Content Matters

Research Recap has released its first quarter Research Zeitgeist.

Research Recap, launched by Alacra last summer, highlights interesting credit, investment, economic and market research.  Each week, the most widely-read posts are noted in the Research Zeitgeist.  Then, each quarter, a comprehensive Zeitgeist identifies those posts that received the most attention during the three-month period.

The Research Zeitgeist for the first quarter of 2008 was released this morning. Not surprisingly, the most widely read posts of the quarter largely reflected the credit crunch and market turbulence of recent months.

The top posts for the quarter were:

1. Warning Signs Seen in Rising Credit Card Delinquencies (CreditSights)
2. Research Primer: Credit Default Swaps (Fitch)
3. Research Primer: Structured Investment Vehicles (Moody's)
4. Bond Insurer Downgrades Could Lead to Bank Downgrades  (S&P) 
5. Role of Hedge Funds in Subprime Crisis Examined (International Monetary Fund)
6. Subprime Mortgage Lending Primer (NERA Economic Consulting)
7. Market-led Measures Not Enough to Solve Subprime Fallout (Oxford Analytica)
8. Write-down Spotlight Shifts to European Banks (CreditSights)
9. Alternative Proposals to Stem Subprime Foreclosures (various)
10. Audit Integrity Questions Citigroup's Risk Assessment (Audit Analytics)

Hmmm... I think I'm sensing a theme here.  Perhaps if Ben Bernanke were reading Research Recap he might be less afraid to mention the R-word.  I hope that Q2 and Q3 can bring some posts about growth and recovery, but I'm not optimistic.

This morning's NY Times noted that Bear Stearns Chairman Jimmy Cayne has sold all of his holdings for a paltry $61 million, down about a billion from what it was worth at the $171 peak last year.  Like most of you, that made me wonder if Jimmy would make it through this difficult period. Sure, $61 million is a lot of money for you and me, but Jimmy's lived a different lifestyle.

So, I thought that it would be helpful to sketch out a retirement budget for him.

The good news is that Jimmy Cayne held his shares for a long time.  So, he should be paying taxes at the preferable 15% rate rather than 28% short-term rate.

The Times article notes that Jimmy has just purchased an apartment in the newly refurbished Plaza for a cool $26 million. He plans to sell his current Park Avenue apartment. Cayne may be aware that this isn't the best time to be putting real estate on the market, but let's say he'll get $10 million for the Park Ave flat, leaving him $16 million in the hole on the new one.

Stock proceeds from BST sale    $61 million
Capital gains taxes (est.)            (9.15 million)
Purchase of apt in the Plaza    ($26 million)
Sale of Park Ave apt (est)       $10 million

        Net                                         $35.85 million

Let's assume that the 74-year-old Cayne plans to live another 26 years to the ripe old age of 100. And, based upon the mess he's inflicted on the economy, let's assume that he's afraid to invest his remaining assets.  How might this impact his monthly living expenses?

Well, thanks to NY Magazine, we already know that Jimmy has some pretty interesting and expensive habits hobbies.

To start, he'll need a place to play golf in the New York area.  And, assuming he's a typical NY high flyer, he'll need one place here and another in the Hamptons.

Liberty National Golf Club, about a 3-wood from the New York Stock Exchange costs $500k to join plus $20k per month in dues.  When he's out east, Sebonack Golf Club in Southampton might be a good fit. Sabonack has a $650k entry fee and I'm guessing another $25k in annual dues.

So, the golf club entry fees shave another $1.15 million off his total, leaving him $34.7 million under the mattress.  $34.7 million over 26 years comes out to about $110k per month. 

Based upon Jimmy's interests, that $110k monthly allowance could go quickly.
Let's assume about a quarter kilo per month, running him about $7.5k. And, high stakes Bridge matches, three times per week, could eat up another $80k per month if he's on a losing streak.  The annual golf club dues come to about $3,750 per month, leaving him less than $20k per month to live on.

