AT&T Surprises The Industry

AT&T has been slammed by its iPhone customers for dropouts and overall poor performance of its 3G network. Combined with attack ads from Verizon and media bashing from analysts, most thought that Apple would cancel their AT&T exclusivity contract for the iPhone, and hand over their new iPad tablet (a hand-held computer device touting a 9.7 inch screen, weighing 1.5 pounds and supporting 140,000 applications) to Verizon, when Apple held their iPad launch event this week.

Most were wrong on both fronts. Apple praised AT&T as a great partner, despite the technical problems, and will continue iPhone exclusivity with AT&T. The new iPad will also go to AT&T as the sole carrier. This is clearly a coup for the company, which will certainly take customers away from Verizon. Although most people are shocked that Verizon was not included, Apple executives realized that the grass is not always greener. No one anticipated the incredible data usage demands from the iPhone, and I do not believe that Verizon could have done a better job, despite their claim to having a superior network. AT&T has vowed to improve their service and will invest billions in the upcoming months to backup their promise.

Looking at the financial side, both companies have seen decreases in their share price by over 10% since the beginning of the year. This is due to price cutting, declining wireline revenues and the major indices contracting by more than 6%. However, Q4 revenues and cash flows reported this week were strong from both firms. Over 2 million wireless customers were added by each company, respectively. AT&T showed an increase in earnings of over 25%, and both companies have current dividends topping 6.5%. Notwithstanding the positive financial points, it is clear that the Telecoms have lost favor with Wall Street. With pummeled stock prices and high yields, maybe it is time for the institutions and hedge funds to realize investment value in these stable cash-cow giants.

C. Cohn

State of the Economy

What is the state of the economy? We are still getting mixed messages from indicators, but there are signs of hope. Unfortunately, Main Street appears to have lost patience with the economic strategies put forth by the Obama Administration, while Wall Street miraculously finds its way back to levels over 10,000. I get it, but many Americans struggling to pay bills and feed their families as a result of layoffs and underemployment, can’t really be expected to care that eight or more years went into destroying the economy. How then can we expect that one year would effectuate a complete economic turnaround.

With continued debates and discussions with my colleagues and my husband, it is apparent that the Obama administration has to pull a rabbit out of their hat – and fast. Whatever the next moves are, one of them should include a grandstanding, theatrical move that the American people can feel good about. I hate to see it come down to that, but everything that I am reading and seeing, points to the need for “show and prove” on the part of the administration. Perhaps by the time the spell wears off, the stimulus strategies will have begun to actualize. We will soon hear Obama’s State of the Union Speech, and thus the Administration’s spin on where we stand on these issues.

K. Reilly

Dollar Disaster Looms

The dollar is the weakest it has been in over a year. The Euro has recently traded at $1.49 versus $1.26 seven months ago, and twelve months ago $10,000 bought 24,000 Brazilian Reals; now it will only buy 17,000.

Because exports are up, due to the relatively cheap cost of our goods being purchased from abroad, some consider the weak dollar a positive. In addition, there has been some job creation in export companies due to increased demand, although not enough to put a dent in the 10% unemployment rate. However, the continuing erosion of our currency has dark consequences that far outweigh the benefits described above.

A commodities bubble is developing - we see Gold soaring to record highs as investors flee the dollar to put their capital into a stable alternative investment. More significantly and closer to personal consumption, oil prices have been steadily increasing, because, simply put, it costs more dollars to purchase the imported oil we need to sustain the economy. Recently, oil traded around the $80 mark. If we allow the dollar to continue on its current trend, could $100/barrel or more be far behind? This could result in the return of the $4.00 gallon at the pumps. We would go back to the environment we had in the recent past, adversely affecting the consumer budget, which accounts for 70% of our economy. A domino effect would develop – less consumer spending for goods, and higher corporate energy costs would spell lower profit margins, decreased demand and more job layoffs. In addition, any chance for a recovery would be derailed.

Another problem is that the Fed has us at 0%. Why would anyone want to invest money here when they could borrow dollars for practically nothing, and invest them in Asia or other geographical locations? Brazil for example, offers CDs at 8 ¾%, even though recently, wising up, they imposed a 2 % penalty on foreign investors depositing funds into these accounts. Even so, it is still an attractive place to park U. S currency, compared to the little banks offer. Do not forget that elderly savers, who rely on interest earned for support, are also being damaged by the near zero interest rates in our banks.

