The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

No surprise here:

“Since the government took over Fannie Mae and Freddie Mac, taxpayers have spent more than $160 million defending the mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud. The cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress.

The bulk of those expenditures — $132 million — went to defend Fannie Mae and its officials in various securities suits and government investigations into accounting irregularities that occurred years before the subprime lending crisis erupted. The legal payments show no sign of abating . . .

Although the figures are not broken down by case, the largest costs are being generated by a lawsuit centering on accounting improprieties that erupted at Fannie Mae in 2004. This suit, a shareholder class action brought by the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio, is being heard in federal court in Washington. Although it has been going on for six years, the judge has not yet set a trial date. Depositions are still being taken in the case, suggesting that it has much further to go with many more fees to be paid.”

A corrupt, mismanaged firm with an implied government guarantee — how could that ever go wrong?

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Source:
Mortgage Giants Leave Legal Bills to the Taxpayers
GRETCHEN MORGENSON
NYT, January 24, 2011

http://www.nytimes.com/2011/01/24/business/24fees.html

Ricky Gervais Golden Globes reaction on Piers Morgan Tonight 01/20/2011 – Part1

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Piers Morgan Tonight – Ricky Gervais (January 20 2011) – Part 2

Its amazing that Keith Richards and George Bush have the #1 & 2 non-fiction NYT best sellers at the same time.

One is the story of a man beloved by his fans, despite his drinking and drug abuse, who reaches the very pinnacle of his profession.

The other is the story of Rolling Stones guitarist . . .

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Cool graphic from the folks at Good:

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click for interactive graphic

There’s something about the New York Times that seems to drive people beyond all reason. For the right, the newspaper is the embodiment of every straw-man cliche of liberal elitism. For the media, it is the universally envied institution simultaneously blessed and cursed with status of the newspaper of record.

The amplification of the internet has taken the newspaper’s historic role and blown it out of proportion. This applies nowhere more than with its inevitable decision to build a paywall.

Today’s Wall Street Journal story outlining the paywall plans offers a good opportunity to talk about what is and isn’t at stake. The WSJ has some details on the paywall’s pricing that have been leaking out all weekend. To wit, the digital subscription will match the Kindle pricing at $20 per month. Online-only access will be half that amount and those who subscribe to the paper in print format, whether they get the full-boat subscription or one of the slice-and-dice partial subscriptions, will get free access to the website.

Why is any of this important when two of the newspaper’s most important competitors–the Wall Street Journal and the Financial Times–already have pay-for-access programs in in place? The answer is that it really isn’t. The truth of the matter is that free access to the paper online has been the anomaly, not the rule with newspapers.

The enormous audience that the Times generates through the internet hasn’t proven very valuable. The WSJ tells us that online ads only bring in $100 million in revenue for the newspaper. This is in contrast to the $2.4 billion that the NYT made last year. Basing the business on internet advertising is simply not an option.

Looking at the NYT’s last 10-Q filing, you can see that circulation and advertising bring in the same amount of money. It would be tempting to think that you can shift the circulation from paper to pixels and keep the savings. But that’s not how it works.

Of the advertising in the newspaper itself, the overwhelming majority is national ads. That ought to be a good sign for the company’s online prospects. But online revenues are 20% of what print revenues are. So any migration of print readers to digital will be a dramatic loss for the Times.

Here’s where it gets really tricky for the Times and, unfortunately, its not a part of the business they’ve show themselves adept at over the last few years. Print ads are a relatively high-margin revenue source that must be managed down. There’s going to be demand for print ads for some time to come. So the newspaper has to figure out how to reduce the cost of distribution while adding to the subscriber base.

That’s surely one reason that we see the proposed structures which encourage print subscribers to keep their newspaper coming no matter what schedule they choose. The Times wants–needs–those subscribers to stick with the print paper.

Meanwhile, the WSJ gives a sense of what’s possible with the digital subscriber base:

As a free site, the Times online attracts more than 30 million monthly unique visitors, according to comScore Inc. [...] Times Co. executives have said that only about 15% of the paper’s online readers are “heavy users,” meaning the vast majority probably won’t trigger a payment requirement.

That suggests there are 4.5 million potential digital subscribers who will pay somewhere around $10 per subscriber. We know the paper doesn’t have anywhere near 4.5 million paper subscribers, so there’s room for some real gains. The FT has 200,000 digital subscribers on a base of 485,000 print circulation.

