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Yule laugh, yule cry…
No, I mean the magical goosebump childhood excitement Christmas, and the darkly absurd, “Look, somebody shot at Santa’s helicopter!” Christmas.
Well, those two aspects do fit together better than most people think, don’t they?
Indeed, it’s almost like “The Gift of the Magi.”
In the midsts of this wonderful season, here are eight of my favorite blog posts from Christmas past. In the words of Tiny Tim, “God bless us, every one!”
8. “I’m Santa! HO HO hold your fire!”
7. Heartwarming holiday story restores my faith in man…
6.The Steamy Lingerie Models who Saved Christmas!
5. Have yourself a creepy little Christmas?
4. Eleven pipers piping, ten snipers sniping…
3. Dogs and their Christmas Decorations
2. How Blog Guy made the naughty list
1. You must be Round John Virgin?
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Top: A dog sits beside Christmas decorations displayed along a busy street in Manila December 11, 2010. REUTERS/Cheryl Ravelo
Left: Model Marisa Miller presents a creation during the 2009 Victoria’s Secret Fashion Show in New York November 19, 2009. REUTERS/Lucas Jackson
Right: Participants in SantaCon Boston 2010, a gathering of people dressed as Santa going from bar to bar, drink at the Asgard Pub in Cambridge, Massachusetts December 18, 2010. REUTERS/Brian Snyder
More stuff from Oddly Enough
Crunch time for Qatar, UAE stocks
If any Qatari or UAE stocks get into the index, they are likely to make up only a small percentage of the benchmark, which has heavy weightings for countries like the BRIC nations and South Korea. But the move would attract investment from the many funds who measure their performance against the index, and might prefer not to deviate too far from it.
Qatar and UAE were due for a possible upgrade earlier this year, but MSCI gave them another six months to allow market players to assess new delivery-versus-payment (DvP) settlement systems.
MSCI has also said Qatar might not make it because of its 25 percent foreign ownership limit — foreign ownership needs to be “significant” to meet emerging market index criteria.
Most players don’t expect Qatar to get upgraded tonight because of the foreign ownership issue and there are also doubts about UAE.
If MSCI surprises, the stock markets are likely to get a boost — Dubai stocks are trading close to 2004 lows, and Abu Dhabi near 2009 lows, though Qatar has had a relatively good year.
According to Emad Mostaque, MENA strategist at Religare Capital Markets in London:
The UAE is more likely to be upgraded than Qatar as the latter has not raised its foreign ownership limits, a key concern raised by MSCI. Both have introduced delivery versus payment models requested by MSCI, although the efficacy of these models is still a concern. If the UAE is not upgraded this time, it is likely to receive an upgrade next summer when the next review takes place.
Euro debt toxic in central Europe too?
Hungary — and to a lesser extent Poland — have been suffering from their exposure to the economies and banking systems of the euro zone.
But if it was just about the quality of these sovereign credits, their dollar bonds would have fallen as hard as their euro debt.
Investors say there could be several issues at play, including worries about the volatility of the single currency, its direction — with last week’s EU summit only increasing the dollar’s strength — and even whether the euro will still exist in the same form, with all the headaches that could mean for anyone holding euro-denominated contracts.
“We avoid euro-denominated debt, it’s cheap and getting cheaper,” Sergio Trigo Paz, global head of emerging fixed income at BNP Paribas Investment Partners, told Reuters Investment Outlook Summit 2012 last week, when discussing how the firm was making plans for a possible euro zone break-up.
The spread between Hungarian euro and dollar bonds due 2020 widened by as much as 70 basis points in the past few weeks, though the gap has closed in a little today as investors check out the implications of the EU summit.
For Polish euro and dollar bonds due in 2019, the spread has widened by around 40 bps.
Many cash-strapped European banks and fund managers, who are more likely to hold euro-denominated debt, have also been forced to pull out of riskier assets, and this may also be causing the underperformance of the euro debt.
Agnes Belaisch, emerging market strategist at Threadneedle, says:
“The asset base for these euro bonds are European investors, mostly bank asset managers and pension funds, they are mostly deleveraging. This affects credits that work and credits that don’t work.”
U.S. inflation: bursting through the core
But at least one Fed call appears to be on the mark: overall inflation is coming down as energy prices ease on the expectation of slowing global demand. This, in turn, may soon lead to a curious phenomenon. The core measure of costs, which excludes energy and food prices and tends to be lower than consumer prices as a whole, may soon exceed so-called “headline” inflation.
