Wednesday, October 31, 2007

Chipping and Putting While Merrill Burns


Well, we know what Stan O’Neal was doing while Merrill Lynch was going through its worst crisis since I left the warm confines “Mother Merrill” lo those many years ago.

Thanks to the wonders of the internet, Mr. O’Neal’s extracurricular activities are available for all to see:


Metropolitan Golf Association - GHIN - 9.1

Purchase Golf Club of New York
Effective 10/10/2007
Name : Stanley Oneal

Score HistoryUsed T Date Score CR/Slope Diff. Course Name
H 9/30/07 88 72.0/140 12.9 Purchase Country Club
H 9/29/07 89 72.0/140 13.7 Purchase Country Club
* AI 9/22/07 80 70.7/123 8.5 Waccabuc Country Club
AI 9/22/07 89 71.1/133 15.2 Shinnecock Hills Golf Club
AI 9/22/07 90 72.0/140 14.5 Purchase Country Club
AI 9/15/07 90 72.4/140 14.2
* H 9/3/07 84 72.0/140 9.7 Purchase Country Club
H 9/2/07 91 72.0/140 15.3 Purchase Country Club
H 9/1/07 87 71.6/133 13.1 Vineyard Golf Club
* H 8/31/07 83 71.6/133 9.7 Vineyard Golf Club
* H 8/29/07 85 71.6/133 11.4 Vineyard Golf Club
* H 8/26/07 85 71.6/133 11.4 Vineyard Golf Club
* AI 8/26/07 83 70.5/133 10.6
AI 8/19/07 86 71.9/133 12.0
AI 8/19/07 85 71.5/134 11.4
AI 8/19/07 93 72.1/132 17.9
* AI 8/19/07 80 70.5/133 8.1
* AI 8/18/07 83 71.1/133 10.1
* H 8/12/07 86 72.0/140 11.3 Purchase Country Club
* A 8/12/07 76 70.8/137 4.3 Away Score Posted at Home Club

Score Type: H - Home, A - Away, T - Tournament,
P - Penalty, C - Combined 9H, I - Internet


Not having a handicap myself, I don’t quickly grasp what all the numbers mean, except that while Mother Merrill was melting down, Mr. O’Neal was finding solace on the links.

Any readers thinking we are making this up can go to the following web site:
http://www.ghin.com/lookups/index.html and find the numbers for themselves.

Fancy golf clubs such as the above tend not to allow cell phone calls on the course or even in the club house...p
resumably, then, Mr. O'Neal at least kept up with the problems on his Blackberry?


Jeff Matthews
I Am Not Making This Up


© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Monday, October 29, 2007

How to Build an Igloo


“The Price of Insanity,” Part II


In Part I of “The Price of Insanity,” we pointed out the futility of the persistent, if anemic, attempts by the editors of Barron’s to call the peak in Google’s share price over the last 18 months.

There is nothing wrong with Barron’s trying to do its job—which would seem to be pricking Wall Street’s bubbles while helping its readers make better investment decisions. The trick, however, is doing so without relying on the likes of Fred Hickey, whose grumpy, King Leer-ish wailings against Google appear to rely less on observation and more on phrase-making.

Specifically, the phrase that Google’s stock market valuation is, in his words, “insane.”

While we here at NotMakingThisUp leave such market valuation judgment calls to others and offered no commentary on the valuation of Google, we did point out that the “price of insanity” has nearly doubled since Barron’s first made its call that Google’s valuation was “insane.”

Now, if Barron’s readers truly want to understand why Google is taking it to Yahoo! and Microsoft in the realm of internet leadership like Ray “Boom-Boom” Mancini at his peak, they should put down their newsprint copies of the paper and turn on the nearest computer.

More accurately, they should search the internet—not rely on the prognostications of Barron’s or the “First 100 Days” speech of Yahoo! CEO Jerry Yang or the futuristic white papers Bill Gates reads at his lakeside hideaway.

If they did do a search or two, I think, they might understand exactly why Google continues to pull ahead, while the other two pull up tired, gasping for breath, hands on knees, exhausted.

In fact, let's do it here, right now.

We’ll do a search I did recently. It was this:

How to Tie a Bow Tie

Now, the reason for doing that search was precisely what it appears to be. I’d bought the wrong kind of bow tie—the kind you tie rather than the kind you just clip on.

But I’d never tied one before.