Net                        $35.85 million
Liberty Golf Club   ($650k)
Sebonack              ($500k)   

Remainder                $34.7 million

Monthly allowance:    $110k
Quarter key                 ($7.5k)
Bridge                            ($80k)
Golf club dues            ($3.75k)

What's left:                $18.75k

So, for those of you whining about the fact that your home value has tanked, you can't pay your mortgage and you're close to homeless, stop being so selfish and think about poor ole Jimmy Cayne.

Today's Sunday Times explores the topic of Wall Street regulation, with the typical groups lining up on either side.  Regulation of the financial markets tends to be a cyclical process. The deregulation proponents argue that regulation makes us less competitive and, over time, they either deregulate the existing markets or fail to update the regulatory requirements for new ones.  That is followed by a cycle where greed rules the day until some form of implosion (the current subprime mess, the S&L debacle of the 80s, etc) forces the government to step in.

While there are legitimate arguments that over-regulation can lead to inefficiencies, I think it's clear that transparency is best for all in the long run. And, without a reasonable level of regulation, we won't see transparency.  Today's NY Times quotes Barney Frank as saying he didn't realize how much freedom Wall Street firms had (as compared to banks) until he heard Chuck Prince of Citi explaining why he moved a bunch of investment vehicles off their balance sheets.

A recent study by Audit Analytics, profiled by Research Recap, noted that five years after Sarbanes Oxley was passed, financial restatements dropped sharply in 2007.  The past year had 1,237 restatements, down roughly a third from 2006.  Perhaps more importantly, the largest restatement of 2007 ($341 million by GE) would have faired no higher than fifth largest in either of the prior two years.  Businesses may still grumble about the cost of Sarbanes Oxley compliance, but it's evident that the regulations are working.

I'm not sure what the best approaches to regulating the financial markets are, but it's pretty clear that we need greater transparency and history shows us that's not likely to happen without a regulatory push by the government.

For those who've been playing the anagram game the past couple of days (thanks to Alphaville and Paul Kedrosky), you'll recognize that as a scrambling of the letters in Bear Stearns (NYSE: BSC).

There's not much else one can do while watching the venerable Wall Street firm implode.  It reminds me of the jokes that a friend during the last days of watching the firm he worked at (Drexel Burnham Lambert) fail.  One that I recall was that there was a chance that a Japanese firm might swoop in to rescue the firm.  The punchline was the new name "Nomura Drexel".  Of course, a few days later there truly was no-more-a Drexel.

And now, there's little left of Bear. The stock closed Thursday at $57, Friday at $30 and now it appears that JP Morgan (NYSE: JPM) will buy the firm for about $2 per share.

The anagram here is truly apropos. One wonders who was managing risk at the firm. As Roger Ehrenberg posits, it's doubtful this could have happened when Ace Greenberg ran the firm, as he was "all about managing risk". One can imagine that there were several "memos from the Chairman" over the years that reminded his team to never put the firm at the mercy of its creditors.  Deal Journal notes that chairman Jimmy Cayne (best known, perhaps, for his  extracurricular habits) was playing bridge in Detroit while the firm fell apart.  Meanwhile, by the time that Alan Schwartz took the helm at Bear, things were probably too far gone to repair.

The speed at which events have unfolded this week at Bear is much faster than we'd seen in the past. In a strange way, there are parallels to the Spitzer situation where the timeline from news break to resignation took just a few days. As Fred points out, the best place to gain insights during these rapidly changing stories, is among trusted blogs. The major newspapers had strong coverage of both stories (and, in the Spitzer case, it was the New York Times which broke the story) but the blogs were the place to keep up with the latest events.

For more details and links on the Bear story, check Research Recap, Kedrosky's Infectious Greed, FT Alphaville, Barry Ritholtz and Nouriel Roubini.  Oh, and I'd guess the WSJ, FT and NY Times will provide coverage as well. 

