While most people were taking their last vacation before the grind to Thanksgiving, President Obama announced a new $50 billion infrastructure spending plan to boost employment as well as a permanent extension of R&D tax credits. Then today, the administration signaled they will announce a new tax break for plants and equipment.

Will these new plans benefit the economy and reduce unemployment?

Absolutely Not

“The only path back to robust growth and prosperity is to stop this agenda dead in its tracks, and then by stages to reverse it,” opines the Wall Street Journal. Stimulus I cost taxpayers $168 billion. Stimulus II cost taxpayers $814 billion. Plus, the Federal Reserve has reduced interest rates to zero and expanded their balance sheet over $2 trillion. All we have to show for it is a 1.6% recovery and hardly a dent in unemployment. Let’s not rinse and repeat.

You Better Believe It

Ben White at Politico says, “It’s all part of an aggressive White House effort to both boost a struggling economy heading into a difficult midterm election — and, in the case of the investment credit, to reverse a long-standing perception that the administration is hostile to the interests of big corporations.” This money will help businesses free up capital to hire new workers and transact new business.

Who Cares? It Won’t Pass Anyway

“Given a tight work schedule, plus Capitol Hill’s bitter partisan atmosphere, it’s unlikely that Congress will pass Obama’s new plan prior to the November elections,” says Peter Grier in the Christian Science Monitor. “Following that, expected GOP gains would make passage of such new efforts much more difficult.” So, get back to your post Labor Day work and don’t waste time loving or hating the new plan.

The Environmental Protection Agency and the Transportation Department are out with a new proposal to give cars a letter grade (A-D) based on fuel efficiency and emissions. Is this another attempt by the government to legislate value judgments?

This is needed transparency. “The design incorporates a lot more information yet stays relatively clean, and the inclusion of a Quality Rating code is thoughtful,” says CrunchGear blogger Devin Coldeway. This is definitely an upgrade to the old labeling system that does not help consumers make accurate decisions.

The Feds have no business rating cars. The Wall Street Journal reports, “The proposed letter grade falls short because it is imbued with school-yard memories of passing and failing,” said Dave McCurdy, president of the Alliance of Automobile Manufacturers, the industry’s largest trade group. A spokeswoman for the alliance added that “grades may inadvertently suggest a government label of approval.”

Our Take: This is the Information Age. More transparency helps consumers make smarter decisions based on facts rather than marketing and spin. And if someone doesn’t care about fuel economy or emissions, they are free to ignore the data point. Have no fear: car makers and dealers will still have plenty of shiny marketing material to flaunt all the other qualities you may desire in a car.

Let us know your thoughts in the comments below …

Federal Reserve

The Wall Street Journal published an article this morning that offers a glimpse into the divisiveness in policy stances within the Fed’s Board of Governors as the economy hits a crucial inflection point on our road to recovery.  Although this latest FOMC Statement still only had one dissenter, the rest of the Board was far from united in deciding to embark on QE Lite.  With markets set to open decidedly lower today, it is a particularly intriguing time to discuss the future of Federal Reserve policy, but first let’s take a look at some of the debate from this latest FOMC meeting.

Whereas Alan Greenspan ran the FOMC as his own mini-dictatorship in which he required unanimous consent with his own views, Ben Bernanke takes a different, more democratic approach.  This offers us some important insight into what policy maneuvers we should expect from the Fed moving forward:

The meeting was a case study in Mr. Bernanke’s management style, which reflects his days as chairman of Princeton University’s economics department when he had to manage a collection of argumentative academics with strong personalities and often divergent views. Mr. Bernanke encourages debate and disagreement, and then weighs in at the end with his own decision, which has helped him win loyalty at the Fed, even among those who disagree with him, several officials say.

Seemingly this particular debate only set the stage for what is to be a much larger, more contentious debate moving forward:

The debate over the decision to keep the Fed’s $2.05 trillion stock of mortgage debt and U.S. Treasury holdings from shrinking, described in interviews with several participants, set the stage for a more consequential discussion inside the Fed that remains very much alive: what to do next, if anything, about America’s stubbornly weak recovery and troublingly low inflation.

And the Fed members all:

…seek to avoid either deflation, a broad decline in prices and wages, or an upsurge of inflation. And they share a strong desire to get the economy growing fast enough to sustain a recovery without unusual government support.

Basically the Fed understands that the stakes are incredibly high right now.  As we all know, the real, consequential debate is whether the Fed should restart quantitative easing altogether.  While it appears that it would have been difficult to build a consensus within the FOMC to move towards all out quantitative easing, market action alone necessitated some form of tweaked policy:

Before the meeting, officials at the Federal Reserve Bank of New York, which manages the Fed’s portfolio, had grown concerned….The Fed’s portfolio of mortgage-backed securities was about to begin shrinking much more rapidly than anticipated, as low mortgage rates led more Americans to refinance their mortgages. That in turn meant the mortgage-backed securities held by the Fed were being paid off.