If we continue on the current path, risk of double digit inflation will become stronger as prices rise. This combined with our increasing debt, printing of too many dollars and foreign investors purchasing and controlling our real estate and other assets; we will become a second rate nation, with a lower standard of living. The treasury should support our currency by raising interest rates to attract capital; if only slightly to 1 or 2 %, it would have an impact by showing that we are confident about the economy’s strength. It should also end the purchase of Mortgage Backed Securities and start buying U.S. dollars.

C. Cohn

Soup Kitchens and Food Pantries Were Needed More Than Ever in 2009

As the holidays have just ended, I thought I would diverge from the usual financial article writing, to report and comment on a very important social action issue. This Christmas Day I spent volunteering in a soup kitchen called Christine’s Kitchen (see pictures), in West Orange New Jersey, as I have been doing for the last four years. The number of patrons has increased dramatically since I began participating. Alice Hoffman, the soup kitchen and pantry coordinator commented: “The Kitchen started in 2002, with 10 people coming regularly once a week on Saturdays, and 5 families using the food pantry twice a month. Now we have over 150 at our regular Kitchen, with 250 families relying on the food pantry 5 times a month. 20 churches and synagogues contribute hosting duties throughout the year, offering their time and food, to ensure that the Kitchen runs smoothly”. Ms. Hoffman confirms that the largest increase in need has occurred this past year. No wonder, since 2009 has shown the biggest unemployment rate in decades, record foreclosures, pensions evaporating and more people going broke than ever. Lines in the queues are getting longer, with people from all ages, racial backgrounds and classes. Without steady paychecks, our less fortunate neighbors are relying more and more on charity from kitchens to feed their families and survive.


This is not just a phenomenon in New Jersey and the Northeast, but everywhere in our country. In Kauai, Hawaii with a 10% unemployment rate, soup kitchens are filled to capacity and because of a shortfall last year; the Hawaii Foodbank was forced to purchase 1 million pounds of food to make up the difference. In South Carolina, where 1 of 7 adults in York County and more than 1 of 5 in Chester County are unemployed, soup kitchens are feeding people with longer lines than ever before. The charity Feeding America says “demand at its 63,000 soup kitchens and food pantries is 30 percent higher than the end of 2008, as spiraling unemployment and repossessions increase the demand for extra help for Americans who would otherwise go hungry.”
Seniors are especially hard hit. Older Americans are crowding soup kitchens and pantries for the first time after seeing retirement funds, second jobs, and nest eggs wiped out by recession. Marti Forman, CEO of the Cooperative Feeding Program in Fort Lauderdale, Fla. comments: “What we see in line is lots of gray hair, lots of walkers”. Catholic Charities USA, which has 170 agencies across the country helping the needy, issued a 2009 third-quarter report that found a 54 percent increase in requests for food and services from seniors nationwide compared to the same period last year. Despite the increased need, it can be difficult for some older people to come forward and seek help. “They’re of a generation that feels they took care of themselves, and now in these desperate straits they don’t want to acknowledge it,” said Catholic Charities spokesman Roger Conner. “With seniors and retirees — people that were planning for that period of their life — they are often very proud and very private, and they want no one to know of the difficulties they might be experiencing.” At St. Mary’s Food Bank in Phoenix, 64-year-old Sherry Whittemore was collecting her monthly box of canned juice, pasta, beans and vegetables. She began coming to the food bank in January after losing her customer relations job at a Fry’s Electronics store. “I thought I would be able to get a job soon, but that’s just unrealistic,” Whittemore said.

There is no immediate solution to the problem. I can only encourage everyone to donate as much food as possible to their local food banks and pantries. If there is a shortage in your area of volunteers at a kitchen, please find the time to participate. Remember, the current plight of a neighbor in need could happen to any one of us. Let’s hope that 2010 brings some relief and improvement to this serious social problem.

C. Cohn

Citadel Broadcasting Moves to Reorganize and Restructure

Citadel Broadcasting files for bankruptcy after getting board approval to do so. Citadel is the third largest radio broadcaster in the United States, after having acquired Disney’s ABC Radio company in 2006. At that time, Radio was still booming and Citadel thought it was making the right decision going into debt for the acquisition. What a difference a day makes.

