Strategies: At Dell, a Gamble on a Legacy

IN 1984 — the year Mark Zuckerberg, the Facebook creator, was born — Michael S. Dell started a tech company in his dorm room, dropped out of college and changed the world.

By making personal computers that were powerful, reliable and inexpensive, and by selling directly to buyers who customized their PC features, Mr. Dell revolutionized his industry.

“The original PC industry was long on people with great technical ideas but short on people who were able to turn those ideas into opportunities — into products that people really wanted,” said Timothy Bresnahan, a Stanford economist. Along with Steve Jobs and Bill Gates, as well as Scott Cook of Intuit, Mr. Dell was one of those few great innovators, he said. “These people are very rare.”

Mr. Dell’s early achievements were formidable, but unless his latest effort to turn around his company is successful, the Dell legacy today is very much in doubt. Last week, along with Silver Lake Partners, a private equity firm, he made a $24.4 billion buyout offer for his company — an apparent bet that, without the scrutiny of public shareholders, he can get Dell back on track.

Dell, the company, has been losing ground for years as the industry it once dominated has undergone upheavals that its founder failed to foresee. “The very nature of technology is that it changes a lot,” said Toni Sacconaghi, an analyst at Sanford C. Bernstein. “And Michael has conceded publicly that he has missed some big changes — he failed to foresee smartphones or tablets — and both of these shifts have been highly detrimental to the PC world.”

He has lagged in a crucial area of corporate strategy as well, said Shaw Wu, an analyst at Sterne Agee in San Francisco. While Mr. Dell has always been attuned to the needs of corporate clients, he is 20 years behind I.B.M. in embracing a strategic shift to enterprise software and services, Mr. Wu said: “That’s a higher-margin business that Dell would like to go after, but I.B.M. and others have got tremendous leads. It will be very difficult for him to catch up.”

If Dell shareholders accept an offer price of $13.65 a share, Mr. Dell, who is contributing his stake of more than 14 percent in the company plus hundreds of millions more, would end up with more than 50 percent of the new company’s equity, Mr. Sacconaghi estimated. Mr. Dell, who declined to comment for this article, would control the company without being subject to the day-to-day pressures of the stock market, which has pummeled Dell shares because its earnings have weakened.

While Dell reports that 50 percent of its revenue is directly related to PCs, Mr. Wu says the figure is 70 to 80 percent when indirect revenue, like that for computer monitors, printers and services, is included. “The company has made big investments in other areas, but it’s still mainly a PC company,” he said.

That’s a big problem for several reasons. Once considered the low-cost provider in the field, Dell now faces lean Asian competitors like Lenovo, Asus and Acer that make PCs more cheaply and accept lower profit margins. Yet these companies, particularly Lenovo, have also garnered praise for making excellent computers, not merely well-priced ones. At the same time, Dell’s vaunted reputation for quality and service has waned.

Lenovo, which makes the ThinkPad line of notebook computers formerly sold by I.B.M., “has been picking up corporate customers from Dell,” Mr. Wu said.

THEN there is a deeper issue: the entire PC industry is stagnant at best. Worldwide PC shipments declined 4.9 percent in the fourth quarter, versus the year-earlier period, according to Gartner, a market research firm. Consumer preferences are shifting. With the ubiquity of smartphones and tablets — segments where Dell is absent or very weak — consumers aren’t replacing PCs as often.

“We don’t expect people to abandon PCs, but they won’t rely on them as much in the future,” said Mikako Kitagawa, a Gartner analyst. Dell’s share of this no-growth market has been shrinking, to 10.2 percent worldwide in the fourth quarter of 2012, from 12.2 percent the previous year, Gartner said.

Facing such headwinds, Mr. Sacconaghi said, Dell hopes to “hold PC profits flat or, worst case, down 5 percent a year, while they grow the rest of the business to more than offset that.” But the market is skeptical. Dell’s shares fell 30 percent in the 12 months before Jan. 14, when reports of an imminent buyout appeared.

The leveraged buyout will layer $15 billion of new debt on the company. Microsoft, with which Dell has had close ties, is providing $2 billion. Because interest rates are extraordinarily low, servicing all that debt should be manageable, assuming that Dell maintains its current cash flow, Mr. Sacconaghi said.

It’s not clear how much the debt load will constrain Dell’s investments in research and development. Josh Lerner, a Harvard Business School professor, said a study for which he was a co-author found that after leveraged buyouts, most companies maintained their ability to innovate, largely by focusing research in “their core competencies.”

In other words, he said, “Dell might be able to prosper after a buyout; it would depend on how Michael Dell manages the company.”

Is the price being offered for the company fair? It’s often unwise to bet against company insiders, especially founders like Mr. Dell, who may be presumed to know their companies’ value better than outside investors.

Consider John W. Kluge, who took Metromedia private in 1984 in a $1.1 billion leveraged buyout. Mr. Kluge, Metromedia’s founder, promptly liquidated it, selling television stations (to Rupert Murdoch) and sundry assets like the Harlem Globetrotters and the Ice Capades. In the end, Mr. Kluge tripled his take — to the chagrin of many former shareholders.

Mr. Kluge, who died in 2010, wasn’t interested in preserving his company or revolutionizing an industry, however. He merely wanted to make money. “When we buy an asset, we look at it as a return on the investment,” he said in 1980.

For Mr. Dell, whose name is on the door, other factors may be in play. “Another chapter is still to be written,” Mr. Bresnahan said. Money will be part of it. So will the Dell legacy.

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Japanese Still Seeking Link in 787 Battery Incidents

Japan’s investigation of a battery that was smoking on a Boeing 787 flight there last month has not yet determined if the incident started in the same way as a fire on another 787 in Boston, a Japanese official said Friday.

Akinobu Yokoyama, a spokesman for Japan’s Transport Safety Board, said it was still not clear whether a short-circuit or other malfunction occurred within one or more of the eight cells in the new lithium-ion battery.

His comments in an interview came a day after Deborah Hersman, the chairwoman of the National Transportation Safety Board, said that the problems on the Boston jet seemed to have originated in the battery. She said one of the cells had a short-circuit that created a “thermal runaway” as it cascaded through the rest of the cells, heating the battery to 500 degrees.

Given that the problems on the innovative jets occurred just nine days apart, it is crucial for investigators to determine whether they started in a similar manner. If the incidents seem to parallel one another, it could be easier for Boeing and its regulators to find a fix than if they are dealing with two different problems.

The Japanese investigation started later than the American one. Mr. Yokoyama said it was “not appropriate to talk yet about whether proximity of the cells within the battery is a structural problem or a cause of the battery malfunctions.”

“By looking at the battery, it is obvious there was a thermal runway,” he said. “But we have yet to determine with any certainty why that happened.”

Ms. Hersman said Thursday that American investigators still did not know what caused the short-circuit in the cell of the Boston battery. She also said that in certifying the lithium-ion batteries in 2007, the Federal Aviation Administration accepted test results from Boeing that seriously underestimated the risk of smoke or fire.

The 787 is the first commercial plane to use large lithium-ion batteries for major flight functions. The batteries are more volatile than conventional nickel-cadmium batteries, but they weigh less and create more power, contributing to a 20 percent gain in fuel economy over older planes.

All 50 of the 787s that have been delivered so far have been grounded since mid-January.

That has also stopped Boeing from delivering more of the planes. Two European carriers, Thomson Airways and Norwegian Air Shuttle, said Friday that Boeing had notified them that the deliveries they had expected soon would be delayed until the problems with the batteries could be resolved.

Boeing’s rival, Airbus, plans to use smaller — and it says safer — lithium-ion batteries in its next-generation A350 jets, which will compete with the 787. Airbus reiterated Friday that it was watching to see how the investigations of the Boeing battery turned out.

“There is nothing that prevents us from going back to a classical battery on the A350, which we’ve been studying in parallel to the lithium battery from the beginning,” said Justin Dubon, an Airbus spokesman in Toulouse.

Hiroko Tabuchi reported from Tokyo. Nicola Clark contributed reporting from Paris.

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Media Decoder Blog: Led by Celebrity Titles, Magazine Newsstand Sales Slide

2:11 p.m. | Updated As the magazine industry continues to suffer from declining circulation, celebrity gossip magazines and young women’s titles have taken some of the biggest hits.

According to data released by the Alliance for Audited Media on Thursday morning, overall paid and verified circulation of magazines declined slightly by 0.3 percent in the second half of 2012. But newsstand sales – which are often viewed as the best barometer of how well a magazine is doing – dropped by 8.2 percent.

These figures were far worse for celebrity magazines, which largely suffered double-digit declines. People’s newsstand sales dropped by 12.2 percent while US Weekly experienced a 14.6 percent decline. In Touch Weekly declined by 14.8 percent and Life & Style Weekly suffered a 19.1 percent drop on newsstands.

