Randomly Noted

For all of those people preaching the simple,  populist approach to solving our financial crisis (let ‘em fail, let all those greedy devils fail!), it’s worth listening to the words of a very reasoned and seasoned folksy fellow from the heartlands of America who has seen a few things or two.

Warren Buffett, chairman of Berkshire Hathaway but more importantly a man many investors and fund managers worship and have tried to emulate over the years, believes the government had no choice but to step in to revive the near-dead financial system last year (and now).

In his annual letter to Berkshire shareholders, Buffett sets the scene for what happened last year: “As the year progressed, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: ‘In God we trust; all others pay cash.’”

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For weeks, if not months, investors have been betting that General Electric had to cut its dividend to preserve cash. And the company finally did it this afternoon.

GE, you recall, has a majority of its business in financial services (and a chunk in real estate) and we all know generally what has happened to that business in recent months. On a dividend yield basis (13.6% as of yesterday’s close), the market was screaming for a cut. But the company has been adamant about maintaining that dividend.

In late January during a conference call about its 4Q earnings, CEO Jeff Immelt tried to head off the dividend question in his prepared remarks: “The key thing is to maintain our disciplines. We believe that the dividend represents a good shareholder return in this environment and we
continue to run the Company to be AAA. So, we have a lot of cash, we have improved the liquidity, our priorities remain the same. I think we have really reflected a balanced plan in GE Capital. Our priorities for 2009 are just in line with our December outlook, which is to grow the company organically, maintain the GE dividend…”

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Old-time newsrooms really were as atmospheric as they’ve been portrayed in TV shows and movies, the characters as unusual as fiction.  The Rocky Mountain News’s imminent death got me thinking about the news biz in the late-1970′s/early-1980′s heyday of the American metropolitan daily.

One summer, I was hired to cover the night police beat at the Rocky, tasked with covering whatever crimes and tragedies occurred between 4 p.m. and midnight. It was an awesome job.

A college student, I had turned down a fairly prestigious internship at an (now deeply troubled) East Coast newspaper to work at the Rocky. I rationalized this decision – baffling to my parents and classmates – by saying Denver was proffering a “real” job rather than a make-work internship.

In my heart I knew I was more comfortable at a work-a-day paper than a preppy bastion.

I learned a lot that summer, including this practical lesson: Work as many nights, weekends and holidays as you can because there’s a better chance of getting your stories on Page One when the seasoned star reporters are off duty.

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The 150-year-old Rocky Mountain News will be closed following the publication of its last edition this Friday. The papers owner, E.W. Scripps, put the paper up for sale late last year but apparently only one buyer emerged, and that unnamed buyer didn’t have a “viable” plan. So, the paper’s archives, masthead and website are now up for sale.

The newspaper business has been in distress for some time but the past few weeks have been horrible. The San Francisco Chronicle recently announced it would need severe expense cuts to stay in business or it would have to sell itself or close down. The group that runs The Philadelphia Inquirer filed for Chapter 11 bankruptcy last weekend. As did a smaller newspaper group called Journal Register. And earlier today, Cablevision, which bought 97% of  Newsday last summer for $650 million, wrote off $402 million of that acquisition. The operating cash flow for the paper in the fourth quarter was but $10.3 million.

Rocky Mountain News coverage of its closing, click here.

A dizzying number of new proposals in the Obama budget that was released earlier today. Looks like at least one proposal provides an opportunity for for the financial adviser and wealth manager businesses. Basically, the new budget will require every company that does not offer a retirement plan to foot the costs to enroll all of their employees into direct-deposit IRA accounts. The idea is that about half (or 75 million people) of the workforce in the U.S. lack employer-based retirement plans. And if you aren’t forced to save a little here and there, you don’t save. This gives individuals the incentive to start saving in a tax-deductible program. And at no cost for them to set up. Most of the companies that don’t offer 401 (K) plans or traditional pension plans are small businesses. So, the opportunity may seem minimal for plan sponsors who see the dollar signs in administering large company lans. But by pooling plans and products, some smart Wall Street firms and advisers may find a way to bring in some much needed new business.

