Posts Tagged ‘CNBC’

Gordon Gekko Changes His Mind, Says Greed Is Bad

Tuesday, March 6th, 2012

Actor Michael Douglas is playing a new and rather surprising role as spokesman for the FBI to fight corruption on Wall Street.  The actor – famous for his line “greed is good” in the 1987 film “Wall Street” – is sending a new message in a public service announcement, explaining that insider trading is a serious crime.  “The movie was fiction, but the problem is real. To report insider trading, contact your local FBI office,” Douglas says in the spot.

“In the movie ‘Wall Street,’ I played Gordon Gekko, a greedy corporate executive who cheated to profit while innocent investors lost their savings,” according to Douglas.  “The movie was fiction, but the problem is real.  Our economy is increasingly dependent on the success and integrity of the financial markets.  If a deal looks too good to be true, it probably is,” he concludes.  The one-minute commercial opens with Douglas as he looked in 1987 and in the Gekko character famously addressing a fictional shareholders meeting in the movie, before the clip cuts to the grey and older actor who is now working for federal law enforcement.

Douglas’ new role is part of the FBI’s “Perfect Hedge” operation, which has successfully prosecuted 57 individuals in the last five years for insider trading, and is targeting 120 more suspects.  The commercial is part of the ongoing effort, and will feature segments of actual FBI wiretaps from successful prosecutions.

So far, the new video — which is being shown on CNBC and Bloomberg Television — is part of the government’s broader initiative aimed at drawing cooperating witnesses and tipsters from Wall Street.  Previously, insider trading was not one of the FBI’s areas of focus, so potential informants might not have known where to turn, according to the accepted wisdom.  Now that the crime is a top priority for securities investigators, the video is part reminder, part plea for those who have seen something illegal to come forward and provide information.  Additionally, the video is an effort to raise the FBI’s public profile.  As David A. Chaves, a supervisor and special agent, said, “It’s important for us to have the FBI brand out on Wall Street.  He’s talking about himself as Gordon Gekko and the role that he played and how that was fiction and this is not but about real crime on Wall Street.”

Several government agencies are investigating illegal behavior on Wall Street, from the FBI to the Securities and Exchange Commission and other regulators.  To build their cases, investigators use uncompromising tactics once reserved for organized crime and terrorism cases, such as wiretaps and well-placed cooperators.  The FBI’s attitude is who could be a better spokesman against insider trading than the man who played Gordon Gekko, who came to personify Wall Street crime in both the 1980s and in the recent financial crisis with the 2010 sequel, “Wall Street: Money Never Sleeps.”  “The more people out there aware of the problem, the more opportunities we have to get tips,” said Richard T. Jacobs, a FBI supervisory special agent, who helped bring a major insider trading case which resulted in the conviction of a billionaire hedge fund manager.

The campaign also is targeting embezzlements by stockbrokers and Ponzi schemes — which have surged since the financial collapse of 2008.  Since then, securities and commodities fraud investigations have risen 52 percent, from 1,210 inquiries to 1,846 last year, the FBI said.

According to FBI spokesman Bill Carter, the spot will be distributed to 15 cities — Atlanta, Boston, Charlotte, Chicago, Dallas, Denver, Los Angeles, Miami, New York, Newark, Philadelphia, San Francisco, Seattle, Washington and New Haven, CT – all of which have seen an increase of fraud cases or evidence of potential trouble.

Surprisingly, Douglas was “startled over the positive response he received as Gordon Gekko,” Chaves said.  “I don’t know what’s wrong with Wall Street but I would be approached all the time, people would ‘high-five’ me or shake my hand for being this terrible man who stole people’s money.  Where are the values?  What are people thinking when I’m held like a hero in that role?  The culture has to change.”

Attorney General Eric Holder affirmed that the Justice Department is committed to rooting out corporate crime.  “From securities, bank and investment, to mortgage, consumer and health-care fraud, we’ve found that these schemes are as diverse as the imaginations of those who perpetrate them, and as sophisticated as modern technology will permit,” Holder said.

Warren Buffet Bullish on U.S. Credit Rating

Monday, August 22nd, 2011

Standard & Poor’s may have downgraded the United States credit rating from AAA to AA+ and the bears may have taken over Wall Street, but the Berkshire Hathaway chairman and billionaire Warren Buffett believes that the nation deserves a AAAA rating.

In a recent appearance on CNBC, Buffett said that he still believes that the United States’ debt is AAA and that he’s not changing his mind about Treasuries based on Standard & Poor’s downgrade.  “If anything, it may change my opinion on S&P,” according to the Oracle of Omaha.  “I wouldn’t dream of putting it anywhere else,” Buffett said, noting that at Berkshire, the only reason he’s sold Treasuries in the past is to purchase stocks or make acquisitions.  Berkshire is still buying T-bills, even though yields have declined.  “If I have to buy (Treasuries) at a zero percent yield, I will,” he said.  “I don’t like it, but we’ll do it.”