So in a hotel room with the minutes to leave ticking down, I did a Google search. The results were immediate and in fact more helpful than I'd hoped: right at the very top of the page, above the normal “how to tie a bow-tie” instructional web sites you’d expect would come up, were three results from Google Images.

Two of the Google Images showed simple, step-by-step diagrams and one showed photographs. They were exactly what I needed, which was how to tie the stupid bow tie, which looked like a long, weird piece of ribbon on the desk beside me, well enough so that I did not look any worse than I already do in a tux.

I never bothered with the “how to tie a bow-tie” web sites. The diagrams were easy to follow, and after a few fumbles I managed the task literally at hand.

Now, I did notice that, oddly enough, there were no paid ads on either the top of the Google results page, nor were there any along the right side of the page. This struck me as unusual, having never typed in a search that failed to bring up a paid search result on Google.

I was faintly alarmed—no paid ads on a Google search?

So I tried the same phrase on Yahoo! and then on Microsoft. And the results were highly instructive.

Both Yahoo! and Microsoft searches turned up plenty of “how to tie a bow-tie” web sites. And both carried plenty of paid search ads.

But neither generated a simple image at the top of the search, as Google did, which is, after all, pretty much all you care about when you type “how to tie a bow tie” into a search engine.

In fact, the more I thought about it, the more I realized the subtle genius somehow embedded in Google’s algorithms: after all, a guy typing in “how to tie a bow tie” is probably not in the mood for buying one at that moment. Why bother putting up a paid ad at all?

So I did a Google search for “bow ties,” and sure enough this one brought forth a healthy selection of paid ads—with not a single Google Image of “how to tie a bow tie.”

But if the editors of Barron’s really want to understand the gap between Google and the rest, they need look no further than the results of the Microsoft search.

Microsoft, which has vowed to “win back the search market” by putting its “best engineers” on the case yet still manages to lose money in its internet business—no easy task—cluttered up its search results with the type of superfluous and irritating extraneous flourishes that makes Vista the operating system of choice among…well, people who can’t switch to Macs.

My personal favorite came in the “Related Searches” box, where Microsoft graciously provided many extraneous results that its "best engineers" had somehow decided would useful to me after I'd figured out “How to Tie a Bow Tie.”



What Microsoft offered, and I am not making this up, was as follows:

Related searches: “How to Build An Igloo”



Hey, you never know when you’re gonna need to build an igloo after a night on the town.



Jeff Matthews
I Am Not Making This Up


© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Thursday, October 25, 2007

OPEC to Fed: “Go Ahead, Make My Day”



The Fed should cut rates half a point next week.

At least, that’s what some big money manager is saying, according to my Bloomberg:

In order to reduce uncertainty, the Fed has to get ahead of market expectations and should cut by 50 basis points. Failure to do so will damage market sentiment and force even deeper cuts in December.

Now, I just so happened to be reading those words while listening to the Rohm & Hass earnings call.

Rohm & Haas, in case you never heard of it, is as plain-vanilla a company as they come. By “plain vanilla,” I don’t mean “low-tech” or “mediocre.” It’s just a low-profile specialty chemicals company that makes stuff you use every day—the computer you’re using to read this, for example, is using semiconductors packaged in Rohm & Haas materials—yet never think about.

Furthermore, the company's chemicals are at the heart of not only the U.S. manufacturing economy, but the world's economy as well, with half its business coming from overseas.

And what Rohm & Haas was saying while the aforesaid Bloomberg article scrolled across my machine, was this:

Now, as we speak, we are seeing dramatic increases with no seasonal easing in key raw materials… We now expect to see an increase in the total raw material cost for Q4 on the order of $50 million…. This is a development of the last two or three weeks.

In other words, since the surprise Fed rate cut in late September, prices of the company's key raw material have spiked.

How is Rohm & Haas planning to deal with this?

Well, don't tell the Fed, but Rohm & Haas is already raising prices. That's right:

As you know, we announced yesterday our intention to increase pricing in the 5% to 15% range effective November 1 of this year.

Now, the spike in raw materials prices at Rohm & Haas wasn't a big surprise to listeners on the Whirlpool earnings call earlier in the morning.

After all, Whirlpool’s management complained not only about the downside of having Sears as a large customer, but also the upside to their cost structure from the half-billion dollars of extra raw materials prices the appliance maker has had to absorb this year:

This is the first year ever where we have seen a significant decline in demand in the U.S. and significant raw material inflation. In essence, we have had both a demand decline and a cost spike at the same time.

