Redbox Fully loaded: Can Netflix Stay 1-Step Ahead ?

Redbox unearthed the details of a joint venture with Verizon Communication, which delivers the required infrastructure for streaming video service at (you guessed it) $8 per month, under the brand name, “Redbox Instant”. Although, this exciting new business division does not include movie downloads as yet. The anticipated venture comes on the heels of their announcement in March that it purchased NCR’s entertainment division for $100 million, hammering the nail in the Blockbuster Express coffin. Kudos to Redbox for its successful execution of its expansion plan, that brings them to a head-to-head competition with the Market Leader, Netflix.
You may recall the of Summer of 2011, when Netflix's CEO (Reed Hastings) made the grave mistake of announcing their brilliant plan to separate the DVD Rental and Streaming Video business into two revenue streams. Charging $8.00 per month for each – essentially doubling the cost for customers who were enjoying access to both for only $8. The ill-fated plan was announced one moment and denounced the next, as customers made their feelings of disgust known. A mass exodus of 800,000 customers within a matter of weeks was an undeniable message to the business community that the Customer is Boss. By October, in response to the backlash, Hastings apologized to customers. He announced that the company decided not to separate the services for now, adding that they were moving too fast.

Netflix reported a loss of 800,000 subscribers in the 3rd quarter of 2011. Since Analysts predicted a loss of only 600,000, the market reacted unfavorably with a swiftly decline of over 20%. The company warned of more defections and stated that they anticipate losses for the first quarter of 2012 as a result of expanding their business to Europe. Netflix did not anticipate the fast and furious decline in market valuation, eroding their stock price from its highs The $305 per share in July 2011 to below $53 by September. By the year's end, Netflix has lost a million subscribers in the aftermath.

This costly business strategy turned out to be a public relations nightmare for Netflix, but an absolute dream for Redbox, waiting in the wings.

Using the Netflix business model, Redbox came onto the scene quietly, but well prepared to gradually scoop up stray Netflix customers. Then the Netflix blunder created a glorious opportunity or “gift” for any company poised to take advantage of it……. that company was Redbox. The gift translated into instant market share and name recognition, as news coverage of Netflix’s new strategy made reference to Redbox in just about every report.Jusk think; a sizable number of displaced Netflix customers were now searching the net for a comparable alternative to the DVD and streaming video service. Redbox scrapped-up stray, and disgruntled customers for the first 90 days following Nextflix’s announcement. It’s quite possible that Redbox pulled in the entire 4% market share Netflix lost.
As a business major in grad school, students learn a great deal about the world of business through reading piles of case studies and statistics about corporations that were successful versus those that folded. We learn that the fate and longevity of a product or service has a lot to do with originality or satisfying an underserved demand. In such a scenario, the first to enter the market with a new product idea or service is referred to as “Market Maker”, or “Market Leader”. The Market Leader holds an enormous advantage over those that follow in their footsteps. Research has shown that market leaders are likely to maintain the lion's share of the market for decades – unless the product or service becomes obsolete, such is the case (for example) with beepers. In keeping with this statistic, Netflix did eventually recover having lost 85% of their valuation, and approximately 4% of their business.
Nevertheless, the Netflix blunder, nearly two years ago, served to kick-start the new-comer, Redbox. As unhappy consumers fled Netflix, the gift of market share was well received and now Redbox is ready for a new challenge – Streaming videos.

By December of 2012, Redbox had increased its market share to 45%¸ up from 34% the previous year. Redbox’s founder Gregg Kaplan, leaves his post as President and COO, passing the role of President over to Anne Saunders, and Shawn Strickland as CEO of Redbox Instant - who will hopefully continue with equally successful leadership.
Well Netflix, “It is On”! You don’t have to be a market expert to conclude that this will be a battle for market share we haven’t seen since the early days of Coke and Pepsi. I look forward to the continued growth of Redbox, and hope the competition will inspire higher standards and consistently low prices. Redbox Instant, will be offered on the Roku box, and made available on Sony Playstation-4 consoles. Good luck Redbox, and may the force be with you!

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Employment Not As Rosy As You May Think

Although the unemployment rate has been below 8% since October, there seems to be a disconnect between what the government and media are telling us about how good things are with jobs and what is real.

There are job openings at a level not seen in years. However, the time it takes to fill a job has increased to 23 business days compared to 15 in mid-2009. Although the economy is improving, the reality is companies are reluctant to hire, holding up the process by making candidates interview over weeks or months, before a decision is made, if one is made at all.

“There’s a fear that the economy is going to go down again, so the message you get from C.F.O.’s is to be careful about hiring someone,” said John Sullivan, a management professor at San Francisco State University who runs a human resources consulting business. “There’s this great fear of making a mistake, of wasting money in a tight economy.” The result is an unreported hiring freeze that seems to be in place, especially for higher skilled workers.

“If you have an opening and are not sure about the economy, it’s pretty cheap to wait for a month or two,” said Nicholas Bloom, an economics professor at Stanford University. But in the aggregate, those little delays are stretching out the recovery process. “It’s like one of those horror movies, an economic Friday the 13th, where this recession never seems to die.”

Although job creation has improved over the last two years, it has little impact on the backlog of unemployed workers. Uncertainty, regarding the effect of fiscal policies in Washington adds to employer indecisiveness. In addition, employers want to make sure that workers who have been out of a job for months or years are up to date with current skills, said Robert Shimer, an economics professor at the University of Chicago, before they agree to on board a candidate.

