Garmin Ltd. (NASDAQ: GRMN) is the GPS device market’s dominant player, at least here in the U.S.  Yet the stock and the company have been in trouble for some time.  This latest earnings report looks not quite as bad as it could have, but it still makes you wonder if the GPS devices are giving Garmin’s workers the wrong directions each morning on the way to work.

The company’s earnings came in at $0.93 EPS on a 13.9% drop in revenues to $1.05 billion.  Estimates had already been brought down, but this is till worse than the Thomson Reuters (First Call) estimates of $0.98 EPS and $1.12 billion in revenues.

The company’s Automotive and Mobile segment revenue fell by about 17% to $828 million in it fourth quarter.  Its Outdoor and Fitness segment did show an increased of 5% to $120 million.  Aviation fell by 5% to $67 million, while its Marine segment revenue managed to stay flat at $33 million.

Garmin also saw a drop in gross margin to 41.1%, down from 44.3% sequentially and down 41.8% year over year; Operating margin was 22.6%, down from 24.6% sequentially and down 25.7% year over year.

It is hard to blame the company for not offering guidance for its full year in the current climate.   The company will not offer specific guidance for 2009 until the outlook for the year becomes clearer.  What we are curious about is why there is not even any quarterly guidance at this point.  We are actually almost two-thirds of the way through the quarter and even in a spotty economy that could at least be addressed.  Oh well, we think that more and more companies are goingb to refrain from sticking their necks out in this climate.

There was actually a little bit of positive news here.  The company generated $340 million of free cash flow in the fourth quarter, and ended the year with a cash and marketable securities balance of just over $973 million.  The company also acheived an inventory reduction from third quarter 2008 of $274 million, resulting in year-end 2008 inventory of $425 million.  This may still be high, but that is the cost of doing business.

Garmin repurchased 2.4 million shares during the quarter.  We’d like to see the company just stop buying back stock.  Hording cash is a better tool for investors right now than adding a day and a half’s worth of share trading volume.

Garmin’s business metrics are soft and it looks like the company is far from being out of the woods.  But the stock is also down over 75% from its 52-week highs.  At $15.17, that is also down almost 90% from the highs in 2007.  With a $3 billion market cap and with profitable operations, it is obvious that the worst is behind it.  Whether this new Nuvifone and its core bsuiness can reward investors is something the company will have to prove.

Again, it is hard to get overly excited here.  But the stock should have some of the uncertainty taken out of the equation for at least a few weeks now that earnings are behind it.

Jon C. Ogg
February 23, 2009

John Tamny, RealClearMarkets

After hitting an all-time high of 39,000 in 1989, Japan’s Nikkei average has mostly fallen since. At present, it sits at 7,969, an ugly drop of 79% over the last 20 years. Japan’s economic and market decline over the last two decades offers useful lessons to the political class in the United States, but in order to understand Japan’s fall, it’s important to first cover what aided its rise.

On its back after the Second World War, Japan was blessed with pro-growth politicians who saw the importance of reducing taxes, or the price put on work. From 1960 to 1970, taxes were cut every year, and far from reducing revenues, according to Nathan Lewis’ 2006 book Hard Money, tax receipts rose from 1.801 trillion yen in 1960 to 7.775 trillion yen by 1970.

Read more….

These are ten of the top analyst upgrades and downgrades from Wall Street this Monday morning with more than two hours until the market opens:

• AT&T (T) Raised to Buy at Goldman Sachs.
• DryShips (DRYS) Raised to Perform at Oppenheimer.
• Exxon Mobil (XOM) Raised to Buy at Deutsche Bank.
• ITT (ITT) Raised to Neutral at JPMorgan.
• Motorola (MOT) Raised to Neutral at Credit Suisse.
• Verizon (VZ) Raised to Buy at Goldman Sachs.
• Huntington Bancshares (HBAN) Cut to Hold at Citigroup.
• Regions Financial (RF) Cut to Hold at Citigroup.
• Williams Cos. (WMB) Cut to Underperform at RBX.
• Zions Bancorp (ZION) Cut to Hold at Citigroup.