Some young women’s magazines like Cosmopolitan and Glamour, which often attract an overlapping audience as celebrity magazines, also suffered major hits. Cosmopolitan had an 18.5 percent decline in newsstand sales while Glamour’s newsstand sales declined by 14.5 percent.

John Harrington, an industry consultant, said that both categories are suffering because young women can access a lot of similar content online.

“They’re fighting all the social media and information that’s just available in so many places,” said Mr. Harrington about the kinds of pressures these magazines are under. “Some of the same factors are that their audience are people who are digitally adept and tend to go to social media.”
While all magazines reported a rise in digital subscribers and the number of average digital magazine copies more than doubled from the year before, these numbers still make up less than 2.4 percent of the entire magazine industry’s average circulation.

Industry experts said that magazines also suffered from what was and was not happening in the world. Steven Cohn, editor of the Media Industry Newsletter, said that celebrity weeklies didn’t benefit from the boom that comes from celebrity weddings, births or deaths in recent months. He expects that business prospects may improve for these titles in the second half of the year after Prince William and Kate Middleton have their first child.

“In the second half of 2012, there was no royal wedding. There was no tragedy like the death of Michael Jackson,” said Mr. Cohen. “They should get a bump by the royal birth.”

Mr. Cohen added that Hurricane Sandy also may have hurt newsstand sales. He noted that even during an election year, Time Inc. experienced a decline in newsstand sales. Newsstand sales for the magazine declined to 58,776 in the second half of 2012 from 76,555 from the same time in 2011.

“I think Sandy is a factor,” said Mr. Cohen. “It certainly hurt newsstand in New York and New Jersey, which is the biggest market in the country.”

While Family Circle and Woman’s Day both noted rises in their newsstand sales, Mr. Harrington said that both magazines had cut back their frequency of publication to 12 times a year from 15 times a year. Both magazines also are relatively inexpensive.

“That helped their average newsstand sales and they’re still relatively lower priced items,” said Mr. Harrington.

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State of the Art: Microsoft’s Surface Pro Works Like a Tablet and a PC

For decades, Microsoft has subsisted on the milk of its two cash cows: Windows and Office. The company’s occasional ventures into hardware generally haven’t ended well: (*cough*) Zune, Kin Phone, Spot Watch (*cough*).

But the new Surface Pro tablet, which goes on sale Saturday, seemed to have more going for it than any Microsoft hardware since the Xbox.

Everybody knows what a tablet is, right? It’s a black touch-screen slab, like an iPad or an Android tablet. It doesn’t run real Windows or Mac software — it runs much simpler apps. It’s not a real computer.

But with the Surface Pro ($900 for the 64-gigabyte model, $1,000 for a 128-gig machine), Microsoft asks: Why not?

The Surface Pro looks like a tablet. It can work like a tablet. You can hold it in one hand and draw on it with the other. It even comes with a plastic stylus that works beautifully.

But inside, the Pro is a full-blown Windows PC, with the same Intel chip that powers many high-end laptops, and even two fans to keep it cool (they’re silent). As a result, the Pro can run any of the four million Windows programs, like iTunes, Photoshop, Quicken and, of course, Word, Excel and PowerPoint.

The Surface Pro is beautiful. It’s clad in matte-black metal, beveled at the edges like a Stealth helicopter. Its connectors immediately suggest its post-iPad capabilities, like a memory-card slot for expanded storage. The screen is bright and beautiful, with 1080p high-definition resolution (1,080 by 1,820) — but when you connect the tablet to a TV or desktop monitor, it can send out an even bigger, sharper picture (2,550 by 1,440). There’s one USB 3.0 jack in the tablet, and a second ingeniously built into the power cord, so you can charge your phone as you work. Or you can connect anything you’d connect to a PC: external drives, flash drives, keyboard, mouse, speakers, cameras and so on.

Are you getting it? This is a PC, not an iPad.

As though to hammer home that point, Microsoft has endowed the Surface Pro with two unusual extras that complete the transformation from tablet to PC in about two seconds.

First, this tablet has a kickstand. It’s a thin metal flap that disappears completely when closed, but holds the tablet at a nice angle when you’re working or watching a movie.

Second, you can buy Microsoft’s now-famous keyboard cover. There are two models, actually. One is about as thick as a shirt cardboard. You can type on it — slowly — but you’re tapping drawings of keys, not actual keys. It’s called the Touch Cover ($100 with Surface purchase).

The other keyboard, the Type Cover ($130) is thicker — a quarter-inch — but its keys really travel, and it has a trackpad. You can really type on this thing.

Either keyboard attaches to the tablet with a powerful magnetic click. For tablet use, you can flip either keyboard around to the back; it disables itself so you don’t type gibberish by accident.

And if you really want to go whole hog with the insta-PC idea, you should also spring for the matching Touch Wedge mouse. It’s a tiny $40 cordless wedge, not much bigger than the AA battery that powers it, with supercrisp buttons and a touch surface on top for scrolling.

Now, when I wrote a first-look post on my blog last month , I was surprised by the reader reactions. Over and over, they posted the same argument:

“For that money, I could buy a very nice lightweight laptop with a dedicated keyboard and much more storage. Why should I buy Surface Pro when I can have more for less?”

Why? Because the Surface Pro does things most laptops can’t do. Like it weighs two pounds, with touch screen. Or work in portrait orientation, like a clipboard. Or remain comfortable in one hand as you make medical rounds, take inventory or sketch a portrait. Or stay in a bag as it goes through airport security (the TSA says tablets are O.K. to stay in).

You also hear: “But haven’t there been full-blown PC tablets before?”

Yes, there are a couple. But without the kickstand and keyboard cover, they can’t change instantly into a desktop computer.

So it’s true: for this much money, you could buy a very nice laptop. You could also buy a five-day cruise, a Gucci handbag or 250 gallons of milk. They just happen to be different beasts.

All right then: the Surface Pro is fast, flexible and astonishingly compact for what it does; that much is unassailable. But in practice, there are some disappointments and confusions.

E-mail: pogue@nytimes.com

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Bucks Blog: Many Relying on Home Equity for Retirement

Even though the housing market has not recovered, nearly half of older working Americans expect to use equity in their homes to help finance their retirement, a new survey finds.

Roughly 47 percent of employed Americans ages 50 to 70 said they were relying on equity in their homes, the Retirement Check-In survey from Ameriprise Financial found. The finding is surprising, an accompanying report notes, because housing values in many parts of the country remain below the level they were before the recession. Also, 37 percent of homeowners say they’re not on track to pay off their mortgage before they retire.

More people said they were relying on home equity now compared with before the recession, the report finds. When participants were asked whether, before the downturn, they had expected to rely on home equity to help pay for their retirement, just 39 percent said yes.

While the reason for that shift isn’t entirely clear, the report says its plausible that the loss in value of other investments during the recession may have been so steep that many older workers feel they have no other alternative, even if their homes are worth less than they used to be.

“My hypothesis is that people didn’t think they were going to need to tap into equity because they thought they would have sufficient assets,” said Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial. “Now, despite the fact they have reduced home equity, the shortfall between what they’ve saved and what they need is greater.”

The finding is typical of a “perplexing disparity” between Americans’ emotional outlook for retirement and the reality they face, the report said.

For instance, nearly three-quarters indicated that their dream retirement included taking “really nice vacations.” Yet, when asked if they would be able to afford the essentials in retirement, fewer than half said they felt “extremely” or “very” confident. And just 38 percent said they were confident they could afford the extras they had been anticipating in retirement, like traveling and hobbies.

The telephone survey included 1,000 employed Americans age 50 to 70, with investable assets of at least $100,000 (including employer-based retirement plans, but not real estate) and who are planning to retire at some point. Koski Research conducted the survey on behalf of Ameriprise Financial from Oct. 31 and Nov. 14, 2012. The margin of sampling error is plus or minus 3 percentage points.

What role does home equity play in your retirement plans?

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DealBook: U.S. and States Prepare to Sue S.&P. Over Mortgage Ratings

The Justice Department, along with state prosecutors, plans to file civil charges against Standard & Poor’s Ratings Service, accusing the firm of fraudulently rating mortgage bonds that led to the financial crisis, people briefed on the plan said Monday.

Up until last last week, the Justice Department had been in settlement talks with S.&P., these people said. But the negotiations broke down after the Justice Department said it would seek a settlement in excess of “10 figures,” or at least $1 billion, these people said, which would wipe out the profits of S.&P.’s parent, the McGraw-Hill Company, for an entire year.

McGraw-Hill earned $911 million last year.

A suit against S.&P. would be the first the government has brought against the credit ratings agencies related to the financial crisis, despite continued questions about the agencies’ conflicts of interest and role in creating a housing bubble.

