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There's a great chart accompanying Stewart Elliott's article in the New York Times today about Super Bowl advertising, which documents the average price, in 2005 dollars, of a 30-second spot on the Super Bowl and the viewers. In 1996, the average 30-second spot cost $1.37 million, and reached 94.1 million viewers. Last year, the average 30-second spot cost $2.5 million and reached 86.1 million viewers.
So in 1996, it cost 1.45 cents to reach a Super Bowl viewer for 30 seconds. in 2005, it cost 2.9 cents to reach a Super Bowl viewer for 30 seconds.
Posted by dan at 10:25 AM
Stephen Schurr reports in the Financial Times that hedge funds are off to a great start:
"Several hedge fund of funds in the US and Europe say their overall portfolios are expected to register gains of 1.5-2 per cent or more over the month [of January]. Such returns compare in comparison with high single-digit returns in the UK, Europe and some emerging equity markets, but, given that fund of funds aim for diversity and steady returns, they mark a strong start."
Given the fact that the S&P 500 was up 2.56 percent in January, and the NASDAQ was up 4.5 percent -- and that investors can easily achieve such returns with ETFs that carry very low expenses -- how is that 1.5-2 percent returns are solid?
Posted by dan at 10:17 AM
Look who is helping out Hugo Chavez in his efforts to win friends and buy influence with all the U.S. dollars he gets from oil sales. Hey, the guy is just another hedge fund manager!
Andy Webb-Vidal reports in the Financial Times:
Backed by record oil revenues, Venezuela has bought $1.6bn in Argentine debt during the past year - mostly dollar-denominated Boden bonds maturing in 2012. They were purchased in auctions that were eschewed, in some cases, by big investment banks, such as Citigroup and JPMorgan Chase, because the yields offered were considered too low.Venezuela, which has been the largest buyer of Argentine sovereign debt since the country defaulted on itsforeign debt in 2001, has said it is ready to buy up to $2.4bn worth of Argentine bonds.
It has also bought $25m of Ecuadorean debt and finance minister Nelson Merentes recently said he was looking at buying Brazilian and Chinese bonds.
Investment banks Morgan Stanley and Deutsche Bank are reportedly advising on the bond transactions.
Mr Chávez justifies his virtual "hedge fund" as a benevolent concept that will allow Latin American nations such as Argentina to "liberate'' themselves from an international financial system that, he asserts, is manipulated by the US. . . .
Venezuela's bond purchases have helped Argentina increase its foreign reserves. President Nestor Kirchner's government last month paid off its outstanding $9.5bn debt to theInternational Monetary Fund, in part thanks tothe cash injection from Mr Chávez."Whilst the [bond] purchases are good news for the Argentine government, the benefits for Venezuela are less clear," said Vitali Meschoulam, emerging markets strategist at HSBC Securities in New York.
The Financial Times has learned that significant profits deriving from the bond transactions are being accumulated by a few private banks, rather than by the Chávez government.
Posted by dan at 10:12 AM
Jesse Eisinger of the Wall Street Journal, a member in good standing of the Gloom and Doom Caucus, Housing Division, writes about the mortgage practices of California-based FirstFed Financial Corp.
It's possible to see this whole phenomenon in the sunny climes of southern California, home to a modest bank called FirstFed Financial Corp., a Santa Monica bank with a $1 billion stock-market value. The stock is close to a 52-week high.Its main business is option adjustable-rate mortgages. Option ARMs let customers choose how much to pay each month, including a small minimum. It's just like a credit card, with the same catch: The unpaid interest is tacked onto the mortgage and the balance grows larger.
Option ARMs have been scorching during the housing boom, especially on the West Coast, though they are less attractive to customers now that short-term interest rates are about the same as longer-term ones. Investors temporarily worried late last summer about California bank exposure to them, and the stocks of major banks that offer them -- Golden West Financial Corp., Downey Financial Corp. and FirstFed -- went through rocky periods.
Nevertheless, since the autumn, investors have rediscovered their enthusiasm for all three banks and other mortgagers. They had feared a regulatory crackdown on option-ARM lending practices but it turned out to be more bark than bite. And if the central bank halts its rate-boosting, these banks' profit margins will expand. Historically, it's a good trade to buy the banks' stocks right before the Federal Reserve stops hiking.
Here's the downside: the earnings that result from such loans are squishy. Even when a customer makes only the minimum payment, a bank books the full monthly payment into earnings. But these are noncash earnings.
At FirstFed, such earnings are surging. Last week, it reported that the amount of interest that customers are rolling into their mortgage balances -- known as "negative amortization" -- rose $25 million in the fourth quarter to $63 million for the year, up from $6 million a year earlier. Banks like to express the size in relation to their overall portfolios, and in that respect the balances remain small at all of them.
Another way to look at it is as a percentage of income. Fully 51% of FirstFed's pretax income and 41% of its net interest income was from negative amortization in the fourth quarter. That's a higher percentage than at Downey or Golden West. FirstFed didn't respond to calls seeking comment.
