« September 17, 2006 - September 23, 2006 | Main | October 01, 2006 - October 07, 2006 »
Pirate Capital, the martime themed hedge fund, is taking on water, employees are abandoning ship, the investment vehicle is tacking into the wind, it has run aground, its returns have entered the Sargasso Sea. Expect to see these and other seaworthy metaphors used liberally in coming weeks. Jenny Anderson reports in the New York Times:
Pirate Capital, a $1.7 billion fund based in Norwalk, Conn., lost half its investment team this week, according to a letter from the founder and portfolio manager, Thomas Hudson. In addition, Pirate, an “activist” fund that pressures management to increase shareholder value, is being investigated by the Securities and Exchange Commission on suspicion of failing to alert the commission when it was selling stock, according to one person briefed on the inquiry.Mr. Hudson’s letter, dated Sept. 28 and on stationery with a pirate ship logo, said that Pirate would close to new investors Sunday, to focus on delivering returns rather than collecting more money.
“I’ve decided to return the firm to its roots,” Mr. Hudson wrote. “The goal is to focus on returns and not the size of the assets we manage.”
Pirate Capital has had a difficult year: its flagship Jolly Roger Fund is up only 3.3 percent, while its activist fund is up 2.86 percent, according to materials sent to investors. Those returns are well below the average activist fund. Hedge Fund Research in Chicago tracks the returns of 44 funds that operate solely activist strategies; through August those funds have returned 10.39 percent.
An S.E.C. spokesman, John Nester, declined to comment. Isa Bolotin, head of investor relations at Pirate Capital, did not return calls seeking comment.
Pirate is known for its unusually brash tactics and unabashed style. A New York magazine cover article reported that Zachary George, 27, an analyst with the firm and former competitive snowboarder, told the chief executive of the Cornell Companies, a prison operator, that “You work for us,” and that Mr. George and Pirate wanted Cornell sold and the chief executive sacked. “Next year we’re going to be here, and you won’t,” Mr. George told the chief executive, according to the article.
Mr. Hudson said two investment professionals, including Mr. George, resigned on Monday. On Wednesday, Carl Klein, a portfolio manager, resigned, and Mr. Hudson asked two more analysts to leave. Five people, including Mr. Hudson, remain.
Posted by dan at 09:22 AM
An interesting tidbit on Brazil in the New York Times, by way of Reuters:
Brazil’s central bank cut its forecasts for inflation and growth in 2006, indicating that there may be more interest rate cuts this year as price increases stay tame amid an economic slowdown. In its quarterly inflation report, the bank reduced its 2006 inflation forecast to 3.4 percent, from 3.8 percent, while it raised its 2007 projection to 4.3 percent, from 4.2 percent. The bank also reduced its forecast of growth in the gross domestic product for 2006 to 3.5 percent, from 4 percent.
Note: in the past 12 months, the U.S. CPI rose 3.8 percent. Which means that in the past year, the Brazilian and U.S. economies have experienced roughly the same amount of currency debasement.
Posted by dan at 09:20 AM
Did anybody notice the report from the Kaiser Family Foundation earlier this week on inflation in health insurance? An excerpt from the executive summary:
Premiums for employer-sponsored health coverage rose an average 7.7 percent in 2006, less than the 9.2 percent increase recorded in 2005 and the recent peak of 13.9 percent in 2003, according to the 2006 Employer Health Benefits Survey released today by the Kaiser Family Foundation and the Health Research and Educational Trust (HRET). Key findings from the survey were also published today as a Health Affairs Web Exclusive.
This year’s survey recorded the slowest rate of premium growth since 2000, though premiums still increased more than twice as fast as workers’ wages (3.8 percent) and overall inflation (3.5 percent). Premiums have increased 87 percent over the past six years. Family health coverage now costs an average $11,480 annually, with workers paying an average of $2,973 toward those premiums, about $1,354 more than in 2000.
In recent months, as data has emerged that shows median cash wages continue to stagnate, some economists have argued that the data on earnings only tells a part of the story. After all, benefits are part of compensation, and the data shows that the amount of money employers are spending on benefits is rising. Ergo: workers aren't worse off than they were a few years ago. Viz. Prof. Mankiw, et. al.
