Why Newspapers Are Dead

Barry Ritholtz beautifully sums up the declining newspaper business:

I would argue that mainstream newspapers haven’t just lost readers because of the Internet as an abstract new medium, but that they lost readers because they became – with some exceptions – nothing but official stenographers for the powers-that-be. No wonder people have lost all faith in them.

Years from now, anyone who wants to know why newspapers died need only review the paragraph above. Also, I'm not sure why Barry used the plural form of "exceptions"--he probably meant the New York Times.

John Mauldin Interview

Just a short post today.

Here is a great interview with John Mauldin. The interviewer is Wall St Cheat Sheet's Damien Hoffman. More from Mauldin here.

Will Ferrell on Health Care Reform

Protect Insurance Companies PSA from Will Ferrell

Magma Design's Shareholder Meeting (2009)

I attended Magma Design Automation Inc.’s (LAVA) shareholder meeting on September 17, 2009. The company offered attending shareholders coffee, water, untoasted bagels with cream cheese, and assorted pastries. There was no prepared informal presentation.

CEO and Chairman Rajeev Madhavan handled most of the meeting. CFO Peter Teshima also answered several questions. Both CEO Madhavan and CFO Teshima responded to my questions with energy and confidence. I asked several tough questions, and I received good answers. Some quick points:

1. Some of the information provided in the 10K is now outdated. Although Magma’s 10K states, “There is substantial doubt about our ability to continue as a going concern,” (page 11) Magma recently secured financing and will be able to satisfy its May 2010 bond obligations. According to statements made at the meeting, management waived the original 70% voting requirement (page 59). About 54% of the 2010 bondholders participated in the 2010 note exchange offer. This new development allows Magma to avoid distributing all of its cash to the May 2010 creditors.

2. Magma derives a significant percentage of its revenue from outside North America. See 10K, page 24: “we generated 41% of our total revenue from sales outside North America.” Consequently, Magma’s future revenues may not entirely depend on the American consumer.

3. Magma may have patent infringement issues. See 10K, page 27: We believe the patent portfolios of our competitors are far larger than ours, and this may increase the risk that they may sue us for patent infringement...” (To be fair, many tech companies face the possibility of patent infringement litigation.)

4. Other bloggers have said they expect Cadence (CDNS) to buy out or merge with Magma; however, CEO Madhavan seemed mildly upset that his company wasn’t getting the same respect as Cadence and was somewhat dismissive of Cadence’s financial position. In contrast, he had high praise for Synopsys, Inc. (SNPS).

According to a Magma company employee, CEO Madhavan seems to admire Synopsys’ financial profile due to its 90/10 revenue model, where 90 percent of revenue during a given quarter stems from backlog and only 10 percent from same-period deals. On the other hand, according to the same internal Magma source, Cadence and Mentor Graphics (MENT) have not yet achieved this preferred 90/10 revenue model (Magma points out that it achieved this 90/10 ratio two quarters ago). To be clear, CEO Madhavan did not express an opinion of a possible or a preferred merger or acquisition scenario.

I asked CEO Madhavan my usual question: “What is your competitive advantage in the marketplace?” CEO Madhavan answered that Magma software offered a “value proposition.” Using Magma’s software, semiconductor companies could save one million dollars in the process of designing a single chip. My understanding is that Magma’s software streamlines various aspects of chip design, which allows semiconductor companies, especially analog chip companies like Maxim (MXIM) and Linear Tech (LLTC), to use fewer engineers. Obviously, fewer engineers means less overhead for a semiconductor company, and less overhead means more financial flexibility. That’s the short version of Magma’s purported advantage. The following is the long version, based on my conversation with an outside engineer:

Designing chips is expensive because designs usually go through several modifications before they actually work. Engineers first design a circuit on a computer (called schematics). Then, they run modeling/simulations to make sure the circuit runs properly on the computer. After computer testing, the engineers transfer their design from the software/abstract to a physical layout for fabrication. The final step is sending the layout to the fab to make the actual chip. However, even after the manufacturer/fab creates the chip, work is not done. Engineers still have to test the chip in their lab in real-life scenarios. Sometimes the chip doesn’t work to the proper performance specs. This gap in expected performance requires the engineers to go back and re-work the design. The company must go through all the design stages again prior to sending a new, improved design to the fab. Unfortunately, every iteration (i.e., modifying the schematics) costs the company money. Depending on the skill level of their engineers, a company may have to fund several more iterations. Magma is saying that its software reduces the number of iterations and therefore saves chip design companies money and resources.