Not only did the Fed’s balance sheet shrink since the last FOMC meeting, but so too did markets encounter a whirlwind of volatility.  Many market observers had expected, or rather had the hopeful expectation, that the Fed would unleash a full bout of QE 2.0 in light of the recent weakness in equity markets.  However, according to the WSJ, the debate focused extensively on whether to maintain the balance of the Fed’s existing portfolio, and did not broach the topic of a new round of quantitative easing beyond a discussion as to whether a move to maintain the balance sheet would lead market participants to expect more easing.

The debate over the maintenance of the present portfolio size was seemingly contentious enough to make it sound like all out quantitative easing would be a tough sell to the FOMC at present.  However, much of that seems to result from the fact that many at the Fed do not presently see enough deflation to warrant some sort of action.  In reading the WSJ article, and considering the quotes offered from both present and past FOMC members, much of it seems like a “feeler” in order to gauge market sentiment towards another round of quantitative easing.  The article concluded with the following observation:

One thing is clear: Mr. Bernanke, though striving for consensus, is determined to avoid mistakes of past central bankers that created devastating bouts of deflation. As a Princeton professor in the 1990s, Mr. Bernanke lectured Japanese officials for being too timid about combating deflation. And in now-famous remarks he delivered as a Fed governor at a 90th birthday celebration for Milton Friedman in 2002, Mr. Bernanke promised the Fed would never allow a repeat of the deflation of the 1930s.

If his background as a professor is any indicator, then we should most certainly expect a more aggressive policy move from the FOMC in the near future.    In my recent FOMC preview, I offered some quotes from Bernanke’s pre-Fed Chairman days to highlight some of his beliefs. We must remain cognizant of the fact that when facing deflation, quantitative easing is not the only tool remaining in the Fed’s arsenal: inflation targeting remains a realistic possibility.  In a paper entitled Japanese Monetary Policy: A Case of Self-Induced Paralysis?, then Professor Bernanke offered the following critique of the Bank of Japan’s reluctance to use inflation targeting in its fight against deflation:

With respect to the issue of inflation targets and BOJ credibility, I do not see how credibility can be harmed by straightforward and honest dialogue of policymakers with the public. In stating an inflation target of, say, 3-4%, the BOJ would be giving the public information about its objectives, and hence the direction in which it will attempt to move the economy. (And, as I will argue, the Bank does have tools to move the economy.) But if BOJ officials feel that, for technical reasons, when and whether they will attain the announced target is uncertain, they could explain those points to the public as well. Better that the public knows that the BOJ is doing all it can to reflate the economy, and that it understands why the Bank is taking the actions it does. The alternative is that the private sector be left to its doubts about the willingness or competence of the BOJ to help the macroeconomic situation.

What really remains a mystery is what exactly will the Fed look for to take a more proactive policy stance.  The allusion to Bernanke’s academic days makes it sounds all but conclusive that the Fed will in fact do something more moving forward, but when exactly remains a mystery.  Is the FOMC waiting for tangible signs of deflation?  Some sort of catalytic event in capital markets?  More time to build a consensus within the FOMC for action?  Only time will tell, but we now know that the FOMC remains as divided as everyone else on which, if any policy to pursue.

Sifting through my watch list of stocks today is a depressing activity.  Down days are one thing, but days like this are another.  You know what I’m talking about, those days in which there is absolutely no bid to the market.  While the entirety of my watch list is plastered with red (other than the US Dollar and Treasuries…the safety trade), Netflix (NASDAQ: NFLX) is a lone pocket of green.

What was the catalyst behind this impressive relative strength?  Yesterday the company announced it had reached a deal with Epix for the streaming rights to Paramount, Lions Gate and MGM films.  While Netflix is paying a handsome sum for these rights ($1 billion over the next five years to be exact), this helps solidify the company’s moat against competition in the rapidly growing streaming market.  The future of Netflix’ profit  growth is in streaming media.  Streaming enjoys much higher margins than the dvd-by-mail model, and as new products facilitate ease of use (such as the proliferation of iPads, check out Derek’s review here), the market itself is rapidly expanding.

This deal with Epix is a rather significant coup, as the trio of companies behind Epix hold the rights to a vast and diverse catalog of popular content.  Adding this to the ever-expanding streaming library over at Netflix goes a long way towards maintaining the company’s impressive customer loyalty track-record and attracting new subscribers.  With this deal, the company is now on the verge of become a major force in where and how people consume media.  Their built in audience is so vast at this point that some are even suggesting it’s only a matter of time before Netflix produces original content, like an HBO or Showtime.

