Saturday, June 28, 2008

Weekend Edition: Probably Not a ‘Beat-and-Raise’ Month for Obama



The following email arrived this morning, from the Obama campaign:


On Monday, everyone will be watching our fundraising totals to see if we can compete with the McCain campaign.

This month is the first test of our grassroots fundraising strategy since we declared our independence from the broken campaign finance system….

Make a donation of $30 or more by midnight on Monday, June 30th, and show off your support with an Obama logo T-shirt…

This political version of quarter-end discounting—more usually associated with commercial ventures looking to make their numbers than political campaigns—comes on the heels of Obama’s first actual earnings “miss” in its entire, brief history:

Obama Raises $22 Million in May, His Weakest Month This Year
Associated Press

June 20, 2008 10:23 p.m.
WASHINGTON -- Democrat Barack Obama raised $22 million in May for his presidential campaign, his weakest fund-raising month this year, and ended the month with $43 million cash on hand, the campaign reported Friday.

—The Wall Street Journal


In Wall Street’s parlance, the Obama campaign “missed the number” in the month of May.

Sure, $22 million in one month is a lot of money, even in Presidential politics. But the Obama campaign’s earnings ‘momentum’ slowed sharply in May: that $22 million was down 29% sequentially from the $31 million raised in April.

More ominously, his campaign spent $26.6 million in May, making it a cash-flow negative month.

No wonder we’re getting t-shirt offers for a month-end donation.


Why does all this possibly matter to a financial observer of the investment scene?

Well, Intrade has buyers willing to pay 65.3 for the right to earn 100 if Obama wins the election. (Intrade is not a bet on the actual voting split: it’s all or nothing, so buyers of Obama at 65.3 would make 50% on their money if he wins.)

McCain, on the other hand, is trading at 30.8.

Meanwhile, our inbox with the t-shirt offer suggests that June will not turn out to be a “beat-and-raise” month for the Obama finance team.

And if "the number" comes in materially worse than expected, we might start to see a bit more of the skepticism already starting to creep into the Obama press coverage. Not to mention the Swift-Boaters that have turned their sites from Hillary to Obama: Michael Bloomberg actually had to publicly deny that Obama is secretly a Muslim.

There’s one more reason we’d bet Obama won’t stay at 65.3 for very long: he’s the front-runner now, and America likes front-runners to earn their place.

So, while we never recommend stocks in these pages, if Obama was a stock, we’d short him right here.

Full disclosure: a family member volunteers for Obama.

But that wouldn’t stop us from shorting now, and covering on the pullback.


Jeff Matthews
I Am Not Making This Up


© 2008 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. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way. Inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Friday, June 27, 2008

How to Fix Microsoft: More Ads! More Meetings!


Negative perceptions of Vista are one of the most pressing problems facing Mr. Ballmer. Although money rolls in as the software ships on new computers, many corporate users have been slow to adopt Vista.

—The Wall Street Journal


Anybody catch the faulty premise contained in that paragraph?

If you said to yourself, “Well, duh! It's the part where they say ‘Negative perceptions of Vista are one of the most pressing problems facing Mr. Ballmer’” you’d be right.

Perceptions are not the “pressing problem” with Vista. The pressing problem with Vista is that users hate it. And they’re fleeing in droves.

Has anybody at Microsoft—at least in that executive suite—watched a ‘Mac vs. PC’ ad? No?

Didn’t think so.

Just imagine that a single airplane maker had a monopoly manufacturing all the world’s airplanes for twenty years or so. And then they built a new plane that was hard to fly and crashed a lot. Fliers would find an alternative in a hurry.

That's what Microsoft users are doing.

Microsoft’s solution to fixing Vista? More ads! We are not making that up:

Mr. Ballmer has approved a new marketing campaign for Vista that is expected to kick in this year. Meanwhile, he is determined to avoid the delays that plagued that product in the development of Windows 7, which is expected in early 2010.

And how is Microsoft planning to make sure Windows 7 is something people might actually want to use?

More meetings! We are not making that up, either:

One safeguard: he entrusted the project to Steven Sinofsky, a senior vice president with a long history of managing big software projects. Executives said Windows 7's schedule is being managed more tightly, including frequent meetings with Mr. Ballmer and other top executives to monitor progress.

