Finance Matters

Archive for January 14th, 2010

Here’s a solidly profitable business built on the back of Twitter.

TwitPic is generating $1.5 to $2 million in ad sales on an annual basis, with 70% profit margins, says its founder Noah Everett, in an interview with Mixergy.

Everett says that 70% is net profit, or “what we can put in the bank at the end of the day.”

He’s aiming for $3-$4 million in revenue by next year.

Everett never raised any financing.

TwitPic’s success has turned heads. Everett says he’s received offers of more than $10 million for the company, but turned them down.

The site hosts over 60 million pictures, some more popular than others. The picture shown here, of Meghan McCain, drew over 160,000 views in 17 hours.

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See Also:

• Meghan McCain’s Racy TwitPic Reaches 160,000 Views In 17 Hours
• Twitter’s "Lean Team" Blamed For Lack Of Paid Pro Accounts
• Be Honest: What’s Your Real Twitter and Facebook ROI?

Google CEO Eric Schmidt believes it won’t do the Chinese people any good for Google to pull out of the country.

He figures some exposure to free information though a censored Google is better than no exposure to Google (GOOG).

Google cofounder Sergey Brin disagrees.

So does the President.

Apparently, so do some Chinese who have started piling flowers and thank you notes outside of Google’s Beijing office.

Check out the scene →

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See Also:

• Inside Eric Schmidt And Sergey Brin’s "Heated Debate" Over China
• IT BEGINS: The White House Just Sided With Google In War Against China
• How Google Ended Up At War With China

Chipmaker Intel (INTC) just delivered a huge positive surprise on earnings ($.40 vs. expected $.30) and a killer top line ($10.6 billion vs $10.2 billion).

The stock is soaring after hours.

Guidance is looking strong as well.

Its Q1 guidance of $9.7 billion blows past consensus of $9.3 billion.

Giddy up!

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See Also:

• American Regulators Turn European, As FTC Opens New Case Against Intel
• Intel CEO: PC Sales Poised For Resurgence
• Intel To Pay AMD $1.25 Billion

Kevin Drum is shocked to find Jamie Dimon admitting that they weren’t modeling a total collapse in house prices.  I’m shocked to find that Kevin is shocked.  That’s pretty much the standard explanation–at least, a partial one–for why lenders became willing to take on so much risk.  Massive house price depreciation had pretty much dropped out of their models, which mostly focused on prepayment risk.

This is not quite as crazy as it sounds. For one thing, Kevin has truncated the quote a little bit; the version I read has Dimon saying “We didn’t stress test housing prices going down by 40%.” America had not had a sustained national decline in residential housing prices since the Great Depression.  So while local banks might need to model the risk of substantial price depreciation, banks glomming together national pools of mortgages figured this wasn’t such a big problem–as long as you didn’t think we were going to have another Great Depression.  And most regulators, commentators, economists, bankers, and ordinary folks thought we weren’t going to have another Great Depression.

Indeed, we didn’t.  It turned out to be a sufficient, but not necessary condition for a collapse in housing prices.

Even if they had put housing price implosion in their models, where would they have gotten the data to fine-tune their models?  It’s not enough to say, “We should model a broad national decline in house prices;” you need some values for how many people will default when house prices fall.  The last time we had such a national collapse, mortgages were relatively short term debt instruments that didn’t self-amortize.  We’ve had local bubbles since in places like New York and California.  But New York is definitely a bad model–it’s a city mostly of renters in which co-ops frequently demand down payments of 25-50%, or even all cash.  California might have been better, but unlike a lot of places, it’s a non-recourse state.  And so on. How well could Dimon have hoped to build a nationwide model off of a few local jurisdictions?

That’s not to excuse the bankers for not trying; some allowance for the risk of a broad price decline would have been better than none.  But I’m not sure that it would have done much to alter their lending habits.  Going on historical data, the risk of a huge price drop within the average lifetime of a mortgage (which is less than ten years), would normally have been very small, and would have shown up in any probability-weighted model as a fairly trivial adjustment compared to the large risk that the mortgages in the pool would be refinanced. By the time it was obvious that the risk of a broadly falling market was very great, the bubble was about to pop of its own accord.  Indeed, even without such a model, Dimon pulled out of subprime, because he didn’t need a spreadsheet to tell him that it was going to turn into a disaster.

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See Also:

• Obama’s Tiny "Tax" Is Equal To A 15 BPS Fed Hike, And Morgan Stanley Will Get Creamed The Hardest
• The Obama Tax Plan: The Good, The Bad, And The Ugly
• SHOCKER: We Do Not Completely Hate Obama’s New Bank Tax Plan

Credible intelligence has emerged that a branch of Al Qaeda Yemen is plotting another attack against the United States and U.S. interests abroad.

A senior U.S. counterterrorism official confirmed the terror plot to a number of news outlets, including the Daily News and Fox News.

The intelligence doesn’t provides specifics about time, place or method of attack. But officials are taking the threat seriously. The Yemeni group is said to have been emboldened by the Christmas Day attack.

“Our concerns have intensified,” the official told The News.

Frighteningly, Fox reports that some of the suspected terrorists may have US passports.

From Fox:

Al Qaeda in Yemen and the Al Qaeda affiliate in Somalia, known as Al Shabaab — translated as Mujahadeen Youth — are described as having “shared interests and shared goals.”

U.S. counterterrorism officials say clear connections now can be traced between the two terrorist groups and they are not ruling out the possibility that they are working together to attack U.S. interests.

U.S. officials also remain concerned about two dozen Somali Americans who disappeared into the Al Shabaab training camps in Somalia in the last 18 months. Their American passports would allow them to reenter the United States.

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See Also:

• REPORT: US Officials Hunting Two Islamic Militants Who May Already Be In US Planning Attack
• Terror Prosecution Could Give Detroit’s US Attorney’s Office Chance To Redeem Itself
• Terror And The Law: 10 Must-Read Books