Category: Wall Street

The Two Towers

(click images to enlarge)

The Two Towers: Goldma Sachs and Freedom Tower, February 4, 2012 By Steven Greer

Is Facebook a great opportunity to short sell?

February 1, 2012

By Steven Greer, MD

Facebook finally submitted their SEC form called an S1, preparing to go IPO on the NYSE under ticker FB. They are valued by some metrics at more than five times what Google was in 2004. Are they worth it or is this the best opportunity retail investors will have to short a stock in their lifetimes?

Looking at the S1 found here, go to the risk factors on page 11:

Right away, they mention that American users are tapped out from “Facebook fatigue” and that new usership is flat. Go to page 44 for the chart. That is all that matters for valuation in this stock. An investor pays a large premium for stocks with huge remaining growth, not for mature stocks.

On page 14 they list strong competition as a risk factor. By some accounts, Google’s version of Facebook is exploding. Facebook has few barriers to entry if a large Apple or Google decide to get into this space.

On page 18 they list as a risk factor the heavy reliance on Zynga online game users as revenue. Most of the people stuck on Facebook all day long are unemployed gamers.

Page 18 also lists the risk that governments will pass new laws that will make the very essence of Facebook’s business model, which is to collect your personal information and sell it to marketers, become illegal.

Page 20 essentially lists Mark Zuckerberg himself as a risk factor since he owns so much of the company.

Understanding those risk factors, one then has to use the various valuation metrics of “tech land” to see if the stock is a short at whatever the price settles out to be upon trading. Consult with your money manager carefully before buying long ticker FB. The performances of other social networking stocks that went IPO last year have been dismal.

(Dr. Greer is a former Wall Street financial “sell side” analyst and portfolio manager. He is the founder of BatteryPark.TV and frequently contributes to NPR, The WSJ, CNBC, and Fox News)

Why Mitt Romney used a Swiss bank account and off shore investments

January 28, 2012

By Steven Greer, MD   BatteryPark.TV

When Mitt Romney was booed during the South Carolina GOP debates for not releasing his tax returns, and then finally released just his 2010 results, the press focused on Mr. Romney’s low absolute tax rate near 14%. However, what interested me as a former hedge fund portfolio manager more was his exceptional rate of return on what he described as “mutual funds and bonds in a blinded trust fund”. That seems pretty like some “plain vanilla” investing, yet he earned approximately a 14% return on investment (ROI), depending on the estimate for “total assets under management” one uses. Many of the best hedge funds in the world did not do that well in 2010, so I became interested and analyzed it in more detail.

I used to run my own small hedge fund, and later became the global healthcare portfolio manager for Merrill Lynch’s internal $10 Billion hedge fund. Mr. Romney’s tax returns demonstrate the sophisticated tax minimizing techniques used by complex hedge funds. He posted five different tax forms from 2010 on his campaign web site. On his joint return with his wife, he reported $21,661,344 in Income. All of that was derived from investment returns, with the exception of $528,871 in publishing and speaking fees. The joint couple paid nearly $3 million in taxes, or less than 14% of their $21.6 million income.

Although Mr. Romney is wealthy, he does have something in common with millions of Americans struggling in this five-year-long depression: he too is unemployed it seems. Mr. Romney cannot call anywhere his place of employment other than his speaking engagement company.

In order to determine the return on investment (ROI) for Mr. Romney’s pool of assets, one needs to know the assets under management to use as the denominator. The tax forms do not list that number, but in an interview, Mr. Romney said that he owns, “Between $150 and about $200 some-odd million dollars, I think that’s what the estimates are.” Aside from the fact that his degree of error in estimating his net worth is far larger than most American’s entire lifetime of earnings, by factors of ten, this means that his 2010 ROI ranged from between 11% and 14%.

How well did Mr. Romney’s stock brokers at Goldman Sachs, where he “prime brokers” most of his equities, do at investing in his “blind trust”? In 2010, some of the smartest hedge fund managers earned well less than 10%, and the overall average was 10.2%. So, his Goldman Sachs money managers beat the hedge funds. However, the overall markets gained 12.8 percent (S&P 500 index). The average long-only mutual fund rose 17.48 percent, according to data from Lipper Inc and Reuters reports. So, Mr. Romney’s ROI was a bit inferior to many mutual funds.

The complex global network of accounts used by Mr. Romney has been criticized in the press since he released his tax documents. Some have also questioned whether he was truly “blinded” and unaware of the investments being made. I spoke with a tax expert at the Georgetown University Law Center, John Buckley, J.D.

I asked him what legitimate reasons an American citizen living in The United States would have for opening a Swiss bank account. He replied “U.S. citizens who do not live in Switzerland, typically have Swiss bank accounts for one reason: to hide assets and/or income.” Recall, in 2009, the Justice Department sued UBS, the largest Swiss bank, to obtain the names of 52,000 names kept secret from the IRS and suspected of tax evasion. Mr. Buckley said, “I do not know whether (Romney) had his account at UBS.” According to the LA times, Mr. Romney failed to report this Swiss bank account in his presidential financial disclosure forms. Even conservative commentator Lou Dobbs could not justify Mr. Romney’s Swiss bank account when asked about it by Bill O’Reilly.

The other complex financial tool used by Mr. Romney to reduce his tax burden was to shield investments in hedge funds from the IRS by using Cayman Island and other off shore funds. These are known as “blocker” accounts according to Mr. Buckley. He explained, “Normal IRA accounts in mutual funds or individual stocks have tax deductions. However, hedge funds that use borrowed margin, or leverage, are not considered tax deducted IRA accounts. Therefore, one can invest in Cayman Island accounts to avoid taxes.” Given that Mr. Romney only released his 2010 tax forms, Mr. Buckley speculated whether the infamous Swiss bank account was listed in previous years tax forms.