Employers are under no pressure to hire – one reason as indicated in government labor reports, is high productivity. What this means is employees are working double and triple duty because employers are reluctant to hire additional staff. If they do, to lower labor costs, some companies have imported talent from abroad, especially in the technical fields, at much lower rates than their counterparts in the USA would normally command. In addition, outsourcing continues overseas, further reducing opportunities.

Until the psychological barriers are lifted regarding the fate of the economy and changes are made to reward companies who hire American workers, frustration may continue for quite some time, for domestically unemployed workers.

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Romney’s Victory Website: And The Ugly Truth About Politics

It appears that Mitt Romney and his GOP “posse” had a Vision that the Election was going to yield a landslide victory! Although they could not have been more wrong, their arrogance was palpable. I am sure by now you’ve heard reports about Mitt Romney admitting that he only wrote a Victory speech. That is more than positive thinking, that is sheer arrogance (and not the most attractive trait in a candidate). Fox news, and other conservative media outlets had pre-election panels, and Election-day panel discussions, that harshly laid out reasons why Democrats, and Obama, will be shown the door. During the early afternoon on November 6th, the conservative news anchors and pundits entertained themselves by predicting what the Romney Cabinet would resemble. Who are the likely candidates for the Romney Administration, and who would be passed over for one reason or another. It was not unlike pre-Super Bowl chatter, only this game will impact the entire country, and the world. As the day progressed, the conservative political analysts were confident and excited.

There seem to be such utter certainty, that I was startled by it. It was like being in an alternate world, chiefly because I couldn't see how one-plus-one could equal four. It appeared that Fox News, and conservative Talk Radio, converted simple math (adding likely Romney votes) into an algebraic equation....and it all made sense to THEM. Looking at the issues influencing voters, which bore out to be true, I took note of the following issues:

 Women in America want the right to choose what goes on with their bodies, and don’t appreciate being referred to as “Binders of women”
 Latinos are concerned about immigration laws that impact their children and families.
 FEMA should be left alone; States and local governments, and citizens need financial help after Natural Disasters .
 A sizable portion of the “47%”, Romney wrote off, were retired, or veterans who have paid a lifetime of taxes, or risks their lives fighting for this Country. They’ve earned the right to Social Security, and other government programs
 Auto Makers, their 181,000 auto workers and their families were happy that Obama didn’t take Romney’s advice to “let them go bankrupt”
 Gays are passionate about having heir marriage legally recognized, giving them the same rights as heterosexual married couples.
 Youth votes are more likely to vote for Democrat, given the “Occupy Wall Street” movement, which blames the wealthiest 1 %, and the Bush Administration for the economic and fiscal crisis

The above political and social issues can be translated to a simple addition problem. Accordingly, the 7 bullet points could be treated as an aggregate of votes away from the republican candidate, Mitt Romney. Although the slow economy and high unemployment were working against Obama, as long as the turnout were as strong, or better than 2008, he had a good chance of winning re-election.

So why then, were the Republicans and Carl Rove so vehemently certain that Romney would be elected the 45th President of the United States? To the extent that he had his Victory Website rolled out early Thursday morning?

Perhaps this tidbit of information will provide a clue: Shortly after Obama’s stunning victory, I read a disturbing article that attempted to explain a complicated web of investment companies and venture capital that involved Mitt Romney’s son, Tagg Romney. In a nutshell, Tagg Romney owns the company that invested in the company that bought a controlling interest in a Voting Machine Vendor. What? I was so shocked, that it took the wind out of me. What this amounts to is so incredibly unethical, I can’t help but to think of Watergate. So, that explains the why the Romney camp felt so sure they would be moving into the White House. This is unfathomable and beyond a mere “conflict of interest” issue. This also explains why several concerned voters released video tapes the rigged voting machines they encountered, and posted it on YouTube. One male Caucasian Voter illustrated that when he chose Obama for President, a check would appear next to Mitt Romney’s name. He tried it multiple times, and eventually left that booth. He did not indicate who he ultimately voted for, but stated that he just wanted to report a “strange” occurrence.

Provided below is just one of the "Rigged Voting Booth" videos.

The combination of the Tagg Romney’s secret ownership of a voting machine company, and the YouTube videos of rigged voting machines is too much of a coincidence. I also believe that if this Article was misstating the facts, there would have been a lot of noise and defamation claims coming from the GOP or the Romney camp. Instead there is silence - as if the planned strategy was not to respond, so that the issue would quickly go away. I am almost certain that the Obama Administration is too busy to pursue the matter, especially since the stolen votes did not help them achieve their goal. The outcome of the this election, begs the questions: If Nixon hadn't won the election, would the Watergate break-in become the scandal that rocked Capital Hill - to destroy Nixon's political career? Given the lack of attention drawn to the Rigged Voting Machines connected to Tagg's Venure Capital Company, I can't help but wonder if Watergate would have become one of the biggest scandals in America's political history, if Nixon did not get Elected? Whatever the case, politics is left with a black eye, as democracy stumles on.

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Doin' the Twist: The Federal Reserve Steps in to Spur the Economy

In the beginning of the year, the Federal Reserve indicated their plan was to let the economy stand on its own. By the end of last month, however, the Feds broke down and reduced long-term interest rates in a program they refer to as Operation Twist. In this program, the Feds would drive down interest rates to encourage business activities, such as borrowing and hiring. According to a Wall Street Journal article by Peterson and Hilsenrath, the Federal Reserve officials announced that Operation Twist will be extended through the end of the year, but they’re “poised to do more”.

At the end of the 1st Quarter, the Feds indicated that there was no need for their help. The economic picture appeared brighter following a strong 4^th Quarter, and encouraging jobs report.

