Category: Business

Not Enough Bullets: PC Edition

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Because what billy wants, Billy gets.

And I don’t mean politically correct. I mean companies involved in the personal computer business, most notably Microsoft, Hewlett Packard, and Dell, who are aggressively lobbying against a proposal to prevent tax evasion through transfer pricing:

Software and computer companies such as Microsoft Corp., Hewlett-Packard Co. and Dell Inc. are gearing up to fight an Obama administration plan to curb offshore tax avoidance.

The $15.5 billion proposal in President Barack Obama’s 2011 budget targets what the Internal Revenue Service calls the growing problem of so-called transfer pricing. The technique allows companies to reduce their tax bills by transferring intangible property such as patents, trademarks and licenses to offshore subsidiaries.

They use our courts and our law enforcement and our regulators to enforce their IP licenses, and they want to assign that IP to dummy corporations

Additionally, Microsoft has evaded Washington state taxes over the past 13 years, to the tune of $1.27 billion, with a similar shift by opening up a store front in Nevada. (see vid)

But don’t you worry about Microsoft, they are lobbying to have the tax gutted, as well as getting an amnesty in the lege, so they won’t owe anything, and the state will find some way to deal with their $2.8 billion deficit over the next few years.

Silly voter, taxes is for plebes.

Big Surprise

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What causes this?

Could it be ………… Satan?

Barry Ritholtz finds a rather delicious piece of information showing that fraud in earnings statements is rather widespread, to be fair, it originally came from the Wall Street Journal, but since that’s behind a pay wall, and Ritholtz summarizes nicely, he gets the link.

You see, when you look at companies reporting earnings per share, the general number is rounded to the whole cent, but when you delve deeper into the numbers you get fractions of a cent per share, and lo and behold, a fraction of 0.4¢ a share is conspicuously absent from these numbers?

Why would this be?

It’s not the work of Satan, but the work of accountants.

Basically, if your earnings are 13.4¢ a share, you announce earnings of 13¢ a share, but if they are 13.5¢ a share, you announce earnings of 14¢ a share.

This number is statistically significant.

If you saw this in a poll you would immediately conclude that someone was just making sh%$ up.

Quoting Ritholtz, quoting the Journal:

The study, which examined nearly half a million earnings reports over a 27-year period, reached its conclusion by going beyond the standard per-share earnings results that are reported in pennies and analyzing the numbers down to the 10th of a cent.

That deeper look showed that companies tend to nudge their earnings numbers up by a 10th of a cent or two. That lets them round results up to the highest cent. Investors often snap up shares of companies that beat earnings expectations, even by a cent, and, likewise, sell off shares of companies that don’t make their numbers.”

I love the euphemism “meet investor expectations” as opposed to the more colloquial “lie cheat and steal.”

It also points out the need for the SEC to develop a Department of Quantitative Analysis filled with math geeks and computers, doing nothing but sifting through data looking for investor fraud. I’d bet they would get more convictions than the rest of the SEC combined. (If someone in the SEC would call me, I’ll help you set it up).

(emphasis mine)

This is the sort of application of “quants” in finance that I could wholeheartedly get behind.

Wicked Stupid

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As a result of the blow-back from their spate of problems and associated recalls, Toyota is considering US automaker style incentives to move its cars.

They are talking about the various “invoice pricing” and “rebate” programs, and this is a bad thing, because they push down resale value.

One of the things that drives people to Toyotas is the fact that depreciation is much less than in similar American cars.

If they go the rebate programs, they won’t get out easily, and they lose one of their market advantages.

Goldman Sach Losing Profits from Trnasparency

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The big banks profit on this lack of transparency

As a result of moves by regulators to move Credit Default Swaps, it looks like the big banks are looking at a revenue stream drying up:

Goldman Sachs Group Inc. and JPMorgan Chase & Co. will find it tough to reproduce last year’s record trading revenue as the difference between bid and offer prices in credit markets narrows to the tightest in almost 18 months.

The CHART OF THE DAY shows how the gap between prices at which traders offer to buy and sell credit-default swaps on North American companies has shrunk to 6.1 basis points, from as high as 20.4 in October 2008 and 16.3 in March. Historically wide spreads on everything from derivatives to bonds, representing fees earned per trade, helped fuel the recovery in bank earnings.

Basically, this gap is the difference in buying and selling prices, and it is the investment banks that profit from large spreads.

