Author Archive

  • The Grey Lady and Sides of Beef
    , April 23rd, 2007 at 10:40 am

    At this week’s New York Times’ (NYT) shareholder meeting, there will be an effort, led by Morgan Stanley, to eliminate the company’s two-tiered share voting system. One class for the family, another for everyone else. These systems are common with newspapers because it allows the founding families to retain control.
    In today’s Wall Street Journal, Donald Graham, the CEO of the Washington Post, comes to the defense of the Times’ not-quite-so-democratic share structure.

    (I)f the stock structure were eliminated, a line of buyers eager to purchase the company would form within minutes. No one could say no. The line would include private equity firms, high-ego billionaires, international media companies lacking a famous property and lots more.
    Who would bid the highest? Perhaps a principled owner, dedicated to the welfare of the Times and the Boston Globe; willing to anger its friends on a regular basis, as good newspapers do; and prepared to spend money and run other risks to sustain the paper like the Sulzbergers. Or maybe the bidder would be someone quite different.

    Oh dear! Not just a billionaire, but a high-ego one at that. Personally, I’ve never met a billionaire with a low ego. Or a newspaper publisher, for that matter.
    Graham writes that if the new rule is adopted, it “would lead to the New York Times Co. being auctioned off like a side of beef.”
    Well, what’s so bad about that? We sell lots of things in a manner very similar to how a side of beef is sold. That’s capitalism. Ever been to an art auction? Or rather, what’s so wrong with a side of beef being sold off just like a media company? It’s a two-way street. I’m stunned at how little faith Graham has in the free market.
    These two-tiered systems are manifestly undemocratic, and will eventually lead to sclerotic companies. Graham believes there’s a difference between public spiritedness and the values of the free market. That’s a false symmetry. If the Times’ values are profit-enhancing, as Graham suggests, then the free market will find them. Plus, there’s no guarantee that a family-controlled business will adhere to those values.
    I’m not against different share classes per se. I don’t think they’re a great idea, but I can understand why some families would want to maintain control of their businesses. What I object to is the Graham’s argument that it’s based on some high-minded principle. It’s not. When any organization isn’t held fully accountable, it will eventually suffer.
    The divine right of kings died out a long time ago. It’s about time newspapers followed.

  • ABN Amro and Barclays to Merge
    , April 23rd, 2007 at 8:39 am

    This is a gigantic dea. ABN Amro, the Dutch mega-bank, and Barclays of Britain are going to merge in a deal worth over $90 billion. As part of the deal, ABN Amro is going to sell its LaSalle Bank unit to Bank America for $21 billion.
    The story gets a little more complicated because the Royal Bank of Scotland seems interested in ABN Amro, but it needs partners to make a deal. But what the rivals probably want is Amro’s American business. In other words, LaSalle. Selling it to BofA could be a brilliant move to crush any potential partner for RBS.
    Here’s the slap in the face. Amro was scheduled to meet with RBS today, but it already announced the deal with Barclays. They’re still going to meet, but Amro asked to have the meeting bumped back.
    I have a feeling this isn’t over.

  • “GOOG is Godzilla and YHOO is Japan. It’s that simple.”
    , April 22nd, 2007 at 5:35 pm

    The Fly on Wall Street sums it succinctly.
    (H/T: Howard “Dr. Funk” Lindzon)

  • High Voltage Cable Inspection
    , April 22nd, 2007 at 10:54 am

    Yikes.

  • Moonlight Sonata
    , April 21st, 2007 at 4:55 pm

    The great Wilhelm Kempff.

