Friday, December 28, 2007

1001 Books You Must Buy Before You Die



Anybody else getting a little tired of the publishing world’s latest infatuation—those books identifying “1001 [insert task here] You Must Do Before You Die”?

Here’s a list of actual such book titles, and I am not making them up:

1001 Movies You Must See Before You Die


1001 Books You Must Read Before You Die

1001 Albums You Must Hear Before You Die

1001 Paintings You Must See Before You Die

1001 Buildings You Must See Before You Die

1001 Ankle Bracelets You Must Wear Before You Die

Actually, I made up the last one, but you get the idea.

The idea is that we must see “Batman: The Movie,” listen to Britney Spears’ “Baby One More Time” and read pretty much everything ever written by Phillip Roth, before we die, or else.


Personally, I'd rather watch a movie of Phillip Roth singing "Baby One More Time" than do any of those other things, but that's just me.

What will happen to those who don’t accomplish all these 1001 "musts" is not clear, but should a normal mortal ever in fact take the title commandments at face value, they would clearly have very little time left for anything else in their lives, let alone buying the stupid books in the first place.

Rather than requiring us to perform only selfish acts—reading books and listening to albums and watching movies—why not make the required acts a little more socially relevant and easier to accomplish?

1001 Politicians to Avoid Before You Die, perhaps?

Other suggestions are welcome!


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 investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.

Wednesday, December 26, 2007

The “Best Ever” Press Release, 2007 Edition



It’s the day after Christmas, and, unless something has gone dreadfully wrong with either consumer spending or the Amazon.com press department, time for that Internet retailer’s “Best Ever” press release.

Sure enough, it’s right here on our Bloomberg:

Amazon Wraps Up Its 13th Holiday With Best Season Ever

Amazon.com, Inc. (NASDAQ:AMZN) today announced the 2007 holiday season finished as its best ever, with its busiest day being December 10. On that day, Amazon customers ordered more than 5.4 million items, which is 62.5 items per second….


"We are very grateful to our customers," said Jeff Bezos, founder and CEO of Amazon.com. "On behalf of Amazon.com employees around the globe, we wish everyone happy holidays and best wishes for 2008.”


As we pointed out last year, it would be a startling thing if Amazon.com—or, indeed, nearly every other retailer in America—did not report their “best ever” holiday season each and every year, what with the tendency of economies to grow.

Even poor old Target, which reported jaw-droppingly poor December same-store sales of roughly zero on Christmas Eve, could have truthfully declared its own “best ever” holiday season by including sales from new stores opened in calendar 2007.

In fact, there are probably 1,000 companies on the New York Stock Exchange that could have put out a press release today claiming “best ever” holiday sales—if sales were all that mattered.

But they aren’t.

Retail investors don’t focus as much on total sales as they do on existing store sales, which is a far better measure of true underlying strength—hence the calcuation of “same-store sales” for the benefit of investors and management alike.

When it comes to industrial companies, while strong sales are nice, investors want to know what’s happening below the line, what with the rising cost of everything from crude oil to soybean oil, not to mention labor, healthcare, insurance, rent and pretty much everything else that goes into a product.

As for service companies, well, not only did the New York Yankees achieve record attendance in 2007, but even the New York Mets had their “best ever” season in 2007—if attendance and revenue was all that mattered in Major League Baseball.

Still, Amazon.com recognizes that the benefits of free publicity thanks to an obliging, subprime-weary press corps probably outweigh the potential goodwill dilution of its sixth straight “Best Ever” press release.

Hence today’s announcement, which looks a lot like the previous five:

12/26/2007 “Amazon Wraps Up Its 13th Holiday With Best Season Ever”

12/26/2006 "Amazon.com’s 12th Holiday Season is Best Ever"

12/26/2005 “Amazon.com, Inc. today announced that the 2005 holiday season finished as its best ever…”

12/27/2004 “Amazon.com’s Tenth Holiday Season is Best Ever…”

12/26/2003 “Amazon.com Wraps Up Its Ninth Holiday With Busiest Season Ever.”