By the time the we turned the corner into the 2^nd Quarter, the economic storyline began to change amid heightened pressures from overseas. The market, which had anticipated S&P downgrades for Spain and France, could no longer withstand the push-back stemming from the European Union’s fiscal and political upheaval. Globalization has its rewards, but this isn’t one of them. When the EU sneezes, we are going to get the sniffles, as if the distance were non-existent.

As the Euro fiscal storm brewed, the dismal jobs report and Facebook IPO did its part to shrivel up any confidence Investors might have had left. The market uncertainty lingers, regardless of good economic news. This  depicts the profile of weary investors - possibly suffering from Post-Traumatic Stress Disorder.  Being the eternal optimist, I’m hoping Operation Twist will have us all dancing in the isles by the end of the year.

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Goldman Sachs: Filing for Moral Bankruptcy

The investment Banking community was stunned by the hard hitting statements made by Goldman’s former executive, Greg Smith. Smith's scathing, but heartfelt remarks, published in the OpEd section of the New York Times, was the topic of lively debates and criticism around the globe this week.
After reading Smith’s behind-closed-doors account of what’s really going on at Goldman, it would seem that Wall Street’s gold plated, celebrated investment bank of 143 years has somehow lost its core values on which they built their brand of “Trust” and “Integrity”. Goldman Sachs was once an awe inspiring investment bank, whose brain trust is referred to as “the best and the brightest”, but they have certainly suffered from a leadership deficiency. Strong leadership or the lack thereof, is the basis of the rise and fall of many businesses – regardless of their size. It is the “leadership” of Steve Jobs who, upon returning to Apple, was able to bring the company from the brink and take it to quintessential plateau, far beyond anyone’s imagination. That’s leadership.

Mr. Smith’s commentary might have easily been dismissed as a disgruntled employee, were it not for the fact that he was a highly regarded executive director, who has spent over a decade of his career there. From my perspective, Smith gains credibility for his tone, and the manner in which he described the pride he felt being a part of Goldman, and praised the company that once was. He was convincing because of his effort to be constructive in his criticism - disclosing examples of the troubling shift away from providing investment advice in the best interest of the client. Rather than simply throw destructive daggers and below-the-belt punches that serve only to damage the company, his rant was respectful but unyielding. Smith had the power to do a lot more damage than he did. Keep in mind, never once did he accuse Goldman of fraudulent practices.
Mr. Smith’s piece focused on Morals, Ethics and Integrity, which was summarily lacking, apparently much like the leadership. Smiths cited his leaving the company because he could no longer stomach the Goldman that has emerged. The shift in focus from Client-centered investment services to, revenue-driven “elephant hunting” (Smith, 2012) has eroded the company’s code of ethics to the bare bones. Having developed an unnatural preoccupation with taking every allowable advantage of the client, Goldman Sachs is left morally bankrupt.

Let us all be reminded of the Senate hearings, and the SEC investigations of 2010 and 2011, which resulted in fines and a multi-million dollar settlement. Meanwhile, the public has barely had a chance to digest the law suits that have come from international companies claiming Goldman mislead them about the rouge mortgage-backed securities they purchased from Goldman, without so much as a warning.
The firm’s Chief Executive Lloyd Blankfein and Chief Operating Officer Gary Cohn issued a statement more than 24 hours after the OpEd sent global shockwaves throughout the investment community. As expected, they were essentially denying the allegations made by Smith. Unfortunately, it was too little, and about $2.2 billion too late, as the value of the company took a dramatic hit after Smith's public resignation letter went viral. The stock recovered all but $800 million in value the following day, due to investor excitement about positive economic statements from the Federal Reserve, and stronger than expected retail data. Still, intangible losses are mounting where trust, good will, and brand are concerned. For this reason, many question the wisdon behind the delayed reaction from Goldman. It's too early to tell what the fall out will be, and Goldman's overall Damage Control Strategy is yet to be seen.

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Anonymous said......

Great article Katherine! The Goldman crew only needed 10 BILLION dollars (place pinky to corner of mouth)to stay afloat after the greatest heist on the planet by these guys: http://projects.propublica.org/bailout/list
It only took Goldman (Gold,man!)a couple of years to repay 10 Billion dollars... what does that tell me about how easy money comes to them?
At least one of them is admitting being morally bankrupt! It's about time!
We should have done what Iceland did instead of screwing over the people.
Now what?
http://projects.propublica.org/bailout/entities/237-goldman-sachs
Chris G / Mar 18, 2012 05:17 PM

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K. Reilly said......

Hey Chris G., thanks for your comment. I also checked out the propublica.org link, which I enjoyed scanning through. Sorry for the delayed response. :)

Crimes & Misdemeanors: FBI Closes in on Large Wall St. Funds

The FBI has arrested key members of a ring woking out of several states, including New York. Similar to the Galleon Group, these guys traded information concerning publicly traded companies in an apparent conspiracy to commit insider trading fraud. This ring was so productive, they were able to generate financial gains that rival the Galleon Hedge fund, who's founder recently received an 11 year sentence for insider trading. One of the hedge funds involved, Level Global Investors, raked in over $50 million in gains alone. The court documents state that a ring of traders and analysts, who formed an insider trading club, swapped information that resulted in over $60 millions in illegal profits.