By bringing a civil suit, as opposed to a criminal case, the Justice Department’s burden of proof will be less, perhaps lowering the bar for a successful prosecution.

In a statement on Monday, S.&P. said it had received notice from the Justice Department over a pending lawsuit.

The ratings agency argued any such legal action would be baseless, since it downgraded plenty of mortgage-backed investments, including in the two years leading up to the financial crisis. It also contended that other observers of the debt markets, including government officials, believed at the time that any problems within the housing sector could be contained.

“A D.O.J. lawsuit would be entirely without factual or legal merit,” the agency said in its statement. “With 20/20 hindsight, these strong actions proved insufficient – but they demonstrate that the D.O.J. would be wrong in contending that S.&P. ratings were motivated by commercial considerations and not issued in good faith.”

Shares in McGraw-Hill were down 3.8 percent in midafternoon trading on Monday, at $56.07.

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Iceland, Prosecutor of Bankers, Sees Meager Returns

Ilvy Njiokiktjien for The New York Times

"Greed is not a crime. But the question is: where does greed lead?" said Olafur Hauksson, a special prosecutor in Reykjavik.

REYKJAVIK, Iceland — As chief of police in a tiny fishing town for 11 years, Olafur Hauksson developed what he thought was a basic understanding of the criminal mind. The typical lawbreaker, he said, recalling his many encounters with small-time criminals, “clearly knows that he crossed the line” and generally sees “the difference between right and wrong.”

Today, the burly, 48-year-old former policeman is struggling with a very different sort of suspect. Reassigned to Reykjavik, the Icelandic capital, to lead what has become one of the world’s most sweeping investigation into the bankers whose actions contributed to the global financial crisis in 2008, Mr. Hauksson now faces suspects who “are not aware of when they crossed the line” and “defend their actions every step of the way.”

With the global economy still struggling to recover from the financial maelstrom five years ago, governments around the world have been criticized for largely failing to punish the bankers who were responsible for the calamity. But even here in Iceland, a country of just 320,000 that has gone after financiers with far more vigor than the United States and other countries hit by the crisis, obtaining criminal convictions has proved devilishly difficult.

Public hostility toward bankers is so strong in Iceland that “it is easier to say you are dealing drugs than to say you’re a banker,” said Thorvaldur Sigurjonsson, the former head of trading for Kaupthing, a once high-flying bank that crumbled. He has been called in for questioning by Mr. Hauksson’s office but has not been charged with any wrongdoing.

Yet, in the four years since the Icelandic Parliament passed a law ordering the appointment of an unnamed special prosecutor to investigate those blamed for the country’s spectacular meltdown in 2008, only a handful of bankers have been convicted.

Ministers in a left-leaning coalition government elected after the crash agree that the wheels of justice have ground slowly, but they call for patience, explaining that the process must follow the law, not vengeful passions.

“We are not going after people just to satisfy public anger,” said Steingrimur J. Sigfusson, Iceland’s minister of industry, a former finance minister and leader of the Left-Green Movement that is part of the governing coalition.

Hordur Torfa, a popular singer-songwriter who helped organize protests that forced the previous conservative government to resign, acknowledged that “people are getting impatient” but said they needed to accept that “this is not the French Revolution. I don’t believe in taking bankers out and hanging them or shooting them.”

Others are less patient. “The whole process is far too slow,” said Thorarinn Einarsson, a left-wing activist. “It only shows that ‘banksters’ can get away with doing whatever they want.”

Mr. Hauksson, the special prosecutor, said he was frustrated by the slow pace but thought it vital that his office scrupulously follow legal procedure. “Revenge is not something we want as our main driver in this process. Our work must be proper today and be seen as proper in the future,” he said.

Part of the difficulty in prosecuting bankers, he said, is that the law is often unclear on what constitutes a criminal offense in high finance. “Greed is not a crime,” he noted. “But the question is: where does greed lead?”

Mr. Hauksson said it was often easy to show that bankers violated their own internal rules for lending and other activities, but “as in all cases involving theft or fraud, the most difficult thing is proving intent.”

And there are the bankers themselves. Those who have been brought in for questioning often bristle at being asked to account for their actions. “They are not used to being questioned. These people are not used to finding themselves in this situation,” Mr. Hauksson said. They also hire expensive lawyers.

The special prosecutor’s office initially had only five staff members but now has more than 100 investigators, lawyers and financial experts, and it has relocated to a big new office. It has opened about 100 cases, with more than 120 people now under investigation for possible crimes relating to an Icelandic financial sector that grew so big it dwarfed the rest of the economy.

To help ease Mr. Hauksson’s task, legislators amended the law to allow investigators easy access to confidential bank information, something that previously required a court order.

Parliament also voted to put the country’s prime minister at the time of the banking debacle on trial for negligence before a special tribunal. (A proposal to try his cabinet failed.) Mr. Hauksson was not involved in the case against the former leader, Geir H. Haarde, who last year was found guilty of failing to keep ministers properly informed about the 2008 crisis but was acquitted on more serious charges that could have resulted in a prison sentence.

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Strategies: World Economy Is Far From Safe, a Canadian Economist Says

WHEN you see a car being driven firmly within its lane and well under the speed limit, there’s nothing to worry about.

Or is there?

If you’re David A. Rosenberg, the glass-half-empty economist, there most certainly is. He says the world economy is like that car. And where others see stability and recovery, he sees “a car being driven by a drunk, lurching from side to side on the road, narrowly avoiding the ditches each time.”

At this particular moment, he says, the car happens to be in the middle of the road. But he can’t help but ask, “Is that because the driver has sobered up, or is it because the car is just passing through the middle on its way to the ditch on the other side?”

Mr. Rosenberg isn’t certain of the answer. But despite the cheer pervading the stock market and the relatively upbeat perspective of most economists, he says he isn’t convinced that the car will remain safely out of those ditches.

Formerly the chief North American economist at Merrill Lynch, and now proudly back in his native Canada as chief economist and strategist at Gluskin Sheff in Toronto, Mr. Rosenberg writes a market newsletter that is always provocative, often cantankerous and frequently out of step with the Wall Street consensus. He has been called a “permabear,” a label that he says is exaggerated but not entirely without merit.

“I’d say I’m as pragmatic as possible and not locked into one position,” he says, “but I do understand that I have a much better record forecasting rain than in predicting the return of sunshine.”

His record bears that out. Mr. Rosenberg correctly called the start of the last two recessions. But he was late in recognizing the strength of what has become a long bull market. In May 2009, when the stock market was in an early stage of its climb, his worries about the economy made him resolutely bearish on stocks. “I’d lock in my gains right now,” he told me then.

But his clients have generally done very well if they’ve followed his cautious advice, which called for buying fixed-income securities early in the bond market’s long boom. His mantra is “safety and income at a reasonable price.”

For a gimlet-eyed perspective on the current stock market joy, I called him last week and asked him what, exactly, has been propelling shares higher.

His answer, in two words, was “the Fed” — the Federal Reserve and its monthly $85 billion purchases of bonds and mortgage-backed securities, which are being piled on top of a balance sheet that swelled to a gargantuan $3 trillion last week.

Other analysts have pointed to a recent surge in stock mutual fund purchases by individuals, as opposed to the big institutional investors like pension funds, endowments and other money managers. The earnings season has been reasonably strong, and, at least in recent weeks, there has been no outright global economic disaster emanating from Washington, the euro zone, Tokyo or the oil fields of the Middle East.

These factors are all relevant, he allows, but they pale next to the direct and powerful relationship between the growth of the Fed’s balance sheet and the stock market.

The Fed’s control of short-term interest rates has always had a major impact on the markets, and the adage “Don’t fight the Fed” is a bit of Wall Street wisdom that has stood up for decades. But since the Fed lowered its benchmark Fed funds rate to near zero in December 2008, short-term rates have ceased to be a meaningful indicator because they cannot be lowered any further.

Instead, to provide further monetary stimulus to the economy, the Fed has embarked on a series of quantitative-easing measures — direct purchases of financial assets.

Mr. Rosenberg says his calculations show that there is now an 85 percent correlation between the growth of that Fed balance sheet and the Standard & Poor’s 500-stock index. If that relationship continues — and he’s not certain that it will — the market could keep rallying, though he says he believes it’s due for a correction. On Wednesday, the Fed reiterated its pledge to keep interest rates low and to keep making asset purchases for what effectively will be many months to come.

The Fed’s expansionary policies are contingent on weakness in the labor market and the overall economy. Well, the unemployment rate in January rose to 7.9 percent, the Labor Department announced on Friday. And the Fed says that as long as inflation is below 2.5 percent — and it is well below that level now — and unemployment is above 6.5 percent, it will keep rates ultralow. In addition, the gross domestic product declined at an annual rate of 0.1 percent in the last quarter of 2012, the first decline recorded since 2009.