12/26/2002 “Amazon.com today announced it has finished its busiest holiday season ever…”


Unless something goes very terribly wrong, we know what to expect to see on our Bloomberg next December 26.


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 investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.

Saturday, December 22, 2007

Been to a Dairy Queen Lately?



Starbucks recently opened its third store in our town—that’s one more than McDonalds has—and despite Wall Street’s concern over the recent downturn in Starbucks’ fortunes, its newest store is picking up extra business without crimping the other two stores one bit.

This is no big surprise: the first Starbucks in town grew steadily for years despite a second-rate location, until it was bursting at the seams. Lines reached the door at peak times and the under-sized parking lot generated at least one near-miss each morning among the bleary-eyed commuters zipping in and pulling out.

Local opposition delayed the second Starbucks for a while, but when it opened—four miles from the first, on prime real estate smack in the heart of town—it did gangbusters almost from Day One. And although it cannibalized the first store for about eighteen months, today the two stores are doing well over 50% more than the first did by itself.

Now, this third Starbucks will probably never be an above-average store: the location is odd and out of the mainstream traffic flow. Still, being a university town with 50,000 people who for the most part fit the Starbucks demographic, we could probably support one more Starbucks at the least.

After all, there are four Dunkin Donuts within our borders, and that’s not including the Dunkin Donuts “store-within-a-store” inside the local Stop & Shop, which does a land-office business, particularly in the mornings and especially on weekends, when grocery shoppers line up with shopping carts that actually contain built-in coffee cup holders.

Is this a great country, or what?

Am I the only person who never ceases to be amazed to see people lining up to buy donuts and coffee before they shop for food? Is pushing a shopping cart around a grocery store that much effort that people need coffee and donuts before they’re up to it?

Maybe Stop & Shop should consider letting Domino’s deliver right inside the store—pimply-faced teenage boys running recklessly around the aisles with little lights on top of dented, oven-warming shopping carts bringing pizza slices to calorie-deprived food shoppers pushing shopping carts with little pizza-slice-shaped warmers built into their shopping cart handles, right next to the coffee cup holders.

And don’t stop at the main meal—set up a Dairy Queen stand at the end of each check-out counter, so that after the stress of swiping their credit card and watching the clerk bag their groceries, Stop & Shoppers can load up on sugar for the five-minute drive home.

Here, unfortunately, I show my age. Dairy Queen might not be the most popular choice of an ice cream treat for most Stop & Shoppers these days, poor old “DQ” having been supplanted in our area of the world by Cold Stone Creamery.

Cold Stone does to excess what Dairy Queen started with its Oreo-filled ice cream Blizzard, mushing cookies and all manner of incongruous treats into ice cream with jolly names like “Cookie Doughn’t You Want Some” and “The Pie Who Loved Me” (Cheesecake ice cream, OREO cookies, Graham Cracker pie crust and fudge).

Teenagers love the stuff, and I can vouch for that: what used to be an after-dinner trip to Dairy Queen has turned into a late-night visit to Cold Stone.

Now, I don’t know for a fact what impact Cold Stone and other entrepreneurial ice cream ventures are having on Dairy Queen, but it can’t be good. Not that Dairy Queen seems to care: the “DQ” in our town looks like every other “DQ” that I’ve ever seen in this area of the country...a sad little faded-red-roof with white siding structure in a dingy lot on a crowded section of strip malls along Route 1.

I have not been there in years—since the girls grew out of that particular style of soft ice cream around third grade—but my memories of the handful of visits we took are not fond.

For starters, just finding a parking spot at the DQ on a hot summer night can be hazardous, what with hormone-charged teenage boys fighting for the inadequate number of spaces in a parking lot that was never zoned for peak demand levels of hot summer nights.

Then there’s the building itself, which is straight out of “American Graffiti” and nearly as outdated as the America that movie portrays, with only walk-up service at a pair of sliding windows along a stainless steel counter.