The legalities of Mitt Romney’s “blind trust” are also uncertain. Mr. Buckley said that since Romney’s personal lawyer is also the administrator of the blinded trust, it raises obvious questions of the strength of that Chinese wall.

One can imagine now some good zingers that the loquacious President Obama could use this fall on the campaign trial. For example, he might say, “Mitt Romney lives off of his trust fund and does not need to work. He knows nothing about job creation. His Bain capital days caused thousands of people to lose their jobs”. Or, he could say, “Mitt Romney is a Swiss bank account Cayman Island Wall Street loving fat cat. I am reforming Wall Street.”

Any of those comments will score well in Nevada, Ohio, California, and other swing states with double digit unemployment. Mitt Romney would be forced to stutter a defense, such as, “Uggh. Uggghh. President Obama wants to punish success. I earned my money.”

Yes. President Obama could pull a brilliant Jiu-Jitsu move and actually make the bad economy a positive campaign rally if he ran against Mitt Romney.

While all of this shell gaming of assets used by the wealthy to reduce tax burdens is mostly legal, it is very foreign to almost all Americans. Moreover, the use of Swiss bank accounts is flat out tax fraud and illegal in most cases.

The “establishment” Republican party to which Newt Gingrich refers is placing their best bets on Mitt Romney to defeat Barack Obama because the current polls indicate that the two match up evenly in a head-to-head race. Romney is their manifest destiny candidate. They are literally panicked now that Gingrich is viable.

However, the Obama campaign over the next ten months could effectively portray Mitt Romney as an unemployed, out of touch with America, Wall Street loving, trust fund living, tax evader. That could likely be an effective and lethal strategy. Newt Gingrich, on the other hand, being guilty only of taking a few millions (small potatoes) as a “lobbyist”, would possibly be able to portray himself as an anti-establishment Tea Party crusader with an unimportant series personal marriage disasters (with a popular Vice President female running mate).

The same old-school GOP voices supporting Mitt Romney so desperately now in 2012 are the very same ones who allowed Barack Obama to win the 2008 election, and the Democrats to take over the House and Senate. Will Karl Rove, Tom DeLay, John McCain, or Bob Dole come through again and help President Obama win a second term, despite high unemployment and an economic depression? Stay tuned.

(Dr. Greer is a former Wall Street financial “sell side” analyst at Donaldson Lufkin and Jenrette, Credit Suisse, and portfolio manager for Merrill Lynch. He is the founder of The Healthcare Channel, CurrentMedicine.TV, and BatteryPark.TV, and frequently contributes to NPR, The WSJ, CNBC, and Fox News)

The people have voted: “Bring quality music to the Conrad Hotel”

The results of our survey are in. Ideally, if the business model made sense, our viewers liked the idea of a high-quality jazz and performing arts venue to go into one of the remaining retail spots of the Conrad Hotel, owned by Goldman Sachs.

Multiple answers per rater are allowed, so the total exceeds 100%. “Joe’s Pub” and “Lincoln Center Jazz” are similar options.

Some “other” suggestions included a children’s retail shop, an Indian restaurant, and a strip club.

We will leave the survey active and see how it changes over time. Although, the results will be very unscientific.

Click here to take the survey

Goldman Sachs transforms BPC from a Staten Island annex vibe into the new Tribeca

January 10, 2012 By Steven Greer, MD

Battery Park City, since its formation in the early 70′s, has always been viewed by most New Yorkers as more of a Staten Island annex rather than a true part of Manhattan, and for good reason. With the West Side Highway as a barrier, the place took on a suburban vibe with a surreal David Lynch or Stephen King twist. All of that might change now as the new Goldman Sachs headquarters takes root.

Despite a large residential population with an average income well over $100,000,  Battery Park City has long been underserved by low quality shady restaurants barely meeting health inspection minimums, and has been totally devoid of respectable nightlife venues. After the financial collapse that began in 2007, things got even worse. The one bright spot of BPC, the Ritz Carleton hotel rooftop lounge, closed down, as did The Gate House and several shops in the Winter Garden of the World Financial Center.

The closest source for quality restaurants or entertainment has been in Tribeca with its block of restaurants, such as Nobu and The Tribeca Grill. But even Tribeca was seriously lacking in entertainment. With the housing bubble came $2 Million and up apartments, with owners more typically found in New Jersey or West Chester. As a result, the community board frowned upon 4:00 AM closing times or any noise whatsoever.

Some high-end wine or brandy bars have tried to establish in Tribeca but never flourished. The Tribeca Grand hotel lobby space and the Smyth Hotel venue are all struggling. The demand seems to be lacking. Bankers at nearby Citigroup bolt home after work, and poor management plagues the hotel attempts.

Along comes Goldman Sachs. The new headquarters opened in 2010 at the corner of Vesey Street and West Street, in Battery Park City. The adjacent hotel, also owned by Goldman Sachs, was gutted and converted into the new Conrad Hotel, upgrading it from the old Embassy Suites.

Dino Fusco and his Goldman Sachs team quickly evicted the failing Applebee’s, Chevy’s, and other low quality restaurants, and brought in some much improved establishment at the ground level of the hotel. Most of them are now open for business after more than a year of renovation.

Having been opened for just one week, the social scene has immediately changed for the better in Battery Park City. The crowds inside Mark Maynard-Parisi and Danny Meyer’s Blue Smoke southern cuisine restaurant do not remotely resemble the crowds of the old joints on South End Avenue. The place is packed with young executives who work nearby at American Express, Goldman Sachs, etc, or who live nearby in the newly built green apartments.

In addition to the Shake Shack, the other Danny Meyer establishment in the Conrad Hotel space is the North End Grill that is comparable to his midtown well-reviewed Union Square Cafe and Gramercy Tavern. No doubt, there will soon be seen lines of Maybach’s and limos on the street in front waiting for diners.

