Friday, December 24, 2010

SALES SEASON ROUNDUP

By Annaly Capital Management

Seasonally adjusted greetings to Annaly Salvos readers around the world!

In the commercial spirit of the season (and a day early for our blog post this week), we thought we’d go down a level from the headline retail sales numbers, which have been trending strongly of late. In November, retail sales rose 0.8%, and October and September were both revised upwards. Many economists are pointing to the relative strength of this three-month set to predict a decent 4th quarter GDP number. Macroeconomic Advisors has raised its estimate to over 3%. “The report on retail sales through November,” they write, “was much stronger than expected, and even with offsets to our assumptions for imports and inventories, we revised up our current-quarter tracking forecast of GDP growth by four tenths on this report.”

The results for selected line items were consistent with the theme that Americans are starting to spend a little bit more on things that fall more into the “discretionary spending” category, while cutting back on most purchases related to buying new houses. So to begin at the top, total retail sales (less food and autos) were approximately $338 billion at a seasonally adjusted rate in November, up 8.1% from a year ago and within shouting distance of the cyclical peak of $342 billion in November 2007. (All retail sales data are through November 2010.)

Sales at furniture and home furnishing stores, which rose along with the strong housing market, are still languishing below the cyclical peak and bumping along the cyclical trough.

Likewise, sales at electronic and appliance stores, which we would put in the same general “new home sales” category as furniture, are also skittering along the cyclical bottom.

In contrast, building materials, garden equipment and supply dealers, more reflective of the do-it-yourself category of housing-related consumption, are registering double-digit year-over-year sales growth. After the collapse in this category’s sales over the last two years, and with prospects for the housing market still weak, perhaps people have capitulated on maintenance and upgrades.

Recreational purchases are rising faster than the cohort. Sporting goods, hobby, book and music stores are rising impressively on a year-over-year basis, perhaps reflecting the trend towards staycations and the tentative beginnings of the resumption of discretionary spending.

Likewise for the “miscellaneous” category of retail sales, which encompasses stationery, gift, novelty, souvenir and used merchandise stores. They are rising at a double-digit year-over-year pace.


The lump of coal in the sales stockings is new home sales, which are still at generational lows after the mid-decade top. The population of the United States has about doubled since the 1960s, and yet new home sales are less than the run rate of that era. Moreover, it is the first time that new home sales have continued to decline after the official end of a recession. The question before the market is whether or not we can have a sustainable recovery without the important contribution of the housing sector.


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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The opinions of all guest authors or contributors can and will differ from those of Mr. Roche. These opinions do not necessarily represent the opinions or investment decisions of Mr. Roche. The author(s) may or may not have a position in any security referenced herein and may or may not seek to do business with one another or companies mentioned via this website. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

A brief note on comments – The increase in users in recent months has resulted in an increase in unproductive comments. Any user who engages in the use of racial epithets or uses the comment section as a place to insult other users will be banned from the site. The comment section is welcome to all readers who are interested in asking pertinent questions and/or engaging in thoughtful, intelligent, and productive debate. In short, just be nice. Thanks.

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INFLATION? WHAT INFLATION?

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23 December 2010 by TPC 34 Comments

Well, I think it’s becoming pretty clear where the commodity price inflation is coming from – China and genuine economic strength.? The entire inflationist argument in the United States has been pretty much dead wrong for over two years running – whether you believed in hyperinflation, high inflation or default due to “money printing” you have been well off the mark.? This morning’s PCE prices data was just one more sign that disinflation rules the day and deflation remains the greater risk in the United States (via the Cleveland Fed):

“The Personal Consumption Expenditure (PCE) price index rose at an annualized rate of 1.1 percent in November, compared to a 2.0 percent increase in October. Excluding food and energy prices (core PCE), the index rose 1.0 percent during the month and is up just 0.8 percent on a year-over-year basis. After excluding non-market-based items—such as financial services furnished without payment—the core PCE price index rose 1.1 percent in November, offsetting a 1.1 percent decline in October, and is up 0.8 percent over the past year.”

N.B. – Three’s still little to no sign that inflation is working its way into the system via QE2 (although I do believe inflation fears have contributed somewhat to the surge in commodity prices). Despite all of the incessant shrieking over “money printing” and other inaccurate descriptions of QE and its impact on the economy there is still almost no signs thus far that inflation is making any sort of sustained pick-up.? And that’s not surprising to anyone who actually understands that QE is a non-event.

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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The opinions of all guest authors or contributors can and will differ from those of Mr. Roche. These opinions do not necessarily represent the opinions or investment decisions of Mr. Roche. The author(s) may or may not have a position in any security referenced herein and may or may not seek to do business with one another or companies mentioned via this website. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

A brief note on comments – The increase in users in recent months has resulted in an increase in unproductive comments. Any user who engages in the use of racial epithets or uses the comment section as a place to insult other users will be banned from the site. The comment section is welcome to all readers who are interested in asking pertinent questions and/or engaging in thoughtful, intelligent, and productive debate. In short, just be nice. Thanks.

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Conan Issues Apology Over Rudolph Snafu

Nellie Andreeva

Last night, we were the first to point out the striking similarities between a video on Conan last night about Sarah Palin shooting Rudolph the Red-Nosed Reindeer and a similar skit on Jimmy Kimmel Live 2 weeks ago. Now, Conan O'Brien has issued a video apology to the folks from Jimmy Kimmel:

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Late-night Ratings: Leno & Fallon Hit Highs In Viewers, 'Nightline' Takes Season Lead

Nellie Andreeva

NBC won three nights in primetime last week, and its ratings gains also carried over to late-night. Both Jay Leno (4.2 million viewers) and Jimmy Fallon (1.9 million) hit season highs in total viewers. for the week of Dec. 13-17. Leno also topped Letterman and Nightline/Jimmy Kimmel in every key category and also prevailed over Conan O'Brien's TBS show (1.1 rating vs. 0.7) in adults 18-49 for a fourth straight week. Fallon too topped Ferguson and Kimmel in every major category.

Leno widened his margin of victory over Letterman in 18-49 to 22% in viewers (1.402 million vs. 1.149 million), up from a 3% win for the same week last year when Conan was the host of The Tonight Show. Similarly, Fallon topped Late Late Show for the week by 25% (861,000 vs. 689,000), up from last year's 3%.

Versus the first 13 weeks of last season, Tonight is matching its year-ago 1.0 rating in adults 18-49 and is 6% below its year-ago 18-49 viewership, while CBS' Late Show is down 10% in rating (0.9 vs. 1.0) and down 14% in 18-49 viewers. In total viewers, Tonight is up 52% versus last season, Late Show is down 15%.
ABC’s Nightline was second for the week among total viewers (3.87 million) and adults 18-49 (1.24 million). Season-to-date, Nightline ranks in first place among viewers and A25-54, the first time the newsmagazine has been in first place at this point in the season since at least the 1993-94 season when the Late Show with David Letterman began on CBS.

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FX OUTLOOK 2011

US Dollar:

2010 was what we called a year of 2 halves for the Dollar. In the first half of the year, the Dollar gained from strength to strength as investors sought a safe haven from the Eurozone debt crisis. At the height of the crisis, Dollar Index went above 88 on risk aversion flows. The second half of 2010 saw the reversal of the Dollar’s fortunes. Markets turned their focus on the Fed’s plan to carry out more quantitative easing and feared the easing measures would bring down the Dollar. In November this year, the Fed announced that it would repurchase $600 billion of long term treasuries for the next 8 months. These purchases would be financed by printing more money and investors started to flee from the Dollar. At the height of the Dollar dumping frenzy, Dollar Index fell to almost 76 levels. It has since rebounded on improving US economic data.

