Friday, April 5, 2013

This Subprime Bubble Is Getting Ready to Burst

There's another subprime loan problem brewing, but this time, home mortgages aren't the main ingredient in the securities being created, sliced, rated, and sold to hungry investors.

Subprime auto loans are making a comeback, as are the asset-backed securities that include these and other risky loans. Investors are snapping up these products, and a recent article on the subject strongly suggests that the Federal Reserve is to blame for the whole thing.

This bubble has been expanding at a rapid pace
ABSes have seen a resurgence in popularity�over the past year, after falling out of favor shortly after the financial crisis hit. These investment products -- which are made up of debt such as student loans, credit card balances, and auto loans -- have become more attractive as stingy yields have become the norm.

A rejuvenated market�for new cars and trucks has revved subprime auto loan production, and Equifax noted in its January report�that auto loan balances have risen to a two-year high. By September of 2012, ABSes backed by subprime auto loans totaled more than $14 billion, more than the $12.7 billion issued during the whole of the previous year. For 2013, almost $4 billion�has already been sold to yield-starved investors.

Shotguns as downpayments
The Reuters article referenced above is truly spooky, as it tells a tale of one individual with a shaky credit history purchasing a used truck with a shotgun as the primary down payment. One of the most active lenders in this space is Exeter Finance, a subprime lender with big backers such as Goldman Sachs (NYSE: GS  ) , Wells Fargo (NYSE: WFC  ) , Citigroup, (NYSE: C  ) and Deutsche Bank (NYSE: DB  ) .

How is the Fed to blame for this scenario, you ask? According to the author of the Reuters article, Federal Reserve policies designed to jump-start the economy have caused investment yields to plummet, turning everyday investors into ravenous risk-takers willing to go to any lengths to make a buck. While QE3 and other programs have certainly made some investments less attractive, I think it is a great exaggeration to lay the gearing up of risky investment behavior entirely at the Fed's doorstep.

Banks may have helped the subprime auto loan market speed up. Early last year, Bank of America (NYSE: BAC  ) and Wells Fargo were among the big banks that began loosening credit restrictions�for these borrowers, although these two banks primarily financed prime and near-prime auto loans.

A crisis in the making?
The author of the Reuters article notes that a bursting of the subprime auto bubble would not affect the economy in the same way as the mortgage meltdown did, but concerns remain. Even a Goldman Sachs representative expressed worry�over this market at the annual American Securitization Forum this past January.

For investors, at least, this type of investment can be dicey. While ABSes backed by prime auto loans have been stable, those containing subprime loans showed annualized losses of 6.72%�at the end of 2012.

Even with an industry expectation of a 25% default rate, investments backed by subprime auto loans look to be headed for a crash -- so, investor, beware.

Bank of America's stock doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.

3 Stocks to Watch Right Now

The following video is from Friday's Motley Fool Money roundtable discussion with host Chris Hill, and analysts Ron Gross, James Early, and Charly Travers.

In this installment of Motley Fool Money, our analysts explain why they like Horsehead Holding (NASDAQ: ZINC  ) , Xinyuan Real Estate (NYSE: XIN  ) , and Burger King Worldwide (NYSE: BKW  ) .

Looking for More?
The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the brand-new free report, "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

The relevant video segment can be found between 13:46 and 18:19.

For the full video of today's Motley Fool Money, click here.

The Chicago Fed National Activity Index: Economic Activity Improved in December

Foreword: The Chicago Fed National Activity Index has an excellent record for signaling the economic downturns associated with negative GDP and recessions. A decline in its 3-month moving average (MA) below the -0.7 level raises a warning that a recession may have begun. The latest update shows the seventh month of negative growth in the 3-month MA, but the contraction is defintitely easing. The latest level of -0.22 for the 3-MA is well above the recession warning level.

Here's the lead from today's CFNAI release for December.

Led by gains in employment- and production-related indicators, the Chicago Fed National Activity Index increased to +0.03 in December from -0.40 in November. December marked the first time in five months that the index had a positive reading. Three of the four broad categories of indicators that make up the index made positive contributions in December, while the consumption and housing category continued to make a large negative contribution.

The index's three-month moving average, CFNAI-MA3, increased to -0.22 in December from -0.36 in November. The CFNAI-MA3 suggests that despite the improvement in December, growth in national economic activity remained below its historical trend for the seventh consecutive month. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.
[Download News Release]

Fear Is Ever-So-Slightly Creeping Back Into the Market

Associated Press

A look at the stock market’s so-called fear gauge shows investor anxiety is on the rise.

The Chicago Board Options Exchange’s Volatility Index moved to its highest level intraday in a month Friday after a dismal jobs report rekindled questions about the pace of the U.S. economic recovery. The VIX jumped as much as 13% to 15.65 before paring the rise later in the day.

“There was a buildup in volatility into the jobs announcement and now going into the weekend, it isn’t up as much as it could be,” said Mark Sebastian, chief operating officer at consulting firm OptionPit in Chicago. “The VIX has sold off partially because stocks have recovered a bit and because uncertainty is gone now that the number is out.”

More In VIX
  • The 2013 Fear Gauge Looks Very Different From the 2007 Version
  • VIX Options Hit Record as Investors Brace for Stock Pullback
  • VIX Cruises to Six-Year Low
  • How Low Can the VIX Go?
  • 'Fear Gauge' Makes Case for New Name

The VIX was recently up 0.85 points, or 6.1%, to 14.74. That move came as the Standard & Poor’s 500-stock index slid 15 points, or 0.9%, to 1545. The index was down as much as 1.3% earlier in the day.

One aspect of rising volatility is evident in the seesaw action in recent weeks. The VIX and the benchmark stock index have alternated up and down days for the past 12 sessions–their longest such stretch ever.

Over that time, stock moves have gotten bigger. So far this year, the S&P 500 has averaged daily stock swings of 0.49, but over the past three weeks, the average has been 0.57%. This week, it looks set to rise to 0.64%.

The VIX is a calculation of investor expectations for future stock swings based on S&P 500 options prices. A VIX of 15 implies daily stock moves of about 0.95%. With the S&P 500 just off its record high, a 15 VIX implies far larger daily point moves than a 15 VIX would have a year ago.

At current levels, a 0.95% move would be about 14.60 points. A year ago, when the S&P 500 stood at about 1400, a 0.95% move would have been about 13.25 points. Friday’s rise pushed the VIX further above its year-to-date average of 13.62, which is on track to be the lowest since 2006, before the U.S. financial crisis rocked markets.

The VIX futures curve remained relatively steep, with investors pricing in a 20% rise in the index through mid-July, with the July futures contract trading at 17.40 Friday. Front-month April contracts stood at 14.80. Those contracts expire on April 17.

“Skew is higher than it would normally be with volatility levels this low,” said Frances Hudson, global thematic strategist at Standard Life in Edinburgh, which manages about $273 billion in assets. “That suggests the market is becoming more stretched and more vulnerable to a more extreme move.”

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Here’s What This $9 Billion Contrarian Has Been Buying and Selling

Every quarter, many money managers have to disclose what they've bought and sold, via "13F" filings. Their latest moves can shine a bright light on smart stock picks.

Today, let's look at Tocqueville Asset Management, which is a portfolio manager with a contrarian bent, believing that "the best investment results over time are achieved outside the mainstream consensus" and seeking "undervalued companies that possess long-term earnings power."

The company's reportable stock portfolio totaled $8.9 billion in value as of Dec. 31, 2012.

Interesting developments
So what does Tocqueville's latest quarterly 13F filing tell us? Here are a few interesting details:

The biggest new holdings are FedEx�and Canadian miner Ivanplats. Other new holdings of interest include Halcon Resources (NYSE: HK  ) and Sarepta Therapeutics (NASDAQ: SRPT  ) . Oil and gas company Halcon has been growing by acquiring assets such as shale-field properties and is expected to grow by 30% annually in the next few years. Sarepta, a biotech developing the promising Duchenne muscular dystrophy drug eteplirsen, nearly tripled in a single day recently and some expect further growth. There's little certainty, though, until or unless the drug receives FDA approval.

Among holdings in which Tocqueville increased its stake was rare-earth elements producer�Molycorp (NYSE: MCP  ) , which has been struggling in a tough environment and recently worried investors with a bigger-than-many-expected share offering and debt issuance. (Some worry about further capital needs�in the near future.) The stock is down a whopping 75% over the past year,

Tocqueville reduced its stake in lots of companies, including General Electric (NYSE: GE  ) . The company's recent fourth-quarter report featured a growing backlog of orders (hitting $210 billion), and it has been expanding in areas such as mining and natural gas infrastructure. In a recent Motley Fool Money Roundtable, our analysts discussed another huge GE asset:�its financial arm.

Finally, Tocqueville's biggest closed positions included Barrick Gold�and Kaiser Aluminum. Other closed positions of interest include Amarin (NASDAQ: AMRN  ) , a late-stage cardiovascular-focused biotech company with a promising drug to lower triglycerides. Some bulls see its newly approved drug, Vascepa, as underappreciated�while others are waiting to see how successful its launch is. There's speculation that the company will be acquired�by a big pharmaceutical company, too.

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13-F forms can be great places to find intriguing candidates for our portfolios.

