Filed under: Products and services, Google (GOOG)

Google, Inc. (NASDAQ: GOOG) continues to make billions in revenue each quarter on the back of its extensive text advertising network used on various Google properties as well as partner websites. The argument can still be made that the large majority of Google’s income rests on the back of those simple ads which can be eerily relevant and lucrative for those who advertise on Google’s network. One area, though, that has fallen by the wayside in recent years is the importance of Google ads in its Gmail email service.

Although competitor Yahoo, Inc. (NASDAQ: YHOO) still has a larger customer base of email users, Google’s Gmail product counts tens of millions of global, more affluent users. Although the company gives almost all its products away for free, you won’t see advertising inside most of them.

Gmail is one product where you will see ads — and to ensure more customers continue switching to Google’s arguably-better approach to email, the world largest search engine company has deployed the DomainKeys email authentication service to make sure those fake (but real looking) email messages seemingly from eBay, Inc. (NASDAQ: EBAY) and its payment subsidiary PayPal from luring unsuspecting customers to giving away their usernames and passwords. And, in effect, their entire identities in many cases.

This is significant for Google as the company tries to recruit more users for its Gmail product and make it one of the largest email products used worldwide. Google has tied in text ads into this product, which makes the effort to make it more secure incredibly important. As Google continues to subsidize all of its free products with services like search and email, making sure it steers customers away from online fraud will only need to get better to the point of being iron-clad. If Google’s trust is betrayed by fraudulent emails and those customers don’t return frequently (or at all) to a product where its ads are shown, then Google could have a large albeit hidden problem.

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Filed under: Marketing and advertising

This post is part of a series on celebrity spokespeople who ended up doing serious harm to the brands they were hired to promote, or vice versa. See how we rank the 20 top spokesperson fiascos.

When it rains, it pours. Back in 2005 Defamer reports that Star ” I am a lawyer” Jones was booted as a spokesperson for Payless Shoe Source around the same time that she was dumped from The View. Jones was clearly of no use to the shoe chain once she was Barbaraed off of The View. So Payless used its steel-toed boot to kick her to the curb.

Defamer noted that both parties tried to put a good spin on the situation. Payless said that the terms of their contract called for it to end after three years and that it was successful. And Jones said the same thing about the contract ending — but she suggested that Payless decided it no longer wanted celebrities to endorse its products. Jones clearly still considered herself a celebrity.

But the people who release such statements are often paid well to provide a different view of reality. Unfortunately for Jones, it has been years since she’s had as good a marketing platform as The View — from which to offer such spin.

Read the entire series

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Filed under: Law, Scandals

In a press release, the Securities and Exchange Commission announced that it had filed insider trading charges against Beaufort, South Carolina mayor William J. Rauch. The SEC alleges that he “purchased stock in Advanced Cell Technology, Inc. (OTC: ACTC), immediately after one of its executives informed him about a breakthrough embryonic stem cell technique that the company was about to disclose publicly. According to the SEC’s complaint, Rauch was told the information was confidential, and he had previously signed an agreement with the company that barred him from using confidential company information for his own benefit.”

He agreed to pay $20,708 in disgorgement, $2,576 in prejudgment interest, $20,708 in penalties, and promised not to do it again — without admitting or denying guilt, of course.

But it gets worse. According to the SEC’s complaint (PDF File):

In mid-2005, Rauch entered into a written Finder’s Fee Agreement (”Agreement”) with Advanced Cell. Under the Agreement, Rauch agreed to refer potential investors to Advanced Cell. In exchange for Rauch’s services, Advanced Cell granted Rauch an option to buy 48,000 shares of Advanced Cell stock and promised him a referral fee equal to a percentage of any amounts raised.

Translation: The mayor of Beaufort, South Carolina, in addition to the fact that he just settled insider trading charges, was also a shill for a penny stock, telling people he knew to invest in the company while pocketing a “referral fee” from the company. Given that he apparently had few qualms about trading on insider information, it seems likely that he had no problem steering people into shares of Advanced Cell Technology without disclosing his massive conflict of interest.

The announcement of the embryonic stem cell technique sent shares of the stock up to $1.83. They closed yesterday at 2.5 cents. I recognize that the standards of ethics for elected officials are pretty low, but citizens of Beaufort should give this clown the boot.

