Bloomberg News

Save Yourself a Trip to Omaha With This: Opening Line (Correct)

May 02, 2014

(Corrects year of “Mona Lisa” penultimate item of yesterday’s column.)

“It’s like Coachella for investors.”

That’s how Berkshire Hathaway (B:US)’s annual meeting is described by one person in today’s Bloomberg Businessweek preview of the event. Tens of thousands of Berkshire investors, money managers, journalists and “Buffett-heads” (like Deadheads, but without the nitrous oxide) will make the yearly hajj to Omaha to be in the presence of its oracle and bask in the warm glow of money.

This year, like last year and probably like next year -- unless something happens -- there will be a vibration that many of the Buffett-heads will try to channel. You know it. We all know it. It’s The Question: Who will ascend? Whom will Warren Buffett anoint as his successor?

Well, we can tell you. It’s Greg Abel. Pretty much sure of it. Businessweek isn’t going to write 2,450 words on a waste of time. They just saved you a trip to Nebraska. It’s supposed to be nice this weekend. You could take the kids somewhere.

***

One of the top themes in Valeant (VRX)’s (really) hostile bid for Allergan (AGN:US) has been the cost savings it expects to achieve. Nothing new about this kind of thing -- buyers say it all the time. Which may be why analysts at a private meeting last Friday were pressing Valeant Chief Executive Mike Pearson about details of where the savings will come.

The National Post, one of two national newspapers in Canada, where Valeant is based, tells the story through the voice of David Maris, senior research analyst at BMO Capital Markets in New York. Maris knows Valeant well, from back when it was Biovail Corp. and he was at Bank of America. He was suspicious of Biovail’s explanation in 2003 for missing profit estimates and issued a sell recommendation on the company, which subsequently paid a $10 million fine in 2008 to settle SEC accusations of accounting fraud and misleading investors.

Finally Pearson, according to the story, offered the following response: “Have you been to their headquarters? Have you seen their golf course? Yeah, they have a golf course.”

Except they don’t. From the story:

“‘Some investors will say what does this matter -- golf course or not, nice headquarters or not?,’ Mr. Maris said. ‘To this analyst, not only does Valeant have the facts wrong, the argument is suspicious. In our view it goes to a bigger issue: Valeant has not offered any real specifics of how it would get to its level of unprecedented cost cuts. If the cost cut estimates are being made with the same precision of assertion of nonexistent golf courses, then investors should be worried.’”

A Valeant spokeswoman responded to the report by saying the exchange had been taken out of context and that “in this context he responded that we were told they had a golf course and he asked if others had seen it.”

Maybe because he hadn’t?

***

We’ve got U.S. eco numbers for you. Challenger job cuts at 7:30 a.m. New York time, initial jobless claims at 8:30 a.m., Bloomberg consumer comfort at 9:45 a.m., ISM at 10, and auto sales throughout the day. The earnings crush will be heavy: Clorox, ConocoPhillips, MasterCard (MA:US), Fortress Investment, T-Mobile (in the news today), Viacom, Cigna, ExxonMobil, Kellogg, Kraft Foods, LinkedIn -- so many companies.

It’s May 1, a labor holiday in a lot of countries, so some markets are/were closed. London’s FTSE is trading, the CAC and DAX are not. Hang Seng was closed also.

***

Speaking of MasterCard, we were wrapping up a big dinner for eight last Christmas in the French Alps (Ugh, that sounds so pretentious. Sorry.) when Opening Line decided it would be festive to pick up the tab. When the server returned to the table, however, we were told they don’t accept American Express. Which wasn’t a surprise, and those of you with Amex cards know what we mean. No problem, though. Here’s the Visa. (V:US)

Sorry, she said (in French), our machines can’t read this card.

It was easy to chalk this up to us dining in a restaurant that, while terrific (Grill de Challes), was a small operation outside a pretty small town at the foot of the mountains. It was understandable, we thought, that their technology would be a little behind.

So arrogant, Americans. No, dude, it was your 1980s-era card technology that was the problem. Their cards are better, with more advanced security, which is why shoppers at their Targets were unlikely to fall victim to the hacking that befell shoppers here. (Do they have Targets over there? Checking.)