For the outlook in 2011, we think that this could be the year where we will see the steady devaluation of the Dollar. The easy monetary policy by Fed which boosted asset markets in short term, will come back to haunt in the mid-to-long term. Basic economics dictate that excess liquidity chasing a fixed supply of goods and services will bring about inflated prices and weaker purchasing power. While we hold a long-term view that the Dollar will weaken, we continue to see the Dollar being favored in the coming few months as market participants are still preoccupied on sovereign debt issues in other Euro-zone nations like Spain and Portugal. The recent rate cut sprees by rating agencies like S&P, Fitch and Moody’s on Eurozone nations would likely further improve demand for refuge currency like the Dollar. However, US is not free of problems. With the nation’s debt swelling to more than US13trillion (or 93% of GDP) and loose monetary policies, downside pressures on the Dollar might occur once the Eurozone’s problems become less glaring.

Euro:

If there was any award for the currency that hogged the limelight in 2010, the Euro would have won the award with ease. 2010 saw the bailout of Greece and Ireland as these nations struggled to stay solvent. Euro, the shared currency among 16-nations, suffered as the European Union (EU) and International Monetary Fund (IMF) struggled with solutions to stop the sovereign debt crisis from spreading to other nations. Yield spreads for 10-year Greece, Ireland and Portugal bonds against German bunds reached record levels, implying that investors are demanding a bigger premium to take on the risk of buying Greek, Irish and Portuguese debt. Even healthier nations like France were not spared. The cost to insure French government tripled in 2010, according to data provider CMA.

The outlook for Euro in 2011 may not be as bleak in 2011 as most investors have anticipated. While the PIIGS (Portugal, Italy, Ireland, Greece and Spain) nations continue to be in the media for possible sovereign debt defaults, we are cautiously optimistic that the combined efforts by EU and IMF will eventually receive some level of success and help contain the contagion. The Euro may continue to be weak in the first half of 2011 as investors will scrutinize Spain and Portugal closely for signs of sovereign debt default. Credit rating agencies will likely add fears in the markets by putting some of these troubled nations under downgrade review. However, we think that the funding mechanisms and experience the region have in handling Ireland and Greece bailouts could come in handy should other nations need an eventual bailout. Hence, Euro will probably see a better second half when investors regain confidence that the region’s crisis can be contained.

Japanese Yen:

In the battle between safe haven currencies, 2010 was the year where the Yen prevailed over the US Dollar. The Yen was preferred over the Dollar as the quantitative easing measures embarked by the Fed diminished the Dollar’s attractiveness as a safe haven currency. As such, we saw USDJPY reaching a 15-year low at the 80 levels during late October 2010. However, the surge of strength in the Yen was not viewed favorably by the Japanese government and export-based companies. As the profitability of major blue-chip companies in Japan depended on export demand, the strength in Yen eroded the profits derived from overseas operations. For the first time in 5-year, Bank of Japan (BOJ) intervened in the currency markets by unilaterally selling Yen into the market, in bid to weaken the currency. The impact of the intervention was limited as USDJPY consistently traded below 85 for the rest of the year.

For the outlook in 2011, we may not witness the repeat of Yen strength seen in 2010. USDJPY is positively correlation to US treasury yields. When US treasury yields drops, USDJPY tends to comes under downside pressures. US treasury yields drops when investors are not too optimistic about the global economic health. With the recent tax cuts bill signed by President Obama and the Fed’s QE measures, economic indicators show improvement in US labour, manufacturing and consumption. Yields have come off the lows and we see that the Yen’s strength is diminishing. Furthermore, with FOMC rates and BOJ benchmark rates similar, there is less motivation for carry trades to take place. Consequently, we could see further upsides to USDJPY (or Yen weakening against the Dollar) in 2011.

Aussie:

Aussie had a remarkable year in 2010 as it reached parity against the Dollar. The Australian currency was buoyed by very positive economic growth and healthy labour markets. The Reserve Bank of Australia (RBA) had to hike benchmark rates 4 times this year in bid to stem the red hot economy. Rich in natural resources, Australia is a major exporter of agricultural products, minerals and energy-related commodities. The Aussie, dubbed as a commodity currency, benefited from the meteoric rises in commodity prices this year.

For the outlook in 2011, we remain optimistic on the Aussie. We continue to see the currency benefiting from further commodity price increases. China, the world second largest economy, the main importer of Australian resources, is expected to continue importing large quantities of resources from Australia. Furthermore, analysts are anticipating further rate hikes by RBA in the year of 2011. The anticipated rate hikes would likely attract more foreign capital inflows and boost the currency’s strength further.

Chinese Yuan:

This year, we saw the de-pegging of the Yuan against the Dollar. On June 19, 2010, the People’s Bank of China released a statement indicating that they would “proceed further with reform of the Yuan exchange rate regime and increase the Yuan exchange rate flexibility.” Since then, the Yuan had a steady appreciation against the Dollar. China’s GDP for the latest quarter came in red-hot at 9.6%, while inflation was high at 5.1%. In bid to stem inflation, China has raised benchmark rates once and the bank’s reserve requirement ratio (RRR) 5 times.

For the outlook in 2011, we are anticipating continued preference of Yuan over the Dollar in the coming months. The Chinese government is very worried about the inflation in raw materials and food prices. To curb inflation, it can choose between quantitative or monetary tools. While it seems intuitive for Chinese government to allow the Yuan to appreciate freely against other currencies in order to curb import inflation, China is dependent on exports for its economic growth and employment levels. A strong Yuan will affect the affordability of its exports. As such, we are anticipating China to employ rate hikes and RRR hikes instead to shore up excess liquidity. Those actions may attract foreign capital inflows but we think that the Chinese government will employ capital controls to ensure that the appreciation of Yuan will be gradual and manageable. We are estimating China’s GDP to come in at 9% for 2011.

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Oren Aviv Meets For Fox Marketing Job, After Joining Digital Artists Board

While we've been scattered to the winds today, reports have Oren Aviv possibly taking the co-president of marketing post at 20th Century Fox. Fox started a search after Pam Levine stepped down Tuesday after 16 years at the studio, but the job would be bigger than the one she held, more like chief creative officer. Insiders say that Aviv is by no means a sure thing. There is a "usual suspects" list of seasoned marketing execs that range from Valerie Van Gelder to Terry Press and Gerry Rich. After moving out of a marketing role to steer? production for Disney, will Aviv be content to step back into a marketing role and share the post with Tony Sella? Aviv has kept a low profile since leaving Disney early this year, but he resurfaced earlier this fall when he joined the Board of Directors of Digital Artists. Aviv has been advising them on digital content, production, creative, branding and strategy. He was brought in by CEO William Kendall and Chief Creative Officer William Kendall.

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Wednesday, December 22, 2010

Weinstein Moves Up 'Blue Valentine' Release To December 29

Mike Fleming

EXCLUSIVE: I've learned that The Weinstein Company will move up the release of Blue Valentine two days to Wednesday, December 29. The goal is to get a two-day head start on that New Year's holiday weekend.?The film will start on one screen in New York and one in Los Angeles, with another theater added in Gotham on December 31. The pic will then expand into 10 markets on January 7.