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It is rather appropriate that the second largest savings and loan failure in history that of IndyMac Bank occurs here in Southern California. IndyMac is based out of Pasadena California, an upper-middle class city within the concrete jungle of the 88-city metropolis. With a stunning $32 billion in assets, this is by far one […]
Related Posts:
■Bank Failure: IndyMac Bank. Lessons from the Great Depression Part XIV. Bank Failures.
■Fannie Mae and Freddie Mac: Government Sponsored Entities Finding Their way Back Home with a Bailout.
■Affordable Housing: Finding Affordable Housing just got Easier in California.
■Real Homes of Genius: $438,000 for 816 square feet in Pico Rivera! Another Example of Manic SoCal Housing!
■Real Homes of Genius: Today we Salute you Compton. $321,000 for 594 Square Feet! Can You Really Get Two Bedrooms Into That Space?

It is rather appropriate that the second largest savings and loan failure in history that of IndyMac Bank occurs here in Southern California. IndyMac is based out of Pasadena California, an upper-middle class city within the concrete jungle of the 88-city metropolis.

With a stunning $32 billion in assets, this is by far one of the largest failure in decades. And of course, the FDIC with their usual dark suit posse swooped in after the market had closed on Friday to not spook the sheep in the public. Add this one to the list as the fifth bank failure of the year:

Source: FDIC

Just to put this into perspective in relation to the other failures this year:

Douglas National Bank: $7.3 million in assets

Hume Bank: $11.2 million in assets

ANB Financial: $2.1 billion in assets

First Integrity Bank: $35.8 million in assets

IndyMac Bank: $32 billion in assets

That is how large this closure is. They also have $19.06 billion in total deposits with approximately $1 billion that does not fall within the $100,000 FDIC insured prevue.

It is important to understand the history and how this institution was bred to take us through memory lane of the now defunct savings and loan.

IndyMac Spawn of Countrywide

Countrywide Mortgage Investment was founded in 1985 as a dumping ground for loans that were too big from the original mortgage sausage maker, Countrywide Financial. Ironically, these were the loans that were too big to be sold to big brother Fannie Mae and Freddie Mac which have their own obscure and fascinating history. In 1997, Countrywide Financial decided to spin the company off as an independent unit which is (was) the beloved IndyMac Bank.

IndyMac Bank profited handsomely during the decade long housing and credit bubble. They expanded their services by acquiring Financial Freedom in 2004 who were experts in the reverse mortgage business. The only problem with having reverse mortgages is you have to have equity in your home which of course is now becoming rarer with the housing collapse. As the FDIC sorts through the mess, I’m sure this piece of the pie will be bought off since there is a legitimate viable market with the many baby boomers that will be retiring soon. In the midst of all the mortgage mess it is easy to forget that housing for the most part is a good investment. Approximately one-third of those who own their home have no mortgage. Many of these are facing retirement soon. So we’ll see how the vultures divvy up the $32 billion in assets.

IndyMac like many alternative lenders was simply another casualty of the housing Ponzi scheme. During the boom days, IndyMac soared to peak share price of $50 during the peak in 2006. In fact, in September of 2006 CEO Michael Perry went on CNBC to give this brief interview:

*Click on picture to watch 3 minute video

Some lovable quotes from the video:

“only a quarter in option arms…”

You mean the $500 billion in Pay Option ARMs that are now collapsing? What about those Alt-A toxic loans that are now falling apart like sub-prime mortgages?

“the borrowers have very strong credit…”

The ultimate misnomer of the Alt-A phony baloney bubble. Just because you have a 700 credit score and make $100,000 a year does not mean you can afford a $900,000 mortgage on a home. Especially now that the home is worth $600,000 and your $100,000 income came from an industry tied to real estate. Whoops.

“borrowers know what they are getting into…”

Yes sir they did! So much so that your institution was taken over 1 year and 10 months from this interview.

“half of our business is owners accessing the equity in their homes…”

Hard to access money from a home that is now down 35% and you are in a negative equity situation.