When Netflix reported earnings just over two weeks ago, the stock took a beating for missing their revenue number, despite reporting impressed EPS and margin growth.  To make matters worse, the next day, the Wall Street Journal put out an editorial that suggested Netflix just might be the next Crocs (NASDAQ: CROX).  I quickly wrote a rebuttal, stating the bull case for Netflix, and in the comments on that article, mentioned my intention to buy the stock at around the $90 level.  Unfortunately for me, I never pulled the trigger and the stock is once again trading northward of $120, having reached as low as $95.33.  On the next pull in I will not miss my entry!

Disclosure: No position.

The Wall Street Journal once again published an op-ed about policy which offers a disingenuously partisan take to an important issue–employment.  In this latest flop-ed, Michael Fleisher offers his opinion as to why there is too little private sector hiring right now and he blames government.  In his article, Fleisher conflates benefits with taxes and blames rising costs for his existing health care plan on the government.

Now it’s one thing to say it’s unfair for the government to mandate health insurance, another altogether to blame the government for rising costs.  EVERYONE, including Democrats and Republicans alike are well aware that rising health care costs are a major problem.  The solution is where the two sides differ.  Yet somehow, Fleisher comes off blaming government for the entirety of that component of rising costs.

But you know what, I won’t even focus on these minutiae.  What really concerns me about this article is the complete willingness to present half-truths as truth.  It’s one thing to be wrong about facts, another altogether to intentionally place facts in a misleading light.  Exactly what am I talking about?  For purposes of simplicity, I have borrowed this breakdown of the “costs” to employee Fleisher’s hypothetical worker from Business Insider.

Costs To Employee “Sally”:

SALLY’S SALARY: $59,000
LESS:
Sally’s share of health/dental: $2.376
State unemployment insurance: $126
Disability insurance: $149
Medicare: $856
State income taxes: $1,893
Federal income taxes: $6,500
Social Security: $3,661

NET TO SALLY: $44,000

Costs To Company:

SALLY’S SALARY: $59,000
PLUS:
Company’s share of health/dental: $9,561
Life and other insurance: $153
Federal unemployment insurance: $56
Disability insurance: $149
Worker’s Comp: $300
State unemployment insurance: $505
Medicare: $856
Social Security: $3,661

NET COST TO COMPANY: $74,000

What’s missing from this picture?  Well let’s start with Sally.  Let’s forget about the fact that disability insurance is applied as a cost to both parties, and businesses are not mandated by government to provide life insurance, nor do many businesses necessarily do that.  Let’s also forget about the fact that the Worker’s Comp and State Unemployment Insurance numbers are above what a business would pay in reality, and let’s start with the fact that Mr. Fleisher counts health insurance as a COST to Sally without any benefit.  I’m not even making this up.

Mr. Fleisher makes it seem as if health insurance DECREASES Sally’s take home pay without providing a tangible benefit.  Moreover, after he calculates the take-home pay to Sally, Mr. Fleisher includes the total amount paid, less costs, but doesn’t put health insurance in as one component of the net take home pay.  In actuality, Sally’s bank account gets $44,000 in salary, AND her health gets covered with insurance.  That is a tangible benefit worth good money.  To apply it is a cost is a deliberately misleading attempt to fudge the math in order to dramatize a point.

And yet more egregiously, for the company’s costs, Mr. Fleisher intentionally leaves out company benefits for hiring workers.  Not everyone might know, but when businesses hire, they often benefit from both tax credits and deductions.  Credits are amounts that company’s can take off of their tax bill.  $1 in a credit is equivalent to $1 in the bank for a business.  Deductions are taken before a business applies their tax rate and its impact for a business’ income can be added up by applying their tax rate to the amount of the deduction.  So assuming a business has a 35% tax rate, then $1 in a deduction amounts to $0.35 of benefit to the company.

With this new knowledge let’s see which credits and deductions apply to Mr. Fleisher’s business.  First off, for health insurance premiums, a businesses can take a CREDIT of up to 35% of the total cost.  In Sally’s case, the tax credit for Mr. Fleisher’s business would amount to $3,346.

Next, a business can take a deduction of business expenses, defined as “the costs of carrying on a trade or business.”  Such costs include those of employee wages, and other federal and state taxes paid.  Corporate tax rates for most brackets tend to fall at about 35% of gross income.  So, with a total expense of $74k, that amounts to a $25,000 deduction.  The key to taking a deduction is that the company needs to actually have income to take it against.  Without the income there is neither a deduction nor credit.