You wouldn’t mind the atmosphere—cars, boys, and the stale cool air wafting from the window—if the lines moved along nicely, but on a hot summer night they are long and spectacularly inefficient. Absolutely no effort has been made to implement McDonalds-type efficiency engineering on line control. Nor has much thought been put into the order process itself: whoever catches the attention of the sweaty, underpaid workers behind the glass is next.

Still, like any terribly managed customer experience—the Post Office on a good day, for example, or the airline counter of a flight that’s been cancelled—you feel that much better once you reach the head of the line and your order’s actually been taken.

Then you wait, and while you wait you try to avoid the stale air peculiar to ice cream shops, as well as the sticky stainless steel counter and the cars zipping in and out of the lot. After getting the cones and handing them out to your children, you pay, invariably exchanging normal dollar bills for change that comes in damp and crumpled bills, or sticky coins, or both. Back in the car you discover that the cups never hold the stuff: whatever flavor you bought eventually gets worked into the baby seat or the car seat.

It is not an experience I particularly recommend.

Still, the ice cream itself is fine, and kids especially love the chocolate covered cones. But aside from quieting down antsy toddlers on a hot summer night, there is no great reason to schlep to a “DQ” any more than any other ice cream joint.

After all, “The Blizzard” was the last major new product from Dairy Queen, and that was in 1985. Its initial revelation—that you could smash Oreo cookies and candies into ice cream—has long since been surpassed by Cold Stone Creamery and others.

Indeed, hot summer nights aside, the local “DQ” might as well be a spare parking lot for the businesses nearby—and, in fact, in December that’s what happens: it becomes a Christmas tree lot.

Now, I recognize that the northeast part of the country may not be the dream market for an ice-cream shop. In fact, there are only about 50 Dairy Queens in the New York/New England area, while Texas alone has 115.

But there are plenty of Dairy Queens in the cold-weather states of Minnesota and in DQ’s home state, Illinois (the original store on which Dairy Queen was based opened in Kankakee, made famous in the Arlo Guthrie song “City of New Orleans”), not to mention Michigan and Wisconsin, which has 37 Dairy Queens.

And summers in Wisconsin are not exactly long.

So why has Cold Stone Creamery—which was started in 1988, fifty years after Dairy Queen—already overtaken Dairy Queen in my home state?

Well, have you been to a Dairy Queen lately?

Lousy locations, decaying plant and the fact that the last really new product was introduced 22 years ago might be part of the answer.

Another part of the answer might be the fact that Dairy Queen is owned by Berkshire Hathaway, which is, of course, controlled by Warren Buffett.

And Warren Buffett does not like to spend money.


To be continued…


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 investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.

Thursday, December 20, 2007

Expletives Deleted! Tapes Erased! It’s Conference-Gate!



“How (inaudible) is this? Steve, let’s go. There’s no questions, let’s get the (expletive) out of here.”

—Al Lord, CEO Sallie Mae Corporation


Call Woodward and Bernstein—it’s Conference-Gate!

That’s right: the official replay of Wall Street’s most famous conference call has been tampered with!

I am not making that up.

In a cover-op worthy of Nixon and his Watergate-era tape-erasing scandal, the best part of yesterday’s Sallie Mae conference call—CEO Al Lord’s above-quoted “let’s get the (expletive) out of here” which even the Wall Street Journal highlighted in this morning’s article on Lord’s melt-down—has been deleted.

That is a shame, because yesterday’s call ranks right up there in the upper pantheon of our Patrick Awards, whereby NotMakingThisUp semi-regularly awards Wall Street’s Finest and Corporate Bigs alike for whatever strikes us as particularly outré commentary, in a realm where outré commentary is generally the norm.

In fact, the Sallie Mae call will probably go down as one of the Top Ten Train Wrecks of All Time.

Get a load of this:

Bill Cavalier—Société Genéralé

Can you talk a little bit about the pass-through market? Clearly, there is pretty much no appetite for student loan paper at this point. What are you being told about when you think there will be a market for your pass-through notes so that we can start to do some….

Al Lord—CEO

I’m not sure what you’re talking about. I’ve been talking to whom?

