Lunchtime Links 2-11

Feb 11, 2010 18:29 UTC

EU seals deal to help Greece, details murky (Grajewski/Toyer, Reuters) We need to know more about what help is being offered and what strings will be attached to it.

A Greek crisis is coming to America (Niall Ferguson, FT)

Google plans experiment to offer superfast web (Sherr, Reuters)

Buffett takes on Chicago chokepoint with Burlington (Lippert, Bloomberg) This article is 500 words too long, but it’s still interesting!

Immelt disagrees with Paulson’s recollection of Sept ’08 (Layne, Bloomberg) Immelt is lucky that companies like AIG and Goldman have absorbed much of the public’s bad feelings about the bailout. It doesn’t sound like Immelt is really disagreeing with Paulson, he just doesn’t remember discussing GE’s funding problems in the commercial paper market. Uh, really? The Fed created the Commercial Paper Funding Facility in large measure for GE. And GE sold $60 billion of government guaranteed paper through FDIC’s Temporary Liquidity Guarantee Program.

Fed in talks with money market funds to help drain $1 trillion (Torres/Condon, Bloomberg) Interesting….

New black hole simulator uses real star data (Muir, New Scientist)

Driving behind a hearse… (imgur)

Sausage fingers (clusterflock) iPhone users in cold places will appreciate this…

A brief history…

Lunchtime Links 2-10

Feb 10, 2010 16:26 UTC

How a new jobless era will transform America (Peck, Atlantic)

Bernanke testimony (Fed) Key line: “Also, before long, we expect to consider a modest increase in the spread between the discount rate and the target federal funds rate.” That’s not the same as raising the Fed Funds rate or the rate paid on excess reserves, but it’s the first time Bernanke has indicated policy may be tightened. Also, the balance sheet will be allowed to shrink on its own as mortgagees prepay.

For $110, godless will adopt pets of blessed after Judgment Day (DiPaolo, Bloomberg) Great story. And a great way to clear $10 grand! One of many money quotes: “With the economic downturn we’re in, I’m trying to figure out how to cash in on this hysteria to supplement my income … Given the intellectual capacity of believers this could be a gold mine!”

Chinese military officers urge economic punch at U.S. (Buckley, Reuters) Their economic nuclear option….

Eurozone holds intensive talks about Greek rescue (Sobolewski/Maltezou, Reuters) Some combination of #1 and #2 is indeed the way Europe and Greece appear to be attacking this problem. Here is an update of sovereign CDS:


How Brussels is trying to prevent a collapse of the Euro (Der Spiegel)

Google tweaks Gmail to challenge Facebook, Twitter (Oreskovic, Reuters) Should Zuckerberg fear Larry Page and Sergey Brin? Or will Buzz impact Facebook as weakly as Docs impacted Microsoft Office?

Mervyn King leaves his options open (Brereton/Hannon, WSJ) The head of the Bank of England won’t rule out more money printing to buy assets (“quantitative easing”). Not that this shouldn’t be expected.

Blast off (imgur)

Slow motion lightning….more here


The Peck article in the Atlantic on the unemployment situation that you recommend is a very good, read but it ends with two questionable statements:

“…solutions (to high unemployment) …must include…ensuring that we are creating the kinds of jobs…that can allow for a more broadly shared prosperity in the future.”

Who is the “we” and how are jobs of a certain type created? Isn’t employment the result of employers providing a service or product that is wanted and for the lowest possible production cost? Doesn’t unemployment in itself drive down labor cost? The author implies government stepping in, further reinforced by this…

“Concerns over deficits are understandable…but our bias should be toward doing too much rather than too little. That implies some small risk to the government’s ability to borrow in the future…”

Rolfe, I think all that you have been saying indicates such risk is far from small. It worries me, as I think it does you, that the bottomless government borrowing we are seeing appears to have no immediate consequences. It makes me think that a very unpleasant surprise may be coming, just as a rubber band remains intact as it is stretched, until it snaps. I think there is more faith that government can exert control over the economy in this article than is warranted.

Posted by Chicagoboy | Report as abusive

Lunchtime Links 1-19

Jan 19, 2010 19:18 UTC

MUST READSouring mortgages, weak market put FHA on tightrope (Timiraos, WSJ) Good article, though Timiraos doesn’t address the absurd circularity perpetuated by FHA Chief David Stevens when Stevens says, on the one hand, that more gov’t lending protects the housing market from further declines, while simultaneously arguing that such lending isn’t sustainable. That said, Timiraos has worked lots of interesting stuff into this piece, especially towards the end. For instance, in late ’07 investors were refinancing at-risk borrowers into FHA loans in order to shift risk to taxpayers. Barney Frank defends permanently raising FHA maximum loans for certain geographies to $729k. Also lots of data about how badly FHA loans are performing.