Now with these new facts, let’s recalculate the cost to a profitable company for employing Sally.  We’ll take that initial figure of $74,000 from Mr. Fleisher.  Then we’ll subtract his credit for providing insurance, and his deduction for his business expense and we get a much more favorable net impact to the business of $45,654 to put $44,000 in his employee’s pocket AND to insure her to boot.  Does that really sound like an unreasonable sum? No, I didn’t think so.  Mr. Fleisher, if you’re not hiring Sally it is clearly because you don’t have the prospective income necessary to hire, not because the government makes it cost too much (and this helps explain exactly why).

Just before last week was drawing to a close, Barry Ritholtz posted a weekend homework assignment: reading the Wall Street Journal article entitled Legacy of the Flash Crash: Enduring Worries of Repeat.  Thanks for the weekend homework assignment Mr. Ritholtz!

Reading the WSJ’s take on the Flash Crash got me thinking. Just three weeks ago, I asked whether “Structural Changes in equity markets [are] leading to a loss in confidence?“  And the WSJ’s conclusion, that “A flash crash could happen again because today’s computer-driven stock market is much more fragile than many believed” confirms my hunch.  I think this is significant, because in looking at a recent time-line of events, the rhetoric around “uncertainty” took a major step forward in the days and weeks following the Flash Crash.  Yet somehow, the focus was far more on politics than it was on any structural issues.

Immediately following the Flash Crash, investors in aggregate withdrew $14 billion from investment vehicles, including mutual funds, hedge funds, etc.  This came on the heels of a run of over a full year of monthly investor inflows.  What changed?  In April, markets were cruising nicely to new recovery highs.  Investor confidence was about as high as it had been at any point since the financial crisis began.  Then on a dime, that confidence turned sour.  Sure Europe was a concern.  People did have legitimate worries about Greece and there was some very real selling in the market.  However, isn’t a little selling only natural after an 80+% rally off of market lows?  Does selling necessarily have to yield way to panic?  Surely not.

Lately however, the talk from April seems a distant memory.  In recent days, investors, companies and analysts alike have been talking a great deal about uncertainty.  The standard narrative seems to suggest that the uncertainty is politically driven.  Many are insinuating that the uncertainty of future growth, US policy, and Europe, amongst other variables all are contributing to a difficult investment outlook.  In reality however, many investors seek opportunity amidst uncertainty.  The greater the risk, the greater the reward, and with some good “animal spirits” kicking, this type of uncertainty in the short-run can result in some substantial winners over the long run (check out Justin Fox’s recent post on “Embracing Uncertainty,” it’s well worth the read).

On May 6th, what started as just another down day ended up as a major catalytic event.  Sitting at my desk during the Flash Crash was an absolutely horrific experience that unquestionably would rattle any rational person into thinking that their money could evaporate in an instant amidst an already difficult economic climate.  While staring at the level 2 quotes that day, it was even more horrifying to see all liquidity in US equity markets just disappear than it was to see the ridiculous prints in stocks like PG or ACN.  What many don’t realize is that misprints or “fat-fingers” are not all that uncommon and ridiculous prints outside of the inside market are a not too infrequent occurrence.

What was totally uncommon that day was just the complete withdrawal of all liquidity from our equity markets.  I was most closely watching the SPYs, the single most liquid equity in all US markets and there was nothing.  Not a single bid, not a single offer.  The book went blank.  Prints were running off at scattered price locations, but there were no bids or offers.  There had been no catalytic news come across our squawk, and in the midst of the crash, I could not help but think the worst–was there a terror attack?  a new war?

The way the Flash Crash unfolded in and of itself lends itself to uncertainty.  The fact that people still cannot attribute the event to any one particular cause is a discomforting reality that sits in the back of the heads of every investor and CEO.  Could you imagine the thoughts of a CEO, whose job is ultimately judged by his company’s stock market performance, as his company loses nearly half its value in a matter of moments through no fault of his own?  The fact that the Flash Crash left people so utterly helpless automatically triggers uncertain emotions.

Trading in the days following the Flash Crash was exceptionally volatile.  But two months later I think people have realized that even if something like this were to happen again, there will still be people who want to buy good companies in this country the next day.  Whether the conclusion is correct or not, people fully believe the Flash Crash to be a structural, rather than financially oriented in nature and this helps investors put money to work in the face of uncertainty.  This fact makes a big difference.  Following the crash, we spent 3 solid months building a base, during which time people got to look at the cold hard data.  Once the bottom-up approach took hold following a slew of strong earnings reports, markets moved higher despite all the macroeconomic headwinds and perceived sources of uncertainty.

In a recent Wall Street Journal interview, the typically tight-lipped Google (NASDAQ: GOOG) CEO, Eric Schmidt,optimistically professed that the Android line of business could easily turn into a “10-plus billion-dollar business.”  When the typically cautious and modest Google CEO speaks, I like to listen.  Google as a company does not offer quarterly EPS guidance, so this type of insight from CEO Schmidt provides us investors with a good gauge as to how Google’s businesses are performing.