Investors are blithely ignoring the inevitable problems these banks will endure with their option-ARM customers. Just yesterday, mortgage giant Countrywide Financial Corp., another seller of option ARMs, reported rising delinquencies. . . .
To its credit, FirstFed has higher loan-loss reserves as a percentage of its portfolio than its competitors. But it should: It has doubled the size of its mortgage portfolio in the past two years, just as the housing market was booming. As some other California banks were slowing down their mortgage-origination growth, FirstFed got more aggressive. The result is that many of those mortgages are being made on properties with inflated values.
Unlike Golden West, which is famously disciplined about its lending, FirstFed doesn't use its own housing appraisers. That should be a red flag to investors. Third-party appraisers might have more of an interest in getting the loan approved, rather than protecting the bank's bottom line.
Moreover, over 80% of FirstFed's recent loans have been "low documentation" loans, meaning they required less confirmation about whether the customer was a good risk. Through the first nine months of last year, over 13% of its mortgages were NINAs -- "no income, no assets." In other words, customers get mortgages without disclosing their income and assets."
Yikes! James Grant of Grant's Interest Rate Observer, a founding member of the Gloom and Doom Caucus's rapidly expanding Housing Division, made the bear case against FirstFed last fall, when the stock was in the low 50s. And it has only risen since. Now investors have been twice warned.
Posted by dan at 10:31 AM
I know this is a day late, but yesterday's Wall Street Journal op-ed page offered up so much rich material it took some time to digest it.
First, Andy Kessler had a very clever piece on Google as the next Great American Sellout, which is ">reproduced on his website.
Second, Fred Barnes soars into the orbit of Planet Kookoo with his absurd take on the ownership society:
Liberals regard an ownership society with loathing. After all, it goes against 70 years of national policy in favor of expanding the size and scope of the federal government and the power of government officials. With the New Deal, JFK's New Frontier and LBJ's Great Society, government grew and grew, with liberals providing the impetus. For a half-century, conservatives have sought to reverse this trend and both slash federal spending and reduce the size of government. President Reagan briefly pared federal spending (1981) and Newt Gingrich, with the "Republican revolution," mounted a fleeting assault (1995) on it. But in trying to cut the supply of government, both essentially failed.The notion behind the ownership society is that growth of government can never be halted by attacking supply. Only reducing the demand for government holds a promise of working. With individuals allowed to decide how to save, invest and handle their health-care expenses, they'd demand less from government. Or so the notion goes. GOP national chairman Ken Mehlman refers to this as demand-side conservatism.
The desire to shrink government by any means seems a bit odd coming from Mr. Bush. Having declined to veto any spending bills -- or anything else -- in the five-plus years of his presidency, he's often associated with the rapid growth of government. In fact, two years ago on this page, I dubbed him a big government conservative. To many, this signified Mr. Bush is a liberal. He's not. A better label for Mr. Bush is strong government conservative.
In any case, he now believes an ownership society would foster a wave of self-sufficiency. "I think part of government's responsibility is to encourage certain cultures," he told me. "And a primary cultural change that I have been trying to instill ever since I got into public office" is a fresh "period of personal responsibility." Ownership "does a lot of things." One of them, Mr. Bush continued, is to increase "independence from government. Government sometimes, because you're dependent on it, undermines the sense of personal responsibility." Ownership also gives people "a vital stake in our country," he said. "There's a direct link between participation and ownership, participation and democracy and ownership
Third, George Melloan with some similarly absurd thoughts on the ownership society with a bonus foray into health care. He writes:
That America's ownership society is thriving can be seen in the burgeoning holdings of assets such as houses and securities. The president can claim, if he so wishes, that his first-term tax cuts fostered this expansion and broadening of national wealth.
It's clear that Barnes and Melloan have never bothered to do any research on trends in stock ownership over time. If they did, say, if they looked at the Investment Company Institute's fact book, they'd note the following. During the liberal 1990s, the ownership society exploded: the percentage of households owning mutual funds rose from 27 percent to 49 percent. But since President Bush came into office, the trend ground to a halt. In fact, between 2000 and 2004 the percentage of U.S. households owning mutual funds actually fell, from 49 percent to 48.1 percent. Clearly, cutting taxes on capital gains and dividends hasn't spurred vastly more Americans to become investors in mutual funds.
Or how about the Securities Industry Association's most recent Equity Ownership in America report? On page 7, it has a chart showing what percentage of Americans own equities -- either through mutual funds or as individual issues. The trend is similar. Between 1992 and 1999 the percentage of households owning equities rose from 36.7 percent to 47.9 percent, a 30 percent increase. Between 2002 and 2005 the percentage of households owning equities rose from 49.5 precent to 50.3 percent, an increase of 1.6 percent. Contrary to what Barnes, Mellon, and many others think, there's simply no evidence that (a) the number and percentage of Americans owning stocks has increased rapidly during the Bush years; and that (b) cutting taxes on capital gains and dividends has encouraged millions of new investors to buy equities.
Posted by dan at 06:11 AM
In today's Washington Post, David Finkel introduces us to the charming, sparsely populated hamlet of Randolph, Utah, where Bush received upwards of 95 percent of the vote in 2004.