For the resident of Battery Park City with high standards, no longer will they need to trek over to Tribeca for decent dining. The entertainment situation might improve as well when the Conrad Hotel opens. A variety of lounges and music venues are rumored to be opening, including an outdoor rooftop space overlooking the Hudson River and New York Harbor. This might fill the void left when the Ritz Carlton gave up on this business. Ideally, residents would be getting a Jazz Standard next to the Blue Smoke, but that is not in the cards (despite BatteryPark.TV trying to convince people).

Due to its superior infrastructure, the Goldman Sachs-led reincarnation of Battery Park City actually has much more potential of becoming a premier Manhattan neighborhood than Tribeca ever did. For starters, there is a marina that can accommodate the largest yachts in the world. The area has an Asphalt Green training facility with an Olympic-size swimming pool and outdoor baseball/soccer fields. There are two newly constructed public schools. The BPCA-managed parks and botanical gardens are better than any others in the city. The high-rise housing is mostly all modern and green. It is easier to own a car and access the tunnels from Battery Park City than in Tribeca, and two of the best hotels in the city are in Battery Park (Institutional Investor Magazine ranked the Ritz as the best hotel in the world in 2007).

Good retail clothing shops will follow soon. In 2013, the renovation of the Winter Garden will be completed with numerous new businesses.

Please do not forward this article. A good thing is best kept quiet. We don’t want any riffraff from SoHo coming down here.

The Winter Garden at the WFC: site of new retail stores in 2013

What type of store should complete the Conrad Hotel spaces?

(Please forward this to your friends)

BatteryPark.TV has learned that some of the retail space at the Conrad Hotel is yet to be leased. What would you like to see go into these spots?

Click here to take the survey

Gypsy cabs illegally soliciting people crossing Vesey Street by Goldman Sachs

January 13, 2012

If you have been harassed lately by gypsy cab drivers, out of their car and soliciting clients, as you walk across Vesey Street from the WFC toward Goldman Sachs, you are not alone. As the new restaurants open, they have increased in boldness. A pedestrian can be hustled with the secret “Pssst, need a cab?” four to seven times on one crossing. The scene reminds one of a third world country.

The NYPD are aware of this problem and will be cracking down. Notify the First precinct community affairs officers if you have any problems.

In this photo, all of the people are cab drivers. There are at least seven of them whispering and soliciting fares.

(click image to expand)

Gypsy cabs illegally soliciting fares in front of Goldman Sachs on Vesey Street

Featured resident Alan Wilzig

Nearby resident, Alan Wilzig, and fan of BatteryPark.TV, is featured in the NY Post today.

Where there’s a Wilzig  By MICKI SIEGEL New York Post

Last Updated: 9:06 AM, January 12, 2012 Posted: 9:50 PM, January 11, 2012

There’s no shortage of remarkable residences in tony TriBeCa. But with a Crestron home-automation system that turns a room pink or purple at the touch of a button, a 550-gallon fish tank, a tanning room with a dry-heat sauna, a private garage for motorcycles and even a collection of uranium glass (perfectly safe, we’re assured), Alan Wilzig’s 7,500-square-foot Hubert Street townhouse takes things to another level.

Wilzig, a TriBeCa pioneer, is the founding director of the Jewish Community Project of Lower Manhattan, which was created in 2001 and launched a Jewish preschool. He’s co-owner of the new, red-hot Kutsher’s Tribeca, a “modern Jewish-American bistro” that’s already known for its high-quality smoked meats, latkes and matzo-ball soup. And along with being an entrepreneur, race-car driver and motorcycle enthusiast, Wilzig, 46, has created one of the craziest and most colorful houses in his moneyed neighborhood.

Back in 2003, Wilzig lived in TriBeCa and worked in Jersey City. Every night on the drive home, while exiting the Holland Tunnel, he saw a billboard that intrigued him. “Coming Soon,” it read. “Full-floor penthouse condos, maisonettes, townhouses.”

“I would see that and wonder about condo townhouses,” Wilzig says. “It was as if that sign were there just to entice me.”

It turned out that developers were putting up a building called the Hubert at 7 Hubert St., and two townhouses were part of it. One seemed perfect for Wilzig and his future wife, Karin Koenig. It was a rare, 39-foot-wide, three-story glass house (Wilzig later put in bulletproof windows) sandwiched between two 17-story towers.

This private home had the amenities of a luxury building — a doorman, 24-hour concierge services, a superintendent and tight security. Plus, the townhouse had its own garage. “It was really the best of both worlds,” Wilzig says.

The security-conscious Wilzig especially liked the fact that there are several ways to get into the house. He could drive in through his garage. He could walk in through the house’s French doors on the street. But for Karin, 41 — an artist and high-fashion handbag designer (winisha.com) — he wanted her to enter through the lobby with its watchful doorman and then walk to an inner door of the townhouse.

In addition to its 7,500 square feet inside, the townhouse has a 2,500-square-foot rooftop garden and a 1,000-square-foot backyard patio that houses a hot tub big enough for eight people. The residence has five bedrooms, 5 1/2 bathrooms, an eat-in kitchen, a dining area, an office, a media room, a laundry room and the garage, where the color orange dominates.

There was just one problem — and it was a big one. “The developer wanted to cut the rooftop space in half,” Wilzig says. “That meant I would have 1,250 feet, and another apartment would have the rest for a patio. I said that I wouldn’t buy the townhouse without the entire space. In that case, the builder wanted $300,000 added to the purchase price of $3,335,000.

“It was finally settled when I offered another $100,000 and said the builder could give me an empty concrete box instead of finishing it with marble, wood and fancy appliances. And, that way, Karin and I designed the apartment the way we wanted.”

The renovations took 11 months and cost more than $1.5 million.

