Ummm you might want to take a reading compression course – or maybe some high school math. You have been misled or tricked. The article never mentions revenues or profits.
Bestsellers increase in price while other books now sell for less. If Amazon sold the same number of “Bestsellers” as all other books then yes, revenue would decline. However, if “Bestsellers” are their best sellers – which is a reasonable assumption – you can no longer say that. Now, pulling Amazon’s annual statement we can see the revenue increased. Can’t say if because of higher prices, higher volume, or what not – but it is suggestive.
Why not? They
Wanted to keep the market open
They wanted to shift power away from distributions (dominated by Amazon)
They wanted to gain control of retail price of their books. (End discounting of their books, have 1 day specials to promote their books, etc)
You are right – but you are also missing the point.
There are 3 major players: the publishers, the distributors (Apple or Amazon), and the customers.
Amazon’s Kindle used a distributor’s model. Amazon would buy the book at a fixed price from the publisher but would set the retail price. They could, and did, sell books at a loss, to promote the Kindle.
Apple uses an agency model. The publishers set price and then negotiates the percentage the retailer (Apple) keeps. It is alleged that Apple and the publishers colluded to break Amazon’s near monopoly.
The agency model shifts power away from the distributors to the publishers. As you say this model has been around for a long time – so why care?
What makes it a Federal case is that (allegedly) this raised prices for consumers. Why? Because now all bookstores sell the same book for the same price, so bookstores are no longer competing on price. It shifts power away from customers to the publishers, resulting in higher prices.
A addendum to my post. Do you want the profit motive to a primary drive on your market?
Would somebody try to throw the market by manipulating the market? Maybe – but I don’t think it would have much impact. Corning / manipulating the market is hard in the long run. When the Hunt Brothers tried to corner the silver market in the 70s people kept on melting down their silverware.
You would want people to make big bets as insurance. If a company is worried that they will lose money on a Obama win they will put a big bet on Obama winning as a hedge. The loss from higher taxes would be offset by the winning bet. This will bring in engaged, active people which will make for a more lively, deeper market.
You want the market to be manipulated. When Oil futures go up people start drilling new wells, buying more efficient cars, investing is wind farms, etc. There are, of course, expectations. You don’t want a bettor to offer cash to a boxer to take a dive. You don’t want to offer a bet that a horse will come in last. Those will distort. However, if you are going to but in restrictions make sure you have the power to enforce those restrictions.
Not Arbitrage – maybe you are thinking about speculation?
Arbitrage, by definition, is a riskless trade that generates a profit. Buy IBM in New York for $50 while simultaneously selling it on London at $51. It’s free money by exploring a inefficiency in the system – which makes the system more efficient in the whole.
You have an incentive problem. You are trying to harness the profit motivation to create efferent, accurate, predictions. Then you gimp the motivation by placing artificial limits. You are gimping your own system.
Rational agents will try to work around these limits, because any inefficiency that can be overcome is more profit. This can be legitimate – see my post of technical issue – or illegitimate. What’s to stop me from opening multiple accounts? What’s to stop me from hiring 200 offshore persons to run my accounts?
You have 2 choices. You could get into a arms race. Without regulatory powers this is going to be hard.
Or, you could align the incentives up correctly. Large, liquid markets are harder to manipulate than small shallow markets.
One of your solutions is that you would flag bets where there has been a large movement in another market.
First, you would have to figure out all of the explicit angles. For a example, read about “Crack Spreads”. Here, you need to manage 3 or more different predictions that must keep a (mostly) constant ratio. Crude Oil (input) can be made into different combinations of gasoline, diesel, heating oil, etc. If these ratios deviate then there is money. You must identify all of them. http://en.wikipedia.org/wiki/Crack_spread
Second, you need to figure out the statistically significant angles. You have a bet on the 2012 elections. What if another site offers a bet on who will win Ohio, a critical swing state? Making this bet is almost the same as making your bet. How about the number of house seats that the democrats win? A big turnout for Obama should increase this number. The fit is less tight then Ohio, but still. What is your cut off?
If you want to blame greed, then you also need to blame Actuaries and Economist.
Pension’s and Insurance Annuities basically do the same thing – make a monthly payment until you die. The Insurance companies are heavily regulated requiring conservative estimates and high standards - because the state does not want to bail them out.