With this $10 billion revenue number for Android in mind, I decided to put together a quick projection for what this could do to the company’s bottom line.  Over the past 10 quarters, Google has an average net margin of 24.2%, which includes an incredibly low 6.71% during Q4 2008 while in the depths of the financial crisis.  At no other time during this period did Google report a net margin lower than 25%, and more recently, the number has been upwards of 28%.  For modesty’s sake, let’s assume a 24% net margin for this projection.

Over the past 12 months, Google has generated $26.21 billion in revenues.  $10 billion alone would represent a 38% increase to the company’s revenues.  Applying a net margin of 24%, Android would contribute $2.4 billion in earnings, which amounts to $7.50 per share.  At Google’s present p/e ratio of approximately 21, Android alone should add $157 to Google’s share prices.  Such an increase in price over today’s level would put the company’s shares at somewhere in the vicinity of $640.

Now keep in mind, these numbers are predominantly modest, considering the fact that Android itself should be a high margin earnings generator for the company, yet I am applying a low-end number, and Google’s shares now trade with a PEG (price/earnings to growth ratio) of barely more than 1.  A PEG close to 1 is indicative of relatively cheap growth.  If Google’s shares get any sort of multiple expansion, like to an industry average p/e of 25, then their shares could increase by an extra $30 to the $670 neighborhood.  And all this is assuming no growth on its core search business, and zero revenue generation from the company’s various other endeavors including the upcoming GoogleTV.

All this bodes particularly well for the company moving forward.  I personally have a hard time not being optimistic about this iconic company’s ability to monetize on the rapid uptake of the Android operating system. When Warren Buffet looks to make a long-term investment he asks some of the following questions: is the business understandable?  Does the company have a moat around its core business?  Does the company generate high levels of cash flow?  And, does the company have an iconic brand-name and image?  Google is a resounding yes to each of the preceding questions.  Google is a cash cow whose name is now synonymous with Internet search throughout most of the world.

Disclosure: Long GOOG

Wall Street Journal is out with a look at the very, very top of the CEO pyramid:

Click for Larger Image

This is Part 1 of a 2 part interview …

David Asman has lived an adventurous life on his road to classic American success. From a school teacher in Chicago to the host of a world wide show on Fox Business Network, David has worked hard for his rewards.

The Start of a Successful Career

Damien Hoffman: David, you started your career as a teacher. How did you get interested in financial journalism?

David: I was studying to get a Master’s in teaching at Northwestern University. I thought I would teach and do Journalism at the same time, but I realized I had to choose. It was just too much to do both.

So, in the late 70′s I quit graduate school and saved up money to pay off my school debt. Then I moved to the East Coast to take an assistant editor’s job at a magazine called Prospect which was affiliated with an alumni organization at Princeton University.

It was very exiting time for economic literature because people like Milton Friedman and George Gilder were trying to turn around the awful economy we had back then. We had inflation in double digits and interest rates in the low 20s. It made the current situation look almost enviable.

The problems seemed so intractable. But I wasn’t interested in the people who said we’d be in the mess permanently. I was more excited by the people who said that if we increased incentives in a dramatic way for businesses to create things, the economy could correct itself.

Of course, that’s eventually what happened. We had a combination of a serious Federal Reserved Chairman Paul Volcker – who was appointed by President Carter — squeezing inflation out of the economy while a serious President, Ronald Reagan, lowered tax rates to create a tremendous boom of small and medium-sized businesses in this country. That recipe led to seven very strong years of economic growth between 1983 and 1990.

And that period was marked not only by the overall figures, but more importantly, by the fact that small businesses were the ones generating growth in the economy. And that’s of course when epic companies started such as Microsoft (Nasdaq: MSFT), Apple (Nasdaq: AAPL), Compaq (NYSE: HPQ), and FedEx (NYSE: FDX).

The deregulatory and lower tax rate environment gave a tremendous leg up to the small and medium-sized businesses — the ones that are the most creative. That’s why we began to see a significant increase in creativity among information services which dramatically changed our economy. I think it was one of the most dramatic changes in economic history — not only for the U.S, but for the world. It was the information revolution and was as important and fundamentally transformative as the industrial revolution.

Damien: Where were you at that exciting time?

David: I was right in the heart of it. There was an organization called ICEPS — the International Center for Economic Policy Studies — which later became the Manhattan Institute. That was a think tank which focused specifically on what later came to be known as “supply-side economics”: the idea that by incentivizing the growth of small and medium-sized businesses in this country, we could fundamentally transform the entire economy.

All of the thinkers at the forefront of that movement either came through the Manhattan Institute or were part of it. I edited a lot of books there and also a little magazine called “The Manhattan Report” that focused on these thinkers, economists, and business people.

