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Live by the sleazy tax avoidance scheme, die by the sleazy tax avoidance scheme. Texas law firm Jenkens & Gilchrist meets its maker.
Posted by dan at 10:43 AM
Some sectors of the credit markets are having eureka moments, as they suddenly discover the heretofore unknown concept of risk. Just so, stock analysts are having a eureka moment of their own, as they may suddenly be discovering the heretofore unknown concept of the business cycle. Francesco Guerrera and Eoin Callan report in the Financial Times:
US companies' share of the economic pie has begun shrinking after a record-breaking run, fuelling fears that corporate America's profitability is heading for a prolonged downturn.The fall in the share of economic activity taken up by corporate profits - revealed in official figures released yesterday - will deepen Wall Street's concern over the ability of companies to increase earnings amid a slowing economy and rising cost pressures.
"Profits growth has turned decisively down and the end is not yet in sight," wrote Gabriel Stein of Lombard Street research in a note to clients yesterday.
Fears of an abrupt end to the unprecedented period of profit growth enjoyed by US companies have been one of the factors behind the US stock market's recent woes. When Alan Greenspan, the former chairman of the Federal Reserve, raised similar concerns at the end of February, his comments sparked a worldwide market sell-off.
The figures showed profits at US companies were down in the last three months of 2006, the first quarterly fall since the third quarter of 2005 when the economy was reeling from the effects of Hurricane Katrina. The fall reduced the profits' share of national income to 12.2 per cent from a more-than- 30-year high of 12.4 per cent in the previous quarter.
You mean corporate profits were *only* 12.1 percent of GDP in the fourth quarter of 2006? Cry me a river.
Posted by dan at 10:39 AM
My latest in Slate, on CEOs and their giant homes.
Posted by dan at 10:10 AM
Rudy Giuliani, furiously fleeing from his record as a fiscal moderate, jumps off the flat-tax diving board. Unfortunately, this particular end of the pool is filled with about two feet of water. Richard Perez-Pena has the goods in the New York Times:
Rudolph W. Giuliani accepted the endorsement of Steve Forbes yesterday and embraced Mr. Forbes’s signature issue, saying he liked the idea of a flat tax — something Mr. Giuliani denounced when Mr. Forbes was running for president. . . .In 1996, when Mr. Forbes first ran for president, Mr. Giuliani, then the mayor of New York City, disparaged a flat tax in general and Mr. Forbes’s plan in particular. The Forbes plan called for a single tax rate above a certain income, instead of several rates based on income. Mr. Giuliani said that a central part of the proposal, eliminating deductions, would hurt taxpayers in urban areas and reduce tax revenues for populous cities and states.
“You’re giving them more authority, more autonomy, and you’re giving them less resources to deal with the problems,” he said then in an interview with CBS, calling the proposal “a mistake.”
He used stronger language on CNN a few days later, saying the Forbes plan “would really be a disaster.”
Eleven years later, Mr. Giuliani is the one running for president, and with a record on social issues to the left of most Republicans, he has been trying to appeal to fiscal conservatives. . . . .
These days, Mr. Giuliani calls himself an advocate of supply-side economics and tells audiences that he cut taxes and restrained spending as mayor. He said several times yesterday that the federal tax code should be vastly simpler.
Posted by dan at 08:28 AM
The wind energy business is heating up. Portuguese utility Energias de Portugal yesterday agreed to pay $2.2 billion for Horizon Wind Energy. Eager to cash in on the world's gastest-growing market for wind energy, the Portugeuse company plans to boost Horizon's wind generation capacity substantially--the target now calls for 7,600 megawatts by 2010, up from the previous target of 4,200 MW.
Posted by dan at 08:45 AM
In today's Wall Street Journal op-ed page, Holman Jenkins signs up for the tough task of defending the indefensible: Conrad Black.
"We'll ask a different question: Regardless of any self-dealing behavior on Lord Black's part, was criminal and civil litigation really the best way to settle whether he was properly looking after the interests of minority shareholders? Surveying the mess that Hollinger has become, the answer would have to be "no." . .Unquestionably, this was one way of dealing with a high-handed CEO. But these words, tossed out amid the press frenzy over Enron, were better calculated to stimulate media interest than facilitate a happy ending for shareholders. As Vanity Fair aptly pointed out last month, the consequence was that all involved became "mired in cannibalistic, internecine lawsuits." The legal costs alone have come to dwarf even the $60 million that Lord Black and his deputies are accused of paying themselves improperly.