Nor were the Rohm & Haas comments a surprise to listeners of the Schlumberger earnings call the day before, when the subject of tight labor markets and rising costs was most emphatically on the minds of one of the world's all-time great straight-shooting management teams, as was another, equally troubling issue that makes me think the folks at OPEC would love nothing more than another larger-than-expected Fed rate cut next week.

.
Here's what Schlumberger said:

Global demand for oil remains strong, while non-OPEC production continues to disappoint. Production decline rates in mature area and continuing project delays will inhibit non-OPEC supply increases, while personnel and equipment shortages will restrict the industry's ability to respond.

.
There you have it: on top of “cost spikes,” “personnel and equipment shortages” and “dramatic” raw material cost increases, add the declining non-OPEC oil supply to the list of problems next week's Fed rate will exacerbate, as Bernanke continues his apparently ceaseless efforts to rescue Wall Street's banking goliaths from their self-created CDO tar pits.


"Go ahead Ben," the folks in Riyadh, who've been watching the Saudi Light crude chart spike to new highs, must be saying to themselves, “make my day.”



Jeff Matthews
I Am Not Making This Up


© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Sunday, October 21, 2007

Wasn’t the First, Won’t Be the Last



Caterpillar Pulls Economic Alarm

Sectors Likely to Weaken; Outlook for '07 Is CutDespite 21% Profit Rise
—Wall Street Journal, October 20, 2007.



Whatever the real reason for Friday’s stock market relapse, the press needs somebody or something to blame.

So they are holding Caterpillar, the American icon that guided earnings modestly lower and made some discouraging comments regarding the state of its U.S. business, to blame.

Caterpillar Inc.'s gloomy forecast for the North American economy and its lowered full-year profit outlook overshadowed its record third-quarter profit and cast a pall over many sectors.

Caterpillar, like many other U.S. manufacturers, has increasingly relied on its global footprint to generate business at a time of increasing uncertainty about the health of the U.S. economy, but its bleak comments signaled that this strategy can only go so far.
—The Wall Street Journal


Now, you might think the $300 billion of frozen LBO commitments rotting a hole in the erstwhile large pockets of America’s investment banks might have given pause to investors eagerly bidding up stock prices in the wake of the Fed’s surprisingly large rate cut one month ago.

You might also think those buyers chasing stocks at all-time highs would have felt a slight tinge of buyer’s remorse due to the fact that the nation’s largest single engine of growth—the housing market—has frozen and left millions of plain old Americans as hard up for liquidity as the leveraged buyout stars of Henry Kravitz’s self-proclaimed “Golden Era” of Private Equity.

And, of course, you might have thought the frantic efforts of Citibank to find a clever way to liquify the $80 billion in Structure Investment Vehicles rotting a hole in its off-balance sheet balance sheet would have given eager stock-buyers pause prior to Friday.

But in all three cases you’d be wrong.

Those buyers chasing stocks at their very all-time highs were not dissuaded by the recent, discouraging past or even the ugly present.

They were, it seems, looking to the future, as they have learned to do thanks to the lessons learned from years of absorbing the Greenspan Method of Driving the Federal Reserve Bus, which Mr. Bernanke apparently studied quite assiduously.

The Greenspan Method of Driving, as near as I can tell, involved putting the pedal to the metal whenever the risk of a slowdown was somewhere on the general horizon...which, in the case of Greenspan, seemed to have been painted onto his eyeglasses by some clever Fed staffer, so long did he leave his foot on the gas after the economy had gone into overdrive.

But Caterpillar was not the first company to warn that “What Happens in Sub-Prime Is No Longer Staying in Sub-Prime.” (See “What Happens in Sub-prime…Gets to Spain Really Quickly,” from August 6, 2007.)

Earlier in the week, Illinois ToolWorks—which makes everything from arc welders to simple hose clamps—reported seeing “a noticeable slowing in North America” in September.

That came on top of a previously reported “slowing” in the general industrial market which ITW discussed three months ago on its second quarter earnings call.

Did I mention that was three months ago?

Another fairly important data point—not that anybody was paying attention until Friday—came Wednesday when Manpower, which happens to be the world’s largest employment agency, likewise commented on the U.S. slowdown:

We continue to see positive revenue trends in most places, though in some places like the U.S. we are seeing softness….

