Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1377.7 | -8.2 | -0.59% |
| Eurostoxx Index | 2316.8 | -35.4 | -1.51% |
| Oil (WTI) | 103.1 | -0.5 | -0.49% |
| LIBOR | 0.466 | -0.001 | -0.11% |
| US Dollar Index (DXY) | 79.53 | 0.249 | 0.31% |
| 10 Year Govt Bond Yield | 2.01% | -0.04% | |
| RPX Composite Real Estate Index | 171.3 | 0.3 |
Markets are weaker this morning after a disappointing GDP report out of China. The Consumer Price Index showed prices increasing 2.7%, which was more or less in line with expectations. Stocks and bonds didn’t react much to the data. Google, JP Morgan, and Wells Fargo all reported better than expected earnings and are flat to slightly down pre-market.
JP Morgan reported better than expected earnings this morning. The highlight has been the mortgage origination which contributed $1.6 billion in revenue, an increase of 80% from Q111. Servicing revenue dropped 5% and the entire activity broke even. A Bloomberg story on Morgan’s earnings cites a Friedman Billings analyst who thinks Q2 will be the best quarter for the mortgage business in a long time.
Christine Lagarde (head of the IMF) urged the US government to pursue a policy of principal reduction in mortgage debt. As I have discussed in prior posts, that probably isn’t going to happen, at least with respect to conforming loans. Still, I don’t rule out some sort of mortgage relief given that this is an election year.
Google is trying a new wrinkle in corporate governance. As part of their earnings release last night, they announced a stock split. Sort of. Google has two classes of shares – the supervoting shares held by the founders, and the reduced vote shares that currently trade. They are introducing a third share which will be nonvoting. Google shareholders will get as a dividend 1 share of nonvoting stock. The new stock will be used for employee equity-based compensation and other corporate uses, which means Google can issue stock without diluting Sergey and Larry’s control over the company.
Filed under: Morning Report |
All Things in Moderation 
Obama siticks up for Ann Romney in working mom flap. That is the headline on Yahoo. Here in the story is Obama sticking up for her: “It was the wrong thing to say,” He also mentioned that criticism of candidates’ spouses should be out of bounds. My question is how is this “Sticking up for her?”
I have been reading the back and forth here on the WoW and was not sure it really existed until the other day when my VP stepped into the fray and said “I think the ‘war on women’ is real. And look, I’ll tell you when it’s going to intensify – the next president of the United States is going to get to name one, possibly two or more, members to the Supreme Court.” Now I can rest easy at night knowing this is for real.
In other news, there has been talk about the Buffet rule. According to the White House, the the Buffett Rule is a simple principle that everyone should pay their fair share in taxes. No household making more than a $1 million should pay a smaller share of their income in taxes than middle-class families pay. For the 98 percent of American families who make less than $250,000, taxes should not go up. [note: SHOULD NOT GO UP!]
So what is its purpose? Other than as a political issue, not one thing. Why? Because it would not help create jobs and not help with the deficit. It might make things a whole lot worse actually. How much revenue would it raise? From Money, the Joint Committee on Taxation, which analyzes tax legislation, has estimated that the “Paying a Fair Share Act” would raise $47 billion over 10 years, or an average of less than $5 billion a year, assuming the Bush tax cuts expire. That wouldn’t do much to help reduce federal deficits. In recent years, annual deficits have ranged from several hundred billion dollars to more than $1 trillion. And if the rule were to serve as a replacement for the AMT, as Obama has proposed, it wouldn’t come close to making up for the $1 trillion-plus in revenue that the AMT is expected to generate over 10 years.
But it’s ‘fair’. And apparently Reagan would back him up on that!
What does all this mean? As was stated recently – it’s that time of the season. My question is where is the old Barack Obama? The hope and change guy? The guy who said:
“On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord. On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn out dogmas, that for far too long have strangled our politics…What the cynics fail to understand is that the ground has shifted beneath them— that the stale political arguments that have consumed us for so long no longer apply.”
I am struck by the 180 degree turn in tone and content of the two campaigns. I never believed the Hope and change campaign for one second but even I have to admit it sure sounded good. A hell of a lot better than War on Women… GWB I knew. There were parts I liked and parts I didn’t. But I think I knew the guy or at least what he was about. I can say the same for Clinton, Bush I, and Reagan. I have no earthly clue who Barack Obama is. Admittedly, I am not voting for him regardless. But he is my president and may very well be it again. I would like to know what makes him tick. The fact that I don’t bothers me greatly. I look at what he has said, done, tried to do, what people on the left and the right say about him and he is anything from the US version of Joe Stalin to a new almost religious figure that will propel Americans into their next phase of greatness (whatever that may be). Is he too progressive? Not enough? This inquiring mind wants to know…
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Brent:
What would be the rationale for someone to go out and buy non-voting shares of Google? I think I’m missing something here — would the Class C and Class A shares be priced similarly?
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Mike, if I remember correctly from my college days, you would pay a premium for shares with voting rights so the new shares would probably be cheaper than the other two voting classes. The rationale for buying it is that you can pay less and get the reward of a well run company…but give up the authority to have any say in it.
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@Mike,
yes, the non-voting shares should trade at a discount. How big of a discount is anyone’s guess – the founders already control the company so the vote isn’t *that* valuable.
I’m not sure why they are so paranoid about the vote – nobody is going to launch a hostile bid for Google.
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Dave!:
That’s what I would have guessed. I suppose it is like Bershire Hathaway, but I think that BRK-B holders still have some (miniscule) voting rights. I could be wrong about that though.
Maybe the pricing of the Class C shares of Google will start at a fraction of the Class A shares, like BRK-A and BRK-B.
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Thanks, Brent. I type too slowly …
Reading your link, it does look like Page and Brin are pretty paranoid. The whole “stapling” thing is interesting too. I like how the lawyer said that they would be taking this stock split proposal to the shareholders, except that, since Page and Brin are on board and have controlling interest, it would just be a formality.
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” What would be the rationale for someone to go out and buy non-voting shares of Google? I think I’m missing something here —would the Class C and Class A shares be priced similarly?”
If I’m not mistaken, the Google doesn’t pay a dividend either, which makes these shares that much more worthless, so to speak. Is the whole motivation for buying them the idea that someone else will pay more at some point?
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B-H doesn’t pay a dividend either.
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@Dave. IIRC the Baby Berkshires represent 1/30th of a full share.
The Class C shares will probably trade at a discount, but not a major one, since in the US, shares are treated equally in a takeout situation.
That is not the case in Europe. I remember when Proctor and Gamble bought Wella (the German shampoo company), P&G paid a monster premium for the voting shares (something like 95 euros) and tendered for the non-voting shares at the statutory minimum (3 month average price or about 60 euros a share)
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BSimon – Is the whole motivation for buying them the idea that someone else will pay more at some point?
Well….yes. The idea is that the company will grow making the shares more valuable thus allowing you to sell them to someone else at some point for more. I have never bought stocks for the reason that I get to ‘run’ the company or have a say in it. I buy them because I think they are well run companies that will grow in earnings, profit, size, etc.
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