Think Dilbert, Wally and Alice sitting around a table, listening. While the pointy-haired boss talks.

Windows 7 can’t miss.


Jeff Matthews
I Am Not Making This Up

© 2008 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. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Wednesday, June 25, 2008

Olympics Coming, and Rooms Are Available



June 24, 2008
China's Visa Policy Threatens Olympics Tourism
By DAVID BARBOZABEIJING

The plush lobby of Beijing's Kerry Center Hotel is usually crowded with foreign guests, many of them listening to jazz and sipping martinis in Centro, the hotel's fashionable bar, or lining up for taxis after dinner at the Horizon restaurant.

But Thursday evening, Centro had only a sprinkling of guests in a hotel whose occupancy rate is typically close to 100 percent this time of year. That night, the duty manager, said it was 63 percent."Something strange has been going on," said Sun Yin, the duty manager. "I really don't know what happened."


The New York Times does it again.

Just a few days after publishing one of the more interesting accounts about the intersection of China’s energy policy and its stock market comes this entirely unexpected snapshot of the Chinese economy just prior to the biggest event in the country’s recent history: the Olympic Games.

"Business is so bleak," said Di Jian, the sales manager at the CapitalHotel in Beijing. "Since May, very few foreigners have checked in. Ouroccupancy rate has dropped by 40 percent."

Many other cities in China are also feeling the pain of fewer tourists,including Shanghai, where some hotels say occupancy rates are down 15 to20 percent.

I ran the article by a friend who travels to China every few months—his company’s business depends on China’s manufacturing base—and his response was almost as interesting as the article.

“I think the article is very accurate.”

Read it for yourself. Rooms are available.


Jeff Matthews
I Am Not Making This Up


© 2008 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. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.


Monday, June 23, 2008

Stocks Worth Air, Drivers Ready to Explode



For Chinese, the Reality of Higher Gas Prices

GANSU — Returning the fueling nozzle to the pump, Zhang Li jumped into the driver’s seat of his gas-guzzling Land Rover. “Such a long line,” said the 45-year-old tour guide, shaking his head. “What’s the world coming to? My stocks are worth air, and now I have to wait an hour for overpriced gas, too.”

By JIMMY WANG
Published: June 21, 2008

—The New York Times


If you didn’t read this article over the weekend, you really should. Go straight to The New York Times' web site and read it from start to finish.

“I invested 80 percent of my savings,” said Wang Li, a 30-year-old manager in Shanghai. “And I’ve lost over half my money now. I’m angry — the government’s measures to keep the stock market above 3,000 have failed.”

Seems it's not just the United States that's been cultivating a society of entitlement with an unsustainably horrific energy policy:

As a matter of policy, the Chinese government sets gasoline and diesel prices well below international market prices in order to encourage economic growth. In 2007, China’s subsidy of gasoline alone was $22 billion, close to 1 percent of its gross national product.

Somehow, of course, all this will be deemed bullish, although it may not come in time for a few of the local investors:

“When the market took a dive earlier this year, I was really depressed for a while,” he said. “I didn’t go to work several days; I just drank. Now I’m anxious everyday; I watch the stocks and I can’t sleep. I’m just simmering inside with anger. Who knows? One day I might just explode.”
Keith Bradsher contributed reporting from Hong Kong. Lucy Liang contributed research from Beijing.

The stocks are worth air, and the investors are ready to explode. Good thing everybody over here plowed into emerging economies last year.


Jeff Matthews
I Am Not Making This Up


© 2008 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. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way. Inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Thursday, June 19, 2008

How Much is General Re Worth, Anyway?



Warren Buffett likes to say Dexter Shoe was his worst acquisition.

He not only bought the dying shoe business for $400 million in 1993, but he paid for it in his most precious currency: Berkshire Hathaway stock. As he wrote in the 2007 Berkshire annual report:

What I had assessed as a durable competitive advantage vanished with a few years. But that’s just the beginning: By using Berkshire stock, I compounded this error hugely. That move made the cost to Berkshire shareholders not $400 million, but rather $3.5 billion. In essence, I gave away 1.6% of a wonderful business – one now valued at $220 billion – to buy a worthless business.