If you look closely at the quarter we didn't see any dramatic deterioration during the quarter. We also really didn't get a lot of encouragement. I guess I could put that as good news, because we are not seeing it really slide any more. We had a first few weeks that we started out in the quarter were slow as we anticipated, but we didn't see that typical seasonal pick-up that we would be getting in September and October. Our clients aren't desperate, but there is a high level of cautiousness…

But even Manpower’s commentary should have been no surprise to anybody paying even a tiny bit of attention to news from the field prior to last week.

As far back as the first week of September, Office Depot CEO Steve Odland discussed in plain language why 'What Happens in Sub-Prime Is Not Staying in Sub-Prime,' while responsing to a question regarding the company’s disappointing sales and earnings outlook:

Yes, a lot of these small business -- a lot of our customers -- most of them are nine employees or under. A lot of them are on the very small end of that, so they have a few employees. So you see contractors, you see real estate agents, you see the tradespeople and so forth. A lot of them are home offices, or they're working out of a shop and so forth. So they don't tend to use conventional sources of financing.

We have heard a lot about financing of very small businesses in the last quarter or so. But the customers that are in the SIC codes related to the housing market have seen significant double-digit decline themselves. So we have a significant number of customers who fall into these SIC codes. We are seeing the purchasing from those customers down very significantly as well. So every cut of this analysis seems to be pointing to the same thing.


Unlike Office Depot, until Friday Wall Street didn’t see much of anything but blue skies and trees growing to those skies.

So go ahead and blame the wake-up call on Caterpillar, if you like...but Caterpillar wasn't the first company in America to see business hit the brakes.

And it probably won't be the last.



Jeff Matthews
I Am Not Making This Up

© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Thursday, October 18, 2007

NovaStar Lists on Kazakhstan? “No Short-Sale for YOU!”



A couple years ago a despicable individual made his presence felt on this blog by posting numerous comments, all centered around his theory of a so-called “naked short-selling” crisis for the stock market in general, and shares of Overstock.com in particular.

This individual was so despicable he could not even post under his real name.

He instead used a pseudonym (‘Bob O’Brien’), thus giving him license to write pretty much whatever deluded thoughts crossed his brain, without regard to truth, or even half-truth, or even three-quarters truth.

With no such facts to get in the way of his wildly imaginative paranoia, this individual posted his demented ravings in the same way old Bostonians voted for their famously corrupt Mayor James Michael Curley—“often and early.”

The following is a sample raving that appeared in response to a fact we at NotMakingThisUp made public.

The fact we made public was this: while ‘Bob O’Brien’ had recently appeared on the quarterly earnings call of Overstock.com pretending to be just a random questioner offering up some thoughts about the supposed “naked short-selling” conspiracy against the company while the CEO, Patrick Byrne, listened attentively and prodded the supposedly random caller to expound at length, he and Byrne had in fact been in contact well before the earnings call took place.

I make none of his remarkable response up:

You don't know if the video shadow was me or the camera man or a 45 year old Vietnamese woman or the cab driver. You don't know how much my voice was altered on the call or the video, or even if it was "mine." You don't even know if there's one or three or twenty people who collectively are "Bob".

In short, you know nothing.


Now, this creep did not limit his comments on this blog and elsewhere to Overstock.com.

His other obsession was NovaStar Financial, a company that, like Overstock.com, was heavily shorted and for some bizarre reason attracted a rabid shareholder base comprising conspiracy-theorists of the “Area 51” stripe—which is to say, lunatics.

Now, I do not know whether he still owns his shares of NovaStar, which has declined from $140 per share (split-adjusted) at the time he was making threats across the internet against individuals who disagreed with his entirely faulty assessment of both NovaStar and Overstock.com, to its current $7.38 per share.

But if he does, I almost feel sorry for the management of NovaStar—who made a good business out of pushing sub-prime mortgages on poor shlubs ill-prepared to afford them; reselling those mortgages into the derivatives market; booking non-cash gains on the sale of those mortgages and paying fat cash dividends to their shareholders—for he could be making their lives as miserable as he made many innocent bystanders throughout his “naked short-selling” crusade.

But in reality the folks at NovaStar probably get what they deserve, which includes today’s news that the company has been advised by the staff of the NYSE that NovaStar common and preferred stocks “no longer meet applicable standards for continued listing on the New York Stock Exchange…”

Thus the company said it “will explore alternative arrangements for the listing or quoting of its common and preferred stock.”

