Archive for ‘U.S.’

May 2, 2011

DISH And EchoStar Settle Patent Litigation With TiVo, Agree To Pay $500 Million [Social Media]

by Avinash Saxena

SOCIAL MEDIA  DISH Network and EchoStar this morning announced that they’ve agreed to pay TiVo $500 million to settle all of their ongoing patent litigation with the digital video recorder company.

Under the terms of the settlement agreement, DISH and EchoStar will initially cough up $300 million, with the remaining $200 million distributed in six equal annual payments between 2012 and 2017.

The companies have agreed to dismiss all pending litigation with prejudice, and to dissolve all injunctions against DISH and EchoStar.

In addition, TiVo granted DISH a license under its Time Warp patent and certain related patents, for their remaining lives. Time Warp is software that allows users to record one TV program while watching another.

TiVo says it will also play a role in helping DISH Network promote the Blockbuster digital video service (DISH just acquired substantially all of the assets of Blockbuster, which went belly upin September 2010, for roughly $228 million in cash).

TiVo also granted EchoStar a life-long license under the same patents, to design and make certain DVR-enabled products solely for DISH Network and two international customers.

EchoStar, in turn, granted TiVo a license under certain DVR-related patents for TiVo-branded products.

TiVo originally sued DISH and EchoStar back in 2004 over its patented DVR technology back when the two were still a single company. They won the suit, but the court decided in May 2010 to reconsider its verdict. Two weeks ago, a federal appeals court then moved touphold the ruling that EchoStar infringed TiVo patents, which ultimately led to today’s announcement.

TiVo will hold a conference call at 9:00 AM ET today to discuss the settlement agreement.

In related news, DISH Network this morning reported its first quarter 2011 financial results and announced that Michael Kelly has been named president of its new subsidiary Blockbuster.

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May 2, 2011

Bin Laden killed in shootout with U.S. forces in Pakistan [News Report]

by Avinash Saxena

WORLD  U.S. officials  said bin Laden was found in a million-dollar compound in the upscale town of Abbottabad, 60 km (35 miles) north of the Pakistani capital Islamabad. A source familiar with the operation said bin Laden was shot in the head.

“Justice has been done,” President Barack Obama declared in a hastily called, late-night White House speech announcing the death of the elusive head of the militant Islamic group behind a series of deadly bombings across the world.

Leaders worldwide praised the killing as a dramatic success in the war against al Qaeda, although many analysts cautioned it was too soon to say bin Laden’s death would mark a turning point in the battle against a highly fractured network of militants.

Jubilant, flag-waving celebrations erupted in Washington and New York after Obama’s announcement. It was the biggest national security victory for the president since he took office in early 2009 and could give him a political boost as he seeks re-election in 2012.

Obama may now also find it easier to wind down the nearly decade-old war in Afghanistan, begun after the September 11, 2001, attacks on New York and Washington that killed nearly 3,000.

But the operation could complicate relations with Pakistan, already frayed over U.S. drone strikes in the west of the country and the jailing of a CIA contractor accused of killing two Pakistani men.

A U.S. official said Pakistani authorities were told the details of the raid after it had taken place.

The revelation bin Laden was living in style in a mansion will also put Pakistani officials under pressure to explain how he could have been right under their noses. Residents in Abbottabad said a Pakistani military training academy is near the compound.

“For some time there will be a lot of tension between Washington and Islamabad because bin Laden seems to have been living here close to Islamabad,” said Imtiaz Gul, a Pakistani security analyst.

U.S. officials said American forces were led to the fortress-like three-story building in Abbottabad after more than four years tracking one of bin Laden’s most trusted couriers, whom U.S. officials said was identified by men captured after the September 11, 2001 attacks.

“Detainees also identified this man as one of the few al Qaeda couriers trusted by bin Laden. They indicated he might be living with or protected by bin Laden,” a senior administration official said in a briefing for reporters in Washington.

Bin Laden was finally found after authorities discovered in August 2010 that the courier lived with his brother and their families in an unusual and extremely high-security building in Pakistan, officials said.

“When we saw the compound where the brothers lived, we were shocked by what we saw: an extraordinarily unique compound,” a senior administration official said.