MR. ROSENBERG says he does not believe that we are in a recession now but that we are very close to one. “Anemic growth is my baseline scenario,” he says. A shock could undermine the economy. And there is no assurance, of course, that the Fed can keep propping up equity asset prices.

So he advises that for diversification alone, investors should keep holding onto bonds and other carefully selected fixed-income instruments; in addition, there is a great likelihood that inflation will stay low and longer-term rates will be constrained, which would be beneficial for fixed-income prices.

He recommends playing the equity markets cautiously by seeking high-dividend-paying stocks of well-managed companies. At the moment, he says, those include Blackstone, the asset manager; Merck, the drug maker; and Yahoo, the Internet portal, among United States stocks. And he suggests that United States citizens hedge their bets by keeping 20 percent of their assets in Canada, which, he says, is fiscally sound and is likely to have higher growth and lower inflation than its southern neighbor. He advises holding Brookfield Infrastructure, which owns and manages utilities, energy and timber assets, and Crescent Point Energy, an oil and gas exploration company.

Above all else, he says, preserve your assets and your safety. Watch out for reckless behavior in the economy as well as on the roads. You never know what is about to come hurtling your way.

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Google Submits Proposal in Bid to Resolve E.U. Antitrust Case

BRUSSELS — E.U. officials said Friday that Google had submitted proposals aimed at ending a three-year antitrust case focused on its hugely popular online search service, but the offer did not prevent rivals from seeking to prolong its legal entanglements.

After filing a new complaint against Google this past week, Icomp, an industry group backed by Microsoft, urged European regulators on Friday to approach the company’s proposal with caution.

“To be seen as a success, any settlement must include specific measures to restore competition and allow other parties to compete effectively on a level playing field,” David Wood, legal counsel for Icomp, said in a statement.

Michael Weber, chief executive of an online mapping service called hot-map.com, a member of Icomp based in Germany, said he hoped the offer by Google was “enough to restore competition,” but “if not, we will take into account all legal options we have and we won’t hesitate to use them.”

If they remain dissatisfied, critics of Google in Europe can sue the European Commission, the European Union’s executive arm, at the General Court of the European Court of Justice in Luxembourg for failing to push hard enough for an effective solution. Such cases can take years to reach a final judgment.

Google managed to reach one settlement Friday. In France, it agreed to pay €60 million, or $82 million, into a fund to help French media develop their presence on the Internet, the president’s office said. Publishers in France had been pushing for Google to pay them licensing fees for the headlines and summaries of articles in its search engines.

The new antitrust complaint by Icomp, filed Thursday, claimed the search giant was using exclusive agreements to discourage advertisers and publishers from using competing advertising platforms and search services like Bing and Yahoo.

Neither the company nor European officials were willing Friday to describe the settlement proposals. But it had been expected that Google would offer revisions to the way it conducts its online search business in Europe to address regulators’ concerns that the company’s activities were unfair to other Web publishers and its online competitors.

The two parties are still negotiating the terms of the proposed settlement, and a final agreement between Google and the commission is expected in the coming week, according to a person briefed on the negotiations who was not authorized to speak publicly before an agreement was reached.

The commission has taken a tougher line with Google than the U.S. Federal Trade Commission, which decided in January, after a 19-month inquiry into how the company operated its search engine, that Google had not broken antitrust laws.

Joaquín Almunia, the European competition commissioner and top E.U. antitrust official, has been formally investigating Google since November 2010. He has insisted that Google make changes to the most sensitive area of its business, online search.

If Mr. Almunia ultimately accepts Google’s offer, the company will avoid further investigation that could lead to a fine of as much as 10 percent of its annual global sales, which came to about $50 billion last year. Google would also avoid a guilty finding that could restrict its activities in Europe.

“We continue to work cooperatively with the commission,” Al Verney, a spokesman for Google in Brussels, said Friday.

Antoine Colombani, a spokesman for Mr. Almunia, said at a news conference Friday that Google had sent “a detailed proposal,” which the commission was analyzing before taking further steps.

But there is no formal timeline in European antitrust cases, which means that negotiations could continue.

“I can’t anticipate the timing or the substance of the analysis,” Mr. Colombani said.

Mr. Almunia could still take a far more confrontational stance with Google by sending the company a statement of objections, which is the European equivalent of formal antitrust charges. But that is something Mr. Almunia has been eager to avoid because he favors nonlitigious solutions to antitrust problems, particularly in the fast-moving technology field, to prevent cases from dragging on for years.

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Law Schools’ Applications Fall as Costs Rise and Jobs Are Cut

Law school applications are headed for a 30-year low, reflecting increased concern over soaring tuition, crushing student debt and diminishing prospects of lucrative employment upon graduation.

As of this month, there were 30,000 applicants to law schools for the fall, a 20 percent decrease from the same time last year and a 38 percent decline from 2010, according to the Law School Admission Council. Of some 200 law schools nationwide, only 4 have seen increases in applications this year. In 2004 there were 100,000 applicants to law schools; this year there are likely to be 54,000.

Such startling numbers have plunged law school administrations into soul-searching debate about the future of legal education and the profession over all.

“We are going through a revolution in law with a time bomb on our admissions books,” said William D. Henderson, a professor of law at Indiana University, who has written extensively on the issue. “Thirty years ago if you were looking to get on the escalator to upward mobility, you went to business or law school. Today, the law school escalator is broken.”

Responding to the new environment, schools are planning cutbacks and accepting students they would not have admitted before.

A few schools, like the Vermont Law School, have started layoffs and buyouts of staff. Others, like at the University of Illinois, have offered across-the-board tuition discounts to keep up enrollments. Brian Leiter of the University of Chicago Law School, who runs a blog on the topic, said he expected as many as 10 schools to close over the coming decade, and half to three-quarters of all schools to reduce class size, faculty and staff.

After the normal dropout of some applicants, the number of those matriculating in the fall will be about 38,000, the lowest since 1977, when there were two dozen fewer law schools, according to Brian Z. Tamanaha of Washington University Law School, the author of “Failing Law Schools.”

The drop in applications is widely viewed as directly linked to perceptions of the declining job market. Many of the reasons that law jobs are disappearing are similar to those for disruptions in other knowledge-based professions, namely the growth of the Internet. Research is faster and easier, requiring fewer lawyers, and is being outsourced to less expensive locales, including West Virginia and overseas.

In addition, legal forms are now available online and require training well below a lawyer’s to fill them out.

In recent years there has also been publicity about the debt load and declining job prospects for law graduates, especially of schools that do not generally provide employees to elite firms in major cities. Last spring, the American Bar Association released a study showing that within nine months of graduation in 2011, only 55 percent of those who finished law school found full-time jobs that required passage of the bar exam.

“Students are doing the math,” said Michelle J. Anderson, dean of the City University of New York School of Law. “Most law schools are too expensive, the debt coming out is too high and the prospect of attaining a six-figure-income job is limited.”

Mr. Tamanaha of Washington University said the rise in tuition and debt was central to the decrease in applications. In 2001, he said, the average tuition for private law school was $23,000; in 2012 it was $40,500 (for public law schools the figures were $8,500 and $23,600). He said that 90 percent of law students finance their education by taking on debt. And among private law school graduates, the average debt in 2001 was $70,000; in 2011 it was $125,000.

“We have been sharply increasing tuition during a low-inflation period,” he said of law schools collectively, noting that a year at a New York City law school can run to more than $80,000 including lodging and food. “And we have been maximizing our revenue. There is no other way to describe it. We will continue to need lawyers, but we need to bring the price down.”

Some argue that the drop is an indictment of the legal training itself — a failure to keep up with the profession’s needs.

“We have a significant mismatch between demand and supply,” said Gillian K. Hadfield, professor of law and economics at the University of Southern California. “It’s not a problem of producing too many lawyers. Actually, we have an exploding demand for both ordinary folk lawyers and big corporate ones.”

She said that, given the structure of the legal profession, it was hard to make a living dealing with matters like mortgage and divorce, and that big corporations were dissatisfied with what they see as the overly academic training at elite law schools.

The drop in law school applications is unlike what is happening in almost any other graduate or professional training, except perhaps to veterinarians. Medical school applications have been rising steadily for the past decade.

Debra W. Stewart, president of the Council of Graduate Schools, said applicants to master of business degrees were steady — a 0.8 percent increase among Americans in 2011 after a decade of substantial growth. But growth in foreign student applications — 13 percent over the same period — made up the difference, something from which law schools cannot benefit, since foreigners have less interest in American legal training.

In the legal academy, there has been discussion about how to make training less costly and more relevant, with special emphasis on the last year of law school. A number of schools, including elite ones like Stanford, have increased their attention to clinics, where students get hands-on training. Northeastern Law School in Boston, which has long emphasized in-the-field training, has had one of the smallest decreases in its applicant pool this year, according to Jeremy R. Paul, the new dean.