Meanwhile, shareholders consider themselves no better served by his successors, the new directors and executives hired to clean up the mess under Mr. Breeden's watchful eye. As the new managers attended to legal and regulatory warfare, Hollinger was dismantled in desultory fashion, leaving only a rump company controlling the Chicago Sun-Times and a few smaller papers. The net gain to the funds that spent five years and millions of dollars battling the company was a big fat goose egg. Only Mr. Breeden and the lawyers seem to have emerged from the episode with personal wealth enhanced.
Whatever the crimes and misdemeanors of Lord Black, it has not been an excellent adventure for Tweedy Browne and other shareholders.
They presumably saw value to be unlocked in Hollinger. That's why they invested in the first place, though the greater part of their disappointment may stem from their own misjudgment about the future of the newspaper business.
For starters, Lord Black was the majority shareholder, and had assured himself of voting control by issuing two classes of stock. Tweedy and others knew this going in. No, that doesn't mean Lord Black is relieved of his duty to play fair with minority shareholders, nor that minority shareholders don't have every right to use the available means to press for change.
Those available means, however, once would not have begun and ended with lawsuits and stirring up the corporate governance furies. Had outsiders seen unrealized value in Hollinger, they might have weighed their odds and launched a hostile bid to buy the company out from under its proprietor. Any lawsuits and media campaigns would have been carefully metered to encourage Lord Black to sell but not to damage the company."
In other words, to get rid of the corrupt, conniving and allegedly thieving manager, shareholders of Hollinger should have offered him a really fat premium to go away.
Posted by dan at 08:26 AM
My latest in Slate, on the premature reports of the death of the compact disc.
Posted by dan at 08:17 AM
On most days, it's the Financial Times, by a long shot--although, to be honest, the pages of the leading U.S. papers don't put up much resistance. Today, two excellent pieces: Dani Rodrik of Harvard's Kennedy School warns that glib globalization cheerleaders are a greater menace to free trade than the protesters. And Roger Ehrenberg has a thoughtful piece on the private equity bubble.
Posted by dan at 01:34 PM
China continues its rise from low-cost-producer-of-unshophisticated-good to something somewhat different. David Barboza reports in the New York Times on Intel's plans to build a huge chip manufacturing plant in China.
And in the Financial Times, Robert Wright reports that Western retailers are exporting their supply chains to China.
Posted by dan at 01:29 PM
I've spent a lot of time in recent years on the Two Americas Shopping thesis. As Eric Bellman reports in the Wall Street Journal, the meme may have jumped across to the vast Indian subcontinent:
Mohan Murjani made a fortune in the U.S. when he created Gloria Vanderbilt jeans and backed designer Tommy Hilfiger. Then he lost it. Today, he's rebuilding his empire in the high-end retailing boom sweeping the country he left 50 years ago: India.In the 1980s, amid a sharp downturn in his fortunes, one of the few assets Mr. Murjani held onto was the rights to sell Tommy Hilfiger products in India -- even though imported jeans were effectively banned in the country then. He did nothing with it for a decade. But India's economic boom and the expansion of its companies overseas have created a new class of consumer who has money and cares about global brands.
To tap that market, Mr. Murjani, with local partners, in 2004 opened India's first Tommy Hilfiger store. Though its jeans cost $100 -- about as much as two months' salary for most Indians -- it was a hit. Mr. Murjani has since opened nine more stand-alone Tommy Hilfiger stores and sells Tommy products in hundreds of other shops. This year, he plans to open another 10 stores as he expands the brands he sells in India to include Gucci, Jimmy Choo, Calvin Klein and Britain's trendy French Connection.
These are just some of the many higher-end global brands catching on here. In Mumbai, Versace sells $100 T-shirts. New malls stock Swarovski crystals and, in one case, a Rolls-Royce dealership. One of Bollywood's biggest stars, Shahrukh Khan, is "brand ambassador" for Tag Heuer watches, which cost thousands of dollars. He gives them away on the Indian version of "Who Wants to be a Millionaire?"
The rise of upmarket international brands here parallels India's emergence as an economic force world-wide. For decades after India gained independence from Britain, the country's economy was geared more toward socialism than capitalism and Indians stuck to their traditional unique dress and culture. Foreign brands typically were limited to the lobbies of the nation's few five-star hotels.