To read this section of the budget, click here.

Indonesia is telling the market its U.S. dollar bonds will pay yields as high as 12%.  It’s a sign of the times, as Dow Jones Newswires is reporting: Governments, especially those in emerging countries, have to work VERY hard to get deals done. If Indonesia’s issue gets priced at the mooted levels – 10.50%-10.75% for a new 2014 bond and 11.75%-12.00% for its new 2019 bond – well, surely it’s an enticing opportunity for investors with spare change jingling in their pockets. Jitters about emerging market risk would surely be offset by the generous yield – and besides, how big a default risk is Indonesia? It’s  politically stable – more so than it has been in years – and resource-rich, meaning it has what its growing neighbors want and need. The fact that Southeast Asia’s biggest economy is behaving so conservatively on the pricing front shows just how reluctant investors are to make fresh bets.

Spotted this on Andrew Sullivan’s blog:
Click here.

It will either please the optimists or scare the pants off the pessimists.

The U.S. government’s charges that pharma company Forest Laboratories Inc. peddled its Celexa and Lexapro anti-depressants to children – and wined and dined doctors to boost prescription levels – are profoundly depressing. This isn’t my attempt at a cheap pun: The FDA’s allegations are truly depressing because they add to the growing mountain of bad press surrounding the drugs, including claims that they increase the risk of teen suicide. It’s crucial to remember that anti-depressants have been lifesavers for millions of adults who, during other eras would have had to suffer through life-wrecking bouts of what was once known as melancholia. Also depressing to me is the fact that the pharmaceutical industry has once again proven to be its own worst enemy. It has been at least a decade since American and European drug makers began showing how utterly ineffective they are at countering critics who would have them somehow maintain expensive research and development labs while slashing prices and, inevitably, killing profit margins. Forest Labs’ allegedly irresponsible marketing of drugs not suitable for children only gives ammunition to those would seemingly prefer to see the pharmaceutical industry’s business model collapse at the expense of those whose lives have been improved or saved as a result of proper use of their marvelous products.

Japan’s currency is unquestionably on a weakening trajectory. Where it stops, nobody knows, and nobody really cares because it’s good news for the declining Japanese economy. And what’s good for Japan’s economy is good for makers of all the goods Japanese consumers buy.  Only thing is, it’s hard to visualize how a weak yen will translate into concrete economic growth as the currencies of other export-dependent economies likewise decline. Non-yen revenues (such as those generated in the U.S. and Europe) stated in yen terms in corporate earnings statements will look awfully pretty. Prettier balance sheets should give Japanese companies the wherewithal to maintain employment and capital expenditure levels.  But Japan’s companies face a mighty foe: the woeful won. Korea’s weak currency gives that country’s corporate sector, especially its auto, electronics and steel manufacturers, a big advantage. That edge could continue giving Japan Inc., and Japan’s economy, a lot of grief even as the mighty yen falls further.

It’s no suprise that difficult economic times create hardship and eventually stress. Some wags note that during tough times, people drink more (so, booze stocks ought to do well). Those who smoke might be puffing on more cigarettes than usual. Those companies shares ought to hold up relatively well.  There’s apparently another area that people turn to when times are rough – they go see a psychiatrist. Which explains why a company called Psychiatric Solutions (wonder what brilliant consulting firm came up with that name) just reported that revenues for the fourth quarter were up 12%. Earnings were up about 6%. The company has been growing through acquisition but it does note that same facility sales and earnings are up as well (7.8% on the sales side). A look at the company’s website to see where it has medicial facilities indicates that while some are located in some of the states and regions hardest hit by the economic downturn, there might be growth opportunity in places like Nevada, Southern California, Ohio and Michigan. It is pretty well represented in Florida, another state hit very hard by the housing downturn and recession. Of course, stress created by economic difficulties probably means the patients may have a hard time paying all of their bills. The company notes that its provision for doubtful accounts has risen by about 30% year-over-year.