I questioned the CFO’s reliance on non-GAAP accounting numbers, citing pro forma accounting gimmicks used by Enron. CFO Teshima countered by saying that only “one or two acquisitions were the primary difference between GAAP and non-GAAP numbers.” CEO Madhavan left the meeting saying that Magma was the “new kid on the block,” implying that it wasn’t getting the respect it deserved.

I enjoyed the energy Magma’s executive team brought to the table. The CEO seemed unafraid of his competitors and prepared to compete. Magma’s current share price, which is under two dollars, reflects the company’s recent financial problems. Magma indicates that such financial problems are behind it, and it is confident about the future. In my opinion, Magma has several high risk factors, but also the potential for major upside. Personally, I am going to wait until Magma’s balance sheet improves before making any major purchases, but I will be following the company more closely.

Disclosures: I own an insignificant number of LAVA shares. A Magma employee also had an opportunity to review this post prior to publication and submitted some comments to me. I incorporated a few of his comments, mainly relating to the 90/10 revenue model and paragraph 1, which starts, "Some of the information provided..."

Liberal Judges vs. Conservative Judges

I was thinking this morning about courts and politics. I've discovered I tend to get along very well with former military servicemembers and police officers. One of my best friends is a JAG (from ultra-conservative Orange County, no less). Another lawyer I respect is also a JAG. While I don't know many police officers, I've found most of them to be hard workers.

As an anti-war libertarian, I find it strange that I can easily socialize with people on opposite ends of the philosophical spectrum. (At least now I understand Ron Paul's comment that individual military servicemembers, as a group, contributed more to his presidential campaign than to any other candidate's.) I did some thinking, and I realized I get along with liberals because I favor change and diversity, and I get along with conservatives because I see the limits of the law in creating any real change. In other words, I am hopeful enough to get along with the liberals, but cynical enough to see the inefficacy of most liberal programs.

As attorneys, there comes a period of time when we get enough experience to see the system as it is, not as we want it to be. Think of the famous Gandhi quote--"Be the change you want to see in the world"--but minus the idealism. After we clean the pixie dust from our eyes, young lawyers look at our student loans and get back to work. (The potential for starvation helps clear the mind rather quickly.) We realize, sadly, that the law doesn't matter so much as the audience, and the only audience that much of the time is the judge, who gets selected randomly. Is it strange to think that the law relies so much on randomness? I assure you, at some point, you get over it, or you go insane. As fans of Trainspotting will appreciate, I choose sanity.

I have also noticed that conservatives tend to work harder. For example, I've noticed that judges who were former military servicemembers work the hardest. Even politicians who used to be military, like Chuck Reed, are known for working hard. Servicemen don't seem to lose their work ethic, and they bring it with them to every job, whether it's politics or the bench. Thus, while many government jobs are filled with "lifers" resistant to change and who do the absolute minimum required, the military is probably the one branch of government that demands you work hard, no exceptions allowed. As a result, when servicemembers finish their military commitment, they bring the same "hardcore" attitude to their civilian careers. In my experience, judges who are ex-military usually read the court filings and are well-prepared for court hearings, even if they don't reach a fair result or go overboard. Many other judges are quite content to show up and let their law clerks do most or all of the work, but that lax attitude doesn't seem to afflict most ex-military members.

Police officers tend to function like military servicemembers. They're also hardcore, and they respect hard work. (By the way, the police officers I've met usually hate Democrats, because they think Democrats are naive in thinking their policies or laws would have any effect on a child molester or a drug dealer trying to make a buck.)

