Google’s Smooth Sailing in First Quarter Acquiring Motorola Mobility

Google’s first quarter as a hardware company, as well as a search engine, was a good one. Stand alone revenue for the company was up 21% with cumulative revenues, including its revenues from Motorola Mobility, up 35% to $12.2 billion year over year, and up 15% quarter over quarter. The revenues from Motorola were simply $1.3 billion for the quarter.

Although the earnings call did not give much guidance on its future in hardware sales, the Motorola Razr sold very well. As reported by Reuters, “Investors have a wide range of questions about Google's expansion into the hardware business, where margins are low and competition with the likes of Apple Inc and Samsung Electronics is fierce.” There are also questions if Google will design a hig-end mobile phone that can rival Apple’s iPhone.

The Chief Business Officer highlighted YouTube’s broadcasting of the London Summer Olympics which should provide a big bump in viewership. Quoted from the earnings call, “Thousands of partners are making six figures [through YouTube].”

The core business of Google is search advertising which has been undergoing pressures of lower cost per clicks which translates into lower margins for the company. Quoted from the Reuters article, “The cost per click for Google's online search ads continued to decline in the second quarter, falling 16 percent year-on-year. But some analysts highlighted a quarter-on-quarter 1 percent gain in second quarter CPCs.”

Integration of Google applications was also highlighted. The so-called “knowledge graph” shows a cluster of information and related topics that aggregate from a search term.

Also noteworthy things include the all-new “jelly bean” operating software from google which is reaching critical mass. What’s more, Google Play has exceeded its twentieth million download.

Investors were very well pleased with Google’s quarterly results pitching the stock higher by just over 2% in regular hour trading, and an additional 2.72% to $609.20 a share in after-hours. Investment research from Morningstar gives Google’s stock 4 out of 5 stars, citing the challenges to succeed in its acquisition of Motorola Mobility. Their search advertising dominance leaves researchers with conviction that it will persist.

Microsoft has banner quarter despite recording negative earnings

Microsoft posted its first quarter of a net loss in its 26-year existence. A $6.2 billion charge from the pricey acquisition of aQuantive, an online ad agency made their quarterly earnings a net loss of $0.06. Analysts had been forecasting quarterly earnings of $0.62. The Hollywood Reporter writes, “Thanks to a massive $6.2 billion charge announced a couple of weeks ago, Microsoft on Thursday recorded its first quarterly loss in its 26-year history as a public company.”

Apart from their blighted acquisition, Microsoft performed well with above 20% growth in operating cash flow. In the earnings call, Microsoft’s CFO emphasized their core strength as a search engine and portal. They also mentioned customer service is at an all time high.

Microsoft’s major search engine is Bing, a meteoric second to Google’s dominance in the search market. Their products also performed very well, namely the Xbox become more of a household commodity, getting more usage with the advent of movie rentals and the like on its versatile gaming console.

When looking at the financial performance of Q4 apart from the spotty charge for the acquisition, it is clear Microsoft had a banner quarter with record revenues, operating cash flow and earnings per share. Investors rallied on the skewed news, shrugging off the aberration of its first negative earnings per share in company history.

Operating income was up 12% at $6.9 billion for the quarter. Cash flow from operations grew a significant 29% of $7.7 billion. It goes to show smart investors are more concerned with operating income and cash flow from operations. In addition, investors may feel the acquisition was still a good decision, despite it being cost prohibitive. Granted, Microsoft is strategizing itself for a gain in search advertising and advertising revenues.

Some of the brightest spots in their quarterly results include the following: Lync software growth of 45%; Windows enabled phones up 50% quarter over quarter; and 115 billion minutes on Skype, up more than 50%.

‘Dark Knight Rises’ Presale Breaks Record

With 60,000 IMAX tickets to see the Batman trilogy at AMC theaters, it’s not hard to see why box office projections are spiking beyond $480 million. The “Dark Knight Rises” is the third and final installment to the trilogy which has brought life to complex characters in Batman.

At $40 a ticket, the pre-sale comes to $2.4 million, the marathon viewing starts at 6 p.m. to prequel the opening night on Friday. As reported by the Los Angeles Business Journal, “The Kansas City-based movie theater operator [AMC] said the sales shattered the previous record for its movie marathon events — 30,000 for the Ultimate Marvel Marathon in May, before the release of ‘The Avengers’.”