That suggests the NYT should be aiming for 500,000 subscribers in the first year of the paywall out of the potential 4.5 million mentioned above. That’s an additional $60 million a year to the Times.

Nabbing another $60 million from the work you’re already doing is a good thing even if it won’t solve your problems. The better news is that there’s bigger potential subscriber base out there. Though even if all of those 4.5 million potential digital subscribers signed up, the revenue would only replicate what the Times is already making from its circulation.

Print ads remain the crucial base of the business. There’s no reason to think that tablet ads will have any greater value than online ads. So the job of the NYT’s management over the next few years will be to hold on to print circulation while it ramps up digital subscriptions and clamps down on printing and distribution costs.

Given the Times Co.’s poor record managing its non-NYT properties. This should be the cause for concern, not the paywall itself or how it is implemented.

I frequently discuss the 1966-1982 market cycle, with its cyclical bull and bear markets within the broader context of a longer secular bear market.

Ron Griess (of The Chart Store) has taken it this a step further, looking at ALL of the longer secular markets going back to 1927, including the cyclical markets occurring within those broader cycles.

Its fascinating stuff:
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click for larger charts

Read the rest of this entry »

Felix Zulauf: Problems for Emerging Nations
1/22/2011 12:40:15 AM

Felix Zulauf, President of Zulauf Asset Managemet, talks to Barron’s Michael Santoli at the Roundtable conference on the economic problems confronting emerging market countries and how they will try to deal with them.

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Fred Hickey: Still Bargains in an Extended Market
1/22/2011 1:45:06 AM

Fred Hickey, editor of The High-Tech Strategist, talks to Barron’s Michael Santoli at the Roundtable conference on strength of the market. He feels that somewhat overextended bargains still exist with the technology sector.

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Bill Gross: Troublesome Dollar, Improving Economy
1/22/2011 12:47:14 AM

Bill Gross, founder of Pimco, talks to Barron’s Michael Santoli at the Roundtable conference on the improving economic outlook for 2011. Problems loom with declining dollar, government debt and high unemployment.

GWA Ciento Once (Spanish for ‘one hundred and eleven’) is not, however, powered by a Wankel engine but by a 408HP M120 Mercedes V12 via Classic Driver

It may take a few seconds for photos to load

Being market leaders, I believe the stock action in AAPL and GOOG last week, notwithstanding management uncertainty but with great quarterly results, is a sign that the Bernanke driven rally since Aug is done for now with the only question being will a consolidation follow or will there be something more. The question of something more I believe will be driven by inflation trends and interest rates. The FOMC, newly constituted with some more hawks, will likely continue on Tues their easy money path but almost all other central banks around the world won’t be. According to the WSJ, ECB’s Trichet over the weekend said “all central banks, in periods like this where you have inflationary threats that are coming from commodities, have to…be very careful that there are no 2nd round effects” on domestic prices and unlike the Fed, he thinks “core inflation is not necessarily a good predicator…for future headline inflation.”

Food for thought:

While high unemployment and spare capacity are restraining underlying inflation pressures in the U.S. and elsewhere in the developed world, annual inflation in China is almost 5%—and a sizzling 9.8% economic growth rate in the fourth quarter triggered fears of more price pressures ahead. Inflation in Brazil is even higher.

With the global recovery still in its early stages, those moves could accelerate. Higher raw material prices, especially coal and iron ore, are pushing up steel prices across the globe. Steelmakers including AK Steel and Nucor in the U.S., and China’s Baosteel and South Korea’s Posco—the world’s second and third largest—have been steadily increasing prices in recent weeks. The world average carbon-steel price is forecast to exceed $1,000 per metric ton by the second half of 2011, up from an average $733 last year, according to U.K.-based consultancy MEPS . . .

Global inflation isn’t just coming from volatile commodities that track the ups and downs of the world economy. Fast-growing emerging nations are taking increasingly aggressive actions to beat back rising food prices as they grow more worried about threats to stability.”

As noted last week, cattle prices were stampeding. This definitely bears watching.

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Source:
Global Price Fears Mount
By BRIAN BLACKSTONE And MARCUS WALKER
WSJ, January 24, 2011
http://online.wsj.com/article/SB10001424052748703398504576099680269779402.html