As the voices of "Occupy Wall Street" draw attention to the stark imbalances of the privileged 1%, the fraud saga continues. According to the , Wall Street Journal the government has already prosecuted 63 people on charges of insider trading, yielding 56 guilty pleas or convictions. This marks an unprecedented number of cases procsecuted concerning insider trading in a three year period. Judging by this unrelenting onslought of crimes and Misdemeanors, it would appear that the Finance Reform Act is about as valuable as wall paper. That is not to demean the efforts of law makers or the Obama Administration, its merely a commentary on the industry's commitment to an "any means necessary" approach to capitalism. The only consolation is that the Feds and the SEC seem to be paying closer attention to the activities and trade patterns of hedge funds and other financial institutions that engage in trading. There's fresh optimism about the economic forecast, as job reports and other market indicators send a strong message of recovery. Neverthless, with the reluctance traders, money managers and banks to change their habits to avoid a repeat of a financial collapse, sends another message altogether: They still don't get it, and its likely that they never will.

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Blue Chips in the Red: Kodak

In the digital world of imaging, the hardest hit in this sector, which should come as no surprise, was Kodak. The Wall Street Journal reported that Kodak may be filing for bankruptcy protection in the months to come. In the past three years, Kodak has incurred losses in 9 out of 12 quarters. For the 3rd quarter of 2011, Kodak's losses were estimated at $222 million, which had investors running for cover. Needless to say, their stock fell sharply last year. Although the company stock began the year trading at $3.00, Kodak's shares are presently fluctuating below .50 cents. Consequently, the New York Stock Exchange warned that they will move to delist Kodak if their stock price remains below $1 for over 6 months. Kodak is not quite in the "red" yet, but if the company continues operating at the same rate of quarterly losses they experienced in the third quarter of 2011, it is only a matter of time.

I remember purchasing stock in the company when I was about 18 years old, and I must have paid over $40 a share. I sold my Kodak shares when the price dipped to $23.00. That's when I realized that I really didn't have the stomach for the trading the market.

The Iconic Blue Chip, which had been a in the forefront of the imaging products and supplies for over 130 years, has lost its grip on the cutting edge. The once stellar company is struggling to reinvent itself in the new age of camera phones, desktop publishing, , and the digital transport, upload and storage of images. Let's face it, when was the last time you bought film, or dropped off film to be developed? The impact of the ever-changing technical environment couldn't be more evident, as Kodak's valuation has suffered an 80 percent loss in the past 52 weeks. Clearly, digital advancements, and steep foreign competition has taken its toll on Kodak, making them look more like a dinosaur than a ever. By June of 2011, the company's year-end target of $1.6 -to- $1.7 billion was revised to $1.3 - to- $1.4 billion, as a reflection of their reduced expectations. The third quarter earnings report was a dismal account of continued losses, shrinking their cash reserves to $862 million, from $957 million in the 2nd quarter. As it stands, Kodak is sitting on only 10% reserves, well below standard practice.

To tell the whole story, or at least put the current events in perspective, the eminent day of reckoning began nearly 12 years ago, as the tides started to shift away of processing, printing and "developing" photo images. Resisting the digital revolution, or buying time, Kodak began giving away Free Film with every film development pick-up. This was a good, albeit temporary strategy to insure repeat business. The disposable cameras was a wonderful product with a short life span,(no pun intended) but it did help to sustain revenues, and as reasonable amount of cash flow while the CEO and the his think-tank tried to come up with new "relevant" products and services. Alas, this is going to be a fight for survival with much at stake, and Kodak was seemingly not up to the challenge - or is it? Whatever the case, in the past decade, Kodak lost 95% of its value to the industry competition which bought new age, digital savvy products to the market.
Part 1 of 2

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Europe's Deficit Deal Takes Shape: Uncertainty Lingers

The highly anticipated Euro-zone deal, which we thought would positively impact the market failed to do so. There was a knee-jerk reaction to the news with a slight up-tick in the DOW, which indicates bolstered confidence - but this was short lived. As it turned out, before the end of the trading day the Euro had fallen, along with a tripple digit drop in stocks. Uncertainty rippled through the markets creating a domino effect, that finally resulted in a rise in borrowing costs for Italy and Spain alike. Ultimately, it appears that investors were decidedly unimpressed with the Summit deal to control the Europe's fiscal crisis. Economists believe the market rally was deflated due a resurgence of uncertainty surrounding the bailout pact, as it did not include unlimited backstop for the Euro currency.

As the saying goes; "the devil is in the details". The Euro-zone deficit deal has been structured, but economists, investors and stakeholders know its only the beginning. According to Frances's President, Sarkozy, the legal parameters and compliance for the new accord to reinforce the bailout rules are expected to be worked out before Christmas. The longer it takes to put this put this chapter behind them, the more chance for erosion of confidence, currency, and credit rating.

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$700 Million Bank Heist: SEC Investigates Citibank

Did Citbank swipe $700 million from investors? Well according to an SEC filing, which alleges that Citibank sold securitized housing bonds, which they knew were sub-standard, and bet against them, something is definitely amiss. It’s easy to see why Banks are no longer seen as a safe place to invest your money, as a depositor or shareholder.

Citibank, being charged with fraud, is fighting the charges, but Recommended settlement of $285 million is likely going to stick. The SEC asked a federal judge to approve the amount, citing that $285 million would not unfairly punish the shareholders, who were essentially victims of the bank's unethical acts. Of the $285 million, the settlement breaks down as follows: $95 million is the fine, $160 million in for ill-gotten profits and $30 million in interest. We're about 18 months post signing of the Finance Reform Bill, and we're still unraveling the spoils of unbridled greed.

The national Occupy Wall Street Protest was founded on just this type of offensive conduct. I had a feeling that the near collapse of our financial markets in 2008 was the tip of the iceberg, and so far it has proven to be true.