It’s why they have been campaigning to keep financial instruments off of public markets. When buy and sell prices are public knowledge, the spreads between them shrink, and so do the banks profit margins.

That’s why they want carve-outs from requirements for public trades: It robs them of the ability to overcharge for their services.

Blankfein Buys a Clue

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Well, it appears that he is a bit less arrogant than his ilk, as Goldman Sachs CEO Lloyd Blankfein year bonus was just $9 million, with none of it in cash, a far cry from the reports of $100 million:

Goldman Sachs stunned many in the Wall Street community Friday by awarding chief executive Lloyd Blankfein $9 million as his year-end bonus, far less than many were anticipating, and none of it in cash.

It was in restricted stock.

My guess is that there are some back channel deals, and the whole idea of a “just $9 million” being an exercise in frugality is odd, but he recognizes that there is a very real problem, and he is taking actions to immunize himself, as well as the vampire squid,* from some of the treats of regulatory and legislative action, so credit where is due.

My guess would be is that he got some security and buy-out guarantees that are worth a lot more, in exchange, but those are crafted so as not to show up headline.

Additionally, this may be a big “f%$# you” to his competitors, who now have to explain why they got bigger bonuses with less performance.

*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.

Whiskey Tango Forxtot?

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Warren Buffet’s Berkshire Hathaway has had its long-term counterparty credit rating cut from AAA to AA-plus.

They don’t like his purchase of the BNSF railroad:

Counterparty credit ratings reflect how well a company can meet its financial obligations with customers, trading partners or other parties.

“We believe that the railroad acquisition will reduce what historically has been extremely strong capital adequacy and liquidity, and that investment risk with sizable concentrations remains very high,” S&P said in a statement.

The rating downgrade came on the same day that Berkshire announced a bond sale of up to $8 billion to help pay for the Burlington acquisition.

You see, if Buffet buys insurance companies, good, but if he buys companies whose business which involve something tangible, that’s bad, I guess.

It’s clear that rail is in a growth curve. Oil is permanently above $50/bbl (consider my poor track record on this), and there are signs that fees to over the road truckers will reduce the subsidies given to that industry.

But all S&P sees is money being spent on big iron, and they do not like this.

Russia Looks to Joint Venture With Chinese for Mi-26 Successor

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Proposed Mi-46

The Russians make the largest production helicopter in the world, the Mi-26 “Halo”, and they have been considering an updated helo in the same (humongous) size range for some time.

Now, it appears that they are looking to do a joint venture with the Chinese to develope a 20T payload class helicopter. (paid subscription required)

Seeing as how the helicopter originally flew in 1977, and has been in service since 1983, there is a lot of room for improvement.

Just updating the transmission to modern aluminum alloys in the transmission and going with a more modern rotor system would probably add about 10% to payload and range performance, but that would be an upgrade rather than a completely new design.

A completely new variant might be based on the canceled Mi-46, though that was about a 12 tonne class machine.

I think that the reason for a joint venture has more to do with a potential market, they want to sell to the Chinese, than it does to any real technical or development advantage that they might gain.

Why US Broadband Sucks

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The Phone Company*

Let’s look at Maine, where the terminally incompetent telco Farpoint is aggressively lobbying against Maine accepting a $24.5 million grant from the federal government to build out broadband networks:

Last month, NTIA gave Great Works internet in Maine $24.5 million toward a fiber optic network. The grant is a classic public/private partnership for a middle mile project that includes, among others the University of Maine.

Fairpoint, Maine’s primary rural LEC, has objected to this “undue competition with the private sector.” This would be funny, given how Fairpoint has become the poster child for the failure of the private sector to deliver on its big promises to rural communities. But Fairpoint’s talking points have ended up in legislation filed by Maine State Senator Lisa Marrache (D-Waterville) and Maine State Rep. Stacey Fitts (R-Pittsfield). Despite the fact that middle mile build out will help companies like Fairpoint (while also helping their competitors), we get the usual ideologically-driven nonsense about how the public sector ought to know its place and leave the driving to the all-knowing and super-efficient firms like Fairpoint — assuming Maine’s rural residents like the prospect of waiting for a bankrupt company [Yes, literally. Farpoint went Chapter 11] to satisfy its creditors and bring them broadband.

While this money would improve access and service for everyone, it would make it easier for companies to compete against Farpoint, the incumbent, so they are fighting this tooth and nail, because their service has been so unbelievably horrible that they know that they will hemorrhage customers if anything near free and fair.

