AlacraBlog

"Tell us, Mr. Bernake, if you had a choice, would you hold dollars?"

 I just re-read James Grant's piece in last weekend's Wall Street Journal: Is the Medicine Worse Than the Illness. Worthwhile reading (especially if you want to go back to the gold standard) but Grant's point is excellently summed up in the last two paragraphs:

The public has been slow to anger in this costliest and scariest of post World War II financial crises. Wall Street and the debt ratings agencies have come in for well-deserved castigation. But pointing fingers rarely find the Federal Reserve, whose low, low interest rates helped to set house prices levitating in the first place.

After Mr. Bernanke gets a good night's sleep, he should be called to account for once again cutting interest rates at the expense of the long-suffering (and possibly hungry) savers. He should be asked to explain how the central-banking methods of the paper-dollar era represent any improvement, either in practice or theory, over the rigor, elegance, simplicity and predictability of the gold standard. He should be directed to read aloud the text of critique by Elihu Root and explain where, if at all, the old gentleman went wrong. Finally, he should be directed to put himself into the shoes of a foreign holder of U.S. dollars. "Tell us, Mr. Bernanke," a congressman might consider asking him, "if you had the choice, would you hold dollars? And may I remind you, Mr. Chairman, that you are under oath?"

A Reference Guide to the US Rescue Efforts

Law Firm Paul Weiss has published as excellent Reference Guide to the US Rescue efforts. It describes the "principle elements of the various regulatory actions taken to date."  There's an excellent description of what's been done for AIG, which is the only current participant in the SSFIP - Systematically Significant Failing Institutions Program.  Assistance to Citigroup and the automotive companies is also outlined.  A section on the new and likely-to-be proposed regulations for the ratings agencies is included. There is coverage on European actions as well.  If you're following the mess, this is an excellent guide.

2008 Alacra Holiday Party

This year we decided to stay in and have a combination frat party / karaoke party for the holidays.  A couple of small kegs of beer, a couple of cases of wine and some catered food.  We had a great time and there are tons of pictures and videos some of which will eventually get posted. I have included just a few stills here: Karl and William; Patrick and Mary Ann; Rosa and Brendan; Bob, Colin and Justin.
   

One thing I've learned - it's hard for even our excellent amateur photographers to take flattering pictures of karaoke singers. 

XBRL

Our friends at Edgar-Online have been way ahead of the market on XBRL adoption.  They've been talking about the importance of XBRL and building products around the standard for several years.  At this point most financial market participants are familiar with XBRL, but if not according to Ernst & Young:

eXtensible Business Reporting Language (XBRL), is single digital financial reporting standard which makes it possible to store business and financial information in a computer-readable format. XBRL doesn’t change the accounting standards or methods used for business and financial reporting, but it is predicted to have a profound impact on various stakeholders.

There have been a number of interesting posts and articles recently that indictae the deployment of XBRL in a variety of domains is going to accelerate.  Mark Cuban recommends that we track the bailout using XBRL.  He goes further and says

there is no reason why every entity that has to report to the SEC, and even those that don’t  shouldn’t be required to use XBRL. From investment advisors like Madoff, to hedge funds, to mutual funds, to ETFs, brokers, dealers, market makers,to banks and each and every loan that is made, you name it, all should be required to format their financial data in XBRL.   In fact, the smart thing for the SEC to do is to demand that any new financial instrument, regulated or not, needs to have an XBRL taxonomy assigned to it for future reporting pursposes before it could be sold.  This would simplify any future reporting requirements and allow the SEC to review and analyze before its regulates, having the advantage of a body of data to guide it.  For the filing companies, It certainly would not be a hardship. It is  no worse than requiring websites to use HTML before they can publish to the web. Its that easy.

A recent article in Wall Street and Technology reports that the IBM Data Governance Council

is exploring the use of Extensible Business Reporting Language (XBRL)...for risk reporting. XBRL could be used to provide a non-proprietary way of reporting risk that could potentially be applied worldwide. It is already widely used for financial reporting throughout Europe, Australia and Japan. The widespread use of this standard ensures adequate skills and understanding among firms and regulators.  "Creating a risk taxonomy using XBRL will provide a vocabulary and a common language allowing everyone to understand what risk means, and that's the first step in making it easier to calculate and report," said Steve Adler, chairman of the IBM Data Governance Council, in a press release. "When we have semantic clarity around the way organizations describe risk, incidents, events, losses, claims, exposures, forecasts and reserves, it gets easier to aggregate loss information, analyze it with standard actuarial methods, compare past exposures to present conditions and opportunities, and forecast potential outcomes," he added.