Anyway, lesson learned for everyone. Visa and MasterCard are shifting to the new technology, which uses an embedded chip, and they’re giving retailers until October 2015 to migrate their network systems to the new technology.

This is revealing competition between Visa and MasterCard, Elizabeth Dexheimer reports. MasterCard’s approach, which favors confirmation with a personal identification number, is winning so far.

The lesson for us is to carry cash the next time we want to look like a big shot and spend “en grand seigneur.”

***

The first thing a lay reader of today’s mortgage column might think as the story begins is, Oh boy. Here we go again.

It’s getting easier to get a mortgage, and we all know what that means.

Actually, we don’t. As Jody Shenn, Dakin Campbell and Kathleen Howley report today, lenders who got too restrictive in the aftermath of the mortgage meltdown -- which was a result of them being too permissive -- are now trying to find the Goldilocks spot for lending standards that could revive a shrunken industry critical to the U.S. economy. In the process, lenders are making sure not to repeat the same mistakes.

“Qualitatively, it’s a very different thing,” says Rob Urban, our editor-at-large for real estate coverage. Lenders “had almost no standards in 2006 for a lot of borrowers and they threw out the minimal requirements they had -- you didn’t have to show you had a job. You basically had to show that you were breathing.”

That’s not the case now. While some lenders are lowering the minimum credit score, they’re also coordinating better with Freddie Mac and Fannie Mae (FNMA:US) and using new methods to analyze a borrower’s cash flow.

“The problem was never the standards, it was that lenders weren’t following the standards,” Urban says. “At the height of the boom there were mortgage lenders that had standards on the books, they just didn’t follow them.”

***

For a closer look at how prosecutors and regulators may take aim at BNP Paribas (BNP) and Credit Suisse (CSGN), read today’s story from Greg Farrell, Dakin Campbell and Keri Geiger, who show how authorities could execute a surgical strike instead of an IED approach that could blow a much larger hole in the financial system.

Following yesterday’s news that the banks are a target for rare criminal prosecution -- BNP Paribas for allegations that it violated U.S. sanctions on doing business with prohibited countries, Credit Suisse for allegedly aiding Americans’ tax evasion -- Wall Street responds with the its customary concern: If you mess with any of us, you risk hurting all of us, like pulling the thread on a sweater. U.S. Attorney Preet Bharara responds:

“I have heard assertions made with great force and passion that if we take any criminal action, the skies will darken, the oceans will rise, nuclear winter will be upon us, and the world as we know it will end.”

We get the sense he doesn’t mean it. Federal prosecutors do sarcasm?

***

No surprises in yesterday’s FOMC statement, for a change. After the March meeting, when Yellen tripped on the goal line at her first post-FOMC press conference, there was no press conference this time. The tapering of another $10 billion in QE asset buying was a foregone conclusion, and while yesterday’s U.S. GDP number was a bit of a shock -- 0.1 percent is statistically the same as a goose egg -- the policy makers sounded an upbeat tone.

“They did change the language in the statement on the economy to reflect their view that things are actually picking up despite the very bad GDP report for the first quarter,” says Ken Fireman, managing editor for Americas economy and government coverage. “Their reading of the economy is that the second quarter will be better.

‘‘Consumer spending was the one strong point in this (GDP) report and that does auger well for the second quarter,’’ Fireman says. ‘‘That’s really the consensus view -- that this is more of a one-off than anything else and not a sign of future trouble. That is certainly the Fed’s view, as well. If they’re wrong about that, then we’re going to have a very interesting meeting in early June.”

Not another one...

***

An inside look today from Bloomberg Businessweek at how the Chiefs of the Valley -- the leaders of Apple and Google, Adobe and Intel -- reveals an unsavory examination of their alleged conspiracy to freeze competition for personnel, and as a result wage inflation.

Emerging from last week’s settlement of a class-action complaint filed on behalf of 64,000 programmers and engineers, we see the obeisance of Sergey Brin and Larry Page toward the late Steve Jobs who, feeling his oats after the success of the iPhone in 2005, latter threatened Google with “war” if they continued trying to poach his people.