Citi’s Q4 earnings: Not terrible but not great (Wilchins, Reuters) Trading revenues in the investment bank were much weaker compared to last quarter. Citi also benefited from a tax break, without which they wouldn’t have met consensus estimates for the quarter. Here’s a helpful chart.

(Click here to enlarge in new window)


How the French outplayed AIG and the Fed (Berman, WSJ…subscription req’d) Great column. Goldman gets all the bad press, but it was far from the only bank that got 100¢ on the dollar for derivative contracts with AIG…

Too big to fail is here to stay (Salmon, Reuters) Felix does a great takedown of Andrew Ross Sorkin’s latest column.

Record cash means S&P 500 at half 2007 valuation (Xydias/Nazareth, Bloomberg) A very interesting idea, though lots of bones to pick with the way this piece was written. In nearly 1,300 words the writers never manage to provide a solid definition of how they’re computing valuation. What is price to cash flow? Do they mean price to free cash flow? Do they mean price to EBITDA? There’s a line about cash flow being earnings plus depreciation and asset writedowns. That may be a very relevant metric. But it’s not one that investors know or understand and the authors fail to explain it.

The bidding war for failed banks (Mathews/Fisher, SNL) Interesting data on competitive bids for failed banks. (Until FDIC stopped releasing it)

In defense of a 4-day workweek (Hari, Independent)

Google at war in China, now postpones handset launches (BBC)

Another Swiss bank whistleblower (Browning, NYT)

AT&T/Verizon cut prices (Furchgott, Gadgetwise) The price cuts are just for some voice plans, not data plans. You can call the carriers and get the new lower prices without having to extend your contract…


No, Ron, they didn’t. It happens for balance sheet periods beginning on 1/1/10. So the Q1 release will be the first to include it.

Posted by Rolfe Winkler | Report as abusive

Afternoon links 1-13

Jan 13, 2010 20:51 UTC

Must ReadKyle Bass: Testimony before the FCIC ( Bass is a hedgefunder that made big profits betting against subprime. His testimony has many fascinating facts and figures. [The pie charts on page 9 look familiar.]

Obama to push tax on too-big-to-fail banks (Nasiripour) Not a lot of details: “the planned tax would be imposed in a way that targets firms’ riskiest activities, such as proprietary trading. It would be crafted in a way that doesn’t affect a financial company’s retail banking, so that the cost theoretically would not be passed on to retail customers — but it wasn’t clear exactly how that would work.” And will it tax other TBTF firms besides banks? What about insurers? What about GE? Update: WSJ says the tax will target bank liabilities.

Earthquake in Haiti may have killed over 100,000 (Farie/Varner, Bloomberg) The epicenter of the 7.0 magnitude quake was 10 miles from Haiti’s capital city.

Google China spat shines spotlight on cyberspying (Prodhan/Lee, Reuters) Google has consistently tried to thread the needle between the revenue opportunities provided by the Chinese market, and the censorship restrictions imposed by the Communist Party. This attack was so egregious that Google said it’s had enough.

Prime jumbo RMBS delinquencies jump to 9.2%: Fitch (Golobay, HousingWire) ht Implode-o-Meter.

SEC proposes effective ban on naked access (Younglai/Spicer, Reuters)

FDIC’s Bair blasts other regulators for reluctance on banker pay plan (Paletta, WSJ) I’d hoped to share the video archive with all of you but a day later it’s still not available. There are good arguments that additional curbs on pay will be both tough to design and ineffective at curbing risk. A better regulator is failure. But that’s not Dugan’s point. He just wants to protect banks.

VIDEOLennart Green does close up card magic (TED talks)

Clever 2010 calendar (imgur)

Another dose of Martian awesome (Plait, Discover)

A Chinese thanks Google for standing up to the communists (more)…

google thanks


Just read an amazing global tactical allocation report on zerohedge (2 in facts with yesterday macro section) tactical-asset-allocation-equities

Might be of interest.

Kind regards,

Posted by Petter Knight | Report as abusive

Google developing micropayment system for online news

Sep 11, 2009 04:29 UTC

From the San Francisco Business Times (ht J Lit): Google working on painless payments for news

Google’s platform, which should be ready within a year, would simplify the way newspapers and other publishers charge for online content. Some readers have balked at the need to sign in, create an identity and password, and jump other hurdles to access online news at sites that charge money. Google’s idea — based on its existing “Checkout” system — would let people create just one sign in for many different sites and subscriptions.

It would also let publishers combine subscriptions to many different web sites or titles and charge one price for them.

The platform would also allow creation of different levels of search access, from “snippets” to preview pages to complete access.

Google would get a piece of the pie for facilitating the transaction.