Jon C. Ogg
February 23, 2009

It is a noble idea, but it probably will not work.

The President aims to cut the deficit in half by 2013. To accomplish this, he plans to take out of the budget money being spent to keep the military in Iraq.

According to the FT, “Revenue from the sale of emissions permits under a cap-and-trade system will help pay for the deficit reduction, along with reductions in spending on the war in Iraq and higher taxes on wealthy individuals and businesses.”

The goal assumes a number of things which may not happen. The first is that the economy may move out of the recession by 2010, but the hangover for GDP growth and employment could last for several years as consumer and business spending move sideways. Taxing the rich works, if they remain rich. The financial turmoil has almost certain cut into the net worth of America’s most well-heeled.

Almost all of the economic projections for the cost of the stimulus package, the size of the TARP, and the price of the mortgage rescue program are based on an improvement in the economy that begins sometime late this year or in 2010. It also assumes that the recovery will be a “normal” one, meaning that GDP will snap back sharply followed by an increase in employment.

The next recovery may not look like that at all.

Douglas A. McIntyre

The federal government gets extra points for being devious. It plans to begin to take over large banks by giving them money and using the capital they have already invested for a portion of their common shares. It is a step shy of nationalization, but a very short step.

The action allows the Administration to control banks without taking them under its wing and essentially folding their balance sheets into the Treasury’s.

The first big bank that the government is working over is Citigroup (C) which has already gotten tremendous assistance through loans and asset guarantees. According to The Wall Street Journal, “While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup’s common stock.” It is hard to say whether the move would be good for shareholders. They face dilution, but the bank gets saved.

Maybe.

Because the government’s involvement in Citi would still remain at arm’s length, it may still let the big bank go into a liquidation, If necessary. Citi’s balance sheet may be so burdened with toxic paper that outright ownership by the government could cost taxpayers hundreds of billions of dollars. Citi may no longer be too big to fail if the firm can be married to a more healthy institution like (JPM). with the government only guaranteeing certain assets. As Citi’s major shareholder, engineering that deal would be simple.

Taxpayers should see the government’s move on Citi for what it is. In exchange for what has been a modest investment, the Administration controls the bank and can do with it as it pleases, even if that means flushing it into oblivion to stabilize the rest of the financial system.

The only question left is whether there are any banks behind Citi on the list of places that will be visited by the government’s Trojan Horse.

Douglas A. McIntrye

It is extremely difficult to put accurate financial values on blogs. Almost all of them are private companies.  Some do raise VC money and those sums can be used as guidelines if and when they are disclosed. Like many content businesses, the only worthwhile value is what an acquirer will pay.  At least two blogs from last year’s 24/7 Wall St. list were sold—Ars Technica and PaidContent., both very near the valuations we gave them. This year’s list does not include blogs which are part of larger companies because the traffic of these properties is almost never broken out. Blogs which are used as fronts for other businesses have also been excluded. Blogs that do not have revenue are also excluded.  For instance, “The Daily Beast”, a large news commentary site, does not take advertising or sell products. In theory, it has little if any economic value at all.

Because of the depressed economy, 24/7 Wall St. has brought down the multiples that it assigned to blog revenue and operating profits, when there are any, by about 50% from last year. Large public companies have been writing down the value of media and content assets over the last several quarters and private content site values have certainly suffered from the same drop in value. The prices being paid for online media and is almost certainly dropping sharply. Perhaps most importantly, shares of most of the large media companies are off by a half to two-thirds from their 52-week highs.