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Boomerang Economics:the darkside of Globalization

In the past the effects a poor economy in one area, would impact other nearby regions or tri-state area in the case of the U.S.. Globalization, as a result of technological advancements, is a powerhouse game changer. We are no longer autonomous in our successes or failures as a nation. The U.S. financial fallout in of 2008 and 2009, sent trimmers across the Atlantic, as our economies are now more connected that ever. The financial Tsunami that followed the near collapse was powerful enough to shake the fiscal foundation of many other nations. Europe’s financial crisis began to surface in the Fall of 2010, but is now beginning show familiar signs of a near fiscal collapse for a number of its EU members. Our troubles certainly had an impact on the overseas markets, but we are not entirely to blame for the financial crisis which is quickly unraveling before us.

In a boomerang-like cycle, it is possible that the financial discord in Europe, will have a negative impact on the U.S. So much so, it is feared that this Boomerang effect may spur another recession. This was the concern of the IMF yesterday, as they discussed the importance of the EU tackling the debt crisis. If Europe fails to lasso the problem soon, there is a strong possibility that both regions will fall into a recession.

Who would have thought that boomerang economic would become one of the harsh side effects globalization.

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U.S. Economy Stalls as Europe's Fiscal Crisis Worsens

It’s almost certain that the U.S. economy will continue to stagger through the 4th quarter. Budget and economic analysis provided to congress by the CBO (a bipartisan federal agency) supports the theory of continuing slow growth, and an unyielding jobless rate through 2012. I contend that the jury is still out were 2012 is concerned, as there are so many pending elements to the economy that leave room for reasonable doubt. For example, Obama’s jobs creation program, which offers tax cuts and other incentives to corporations has the potential to positively impact the economic picture for 2012. According to a WSJ article by Stacy Curtin, the results of austerity measures implemented in Greece are questionable and may prove to be in large part overated. Nevertheless, the fate of the EU’s financial crisis, has the potential to an impact on the US economy, negatively or positively. Being a generally optimistic person, I’m reluctant to say the idea of the U.S. slipping back into a recession is not out of the question. Meanwhile, Europe is not out of the woods either. In fact, the continent seems to be experiencing a deepening crisis.

The EU crisis has reached a new level, as the alarms are set off concerning the likelihood of Greece defaulting on their debt. Thankfully, for some inexplicable reason, the U.S. financial markets don't appear to be fluctuating as drastically in reaction to bad news from Europe. Nevertheless, the European Union's Fiscal discord is the primary focus of a meeting scheduled for this Friday, as EU Prime Ministers prepare to gather in Poland. Resolving Greece's financial crisis is undoubtedly at the top of the agenda, but the larger economies are also under heavy financial pressure. Angela Merkel, the Chancellor of Germany, took her message to the media in an attempt to diffuse the rising fears of Greece defaulting on its debt. In one radio interview, Merkel emphatically proclaimed that the EU was doing everything in its power to avoid a Greek default.

Echoing my opinion in previous articles concerning the financial crisis, Chancellor Merkel, also stated "We face a completely new challenge - one that has no historic precedent". Speaking of historical precedence, U.S. Treasury Secretary, Timothy Geithner is expected to attend the meeting with the EU Finance Ministers on Friday. This should prove very interesting, and serve to enhance our battered image.

Also, see Article citing Soros' views of the EU crisis in the Huffington Post.


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The Cohn-Reilly Report

Facebook: Untouchable, & in a League of Their Own

It is clear that Zuckerberg is Superman, and his Facebook is untouchable. In the midst of a downgraded, underrated, crawling economy, Facebook managed to double its revenues in the first half of this year with a staggering $1.6 billion, according to the Wall St. Journal. There was much talk about Facebook feeling the pressure from competitors, which was obviously completly unfounded. Although, at somepoint, Facebook may have to face external threats to its marketshare, but at the moment, they're in a league of their own. As market leader, having overtaken Myspace, leaving them in struggling to retain name recognition, Zuckerberg has successfully carved a permanent mark on the pop culture around the world.

In a Superman-esque feat, Zuckerberg’s Facebook platform saved the internet advertising industry. Although, it's safe to say social networking has revolutionized the online advertising, Facebook alone accounted for nearly 1/3rd of the internet display advertising impressions in June, which is more than Yahoo, Google, MicroSoft Corp and AOL combined. This illustrates the tremendous power of Facebook, and more importantly, the power of social networking as a whole. You don't have to be a marketing guru, or economist to see the impact social networking will have on allocation of advertising dollars in the not-so-distant future. But for now, it’s all about Facebook and the hundreds of millions of people, spending millions of minutes just "hanging out" on their page, or checking out their friend's pages.

The growing obsession has created global opportunities for advertisers, and businesses looking to market directly to their target in a personal environment - which (in the case of social network sites), is a captive audience.

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K Reilly
Cohn-Reilly Report

Corporations Hoard Cash, Await Signs of Stability

There was reported 1.9 trillion in corporate profits by the end of 2010, and hoarding of cash at record levels. This tells a story of corporate fear and uncertainly when you consider the back drop of a flat job creation report for the month of August, and a S&P downgrade of US debt. I strongly believe that the catalyst for the low hiring rate last month is the S&P downgrade. The S&P downgrade shifted the climate dramatically from hopeful to not sure. Employers seem to have been shaken by the uncertainty and elected to curb their enthusiasm about the Country’s economic future. This sentiment is echoed by Jeffrey Kleintop of LPL Financial, who was quotes in the Associated Press as saying the new job figures are likely skewed by the unusual events that may have made employers reluctant to add jobs in August.