The story is driven by the lies that end the “Dark Knight”, where Batman is perceived as a street thug when he is really the city’s protector, and the duplicitous Harvey Dent is seen as a crime fighting hero. Director Christopher Nolan embodies his characters with complexities that motivate them to heroism. Instead of flat characters that are taken for granted in the movie, Nolan gives them a three-dimensional aspect that makes the story lively. Plot development is also one of Nolan’s strong suits.

“Dark Knight Rises” also plays on the dark themes of its prequel with a finale that is quite bleak. Quoted from the L.A. Times, “‘The Dark Knight Rises’ might be the bleakest, most despairing superhero film ever made. It uses a wholly terrifying villain to emphasize the physical vulnerability of a hero we sometimes forget is no more than human.”

An hour of the movie is shot on IMAX film cameras giving an extra rich cinematic quality. Even regular theaters will experience more depth thanks to cameras used.

The cast from the previous film are back, which is one of the main reasons it has garnered so much momentum as far as anticipation is concerned. Although fans are distraught about how it will end, it’s still a movie that will be seen countless times.

You can see the trailer here on YouTube. Make sure to buy your tickets as soon as you can, if you want to see it sometime soon.

Home Sales in California on the Mend in June

The National Association of Realtors recorded higher home prices in June year-over-year. Although prices dipped since May, they are 30.7% greater than the bottom experienced in February 2009.

In Los Angeles, the median home price in June was just above $300,000 at $301,300, an increase of 4.7% year-over-year and 11.5% from the previous month, according to the California Association of Realtors. Orange County is still fetching premium prices with its median home value at $534,680, a commanding lead in all of the southland.

Interest rate continues to roll lower to deeper rock bottoms. According to the report, 30-year fixed mortgages averaged 3.68% for the period recorded. “Interest rates continued their downward trend in June, with 30-year fixed-mortgage interest rates averaging 3.68 percent, down from 3.80 percent in May and 4.51 percent in June 2011, according to Freddie Mac.  Adjustable-mortgage interest rates averaged 2.76 percent in June, up from 2.74 percent in May but lower than the 3-percent average rate reported in June 2011.”

The amount of time a home is on the market has improved a lot too. The latest figure is 3.5 months for unsold inventory to clear versus 5.1 months last year. According to the report, “The index indicates the number of months needed to sell the supply of homes on the market at the current sales rate.  A 7-month supply is considered normal.” What this means is prices should continue to firm up. More people are able to sell their house and there’s more likelihood that, on average, people will place higher bids for their home purchase.

The national economy had a spat of good news on the housing front as well. U.S. housing starts were up for the month of June, with 760,000 new constructions of rentals and home properties. That’s 2% higher than what forecasts had called for—745,000 new starts. The New York Times states that this batch is the most since four years, making a solid case for a slow recovery.

U.S. Bank being sued by Los Angeles over unkempt properties

U.S. Bank is gaining notoriety in L.A., being recognized as a slumlord that is not taking care of properties they oversee as trustee. Out of the more than 30,000 properties that overturned to foreclosure in the three years spanning from 2007 to 2010, U.S. Bank gained title on 1,500 properties. The Wall Street Journal details, “U.S. Bank acquired titles to more than 1,500 properties in Los Angeles through foreclosure during the past four years, according to the city attorney's office. From January 2007 to September 2010, 36,752 housing properties were foreclosed upon in the city of Los Angeles, according to the Los Angeles Housing Department.”

Now the city is seeking restitution and wants to levy penalties against U.S. Bank, a company that has inappropriately evicted tenants out of properties, has not maintained these properties and does not take any responsibility or feel they share liability for these foreclosed properties. According to Bloomberg, “The city [L.A.] accused the bank of violating California’s unfair competition law and the Los Angeles municipal code. It seeks $2,500 a day for each violation.”

What’s interesting about this case is how the city of Los Angeles is opening up the definition of trustee; since U.S. Bank is overseer of the mortgages as a trustee to mortgage-backed securities, they do not believe they share in any liability of the physical property. However, they are capable of managing and evicting tenants from the property.

The problem with this entire system is the shuffling that occurs between banks. For example, once someone opens up a mortgage loan for a new home purchase they will most likely have to deal with three or more different loan servicers throughout the life of that mortgage because of the amount of turnover that occurs between banks.

As reported in the Wall Street Journal article, “Mr. Mitau said the city provided the bank with a list of 100 properties a few months ago, but more than half of those properties had been sold to other trusts. Only about 40 of the properties still belong to trusts managed by U.S. Bank, officials there said.” The city of Los Angeles won’t stand for irresponsible banks who think they can sell away their liability and not keep up with their business.

