I have been an investor in Chesapeake Energy (CHK) for a number of years.  Aubrey McClendon is the ultimate wildcat gambler. He gambles with his finances and with the company itself. However, the SEC may finally be saying “guys, come on.”.  The shenanigans might just come to an end. This is the second major issue in the past few years with Aubrey.  Could get interesting, but I doubt it.  That is a well connected company with enough money and influence to cover things with a fine.  Aubrey might just be asked to ride off into the sunset this time.

Many wonder why McClendon has been allowed to slide for so long.  Here is a factoid that might allow you to put the pieces together:

• Katie Upton, Aubrey’s wife, is a (first?) cousin of US Congressman Fred Upton. Coincidentally, he is the chair of the House Energy and Commerce Committee.

Ahh, the connected.  Makes you very sick if you dig too deep.  Put your head down, work hard, and live your life.

NEW YORK (Reuters) – The Securities and Exchange Commission has opened an informal inquiry into Chesapeake Energy Corp’s controversial program that granted Chief Executive Aubrey McClendon a share in each of the natural gas producer’s wells, a source familiar with the matter said on Thursday.

Reuters: Top News

Groupon Shares Plummet 17%

Yesterday, Groupon Shares Plummeted 17% after the coupon company delivered an earnings restatement. According to the company, they did not set aside enough money for customer returns. Since it’s gone public, the company has also been forced twice, by the SEC to address accounting concerns and it’s stock is off 52 week high of $31.44.

I don’t make a practice in life of say, “I told you so” but this time I believe it’s appropriate. While I have not been publicly telling the world my thoughts on Groupon, I certainly have witnesses to how I feel about this company.

While the business is generating massive revenue, I hate the business model. I absolutely hate this business model. First of all, they got their start by offering great deals to the consumer at the expense of the business. When you create a business model where it’s a win-win-lose for the three participants and the “product” is the loser, you are eventually going to have problems.

Loser Business Model
Why is the business or “product” the loser? Back when they started, the business owners they worked with had to offer a impressive deal (50-70% off) so they would get customers like you and me to buy the Groupon. Sounds great right? For us and Groupon, the deals are magical. For the business owner, the deals are pathetic. Here’s why: First, the business owner gets coupon customers. This type of customer is the wrong customer for business owners. If the business creates a coupon based business, no one will ever pay full price for anything. Think of your favorite restaurants or think of the best restaurants in town. When’s the last time these restaurants gave out coupons? Secondly, Groupon not only had the business give to 50-70% off, Groupon took half of the Groupon dollars generated. So if Groupon offered a 50% off $30 worth of merchandise at a store, the Groupon was priced at $15. Groupon took $7.50 so the business owner generated $7.50 for every $30 worth of merchandise. Please tell me businesses you know who can survive on taking in $7.50 for every $30 out the door? Third, Groupon probably doesn’t get many repeat customers. How can they? No business can survive consistently losing that kind of money. Don’t believe me? Comb the internet. There are lots of stories about business owners who sold thousands of dollars worth of Groupons in 24 hours only to realize how much money they were about to lose. Fourth, if you bought a Groupon, and didn’t use it, Groupon kept the money generated further adding to their “profits.” Lastly or fifth (how many reasons do we need?!), Groupon did all this a midst the worlds 2nd worst economic downturn of the last 100 years. Taking advantage of desperate business owners is not likely to happen very much longer as we come out of this bad economy. The result is, Groupon will have to give average deals which will keep you and me from buying as many and businesses, enjoying a better economic environment will not use Groupon as much. In other words, unless you need a massage or lasik surgery, Groupon is in trouble.

Frankly, I don’t know what the splits are between the business owners and Groupon these days. I’ve completely sworn off the company. I don’t care what the deal is, I’m not using Groupon. My guess is they have all sorts of games they play. Some customers probably get better deals than others. The more desparate the business owner for traffic, the more Groupon probably takes. I’d love to know how many Groupon customers repeat and also how many Groupon customers over the years have gone out of business. It’s probably allot.