“The bottom line of our collection and our analysis was that we had high confidence that the compound harbored a high-value terrorist target. The experts who worked this issue for years assessed that there was a strong probability that the terrorist who was hiding there was Osama bin Laden,” another administration official said.

Bin Laden and three adult men, including a son of bin Laden, were killed along with a woman who was used as a shield by a male combatant, officials said.

The New York Times said bin Laden’s body was taken to Afghanistan and then buried at sea.

RESIDENT WOKEN BY BLASTS, GUNFIRE

The operation took under 40 minutes. A U.S. helicopter was lost due to a mechanical problem and its crew and assault force safely evacuated, officials said. No Americans were harmed in the operation, Obama said.

“After midnight, a large number of commandos encircled the compound. Three helicopters were hovering overhead,” said Nasir Khan, a resident of the town.

“All of a sudden there was firing toward the helicopters from the ground. There was intense firing and then I saw one of the helicopters crash,” said Khan, who had watched the dramatic scene unfold from his rooftop.

Authorities said bin Laden’s hideaway, built in 2005, was about eight times larger than other homes in the area. It had security features including 12- to 18-foot walls topped with barbed wire, internal walls for extra privacy, and access controlled through two security gates.

It had no telephone or Internet connection.

“It is not a surprise that bin Laden was captured in an urban heartland,” said Sajjan Gohel of the Asia Pacific Foundation.

“Many of al-Qaeda’s senior leaders have been captured in Pakistani cities. It had become a myth that the al Qaeda leadership were hiding in caves in the tribal areas.”

POSSIBLE REPRISALS

Bin Laden’s death triggered a travel alert for Americans worldwide, the U.S. State Department said, warning of the potential for anti-American violence.

Thousands of people gathered outside the White House, waving American flags, cheering and chanting “USA, USA, USA.” Car drivers blew their horns in celebration and people streamed to Lafayette Park across from the street, as police vehicles with their lights flashing stood vigil.

“I’m down here to witness the history. My boyfriend is commissioning as a Marine next week. So I’m really proud of the troops,” Laura Vogler, a junior at American University in Washington, said outside the White House.

Similar celebrations erupted at New York’s Ground Zero, site of the World Trade Center twin towers felled by hijacked airplanes on September 11.

A market perception that the death of bin Laden reduced the security risks facing the United States lifted the dollar from a three-year low and raised stock index futures.

U.S. crude oil prices also fell. “Current oil prices are regarded by most analysts as carrying significant risk premium at current levels and good news on the geopolitical front has the potential to move prices back below $100,” said Ric Spooner, chief analyst at CMC Markets in Sydney.

However, some analysts said the market impact would be short lived.

Many Americans had given up hope of finding bin Laden after he vanished in the mountains of Afghanistan in late 2001.

Intelligence that originated last August provided the clues that eventually led to bin Laden’s trail, the president said. A U.S. official said Obama gave the final order to pursue the operation last Friday morning.

“The United States has conducted an operation that killed Osama bin Laden, the leader of al Qaeda and a terrorist who is responsible for the murder of thousands of men, women and children,” Obama said.

CAPTURED DEAD

Former President George W. Bush, who vowed to bring bin Laden to justice “dead or alive” but never did, called the operation a “momentous achievement” after Obama called him with the news.

Martin Indyk, a former U.S. assistant secretary of state for near eastern affairs, described bin Laden’s death as “a body blow” to al Qaeda at a time when its ideology was already being undercut by the popular revolutions in the Arab world.

Other experts were more cautious. “It changes little in terms of on-the-ground realities — by the time of his death bin Laden was not delivering operational or tactical orders to the numerous al Qaeda affiliates across the world,” said Rick Nelson of the Center for Strategic and International Studies in Washington.

Statements of appreciation poured in from both sides of Washington’s political divide. Republican Senator John McCain declared, “I am overjoyed that we finally got the world’s top terrorist.”

India said the killing underlined its concern that “terrorists belonging to different organisations find sanctuary in Pakistan,” India’s home ministry said in New Delhi.

A U.S. official said that the retrieval of the body may help convince any doubters that bin Laden is really dead.

The United States is conducting DNA testing on bin Laden and used facial recognition techniques to help identify him, the official said.

The United States is ensuring that bin Laden’s body is being handled in accordance with Islamic practice and tradition, a U.S. official said.