After glancing at the company's financials, which show NovaStar’s equity dropping while its debt was rising from $1.6 billion to $4.3 billion since Bob O’Brien’s glory days peaked during that Overstock.com conference call, I am scratching my head at which stock exchange might want to handle this one.

Kazakhstan, perhaps?

Upon reflection, that might be just the place for such an ill-starred enterprise.

I can imagine some short-seller looking to borrow NovaStar stock to sell it short on the Kazakhstan Exchange being told, “No short-sale for YOU!”



Jeff Matthews
I Am Not Making This Up

© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Sunday, October 14, 2007

The Price of “Insanity” Doubles: Barron’s vs. Google, Part 1



When it comes to Google, Barron’s readers can give the publication high marks for beating its head against the wall, if not for stock-picking.

This weekend’s issue of the famously skeptical weekly includes yet another attempt to shoot Google off its perch as the most innovative, useful and, consequently, valuable internet property on the planet, with yet another article highlighting the high stock price and seemingly mindless valuation of an enterprise less than ten years old:


As Its Stock Tops $600, Google Faces Growing Risks.

Google closed the week at $637.39, more than 50 times its earnings, giving it a market capitalization that nearly equals the total value of the three largest traditional media companies: Time Warner, Walt Disney and the News Corporation. Even at Google’s current stock price, 34 of the 38 analysts following the company have buy recommendations, according to Thomson Financial.

—Barron’s, October 15, 2007


If that general argument sounds familiar, it should.

It’s almost exactly the same theme of Barron’s previous negative piece on Google, which came out not quite one year ago after Google’s share price hit $500.


That article was called “Google: 500 Reasons to Worry,” and it started with the following familiar refrain:


GOOGLE HIT ANOTHER MILESTONE LAST WEEK, topping 500 a share and closing at 505. The shares (ticker: GOOG) have soared since the company posted third-quarter results far above analysts' estimates. Amid the euphoria, however, investors seem to have ignored the stock's exceedingly rich valuation -- it trades for 37 times next year's expected earnings -- and arguably more important, Google's slowing growth rate.


Unless the company's efforts to move beyond its core search franchise begin to pay off handsomely -- it recently shelled out $1.65 billion for YouTube -- our bet is investors will wake up and smell the coffee -- just as they did with Amazon.com (AMZN) and eBay (EBAY), which fell precipitously from their highs.

—Barron’s, November 27, 2006


Obviously, whatever coffee investors smelled when Google was at $500 did not wake those investors up to the dangers Barron's saw in the shares. But that was not the first time Barron's had tried to warn the masses against Google's purported overvaluation in the marketplace.

Barron’s500 Reasons to Worry” came not even one year after Barron’s previous negative piece on Google, which hit the streets when the shares were trading for $360 apiece:

To get a sense of what might happen to the stock, we gave one ├╝ber-bull's 2006 revenue estimate for Google a 20% haircut, trimmed his projected expenses by 5% (but no further, because bulls greatly underestimate Google's costs), deducted stock-based compensation and, generously, gave the company credit for the considerable interest income on its cash.

The result: Earnings would be 30% lower than the bull's projection, at $6.28 a share. If the stock were to maintain its current multiple of 41 on those lowered earnings, it would be worth $257. It's more likely the multiple would shrink to as low as 30, in line with the slower growth. That would make the stock worth $188, versus its recent $360.

—Barron’s, February 23, 2006


As a reminder, Google shares ended this past week at $637.


While, as a rule, NotMakingThisUp never comments up or down on the valuation of particular stocks, we provide the above selections from the previous Barron's articles simply to put this weekend's windmill-tilting against Google in perspective.

Furthermore, we observe that this weekend’s write-up features, as did each of the previous write-ups, a damning quote from Fred Hickey, Barron’s Roundtable member and frequently quoted Wall Street bear.

Fred Hickey, editor of The High-Tech Strategist newsletter in Nashua, N.H., is one of the few willing to call Google’s stock surge “insanity.” But even he isn’t predicting when it might end. He has placed a tiny bet against Google, but no more. “You cannot short a mania,” he said.

In “500 Reasons to Worry,” Hickey provided a similar commentary, with somewhat more assurance in his conclusion:

Fred Hickey, editor of the High-Tech Strategist newsletter and a Barron's Roundtable member, is convinced the consumer is slowing, as evidenced by declines in home sales, auto sales and recent sales trends at Wal-Mart (WMT) and electronics retailers. He expects the slowdown to hurt Google's advertising and stock price, too. "I know (Google stock) isn't worth $500 a share," he says.