TiVo buying TRA for $20 million

TiVo, developer of the DVR, will buy TRA for $20 million. TRA is a TV research firm that tracks ads and sales of audiences.

As an example, audiences of MTV are tracked if they buy beauty products or other products for young adults. TRA is able to tally up the effectiveness of an ad campaign to bring the biggest bang for the buck for advertisers. As reported by the New York Times, “TRA acquires this data by collecting information from 1.5 million set-top cable boxes and matching the viewers (anonymously) with information gleaned from ‘loyalty cards’ presented at supermarkets, as well as with other measurements, like car-registration information.” This precision in analytics gives marketers an extra valuable tool in creating and tracking advertising campaigns.

So far, TRA has major clients, like Mars candy, Kraft’s Oscar Mayer and CBS.  As reported in the New York Times article, “TRA has signed numerous clients in its five years of existence, including 27 cable and broadcast networks and 45 different advertising brands.” 

The chief research officer of CBS lauded TRA for its effectiveness in tracking sales from viewers; CBS has been using their service since the launch of the company. The article writes, “CBS, an early client, has been especially supportive. That network’s chief research officer, David F. Poltrack, praised the acquisition Monday, citing the effectiveness of TRA data in demonstrating increased accountability in television advertising.”

As great as TRA’s service may be, they still will face pressures with privacy concerns. After all, in order to track sales from their viewers they have to use things like internet browsing cookies that people are force-fed in a way. Recently, browsing cookies have been an opt-out feature to a user’s internet experience, they aren’t just granted like before.

More and more, great internet and digital ad companies are pushing their software products in an age of social media without really giving thought to any liabilities; such as, personal security of information and privacy. These features are paramount to the robust success of digital and television advertising.

Economic Data Is Being Released Under Tighter Security

With the advent of so-called “high-speed trading”, disseminating economic data has gone from analog to highly sophisticated. The millisecond it’s released, traders around the world act upon it; depending on how fast they receive the data could mean millions of dollars, for those who are heavily involved in news trading. Some even have trading models that are tied directly to the flow of information. So the U.S. has tightened its security as to who has access to the valuable information before it is made public. The New York Times reports, “The efforts stem from the newfound importance of high-speed trading, which began to grow significantly in the middle of the last decade and is now a central part of some hedge funds’ investment strategies. By gaining information seconds or minutes before others, high-speed traders — sometimes known as high-frequency or algorithmic traders — can use the computerized nature of modern finance to make quick profits or, if a bet goes wrong, take large losses.”

The Labor Department, for instance, suspects that there are people working inside their “lockup” room to feed the interests of high-speed traders or fund companies, rankling the balanced flow of information. As reported in the New York Times article, “The ‘root cause’ for the review, the team noted, was the possibility of traders or their agents working inside the lockup.”They cite, in 2008 Reuters reported two inflation reports a few seconds too early which made the government suspicious.

It has reached a level of even tampering with the first amendment. Because the interests of few media companies are financial only—as opposed to journalistic—the government has to review and screen what they are writing in order to determine their credentials. As reported in the article, “This proposal threatens the First Amendment,’ Mr. Moss said at the oversight hearing, adding that it would give the government ‘access to a reporters’ thoughts, drafts or notes as a condition for covering the news.”

This has led to a government overhaul of how they release their information, with a lockup room that disseminates reports on a button using a highly sophisticated computer system. You can only imagine what a few seconds can do to tip the scale of the markets, but apparently it can make a big difference.

Insider trading scandal, a rat is better off than the wolves

Normally, the streets are mean. They say that nothing good comes of being a rat—someone who tips off the competition or regulators of illicit conduct. But on Wall Street the pan gets fried in different ways; a rat is better off.

Insider trading witness, Anil Kumar, was quoted as an ‘extraordinary cooperator’ with the authorities who made a case against one of his longtime friends, Raj Rajaratnam, and his mentor, Rajat Gupta. While they will boil in a hot prison cell, Kumar is free on bail, living in sunny California. Gupta and Rajaratnam are facing stiff punishment, potentially a combined sentence of 25 years in prison, as a precedent for those who think insider trading is still a game. Kumar, on the other hand, might only receive probation and a light prison sentence; he was a perfect rat to a trial that boiled Raj and Rajat’s rabbit. Reuters reports,“In the letter, prosecutors said Kumar was essential in helping the government improve its case and convict Rajaratnam and Gupta, ‘two of the most important securities fraud trials in history.”