Yet General Re, the huge reinsurance business Buffett acquired in 1998 for $22 billion—reportedly without input from his partner, Charlie Munger—looks worse, at least on a dollar basis. While General Re, unlike Dexter, is not going away any time soon, it has caused Buffett the kind of aggravation he despises from companies in the Berkshire “family.”

Like, government investigation-type aggravation, which resulted in the conviction of four former General Re executives earlier this year for allegedly cooking up an insurance transaction to make AIG’s business look better.

Also, General Re had a derivatives problem—23,000 derivatives, to be more precise—that Berkshire spent years, and more than $400 million, unwinding back when derivatives could be unwound.

But more than that, Buffett paid for General Re in stock. $22 billion in stock. At the time, people said Buffett was selling high.

In the last decade, however, that stock as almost doubled. The current value of the General Re deal is now closer to $40 billion.

It is hard to imagine that for $40 billion, Warren Buffett could not have re-created General Re, with money to spare. Not being insurance types, however, we put the question to our readers:


Was General Re worth $40 billion? Informed opinions are welcome.



Jeff Matthews
I Am Not Making This Up

© 2008 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, June 17, 2008

Up on the Farm


Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said in a speech Monday that the Fed should be prepared to raise rates as the risks of weaker growth diminish. But Mr. Lacker, who is generally hawkish on inflation, also suggested a willingness to hold rates steady for now, by noting that inflation expectations haven't gone "adrift."

"We seem to have dodged this risk so far," Mr. Lacker said. "Inflation expectations are higher than I would like, but are relatively stable.”


—The Wall Street Journal



Yes, we know, the expression is “down on the farm.”

But this weekend we had the good fortune to spend Father’s Day on a horse farm in a quiet, wind-swept valley in Northern California, helping feed all manner of chicken, goats and assorted other livestock, while eating strawberries so sweet they tasted like M&M’s.

And there is nothing that is “down” on the farm in the last year or two.

Chicken feed has doubled. Hay has doubled. Grains are through the roof. It’s so bad the local cattle ranchers are feeding their cattle straw—which is otherwise used as bedding in horse stalls.

Whatever “inflation expectations” Mr. Lacker of the Fed is seeing in his cozy office there in Richmond, on the farm the last word out of anybody’s mouth would be “stable.”



Jeff Matthews
I Am Not Making This Up


© 2008 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.

Friday, June 13, 2008

Carl Icahn’s “Plan B” for Yahoo!?



We here at NotMakingThisUp don’t normally engage in rumor-mongering of any kind. As loyal readers know, we try assiduously to stick to what we do not make up.

But in the case of the latest news from Carl Icahn’s seriously miscalculated effort to force Yahoo! and Microsoft into a shotgun marriage, we want to report the following suggestion from a loyal reader:

Carl’s New Plan to Rescue Yahoo!:

1. Merge Icahn investment in Yahoo! (ticker YHOO) with Icahn investment in Motorola (ticker MOT).

2. Put obsolete Yahoo! software on obsolete Motorola hardware.

3. Select new stock ticker: "MOOO!"


We think that about says it all.



Jeff Matthews

I Am Not Making This Up

© 2008 Not Making This Up 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. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author.

Monday, June 09, 2008

The Only Laugh-Out-Loud Letter from a Corporate Raider You Will Read This Week



The phrase “laugh-out-loud” is one of the most over-used phrases in our lexicon, particularly in its text-message abbreviation form: “LOL.”

We use it mainly—let’s be honest here—to respond to something that was either mildly amusing or not funny at all, because we don’t want the person who sent the mildly amusing or not-funny-at-all message to have their feelings hurt.

So we write “LOL” and move on.

Occasionally, however, we here at NotMakingThisUp stumble across something that causes us to literally “laugh out loud.” And it occurred this weekend while reading Carl Icahn’s latest fiery epistle to the Chairman of the Board of Yahoo.

Icahn is, of course, the famed corporate raider who rode the credit bubble maybe a bit too long and seems so desperately to want Microsoft to take him out of his humungo position that he actually provided a price ($34.375) that he thinks Microsoft should bid, and Yahoo should take.

Now, we know what you’re thinking.