Bill Cavalier—Société Genéralé

When you do a securitization, right, you have a bank that arranges -- that actually does the arranging, right, you have an arranging bank. Somebody must be telling you something about what the market is looking like, what their expectations are for next year…. We're trying to put together projections here, Al. We're trying to figure out what your stock is going to be worth, and you have got to give us some guidance, you've got to give us some numbers. I don't even see a margin number here for the stuff that you've done. Can you give us some handle on what your stock is worth?

Al Lord—CEO
You should give Steve [McGarry, IR guy] a call.

Bill Cavalier— Société Genéralé
But you’re the CEO. You’re the guy who just took over the company.

Al Lord—CEO
Yes, that’s exactly right, I’m the CEO. You should give Steve a call. Next.


Nothing on paper, virtual or hard copy, can replicate the angst, anger and frustration projected in those words as spoken by Mr. Lord and the investors and analysts asking questions: it must be heard to be believed.

Unfortunately, the Big Moment—Mr. Lord’s final blowing-off of the accumulated pressure as head of a company caught up in both the highly public collapse of a private equity transaction of its making and a credit crisis not of its making—no longer exists.

That’s right.

Mr. Lord’s “How (inaudible) is this? Steve, let’s go. There’s no questions, let’s get the (expletive) out of here” has been erased from the conference call replay.

Both Haldemen and Erlichman would be proud.


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 investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.

Monday, December 17, 2007

Sell Buffett?



SELL BUFFETT
Warren Buffett’s Berkshire Hathaway is a great company, but its stock is now overpriced.
—Barron’s, December 17, 2007



So say the editors of Barron’s, on this week’s cover no less.

And while the editors set up their negative call by claiming “Barron’s has been bullish on Berkshire in recent years,” this is in fact not the first time Barron’s suggested selling the stock.

The first time, I recall, was back in the early 1990’s, when a hedge fund manager reconstructed the bottoms-up value of Berkshire Hathaway—which is not all that hard to do using the public market values for the companies whose stocks Berkshire owns, plus a reasonable estimate of the market value of the companies Berkshire owns outright, insurance being the bulk of the value—and concluded Berkshire Hathaway stock was over-priced at a bit under $6,000 per share.

Last trade was $143,000.

So don’t be too surprised if few Berkshire shareholders take the magazine’s current conclusion—that the shares are actually worth ‘only’ $132,000 each—to heart.

In typical Barron’s fashion, the current article, with a headline at once emphatic and apologetic—Sorry, Warren, Your Stock’s Too Pricey—contains a few whoppers that will leave longtime Berkshire watchers shaking their heads, including this:

“Berkshire isn’t easy to analyze because of its complexity and because Buffett communicates little with investors save for his appearance at Berkshire’s annual meeting in May.”

While it is true Berkshire engages in no quarterly earnings conference calls with Wall Street’s Finest, Buffett’s communications with investors make up in quality what they lack in quantity.

The heart of Buffett’s annual meeting is a question and answer session with shareholders that spans more than five hours and several dozen questions from any and all comers, yielding long discourses from the Chairman himself on whatever is on his investors’ minds. (See the 11-part "Pilgrimage to Omaha" series here last spring, in which we covered the 2007 meeting.)

Compare that with the typical S&P 500 corporate annual meeting, run by accountants and lawyers and yielding next to no useful information regarding the company, its business, and its management’s long-term thinking, and you’d say Berkshire’s meeting is hands-down the more valuable.

Furthermore, Buffett writes his own annual letter to shareholders, and he takes 20-plus pages, single-spaced, to explain what happened the previous twelve months—a far cry from the normal one or two page, relentlessly upbeat PR job littered with cringe-making catch-phrases such as “core competency” that most investor relations professionals write for their company’s CEO.

While it is true that Berkshire does not disclose much in the way of sales and margin data for individual operating companies such as Shaw Industries and Dairy Queen (and there is good reason for that: a number of Berkshire's businesses are on the decline) the fact is Buffett communicates a great deal more usefully than most CEOs on Wall Street.

He simply leaves out the quarterly earnings patter with the endless “great quarter, guys” backslapping of Wall Street’s Finest.

