Finance Matters

Archive for January 24th, 2010

Jason Calacanis, our partner over the years on the TechCrunch50 conference, wrote quite a rant yesterday about analytics company Comscore.

His argument: that Comscore has vastly undercounted traffic and visitors over the years, and is now formalizing “their extortion ring” by offering to track traffic more directly (and the numbers are generally much higher) via tracking pixels for a $10,000/year fee.

You can read the whole post over at Calacanis.com. He doesn’t pull any punches (in fact he goes on a tangent about punching bullies in the face as a kid) He suggests that companies refuse to pay Comscore for the service, and that investors short the stock.

Comscore investor Fred Wilson laid into Jason with a couple of comments on a copy of the post on Posterous. He also randomly dragged me into the argument (I think he’s still mad about the Zynga stuff):

jason, since you’ve slandered me, i’ll respond here…

Continue reading at TechCrunch »

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See Also:

• Comscore Blackmail: Pay Us $10,000 Or We’ll Keep Under-Reporting Your Traffic

From Baseline Scenario:

The case for Ben Bernanke’s reappointment was weak to start with, weakened with his hearings, and is now held together by string and some phone calls from the White House.  Bernanke is an airline pilot who pulled off a miraculous landing, but didn’t do his preflight checks and doesn’t show any sign of being more careful in the future – thank him if you want, but why would you fly with him again (or the airline that keeps him on)?

The support for Bernanke in the Senate hangs by a thread – with Harry Reid providing a message of support, albeit lukewarm, after the markets close.  The White House is telling people that if Bernanke is not reconfirmed there will be chaos in the markets and the economic recovery will be derailed.  This is incorrect.

The danger here is uncertainty – the markets fear a prolonged policy vacuum.  Fortunately, there is a way to address this.  Ben Bernanke should withdraw and the president should nominate Paul Krugman to take his place.

Read the whole story at Baseline Scenario >

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See Also:

• The US Pulls Bank From The Brink Of Being A Banana Republic, Bernanke Likely Reconfirmed
• The Anti-Bernanke Politicians Are Hypocrites
• Show Geithner And Bernanke The Door

A day after the Obama administration proposed its new set of financial rules, reality is setting in.  I’m not seeing anyone who thinks it’s particularly dangerous to split off prop trading from client service, or to impose limits on total bank liabilities.  But there’s a lot of skepticism that anything like this can pass.  Folks like Chris Dodd and Chuck Schumer will have a lot to say about this, and they aren’t interested in making life difficult for their constituents in the financial services industry–especially not Dodd, who’s going to need his friends after he retires.

Economics of Contempt thinks it’s a political stunt that is going to quietly die in committee.  Felix Salmon points out that the devil is in the details on the prop trading ban:

This is a good idea, but cutting back on prop trading, in particular, is going to be hard. Goldman Sachs has told me repeatedly that they don’t have prop trading: everything they do is ultimately for the benefit of their clients. Absent a corner of the trading floor with a big flashing “prop desk” sign above it, in practice it’s very hard to draw the line between the kind of daily trading that any broker dealer has to do, on the one hand, and proprietary trading for a bank’s own account, on the other. Both of them involve the bank taking risk and making money, after all.

Felix later adds that if this gets regulators up in the face of the prop trading desk, it’s a good thing.  But I’m with Economics of Contempt:  our regulators are overburdened as it is.  If we want them to get up in the face of the prop trading desk, we should be tripling the budgets of the regulatory agencies, and taking them off government scale so we can pay them something kind of vaguely competitive with what Wall Street pays.  It doesn’t do any good to give them more power if we don’t give them a lot more capacity to wield it.

For some reason, however, people freak out when you say that the SEC employees should get paid hundreds of thousands of dollars a year.  I’ve been told more times than I can count that we don’t want people who are just in it for the money.  But try to look at it the other way.  For someone who really understands securities regulation to go to the SEC–or stay there–they have to give up hundreds of thousands of dollars, not to mention a workplace where they get treated nicely.  If they have to live in New York, as many of them do, that’s a huge sacrifice.  You’re talking about the ability to put your children in good schools, or have a commute no longer than an hour.  It’s not reasonable to demand that from people, and even if it were, you wouldn’t get it.

We clearly need some new financial regulations.  But let’s start with some new regulators.  That shouldn’t be hard for anyone to agree on.

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See Also:

• You Fools, Prop Trading Is What SAVED The Big Banks!
• Is Goldman Materially Misrepresenting Its Prop Trading Exposure?
• Prop Trading Is Like Pornography

This is the life of an Apple Genius: Computers caked in toxic waste, screaming customers, dead cats, raging homophobes, and oh yeah—getting punched in the face. We’re protecting the identity of the Geniuses who relayed these tales of total cockbaggage with pseudonyms, since some of them might still work for Apple.

Apple Genius War Stories: “I Got Punched in the Face” and More →

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See Also:

• Amazon Fires Back At Apple With Kindle App Store
• Apple’s App Store Has Lost $450 Million To Piracy
• Apple Building Another Fancy Glass Retail Store In Palo Alto

Here are some thoughts from Goldman’s David Kostin as we head into the meatiest week of earnings, and following a sharp decline in the market.