Newspapers complain that Google commoditized news. But that’s unfair. Newspapers are free to keep their content behind a subscription wall if they want. The trouble is they don’t have the leverage, individually, to charge for content. Readers will just go elsewhere.

If Google can help publishers work together, they may just take a little bit of leverage back.

This would be good for readers too. News costs money to produce, believe it or not. At the other end of every link is a reporter working a beat, or an analyst putting together a report. It takes time to create good content and people have to be paid for their time.

It will be easier for readers chip in if the cost is low and the execution is greatly simplified. That is the promise of a unified micropayment platform.

Newspapers shouldn’t expect this to be a panacea, however, not if the cost per page view is in the pennies. The largest newspaper sites would be able to generate a few million dollars per month at best … not a lot, but better than nothing…


I think it is important that publishers be all,owed or encouraged to set their own prices for various types of content. For instance perhaps editorials might be free, while local news costs a quarter and national news 50 cents. Perhaps specialized coverage could cost $20- for an article with special expertise.

Posted by George Vateor | Report as abusive

AOL’s valuation off 97% from peak. Now a good investment?

Jul 28, 2009 01:36 UTC

In a regulatory filing this evening (see page 54), Time Warner announced that it bought back Google’s stake in AOL, for a 97% discount to what it paid in January 2000.  If AOL stock gets floated at a similar valuation, it might be a good value play.

First the news:

On July 8, 2009, Time Warner repurchased Google’s 5% interest in [AOL] for $283.0 million, which amount included a payment in respect of Google’s pro rata share of cash distributions to Time Warner by AOL attributable to the period of Google’s investment in us.  Following this purchase, we became a 100%-owned subsidiary of Time Warner.

Divide $283 mil by 5% and you get a valuation of $5.7 billion for AOL.  When Google bought its stake back in 2005, it paid $1 billion, valuing AOL at $20 billion overall.  When Time Warner and AOL merged in 2000, AOL was valued at $166 billion.  From that peak, AOL’s valuation has now fallen 97%.

Google takes a sizable paper loss on its investment, but in the end it was still a great strategic move for them to lock up AOL’s search distribution.  A big reason Microsoft and Yahoo have never been able to catch Google in search is a simple matter of scale.  Most advertisers needn’t bother devoting any of their search advertising budget to Yahoo or MSFT because neither one has enough share of search distribution—does ANYone search using or MSFT’s Bing?—to make it worthwhile.  Google ends up monetizing its own search traffic better because the depth and breadth of keyword bidding on its network is so much greater.  And because monetization is higher, web publishers prefer to work with Google too, increasing Google’s distribution even more.

It’s a virtuous circle that will allow Google to keep a hammer lock on the search market for a long time to come.

Ironically, advertisers often pay far LESS for clicks on Google than on Yahoo.  Yahoo still has a minimum bid of 10 cents for its keywords.  Google charges advertisers as little as a penny or two for lower volume keywords.

(By the way, the rationale behind paying up to lock down AOL’s search traffic was the same one behind the $900 million guarantee Google gave MySpace to lock up its traffic.  Another shrewd deal for Google).

So will AOL stock be a good investment when the company is spun out from Time Warner?  Possibly.  According to the company’s cash flow statement (see page F-5), it generated free cash flow of $762 million in 2008.  That amount of FCF, vs. an overall valuation of $5.66 billion, puts the company’s FCF yield at a very reasonable 13.5%.*

But investors have to tread carefully.  Yeah, the valuation seems cheap, but free cash flow continues to decline.

Before making an investment, I would want to understand the company’s two businesses in more detail, both the legacy dial-up subscription business and the advertising business.  Dial-up is bleeding to death.  But advertising may have a future.  The key questions are: can the advertising business continue to thrive after dial-up dies?  Also: What is each business’s contribution to free cash flow?

If advertising drives earnings, and it can survive on its own, then the stock may indeed be a great value.

Before closing I should note that I am not making an investment recommendation here.  I just thought readers might find a discussion of company valuation a nice change of pace.  These are all questions we’ll want to ask when (if?) Treasury/Fed/FDIC get out of the market….


*for a comprehensive discussion on FCF yield, and why it’s a better method to measure company valuation than a simple P/E ratio, see the 3-part tutorial on my old blog.


Sorry for not being clearer David. Great question.

Google made the investment as part of a larger deal with AOL to manage the latter’s search traffic. Basically, AOL has lots of people going to its website, but it doesn’t have the infrastructure to make money from those searches. Google has great search technology and an unsurpassed advertiser network.

So AOL just plugs Google’s search technology onto its website. Google’s network gains the scale benefits that come with managing AOL’s traffic.

Posted by Rolfe Winkler | Report as abusive