Let’s clarify; there were definitely new jobs created in the month of August (I happen to know of two in particular), but unfortunately there were just as many jobs lost, yielding a net zero for the month. In about 4-6 weeks there will likely be an adjustment made on the August numbers for better or worse. Being of a a glass-half-full mindset myself, I believe the adjustment may prove to be slightly better than the net-zero reported on Friday before the Labor day weekend. Nevertheless, fear of the country dipping back into a recession is having a dramatic impact on the market.

Friday’s New jobs report was disappointing, leaving Investors and economists alike surprised. The expectation was that there would be approximately 93,000 new jobs added, but there was no indication that jobs growth would be completely and utterly flat.. The months of June and July were revised lower, so the overall jobs growth picture for the summer is looking more and more bleak as the U.S. economic drama unfolds.


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K Reilly
Cohn-Reilly Report

Where Do Investors Turn for Safety?

As the market appeared to gradually recover from the S&P downgrade of US Debt, there was still a sense that institutions and investors were pausing for a sign that the economy is on solid footing. There were those sitting on the sidelines like sharks waiting for a discount buying opportunity, but for the most part, fear had taken hold on investors. This is clearly reflected in the trading shifts that can be seen just by looking at rising gold prices.

The financial crisis which has had a death grip on US economy, has not been kind to Europe either. This is extremely unusual time where financial markets are concerned. Historically investors and institutions would diversify their portfolios by spreading the risk between stocks, bonds and European securities or foreign currency.

The wisdom of this strategy is simply this: when stocks are not doing so well, the bond yields and overseas securities and currency trades, would mitigate the overall portfolio losses. This is precisely why the mantra for investing has been to diversify. Remember the devastated employees of Enron, and WorldCom who had enjoyed fat portfolios values in the millions. These unsuspecting employee/shareholders swiftly went from being millionaires to being completely broke. Why, because they had only one stock in their portfolio -no other stocks, government bonds, or foreign investments to offset the plunging Enron stock - which ultimately became worthless. Traditionally portfolio managers would use government treasuries and bonds, along with foreign investments as safe havens.

Given the sluggish U.S. economy and S&P downgrade, the overseas market would normally serve as safe havens. However, the coninuing rash of bailouts overseas eliminates the prospects of a safe place to invest, while awaiting economic stability in the U.S.

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Cohn-Reilly Report

Justice is Served: Hedge Fund Titan is Slammed

Like a woman scorned, Lady Justice took the ultimate revenge; A Guilty Verdict. The Manhattan U.S. Attorney, Preet Bharara, made good on his promise to crack down on illegal trading on Wall Street. After a week of deliberations, the verdict is in and Galleon Group Founder, Rajaratnam, was found guilty on 14 counts of securities fraud and conspiracy. The co-founder and former head of the Galleon Group is officially a convicted Felon, facing 15-19 years in prison. Three cheers for Justice and the fight against unbridled greed in corporate America.

During the trial the Jurors listened hours of testimony and dozens of secretly recorded calls that clearly revealed that Rajaratnam was trafficking in illicit information. An interview of the jurors revealed their efforts not to rush to judgment. Ms. Gorman, one of the jurors, explained that they painstakingly comb through the stock charts, trading records and witness photos. Adding that they went through the evidence deal by deal. When questioned, jurors admitted to being very impressed by the Sri Lankan defendant and referred to him as a “smart man”. Nevertheless, the prosecutor provided hard evidence that was very persuasive in the end.

In my view, insider trading is a directly related to greed, and the prevalence of it in the finance industry is rampant. These hedge fund managers and traders feel privileged, above the law, and think that they’re so much smarter than the rest of us. They’re so blinded by their own narcissism and conceit, that they are convinced no one will ever see through their scheme. Rajaratnam was ever so clever, but obviously not clever enough. This case is a tragedy on many levels, particularly that which concerns humanity. I think of how this brilliant Sri Lankan could have been a celebrated hero to poor, young men and women in his country and to struggling immigrants here in America, but instead he opted to worship money and disgrace his family and his country.

This is not the last we will hear about this vast insider trading case, there are aparently 12 more traders that have been lassoed into this case, so I am sure they are beginning to realize the severity of their predicament.

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Cohn-Reilly Report

US Dollar: A Safe Haven Reversal

The US Dollar is generally a safe-haven when the global markets are volatile. This was illustrated this past summer, during the EU financial crisis, when the dollar rose nearly 10%. According to the WSJ, the dollar actually rose 24% against major currencies during the financial crisis, which had a global rippling effect. But alas, the Dollar has hit a snag, as political unrest in Africa and the Middle East sends the dollar in the other direction. Investors are likely concerned over regions in turmoil prices overshadow the foreign exchange markets. The key difference is the attention to our heavy reliance on energy, as we watch the oil prices climb. This is what is driving the currency downward against other major currencies.
Even though America’s overall reliance on oil has declined in recent years, oil remains our capital weakness. US Consumption is still much higher than Europe and Japan, whose currencies are not as impacted by the mid-east fallout. There is a saying: “One man’s loss, is another man’s gain”: as the US Dollar suffers declines as a result of anticipated Oil price surge, other currencies, such as the Swiss Franc, the Norwegian Krone, and Canadian Dollar have seen gains. In contrast to the Unites States, the latter two countries are large oil exporters, with lower consumption than the US. France’s consumption is also much less than the US, which perhaps explains the currencies jump to high levels against the dollar last Thursday. As for the US Dollar; Fasten your seat belts, this is going to be a bumpy ride.