The point being is that the model was completely flawed and the only reason institutions like IndyMac lasted as long as they did was the false pretense that somehow credit worthy borrowers knew what they were doing when they took out Alt-A and Pay Option ARMs on over priced homes. The lender like the borrower on these uber priced homes both were speculating and playing into this Ponzi housing game. Like any Ponzi scheme, those that can get in early usually make out very well. It is those that get in late who stand to lose the most.

Keep in mind when this interview was given, California was still going hot and strong. In fact, at this time Los Angeles had a median priced home of $509,000 that was up from the previous year by 3 percent. The market kept on going strong until August of 2007 when the housing market in Los Angeles peaked at $550,000. Let us take a quick look to see how IndyMac quickly disintegrated once the housing bubble collapsed especially when the market in California started tanking in 2007:

Here is some interesting information:

Peak Price $50 per share

Market Cap at Peak: $5.04 billion

Current share price is 10 cents

Current Market cap: $10 million

Basically the current market cap is enough to buy half of Ed McMahon’s foreclosed home in Beverly Hills. Problems really started happening at IndyMac in 2007. Now we have some of Kudlow’s minions who believe in the psychological recession trying to pinpoint the collapse of IndyMac on letters released by Senator Charles Schumer on June 26, 2008 urging regulatory agencies to take steps to prevent IndyMac’s collapse. Let us look at the chart again with a 1 year horizon:

When the letter was released IndyMac was already trading at 80 cents per share. The only thing the release did was spur a bank run on this shoddy institution that caused a run of $1.3 billion in 11 days. Doesn’t the FDIC tell us in their takeover memo that they have $19 billion in total deposits? Of course. But these folks were treading on such an under capitalized thin margin that $1.3 billion was the coup de grace on this place. Anyone blaming this on Senator Schumer is an absolute moron.

In fact, one of the absurd consequences of a moral hazard is as problems started occurring with IndyMac, they started raising their rates on CDs! This is simply astounding given the nature of their balance sheet but to shore up capital, they had to increase their rates to draw in customers. In fact, take a look of an ad I just spotted today on Bankrate:

For your information there is no longer a Countrywide since they were bought out by 2008 royal problem solver, Bank of America. Since some of these ads are bought on a monthly run, I imagine this was simply on the queue of ads since BofA just finished their takeover a few days ago. Look at that astounding rate! That is flat out beyond any other thing you can get:

This kind of last minute behavior reminds me of the Monty Python Black Knight skit:

*Click to watch persistence in the face of failure

When the market opens on Monday, a bridge bank will be running the show under the name of IndyMac Federal bank, FSB which is now under conservatorship with the FDIC. IndyMac when it was still running announced a job reduction of 60% from an employment base of over 9,000. Now being under this legal restriction, the institution is only operating as a liquidation sale. Given the even larger issues with Fannie Mae and Freddie Mac, I doubt you’ll see any government aid here. IndyMac is the first of many failures this year. During the Great Depression, many small banks failed so we won’t see the sheer size in numbers but keep in mind one IndyMac is the equivalent of 100 small banks.

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IndyMac: IndyMac History and Collapse. The Saga of the Second Largest Bank Failure in History, here in Sunny Southern California.

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Related Posts:
■Bank Failure: IndyMac Bank. Lessons from the Great Depression Part XIV. Bank Failures.
■Fannie Mae and Freddie Mac: Government Sponsored Entities Finding Their way Back Home with a Bailout.
■Affordable Housing: Finding Affordable Housing just got Easier in California.
■Real Homes of Genius: $438,000 for 816 square feet in Pico Rivera! Another Example of Manic SoCal Housing!
■Real Homes of Genius: Today we Salute you Compton. $321,000 for 594 Square Feet! Can You Really Get Two Bedrooms Into That Space?

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it really is.  Consumer prices rose the most since 1982 as the consumer price index (CPI) surged 1.1% led by increased fuel and food costs.  May’s increase was .6% meaning inflation doubled month-over-month, never a good sign.  But hey with all the money being printed out of the treasury, bailouts being handed out left and right and interest rates being kept artificially low to save our Wall Street institutions what else could you expect?

From the New York Times:

The increase in June caps a year where inflation has risen to proportions seen by some as threatening the stability of the American economy. In the last 12 months, the price index has risen 5 percent, the biggest year-over-year jump since 1991. Core inflation is up 2.4 percent compared to June 2007.