More Expert Advice from The Motley Fool

The biotech space can make or break investors over-night, and while Amarin might not disappear into thin air, the success of its new triglyceride lowering drug is key to the company's future success or failure. The company has huge potential, but don't invest a dollar before reading everything you need to know about Amarin. You can start now with top analyst Max Macaluso's premium research report. Click here now to keep reading.

Facebook Home: A New, Deep Integration With Android

Facebook (Nasdaq: FB  ) founder and CEO Mark Zuckerberg yesterday introduced the company's newest iteration, Facebook Home, to the world. Designed for users to "see the world through people, not apps," Facebook Home isn't an operating system, nor is it a conventional application. Available for download on certain Android-powered devices through the Google (Nasdaq: GOOG  ) Play store beginning April 12, the new product aims to make the mobile experience more fundamentally social.

Facebook Home turns the home screen into a continuous stream of your friends' photos, updates, and shared stories. Dubbed the cover feed, Zuckerberg demonstrated how easy it is to interact with these scrolling stories by simply double tapping to "like" a story or swiping to move to the next one.

But Facebook Home also attempts to revolutionize mobile messaging, blurring the lines between SMS and Facebook messages. One feature, called Chat Heads, allows users to easily message friends (whose tiny, circular facial profiles appear on the screen) while other applications are running.

The unabashedly ambitious Zuckerberg isn't just content with introducing a drastically new way to access social media. Five to 10 years from now, not only does he envision about 5 billion people having smartphones, but he believes the majority of those people "will have never seen in their lives what you and I call a computer." He went on: "The very definition of what a computer is and what our relationship with it should be hasn't been defined for the majority of the world." The 28-year-old billionaire closed by saying that when that relationship is finally defined, it will center around the "people first" philosophy championed by Facebook Home.

Not only will Facebook Home be available on a number of HTC and Samsung devices on April 12, but HTC will be releasing the HTC First the same day, the first phone that comes with Facebook Home built in. Retailing for $99.99, it will only be available through AT&T (NYSE: T  ) .

In less than an hour, Facebook's stock went from gains of around 1% at the beginning of the event to roughly 3% gains as investors applauded the upcoming launch.�

More Expert Advice from The Motley Fool After the world's most hyped IPO turned out to be a dunce, most investors probably don't even want to think about shares of Facebook. But there are things every investor needs to know about this company. We've outlined them in our newest premium research report. There's a lot more to Facebook than meets the eye, so read up on whether there is anything to "like" about it today. Access your report by clicking here.

These Banks Have Ammunition to Fight the Fed

Banks enjoyed the low interest rate environment while they still had higher interest assets on the books. However, with interest rates stuck at record lows and margins compressing, banks are increasingly focusing on non-interest revenue. In order to maintain a relatively stable earnings stream, banks will need to focus on growing this piece of the banking puzzle.

In this video, Motley Fool banking analyst David Hanson tells investors which banks have a revenue mix that would be favorable in a continued low-rate environment.�

With all of these headwinds, Citigroup's stock looks tantalizingly cheap. Yet the bank's balance sheet is still in need of more repair, and there's a considerable amount of uncertainty after a shocking management shakeup. Should investors be treading carefully, or jumping on an opportunity to buy? To help figure out whether Citigroup deserves a spot on your watchlist, I invite you to read our premium research report on the bank today.�We'll fill you in on both reasons to buy and reasons to sell Citigroup, and what areas Citigroup�investors need to watch going forward.�Click here now�for instant access to our best expert's take on Citigroup.

Thursday, April 4, 2013

Why H&R Block Is Poised to Pull Back

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, tax prep specialist H&R Block (NYSE: HRB  ) has received a distressing two-star ranking.

With that in mind, let's take a closer look at H&R Block, and see what CAPS investors are saying about the stock right now.

H&R Block facts

Headquarters (founded)

Kansas City, Mo. (1946)

Market Cap

$7.8 billion


Personal services

Trailing-12-Month Revenue

$2.6 billion


CEO William Cobb (since 2011)

CFO Gregory Macfarlane (since 2012)

Return on Equity (average, past 3 years)



$418.4 million / $1.3 billion



Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 34% of the 542 members who have rated H&R Block believe the stock will underperform the S&P 500 going forward.

Just yesterday, one of those Fools, ayekappy, highlighted H&R Block as a rather untimely opportunity:

Horrible company with a failing business model. Probably won't be getting new customers and will lose a lot of existing customers due to their famous error and essentially lying about what % of people got their returns back already. They may have to hide under TaxAct to make people forget about their stained name. Next quarter's numbers should be pretty ugly compared to normal since the glitch was heard about earlier in the tax season, so they already started bleeding customers this tax season.

While you can certainly make gains in mediocre companies with a little controversy surrounding them, the best investing approach is to choose great businesses and stick with them for the long term. The Motley Fool's free report, "3 Stocks That Will Help You Retire Rich," names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of.�Click here now�to keep reading.

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Ford And Toyota Are Reasons Why Alcoa Might Be A Buy

In this video, Motley Fool analyst Taylor Muckerman outlines three reasons to buy Alcoa (NYSE: AA  ) . First, there is a rebound in the global economy, particularly in China and, to a lesser extent, the United States.�Demand for aircraft, autos, and truck trailers are projected to drive aluminum demand. Second, Alcoa is actively restructuring its business and pursuing other means of reducing its costs. Lastly, Alcoa is set on maintaining its investor grade credit rating which means that it can expand its business through the debt market at attractive rates if it chooses.

Materials industries are traditionally known for their high barriers to entry, and the aluminum industry is no exception. Controlling about 15% of global production in this highly consolidated industry, Alcoa is in prime position to take advantage of growth that some expect will lead to total industry revenue approaching $160 billion by 2017. Based on this prospect and several other company-specific factors, Alcoa is certainly worth a closer look. For a Foolish investment perspective on this global giant simply click here now to get started.

Bank Stress Tests and the All-Clear-to-Rally Signal

Earlier this week I repeated that I've been cautiously bullish (too cautious, I also said) since October.

I also told you I was optimistic that all the major indexes would break through the important psychological, headline, and large-round-number resistance levels they started flirting with two weeks ago.

Boy, was that an understatement.

On Tuesday, markets blew the lid off of any impediments in their way.

In fact, the price action was so fast and furious you'd have thought the Federal Reserve said something about keeping interest rates low, or maybe that some good news about bank stress tests had leaked out.

And to think, only one week earlier, markets had a steep fall from grace on account of Fed Chairman Ben Bernanke not saying anything about another round of quantitative easing.

What a difference a week makes.

In case you missed the psychology of the market, it went like this...

The Little Mind-Game Twist That Scared the ShortsOn Tuesday the week before, the markets fell because Bernanke was more optimistic on the U.S. economy than he has been. So markets thought the liquidity party might be coming to an end.

Then this Tuesday, the FOMC minutes reiterated the Fed's pledge to keep fed funds between 0% and ¼% through 2014.

After the markets initially digested the FOMC minutes as being negative - because again there was no mention of further easing - they made the most of the news and decided that a statement confirming rates would be kept low until the end of 2014 was a lot better than no mention of the extended timeframe.

That little mind-game twist scared a lot of shorts.

As the major indexes were flirting with resistance levels, and failing to convincingly break out, traders were becoming more negative and more short positions were being put on.

Also, investors, sitting on great profits since the huge run-up from October, began to put on hedges and even sold into last Tuesday's blow off.

But with the Fed saying they were staying the interest rate course they'd set through 2014, short-sellers decided there was too much upward momentum to fight. They began to cover.

And then some tidbits about the bank "stress tests" started to leak out...

Bank Stress Tests: A Beauty Contest for the Public's BenefitSeems the markets remember the rally in 2009, the last time we got news that, although some banks needed to add capital, the whole system was in better shape than the public had come to fear.

It's all about timing.

A little short-covering, a breakthrough above resistance levels, and a good pinch of reality that banks aren't under stress at all. It all makes for an explosive rally.

But seriously, did anyone think that we were going to find out that the banking system was about to go down the drain? Of course not.

Who conducted the stress tests?

Why, that would be the Federal Reserve, who just happens to already know everything they need to know about the 19 big banks they were "testing!"

It wasn't a test. It was a beauty contest put on for the public's benefit. The Fed wanted to show how beautiful America's banks were, and would be, in the face of some horrible disaster.

The whole exercise was like an episode of "American Idol," or some awards show.

Here's what it looked like to me.

The never-say-too-big-to-fail, naughty-nineteen bank contestants, all of whom made it through the first round of stress-test auditions in 2009, were anxiously awaiting the judges' scores to determine who would be the 2012 American Banking Idol.

The winner would be picked by the pageant's executive producer (the Sisterhood of Bankers for Bankers, otherwise known as the Fed), who used its own internal accounting peeps (allegedly run by Madoff's former accountant from his community service workshop) to tally the votes.

The rules this year required all contestants to spend untold hours (though most have tallied them and will complain bitterly) and untold sums of money (which they can write off, like they do with all those pesky settlements) to determine how they would fare if:

  • the stock market fell 50%,
  • U.S. GDP shrank 8%, and
  • unemployment was 13% (as measured by the simple birth/death ray total participation dissecting model, divided by seasonal adjustments and political mandates, times the square root of U6), in other words, not too far from where it actually is now.
But that's not all. Some of the more international contestants would have to make assumptions about Germany directing the European Union to march under its boots and what might happen if Euro-zone members flying the euro currency rag don't all say "Achtung Baby."