Wall St. Makes Fierce Return, as Main St. Remains Sluggish

Top 5 banks make a come-back with record returns expected according to published year-to-date earnings. Morgan Stanley, Goldman Sachs, Citigroup, JP Morgan Chase, and Bank of America, are all expected to end 2010 with hefty revenues. The first half of the year was dampened by market and investor uncertainly, but by the third quarter the market was able to find solid ground, and began building a fierce momentum.

Year-to-Date Record Returns:

- Bank of America: $83.8 billion
- JP Morgan Chase: $74.1 billion
- Citibank: $67.8 billion
- Goldman Sachs: $30 billion
- Morgan Stanley: $23.8 billion

Consumer spending is up this holiday season, as retailers saw pre-recession shopping levels. The preliminary holiday sales revenues are reported to be $451.5 billion, an increase of 5.5% over 2009. Online holiday sales were reported to be approximately $36 billion, a 15% increase over 2009. This should serve as a sign of what’s to come, yet we may still find ourselves waiting longer than we’d like.

Although the bank revenues and retail sales data is encouraging, you may be thinking that it is somewhat detached from the rest of the economy. I would be inclined to agree with you, as the housing market remains on life support, and national unemployment rate is still above 9 percent.

I am sure that millions of Americans who are currently unemployed (or underemployed) fail to see the silver lining - but we are beginning to see an increase in job growth. In fact, this year did actually produce net job growth amounting to 500,000 new jobs, but with over 10 million people unemployed, half a million jobs is simply not enough. With all the hope of better things to come, and the promise of "The American Dream" a faint recollection, 2011 could not come soon enough.

K. Reilly
Cohn-Reilly Report

________________________ RECOMENDATIONS

Also Check out: Socially responsible Investing site below:
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-COMMENT HIGHLIGHTS-

________________Comment
Robert Ortega said......
Its great that the banks were able to bounce back to make record profits. The TARP money has apparently been paid back with lots of interest, so the government also made good money on the Bailouts. What I don't understand is how the Tea Party clowns manage to construe this as a bad thing. We made money on the bailouts, the banks are profitable again, and the economy is clawing out of the recession and gaining momentum. Makes you wonder what the issue really is for republicans? - January 9, 2011
________________Comment
K. Reilly said......
Rob, I happen to agree with you on some level. There are many positive economic factors that depict that the recovery is progressing. There are hidden agendas and racial overtones that seem to be the underbelly of the tea party movement, but it is hard to pin-point the real objective other than to "take back" America (whatever that means). Let's face it, Politics, as we have come to know it, is never about Truth, Transparency or Honesty, it is about money and power - Period.
With respect to your comment about how the Tea party “construed” the economic progress. The white house and the Democrats failed to effectively get the Positive message out to the public along the way. Although there was not much to cling to in the first 12 months of the Obama Administration, they did little to counter the negative, and aggressive propaganda coming from right wing politicians. Admittedly it would have been difficult to challenge the FOX News media monster, but certainly better than ducking criticism. Nevertheless, the Democrats and the Obama Administration were asleep at the wheel for the midterm elections, thus the republicans and the Tea party, who were on a serious mission (though separate agendas) have successfully lobbied and rallied themselves into back into power on Capital Hill. To be honest with you I think it is generally much better with the mixed majority than all Republican or all Democrat for house and senate. The law makers are forced to reason, discuss and compromise than when they are gloating and flaunting their power around. Thanks Rob, your comment is much appreciated- - January 9, 2011

Range Bound Markets Await Direction

Over the last six sessions the Dow traded in a narrow 200 point range and the S&P followed suit, trading within a 25 point spread; not surprising due to the number of people on vacation this time of year resulting in low daily volume and a lack of direction.

The economic news did not help this week, which was mixed and lackluster. On Monday there was a bright spot as consumer personal income in July posted a 0.2 percent gain, following no change at all in June. More importantly, the wages and salaries component rebounded 0.3 percent after slipping 0.1 percent in June. The Fed is depending on the consumer to counter a faltering housing sector - Bernanke and Company got its wish at least for July. Overall personal consumption increased 0.4 percent, following a flat number in June. How did the market react? The Dow sold off by over 140 points anyway; obviously traders didn’t think the numbers were good enough. Since the PCE (Personal Consumption Price Index) rose by .02, which is slightly inflationary, that should have been looked at as a good thing, since there has been so much worry about deflation. But no – it had no affect.

Today was a roller coaster, affected by reports showing an increase in home prices for June, a weak consumer confidence index and a mixed picture from the Fed minutes released at 2:00 PM. The result was a close with little change in the markets.

Interestingly, the Fed minutes pointed to the widespread differences between the Fed governors on what should be done to affect the state of the economy. Some feel we are doing just fine, while others are ready to take more stimulus action and still others are sounding the alarm for disinflation – a slow deflationary decline in prices. No wonder the public is confused. They can’t decide amongst themselves what the next course of action should be.

Anyway, let’s see if the ADP employment report, jobless claims and the national unemployment report on Friday will have better luck in moving the markets.

C. Cohn

Cohn-Reilly Report

SEC: Keeping the Bond Market Churning

To beat the potential stand-still in bond offerings, the SEC opted to temporarily allow bonds sales to proceed without providing credit ratings in Official Statements, which are deal documents distributed to brokers, and investors that provide full disclosure of issuers' financials - particularly, balance sheet, cash flow, total debt outstanding, credit rating, use of funds and debt service.
It appears that the SEC is intent on keeping the flow of deals moving to help financial “supply chain” generate money including, investment banks, issuers of debt, lawyers and financial advisors. Perhaps their mindset is that this will trickle down to impact the economy as a whole. And so it goes....the SEC is bending the rules to indirectly help keep the Economy moving in the right direction, by way of the Bond sales.