To determine value, 24/7 Wall St. looked at unique visitor and pageviews information from several public sources including Alexa, Quantcast, Compete, and comScore. These services are often criticized for estimating website traffic too low and we have taken that into account to the extent possible. We also looked at audience measurements provided by the blogs themselves when it seemed credible. Our estimated CPMs for ads are based on the current display and text ad environment, the quality of ads at each blog, and the number of ads that it runs on the average pages. The CPM value assigned to each blog is based on all of the ads it runs on its typical pages. To determine margins, 24/7 looked at headcount when available, and estimated costs of operating and maintaining websites. More complex content platforms where assigned higher monthly costs. Current audience growth rates were taken into account.  A site which has traffic doubling year-over-year was given a higher multiple than one which is losing traffic.  Because not all blogs make money, multiples of revenue and operating income were used to assess value.

Large blogs with big “moats” got higher multiple that smaller ones. Recreating Huffington Post or TechCrunch would be extremely difficult, especially in a recession. Blogs with one founder who does most of the writing were given lower multiple because the presence of that single person is essential to the company’s value. Finally, blogs which have been operating for a long time or have recently received funding received higher valuations because they are more likely to survive.

1.  Gawker Properties. This blog company has a number of successful sites including Gawker, Defamer, Jezebel, Gizmodo, Lifehacker, and Jalopnik. In combination, the sites have about 23 million unique visitors and over 200 million pageviews a month. The company’s owner, Nick Denton, says the firm’s advertising is holding up this quarter. Traffic at most of the sites is still growing, in some cases at a rate of over 50%. The average CPM for each page across all of the properties is estimated at $15. That makes Gawker at $36 million business. Based on staffing levels, the company should have margins well above 50%. With an 8x operating income valuation, the company is worth $170 million.

2.  Huffington Post. HuffPo is probably the most well-known “blog” in the world. The company recently raised $25 million. There has been a great deal of concern that once the national election ended in November that the site’s audience would drop because of its focus on politics. All of the available audience measurement services show it holding its number of visitor flat if not slightly up. The range of unique visitors among the services measuring Huffington is fairly broad with an average of about 12 million a month. Pageviews per month should be at least 180 million. HuffPo’s current valuation is being undermined by the quality of its advertising. To fill its inventory, the company is selling a large portion of its ads to marketers like FreeCollegeInfo and Vonage. This brings its CPM per page as low as $5, putting a 2009 annual revenue estimate at about $11 million. Huffington appears to have about 50 full-time employees, operating costs like those of a traditional online news site, and a technology platform that is expensive to maintain and build out. The cost to run the operation is probably over $18 million a year. Owning Huffington would be a prize, especially for a major media company. Normal media multiples don’t apply. The company is worth more than $90 million.

3.  The Drudge Report is the father of news and news opinion blogs. Compete and Quantcast have very different unique visitor counts. The number is almost certainly over five million a month. Quantcast puts pageviews at 742 million per month, which is almost certainly too high. The ads on the site appear to be almost all network sold and the CPM per page is not likely to be above $2.50. If the site has 500 million pageviews, revenue would be $15 million a year. Margins should be very high, so operating income should be $8 million. Without Drudge himself, the site has almost no value. At a 6x multiple, Drudge is worth $48 million.

4.  Perez Hilton. According to Quancast, the celebrity blog has 5.5 million unique visitors and 236 million pageviews a month. The site runs a lot of low CPM advertising which should only yield about $3 per thousand. This is a business that brings in about $8.8 million a year. The site is relatively inexpensive to run. Margins for the company should be in the 60% range. PerezHilton is in an extremely competitive part of the online entertainment content business. If the founder leaves, the site is worth almost nothing. With the founder staying, the business is worth $32 million, about 6x operating income.

5.   Sugar, Inc. This network of blogs for girls and young women has a number of sites including PopSugar, BuzzSugar, and CelebStyle. According to Quantcast, the 27 sites taken together have about 10 million unique visitors a month. Pageviews are probably close to 200 million. The number of ads on the websites and fairly low CPMs that they yield bring Sugar only about $3.50 per thousand pages.  Sugar, Inc.’s revenue is about $9 million a year. The company appears to have about 70 employees, so annual costs are about 80% of sales. The sites are in a very competitive part of the online market. Looking at revenue multiple of 3x and supporting that with a high operating income multiple, Sugar is worth about $27 million.