• A download of Move Ya Body: About three cents (as of a week ago)
• Acela Express roundtrip from NYC to Washington DC: $350
• Four hours from a high-end escort service: $4,300
• Ability to cash in after bringing down a sitting Governor: priceless

via Silicon Alley Insider, the New York Post calculates that Ashley Alexandra Dupre can cash in to the tune of $2.5 - $5 million from her new found "celebrity".  A few highlights:

• $200,000+ from song sales so far (300,000+ downloads)
• $1 million offer from Hustler magazine
• Offers from Penthouse
• $1 million offer from Kick Ass Pictures for a starring role
• Expected $1 million offer for a book deal.
• and more...

And unlike Donna Rice, Jessica Hahn, Fawn Hall and her other predecessors Ashley was positioned to begin to cash in from day one with a MySpace page and links to sell her music.  That's got to at least pay her initial legal bills.

I usually leave the politics off this blog, but occasionally I feel compelled to spew.

I voted for Eliot Spitzer for Governor. He was a fairly effective Attorney General, though he clearly overreached on some issues and has few friends within the Wall Street community. His first year as Governor was clearly rocky and his running feud with Joe Bruno did not serve the state well. It was clear to most that his mistakes were ego-driven. His self-righteous approach made him blind to the fact that his tactics were borderline unethical.

And now the call-girl saga leading to his resignation shows the same arrogance.  A governor who built his reputation on law and order will be held to a higher standard. The resignation was appropriate and necessary. The public does not expect officeholders to be infallible, but we have little tolerance for hypocrisy. Foibles that others can get away with become bigger issues for those who wrap themselves in sanctimonious moral authority. That’s why affairs by a Ted Haggard or David Vitter tend to generate more outrage than those of a Jesse Jackson or Barney Frank.  When you build your public persona around a specific trait, you will be held to a higher standard around that trait. That’s why Barack Obama has to walk gingerly in counter-attacking Hillary and it’s the reason why lobbyist influence in the McCain campaign means more than it does for the other candidates.

Via PaidContent comes a summary of the political ads so far during the early primary season.  While the leading candidates in the two parties have already burned through nearly $400
million, little of that has made its way into the coffers of online publishers.

The post sources Evan Tracey of TNS Media Intelligence indicating that most of the political advertisements thus far have been relatively inexpensive buys on partisan blogs.

Most of the money from political ad spend that’s making its way onto the internet have been issue-oriented ads. And that’s going to the political blogs, which don’t rack up a lot of money.

Yet Lehman analyst Doug Anmuth projects roughly $110 million in political ads in 2008 with more than a third coming from the presidential race.  Of course, that's a drop in the bucket when compared to the nearly $1 billion dollars that will be spent by the presidential candidates overall in 2008.  While the candidates may be far ahead of where they were, internet-wise, four years ago, they are still fairly apprehensive.  Mitt Romney's recent experience where his banner ads ran on some gay and lesbian sites have made the campaigns a bit gun-shy.  And, for all the Internet hype around Ron Paul, that's been driven by grass-roots activities, not advertising.  Yet, I expect that once each party has their nominee, we're likely to see a more aggressive online advertising effort. 

A few weeks ago, I wrote about Donors Choose and the Donors Choose challenge.
The premise behind Donors Choose is pretty simple; public school teachers submit brief proposals, outlining materials they need to provide better learning environments for their students.  Donors review the proposals then make a donation to fund all or part of a proposal.  When the proposal is fully funded, the materials are purchased by DonorsChoose and shipped to the school.

What makes DonorsChoose so compelling is the personalized nature of the process, as compared to the traditional method of donating to organizations.  In the typical model, you send a donation to an organization.  In return, you receive a generic thank you note, which primarily serves as documentation for tax purposes.  Periodically, perhaps once each quarter, you'll get a general newsletter updating you on some of the 762 projects the organization is working on.  Of course, you don't get any sense of whether your $250 donation went towards a specific project or, perhaps, was used towards the purchase of a high-speed printer used for direct mail.  All in all, not a very personal nor satisfying process.