The NC-17 rating that was slapped on the film MPAA and then rescinded on appeal has heightened awareness of the Derek Cianfrance-directed relationship drama. Also factoring in the decision is the performances of Ryan Gosling and Michelle Williams getting Golden Globe nominations for their work playing a couple in a disintegrating marriage. It is fascinating that the film finally gets released in theaters, almost a full year after it debuted at Sundance Film Festival last January. TWC acquired it shortly after.

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IF PAST IS PROLOGUE….

Home ? Chart Of The Day, Most Recent Stories, Strategy Lab

22 December 2010 by TPC 5 Comments

Past is prologue….At least that’s what strategists at CitiGroup are saying.? In a recent note they highlighted the 3 past market environments that most closely resembled the current environment.? If past is prologue then Citi is working under an incredibly contrarian framework.? Unlike just about every investor in the world right now (and every other analyst), they believe January and 2011 could have some surprises in store for us:

  • Over the course of this year we have constantly referred to what are the only 3 overlays that we think fit with the present price action in the equity market.
  • Our favourite for some time has been the “spooky chart” of 1929-1939, which we have been watching since 2003.
  • A very close 2nd – but fast becoming a potential number 1 choice has been the overlay of 1966-1976.
  • A relatively distant 3rd has been the chart of the 1906-1909 period
  • It is these charts that have led us (As per our charts of Christmas) to surmise that 2011 will not be a good year for the Equity market, just as all 3 suggested that 2010 would not be a bad year.

Bottom line: Our favourite overlays suggest for the DJIA.

  • The peak may be posted as early as the opening days of January 2011 (possibly even 3rd January as per the other 3 examples) with a down month in the region of 5%.
  • We will see an intra year bear market next year (fall of over 20%).
  • We will close the year down double digit percentages (Plus/minus 16% down).
  • We could be waiting a further 6 to 8 years to eventually see the DJIA regain the 2007 highs on a yearly close basis.

What will the catalyst be???

Our bias is likely 1 of 2 things.

  • The bond market falling sharply as it did in 1977 sending yields higher and fuelling inflation or supply fears or both.
  • Europe imploding. While this could stress our view on the dollar fixed income and commodities, this dynamic still supports our bearish equity view.

Now there’s a contrarian analyst report from Wall Street for you….

Source: Citi

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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The opinions of all guest authors or contributors can and will differ from those of Mr. Roche. These opinions do not necessarily represent the opinions or investment decisions of Mr. Roche. The author(s) may or may not have a position in any security referenced herein and may or may not seek to do business with one another or companies mentioned via this website. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

A brief note on comments – The increase in users in recent months has resulted in an increase in unproductive comments. Any user who engages in the use of racial epithets or uses the comment section as a place to insult other users will be banned from the site. The comment section is welcome to all readers who are interested in asking pertinent questions and/or engaging in thoughtful, intelligent, and productive debate. In short, just be nice. Thanks.

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Is Avi Lerner Friend Or Foe To Indieprods?

Two European sales companies -- British based Hanway Films (the sales company of British producer Jeremy Thomas) and Paris-based Celluloid Dreams -- are calling for Avi Lerner to step down as vice-chair of the Independent Film and Television Alliance. The problem stems from accusations that, at the same time he's helping run the organization pledged to be the "voice and advocate for?independents worldwide", some?companies which Lerner controls?are apparently exploiting those same indie filmmakers by allegedly owing them hundreds of thousands of dollars.?

Lerner is co-chairman of Nu Image,?which in 2007 bought the U.S. distributor First Look which is being sued by around 20 other film companies. Hanway Films' head of business affairs Richard Mansell?says his firm is owed nearly $500,000 by First Look,?and pledges to soon pursue Nu Image through the courts in Los Angeles.?Celluloid Dreams has won a court case against First Look for over $720,000 still owing from the U.S. release of Quentin Tarantino-starrer Sukiyaki Western Django, but?hasn't seen a dime yet.?CEO Hengameh Panahi, one of Europe’s most respected sales agents,?explains: “You can’t exploit somebody’s film and then not pay people.”?IFTA would not comment on what it says are legal matters involving its members.?Hanway Films' Mansell says: “How can he represent the interests of an organization which is meant to adjudicate on and penalize wrongdoing by distributors? It makes IFTA itself a joke. If the organization had any integrity it would ask him to step down. IFTA is not being asked to comment on a legal dispute between its members: it is being asked to comment on activity subject of a court decision.”

Here's what happened: First Look went bankrupt last month. But its movie assets are still controlled by Nu Image through its Millennium Entertainment subsidiary. Fears are that,?by having the related company Millennium Entertainment take over First Look’s assets, Nu Image will escape its obligations.?

As for Avi Lerner, whose company Millenium Films recently ran afoul of the Producers Guild of America,?tells me he’s unaware of any UK court judgments against him.?As for?anybody who has one stemming from First Look, Lerner tells me: “They’ve got a judgment against a company that doesn’t exist, so who cares? All I wish them is good luck and try to collect the money." Lerner stresses he never had any involvement in the day-to-day running of First Look, and what he discovered horrified him.?“I made a big mistake by buying this company. I am the first one to fight for the rights of the indie producer. If First Look or Nu Image has done wrong, I believe in honesty and I believe in putting all the facts on the table." Lerner says he decided to?put First Look in?bankruptcy?because he didn’t want to spend the rest of his life shuttling from court to court.?As for Hanway Films and Celluloid Dreams calling for him to quit the IFTA, Lerner says he's never heard of the pair. "Tell those two producers?next time there’s an election for the vice-chairman?not to vote for me.”

British producer Richard Holmes is still another?indieprod who says he’s been burned dealing with First Look. Holmes won a court judgment in London at the beginning of this year ordering the U.S. distributor to hand over $176,000 owing from the American release of his Irish comedy Waking Ned. He’s now trying to get that judgment enforced and calls the?situation?"a disgrace”. As Holmes?claims, First Look is?“still trading as Nu Image/Millennium and attracting other producers into their quagmire.”

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OSCAR: Critics Keep Friending 'The Social Network' While Picture Rivals Keep Fretting

Pete Hammond

In an era where review aggregation sites like Rotten Tomatoes and Metacritic have erased individuality and replaced it with a percentage statistic that can be quoted? more easily than the words of Roger Ebert or other?name reviewers, we are seeing a pack mentality emerge with critics groups come awards time. No matter which region of the country, they all seem to be moving in step with each other for the most part. For David Fincher this has to be especially sweet. Just two years ago he sat on the sidelines as nearly all these groups lined up?for Danny Boyle and Slumdog Millionaire against his highly touted The Curious Case of Benjamin Button. When Oscar time rolled around there was no question which film would win. Now it’s hard to find a single critics group that doesn’t want to friend The Social Network -- and rivals in this still very fluid race are feeling the pain, no doubt trying to figure out how to counter it all before it’s too late.

While most Hollywood offices are shutting down for the holidays,?Sony Pictures'?awards campaign?crew are working overtime?for contender The Social Network?in advance of next week's mailing of Academy Of Motion Picture Arts & Sciences nomination ballots.?That’s why director?Fincher, who was supposed to be on a 2-week holiday break from shooting the studio’s?The Girl With The Dragon Tattoo in Sweden, actually?isn’t getting much of a break at all. Last week, he was in New York doing a Q&A moderated by?pal Spike Jonze. And now Tuesday and Wednesday he is on the Sony lot in Culver City for 3 more sessions?aimed at actors, editors, sound designers, cinematographers, and other various voting groups who are still in town and not preoccupied by the?holiday. I am told Fincher only agreed to do these Q&As in order to support various crew and cast members who will be appearing with him.