There is also discussion about permitting students to take the bar after only two years rather than three, a decision that would have to be made by the highest officials of a state court system. In New York, the proposal is under active consideration largely because of a desire to reduce student debt.

Some, including Professor Hadfield of the University of Southern California, have called for one- or two-year training programs to create nonlawyer specialists for many tasks currently done by lawyers. Whether or not such changes occur, for now the decline is creating what many see as a cultural shift.

“In the ’80s and ’90s, a liberal arts graduate who didn’t know what to do went to law school,” Professor Henderson of Indiana said. “Now you get $120,000 in debt and a default plan of last resort whose value is just too speculative. Students are voting with their feet. There are going to be massive layoffs in law schools this fall. We won’t have the bodies we need to meet the payroll.”

This article has been revised to reflect the following correction:

Correction: January 31, 2013

An earlier version of this article misidentified those at the Vermont Law School who would be subject to layoffs and buyouts. It is the staff, not professors.

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Nintendo Warns of Weak Wii U Sales

TOKYO — Nintendo said Wednesday that it expected to sell far fewer units of its Wii U game console than it had anticipated, reducing the sales outlook for its flagship device just two months after its release.

Nintendo has a lot riding on the Wii U, the successor to the Wii, which revolutionized the gaming industry six years ago with a casual approach that brought video games to new audiences. The company is banking on the Wii U to revive its fortunes after the disappointing introduction in 2011 of its hand-held gaming machine, the 3DS, which prompted the company to sharply reduce its price to stoke demand.

Nintendo executives had also said the Wii U would prove that dedicated game systems still had a future in a world now teeming with less expensive, more convenient mobile games played on smartphones and tablets.

The latest numbers from Nintendo are not promising. The company said that it had sold 3.06 million Wii U games and that it expected sales to hit just 4 million units through March, almost 30 percent less than a previous projection of 5.5 million.

Nintendo also downgraded its 3DS sales expectations, saying that it would sell 15 million units through March instead of its previous forecast of 17.5 million units, and that it expected to sell fewer games.

“Nintendo needs a change in strategy,” said Michael Pachter, a gaming research analyst for Wedbush Securities, a Los Angeles-based investment firm. He said Nintendo had botched the Wii U design — a touch screen used together with a television — and the device was unimpressive for core gamers and baffling for casual ones.

Nintendo executives needed to restructure the company so it would continue to be profitable even with lower hardware sales, Mr. Pachter said. He also said the company should considering developing smartphone games, a move Nintendo has resisted.

“Smartphones and tablets are nibbling away at the edges of the market for games,” he said. “If they can’t beat it, they should consider making money off it. Why can’t Mario be on the smartphone?”

Still, Nintendo has returned to profitability for the first nine months of its business year, largely thanks to the weakening of the yen. That lowers the costs of Japanese exporters and bolsters their earnings.

Nintendo’s profit for the April-to-December period came to ¥14.55 billion, or $160 million, compared with a loss of ¥48.35 billion a year earlier, the company said in an earnings announcement that painted a mixed picture of its prospects.

The company raised its profit forecast for the business year through March to ¥14 billion from ¥6 billion. Nintendo does not break out quarterly results.

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DealBook: R.B.S. Stock Drops Amid Concerns of Potential Guilty Plea in Libor Case

Shares of the Royal Bank of Scotland stumbled on Tuesday after it emerged that federal authorities are pursuing a guilty plea against an Asian subsidiary at the center of an interest rate manipulation scandal.

Following a template developed in last year’s rare-rigging case against UBS, the Justice Department is pushing for the criminal action against the Royal Bank of Scotland, along with fines and penalties, according to two people with knowledge of the matter. The case could come as soon as next week.

The R.B.S. settlement is likely to include more than $650 million in fines levied by the American and British authorities, according to two other people with direct knowledge of the matter. At that level, the penalties would be the second largest settlement in the rate manipulation case after a $1.5 billion agreement with the Swiss bank UBS last month. Barclays paid $450 million last summer.

The Justice Department’s criminal division, which is pushing for a guilty plea with the Asian subsidiary of the Royal Bank of Scotland, could also strike a nonprosecution agreement with the parent company.

The threat of charges against the subsidiary weighed on the stock. After The Wall Street Journal reported on the potential guilty plea, the bank’s stock dropped 6 percent by the close of trading in London on Tuesday.

The settlement terms are not yet final. In particular, the Royal Bank of Scotland — which is 82 percent owned by British taxpayers after receiving a multibillion-dollar government bailout during the financial crisis — is resisting the guilty plea for the Asian subsidiary, fearful of the potential fallout. The bank, however, lacks leverage with the Justice Department, which can indict the subsidiary if it resists the guilty plea. An indictment would deliver a harsher blow to the bank and potentially set up a protracted legal battle.

“Discussions with various authorities” in the case “are ongoing,” said an RBS spokesman, adding that “we continue to cooperate fully with their investigations.”

The bank, which is based in Edinburgh, is also expected to cut its bonus pool by up to one third, or around $240 million, as it claws back funds to pay for the pending Libor settlement, according to a person with direct knowledge of the matter. A decision on bonuses has not been made, and the final figure will be released on Feb. 28 when the bank reports its next earnings.

“There is a legitimate concern that British taxpayers, who already have bailed out the bank, will be asked to pay for past mistakes at R.B.S.,” said Pat McFadden, a British politician who is a member of the British parliament’s treasury select committee that oversees the country’s finance industry. “Steps should be taken to minimize the exposure for taxpayers.”

Several senior RBS executives, including John Hourican, who runs the firm’s investment banking unit where the alleged illegal activity took place, are expected to step down amid the Libor scandal, though they have not been directly implicated in the matter, according to another person with direct knowledge of the matter.

The negotiations between R.B.S. and the regulators reflect the Justice Department’s aggressive new posture, as they look to hold banks responsible for wrongdoing in the rate rigging case. The wave of action has centered on the London interbank offered rate, or Libor, and other key international benchmark rates, which are central to determining the borrowing costs for trillions of dollars of financial products like corporate loans and credit cards. Banks are suspected of reporting false rates to squeeze out an extra profit and, in some cases, to deflect concerns about their financial health during the financial crisis.

Last month, the Justice Department secured a guilty plea against the Japanese subsidiary of UBS in a rate manipulation case. UBS also paid $1.5 billion in fines to the Justice Department, the Commodity Futures Trading Commission, the Financial Services Authority, the British regulator and Swiss authorities.

The deal with UBS sent a strong signal that authorities wanted to hold banks responsible for their wrongdoing. But it also limited the potential damage to the Swiss bank. By securing a guilty plea against a subsidiary, it sheltered the parent company from losing its charter to operate or other major repercussions.

“We are holding those who did wrong accountable,” Lanny A. Breuer, the head of the Justice Department’s criminal division, said at a news conference in December on the UBS case. “We cannot, and we will not, tolerate misconduct on Wall Street.”

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The Media Equation: ‘South Park’ Creators Fortify Their Content Empire

When it comes to success stories in the entertainment world, it doesn’t get much better than the one about a pair of regular guys from Colorado, Matt Stone and Trey Parker, who took cutout paper dolls, animated them and triumphed on cable television, on the Web, at the multiplex and on Broadway.

Frederic J. Brown/Agence France-Presse — Getty Images

Matt Stone, left, and Trey Parker are forming a production company called Important Studios.

Last week, Mr. Stone arrived at a coffee shop in the Chelsea neighborhood of New York so bundled up that he resembled Kenny, who always shows up on “South Park” encased in a big orange parka. He was leaving the next day for London, where the fourth production of “The Book of Mormon” will soon begin a run.

Over the course of 16 seasons and 237 episodes, “South Park,” an assault on good taste built on the misadventures of four crudely animated and crudely spoken boys, has entered every pore of the culture. In the meantime, the two creators have helped put Comedy Central on the map, made four feature films, produced a sitcom and landed a Broadway hit with “Book of Mormon,” produced by Scott Rudin and Anne Garefino and created along with Robert Lopez.

Now Mr. Stone and Mr. Parker are about to finish a video game version of “South Park,” and they recently announced that they were forming a production company called Important Studios, valued at $300 million.

The success of “South Park” is a stark lesson in the fundamentals of entertainment: if you tell stories that people want to hear, the audience will find you.

This is true no matter how fundamentally the paradigms shift, or how many platforms evolve.

“We’ve been doing it long enough to figure out that content will ride on top of whatever wave comes along,” Mr. Stone said.