Business and Labor Unions have lobbied for low standards. The contribution to the pension fund should be 25% (if the company wants to assume the risk of the stock market) to 40% (in they invest in safe, highly rated bonds). Nobody wants to pull that much money out of today’s paycheck so they you optimistic projections and sloppy accounting.
Sure. Pick out any US or British annuity company. (a.k.a. the life insurance policy that pays out a monthly check until you die, which is effectively a pension.) (the 2 countries that I do know) . For example, AIG went down in a hail of fire during the finical crisis the fully funded annuity part kept on ticking. While not exactly spot on, state regulators have required this level of discipline from insurance company for decades.
Is it easier to use the more flexible (and I would argue, sloppy) accounting standards most firms use? Yes. Is it easier for a overweight man to eat a jelly donut and promise to eat better tomorrow? Yes. Are these ideas good ideas? Probably not.
Also, to be spot on, The Bank of England. IIRC they spend about 30% to 40% of their payroll buying inflation linked gilts, which is about as conservative as one can be.
There is a difference between revenues and profits.
When I was in retail, a $40 ink cartridge had a profit of $10 and a $2,000 computer had a profit of $20. High revenue does not necessary equate to high profit.
2. Microsoft will have more control over products much like Apple without alienating too much other partners like HP.
I am scratching my head over the control part.
Their lending 2b out of 17b in loans. So, not a large amount (relatively speaking). And loans give Microsoft little control over Dell – generally speaking they give the bank no direct control over the company as long as they pay their loan on time.
I mean Nokia was much more directed – this is passive.
Right now I am of the opinion that this is more of a “soft” type of control – generating good feelings and the such.
in this case Dell will be heavily in debt which negates any benefits of going private.p>
The leverage ratio of 4 to 1 (25% equity, 75% debt) is modest. Dell’s earnings are large and stable (though declining) are more than adequate to support the debt. Plus Dell has 11 billion in their savings account, which could be used to pay down the debt.
Is Dell cranking up the risk? Yes. Into nose-bleed levels? Not even remotely.
There is one important difference. Freescale was a small fish in a big pond. There were not the biggest nor most efficient in the market. They were fighting a rear guard action. Dell is a big fish in a big pond. Mind you – with other big competitors in a hyper completive environment.
There are plenty of banks / hedge funds that could do the loan – even if the debt was classified as speculative / junk.
If it were access to cash that would mean Microsoft would be taking on the junior risker part of the debt- which is not the role of a company like Microsoft.
It could be that they are currying favor with Dell by offering cheap loans (i.e. with nothing legally binding) – but I suspect there is a hook in there that we are missing.
First, your premise is wrong. Companies are judged on the future cash they will return to their shareholders – which does factor in growth. Generally speaking most financial analyst look out 10 years. When then do quarterly reports matter so much? Think of running a company as running a marathon. At the beginning of the race you predict the company will run a 6 minute mile. The quarterly results say something different. Is this a temporary result (head winds?), something natural (running uphill?) or does it reflect some fundamental change?
Now, the value of a company that will grow 8% a year for the next 10 years is very different then 12% growth. And some will mock people trying to model something 10 years out – just know that financial analyst know the shortcomings of their model.
Which takes us to Dell. Right now Dell is a fairly boring company – and I would argue that a lot of value investors have invested in the company for that reason. Michael wants to take the company in a different direction. Instead of laying out a 10 year game plan to the investors - which is going to change every 6 months – he is going to take the company private.
As to your post specifically, you have an internal contradiction that I am going to point out. You say that companies are loathed to invest in long term risky ventures to create growth. The answer is to force companies to pay dividends based on sized. So, a company that is cash poor comes up with a brilliant idea that will pay out in the future. The value of the company goes up in value – along with their shares. The company must now pay out dividends with cash they don’t have. Something like this would actually discourage the growth you are looking for.
Cash always returns about zero percent. Inflation today is low – but interest rates on cash are somewhere around.1%. But even during normal times, interest on cash accounts are about the same as inflation. Basically, cash sits on the book with no economic impact.
The common wisdom is that it’s best to give excess cash back to the shareholders. If the shareholder (owner) wants they can reinvest it in dell – or they can decide what to do with it.
In a 24b deal we are talking about a 2b loan. So, first, it’s small. Second, it’s loan, not equity. So no control.