The couple were married by the time they settled into the townhouse in November 2005. That December, Karin gave birth to their son, Siggi (named after Wilzig’s late father). Eighteen months later, daughter Winni was born.

The Wilzigs filled the townhouse with unusual household items. First and foremost is the Crestron system that, in addition to changing the lighting, controls the music and the TVs, unlatches the front door and has buttons for everything from checking out the weather to looking in on the children in their rooms to seeing what’s going on in the street around the house.

“Part of the fun of home automation is that I can change the colors of everything from the fish in our aquarium to the façade of our townhouse,” Wilzig says. “When we set this up, I was still planning on lots of entertaining and making the house something like a nightclub. So, the media/ entertainment room, the lower level of the house and the garage can be bathed in different-colored lights.

“The reality is, we moved in here and a month later Siggi was born. So, the first time we turned the color on was to turn the house’s façade baby blue in honor of his birth. And, later, we did it in pink for Winni.” (And, for parties, they can light up the façade of the house to match the occasion.)

Also colorful is the 14-foot-long fish tank that holds a family of butterfly koi. (Wilzig thinks they’re happy because his lighting controls can turn the color of the white fish to red, yellow, blue or whatever mood strikes him.) And a 10-foot-long skylight above the main staircase can be transformed to the color of a pink sunset or the blue of a sunny day.

In the media room, one wall is covered in a material called Screen Goo; it’s a specially formatted line of acrylic paint for video projection that turns the wall into a super-size screen for movies and TV. Then, when it’s not in use, it’s just an ordinary-looking wall.

But the home isn’t just about fun. Wilzig turned the master bedroom into a “safe” room. The door is made of heavyweight steel with unbreakable locks. There’s a peephole with a view of the entire hallway.

“The bed is in reverse,” Wilzig says of the bedroom. “The television is built into the headboard instead of the footboard. That’s because it faces the bath and its glass shower. I find it much more entertaining to watch my beautiful wife take a shower than to watch television.”

But since opening Kutsher’s TriBeCa on nearby Franklin Street in November, there hasn’t been enough time to watch much of anything but the upscale deli.

The restaurant was inspired by the old Kutsher’s Resort Hotel and Country Club in the Catskills and the long friendship of the Wilzigs and the Kutshers. Wilzig’s father was an Auschwitz survivor who ended up controlling banks and oil companies, but vacationed only at Kutsher’s Resort. Today, the sons, Wilzig and Zach Kutsher — with partners Jeffrey Chodorow and Richard Kirshenbaum — are picking up where their fathers left off.

Wilzig is also launching a reality TV show with Lionsgate Entertainment. Its working title is “Wilzig World,” and the plan is to start broadcasting by next fall. With the exception of his sister, Sherry (who Wilzig says is “normal and conservative”), the show will focus on Wilzig’s flamboyant family.

“It will be about everything from my professional racing and what it’s like owning my own racetrack in Columbia County,” Wilzig says, “to the unique lifestyle of my perpetual bachelor brother Ivan, who’s called the king of the Hamptons. He lives in a 15,000-square-foot castle in Water Mill that Karin and I built.”

That castle, which was featured in The Post last June, includes a dungeon that also serves as an eight-car garage.

“And then there’s our mother,” Wilzig continues. “I think it’s safe to say that she’s the only 76-year-old Jewish grandmother who owns 5,000 pieces of erotic art and runs her World Erotic Art Museum in the heart of South Beach.”

But surely, Wilzig’s townhouse, with all its quirks and colorful flourishes, will be one of the stars of the TV show.

“A friend says that I created a bachelor pad for the entire family,” Wilzig says. “That might be. The house looks like a bachelor pad, but it functions like a family home.”

Goldman Sachs delivers with Shake Shack

June 4, 2011

By Steven Greer, MD

Goldman Sachs might be on the road to redemption. After taking away the neighborhood gym, there is finally evidence of betterment to the local community. One of Danny Meyer’s high-end, ultra healthy and natural, Shake Shacks has opened in Battery Park City. It is the first of several new Danny Meyer eateries to open at the ground level of the Goldman-owned hotel by their headquarters on Vesey Street.

Upon first glance, one might be confused at all of the fuss over Shake Shack. It just serves junk food like hot dogs, hamburgers, fries, and custard shakes. But after further inspection, one realizes that the ground beef patties are prepared fresh, on site, and come from famed butcher Pat LaFrieda. The meat is antibiotic-free and steroid-free beef. The 100% beef sausages for the Chicago-style hot dogs come from Vienna Beef in Chicago.

The French fries are fried in soy oil, free of trans-fat and animal lard. They are made of Yukon Gold potatoes.

The ice cream is, according to the company, “Made in real custard machines- which spins the custard at ridiculous speeds, into a dense, soft, intensely rich consistency”

Shake Shack also offers its own line of beer and wine. Frog’s Leap collaborates for the wine, and Brooklyn Brewery makes the ShakeMeister Ale.

The Shake Shack staff are American, polite, and competent. This might be the biggest secret to Shake Shack. Restaurants are all about the employees. This one store alone has hired more than 80 American employees, doing their part to reduce the high unemployment in the city and country.

The end result is a noticeably different Classic American cuisine. The fries are uniquely crispy and not greasy. The hamburgers and hotdogs are also not too greasy and heavy. Try the ice cream and drinks for yourself.

If the rest of the Goldman-Sachs-Danny-Meyer restaurants, to open in the Fall, are equally as good, BatteryPark.TV will start a petition to make Lloyd Blankfein the next Treasury Secretary and Danny Meyer the head of the USDA.

 

 

 

Is your financial analyst not up to par?

December 8, 2011

By Steven Greer, MD (former financial analyst on the sell side and buy side, and portfolio manager within a $10 Billion fund)

The bad economy and large volatility in the markets has made for yet another challenging year. It is easy to point fingers of blame for struggling portfolios. However, there have been plenty of stocks in healthcare that made large gains, and plenty of stocks that have imploded and were good shorts.