Bin Laden had been the subject of a search since he eluded U.S. soldiers and Afghan militia forces in a large-scale assault on the Tora Bora mountains of Afghanistan in 2001.

The trail quickly went cold after he disappeared and many intelligence officials believed he had been hiding in Pakistan.

While in hiding, bin Laden had taunted the West and advocated his militant Islamist views in videotapes spirited from his hideaway.

Besides September 11, Washington has also linked bin Laden to a string of attacks — including the 1998 bombings of American embassies in Kenya and Tanzania and the 2000 bombing of the warship USS Cole in Yemen. (Additional reporting by Jeff MasonPatricia ZengerleArshad MohammedAlister BullMissy RyanMark HosenballRichard CowanKristin RobertsAndrew Quinn and Tabassum Zakaria, Joanne Allen in Washington and Chris Allbritton in Islamabad; Writing by Steve Holland; editing by David Storey and Dean Yates)

May 1, 2011

The Best School Districts For Your Real Estate Buck [News Report]

by Avinash Saxena

BUSINESS  Falmouth, Maine, is a picturesque waterfront town 110 miles north of Boston with moderate housing costs (median price: $351,550), per-student public-school spending just a touch above the state average, and an enviable position at the top of the Forbes/GreatSchools list of Best Schools for Your Real Estate Buck.

Not much stands out to explain why the 2,100-student school district does so well. The seventh-graders all have laptops, but so does every other middle-schooler in Maine, thanks to a 2002 program that has distributed Apple ( AAPL – news people ) MacBooks throughout the state. Teacher salaries are generous by Maine standards, at around $51,000 for a 10-year veteran, but low compared with $75,000 to $100,000 a teacher can earn in New York. At $10,000 a year, per-pupil spending is slightly above average for Maine but well below the $14,000 or so big cities like Chicago and New York spend.

Here’s one clue to the superior performance of schools in this 10,669-resident town, which was founded in 1658: Teacher turnover is extremely low. In the 13 years Barbara Powers has been school superintendent, exactly two teachers have left for jobs at other schools.

“People aren’t using us as a launch pad to somewhere else,” said Powers.

 Falmouth scored the highest on our second annual look at the places in America where your housing dollar will go the furthest in getting your children a great education. Done in partnership withGreatSchools, we analyzed 17,589 towns and cities in the 49 states that administer standardized, statewide tests (Nebraska doesn’t have one test). GreatSchools also used results from the most recent National Assessment for Educational Progress data, a federal program that tests randomly selected students in fourth, eighth and 12th grades to provide state-level assessments of learning and educational progress. By combining the two datasets, GreatSchools could calibrate the results of individual cities in a single state with national standards to come up with an absolute score for each city. It then graded them on a curve with the highest-ranking city, Falmouth, representing 100. GreatSchools assesses more than 200,000 public schools, including public charter schools.

There are difficulties in ranking schools according to the town or city they are in. In addition to leaving out Nebraska, GreatSchools had to eliminate towns with less than 10,000 residents or fewer than five schools. And cities with sprawling, unified school districts like Houston and Los Angeles might harbor extremely high-scoring schools whose results are cancelled out by underperforming ones.

For the Forbes list GreatSchools also eliminated towns with unemployment rates above the state average, since few people would be motivated to move to such areas just to get a bargain on public education. Forbes then cut the list by median housing prices: $100,000-$200,000, $200,000-$300,000, $300,000-$400,000 and so on. Our top cut is over $800,000.

The resulting lists once again demolish the idea that more money equals better schools. Falmouth’s performance outshone that of big-dollar school districts like Manhattan Beach, Calif., and New Canaan, Conn., both of which have median house prices above $1.1 million yet scored sixth and 19th, respectively, on an absolute scale. In fact, towns with homes costing between $200,000 to $399,000 represented a sweet spot in the list, grabbing more schools in the Top Ten than any other grouping, including the first, fourth and fifth-place finishers as well as schools scoring 13th and 14th. In the over $800,000 category, only Manhattan Beach was in the Top 10, while the rest scored 19th or worse.

Even Palo Alto, home to the brainiacs who brought us large hunks of the modern technology economy, scored a lowly 29th on an absolute scale. Parents willing to move to Pella, Iowa–median home price, $148,200–can avail themselves of the schools ranking third. St. Johns, Fla., with a median home price of $181,700, came in ninth with a score significantly above that of Westport, Conn., where a typical house costs $930,000.