So why do I tend to get along with cops and military servicemembers, even though I am anti-war and I favor more police oversight? I guess it's because I'm hardcore, too. I'm fond of saying, "I do what I say, I say what I mean." As I get older (cue Winston Churchill and his comment about young hearts and old brains), I've noticed that many self-proclaimed liberals tend to be big thinkers and big talkers but lack the capacity for actual sacrifice. For example, I recently saw a liberal activist with a T-shirt that said, "Anti-War." Well, that's great, but how does buying yourself a T-shirt help some little kid in Iraq? Personally, I would take that T-shirt money and donate it to kiva.org, the Red Cross, or some other organization. That's the problem I've seen with many liberals--they have strong views, but they refuse to sacrifice anything themselves. It's usually someone else who has to do the sacrificing--either the rich, the small business owner, etc.

As for liberal judges, I've found many of them tend to have a poor work ethic. While the conservative judges are at home reading the papers for court the next day, the liberal judges tend to be teaching law classes, giving seminars, publishing some legal treatise--i.e., something that allows them to impart their knowledge to the public.

Don't get me wrong--I love legal seminars, especially the ones that include judges. But other than one judge, who's in federal court, I don't tend to see liberal-minded judges prepared with insightful questions to ask. One time, I provided a liberal-minded judge with extensive legislative history relating to a law. I marked in bold and 14 point font all the relevant sections of the history that showed the judge that his law clerk's statutory interpretation was wrong. The judge practically freaked out (I could almost hear him thinking, "You don't expect me to read all this, do you?"), and--in my subjective opinion--may or may not have ignored the legislature's intent.

Maybe I'm a terrible oral advocate, but I've left court several times feeling like my hard work and research were a waste of my time and my client's time. Too often, there are no tentative rulings to focus the oral argument, or the judge does not ask me a single question. As a result, I've become critical of judges who rely solely on their law clerks, even when their clerks do excellent work. As far as I'm concerned, judges who don't personally read the legal briefs are stealing from taxpayers. It seems no different than a lawyer who bills for time never worked. A lawyer who tried to bill for unworked hours would be fired, so why should a judge be treated any differently? After all, judges are paid for their time and expertise, just like lawyers. Shouldn't they read the legal briefs, even if they have research attorneys?

Before addressing some differences between conservative and liberal judges, it's important to note that I am generalizing--there are liberal judges who are hard-working, and conservative judges who appreciate nuance. At the same time, I have noticed some distinct patterns among liberal judges and conservative judges. In my experience, conservative judges tend to read the papers; either ask relevant questions or none at all (think Clarence Thomas); tend to work hard; tend to avoid legal seminars and other outside legal activities; and have a well-run, efficient courtroom (i.e., if someone starts repeating arguments already stated in the papers, they get cut off).

The downside to conservative judges is when they're good, they're great, but when they're bad, they're the Devil's spawn. Really horrible conservative judges, for example, think they're the only thing standing between anarchy and civilized society. As a result, if the bad conservative judge hates your case, you and your clients will get sanctioned or will suffer somehow. Another characteristic of terrible conservative judges is that if you don't suck up to them, you will pay for it. The legal system has many technicalities, and a bad conservative judge can make your trial or legal motion Kafkaesque if he feels like you're not giving him appropriate respect; in the alternative, he may just dismiss your case, knowing that your client probably doesn't have the resources to appeal.

In contrast, liberal judges tend not to sanction parties, even when they richly deserve it. Say what you want about "sympathetic" judges, but when it comes to avoiding embarrassing scenarios, I'm putting my money on the liberal judge. At the same time, generally speaking, liberal judges tend to believe their compassion and wisdom absolves them from reading every paper that is filed. Perhaps that is a reasonable perspective. After all, most law/research clerks are quite good, and they summarize the legal papers very well. The downside to relying on law clerks is that it takes a long time for a new lawyer to get any respect from some liberal judges. If a new lawyer is good, but the judge never reads his papers, the new lawyer will never get any respect.

When I first started out, I could tell who read my legal briefs by the level of respect I got from the bench. Typically, due to my youthful appearance, if a judge hadn't read my legal briefs, he would act like he was doing me a favor when I won. In contrast, the judges who had read the papers knew I wrote well, and they would treat me no differently than anyone else. Over time, I realized that most of the judges who read my papers happened to be more conservative. I really enjoyed not being treated differently just because I didn't have 40 years of experience. After all, if your papers are well-written, and you cited the proper case law, why should the number of years you've had a bar card matter?