That’s what this is all about.

There is more money in locking out competitors than there is in improving service, so US broad band, driven by private interests, is slower, more expensive, less reliable, and less accountable.

Damn, sounds a lot like out healthcare system.

*The President’s Analyst, see IMDB and Wiki.

On Paywalls and Newspapers

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Newsday got bought out by the Dolan family, the folks who own Cable Vision, and they promptly put the website behind a subscription wall.

Do you know how many people are willing to buy a $5 a week subscription to the Long Island newspaper?

Well, after 3 months, they have 35 subscribers, so I think that their newsroom outnumbers the web page subscribers.

I think that the folks at the New York Times are in for a world of hurt.

Their pay wall is a bit different, you get a few stories before having to pay, but what it will mean to folks like me is that I won’t link to them unless they have a big exclusive. It’s just not worth it to me.

As it currently stands, I do link to them frequently as a paper of record.

Now, I’m sure that the loss of the eyeballs of my reader(s) does not mean much in the scheme of things, but when their OP/EDs were behind a pay wall, they completely fell off the screen on the internet.

Saab Auto to Survive

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I think that the folks at GM have finally realized that they could either close down the company, pay the costs for that, and secure the undying enmity of a lot of potential future customers, or sell it to someone for a bag of magic beans.

In this case, “someone” is the Dutch sports car manufacturer, and the magic beans are $74 million in cash and $326 million in preferred shares, which, for a company that can manufacture about 100,000 cars a year, is a pittance.

I’ve always liked the cars, though I’ve never owned one, and I think that this is a positive.

Damn

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Air America has shut down.

At least Rachael Maddow and Ed Schultz still have day jobs.

It’s not the message, as much as it was that management sucked, at least that how it appeared to me, though I was never in a market for the network.

Full statement after the break:

It is with the greatest regret, on behalf of our Board, that we must announce that Air America Media is ceasing its live programming operations as of this afternoon, and that the Company will file soon under Chapter 7 of the Bankruptcy Code to carry out an orderly winding-down of the business.

The very difficult economic environment has had a significant impact on Air America’s business. This past year has seen a “perfect storm” in the media industry generally. National and local advertising revenues have fallen drastically, causing many media companies nationwide to fold or seek bankruptcy protection. From large to small, recent bankruptcies like Citadel Broadcasting and closures like that of the industry’s long-time trade publication Radio and Records have signaled that these are very difficult and rapidly changing times.

Those companies that remain are facing audience fragmentation as a result of new media technologies, are often saddled with crushing debt, and have generally found it difficult to obtain operating or investment capital from traditional sources of funding. In this climate, our painstaking search for new investors has come close several times right up into this week, but ultimately fell short of success.

With radio industry ad revenues down for 10 consecutive quarters, and reportedly off 21% in 2009, signs of improvement have consisted of hoping things will be less bad. And though Internet/new media revenues are projected to grow, our expanding online efforts face the same monetization and profitability challenges in the short term confronting the Web operations of most media companies

When Air America Radio launched in April, 2004 with already-known personalities like Al Franken and then-unknown future stars like Rachel Maddow, it was the only full-time progressive voice in the mainstream broadcast media world. At a critical time in our nation’s history — when dissent on issues such as the Iraq war were often denounced as “un-American” — Air America and its talented team helped millions of Americans remember the importance of compelling discussion about the most pivotal events and decisions of our generation.

Through some 100 radio outlets nationwide, Air America helped build a new sense of purpose and determination among American progressives. With this revival, the progressive movement made major gains in the 2006 mid-term elections and, more recently, in the election of President Barack Obama and a strongly Democratic Congress.

Laws have changed for the better thanks to this revival…..but all the same our company cannot escape the laws of economics. So we intend a rapid, orderly closure over the next few days. All current employees will be paid through today, January 21. A severance package will be offered tomorrow to full-time current employees with more than six months of tenure.

We will strive to assist affiliates and partners in achieving a smooth transition. Starting at 6 pm EST today, we will provide our affiliates, listeners and users a selection of encore programming until 9 pm EST on Monday, January 25, at which time Air America programming will end.