I did that for two years and then freelanced for about a year and a half.  Eventually a politician in Washington — Senator Gordon Humphrey — offered me a job to be his press secretary. I called up a friend at the Wall Street Journal — George Malone — to ask whether this would taint my reputation as a journalist. He didn’t think it would, but he said there was a job opening at the Wall Street Journal and asked if I would apply for it.

The job was actually two positions. One was editing a weekly column called “The Managers Journal”. That was an advice column for managers by managers about how to operate more efficiently. The second was editing a column called “The Americas”. Latin America was very hot at that time. Mexico had just defaulted on its debt — like what’s happening with Greece right now and the other PIIG Nations [Portugal, Italy, Ireland].

Latin America had a debt crisis. Citi (NYSE: C) and a bunch of other banks had made terrible loans to corrupt governments. I remembered going to Manufacturers Hanover for a luncheon in one of their very pristine Park Avenue offices. We were drinking Cherry in a very verified environment. And I asked the head of the investor department, “How many of your loans, because you had a portfolio of billions of dollars, how many of those in percentage-wise are government loans as supposed to private loans?”

He said, “Oh, about 80-20.” And I said, “Wait a minute, you mean 80% private, 20% public, right?” He said “No, no, no. 80 public, 20 private” — meaning 80% of their exposure in Latin America was to these corrupt governments. How could you possibly expect a corrupt government to use their loan profitably when most of the money was being shipped off to Swiss bank accounts immediately?

Moreover, the projects that were built were terribly built because they were built by the cronies and relatives of these politicians. These people were being hired not on the basis of the quality of their work, but on the basis of their connections.

We also had a socialist government in Nicaragua with intentions of spreading throughout Central America. They were funding a revolutionary operation in El Salvador and moving into Guatemala, orchestrated out of Havana.

As dangerous as it was, it was a perfect environment for journalist. I started that in 1983 and I continued with that job until 1995.

During that period I also did the management column which was fascinating. I got to know managers around the country. People like Andy Grove who, at that time, was a lowly VP at Intel (Nasdaq: INTC).

A Love Story

Damien: David, when I was on your show, the staff said I should ask you about your wonderful love story. How did it all unfold?

David: During one of my travels to Central America in the mid-’80s, I met a guy in Nicaragua who became a great source for me — a lawyer named Roger Guevara. He was in and out of prison because he was a lawyer who stood up for human rights. For that reason, the Sandinistas kept throwing him in jail and torturing him.

We became close.  I helped him out when I could using the committee to protect journalists and so forth here in New York. Eventually, in 1988 he introduced me to a woman at a dinner party who would become my wife now, Marta Cecilia. We met, fell in love, and spent about about six months in a long distance relationship.

At the time, our friend Roger was jailed again. They were beating him up quite a bit. They were also following Marta Cecilia and her son. So, things were getting very dangerous.

I knew the Foreign Minister Costa Rica, a guy named Madrigal Nieto, who was a very nice guy.  He arranged for Marta Cecilia and Felipe to get a visa for life to Costa Rica.  The plan was for her to pretend she and Felipe were just going to Costa Rica for the weekend.

So, they packed a little bag for the two of them and flew to Costa Rica. I flew to Costa Rica to meet them. I remember them getting off the plane and Felipe –this little seven-year-old — looking way up at me and wondering, “What the hell was happening?” because he couldn’t be told he was leaving his extended family.

He didn’t speak any English at that time and was about to go to New York in November where it’s cold and rainy. He’d never experienced the cold before. And he was going to live at my one-bedroom bachelor pad.

The best part is Felipe and I got along as well as Marta Cecilia and I did. It was an amazing way to begin our new life together.

The first year was very tough for Felipe. I was still making Wall Street Journal money which was about $35,000 at that time. That covered three people and a bachelor who’s used to living alone. Of course, MC couldn’t work because she didn’t have her green card yet.

I was continuing to go to South America and Central America over the next few years.

From Print to TV

Damien: Was that around the time you started your transition to television?

David: Yes. John Malone wanted to start television programming as opposed to just providing programs through cable. So, he hired Bob Chitester, an executive producer to begin programming. Chitester and I had known each other for a long time. He had actually produced a show called “Free to Choose” – a PBS series based on Milton Friedman’s work. He hired me as the anchor of a show called “Damn Right”, which was a political affairs show that later became “Issues USA”.

Damien: Was “Damn Right” a controversial title at that time?

David: Oh yeah. It was meant to be controversial.  This was before Fox News (NYSE: NWSA). Malone saw that a vast group of peoples’ needs were not being met. These people did not describe themselves as liberals. They were either moderate conservative or libertarian. This group was dissatisfied with the content on CNN (NYSE: TWN) and network news.

