Randomly Noted

It may have seemed like the financial crisis is Europe had stabilized. Greece has been somewhat quiet. Portugal hasn’t quite boiled over the way some thought it would. But now all eyes are back on Ireland and they aren’t smiling. The government announced today that it would need to pump additional cash into its struggling banking system to an extent that its budget deficit could stretch to a third of its entire economy. No other country in the eurozone has a deficit that bad.

It all started with the Central Bank of Ireland announcing Thursday that the state-owned Anglo Irish Bank would need close to a EUR30 billion infusion. Although the government and the European Union have ruled out a Greece-like bailout, that certainly must be on the mind of some investors.

Ireland wasn’t the only European country in the news for its fiscal problems Thursday. Spain saw its credit rating downgraded one notch to Aa1 by Moody’s Investors Service Inc. The ratings agency cited the country’s weak growth prospects.

As an asset class, private equity is a losing proposition.

That bald assertion comes not from an outside critic, but from an insider, Erik R. Hirsch, the chief investment officerof Hamilton Lane, a private equity asset management firm with more than $100 billion managed and advised.

Private equity, from the point of view of investors, or limited partners, is expensive, it is illiquid and often doesn’t beat returns from equity markets.

So what’s the punchline from Hirsch, who was interviewed today at the Dow Jones Private Equity Analyst Conference in New York by Laura Kreutzer of Dow Jones? (Dow Jones employees write for this blog.)

While the industry taken as a whole might not be a great deal for institutional investors (Hirsch said he wouldn’t want to own an index of the private equity asset class), Hirsch talked of a “brass ring,” s certain club of private equity managers who consistently outperform public markets. If investors find them, long-term rewards will allow them to put up with high fees, the significant length of investment and lack of liquidity.

In the same interview, Hirsch bemoaned the fact there’s no agreed-upon benchmark for the private equity sector. It allows for a variety of measures and more managers than warranted to refer to themselves as top performers.

As for the health of the sector, Hirsch said that as a class, private equity is adding capital. That fact means this is not an industry in trouble, not an industry in “a death spiral.”

Southwest’s proposed $1.4 billion acquisition of rival AirTran wil certainly be about cost savings – the two discount carriers operate in many of the same cities. But for Southwest, it will also mean serving markets it is not in, and that includes international for the first time.

AirTran currently flies to a few places in Mexico, Aruba and Jamaica and this acquisition takes Southwest into a new direction. In addition, it gets into Atlanta via this acquisition – right into Delta Airlines’ backyard. Toss in Miami and Washington Reagan. And an expanded presence in New York at LaGuardia airport. And you can see why this was such an attractive target for Southwest.

Blockbuster, the video retail chain that has watched its business become decimated by online video and DVD rentals, has two big problems on its hands. One is its balance sheet. The other its business model. It made a move to fix one of them today.

Blockbuster filed for Chapter 11 bankruptcy protection and with that filing, will wipe out all of the existing debt on its books. Existing senior debt holders will get all of the equity in the new company. Subordinated debt holders, preferred shareholders and common stock holders get nothing – The sub debt holders may kick up a little fuss over that treatment. The senior debtors also agreed to led a new $125 million to the company.

While the Chapter 11 takes a lot of pressure off the balance sheet, it doesn’t do a thing for the company’s broken business model. It has tried to get into the online business, but it is a late comer to the game. NetFlix stole the mail DVD rental business from them. And companies like Apple and NeFlix have figured out the online rental model where movies and TV shows are delivered to your computer. The real question for Blockbuster is what part of the rental space is left for it?

Looking to own a piece of the FBI? How about the IRS? Or the Border Patrol? Ok, it’s not exactly owning a part of one of those agencies but instead, a share of a company that holds leases to buildings housing those agencies.

The new company is called US Federal Properties Trust and it is proposing to sell 13.75 million shares of stock at a price from $19 to $21 each. It will be a real estate investment trust.

The company’s reason for being is to construct or buy buildings that it then leases to various federal government agencies. Commercial real estate still hasn’t recovered and there remains concerns about the default and delinquency rates. But you have to think the federal government and its agencies are somewhat immune to that. At least at a time when you an administration that doesn’t seem interested on slimming down government. So, if you want real estate as part of your portfolio, this could be an interesting option.

A good indicator of whether the economy is really recovering is the cruise industry. There aren’t too many more discretionary spend items than a ticket for a ride on a cruise ship. Carnival Cruise today reported that third quarter earnings rose 22%. The gains were partly fueled by lower costs but much of the gains came on revenue gains – the company’s North American boats saw a 10% increase in the latest quarter versus a year ago. And Europe saw a 1% rise.

Clearly, the company s seeing a rebound from a vicious pounding it took during the recession. But it is also clear that it needs promotions like the one above to convince people to pack their bags and head out for a cruise.

When we think of technology, things like iPads or incredible smart phones or those incredibly small but good cameras come to mind. Not bland things like storage. But data storage and analyzing tons of data being stored are two of the hottest areas these days in technology.