The bottom line: decent earnings reports can’t trump fears about tightening, particularly out of China.

Anyway, given the fact that Bernanke is looking like a weakened lame duck, and everyone is freaking out about China, we maintin our argument that Bernanke has already been replaced on the world stage by the head of the PBOC, Zhou Xiaochuan.

——

Macro headwinds trump bottom-up earnings results. The first major
week of S&P 500 earnings was overshadowed by China policy tightening,
which had been broadly anticipated but with little sense for timing, and a
surprise return of regulatory complications for the Healthcare and
Financials sectors. The combination of these two forces resulted in a
difficult week for risky assets and our sector recommendations, which favor
the globally-exposed cyclical parts of the market. Much has been written by
our Global ECS and Financials research colleagues on these two topics, and
we are in general agreement that it is too soon to change any of our core
views meaningfully. We therefore maintain our cyclical and BRICs
exposures and our Neutral recommendation on the Financials sector. In this
week’s essay, we highlight a number of the key issues that have emerged
from the 4Q 2009 S&P 500 earnings season that may have been lost in the
shuffle.

To date, 92 stocks representing 26% of S&P 500 equity cap announced
4Q earnings results. EPS results have been fairly strong with 49% of
companies beating consensus estimates by at least one standard
deviation. There are more positive surprises than the average over the past
23 quarters (42%) but fewer beats than last quarter (53%).

Two weeks into earnings season, heavy representation by the
Financials sector skews earnings results. Financials companies represent
32% of reported stocks. For the banks that have reported, we saw a decline
in charge-offs, non-performing loans, and NPA formation in 4Q09 as
compared to 3Q09. Pre-provision earnings results have been less
impressive. For reporting banks, pre-provision earnings have fallen 7%
quarter/quarter on the back of weaker capital markets revenues. Net interest
margins have proven to be a source of upside for regional banks, but not
for the large cap banks. See 4Q so far: A credit-fueled beta rally (January 20,
2010) by the Goldman Sachs Banks team for more detail.

Top-line surprises for this quarter are trending above average for the
first time since 2Q 2008, another positive indicator. With 16% of S&P 500
ex-Financials and Utilities stocks reported, 43% of firms beat consensus
sales expectations by one standard deviation versus the 40% average of the
past 23 quarters.  Negative surprises are lower too (7% vs. 11% average).
18 companies have positively surprised by one standard deviation or more
on both the top- and bottom-line, but there is a heavy sector bias. As in
previous quarters, nearly half of the “revenue beaters” are Information
Technology stocks.

Next week is the biggest earnings week of this season. 136 stocks are
scheduled to report results accounting for 33% of S&P 500 equity
capitalization. Verizon (VZ) and AT&T (T) announce 4Q results on Tuesday
and Thursday, respectively. These two stocks account for 82% of Telecom
market cap. 52% of the Health Care sector will report next week, led by
Pharmaceuticals stocks Johnson & Johnson (JNJ) and Abbott Labs (ABT).
EPS guidance by company management shows hesitation to deviate
much from consensus expectations. 26 stocks provided guidance for FY
2010 EPS around their 4Q report.  On average, the midpoint of company
guidance is only 1% above the median consensus estimate.
Eleven companies raised or initiated dividends since the start of the year. 
Carnival Corp (CCL), which discontinued its dividend in late 2008, initiated a
$0.10 quarterly dividend.

We have passed the trough of the current earnings cycle which
occurred in 3Q 2009. S&P 500 operating EPS on a trailing four-quarter
basis ended 3Q 2009 totaled $39.61, down 57% from the peak of $91
reached in 2Q 2007. For the four quarters ended 4Q 2009 we expect
operating EPS for the S&P 500 will total $57, reflecting $17 per share in 4Q
2009 or a 44% improvement on a sequential basis from the low in 3Q as
operating losses from 4Q 2008 roll off the LTM EPS aggregate.
We expect the bottom of the sales cycle will occur this quarter. We
expect S&P 500 4Q 2009 sales (excluding Financials and Utilities) will
trough on a trailing four-quarter basis, roughly 17% below the 3Q 2008 peak.
Trailing four-quarter net margins should expand on a sequential basis
for the first time since 3Q 2008. We forecast S&P 500 net margins of 7.7%
in 4Q, resulting in a net margin of 6.8% for 2009.

S&P 500 earned $39.70 per share YTD through 3Q; we expect $17 per
share in 4Q 2009. Our EPS forecast includes approximately $2 per share in
provisions and write-downs for Financials. Looking forward, our top-down
2010 EPS forecast is $2 below bottom-up consensus estimates ($76 vs. $78).
Please see our 4Q 2009 earnings preview note published earlier this week
for a deeper dive on our expectations for this earnings season (see US
Equity Views: 4Q Earnings preview: earnings rise, sales trough, margins
expand, from January 19, 2010

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See Also:

• January 12, 2010: THE DAY BERNANKE GOT REPLACED
• Bank Of China Lending Freeze Ignites U.S. Dollar Rally, Slamming Shanghai
• Why Shanghai Real Estate Is The Most Obvious Bubble Ever