The report reinforces what many economists, including those at the Fed, have warned about for months: Americans are being forced to pay significantly higher prices for retail goods and services, even as the job market weakens and big employers like General Motors are laying off thousands of employees.

The number adds to the financial woes of the last week, which has seen the near-meltdown of the nation’s biggest mortgage finance companies and continued turmoil in the stock markets. Investors are also awaiting the release of minutes from last month’s Fed meeting, expected Wednesday afternoon.

From The Big Picture:

Medical care prices, meanwhile, increased a modest 0.2%, while clothing prices rose just 0.1%. These were the only bright spots, as other components posted sharp gains:

Transportation prices rose 3.8%
Airline fares swelled 4.5%
Energy prices jumped 6.6%
Gasoline prices spiked 10.1%
Natural gas prices rose 4.9%.
Food and beverage prices rose 0.7%
Commodity prices soared 1.9%  (a record monthly high).

The core rate increased 2.4% from June 2007, also far more than consensus expectations.

Adding insult to injury, the Labor Department noted that “average weekly earnings of U.S. workers, adjusted for inflation, fell 0.9% in June.” This means that the typical American household income is failing to keep up with rising prices.

Check out The Big Picture for inflation-related charts.

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Source [blownmortgage]

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Filed under: Earnings reports, Google (GOOG), Microsoft (MSFT), International Business Machines (IBM)

The Wall Street Journal reports a mixed picture on technology earnings. Google Inc. (NASDAQ: GOOG) and Microsoft Corporation (NASDAQ: MSFT) disappointed investors but International Business Machines (NYSE: IBM) put impressive numbers on the board.

Here are the details:

• Google. The Journal reports that Google’s net was up 35%, but investors expected it to make $4.74 excluding stock options — 11 cents more than the $4.63 it reported — Google lost 10% of ita market value after-hours.
• Microsoft. The Journal reported that Microsoft’s net was up 42%, it reported EPS of 46 cents a share. But investors did not like its guidance. Microsoft’s guidance of $2.12 to $2.18 per share on revenue from $67.3 billion to $68.1 billion was less than the $2.16 on revenue of $67.3 billion that analysts expected. Microsoft lost 5.7% of ots market value after-hours.
• IBM. The Journal reports that IBM’s net was up 22% to $1.98. Investors had expected it to make $1.82 — its stock was up slightly in after-hours trading.

What do these results tell us about the companies and the economy? It could be that for the time being the consumer is hurting more than business buyers of technology. IBM’s solid earnings suggest that businesses are in better financial shape than cash-strapped consumers.

Microsoft’s disappointing outlook is somewhat of a concern but the 10% drop in Google’s stock suggests its shareholders would be better off if its started offering guidance to Wall Street. But for a company of IBM’s size to post 22% growth in these dire economic times is an eloquent statement of its strength.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter . He has no financial interest in the securities mentioned.

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Filed under: Earnings reports, Good news, Competitive strategy

Sectors of the economy may be coming apart at the seams, but Fastenal Company (NASDAQ: FAST), distributor of nuts, bolts and all kinds of tools, is holding together nicely. Fastenal reported strong numbers for 2Q 2008. Net sales increased 16% to $604,000. (Hey, I never said this stock would topple Home Depot). More importantly, net earnings increased 26% to $76,000 and diluted EPS increased 25% to $0.51. As part of its “Pathway to Profit Initiative,” Fastenal opened 112 new stores in Q1 & Q2, bringing total store locations to over 2100.

Like most other businesses, Fastenal has been hit by both the slowdown in the construction industry and the rapid rise in fuel costs. The company is reorganizing its freight service to take advantage of fuel and cost savings by using its own trucking network rather than external service providers. Additionally, the company established a centralized call center to manage accounts receivable company-wide. As a result, accounts receivable increased 14% at the same time the company reduced its bad debt expense. Fastenal repurchased 200,000 shares with plans to buy back more. The company also declared a quarterly dividend of $0.27 per share. YTD the stock has gained 14% and currently trades around $46. This one is worth a look.

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Filed under: JPMorgan Chase (JPM)

DealBook reports that JPMorgan Chase & Co. (NYSE: JPM) CEO Jamie Dimon let out some bad news on JPMorgan’s conference call today. Despite beating estimates, DealBook reported that JP Morgan’s highest quality, so-called Prime mortgages, were, as Dimon said, “terrible, and we’re sorry. We can say it eight times. It looks terrible.”