On the streets, people wonder how someone who was a lifelong friend of 25 years can turn on his own and that, in turn, leads to suspicion as to the veracity of his testimony. In the white-collar world, it’s a different story, they praise his cooperation and accept his testimony if it strengthens their case.

Kumar’s cooperation undermined Rajaratnam and Gupta who coldly did not cooperate, that mentality cost them more than 10 years in prison. The San Francisco Chronicle writes, “In the world of Rajaratnam and his co-conspirators, cooperation was sadly viewed as a fundamental breach of trust to one another, and cooperators were viewed by many Galleon employees and other members of Rajaratnam’s criminal schemes as ‘ratting out’ a trusted friend,” Brodsky and Tarlowe said.”

They must not have known that one person ratting out the bunch could have undermined them completely. When making a deal with federal authorities, the sentencing can be minimized dramatically, like in the case of Anil Kumar. In other words, it’s bound to happen, to be a wolf after the slaughter does not pay off, the rat is much better off.

Warren Buffet Loves Wells Fargo, but He Made a Dangerous Bet

The oracle of Omaha—Warren Buffet— went on Bloomberg TV Friday morning preaching to the choir again. This time he has reason to be upbeat, a reason to praise his investment in Wells Fargo. Recall, Buffet made some heavy bets on the banking industry a few years ago when the financial system was gyrating out of control. That was a gamble, and one perhaps he had to make. Since that time Treasury bonds have effectively yielded zero, if not negative. It was time for ole’ Warren to make a wager that would put him back in the grandstanding of great investors. What better bet than Wells Fargo, what better time than now?

Since 2009, Wells Fargo’s stock has catapulted from a bottom of around $9 a share to a sturdy price above $30 a share. The reason Warren Buffet bought Wells Fargo, and continued to add shares, is pretty simple; he understands their business model, and he knows how sturdy of a company they are. The San Francisco Business Times cites Buffet, “Buffett was gushing over Wells Fargo on Friday. ‘I like Wells better than anything by far,’ Buffett said. ‘We bought Wells this year. We've bought Wells month after month, well not every month, for a lot of years. ‘I like loading up on the one I like best,’ he said.

A lot of his portfolio is heavily invested in banking and finance; he is the full owner of Geico auto insurance. He buys these businesses because he understands them. Known by everyone in the investment community as a guru, Warren Buffet stated very overtly in his annual investment letter that financial derivatives were a ticking time bomb just waiting to annihilate the financial markets; sure enough that’s exactly what happened. He also mentioned how government bonds would yield near percent and provide negative returns on a real yield basis; sure enough that’s exactly what happened, as well.

Buffet is a masterful risk taker and now is a great time for praise, but there must have been a time during the last 36 months that he scratched his head and mindlessly tinkered with his model train wondering what on earth would become of his investment mote that he so preciously accumulated with Berkshire Hathaway throughout the years. As quoted from the movie Wall Street when Budd Fox’s prudent colleague enlightens him in a emotional evoking scene, “Man looks in the abyss, there's nothing staring back at him. At that moment, man finds his character. And that is what keeps him out of the abyss.” Wells Fargo has kept Warren Buffet out of the abyss. 

San Bernardino bankruptcy turning to eminent domain

Anytime you hear the words eminent domain, you either run for the hills or hold on for dear life. Eminent domain gives the right-of-way to any endeavor deemed for public use by allowing that public use to supersede previous land and home ownership. It walks a fine line of what government can and can’t do.

Now bankrupt San Bernardino is flirting with the idea of applying eminent domain to shore up—and cherry pick—mortgages that are “underwater”. It’s a horrendous idea with good intentions, and you know where a road paved with good intentions could lead. The Wall Street Journal opines, “The housing bust has produced some terrible ideas, but now comes what may be the worst: A California county and two cities hit hard by foreclosures are thinking of using eminent domain to seize mortgages from private investors.”

Those proposing this convoluted idea are Mortgage Resource Partners (MRP), a San Francisco venture capitalist firm with strong ties to California politicians. Note, former California treasurer and now financial reform bigwig, Phil Angelides, was working at MRP before leaving to keep the focus away from MRP’s political exploits.

With nearly half of all homes in foreclosure and an unemployment rate tipping the scale at 12%, San Bernardino County is in a world of trouble. Having to declare Chapter 9 bankruptcy just recently, it wasn’t long ago that San Bernardino was the darling of a real estate bonanza. The New York Times writes, “A decade ago, Fontana and other cities here in the Inland Empire — the vast suburban sprawl east of Los Angeles — were just beginning to boom, with new subdivisions opening seemingly every weekend. Now, San Bernardino County, the largest county in the country, has cities with some of the nation’s highest foreclosure rates.”