Eric Green at TD Securities, writes in a research note:
The November CPI data was benign and captures a trend over the next six months that will become more obvious – headline is poised to decelerate through core prices. Core inflation will prove more sticky to the upside rising toward 2.3% y/y over coming months while headline prices fall toward 1% y/y by May. That will encourage a perceptible bias lower in breakevens (one that could accelerate if Europe goes Kaboom in Q1), and it provides the Fed more leeway to become more proactive should growth decelerate over H1 as we suspect it will.
Jim Baird, chief investment strategist at Plante Moran Financial Advisors, offered a similar view.
The pace of inflation has clearly moderated in recent months, and is expected to continue to ease in the months ahead. Dissipating inflation pressures should also allow the Fed more room to provide additional stimulus if the economy were to slow in early in 2012. While recent economic data suggests solid fourth quarter results, there is certainly a risk that the sharp slowdown in Europe could be a drag on the U.S. economy as well.
When it comes to forecasting (and, Fed hawks might argue, in general), inflation really is the central bank’s core competency.
If Spotify fails, blame the Internet’s grim economics
That was Robertson’s claim in an detailed and elegant jeremiad against the big labels. He claims that Spotify and its peers will never make a profit because of secret, onerous terms that act as a financial straightjacket for the startups, snoop on their users’ data and border on collision. Others were quick to suggest that it’s the music-streaming services that are being stingy. After all, by some calculations, an artist could have a song streamed 4 million times on Spotify and make just $1,200
So who is right? Both. And that’s bad for everyone. Music labels, being greedy music labels, want a profit. Desperate for a piece of a music-streaming market that isn’t going away, they are asking for everything they can in the name of rewarding artists (and investors). But the digital music services like Spotify need a low subscription fee – usually $10 to $15 a month for an all-you-can-eat plan – to build a critical mass of subscribers.
Ten bucks a month for streaming music looks a bit steep if you compare it to Netflix’s $8 monthly fee for streaming video. Or it’s a great deal, if you compare it to, say, the $65 or more that longtime Comcast subscribers pay for cable. But that’s just the problem. Comcast is expensive because it’s cable, and Netflix is cheap because it’s the Internet. We say information wants to be free online, but what we really mean is we want it cheap.
So when we ask who is to blame for the dismal economics of digital music, we shouldn’t point to piracy. That’s a scapegoat that nobody but the labels takes seriously anymore. The true culprit lies elsewhere. It’s just the Internet doing what it does – breaking down the walls and removing the friction that for decades made it such a slog to find and discover new things to hear, to watch, to read.
And we love the Internet for this. We love having several millions songs on tap – playing them when we want, where we want. But the flip side is that this new cornucopia of on-demand music is upsetting the balance of supply and demand that was the standard for decades. The friction-free Internet has brought us so much more music to listen to. But it hasn’t increased the amount of money that people have to pay for it.
We’ve seen this not-so-creative destruction of profits in other areas of content as well – in news, for example. For centuries, the artificial scarcity of the printed page let newspapers and magazines, fairly or not, charge generous ad rates. But the viral proliferation of web pages has driven online ad rates down. Ad budgets expand as prudently as ever, but the ad inventory fructifies at a rate that seems cancerous by comparison.
And we’re seeing this same dynamic elsewhere – in publishing, where Amazon’s 800,000 e-books, many retailing below $10, are undercutting old-school bookstores (kindling glee in the hearts of some e-trolls). We’ll see it in movies and TV shows soon, as so-called cord-cutters forego the procrustean schedules of cable TV for the cheaper and increasingly less chaotic frontier of online video.
This is the unspoken paradox of the web: It makes it so much easier to create, publish and find new songs, books, movies and other creative content. It’s a consumer’s paradise – an oasis of value in an era where the costs of daily goods are rising faster than the wages earned to secure them. But it’s also left more and more creators competing for the same old pile of subscription and advertising dollars.
Normally, this kind of imbalance between supply and demand leads, in time, to a shakeout. There were hundreds of U.S. auto manufacturers that rose and fell in the early 20th century. And even today, consolidation is starting to reduce the number of companies in the solar industry, despite its long-term growth prospects.
Of course, creating content like music is different than manufacturing goods. Pure passion can motivate people to make music even when no profits are involved. For digital-music companies like Spotify, however, profits are a necessity. Their hope is to scale up their subscribers enough to become profitable in time.
