Yahoo and Microsoft Saga Continues

Jerry Yang reached out to Microsoft and was met with partial rejection. Yahoo had increased around 7% this week on rumors of a Microsoft buyout. Today, Steve Ballmer shut down any hope of a buyout, causing Yahoo shares to decline by around 14%.

Continuing the romantic analogy I've used to describe this situation (Yahoo Shareholder Meeting (2008)), Ballmer basically said he is willing to sleep with Yahoo but not marry it--in other words, he will partner with Yahoo but not buy it. Yahoo must feel terrible knowing that Wall Street values its stock more by Microsoft's intent than on its individual growth prospects. Can't a woman just be independent and attractive? The market is treating Yahoo like an old woman with no other prospects, no job, and no education, who needs to find a man quick or be cast into a dungeon. It would be funny if it wasn't so wrong.

Yahoo can do fine on its own. Its home page continues to rank in the top two for visitors. It is doing very well in Japan. Also, the recession will help Yahoo keep more of its American talent. Yahoo's salesforce might be its biggest problem--it needs to focus on getting major ad accounts to boost its revenue, and it has lost some key sales personnel. At least now, Jerry Yang can't be completely blamed for Yahoo's stock price--he reached out to Microsoft and was rejected. It's time for Susan Decker to talk to Time Warner and buy its AOL property. After all, the best revenge in romance is finding another desirable partner.

California's State Budget

California will raise taxes to stem a massive budget crisis:

http://news.yahoo.com/s/ap/20081106/ap_on_bi_ge/california_budget

Two items in the article tickled my tragedy bone:

1. The additional 1.5% raising of sales taxes. It's being called a temporary tax, but as we know, the government rarely retracts a policy when doing so would mean a reduction in tax receipts. In addition, this tax will fall disproportionately on the poor and middle classes and will discourage holiday spending. I am not opposed to raising sales taxes in general, but now seems like a terrible time to do it.

2. The state's admitted over-reliance on capital gains tax receipts. Apparently, our controller was basing budget projections on an ever-increasing stock market. Are you kidding me? Someone ought to send Sacramento a self-destructing copy of Dow 36,000 pronto. The origins of California's financial and housing crisis come into clearer focus with each passing day--total blindness and overzealous optimism are never a good pair.

Leif Pettersen's Travel Blog

The only economics-related aspect of this post is that the author is a former MN Fed Reserve employee. He quit his job to become a travel writer, and his blogs are both informative and fun to read:

http://www.leifpettersen.com/

In another life, I think I want to be a travel writer. Here is my favorite post so far--love the pictures, especially of the gold Buddhas (Wat Traimit):

http://www.leifpettersen.com/leifinasia3/bangkok.htm

Earnings Estimates

Bloomberg is reporting that earnings estimates are finally being lowered:

Bloomberg Story

Once analysts reduce earnings per share, we will still have problems with predicting earnings from financial companies, but stocks themselves will be more attractive. People will still buy prescription medication, Coca-Cola, TVs, and McDonald's, and a host of other products even if their debt levels increase or if their houses are not worth as much.

Economic Plans

For the lawyers and policy geeks out there, I present to you the following:

Here is the Paulson plan (TARP Capital Plan), which was not passed:

http://paul.kedrosky.com/archives/2008/09/20/text_of_paulson.html

Here is what ultimately passed--the Emergency Economic Stabilization Act of 2008 (EESA):

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/28/AR2008092800900.html

More to come from our government, I bet. One question--if Sarbanes-Oxley didn't solve the problem of lying CEOs, what makes anyone think more regulation is going to fix our current problems? I don't know how to fix our economy, but I am surprised more condo/townhouse complexes aren't renting rather than trying to sell vacant units. I am also surprised that government officials are not talking more about assisting apartment complex owners and renters. If rents fall low enough, people can walk away from their houses and rent at reasonable prices. Then, the housing crisis becomes a matter of banks lowering housing prices to a level where it makes sense for prospective homeowners to buy. Perhaps I am missing something, but if I were Congress, I'd pass a $5,000 rental tax credit for families whose houses were underwater. I bet the banks would quickly start negotiating better terms for the current homeowners to convince them to stay or would keep the houses on their own books and start renting them to the current residents.

"Yes We Can"

President-elect Barack Obama won the election and delivered an inspirational speech that left Oprah and Jesse Jackson in tears. Prior to Obama, John McCain delivered a speech that confirmed he's one of the most honest ("The American people have spoken...and they have spoken clearly.") and dignified politicians in American history.

98% of the results have been tallied, and the popular vote breakdown is as follows:

Obama 53%/ McCain 46% / Other Parties 1%

I predicted 53% / 44% / 3%, so I wasn't too far off. I overestimated the support the Green Party, Libertarians and Ron Paul write-ins would receive.

McCain's choice of Palin may be viewed as a poor decision by future historians; however, the theory in picking her was sound. Republicans have two competing strains--one is libertarian-ish, wanting lower taxes, fewer earmarks, less government spending, and smaller government; the other is Christian, wanting religion and their version of family values to be recognized. McCain believed he could attract the libertarian side by himself, so he chose Palin because he thought she could steer the Christian side to his camp. Theoretically, it might have worked, but he was left with what many people thought was more of a political Frankenstein than a perfect compromise.

If Palin really does get enough money to run for election in 2012, I predict another eight years of Democrats in the White House. The road to the American presidency goes through California, New York, Texas, Pennsylvania, Florida, and/or Illinois. It decidedly does not go through Alaska, Arizona, Oklahoma, Kentucky, or Alabama, most of which are losing residents while the less religious states gain residents. Using this electoral vote angle, Hillary Clinton supporters might admit that choosing Barack Obama over Senator Clinton was a wise choice--New Yorkers would vote Democrat anyway, and Obama would guarantee Illinois. The Republicans are now in a poor position--Jeb Bush is political kryptonite because of his family name, and there are few Republican politicians other than Senator McCain and Ron Paul who inspire Americans.

Let this be a lesson to the Republican party: you have to choose sides. Either you return to the prestige and integrity of Eisenhower, Goldwater, or Jefferson, or you take the American people into a religious era in a country that has wisely favored separation of church and state since its inception. In short, does the Republican party want to be the party of freedom and fiscal responsibility, or a conservative Christian party? It is time to choose.

Update on November 6, 2008: Greg Mankiw has similar thoughts on where the Republican Party should go:

http://gregmankiw.blogspot.com/2008/11/youth-vote-and-gop.html
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Obama's victory speech:

CNN Transcript (Obama)

McCain's concession speech:

CNN Transcript (McCain)

http://www.cnn.com/ELECTION/2008/results/president/allcandidates/

92 Yr Old Woman Votes in Ambulance

This voting story just about sums up the intensity of this election--click on the link to read more:

AP Story

The line that stood out the most?

"She cast a straight Democratic ballot Tuesday."

2008 will go down in history as one of the most turbulent times in America. We had a stock market collapse, more deaths in Iraq, a sitting President who lost respect domestically and abroad, Russia's invasion of Georgia, crude oil reaching $120/barrel, and a nationwide housing crisis. I don't know about you, but I will be so happy on January 1, 2009.