(Which I find odd – Why is Microsoft acting like a bank? Maybe if it’s a convertible bond (a bond that can be converted to a pre-set amount of stock) - that would make more sense.)
It won't close for another year, so you could treat that 27 cents as intrest. Also, there is a chance the deal could fall though - and which point the price may well drop.
You may be right on the cost of Sarbanes Oxley compliance but I think your wrong about the cash.
IIRC, over half of the cash is being held overseas from un-repatriated foreign profits. As long as Dells’ overseas subsidiaries hold onto the cash they don’t have to pay corporate tax on it. The second it comes back they do.
"Subordinated bondholders" = 2nd mortgage. The order is (in broad terms - it will differ depending on your jurisdiction.)
Government taxes, payroll, bank loans, etc. – Mortgage Bondholders (i.e. bonds that have some type of collateral associated with it) Senior debentures (unsecured loans) Junior debentures (which is what I am assuming “subordinate means”) Preferred stock Common stock
Let’s say I want to pay my supplier 10m. Funds get yanked out of my 40 different bank accounts (10m/250k) and then is transmitted to another 40 different bank accounts on the supplier side.
I know it would be seamless from my side. I mean on any given day I wouldn’t know which bank was holding my money. There would be all of this churn as money flew left and right just to be parked overnight to avoid the 250k rule.
Romney pays a mystery very low tax rate that we are not privy to know exactly.
There actually no mystery there. Romney’s income comes mainly from
Long Term Capital Gains – which encourages long term investments.
Qualified Dividend Income - The worst Bush age tax idea ever.
Treasury and Municipal bond income – which have special low (as in 0%) tax rates. Which is then reduced but a huge amount of charitable giving.
Slashdot Mirror
Reading comprehension for the win!
Ummm you might want to take a reading compression course – or maybe some high school math. You have been misled or tricked. The article never mentions revenues or profits.
Bestsellers increase in price while other books now sell for less. If Amazon sold the same number of “Bestsellers” as all other books then yes, revenue would decline. However, if “Bestsellers” are their best sellers – which is a reasonable assumption – you can no longer say that. Now, pulling Amazon’s annual statement we can see the revenue increased. Can’t say if because of higher prices, higher volume, or what not – but it is suggestive.
Why not? They
Wanted to keep the market open
They wanted to shift power away from distributions (dominated by Amazon)
They wanted to gain control of retail price of their books. (End discounting of their books, have 1 day specials to promote their books, etc)
Multiple motivations can drive the same actions.
You are right – but you are also missing the point.
There are 3 major players: the publishers, the distributors (Apple or Amazon), and the customers.
Amazon’s Kindle used a distributor’s model. Amazon would buy the book at a fixed price from the publisher but would set the retail price. They could, and did, sell books at a loss, to promote the Kindle.
Apple uses an agency model. The publishers set price and then negotiates the percentage the retailer (Apple) keeps. It is alleged that Apple and the publishers colluded to break Amazon’s near monopoly.
The agency model shifts power away from the distributors to the publishers. As you say this model has been around for a long time – so why care?
What makes it a Federal case is that (allegedly) this raised prices for consumers. Why? Because now all bookstores sell the same book for the same price, so bookstores are no longer competing on price. It shifts power away from customers to the publishers, resulting in higher prices.
Old, rich and white. There are 3. What? You want more?
A addendum to my post. Do you want the profit motive to a primary drive on your market?
Would somebody try to throw the market by manipulating the market? Maybe – but I don’t think it would have much impact. Corning / manipulating the market is hard in the long run. When the Hunt Brothers tried to corner the silver market in the 70s people kept on melting down their silverware.
You would want people to make big bets as insurance. If a company is worried that they will lose money on a Obama win they will put a big bet on Obama winning as a hedge. The loss from higher taxes would be offset by the winning bet. This will bring in engaged, active people which will make for a more lively, deeper market.
You want the market to be manipulated. When Oil futures go up people start drilling new wells, buying more efficient cars, investing is wind farms, etc. There are, of course, expectations. You don’t want a bettor to offer cash to a boxer to take a dive. You don’t want to offer a bet that a horse will come in last. Those will distort. However, if you are going to but in restrictions make sure you have the power to enforce those restrictions.
Not Arbitrage – maybe you are thinking about speculation?