The other whopper from the editors of Barron’s concerns the issue of Buffett’s age, and it reveals more about their fundamental misunderstanding of Buffett’s role at Berkshire than it does about how long Buffett is likely to stay on the job:

Buffett turns 78 next August, and his actuarial life expectancy is nine years. He’s likely to stay on the job for as long as possible, but in reality few CEOs can handle the demands of the job much past 80.

Yet Buffett is nothing like other CEOs in the way he handles the “demands of the job,” for he has outsourced most of the heavy lifting other CEOs routinely endure in the course of their careers.

Buffett, as we said, does no quarterly conference calls. Nor does he do investment conferences or much of the other public-company glad-handing most CEOs regard as a “demand of the job.”

Furthermore, he does not actively manage the companies beneath him, leaving that to the individuals who have run the businesses for, in most cases, at least thirty years.

Aside from the occasional jaunt to Washington to testify before Congress or his recent trip to China, all that delegation of authority leaves Buffett the time to do what he likes best: to sit in his office, read annual reports and talk on the phone with people he likes.

Hardly “demanding” and likely to lead to an early grave.

Still, the Barron’s story includes at least one worthwhile observation, despite the otherwise superficial discussion of potential risks such as Buffett’s age:

What Buffett now calls a group of “wonderful businesses” may be viewed in the future as a hodge-podge of unrelated companies.

While the businesses are indeed unrelated—they range from retail furniture stores to carpet mills—it is Buffett’s famed desire for as much of their cash flow as he can keep, in his primary role as Berkshire Hathaway’s capital allocator, that may be more of an issue in years to come.

And that is an issue we will explore in our next Berkshire blog.


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 investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.

Saturday, December 15, 2007

News Flash: Professor Cecchetti Does Not Read NotMakingThisUp



Inflation Accelerated Last Month On Higher Prices for Energy
—The Wall Street Journal



Yes, that’s right. G
overnment statisticians have figured out that inflation is rising!

According to the online Wall Street Journal,

An unexpectedly large jump in consumer prices last month suggested inflationary pressures haven't receded and the Federal Reserve may have less latitude than markets believe to lower interest rates to cushion the economy.

The Labor Department reported that its November consumer price index rose by a seasonally adjusted 0.8% from October, the largest monthly gain in two years and a 4.3% yearly increase.

While last month’s consumer price increase may have been “unexpected” to readers of the Wall Street Journal, they were not to readers of NotMakingThisUp.

In fact, we have been accused of writing so frequently about emerging inflationary pressures from China that the blog should be renamed “Cute Stories About Inflation.”

Nevertheless, judging by the reaction of financial markets to yesterday’s news, inflation is no longer cute. Indeed, an astonishingly large number of people seemed shocked—shocked!—by the Labor Department statistics.


According the the Journal:

Stephen G. Cecchetti, a global finance professor at Brandeis International Business School, called the consumer price index numbers "scary" because price pressures were widespread in the report. Apparel prices jumped 0.8% in November while shelter and medical care costs also rose faster than expected.

Professor Cecchetti might have been less “scared” had he read “China’s Newest Export: Inflation” on these virtual pages three months ago.

If he had done so, he would have found nothing in yesterday's numbers at all surprising, least of all the apparel price inflation, which we flagged well before the bean-counters at the Labor Department—on September 5th, in fact:

While it is no secret that labor costs, and environmental costs, and energy costs are rising, along with the cost of just about everything else China needs to feed the manufacturing beast that now supplies American with 8 out of 10 everything, according to government statistics I just made up, the magnitude of the overall cost increase is certainly a shock to at least one major retailer of Chinese-sourced goods.

Like, 50% shocking.

I am not making that up: word out of one significant retailer is that some of the China-sourced merchandise they were expecting to cost, for example, $10 a unit prior to packaging, shipping, handling and mark-ups, is coming in at $15 a unit.

—“China’s Newest Export: Inflation” September 5, 2007



It might be churlish to wonder aloud why a "global finance professor" was not aware of what has been happening on the other side of the globe from his ivy-covered tower on the hills overlooking the Charles River for the better part of two years.