Statistically speaking, there is a good chance that your analyst was not picking these few alpha winners. Why did they miss these contrarian stock picks?

There are some common pitfalls that financial analysts fall into. As a PM managing the analysts, you know of these hazards well, but you might find it interesting to read our list anyway.

  • Does your analyst lack the courage to think independently? Does your analyst require the validation of the sell side shop notes before they will jump on the bandwagon of a stock thesis? One of the big mysteries in investing is how sell side research still has the relevance that it has. The most junior of analysts all know that the stock ratings are a joke, that sell side analysts are bad stock pickers bogged down with conflicts of interests, and so on (there are some exceptions). Yet the vast majority of buy side analysts still get herded around like sheep by the leading sell side analysts. They end up buying too late or, more commonly, holding stocks despite obvious risks that have been downplayed by cheerleading sell side research.
  • Does your analyst rely more on networking and talking to other analysts than on creating original work? The biotech sector analysts are the worst at this, and it is the reason many PMs were led over cliffs in DNDN, etc. If your analyst spends more time on the phone than on building models or doing field checks, etc, then there is a significant risk that you, as the PM, are being fed the same ideas circulated throughout the Street. This is another manifestation of herd mentality.
  • Does your analyst think that the investing process is a big game meant to be rigged. Do they think that their cartel of friends can change reality? Scores of examples of biotech stocks imploding 70% after reality won the day can be recalled by any PM. In many cases, the analysts knew of the particular risk causing the implosion and thought that they could scam the system and change reality. For example, a concerted cartel of oncologists, investors, and small blogging journalists helped to get the controversial Dendreon therapy approved despite weak clinical data. They succeeded in delaying reality for a while. However, once Provenge was approved, the real world oncologist wanted nothing to do with it. Dendreon is a now a distressed company.
  • Have your analysts become entitled due to the pandering sales reps? Mutual fund analysts are very susceptible to this. Analysts at large hedge funds that pay sizable trading commission are also vulnerable. The hubris that ensues after sales reps cater to your analysts is the downfall of a stock picker. Behind every large stock implosion that cost some large fund hundreds of millions of dollars was an entitled analyst that got lazy and arrogant.
  • Is your analyst simply lazy? Not all sell side research is crap, and any sell side analyst will tell you that most of their good notes go unread. Does your analyst even read the research that you, as a PM, pay good money to receive?
  • Does your analyst have the insight and training required? Many analysts do not have the medical and sell side training to allow them to distinguish important research ideas from bad ones, or to see through company spin. Over the last decade, when the number of hedge funds exploded, far too many entitled “Harvard MBA” types went straight from B-school to stock picking, without any training other than a useless degree. Investment banking, sell side research, and industry business development best prepare an analysts to fight on the front lines and pick stocks for a living.

 

 

 

Wall and Water

You can now rate this restaurant by clicking here, and post your comments in the section below.

75 Wall Street in the Andaz hotel

212 699 1700

Why News Corp and Disney should merge: A perfect storm is on the way for cable TV

January 3, 2012  By Steven Greer, MD

The cable TV business model is still printing money, despite high user dissatisfaction with the cable delivery companies and the poor quality of content found on most channels. How long will that disconnect last? When will the cash cow dry up?

Last quarter, News Corporation (NWSA) reported record revenue from their largest division, which is cable TV. Fox News (and other European assets) earned $775 Million, up 18% in a global recession. In comparison, the Fox broadcast TV (e.g. American Idol, the Simpsons, etc) pulled in only $133 Million. Multiply all of those numbers by four to get the annual revenue for the calendar year 2011, which computes to approximately $4 Billion from cable TV.

Disney’s (DIS) largest revenue producer, by far, is their cable operation led by ESPN. Last quarter, Disney cable brought in a record $3.5 Billion, up 11%. The next closest money printing machine within Disney was the theme park division, which pulled in $3.1 Billion on the top line. For the full calendar year 2011, Disney will make more than $13 Billion in revenue from cable TV.

The reason TV content creators earn so much more from cable than from broadcast TV, despite many millions more watching broadcast TV, is that the networks charge the middlemen cable providers hefty fees to carry their channels, in addition to charging advertisers to place ads. For CNBC as an example, they get about half their revenue from fees collected from the Cable Guy. ESPN fees equate to nearly a $5 per month charge in each cable TV subscriber’s bill.

The networks keep jacking up the fees and holding the NFL and other content as hostage unless the Cable Guy pays up. Content is King and they know it.

This is why the networks recently agreed to absurdly high fees to the NFL, some $24 Billion over many years, despite the actual revenue to be collected from broadcasting those games to be nowhere nearly enough to offset the fees. In the bigger picture, the premium NFL content allows the networks to have the advantage at the bargaining table.

As a result, cable providers, such as Time Warner, Comcast, or Verizon have been losing those negotiations with the networks and simply passing on the costs to the consumer, amidst the recession. Monthly cable TV now well exceeds $100 per month in most regions.

There are signs of successful pushback from the cable providers. New cable TV channels are failing. The Oprah Winfrew Network (OWN) is struggling to get cable providers to pay the fees and distribute it to viewers. In New York. Time Warner recently cancelled the deal with MSG, so millions on viewers will no longer be able to see Knicks and Rangers games. The Fox Business Network, despite being part of the powerful News Corp family, had trouble getting picked up by cable providers and only recently reported a profit after launching in 2007. Fox Business could actually be considered a success by current standards. It is unlikely that small independent cable channels will succeed as they did decades ago.

What would happen if Americans and Europeans, in droves, suddenly stopped paying $150 or more per month to receive cable TV? What if everyone started using their fancy new iPad or Apple TV screens to watch video content delivered via the Internet, bypassing the Cable Guy?