With DonorsChoose, you get an email sent by the teacher, sharing the specific impact of your donation on his or her classroom.  The notes I've received are heartfelt, personal and seem to indicate surprise that someone actually acted on their request. 

The latest proposal that I selected was to purchase a rug for a Chicago-based  kindergarten class which had none.  While a rug doesn't seem that exciting, anyone with young children knows that the rug is the heart of the kindergarten classroom, where the students are brought together for various activities.  The fact that our schools are so poorly funded that they require four and five year-olds to sit on a cold tile floor is abominable, but that's a topic for discussion elsewhere.   At McCutcheon Elementary, the school which submitted the request, 10% of the students are homeless; 100% of them qualify for school lunch and breakfast programs.

Here's the response I received from Mrs. Lee, the McCutcheon  teacher who had submitted the request:

Dear Mr. Graubart,

Even though I'm a teacher and hardly ever speechless, that's exactly how I feel right now. I am blown away by your generosity and cannot contain my excitement about this amazing gift you have given to our class. I can't wait to get to school tomorrow and share this wonderful news with my class! Thank you very much!!!

So, if you want to feel good about yourself, visit DonorsChoose, review a few proposals and make a donation to the project of your choice.  The nearly instant gratification is sure to make your day.  But be warned - you can easily make a regular habit of it.

Earlier this week, Business Week reported that the U.S. division of Reed Elsevier has hired lobbyist Barbour Griffith & Rogers to lobby the federal government.  The high-powered lobby shop was founded by Republican stalwart Haley Barbour, now Governor of Mississippi.  When Barbour was elected Governor, the firm was sold to the Interpublic Group of Companies, and counts among its clients former Iraqi prime minister Ayad Allawi.

According to the registration form filed with the Senate last week, the firm has been hired  "for strategic counsel and to provide advice on policy issues important to the publishing and information industries".

While there are many policy issues facing content companies these days, I'm wondering if Reed Elsevier is specifically looking to challenge efforts by Carl Malamud to break down the protective gates that prevent access to case law.  That market today is in effect a duopoly, with Lexis and Thomson West the primary sources.  Malamud's efforts to challenge those barriers was profiled in a John Markoff New York Times article a few weeks ago.

For those who might dismiss Malamud's efforts, it's helpful to recall that he, almost singlehandedly, forced the SEC to make corporate filings available online (EDGAR); prior to the 1993 decision, SEC filings were provided through exclusive contracts to then LexisNexis parent Mead Data Central.

As Malamud states in the Times article:

"I don’t mind people making billions, but I hate barriers to entry."

There are many compelling arguments to treat case law as public works; just as with SEC and Patent & Trademark filings, there is a cost to society to only allowing access to those with resources.  And while it's clear that Lexis and West would fight such an effort, in the long run, their businesses will succeed or fail based upon the tools they provide to enhance the underlying content, not simply access to the base documents.

The hiring of Barbour Griffith follows the launch of the pseudo-grass roots organization PRISM, of which Elsevier is suspected to be a backer.  It seems that whenever change is on the horizon, the old line content companies turn to their double L approach to Lobby and Litigate.

CNBC is reporting that Rupert Murdoch has offered $60 per share to buy Dow Jones & Company.
The unsolicited bid has sent shares of DJ soaring 50% to more than $56 per share.

A bid for Dow Jones makes sense, as its crown jewel, the Wall Street Journal, would be an amazing property for Murdoch to build his desired financial news network around.  Dow Jones is closely held, with the Bancroft Family owning the voting class of shares, so no deal is necessarily imminent.  Of course, a 50% premium will not be easy to ignore.

As PaidContent points out, this could easily trigger a bidding war for the Company.

The coming days and weeks should be interesting...