The figures the judges were watching, as the contestants paraded in their skivvies, included leverage ratios and Tier 1 capital that the banks would openly display under the dire scenario, starting now and staggering quarterly through the end of 2014.

While it should be noted that the judges' votes are final, the banks themselves will conduct a separate, self-directed, look-in-the-mirror evaluation of their figures and flaws, as required under Section 165 of the most exact and concise law ever not written - the Dodd-Frank Act.

I bring this up because some beauty contestants may balk at how a group of presumptuous outsiders sees them, as opposed to how they actually see themselves.

However, I'd like to point out that no one's calculations really matter anyway, on account of the fact that there is no common mathematical thread woven through anyone's internal modeling of risk weightings, duration exposure analysis, counterparty risk, or operational and reputational risk metrics.

So the judges will judge, don't worry about it, because they're all too big to fail, anyway.

Now imagine the anticipation, waiting for the Fed's determination about America's banking idols.

The envelope please.

"And the winner is..."

"Ladies and gentlemen, this is amazing... We have a tie... The winners are... all of the banks!"

Accepting the award on behalf of all the banks will be the on voted "Most Congenial to Regulators," Wells Fargo, and the bank voted "Most Dismissive of Its Critics," the lovely JPMorgan Chase.

In case you didn't stay up late enough on Tuesday night, here's a copy of their acceptance speech.

"This is unbelievable! First, we'd like to thank the Federal Reserve for painting such a dire future that they knew none of us could survive, so they had to accept our submissions without asking any of us who made them up. And we'd like to thank all the regulators for covering up for us these past four years when most of us, okay all of us, were insolvent and they all lied for us. Thank you. And, last but not least, we'd like to thank the public for believing in these meaningful contests, for listening to each of our CEOs and our regulators when we tell you that we're all healthy and you go ahead and buy our equity and wholeheartedly embrace our subordinated debt, which you know is government backed. Thank you all. We'll see you next year."

So much for stress tests.

Related New and Articles:

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  • Money Morning:
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A Red Flag Emerges In Wynn Resorts

Just today, Bloomberg is reporting that its own Vice-Chairman, Kazuo Okada, is suing Wynn Resorts (WYNN) for access to the company’s books. Okada is also Chairman of Universal Entertainment, a Japanese-quoted stock that’s Wynn Resorts’ largest shareholder, with a 20% stake.

This type of development cannot be underestimated, it’s a clear red flag, a cockroach if you may, meaning that similar negative stories can emerge in the near future (a cockroach is never alone).

The issue stems from a $129 million pledge Wynn made to the University of Macau Development Foundation, as well as the use of $30 million invested by one of Okada’s companies in Wynn, back in 2002. The values in question are themselves small, but it is worrisome that Wynn Resorts doesn’t even acknowledge the $30 million investment, and is asking for proof that it really existed at all.

Wynn Resorts Ltd. presently has a market capitalization of $14.0 billion, and is trading at a TTM P/E of 26.14 with expected earnings growth of 13.40% taking it to a forward P/E of 18.62 next year. The TTM P/E means WYNN trades at a premium to the S&P500 TTM P/E of 13.0. The PEG (Price/Earnings Growth) stands at 0.69, a level which is usually seen as attractive. The Price/Book is 5.43.

WYNN's dividend yield is 1.79%. The ROE is high at 19.01% but this is partly due to very low book value since the stock is trading at a Price/Book of 5.43.

WYNN is up by 1.27% year-to-date. All in all, we can’t say WYNN is an expensive equity, its founder is a legend in the casino business and it was rather amazing what he accomplished in so little time by building WYNN from the ground up in a few short years. Still, this kind of lawsuit is worrisome and should not be taken lightly, as it might uncover signs of wrongdoing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

What Women Read When No One Sees the Cover

Publishers are on to a dirty little secret: women are huge users of e-readers on which they are reading books they'd be embarrassed to open in public. Katherine Rosman has details on Lunch Break.

If that woman next to you on the train seems unusually engrossed in her e-reader, there may be a good reason.

Electronic readers, and the reading privacy they provide, are fueling a boom in sales of sexy romance novels, or "romantica," as the genre is called in the book industry.

As with romance novels, romantica features an old-fashioned love story and pop-culture references like those found in "chick lit." Plus, there is sex—a lot of it. Yet unlike traditional erotica, romantica always includes what's known as "HEA"—"happily ever after."

Kindles, iPads and Nooks "are the ultimate brown paper wrapper," says Brenda Knight, associate publisher at Cleis Press, of Berkeley, Calif., a publisher of erotica since 1980.

Mainstream publishers are launching digital-only erotic labels to feed demand. At the end of the month, HarperCollins UK will launch Mischief Books, with the tag line "private pleasures with a hand-held device."

Tori Benson, a 41-year-old married mother in Eustis, Fla., reads 10 to 15 books a week, about half of them erotic. She began reading romance novels as a young girl and graduated to erotica a few years ago, when she got her first Kindle. She now has two, one of which her 10-year-old daughter calls "Mommy's naughty reader."

Ms. Benson says the digital format helped her get over her embarrassment. She reviews romance books for and erotica for the website Heroes and Heartbreakers. Even so, she says she wouldn't read these books in print if she were in view of anyone. "Some of the covers are very explicit," she says.

Berkley/Penguin Group

' "Thank you for spilling wine on my shirt," Elec said, stepping back and unbuttoning his shirt. He yanked it off with little care or concern for the fabric and tossed it on the floor with hard movements. His T-shirt, which also sported a smaller wine stain, was peeled off and sent after the dress shirt.

Tamara almost choked on her drool. Oh. My. God. "My pleasure," she said and gawked mercilessly at his ripped chest and abs.'

Erotica on the Mischief Books site is tagged with icons. Handcuffs denote "kinky"; an upraised palm means "discipline." The HarperCollins imprint says it plans to publish at least 60 e-titles a year. "It used to be a long walk to the counter with an erotica selection, but now that's a thing of the past," says Adam Nevill, Mischief Books' editorial director. (HarperCollins, like The Wall Street Journal, is owned by News Corp. )

The genre even has its first best-seller, "Fifty Shades of Grey," by E L James, a British mother and former TV producer. It's a novel about the steamy love affair between a college student and a billionaire businessman, littered with contemporary references to Apple computers, personal trainers and songs from bands like Snow Patrol and Kings of Leon.

"Fifty Shades" was released last May through the Writer's Coffee Shop, an Australian independent e-publisher, and by fall it had become a grassroots sensation in the U.S., as affluent young mothers devoured the racy tale and recommended it to friends. Last week, Vintage Books signed a seven-figure deal with the Australian publisher for rights to the book and the next two in the series, "Fifty Shades Darker" and "Fifty Shades Freed." Vintage plans initially to print a total 750,000 paperback copies of the books.

The ease of downloading to an e-reader is a huge factor in erotica's growth. The minute a reader hears about a book from a friend, she can buy her own copy.

And in a series, as soon as she finishes the first book she can download the next. Some readers load all the novels about a favorite heroine onto their e-readers at once.

"This is an online market," says Rachel Kramer Bussel, a writer of erotica and editor of the anthology "Best Bondage Erotica 2012," from Cleis Press.

Fans of romantica say they like the heroines—educated, professionally successful, morally centered characters who are swept up by unexpected, intense sexual desire. Readers also are drawn to the love stories.

"Flat-Out Sexy," published by Penguin Group's Berkeley Trade unit, is set in a Nascar-like racing circuit. It depicts the torrid attraction between a rookie driver, Elec, and Tamara, the widow of a beloved driver who died in a crash.

"Tempted," published by Harlequin's Spice label, concerns happily married Anne, who is drawn into a relationship with her husband and his best friend, Alex. The sequel, "Naked," is an account of the affair from Alex's point of view.

Erotica used to be difficult to find. Chains and independent bookstores might have carried a few titles, but they were hidden away, and inventory was scarce.

Self-publishing made it easier for first-time authors to get distribution online. As women began to write erotica and post it online, demand grew.

Since Cleis Press started selling digital books in 2008, its sales have grown 30%, and the publisher attributes 40% of its dollar volume to e-books. It is expanding its erotica list this year from 48 books to 60. Among its offerings: "Fast Girls" and "Frat Boys."

The romance genre—encompassing a range of fiction types, from traditional romance to Christian romance, Amish romance and erotica—makes up 17% of sales of adult fiction, says Brent Lewis, Harlequin's executive vice president for digital.

Romance fans were among the earliest adopters of e-reading. Nearly 40% of all new romance books purchased are in digital form, says Kelly Gallagher, vice president of Bowker Market Research. In erotica, the digital portion is that high or higher, he says. It is about 20% for other adult trade genres—except for mysteries, which have recently caught up with romance.

Jill Lascher, a 42-year-old Los Angeles mother of three, bought a Kindle so she could read "Fifty Shades of Grey," whose print availability is limited.

In December, she was on a family vacation in Florida with her sister, Nicole Beit, a 39-year-old Manhattan mother of three, who barely looked up from her Kindle.

"I said, 'You're missing this, you're not present,' " Ms. Lascher says.

"I said, 'If you were reading this, you would understand,' " Ms. Beit says.

Ms. Lascher's Kindle arrived four days later, and for the rest of the vacation and several weeks afterward, the sisters read all the books in the "Shades" trilogy and talked about them often.