Arbitrage, by definition, is a riskless trade that generates a profit. Buy IBM in New York for $50 while simultaneously selling it on London at $51. It’s free money by exploring a inefficiency in the system – which makes the system more efficient in the whole.
As a side note, everybody likes to say they practice arbitrage or a contrarian – but few actually are.
http://en.wikipedia.org/wiki/Arbitrage
You have an incentive problem. You are trying to harness the profit motivation to create efferent, accurate, predictions. Then you gimp the motivation by placing artificial limits. You are gimping your own system.
Rational agents will try to work around these limits, because any inefficiency that can be overcome is more profit. This can be legitimate – see my post of technical issue – or illegitimate. What’s to stop me from opening multiple accounts? What’s to stop me from hiring 200 offshore persons to run my accounts?
You have 2 choices. You could get into a arms race. Without regulatory powers this is going to be hard.
Or, you could align the incentives up correctly. Large, liquid markets are harder to manipulate than small shallow markets.
One of your solutions is that you would flag bets where there has been a large movement in another market.
First, you would have to figure out all of the explicit angles. For a example, read about “Crack Spreads”. Here, you need to manage 3 or more different predictions that must keep a (mostly) constant ratio. Crude Oil (input) can be made into different combinations of gasoline, diesel, heating oil, etc. If these ratios deviate then there is money. You must identify all of them.
http://en.wikipedia.org/wiki/Crack_spread
Second, you need to figure out the statistically significant angles. You have a bet on the 2012 elections. What if another site offers a bet on who will win Ohio, a critical swing state? Making this bet is almost the same as making your bet. How about the number of house seats that the democrats win? A big turnout for Obama should increase this number. The fit is less tight then Ohio, but still. What is your cut off?
If you want to blame greed, then you also need to blame Actuaries and Economist.
Pension’s and Insurance Annuities basically do the same thing – make a monthly payment until you die.
The Insurance companies are heavily regulated requiring conservative estimates and high standards - because the state does not want to bail them out.
Business and Labor Unions have lobbied for low standards. The contribution to the pension fund should be 25% (if the company wants to assume the risk of the stock market) to 40% (in they invest in safe, highly rated bonds). Nobody wants to pull that much money out of today’s paycheck so they you optimistic projections and sloppy accounting.
Sure. Pick out any US or British annuity company. (a.k.a. the life insurance policy that pays out a monthly check until you die, which is effectively a pension.) (the 2 countries that I do know) . For example, AIG went down in a hail of fire during the finical crisis the fully funded annuity part kept on ticking. While not exactly spot on, state regulators have required this level of discipline from insurance company for decades.
Is it easier to use the more flexible (and I would argue, sloppy) accounting standards most firms use? Yes. Is it easier for a overweight man to eat a jelly donut and promise to eat better tomorrow? Yes. Are these ideas good ideas? Probably not.
Also, to be spot on, The Bank of England. IIRC they spend about 30% to 40% of their payroll buying inflation linked gilts, which is about as conservative as one can be.
There is a difference between revenues and profits.
When I was in retail, a $40 ink cartridge had a profit of $10 and a $2,000 computer had a profit of $20. High revenue does not necessary equate to high profit.
2. Microsoft will have more control over products much like Apple without alienating too much other partners like HP.
I am scratching my head over the control part.
Their lending 2b out of 17b in loans. So, not a large amount (relatively speaking). And loans give Microsoft little control over Dell – generally speaking they give the bank no direct control over the company as long as they pay their loan on time.
I mean Nokia was much more directed – this is passive.
Right now I am of the opinion that this is more of a “soft” type of control – generating good feelings and the such.
in this case Dell will be heavily in debt which negates any benefits of going private.p>
The leverage ratio of 4 to 1 (25% equity, 75% debt) is modest. Dell’s earnings are large and stable (though declining) are more than adequate to support the debt. Plus Dell has 11 billion in their savings account, which could be used to pay down the debt.
Is Dell cranking up the risk? Yes. Into nose-bleed levels? Not even remotely.
There is one important difference. Freescale was a small fish in a big pond. There were not the biggest nor most efficient in the market. They were fighting a rear guard action. Dell is a big fish in a big pond. Mind you – with other big competitors in a hyper completive environment.