6.  TechCrunch. This is the “must read” site for people who want inside industry information on tech, VCs, tech start-ups, and the internet. Compete and Quantcast have different audience numbers for the site, but it probably has a little over 3 million unique visitors a month. Pageviews are in the area of 15 million. TechCrunch has a number of high-yield advertisers and a number of ads on each page. CPM yield should be about $18. Ad revenue is close to $3.5 million. The company has several foreign language sites. TechCrunch also has a substantial conference business which could bring in another $2 million. Running the conferences is likely to be expensive. The site has a fairly small staff. The company’s margins are about 30% on revenue of $5 million. Without founder Michael Arrington, the firm is worth very little. With him, because of its tremendous influence in the markets it covers the company has a value outside most standard measures.  TechCrunch is worth about $25 million.

7.  MacRumors. This huge site covering almost everything there is to write about or say about Apple has about five million unique visitors a month and 35 million pageviews. Like many other websites hit by the advertising recession, Mac Rumors is taking a lot of network advertising from companies which sell ads with fairly low CPMs. This probably pushes its yield down to $9 per page. MacRumor’s revenue is running about $3.8 million. The company has a tiny staff and should have an operating margin of close to 70%. MacRumors is worth about $21 million at 8x operating income.

8. SeekingAlpha. This aggregator of investing blogs and news has almost 900,000 unique visitors according to comScore. Compete puts that number at about 1.5 million. Since Comscore tends to underestimate audience numbers, the higher figures is more likely to be accurate. Because of the content and site navigation, SeekingAlpha should have 15 million pageviews a month. The site runs a reasonable amount of network ads that have low yields, but has some financial services ads from investing companies including discount brokers which would bring CPMs up. The yield on a thousand pages for SeekingAlpha should be about $10.  Revenue is probably running about $2.2 million a year. Based on the number of editors and writers that the company has and looking at the cost of it publishing platform, SeekingAlpha probably cost about $3.5 million to run. It is a potentially valuable property for one of the large financial sites. Seeking Alpha is worth about five times revenue or $11 million.

9.  GigaOm, one of the top sites on technology and the internet, has a network of blogs including Earth2Tech, NewTeeVee, and TheAppleBlog. Total monthly unique visitors across all sites are about 1.5 million and pageviews run above 15 million. The sites carry a large number of ads per page and some clearly have high CPMs, for an average per page of $12. Revenue for GigaOm also includes several industry conferences which should bring in another $1 million. The company is fairly expensive to run, so operating margins are not more than 25%. Without founder Om Malik, the company would be worth very little. With him, it is in a property which could easily find an owner at a large media which has extensive tech coverage. At a 12x multiple of operating income GigaOm is worth $9.5 million.

10. Politico covers Washington and politics. The site has about five million unique visitors and about 30 million pageviews a month. The website does get a lot of advertising from major companies and trade associations. It also carries a fair amount of inexpensive network advertising. Total CPM per page is about $8. That brings annual revenue to $2.9 million.  Politico appears to employ more than 70 people, some of them almost certainly well-paid. The site is complex and expensive to run. Annual expenses should be about $7.5 million. At a 3x multiple of revenue, the company is worth $8.7 million.

11. SmashingMagazine is one of the largest websites devoted to internet design and web development. If has about one million unique visitors and 12 million pageviews a month. The site has a large number of ads per page and they are highly targeted and command high CPMs. Total CPM per page is at least $15. Total revenue for the company is $2.1 million. Margins should be 60% for an operating margin of $1.2 million. At a 6x multiple, the company is worth $7.7 million.

12.  SearchEngineLand is a blog for people interested in search engine marketing and the industry. The site has about 600,000 unique visitors and 1.3 million pageviews per month. The site runs almost no advertising, but does operate a large conference business. Attendees pay as much as $1,000 a piece to go to the events. And, the conferences have outside sponsors. The company has at least ten of these scheduled for the year. This could certainly be a $3 million business. Expenses to run the company and the conferences are high. Operating income is around $750,000. At a 6x multiple, SearchEngineLand is worth $4.5 million.