Buffett has something of a vested interest in criticizing Standard & Poor’s.  Berkshire Hathaway is one of the biggest shareholders in Standard & Poor’s main competitor Moody’s with about 28 million shares. But the billionaire has long urged people to make their own decisions about an investment’s prospects without relying on credit rating agencies.  Buffett said the action doesn’t change his view on the soundness of U.S. Treasury bills.  At least $40 billion of Berkshire Hathaway’s approximately $48 billion cash and equivalents is in U.S. Treasury bills, and Buffett won’t consider investing it elsewhere.

According to Buffett, America’s leaders may have a difficult time agreeing on the country’s financial future and the value of the dollar may slide, but that won’t keep the world’s richest nation from paying its debts.  The United States has a GDP of about $48,000 per person, and the Federal Reserve can always print more money.  “Our currency is not AAA, and in recent months the performance of our government has not been AAA, but our debt is AAA,” Buffett said.

Writing on the InvestorPlace.com website, Jeff Reeves says that “Before you scoff that Buffett is just a bygone relic of an era during which stocks like General Electric truly did have bulletproof dividends and it would have been unfathomable for stocks like General Motors to go bankrupt, consider this: In September 2008, the depths of the financial crisis when nobody knew which bank would fail next, Buffett and Berkshire dumped $5 billion into preferred stock of Goldman Sachs.  Thanks to the 10 percent interest on those shares, Berkshire Hathaway earned a cool $500 million per year in dividends before Goldman bought back the stock several months ago.  What’s more, the investment bank paid a hefty 10 percent premium to buy back those preferred shares.  Maybe it was crazy to jump into banks headfirst when the market was going haywire in 2008.  But it was awfully profitable for Buffett.  You might think it’s crazy to stick to your buy-and-hold strategy now, or to continue to rely on U.S. Treasury Bonds.  But take a deep breath and remember that not everyone is screaming and running for the hills.  Yes, persistent problems with unemployment, the political bickering in Congress and the flatlining of our American economy are serious issues.  But they are hardly new.”

Not everyone agrees with Buffett.  According to the Equity Master website, “We must say that we do not agree with Mr. Buffett.  We are not arguing with the credibility of S&P, whose reputation admittedly became tainted when it gave the highest rating to many mortgaged backed securities in the months leading up to the demise of Lehman.  But that does not mean that the U.S. is without some serious problems.  Indeed, the U.S.’ mounting debt is a huge cause for concern and the government’s latest move to raise the debt ceiling is only likely to postpone an eventual default and not entirely extinguish it.  Moreover, the claim that the U.S. can pay its debt because it can print more money is a dangerous one to make.  Printing money never really solved America’s problems.  The two big quantitative easing programs and their failure to revive the sagging U.S. economy is testimonial to the fact.  One thing that it will certainly do is bring down the value of the dollar and cause inflation to accelerate posing a fresh set of problems for the U.S.  So, while criticisms can be piled on S&P, downgrading of the U.S.’ credit rating is something that the world’s largest economy had a long time coming.”

Firstpost agrees that Buffett is wrong.  “Among other things, he said that the U.S. deserved a AAA credit rating when the S&P decided to bring it down to AA+. He also believes the U.S. will avert a double-dip recession.  Well, Mr. Buffett, you are already half-wrong. A slow-growing nation with a 100 percent debt-to-GDP ratio cannot be AAA by any stretch of economic logic.  It makes India’s 70-72 percent debt-GDP ratio look like the epitome of prudence.  As for the other half of your prediction – that the U.S. will avoid a double-dip recession – the jury is out on that one, but the recession wasn’t the reason for the S&P downgrade anyway.  There are two reasons, or maybe three, why the U.S. is in a mess.  One is that it is overleveraged – in deep debt – both at the level of government and the common people.  Two, the law that the U.S. can indefinitely live beyond its means has a flaw.  It was built on the assumption that dollar debts can be paid off by printing more of the green stuff forever.”

Potential Facebook IPO Could Value Company at $100 Billion

Monday, June 27th, 2011

Facebook is likely to file for an initial public offering (IPO) as early as October or November that could value the popular social networking site at more than a whopping $100 billion.   Goldman Sachs is the top candidate to manage the lucrative offering, which could come in the 1st quarter of 2012.  Facebook, whose chief operating officer last month called an IPO “inevitable,” made no comment on the report.