You might think that after all they’ve accomplished, they would be ready to step back a bit, and this is essentially true. Don’t worry, they aren’t going to actually kill Kenny, who for years was done away with in every episode. But “South Park,” which generally has been produced in two batches of seven episodes for a total of 14 every year, will be cut back to a single run of 10 episodes, beginning on Sept. 25.

“Why did we do seven and seven to begin with?” Mr. Stone said. “We just sort of made that up. And we are switching to 10 for the same reason. It just sounded like a good number, and we won’t break up the year so we can more easily do other stuff.”

The change sounds casually tossed off, but there is nothing unformed about the thinking that drives their choices.

“There is no appointment viewing anymore,” Mr. Stone said.

“In our first season, you had to show up on Wednesday nights at 10 p.m. on the comedy channel to catch the show. Now, I don’t even know where or how people watch our show. We sort of don’t really care about ratings. It’s more important to come up with work that will add to the library in a way that we’re proud of and will make people want to catch the show wherever they want to.”

That could happen on Netflix, on iTunes, on an ad-supported streaming format on Hulu, or hosted by the servers in the Los Angeles offices of Mr. Stone’s and Mr. Parker’s company.

The two men had the prescience to negotiate a 50-50 split on all digital revenue with Comedy Central, and part of the reason they remain so engaged is that they have real participation in the “South Park” enterprise.

“We have always owned our stuff or acted like we do,” Mr. Stone said as he worked his way through a late lunch. He pointed to Louis C. K., the comedian who took his last comedy special directly to fans on the Web, as an example of an artist moving to the sweet spot of the business that she or he creates.

“Owning your own stuff means that you control not only the content, but the life you are living while you are producing it,” he said.

“And then, if things go well, you can be part of the upside.”

Mr. Stone thinks it’s silly for creators to rely only on outside financing. Why drop years of sweat equity into creating something but not invest any cold hard cash?

“It took us four years to work out ‘Book of Mormon,’ and when you think of the opportunity cost of that — other projects that we walked by — it would be sort of silly not to put money in,” he said.

E-mail: carr@nytimes.com;

twitter.com/carr2n

This article has been revised to reflect the following correction:

Correction: January 28, 2013

An earlier version of this column misstated a plot point in “South Park.” While the character Kenny was once killed in every episode, that is no longer the case. The earlier version also misstated the circumstances of his repeated deaths. While he has met his fate in a variety of ways over the years, he was not routinely “ritually sacrificed.” 

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Unboxed: Literary History, Seen Through Big Data’s Lens

ANY list of the leading novelists of the 19th century, writing in English, would almost surely include Charles Dickens, Thomas Hardy, Herman Melville, Nathaniel Hawthorne and Mark Twain.

But they do not appear at the top of a list of the most influential writers of their time. Instead, a recent study has found, Jane Austen, author of “Pride and Prejudice, “ and Sir Walter Scott, the creator of “Ivanhoe,” had the greatest effect on other authors, in terms of writing style and themes.

These two were “the literary equivalent of Homo erectus, or, if you prefer, Adam and Eve,” Matthew L. Jockers wrote in research published last year. He based his conclusion on an analysis of 3,592 works published from 1780 to 1900. It was a lot of digging, and a computer did it.

The study, which involved statistical parsing and aggregation of thousands of novels, made other striking observations. For example, Austen’s works cluster tightly together in style and theme, while those of George Eliot (a k a Mary Ann Evans) range more broadly, and more closely resemble the patterns of male writers. Using similar criteria, Harriet Beecher Stowe was 20 years ahead of her time, said Mr. Jockers, whose research will soon be published in a book, “Macroanalysis: Digital Methods and Literary History” (University of Illinois Press).

These findings are hardly the last word. At this stage, this kind of digital analysis is mostly an intriguing sign that Big Data technology is steadily pushing beyond the Internet industry and scientific research into seemingly foreign fields like the social sciences and the humanities. The new tools of discovery provide a fresh look at culture, much as the microscope gave us a closer look at the subtleties of life and the telescope opened the way to faraway galaxies.

“Traditionally, literary history was done by studying a relative handful of texts,” says Mr. Jockers, an assistant professor of English and a researcher at the Center for Digital Research in the Humanities at the University of Nebraska. “What this technology does is let you see the big picture — the context in which a writer worked — on a scale we’ve never seen before.”

Mr. Jockers, 46, personifies the digital advance in the humanities. He received a Ph.D. in English literature from Southern Illinois University, but was also fascinated by computing and became a self-taught programmer. Before he moved to the University of Nebraska last year, he spent more than a decade at Stanford, where he was a founder of the Stanford Literary Lab, which is dedicated to the digital exploration of books.

Today, Mr. Jockers describes the tools of his trade in terms familiar to an Internet software engineer — algorithms that use machine learning and network analysis techniques. His mathematical models are tailored to identify word patterns and thematic elements in written text. The number and strength of links among novels determine influence, much the way Google ranks Web sites.

It is this ability to collect, measure and analyze data for meaningful insights that is the promise of Big Data technology. In the humanities and social sciences, the flood of new data comes from many sources including books scanned into digital form, Web sites, blog posts and social network communications.

Data-centric specialties are growing fast, giving rise to a new vocabulary. In political science, this quantitative analysis is called political methodology. In history, there is cliometrics, which applies econometrics to history. In literature, stylometry is the study of an author’s writing style, and these days it leans heavily on computing and statistical analysis. Culturomics is the umbrella term used to describe rigorous quantitative inquiries in the social sciences and humanities.

“Some call it computer science and some call it statistics, but the essence is that these algorithmic methods are increasingly part of every discipline now,” says Gary King, director of the Institute for Quantitative Social Science at Harvard.

Cultural data analysts often adapt biological analogies to describe their work. Mr. Jockers, for example, called his research presentation “Computing and Visualizing the 19th-Century Literary Genome.”

Such biological metaphors seem apt, because much of the research is a quantitative examination of words. Just as genes are the fundamental building blocks of biology, words are the raw material of ideas.

“What is critical and distinctive to human evolution is ideas, and how they evolve,” says Jean-Baptiste Michel, a postdoctoral fellow at Harvard.

Mr. Michel and another researcher, Erez Lieberman Aiden, led a project to mine the virtual book depository known as Google Books and to track the use of words over time, compare related words and even graph them.

Google cooperated and built the software for making graphs open to the public. The initial version of Google’s cultural exploration site began at the end of 2010, based on more than five million books, dating from 1500. By now, Google has scanned 20 million books, and the site is used 50 times a minute. For example, type in “women” in comparison to “men,” and you see that for centuries the number of references to men dwarfed those for women. The crossover came in 1985, with women ahead ever since.

In work published in Science magazine in 2011, Mr. Michel and the research team tapped the Google Books data to find how quickly the past fades from books. For instance, references to “1880,” which peaked in that year, fell to half by 1912, a lag of 32 years. By contrast, “1973” declined to half its peak by 1983, only 10 years later. “We are forgetting our past faster with each passing year,” the authors wrote.

JON KLEINBERG, a computer scientist at Cornell, and a group of researchers approached collective memory from a very different perspective.

This article has been revised to reflect the following correction:

Correction: January 27, 2013

An earlier version of this article misstated Matthew L. Jockers’s age. He is 46, not 48. 

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Diner’s Journal Blog: PepsiCo Will Halt Use of Additive in Gatorade

PepsiCo announced on Friday that it would no longer use an ingredient in Gatorade after consumers complained.

The ingredient, brominated vegetable oil, which was used in citrus versions of the sports drink to prevent the flavorings from separating, was the object of a petition started on Change.org by Sarah Kavanagh, a 15-year-old from Hattiesburg, Miss., who became concerned about the ingredient after reading about it online. Studies have suggested there are possible side effects, including neurological disorders and altered thyroid hormones.

The petition attracted more than 200,000 signatures, and this week, Ms. Kavanagh was in New York City to tape a segment for “The Dr. Oz Show.” She visited The New York Times on Wednesday and while there said, “I just don’t understand why they can’t use something else instead of B.V.O.”

“I was in algebra class and one of my friends kicked me and said, ‘Have you seen this on Twitter?’ ” Ms. Kavanagh said in a phone interview on Friday evening. “I asked the teacher if I could slip out to the bathroom, and I called my mom and said, ‘Mom, we won.’ ”

Molly Carter, a spokeswoman for Gatorade, said the company had been testing alternatives to the chemical for roughly a year “due to customer feedback.” She said Gatorade initially was not going to make an announcement, “since we don’t find a health and safety risk with B.V.O.”

Because of the petition, though, Ms. Carter said the company had changed its mind, and an unidentified executive there gave Beverage Digest, a trade publication, the news for its Jan. 25 issue.

Previously, a spokesman for PepsiCo had said in an e-mail, “We appreciate Sarah as a fan of Gatorade, and her concern has been heard.”

