentive to do so).

Dan Kaminsky:

The internet’s proven to be a pretty big deal for global society, and Bitcoin could basically be thought of as the Internet, applied to Money.

There’s an old comment that the internet interprets censorship as damage and routes around it. Sure, we’ve routed money over the internet for a while now, but those flows have always been managed, moderated, regulated by some vestige of authority.

Bitcoin’s about as friendly to this sort of regulation as the rest of the internet is — not very. To put it another way: Bitcoin’s a dollar bill, with a teleporter built in. We can just poke in a few coordinates and poof, off it goes, with the ease of posting to some forum somewhere. That’s somewhat new.

Great read.

The Economist:

For Bitcoin itself, the biggest risk is not regulation but competition. Like any currency its value is dependent on the number of users. Being the first to build a network can be an advantage. But networks can also be supplanted as users suddenly switch to an even better competitor. As markets like eBay and Airbnb grow, for example, their user fees start to become a necessary payment, a bit like a tax. If those charges could be paid in a new form of digital money, the demand for that cash would be much more stable. Bitcoin might end up like MySpace, the now moribund precursor to Facebook.

This is something I’ve been thinking a lot about recently. Bitcoin is fascinating, but it also seems like a huge pain-in-the-ass that will have a hard time ever getting mainstream adoption. It’s a proof-of-concept. Next, someone needs to nail the concept. 

Paul Ford for Businessweek:

Maybe Bitcoin’s devotees are right, and it’s the currency of the future. Or perhaps it’s a ridiculous joke—a speculative, hilarious enterprise taken to its most insane conclusion. Given that the founder is nowhere to be found, it feels like a hoax, a parody of the global economy. That the technology used to implement it has, so far, shown itself to be impeccable and completely functional, and that it’s actually being exchanged, just makes it a better joke. The truth is, it doesn’t much matter if it’s a joke or not. It works.

Fascinating.

See also: Chris Dixon’s brief thoughts on the matter.

Jeff Sommer of The New York Times on the U.S. tech companies hoarding money abroad :

Whatever the reason, United States corporations have parked staggering sums abroad. Last year, analysts at JPMorgan Chase estimated that accumulated offshore profits for American companies amounted to $1.7 trillion. This month, Bloomberg News estimated that the mountain of cash had grown to more than $1.9 trillion.

An astonishing amount of money that you’d think the U.S. government would love a piece of, even if they have to give a mild break on the usual corporate tax rate. If Apple repatriated their horde, they would have something like $67 billion to work with after taxes.