An evite "Save The Date" notice also went out? for a January 6th DVD/Blu Ray “launch event” for The Social Network -- although some voting groups already got a taste of it when Sony sent yet another For? Your Consideration DVD, this time featuring the movie and a 2-hour second disc full of supplementary features. Even though groups like the BFCA and HFPA have already received screeners, this seems like a smart move; it?freshens the film and adds extras to give it another whirl in the player over the holidays timed just before final voting gets underway. Sony can’t do the same for the Academy, however:?sending anything other than the movie is against the rules.

Why such a hard?sell??While it made a huge splash when it opened?on October 1st, The Social?Network?maybe?faded a bit in Hollywood's awards firmament when other later entries like The King’s Speech and The Fighter hit the spotlight. Now it’s roaring back with help from the same critics groups who first championed?No Country For Old Men, Slumdog Millionaire, and The Hurt Locker?creating a consensus and perhaps influencing the vote?for the last 3 consecutive Best Picture Oscar winners. Time Magazine’s selection for 2010 Person Of The Year of Mark Zuckerberg, the real life inspiration for Aaron Sorkin’s script,?certainly also hit just at the right time for Sony’s?re-energized awards campaign.

No film has been honored more this season or won more critics groups' Best Picture awards than The Social Network in what has been the most wide-open race in years.?In fact, no other movie has won any Best Picture award from critics (okay, except the San Diego?reviewers who courageously broke ranks to give it to Winter’s Bone). Whether it? has been critics orgs in Boston,?Chicago, Dallas/Ft. Worth, Detroit, Florida, Houston, Indiana, Las Vegas, Los Angeles, New York,?San Francisco, St. Louis, Toronto, Washington DC, online, offline, or at the “Satellite” awards, the result is always the same: The Social Network = Best Picture. Of course not every friggin’ state or city with a “critics society” has weighed in yet. But how much do you wanna bet that Phoenix, Iowa, Kansas City, Oklahoma, and Vancouver??follow like lemmings. Anyone wanna guess which way Central Ohio and Utah are leaning?

It all started at the beginning of the month when the National Board of Review named?The Social Network?its Best Picture -- and they don’t even call themselves critics. We’re not sure who they actually are but they jumped on board first. Most recently,?the London Film Critics showered it with nominations. And of course?the high profile televised awards shows --?NBC’s Golden Globes from the?Hollywood Foreign Press Association and VH1’s?Critics Choice Movie Awards of the Broadcast Film Critics Association (I am a member there) --??also have it in contention big-time for their January ceremonies. Even the African American Film Critics Association which?handed out its main acting awards to Halle Berry, Michael Ealy, and Kimberly Elise and included films like Frankie & Alice, For Colored Girls, Blood Done Sign My Name, and Night Catches Us in its Top 10 list -- but still fell right in line when it came to naming Social Network its Best Picture?despite not much?diversity in its cast, as I recall.

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RESERVE CURRENCY ROULETTE

By Annaly Capital Management

Following up on our post from Friday, in which we illustrated the currency reserve and GDP market share of a number of different countries, a kind reader asked a question: “I wonder what percentage of the world’s foreign exchange reserves the dollar had when it was redeemable among central banks in gold?”

Our source for the graph, the IMF, only showed data going back to 1995, so we dug a little more and found the answer in a paper written by Barry Eichengreen of the University of California in 2005. The answer: The dollar’s status as a reserve currency was even more dominant back then. In 1973 it accounted for 84.5% of the world’s foreign exchange reserves. (Today it stands at 62.1%.)

In Eichengreen’s paper, “Sterling’s Past, Dollar’s Future: Historical Perspectives on Reserve Currency Competition” (the paper can be purchased here, and it’s worth the $5), he argues that the hegemony of the dollar during the second half of the 20th century has some obvious roots: America’s dominance of global trade and payments in a period when Europe and Japan were still licking their wounds, the liquidity of the US financial markets and the capital controls put in place by other potential reserve-currency competitors. Britain’s sterling was the reserve currency of choice in the first half of the 20th century, largely for the same reason (between 1860 and 1914, according to Eichengreen, about 60 percent of world trade was settled in sterling), but this status waned as Britain’s economic prowess declined.

As his paper’s title suggests, Eichengreen is concerned about the future of the dollar’s status. He concludes that the dollar may end up sharing reserve status with another currency, likely the euro, but that the yen and the renminbi probably wouldn’t make the cut—the yen because of Japan’s poor demographics and the yuan because of China’s capital controls and its lack of credible political/financial infrastructure.

What could possibly tip the world away from the dollar? In a word, inflation. “[W]hether the dollar retains its reserve currency role depends, first and foremost, on America’s own policies. Serious economic mismanagement would lead to the substitution of other reserve currencies for the dollar. In this context, serious mismanagement means policies that allow unsustainably large current account deficits to persist, lead to the accumulation of large external debts, and result in a high rate of U.S. inflation and dollar depreciation. Clearly, this would make holding dollar reserves unattractive. This is a lesson of British history in the sense that an inflation rate that ran at roughly 3 times U.S. rates over the first three quarters of the 20th century, in conjunction with repeated devaluations against the dollar, played a major role in sterling’s loss of reserve currency status.” Absent sustained periods of inflation, says Eichengreen, the stability, liquidity and vibrancy of the US economy should enable the dollar to maintain its reserve currency status.

So, is the US engaged in prudent economic policies or “serious economic mismanagement”? We probably won’t know the answer to this question for some time. In the meantime, the market has been re-pricing the yield on sovereign debt around the world. The graph below looks at selected sovereign rates since Ben Bernanke’s speech in Jackson Hole last August, in which he first suggested the possibility of another round of quantitative easing. Ever since, market participants have been deliberating about the possible ramifications—including the inflationary prospects—of this policy decision.


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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The opinions of all guest authors or contributors can and will differ from those of Mr. Roche. These opinions do not necessarily represent the opinions or investment decisions of Mr. Roche. The author(s) may or may not have a position in any security referenced herein and may or may not seek to do business with one another or companies mentioned via this website. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

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THE “BERNANKE PUT” AND THE FED’S TRILEMMA

“When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done” – JM Keynes, General Theory of Employment, Interest and Money

Now that the equity market has rallied back to its pre-Lehman Brothers levels it’s becoming fashionable to shower the Federal Reserve with praise for their actions over the last few years.? But let’s not forget that we’ve seen this movie one too many times before.

Over the last 15 years the Federal Reserve has essentially become a price fixing mechanism for an economy that has long struggled with severe structural problems.?? When problems have arisen in the economy the U.S. central bank has intervened to lessen the blow to the economy.? In theory, this was intended to reduce the volatility of the business cycle.? Unfortunately, many of their policies have simply exacerbated the problems or helped to generate even greater imbalances.

This all started well before the housing bubble or the Nasdaq bubble.? After the 1987 crash Alan Greenspan was quick to reassure investors that the Fed was there to bolster markets.? This “Greenspan put” was mastered with the bailout of LTCM as the Fed intervened in markets to make sure that losers didn’t have to become losers.? LTCM was the epitome of failed economic theory at work in markets.?? A group of brilliant economists believed they had discovered the path to minting money in financial markets.? On paper their equations appeared flawless.? In reality, they were a disaster waiting to happen.? In one fell swoop this collection of geniuses proved that EMH was flawed.? And not two years later the Greenspan Put helped contribute to a market bubble like the United States had never seen.? In the words of David Tepper, it was a “win win” market – or so they believed.