IBM became the latest company to express an interest in data storage and analytics with its offer to buy Netezza for $1.7 billion. One of the attractions for IBM could be that Netezza apparently not only knows its business, but knows how to it much more cheaply than others. As the company says on its website:  ”Think of Netezza as a Ferrari, with the price and efficiency of an economy car.”

The question is whether other companies will bid up for the business, taking the economy out of this economy car and making it more fully priced.

For the U.S. Treasury Secretary, there are probably no fun days and less fun days. Maybe history will look more kindly, but it’s tough sledding right now.

Today was likely one of those less-fun days for Treasury Secretary Timothy Geithner. He had to appear before angry committees of the Senate and House of Representatives and tell them why retaliatory measures against China for controlling its currency are not the way to go.

Today must have been as much fun for Geithner as heading to Capitol Hill to defend the big bank bailouts. Actually today was probably less fun. Because there are defenses of bank and AIG bailouts, however unpopular they have become from a rear view mirror view.

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Here’s another view on a key question for the U.S.: how much of the stubbornly high unemployment rate represents structural issues rather than simply an economy bumping along at a too-low growth rate to absorb new entrants and make a dent in those already out of work.

First, some fast background. In late August, we cited a couple of expert views of the structural problems  contributing to the morass. Manpower Inc., the temporary employment firm, released a global survey that cited an acute shortage of skilled production workers in many advanced-economy countries, including the U.S. and Germany.

Meanwhile, Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said a skills mismatch might account for up to one-third of the joblessness reflected in the 9.5% U.S. unemployment rate. The Fed “does not have the means to transform construction workers into manufacturing workers,” he said.

So, when Federal Reserve Bank of St. Louis President James Bullard last week joined editors and reporters of Dow Jones Newswires and The Wall Street Journal for a conversation about monetary policy and the economy, it seemed reasonable to ask his view of the structural employment issue.

“At least some part of unemployment is structural,” Bullard said. The debate is about how much.

Bullard blamed the housing bubble.

The years-long, unsustainable escalation in housing prices did more than spark a global credit crisis, leading to deep recession. Bullard said it also led to a misallocation of resources for up to a decade, as workers across the country jumped into the construction boom and related employment streams, developing skills in areas where the demand has all but vanished.

And it wasn’t limited to construction workers or mortgage loan officers. Ripple effects would have included trucking companies whose businesses became too dependent on shipping housing related goods, to cite one example given by Bullard.

As for housing generally, Bullard said the bubble “has deflated.” That likely won’t mean any near-term gains in housing prices, Bullards said, but he added it was hard to see house prices going down a lot more from the low levels to which they already have sunk.

“It doesn’t do the chairman any good to have everyone sit around the table and tell him how smart he is” and that his policies are the right ones.

The chairman in question is Ben Bernanke, leader of the U.S. Federal Reserve. The speaker is James Bullard, president of the Federal Reserve Bank of St. Louis, who spoke today with a group of reporters and editors from Dow Jones Newswires and The Wall Street Journal.

The quote was a partial response to a question from this columnist, who offered the notion that Bullard seemed to be the pre-eminent member of a small club of central bank policy makers who have lately spoken more forthrightly on pertinent issues, such as quantitative easing, than is the tradition among central bankers.

Late last year, we referred to Bullard as a breath of fresh air for that very practice. And the recently installed president of the Federal Reserve bank of Minneapolis, Narayana Kocherlakota, sprinkled a recent speech with provocative talk about structural problems in the U.S. labor market, among other issues. Meanwhile, the president of the Federal Reserve Bank of Kansas City, Thomas Hoenig, has become the lone serial dissenter, insisting the economy is healthy enough to survive merely easy monetary policy, rather than the emergency zero short rates that we have had for some one and three-quarter years.

Substantively today, Bullard repeated his view that the Fed needs to stand ready to take further action if the economy falters and already below-target inflation dips more dangerously towards deflation. He believes the best way to achieve this would be through incremental purchases of Treasury securities. He said he doesn’t think further action will be needed.

Those views areen’t very different than those expressed recently by the aforementioned chairman, Bernanke.

Citing his own bona fides that include 20 years of monetary policy work (and two-plus years as the St. Louis Fed leader), Bullard said today Bernanke is not fazed at all to hear different ideas about the state of the economy and potential Fed responses.

As for outreach, much appreciated by journalists and of real value to all interested citizens, Bullard said the Fed needs buy-in to have effective policy.

“These are extraordinary times for monetary policy,” Bullard said, making it incumbent on people in the system to explain things as best they can. Bullard is currently a voting member of the policy setting Federal Open Market Committee.

Indeed, those policies will be more effective if they are better understood by the public, he said.

Another part of that impudent question went something like this: had there been any pushback in Washington against Bullard’s plain speaking. There’s been “no pushback at all,” he said.