You’re thinking, “Hey, there aren’t a whole lot of letters from corporate raiders circulating these days, so how is this one going to stand out as ‘The Only Laugh-Out-Loud’ letter I will read this week?”

We have no answer to that, other than we like nominating things on a weekly basis, and we think you might laugh-out-loud too.

Herewith the relevant excerpt from the letter from Carl Icahn to Yahoo Chairman Ray Bostock, which can be quickly found on the Wall Street Journal’s web site.

See if you can spot the “LOL” moment:

You asked, "what exactly would happen to our Company if you and your nominees were to take control of Yahoo!" I will give you my perspective on that.

• First, I would work to have the board replace your "poison pill" severance plan with an acceptable alternative.
• Second, I intend to ask our new board to hire a talented and experienced CEO (attempting to replicate Google's success with Eric Schmidt) to replace Jerry Yang and return Jerry to his role as "Chief Yahoo".


If you said “It’s the part where Carl wants to ‘replicate Google’s success with Eric Schmidt,’” you are right.

While Eric Schmidt is certainly far more intelligent and a good sight more rich than most people on this planet, including us, could ever reasonably dream to be, the notion that Eric Schmidt is responsible for the success of Google—as opposed to hanging on for dear life while the rocket ship he attached himself to was beginning to lift off the launch pad—is one indication that Carl Icahn may not have performed more research on this search business thing than, oh, my dog Charlie does when he sees a squirrel zipping across the lawn and the neurons in his brain begin telling his leg muscles that what he should do is drop whatever he is doing and chase that thing with the furry tail even if the squirrel is heading into rush-hour traffic on I-95.

As anybody with a passing knowledge of the history of Google knows, by the time the venerable Doctor Schmidt joined Google, in March 2001, Google was well on its way.

Schmidt said it himself in an August 2001 interview with CNET News.com that is easily available to anybody—even corporate raiders—who bother to Google “Eric Schmidt.”

Q: Strategically, how do you envision Google's future?

A: Things are going pretty well right now. One of the board members called me up and said, "Congratulations, don't screw it up." They were joking, of course, but my point here is that Google has done extremely well since it was founded. And I was brought in to help it grow. I'm used to the problems of growth. I don't anticipate any significant strategic changes.

Yahoo at this stage in its corporate life is not exactly looking for someone to “not screw it up” and deal with "problems of growth."

Yahoo is a turnaround.

In fact, Yahoo is more akin to, say Novell—the venerable networking company that fell on hard times after Microsoft went after its core business. In March 1997, Novell hired a new CEO to implement a turnaround.

That CEO was—you probably guessed where this is going—Eric Schmidt. Novell share price in March 1997? Around $10. When Eric Schmidt left Novell in early 2001? Around $5.

While Eric Schmidt has done a terrific job keeping the Google rocket ship in a fairly steady orbit for the last seven years, he had about as much to do with the core initial success of Google as, well, Carl Icahn cares about what really happens at Yahoo aside from getting a nice fat bid for his stock.

Which is why his letter is the only Laugh-Out-Loud letter you will read from a corporate raider this week.



Jeff Matthews

I Am Not Making This Up

© 2008 Not Making This Up 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. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author.

Friday, June 06, 2008

Congress Blames the Hedge Funds, Part IV: This Isn’t Complicated


We’re still scratching our head at the conspiracy theories now being tossed around for the egregious price of energy.


Seems like everybody—even readers of this blog—would like to blame hedge funds, traders and speculators for what is, in fact, a natural result of two factors: supply, which, as we have seen with Indonesia, is not exactly shooting the lights out; and demand, which until very recently was.

So let’s go back not quite 24 months ago—when oil was $70 a barrel—and review one of the issues that really got us here.

Hint: it has nothing to do with traders.

______________________________________________________
Monday, July 31, 2006


Until This Changes, Don’t Expect $2.00 Gas…

Not quite a year ago, in the halcyon days when oil was trading at a mere $65 a barrel, we reported (in “Why We Have an Oil Crisis, Or; Wait 'Til Chuck Schumer Gets a Load of This,” September 25, 2005) that British So-Called Petroleum was spending more on dividends and share repurchases than on finding oil.

Seven billion dollars more last year, in fact.