For 18 years Alan Greenspan ran the nations central bank based on theories and beliefs that he later referred to as being “flawed”.? Despite this, much of his work influences the current central bank.? In fact, today’s Fed is more involved in markets than Greenspan ever was.?? To some extent this tinkering with markets is justified.? The role of lender of last resort is important, but the modern day Fed has taken its role to an entirely new level.? They are no longer just the lender of last resort – they have become the bailout mechanism of the capitalist system and ultimately a plaque build-up in a system that is increasingly unhealthy.? The Greenspan Put has become the Bernanke Put.? And so the financialization of our markets continue.? In fairness to Mr. Bernanke I can’t entirely place the blame on him.? Due to political ignorance of our monetary system the Federal Reserve has been given the overbearing responsibility of being lender of last resort while also attempting to establish full employment and price stability.? Talk about a trilemma if there ever was one….

What these men haven’t stopped to ponder is whether any of this intervention was actually healthy for the markets.? Perhaps the market crashed in 1987 because an irrational 40% climb in 8 months had created instability?? Perhaps the Nasdaq never should have approached 5,000?? Perhaps LTCM needed to fail?? Perhaps housing was never intended to be a speculative asset?? Perhaps these assets needed to be allowed to decline??? The result has been a slow deterioration in the foundation of the system with each and every bailout.? I recently described why these imbalances continue to pose such a serious risk to the economy as we weaken the foundation from which each subsequent boom is built upon:

“What I fear most about the current cycle is that we have not allowed the markets to sufficiently clear.? If that is the case you can think of the global economy like an obese man who fights to lose weight in an effort to fend off what is an almost certain heart attack.? After a multi decade binge he suffers a massive heart attack (think LTCM circa 1998).? The doctors save him by intervening, but they don’t actually help the man fix his inherent problems (dying internal organs and lack of discipline).? In the case of the economy this is global imbalances, structural flaws in the banking system and a lack of regulation.? The man vows to lose 50% of his total body weight, but after losing 20% of his total body weight he decides the process is too grueling and is taking too long.? A fast food restaurant opens up next door (hello government bailouts!).? He once again feels the need to stimulate his lust for food.? So, he binges again (think Greenspan 2001).? A new boom occurs before he ever becomes fully healthy.? Over the ensuing 7 years his body weight doubles.? He’s now 60% heavier than he was in 1998!? Of course, this is unsustainable.? His body begins to breakdown.? Before you know it he is suffering a total system failure (think Lehman brothers).? But again, thanks to modern medicine (or incessant Fed intervention) the man is once again saved.? Over the following year he loses 25% of his body weight.? It’s an arduous process and certainly not enjoyable, but it must be done.? The good news is he’s 25% lighter.? The bad news is he’s 20% heavier than he was in 1998 when he had his first setback.? Nothing has changed inherently.? He has the same failing internal organs and the same failing disciplines.?? But his next binge begins from a weaker starting point and a more dangerous level. You can imagine how this story ends.”

By continually creating a “can’t lose” market we have instilled a belief in investors and speculators that prices will not be allowed to sustain any sort of decline.? In August Ben Bernanke panicked because jobless claims briefly hit 450K.? He implemented an emergency round of quantitative easing.? Since then, his attempts to control the long end of the curve have failed spectacularly and the economic data since has proven that QE2 was never necessary to begin with (not that it would have done anything anyhow).? But what Mr. Bernanke has reinforced is this David Tepper “win win” mentality.? And it’s nowhere more apparent than it is in the commodity markets today.? After all, with an equity market and real estate bubble in less than 10 years where else can these speculators reliably turn to implement their Bernanke Put?? Some people say the Fed is not creating imbalances again, but I beg to differ.? The following charts show the imbalances that have reemerged in recent months as the Fed ensures that there are no losers:

(CRB Spot Index)

(CRB Metals Sub-Index)

(CRB Raw Industrials)

(CRB Foodstuffs)

Of course, there is a component of economic strength here.? I am not attempting to downplay the recovery.? It’s real and it’s here.? But as the past has proven, a bubbly market combined with a Fed that won’t let losers be losers, is a potent mix and an environment ripe for imbalances and instability.?? It could take years for these imbalances to fully play out on the world stage, but they are building and the Fed’s constant interference in markets has only made matters worse.

QE2 has proven that the Federal Reserve can substantially influence market prices without creating the positive result? (in this case lower rates) that it so desires.? In my opinion, this is proof that the Fed’s interference is not furthering the prosperity of the private sector, but is merely interfering with natural market forces while creating market disruptions and imbalances.? In the end, this does not help to smooth the business cycle and only helps contribute further to its instability and volatility.

The Federal Reserve’s only true purpose in the marketplace should be to serve as lender of last resort at its target rate.? This rate should be permanently maintained at zero, the natural rate of interest, so as to maintain price stability and reduce market interference.? This would not only reduce the Fed’s role in markets, but would help ensure greater output, price stability, eliminate the Bernanke Put and would substantially reduce the volatility/imbalances in the business cycle that have been largely generated by the Fed’s intervention.

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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The opinions of all guest authors or contributors can and will differ from those of Mr. Roche. These opinions do not necessarily represent the opinions or investment decisions of Mr. Roche. The author(s) may or may not have a position in any security referenced herein and may or may not seek to do business with one another or companies mentioned via this website. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

A brief note on comments – The increase in users in recent months has resulted in an increase in unproductive comments. Any user who engages in the use of racial epithets or uses the comment section as a place to insult other users will be banned from the site. The comment section is welcome to all readers who are interested in asking pertinent questions and/or engaging in thoughtful, intelligent, and productive debate. In short, just be nice. Thanks.

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Tuesday, December 21, 2010

Broadcast Nets Are Going For Genre And Period Dramas This Development Season, But Can Such Series Work On The Big 4?

Nellie Andreeva

Genre series are all the rage in cable with the success of AMC's The Walking Dead and HBO's True Blood, which have been breaking series records to rank as their network's top-rated series and become pop culture staples. A genre series, The Vampire Diaries, also is the highest-rated series on the CW, which has had continuous success in the sci-fi arena with veterans Smallville and Supernatural. But, with the exception of ABC's Lost, sci-fi, vampire, zombie and comic book-based series have struggled to attract sizable audiences on the major broadcast networks. That has not deterred the nets to heavily pursue such projects this development season. The 2 drama pilots ordered so far by Fox are both in the genre category: Locke & Key is based on Joe Hill's comic, and Alcatraz features missing Alcatraz prisoners who reappear in present day. Genre projects have also attracted some of the biggest writer-producers in town: Lost's J.J. Abrams is behind Fox's series Fringe and Alcatraz, David E. Kelley, who dabbled into sci-fi with Life on Mars, is developing a series adaptation of comic book icon Wonder Woman, Greg Berlanti co-created and is executive producing ABC's freshman superhero family drama No Ordinary Family, Fringe co-creators Alex Kurtzman and Roberto Orci are executive producing Locke & Key, and Battlestar Galactica's David Eick is involved in a series adaptation of The Hulk for ABC and Marvel.

ABC, the network that had the most recent genre drama success with Lost and has 2 such series on the air, No Ordinary Family and V, is making big bets in the field. What's more, it is looking to translate the genre movies' big success at the box-office to the small screen by bringing in the auspices behind some of the biggest genre feature hits. Melissa Rosenberg, the writer of the hugely popular Twilight movie franchise, is writing AKA Jessica Jones, a drama about a former female superhero based on a Marvel comic. Oren Peli, the writer-director of the blockbuster Paranormal Activity franchise, is behind a paranormal drama set in the Amazon, and Pan's Labyrinth and the Hellboy mastermind Guillermo Del Toro is partnering with Eick on the adaptation of The Hulk.

