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| http://www.gilder.com/ | Issue 369.0/January 23,
2009
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HEADLINES:
- The Week / Mr. President, Suspend Market-to-Market
- Friday Feature / Kessler: Chicago Cubs Economy
- Friday Blogger Bonus / Caulfield: Apple Lets the Numbers Talk
- Readings /
The Week / Mr. President, Suspend Market-to-Market
Brian WESBURY & Robert STEIN, Forbes.com
(1/21/09): After
Citigroup and Bank of America reported more troubles
with markdowns last week, the Treasury Department, the Fed, the FDIC and the
incoming Obama economic team seem to have coalesced around another idea to save
the financial system.
The new plan (which is only a proposal at this point)
would use the second $350 billion tranche of the TARP plan to capitalize a
government-owned "aggregator bank" that would buy up "bad"
assets that continue to undermine bank capital.
There is an easier way to deal with this problem. A bold move by the new
president, Barack Obama, to support a suspension of mark-to-market accounting
would stop the deterioration in bank balance sheets and allow time to heal without
taking down the entire economy in the process.
What many people do not realize is that mark-to-market accounting existed
in the Great Depression and, according to Milton Friedman, was an important
reason behind many bank failures. In 1938, Franklin Delano Roosevelt called on
a commission to study the problem and the rule was finally suspended. Rather
than waiting eight years as we did in the 1930s, the new president could fix
this problem immediately.
Last week in London, Federal Reserve Chairman Ben Bernanke said, "the
presence of these [toxic] assets significantly increases uncertainty about the
underlying value of these institutions and may inhibit both new and private
investment and new lending."
To paraphrase: As long as these assets have the potential to be marked
down, bank capital is at risk. And as long as bank capital is at risk, private
investors will remain skeptical and banks will remain conservative, which
impinges their willingness to lend.
If we look back, every plan the government has proposed or implemented is
designed to address this problem. Every plan used taxpayer dollars to fill
holes in bank balance sheets or to keep write-downs from further eroding
capital.
Unfortunately,
the government's interference has often made problems worse. Plans and
strategies have changed multiple times. President Bush's Sept. 24, 2008, speech
on national television to call on Congress to pass the bailout plan, scared
people. Investors have been forced to take hair cuts and so much government capital
is sloshing around, actual market prices are suspect at this point. And the
biggest mistake of all is that mark-to-market accounting rules have not yet
been suspended.
Comment on this story:
http://www.forbes.com/opinions/2009/01/20/accounting-treasury-obama-oped-cx_bw_rs_0121wesburystein.html
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Friday Feature / Chicago Cubs Economy
ANDY
KESSLER, Forbes.com
(1/21/09): The Tribune Company is to announce the buyer of the Chicago Cubs baseball
team this week. The short list is Chicago businessman Tom Ricketts, Chicago
real estate investor Hersch Klaff and New York private-equity investor Marc
Utay, according to a reporter at the Chicago Tribune, who
must have, um, pretty good sources. Hope (or is it a goat) springs eternal for
Cubs fans, now 100 years since a championship.
The only reason I bring this up is that Mark Cuban, famous hedger of Yahoo!
shares after selling his company, owner of the Dallas Mavericks basketball
team, frequent finee by NBA commissioner David Stern (another $25,000 last
week!) explained a couple of weeks ago on his terrific site blogmaverick.com,
why he wasn't a finalist for the Cubs. Inadvertently, or maybe blatantly, he
gives the greatest
explanation of today's asset values and what has gone wrong with the U.S.
economy.
"I
never thought it conceivable that it would be hard to spend a billion dollars
on a sports team. In this case it was. Add me to the list of people who never
want to participate in this type of sales process again. I tried every trick I
knew to try to get them to commit to me. ... You name the trial close, I went
for it. But I couldn't close them."
Like that bigger house down the block you got outbid on.
I've known Mark for a dozen years, back when he was a mere thousand-aire,
peddling his company Audionet around Silicon Valley looking for clients. We
chat every once in a while by e-mail, and he comes and says hello when Dallas
plays Golden State. And still, I admit to living vicariously through Mark
Cuban. Who doesn't? So many sports team owners wear bow ties and never venture
out of the luxury box. Mark wears T-shirts, sits with his team, yells at refs
and opposing players and absolutely lives and dies by wins and losses. He's
still an adolescent, as a sports fan anyway, just like the rest of us.