Physical Media (Books, DVDs, CDs) account for slightly less then 1/3 of their sales. (31%)
Yeah man Borders is gonna crush them next quarter
You can have a viable company and be in bubble range – no inherent contradiction.
Take a look at the house across the street – before the bubble it was worth 200k – now it’s worth less – but it still has value.
AMZN is currently at $260 – maybe as a ongoing company it’s only worth $130 with the other $130 based on hopes and dreams of continued growth.
I don’t think it’s strictly access to cash.
There are plenty of banks / hedge funds that could do the loan – even if the debt was classified as speculative / junk.
If it were access to cash that would mean Microsoft would be taking on the junior risker part of the debt- which is not the role of a company like Microsoft.
It could be that they are currying favor with Dell by offering cheap loans (i.e. with nothing legally binding) – but I suspect there is a hook in there that we are missing.
First, your premise is wrong. Companies are judged on the future cash they will return to their shareholders – which does factor in growth. Generally speaking most financial analyst look out 10 years. When then do quarterly reports matter so much? Think of running a company as running a marathon. At the beginning of the race you predict the company will run a 6 minute mile. The quarterly results say something different. Is this a temporary result (head winds?), something natural (running uphill?) or does it reflect some fundamental change?
Now, the value of a company that will grow 8% a year for the next 10 years is very different then 12% growth. And some will mock people trying to model something 10 years out – just know that financial analyst know the shortcomings of their model.
Which takes us to Dell. Right now Dell is a fairly boring company – and I would argue that a lot of value investors have invested in the company for that reason. Michael wants to take the company in a different direction. Instead of laying out a 10 year game plan to the investors - which is going to change every 6 months – he is going to take the company private.
As to your post specifically, you have an internal contradiction that I am going to point out. You say that companies are loathed to invest in long term risky ventures to create growth. The answer is to force companies to pay dividends based on sized. So, a company that is cash poor comes up with a brilliant idea that will pay out in the future. The value of the company goes up in value – along with their shares. The company must now pay out dividends with cash they don’t have. Something like this would actually discourage the growth you are looking for.
Cash always returns about zero percent. Inflation today is low – but interest rates on cash are somewhere around .1%. But even during normal times, interest on cash accounts are about the same as inflation. Basically, cash sits on the book with no economic impact.
The common wisdom is that it’s best to give excess cash back to the shareholders. If the shareholder (owner) wants they can reinvest it in dell – or they can decide what to do with it.
In a 24b deal we are talking about a 2b loan. So, first, it’s small. Second, it’s loan, not equity. So no control.
(Which I find odd – Why is Microsoft acting like a bank? Maybe if it’s a convertible bond (a bond that can be converted to a pre-set amount of stock) - that would make more sense.)
Yes.
It won't close for another year, so you could treat that 27 cents as intrest. Also, there is a chance the deal could fall though - and which point the price may well drop.
You may be right on the cost of Sarbanes Oxley compliance but I think your wrong about the cash.
IIRC, over half of the cash is being held overseas from un-repatriated foreign profits. As long as Dells’ overseas subsidiaries hold onto the cash they don’t have to pay corporate tax on it. The second it comes back they do.
"Subordinated bondholders" = 2nd mortgage. The order is (in broad terms - it will differ depending on your jurisdiction.)
Government taxes, payroll, bank loans, etc. –
Mortgage Bondholders (i.e. bonds that have some type of collateral associated with it)
Senior debentures (unsecured loans)
Junior debentures (which is what I am assuming “subordinate means”)
Preferred stock
Common stock
Consider the logistics here:
Let’s say I want to pay my supplier 10m. Funds get yanked out of my 40 different bank accounts (10m/250k) and then is transmitted to another 40 different bank accounts on the supplier side.
I know it would be seamless from my side. I mean on any given day I wouldn’t know which bank was holding my money. There would be all of this churn as money flew left and right just to be parked overnight to avoid the 250k rule.
It just seems needless chaotic.
Romney pays a mystery very low tax rate that we are not privy to know exactly.
There actually no mystery there. Romney’s income comes mainly from
Long Term Capital Gains – which encourages long term investments.
Qualified Dividend Income - The worst Bush age tax idea ever.
Treasury and Municipal bond income – which have special low (as in 0%) tax rates.
Which is then reduced but a huge amount of charitable giving.