"I was very happy having no one know what I was reading," Ms. Lascher says. "You blush when you read it."

Write to Katherine Rosman at

This Consumer Powerhouse Rides a Monster Trend

The following video is part of our "Motley Fool Conversations" series, in which Andrew Tonner, technology editor and analyst, and Austin Smith, consumer-goods editor and analyst, discuss topics around the investing world.

In today's edition, they discuss how Procter & Gamble is showing itself to be a continually innovative and dynamic company in a stale market space. It's getting involved in cell phone-based coupons, which not only demonstrates its willingness to adopt cutting-edge business moves but will also bring it valuable and targeted consumer data.

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Looking for our prediction for 2012? Check out The Motley Fool's brand-new report, "The Motley Fool's Top Stock for 2012." It highlights a company that is revolutionizing commerce in Latin America. You can get instant access to the name of this company by�clicking here -- it's free.

Verizon Delivers Solid Second Quarter, Outpaces AT&T on New Subscriptions

In a quarter with multiple moving parts, Verizon Communications (VZ) reported better-than-expected earnings and added 665,000 retail postpaid wireless customers.

That post-paid figure is notable since AT&T (T) added 496,000 in the second quarter to miss some Wall Street estimates. Verizon’s postpaid wireless additions topped estimates. For instance, Barclays Capital expected Verizon to add 550,000 retail postpaid wireless subscribers.

Another key point: AT&T added more mobile device connections such as e-readers and GPS systems. Overall, Verizon has 7.7 million machine-to-machine connections and AT&T has 6.7 million.

Verizon’s quarter had multiple items. Overall, the company reported a net loss of 7 cents a share for the second quarter. But that includes $2.3 billion in costs to cut workers. Verizon is offering voluntary separations to 11,000 workers. Meanwhile, Verizon spun off its wireless assets to Frontier on July 1. Adjusting for divestments and workforce cuts, Verizon reported earnings of 58 cents a share, three cents ahead of Wall Street estimates. Second quarter revenue of $26.77 billion, up 3.4 percent from a year ago, was lighter than estimates of $27.1 billion, but it’s unclear whether analysts accounted for the various moving parts in Verizon’s report.

Verizon took a 52 cents a share charge for voluntary separations related to union employees; a 6 cents a share charge for Alltel merger integration costs and divesting certain properties; 4 cents a share for the Frontier spin-off and 3 cents a share to defer wireless data revenue for future quarters.

In a statement, Verizon CEO Ivan Seidenberg said that the company has cut costs and revamped the company to focus on next-generation connectivity. He said:

We have the network platforms in place, and the product and service innovations in the pipeline, to fuel the next generation of growth in our changing industry. Our cost-reduction efforts are gaining momentum, and trends in the global business market are showing signs of stabilization.

In addition, Verizon said it plans to launch LTE service by the end of the year in 25 to 30 markets. By the end of 2013, Verizon said its entire 3G footprint will be 4G.

By the numbers:

  • Verizon added 1.4 million net wireless customers in the second quarter. That sum includes 665,000 retail postpaid subscribers.
  • Retail postpaid churn was 0.94 percent in the quarter. Retail churn was 1.33 percent and total churn was 1.27 percent.
  • Verizon ended the second quarter with 86.2 million retail customers and 92.1 million total.
  • Wireless data revenue was $4.7 billion, up 23.4 percent from a year ago.

  • The company added 196,000 net FiOS Internet subscribers and 174,000 for FiOS TV.
  • Verizon had 9.3 million broadband connections at the end of the quarter, up 2.5 percent from a year ago.

  • Like AT&T, Verizon saw improvement in its enterprise business, which saw revenue rise 0.6 percent from a year ago.
  • Capital expenses were $4.2 billion in the second quarter, down 3.6 percent from a year ago. Verizon said 2010 capital spending will be $16.8 billion to $17.2 billion, consistent with the company’s previous outlook.

Original post

Top Stocks For 3/7/2013-18

EQ Labs, Inc. (Pink Sheets:EQLB) reported recently that poker superstar and celebrity spokesperson Vanessa Rousso appeared with Company CEO Mo Owens on the Las Vegas affiliate of ABC television (KTNV – Channel 13) promoting EQ Labs effervescent energy tablet.

On June 24, 2010, the company announced that Vanessa Rousso had signed an endorsement contract with EQ Labs. Ms. Rousso is a member of the prestigious Team PokerStars. In addition, she signed an endorsement contract as a celebrity spokesperson for Go Daddy in 2009. Ms. Rousso also appeared in the Sports Illustrated Swimsuit Issue.

EQ Labs is engaged in the development, marketing and sale of EQ (“The Smart Energy Drink”). EQ is an effervescent tablet that can be dissolved in any beverage to provide instant energy. Consisting of a blend of essential vitamins, Gingko Biloba, and less caffeine than a cup of coffee. EQ is currently sold at Best Buy, 7-Eleven, Walgreens and other leading retailers.

Jamba Juice (Nasdaq:JMBA) is encouraging fans to rethink breakfast with the introduction of its Better Start. Better Day Campaign. Highlighting the better-for-you breakfast menu items Jamba Juice offers, the campaign will focus on products that suit each customer’s individual needs including Hearty Start, Power Start and Balanced Start meal suggestions. Additionally, Jamba Juice will unveil its first-ever hot coffee offerings including made-to-order boosted Coffee Hot Blends and fresh, organic coffee�brewed by the cup, in select locations.

For those looking for a healthier breakfast, Jamba Juice hot oatmeal provides fan with a hearty start to their day. Slow cooked, steel cut and served with a choice of three real fruit toppings including fresh banana, apple cinnamon and blueberry/blackberry plus brown sugar crumble, Jamba Juice oatmeal is the perfect way for fans on-the-go to combat those instant oatmeal blues. Deliciously paired with fresh squeezed orange juice or a hot beverage, Jamba Juice oatmeal provides the natural fuel to keep fans energized.

Whether you’ve just finished, or are about to start, your morning exercise routine, Jamba Juice’s freshly blended-to-order fruit smoothies are a great way to Power Start your day. Made with real whole fruit and all-natural fruit juices, Jamba Juice fruit smoothies are available in a variety of sizes and options to accommodate every activity level and health objective. The Protein Berry Workout Smoothie with whey protein boost and other Blended With a Purpose (pre-boosted) smoothies, like Strawberry Energizer, The Coldbuster and Acai Super Antioxidant are a great way to help you maintain a healthy lifestyle. The pre-boosted smoothies aren’t the only way to power up for breakfast, Jamba Juice offers a selection of high quality, uniquely blended boosts, such as daily vitamin and immunity to treat the body better every day.

Unilever (NYSE: UN), one of the world�s leading marketers and largest consumer packaged goods companies, has joined AMC�s Mad Men for a unique season-long sponsorship. The advertising campaign incorporates six iconic Unilever brands, including Dove, Breyers, Hellmann�s, Klondike, Suave and Vaseline, into a series of 13 vignettes. The spots are airing during season four of the hit show as well as online, including a dedicated YouTube channel� The Unilever vignettes offer a behind-the-scenes look at the creative partners of a fictional 1964 ad firm, Smith Winter Mitchell. This week�s upcoming vignette features the agency brainstorming a new campaign for Hellmann�s mayonnaise.

Designed to celebrate the heritage of the brands that are as popular today as they were in the 1960s, this campaign combines witty historic parody with modern ad footage. This unique approach to advertising, that is both contextually and culturally relevant, appeals to consumers� sense of nostalgia while tapping into one of today�s most popular cultural phenomenon.

Unilever works to create a better future every day. Unilever helps people feel good, look good and get more out of life with brands and services that are good for them and good for others. Each day, around the world, Unilever serves over two billion consumers. In the United States, Canada and the Greater Caribbean (Trinidad & Tobago, Dominican Republic, Puerto Rico) the portfolio includes brand icons such as: Axe, Becel, Ben & Jerry�s, Bertolli, Blue Band, Breyers, Caress, Country Crock, Degree, Dove personal care products, Hellmann�s, Klondike, Knorr, Lipton, Omo, Popsicle, Promise, Q-Tips, Skippy, Slim-Fast, Suave, Sunsilk and Vaseline.

How Does Main Street Capital Make Its Money?

I have been writing about investing for a while, and even I find it difficult to read a company's entire 10-K or annual report. The information contained can often be overwhelming, and the ability to prioritize and parse this data is a learned skill. If you are so inclined, one great�place to start is by examining how a company makes its money.

When it comes to business development company Main Street Capital (NYSE: MAIN  ) , the short answer is that it makes its money from investing in small and midsize companies. However, if we dive a little deeper and examine the company a little further, we can truly see where its money comes from.

In its own words
According to its recent 10-K,�Main Street Capital is a "principal investment firm primarily focused on providing customized debt and equity financing to lower middle market (LMM) companies and debt capital to middle market companies." Per the company, its lower middle market companies generally have annual revenues between $10 million and $150 million, while its middle market companies have annual revenues between $150 million and $1.5 billion.