The broadcasting giant has entered a pre-arranged bankruptcy with the support of its lenders, who Citadel owes an aggregate of over $2 billion UDS. Additionally, the company plans to restructure and swap a large part of their debt into equity in the newly structured Citadel. According to an article in the Wall Street Journal, the CEO, Farid Suleman, shall remain at the helm.

The Financial Express reported that the structured filing would enable Citadel to reduce its debt load to approximately $762.5 million. Although the company was successful in getting their pre-arranged bankruptcy approved, they will need to petition for more creditor support in court in order to get the reorganization plan approved by a judge.

K. Reilly

Comcast: A Shark in the Water

GE and Comcast announced their plans for a joint-venture concerning GE’s NBC Universal last week. The two have been working toward smoothing out the details of the sale of 51% stake of NBC Universal to Comcast, with the ability of GE to gradually divest the remaining 49% over time. The sticking point was Vivendi’s 20% stake in NBC, which was worked out. Vivendi would sell its stake to GE for an estimated $5.8 billion, according to NBCMoney.com. The deal is all but sealed, with the exception of regulatory approval. This transaction would essentially make Comcast one of the largest conglomerates in the cable industry. This is a win-win situation for the entities involved. It is a significant move for GE to sure up their bottom line, by divesting a business that is not lucrative. For Comcast, it would be an excellent way to be a cable service provider, as well as a distributor of content. The problem is that it seems to be a bit monopolistic and in some way poses a conflict of interest where consumers are concerned. Comcast would be the scary equivalent to Jaws in the ocean of service providers. As a consequence, customers will be subjected to higher fees and forced to pay extra for content that would have been included in the basic package. The are undoubtedly other issues to be considered.

It should be noted that there have been complaints about Comcast flexing its muscles in the past. Smaller providers have been victimized and bullied by Comcast much in the way that Intel was blocking AMD from eroding their market share. That is not a good sign. If this was an issue prior to Comcast purchasing the majority stake in NBC Universal, what can we expect from them if this venture is approved?

I know I said that this was a "win, win" situation, but that was speaking from the stand point of the entities involved. If I had to include how the consumers would fair should this acquisition pass regulatory approval, I would have to say win, win, lose situation.

K. Reilly

Dubai Troubles Loom:

As the news of Dubai made its global ripple on the financial markets, Europe stocks fell over 3% on Thursday, marking the steepest decline since this past April. Meanwhile, Friday’s opening market in the US quickly headed south, as investors ran for cover. By 9:30 the Dow had declined over 200 points, sending a troubling message to investors and non-investors alike. After several attempts to rally the Dow ended up just over 150 points down.

Dubai, known for its massive investments and development of the world’s most breath taking resort and hotels for the super rich, requested a 6-month stand still from its creditors. This sounds like nothing more than structured bankruptcy, without the stigma. Probably a wise decision, averting drastic decline in assets value and investor abandonment. Smart move. The reality remains that Investors held high hopes for high-end returns, which were reduced to pipe dreams since the Persion Gulf Debt Crisis unfolded last week.

On November 24th, the request for a stand still made to the Dubai World creditors involved interest payments on an estimated $60 billion worth of debt. The News prompted insurers to increase the cost of insuring Dubai’s debt, which was swiftly followed by Moody’s and Standard and Poor’s downgrades of the government-related entities in Dubai. Justin Urguhart Stewart, co-founder and director of Seven Investment Management, is quoted in the Wall Street Journal as saying “many [investors] have had their heads in the sand regarding Dubai”, adding that there was a lack of understanding of what the investment risks might have actually been.

To midigate fallout, the country’s government is doing everything it can to limit impact of its debt woes. Dubai United Arab Emirates(UAE) pledges to stand by Dubai foreign and domestic banks in the country. The country’s federal government, which is obviously backed by oil money, states that the UAE’s central bank has made overtures to all banks with branches domiciled in the country, making it clear that they will have access to cheap money, as well as the establishment of a special “additional liquidity” facility.

This morning, Squawk Box reported that an analyst at Credit Suisse estimated that European and American investments in Dubai amounted to only 5% exposure. That’s a relief. I am sure more will unfold as the week progresses.

K. Reilly