I’m sure there are a lot of good people at Groupon. But it’s a bad business model when Groupon, as a company makes money by taking advantage of the customer. This is an “I told you so” moment for me because I’ve been, for a long time, talking about how they take advantage of their customer. I also think it’s a bad stock to own. Stay away and invest in a company where everyone wins. There are lots of companies like that.

Gas Prices Won’t Kill The Economy This Time!

As much as I hate high gas prices (so what if Europe has $9.00 a litre petrol…I’ve gotten used to gas prices here!), I think we are finally getting to a point where the effect of high gas prices on everyone’s wallet will not kill the economy like it did last time.

In 2007, when the economy went belly up, many people pointed to a variety of factors for it’s demise. Sub-Prime mortgages were  blamed much of the time and the overall actions of banks and financial institutions also received a bunch of the blame.

These reasons contributed to the problems but I believe high gas prices broke our back. Yes, Americans had many financial flu symptoms. In addition to mortgages that were way over many of our heads, we decided credit was a great way to fund our lifestyles. We borrowed on our home’s equity, we leaned on credit cards, and continued to believe economy would sail along and our incomes might eventually catch up.

But, with all the symptoms, high gas prices took whatever chance we had of getting through that mess, and threw it out the window. High gas prices took whatever room we had for error in our family budgets and left many of us no choice. When we looked at our monthly budget, something had to give. There just wasn’t enough money to pay all the bills.

Once the family budget went upside down, the wheels fell off the car. All of the credit and bad mortgages started to expose themselves and eventually, we all remember what happened.

So, with high gas prices the way they are, are we destined to repeat 2007? Frankly, we might someday but this latest attempt at economic stability will not be harmed by gas prices. As Americans, we’ve made dramatic improvement in several areas. First, our credit/debt collectively as Americans (not government!) is much lower than it has been. Second, the banks have made it much harder to qualify for loans. While this has been painful for small business, it’s made bank balance sheets better (Recently, most of the big banks did fairly well on government stress tests). Third, employment is up and more people are finding jobs. The opposite was true in 2007. Fourth, people have saved more and gotten more conservative. Family budgets can withstand the increased pressure of higher gas prices better this time around and many have ditched the big gas guzzling cars for more fuel efficient models.

That’s my argument for why higher gas prices will not kill the economy this time around. As I’ve watched speculation drive crude oil higher, It’s been on my mind allot. Let’s hope it comes true!

For the first time since 2007, I feel like a positive move in the stock market is not fools gold. 13,000 is just a number but as the Dow moves about 13,000, I at least feel like it’s worthy of the number. Based on everything that’s happened, I’m still hesitant to believe the stock market has any great upside move in store for us.  But, at least I don’t feel like we are going down significantly either. I’ve kept so much of my money in case over the past several years and will probably do so for the near future. I think I’ve missed any significant move up with my cash on hand but who knows.

I’ll tell you this…even if I miss a move, I will still be cheering because at least our economy is doing better. Three cheers for the Dow finishing above 13,000! Hip, Hip, Horray! That’s good for most everyone.

Dylan Ratigan explodes on air

This is simply terrific.  Dylan Ratigan lost it on air and by lost it, I do not mean that he freaked out and blurted out gibberish like many of his colleagues do, what I mean is that he lost it when the idiotic talking heads on his panel were spouting the Republican v. Democrat rhetoric.  It was horrible and he couldn’t take it any longer. The only bad part was when he apologized to the ladies that made his blood boil.  Totally unnecessary Mr. Ratigan. That was simply awesome.

You hit on the fact that the politicians are powerless to act lest they lose their power.  Sounds silly.  To put it simply, they have been bought by the Corporatocracy!  If they make a bold move, they will be dropped. No more money. No more power. No more career that lets them act like the Romans did.

I am so sick of the narcissistic politicians spewing their rhetoric. Would someone please stand up and act?  I don’t mean stand at the pulpit and deliver a performance, I mean try to really, really, get something done!!!

Once again, Dylan Ratigan, that was awesome!

To quote the late Chris Farley:

I swear I’ve seen a lot of stuff in my life, but…that…was…….AWESOME!