Brominated vegetable oil will be replaced by sucrose acetate isobutyrate, an emulsifier that is “generally recognized as safe” as a food additive by the Food and Drug Administration. The new ingredient will be added to orange, citrus cooler and lemonade Gatorade, as well Gatorade X-Factor orange, Gatorade Xtremo citrus cooler and a powdered form of the drink called “glacier freeze.”

Ms. Carter said consumers would start seeing the new ingredient over the next few months as existing supplies of Gatorade sell out and are replaced.

Health advocates applauded the company’s move. “Kudos to PepsiCo for doing the responsible thing on its own and not waiting for the F.D.A. to force it to,” said Michael Jacobson, executive director of the Center for Science in the Public Interest.

Mr. Jacobson has championed the removal of brominated vegetable oil from foods and beverages for the last several decades, but the F.D.A. has left it in a sort of limbo, citing budgetary constraints that it says keep it from going through the process needed to formally ban the chemical or declare it safe once and for all.

Brominated vegetable oil is banned as a food ingredient in Japan and the European Union. About 10 percent of drinks sold in the United States contain it, including Mountain Dew, which is also made by PepsiCo; some flavors of Powerade and Fresca from Coca-Cola; and Squirt and Sunkist Peach Soda, made by the Dr Pepper Snapple Group.

PepsiCo said it had no plans to remove the ingredient from Mountain Dew and Diet Mountain Dew, both of which generate more than $1 billion in annual sales.

Heather White, executive director at the Environmental Working Group, said of PepsiCo’s decision, “We can only hope that other companies will follow suit.” She added, “We need to overhaul how F.D.A. keeps up with the latest science on food additives to better protect public health.”

Ms. Kavanagh agreed. “I’ve been thinking about ways to take this to the next level, and I’m thinking about taking it to the F.D.A. and asking them why they aren’t doing something about it,” she said. “I’m not sure yet, but I think that’s where I’d like to go with this.”

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This post has been revised to reflect the following correction:

Correction: January 26, 2013

An earlier version of this article misspelled the surname of the 15-year-old who started a petition on Change.org to end the use of brominated vegetable oil in Gatorade. She is Sarah Kavanagh, not Kavanaugh.

A version of this article appeared in print on 01/26/2013, on page B1 of the NewYork edition with the headline: PepsiCo Will Halt Additive Use In Gatorade.

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DealBook: Rumble on Basic Cable, as Ackman Takes on Icahn Live

For about 15 minutes on Friday afternoon, all of Wall Street was tuned into the battle that everyone wanted to see: William A. Ackman taking on Carl C. Icahn, live on air.

And the battle proved even stranger than anyone would have expected: Profanities were dropped; old battles were refought; taunts were slung.

Years of bad blood between the two hedge fund magnates spilled publicly onto CNBC’s airwaves, with Mr. Icahn deriding his younger counterpart as a “crybaby,” and Mr. Ackman declaring the veteran investor a “bully.” It was a smackdown that regularly prompted whoops from traders on the New York Stock Exchange floor, especially on the occasions that Mr. Icahn flung an occasional reference to bovine excrement.

Nominally, the two were set to talk about Herbalife, the health supplements company in which Mr. Ackman has publicly bet against. Speculation has ripped across Wall Street that Mr. Icahn has taken a contrary bullish bet on the company.

Of course, that’s not all that they argued about.

Instead, the two men squabbled over a nearly decade-old court case involving a real estate company, where Mr. Ackman sold his investment to Mr. Icahn. (You can read all about the lengthy battle here.) Mr. Ackman to this day alleges that Mr. Icahn reneged on a deal to share profits from a stock sale; the elder investor sees things differently.

How did that shape the battle between the two rich men? It became perhaps the financial world’s most-watched schoolyard match, in which Mr. Icahn shouted repeatedly and Mr. Ackman passionately argued his position at length.

Mr. Icahn dubbed Mr. Ackman “the crybaby in the schoolyard” and called his opponent “the quintessential example of on Wall Street, if you want a friend get a dog.” Clearly the more inflamed combatant, Mr. Icahn declared to his foe, “I wouldn’t want to invest with you if you were the last man on Earth.” He even picked a fight with CNBC host Scott Wapner, declaring him the bully. “I don’t give a damn what you want to know, I came on to talk about what I want to talk about,” the investor thundered, refusing to declare his position on Herbalife. [That said, Mr. Icahn mused that Herbalife could be "the mother of all short squeezes."]

For his part, Mr. Ackman repeatedly argued that Mr. Icahn was a bully who had taken advantage of a young investor stumbling in the early part of his career. The younger hedge fund manager repeatedly defended his bet against Herbalife, positing himself as the target of a major campaign by the health products marketer.

“He’s not an honest guy, he doesn’t live up to his word, and he takes advantage of little people,” Mr. Ackman flatly declared of Mr. Icahn.

Later in the exchange, Mr. Icahn sneered to his opponent, “I appreciate you called me a great investor.” Then he added, “I can’t say the same about you.”

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DealBook: Choice for S.E.C. Is Ex-Prosecutor, in Signal to Wall St.

2:48 p.m. | Updated President Obama tapped Mary Jo White, a former United States attorney turned white-collar defense lawyer, to be the next chairwoman of the Securities and Exchange Commission.

Mr. Obama announced the nomination at the White House on Thursday afternoon. As part of the event, the White House also renominated Richard Cordray to lead the Consumer Financial Protection Bureau, a role he has held for the last year under a recess appointment.

In its choice of Ms. White and Mr. Cordray, the White House is sending a signal about the importance of holding Wall Street accountable for wrongdoing. Both picks are former prosecutors.

Regulatory chiefs are often market experts or academics. But Ms. White spent nearly a decade as United States attorney in New York, the first woman named to this post. Among her prominent cases, she oversaw the prosecution of the mafia boss John Gotti as well as the people responsible for the 1993 World Trade Center bombing. She is now working the other side, defending Wall Street firms and executives as a partner at Debevoise & Plimpton.

As the attorney general of Ohio, Mr. Cordray made a name for himself suing Wall Street companies in the wake of the financial crisis. He undertook a series of prominent lawsuits against big names in the finance world, including Bank of America and the American International Group.

The White House expects Ms. White, 65, and Mr. Cordray, 53, to draw on their prosecutorial backgrounds while carrying out a broad regulatory agenda under the Dodd-Frank Act. Congress enacted the law, which mandates a regulatory overhaul, in response to the 2008 financial crisis.

Jay Carney, the White House press secretary, said Ms. White has “an incredibly impressive resume” and that her appointment along with the renomination of Mr. Cordray sends an important signal.

“The president believes that appointment and the renomination he’s making today demonstrate the commitment he has to carrying out Wall Street reform, making sure we have the rules of the road that are necessary and that are being enforced in a way” to avoid a crisis like that of 2008, Mr. Carney said.

Another White House official added that Ms. White and Mr. Cordray will “serve in top enforcement roles” in part so that “Wall Street is held accountable and middle-class Americans never again are harmed by the abuses of a few.”

Ms. White will succeed Elisse B. Walter, a longtime S.E.C. official, who took over as chairwoman after Mary L. Schapiro stepped down as the agency’s leader in December. Mr. Cordray joined the consumer bureau in 2011 as its enforcement director.

The nominations could face a mixed reception in Congress. The Senate already declined to confirm Mr. Cordray, with Republicans vowing to block any candidate for the consumer bureau, a new agency created to rein in the financial industry’s excesses. It is unclear whether the White House and Mr. Cordray will face another standoff the second time around.

Mr. Carney argued that there were no substantive objections to Mr. Cordray’s confirmation, only political ones. “He is absolutely the right person for the job,” Mr. Carney said.

Ms. White is expected to receive broader support on Capitol Hill. Senator Charles E. Schumer, a New York Democrat, declared that Ms. White was a “tough-as-nails prosecutor” who “will not shy away from enforcing the laws to ensure that markets operate fairly.”

But she could face questions about her command of arcane financial minutiae. She was a director of the Nasdaq stock market, but has otherwise built her career on the law-and-order side of the securities industry.

People close to the S.E.C. note, however, that her husband, John W. White, is a veteran of the agency. From 2006 through 2008, he was head of the S.E.C.’s division of corporation finance, which oversees public companies’ disclosures and reporting.

Some Democrats also might question her path through the revolving door, in and out of government. While seen as a strong enforcer as a United States attorney, she went on in private practice to defend some of Wall Street’s biggest names, including Kenneth D. Lewis, a former head of Bank of America. She also represented JPMorgan Chase and the board of Morgan Stanley. Last year, the N.F.L. hired her to investigate allegations that the New Orleans Saints carried out a bounty system for hurting opponents.