The company’s IPO likely would probably be prompted by a section of the 1934 Securities and Exchange Act known as “the 500 rule” At heart, the rule mandates that once a private company has more than 500 investors, it must release quarterly financial information to the Securities and Exchange Commission, just as public companies do.  Facebook, which is likely to cross the 500-investor threshold this year, would probably launch a formal IPO in advance of a public-company reporting obligation that would be required next April.  Another factor motivating the IPO, according to people familiar with the plans, is Facebook’s wish to increase employee compensation.  Early in 2010, Facebook curbed employees’ ability to sell their company shares privately to other investors — a move that may now be prompting employees to quit Facebook so they can monetize their shares.  If the company goes public, however, employees will be able to sell their stock on the open market, allowing them to cash in on their holdings.

“Unable to sell their private shares, Facebook employees are growing restless,” according to Kate Kelly at CNBC.   “An initial public offering is expected.  A factor in the company’s IPO timing is the Securities and Exchange Commission’s requirement that some companies like Facebook must disclose financial information if they have more than 500 private investors.”  The IPO speculation and record high valuation is comes on the heels of recent numbers showing declining user-ship in some of Facebook’s leading markets.

Writing in the Wall Street Journal, Shira Ovide says that “Facebook is on track to exceed $2 billion in earnings before interest, taxes, depreciation and amortization for 2011.  That’s even higher than the expected 2011 profit circulated in the early part of the year when Goldman Sachs and Russian investment house Digital Sky Technologies invested in Facebook at a $50 billion valuation.  If Facebook ends the year with $2 billion in Ebitda, would IPO investors stomach a 50 times trailing multiple valuation?  Seems bubble-like.  Trust us.  Wall Street bankers, lawyers, P.R. mavens, caterers and everyone else are slobbering for a slice of the Facebook IPO magic.  Facebook has been meeting with potential bankers that want to shepherd the IPO.  Goldman Sachs is thought to have an inside track to lead the IPO thanks to its recent investment in Facebook, but don’t count out big banks such as J.P. Morgan and Morgan Stanley, which have led recent big tech IPOs.  Facebook CEO Mark Zuckerberg has been non-committal about an IPO for a long time.  As recently as December, Zuckerberg gave his weird deer-in-headlights stare when ’60 Minutes’ asked him whether he would ever push his baby into the public markets.  ‘Maybe’ was Zuckerberg’s answer.  But momentum is taking over.”

Not so fast, says Fortune magazine’s Dan Primack. According to Primack, “Pay attention to news that Facebook is planning its IPO.  But take its proposed valuation with a grain of salt.  First, the most recent private trades of Facebook stock came in at around $85 billion, and private trades are meant to be done at a discount to public valuations.  LinkedIn shares, for example, traded at $23 per share on the private markets six months before going public at $45 per share.  At that velocity, Facebook actually would be valued at $165 billion next January.  More importantly, it’s impossible to intelligently speculate on an Internet company valuation 6-10 months out.  Will the bubble still be inflating?  Will it have popped?  Will macro trends have continued their anemic recovery, or double-dipped back down?  Facebook is probably immune to the timing issues related to IPO windows, but it does not stand apart from the economy at large.  If we experience a massive advertising pullback, for example, then Facebook could take a hit in its largest revenue pot (or at least a growth slowdown).  Not saying that will happen, but obviously it could.  To me, the only value in today’s ‘$100 billion’ report is in referring back to it when the company has an actual public valuation.”

There’s Method in Warren Buffett’s Madness

Wednesday, May 20th, 2009

Warren Buffett’s loyal followers are wondering what got into the Oracle of Omaha6a00d834a6138369e200e54f0aa7a68833-500wi when he told CNBC  that this is “a great time to be in banking“, praised Wells Fargo’s massive earning power, and said that the government doesn’t need to provide capital to or nationalize banks.

Although some critics dismissed Buffett’s statements as biased because he owns large stakes in Wells Fargo and U.S. Bancorp, he may be dead right.

Buffett was talking about lending, and it’s the “spread” that counts – the difference between the interest rates banks charge for the loans they make and the rate they pay to borrow that money.  When the Federal Reserve makes deep interest rate cuts, spreads widen and loans become more profitable.  The Fed funds rate is so low right now that Wells Fargo is borrowing cheaply and profiting handsomely on the loans it makes.

Although banks do need to recapitalize, they currently are saving money by cutting dividends paid to investors.  Every dollar they make goes into recapitalization.  With stricter government oversight, banks are required to operate more efficiently.  The irony is that these conditions are almost identical to what helped the nation recover from its last banking crisis during the 1990 – 1991 recession.  In fact, the banks 19 years ago were in worse shape than they are today; yet they were not nationalized or put into receivership.  Once the Fed cut interest rates, banks’ lending policies became more conservative, and they eventually recovered.  The same scenario could play out this time around.