And perhaps most importantly, the SEC voted 4-1 today to require 500 of the largest public companies to begin filing financial reports using the technology known as XBRL, or extensible business reporting language, by mid-2009. The rest of the companies will be phased in over a two-year period, the SEC said.  We expect that supply (Edgar-Online products, as one example) has been ahead of demand for XBRL products up until now, but we believe that will change rapidly in the next few months.  The XBRL future is here.

Size Doesn't Matter (when it comes to news on the web)

This post originally appeared on Research Recap

While traditional media brands dominate web news in terms of traffic, size does not matter in terms of the viability of an online news site.

That’s the finding of a new study, Size Doesn’t Matter: An Analysis of Online News and Political Sites, authored by ContentNext research director (and former Merrill Lynch all-American research team analyst) Lauren Rich Fine.

The report notes the increasing importance of blogs and niche media sites. Alternative media offerings such as HuffingtonPost, Politico and RealClearPolitics saw tremendous growth in traffic during the 2008 U.S. election campaign, as have smaller sites such as TalkingPointsMemo and Redstate.com. While the smaller independent sites do not have the dedicated ad sales teams that the larger brands can deploy, through cost management, they can attain profitability through the use of online ad networks.

The report also looks at recent M&A transactions, noting that only 7 news-related acquisitions have occurred in the past 18 months, with 14 venture investments. Of those seven deals, the largest was a traditional media deal, Cablevision’s acquisition of Newsday. On the venture investment side, two sites, Digg and the HuffingtonPost received large amounts, both 3^rd round investments. The remaining investments tended to be smaller, early round investments. According to firms interviewed for the report, this segment is less attractive for investors as returns are not large enough to demand their attention, while their capital needs are small enough so that even a good return would have modest impact on a fund.

One question is whether politically oriented sites will fare now that the elections are over. Gawker points out that weekly page views have fallen sharply from 90 million around election day. Still, the current level of 40 million is nothing to sneeze at.

The report, Size Doesn’t Matter: An Analysis of Online News and Political Sites is available for purchase.

M&A: Down But Not Out

I was in London last week meeting with customers, prospects and content partners.  The conversation invariably wandered around to the state of the financial markets.  Ever the optimist and ever the contrarian, my perspective is that the M&A market will come back in the middle of 2009, as the stronger players in many industries look to rearrange their sectors by making mostly cash acquisitions at bargain prices. 

On Friday I read there was some back-up for my position, a joint BCG-UBS survey covering the European M&A market. 

"According to this survey of more than 160 CEOs and senior managers of publicly listed companies in Europe, the financial and economic crisis may spur large and potentially transformational acquisitions in the coming year that could radically alter the corporate landscape. Conducted by UBS Investment Bank and BCG within six weeks of the collapse of Lehman Brothers, the UBS-BCG survey reveals a remarkably resilient attitude to mergers and acquisitions (M&A) given the current capital market constraints and economic outlook."

The key findings were:

• Companies surveyed have not changed their M&A plans in the wake of the crisis
• One-third of companies expect to make a deal in the next 12 months
• 43% of companies expect there will be "transformational" deals in the coming year

As we and our customers thrive in a strong M&A environment, I really hope that the survey participants follow through on their commitment to more and bigger deals.

Off to London

I haven't seen our UK team in over six months, so I'm looking forward to a week in the UK.  The days may be short and dark but the team has set up about a dozen client and prospects visits.  Last time I was there the pound was at $2.00; it should be more tolerable at $1.50 and falling.

Return Free Risk

James Grant, the editor of Grant's Interest Rate Observer, has an excellent column in today's FT titled Little logic to bond world amid current phobias.  Like many good journalists he finishes off his piece with a quote I thought I would share:

“Risk-free return” is the standard tag attached to the government’s solemn obligations. An investor I know, repulsed by prevailing government yields, has a timelier description – “return-free risk”.