At the end of 2012, Main Street had investments with a fair value of $924.4 million in a total of 147 companies. Though the company is invested in more middle market companies, it's the lower middle market companies that make up the bulk of the value, as well as account for most of the current gains:



Fair Value

Total Cost Basis

Lower middle market


$510.3 million

$408.0 million

Middle market


$390.0 million

$385.5 million

Other investments


$24.1 million

$23.6 million



$924.4 million

$817.1 million

Source: Company 10-K.�

Converting investment to revenue
With a business focused on providing debt and equity infusions to businesses, it is fairly easy to determine where Main Street makes its money. It receives interest payments from its investees on a regular basis per the terms of the specific contract, with most loans�generally having terms of three to seven years, with monthly or quarterly payments and interest rates between 12% and 14%. It also receives dividend payments from any equity investments, as well as the occasional fee that it receives for providing business consulting services.

Beyond the cash payments that Main Street receives as both dividends and interest payments, it also has unrealized gains from many of its equity investments. Ultimately, the goal is to recoup the investment, and Main Street works with its portfolio companies�in planning exit opportunities, be it a sale to another company or a simple redemption of the outstanding shares or warrants.�

What kinds of companies are represented?
Main Street seeks to diversify its holdings over many industries and throughout the United States. According to the company, they currently have investments in over 36 different industries, ranging from energy equipment and services to thrifts and mortgage finance. A quick look at the top five industries at the end of 2012 show a diverse group, and feature both the largest gain and second-largest decline from 2011:�





Energy Equipment & Services
















Commercial Services & Supplies




Source: Company 10-K; fair value of portfolio invested in industry.

As expected, when I took a further look at the 147 companies that Main Street invests in, I did not recognize many names. This is primarily a function of the majority of its investments going to smaller companies that tend to be private or regionally located. Nevertheless, there were a few companies that I recognized, like the formerly public and movie studio Miramax Films. Otherwise, Main Street is able to identify small businesses that meet its standards for investment and make a decent return.

Where are the companies located?
The geographical breakdown of its investments shows that it has managed to expand outside of its Southwest base of Houston, Texas. The Southwest still represents the largest portion of its investments, but it is starting to lose ground to some other areas, with strong growth in the Midwest and the company's first investment outside the United States:

























Non-United States




Source: Company 10-K; fair value of portfolio invested in region.

As Main Street continues to diversify its holdings, I would expect the regional breakdown will continue to change, which would open up new opportunities for the company. It would be able to capitalize on some fast growing parts of the country, as well as reduce its risk should the Southwest or other region experience a slowdown. If the change from 2011 to 2012 is any indication, we should see similar results when 2013 comes to an end.

Fulfilling a need
Traditionally, when a company needs capital, it usually goes to a bank or other financial group for funding. However, when these avenues are unavailable, a company like Main Street Capital can come in and offer similar funding, as well as provide business owners with hands-on advice on how to maximize their potential. There is definitely a need for Main Street, and as a shareholder, I hope it's something it can continue to do for a long time.

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Apple has to think different about China - 02:07 PM

( -- Apple apologies are rare. Especially ones that come from the CEO.

Steve Jobs said sorry (sort of) when the iPhone 4 antenna backlash appeared ready to derail the launch with bad press. Tim Cook did the same when Apple Maps’ arrival was greeted last fall with mocking and scorn and threatened to overshadow the iPhone 5�?�s arrival. Other than that, Apple gets lambasted in the media in many countries for a variety of reasons and the company’s standard response is silence.

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  • Apple has to think different about China
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But in China? Rather than the local media and government coming around to the way Apple does business, it seems to be the other way around: Apple is learning its usual playbook for success doesn’t necessarily work there.

After a two-week sustained campaignconducted by the country’s government-controlled media outlets against Apple’s repair and warranty service for iPhones that painted the company as “arrogant,” Apple took the very unusual step of having Cook apologize in an open letter to Chinese customers. He also offered a slight change in how the company handles warranties. The Chinese media stood down after Apple’s peace offering, and it does appear that for now, both sides got something good out of the deal.

Consider the way Apple dealt with a warranty snafu in Italy. In late 2011 the country’s consumer protection agency found Apple was violating a law requiring free two-year warranties for all products. Apple was offering one year (its standard policy) and selling AppleCare plans to customers if they wanted more protection. Even with plenty of media coverage, it took several rounds of fines and threats from the government to shut down Apple’s local businesses before Apple complied – over a year later.

To recap: In China, Apple wasn’t breaking any law, yet it issued a deferential apology. In Italy, it actually ran afoul of the law, a year later fixed its policy with no apology. But whether it’s dealing with security problems, iCloud outages, or potential antitrust matters, the latter situation is far more common for Apple than the former.

The China affair started out in typical fashion for Apple. The company initially responded to the China Central Television report on its iPhone repair policy, saying, ”Apple makes outstanding products … and offers incredible user experience. Our team is always making an effort to exceed customers’ expectations.”

Most Western media reporters who cover Apple saw that and thought, “sounds about right:” like a lot of companies, Apple’s typical playbook in these situations involves bland statements that give away nothing. But when the People’s Daily paper couldn’t get an interview with an Apple executive, it proceeded to call Apple “arrogant” and sharpened its attacks.

There’s nothing new or surprising about Apple executives not giving interviews. Its preferred way of interacting with the press is through occasional large, orchestrated media events that are invite-only, carefully crafted statements or background briefings.

And the notion of Apple being called “arrogant” is also nothing new. What is new is the extremely deferent apology. “We express our sincere apologies for any concerns or misunderstandings this gives consumers,” Cook wrote. Compare that to Jobs’ response to so-called Antennagate: ”This has been blown so out of proportion that it’s incredible” and “when companies get big, people want to tear them down.”

But for foreign companies trying to gain a foothold in the Chinese market, the humble apology is actually something of a standard operating procedure for dealing with dissatisfied customers and a nagging Communist Party-controlled media, as Bloomberg noted. The growth potential of the Chinese market is impossible for companies to ignore; Cook believes it will become Apple’s largest market some day and on recent earnings calls has described it as “a very, very important country to us.”

And the Chinese media clearly also can’t be ignored or asked to wait until Apple is ready to make an announcement — particularly if the outlets are deeply connected to the government that can heavily influence Apple’s fortunes in the country. (China also does not have the kind of grassroots system of support from fan sites and blogs run by the Apple faithful the way it does in the U.S. and other countries.) The situation as it played out this week sets a pretty clear precedent that for Apple to succeed, it’s going to have to get used to this dynamic — and make adjustments.

Apple isn’t new to China. The two have plenty of history: it provides millions of jobs to Chinese workers through its partnership with Foxconn and other manufacturing companies. So the company is experienced in dealing with industries and government agencies that are not necessarily independent of the country’s ruling party.

Apple has learned to play the game when it comes to getting new iPhones approved by the nation’s communications authority, getting new carriers to support the iPhone, dealing with the intellectual property laws, getting stores opened, and more. And this is no easy thing to navigate; Apple rival Google has a particularly tortured relationship with China due to a history of censorship and hacking. Apple has also dealt with hacking attacks possibly emanating from the country.

But as Apple moves to make its No. 2 market its No. 1 market, and the populous country’s citizens into customers, the road there is paved with other forces — state-run media, a government potentially treating Apple as a proxy for its disagreements with the U.S. government – that will mean it’s not just business as usual for Apple.

Thumbnail courtesy of Flickr user LJR.MIKE via Compfight cc

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Top Stocks For 4/4/2013-16

Power3 Medical Products, Inc. (OTC.BB:PWRM), a leading proteomics company focused on the development of innovative diagnostic tests in the fields of cancer and neurodegenerative diseases, delivered four poster presentations at the 2010 International Conference on Alzheimer’s Disease (ICAD) in Honolulu, Hawaii. These presentations discussed NuroPro, Power3′s diagnostic test, and focused on Power3′s Alzheimer’s disease blood serum biomarkers, test and clinical validation trials.

Power3 has filed several patent applications for its NuroPro technology that are currently pending. Power3 also has a world-wide exclusive license from the Baylor College of Medicine in Houston, Texas. To date, Power3 has given 9 presentations on NuroPro at international scientific meetings in the United States, Europe and China, and has published 6 articles in peer-reviewed scientific journals on the subject. Power3 intends to publish these latest findings as well.

Power3 Medical Products, Inc. is a leading bio-technology company focused on the development of innovative diagnostic tests in the fields of cancer and neurodegenerative diseases such as Alzheimer’s disease, Parkinson’s disease and amyotrophic lateral sclerosis (commonly known as ALS or Lou Gehrig’s disease). Power3 applies proprietary methodologies to discover and identify protein biomarkers associated with diseases. Through these processes, Power3 has developed a portfolio of products including BC-SeraPro, a proteomic blood serum test for the early detection of breast cancer for which it has completed Phase I clinical trials, and NuroPro, a proteomic blood serum test for the detection of neurodegenerative diseases, including Alzheimer’s, Parkinson’s and ALS diseases, for which it is currently engaged in Phase II clinical trials. These tests are designed to analyze an individual’s proteins to detect the presence of disease, a patient’s disease progression, a patient’s response to a particular drug, and the mechanisms of disease present in the patient for optimal targeted therapy.

Gushan Environmental Energy Limited (NYSE: GU) recently announced that its board of directors has approved a share repurchase program effective October 7, 2010.

Under the terms of the approved program, the Company may repurchase up to US$5 million worth of its issued and outstanding American Depositary Shares through its subsidiary, Gushan Holdings Limited, from time to time in open market at prevailing market prices, in negotiated transactions off the market, in block trades, pursuant to a 10b5-1 plan or otherwise in compliance with applicable laws.