Follow Dylan Ratigan on Twitter @DylanRatigan or visit his web site: http://www.dylanratigan.com/

Guess which one of these folks will be your next AT&T lobbyist.

California Public Utilities Commission - CPUC - Commissioners

It is a sick thought that probably has a lot more truth to it than those who believe that our politicians and political appointees are in it for the greater good. Horse sh*t!

California’s Public Utilities Commission (CPUC) has decided to review the AT&T / T-Mobile deal.  AT&T’s $39 Billion T-Mobile Bid May Be Reviewed by California State Agency.  As cynical as I am, I am sure that there is motive behind this challenge.

Flexing political muscle (via regulatory authorities) is the way the political machine enforces its power to receive something in return. Perhaps they receive concessions that actually benefit the consumer. Certainly they receive campaign donations from the parties involved. And, likely they find jobs for themselves, their friends, and/or their families.  It is the way that the game is played.  Sad, but true. Want to learn more about the political power game? Watch “Casino Jack and the United States of Money“.

The number of lobbyists, former FCC employees, and political staffers that were employed (or contracted) by Comcast during their recent acquisition of NBC is staggering.  Comcast is not the only company that employs these tactics.  Perhaps AT&T isn’t “supporting” the politicians in power the way that they would like, and seeing what happened with the Comcast/NBC deal, the California Public Service Commission decided that they needed to flex a little muscle with the AT&T/T-Mobile deal.

The Comcast NBC merger is one that probably wouldn’t have passed muster if not for the lengths that Comcast went to to ensure the approval.  The recent hire of an FCC commissioner as a highly paid lobbyist (Meredith Atwell Baker) with the company that she just had a hand in approving for a major acquisition is one of the most blatant “quid pro quo” cases seen in recent years.  The commissioner thumbed her nose at the critics and took a high paying lobbying post with Comcast.  She may not have broken any laws, but she certainly abused the spirit of the law.  She will not be able to directly lobby her former agency, but indirect influence is the way Washington works.  Comcast will get their money’s worth (probably has already).

Look for the future posts of the CPUC commissioners and/or their families.  My hunch is that they will be working for AT&T in the near future.  I’ll write the press line for AT&T right now. “There is no one who understands the needs of our customers in the great state of California than former commissioner ______________________________”.

What a world we live in. Excuse me while I go get sick!

At 500,000 square feet, Apple’s $1 billion data center in NC will be among the largest in the world.  Ever since construction began there has been speculation of what the intended purpose is going to be and Apple is not one to let you in on their plans.  Many in the tech community feel there has always been a grand plan and it now appears to be coming to light.  Most seem to think that this will be the cornerstone of Apples cloud drive effort.  We have gotten hints of such a setup with MobileMe and especially after Apple purchased cloud music company LaLa.  There is even evidence that Apple has purchased the domain name iCloud.com.  As is often the case, registration data is veiled via a number of intermediaries to hide the true owner until launch.

Apple Data Center, NC

The most popular notion of what the data center’s intended use will be is a cloud music service from Apple. This seems to make sense.  As Sun (remember them) said many years ago (year 2000, I think), the Internet is the computer!  Why do we have to go to the trouble of downloading to listen to our music, or podcasts?  Can we have an internet (cloud) based drive that held all of our media (music,movies,podcasts,pictures)?  Sure we can.  The most difficult part comes from the bottleneck created by a lack of sufficient bandwidth.  Once there is sufficient bandwidth, there will be fewer reasons to have local storage.  Nothing will ever go wrong with my connection, right?  (Amazon EC2, PSN Network).

As of today, Apple has reportedly hammered out deals with three of the four major record labels.  This might have been a little more difficult had it not been for Amazon and Google paving the way with the Amazon Cloud Drive / Cloud Player and the Google Music Player

In any case, this data center is being viewed as another can’t wait to see event from Apple.  With deals in place between Apple and the major labels, I have to believe that they are about ready to announce the purpose.  Apple’s World Wide Developers Conference (WWDC) is happening June 6 through June 10 (2011) and this is generally a time when Apple rolls something fresh out.  There probably isn’t an iPhone 5 in the cards.  An iPhone 4s is more likely the case. A cloud initiative at the same event would make this another blockbuster.