But we wonder anyway.


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 investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.

Wednesday, December 12, 2007

‘The Undertaker’ Tries to Bury his Past



The root of the current crisis, as I see it, lies back in the aftermath of the Cold War, when the economic ruin of the Soviet Bloc was exposed with the fall of the Berlin Wall….

—Alan Greenspan, The Wall Street Journal



Thus former Fed Chairman Alan Greenspan ("Easy Al" to his detractors and "The Undertaker" to his mentor, Ayn Rand) begins his latest attempt to rewrite history, in a remarkable op-ed piece in today’s Wall Street Journal: “The Roots of the Mortgage Crisis.”

And NotMakingThisUp is happy to report that today’s piece is every bit as full of bizarre self-justifications as Greenspan’s recent autobiography, “The Age of Turbulence.”

(That book is so off the charts that we speculated the working title must have been “Purple Haze, All in My Brain, Rainy Days You Don’t Seem The Same, One Pill Makes You Larger and One Pill Makes You Small, but I Get High With a Little Help From My Friends so Why Does it Feel Like They’re All Staring At Me?”—see “‘The Undertaker’ and his Economic Doobie Brothers” from November 18).

Now, we all know what Greenspan is up to here, don’t we?


Greenspan—the most revered Fed Chairman of all time, except by the gold-bugs, economic Cassandras and short-sellers who fruitlessly fought his easy money policy for nearly 20 years—wants desperately not to be blamed for the housing bubble that his easy money policy caused.

To paraphrase Pink Floyd, that’s what the writing’s all about, and Greenspan makes no bones about it in the heart of today's piece, 10 paragraphs down:

After more than a half-century observing numerous price bubbles evolve and deflate, I have reluctantly concluded that bubbles cannot be safely defused by monetary policy or other policy initiatives before the speculative fever breaks on its own. There was clearly little the world's central banks could do to temper this most recent surge in human euphoria, in some ways reminiscent of the Dutch Tulip craze of the 17th century and South Sea Bubble of the 18th century.

In other words, Alan Greenspan wants us to believe that the most powerful Fed Chairman in U.S. history was powerless to stop the greatest housing bubble of U.S. history, despite the fact that he stood at the monetary control button that directly inflated that bubble.

But he’s a Republican, and a cagey politician at that, so he’s not going to try to avoid responsibility altogether:

I do not doubt that a low U.S. federal-funds rate in response to the dot-com crash, and especially the 1% rate set in mid-2003 to counter potential deflation, lowered interest rates on adjustable-rate mortgages (ARMs) and may have contributed to the rise in U.S. home prices.

Thus Greenspan opens the door to an admission of what any—and I mean this literally—fool knows: that his 1% pedal-to-the-metal interest rate policy during one of the great world economic booms of all-time had everything to do with the ensuing drama.

But he opens the door no further, and quickly shuts it with this whopper:

In my judgment, however, the impact on demand for homes financed with ARMs was not major.

Before you have time to spit out your coffee, “Easy Al”—as he was known throughout his brilliant career—tries to explain himself with an outright fake conclusion from a meaningless data point:

Demand in those days was driven by the expectation of rising prices -- the dynamic that fuels most asset-price bubbles. If low adjustable-rate financing had not been available, most of the demand would have been financed with fixed rate, long-term mortgages. In fact, home prices continued to rise for two years subsequent to the peak of ARM originations (seasonally adjusted). [Emphasis added]

The fact that home prices continued to rise after the peak of ARM originations—“seasonally adjusted”!—is as meaningless as anything else in this tract. Anybody who knows anything about free markets knows that incremental demand by uninformed buyers is what drives bubble prices to their peaks.

The rest of “Roots” is a tale told by a politically savvy retired Fed Chairman eager for long-term glory, full of data and the kind of “woulda, coulda, shoulda” self-justifications that don’t mean a thing to the poor shlub enticed into a low-interest ARM five years ago when “Easy Al” set a marginal interest far below the true rate of inflation.

