I find it a bit eerie how this lines up:
In the very midst of the collapse five of the country's most influential bankers hurried to the office of J.P. Morgan & Co., and, after a brief conference, gave out word that they believed the foundations of the market to be sound, and the market smash has been caused by technical, rather than fundamental considerations, and that many sound stocks are selling too low.
Sound familiar? It's from the New York Times, circa October 24, 1929. There is a widespread theory circulating that the government jumps in to support the stock market by purchasing a basket of Dow Industrials stocks. I'm not arguing for or against that, but this article has quotes from the past that are eerily like what we're hearing today.
"Neither assets nor earnings, large as the earnings have been in many instances, warrant the market valuations of hundreds of stock issues. There has been an inflation not free from the charge of criminality, and which has been brought about by misrepresentation, and in many instances dishonest salesmanship...
Again, from October of 1929. If you don't know about the Working Group on Financial Markets, you might want to find out about it. While the PPT may be conspiratorial fiction, the WGFM is definitely real, as is the strong dollar policy.
If it gets to the point where they are cutting margin requirements back from 50%, be very afraid.
On today's opinion page [link requires free registration], Warren Buffett calls it as he sees it:
For these C.E.O.'s I have a proposition: Berkshire Hathaway will sell you insurance, carpeting or any of our other products in exchange for options identical to those you grant yourselves. It'll all be cash-free. But do you really think your corporation will not have incurred a cost when you hand over the options in exchange for the carpeting? Or do you really think that placing a value on the option is just too difficult to do, one of your other excuses for not expensing them? If these are the opinions you honestly hold, call me collect. We can do business.
I'm in 100% agreement with Mr. Buffett regarding the repeal of the 1994 law that caused this whole disaster. It would be a major improvement over making more laws that regulate things the government has no business regulating. We have an accounting standards board. They need to grow some balls, stand up to their customers and demand that they account for compensation as the expense that it is. TIAA-CREF also came out today demanding that companies in which they invest put equity plans to a shareholder vote. It's not enough, but it's better than nothing.
We haven't heard much about pension fund accounting, but again, Mr. Buffett has a good point. Unfortunately, I think that understanding how this works might be beyond our bought-and-paid-for congress. The right thing to do would be, again, for FASB to come out with this.
Will they do the right thing? Who knows, but we need to let the market find it's bottom, ASAP. We all need to find out what companies are really worth so we can all get on with our lives. This see-sawing is driving everyone nuts.
From Holman W. Jenkins, Jr. in today's WSJ[link requires paid subscription]:
A) Walk away from the merger restrictions and dare the Federal Trade Commission to sue (while whispering in every Bush administration ear that AOL will buck up the telecom sector by speeding the rollout of consumer broadband). Also, get the Baby Bells on board by offering to back them on DSL deregulation.
B) Put AOL and Roadrunner together to make AOL Roadrunner. Mr. Case's title as chairman and role as AOL Time Warner's second-biggest shareholder would come in handy here -- to knock the necessary heads.
C) Market the new service by offering unlimited downloads from the Warner Music library. Throw in content from all Time Inc. publications and make it available online as soon as it's edited. And how about free downloads of last season's episodes of "Sex and the City," "The Sopranos" and "Six Feet Under"? To quell fears of Napsterization, remind colleagues that the music industry was singularly vulnerable because the CD is such a crummy, costly way to deliver popular music.
Glad to know someone reads my blog and bugs our house for their ideas.
Yeah, I'm kidding, but those are all terrific ideas that have been discussed in our home. Unfortunately, I can't see Case actually stepping up to the plate. It seems like he just doesn't give a shit anymore, frankly. And why on *earth* was someone (Don Logan) with no tech experience put in charge of AOL anyway?
On July 8, The Times of London said that they though Cheney would be thrown aside before the 2004 election in favor of Tom Ridge. Today, The Telegraph claims the same thing, only they think the replacement will be Bill Frist.
Here's what I think here at Predictions-R-Us: Cheney will resign claiming his failing health, and a "cleaner" successor will be appointed. Either of the above will do. This will put Cheney in a position to be scapegoated with all the corporate crime allegations circling the White House and the "secret" Energy Commission meetings. Like Enron, Harken will disappear as it will be impossible to indict anyone for specific crimes. The Homeland Security Department initiative will fail. Brookings and CATO both think it's a waste of money, and think tanks don't come more conservative than that. Then there's the fact that TIPS is reviled by the left- and right-wings alike.
Something very significant is going to have to happen if the Republicans aren't to lose BIG in the fall elections. God knows all the elected corporate stooges in congress are in deep doodoo now, but it will be very difficult for the Republicans to escape blame on a much wider scale than what faces the Democrats.
Of course, they could try to distract us by invading Iraq, but if the stock market continues to fall, that won't work.
Posted by nicole at 03:01 PMThe Washington Post broke a 11-page story about AOL Time Warner's accounting methods. I was expecting a smoking gun, but what I got was ambiguous at best. Certainly, AOLTW had motivation for diddling their ad revenue:
"Advertising was supposed to be the big thing to defray concerns about AOL plateauing," said Michael Bromley, a business development director for AOL consumer devices until he was laid off last year. "On Wall Street, it's not what you make, it's what you're perceived as."