April 30, 2011

Has Amazon Lost The South In The Internet Tax War? [News Report]

by Avinash Saxena

It’s one thing when Illinois’ lame-duck Democratic legislature votes to impose an Internet sales tax modeled on New York’s so-called “Amazon” tax and a Democratic governor signs the bill. Or when Connecticut Democrats agree on a similar bill as part of a raise-every-tax-in-sight package.  Or even when Arkansas’ Democratic governor signs an Amazon tax, as he did earlier this month.  Arkansas is, after all, home to Wal-Mart, which collects sales taxes on its Internet sales and wants Amazon.com to be forced to do the same.

But Amazon suffered defeats this week in two of the most anti-tax, red states in the nation. On Tuesday, Texas House members voted  122-23 to pass H.B. 2403 (legislative analysis here) which bolsters Texas Comptroller Susan Combs’ battle to collect $269 million in back sales taxes from Amazon, based on a warehouse the giant Internet retailer has been operating in the state.

And on Wednesday, South Carolina’s House voted 71 to 47 to reject a special sales tax collection exemption for a partially-built Amazon warehouse that would have brought 1,250 jobs to the state.  In a post-vote analysisThe State newspaper in Columbia attributed Amazon’s defeat to “pressure from small merchants, other national retailers and Tea Party activists.”  The Tea Party? Wow.

Make no mistake. As comments on my blog demonstrate, many anti-tax activists oppose the collection of tax on Internet sales. But Tea Party types don’t necessarily cotton to special breaks for big companies, which is how the South Carolina legislation came to be viewed.

Back in 1992, the U.S. Supreme Court ruled in Quill v. North Dakota, that only sellers with a physical presence (“nexus” in taxspeak) in a state are required to collect that state’s sales taxes. Just shipping into a state by say, FedEx or UPS, isn’t enough to establish nexus. Consumers still owe “use” (meaning sales) tax to their states, but few bother to pay. Amazon founder Jeff Bezos has brilliantly exploited Quill,  for example basing his business in Seattle, instead of the Silicon Valley, to avoid having to charge California customers sales tax. Currently, Amazon collects sales tax on shipments to residents of only five states.  But as I suggested in February,  the states’ hunger for revenues, ramped up pressure from traditional retailers, and Amazon’s own need for physical distribution facilities could mean that Amazon’s days of tax free selling are numbered.

In the South Carolina case, the administration of former Republican Governor Mark Sanford had promised to push through legislation that would exempt Amazon from having to collect sales taxes from state residents despite the warehouse.  Sanford’s successor, Republican Nikki Haley, said she didn’t favor the exemption, but wouldn’t veto it. After the vote, however, she delivered a rebuke to Amazon, in which she suggested it had demanded too many breaks for its low paying jobs. Said Haley (video here) : “They got free property, they got tax incentives, they got plenty of things. Don’t ask us to give you sales tax relief when we’re not giving it to the book store down the street…It’s just not a level playing field.”

Billy Hamilton, an Austin public finance consultant and former Texas deputy comptroller,  points out that red states politicians, having “drawn a firm line in the sand that says we’re not going to raise taxes, no matter what” are desperate for any revenue they can get by enforcing current laws or  in the name of  fairness.

“I think one of the important shifts here that you’ve seen just in the last six months to a year has been it’s not just one party. It’s a bipartisan governor approach,’’ observed Joe Rinzel,  Vice President of State Government Affairs for the Retail Industry Leaders Association, during a conference call hosted earlier this month by Janney Montgomery Scott retail analyst David Strasser.

Amazon is hardly waiving the white flag in either red states or blue ones.  The new Illinois and Arkansas laws assert that Internet sellers must collect state sales taxes if  they get business from Web marketing affiliates based within the state. So Amazon has terminated its Illinois and Arkansas marketing affiliates, as has Overstock.com. It has also threatened to end deals with affiliates in Connecticut, California or any other state that passes legislation modeled on the 2008 New York Amazon law. (Amazon didn’t cut off New York affiliates. Instead, it is collecting New York sales tax while it challenges the constitutionality of that law in court.)