But it may well be the grim economics of digital content won’t allow that. And if so, their best hope is to be bought out by one of the music labels exploiting them today.
Photo: Facebook CEO Mark Zuckerberg walks the stage during his keynote address at the Facebook f8 Developers Conference in San Francisco, California September 22, 2011. Facebook unveiled new features that center on the way users listen to music and watch TV, offering tie-ups with the likes of Spotify and Hulu, as it attempts to make media an integral part of its service. REUTERS/Robert Galbraith
Gray market trading sucking life from IPOs
Facebook’s initial public offering will grab headlines in 2012. But as Zynga’s tepid debut shows, multiple private investment rounds and the ability to trade shares before going public means slim pickings when public market investors finally get their chance to own a slice of Silicon Valley’s emerging heavyweights. That’s one reason the average IPO this year has wound up trading some 10 percent below its offer price.
Companies such as Zynga and Facebook increasingly avail themselves of so-called “D round” deals. These are very late-stage investments where companies, in addition to possibly selling some new stock to fund growth, also allow existing shareholders to cash out. At the same time, emerging private exchanges like SecondMarket allow qualified investors to buy stock from insiders in private firms without conducting an IPO.
Consider Zynga. The online gaming company raised money in multiple rounds at ever-rising valuations, allowing insiders, including CEO Mark Pincus, and other backers to sell along the way. While it was valued about $4 billion in early 2010, its worth on gray markets had tripled by early 2011. More recent signs of slowing growth meant the company fetched just a $9 billion market value when it finally went public.
What’s odd is that private market values have historically come at discounts to public prices, generally a reflection of less liquidity and disclosure. Yet for select firms, like Facebook or Zynga, this no longer seems to apply. Lots of investors want in to a few hot companies – about 80 percent of trading on gray markets is in five firms – and are willing to pay up, even if there is little financial information available.
For the companies involved, a private market in which they fetch robust valuations may be great. But it’s not clear how this benefits capital markets more broadly, particularly if it means by the time companies go public their fastest growth is behind them and their valuations are already full. Zynga shares fell below their offering price on their first day of trading Friday. Taken as a whole, this trend is sucking the life out of the IPO market.
A shoe, a song and the promise of the West
A 1946 composition from Shanghai, the song has gone from classic to kitsch, evolving to become the most popular festive song in the Chinese-speaking world. Its ubiquity rests on the many — for me at least — teeth-grindingly cloying versions played all over shops and markets in Asia. (Click here for example and don’t say I didn’t warn you)
I was somewhat surprised by the song’s appearance in the British retail icon — not least because it’s still some ways off the Year of the Dragon. But then looking at the shoppers around me it all made sense.
Mainland Chinese travellers spent some £200 million on Bond Street last year. That’s a 155 percent surge from 2009, according to an association of luxury retailers in the London thoroughfare.
Never mind that these products are largely assembled back in their home country, Chinese tourists buy their designer bags on Bond Street and elsewhere in Europe to avoid China’s luxury sales tax. More importantly, these status-conscious buyers have the assurance that they are not being sold knock-offs — a risk rampant in a country notorious for its lack of regard for intellectual property.
Those reasons are similar to those that drive the wealthy elite in many emerging economies to London, a city that Goldman Sach’s Jim O’Neil has dubbed the “BRIC capital of the world“.
Whether it’s handbags or homes, the well-heeled from Brazil, Russia, India, China and other rapidly growing economies are drawn to the city because it promises rule of law and regulatory predictability. For all the hype about GDP growth rates, many emerging economies remain hobbled by corruption, weak regulatory frameworks as well as social and political instability.
This is why many investors prefer to gain exposure to emerging economies via U.S. and European companies rather than buying directly into Chinese or Russian firms where doubts remain over corporate governance. It may be why emerging shares this year have underperformed their developed counterparts even with all the anxiety about recession and sovereign debt in the West.
Chinese tourists buying made-in-China swag on Oxford Street may sound incongruous but many investors are essentially in the same proxy trade.
Amid the gloom one sees in the press about Western economic decline, it’s worth thinking about those Chinese shoppers in Selfridges. They may hold a much less pessimistic view.