Again, I realize this post relies on generalizations, but I hope you've enjoyed it. One last comment: if you get the chance, vote for female judges. There aren't enough of them in court, and, just like in real life, the more women around, the less likely it is that the men do crazy things. According to the Federal Judicial Center's History Office, only 25% of Article III judges are female, and only 1% identify themselves as Asian Americans. (Source: Shawna Wilson, Oct 2009, Young Lawyer.) I don't know the exact state court statistics, but a similar gender imbalance probably exists in California state courts.

P.S. I just realized a shorthand way to summarize my entire post. Have you seen the early episodes of the TV series, Scrubs? If so, think of Bob Kelso as the average liberal judge--the one who doesn't practice medicine and lets other people do much of the work--and think of Dr. Cox as the average conservative judge--the one who looks like the a**hole, but who's really the main person holding up the place. I'd probably play Dr. Dorian, who, "despite his numerous flaws, quirks, and personal insecurities," is shown to be a very competent doctor. Well, at least that's what Wikipedia says.

P.P.S. Make sure you read Ken's comment. Overall, he may be right that there are only two categories of judges: judges who require strict, slavish compliance with evidentiary rules, and judges who don't. But Ken's comment also tells you that judges have wide discretion in interpreting the evidence rules, which should tell you that the rules are too convoluted. The more convoluted the law, the more the legislature is allowing judges to potentially decide outcomes based on individual preferences.

Let me give you two examples of a judge administering evidence rules differently. In one trial, opposing counsel had numerous emails that hadn't been verified, i.e., no custodian of records appeared, no declaration, just a bunch of emails sent by some employees. No one was disputing that the employees had sent the emails. Opposing counsel waited the end of his examination before asking the court to admit the twenty or so emails into evidence. The judge, knowing my objections would require tedious parsing of the emails, glared at me, almost daring me to tick him off by making an objection. This was a bench trial (no jury), so I didn't object to the emails. The judge admitted the emails into evidence. The judge glaring at me won't show up anywhere in the record or transcript.

In another case, I had numerous emails to introduce. All emails were given to me by the corporate defendant. All the people who had sent the emails used corporate email accounts. No one was disputing that the plaintiff had sent these emails. A company employee admitted on the stand that no one had hacked into the server, and there was no reason to believe the emails had been altered or forged in any way. Opposing counsel came from a large law firm and objected several times to the emails. The judge refused to admit the emails into evidence.

What's the difference between scenario A and scenario B? I don't know what to tell you. One was a jury trial, and the other one was non-jury, but that should not have made any difference. By the way, the same judge presided over both trials.

[Update: about a year after the trial in which the judge refused to admit numerous emails into evidence, I had another jury trial with a different judge. This trial also involved several important emails. I was able to get the emails admitted into evidence.]

(A federal judge, the Hon. Judge James Rosenbaum, has tried to come up with a solution, FRE 808; however, other than one law review article, I don't see much else on this new proposed rule of evidence.)

Capitalism

Why Capitalism Fails, by Stephen Mihm:

Modern finance, [Hyman Minsky] argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse...Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff...

As Minsky observed, “Success breeds a disregard of the possibility of failure.”

Not entirely surprising, is it? Remember LTCM?

Carlos Miller, Police, and the 1st Amendment

Carlos Miller has an interesting blog. If you're into photos, police, and/or the First Amendment, check it out here.

Hat tip to Popehat. Here is "Ken" pontificating below:

I’m grateful to cops, as a group. They do a frequently awful job under frequently abysmal conditions. That job is necessary to our safety. They deserve thanks for that — as do many other groups in our society. But I fall off the “hero” bus when people suggest that I owe individual cops respect no matter how they behave, and that I owe cops an obligation to look the other way when they ignore the rule of law, and that we ought to cut cops a break when they act like bullies any more than we would cut a break to a thug in an alley.

Can I get an "Amen"?