Even more dramatically, Amazon says it has canceled $52 million in contracts to finish the partly built South Carolina project and is “in the process” of closing its Texas warehouse, throwing 110 employees there out of work. (Amazon is fighting the $269 million Texas back tax bill on the grounds that its warehouse is run by an “affiliate, but not subsidiary, of the Amazon retailing entity” and so doesn’t give it sufficient nexus to have to collect Texas sales taxes. The bill passed by the Texas House is designed to make it clear that such an affiliate gives a retailer nexus. Amazon disclosed this week that the SEC is looking into its tax dispute with Texas.)

Meanwhile, Amazon is beginning to hire for two warehouses it started building in Tennessee after the administration of former Democratic Governor Phil Bredesen promised Amazon wouldn’t have to collect sales tax based on the facilities. Current Republican Governor Bill Haslam  has said he will honor his predecessor’s commitment, which was based on an interpretation of the state’s current law and apparently won’t require new legislation.   But Tennessee Republicans are continuing to question —if not directly threaten—the Amazon deal and Haslam is now calling for Congress to pass legislation that would force Internet retailers to collect sales taxes. (Senator Dick Durbin, an Illinois Democrat, is preparing to introduce such a bill, but it has little chance of clearing the Republican controlled House.)

So Amazon will be able to avoid collecting sales tax from most Americans for some time to come. Still,  retail analyst Strasser points out that Amazon has built its competitive edge not only on charging no tax, but also on its efficient distribution. If Amazon locates warehouse/fulfillment centers only in states that agree to give it a pass on sales taxes,  it could end up losing that distribution edge, particularly when it comes to large items, like televisions, Strasser argues.  “Ultimately, they’re going to have to compete with Best Buy, and Target and Wal-Mart and Office Depot andStaples for efficiency,’’ he says.


April 29, 2011

Is The Gates-Buffett Pledge Really Spurring New Giving? [News Report]

by Avinash Saxena

Today 10 new tycoons signed on to the Gates-Buffett Giving Pledge, the promise that 69 super wealthy folks have made to give away at least half their wealth to charitable causes. But a recent discussion among some of the Giving Pledge members raised some questions. Are Bill Gates and Warren Buffett mostly signing up folks who’ve already given away huge chunks of their fortune –or made plans to do that?

When Warren Buffett called Business Wire founder Lorry Lokey and asked him to join signed the Giving Pledge, Lokey says he told Buffett, “Warren, you’re late. I already gave it.” Buffett didn’t mind, according to Lokey, whom I met at a conference called the Global Philanthropy Forum. “Buffett said, ‘That’s why we want you aboard,’” Lokey recalled. Buffett’s Berkshire Hathaway bought Lokey’s Business Wire for an undisclosed price in the hundreds of millions of dollars in 2006.  Lokey told me he’s given away $670 million, primarily to universities and high schools in California, Oregon and Israel. All of that was given or pledged before Buffett called Lokey last year.

John and Tashia Morgridge similarly were big into philanthropy long before the Giving Pledge. John Morgridge, a billionaire, became chief executive of Cisco Systems in 1988, took it public in 1990, and later served as the company’s chairman. He and his wife Tashia have been giving away bits of their wealth for 25 years, as this Cap Times articlepoints out. During a panel discussion about the Giving Pledge at the Global Philanthropy Forum on April 14, Tashia Morgridge explained, “We’d already been giving away a lot of our wealth and intended to give away a lot of it.” Much of the Morgridges’ giving has gone to educational institutions in Wisconsin and to environmental conservation.

Other billionaires on the list who were giving in a big way before they joined the Pledge include AOL founder Steve Case, who created the Case Foundation with his wife Jean in 1997; and CNN founder Ted Turner, who famously pledged in 1997 to give the United Nations $1 billion over 10 years.

Meanwhile, some members of the audience listening to the panel grumbled about the fact that these big givers tend to give to the same sorts of causes, like putting their names on buildings at universities (Lokey contributed $75 million toward a new $200 million stem cell research building at Stanford), which don’t do much for solving issues of poverty or feeding the hungriest.

When asked why Giving Pledge members give more to universities than social service organizations, John Morgridge replied that “You can’t give large sums to those social service organizations … Most of us give small sums to those social service [groups].”