13.  Boing Boing calls itself a directory of wonderful things. The business gets about 15 million pageviews a month on almost three million unique visitors. The number and quality of advertisers is weak. The CPMs across each page bring no better than $5 to the company after network sales commission costs. Expenses appear to be very low. Revenue for the Boing Boing is around $1 million and operating income is approximately $600,000. At 6x operating income, the firm is worth $3.6 million.

14.  ReadWriteWeb carries technology analysis, tech product information and reviews. The site gets one million unique visitors a month and about six million pageviews.  ReadWriteWeb has fallen victim to taking network ads, but does carry some marketing messages targeted specifically to its readers. CPMs across each page run about $12. Revenue for the site is $900,000 a month, but the margins should be 65%. At 6x operating income of $600,000, ReadWriteWeb is worth $3.4 million.

15. SB Nation is a network of 185 sports blogs which has two million unique visitors and 20 million pageviews a month. The home site carries a very modest amount of advertising which appears to be getting mid-level CPMs. CPM per page is around $6. Total revenue per year is $1.5 million. The operation has a fair number of people for a company its size so operating margins are not above 30%. With a 6x multiple of operating income SB Nation is worth $2.7 million.

16.  Destructoid is the most popular gaming blog and community site with 1.1 million unique visitors and 7.7 million pageviews per month. The site does not carry a huge amount of advertising, but what it does carry is highly targeted and almost certainly has a high CPM. With a $9 per page CPM, annual revenue is about $830,000. Margins are high because most content is user created. Margin is probably 50%. At a 6x multiple on operating margin, the company is worth $2.5 million.

17.  Mashable is the largest site covering subjects about social networks. The site has about two million unique visitors a month and five million pageviews. Masbable has a large number of ads on each page. They are targeted and almost certainly have high CPMs.  CPM per page should be about $20. Annual revenue is $1.2 million. The operation has a fairly large staff and is unlikely to have an operating margin of more than 25%. At a multiple of 8x, Mashable is worth about $2.5 million.

18.  Alley Insider sites. This group of sites now includes Silicon Alley Insider, Clusterstock, Greensheet, and The Biz and the company is known as The Business Sheet. The advertising is a mix of very targeted ads, network ads,  Google Adsense, and ads for related companies like Gilt Groupe. Total unique visitors across the sites are about 1.1 million a month. Pageviews per month are about three million. At a $12 CPM per pages, the company does about $450,000 per year. With a relatively large staff The Business Sheet loses money. The company does not much value without editor-in-chief and lead writer Henry Blodget.  At five times revenue, the company is worth $2.25 million.

19.  /film (slashfilm) covers the worlds of movies and movie making. The site has about 1.5 million unique visitors a month and ten million pageviews. Ads are mostly low CPM and Google Adsense making the CPM per page no better than $5. Revenue runs $600,000 a year. Costs look remarkably low. Operating income should be $300,000. At a 7x multiple, Slash Film is worth $2.1 million.

20.  The Superficial Network (AntiClown Media) has three sites with The Superficial being the largest. The Superficial takes an unusually cruel look at celebrities. Combined unique visitors for the three properties of 1.3 million and 15 million pageviews per month. Sites run a lot of inexpensive ads so CPM per page is only $6. Revenue for company is a little over $1 million. Inexpensive company to run. Probably clears $400,000 in operating profit. At 5x, the company is worth $2 million

21.  Neatorama is about neat things. That gets a broad definition from giant rats to water found on Mars. The site has about 1.3 million unique visitors and four million pageviews per month. The site has a small number of ads which cannot bring in more than a $4 CPM per pages. That part of the site’s business probably does not generate more than $200,000 a year. The site also has an e-commerce section which looks well-managed. The average item sells for about $20. This operation could net the firm $250,000 a year. That would bring total revenue to just under $500,000. The site looks like it costs very little to run. Neatorama is worth $1.5 million.