The show was from 7:30PM to 8:00PM, every Monday through Friday. So, I’d lock-up in the editorial page at about 6 o’clock in the evening, take a subway up to the studio, then prepare for the show.

That was my introduction to television. Then Roger Ailes got together with Rupert Murdoch to start a news channel. Roger had just left the NBC (NYSE: GE) empires: CNBC, America’s Talking, and what later became MSNBC. At that point, Malone said, “If Rupert and Roger get together, there’s no stopping them.” So, he pulled the plug on his little programming, and Fox News was born.

At about that time, I went to a lunch at Mort Zuckerman’s house for Fidel Castro. I was invited because of my background in Latin-America and I’d just come back from Cuba. I was seated in between the late Bill Safire, the New York Times (NYSE: NYT) columnist, and Roger Ailes. I later wrote an article called “I’ve Been to a Marvelous Party” — a take-off on the Noel Coward song — because it was a ridiculous scene where all these TV personalities were hugging Fidel as though he was a sweet old uncle rather than a tight, tyrannical dictator.

Roger read the article and said, “How would you like a full time job in television?” At that time, I declined because I liked having one foot in print and one foot in broadcast. But about a year later in 1997, he came back to me and we did the deal.

So, that’s when I made the switch to Fox News and I’ve been with TV ever since.

Damien: What has been the biggest development since you joined Fox in ’97?

David: The major shift here from ‘97 until now was the emergence of Fox Business in 2007.

Damien: Right before the crash.

David: Talk about baptism by a fire. It was terrible from a business standpoint but wonderful from the journalistic standpoint because there was so much to talk about.

I love the amount of input everyone has here. It’s like the beginning of Microsoft or Apple — very entrepreneurial. Roger is involved. Rupert is involved. They think so far out of the box that they very often keep their competition guessing.

Everybody knows Roger is a genius when it comes to programming.  So, people look very closely at what we’re doing — not necessarily because they think tomorrow we’re going to overtake them in the numbers, but because they know eventually we could …

Wall Street and Silicon Valley always need something hot. Although unemployment is high and optimism resembles the scenes at the start of an anti-depressant commercial, we have found 5 CEOs who are building companies which haven’t stopped to notice the recession …

1) Dennis Crowley — CEO Foursquare

Foursquare is a location-based social networking website, involving an application for mobile devices and a game intended for registered users. Through mobile websites, text messaging, or device-specific applications, people are able to update their location and connect with friends, while earning rewards for their online activity. The company is “so hot right now” because it is in the process of adding on a new promotion. Barbie, the iconic fashion doll manufactured by Mattel (NYSE: MAT), will be used by Foursquare to advertise location-based scavenger hunts. Text, photo and video clues for the hunts will be provided by Barbie through the use of Twitter. This promotion, officially happening on July 20th, 2010 is an example of how Mattel has been able to expand into the digital and social media world of the 21st century.

An American Internet entrepreneur, Dennis Crowley graduated in 1998 with a B.A. from the S.I. Newhouse School of Public Communications at Syracuse University, and also in 2004 with a Master’s degree from New York University’s Interactive Telecommunications Program. While attending NYU, he co-founded Dodgeball, a location-based social networking service used by mobile devices. Four years after Dodgeball was acquired by Google (Nasdaq: GOOG) in 2005, Crowley developed Foursquare as a second version of the original Dodgeball service. In 2005, MIT’s Technology Review magazine named him one of the “Top 35 Innovators Under 35.” His work has been followed by major news organizations, such as MTV (NYSE: VIA-B), NBC (NYSE: GE), Newsweek, The New York Times (NYSE: NYT), Slashdot, Time Magazine, The Wall Street Journal (NYSE: NWSA) and Wired. Currently, Crowley is an Adjunct Professor for NYU’s Interactive Telecommunications Program.

2) Andrew Mason — CEO Groupon

Groupon is an electronic commerce website, offering a single type of product for sale at a discounted rate every 24 hours. These daily deals, made possible through collective buying power, feature what is best to buy, do, eat, and see in over 50 cities throughout the United States and Canada. The company is “so hot right now” because of its May 2010 acquisition of MyCityDeal, a European website offering similar services. The collaboration has made the newly formed Groupon MyCityDeal the largest group buying site in the world, active in 18 countries and 140 cities, reaching the US, Canada, UK, France, Italy, Spain, Germany, Austria, Switzerland, Belgium, Sweden, Poland, The Netherlands, Denmark, Ireland, Finland, and Turkey. Currently, its staff consists of over 900 employees, working around the globe.

