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Yahoo's Tumblr Gamble, Fisher on Fed, SAC Subpoena

Eric Rosenbaum, CNBC.com
Monday, 20 May 2013 | 4:44 PM ET
Tumblr-founder David Karp
Don Emmert | AFP | Getty Images
Tumblr-founder David Karp

Recapping the day's news and newsmakers through the lens of CNBC.

Yahoo Gambles on Tumblr

Notes:

Yahoo has made a billion-dollar gamble, acquiring blogging start-up Tumblr for $1.1 billion in cash. The move is the boldest yet from new Yahoo CEO Marissa Mayer, as the former Google executive looks for ways to make Yahoo more relevant in the age of social media.

Spending one-fifth of the cash and short-term investments Yahoo had on hand at the end of the last quarter to fund the deal, the move could make or break Mayer's legacy. It provides Yahoo with access to the increasingly critical social and mobile world in one fell swoop, but the question is whether Tumblr can be monetized through ad dollars at a level that justifies the hefty valuation.

David Karp, Tumblr CEO, stands to make more than $200 million on the deal, not bad for a high school dropout. Karp agreed to stay on and run Tumblr as an independent entity after the acquisition by Yahoo.

Recent weeks have witnessed a bevy of rumors about billion-dollar-plus valuations for app companies, including reports that Facebook was pursuing navigation app Waze.

Quotes:

The deal revived memories of Yahoo's much maligned 2005 purchase of Flickr. Mayer alluded to the skepticism in her own Tumblr post on Monday announcing the deal, writing, "We promise not to screw it up."

David Karp's father, Michael Karp, spoke to CNBC on Monday, about the sudden windfall. "He's going to keep on doing what he's doing," said the New York-based composer of TV and film music themes. "It's never about the money with David. It's always been about doing what he loves doing. And creativity and passion."

Texas Flood: The Fed's Fisher on QE

Notes:

Dallas Federal Reserve President Richard Fisher, one of the most outspoken critics of quantitative easing within the central bank, told CNBC on Monday that the Fed should not put a hard stop on QE purchases overnight, but should taper off the asset-buying program.

Fisher said while QE has been a great boon to the stock market, he is less convinced that it has been a help to the economy, and specifically, the labor market and the Fed mandate of maximizing employment. In effect, the Fed is underwriting Congress for not doing its job, Fisher said.

Fisher projected real GDP growing at a rate of above 2.5 percent toward the end of the year, which is not bad but not quite as strong as he would like to see GDP. On Wednesday, Federal Reserve Chairman Ben Bernanke will testify before Congress ahead of the latest release of the Fed's Open Market Committee meeting notes.

Quotes:

Fisher said the Fed should not go from "wild turkey" monetary policy to "cold turkey" overnight.

Fisher said the question before the Fed now is "do we dial it back or dial it up."

"We're going to be at a point soon where ... [in] a couple of months, we could be buying 100 percent of the gross issuance of mortgage-backed securities volume. We're going to be at a point where we're buying a significant portion—as these deficits come down slightly over the short term—of Treasury issuance."

"We've flooded the market with liquidity but the boats are still tied to the dock by fiscal policy."

Chicago Federal Reserve Bank President Charles Evans told the CFA Society Chicago on Monday that the Fed has given the economy the means to reach "escape velocity" next year. "We continue to face powerful headwinds in the fiscal situation and the global economy," but Evans added that the economy "seems to be performing pretty well right now."

SAC Capital Subpoena

Notes:

Talks between the government and Steve Cohen's hedge fund SAC Capital over the ongoing insider trading scandal have fallen apart, a source told CNBC's Kate Kelly. As recently as a week ago, SAC officials were confident that they were close to a settlement deal with the Department of Justice that would have resolved the remaining insider trading issues hanging over SAC Capital related to two pharmaceutical trades from 2008 among others.

Under a discussed deal, SAC would have paid a fine and the government would have agreed not to pursue criminal charges against the firm.

But reports surfaced on Monday that Cohen has been subpoenaed to testify and with the firm telling investors it is no longer cooperating with the government, those talks appear to have broken down.

Kelly reported that Blackstone, which is SAC's largest external investor with about $410 million invested, plans to redeem some money before a June deadline as its own investors are nervous.

Quotes:

"I do think the symbolic value of somebody like a Blackstone, which has a large fund of funds and has a lot of pension funds and other smaller investors they are facing, showing that there is a level of discomfort with the legal headlines, as they continue to come out ... I do think there could be a domino effect."


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