22. Daily Kos is a political commentary site. Compete and Quantcast both put unique visitors a month at 600,000. Quantcast reports monthly pageviews of 21 million, which seems extremely high compared to unique visitors. The site runs a modest number of ads which would appear to have low CPMs and Google Adsense text advertising. CPM per page is unlikely to be higher than $4. Daily Kos has revenue of $1 million a year and probably a high operating margin. Operating income is probably slightly less than $500,000. The site has idiosyncratic content and its audience is dropping. Its multiple is not likely to top 4x giving Daily Kos a value of $2 million.

23.  Talking Points Memo covers political issues. Audience measurement firms put unique visitors as about 700,000 a month and falling since the election.  Pageviews are in the five million range. The site runs a fairly large amount of network advertising which pushes CPMs down. Average CPM per page should be about $5. Annual revenue is below $400,000. The company has a fair number of employees and probably does no better than breakeven. Talking Points is worth 4x revenue or $1.2 million.

24.  VentureBeat is the most prominent blog covering the venture capital market. It has about 600,000 unique visitors per month and 1.7 million pageviews.  Unfortunately, the site has been overwhelmed by inexpensive network ads. It has a very modest number of premium ads which are targeted directly to its readers. CPMs per page are $8. VentureBeat revenue is probably not more than $200,000 a year. Its costs are high, so it probably does not breakeven. But, it is a special case because it is the leader in a portion of the market that would make the site valuable to a large media company. Five times revenue give the business a value of $1 million

25.   Wowowow.com is a site for women over 40. “Women On The Web” has a large number of famous writers including Mary Wells, Liz Smith, Whoopi Goldberg, Leslie Stahl, and Candace Bergen. Quantcast says the site has over 400,000 unique visitors a month and 4.7 pageviews. The site carries a lot of public service advertising which probably brings in no money. Wowowow does run Google AdSense and some ads from branded companies. CPM per page is not more than $3. Revenue per year is about $200,000. The site looks extremely expensive to run both from a design and engineering standpoint. Staff costs are also high for a site this size. The company recently raised $1.5 million. Running the operation cost at least $1 million a year. If the authors go along with the site, it is worth $1 million.

Douglas A. McIntyre

One of the oldest newspaper chains, Journal Register, went bankrupt late last week. It had too much debt and too little operating income. The daily newspapers in Philadelphia have also filed for Chapter 11. There have been rumors, almost certainly untrue, that The New York Times (NYT) will run low on funds to pay its debt. In the case of The Times it has valuable assets to sell, but its situation deteriorates each quarter. By most estimates, its second largest property, The Boston Globe, loses $1 million a week.

The obituaries of newspapers and now, magazines have been written by everyone who can hold a pen or type on a keyboard. The internet was supposed to save print. People who would not buy The Globe would read it online. Advertisers would support the migration to the internet by moving their marketing dollars there as well. It has not worked. Internet advertising is doing as poorly as advertising in any other part of the industry. And, the people who were going to read The Globe on the internet are going to MSNBC instead.

The federal government is handing out over $1.5 trillion to support the economy through the Obama stimulus package, TARP, and the new mortgage assistance program. Among the clear winners in the frenzy to save parts of American industry are financial firms and the car companies. Aid may be extended to auto parts companies and insurance operators. The general rule of thumb is that the sectors of the economy that are considered “strategic” will get the lion’s share of funding. Car companies are strategic because they employ so many people. Banks are in this category because the credit system cannot operate efficiently without them.

Since it is almost certain that a large portion of the print news industry will be damaged by the recession and the internet why is it being bypassed as a bailout candidate? The easy answer is that news will be available on the internet. But, since readers are less likely to be loyal to brands when reading news online than they are with print, that answer does not address the problem. Online newspapers face more competition on the internet than they do as physical products.

The argument that economists would make for the appropriateness of the downfall of print is based on “creative destruction.” As one generation of products or services become obsolete it is replaced by another which better fits the current environment. The car industry and the banks in their current incarnations look like they will dodge any application of this principle in the real world.

