Explaining Southern California's economy

Business Insider: Tech bubble? What tech bubble?

DLD Conference 2012 - Day 2

Johannes Simon/Getty Images

Henry Blodget, CEO and Editor-In Chief of Business Insider, speaks during the Digital Life Design conference in Munich, Germany. He doesn't think there's a tech bubble.

Business Insider just wrapped its "Startup 2012" conference in New York yesterday, where it's promoting its new BI Intelligence service, which is being spearheaded by Pascal-Emmanuel Gobry, Alex Cocotas, and BI CEO Henry Blodget. 

They put together an entertaining presentation about whether there's a tech bubble a-swellin' up right now, getting ready to pop and make us scream and keen and cry out loud. (Is there a bubble? BI Intel says, resoundingly, "Nope!") But before I get into that, and a Twitter exchange I had two weekends ago with Leigh Drogan of Surfview Capital, about the whole bubble thing, I would be somewhat journalistically remiss if I didn't express one significant reservation about this whole BI Intel project.

For starters, I am Business Insider's number-one fan, in L.A. at least. Henry and his crew have figured out how to stitch together the wonky econoblogsosphere with the aggregational accumen of the Huffington Post and the jaunty and at times borderline slapdash (in a good way) tone of the early Gawker. I think the site looks like hell, but that's part of its charm. And anytime anything happens in the business and economy world — and even these days the wider world (SEO is alive and well) —I often check BI to get their take. Joe Weisenthal is a complete maniac, in the very best bloggy sense of that sleep-deprived sobriquet.

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Blog Wars, Part II: A watchdog for bloggers

A Conversation with Joss Whedon Greenroom Panel - 2012 SXSW Music, Film + Interactive Festival

Michael Buckner/Getty Images for SXSW

A South by Southwest attendee at a panel discussion. As you can tell from the uniform, not a blogger.

Blogging is definitely entering a surly, complex middle age. What started out as a frisky means of self-expression, a way to comment on the news of the day, and a highlight reel of the World Wide Web has become a business. And some folks think that the business of blogging is in the business of getting away with whatever it can.

Or they're just...dealing with the fact that blogging-as-business has developed a hyperactive metabolism that provokes infractions.

Take for example Henry Blodget's mea culpa after pasting the Wikipedia entry on the My Lai massacre into a recent blog post at Business Insider. It's no longer pasted in. Because, as Blodget puts it, Gawker freaked out. Maybe Gawker was right to freak out. But then again Blodget does write plenty of posts that are fairly dense with real business analysis, so it's hardly his pattern. 

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Why Apple won't become a $1,000-per-share company

Apple's New iPhone 4s Goes On Sale

Justin Sullivan/Getty Images

Apple Store customers look at the new Apple iPhone 4Gs on October 14, 2011 in San Francisco, United States. The new iPhone 4Gs features a faster dual-core A5 chip, an 8MP camera that shoots 1080p HD video, and a voice assistant program.

Apple finished up the day at $545 a share. So it's almost halfway to being a $600-a-share company. Which would put it $400 from being a $1,000-a-share company. And there's a raging debate right now in the financial world about whether Apple can make it across that finish line and become the first-ever $1 trillion market cap company. 

For perspective, no one has even even gotten close. And $1 trillion is about as much money as has been made on the Internet in its entire history so far. Big number. Very, very, very big.

At Business Insider, former tech stock analyst (and BI CEO) Henry Blodget makes what I think is the best case against Apple getting to $1,000 a share:

The most extraordinary aspect of Apple's business right now is not its revenue growth, which is plenty extraordinary. It's its profit margin.

In fiscal 2011, Apple had a mind-blowing 24 percent net profit margin.

Why is that mind-blowing?

It's mind-blowing because hardware companies just don't have profit margins like that. Even software companies don't usually have profit margins like that.

The hardware business is generally a cut-throat commodity business with razor-thin profit margins.

Dell, for example, which used to be considered a talented hardware manufacturer, has a 4 percent profit margin. HP, which sells hardware and software, has a 6 percent margin. IBM, which sells hardware, software, and services, has a 15 percent margin.

So you can understand why Apple's profit margin is mind-blowing.