Consumer advocates generally praised her appointment on Thursday. “Mary Jo White was a tough, smart, no-nonsense, broadly experienced and highly accomplished prosecutor,” said Dennis Kelleher, head of Better Markets, the nonprofit advocacy group. “She knew who the bad guys were, went after them and put them in prison when they broke the law.”

The appointment comes after the departure of Ms. Schapiro, who announced she would step down from the S.E.C. in late 2012. In a four-year tenure, she overhauled the agency after it was blamed for missing the warning signs of the crisis.

Since her exit, Washington and Wall Street have been abuzz with speculation about the next S.E.C. chief. President Obama quickly named Ms. Walter, then a Democratic commissioner at the agency, but her appointment was seen as a short-term solution. It is unclear if she will shift back to the commissioner role if Ms. White is confirmed.

In the wake of Ms. Schapiro’s exit, several other contenders surfaced, including Sallie L. Krawcheck, a longtime Wall Street executive. Richard G. Ketchum, chairman and chief executive of the Financial Industry Regulatory Authority, Wall Street’s internal policing organization, was also briefly mentioned as a long-shot contender.

Peter Baker and Kitty Bennett contributed reporting

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DealBook: Live Q. & A. on Wall Street's Untouchables

On Tuesday, “Frontline” investigated why the leaders of Wall Street had escaped prosecution for their role in the country’s financial crisis.

Peter Eavis of DealBook is moderating a conversation beginning at 2 p.m. Eastern time with the show’s producer, Martin Smith. Watch the show above and submit your questions now.

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Ex-Stanford Executive Gets 5 Years in $7 Billion Swindle

HOUSTON (AP) — The star prosecution witness at the fraud trial of Texas financier R. Allen Stanford expressed remorse Tuesday before being sentenced to five years in prison for helping to bilk investors out of more than $7 billion in one of the biggest Ponzi schemes in U.S. history.

James M. Davis had faced up to 30 years in prison after pleading guilty in 2009 to three fraud and conspiracy charges. At Stanford's trial last year, Davis testified that as chief financial officer of Stanford's companies he helped the financier to fake his bank's profits and fabricate documents to hide the fraud.

In a brief statement, Davis said he will feel remorse and regret for the rest of his life.

"I am ashamed and I'm embarrassed," Davis, 64, said at the sentencing hearing in Houston federal court. "I've perverted what was right and I hurt thousands of investors. I betrayed their trust and also associates and neighbors and friends and my family."

Many of the dramatic details at Stanford's trial — including testimony about bribes and blood oaths — came from Davis, who portrayed his ex-boss as the leader of the fraud who burned through billions of CD deposits. Stanford, a one-time billionaire, was convicted in March on 13 fraud-related counts and sentenced to 110 years in prison.

Prosecutor Jason Varnado had asked for Davis to get a 10-year prison term. He told U.S. District Court Judge David Hittner that while Davis' cooperation in the case was outstanding, he only came to authorities after Stanford's business empire was shut down and he had no other options. Davis' sentence should reflect the severity of his crimes, Varnado said.

"Mr. Davis for 20 years lied and deceived thousands of investors, employees and the public, and helped Allen Stanford commit one of the largest frauds in American history," he said.

Defense attorney, David Finn, said Davis' cooperation contributed greatly to the government's efforts to locate and secure funds for investors.

"I'm not here to tell your honor my client was a saint," Finn said. "He was remorseful, contrite and tried to make amends for the injuries he's inflicted."

Prosecutors say Stanford persuaded investors to buy certificates of deposit from his bank in Antigua, then used that money to bankroll a string of failed businesses and his lavish lifestyle, including a fleet of private jets and yachts.

Stanford's defense attorneys accused Davis of being behind the fraud and tried to discredit him by calling him a liar and tax cheat and telling jurors of his extra marital affairs.

On Tuesday, Hittner ordered Davis to report to federal prison within 60 days, allowing him time to meet with investors who have filed lawsuits against banks, law firms and others accused in the fraud.

Angela Shaw, a Dallas-area woman, founded the Stanford Victims Coalition after three generations of her family lost $4.5 million in the fraud.

Shaw said that Davis' sentence was "a little light" but she was grateful that Davis was willing to provide more details about how the fraud worked to help her group with their lawsuits.

"Hopefully his cooperation will lead to substantial recovery," Shaw said.

A receiver appointed by a federal judge in Dallas to oversee the recovery of funds from Stanford's business empire earlier this month announced a plan to make an initial distribution of $55 million to investors who lost money in the scheme. Shaw's group has been critical of the proposed distribution, saying it represents a recovery of one cent on the dollar for investors and that a majority of money recovered has been spent on expenses. The plan has yet to be approved.

Another top executive in Stanford's now-defunct empire — former chief investment officer Laura Pendergest-Holt — was sentenced to three years in prison in September after pleading guilty to one count of obstruction of a U.S. Securities and Exchange Commission proceeding.

Gilbert Lopez, the ex-chief accounting officer, and Mark Kuhrt, the ex-global controller, were convicted in November of conspiracy to commit wire fraud and nine counts of wire fraud. They are set to be sentenced Feb. 14.

A former Antiguan financial regulator was also indicted and awaits extradition to the U.S.

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Maloof Family Selling Sacramento Kings to Seattle Investor

The Sacramento Kings, one of the N.B.A.’s most troubled and well-traveled franchises, may be on the move again.

The Maloof family has agreed to sell a controlling stake in the Kings to an investment group led by Christopher Hansen, a hedge fund manager who intends to move the team to Seattle by next season and rechristen them as the SuperSonics.

The sale and relocation must be ratified by the N.B.A. board of governors, a process that could take several weeks, while the league’s advisory and finance committee evaluates the deal. Although the board will meet next month during the All-Star break in Houston, a vote on the Kings sale will probably not come until April.

The Hansen group will purchase 65 percent of the team, which includes the Maloofs’ share. The remaining 35 percent is held by minority shareholders. Assuming an enterprise value of $525 million, the 65 percent stake would cost about $340 million, said people informed of the deal.

 It is unclear whether this amount includes the Sleep Train Arena in Sacramento or the money needed to pay off the Maloofs’ loans from the city of Sacramento and the N.B.A. The board of governors would also need to set a relocation fee, which can be any number they choose.

The Hansen group has until March 1 to apply for relocation for the 2013-14 season. It is expected to file the necessary paperwork by then.

In a twist, Clay Bennett, who moved the SuperSonics from Seattle to Oklahoma City (where they were renamed the Thunder), is the chairman of the N.B.A.’s relocation committee.

 The Hansen group’s bid is unlikely to face serious hurdles. Hansen and his fellow investors have deep pockets and the N.B.A. would like to have a team in Seattle, the nation’s 12th largest television market. The Maloofs own their own arena, so Hansen’s group would not have to break a lease if it chose to move the team.

 “There are pieces that make sense,” said Marc Ganis, the president of SportsCorp, which brokers team sales but is not working with the Hansen group. “By all of their machinations, the Maloofs have killed the potential for the team in Sacramento.”

 The Kings have long been rumored to be on the market. The team has not qualified for the playoffs since 2006 and is near the bottom of the standings in the Western Conference this season. The Sleep Train Arena is one of the oldest in the league and is obsolete by modern standards. Kevin Johnson, the mayor of Sacramento and a former N.B.A. star, brokered a deal with the Maloofs and the N.B.A. for a new arena last year, but the family later withdrew from the arrangement.

Until recently, the Maloofs had opposed selling the team, despite widespread reports of their financial struggles. Two years ago the Maloofs looked to move the team to Anaheim, while retaining controlling interest. They had discussions last year with Virginia Beach.

Johnson has vowed to line up local investors to buy the Kings and keep them in Sacramento, in a new arena that would include public financing. Commissioner David Stern has said he will give Johnson a chance to speak to the board of governors — most likely in April — to present an alternative plan for local ownership.

Hansen has promised to bring a pro basketball team back to Seattle, where he grew up. The Sonics moved to Oklahoma City before the 2008-9 season, after repeated failed attempts to secure a deal for a new arena to replace the aging KeyArena. While the Thunder have been a success in Oklahoma City, Seattle is the largest market without an N.B.A. team.

Hansen has said he would like to bring a basketball team as well as a pro hockey team to Seattle to play in a new arena that would be built downtown. Last year the Seattle City Council and King County Council approved plans for a new arena near Safeco Field, pending the acquisition of a new team.

When asked recently about the possibility of an N.H.L. team moving to Seattle, Gary Bettman, the league’s commissioner, said it was “not something we’re thinking about at the moment.”

The Kings are one of the most road-weary teams in the N.B.A. They began as the Rochester Royals, moved to Cincinnati in 1957 and then to Kansas City, Mo., in 1972, where they became the Kings and played some of their games in Omaha. In 1985 the Kings arrived in Sacramento.

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