The case has not been made, and it should be, that the strategic value of the print media comes from the centuries that it has served as a check and balance to the central government both in the United States and elsewhere. The most obvious example of this is the reporting on Watergate done by The Washington Post, but the tradition is longer and deeper than many people remember. William Randolph Hearst may have been one of the most reprehensible publishers in history, but he was instrumental in building a level of public opinion that prevented FDR’s plans for The New Deal from usurping the power that appropriately belonged to Congress and the courts. If it had not been for the press, Huey Long might have turned Louisiana into its own nation state.

Politicians have every reason to want to see print media fail. That can be said tongue in cheek, but too many governors and congressmen have lost jobs after newspaper investigations to make the relationship between Fourth Estate and politicians a comfortable one. A neutered press would benefit a number of elected officials.  That may be reason enough for them to stay away from providing newspaper and magazines with financial aid.
The other obvious reason the government may be against putting capital into media companies is that it could give the appearance of politicians “buying” better treatment by the press. Since Senators have been known to find themselves in compromising conditions, getting a favor from the newspapers now and then might be helpful. Drawing a line between the “state” of the government and the “church” of the press might be impossible.

The coroner’s report on the newspaper and magazine industries will read that they died from lack of public interest in the printed word. What should not be left unsaid is that its service to the republic was extraordinary and because of that, it deserved better.

Douglas A. McIntyre

Every time there is news about the internet portal Yahoo! (YHOO), it makes the front pages. The only story about Yahoo, however, that deserved attention was the monstrous violation of fiduciary duty that its board made when it turned down Microsoft’s (MSFT) offer to buy the company. Beyond that, Yahoo is now a relatively small company with faltering profits that is no longer even important to its own industries, either media or the internet.

The media has become fascinated with Yahoo again over the last few weeks as it finally found a new CEO to run the company in the place of founder Jerry Yang who was part of the Microsoft foul-up. Carol Bartz was the head of Autodesk (ADSK) from 1992 to 2006. She deserves whatever credit she got for improving Autodesk’s fortunes. The stock soared over the period that she ran the company.

There is very little left of Yahoo compared to what the company was even three years ago when the stock traded at $43, just after posting the highest operating income in its history. The stock now trades around $12.
Yahoo’s market value has dropped to $17 billion. Its value now is about the same as trash hauling firm Waste Management (WMI). In the last quarter, the portal company had an operating loss of $278 million. With goodwill and restructuring charges taken out, Yahoo would have made a modest profit. The sales are not likely to get better in 2009.

The numbers are not the reason that Yahoo does not matter. What matters is that it is no longer a company with even a modest voice in the media industry. The time when Microsoft CEO Steve Ballmer might have bought it or its search division is probably over. Ballmer is, as most good businessmen should be, ruthless beyond the imagination of the general public. He gave Yahoo’s board a chance to do the right thing for its shareholders. Once Yahoo turned Ballmer down, he kept leaking comments about ongoing interest to the press. Just as Yahoo was beginning take on water because of the economy, Ballmer was messing with the minds of its board and shareholders. He did not get the chance to buy Yahoo, so he poisoned its well instead by keeping the market, the company’s employees, and its board in a constant state of hyper-vigilance about a new offer which Microsoft never had any intention of making.

What Microsoft knows now is what Yahoo’s share price is showing. Being the No.2 company in the search business behind Google (GOOG) is like finishing second in the Indianapolis 500. There is some money in it, but the pretty girls and endorsements go to the winner.

Yahoo has lost its place as a meaningful player in the media and in the world of the internet because it has the same e-mail, content, TV guide, shopping, mapping, and personal ad sections as the other portals do. None of these is distinguished. These features are, as a matter of fact, nearly interchangeable with the similar features that its competitors offer.