Prime mortgages are not supposed to behave like subprime ones. But disappointment seems to be the big theme with the mortgage industry. Prime mortgages barely defaulted at all in the second quarter of 2007 — JPMorgan wrote off 0.05% of them a year ago — taking a $4 million charge. But in the same quarter of 2008, JPMorgan wrote off 0.91% — and charged off $104 million.

And Dimon expects those Prime losses to triple — to $300 million. If there’s any good news, that $300 million is a mere 15% of the net income it earned this quarter. Still, it suggests the depth of the economic problems that lie ahead.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter . He has no financial interest in the securities mentioned.

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If you’re feeling rather smug for being smart enough to keep your deposits under the FDIC insurance limit of $100k in such turbulent times you might want to keep reading.  The recent takeover of IndyMac by the FDIC and the subsequent botched management should be a cautionary tale to you all.  Just because your money’s insured doesn’t mean you’ll get it out right away.

From our friend Peter at the LA Land blog on the debacle that has been the FDIC management of IndyMac:

On Day 3 of the financial hostage drama otherwise known as IndyMac Federal, someone needs to say it: The government’s takeover of IndyMac has been a stunning display of cluelessness and incompetence and has given bank customers every reason to feel anxious and angry.

If there is financial unease and anxiousness in America today, it is partly the FDIC’s fault.

For the third day in a row, the federal government this morning appeared unprepared to deal with bank customers who simply want their money. Frazzled, anxious and angry Californians — many of them elderly — are waiting on blazing sidewalks for the third day in a row, while security guards block the doors to the bank’s branches. An elderly woman fainted while waiting in line in Pasadena. Depositors were threatened with arrest yesterday in Encino. This is how the government treats its customers?

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Filed under: Before the bell, Earnings reports, Google (GOOG), Microsoft (MSFT), eBay (EBAY), Coca-Cola (KO), International Business Machines (IBM), JPMorgan Chase (JPM), Merrill Lynch (MER), Economic data, Wells Fargo (WFC), Housing

U.S. stock futures edged higher Thursday morning, a day after market staged a big rally. Investors this morning are bracing for some housing data, but more importantly, a wave of earnings. Already better-than-expected earnings from J.P. Morgan Chase boosted stock index futures from earlier declines this morning.

On Wednesday, bulls finally came back in drove to but equity as oil price continued its decline and airlines and Wells Fargo (NYSE: WFC) reported results that Wall Street found encouraging, sending airline and financials stocks through the roof. The Dow Jones Industrial Average ended a three-day losing streak, jumping 276.74 points, or 2.5%. The S&P 500 climbed 30.45 points, or 2.5%, and the Nasdaq Composite gained 69.14 points, or 3.1%.

Still, all this sentiment might yet evaporate, or be seriously damped after housing data is released at 8:30 a.m. EDT. Building permits and housing starts for June are due out at that time. Also, weekly jobless claims will continue to paint the picture of the goings on in the labor market. At 10:00 a.m., the Philadelphia Fed index for July will be reported.

It would be interesting to see how the data and earnings play out. Already, J.P. Morgan Chase (NYSE: JPM) reported it profit sank 53% in the second quarter to $2.00 billion, or 54 cents per share. That beat estimates of 44 cents share. JPM shares are up over 5.5% in premarket trading.

Meanwhile Coca-Cola (NYSE: KO) shares are also rising 2.2% in premarket trading despite reporting a 23% decline in second-quarter profit to $1.42 billion, or 61 cents per share. Excluding one-time items, per-share earnings were $1.01, beating estimates of 96 cents per share. Revenue rose 17%.

Still due to report today are: From financials, Merrill Lynch (NYSE: MER) is due to post earnings after the market close. Then we also have a wave of heavyweight tech companies reporting today like Google (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT) and IBM (NYSE: IBM), all reporting after the close as well.

On Wednesday, online auctioneer giant eBay (NASDAQ: EBAY) reported a 22% jump in quarterly profit, but gave a soft outlook for the current third quarter. EBAY shares are declining over 9% in premarket trading.

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