What the euro crisis is not
To fully assess the risks to the United States and our proper role in the euro zone crisis it must first be clear what the crisis is and is not. It is not a bailout of the populations of the weaker European economies such as Greece, Ireland, Portugal, Italy, Spain, Hungary or Belgium. After all, the populations of those countries are being forced to give up portions of their sovereignty in the name of austerity toward a fiscal union.
Rather, I would contend, it is a bailout of banks in the core countries of Europe, of their stockholders and creditors who, failing to gain sufficient access capital markets, would need to be recapitalized by their host country governments. It is a transfer of losses from banks and corporations onto the backs of ordinary people without requiring any recognition of losses by those banks whose risk management and lending practices created the problem. It is as much a tale of over lending as it is of over borrowing and, just as nobody should feel undue sympathy for those who miscalculated the amount of debt they could service, nobody should feel for those who miscalculated their lending risks.
Directors and officers insurance declaws clawbacks
Directors and officers insurance may be declawing clawbacks. Allowing regulators to recoup bosses’ undeserved rewards is central to U.S. financial reforms. But in addition to more standard risks, D&O polices are now covering salaries and bonuses lost in this way – at shareholder expense. Insurers deny helping executives skirt accountability. Investors, watchdogs and the courts may see things differently.
Wrist-slap fines for errant corporations haven’t satisfied the public’s lust for rolling heads. That’s one reason the Dodd-Frank and Sarbanes-Oxley laws provide for clawbacks. The idea is that at least part of senior executives’ chunky pay packages can be recovered if they run banks that fail or receive remuneration based on bad numbers. That bites them where it really hurts, in the pocketbook.
Turns out, clawbacks also created a business opportunity. Insurers began offering policies to cover them in April, even before regulators issued the first applicable rules under Dodd-Frank. Dozens of companies, banks, hedge funds and private equity firms have snatched policies covering clawbacks worth millions of dollars for annual premiums that run to a few tens of thousands.
Marsh and other insurance brokers say the policies don’t undermine financial reforms because they don’t cover fraud or intentional wrongdoing. The insurers also argue that clawbacks were designed to recoup money for shareholders and the public rather than to punish officers and directors.
Regulators, not to mention corporate honchos, might be surprised to hear that. In any event, the legal basis for clawbacks is the return of money people never should have received. A bonus based, say, on phony financial results surely fits that bill. And courts have ruled that insurance covering similar kinds of improper payments isn’t enforceable. But if insurers want to pay, there’s nothing to stop them. Most have agreed generally not to challenge reimbursement.
That leaves the regulators. The Securities and Exchange Commission and the Federal Deposit Insurance Corp haven’t yet prohibited their charges from buying clawback coverage. At a minimum, there’s precedent for including in legal settlements a ban on any such insurance reimbursement. Not being insured against clawbacks shouldn’t deter talented executives, as critics claim it might. If they don’t run companies into the ground, they don’t have to fear for their millions.
Savvy NRG step may tip scale against utility deal
On Thursday, NRG requested that Connecticut’s Public Utilities Regulatory Authority re-examine its right to intervene in the merger process. Earlier in the year, PURA decided it did not have jurisdiction to do so, leaving final approval to Massachusetts regulators.
That was before Hurricane Irene in August and a snowstorm over Halloween left millions of Nutmeg State residents – who pay the highest electricity rates in the continental United States – without power for weeks. Subsequent independent investigations into the outages revealed multiple failures on the part of Northeast Utilities’ Connecticut Light & Power unit. NRG’s filing cites these findings in urging Connecticut to act.
NRG’s arguments are politically savvy, in that many state legislators on both sides of the aisle are united in their displeasure with Northeast Utilities. The power group’s petition appears to give Governor Dannel Malloy an opportunity belatedly to reassert his administration’s role in ensuring the interests of Connecticut residents are safeguarded as part of any merger.
That said, NRG’s interests are not necessarily aligned with those of electricity users. Going back to the Wal-Mart-buys-Target analogy, NRG appears worried – as Pepsi or other suppliers would be in that example – that an even larger customer’s market dominance would give it huge purchasing power. In Northeast Utilities-NSTAR’s case, the combined company’s new heft could also enable it to generate more of its own power to compete with NRG’s five Connecticut facilities.
If the state does decide it made a mistake in waiving its rights to intervene, there’s a higher likelihood the merger will be derailed. Given the experience of Northeast Utilities’ captive customers this year, they might prefer the company doesn’t get even bigger – even if NRG’s motives for blocking the deal are entirely different from theirs.
Sheltersu 