John Morgridge and Lokey both expressed dismay at the number of superrich who don’t see the need to share their fortunes. “This Valley has a lot of wealth. For my case, the disproportionate amount is spent on homes that they live in for two weeks a year,” Morgridge said during the panel.

Added Lokey: “We’ve got all kinds of billionaires sitting on their rear ends doing nothing.”

April 28, 2011

Michael Lauer’s Acquittal Is A Good Sign For Rajaratnam [Video-Today]

by Avinash Saxena

Eight years after the SEC dubbed Michael Lauer’s business”one of the largest hedge fund frauds in the history of the United States” a jury acquitted him of criminal charges.

Lauer who founded New York-based Lancer Group was accused by prosecutors in Miami of swindling investors out of $200 million beginning in 1999, but was acquitted of charges today including wire fraud and conspiracy to commit securities fraud.

He was facing 25 years in jail so it’s no surprise that he “raised his clenched fists in the air when the verdict was read and tightly hugged his attorney” as the AP reported.

For Lancer investors, who included Alfred Taubman and Britney Spears, the verdict may not be so thrilling.

Lauer’s alleged scheme: Buy large quantities of restricted stock in worthless shell companies, then buy a smaller amount of shares in the same companies at higher prices in the open market in order to show big gains. Lauer would report these inflated valuations to a third party administrator, Citco (which is also facing accusations of gross negligence), to show investors.

Read more about Citco and the hedge fund administration industry’s shoddy efforts to protect investors.

The inflated valuations generated larger fees for Lauer and his associates at Lancer, the government alleged. In other words, Lauer made false and fraudulent representations about his hedge fund in order to make more money from investors.

But the jury didn’t find anything criminal about Lauer’s behavior. In fact, one juror told the AP that the only thing Lauer was guilty of was “surrounding himself with a bunch of jerks.”

At first, I was shocked by the acquittal. The evidence regarding the shell companies Lancer was invested in was pretty incriminating. For instance, in the case against Citco (the company that was responsible for OK’ing Lancer’s books and records before it sent monthly statements out to Lancer’s investors) e-mails show an executives’ concerns about Lancer’s valuation practices and calls them “absurd.”

But that’s neither here nor there. Today, Lauer walked away a free man (though he was already fined $62 million by the SEC in a civil case) and announced on the courtroom steps that he would return to the hedge fund business.

What I can’t help but wonder is if tomorrow or the next day Raj Rajaratnam will step onto Foley Square in downtown Manhattan after his own acquittal has been announced and let the world know he is getting back to work in the hedge fund business ASAP.

Yes, Rajaratnam and Lauer were accused of two different crimes at two different times and in different jurisdictions. But whether Rajaratnam is guilty or not is not what concerns me.  I’m more troubled about the government’s ability to successfully try Wall Street on criminal charges.

As Forbes contributor and veteran Wall Street lawyer Bill Singer points out the defense lawyers on such cases are usually much more experienced than the prosecutors who tend to be younger and have, in many cases, the more difficult job of proving the defendant guilty beyondreasonable doubt.

“It’s easy to raise a doubt, but it’s much more difficult to make it go away,” Singer says.

That’s probably most true when it comes to financial cases that involve complicated issues like insider trading, valuations, derivatives, hedge funds, etc.

“Defense lawyers in these cases know that these jurors are human beings and human beings have a short attention span,” Singer adds.

That doesn’t bode well for prosecutors who are charged with explaining not just what insider trading means but explaining “the bowels of the financial industry like how trades are entered, how they are executed, who is involved and so on,” Singer says.

Those are explanations even a Wall Street journalist might be guilty of zoning out on.

And one more thing to keep in mind as the Rajaratnam jury continues its deliberation for the third day tomorrow is how long it’s taking them to decide.

“If this was an open and shut case, they should have come back within an hour or two,” Singer tells me.

Also of note, jurors announced their verdict on the Lauer case in a little more than 3 days.

April 27, 2011

Obama 2012 Strategy Briefing [Video-Today]

by Avinash Saxena
Tags: , ,
April 27, 2011

The Real Reason Stocks Keep Rising [News Report]

by Avinash Saxena

“It’s earnings, Stupid” a bullish investor is currently shouting from his rooftop. Ever so right he is. But what really is the driving force behind this latest surge in equity prices?