AT&T and Verizon, are you ready??

Skype

Microsoft’s purchase of Skype for $8.5 billion is a high premium to pay for a product/service that is falling behind its rivals.  The purchase is a big move and many would argue that Microsoft is now in a position where it needs to make a big bold move.  Let’s all recall how well it worked out for Ebay.

Actually, it worked out well for Ebay… when they sold it.  Ebay retained about 1/3 of the company.  The $8.5 billion dollar price puts the value of Ebay’s stake at approximately $2.95 billion.  Ebay paid $3.1 billion for Skype in 2005.  After a poor integration attempt, Ebay sold Skype for $1.9 billion to an investor group that included Andreesen Horowitz, Silver Lake, Index Ventures, and the Canadian Pension Plan Investment Board (seriously).  If you combine the amount received for the stake with the recent sale (assuming the deal closes), Ebay walks away with $4.85 billion.  Let’s not forget the tax benefit received from the $1.4 billion dollar charge Ebay incurred in early 2007.

Rumor had it that Skype had some tire kickers buzzing around.  The usual suspects (Google and Facebook) were said to be in the mix.  Apparently the competition was in the $4-$5 billion dollar range.   Once the Google deal fell apart (due, in part, to the ill fitting technology) Skype appeared to be headed toward an IPO.  The final suitor (Microsoft) had to step and and was forced to a pay a premium for Skype’s massive user base. The user base is too large to ignore.  Skype is the largest international calling service in the world and has approximately 600 million registered users.  Skype’s 2010 revenue came in at about $860 million.

This deal really makes Google’s $50 million dollar acquisition of Grand Central look fantastic (June 2007).

How can you make money on this deal?  Is it time to short MSFT?  Hard to say, but a big acquisition can be a huge distraction.  With the cloud taking over, perhaps it is time to play the MSFT short.  I would expect that further changes are in the wings.  The government considered breaking MSFT into parts back at the height of the antitrust furor.  Now, Microsoft might just do the break up on its own. OS / Applications / Services.

Microsoft

Further Reading:

Skype was reading itself for an IPO.
Google didn’t want to do a deal due to the ill fitting technology.

This makes the purchase of the HP campus by Apple look like a bargain at $300 million.  The NYC building stands 15 stories tall, but carries more square footage than the Empire State Building.  Google currently houses more than 1,800 employees at the location.

Google Office Building NYC

It is interesting to see that Verizon and Sprint also have offices in the location.  They must feel even more threatened by the push by Google into their space (literally this time).

In the biggest real estate deal of the year, Google signed a contract on Thursday to buy one of the largest office buildings in Manhattan for more than $1.8 billion, according to two real estate executives who have been briefed on the deal.

Taconic and its partners bought the property in 1998 and began stocking the building with telecom companies like Verizon and Sprint

via Google Signs Deal to Buy Manhattan Office Building – CNBC.

Housing Meltdown - Aftermath

More and more issues creep up in the aftermath of the great housing meltdown.  Tighter mortgage money is now followed by Title insurance companies looking for a guarantee that the title the are issuing is in fact that the lender represents it to be.  Common sense underwriting…go figure!

Fidelity National Financial Inc., the largest U.S. title insurer by market share, will require lenders to sign a warranty assuring their paperwork is sound before backing sales of foreclosed homes.

An indemnity covering “incompetent or erroneous affidavit testimony or documentation” must be signed for all foreclosure sales closing on or after Nov. 1, the Jacksonville, Florida- based company said in a memorandum to employees today. The agreement was prepared in consultation with the American Land Title Association and mortgage finance companies Fannie Mae and Freddie Mac, Fidelity National said.

“It’s just the prudent thing to do,” Peter Sadowski, executive vice president and chief legal officer for Fidelity National, said in an interview. “It is important for the servicers and the lenders to represent to us and to the people we are going to be insuring that there are no problems.”

via Fidelity National to Require Banks to Sign Foreclosure Warranty – Bloomberg.