He also said as much in the earliest Barron’s story, with the stock at $360:

"Google reminds me very much of what went on in 1999 and 2000," says Fred Hickey, editor of the well-regarded High-Tech Strategist newsletter and a member of the Barron's Roundtable. "The valuation is insane, relative to what they do."…

"You have a frenzy for ad words that could disappear," warns Hickey. And that makes him unwilling even to take a stab at what Google's revenues will be or what the stock is worth.


By my calculation, the price of Hickey’s “insanity” has almost doubled in the last 18 months—from $360 to $637 per share.

Now, whether Google’s share price will continue its recent rampage, we offer no opinion. Never have, never will.

Our focus remains, as always, on whether a company and its management team are doing what they say they do—not whether a particular share price is attractive, unattractive, or likely to move up, down or sideways.

It has, however, been an amusing spectator sport watching Wall Street’s Finest leapfrog one another’s “price target” for Google’s shares during the latest surge, although it’s not quite clear why all of a sudden the analysts are finding greater value at $600 per share than they did when the stock traded beneath $500 a few months ago.

Actually, I'm making that up.

It’s very clear why the analysts are fighting to pick the highest price target: quite simply, Google’s stock has been moving up, and there’s nothing worse to one of Wall Street’s Finest than watching from the sidelines while the shares of a widely-owned, widely-admired company rally without them.

In Part II we will look not at what Barron’s has focused on—Google’s share price and current earnings multiple—but on the business end, to perhaps help befuddled Barron's readers understand why Google continues to be the search engine of choice to internet users.

And, therefore, to the advertisers who depend on it.

In that way, those readers can make their own judgement as to whether the price of both Barron's and Fred Hickey's so-called "insanity" will keep rising.


Jeff Matthews
I Am Not Making This Up

© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Friday, October 12, 2007

Fasteners from Wal-Mart, and The Quote of the Week



I have to admit to not being surprised when Boeing pushed back the first flight of its much-vaunted “Dreamliner” (actually just the brand name for Boeing’s new 787) this week.

After all, Wall Street’s Finest and the business press have been predicting just such a slippage in the timetable as far back as July 8th, when the carbon-and-titanium beast was presented to the world outside a hanger in Seattle, all brand-spanking sleek and space-age new.

But more than that, it was the sarcastic aside from one of Boeing’s suppliers at an investment conference a couple of weeks ago that tipped me off.

The supplier, when asked about the potential impact of a Boeing rumored push-back on his business, shrugged and noted that the model presented to the world on that sunny day was so incomplete it had been put together, in places, with “fasteners from Wal-Mart.”

No, I am not making that quote up.

Nor am I making up this one—which ought to go down as the Quote of the Week, if not the Year—from a Boeing executive on this week’s conference call to explain the Dreamliner delay:

“As we’ve experienced in the last couple of months, we are not experiencing things we didn’t think we would experience. We’re just experiencing slower resolution of what we thought we would find…”

Why, the man should run for President!


Jeff Matthews
I Am Not Making This Up


© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Wednesday, October 10, 2007

Intellectual Gunslingers Running Amok…in Utah


Public shareholders of Overstock.com are in for a rude awakening. It seems their company was taken over by its very own President without so much as an SEC filing!

At least, that’s how I read the following introduction to a recent article in the Utah Statesman, the “official student newspaper” of Utah State University.

Jason Lindsey, creator and owner of Overstock.com and an innovator in the world of e-business, who graduated from USU in 1996 with bachelor's and master's degrees in business and accounting, revisited his alma mater to speak to a group of around 150 people about his business and the things he's learned from it.


Having once written for a student newspaper that I hesitate to name—not for reasons of confidentiality or bad feelings or anything like that, but because it was called, and I am not making this up, the “Brown & White” (worse, those were the team colors)—I sympathize with the article’s author for not getting the Overstock.com ownership structure straight.

As described here previously (“Blame it on the Ramones” from April 2005), complete and faithful accuracy is not necessarily a hallmark of student newspapers, no thanks to yours truly.

While the Utah Statesmen writer clearly does not grasp the significant difference between public and private ownership, my guess is the responsibility for the misunderstanding rests not with her but with the subject of the article, who perhaps did not make it clear that Overstock.com is in fact a public company owned by the shareholders.