On the heels of the securitized mortgage and subprime housing debacle, the last thing we need are credit raters that are gun shy about rating bond offerings. Okay, let's break this down.... credit rating agencies, are in fear of rating?. You're thinking, "Isn’t that like a Chef being afraid of cooking?" Nevertheless, this comes as an unintended backlash from the Financial Reform Bill. It was reported in the Wall Street Journal that raters’ want to avoid exposure to liability, therefore the top three rating agencies; Moody, S&P and Fitch, won’t allow their ratings to be included in the public disclosure documents (Official Statement) that would normally accompany bond sales. To be clear, they will continue to rate bonds, but apparently do not want their rating to be the basis of any investors’ decision to purchase the bonds - thereby eliminating liability in the event of default.

Well I know many of us market watchers, analyst and economists were all prepared for backlash from the tightened regulations handed down by lawmakers. As the smoke clears, and the dust settles on the Reform Bill, more and more instances of backlash will emerge. Capital Hill will be compelled to press the “reset” button, and then it’s back to the drawing board with revisions and addendums until they get it right.

K. Reilly
Cohn-Reilly Report

___________Comments

John T. said......
I am very very concerned that the bond market is the next bubble. We have basically been in a 25+ year bond bull market, and rates are darn close to zero. Every scared person out there is jumping at bonds and bond fund managers are holding their noses and scooping up everything they can......with the exception of Bill Gross who knows this is coming and is probably already clearing out his offices.......

As soon as we get a couple of good jobs numbers and confirmation that yes, we are in recovery.......and the Fed says "ok, let's raise 1/4 pt".....it's over....and everyone who has bond funds is going to watch the NAV deteriorate, perhaps for many years to come. And those who bought long term bonds for yield will find the prices will erode and they will be forced to hold to maturity........and maybe even watch a 1 year 5% CD float by as they can't do a darn thing about it.

I feel bad for the elderly. They're going to get hit from this when it comes.

Katherine said...
You make a very good point John T. It seems that investors now have the responsibility (self preservation)to project into the future and decipher whether or not the worst case scenario is something they can bare. In today's market there is no such thing as a secure investment. Bonds were always a good bet for long term, but there are so may unusual factors playing into the market that it's next to impossible to anticipate. Veteran analysts and fund managers may have the benefit of experience to navigate through these times, but what about the fund managers who have only 3-5 years experience.

Market Plunge

The Dow has shed nearly 800 points over the last couple of weeks and we can look to a plethora of reasons to blame for this.

Yesterday’s consumer confidence report was a major disappointment, falling dramatically and showing regional weakness obviously tied to the Gulf spill. The consumer confidence index fell to 52.9, a nearly 10 point decline the size of which usually corresponds with an economic shock. It sparked the huge sell off of 268 points on the Dow and over 33 points on the S&P 500 index. Consumers are now showing much more concern over the jobs market and over their income prospects. Those saying jobs are currently hard to get rose nine tenths to 44.8 percent. The size of this rise isn't overwhelming but the direction is definitely troubling - only the second negative monthly comparison since November. Add to that the expected monthly employment report Friday, which is presumed to show an increase in unemployment by 0.1 to 9.8 percent in June, and the picture gets uglier. More people see fewer jobs (20.8 percent vs. 17.8 percent) and fewer see more jobs (16.0 vs. 20.2). On the future income question, the unprecedented negative spread deepened between the optimists, now at 10.6 percent vs. May's 11.4 percent, and the pessimists, now at 17.2 percent vs. 16.4 percent. Consumers aren't going to be spending if they don't have confidence in their income.

Economically, worries about Europe are continuing to affect the markets. The euro, the common currency used by 16 European nations, fell to $1.2189. The currency has been seen as an indicator for confidence in Europe's economy following Greece's near bankruptcy and steep budget cuts around the continent to combat rising deficits. World markets have regularly dropped along with the euro in recent months. Greek workers walked off their jobs as part of another nationwide strike to protest the austerity measures the government put in place to try and reduce debt. The austerity measures were a requirement for Greece to receive a bailout from other European Union members and the International Monetary Fund. The new round of protests sparks fresh concerns about how well European countries will be able to stick to austerity plans in the face of public outcry against them. Investors have been worried for months that Europe's economy would grind to a halt and drag down the global economy with it.

On the home front, compounding the European situation, the markets have had a hard time adjusting to the President Obama’s intense regulatory administration. Although some feel these measures were long overdue, investors perceive these actions as bad for business. With health care reforms, financial regulations and a ban on offshore drilling, President Obama is only getting started. Next on the Obama's agenda is cap and trade, a green-house gas level reduction initiative that has failed to show any substantial results in a similar program instituted in Europe over the last five years. It may ultimately hurt the industrials and utilities along with card-check unionization, which could hurt retail and the banks.

With all the doom and gloom news circulating, what we can we expect next? On the short-term, technically, we see that the markets are very much over-sold and are due for at least a temporary relief rally. The professionals make a living by buying at the worst times, when investors are selling, and selling when everything seems fine (irrational exuberance) -usually when the public is buying near tops. Traditionally, July has been a good month for the markets, but it remains to be seen if we will get a summer rally. Whatever upside action does occur will probably be due to short covering for profit taking; most likely not due to positive economic or financial news.

C. Cohn
Cohn-Reilly Report