Which, by the way, is the true root of the mortgage crisis.

Unfortunately that’s not long enough for an op-ed piece in the Wall Street Journal.


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 investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.

Monday, December 10, 2007

Legal Eagles, Defending Drunks



I’ve never understood why the trial lawyers went after the paint companies.

I know it’s good business for trial lawyers, if not for the rest of society, to threaten an industry with lawsuits up the proverbial wazoo while claiming injuries on behalf of some poor, helpless class of humanity—in the paint case it was the millions of children who supposedly grew up munching lead paint on window sills, as if munching lead paint was a big thing to do—in hopes of settling for billions of dollars to go away and move on to the next big cash cow.

Fortunately for society, if not the trial lawyers, the lead paint cases don’t seem to have captured the imagination of judges and juries the way the asbestos issue did, and it seems that eventually the trial lawyers will have to pick another target in order to keep up their lifestyles—which, if the vacation home of one of the lead paint lawyers I know is any indication, is pretty high.

So why don’t the trial lawyers go after the alcohol companies, and do something worthwhile?

After all, the cost to society of alcohol abuse trumps the innocent children munching lead paint hands-down. Ask any cop how many situations in his or her day—theft, “domestics,” auto—involve alcohol: it’s nearly all…except for those that involve drugs.

Today's New York Times reports that at least one lawyer—a government prosecutor in Phoenix—is doing something interesting and worthwhile about drunk driving, the most public facet of alcohol abuse, without resorting to multi-billion dollar lawsuits:


A conviction for driving under the influence of alcohol is something many people try to conceal, even from their families. But now the bleary-eyed, disheveled and generally miserable visages of convicted drunken drivers here, captured in their mug shots, are available to the entire world via a Web site.

The hall of shame is even worse for drunken drivers convicted of a felony. A select few will find their faces plastered on billboards around Phoenix with the banner headline: Drive drunk, see your mug shot here.

The Web site and billboards, which began last month, are the brainchildren of Andrew P. Thomas, the county attorney here…

—New York Times


This innovative, low-cost way of publicly holding individuals responsible for their actions has, naturally, offended certain people who hate simple, low-cost ways of dealing with problems—namely the lawyers who defend drunk drivers in court.

“I just can’t believe he’s doing it,” said Mark Weingart, a defense lawyer in Tempe who has advised hundreds of people facing charges of driving under the influence. “Besides the fact that it is in bad taste, D.U.I.’s usually involve somebody with no criminal history. The downside to this person being published on the Web site is tremendous. I don’t see the point. Why doesn’t he put sex offenders up there?"

How “bad taste” enters the equation is beyond me. For a drunk who’s killed or injured or risked death or injury to an innocent bystander by virtue of getting behind the wheel of a car, “taste” seems to be the last thing to worry about.

Nor do I grasp the distinction between a convicted drunk driver with a criminal history and somebody without one. I know elected officials who've had DUIs wiped off their records, thanks to pals in high places, and regard them as something to be hushed up, not as a symptom to be dealt with.

Should the ability of people like that to drink and drive without severe consequences lead to an innocent’s death, their lack of a criminal record will mean very little to the families on the other side of the court room.

Presumably Mr. Weingart would rather see his own advertisement—of the “1-800-LAWYER” kind—up on the billboard than his last client’s mug. Me, I’d rather know which of his past clients are still on the road before I meet them there unexpectedly.

And while he's at it, put the sex offenders up there too.


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 investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.

Thursday, December 06, 2007

Google Guy, Doing Evil



Google Wedding Seizes Island

No, that is not a headline parody from The Onion.

It is the Page Six headline in yesterday’s New York Post—the Official Newspaper of Record here at NotMakingThisUp.

You are forgiven if you think the following details of the story are more appropriate for, say, The Donald than for a smart young man whose company’s informal code of conduct is, literally, “Don’t Be Evil”:

The wedding this Saturday of Google co-founder Larry Page on a tiny Caribbean island is a logistical nightmare for planners who are flying in 600 guests on private planes and trying to find deluxe hotel rooms for all the bigwigs….