Gushan is a leader in the PRC biodiesel industry, in terms of annual production capacity, and one of the leading biodiesel producers in Asia, in terms of nominal capacity. The Company produces biodiesel, a renewable, clean-burning and biodegradable fuel and a raw material used to produce chemical products, primarily from vegetable oil offal and used cooking oil, and by-products from biodiesel production, including glycerine, plant asphalt, erucic acid and erucic amide.

Applied Materials Inc. (NasdaqGS: AMAT) Macronix International Co, Taiwan�s biggest maker of NOR flash-memory chips, recently announced that it bought $15.8 million of equipment from Applied Materials Asia-Pacific Ltd. , the Hsinchu, Taiwan-based company said in a statement to the stock exchange on September 30, 2010.

Advanced Micro Devices, Inc. (NYSE: AMD) CEO Dirk Meyer recently reported that the chip giant is not for sale but is open to listen to any interesting proposals. Meyer’s comments came at an industry conference in Barcelona on Wednesday October 6, 2010 after rumors that Oracle Corp. would make a bid.

Sunnyvale-based AMD’s stock jumped late last month on speculation about Oracle’s plans despite issuing a revenue warning.
Oracle CEO Larry Ellison said in a speech just before then that he isn’t done buying companies, pointing to chip-makers and makers of industry-specific software as targets.

Is Microsoft Laying Groundwork for a Smaller Surface?

With the very obvious consumer trend toward smaller tablets,�Microsoft� (NASDAQ: MSFT  ) has little choice but to release a smaller version of its Surface if it has any hopes of success.�Apple� (NASDAQ: AAPL  ) recently launched its iPad Mini in an admission that there is a market for smaller devices. Google's (NASDAQ: GOOG  ) Nexus 7 has a hot seller among Android enthusiasts, and� (NASDAQ: AMZN  ) was easily the first company to see major success with its 7-inch Kindle Fire. Windows Blue, which may be officially dubbed Windows 8.1, will lay the groundwork for smaller Windows tablets.

In the video below, Fool contributor Evan Niu, CFA, lays it out for investors.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Wednesday, April 3, 2013

Why This Is a Crucial Time for Investors

For anyone who believes that CEO pay has careened far out of control, say-on-pay votes are more important now than ever. This is particularly because so far, it looks like 2012 didn't put the brakes on pay levels.

USA Today has issued preliminary findings that CEO pay increased 8% in 2012, to a median $9.7 million. These figures were culled from 145 S&P 500 companies that have already filed their 2012 CEO compensation data in their proxy statements.

Obviously this increase outstrips inflation and belies the economic weakness faced by many American workers (and those out of work). As usual, chief executives tend to make out a lot better financially than the rest of the economy -- and society.

It's still early in proxy season, but several companies have already suffered say-on-pay defeats from shareholders. It's time for the rest of us to consider whether CEOs at the companies we own deserve a smackdown on their compensation packages.

First rumblings of dissatisfaction
By mining through filings and current events, one might identify logical reasons why some companies' shareholders have already made their dissatisfaction clear through their proxy votes.

The most withering failure so far has gone to truck maker Navistar (NYSE: NAV  ) . A scant 17.8% of its shareholders voted in favor of the company's CEO compensation policies. Perhaps that's because former CEO Daniel Ustian left the helm last August with $8 million in severance and pension benefits valued at about $17 million.

Digital Generation (NASDAQ: DGIT  ) , which manages and distributes electronic ads, received only 38.7% approval of its CEO compensation policies. Director David Kantor also fared badly in the voting, with 8.6 million votes in favor of his election, and a whopping 7.5 million votes withheld. (Given the lack of an "against" option, withheld votes serve the same purpose.)

The company's been floundering, its stock price has fallen, and it recently announced a quarterly loss and failure to find a buyer. However, on Jan. 1, 2012, CEO Scott Ginsburg left the position, passing it on to Neil Nguyen. Both made out pretty well in 2012. As executive chairman, Ginsburg received a base salary of $629,000 with total pay valued at $9 million, and Nguyen's base salary was set at $592,000, with total pay valued at $8 million.

In addition, according to newly penned employment agreements disclosed in the proxy, should Ginsburg leave his job due to a change in control, he's entitled to a severance package valued at nearly $8 million. Nguyen's entitled to a package valued at about $6 million for the same situation.

Only 41.2% of shareholder votes were cast in favor of Nuance Communications' (NASDAQ: NUAN  ) CEO compensation policies. Although fiscal 2012 was a good year in terms of profit growth, the company's shares have taken a beating in the last month or so on slashed guidance. Meanwhile, it bears mentioning that the company didn't turn an annual profit from 2003 until the fiscal year ended September 2011.

The shareholder wake-up call has already occurred in the majority vote against CEO compensation. CEO Paul Ricci's base salary has increased by 38% to $7.94 million over two years' time, and the total value of his compensation has skyrocketed to $37 million from just shy of $20 million in 2010.

Ricci's "other compensation" in the form of perks also surged to $184 million, with large line items dedicated to use of the company aircraft, reimbursement for tax and financial planning, and a fixed car allowance. By way of comparison, last year his perks added up to $55,000 worth of benefits.

Meanwhile, who knows: Carl Icahn's newly announced stake in Nuance Communications may or may not signal a bit of a shakeup coming.

Scrutinizing salaries
Plenty of companies' pay policies deserve scrutiny. Although some companies are running their businesses well despite hardships in the broad economy, many corporate CEOs are making out like bandits simply because the ongoing market rally has floated many stocks higher, whether business performance truly supported those stock prices or not. In other words, shareholders should look way beyond share price over the last year or two and assess whether the chief executives really have exhibited leadership worthy of their pay levels.

One of the highest-paid CEOs on USA Today's preliminary list is Viacom's (NASDAQ: VIA  ) Philippe Dauman, with a pay package valued at a total $33.4 million last year. That included a base salary of $3.5 million and a bonus of $11.5 million. Dauman is no stranger to the top of such lists over the years.

Also of note are a few chief executives with notably low salaries -- and it's not because they're fumbling at running their companies. Take Berkshire Hathaway's (NYSE: BRK-B  ) Warren Buffett, whose base salary was only $100,000 in 2012, with "other" compensation valued at $434,000. For the man who is such a respected businessman and investor, that's one heck of a modest salary. Pay policies like that deserve kudos.

Take your stand -- and vote
According to USA Today, investing giant and Vanguard founder Jack Bogle said of CEO pay, "I'm shell-shocked. I can't believe this can go on. I can't believe owners of these companies can't take a bigger stand."

That's right, shareowners... it is time to take more significant stands. One sign of hope is that early in 2013, we have heard of several notable CEO pay cuts, like the one taken by JPMorgan Chase's�Jamie Dimon. Perhaps more corporate leaders will be held accountable in the coming year, and I hope so.

Still, the sneaking suspicion that the CEO pay party continued to rock on in 2012 reminds us to think about what our chief executives' performance is really worth -- and vote accordingly.

More from The Motley Fool
Thanks to the savvy of investing legend Warren Buffett, Berkshire Hathaway's book value per share has grown a mind-blowing 586,817% over the past 48 years. But with Buffett aging and Berkshire rapidly evolving, is this insurance conglomerate still a buy today? In The Motley Fool's premium report on the company, Berkshire expert Joe Magyer provides investors with key reasons to buy as well as important risks to watch out for. Click here now for instant access to Joe's take on Berkshire!

Check back at for more of Alyce Lomax's columns on environmental, social, and governance issues.

Does Fiduciary Coverage for 401(k) Rollovers Lie Ahead?

A just-released report by the Government Accountability Office on rollovers foreshadows what one of the more controversial aspects of the Department of Labor’s revised fiduciary rule may look like, industry officials say. 

In its 76-page report, "401(k) Plans: Labor and IRS Could Improve the Rollover Process for Participants," GAO urges the DOL and the Internal Revenue Service to take steps to ensure that plan-to-plan rollovers are more efficient, and to provide more information to plan participants about their distribution options when leaving an employer’s plan, as GAO says the current rollover process favors distributions to individual retirement accounts.

GAO said in its report that DOL and IRS should reduce the waiting period to roll over into a 401(k) plan and improve the asset verification process, as such actions could help make staying in a 401(k) plan “a more viable option, allowing participants to make distribution decisions based on their financial circumstances rather than on convenience.”

Arguing that little attention has been paid to the distribution process, GAO said it went about identifying challenges separating plan participants may face in (1) implementing rollovers; (2) obtaining clear information about which option to choose; and (3) understanding distribution options.

Said GAO: “Labor regulations do not ensure that 401(k) plans provide complete and timely information to participants on all their distribution options.”

In its report, GAO urged both agencies to reduce the “obstacles and disincentives” that exist for rolling into another plan, and told DOL to ensure that participants receive “complete and timely information, including enhanced disclosures, about the distribution options” for their 401(k) plan savings when separating from an employer.

Phyllis Borzi, assistant secretary for DOL’s Employee Benefits Security Administration, told AdvisorOne Wednesday that the GAO report “highlights that ending conflicts of interest among advisors in the retirement marketplace is an important part of helping workers save for a secure retirement, particularly when they are faced with the decision about making a rollover or taking some other form of distribution.”

