Bumper Sticker

Greenspan-o-Meter - Two Down, One to Go

On December 5, 1996 Fed Chairman Alan Greenspan famously wondered whether stock prices reflected an "irrational exuberance" on the part of investors. This afternoon, The Nasdaq Composite index joined the S&P 500 by closing below its level on that day more than twelve years ago. For its part, the Dow Jones Industrial Average is a mere 2.4% above its level that day, or about one day's volatility in this choppy market.

As it turns out, Greenspan was perhaps too modest about his abilities to spot a bubble. For earlier posts on the same subject, click here and here.

"We Don't Need No Stinkin' TARP Money" - Northern Trust

Northern Trust has released a response to Congressman Barney Frank regarding its sponsorship of the Northern Trust Open, a PGA golf tournament. Congressman Frank, Senator John Kerry and a score of political grandees have been publicly harrumphing about Northern Trust's expenditures on the golf tournament while the US Treasury holds preferred stock in Northern Trust under the Capital Purchase Program of the Troubled Assets Relief Program (TARP).

Northern Trust's basic message is "We're happy to give back the money we didn't ask for.... where should we send the check?"

In his letter to the Congressman, Northern Trust CEO, Frederick H. Waddell, gets the nuance right when he says, "As we have stated publicly, the Northern Trust Open and its related activities were in no way reliant upon Capital Purchase Program funds, and would have occurred even had we not received Capital Purchase Program funds."

Click here for my earlier post on the topic.

At the end of the day, congressional meddling in the day-to-day operations of TARP recipients may be the most effective way of getting the funds back quickly. But it will certainly cause investors -- and possibly depositors -- to discriminate between those banks who can and do return the funds and those who can't. When the Treasury took stakes in the various banks late last year, it apparently cajoled some of the stronger financial institutions into accepting the funds. The Treasury's intent was to characterize the financial crisis as a systemic liquidity issue that could be alleviated by a temporary injection of capital from the government. The Treasury specifically tried to avoid singling out banks that needed the money to avoid creating more concerns among their counter-parties and depositors.

As the Treasury Department put it back on October 14,

"Nine large financial institutions already have agreed to participate in this program, moving quickly and collectively to signal the importance of the program for the system. These healthy institutions have voluntarily agreed to participate on the same terms that will be available to small and medium-sized banks and thrifts across the nation."

With Citicorp trading at $1.27 per share at the moment, maybe the Treasury's desire for benign opacity was naive. But if Northern Trust, JP Morgan, Goldman Sachs and a few others rush to repay the TARP money so they can be left alone to run their businesses, it could have a serious impact on those banks who don't.

This is a pretty serious policy reversal to be driven by a golf tournament.

Addendum: Northern Trust's June 17, 2009 press release regarding its repayment of TARP funds.

Working in Media is Its Own Reward...

In December, the Tribune Co,, publisher of the Chicago Tribune, Los Angeles Times and Baltimore Sun, filed for bankruptcy protection.

In January, the Star-Tribune, publisher of Minneapolis' largest newspaper also filed for Chapter 11 protection.

This week, the Rocky Mountain News announced it was shutting down a few weeks shy of its 150th birthday, the Philadelphia Inquirer filed for Chapter 11 in its 180th year and the Journal-Register, publisher of 20 daily newspapers, also filed for bankruptcy.

Hearst Corp. has threatened to shut down the Chronicle in San Francisco if it cannot get concessions from its employees and has said it will shut down the print edition of the Seattle Post-Intelligencer if it cannot find a buyer within 60 days.

Meanwhile, the New York Times Company, publisher of the New York Times and the Boston Globe, is trying to sell off assets and has suspended its dividend to conserve cash.

So, in the last three months, the publishers of leading newspapers in eight of the biggest 23 markets have entered bankruptcy proceedings or threatened to shut down. I sense a trend.

To be fair, a number of the bankruptcy filings are related to bad capital structures (too much debt) rather than loss-making businesses. (See related article at Ad Age) But the businesses are surely weakening as websites cut into classified advertising and the slow economy reduces ad spending generally. And newspapers have historically relied on local ad spending from the automotive, real estate and retail sectors, all of which struggle with their well-documented challenges.

Today, Ad Age reports that local ad spending may continue to decline through 2013, according to BIA Advisory Services. Could ad spending be declining on a long-term trend beyond the current recession?

It could.

I remember - during the Web 1.0 era as it's now called -- listening politely as budding internet entrepreneurs quoted the line attributed to John Wanamaker, the Philadelphia-based merchandiser who founded the eponymous department store chain. Wanamaker is reputed to have said, "Half the money I spend on advertising is wasted; the trouble is I don't know which half."

The marketing pitch from the internet entrepreneurs was that the targetability and interactivity of internet advertising would make advertising so much more efficient by allowing advertisers to reach their target audience with a high degree of precision.

The question I always posed was, "If interactive capabilities can make advertising twice as effective, won't advertisers be able to cut their budgets in half to eliminate the "wasted" half? The usual answer was... silence.

Nobody's predicting a 50% reduction in local advertising spend just yet, and BIA's forecast does predict continued double-digit annual growth in online spending. But this just makes the picture worse for "traditional" media like newspapers and cable TV as they are expected to bear more than 100% of the overall decline in local ad spending.

The current recession, especially if it is prolonged, may be the catalyst for the profound change in media economics that those internet entrepreneurs predicted a decade ago.

Greenspan-o-Meter - February Update

On December 5, 1996 Fed Chairman Alan Greenspan famously wondered whether stock prices reflected an "irrational exuberance" on the part of investors. This afternoon, the S&P 500 closed below its level on that day more than twelve years ago. For an earlier post on the same subject, click here.