We are not making that up.

The Investors Relations person of British So-Called Petroleum told a group of investors back then that it made no sense to plan its exploration spending based on $65 a barrel crude oil when everybody knows crude oil prices fluctuate—so BP was using a more conservative oil forecast when calculating where and how to invest its unstoppable cash flow.


How conservative?

If you guessed $50 a barrel, you would be wrong. If you guessed $40 a barrel, you would also be wrong. Not even $35 a barrel would have been close.


No, the crude oil forecast British So-Called Petroleum was using in its forecasts was $20 to $25 a barrel.

We are not making that up, either.

We suggested that BP should change its name to “British Dividends & Share Repurchases,” our point at the time being that the energy crisis wasn’t like to end so long as the major oil companies felt compelled to return more money to shareholders than they spent exploring for new sources of crude.

Now, you might think that given, 1) the rising political heat, and 2) the fact that crude oil is now over $70 a barrel, the majors would have re-thought their low-prices-forever forecasts and started pushing the pencil on more expensive projects that would help bring more supply on the market.

But just last week, Exxon Mobil announced earnings, and while the headlines in the mainstream media all focused on the so-called obscene profits now falling into the lap of the world’s largest oil company, not much has changed: the world's largest bank—er, oil company—spent $5 billion on capital projects, including oil and gas exploration.

But it spent $8 billion making its shareholders richer.

Our official view here at NotMakingThisUp is that the U.S. government's Detroit-Friendly energy policy of the last 30 years has been dead wrong, and we're getting exactly what we deserve; also, the windfall profits tax stuff floating around Washington these days is the usual shoot-the-messenger grandstanding our own “Senator Forehead,” Chris Dodd, practices every time a crisis comes along that he has been doing nothing about when it was not a crisis.

But with Big Oil getting $70 a barrel and giving more of it to shareholders than to drilling companies...they're asking for it.


Jeff Matthews
I Am Not Making This Up

© 2006, 2008 Not Making This Up 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. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author.

Tuesday, June 03, 2008

Congress Blames the Hedge Funds, Part III: A Fact You Won’t Read in the Washington Post Today



Hedge Funds Cut Oil Bets as Prices Rose, CFTC Probed

June 2 (Bloomberg) -- Hedge-fund managers and speculators reduced bets on higher oil prices by 80 percent since July as crude futures rose to records and U.S. regulators started investigating trading, government data show.


This didn’t make the Washington Post or the New York Times.

So-called speculative net long positions fell to 25,867 contracts on the New York Mercantile Exchange in the week ended May 27 from a record 127,491 on July 31, according to a U.S. Commodity Futures Trading Commission report on May 30.

It didn’t even make The Wall Street Journal, which carried a front page online article on the death of Bo Diddley last night, not that the CFTC report is more important than the death of Bo Diddley.

It’s just that The Wall Street Journal seems to be trying hard to become the New York Times, what with the nonstop Presidential campaign coverage, news from Myanmar and the Chinese earthquake, not to mention those expanded editorial pages, which seem like they take up most of the newspaper now.

And you can be sure that the geniuses in Congress aren’t reading Bloomberg. If they did, it might interfere with their strategy for dealing with rising energy costs, stagflation and global warming, which is, and we aren't making this up: “Blame-the-hedge-funds-and-get-reelected.”

The decline may complicate the CFTC's probe as regulators try to determine how much of the rise in oil to more than $135 a barrel last month was caused by speculators who may have manipulated the market instead of consumer demand. The CFTC, under pressure from Congress, said May 29 it was investigating the doubling of oil prices the past year and said it will consider giving more detail on the types of oil investors and their holdings.

Of course, they could give Henry Paulson a call.

Perhaps the one competent individual in the entire District of Columbia, Paulson isn’t buying the Congressional strategy. As the Bloomberg article reports:

“If you look at the facts, they show that the price of oil is about supply and demand,” Paulson told reporters traveling with him on May 30 on a plane to Jeddah, Saudi Arabia.

Don't expect anyone from Congress to be calling Hank Paulson for advice. Why would anyone want to “look at the facts”?


Jeff Matthews
I Am Not Making This Up


© 2008 Not Making This Up 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. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author.