But can genre movies' box-office success be replicated on mainstream TV? For the most part, the answer seems to be no. The closest to a genre hit on the big broadcast networks these days is CBS' hit comedy The Big Bang Theory, which has geek overtones but is broad enough to attract wide audiences. But CBS' vampire drama Moonlight and horror drama Harper's Island and ABC's sci-fi series Flash Forward lasted a season each. The 4 genre dramas on the major broadcast networks right now, Fringe, No Ordinary Family, Human Target and The Event, attract the same average audiences of 5-6 million viewers as cable series The Walking Dead and True Blood. (Fringe's viewership is even lower, 4.5-5 million and will probably go further down when the show relocates to Fridays, but the series is a major DVR gainer, which brings it up on par with the others.) Maybe this is the ceiling for genre series no matter what type a network they are on. For a cable net, that is a great number but for a major broadcaster, it is way too small. Of course, there are those lightning-in-a-bottle cases like Lost and the first season of Heroes that transcend the core sci-fi fan base and enter mainstream, but long-running hit genre drama series on the Big Four like The X-Files seem to be a thing of the past. It doesn't help that most of those series are serialized, a genre that has been struggling mightily on broadcast TV.

Along with genre projects, the often serialized period and costume dramas are also in fashion at the broadcast networks this development season. ABC is developing an Pan Am-themed drama set in the 1960s with Jack Orman and Tommy Schlamme and a Romeo & Juliet adaptation set in Renaissance Italy written by Andrea Berloff; CBS is working on a reboot of The Wild Wild West from former CSI co-showrunner Naren Shankar and Battlestar Galactica developer Ron Moore; while NBC is shepherding a drama set at a 1960s Playboy club penned by Chad Hodge. Just like genre series, period and costume dramas have become staple on cable with AMC's?Mad Men and the upcoming Hell on Wheels, HBO's?Boardwalk Empire, Showtime's The Tudors and the upcoming?The Borgias, and Starz's Spartacus. But all recent attempts to launch such series on the broadcast networks have fizzled: ABC's Empire and Life on Mars and CBS' Swingtown barely lasted a season. And the CW's 1980s Gossip Girl spinoff didn't go beyond pilot stage. So when it comes to historic projects, history is not on the broadcast networks' side. But just like with genre dramas, the Big 4 are looking to write new history by taking a page from cable networks' book.

TV Editor Nellie Andreeva - tip her here.

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Monday, December 20, 2010

THE PROS AND CONS OF THE RECENT ECONOMIC DEVELOPMENTS

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20 December 2010 by TPC 0 Comments

There have been many important economic developments in recent months – many good and fewer bad.? In a recent research note Northern Trust nicely summarized the positive and negative developments in the last few months:

Positive developments:

  • Initial jobless claims show a distinct downward trend
  • Payroll employment continues to advance, albeit slower
  • Retails sales show widespread gains in November and the underlying trend is firming up
  • Net credit has risen in November, the third increase in the last five months
  • Higher Treasury market yields are a vote of confidence about the economy
  • Factory production has risen at a noticeable pace. Regional factory surveys in December were upbeat
  • Housing starts and permits for new single-family homes rose in November.
  • October Pending Home Sales Index posted a strong increase
  • The positive trend of the Index of Leading Economic Indicators supports forecasts of continued economic growth
  • The University of Michigan Consumer Sentiment Index rose in the early-December survey.


Negative developments:

  • The 9.8% unemployment rate is a major source of concern for policymakers
  • Sales of homes, both existing and new, declined in October and the elevated level of inventories combined with pressures from home foreclosures is holding down home prices
  • Auto sales held steady in November, after increasing in three out of the four months ended October

Source: Northern Trust

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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The opinions of all guest authors or contributors can and will differ from those of Mr. Roche. These opinions do not necessarily represent the opinions or investment decisions of Mr. Roche. The author(s) may or may not have a position in any security referenced herein and may or may not seek to do business with one another or companies mentioned via this website. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

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6 THEMES FOR 2011

As the new year rolls in it’s important to organize and plan for the important themes and events that could impact 2011.? Credit Suisse recently detailed their 6 dominant themes for 2011 and how they’re likely to influence markets:

(1) The rise and rise of the emerging market consumer remains the most dominant macro theme – for the third year in a row.

(2) Investors should focus on corporate spend areas in the stock market, one of our key themes since mid-2009. Corporate free cash flow, profitability and investment intentions are all abnormally high, while corporates have seldom been as under-leveraged. We believe corporates will want to focus on non-discretionary or short-cycle areas, i.e. areas where there is a relatively quick pay-back.

(3) Plays on abnormally low real interest rates: we believe that the monetary authorities in the developed world will keep real rates artificially low to facilitate the deleveraging of $6.3tn of G4 excess leverage. If real yields rise too far and threaten the economic recovery (which they would if QE2 ended, in our judgement) or if the fiscal authorities over-tightened, we believe QE would be renewed in the US – and via a weaker dollar would force other developed market central banks to respond.

(4) M&A is set to increase sharply

(5) Investors will pay more of a premium for both growth and pricing power. Growth will be at premium because the discount rate is likely to remain abnormally low (increasing the value of long duration earnings), while it is hard to see how this will be a normal recovery, with $6.3trn of excess leverage in the developed world, making growth more valuable. Companies with pricing power deserve a premium, given excess capacity of around 4% of GDP in the developed world on our estimates, increasing Chinese competition and rising input costs.

(6) Investors should avoid companies exposed to increased competition from Chinese companies.

Source: Credit Suisse

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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The opinions of all guest authors or contributors can and will differ from those of Mr. Roche. These opinions do not necessarily represent the opinions or investment decisions of Mr. Roche. The author(s) may or may not have a position in any security referenced herein and may or may not seek to do business with one another or companies mentioned via this website. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

A brief note on comments – The increase in users in recent months has resulted in an increase in unproductive comments. Any user who engages in the use of racial epithets or uses the comment section as a place to insult other users will be banned from the site. The comment section is welcome to all readers who are interested in asking pertinent questions and/or engaging in thoughtful, intelligent, and productive debate. In short, just be nice. Thanks.

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THE COMING MUNICIPAL BOND CRISIS

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20 December 2010 by TPC 3 Comments

The following segment on 60 Minutes this evening is a must see.?The segment covered the state and local funding crisis in the USA. Meredith Whitney was a special guest and predicted that the crisis would unfold in the “next 12 months”. Whitney says the states are susceptible to hundreds of billions in losses and local insolvencies could be widespread.

This is a particularly interesting development if it were to materialize.? Of course, municipal bonds have been very jumpy in recent weeks and as revenue constrained entities (unlike the federal government) the states have been hit particularly hard by the crisis.? The states are exactly like the nations of Europe so solvency is a very real concern here.? Their bloated budgets and out of control spending has created severe balance sheets concerns.? With a government that is leaning more and more towards small government it will be interesting to see if austerity impacts the US economy through the state funding channels.

We appear to have dodged a bullet in the form of maintaining a $1.3T deficit during this balance sheet recession (and through the coming calendar year), however, the risks at the state level remain largely unknown and difficult to quantify.? If the shortfalls are as large as Whitney believes it’s likely that we won’t have the political will for more bailouts.? Whitney believes the issues are potentially more frightening than the banking crisis:

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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The opinions of all guest authors or contributors can and will differ from those of Mr. Roche. These opinions do not necessarily represent the opinions or investment decisions of Mr. Roche. The author(s) may or may not have a position in any security referenced herein and may or may not seek to do business with one another or companies mentioned via this website. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

A brief note on comments – The increase in users in recent months has resulted in an increase in unproductive comments. Any user who engages in the use of racial epithets or uses the comment section as a place to insult other users will be banned from the site. The comment section is welcome to all readers who are interested in asking pertinent questions and/or engaging in thoughtful, intelligent, and productive debate. In short, just be nice. Thanks.