We are proud that Air America’s mission lives on through the words and actions of so many former radio hosts who are active today in progressive causes and media nationwide. In the years ahead, as we look back, we should all be proud of our passionate determination to assure that our nation’s progressive voice would be heard loud and clear. Through the hard work and dedication of current staff, and those who preceded you, a lasting legacy was forged which will now continue through other voices and venues.

Thank you.

Buh Bye New York Times

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One of the dirty secret of the newspaper business is that people do not pay for the news.

People pay a portion of the cost of setting ink to paper, but the remainder of the cost of producing a physical copy, as well as the cost of producing the content is covered by advertising.

The problem is that the most lucrative part of advertising is the classified. at about $55 for 3 lines, it generates a lot of revenue.

Unfortunately, Craigslist is better and cheaper, so newspapers find their classified revenue shrinking.

Additionally, after years of playing the Wall Street game of cutting costs, meaning reporters and in depth stories, and quality in general, their product is less attractive.

In the case of the New York Times, this has been further complicated by the fact that they plunked down a huge amount of cash for their brand new narcissistic monument to the New York Times office building, so they find themselves with a cash flow problem.

It appears that they are looking at setting up a pay wall around the newspaper to generate the desired revenue.

They have forgotten the disaster that was Times Select, which shut down after 2 years, when they generated very little revenue, and their opinion pieces largely dropped of the map on the Internet.

People pay for the Wall Street Journal because it provides breaking financial news, which is something that people have traditionally been willing to pay for.

General news, probably not, and so I’ll probably find other sources to link to.

Somali Pirates Create Better Fishing

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Not surprising.

It appears that there is upside to Somali piracy. The pirates have scared off the people plundering the fishing grounds off of the Somolian coast:

MALINDI, Kenya–Kenyan fisherman are perhaps the only people in the world who have reason to be grateful to Somali pirates – they keep away illegal fishing boats.

In past years, illegal commercial trawlers parked off Somalia’s coast and scooped up the ocean’s contents. Now, fishermen on the northern coast of neighboring Kenya say, the trawlers are not coming because of pirates.

“There is a lot of fish now, there is plenty of fish. There is more fish than people can actually use because the international fishermen have been scared away by the pirates,” said Athman Seif, the director of the Malindi Marine Association.

One of the reasons for the popularity of the Somali pirates in Somalia is because they are perceived as going after foreign poachers.

If the external powers started policing the 200 mile limit for Somalia, or better yet, commissioned and supported a Somali Coast Guard, and pursued the people who are strip-mining their coastal waters, we might find some real improvement in the piracy problem.

This is Just Such a Good Idea

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A company called SarcMark has developed a proprietary punctaion mark to denote sarcasm.

That is like such a good idea.

Yes, that is the symbol, and it’s looks like, but isn’t a bit of Hebrew cursive.

This is clearly an essential part of any repertoire, and well worth the $1.99 the maker wants to charge for its use.

Sorry, but if you need to mark it as sarcasm, something is lacking in either the writer or the reader of the phrase.

Rupert Murdochology

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One of the things that was interesting in the New York Times profile of Roger Ailes, at least it is if one tries to follow the comings and goings of Rupert Murdoch, his family, and News Corp, is the fact that a member of the Murdoch family, Matthew Freud.

Well, one Murdochologist, Michael Wolff, says that this is the beginning of a process that will have Ailes out in the next 12 months or so:

When Tim Arango, the New York Times reporter who got the statement from Freud, called and said he was doing a story on Ailes’ rising power, Freud would have consulted with the rest of the family. James Murdoch would have said to his father something along the lines of, “this is untenable, this idea that Roger is the center of the company.”

Murdoch, who protects nothing so much as his own primacy at News Corp., and who always likes somebody else to do his dirty work, would likely have said, in his particular patois, “umm…goddamn…grump…son-of-a-bitch…they’re gonna say that? Who put ‘em up to it? Okay, okay, do what you want to do.” By which he would have meant: “Blow a rocket up his ass.”

The process of losing your job at News Corp. takes about a year. They talk about you, and isolate you, and then you understand that you’ve been exiled from the tribe.

I’m hoping that it is true, Ailes is an evil man who has hurt the country more than most, but I’m inclined to believe that it’s not: Particularly during this downturn, Fox News is Murdoch’s money cow, and he can’t kill the goose that laid the golden egg.

When I Watch Late Night TV, It’s Stewart and Colbert

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So I really have no strong opinion on what is going on with NBC, with Jay Leno’s 10:00 pm show, an idea that never made sense to me in the first place, being canceled, and NBC now having to juggle Leno and Conan O’Brien.