Real estate investors with no idea of California’s topography or economy had to do no more than venture out east which meant most investors would buy up in San Bernardino County. It’s the biggest county in the U.S. 

Now that the tables have turned, the county is desperate to salvage its local economy. This type of eminent domain is flirting with disaster. And at any rate, it should be put to a vote before this kind of government intervention is allowed to disrupt people’s ability live out the course of their personal business.

'Total Recall' at Comic Con: A remake with mass appeal

The all new "Total Recall", starring Jessica Biel and Colin Farrell borrows the title from a previous Arnold Schwarzenegger movie, but that's about it. The movie is a visceral rendition of a short story by Philip K. Dick titled "We Can Remember It For You Wholesale".

Jessica Biel opened up at comic-con in San Diego, saying it was really more of a love story, something that wasn't incorporated in the previous movie. Even though she acknowledged the movie is a remake of the previous thriller, she did not mention that "Total Recall" is a remake in more ways than one.

A 1999 Canadian film named "Existenz", starring Jude Law, is the unexpected analogue to the much more appealing "Total Recall" set to debut August 3. Essentially, it's a story about video gamers who take their gaming experience to another level when they venture into an alluring virtual reality. When the provocations of the game lead to unexpected twists and turns, the lust of two gamers takes on a lurid fantasy that evokes the sublime in their experiencing of reality in the game, even providing the antithesis of an existential life, at times.

The movie focuses in and out of an entire gaming experience providing a mise en abyme--a movie device--just like “Inception” did famously with its architecture of dream space. "Existenz" masterfully unveils that which is perceived to be real with the ethereal facets of a virtual reality game that comes hauntingly close to one's own personage. After losing all notions of reality, the couple's love interest is tested in surreal ways as they traverse role-playing scenarios.

This version of the movie is expecting a major box office success with an opening month of $116.65 million, according to Hollywood Stock Exchange.  Movie buffs were bidding as high as $130 million. Comic-con will no doubt help with anticipation for box office success. The Hollywood Reporter cites Jessica Biel illustrating the movie's ultra appeal to not only the fantasy, but also the real emotional love story that it is, "It definitely is an action-thriller film, but to me, it’s an action-drama love story,” Biel said in an interview Friday in San Diego. “We really wanted to tie this movie down to the ground in an emotional way, so you could go away feeling everything, not just excited by what it looks like.”

Wells Fargo Posts 10th Quarter of Consecutive Growth

California bank, Wells Fargo, posted its 10^th consecutive quarter of positive earnings growth. Earnings reported were $0.82 per share up 17%, and up 9% from last quarter.

In their earnings conference call, executives cited solid growth in deposits and mortgage purchases. They also pointed out to an increase in re-financing volume with 6.2 million customers originating mortgages or re-financing at record low rates.

There’s a real sign of confidence by the executives; with a strong balance sheet, they will be looking to continue gainful acquisitions. In 2011 Wells Fargo was able to buy a book of loans from Bank of Ireland and Allied Irish Bank. In the beginning of this year they were also able to acquire a book of loans from BNP Paribas North America in the energy lending business.

Most of the conference call was looking back with forward-looking prospects not looking bad. However, the mortgage industry is a cruel mistress.

A major class-action lawsuit found Wells Fargo complicit in discriminatory practices against ethnic minorities, charging minorities higher rates based on race alone. In addition to the $175 million settlement they had to pay, the bank will also be closing its relationship with mortgage brokers who were aggressively originating loans for Wells Fargo.

For those people who are in the process of refinancing through Wells, Reuters reports the following, “If you've already filed your application with a mortgage broker, your loan should go through as planned. Wells said it would stop taking new broker applications on Friday, July 13. Mortgages already in the pipeline are expected to go through.” Their severing from mortgage brokers will ensure that non-kosher practices will not occur, yet it will slow down their growth as well.

Their core businesses performed well in the quarter, which are well understood by their executive team. Non-interest bearing portfolio; such as, trading and equity portfolio gains were down, while their net interest income was performing well.

Markets reacted favorably to the news with Wells Fargo’s stock going up more than 3% in the day’s trading session. Coupled with earnings from J.P. Morgan Chase, the Dow Jones 30 Index climbed up 1.62%.