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OSCAR: Danny Boyle Q&A On `127 Hours'

Mike Fleming

While Slumdog Millionaire is remembered for its cache of Oscars and cast dancing through the end credits Bollywood-style, Danny Boyle’s real achievement was? drawing a global mainstream audience for a film that depicted such brutal moments as the mother of the young protagonists being beaten to death, and a child blinded to make him a more productive panhandler. That was a walk in the park compared to 127 Hours, Aron Ralston's harrowing tale of survival after being pinned for five days under an 800-pound boulder. Given the opportunity to follow Slumdog by taking a multi-million dollar paycheck for James Bond or another big studio film, Boyle instead got paid $666,000 and gambled his Oscar currency on the bet he could get an audience to sit through a grueling survival story for a rich spiritual payoff. Here, Boyle provides the logic behind the most daring creative leap he has made in an exceptional career.

DEADLINE: Early in 127 Hours, Aron Ralston takes an exhilarating free-fall through a chasm and into a pool of blue water far below. Isn’t there a parallel to the creative leaps you take, the way you jump from one genre to another and take on improbable premises that could easily end up going splat?

BOYLE: There certainly is that possibility of going splat. One of the things I believe in is to be extreme. I don’t mean do things for shock value, but to tell a story as extremely as possible. People go to the cinema to see the whole screen stretched and pushed to the sides, up and down and across. I love when you can get that image to pulsate. When you get those moments, or watch them, that’s what I love most in cinema. You do transport people in that moment. Beyond persistence, the only advice I ever give to young filmmakers is, don’t be shy in the way you tell a story. Be bold. There is that great quote, boldness has genius in it. People forgive you many things, if you remember that.

DEADLINE: When you have a hard-sell premise like 127 Hours or Slumdog Millionaire, is part of the appeal proving you can pull it off?

BOYLE: You learn things about yourself over time. I learned that I am at my best when my project is under $20 million and I’m trying to make it look like $100 million. Chris Nolan can take $160 million and make it feel like $320 million and I love and admire him for it, but I’m not that guy. Give me the $20 million. But that’s only the arithmetic. The truth for me is in the story, the trip you’re going on. It has to capture you. My interest in this story predated Slumdog Millionaire, and it survived everything that happened on Slumdog. I knew we had something because of the way Christian Colson was immediately very interested when I introduced him to it. It was tricky. What do you follow Slumdog with? Scorsese said the genius is in the choices. Even if nobody saw it, I knew at least we were sure in ourselves when we chose it. The other thing was how the story did flower when we told it. Sometimes you work on films and they don’t flower in your hands. You can just feel it. They don’t get more profound, richer or more rewarding as you go into telling them. There’s nothing you can do at that stage, you have to keep going and compensate. But you know when they open up. I could feel Slumdog open up, I just got lost in it because it was so wonderful. This one did, as well. You could just feel the story ripen.

DEADLINE: How long from your magical Slumdog Oscar night you decide to invest that currency in 127 Hours?

BOYLE: It wasn’t instantaneous. Slumdog was so overwhelming, it was hard to think clearly. We spent a lot of time setting up charity trusts in India. You become a bit of public property in the wake of something like that, especially in Britain, where people wanted to celebrate what they saw as a big home win. You can avoid that, but I felt it was right to go along with it, and raise some money for charities. All that takes up space in your brain. I flirted a bit, talked to Duncan Kenworthy about a musical, stuff like that. But it was this story, really, that we settled on. It really fell into place as a lovely film we could use the trajectory Slumdog had given us to tell it the way we wanted to.

DEADLINE: After Slumdog, I’m told you could have directed the next James Bond, or taken a huge check for some studio tent pole. What was that post-Slumdog courtship period like?

BOYLE: It was very flattering. If I was 27, it would have been very dangerous. Fortunately I’ve made a few films, some very successful and some very unsuccessful. That does help guide you. I remember thinking about Sam Mendes, when he won an Oscar with this first film. Bloody hell, it would be tough to handle that fresh out of the block. The town, the whole industry…distortion is the wrong word, but a warping happens in front of your vision, how people regard you. You need a good bit of perspective. I have grown kids who will not take any bullshit off me at all. If I start talking about myself in the third person, or saying things like ‘My film, my oeuvre,’ anything like that, they are merciless with me. That helps.

DEADLINE: After Fox Searchlight rescued Slumdog from a direct to DVD fate, you then pitched them 127 Hours as an action movie where the lead character is pinned under a boulder. What was their reaction?

BOYLE: [Laughs]. Well they were cautious, rightly so, but in the end, courageous. You can look now and see the film has a wonderful performance, and on a certain level it is a visceral and engaging thrill ride. Back then, the prospect must have looked dangerously like a vanity project, something insane that only one person in the world—me—could ever watch. But I knew it wasn’t that. The point of a good partnership is the ability to flesh it out together. The pitch is so important in that regard. Sometimes you can feel it crumble, that it won’t work. But every time I pitched this, it felt solid to me. Then it was a matter of them making sure they didn’t give us too much money, which is one of their important functions. Honestly, giving me too much money could have turned it into a vanity project.

DEADLINE: Though screenwriter Simon Beaufoy wrote the first draft of Slumdog Millionaire, you wrote the first draft of 127 Hours. Why? Was it that hard to verbalize how you’d turn the unpalatable into something spiritual?

BOYLE: Christian and I thought it was a slam dunk that Simon would want to do it and we were shocked when he didn’t. He was a climber. We’d lived like a family on Slumdog and had all been amazingly rewarded and we wanted to work together again. And did I say he’s a climber, and so the one thing we can’t bring to the story, he can? But he’s wise and has been through this a few times. He knew I had this locked in my head, really, and I think he felt that I had to get it out or any draft he did he would disappoint me. He thought I had to go through that writer’s process and get it on paper. It’s such an important testing ground for a story. They sent me off to do a couple drafts last summer, and it was brutal. I’m not a writer and saw the truth in all those stories writers tell you. Wandering around the house, doing nothing all day, just waiting for that 20 minutes when the writing finally comes. It’s all true. It’s a curse and a gift. It eludes you and then suddenly something comes and you go, that’s it! And you get up the next morning and say, fucking hell! How did I write that?

DEADLINE: What was Aron Ralston’s biggest fear entrusting his story to you?

BOYLE: That he would lose his voice. Not only had he written a book, he was running a motivational speaking business. He’s told his story 1000 times, embellished it and organized it, the way we all do when we tell stories. Suddenly, he’s being asked by a guy from Britain who is not a climber, let me become the voice of your story. I wanted him to understand I would tell his story through an actor like James Franco, and the audience will experience it through that actor’s voice. That must have been very tough for him. We joked about him being worried that Hollywood would change the ending, and he was distrustful of Hollywood. The real fear was he was going to lose control of telling the story with his own voice. That control instinct is one of the things that helped him survive in the first place. He is a controlling man who was sent spiraling out of control by nature, deliberately. But he wouldn’t give up control when I first met him in 2006. I think the reason he did in 2009 was the influence of his wife. He’d changed as a person by the time I met him again. Also, getting ready for a child, these are important steps in which a man gives up control by assuming more responsibility. We all know that feeling of giving up that narrow focus we have, to get on with something a bit more complicated.