One of the main characters is Pat Orton, a 50-something woman who loves the President.
She netted $10,000 last year, if that. She has no savings. She has no retirement plan. She works seven days a week, 12 hours a day. Her last vacation was a quick trip last Thanksgiving to see her in-laws in southern Utah, where "I cooked turkey, and they didn't like the turkey, and that's how that went," and the longest she ever remembers shutting down Gator's since opening day 18 years ago was when she helped a family member move to Oklahoma.
These aren't Rockefeller Republicans. They're Joad Republicans. Erskine Caldwell Republicans. Dickens Republicans.
Posted by dan at 02:06 PM
Some articles worth checking out in the latest crop.
Amy Borrus in Business Week on Pfizer CEO Hank McKinnell's egregious pension.
John Carey in Business Week on how the shortage of silicon is hampering the solar panel industry.
Jonathan Fahey in Forbes on Norfolk Southern (registration required).
Michael Freedman writes in Forbes on how William Browder, the grandson of American communist leader Earl Browder, is a big-time capitalist.
Katrina Brooker has a good piece in Fortune on the triumph of Pepsi, though it doesn't seem to be available on the web yet.
In the Economist ($ required), good articles about making hybrids go even further on less gas, and a free report on the U.S. health care crisis.
Posted by dan at 08:29 AM
Maybe they can get HSAs. Robert Pear reports in the New York Times on Congress's latest effort to reform Medicaid and improve the health insurance crisis by kicking poor people out of the program.
"Millions of low-income people would have to pay more for health care under a bill worked out by Congress, and some of them would forgo care or drop out of Medicaid because of the higher co-payments and premiums, the Congressional Budget Office says in a new report.The Senate has already approved the measure, the first major effort to rein in federal benefit programs in eight years, and the House is expected to vote Wednesday, clearing the bill for President Bush.
In his State of the Union address on Tuesday, Mr. Bush plans to recommend a variety of steps to help people obtain health insurance and cope with rising health costs. But the bill, the Deficit Reduction Act, written by Congress over the last year with support from the White House, could reduce coverage and increase the number of uninsured, the budget office said.
Over all, the bill is estimated to save $38.8 billion in the next five years and $99.3 billion from 2006 to 2015, with cuts in student loans, crop subsidies and many other programs, the budget office said. Medicaid and Medicare account for half of the savings, 27 percent and 23 percent over 10 years. . . . .
"In response to the new premiums, some beneficiaries would not apply for Medicaid, would leave the program or would become ineligible due to nonpayment," the Congressional Budget Office said in its report, completed Friday night. "C.B.O. estimates that about 45,000 enrollees would lose coverage in fiscal year 2010 and that 65,000 would lose coverage in fiscal year 2015 because of the imposition of premiums. About 60 percent of those losing coverage would be children."
The budget office predicted that 13 million low-income people, about a fifth of Medicaid recipients, would face new or higher co-payments for medical services like doctor's visits and hospital care."
Well worth reading the whole thing.
Posted by dan at 08:08 AM
Could it be that one of the flaws of Bush foreign policy is that there aren't enough people with experience on Wall Street in the White House? The big asset that Robert Rubin brought to his jobs, and to the Clinton administration, at large, was a propensity to think in terms of probabilities and to make policy and plan accordingly. When you approach problems that way -- in stock terms, any policy could be up five points or down two -- it stops you from getting caught completely flat-footed when the expected outcome doesn't materialize.
This administration, by contrast, is continually caught unawares by unlikely events. Read Steven Weisman's article on the front page of the New York Times today on Condi Rice's latest admission of befuddlement.
Secretary of State Condoleezza Rice acknowledged Sunday that the United States had failed to understand the depth of hostility among Palestinians toward their longtime leaders. The hostility led to an election victory by the militant group Hamas that has reduced to tatters crucial assumptions underlying American policies and hopes in the Middle East."I've asked why nobody saw it coming," Ms. Rice said, speaking of her own staff. "It does say something about us not having a good enough pulse." . . . . .
There is a lot of blame to go around," said Martin Indyk, a top Middle East negotiator in the Clinton administration, referring to Mahmoud Abbas, the Palestinian president, and his Fatah party. "But on the American side, the conceptual failure that contributed to disaster was the president's belief that democracy and elections solve everything."
Ms. Rice pointed out that the election results surprised just about everyone. "I don't know anyone who wasn't caught off guard by Hamas's strong showing," she said on her way to London for meetings on the Middle East, Iran and other matters. "Some say that Hamas itself was caught off guard by its strong showing." . . .
"You've got to hedge against the risk that elections are going to lead to precisely this result," said Mr. Indyk, the former Middle East negotiator. "The hedge is to build civil society and democratic institutions first. But this administration doesn't listen to that."
Posted by dan at 08:01 AM
Investment bubbles aren't all bad, or so I argue in Wired.
Posted by dan at 08:00 AM
My latest in Slate, on the trend of frozen pension plans.
Posted by dan at 07:59 AM