  • The Business Of Baseball
    , April 20th, 2007 at 12:21 pm

    Here’s an interesting article from Forbes on the financial numbers behind baseball. As a kid, I used to think that baseball was big business. It’s big, but not nearly close to the titans of Wall Street.
    According to Forbes, the New York Yankees are the most valuable team in the majors at $1.2 billion (Steinbrenner bought the team for $10 million in 1973, so that’s about a 15.1% annual return). The Yankees would be considered a small-cap stock. Most teams, however, are in the $300 million to $500 million range. The Florida Marlins come in last at $158 million, which isn’t far from our favorite micro-cap, Nicholas Financial (NICK), at $114 million.
    Our local Washington Nationals are the tenth most valuable team at $447 million, which is a lot to pay for 60 wins. (This is going to be a long summer.)

  • AMD: “It hasn’t even hit them yet”
    , April 20th, 2007 at 7:32 am

    Here’s a short case study:
    Advanced Micro Devices close on April 19, 1985: $15.
    Advanced Micro Devices close on April 19, 2007: $14.28.
    From Bloomberg:

    Advanced Micro Devices Inc., the second-largest maker of personal-computer processors, reported a first-quarter loss of $611 million after it lost market share to new products from Intel Corp.
    The net loss was $1.11 a share, compared with a profit of $185 million, or 38 cents a share, in the same period a year earlier, the Sunnyvale, California-based company said in a statement. Sales fell 7.4 percent to $1.23 billion.
    After taking market share from Intel over the past two years, Advanced Micro is now on the defensive. Intel, the biggest maker of PC processors, has introduced new products to win back customers and has more chips planned for later this year. That means the worst isn’t over for Advanced Micro, said analyst Doug Freedman at American Technology Research in San Francisco.
    “They’re just seeing the headlight of the train. It hasn’t even hit them yet,” said Freedman who has a “sell” rating on the stock and says he doesn’t own it. Advanced Micro is suffering because it “tried to get too big too quick.”

  • New All-Time High for the Dow: 12,808.63
    , April 19th, 2007 at 4:17 pm

    The Dow rose for the sixth straight day. The Dow has now rallied for 14 of the last 15 days. That hasn’t happened in over 15 years.