DEADLINE: What was the biggest challenge in not making the audience feel claustrophobic and isolated?

BOYLE: The challenge was to maintain momentum in that isolation. There was an engine, still burning, still moving the story forward and that was partly his own industry, and the fact he never gave up and had to occupy himself constantly. Editing accentuated that. But it was also the story we uncovered that wasn’t so obvious in the book. There was an emotional journey that was right for a great actor. Aron had to learn to change. We never called them flashbacks, but those images and scenes he sees in his mind are keys for him to unlock a part of himself. He needed to let go of his previous life. The thing that will unlock it isn’t cutting his arm off, though that’s the obvious physical manifestation. It’s like he is putting in the right combination that will allow him to step back, free. That’s something we found that connected things emotionally and made this story universal. It made it, weirdly, our story, me and Simon. We’ve both been guilty, like Aron was as a character, of dealing with the emotions of other people and not being as respectful as we might have been. We’ve learned better, with the passage of time, over decades. He’s learning it in 127 Hours, because of those circumstances. It felt like a personal story to us as filmmakers, a classical story. It’s weird how that happens. You highlight the things that matter to you, tell it with a passion and it becomes personal to you. That’s the process we went through.

DEADLINE: What about James or his work made him right?

BOYLE: Pineapple Express was key. When I saw it, I wasn’t thinking about casting him. I was just a punter watching a good film but I remember thinking, that’s a major actor, a proper actor, good on you. I’d seen his other stuff that was quite intense, and moody. A lot of people can do that. But when they can turn their hand to comedy and occupy that soul expertly? I’m not comparing him to De Niro, but I love actors and remember thinking the same thing when he did The King of Comedy. I grew up with him playing those heavy roles for Scorsese. I loved them and was in that fan club. Then you see King of Comedy, when all the fans drop away and you become part of a more exclusive club, appreciating a really great actor. When we were casting, you meet all these guys and then you think about their work. I knew James would be able to bring a range to this performance that would sustain the shape of the film. I can shape things a bit as the director, but with an experience like this, the major shaping is your experience of living it with him. Simon could provide things, like that amazing speech with him on the chat show, but James had to be able to do most of this. And subtly, he had to be able to show despair. There’s a terrible moment where he…it’s a wonderful bit of acting…he can’t get to the girl’s door to talk to her. It’s obviously a dream in his head but he starts crying in the canyon. I remember it was one of the few moments where the camera literally pulled away from him. That was instinctive, because it had become too much to bear, too intrusive. It’s one of the few moments in the film where you had to pull away and give him space. There were all kinds of shapes he found. A young actor, when they have some experience, they should be looking for things to do like that, ways to flex their muscles.

DEADLINE: Franco is an NYU student, he’s directing a feature and a short, playing a menacing performance artist on a soap opera, doing the Planet of the Apes prequel. Simuntaneously. It would be easy to label him a flake. How do you sum up that constant motion and curiosity?

BOYLE: The flake thing. He’s looking at what flake-dom is, it’s part of his process. As a modern actor, he’s thinking that soap operas are part of the language now. He’s said, you can sneer at them, but they influence everything we do, down to where the sofa goes in our living room and what IKEA sells. We don’t realize we’re being affected by these things. He’s really into this, and he’s right of course. It’s pervasive, beyond which reality star is going to be thrown off next, for us to have a look at, then destroy, and follow them through drug addiction and rehab. ?It’s acting in other ways that we don’t fully understand. That’s what he’s exploring. Whether he sustains that for a very long time, I don’t know. Maybe he’ll specialize and become a major actor. Or dip in and out and take a few years off from acting to try something else. He’s super bright. I could give him a long list, which you shouldn’t do with an actor. It’s one of the rules, you tell an actor no more than one thing, because they’ve got their own agenda running. I’d give him 10, and he would accommodate them. I remember DiCaprio being the same. I didn’t direct him as well, but he was hungry. Anything you could give him, he was like, more. These are thoroughbreds. They want challenge and stimulation. You find yourself running out of ideas. You’re like fucking hell, and you’re running to keep up. You’ve got to be on your game, because he’s going to turn around and say, what else? And you haven’t got anything else.

DEADLINE: The audience escaped claustrophobia in the way you shot the film. Franco had intense scenes in a confined space. What role does a director play in keeping him on point?

BOYLE: You mainly keep his spirits up. You don’t really need to keep him on point. It was very rare where I felt he was off-key. He was loving the challenge of doing it on his own, but sometimes he must have wished for some other actress to fool around with, all those normal things you feel. Jealousy, an affair coming on. There was none of that here. He couldn’t even relate to the crew, really. They could only go in one at a time and I’d limit the amount of time they went in there. I tried to keep his spirits up, which I like doing with actors, anyway. I don’t like isolating them or playing psychological games. But I do try to act it out sometimes and he used to find that entertaining. He’s quite confident as an actor and he could see that I’m quite a poor actor. He would get me to act something out and then he’d just smile. I think I entertained him. Those great actors have a filter and it tells them why certain lines in a script just don’t work. He’d say, I don’t care how much you need that information, a character would not say that, Danny. They filter out bullshit while bad actors can get bullied into it by a director or a writer. And when they say that shit, you go, who is that shit actor?? And it’s not their fault.

DEADLINE: At the Toronto premiere, I felt that the audience was so invested in Aron, we collectively felt relief when he freed himself. When you labor to get that just right, how troubling is it when the media harps on people fainting?

BOYLE: My worry, funny enough, was that we’d get people walking out at that moment. It’s a tribute to James that, even though people don’t find that scene easy, you can see people making an effort to stick it out. But when you read that, it doesn’t sound like much of a recommendation for seeing the film.

DEADLINE: So what's in it for the audience?

BOYLE: You’re on a journey, and the things that are going on are tough. It is important that people know they’ve been through something, and that there is a reward attached to that. That reward is a profound sense of well being. It’s not the thrill sense of well being you got from watching Slumdog, with a feel-good ending and a dance song. This is a more serious, proper sense of well-being that you deserve after going through that with James. We don’t do a dance, but I wanted to celebrate that feeling with music and a sense of completion. You feel like you really have earned the sense of belonging again. I profoundly believe in that, in my own life. It’s very important that it’s not easy, not some Christmas jingle. It’s deeply earned. That will always toss some people off and I don’t blame them. You work hard all week, and you don’t want to spend your Friday night in a canyon. That’s fine. But there will be people who will want that, and it’s what I love about movies. Finding that special experience that moves you.

DEADLINE: What’s your best memory of that Slumdog Oscar night?

BOYLE: It was looking down my row and seeing all the people I’d worked with, in profile, all holding Oscars in their hands. They gave speeches but who can remember what they said? You don’t remember much of your own moment. But that lovely feeling, the profiles and the Oscars, because you only see photographs of famous people holding Oscars, from the front.

DEADLINE: You are choreographing the Olympic opening ceremonies in Britain. The last one in China exploited the acrobatic precision. What is it that the British do better than anybody that you can showcase?

BOYLE: We’re a slightly awkward bunch, and idiosyncratic. I don’t think we could organize games like the Chinese. When it comes to a war or something, we can get ourselves organized. But in peace time, we won’t put up with organization. It’s that kind of Sex Pistols thing, we’re not having any of that. That contrariness is something I like very much. I’m hoping we’ll be able to figure out a way to celebrate it.

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