But he's no business dummy. He bought the Dallas Mavericks and improved the
fan experience (started winning) with the payoff of huge crowds. Repeat with
the Cubs? Cuban was willing to spend $1 billion or maybe more, with a huge
chunk financed by bank debt.
Was it worth $1 billion? I'm not privy to the cash flows, but I suspect,
unlike the Mavs, what can be squeezed out of the franchise has been squeezed.
They had the seventh-highest payroll in the league at $118 million.
Can't cut that until after a World Series or risk getting the Steve Bartman
treatment by Chicagoans.
Comment on this story:
http://www.forbes.com/opinions/2009/01/21/chicago-cubs-cuban-oped-cx_ak_0121kessler.html
__________________________________________
Friday Blogger Bonus / Apple Lets
the Numbers Talk
BRIAN CAULFIELD, Forbes.com
(1/21/09): Is Steve Jobs dying? Will
Apple
sue Palm?
Will the Cupertino, Calif.-based phone and computer maker introduce a low-cost
netbook to counter the hot-selling gadgets pumped out by Hewlett-Packard,
Acer and Dell?
Apple (AAPL) did little to address
these questions on its quarterly earnings call Wednesday, letting stronger than
expected sales and earnings speak for themselves amidst a quarter that wrecked
much of the rest of the tech industry. Shares of Apple rose $7.62, or 9.2%, to
$90.45 in after-hours trading.
Net
income for the quarter rose to $1.78 a share, or $1.61 billion, from $1.16 a
share, or $1.05 billion, during the year-ago period. That's 39 cents better
than the $1.39 per share analysts had expected. Sales rose to $10.17 billion
from $7.5 billion during the year-ago quarter. Analysts had expected sales of
$9.7 billion. Adjusted for the effects of the subscription-based accounting
scheme used to tally sales of iPhones, however, and Apple's numbers are even
more impressive: Earnings of $2.3 billion on sales of $11.8 billion.
Apple sold 22.7 million iPods during the quarter. On the analyst call,
however, Chief Financial Officer Peter Oppenheimer noted that all of that
growth came from outside the United States, where iPod sales fell 3%
year-over-year. Similarly, while Apple sold 2.5 million Macintosh computers, up
9% from the year-ago quarter, that growth came thanks to sales of notebook
computers.
Desktop computer sales fell 25% from the year-ago
quarter. Oppenheimer said that was in part because of a tough comparison to the
year-ago quarter, which followed the introduction of new Macs, but also because
consumers are snapping up notebook computers, rather than desktops, in greater
numbers.
Apple sold 4.3 million iPhones, up 88% from the year-ago
quarter.
Analysts also asked about the health of Apple Chief
Executive Steve Jobs, who is on medical leave through June. Chief Operating
Officer Tim Cook described the company's employees as "wicked smart,"
and said Apple's values are "well entrenched."
"Regardless of who is in what job, those values are so embedded in
this company that Apple will do extremely well," Cook said. "I
strongly believe Apple is doing the best work in its history."
Comment on this story:
http://www.forbes.com/2009/01/21/apple-cook-earns-tech-enter-cx_bc_0121applecook.html
__________________________________________
Readings /
Apple Proves Recession-Resistant For Now
http://news.cnet.com/8301-13579_3-10147621-37.html?tag=newsLeadStoriesArea.1
Multicore Made Simple
http://www.spectrum.ieee.org/jan09/7129
Tech Stocks Boost Street
http://www.forbes.com/2009/01/21/ibm-tech-blackrock-markets-cx_er_0121transvid2.html
Sony Warns of Full-Year Loss
http://www.forbes.com/opinions/2009/01/21/chicago-cubs-cuban-oped-cx_ak_0121kessler.html
Netbooks Poised to Be the New OS
Battleground?
http://linux-foundation.org/weblogs/linuxwins/2009/01/19/netbooks-poised-to-be-the-new-os-battleground/
Intel to Close Plants, Displacing Thousands
http://online.wsj.com/article/SB123257510891303715.html?mod=article-outset-box
Broadband on Rails
http://www.technologyreview.com/communications/21912/?a=f
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