Last I checked, a madman despot is holding oil prices hostage (not to mention hundreds of thousands of innocent civilians). Those oil prices, along with an ever-higher grocery bill, are now taking up 22% of the average American’s spending budget. For good measure, over one-fourth of Americans’ homes are “underwater” (the mortgage is larger than the home is actually worth). Not surprisingly, roughly 15% of Americans are now on food stamps, and over 15% remain “underemployed” (unemployed, involuntarily working only part-time, or so despondent that they are out of the labor force).

My stock portfolio, on the other hand, is doing just fine, thank you. Who cares about the fiscal debauchery of the PIIGS (Portugal, Ireland, Italy, Greece and Spain)? Who cares about the out-of-control level of U.S. Debt? Who cares about the rampant level of inflation in emerging markets and the fact that many central banks are raising interest rates and imposing capital controls which will slow down their economic growth rates? Who cares about the social unrest throughout the Middle East and North Africa?

Well, with gold trading at over $1,500 per ounce (and the price of silver and some soft commodities moving up even faster), apparently the traders in the Chicago pits have taken notice. But not the U.S equity market, with the VIX (the Volatility Index, a measure gauging future anticipated stock market volatility) trading at an astonishingly low level. Truly eye-opening.

The answer, my friends, is not blowing in the wind. It’s earnings. Plain and simple. Albeit early in this latest array of quarterly earnings reports, 81% of the 124 companies so far to report earnings from the S&P 500 Index and 71% of the 188 companies in the MCSI World Index have reported earnings per share figures that have beaten the consensus analysts’ estimates. Indeed, profits of those 188 companies reporting to-date in the MSCI World Index have beaten forecasts by nearly 9%! What gives?

Oddly enough, bad news is actually good news. You see, U.S. productivity, which is a measure of employee output per hour, is now increasing at an unusually high rate of 4%, the fastest pace since leaving the depressed recession of 2002. And what causes this thrust in productivity? Better technology? A more streamlined approach to organizational management? Highly efficient, just-in-time inventories clicking along? Perhaps a bit of each of these elements helps to answer this quandary, but there is one overriding factor to the corporate earnings momentum: the lack of wage pressures on businesses.

That is, what’s really driving productivity growth, and hence earnings growth, and hence stock market appreciation, is the fact that wages as a percentage of revenues keep falling!

That’s right. America’s pain is also the stock market’s gain. Labor costs fell 1.5% in 2010 (they also dropped 1.6% in 2009). No wonder corporate profits have meaningfully beaten consensus analyst estimates for 8 consecutive quarters. Corporations haven’t experienced this much good fortune (at the expense of the average American’s poor fortune) since 1962-1963.

So while the headlines bombard us with depressing news, stocks are “climbing a wall of worry” ever so steadily higher. In this case, climbing on the back of America’s employees who are shouldering the burden to graciously accept a day’s wage, thankful that they aren’t out of work like one of their friends, neighbors or relatives. Go figure.

April 26, 2011

Rock Star CEO Day Leaves Behind Mess At RadioShack [News Report]

by Avinash Saxena

Five  years ago Julian Day showed up at RadioShack, a rock star CEO ready to perform his turnaround magic on the struggling electronics retailer that was quickly becoming irrelevant. Known as a cost cutter, the former investment banker had helped revive Safeway while chief financial officer of the company. He had taken over as chief executive of Kmart Holdings when the discount retailer was in bankruptcy court in 2003 and presided over a stunning reemergence.

But after five years in Fort Worth, Tex., Day is leaving behind a mess. RadioShack today posted a 30% drop in first quarter earnings and its partnership with T-Mobile has been a disaster, leaving the company with uncompetitive product offerings and a contract dispute. The company also cut its revenue forecasts today. Day’s five-year contract with RadioShack expires this year and his last day with the company will be May 16.

Day has done things his way at RadioShack. He presided over the firing of hundreds of employees who were told about their job losses via email. He also mostly ditched quarterly earnings conference calls, analyst meetings and press interviews. But he could not find a way to offset competition from big retailers like Best Buy and Wal-Mart, which offered one-stop shopping and deep discounts.