But if inflation in the cost of benefits is rampant, as it is and has been, employers (and hence employees) may actually be getting fewer benefits, even as they spend more dollars each year. In fact, the data on the number and percentage of uninsured workers, and on the continuing rise of employee contributions to health care coverage, would seem to indicate exactly that.
Posted by dan at 08:08 AM
James Glassman, writer, editor, Dow 36,000 co-author, and "senior adviser to AT&T," sings for his supper on the Wall Street Journal editorial page.
In an era of partisan nastiness and gridlock, the California legislature did something on Aug. 31 that was shockingly harmonious, reasonable and beneficial to consumers. Both parties voted overwhelmingly to allow competition into a sector -- cable television -- where prices have been elevated and service depressed by the most pernicious monopoly in America. . . .Very quietly, things are changing. Seven states, comprising about one-third of the U.S. population, have now passed video franchise laws, which will not only lower monthly subscriber costs but also create new technology jobs -- 10,000 in California alone, according to one estimate -- as Verizon and AT&T, along with cable overbuilders like RCN, jump in with both feet. To bring high-quality video to the home over a technology called Internet protocol, the telcos will make major investments to drive the fiber -- which carries the data -- much more deeply into their networks. Broadband service will improve; state and local governments will still get their franchise fees. All that will end is a monopoly that drives consumers nuts.
Bills bringing competition to cable have been outrageously popular. In Kansas and South Carolina, the vote in each state house was unanimous; in California, it was 33-4 in the Senate and 68-7 in the House. Supporters range from the National Association of Manufacturers to the Communications Workers of America.
With a national election coming up, you would expect Congress to get on the bandwagon and embrace a version of the state bills, killing the monopoly and taking the credit. Instead, federal legislation is slowed down by measures promoting "net neutrality" -- the concept that telecom companies should be barred from asking content providers, like Amazon, to pay extra for higher-speed service the telcos develop -- the way that an airline asks more for a first-class seat. The House, after rejecting a net-neutrality amendment, passed a video-choice bill, as it's called, by a 3-1 margin in early June. But net neutrality lives in the Senate, and the debate has become tendentious. Moveon.org has taken up the cause, claiming on its website that a tiered system that gives faster delivery to some customers "would end the free and open Internet." Such claims are nonsense, and irrelevant when a federal bill to liberate cable TV is otherwise at hand.
How much will consumers save? A 2004 study by the GAO looked at six markets with cable competition and found that rates were 15% to 41% below similar markets with no competition. Annual savings for U.S. households through competition will total $8 billion, says the Phoenix Center for Advanced Legal and Economic Public Policy. . . .
Posted by dan at 08:05 AM
Tom Friedman, Bangalore is calling on line one. Jo Johnson reports in the Financial Times:
More than 100,000 English-speaking children in India's information technology capital of Bangalore will soon have to switch to schools offering lessons exclusively in a Dravidian regional language, following a crackdown on more than 2,000 English-medium institutions in the state of Karnataka.The state government's promise yesterday to enforce a widely flouted 1994 language policy requiring compulsory Kannada-medium education in primary schools reflects resentment at the influx of relatively wealthy English-speaking IT workers into Bangalore.
The ban on English language classes may in time further erode the competitiveness of a city that styles itself as back office to the world, at a time when it is already suffering from severe shortages of skilled labour, high wage inflation and overburdened infrastructure.
The crackdown has seen 800 schools stripped of their status and a further 1,500 face closure, according to an education department official.
The move by the pro-rural state government has provoked dismay among reformers, with many warning Karnataka to heed the example of West Bengal, forced by its own rapid economic decline to abandon a similar "No English, only Bengali" policy.
Posted by dan at 01:37 PM
Chevrolet is trying to monetize national tragedy by running ads for the Silverado pick-up truck that feature images from 9/11 and Hurrican Katrina. Somehow I don't think this one is going to go down as one of the all-time great ad campaigns. Nick Bunkley reports in the New York Times.
Posted by dan at 10:05 AM
Billionaire Sumner Redstone cuts his own salary, is hailed as a hero. Geraldine Fabrikant reports in the New York Times.
Posted by dan at 10:04 AM
My latest in Slate, on dubious corporate cost-cutting efforts.
Posted by dan at 10:02 AM