Case Blog

The current financial crisis, which has resulted in the worst recession since World War II, will come to an end when confidence is restored in our global financial institutions.  Treasury Secretary Tim Geithner learned very quickly last week that the markets want more than a blueprint, they want a specific plan that will lead to the balance sheets of our largest money center banks being healthy and the subprime toxic assets isolated.  He and his colleagues in the Obama administration need to come forward with a transparent plan that starts to restore confidence.  The need for transparency is greater than at any time in recent memory and it must be combined with a plan that provides decisive actions.

We also need the Obama team to start to demonstrate some optimism that there will be a recovery. On January 9th, 1961 President-Elect John F. Kennedy inspired a nation with such optimism in a speech delivered to the Joint Convention of the General Court of the Commonwealth of Massachusetts.  He said, “During the last sixty days, I have been at the task of constructing an administration. It has been a long and deliberate process. Some have counseled greater speed. Others have counseled more expedient tests. But I have been guided by the standard John Winthrop set before his shipmates on the flagship Arbella three hundred and thirty-one years ago, as they, too, faced the task of building a new government on a perilous frontier. ‘We must always consider,’ he said, ’that we shall be as a city upon a hill–the eyes of all people are upon us.’  Today the eyes of all people are truly upon us–and our governments, in every branch, at every level, national, state and local, must be as a city upon a hill–constructed and inhabited by men aware of their great trust and their great responsibilities.”

President Ronald Reagan in his farewell speech on January 11th, 1989 also spoke of the “shining city upon a hill.” He said, “And that’s about all I have to say tonight. Except for one thing. The past few days when I’ve been at that window upstairs, I’ve thought a bit of the ‘shining city upon a hill.’ The phrase comes from John Winthrop, who wrote it to describe the America he imagined. What he imagined was important…I’ve spoken of the shining city all my political life, but I don’t know if I ever quite communicated what I saw when I said it. But in my mind it was a tall proud city built on rocks stronger than oceans, wind-swept, God-blessed, and teeming with people of all kinds living in harmony and peace, a city with free ports that hummed with commerce and creativity, and if there had to be city walls, the walls had doors and the doors were open to anyone with the will and the heart to get here. That’s how I saw it and see it still.”

President Obama has both the mandate and the oratorical skills to help restore a sense of confidence and optimism. He needs to communicate directly with the American people that we will find our way to a recovery.

In our own small way the team at Asset International works every day to provide transparency to our readers.  Nevin Adams, the editor-in-chief of Plan Sponsor (www.plansponsor.com), provides the leadership to our editorial team and encourages them to deal, forthrightly, with issues of the day and how they impact both plan design and investment strategies.  Nevin, as most of the best business editors I have known, came to Asset International from an industry position. This background provides him with a unique vantage point and insures that Plan Sponsor is a “must read” and a trusted information source for our subscribers.

On the deal front, we saw John Malone and Liberty emerge as a possible white knight for Sirius XM. As the first major tranche of bonds come due on Tuesday, Mel Karmazin and his board will have to make a decision on Charlie Ergen and the Dish Network, John Malone and DirecTV, or bankruptcy. As a subscriber, I am assuming that any of these options will allow me to continue to listen to CNBC as I drive to and from AI’s offices in Stamford.

This past Monday morning as I was preparing for my evening flight to London and reflecting on the exciting Super Bowl win by the Steelers on Sunday evening, I received an email notifying me that my Virgin Atlantic flight from JFK to London had been cancelled because of snow. London had just been hit by its worst snowstorm since the early ’90s.  I turned on CNN and after a short time I heard London’s mayor, Boris Johnson, explain why snow plows were not justified when you did a cost-benefit analysis. Once every twenty years, you shut down for a day or two. The city ground to a halt. My trip was delayed for a day and London came back to life by the time I arrived on Wednesday morning.

I decided that I needed to read a football book on the flight over that reflected in some ways the tradition that the Steelers and the Rooneys have built.  I chose “WAR As They Knew It: Woody Hayes, Bo Schembechler, and America in a Time of Unrest” by Michael Rosenberg, which I had purchased as a Christmas gift on Amazon but realized that my list did not have anyone on it for whom it seemed appropriate. It went on to the bookshelf, while I waited for a long, round-trip flight.

The “ten year war” between Ohio State and “that school up north” began when Woody’s former protégé and former assistant, Bo Schembechler, became the head coach at Michigan. In their first meeting in November of ‘69, a game I still remember, the Buckeyes went into Ann Arbor with a 22-game winning streak on the line and lost to the Wolverines, 24-12. In ‘73 both teams entered that year’s match-up undefeated with a trip to the Rose Bowl in the balance. (In those days, only one school from the Big Ten could represent the conference in a bowl game and that bowl game was the Rose Bowl.) They fought to a 10-10 tie. The 10 athletic directors from the Big Ten voted and Ohio State was selected to go to the Rose Bowl.  This decision did not sit well with Michigan fans. After 10 years of war, Bo’s record vs. Woody was 5-4-1.

As we were landing back at JFK on Friday evening and I finished the book, I thought back to the IDG vs. Ziff-Davis battles in the ’90s, which I wrote about in Rivals this past June, and decided that Asset International is going to need a strong competitor to keep us focused as we look to grow the business on a global basis. We are having a sales meeting in several weeks and this clearly will be one of the breakout topics!

London is where we publish Global Custodian. Charlie Ruffel launched this brand 20 years ago in New York. As Asset International grew and he launched events and other publications, including Plan Sponsor, the leading resource for pension and retirement issues, Charlie turned to a former classmate from Cambridge, Dominic Hobson, to take over the editorial responsibilities for Global Custodian. Under Dominic’s leadership it has continued to distinguish itself as the leading information source covering the international securities services business. It has become the relied upon source for investment professionals around the world. And its annual surveys have established benchmarks for the entire industry.  This coming June we will celebrate this 20th anniversary milestone with the industry in London , and toast GC, Charlie and Dominic.

Before I end this column, there’s one more competition heating up I want bring to your attention. Just when I thought there might not be many deals to write about in the first quarter, along comes a potential battle between Mel Karmazin’s Sirius XM radio and the tenacious Charlie Ergen, who controls EchoStar.  Karmazin has been battle tested and scarred from losing his war with Sumner Redstone over the leadership of Viacom, but Sirius XM has significant debt that is maturing shortly. In an interesting strategy that may well reflect the times, Ergen has been buying up a substantial part of the bonds that are coming due.  In spite of the low level of new car sales (this is where most satellite radio subscriptions are sold) and the negative impact on subscriber growth, with the merger completed and costs being cut, this 19 million strong subscriber-based business is going to be attractive to Ergen, if he can take it over prior to bankruptcy or even in the bankruptcy process. Can John Malone, who now controls DirecTV through Liberty, sit on the sidelines and watch this battle unfold? Will Rupert Murdoch view this as an opportunity to re-enter the U.S. satellite business, after having traded Malone DirecTV in exchange for his News Corp position?  In the current market, we may see more media deals that involve over-leveraged assets from another time, with the bond holders controlling their fate.