Ask any cable TV executive the question, “Will people stop paying for cable TV soon?” and all of them will answer, “No way. Content is King. We have the monopoly on content”. But that is no surprise. For any mature industry, the insiders are the last to acknowledge major paradigm changes on the horizon.

A perfect storm is on the way for the cable TV industry, and might hit as soon as Q4 2012 with a salvo from Apple (AAPL). First, the average cable TV subscriber is broke and can barely make ends meet with groceries, mortgages, and gas. High-speed Internet alone costs around $60 per month. However, Internet plus cable TV is a whopping $150 per month when all fees and taxes are added. Is ESPN’s Monday Night Football essential when free broadcast carries the other games? Are MSNBC, TLC, or MTV essential for those families, especially when delayed versions are on the Internet via Hulu and other portals?

Then, add to this perfect storm the appeal of the newer TV interfaces via Xbox or iPad that surpass the 1970′s cable TV remote control by light years. Very soon, the old remote control will simply become unacceptable to anyone under the age of 30 and the important advertising demographics.

Thirdly, there will finally be some easy-to-use solutions for watching Internet video on one’s large living room TV, arriving later this year. Apple TV and a new iPad are the likely forms.

The final fuel to this perfect storm, later on in 2013, will be the original content created directly by new forms “studios” and thousands of smaller independent channels, all delivered via the Internet bypassing cable providers. The hit cable show “It’s Always Sunny in Philadelphia”, now on Comedy Central and FX, started as an online production made by some guys with a digital camera for $85. Google, Netflix, and other larger companies have original content productions in the works.

The cable providers are already seeing reductions in subscribers and are trying to diversify into other businesses. Time Warner wants to offer home security, for example. However, the traditional studios haven’t yet felt the pinch. In fact, they are earning record revenues. This scenario is untenable. The day of reckoning is near at hand.

When industries start to contract, like the pending implosion of the cable TV industry as people cancel their subscriptions, mergers ensue as the best way to cut costs and gain “synergies” (i.e. layoffs). One good fit for a cable TV content creation merger would be News Corp (NWSA) and the larger Disney (DIS).

Disney’s ABC already partners with Fox News given the lack of cable news operations for Disney. The broadcast TV and film studios for both companies would be easy integrations with huge synergies. The News Corp print and Disney theme parks have no overlap and would not create a cannibalizing situation.

Perhaps most pressing for News Corp is the uncertainty created by the ongoing European tabloid scandals and British Parliament investigations. With his son James taking fire, the successor to News Corp’s Rupert Murdoch, now 80 years old, is uncertain. All of these issues would be diminished or resolved if News Corp were folded into Disney.

One could argue that the record revenues of the cable TV content creators is a sign of a viable growing industry. However, financial analysts also know that the bubble is always biggest before it bursts.

The banks are insolvent folks

Michael Platt manages $30 Billion in Geneva, and says it the way it is. The banks are insolvent.  Watch

Is this the moment Jon Corzine committed the felony of perjury?

Why Facebook does not want to reveal its books in an IPO

Update: December 13, 2011

As we first reported a year ago, the U.S. usage rates of Facebook is way down, per the New York Times article. This is very bad for the hyped valuation and why they shunned the openness of the IPO process.

The article reads, ”

But the figures on growth in this country are stark. The number of Americans who visited Facebook grew 10 percent in the year that ended in October — down from 56 percent growth over the previous year, according to comScore, which tracks Internet traffic.

Ray Valdes, an analyst at Gartner, said this slowdown was not a make-or-break issue ahead of the company’s public offering, which could come in the spring. What does matter, he said, is Facebook’s ability to keep its millions of current users entertained and coming back.

“They’re likely more worried about the novelty factor wearing off,” Mr. Valdes said. “That’s a continual problem that they’re solving, and there are no permanent solutions.””

Update: August 20, 2011

In our previous February article, below, on why Facebook does not want to go the traditional SEC-regulated IPO route, there is a related story about Groupon that supports our thesis. Groupon is struggling to go public after its shaky financials were made public during its attempt to go public. Here’s the story.

We continue to believe that many of the claims about Facebook’s true number of users, whether that number is decreasing, and the true profitability of Facebook, are metrics that the company does not want to reveal in an IPO process.

Update: June 19, 2011

We previously reported (below) that Facebook executives might be reluctant to take the company public via a normal IPO because the disclosure process would reveal truths about decreased usership that would damage the hyped valuation. A recent report by an Internet marketing firm that tracks Facebook users claims that Facebook lost 6 Million users in the U.S. in May. Growth for Facebook is coming from non-U.S. countries late to adopt. This is consistent with our own experiences.

BatteryPark.TV recently implemented a password-protected homepage that allowed Facebook users to login with their existing Facebook account. The residents of Downtown Manhattan revolted. Almost no one seemed to be a Facebook user. In addition, anecdotal feedback indicates that Facebook is not cool any longer with the youngest users. The Facebook overload phenomenon, see below, is genuine.

We continue to believe that Facebook missed the best window of opportunity to go public in 2007. Social networking IPOs LinkedIn and Pandora have both faired poorly this year. With the end of QE2 and the worsening economy causing the markets to correct, a successful IPO window is closing rapidly.

Update: March 8, 2011

CNN just posted a story “How much is Facebook really worth?”

At the time of our story on February 1, the entire mainstream media was doing nothing but positively hyping the potential and valuation of Facebook. Unique points made in our story back in February were that the parameters that would be used to value Facebook, that would have to be made public if they went IPO, might not support a $50 B valuation. Specifically, do Facebook users stop “clicking” after the initial excitement, due to Facebook overload? Are there really 500 Million ACTIVE users? If Facebook can no longer sell your personal information due to new laws or backlash, is Facebook worth anything more than a Huffington Post model? Was Goldman Sachs trying to sell yet another dog of an investment to its clients, ala Abacus?