In its report, GAO specifically urges EBSA to finalize the agency’s proposed rule amending the definition of fiduciary under ERISA, and “require plan service providers, when assisting participants with distribution options, to disclose any financial interests they may have in the outcome of those decisions in a clear, consistent, and prominent manner; the conditions under which they are subject to any regulatory standards (such as ERISA fiduciary standards, SEC standards, or others) and what those standards mean for the participant.” But Brad Campbell, former head of EBSA who’s now with Drinker Biddle & Reath in Washington, has warned that EBSA’s revised fiduciary rule—likely to be out in July—will also include new rules on the rollover solicitation process. “I suspect that [EBSA will say] a conversation about a rollover is a fiduciary conversation,” Campbell has said. If this is part of the revised rule, “that would present a lot of real difficulties and changes for rollovers.”

Indeed, Kent Mason, a partner at the law firm Davis & Harman, told AdvisorOne on Wednesday that while filling disclosure gaps for participants is a good thing, “if you attach fiduciary duty to the distribution of that information” as DOL likely will do in requiring rollovers be held to a fiduciary standard in its reproposed fiduciary rule, “that information will dry up, a point that GAO itself generally makes.”

Fred Reish, partner and chairman of the financial services ERISA team at Drinker Biddle & Reath, told AdvisorOne that GAO, in its report, is encouraging DOL to provide guidance that service providers must make certain disclosures “in the context of the fiduciary advice regulation that the DOL is working on now.” But GAO is also saying that DOL “should give clear guidance to plan sponsors and fiduciaries about how far they can go in providing distribution information and education without becoming a fiduciary advisor for those purposes. Fiduciaries must already administer a plan prudently, and distributions are a part of that.”

As to the GAO recommending disclosure by service providers in the distribution process, “it appears that [GAO] is giving a green light and some guidance on what [it] would like to see in the fiduciary regulation,” Reish says.

David Bellaire, executive vice president and general counsel for the Financial Services Institute, says however, that “It is evident that the GAO has not fully considered the impact the Department of Labor’s fiduciary rulemaking will have on Main Street Americans’ access to professional financial advice, products and services." While FSI supports disclosure of costs and conflicts, "we believe this should be done in a way that ensures the quality of advice investors receive when planning for retirement, but does not limit it.”


Read The Disclosure Paradox: How Much Information Is Too Much? by Michael Finke on AdvisorOne.

Cray Postpones Q3 Earnings Announcement And Conference Call

Cray (CRAY) shares are down sharply this morning after the company announced that it has postponed the post-earnings conference call that had been scheduled for this afternoon.

Also, a Cray spokesman confirmed that, contrary to a press release earlier this week, Cray will not be issuing Q3 results today. (The company had not specifically mention postponement of the earnings report in the announcement today.) The spokesman said Cray is not providing any information on the reasons for the delay.

Meanwhile, the delay comes amid widespread reports that a Chinese supercomputer that uses Nvidia (NVDA) chips is now the world’s fastest, exceeding the previous record holder, a Cray supercomputer based at Oak Ridge National Laboratory.

CRAY is down $1.43, or 20.1%, to $5.70.

The U.S. Has a Larger Gap Between Rich and Poor Than Downton Abbey

There are two very different Americas today. In one, the stock market is soaring, high end homes are selling briskly, big banks and hedge funds are rolling in money as if the last financial crisis never even happened, and life is really, really good. 

In the other America, good jobs are incredibly scarce, incomes are declining, and poverty is skyrocketing to levels that we have never seen before. The gap between the wealthy and the poor in America is getting wider with each passing day. In fact, it is my contention that the U.S. has an even larger gap between the rich and the poor than Downton Abbey does. 

If you have never seen Downton Abbey, you really should. It is one of the most extraordinary shows to appear on television in years. It is a drama set in the UK which follows the lives of the aristocratic Crawley family and their servants throughout the early part of the 20th Century. It can be a bit jarring to watch servants wait on their masters hand and foot and refer to them by such titles as "Lord" and "Lady", but the truth is that in many ways there is more inequality today than there was back then. As far as people living in the worst areas of cities such as Detroit and Cleveland are concerned, the socialites that live on Fifth Avenue in New York City or in multi-million dollar homes out in the Hamptons might as well be from another planet. If you have lots of money, America is still a really great place to live. 

If you barely have any money, America can be really cold and cruel. Sadly, our politicians continue to pursue policies that make things even better for those working for the establishment in places such as Washington D.C. and Manhattan, and worse for all the rest of us. This has especially been true over the course of the past four years. If nothing is done, the gaping chasm between the rich and the poor will continue to get even worse, and in the end that will have some really severe consequences for our society.

So is the answer to raise taxes and "redistribute" more money to the poor? Of course not. Today, we are already paying dozens of different kinds of taxes every year and the government is handing out more money to people than ever before. But poverty just continues to explode.

What the poor in the U.S. desperately need are good jobs, but we continue to ship millions of good jobs out of the country and Barack Obama continues to pursue policies that are killing the U.S. economy.

There is not much help on the horizon for the poor or the middle class in America, and that should be distressing for all of us.

But things in the wealthy parts of America are going absolutely wonderfully right now. Let's take a few moments and contrast what life is like in the two Americas right now...

In the "good America", stocks are absolutely soaring. In fact, the S&P 500 closed above 1,500 on Friday for the very first time in more than five years.

In the "bad America", poverty statistics just continue to get worse. According to a newly released report, 60 percent of all children in the city of Detroit are living in poverty.

In the "good America", hedge funds are rolling in the profits. The Dow just had its best January since January of 1994, and many analysts are projecting that 2013 will be a banner year for the markets.

In the "bad America", median household income has fallen for four years in a row, and millions of families are really struggling to find a way to pay the bills each month.

In the "good America", expensive homes are selling at a pace that we have not seen in years. Just check out what is happening in the Hamptons. According to the National Association of Realtors, sales of homes worth at least a million dollars were 51 percent higher in November 2012 than they were in November 2011.

In the "bad America", there are hordes of young adults that cannot find jobs and cannot take care of themselves. Shockingly, U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent.

In the "good America", the "too big to fail" banks are partying like it was 2005 again. For example, revenues at Goldman Sachs increased byabout 30 percent in 2012 and Goldman stock has soared by more than40 percent over the past 12 months.

In the "bad America", poverty is exploding and government dependence has become a way of life. If you can believe it, the number of Americans on food stamps has grown from about 17 million in the year 2000 to more than 47 million today.

In the "good America", those working for the establishment will do just about anything to make a buck. For instance, Goldman Sachs made 400 million dollars driving up food prices in 2012 while hundreds of millions around the world existed on the edge of starvation.

In the "bad America", millions of families are wondering how they will make it until next month. If you can believe it, more than a million public school students in the United States are homeless. This is the first time that has ever happened in our history.

In the "good America", everyone has a good ride. In fact, sales of luxury German-made vehicles set new all-time records in 2012.

In the "bad America", those that have lost everything are shunned and ostracized. In fact, many communities all over America are actually making feeding the homeless illegal.

The fact that there is poverty in America should not alarm you. Every country in the world has poverty. What should alarm you is how rapidly it is growing. Even though the Obama administration tells us that we are in an "economic recovery", things just continue to get worse. The wealthy elitists in Washington D.C. and New York City may be doing wonderfully, but the truth is that the middle class continues to shrink and just about every poverty statistic that you can think of continues to rise.

If you are convinced that we do not have a "wealth gap" problem in the United States today, just check out the following statistics. Most of them are from one of my previous articles entitled "The Middle Class In America Is Being Wiped Out – Here Are 60 Facts That Prove It"...

-According to the Economic Policy Institute, the wealthiest one percent of all Americans households on average have 288 times the amount of wealth that the average middle class American family does.

-In the United States today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.

-According to Forbes, the 400 wealthiest Americans have more wealth than the bottom 150 million Americans combined.

-The six heirs of Wal-Mart founder Sam Walton have as much wealth as the bottom one-third of all Americans combined.

-At this point, the poorest 50 percent of all Americans collectively own just 2.5% of all the wealth in the United States.

-The United States now ranks 93rd in the world in income inequality.

-The average CEO now makes approximately 350 times as much as the average American worker makes.

-Today, corporate profits as a percentage of U.S. GDP are at an all-time high, but wages as a percentage of U.S. GDP are near an all-time low.

Sometimes, when the "good America" and the "bad America" collide, the results are quite humorous.

For example, a 23-year-old homeless Brazilian man and his friends recently decided to "move in" to a 7,522 square foot house down in Florida that is valued at $2.1 million. The following is from a recent article in the Orlando Sentinel...

Bank of America has filed to evict nine squatters from a $2.5-million mansion in a posh Boca Raton neighborhood.

In a filing in Palm Beach County court that names 23-year-old Andre De Palma Barbosa and eight other unknown people, the bank claims rightful ownership of the home – despite Barbosa's attempt to stake his claim on the foreclosed waterside property by using an obscure Florida real estate law.

Barbosa has been invoking a state law called "adverse possession," which allows someone to move into a property and claim the title – if they can stay there seven years.

A signed copy of that note is also posted in the home's front window.

Yeah, they will be able to get him and his friends out of there eventually, but in future years I fear that the conflicts between the rich and the poor will not be so nice.