And—here's the important point—Apple's mind-blowing profit margin may well be a temporary aberration.

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Reportings: MF Global; Yahoo takeover; debit-card fees; Tribune bankruptcy

Mercer 266

iStockphoto

Person using debit card

MF Global, the bankrupt wannabe global investment bank run by Goldman Sachs alum and former New Jersey governor Job Corzine, may have been mixing client money with its own funds, a definite no-no: "'While we are unable to determine the precise scope of the firm's violation at this time, we are investigating the circumstances of the firm's failure,'" [Chicago Mercantile exchange CEO Craig] Donohue said in a conference call about his company's quarterly financial results. (LAT)

 

Henry Blodget still wants to be the CEO of Yahoo, but now he wants the board to resign — because that's what Steve would demand: "Steve [Jobs] taught many people many things, and one of the things he has now taught me is that you need to set your terms upfront. Especially when dealing with a board that is, slowly but surely, destroying a once-great company." (BI)


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Saving the economy: Infrastructure spending isn't enough

Occupy LA

Eric Richardson / Blogdowntown

Participants in Occupy Los Angeles rally on the steps of City Hall after marching from Pershing Square on Saturday, Oct. 1, 2011.

At Business Insider, Henry Blodget offers a plan to save the economy. In the process, he says that he's choosing sides in a religious-econo war, between the big-spending Keynesians on one side and the no-spending Austrian School economists on the other (this is a super-shorthand version of the major economics debate of the past 100 years). His solution? Massive infrastructure spending:

  • The government should construct and pass a long-term budget plan that
    • Minimizes short-term pain, while
    • Getting the long-term deficit under control
  • This budget plan should be designed to benefit all Americans, not just special-interest groups or different classes or industries
  • This budget plan can theoretically include an increase in short-term spending designed to minimize the country's pain, as long as it also includes a decrease in long-term spending (again, right now, the world is willing to lend us as much money as we want)
  • One form of government spending that unequivocally benefits all Americans is infrastructure spending (when the projects are finished, America has the infrastructure)
  • Infrastructure spending would help America address another reality that has emerged in the past three decades—the reality that the infrastructure of many countries in Europe, Asia, and other regions has vaulted past that in the US and made the US look like a second-world country
  • Infrastructure spending would boost employment in one sector of the economy hammered by the recession—construction
  • Infrastructure spending would involve fewer of the conflicts and misaligned incentives that infuriate many Americans about "entitlement programs," extended unemployment benefits, welfare, food stamps, and other government expenditures that seem to encourage sloth and laziness and "socialism"
  • The 10-year government budget designed to get us out of our current predicament, therefore, should probably include a massive, multi-year infrastructure spending program.

This makes a lot of sense and sticks to the Great Depression playbook, when Harold Ickes oversaw the Public Works Administration and built much of the heavy-duty infrastructure that we assoiciate with that period and the recovery from the crisis. But just as it wasn't enough on its own in the 1930s, it won't be enough in the 2010s. 

For that, the other half of the Great Depression playbook needs to be used. This is the Works Progress Administration, overseen by Harry Hopkins. Its focus was simple and short-term: jobs, jobs, jobs.

Infrastructure spending is the perfect way to find detente between the Keynesian spenders and the Austrian no-spenders because it represents investment rather that, bluntly stated, waste. If you're going to spend, spend long-term and build what the country needs to be competitive in the future. Who can argue with that? In fact, there's aready bipartisan enthusiasm for infrastructure spending. 

But what do you do about, for example, 12 percent unemployment in California — right now? If you follow the Hopkins rules, you throw money at the problem, spending now and asking questions later. At best, you restore dignity and save citizens from the threat of long-term unemployment; at worst, you pump money into some pointless endeavors that won't yield much of anything in 30 years, but will at least attack the problem of idle human capital.

Occupy Wall Street and its offshoots have shown us that there's a lot of rage and frustration in the land. Rebuilding the nation's infrastructure is a great, partial solution. But if we're going to stave off the potential social fracture that now looms, we need to get the unemployed to work, and we need to do it a lot faster than the time we'll need to approve bridges, tunnels, and roads.

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