February 1, 2011

Facebook recently tried to raise a reported $15 Billion in capital via a novel private offering of stock underwritten by Goldman Sachs. Goldman was then planning to sell those shares to select banking clients in a manner that would somehow not violate the SEC’s 499-shareholder limit and trigger a mandatory IPO.

The whole convoluted scheme became too controversial and Goldman Sachs cancelled the offering to U.S. buyers. Instead, non-U.S. buyers received shares, raising more than $1 Billion for Facebook.

Related, Groupon, Demand Media, and LinkedIn also backed away from planned IPOs. The full disclosure process of going IPO revealed that the companies were in fact losing money rather than profitable, as they claimed using clever accounting afforded to private companies.

Why is Facebook so reluctant to go the normal IPO route? What parameters on revenue, number of users, and clicks per month would stand up to GAP and Sarbanes-Oxley? Did Facebook miss the best window for IPO back in 2007?

If Facebook does not have a true active user base of 500 million people, a claim that would be scrutinized in public offering documents and have to be personally approved by the CEO Zuckerberg, that would indeed be a powerful reason to avoid an IPO. Likewise, for an advertising revenue model company such as Facebook, the unique user “clicks” per month is a crucial parameter that drives future revenue estimates and stock valuation. If the rate of active logins per Facebook user has peaked, that too would be a serious blow to the company valuation.

Many users of Facebook, of all demographics, will explain that they initially login and “click” around on Facebook far more in the beginning, then cool off. In fact, there might be a new burnout psychiatric syndrome called “The Facebook effect”, as reported on ABC news, whereby users start to dislike the Facebook experience.

Social networking, as a whole, is a new phenomenon that has come to mainstream only within the last three years. The Time Magazine 2010 “Person of the Year”, Facebook CEO Zuckerberg, was a choice recognizing that 2010 was the year social networking gained critical mass. As Saturday Night Live noted, even many “mothers” and grandparents are using Facebook.

Will the generations that use Facebook the most, those who collect hundreds of “friends”, suddenly tune out and make Facebook yesterday’s fad like sacral tattoos and Paris Hilton? Already, an ABC interview with the actors nominated for Academy awards this year revealed that none of them are on Facebook.

Is social networking really this vastly untapped mysterious space in which to invest? The major competitors to Facebook are not doing well. MySpace, owned by News Corporation, is laying off half of its staff and rumored to be on the selling block. Google and Apple both tried to start social networking sites and failed. If the social networking space is so wildly profitable, as Facebook claims, why have these otherwise successful companies failed?

The biggest threat to the entire class of “social network” companies is whether public outrage will grow over the egregious violation of privacy that is essential for the business models of the companies. The Wall Street Journal launched a series of “What they Know” stories exposing how Facebook collects personal information of users and then sells that to advertisers. The FCC has already introduced regulation to limit this activity, and congress might pass new bills with more teeth. That would be the death sentence to Facebook revenue.

More evidence that Facebook might be desperate to inflate “clicks” and daily activity is that it allows for countless bogus “celebrity” pages to exist. The young naive user who is accepted as a “friend” to a bogus impostor Gossip Girl actor page, for example, becomes excite and starts to use the site more. Facebook has sophisticated tracking algorithms and could shut down all of the bogus sites if they wanted to.

When Goldman Sachs first announced the plan to raise $15 Billion for Facebook via a private offering, the New York Times and Wall Street Journal calculated that the entire company was receiving a $50 Billion market capitalization value. The WSJ compared Facebook parameters to other companies such as Yahoo and Google and found major disconnects between the fundamental drivers of valuation and the actual valuation being assigned.

If Facebook was wildly overvalued at $50 Billion, why would Goldman Sachs sell shares to its most important clients? To answer that, one needs to look way back in history to 2010 and the congressional hearings whereby the Fabulous Fab sold “shitty investments” called Abacus to clients, while Goldman was internally shorting Abacus. Goldman Sachs partners are under extreme pressure to perform. Failing to do so means that they lose Partner status. Given that there were no consequences to any individual at Goldman Sachs, and the CEO Lloyd Blankfein is now attending White House State Dinners, it is quite likely that the way of doing business at Goldman Sachs has not changed at all.

Let them eat cake. Sell them overpriced Facebook.

The NYMEX has removed onerous security screening stations after businesses close

November 27, 2011

By Steven Greer, MD

The New York Mercantile Exchange (NYMEX), part of the CME Group, has dropped the onerous security measures at the entrance to its retail mall. The metal detectors and X-ray bag screening station have been removed. People can now walk freely throughout the glassed-in corridor that faces the Hudson River and used to house many retail shops.

All of those shops are now closed down. Staff at the NYMEX explained that the tight security hampered business too much. The one remaining business is Jack’s Unisex Hair Salon. Late next year, new shops are supposed to move in, according to the staff.

NYMEX Staff explained to BatteryPark.TV that the security alert status since 9/11 is now lowered making the screenings unnecessary. Related, many businesses across the street in the Financial District are begging the Mayor to remove unsightly exterior barricades in front of store front businesses.

Entrance to NYMEX where screening stations used to be

 

Closed shops in the NYMEX mall

 

Jack's Unisex Hair Salon remains open

Harry’s of Hanover Square and the wine cellar

Harry Poulakakos is a legend of the Financial District in Manhattan. His first restaurant, Harry’s of Hanover Square was featured in the Academy Award winning film “Wall Street”. Harry and his son, Peter, helped developed Stone Street into a popular café district and have opened up several successful pubs and restaurants in the area.

