Randomly Noted

My colleagues are infinitely knowledgeable about the Microsoft-Yahoo search deal. So, I asked them about Steve Ballmer’s vocal defense of Carol Bartz today in comments to analysts. The Yahoo CEO has been criticized – her company’s share price battered- for not demanding more from Microsoft. Ballmer, Microsoft’s CEO, argues investors have failed to appreciate the value the deal will provide to Yahoo. “People haven’t figured it out,” DJN quotes Ballmer as saying. “Yahoo gets 88% of the search revenue they have today. They have 0% cost of goods sold against 88% revenue and they have no [research and development] expense and no ongoing [capital expenditure].”

Gabby: What’s in it for Ballmer to help out Bartz, under fire for the deal?”

Colleague A: It promotes good feelings between the management of both companies. Given the tortured history of the deal, it’s probably good for Microsoft to show its softer side. Plus, the deal’s success is dependent on the two companies working well together on search. No need for Ballmer to disrupt that with hubris.

Colleague B: A is right, I think the bottom line is that the two companies have to work together very closely now and he wants to draw a line under the bad blood of the Jerry Yang era. I think it also has to be seen in the context of his general sense of glee at having  pulled the deal off…Also, as the general consensus is that Yahoo was stiffed he’s been magnanimous. Speaking of the need for good feelings between management – which is definitely important – this applies even more to people at lower levels in the two companies, particularly engineers and people working at the coalface on search and advertising technology, who are the people who are really going to have to live with the consequences of the deal.

Colleague C: I would imagine it’s intended to give clients confidence that the deal will go well. If potential clients are worried that there is a conflict developing between the partners because the financial proceeds haven’t been shared appropriately, it’s reasonable to assume that they might think twice about using Microhoo. That wouldn’t be in Microsoft’s interest (and obviously not in Yahoo’s either).

Photo credit: foxnews.com

Andrew Cuomo, New York’s Attorney General, has outed a clutch of dysfunctional banks that took taxpayer bailout money only to bestow generous bonuses on their employees last year. “At many banks … compensation and benefits steadily increased during the bull-market years between 2003 and 2006,” Cuomo’s office said. “However, when the subprime crisis emerged in 2007, followed by the current recession, compensation and benefits stayed at bull-market levels even though bank performance plummeted.” As Captain Renault of the film “Casablanca” said: “I’m shocked, shocked to find that gambling is going on in here!” Renault, of course, knew exactly what was going on in wartime Morocco. Likewise, We the People threw TARP money at some of the world’s most blatant gamblers – financial institutions wagering clients’ and shareholders’ money. Surely we don’t now expect them to get religion and start behaving like so many chastened Puritans? Wall Street’s boom era culture is alive and well. After Cuomo’s report came out, “employees of major Wall Street companies were comparing notes about which companies paid the greatest number of large bonuses,” DJN reports. Who can blame them? Don’t we all want to know what the guy sitting next to us earns? Continue reading…

Agree Realty Outperforms DJIA Year-To-Date

The commercial real estate market has been especially hard hit this year across all segments. But retail, with high profile bankruptcies by Circuit City and Linens N’ Things, along with store scalebacks by companies like Starbucks, has been particularly stressed.

That’s why it is impressive how Agree Realty has performed. The company owns, manages and develops single tenant properties with 90% of its lease revenues connected to national tenants. Close to 30% is Walgreens, with another 30% connected to Borders. About 11% are Kmart stores. The bet in this portfolio is how well Borders and Kmart perform. And while that’s no certain thing, the overall portfolio for Agree Realty has done fairly well.

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Opinion pieces are supposed to be provocative, so kudos to Donald L. Luskin, chief investment officer at Trend Macrolytics LLC.  His “op-ed” view published in today’s Wall Street Journal (“Can the Fed Identify Bubbles Before They Happen?”) does make one consider again the important issue of the Federal Reserve’s role in trying to rein in asset price increases that divorce from reality.

Luskin’s view (worth reading in its entirety) was widely accepted before the credit crisis and had the backing of former Fed Chairman Alan Greenspan and others. Essentially, it’s this: it’s not the Fed’s role to try to prick asset price bubbles as they are rising. The reasoning is two fold: the Fed has no unique insight into what’s a developing bubble and what’s not and if it employed traditional interest rate tools to stop a bubble, it likely would also derail the entire economy.

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Every other month or so, I pack up the car for a long weekend or a few days during the week and head to Virginia to visit family. The quickest way to get to Virginia Beach (where Mom and sisters and their families live) from New Jersey is a scenic stroll along Route 13 through Delaware, Maryland and Virginia – an area known as the Eastern Shores. It can be a slow 300 miles drive (6 hours) because of all of the smaller towns you pass through. And it can be really, really slow if you make the trip within a few days of a NASCAR race at the Dover International Speedway (on the Route 1 bypass you need to take on the trip).

In fact, I often plan the trip around the speedway schedule. If there is a race, I go a different week. NASCAR is more than racing. It’s a way of live for some people. The week before a race in Dover, people start showing up in motor trailers and set up their temporary homes. And these are camps that seem to snake along endlessly, with each one flying the colors of a favorite NASCAR team. Cookouts abound and likely spirited debate about the upcoming race. Don’t even think of driving by on race day. I did that one year and was delayed about 3 hours by horrendous traffic. These folks are more fanatical than the weeknight, summer league softball player.

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