NBC tried to “split the baby”, by giving Leno the 11:35-12:04 slot, with O’Brien getting the rest of the show, but Conan said no, and so the Jeff Zucker (the head of NBC) clusterf%$# continues.

My reader(s) can debate the relative merits of Conan O’Brien and Jay Leno, I just don’t know.

Conan’s statement is after the break, and it takes the high road:

People of Earth:

In the last few days, I’ve been getting a lot of sympathy calls, and I want to start by making it clear that no one should waste a second feeling sorry for me. For 17 years, I’ve been getting paid to do what I love most and, in a world with real problems, I’ve been absurdly lucky. That said, I’ve been suddenly put in a very public predicament and my bosses are demanding an immediate decision.

Six years ago, I signed a contract with NBC to take over The Tonight Show in June of 2009. Like a lot of us, I grew up watching Johnny Carson every night and the chance to one day sit in that chair has meant everything to me. I worked long and hard to get that opportunity, passed up far more lucrative offers, and since 2004 I have spent literally hundreds of hours thinking of ways to extend the franchise long into the future. It was my mistaken belief that, like my predecessor, I would have the benefit of some time and, just as important, some degree of ratings support from the prime-time schedule. Building a lasting audience at 11:30 is impossible without both.

But sadly, we were never given that chance. After only seven months, with my Tonight Show in its infancy, NBC has decided to react to their terrible difficulties in prime-time by making a change in their long-established late night schedule.

Last Thursday, NBC executives told me they intended to move the Tonight Show to 12:05 to accommodate the Jay Leno Show at 11:35. For 60 years the Tonight Show has aired immediately following the late local news. I sincerely believe that delaying the Tonight Show into the next day to accommodate another comedy program will seriously damage what I consider to be the greatest franchise in the history of broadcasting. The Tonight Show at 12:05 simply isn’t the Tonight Show. Also, if I accept this move I will be knocking the Late Night show, which I inherited from David Letterman and passed on to Jimmy Fallon, out of its long-held time slot. That would hurt the other NBC franchise that I love, and it would be unfair to Jimmy.

So it has come to this: I cannot express in words how much I enjoy hosting this program and what an enormous personal disappointment it is for me to consider losing it. My staff and I have worked unbelievably hard and we are very proud of our contribution to the legacy of The Tonight Show. But I cannot participate in what I honestly believe is its destruction. Some people will make the argument that with DVRs and the Internet a time slot doesn’t matter. But with the Tonight Show, I believe nothing could matter more.

There has been speculation about my going to another network but, to set the record straight, I currently have no other offer and honestly have no idea what happens next. My hope is that NBC and I can resolve this quickly so that my staff, crew, and I can do a show we can be proud of, for a company that values our work.

Have a great day and, for the record, I am truly sorry about my hair; it’s always been that way.

Yours,

Conan

Google Pulls AP Links from Google News

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A picture of falling page views

As you may, or may not be aware, I am not linking to Associated Press stories.

This applies to both stories at the Associated Press, as well as stories at other venues that carry an AP byline.

It’s not absolute: If I cannot find another source anywhere, and the story is IMNSHO important, I will link, with a preference for not linking directly to the AP servers.

I have spiked comment based on the the fact that I could not find another source on a number of occasions, but generally, Google News has managed to bail me out.

Well, Google and the Associated Press are coming up on the end of their current licensing agreement, and as a result, Google has not included any links to the AP site since December 23:

Through much of last year, the Associated Press threw public barbs and veiled threats at Google, while in private it was renegotiating its licensing agreement with Google News. That agreement is believed to be up for renewal at the end of this month, yet no new AP stories have appeared directly on Google News since December 23, 2009. (AP stories licensed by other news sites such as ABC News or the New York Times do continue to appear, however). So what’s going on here? Is that the end of AP stories on Google News?

I’ve been doing some sniffing around, and it is not the AP that is withholding its content. This conclusion is also supported by the fact that older AP content from before Christmas continues to be available on Google News. If the AP were no longer licensing its articles to Google, those older articles likely would also no longer be available. (The AP has talked about withholding news from certain licensees for a set period of time, but those were measured in minutes and hours, not weeks, and it would operate on a rolling basis. The AP stories on Google News just stop on December 23).

The pucker factor at the Associated Press offices right now must be extreme.