“This is one of hundreds of examples in which our economy has been corrupted by the intense concentration of power and wealth,” Roger McNamee, co-founder of Elevation Partners, a private equity firm specializing in technology and media, tells Paul Barrett and Brad Stone.

And it’s the sole example that we’ve read of Jobs using a smiley face emoticon.

***

Items:

+ New York Mayor Bill de Blasio may have finally, and rapidly, achieved something that eluded his predecessor for five years: agreeing to a contract with the teachers’ union. The New York Times, citing two unidentified city officials, reports the agreement could be announced today, with one of the officials saying the contract would extend for nine years.

+ A CSX train carrying crude oil derailed in Lynchburg, Virginia, yesterday, resulting in a fire, oil spilling into a river, and an evacuation of hundreds of residents and certainly more handwringing over the threat to communities posed by the burgeoning rail traffic of flammable materials.

+ Rob Ford finally cracked. Blaming “a problem with alcohol,” the mayor of Toronto has taken a leave of absence from the office and his re-election campaign after another video emerged purporting to show him smoking crack cocaine. Nothing funny now. The man needs help.

***

Philadelphia has Camden, New York has Newark. Both New Jersey cities, at either end of the state, lie across the river from their neighboring metropolises and both have seen better days.

Where hope for some resemblance of the days of Walt Whitman is still elusive in Camden, Newark has had some reason for optimism in recent years, mostly because of a dynamic young man named Cory Booker. Now the former mayor has moved on to the U.S. Senate and voters choosing his replacement -- as our story says -- can select from a candidate criticized for his ties to Wall Street interests and the other is supported by alleged arsonists.

Shavar Jeffries is supported by Bill Ackman. Ras Baraka was an aide to former Newark Mayor Sharpe James, or, as he was known for 18 months, federal inmate No. 28791-050. We’re not sure which is more unsettling.

You can read our preview of the candidates here, but we warn you, after Booker, Camden doesn’t look that far away.

***

We say adieu today to Bob Hoskins, the actor made famous for his role in “Who Framed Roger Rabbit” but who was so much more of an actor than the cartoonish role he played in a quasi-cartoon. Nominated for a best-actor Oscar after the 1986 movie “Mona Lisa,” it was his role in “Mermaids” that we always find touching. He died Tuesday at 71.

We’re also going to mark the passing of Edmund Abel. You don’t know his name but your mornings do. The inventor of the Mr. Coffee machine, Abel died last week at 92. Before his machine, coffee was mostly made using percolators, those things your church or Scout troop had with that little bubbly window thing on top, and the coffee they made could also strip paint.

Goodbye as well to Al Feldstein. The former editor of Mad magazine, who died Tuesday at 88, made Opening Line’s youth a festival of satire, sarcasm and bodily functions just when our parents were least in the mood for it all.

***

The New York Rangers took the Madison Square Garden ice last night against the Philadelphia Flyers the way we imagine Ulysses Grant took the ice in Richmond, Virginia. The outcome was clear from the moment the puck dropped, and the score, 2-1 did not represent how far apart the teams were until the third period, when the Flyers realized the game had started. Happy golfing, Flyers. Next up for the Rangers are the Pittsburgh Penguins.

Minnesota beat Colorado 5-4 in overtime of the seventh game to advance to the second round against Chicago. Los Angeles, down 3-0 in their first-round series against San Jose, completed the improbable comeback with a 5-1 win in their game 7 to advance to a second-round berth against Anaheim.

In the NBA, your boy Jeremy Lin scored 21 points off the bench to help Houston to a 108-98 win over Portland, which now leads the first-round series 3-2. Toronto coughed up a 26-point lead but held on to nip Brooklyn 115-113 to take a 3-2 lead in their first-round series. San Antonio, led by new father Tony Parker, beat Dallas 109-103 to take a 3-2 lead in their first-round series. Mazel tov.

To contact the reporter on this story: C. Thompson in Wilmington at cthompson1@bloomberg.net

To contact the editor responsible for this story: Marty Schenker at mschenker@bloomberg.net


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Companies Mentioned

  • B
    (Barnes Group Inc)
    • $33.49 USD
    • 0.38
    • 1.13%
  • AGN
    (Allergan Inc/United States)
    • $170.32 USD
    • 0.12
    • 0.07%
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