  • The Wharton Economic Summit
    , April 19th, 2007 at 3:23 pm

    I apologize for not getting around to this earlier, but I wanted to mention my trip last week to the Wharton Economic Summit. The school turns 125 this year so it’s celebrating with a series of economic conferences around the world, and the largest one was in Philadelphia last week.
    The first thing I have to mention is that if you’re ever in the Philly train station and you need to use the restroom, wait. Just trust me on this. Hold it in. I really can’t stress this enough. I promise I won’t go into the details but I assure you it’s sound advice. What happens in Philly I hope to god, stays in Philly.
    Moving on….
    The conference was in the convention center downtown and it was packed full of big wigs. You couldn’t throw a brick without hitting a C-level somebody. That must be the nice thing about Wharton alumni. Just pick up the directory, grab any name at random and presto, it’s probably someone important. The school is like Skull & Bones, except with more business jargon.
    Here’s an example, I caught up with Art Collins, the CEO of Medtronic (oh, and Wharton ’73). I tried to talk him into making a counter offer for Biomet (it didn’t work, but I tried). I also asked him about Sarbanes-Oxley and he was surprisingly positive about it. He felt that something was needed, and the current law is better than what existed before (in other words, nothing).
    He makes a good point that investor confidence was sorely needed in 2002. Personally, I wish Congress had been a bit more deliberative. Collins said that 404 needs some revising, but he likes the overall impact of SarBox. I think the smarter CEOs see that it’s not going away, so they’re ready to take what they can get. Of course, Medtronic is a big company so SarBox doesn’t impact them nearly as much as it does for smaller companies.
    I asked Collins about compliance costs, and he said it was about $8 million to $10 million. That may sound like a lot, but for Medtronic, it’s less than a penny a share for a $50 stock. Of course, if you’re running a small tech start-up, you’re probably not so thrilled about writing those checks to your accountants.
    One other thing about Collins. He wears nicer suits than me.
    I sat in on a good session about CEO pay. The panel, which was mostly Wharton profs, felt that the issue was very overblown. I think the executive pay issue suffers from what I’ll call the “Parade Magazine Effect.” People are always comparing themselves with how much other people make. One of the professors said if all CEOs suddenly had a 25% pay reduction, it would have a microscopic impact on shareholder equity. Another prof said (I was too far away to make out the names) that the severance packages have gotten out of control. As a shareholder, I don’t mind paying for success. But paying for failure ain’t fun.
    The profs said that one of the problems of CEO pay isn’t the pay itself, but the social blowback of the issue. I think that’s a bigger deal than most people realize. Sometimes I think that companies like Danaher are right. Try to make as little news as possible.
    One of the members of the panel runs a head-hunting firm for hedge funds and private equity. Of course, you don’t find too many people complaining about hedge fund compensation. What I found interesting is that he said that today, half of the positions he places are for “infrastructure” jobs, like lawyers and compliance. In effect, the hedge fund industry is becoming institutionalized. Wasn’t the industry started to get away from that?
    I thought one of the best points made about CEO pay is the overemphasis on pay, while ignoring the potential wealth that executives have in the stock. To give an extreme example, Warren Buffett gets a salary of about $100,000 a year. But when the market fell after 9/11, he probably lost a few billion dollars, even though he couldn’t control what happened. Many executives are in a similar position, but on a smaller scale.
    A typical CEO already owns a great deal of stock, plus a lot of stock options. So if the shares fall for some transient reason, they can be out far more money than what they make in compensation. Yet, the public is still fixated on the Parade Magazine number.
    At lunch, I sat next to two Wharton students from Singapore. Can you imagine what it’s like to go from spotless Singapore to Philly? Dear lord, talk about a culture clash! It sounds like a Fox reality show.
    During lunch, there were two talks. One was by Jeremy Siegel and the other was by Michael Milken. You would have thought that this Milken fellow (Wharton ’70) went straight from Wharton to a career in funding all these wonderful initiatives in medical research and economic development. Any activities in between was politely skipped over.
    Although Siegel seems very reserved on television, he’s surprisingly dynamic in real life. I was able to corner Professor Siegel for a 20-minute high-octane conversation. (By the way, major shout out to Tracy Simon of the Wharton staff for helping me out). He still likes the market and thinks equity prices are a good value versus fixed-income. Although, he said he doesn’t see major differences now between value and growth.
    I asked him why value has outperformed even in this bull market. He said that it’s really a factor of growth still unwinding from the 1990s. I asked him about the earnings slowdown and I was happy to hear that he thinks it’s probably just a mid-cycle reversion to the mean instead of the beginnings of a recession.
    I was also pleased that Siegel agrees with me that there’s no inherent problem in low equity volatility. I’m still confused why so many folks are worried about it.
    Siegel also said that he wants to see higher payout ratios from companies. One thing that I was curious about was why WisdomTree (WSDT.PK), the family of ETFs he runs with Michael Steinhardt and Jonathan Steinberg (Maria’s hubby), is traded on the Pink Sheets. He said that it’s the legacy stock of Individual Investor, and the shares were going to hop over to one of the exchanges in the next few months.
    We also talked about Jim Glassman and Kevin Hassett’s book, Dow 36,000, which relied heavily on Siegel’s book, Stocks for the Long Run. Siegel doesn’t buy their theory about equity premiums fading away (and neither does the market). He felt that their problem was ignoring the real return in treasuries that could be seen by focusing on the TIP spread.
    It was a fun, fasted-paced conversation. (My only disappointment was that Professor Siegel said that he’s not a blog reader!) He always seems to have a fresh and interesting view on the market.
    Here’s my review of his book, The Future for Investors.

  • Eaton Vance Hits New High
    , April 19th, 2007 at 12:32 pm

    EV1.gif
    Shares of Eaton Vance (EV) are at a new high today. Since its 1975 low, the stock is up over 300,000%. The gold line is the S&P 500 which looks flat by comparison. It’s only up a measly 1,600%.