Yahoo is not the leader in anything anymore. The fascination that the media has with the company is poorly placed. The company may reorganize itself from ten divisions to five. It may fire another 20% of its staff. Those are simply the ordinary actions of an ordinary company struggling with the recession.

Douglas A. McIntyre

The deterioration of Eastern European economies poses a major threat to the Western European financial system.  During the boom years leading up to the financial crisis Western European banks were the primary lenders fueling Eastern Europe’s growth.  Now, the stagnation of Eastern European economies, coupled with decline in the value of many of their currencies, relative to the Euro and Swiss Franc, has turned banks’ exposure to this region into a massive liability.  Austrian banks alone have more than $293 billion of exposure to Eastern Europe, roughly 80% of the Austrian GDP.  Banks throughout Western Europe have both direct loan exposure and exposure through their Eastern European subsidiaries.

In recent years Eastern Europeans have increasingly taken out loans denominated in Euros, attracted by low EU interest rates.  The IMF puts the amount of private debt denominated in foreign currencies within Eastern Europe at roughly 15% and the absolute figure has been put at close to $1.7 trillion.  These borrowers have effectively been shorting foreign currency, which has turned out to be a very bad bet.  For instance, over the past 6 months the Polish Zloty and the Ukraine Hryvnias have both declined over 30% against the Euro and the Swiss Franc.  In Poland close to 60% of debt is denominated in foreign currencies.   Those with loans denominated in these currencies have seen their debt burden rise correspondingly.  Additionally, as these economies continue to contract individuals and corporations will be increasingly strained to repay their debt.  Austria’s finance minister, Josef Proell, fears that Eastern European default rates above 10% will be sufficient to destroy his nation’s banking industry.

It is clearly in Western Europe’s best interests to avert crisis in Eastern Europe.  Even so,a rescue is unlikely to be forthcoming.  Western Europe has pressing economic problems, independent of their Eastern European exposure.  Most Western European countries have fallen into a recession.  The debt that they are taking on to finance their domestic fiscal stimulus will make it extremely difficult to produce meaningful aid for their Eastern neighbors.  Additionally, the European Central Bank (ECB) does not have a mandate to act as a lender of last resort for the EU financial industry, let alone that of Eastern Europe.  Meanwhile, the IMF is struggling: it has already provided $39 billion in emergency loans to countries in Eastern Europe.  With reserves standing at a little over $200 billion, the IMF will be hard pressed to support Eastern European economies if their deterioration continues.  Europe’s economy continues to spring leaks, and its stewards are rapidly running out of fingers to plug the holes.

Garrett McIntyre

According to Reuters, the US government may take a 40% interest in Citigroup (C).

Reuters reports that the Treasury is considering funding options for Chrysler and GM (GM).

Reuters reports that a poll of economists sees a drop in GDP in the first half and a recovery in the second half of 2009.

Reuters reports that Yahoo! (YHOO) may overhaul its management.

Reuters writes that the owner of the Philadelphia newspaper filed for Chapter 11.

Reuters reports that Bernanke is trying to reassure the government that more Fed help is coming for the economy.

Reuters reports that RBS (RBS) will restructure to rid itself of non-core assets.

The Wall Street Journal reports that the Treasury is starting to line up $40 billion to support GM and Chrysler bankruptcies.

The Wall Street Journal reports that the UAE plans to provide $10 billion in funding to Dubai.

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The Wall Street Journal reports that controlling swaps risks is proving difficult.

The Wall Street Journal reports that Honda (HMC) will get a new CEO.

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The Wall Street Journal reports that UBS (UBS) customers are shielded by Swiss law.

The Wall Street Journal reports that the market pull-back has spread well beyond financial stocks.

The Wall Street Journal reports that some well-run companies are getting bankruptcy aid.

The New York Times reports that US banks will face government stress tests this week to determine if they need money.

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The New York Times reports that EU leaders want to double the resources of the IMF.

The FT reports that Obama hopes to halve the deficit by 2013.

Bloomberg reports that dividend cuts are making are making the S&P 500 expensive by historical standards.

Douglas A. McIntyre