Still, Day has done pretty well for himself. He has received $21.4 million in cash and exercisable options for his five years at RadioShack. He would have taken home much more had he been able to sell the company, which Day seemed close to doing last year. It looks like he will still, however, be able to afford those $5,000 suits.

April 25, 2011

Finding Opportunities In The World’s Megacities [News Report]

by Avinash Saxena

Outside the austere 1825 royal palace in Munich that serves as the world headquarters of Siemens ( SI – news – people ), the streets are full of Germans celebrating Carnival ( CCL –news – people ) in their fussy way. Dressed as bears, clowns and sexy French maids, they stroll among glass-fronted stores stuffed with expensive luxury goods. Inside, Chief Executive Peter Löscher explains one reason this medieval city is so prosperous: new slums half a world away.

Löscher doesn’t use the S word. He’s talking mostly about more affluent parts of cities loaded with Siemens products, from electrical transformers and computer-operated trains to $100 million water-treatment systems. By definition, slums are the places that don’t have a lot of the stuff Siemens makes.

But that’s rapidly changing. The explosive growth of new megacities, including their outer rings of slums, favelas, barrios and shantytowns, will power Siemens’ sales and earnings for the rest of this century. Mass migrations from rural to urban areas worldwide is creating unparalleled opportunity. Staggering numbers tell the tale: Already 51% of the world’s 6.9 billion people–3.5 billion souls–live in cities; by 2050 demographers think it will be 70%, or 6.2 billion people. Nearly all of that growth will be in emerging markets like Asia, Africa and Latin America. By 2100, the United Nations estimates, Europe’s share of the world’s population will be cut in half to 6%, while Africa’s will double to 25%.

The developed nations, with their massive industrial infrastructure and huge consumer markets, still account for 70% of Siemens’ sales. “But when you talk about incremental growth, more than 50% of it will happen in emerging markets,” Löscher says. “This is a huge, huge opportunity.”

Löscher needs a huge opportunity to reach his goal of $149 billion in sales even as he discards lagging divisions like the Osram lighting unit. Buoyed by a recovering global economy, Siemens revenue should climb 8% this year to $109 billion, with earnings surging 44% to $12 billion. To help hit his higher target, Löscher recently announced a new division: Infrastructure & Cities. Already a mighty unit, with 81,000 employees and $24 billion in revenue, it will sell electrical equipment, building technology and other products aimed at urban areas.Siemens doesn’t have these markets to itself, of course. GE, with about $84 billion in industrial revenue, is a worldwide competitor; so are Sweden’s ABBABB – news – people ) and France’s Alstom and Schneider Electric. China can offer low-cost, cheaply financed electric plants, transmission lines and other infrastructure to sweeten its deals for mineral resources in poor countries. Chinese industrial conglomerates are also absorbing technology from partners like Siemens to bid for projects in more lucrative markets; last year Siemens opted to partner with China on a bid (since dropped) for a multibillion-dollar Saudi Arabian rail contract. In Brazil Siemens is increasingly going up against locals like WEG, a growing electrical-equipment maker.

There’s plenty of business to go around, however. Siemens economists estimate the world infrastructure market runs about $2.8 trillion a year, with $423 billion of that in products the company already sells. Megacities are magnets for contracts. Roland Busch, head of strategy at Siemens, says 50% of the world’s GDP is generated in the 645 cities with populations above 750,000; the largest 40 cities represent 20% of global GDP. The momentum is firmly in emerging markets. While Germany has 3 cities with a population over 1 million, India has 46 and China has 160.

“There’s a huge wave sweeping through Siemens, which is being led by India and China,” says Armin Bruck, managing director of Siemens India in Mumbai, a city of 20 million. Instead of peddling high-priced, feature-rich German machines to customers who can’t afford them, Siemens India has set up five research centers to design lower-cost products like medical scanners that can withstand Mumbai’s high humidity and huge variations in line voltages.

One product to come out of the shop is an X-ray machine that sells for $15,000 plus taxes, less than half the price of an imported German model. Launched seven years ago, it’s being exported to 36 countries. Indian engineers, meanwhile, have come up with a $5,000 portable X-ray unit and are working on a solar-powered one aimed at rural clinics. Lower price per unit but lots of units: Siemens India thinks such devices designed in and for emerging markets can generate $1.4 billion in orders by 2020.

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