Not by “founder and owner” Jason Lindsey’s own personal LLC.

But that’s beside the point. The point being the very first life-lesson Lindsey shared with the audience, which is, as described in the article, as follows:

"Choose integrity," Lindsey said of his first lesson. "It's what makes societies and relationships work.

Now, “choose integrity” is quite the noble sentiment.

However, Lindsey apparently never bothered to inform the good students at Utah State about the antics of his business partner, Overstock.com CEO Patrick Byrne.

Byrne, as long-time readers know, has publicly mused about the evil doings of, and I quote, “Israeli mobsters,” “crooked” reporters, SEC “lapdogs” and other “tools of Satan” that are all part of purported a short-selling conspiracy against his company.

I make none of those up, nor the following:

“The mastermind is a name your readers would recognize who’s been to prison before. He organizes bear raids on companies. He works through a group of four to five hedge funds….The hedge funds have half a dozen reporters on their payroll….The reporters are condoms used and discarded by them.”

“Integrity” is not quite the noun coming to mind just now.

But perhaps Mr. Lindsey doesn’t grasp much in the way of nuance, for his very next sentence reveals the thin intellectual curtain draped behind his “choose integrity” theme:

"The reason people aren't rushing to the Middle East and investing in the infrastructure of these countries we're in is because there's no rule of law. There's no way to know someone with a machine gun will come and take away what you build there. Or the government, for that matter."

In fact, not only are people rushing to the Middle East and investing in the infrastructure, but entire companies—Halliburton, for example—are moving there in order to participate in the very infrastructure boom Mr. Lindsey seems not to know exists.

Still, if he doesn’t know what’s going on in his own back yard, how’s he supposed to know what’s going on half way around the world?



Jeff Matthews
I Am Not Making This Up


© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Sunday, October 07, 2007

“Fund Big Slams Streak-Man!!!!!!” The Headline That Didn’t Make Headlines



Wick is short Eastman Kodak (EK), which he says isn't gaining traction in the printer business and continues to be hurt by the digital-photography revolution. Wick notes that Legg Mason Value Trust (LMVTX) holds 7.5% of Kodak's shares, while Legg Mason as a whole owns close to 20%.

At Value Trust Bill Miller's legendary streak beating the S&P 500 has been replaced by extended under-performance. Wick thinks that Miller eventually will go. When he does, the Kodak stake could follow, pressuring the shares. [Emphasis added.]

—Eric Savitz, Barron’s “Technology Trader” Column, 10/8/07


The “Wick” quoted above is Paul Wick, veteran Seligman technology fund manager who, while widely quoted in the popular press, is no mere talking head.


Paul is a familiar face at technology conferences around the globe, doing the homework that has kept him at the head of the pack over many years’ worth of investing in leading edge companies, as well as betting against them when he sees fit.

That's right: unlike most public figures in this business, Wick not only talks up stocks he likes and explains why he likes them; he is not afraid to talk about stocks he doesn’t like, and why he doesn’t like them—a highly unpopular thing to do in a world that would rather shoot the messenger than listen to what the messenger is actually saying.

The 'Bill Miller' referenced above is, obviously, Bill Miller, the star Legg Mason money manager whose famous, enviable “streak” of S&P-beating years ended in 2006.

Like Wick, Miller is widely quoted in the popular press, though less so nowadays than during his “streak” years, when he was often asked about, and shared, his erudite views on everything from where oil really comes from to why his fund is the single largest shareholder of one of Wick’s favorite shorts—Eastman Kodak.

Regarding the latter subject, Miller says Kodak is doing a fine job in its “transformation into a digital company” and possesses “the best portfolio of products” in the field.

Regarding the former subject—where oil comes from—Miller subscribes to the view of Thomas Gold, author of the impressive-sounding “abiogenic” theory of petroleum. The “abiogenic” theory holds, as Miller has written, “that oil and gas are not fossil fuels” at all, but were “created deep inside the earth, and other planetary bodies, and gradually rise toward the surface.”

Being the opposite of the “biogenic” view that oil and gas result from the slow cooking of a finite amount of prehistoric organic matter via millions of years worth of compression into hydrocarbons as solid as coal and as amorphous as natural gas, abiogenics holds that the supply of oil and gas from whatever created it is “virtually inexhaustible.”