But in reality, the Post came up with $270 million suspicious dollars of $5 billion in ad revenue (I get 5%, but AOL says it's 2%). The auditor, Ernst & Young, stands behind the financial reporting. The deals they examined raised questions certainly, but the most questionable of the deals examined by the Post, the eBay deal, is a similar to a model Merck used to deal with co-payments (whose revenue is it anyway?), and that story never really gained any momentum. The most interesting is the 24dogs.com deal which the Post treats as scandalous, but I think it demonstrates true creativity to turn a lawsuit into an income-producing business relationship. Shut up, I'm serious!
In a flurry of bad press, Bob Pittman has resigned. AOL Time Warner will replace Pittman, founder of MTV, with Don Logan, long time CEO of Time, Inc. Am I just jaded by the spectacular nature of WorldCom's fraud, or is the Post story not very interesting?
OK, go look at this. Now feel free to express your outrage.
While there are a couple albums on there that I really like and wouldn't dream of selling, I can't help but note the number of albums I was told I "should" like but didn't. I'm willing to admit that even the albums I love have not have stood the test of time and may not be everyone's cup of tea, Zen Arcade for instance. Are you man enough to do the same?
Man, but I do truly hate Transformer.
Posted by nicole at 12:32 PMPaul tipped me off to coverage of in BusinessWeek that has my blood boiling.
Nobody bought into that hoo-ha more wholeheartedly than AOL Time Warner, and no company has fallen as hard. Its stock, now trading at just $12 a share, has lost more than $100 billion in market value since the merger closed in January, 2001. Newly elevated CEO Richard D. Parsons pledges that he hasn't given up the vision that spawned the merger--and he has no plans to sell or spin off AOL.
Let us review: AOL bought Time Warner, not the other way around. AOL provides cash flow to help pay the enormous debts. If they succumb to pressure from analysts and spin off AOL, what would happen to AOL's share of the debts? Would they dump all the debt on AOL, effectively killing the company just to make Time Warner look better? Again, who bought whom, and who has the more valuable assets?
While it's featuring such things as online movie trailers and exclusive premieres of songs from Britney Spears, it hasn't tapped the treasure trove of Time Warner content. AOL won't launch a music-subscription service until late summer because its December trial version was a flop.
AOL is, no doubt, having problems getting everyone on the same page. Time Warner has a lot of valuable media, but until the executives get over the idea of zero piracy (all retail companies accept that some shrinkage is unavoidable), they will not come up with an application that consumers find compelling.
You are seeing all the growth in CD sales in the used market, adding to the bottom line of eBay (owns half.com) and Amazon. It does not seem to occur to AOLTW that customers are fleeing the new CD market because the prices are too high. In point of fact, the "flopped" service from December was restricted and cumbersome.
So, what do they need to do? This will never happen, but they need to offer content very cheap, at least initially, if they want to kill Peer-to-Peer the way they should, in the market place. It's called a loss-leader, and it's a well-known ploy.
It wouldn't be hard to provide a higher quality product than pirates do, and after it takes off, they can raise the price a bit so that they have a sustainable model. I think that once people get high-quality material with instant gratification and complete fair-use rights, you'll see piracy decline. They can have some of the market or they can have none of it, and it appears that, at least for now, they've chosen to get none.
Another article in BusinessWeek points out a really alarming fact:
AOL still has $80 billion in goodwill on the books, including $35 billion assigned to America Online from acquisitions made before the Time Warner merger.
And they are likely to write that down. I suspect that the stock will be worth less than $10 a share if they do this. I also find myself wondering if the SEC isn't going to come knocking wanting to vet revenue figures.
Where it will all end, I don't know, but I do know that the old-fashioned media people at Time Warner are holding back innovation at AOL, a company that before the merger was known for being first to market. I simply do not understand why analysts don't see this fact -- it's as plain as the nose on their face.
Posted by nicole at 12:42 PMAnother AOL Time Warner employee[1] makes an ass of himself in this piece on Newhouse:
"By having an open transmission, it leaves you really vulnerable," [Joe] Digeso [VP of Broadband for Time Warner Cable] said. "If you have a Wi-Fi connection in a public park, what would stop, God forbid, a child pornographer or, God forbid, a terrorist using that network?"
While this reeks of disingenuousness, this does not:
One critic, however, said that's like paying once at an all-you-can eat buffet and sharing your plate with anyone who walks in the door.
How should ISPs enforce the rules without depriving you of (legal) use? I can't help but think that these folks with open Wireless Gateways are going to wind up costing us all freedom with our bandwidth connections. When I say freedom, I mean the freedom to, say, have several computers. As it stands now, we frequently have guests at our home use our wireless connection with their own laptops, and that seems like fair-use to me. I suspect the cable companies will come out saying otherwise.
[1]The other employee is Jamie Kellner, and the quote is towards the end of Tino's entry.
I've become one of those Washingtonians that thinks everyone knows and cares what goes on in our little corner of the universe. When I lived in Chicago, I knew local shit was local, but now that I'm a beltway local...it's all weird and scary and mixed up with US politics in general (which continue to disappoint me).
You'll have to imagine your own 6.5 on the richter scale sigh for me here.
Posted by nicole at 11:41 PMWhile this piece is an opinion, there is a great deal of fact in it regarding the Telecommunications business.
If you're too lazy to read the Telecomunications Act of 1996 (like any sane person), you can read Mr. Huber's (Mr. Huber, a senior fellow at the Manhattan Institute, is a Washington lawyer who represents Bell companies and other telecom concerns.) piece. It contains an educational chronology about how these businesses came to be what they are today.
In his world, this was all caused by regulation. I would argue that books are jiggered even further to evade taxation. If the market had actually been free after the Bell System break-up, the world would have been a different place.
Posted by nicole at 11:30 PM