Harry took us one an extensive tour of his flagship restaurant and its extensive wine cellar.

http://www.harrysnyc.com/

212 785-9200

The death trap at Murray and West Streets

August 31, 2011

By Steven Greer, MD

The local community, backed by Goldman Sachs, is trying to petition the DOT to open a Vesey Street crossing of the West Side Highway. However, less appreciated is the extreme danger at the Murray Street crossing. The interchange allows cars to heading north to make U-turns, and most pedestrians are unaware of this so they jaywalk when it looks safe, only to be dodging U-turning cars. In addition, cars, heading west are allowed to turn left (south) into the crossing pedestrians, and many drivers are running red lights turning east onto Murray greatly jeopardize pedestrians.

The crossing guards that both the city and the BPCA have posted are woefully unskilled and un-empowered to ticket moving violations. They do nothing to stop cars running red lights in front of their eyes.

Multiple people have been killed or harmed just a few blocks south at the Albany Street crossing. Will a future fatality occur at Murray Street as some banker walking while texting with iPod earphones in is mowed down?

September 22, 2011

BatteryPark.TV has also alerted local police and officials about the dangerous pedestrian crossing on South Albany. On September 14, according to a local blog, a pedestrian was struck by a car as she crossed South End by Rector Place. The problem on South End is caused by distracted drivers searching for parking spots and ignoring the road. The crossing guards, like the Murray Street problem, are also very ineffective. The solution is to have full NYPD officers with ticketing power stationed at the intersections. Automated red-light cameras might help as well.

 

 

 

 

Exclusive: The missing Goldman Sachs ferry boats are found

November 2, 2011

By Steven Greer, MD

The New York Times first reported in March that Goldman Sachs had purchased two new luxurious state-of-the-art ferry boats to carry employees across the Hudson River and doc at the WFC Vesey Street slip. The boats were supposed to go into commission in April but never did. In fact, the boats seem to have mysteriously disappeared.

We previously reported that neither Goldman Sachs nor the CEO of the BillyBey Ferry Company would comment on the fate of the boats. Last night, all of the parties who would know were present at the CB1 meeting. We asked the Port Authority, DOT, and BillyBey CEO Paul Goodman what became of the Goldman Sachs ferry boats and they all refused to comment (see video). The Port Authority spokeswoman said nervously, “I do not have privy to that information.” The BillyBey CEO essentially filibustered and changes the topic.

We spoke with the New York Times reporter who first covered this story, Pat McGeehan. A credible rumor circulating to explain this hush-hush over the Goldman Sachs boats is that the vessels were purchased somehow using federal bank stimulus or bailout monies, then the Goldman executives realized that buying catamaran river yachts might give a bad appearance to the press so the boats were sold or returned.

We then spoke directly with the boat manufacturer. All American Marine, in Bellingham, Washington, to ask whether they knew the fate of the Goldman Sachs boats. The marketing account manager who “handled that deal from start to finish” and has “been to New York for this many time”, told us that he “…had no idea why Goldman Sachs is not using those boats. They are still tied up to the pier in the Hudson River. They are perfectly fine, accepted, and ready to use. They just tell us that “the timing is not right” to put them into commission.”

All American Marine explained that the state-of-the-art boats made for Goldman Sachs have the least polluting engines available now which fall into the EPA’s Tier-2 category. They use Caterpillar diesel engines with exhaust particulate filters. He said, “We in the marine industry are now being pressured to clean up our act (with regards to exhaust emissions). The particulate filters are an experiment on process. The downside to strong filters are that they can back up the exhaust and hurt the engines.” He said that each boat cost Goldman Sachs approximately $2.75 Million per boat.

The Goldman Sachs mystery ferries have now been located. Why they are out of commission is still a mystery.

New York Times

 

Big meeting tonight to discuss the fate of the polluting NY Waterway boats

November 1, 2011

By Steven Greer, MD

The CB1 Battery Park City subcommittee will meet tonight to discuss the fate of the BillyBey Ferry Company’s air and noise polluting ferry boats (6:00 PM, 1 World Financial Center, 24th floor). After several meetings leading up to this one, scheduled to be in attendance tonight are the CEO of BillyBey, representatives from Senator Gillibrand and Rep. Nadler’s offices, the EPA, the DOT, the non-profit environmental watchdog group the NRDC, and The New York Times.

Key issues to be determined will be:

  • What did BillyBey do with the more than $7 Million in grants provided by an arcane grant from the State and City specifically meant for cleaning up ferry boat exhaust? “The New York State Energy Research and Development Authority (NYSERDA), in partnership with the New York City Department of Transportation (NYC DOT) and the Federal Transit Administration (FTA), announces the Deployment Phase of the New York City Private Ferry Emission Reduction Program.”
  • BillyBey claims that several of their boats have already been retrofitted with diesel particulate filters. However, per our filming and reporting, not a single New York Waterway ferry that docks at the Vesey Street slip seems to have any such filter.
  • BillyBey also claims to be completely replacing older diesel engines with more modern “clean diesel”. When will this take place?
  • What happened to the brand new super-clean and quiet Goldman Sachs ferry boats, seen briefly in April and reported by the New York Times? They seem to have disappeared and never made it into service. BillyBey CEO Goodman refused to answer that question in our previous call with him.
  • What powers does the federal Clean Air Act give our local EPA to enforce pollution violations that appear to be committed by the BillyBey New York Waterway ferries? The well-funded non-profit environmental watchdog group, the NRDC, and the EPA, will shed some light onto that.
  • What role will the Port Authority, operator of the Vesey Street slip and contractor with BillyBey, play in resolving this public health problem?
  • What role will the city play now that the city is in contract with BillyBey for the East River new ferry services?

After decades of being subjected to noise and air pollution from the BillyBey New York Waterway ferries, our community seems to the most support ever for resolving this problem. Please attend the meeting tonight.

(unedited filming of ferry boat pollution)

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