NotMakingThisUp will give Bill Miller his due any day, on any topic, particularly his notion that limiting “value” investing to currently cheap stocks ignores many faster growing, high return-on-capital businesses with a better-than-random chance of proving to be excellent “value” investments years hence. That is a view for which he took some heat during his 'streak' years, although his investors didn't mind the end results.


However, having started in this business touring oil shale deposits in Colorado and offshore drilling rigs on the Grand Banks, it's always astonishing to hear of anybody who still pays attention to a crackpot theory long ago dismissed by scientists studying the field of oil and gas, not to mention oilmen looking for the stuff.

After all, if oil and gas really do come from some mysterious self-plenishing spring deep inside the earth and not from ancient reservoirs of compressed organic matter cooked into burnable, transportable fuel, then somebody ought to tell Brazil they shouldn’t be able to make all that ethanol out of sugar cane.

Nevertheless, both Wick and Miller have had extraordinary careers in this business, and both have opinions and investment ideas worth following.

Which is why, when Eric Savitz, who is no slouch himself as a reporter, quotes one saying he thinks the other “will eventually go”—well, that’s a headline if ever there was one.

Now, it's understandable why Barron’s didn’t overplay the matter. The mutual fund world is, at least on the surface, a genteel playground where portfolio managers let their performance do their public talking.

If Barron’s had wanted to sell a few extra copies—except in the general vicinity of the Legg Mason offices—they surely would have slapped Savitz’s quote on the front page beneath some kind of cute graphic, possibly showing gunslingers circling one another warily, with a headline along the lines of:

Shootout At The Mutual Fund Corral!

Of course, if NotMakingThisUp’s official Newspaper of Record—the New York Post—had picked up the story, it would have gone with a juicier headline in a “Pearl Harbor Attacked”-sized font…something like:

Fund Big to ‘Streak-Man’: “You’re Outta Here!”

And if our personal favorite publication, though one not generally attuned to the nuances of portfolio managers and their latest investment ideas—The Onion—had covered it, the headline would be somewhat more twisted.


Perhaps:

Wick Says Miller “to Go”…Miller says Wick “Probably Not Organic Matter”


We, on the other hand, ain’t taking sides.



Jeff Matthews
I Am Not Making This Up

© 2007 NotMakingThisUp, LLC


The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Thursday, October 04, 2007

The Least Helpful Call You Will Get Today



The Least Helpful Call of the Day today is not even close to the next-least helpful call, whatever that may be.

Today's Least Helpful Call comes from an outfit called Broadpoint Capital, about which we know nothing except that they are downgrading their rating and price target on Nutrisystem, the diet food purveyor whose main customers, based on their incessant TV ads, appear to be former members of the Miami Dolphins.

Broadpoint is acting in response to last night’s news, in which, to use a highly technical Wall Street term—Nutrisystem “blew up,” announcing a large sales and earnings shortfall, causing the stock to collapse 20% in the aftermarket.

Broadpoint is unhelpfully downgrading their rating on the stock this morning—and I am not making this up—from a “Strong Buy” to a “Buy” while simultaneously cutting their price target from $75 a share to $50, according to the indispensable Briefing.com.


How the ultimate value of a business changed by one-third overnight is beyond our ken, not to mention why that purported value is now $50 a share, and not $48 or $51 or $54.

In any event, anybody eager to follow Broadpoint’s latest recommendation on the shares can buy all they want at, oh, $37 right now.


Jeff Matthews
I Am Not Making This Up


© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Tuesday, October 02, 2007

The Most Depressing Graphic You’ll See All Year



We get a lot of heat here at NotMakingThisUp when we turn the subject to global warming, which is real and is caused by human beings.

(Ask any gardener what’s happened to the USDA ‘hardiness’ zones since the last official update: they’re moving north.)

But words don’t do the subject justice, because anybody can find a statistic that supports their position. In fact, I have one friend—and he is a friend—who rebuts the human-caused global warming case by citing data showing that temperatures on Mars are going up…ergo, Earth’s warming is not man-induced.

The linkage escapes me, but it provides him comfort.

So instead of words, we’re providing a link to today’s online New York Times, which shows about the most depressing graphic you’ll see all year:

http://www.nytimes.com/interactive/2007/10/01/science/20071002_ARCTIC_GRAPHIC.html##

Note to conspiracy theorists: I’m not making it up, so if you think the Times is, complain to them!


Jeff Matthews
I Am Not Making This Up


© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.