Posted by dan at 01:21 PM
It's nice to see the class struggle between management and labor isn't quite over. Jeff Bailey reports in the New York Times on the latest doings at American Airlines:
It may look like chicken feed in this era of mammoth executive pay packages, but a combined $21 million in stock payouts to five top executives at American Airlines is looming large in labor talks with pilots still angry about pay concessions made four years ago.The stock bonuses, which are to be paid April 19 and include shares valued yesterday at about $7.5 million for Gerard J. Arpey, chief executive of American, are the subject of angry countdowns on two employee Web sites and can be precisely calculated based on the stock price at the moment on a third employee site.
“When the ship was sinking, it was, ‘We’re all in this together,’ ” said Drew Keith, director of industry analysis for the Allied Pilots Association, the union representing American’s pilots. Now, he said, the pilots are angry to see executives benefiting from American’s nascent recovery while those flying the airplanes continue to get reduced wages.
Mr. Arpey declined to be interviewed.
Posted by dan at 01:15 PM
Life magazine was one of the prominent zombie brands mentioned in my take on the topic in Slate recently.
Today, Time, Inc., put a stake through the heart of the magazine--for the third time.
Today in Slate, Kim Masters identified a non-zombie zombie movie.
Posted by dan at 03:14 PM
Writing in today's Wall Street Journal, Justin Lahart identifies one of the next areas in which problems in housing-related credit are likely to spring up: banks that let inidiscriminately to builders and purchases of real estate.
Banks' trouble with the housing downturn may extend well beyond the loans they provide to home buyers. Check out their business with home builders. . . .According to the Federal Deposit Insurance Corp., U.S. banks held $565 billion in real-estate construction and development loans at the end of last year, more than double the $272 billion held at the end of 2003. The FDIC doesn't break out loans for residential construction (read: risky) versus commercial projects (not so risky). But it's a good guess that the bulk of the increase in banks' construction loans came from housing. According to the Commerce Department, residential construction is a bigger business and has grown quicker.
Proportionally speaking, then, it's also a good guess that an increase in late payments on construction loans is coming from the residential side -- especially when considering that it's residential builders, not commercial developers, that are really in the dumps these days. In the fourth quarter, $5.3 billion in construction loans were 30 to 89 days past due, according to the FDIC, up from $2.8 billion a year ago.
Overall, construction loans accounted for 7.8% of loans outstanding in the fourth quarter, up from 2.9% a decade earlier. But banks don't share that exposure equally, points out Matthew Anderson, a partner at California-based economic and real-estate consulting firm Foresight Analytics. Smaller regional banks, especially those covering Florida and other areas where housing was particularly hot, appear to have the largest exposures relative to their loan holdings. Combing through the FDIC figures, he found 40 banks whose construction loans outstanding amounted to $1 billion or more and accounted for 20% or more of their total loans outstanding.
Posted by dan at 10:28 AM
Publisher's Weekly has favorably reviewed the forthcoming book by your humble scribe.
Posted by dan at 09:20 AM
My latest in the New York Times, on booming federal tax revenues and faltering state tax revenues.
Posted by dan at 09:19 AM
My latest in Slate, on the Treasury Secretary who helped the U.S. snatch financial leadership from England in 1914. The piece is based on William Silber's good book on the 1914 episode in which Treasury Secretary William McAdoo shut down the New York Stock Exchange for four months.
As several readers have pointed out, McAdoo's career didn't end with the Wilson Administration. In 1924, along with New York Governor Al Smith, he was a potential Democratic candidate for president. His candidacy was generally backed by the party's Southern faction, as well as by the Ku Klux Klan, which he was slow to condemn. Kevin Baker, whose fine New York-based historical novels deserve to be far more widely read, has a good bit on the 1924 Democratic convention here.
Posted by dan at 09:12 AM
Wal-Mart may be struggling. But Tiffany is rocking:
U.S. Retail sales increased 13% to $506,932,000 in the fourth quarter and 9% to $1,326,441,000 in the year. Sales benefited from increased spending per transaction and an increase in total store transactions. Comparable store sales increased 9% in the fourth quarter and 5% in the year due to increases of 17% and 9% in the New York flagship store and 8% and 4% in comparable branch stores. In addition, the five new U.S. stores opened in 2006 meaningfully contributed to sales growth.
Posted by dan at 09:08 AM