Growing up in a suburb of Pittsburgh, Andrew Mason showed a talent for creative organizing. At 15 years old, he started Bagel Express, a delivery service done on Saturday mornings. After graduating in 2003 from Northwestern University with a degree in music, he worked in web design under Chicago serial entrepreneur Eric Lefkofsky. In September 2006, Mason left his employment to accept a scholarship to the University of Chicago’s Harris School of Public Policy. In pursuit of a business idea, he began to work on creating a web-based platform, organizing collective action based on a tipping point. Learning of the project, Lefkofsky offered to supply $1 million in funding. Mason accepted his offer, and dropped out of school to develop The Point, a web platform launched in November 2007. With some modification, he followed the basic premise of The Point to create Groupon, which debuted in November 2008.

3) Tony Hsieh — CEO Zappos

Zappos is an online retailer, selling shoes, handbags and purses, eyewear, watches and accessories, apparel, and electronic devices and media, such as DVDs. Through RSS feeds, Zappos publishes information about the latest products and styles, with each product having an image of the latest styles, a description of what is advertised, and a link leading to the product webpage. The company is “so hot right now” because it was acquired in November 2009 by Amazon (Nasdaq: AMZN) for a reported $1.2 billion. In an all-stock deal, Zappos investors and other shareholders exchanged their shares for approximately 10 million Amazon shares. This acquisition will allow Amazon to aggressively expand into the sale of apparel, and benefit from a fiercely loyal customer base.

The son of Taiwanese immigrants, Tony Hsieh graduated in 1995 from Harvard University with a B.A. in Computer Science. During the first year after graduation, he worked as a Software Engineer at Oracle (Nasdaq: ORCL), a provider of business software and hardware systems. In 1996, Hsieh co-founded Link Exchange (Internet advertising network), for which he served on the Board of Directors, was responsible for some of the company’s major technologies, and sold to Microsoft (Nasdaq: MSFT) in 1999 for $265 million. After the sale of Link Exchange, he got originally involved with Zappos, working as an advisor and investor. In 2000, he joined the company as CEO.

4) Mark Pincus — CEO Zynga

Zynga is an online network of gaming applications, offering a variety of games that are found on many social networks and websites. Users are able to invite friends to play with them, and chat while playing. The company is “so hot right now” because of its developing partnership with Google, which is due to launch its new brand Google Games later this year. Google has recently invested $100-$200 million of venture capital in Zynga, after having raised $500 million. With the upcoming partnership, Zynga will become the cornerstone of Google Games, giving it a solid base to build on, made up of social games and users. The joining of these two powerful companies could change the future of online gaming.

Before his career as an entrepreneur, Mark Pincus worked in venture capital and financial services. He graduated with a B.S. in Economics from the Wharton School of the University of Pennsylvania, and with an MBA from Harvard Business School. After graduation from Harvard, he worked from 1993-1994 as a manager of corporate development at Tele-Communications, Inc., now AT&T Cable (NYSE: T). From 1994-1995, Pincus served as Vice President of Columbia Capital, leading investments in new media and software startups. In 1995, he launched his first company, a web-based push technology service named Freeloader, Inc. His second company, a provider for service and support automation software known as Support.com, was started in August 1997, and went public in July 2000. In 2003, Pincus founded his third company, Tribe.net, a social network partnering with major local newspapers, backed by The Washington Post (NYSE: WPO), Knight Ridder Digital, and Mayfield Fund. Pincus founded Zynga in 2007, and currently serves as its CEO and Chief Product Officer.

5) Jeremy Stoppelman — CEO Yelp

Yelp is a web site that advertises listings, ratings, and reviews of local businesses through an online community, giving consumers the opportunity to share their opinions, and business owners the chance to give contact information. Through Yelp, people find help in choosing where to eat, drink, shop, relax and play, at no cost to use (other than certain advertising features on the site). The company is “so hot right now” because of its June 2010 integration with OpenTable, a feature that allows any logged-in Yelp user to make a restaurant reservation directly from a review page. In the form of a pop-up, this option is linked to many business listings already on Yelp. Currently offering Dining Reward Points, OpenTable accepts reservations for almost 11,000 restaurants, all located within the United States.

Interested in entrepreneurship, Jeremy Stoppelman graduated from the University of Illinois with a B.S. in computer engineering, and attended Harvard Business School. From 1999-2000, he worked as a Software Engineer for Excite@Home (provider of broadband Internet access), designing and implementing various website features. Stoppelman was with Paypal (Internet alternative for payment and money transfer) from 2000-2003, holding various positions in engineering and engineering management, ultimately making Vice President. After joining an incubator for a summer internship, he was reunited with colleague Russel Simmons, and teamed up with him to create a community around local information. Yelp was co-founded in 2004, with Stoppelman as CEO.

Think some other CEOs are OMG Hot!, let us know in the comments below …