[Wedding planners] “had to book all the hotels on the neighboring island of Virgin Gorda….so that Page’s wedding could be completely private.”

Indeed, some readers of NotMakingThisUp might recall that just last week Google announced an ambitious clean energy plan called “Renewable Energy Cheaper than Coal” in a
press release containing four full paragraphs quoting Mr. Page, starting with this one:

“We have gained expertise in designing and building large-scale, energy-intensive facilities by building efficient data centers,” said Larry Page, Google Co-founder and President of Products. “We want to apply the same creativity and innovation to the challenge of generating renewable electricity at globally significant scale, and produce it cheaper than coal.”

Yet nowhere in the Google press release was it mentioned that Mr. Page has had to apply 'creativity and innovation' to the challenge of putting dozens of private jets in the air for the noble purpose of having a really awesome wedding in the British Virgin Islands.

But creativity and innovation are precisely what has been required, because this wedding is no last-minute, “let’s go to Branson’s place” whim of the eligible Mr. Page coming on the heels of a Britney Spears-type Lost Weekend in Vegas: in fact, The Post reports that Mr. Page’s “planners” have been “working six months in advance” on the nuptials.

Hey, it takes time to coordinate the CO2-dumping logistics of inefficient private jet travel for 600 people!

In fact, those jets will discharge anywhere from 2,000 to 10,000 pounds of CO2 per hour of flight—depending on what size jets the 600 fab guests take—while sucking down 200 to 500 gallons of fuel every sixty minutes.

Of course, those are pikers compared to the rather large Boeing 767 wide-body Mr. Page shares with Sergey Brin, which they keep parked at Moffett Field across Route 101 for things like, well, flying inefficiently to Necker Island just because they can.


Long-time readers know that I’m a fan of Google’s business model, particularly the company’s entirely un-Microsoftian method of innovation—which is to hire the best engineers and give them big targets to shoot for…but also to let them spend 20% of their time on whatever excites them.

If and when those engineers come up with something useful—like, say, Google Maps or Google Mail or Google Scholar or Google Documents—the company throws it out there as a 'beta' product so real people can use it and help the company refine it into a mass market product.

That kind of free-wheeling, market-driven methodology draws unrestrained contempt from the promise-the-world-and-give-an-unattainable-but-market-freezing-deadline types in Redmond, but it’s certainly worked in Mountain View.

As long-time readers also know, I believe we’re firmly in the grips of a human-caused climate warming easily observable in the alarming, everyday changes right outside our doors.

Consequently, I thought Google’s “renewable energy” announcement last week was a nice, positive, worthwhile step forward by a company with the money and the smarts to come up with something more helpful than the chirpy newspaper ads favored by BP and other green-acting companies.

And we’ll need something helpful faster than anybody thinks: just today scientists from Mr. Page’s alma mater—Stanford University—released a study suggesting climate change could cause nearly a third of bird species to go extinct within a hundred years.

Seems to me that by putting hundreds of private jets in the air for the sole purpose of getting together on a private island several thousand miles from his home to say "I do," Mr. Page is, in his own way, doing precisely what the company he co-founded expects its own people not to do: a
kind of evil.



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 investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.

Tuesday, December 04, 2007

Most Interesting Analyst Comment Today


Cutting through the normal cacophony of the pom-pom waving crowd of Wall Street’s Finest—including a certain analyst’s reduction of his E-Trade price target from $19 a share to $8 (last trade $4.11), which I am not making up—comes the clarion sound of an actual interesting, forward-looking statement by Susan Chen of Merrill Lynch, following last night’s earnings call with BearingPoint, the troubled consultant to other companies:

“Revenue from Financial services declined 31.6% y/y. Besides the winding down of a large contract and continued senior staff defections, BE reported some early terminations by large banking clients in response to the recent asset/CDO write-downs in the industry.
This is alarming as BE is the only company so far that has reported some meltdown/IT budget cuts in this vertical. We may see some weakness during 4Q earnings by other firms in the next few weeks.” [Emphasis added]

Yes, we may indeed.



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 investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.