Already, a very ominous "Robin Hood mentality" is building among the poor in this country. Many wealthy people don't even realize that it is happening. But someday when desperate "flash mobs" are roaming through their neighborhoods looking to do a little "creative redistribution", then they will get it.

Our society is starting to come apart at the seams, and there is an incredible amount of tension between the rich and the poor. This is unfortunate, but instead of calming things down many of our politicians are actually exploiting this tension.

When our economy crashes, the class warfare of today may actually turn into real war in the streets. Desperate people do desperate things, and when people are hungry and they can't feed their families, many of them will not be afraid to go over to the wealthy neighborhoods and take what they want.

A lot of people don't want to see them, but dark clouds are building. According to a recent Gallup poll, Americans are more negative about where America will be five years from now than they have ever been before. Most people know that we are on the edge of something really bad, even if they can't really explain it.

It is time to get ready for what is coming. Even though the stock market is soaring right now, that could change at any moment. All of the long-term economic and societal trends are pointing to some really bad things in the years ahead, and sticking our heads in the sand and pretending that everything is going to be okay somehow is not going to help.

So what do you think about all of this?

Do you think that the U.S. has an even larger gap between the rich and the poor than Downton Abbey does?

Please feel free to post a comment with your thoughts below...

*Post courtesy of the Economic Collapse Blog.


New CEO’s plan for same business model, more flash - 05:13 PM

( -- announced on Tuesday that Neil Vogel, founder of the best-of-the-internet “Webby Awards,” will be the company’s new CEO. His immediate tasks will be to increase the site’s brand recognition and to persuade people to spend more time engaging with the content produced by’s more than 900 expert “guides.”

Vogel arrives eight months after the New York Times Company sold to IAC, an internet conglomerate best known for the brand. Prior to the sale, — which depends heavily on search for its traffic — suffered a drop in business when Google downgraded its content in its search algorithm.

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In a phone interview, Vogel said the Google setback was overblown and is humming along at a profitable pace on the basis of its traditional display and automated ad business. He also claimed that ad prices have stayed strong and that the existing “monetization model is very good.”

Vogel said his immediate plans are to grow traffic and to make the site flashier along the lines of BuzzFeed or Pinterest. He also says the site has great content but low name recognition.

“There’s clearly some design things to make this site more compelling,” he said, adding that there was a lot of potential on the “social side” but that the same social strategies don’t work for all content.

Whatever strategy Vogel chooses, he has no shortage of content with which to work. It will be interesting to see what a CEO with a show business streak does to spice up a website that covers everything from bankruptcy to baseballto Buddhism.

Related research and analysis from GigaOM Pro:
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Lululemon Competitors Seize Opportunity

Conventional wisdom says you shouldn't kick a guy when he's down -- forget that. lululemon athletica (NASDAQ: LULU  ) is still reeling from the yoga pants recall that it issued two weeks ago. The pants had the unfortunate feature of looking transparent when stretched. As a result of the shortage of product the recall has caused, the company has said that it's going to see a drop in comparable sales growth, revenue, and earnings per share for the first quarter. That's giving competitors a chance to pounce on the lucrative segment, and two have finally taken the initiative by featuring their versions of yogawear on their websites.

Under Armour makes its case
Sport-tech-driven Under Armour (NYSE: UA  ) has been trying to increase its sales to women over the past few years. The goal is to generate 50% of apparel revenue from sales of women's clothing, which is a big move from its current state at about 20% of revenue�. Tapping into Lululemon's market could be a great expansion for Under Armour.

To help it capture some of the disgruntled customers, Under Armour has added a slide to its main website that features the company's studio pants line. The pants look like the standard Lululemon range, but run about 10% cheaper. The company even featured the line on its Facebook page late last month, driving customers to its site with the tag line "We've Got You Covered." Well played, Under Armour.

Nike does it too
Not to be outdone, Nike (NYSE: NKE  ) has also brought its line of women's pants to the front of its site. The company's Legend Pants have prime real estate on the front page of The product page also highlights the pants' non-see-throughness, indicating that they provide coverage even when bending or stretching. While the additional income would be a smaller addition for Nike -- it made $6.2 billion last quarter -- the company couldn't help but make at least a gesture toward the customers that might come over from Lululemon. Nike's pants run even cheaper than Under Armour's, at around 25% less than Lululemon pants.

Gap misses an opportunity
For all its talk about increasing its Athleta business, Gap (NYSE: GPS  ) missed the boat on this one. The company doesn't even mention its yoga line on the brand's homepage, focusing on swim instead. Unlike Nike, Athleta could use a revenue boost in almost any denomination. The segment containing Athleta earned $117 million last quarter, which was a 31% increase from the year before. Still, Lululemon has said that around $15 million in lost sales are on the line, and any of that that Gap can pull in would be helpful. It's too bad the company missed out on the chance.

Where does Lululemon stand?
Lululemon has the potential to grow its sales by 10 times if it can penetrate its other markets like it has in Canada, but without question, the competitive landscape is starting to increase. Can Lululemon fight off larger retailers like Gap and Nordstrom, and ultimately deliver huge profits for savvy investors like yourself? The Motley Fool answers these questions and more in our most in-depth Lululemon research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.

Opinion: Merrill Matthews: About Those Tax Breaks for Big Oil . . .

President Obama has been telling America for months that special tax breaks for the oil and gas industry must come to an end. The presidential demand always prompts puzzled gazes among tax and energy-industry experts, who ask: What special tax breaks?

Thanks in part to a bill sponsored by Rep. Chris Van Hollen, a Democrat from Maryland and ranking member on the House Budget Committee, it's all much clearer now. The congressman has inadvertently called attention to the fact that those special tax breaks just for the oil and gas industry don't exist. Mr. Van Hollen proposes to create some very special punishments instead. Regardless of the bill's fortunes on Capitol Hill, it has already performed a public service by illuminating the fallacy behind assaults on the industry.

Mr. Van Hollen's ''Stop the Sequester Job Loss Now Act" would raise taxes on individuals�what he calls the "Fair Share on High-Income Taxpayers"�and effectively hike taxes on the oil and gas industry by changing the way their taxes are calculated. The problem with the bill is that the so-called tax breaks the industry would lose are not specific to oil and gas at all. They are widely available to lots of industries.

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Title III of the act goes after oil and gas with: a limitation on the section 199 deduction; a prohibition on using last-in, first-out accounting for major integrated oil companies; and a modification of the foreign tax-credit rules.

Section 199 is part of the domestic production activities deduction that was included in the American Job Creation Act of 2004, which passed with strong bipartisan support, especially in the Senate. It currently provides a 9% tax deduction from net income for businesses engaged in "qualified production activities" in the U.S. Those activities include manufacturing a product, selling, leasing or licensing it, and engineering and software activities related to that production. The deduction was intended to encourage domestic manufacturing, and in the hope that the tax break could provide a slight competitive advantage against foreign competition.

The oil and gas industry, especially in its extracting and refining, is heavily involved in U.S. manufacturing. Congress already penalizes the industry by only giving it a 6% deduction, rather than the 9% that other industries receive.

But whatever the percentage allowed, this isn't a special deduction for oil and gas. Many other manufacturing industries�including farm equipment, appliances and pharmaceuticals�take the deduction. Mr. Van Hollen's bill refers to the disqualification of two industries from these benefits as a "Special Rule for Certain Oil and Gas Companies." In terms of fairness, it's like telling oil company workers that they can't take the home-mortgage deduction anymore because they work for politically targeted companies.

Mr. Van Hollen also draws a bead on the last-in, first-out accounting method known as Lifo. Those who had accounting classes will recall that there are several widely accepted ways to value a company's inventory. Lifo is one of them. It assumes that the last inventory in is the first used, sold or distributed�an accounting method often used by commodity-type industries. Mr. Van Hollen proposes to reduce those inventory options available to the oil and gas industry, even though they are, and will remain, widely available to most U.S. companies.

Critics of the industry claim that there are other ways of appraising oil and gas inventory that would result in a higher value, and thus companies would have to pay more taxes. But that's like offering individuals the choice of taking the standard deduction or itemizing on their returns, and then demonizing a subset of people who choose the approach that minimizes their income tax obligation.

The third provision of Mr. Van Hollen's bill seeks to change the foreign tax-credit rules�but only for integrated oil and gas companies. American companies operating in foreign countries have to pay the taxes imposed by those governments. The U.S. government generally gives companies operating in foreign countries a tax credit to offset the foreign taxes paid, so the companies are not taxed twice on the same foreign income. That generally includes royalties paid to foreign countries.

Mr. Van Hollen's way of repealing this tax break for one particular industry is to assert that the royalties cannot be called a tax when they apply to that industry: "[A]ny amount paid or accrued by a dual capacity taxpayer which is a major integrated oil company to a foreign country or possession of the U.S. for any period shall not be considered a tax." If an oil company can't call a foreign royalty a tax, then it can't get the foreign tax credit.

Ironically, USA Today just published the top-10 list of companies that paid the highest U.S. income taxes as of 2012, and oil industry companies took three of the slots. Number one was Exxon Mobil at $31 billion, followed by Chevron at $20 billion, and sixth was ConocoPhillips at $8 billion. That is about $60 billion in taxes among them, more than the other seven companies on the list�including Apple and Microsoft �combined. Don't look for a presidential attack on Apple or Microsoft anytime soon.

Mr. Matthews is a resident scholar at the Institute for Policy Innovation in Dallas.